10-K

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Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x No ¨

Indicate by check mark whether the 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 ¨ No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

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

None of the voting or non-voting common equity of the registrant is held by a non-affiliate of the registrant. There is no publicly traded market for any class of common equity of the registrant.

The registrant is a voluntary filer and is not subject to the filing requirements of the Securities Exchange Act of 1934 (the “Exchange Act”). Although not subject to these filing requirements, the registrant has filed all Exchange Act reports for the preceding 12 months.

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, other statements we may make from time to time, such as press releases, oral statements made by Company officials and other reports we file with the Securities and Exchange Commission, may also contain such forward-looking statements. These forward looking statements and information relating to us are based on beliefs of management as well as assumptions made by, and information currently available to, us. When used in this document, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and “project” and similar expressions, as they relate to us are intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties difficult to predict. Further, certain forward-looking statements are based upon assumptions of future events that may not prove to be accurate.

See “Item 1A: Risk Factors” of this Form 10-K for a description of risk factors that could significantly affect our financial results. In addition, the following factors could cause actual results to differ materially from results that may be expressed or implied by such forward-looking statements. These factors include, among other things:

Many of these factors are macroeconomic in nature and are, therefore, beyond our control. 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 in this Form 10-K as anticipated, believed, estimated, expected, intended, planned or projected. Except as required by law, we 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, a California limited partnership (“SHLP”, the “Company”, “us”, “our”, or “we”), is one of the largest privately owned homebuilders in the United States by total number of home closings according to data compiled for Builder Magazine’s 2013 “Builder 100” List. We design, build and market single-family detached and attached homes across various geographic markets in California, Arizona, Colorado, Washington, Nevada and Florida. In 2013, we purchased property in Winchester, Virginia, which we plan to develop and sell homes, and entered into the Houston, Texas market. We serve a broad customer base including entry, move-up, luxury and active lifestyle buyers. We have been recognized by industry professionals and our homebuyers for quality, customer service and craftsmanship, as evidenced by receipt of some of the homebuilding industry’s most prominent awards, including being named as “Builder of the Year” in 2007 by Professional Builder magazine and one of “America’s Best Builders” in 2005 by the National Association of Homebuilders and Builder magazine. In 2012, for the second year in a row, and the last year this award was made, Shea Homes was honored as one of 50 top consumer brands in the country to be named a “Customer Service Champion” by J.D. Power Associates.

SHLP was formed January 4, 1989, pursuant to an agreement of partnership, as most recently amended March 11, 2013, by and between J.F. Shea, G.P., a Delaware general partnership, as general partner, and the Company’s limited partners who are comprised of entities and trusts, including J.F. Shea Co., Inc. (“JFSCI”), under the common control of Shea family members (collectively, the “Partners”). J.F. Shea, G.P., is 96% owned by JFSCI. SHLP is one of a group of companies owned by the Shea family (collectively, the “Shea Family Owned Companies”). Since 1881 in Portland, Oregon, beginning with only a plumbing contractor business, the Shea family has expanded to start and currently owns and operates various businesses, including homebuilding, heavy construction, venture capital, home mortgage, insurance and commercial property. The Shea Family Owned Companies have grown but remained privately held by the Shea family. The Shea family began building homes in 1968 through JFSCI and, in 1989, homebuilding under the Shea Homes brand was moved to the newly formed SHLP, an entity still under the broader umbrella of JFSCI.

Since its formation over 40 years ago, Shea Homes has expanded significantly through acquisitions, developments, and joint ventures to become one of the most well-regarded homebuilders in the markets in which it competes:

For the year ended December 31, 2013, we operated an average of 58 consolidated active selling communities in California, Arizona, Colorado, Washington, Nevada and Florida, and began operations in Texas and Virginia. When determining markets to enter, we evaluate various factors, including local economic and real estate conditions, historical and projected population and job growth trends, number of housing starts, building lot availability and price, housing inventory, climate, customer profile, regional raw material costs, competitive environment and home sales rates.

Within each homebuilding community, we utilize a product mix depending on market conditions and opportunities. In determining product mix in each community, we consider demographic trends, demand for a particular type of product, margins, timing and economic strength of the market. While remaining responsive to market opportunities, we have focused, and intend to continue to focus, our core homebuilding business primarily on first-time and move-up buyers offering single-family detached and attached homes. For the year ended December 31, 2013, our product mix was: 37% first time buyers, 40% move up / luxury and 23% active lifestyle.

We operate under three brands that reflect our value proposition: homes designed to meet the needs of our customers, with standard energy-efficient features, built in an environmentally-responsible manner.

We manage each homebuilding community as an operating segment and have aggregated these communities into reportable segments based generally on geography as follows:

The Company announced in July 2013 that it entered the Houston, Texas housing market. As a start-up operation, we expect to close our first homes in 2014. In addition, during 2013 we acquired our first parcel of land in Winchester, Virginia for a new SHALC project.

The following table presents certain operating information for our reportable segments for the years ended December 31, 2013, 2012 and 2011:

For additional segment information, see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 18 in our accompanying financial statements.

After a prolonged downturn in the housing market from 2006 through early 2012, we saw signs of stabilization and improvement in 2012, which continued through 2013. The severe housing downturn was caused by weak economic conditions, including lower consumer confidence and higher unemployment, reduced housing affordability, excessive inventory and foreclosures, which led to an over-supply of existing homes on the market, and tight lending standards, which further contributed to a significantly reduced availability of mortgage credit. During 2012 and 2013, we saw the broader economy stabilize, affordability remain fairly attractive, and lower supplies of existing and new home inventories. Despite the increase in mortgage interest rates in the second half of 2013, which we believe impacted new sales orders, our cancellation rates remained low and new home prices increased year over year, which contributed to higher unit closings and revenues, and improved housing gross margins.

During the downturn, we reduced headcount and operating costs through a restructuring of operations, redesigned product offerings and exited or reduced investments in certain geographic markets. We believe we have one of the lowest overhead structures in the homebuilding industry and our leaner, more efficient operating structure will enhance near-term and long-term profitability and serve us well as we compete for new land and project opportunities.

In 2012 and 2013, as a result of the improving housing market condition, we increased our land acquisitions. Our strategy focuses on acquiring land in the core locations of our market segments, as well as entering new markets, such as Houston, Texas and Winchester, Virginia. In Southern and Northern California, this includes a focus on the coastal markets which are generally more desirable and closer to major employment centers. In our Mountain West and South West segments, our focus will also be on the more desirable, closer markets. As we review new land acquisition opportunities, we will employ a disciplined and rigid underwriting process that considers the following: (1) ability to meet our return and profit targets (which in some cases are risk adjusted) using reasonable home price, risk and cost assumptions, (2) ability to take advantage of our broad product capabilities, (3) in each of our markets, an appropriate allocation between finished lot acquisitions which turn faster and undeveloped land which can be more profitable but turn slower, (4) ability to make land acquisitions with little or no entitlement risk, and (5) allocation of capital across all of our geographic segments based on our diversification objectives. Our goal is to be a top tier builder. By doing so in each of our markets, we believe we can benefit from economies of scale, gain access to more attractive land opportunities and attract and retain qualified employees and subcontractors.

Our growth strategy focuses primarily on investing in our existing geographic markets. We believe our current geographic markets represent regions of the country that present above average growth potential based on long-term employment, demographic and economic trends. We have operated in most of these markets for many years and our teams have extensive local knowledge and critical business relationships that are essential in competing for land, subcontractors and customers. We will, however, consider new geographic markets that meet the same criteria as our existing markets and which we can reasonably support through our capital base.

We enter into homebuilding and land development joint ventures from time to time to access larger or highly desirable lot positions, expand our market opportunities, establish strategic alliances, leverage our capital base and manage financial and market risks associated with land holdings. We typically enter into these arrangements with land owners and developers, other homebuilders and financial partners. These joint ventures usually obtain secured acquisition, development and/or construction loans designed to reduce the use of corporate financing sources.

An integral component of our business strategy is to build and deliver homes of exceptional quality combined with a customer service experience that is consistently among the leaders in the homebuilding industry. Historically, we have been at or near the top of individual customer service rankings for each of our homebuilding markets and in 2012 and 2011, the last two years this award was made, we were the only home builder to be recognized as a “Customer Service Champion” by J.D. Power Associates. Our commitment to quality and customer experience is an integral part of our business strategy and company culture.

We believe we have an established and valuable brand, with a reputation for high quality construction, innovative design and strong customer service. We believe our reputation helps generate interest in each new project we undertake. We positioned ourselves as the “homebuilder who cares” and believe our approach enhances customer satisfaction, increases referrals and improves brand recognition.

We use a variety of marketing platforms, including website, internet and mobile applications, customer information centers, advertisements, newspapers, magazines and brochures, direct mail, billboards and fully decorated model units. We focus on being at the forefront of technological based marketing, including how we communicate information to the marketplace. We have had success working through Facebook, Twitter and blogs, and in November 2009, we became the first national builder to launch an application for Apple Inc.’s iPhone and iPod Touch devices. We also maintain a state-of-the-art website that allows potential customers to insert their existing furniture into our floor plans, and benefit from an exclusive arrangement with our website design firm.

Model homes are an important part of our marketing efforts where we focus on creating an attractive atmosphere at each community. We use local third party design specialists for interior decorations and furniture, which vary within models based upon characteristics of targeted homebuyers. At December 31, 2013, we owned 221 model homes in our communities. We also have home design service centers offering a wide range of customization options to satisfy individual customer tastes.

To sell homes, we employ commissioned sales agents who are licensed real estate agents where required by law. We also use independent brokers who are typically paid a market-based commission based on the price of the home.

Customer purchase deposit requirements vary among markets based on state laws as well as customs and practices and are sometimes dictated by the financing program used by the consumer. Total base purchase price deposits range from $500 to $40,000 (excluding options). Additional purchase deposits are required for options and upgrades and range from 15% to 100% of the option price, with a higher deposit required for custom options or certain options above an amount designated for the community. Generally, higher deposit percentages are required for large option orders. Our sales contracts may include, among other contingencies, a financing contingency which permits customers to cancel and receive a refund of their deposits if they cannot obtain mortgage financing at prevailing or specified interest rates within a specified period. Our contracts may include other contingencies, such as the sale of an existing home. Our cancellation rate as a percentage of home sales orders averaged approximately 21% from 1997-2006 before the downturn in the homebuilding industry. Though this rate increased to a high of 31% in 2008, it returned to 20% in 2009. For the year ended December 31, 2013, our cancellation rate was 15%.

To reduce the risk of unsold inventory, we formalized our approval process of home construction starts. Generally, customers must have approved financing, no contingencies tied to the sale of an existing home, and an appropriate deposit before construction of a home begins. Depending on market conditions in each community, we may begin construction on a limited number of homes when no signed sales contracts exist to provide inventory to buyers who want a finished home for a quicker move in. In addition, we may use various sales incentives, such as payment of certain homebuyer costs as part of our sales process. Use of incentives and inventory construction is dependent on local economic and competitive market conditions.

We have a disciplined and structured land acquisition process. Each acquisition must be approved by our land committee, which is composed of members of senior management and directors of J.F. Shea Construction Management, Inc., our ultimate general partner. The committee reviews potential new projects, and option and deposit funds are placed at risk only if approved by the committee. As part of this process, the committee reviews due diligence information provided by our land acquisition teams, which typically includes market, environmental and site-planning studies, project and market risk assessments, and financial analysis. We expect to acquire more land inventory in all our markets to meet expected demand.

For the homebuilding operations, we typically purchase land only after substantially all of the necessary governmental development approvals or entitlements have been obtained so that development or construction may begin as and when market conditions dictate. The term “entitlements”, as used herein, refers to the right, for the duration of the term of the entitlements, to develop a specific number of residential lots without the need for further public hearings or discretionary local government approvals. Entitlements generally give developers the right to obtain building permits upon compliance with certain conditions that are ordinarily within the developer’s control. Although entitlements are usually obtained before we acquire land, we are still required to secure other governmental approvals and obtain permits prior to and during development and construction. The process of obtaining such approvals and permits can be costly, time consuming and difficult to obtain, and substantially delay the originally planned development cycle.

We acquire land through purchase and option contracts. Deposits are generally refundable until the necessary entitlements and zoning, including plan approval and in some cases engineering plan approval, are obtained, at which time deposits become non-refundable. Actual land acquisitions are generally financed from cash on our balance sheet or through our cash flow from operations. In the future, we have a new $125.0 million secured revolving credit facility which can also be used to finance land acquisitions. Option contracts allow us to control lots and land without incurring risks of land ownership or financial commitments other than, in some circumstances, a non-refundable deposit. We also enter into option contracts with land owners and developers and, in certain circumstances, other third parties, including affiliates, to purchase finished lots over time and before home construction begins. These option contracts may require a certain number of purchases per quarter. We typically have the right to decline to exercise future purchases and to cancel our future rights to lots, typically forfeiting only the deposits held by the sellers at that time.

When we acquire undeveloped land, we generally begin development through contractual agreements with consultants and our TradePartners^® (see below). These activities include site planning and engineering and constructing roads, sewer, water, utility and drainage systems and, in certain instances, recreational amenities. For additional information regarding our land position, see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Selected Homebuilding Operational Data—Land and Homes in Inventory.”

Sales order backlog represents homes under contract to be built, but not closed with the transfer of title. Revenue is recognized on homes under sales contracts when the sale closes. Home sales close when all conditions of escrow are met, including delivery of the home or other real estate asset, title passage, appropriate consideration is received or collection of associated receivables, if any, is reasonably assured and when we have no other continuing involvement in the assets. At December 31, 2013, we had a backlog of 849 units with a sales value of $466.6 million that is anticipated to be realized as closings primarily throughout 2014.

Historically, the homebuilding industry experiences seasonal fluctuations. We typically experience the highest home sales order activity in spring and summer, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors. Since it typically takes three to eight months to construct a new home, we close more homes in the second half of the year as spring and summer home sales orders convert to home closings. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest from April to October, and the majority of cash receipts from home closings occur during the second half of the year.

As the general contractor for most communities, we employ subcontractors that meet our requirements for becoming TradePartners^®. These requirements include quality and workplace safety standards and participation in various training programs. We typically hire TradePartners^® on a community-by-community basis at a fixed price. Occasionally, we enter into longer term contracts or national account agreements (exclusive or non-exclusive) with suppliers or manufacturers if we can obtain more favorable terms or receive rebates based upon product usage and volumes. Our construction managers and field superintendents coordinate and schedule the activities of TradePartners^® and suppliers and subject their work to quality and cost controls.

We do not maintain significant inventories of construction materials, except for work-in-process materials for homes under construction. When possible, we negotiate price and volume discounts with manufacturers and suppliers to take advantage of production volume and regional purchasing capabilities, including parties such as Delta, for plumbing fixtures, and Whirlpool, for appliances. Prices for these goods and services may fluctuate due to various factors, including supply shortages that may be beyond the control of our suppliers.

We view a positive customer service experience and adherence to stringent quality control standards as fundamental to our business model and continued success. We believe our quality assurance programs help improve production efficiency, reduce warranty costs and increase customer satisfaction and referrals. Our commitment to product quality includes a comprehensive checkpoint evaluation at key points in the construction process, continuous improvement based on direct feedback from our TradePartners^®, and our participation in TradePartners^® councils to discuss industry practices, solve problems and distribute information in an effort to build better homes.

We offer our customers a comprehensive one or two-year warranty for our homes and typically provide more limited ongoing customer service support for up to twelve years in some markets as required by state law requirements. Specific terms and conditions of these warranties vary depending on the market in which a home is sold. Additionally, post-closing, we proactively provide one, five and eleven-month customer care home visits. On-site customer care personnel coordinate with TradePartners^® to service the homes.

We record a reserve of approximately 1.0% to 2.0% of the home sales price to cover warranty and customer service expenses, although this allowance is subject to adjustment in special circumstances. Our historical experience has been that warranty and customer service expenses generally fall within this allowance. We believe our reserves are adequate to cover the ultimate resolution of potential liabilities associated with known and anticipated warranty and customer service related claims and litigation.

We obtain workers compensation insurance, commercial general liability insurance, and insurance for completed operations losses and damages with respect to our homebuilding operations from affiliate and unrelated third party insurance providers. Policies covering these items are written at various coverage levels but include a self-insured retention or deductible ranging from $0.5 million to $25.0 million. We typically procure general liability, workers compensation and completed operations insurance from affiliated entities to insure these retentions or deductibles, plus excess layers above the third party limits. See “Item 13: Certain Relationships and Related Transactions, and Director Independence —Supplemental Insurance Coverage and PIC Transaction.”

We require TradePartners^® to be insured for work on our communities for workers compensation, commercial general liability and completed operations losses and damages, and many of our TradePartners^® carry this insurance through our “rolling wrap-up” insurance program, where our risks and the risks of participating TradePartners^® on our projects are insured through a set of master policies.

Development and sale of residential properties is highly competitive and fragmented. We compete for sales with many large and small homebuilders, including homebuilders with national operations, based on various interrelated factors, including location, reputation, amenities, design, quality and price. We also compete for sales with home resales and rental housing.

Demand for new housing is affected by, among other factors, consumer confidence and prevailing economic conditions, including employment levels and job growth or contraction, interest rates, and state and federal home ownership legislative policies. Other factors affect the housing industry and demand for new homes, including availability of labor and materials and increases in the costs thereof, changes in costs of home ownership, such as property taxes and energy costs, changes in consumer preferences, demographic trends and availability of and changes in mortgage financing programs.

The homebuilding industry is subject to extensive and complex regulations. We and our subcontractors must comply with various federal, state and local laws and regulations, including zoning, density and development requirements, building, environmental, advertising and real estate sales rules and regulations. These requirements affect the development process, building materials and building designs of our properties. Moreover, we are dependent on state and local authorities to issue building permits and other approvals to complete our projects. The time to obtain these permits and other approvals impacts the carrying costs, and continued effectiveness of granted permits is subject to changes in policies, rules and regulations and their interpretation and application.

Some state and local governments in our markets have approved, and others may approve, slow-growth or no-growth initiatives that have and could continue to adversely impact land availability and building opportunities. Additionally, approval of these initiatives could adversely affect our ability to build and sell homes in the affected markets or could require satisfaction of additional administrative and regulatory requirements, which could delay or extend construction and increase costs.

Our homebuilding operations are also subject to various local, state and federal statutes, ordinances, rules and regulations concerning land use and protection of health, safety and the environment. The particular impact and requirements of environmental laws for each project vary greatly according to location, environmental condition and present and former uses of the site and adjoining properties. Complying with such laws may result in delays, cause us to incur substantial compliance and other costs or prohibit or severely restrict development in certain environmentally sensitive regions or areas. To date, such compliance has not had a material adverse effect on our operations, although in the future it may have such an effect.

We typically conduct environmental due diligence reviews prior to acquisition of undeveloped properties. Prior to development, we undertake extensive site planning as appropriate for each community, which may include design and implementation of storm water management plans, wetlands delineation and mitigation plans, perennial stream flow determinations, erosion and sediment control plans and archeological, cultural and endangered species surveys. We may be required to obtain permits or other approvals for our operations, particularly in environmentally sensitive areas, such as wetlands. Infrastructure projects impacting public health and the environment, such as construction of drain fields or connection to public sewer lines, and drilling of wells or connection to municipal water supplies, may be subject to inspection and approval by local authorities. We also could incur cleanup costs and obligations with respect to environmental conditions at our properties, including, under some environmental laws, conditions resulting from the operations of prior owners or operators, or at properties where we have disposed of wastes. Although no assurances can be given, we are not aware of obligations or liabilities arising from environmental conditions in any of our existing properties that are likely to be material or adversely impact us.

At December 31, 2013, we employed 619 people, including 315 management, office and administrative staff, 120 sales personnel and 184 construction personnel. No employees are covered by collective bargaining agreements. Employees of certain TradePartners^® are represented by labor unions or are subject to collective bargaining arrangements. We believe relations with our employees and TradePartners^® are satisfactory.

For business segment financial data, please see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as Note 18 to our consolidated financial statements.

This annual report on Form 10-K and each of our subsequent quarterly reports on Form 10-Q and current reports on Form 8-K, including any amendments, are available free of charge on our website, www.sheahomes.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The information contained on our website is not incorporated by references into this report and should not be considered part of this report. In addition, the SEC website contains reports and other information about us at www.sec.gov.

The discussion of our business and operations included in this annual report on Form 10-K should be read together with the risk factors set forth below. They describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. As used below, the term “notes” and “Secured Notes” refers to the outstanding 8.625% Senior Secured Notes due 2019 issued by Shea Homes Limited Partnership and Shea Homes Funding Corp. and guaranteed by certain of our subsidiaries.

The homebuilding industry, which is very cyclical and affected by a variety of factors, was in a significant and prolonged economic downturn, and, while the industry has attained a moderate level of stabilization and recovery, any return to a sustained and more normal economic and housing market environment is uncertain. A return to weak housing and general economic conditions or deterioration in industry conditions or in broader economic conditions could have additional material adverse effects on our business, financial condition and results of operations.

The homebuilding industry is cyclical and is significantly affected by changes in industry conditions, as well as in general and local economic conditions, such as changes in:

These changes may occur on a national scale or may acutely affect some of the regions or markets in which we operate more than others. When adverse conditions affect any of our larger markets, they could have a proportionately greater impact on us than on other homebuilding companies that have a smaller presence in such markets. Our operations in previously strong markets, particularly California and Arizona, have adversely affected our results of operations disproportionately compared to our other markets in the latest downturn.

An oversupply of alternatives to new homes, including foreclosed homes, homes held for sale by investors and speculators, other existing homes and rental properties, can also adversely impact our ability to sell new homes, depress new home prices and reduce our margins on the sales of new homes. High levels of foreclosures not only contribute to additional inventory available for sale, but also reduce appraised values for new homes, potentially resulting in lower sales prices.

As a result of the foregoing matters, potential customers may be less willing or able to buy our homes.

The recent downturn in the homebuilding industry was one of the most severe housing downturns in U.S. history. This downturn was marked by the significant decline in demand for new homes, significant oversupply of homes on the market and significant reductions in the availability of financing for homebuyers. As a result, we experienced material reductions in our home sales and homebuilding revenues, and incurred material inventory impairments and losses from our joint venture interests and other write-offs. It is not clear at this time if these trends have permanently reversed or when we may return to meaningful, sustained profitability. A housing or economic relapse or recession would have a material adverse effect on our business, financial condition and results of operations.

Our ability to respond to any downturn is limited. Numerous home mortgage foreclosures during the recent downturn increased supply and drove down prices, making the purchase of a foreclosed home an attractive alternative to purchasing a new home. Homebuilders responded to declining sales and increased cancellation rates with significant concessions, further adding to the price declines. With the decline in the value of homes and the inability of many homeowners to make their mortgage payments, the credit markets were significantly disrupted, putting strains on many households and businesses. These conditions could return if there is a weakening economy and housing market.

We cannot predict the duration or ultimate magnitude of any economic downturn or the extent of a recovery. Nor can we provide assurance that our response to a homebuilding downturn or the government’s attempts to address the troubles in the overall economy would be successful.

The reduction in availability of mortgage financing over the recent downturn has adversely affected our business, and it is likely that access to mortgage financing going forward will be more restrictive than in previous housing cycles.

The mortgage lending industry experienced significant instability, beginning with increased defaults on subprime loans and other nonconforming loans followed by a surge in defaults in the broader mortgage loan market. This in turn resulted in a decline in the market value of many mortgage loans and related securities. Lenders, regulators and others questioned the adequacy of lending standards and other credit requirements for many loan products and programs offered in recent years. Credit requirements have tightened, and investor demand for mortgage loans and mortgage-backed securities has declined. The deterioration in credit quality has caused most lenders to stop offering subprime mortgages and other loan products that are not eligible for sale to Fannie Mae or Freddie Mac or loans that do not meet Federal Housing Administration (“FHA”) and Veterans Administration (“VA”) requirements. Fewer loan products, changes in conforming loan limits, tighter loan qualifications, higher down payments and a reduced willingness of lenders to provide loans make it more difficult for buyers to finance the purchase of homes. These factors have served to reduce the pool of qualified homebuyers and made it more difficult to sell to first-time and move-up buyers who historically made up a substantial part of our customers. These reductions in demand have adversely affected our business, financial condition and results of operations over the past several years, and the duration and severity of their effects are uncertain.

Liquidity provided by Fannie Mae and Freddie Mac to the mortgage industry has been very important to the housing market. These entities have required substantial injections of capital from the federal government and may require additional government support in the future. At times, the federal government has discussed changing the nature of its relationship with Fannie Mae and Freddie Mac, and possibly eliminating these entities. If Fannie Mae and Freddie Mac were dissolved or if the federal government stopped providing liquidity support to the mortgage market, there would be a reduction in available financing from these institutions. Any such reduction would likely have an adverse effect on interest rates, mortgage availability and new home sales.

The FHA insures mortgage loans that generally have lower down payments and, as a result, it continues to provide important support for financing home purchases. Recently, more restrictive guidelines were placed on FHA insured loans, such as increased minimum down payments and increased insurance premiums. Further restrictions on FHA insured loans could be adopted, including, but not limited to, limitations on seller-paid closing costs and concessions. These or any other restrictions may further negatively affect availability or affordability of FHA financing, which could adversely affect our ability to sell homes.

Some customers still utilize 100% financing through programs offered by the VA and United States Department of Agriculture. There can be no assurance these or other programs will continue to be available or will be as attractive to customers as programs currently offered, which could adversely affect our home sales.

Elimination or reduction of the tax benefits associated with owning a home could prevent potential customers from buying our homes and adversely affect our business or financial results.

Significant expenses of owning a home, including mortgage interest and real estate taxes, generally are deductible expenses for an individual’s federal and, in some cases, state income taxes, subject to certain limitations. If the federal government or a state government changes its income tax laws to eliminate or substantially modify these income tax deductions, the after-tax cost of owning a new home would increase for many potential customers. The resulting loss or reduction of homeowners’ tax deductions, if such tax law changes were enacted without offsetting provisions, would adversely affect demand for new homes.

Because most customers require mortgage financing, increases in interest rates could lower demand for our products, limit our marketing effectiveness and limit our ability to realize our backlog.

Most customers finance their home purchases through lenders providing mortgage financing. Increases in interest rates could lower demand for new homes because the mortgage costs to potential homebuyers would increase. Even if potential new homebuyers do not need financing, changes in interest rates could make it difficult to sell their existing homes to potential buyers who need financing. This could prevent or limit our ability to attract new customers and fully realize our backlog in closing homes because our sales contracts generally include a financing contingency which permits buyers to cancel their sales contracts if mortgage financing is unobtainable within a specified time. This contingency period is typically 30 to 60 days following the date of execution of the sales contract. Exposure to such financing contingencies renders us vulnerable to changes in prevailing interest rates.

Cancellations of home sales orders in backlog may increase as homebuyers choose to not honor their contracts.

Notwithstanding our sales strategies, we experienced elevated rates of sales order cancellations from 2006 through 2008. We believe the elevated cancellation rates were largely a result of reduced homebuyer confidence, due principally to continued price declines, growth in foreclosures, continued high unemployment and the fact that homebuyer deposits are generally a small percentage of the purchase price. A more restrictive mortgage lending environment since 2008 and the inability of some buyers to sell their existing homes has also impacted cancellations. Many of these factors are beyond our control, and it is uncertain whether they will cause cancellation rates to rise in the future.

Home prices and demand in California, Arizona, Colorado, Washington, Nevada and Florida have a large impact on our results of operations because we conduct our homebuilding business in these states.

Our operations are concentrated in regions that were among some of the most severely affected by the recent economic downturn. We conduct our homebuilding business in California, Arizona, Colorado, Washington, Nevada and Florida. Home prices and sales in these states have declined significantly since 2006 and, while improving, these states, particularly California, have experienced some economic challenges in recent years, including elevated levels of unemployment and precarious budget situations in state and local governments. These conditions may materially adversely affect the market for our homes in those areas. Declines in home prices and sales in these states also adversely affect our financial condition and results of operations.

Inflation could adversely affect our business, financial condition and results of operations.

Inflation can adversely affect us by increasing costs of land, materials and labor. The Company is currently experiencing a significant increase in the cost of labor and materials to construct our homes. In addition, with rising home prices, land prices have begun to increase significantly. We may be unable to offset these increases with higher sales prices. In addition, inflation is often accompanied by higher interest rates, which have a negative impact on housing demand. In such an environment, we may be unable to raise home prices sufficiently to keep up with the rate of cost inflation and, accordingly, our margins could decrease. Moreover, with inflation, the purchasing power of our cash resources can decline. Efforts by the government to stimulate the economy may not be successful, but have increased the risk of significant inflation and its resulting adverse effect on our business, financial condition and results of operations.

Homebuilding is very competitive, and competitive conditions could adversely affect our business, financial condition and results of operations.

The homebuilding industry is highly competitive. Homebuilders compete not only for homebuyers, but also for desirable land, financing, raw materials and skilled labor. We compete with other local, regional and national homebuilders, often within larger subdivisions designed, planned and developed by such homebuilders and developers. We also compete with existing home sales, foreclosures and rental properties. In addition, some competitors may have greater financial, marketing and sales resources with the ability to compete more effectively. New competitors may also enter our markets. These competitive conditions in the homebuilding industry can result in:

These competitive conditions affect our business, financial condition and results of operations.

Supply shortages and risks of demand for building materials and skilled labor could increase costs and delay deliveries.

The homebuilding industry has periodically experienced significant difficulties that can affect the cost or timing of construction, and adversely impact our revenues and operating margins, including:

Competitive bidding helps control labor and building material costs. The downward trend of these costs has stopped and a trend of significantly increasing costs for material and labor has emerged in our markets. An increase in costs without an increase in selling prices of our homes could adversely affect our financial condition and results of operations.

In most of our markets, we need to replenish our lot inventory for construction. If the housing market recovers, the price of improved or finished lots for construction in these markets could increase and adversely affect our financial condition and results of operations.

Homebuilding is subject to home warranty and construction defect claims and other litigation risks in the ordinary course of business that can be significant. Our operating expenses could increase if we are required to pay higher insurance premiums or incur substantial warranty and litigation costs with respect to such claims and risks.

As a homebuilder, we are subject to home warranty and construction defect claims and other claims arising in the ordinary course of business. As a consequence, we maintain liability insurance in the form of a “rolling wrap-up” insurance program which insures both us and our TradePartners^®. We also record customer service and warranty reserves for the homes we sell based on our historical experience in our markets and our judgment of the qualitative risks associated with the types of homes built. Because of the uncertainties inherent in these matters, we cannot provide assurance that, in the future, our insurance coverage and reserves will be adequate to address all warranty and construction defect claims.

Costs of insuring against construction defect liability claims are high, and the amount and scope of coverage offered by insurance companies at acceptable rates is limited. The scope of coverage may continue to be limited, become further restricted, more costly or a combination of the above.

In recent years, an increasing number of individual and class action lawsuits have been filed against homebuilders asserting claims of personal injury and property damage caused by various sources, including faulty materials and the presence of mold in residential dwellings. Furthermore, decreases in home values as a result of general economic conditions resulted in an increase in construction defect liability claims, as well as claims based on marketing and sales practices. Our insurance may not cover all of the claims arising from such issues, or such coverage may become prohibitively expensive. Notwithstanding, our annual policy limits presently are $50.0 million per occurrence and $50.0 million in the aggregate, a portion of which are insured through related party insurance companies, who may reinsure our policy limits from time to time. If we are unable to obtain adequate insurance against these claims, we may experience litigation costs and losses that could adversely affect our financial condition and results of operations. Even if we are successful in defending such claims, we may incur significant costs.

Historically, builders have recovered a significant portion of the construction defect liabilities and defense costs from their subcontractors and insurance carriers. We try to minimize our liability exposure by providing a master insurance policy and requiring TradePartners^® to enroll in a “rolling wrap-up” insurance policy. If we cannot effectively recover from our carriers, we may suffer greater losses because we may not have rights to pursue TradePartners^® included in the “rolling wrap-up” insurance policy, which could adversely affect our financial condition and results of operations.

Furthermore, a builder’s ability to recover against an insurance policy depends upon the continued solvency and financial strength of the insurance carrier issuing the policy. The states where we build homes typically limit property damage claims resulting from construction defects to those arising within an eight- to twelve-year period from close of escrow. To the extent any carrier providing insurance coverage to us or our TradePartners^® becomes insolvent or experiences financial difficulty, we may be unable to recover on those policies, which could adversely affect our financial condition and results of operations.

Our success depends on the availability of suitable undeveloped land and improved lots at acceptable prices, and having sufficient liquidity to acquire such properties.

Our success in developing land and building and selling homes depends in part upon the continued availability of suitable undeveloped land and improved lots at acceptable prices. Availability of undeveloped land and improved lots for purchase at favorable prices depends on many factors beyond our control, including risk of competitive over-bidding and restrictive governmental regulation. Should suitable land become less available, the number of homes we may be able to build and sell would be reduced, which would reduce revenue and profits. In addition, our ability to purchase land depends upon us having sufficient liquidity. We may be disadvantaged in competing for land due to our debt obligations, limited cash resources, inability to incur further debt and, as a result, more limited access to capital compared to publicly traded competitors.

Poor relations with the residents of our communities could adversely impact sales, which could cause revenues or results of operations to decline.

Residents of communities we develop rely on us to resolve issues or disputes that may arise in connection with development or operation of their communities. Efforts to resolve these issues or disputes could be deemed unsatisfactory to the affected residents and subsequent actions by these residents could adversely affect our reputation or sales. In addition, we could be required to incur costs to settle these issues or disputes or to modify our community development plans, which could adversely affect our financial condition and results of operations.

If we are unable to develop our communities successfully or within expected timeframes, results of operations could be adversely affected.

Before a community generates revenues, time and capital are required to acquire land, obtain development approvals and construct project infrastructure, amenities, model homes and sales facilities. Our inability to successfully develop and market our communities and to generate cash flow from these operations in a timely manner could have a material adverse effect on our business, financial condition and results of operations. In addition, certain project-related costs such as sales and marketing expenses, model maintenance, utilities, taxes and overhead expenses, are time-based costs and could be significantly higher if the project duration is extended.

Risks associated with our land and lot inventory could adversely affect our business, financial condition and results of operations.

The risks inherent in controlling or purchasing, holding and developing land for new home construction are substantial and increase as consumer demand for housing decreases. The value of undeveloped land, building lots and housing inventories can fluctuate significantly from changing market conditions. If the fair market value of the land, lots and inventories we hold decreases, we may be required to reduce their carrying value and take significant impairment charges. We may have acquired options on or bought and developed land at a cost we will not be able to recover fully or on which we cannot build and sell homes profitably. In addition, our deposits for land controlled under option or similar contracts may be put at risk. In certain circumstances, a grant of entitlements or development agreement with respect to particular land may include restrictions on the transfer of such entitlements to a buyer, which may increase our exposure to decreases in the price of such entitled land by restricting our ability to sell it for its full entitled value. In addition, inventory carrying costs can be significant and result in reduced margins or losses in a poorly performing community or market. In a weak market, we have recorded significant inventory impairment charges and sold homes and land for lower margins or at a loss, and such conditions may return and persist for extended periods of time.

Historically, our goals for the ownership and control of land were based on management’s expectations for future volume growth. In light of weak market conditions that have persisted from 2006 through early 2012, we significantly reduced purchases of undeveloped land and land development spending, and made substantial land sales to reduce inventory to better align with the then reduced rate of production. We also terminated certain land option contracts and wrote off earnest money deposits and pre-acquisition costs related to these option contracts. While housing market conditions have improved, future market conditions are uncertain and we cannot provide assurance we will be successful in managing future inventory risks or avoiding future impairment charges. We could be limited in the amount of land we can dispose of, therefore, our cash inflows attributable to land sales may decline.

Also, use of option contracts is dependent on the willingness of land sellers, availability of capital, housing market conditions and geographic preferences. Options may be more difficult to obtain from land sellers in stronger housing markets and are more prevalent in certain geographic regions.

At a consolidated homebuilding project in Colorado, we have a contractual obligation to purchase and receive water system connection rights which, at December 31, 2013, was $30.5 million, and which is less than the estimated market value of the water system connection rights. These water system connection rights are held and then transferred to homebuyers upon closing of their home or transferred upon the sale of land to the respective buyer. These water system connection rights can also be sold or leased but generally only within the local jurisdiction. The risks inherent in purchasing, controlling or holding these water system connection rights are substantial and increase as consumer demand for housing decreases. The value of these water system connection rights and their marketability can also fluctuate from changing market conditions. If the fair market value of these water system connection rights decreases, we may be required to reduce their carrying value which could adversely affect our financial condition and results of operations.

Certain homebuilding projects utilize community facility district, metro-district, and other local government bond financing programs to fund acquisition or construction of infrastructure improvements. Interest and principal on these bonds are typically paid from taxes and assessments levied on land owners and/or homeowners following the closing of new homes in the project. Occasionally, we enter into credit support arrangements requiring us to pay interest and principal on these bonds if taxes and assessments levied on homeowners are insufficient to cover such obligations. Furthermore, reimbursement of these payments to us is dependent on the district or local government’s ability to generate tax and assessment revenues from the new homes.

If the current housing recovery is not sustained and we experience another housing market downturn which results in declines in new home sales and home values, bond proceeds and taxes and assessments levied on homeowners may be insufficient to satisfy our obligations. Our responsibility to make interest and principal payments on these bonds or pay fees and costs associated with the construction of infrastructure improvements could be prolonged and significant, possibly without reimbursement, and/or accrue liabilities in connection with these credit support and funding arrangements. If we are not fully or adequately reimbursed, we may be required to recognize a charge for uncollectible amounts, which could adversely affect our financial condition and results of operations.

Our consolidated financial statements could be adversely affected if we are unable to obtain performance bonds.

In the course of developing our communities, we are often required to provide to various municipalities and other government agencies performance bonds and/or letters of credit to secure the completion of our projects and/or in support of obligations to build community improvements such as roads, sewers, water systems and other utilities, and to support similar development activities by certain of our unconsolidated joint ventures. Our ability to obtain such bonds and the cost to do so depend on our credit rating, overall market capitalization, available capital, past operational and financial performance, management expertise and other factors, including surety and housing market conditions and the underwriting practices and resources of performance bond issuers. If we are unable to obtain performance bonds when required or the cost of operational restrictions or conditions imposed by issuers to obtain them increases significantly, we may not be able to develop or we may be significantly delayed in developing a community or communities and/or we may incur significant additional expenses, and, as a result, our consolidated financial statements, cash flows and/or liquidity could be materially and adversely affected.

We continue to consider growth or expansion of our operations, which could have a material adverse effect on our financial condition and results of operations.

If the housing market continues to improve, we will consider opportunities for growth, primarily within our existing markets, but also in new markets. Additional growth of our business, either through increased land purchases or development of larger projects, may

have a material adverse effect on our financial condition and results of operations. Any expansion of our business into new markets could divert the attention of senior management from our existing business and could fail due to our relative lack of experience in those markets. In addition, while we do not currently intend to acquire any homebuilding operations from third parties, opportunities may arise in the future, and any acquisition could be difficult to integrate with our operations and could require us to assume unanticipated liabilities or expenses.

Our business is seasonal in nature and quarterly operating results can fluctuate.

Our quarterly operating results generally fluctuate by season. We typically experience the highest home sales orders in spring and summer, although this activity is also highly dependent on the number of active selling communities, timing of community openings and other market factors. Since it typically takes three to eight months to construct a new home, we close more homes in the second half of the year as spring and summer home sales orders convert to home closings. Because of this seasonality, construction costs and related cash outflows are historically highest from April to October, and the majority of cash receipts from home closings occur during the second half of the year. If, due to construction delays or other causes, we cannot close our expected number of homes in the second half of the year, our financial condition and full year results of operations may be adversely affected.

Weather conditions and natural disasters, such as hurricanes, tornadoes, earthquakes, snow storms, landslides, wildfires, volcanic activity, droughts and floods can harm our homebuilding business and delay home closings, increase the cost or availability of materials or labor, or damage homes under construction. In addition, the climates and geology of many of the states where we operate present increased risks of adverse weather or natural disasters. In particular, a large portion of our homebuilding operations are concentrated in California, which is subject to increased risk of earthquakes. Any such event or any business interruption caused therefrom could have a material adverse effect on our business, financial condition and results of operations.

Utility and resource shortages or rate fluctuations could have an adverse effect on operations.

Our communities at times have experienced utility and resource shortages, including significant changes to water availability and increases in utility and resource costs. Shortages of natural resources, particularly water, may make it more difficult to obtain regulatory approval of new developments. We may incur additional costs and be unable to complete construction as scheduled if these shortages and utility rate increases continue. Furthermore, these shortages and utility rate increases may adversely affect the regional economies where we operate, which may reduce demand for our homes.

In addition, costs of petroleum products, which are used to deliver materials and transport employees, fluctuate and may increase due to geopolitical events or accidents. This could also result in higher costs for products utilizing petrochemicals, which could adversely affect our financial condition and results of operations.

We are dependent on the services of our senior management team and certain of our key employees, and loss of their services could hurt our business.

We believe our senior management’s experience in the homebuilding industry and tenure with our company are competitive strengths, and our success depends upon our ability to retain these executives. In addition, we believe our ability to attract, train, assimilate and retain new skilled personnel is important to our success. If we are unable to retain senior management and certain key employees, particularly lead personnel in our markets, as well as our senior corporate officers, or attract, train, assimilate or retain other skilled personnel, it could hinder the execution of our business strategy. Competition for qualified personnel in our markets is intense, and it could be difficult to find experienced personnel to replace our employees, many of whom have significant homebuilding experience. Furthermore, a significant increase in our active communities would necessitate hiring a significant number of field construction and sales personnel, who may be in short supply in our markets.

Information technology failures and data security breaches could harm our business.

We use information technology and other computer resources to carry out important operational and marketing activities as well as maintain our business records. Many of these resources are provided to us and/or maintained on our behalf by third party service providers pursuant to agreements that specify certain security and service level standards. Although we and our service providers employ what we believe are adequate security, disaster recovery and other preventative and corrective measures, our ability to conduct our business may be impaired if these resources are compromised, degraded, damaged or fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption or failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions (including the failure to follow our security

protocols), or lost connectivity to our networked resources. A significant and extended disruption in the functioning of these resources could damage our reputation and cause us to lose customers, sales and revenue, result in the unintended public disclosure or the misappropriation of proprietary, personal and confidential information (including information about our homebuyers and business partners), and require us to incur significant expense to address and resolve these kinds of issues. The release of confidential information may also lead to litigation or other proceedings against us by affected individuals, business partners and/or by regulators, and the outcome of such proceedings, which could include penalties or fines, could have a material and adverse effect on our consolidated financial statements. In addition, the costs of maintaining adequate protection against such threats, depending on their evolution, pervasiveness, frequency and/or government-mandated standards or obligations regarding protective efforts, could be material to our consolidated financial statements.

Acts of war or terrorism or any outbreak or escalation of hostilities throughout the world may cause disruption to the economy, our company, our employees and our customers, which could undermine consumer confidence and result in a decrease in new sales contracts and cancellations of existing contracts, which, in turn, could impact our revenue, costs and expenses and financial condition.

Failure to maintain effective internal control over financial reporting could materially adversely affect our business, results of operations and financial condition.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Sar Ox”), we are required to provide a report by management on internal control over financial reporting, including management’s assessment of the effectiveness of such control. Changes to our business will necessitate ongoing changes to our internal control systems and processes. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including possibility of human error, circumvention or overriding of controls or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain adequate internal controls, including any required new or improved controls, we may be unable to provide financial information in a timely and reliable manner and might be subject to sanctions or investigation by regulatory authorities such as the SEC or the Public Company Accounting Oversight Board. Any such action could adversely affect our financial results or investors’ confidence in us and could adversely impact the price of our notes. Furthermore, we are not an “accelerated filer” or “large accelerated filer” as defined in Rule 12b-2 of the Exchange Act, and as a result are not currently required to comply with the auditor attestation requirements of Section 404 of Sar Ox.

We are an “emerging growth company” and have presented reduced compensation disclosures applicable to “emerging growth companies,” and as a result our compensation practices may not be readily comparable to other companies that are not “emerging growth companies.”

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012, and, for as long as we continue to be an “emerging growth company,” we have chosen to take advantage of exemptions from various reporting requirements applicable to other Exchange Act reporting companies but not to “emerging growth companies,” that permit us to present reduced executive compensation disclosures in our periodic reports. We could be an “emerging growth company” until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues are $1,000,000,000 or more or (ii) the date on which we have issued more than $1,000,000,000 of non-convertible debt during the preceding three year period.

Under the JOBS Act, “emerging growth companies” can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other Exchange Act reporting companies that are not “emerging growth companies.”

Government regulations could increase the cost and limit the availability of our development and homebuilding projects and adversely affect our business, financial condition and results of operations.

We are subject to extensive and complex regulations that affect land development and home construction, including zoning, density restrictions, building design and building standards. These regulations often provide broad discretion to the administering governmental authorities as to the conditions we must meet prior to being approved, if approved at all. We are subject to determinations by these authorities as to the adequacy of water and sewage facilities, roads and other local services. New housing developments may also be subject to various assessments for schools, parks, streets and other public improvements. In addition, in many markets, government authorities have implemented no growth or growth control initiatives and preservation of land, often as a result of local grass-roots lobbying efforts. Furthermore, restrictions on immigration can create a shortage of skilled labor. Any of these regulatory issues can limit or delay home construction and increase operating costs.

We are also subject to various local, state and federal laws and regulations concerning the protection of health, safety and the environment, including endangered species. These matters may result in delays, may cause us to incur substantial compliance, remediation, mitigation and other costs or subject us to fines, penalties and related litigation. These laws and regulations can also prohibit or severely restrict development and homebuilding activity in environmentally sensitive areas.

We may incur additional operating expenses or delays due to compliance requirements or fines, penalties and remediation costs pertaining to environmental regulations within our markets.

We are subject to local, state and federal statutes, ordinances, rules and regulations concerning land use and the protection of health and the environment, including those governing discharge of pollutants to water and air, handling of hazardous materials and cleanup of contaminated sites. The particular impact and requirements of environmental laws that apply to any given community vary greatly according to the community site, the site’s environmental conditions and the present and former use of the site. We expect that increasingly stringent requirements will be imposed on homebuilders. Environmental laws may result in delays, cause us to implement time consuming and expensive compliance programs and prohibit or severely restrict development in certain environmentally sensitive regions or areas. Environmental regulations can also have an adverse impact on the availability and price of certain raw materials, such as lumber. Furthermore, we could incur substantial costs, including cleanup costs, fines, penalties and other sanctions and damages from third party claims for property damage or personal injury, as a result of our failure to comply with, or liabilities under, applicable environmental laws and regulations. In addition, we are subject to third party challenges under environmental laws and regulations to the permits and other approvals required for our projects and operations.

Changes in governmental regulation of our financial services operations could adversely affect our business, financial condition and results of operations.

We assist customers with finding homeowners’ insurance through Shea Insurance Services, Inc., a wholly owned subsidiary of Shea Homes, Inc. (“SHI”). Through Shea Mortgage, a related entity within the Shea Family Owned Companies but not a subsidiary of SHLP or consolidated in its financial statements, we are also able to introduce mortgage origination options for our customers, helping us to ensure they secure financing for their home purchases. Our homebuilding operations sometimes offer financial incentives to our homebuyers to use Shea Mortgage in accordance with applicable laws. In addition to the financial benefits accruing to Shea Mortgage from these mortgage originations, the homebuilding operations are able to better manage the closing process as well as prequalify our homebuyers as a result of this affiliate arrangement. The homebuyers are not required to use Shea Mortgage as the homebuyer’s lender. Each homebuyer may select any lending institution of his or her choice for the purpose of securing mortgage financing and is not in any way limited to obtaining financing from Shea Mortgage.

These financial services operations are subject to federal, state and local laws and regulations. There have been numerous proposed and adopted changes in these regulations as a result of the housing downturn. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R.4173) was signed into law, which has and will continue to have, a significant impact on the regulation of the financial services industry, including new standards related to regulatory oversight of systematically important financial companies, derivatives transactions, asset-backed securitization, mortgage underwriting and consumer financial protection. Among other things, this legislation provides for a number of new requirements relating to residential mortgage lending practices, many of which are to be developed further by implementing rules. These include, among others, minimum standards for mortgages and lender practices in making mortgages, the definitions and parameters of a Qualified Mortgage and a Qualified Residential Mortgage, future risk retention, limitations on certain fees, retention of credit risk, prohibition of certain tying arrangements and remedies for borrowers in foreclosure proceedings. The effect of such provisions on our financial services business will depend on the rules that are ultimately enacted. In addition, we cannot predict what similar changes to, or new enactments of, statutes and regulations pertinent to our financial services operations will occur. Any such changes or new enactments could have a material adverse effect on our financial condition and results of operations.

Our ability to generate sufficient cash or access other limited sources of liquidity to operate our business and service our debt depends on many factors, some of which are beyond our control.

Our ability to make payments on our notes and to fund land acquisition, development and construction costs depends on our ability to generate sufficient cash flow, which is subject to general economic, financial, competitive, legislative and regulatory factors and other factors beyond our control. We cannot assure we will generate sufficient cash flow from operations to pay principal and interest on our notes or fund operations. As a result, we may need to refinance all or a portion of our debt, including our notes, on or before the maturity thereof, or incur additional debt. We cannot assure we will be able to do so on favorable terms, if at all. If we are unable to timely refinance our debt, we may need to dispose of certain assets, minimize capital expenditures or take other steps that could be detrimental to our business and could reduce the value of the collateral. There is no assurance these alternatives will be

available, if at all, on satisfactory terms or on terms that will not require us to breach the terms and conditions of our existing or future debt agreements. Any inability to generate sufficient cash flow, refinance debt or incur additional debt on favorable terms could have a material adverse effect on our financial condition and results of operations, and could compromise our ability to service our debt, including our notes.

In addition, we use letters of credit and surety bonds to secure our performance under various construction and land development agreements, escrow agreements, financial guarantees and other arrangements. Should our future performance or economic conditions make such letters of credit and surety bonds costly or difficult to obtain or lead to us being required to collateralize such instruments to a greater extent than previously, our business, financial condition and results of operations could be adversely affected.

We have a significant number of contingent liabilities, including obligations relating to local government bond financing programs, and if any are satisfied by us, it could have a material adverse effect on our financial condition and results of operations.

Certain homebuilding projects utilize community facility district, metro-district and other local government bond financing programs to fund acquisition or construction of infrastructure improvements. Interest and principal on these bonds are typically paid from taxes and assessments levied on landowners and/or homeowners following the sale of new homes within the project. Occasionally, we enter into credit support arrangements requiring us to pay interest and principal on these bonds if the taxes and assessments levied on landowners and/or homeowners are insufficient to cover such obligations. Furthermore, reimbursement of these payments to us is dependent on the district or local government’s ability to generate sufficient tax and assessment revenues from the sale of new homes. At December 31, 2013 and December 31, 2012, in connection with credit support arrangements, there was $8.6 million and $4.9 million, respectively, reimbursable to us from certain agencies in Colorado and, accordingly, we recorded these in inventory as a recoverable project cost.

We also pay certain fees and costs associated with the construction of infrastructure improvements in homebuilding projects that utilize these district bond financing programs. These fees and costs are typically reimbursable to us from, and therefore dependent on, bond proceeds or taxes and assessments levied on homeowners. At December 31, 2013 and December 31, 2012, in connection with certain funding arrangements, there was $13.1 million and $16.3 million, respectively, reimbursable to us from certain agencies, including $11.9 million and $11.9 million, respectively, from a metro-district in Colorado and, accordingly, we recorded these in inventory as a recoverable project cost.

If the current housing recovery isn’t sustained and we experience another weak housing market which results in declines in new home sales and home values, bond proceeds and taxes and assessments levied on homeowners may be insufficient to cover our obligations. Our responsibility to make interest and principal payments on these bonds or pay fees and costs associated with the construction infrastructure improvements could be prolonged and significant, possibly without reimbursement, and/or accrue liabilities in connection with these credit support and funding arrangements. If we are not fully or adequately reimbursed, we may be required to recognize a charge for uncollectible amounts, which adversely affect our financial condition and results of operations.

In 2009, we filed a petition with the United States Tax Court regarding our tax filing position on the completed contract method of accounting (“CCM”) for homebuilding operations. Although we received a favorable ruling on February 12, 2014, which permits us to continue use of CCM for tax purposes, the ruling can be appealed (see Note 13 to our consolidated financial statements).

We have other contingent liabilities typical to the homebuilding industry. For further discussion, see Note 16 to our consolidated financial statements.

The indenture governing our notes and our new revolving credit facility do, and agreements governing our future indebtedness may, contain covenants that could adversely affect our ability to operate our business, as well as significantly affect our financial condition, and therefore could adversely affect our results of operations.

The indenture governing our notes and our new revolving credit facility contain covenants that prohibit or restrict certain activities. These covenants restrict, among other things, our ability to:

These covenants, among other things, limit our ability to grant certain liens to support indebtedness, invest in joint venture transactions and merge or sell assets in connection with our business. This in turn could adversely affect our ability to finance our operations or capital needs or engage in, expand or pursue our business activities and prevent us from engaging in certain transactions that might otherwise be considered beneficial. In particular, restrictions on our ability to enter into joint venture transactions may limit our ability to undertake new large scale master-planned development opportunities, including developments of our homes under the Trilogy brand, and may thereby adversely affect our growth and results of operations. In addition, these covenants may restrict our ability to meet capital commitments under our joint venture agreements, including obligations to re-margin joint venture loans, which may result in our ownership interests in the corresponding joint ventures being reduced or eliminated.

The agreements we enter into governing our future indebtedness may impose similar or other restrictions. The restrictions contained in the indenture governing our notes and in any agreements governing future indebtedness may limit our financial flexibility, prohibit or limit any contemplated strategic initiatives, limit our ability to grow and increase our revenues or restrict our ability to respond to competitive changes.

We conduct certain of our operations through unconsolidated joint ventures with independent and affiliated third parties in which we do not have a controlling interest. These investments involve risks and are highly illiquid.

We currently operate through a number of unconsolidated homebuilding and land development joint ventures with independent and affiliated parties in which we do not have a controlling interest. At December 31, 2013, we had a net investment of $47.4 million in these unconsolidated joint ventures and guaranteed, on a joint and several basis, $52.5 million of outstanding liabilities for projects under development by these unconsolidated joint ventures. In addition, we may issue letters of credit under our new revolving credit facility as credit support for liabilities of our unconsolidated joint ventures.

Our investments in the unconsolidated joint ventures involve risks and are highly illiquid, and their success depends in part on our joint venture partners’ performance, which can be impacted by their financial strength and other factors. There are a limited number of sources willing to provide acquisition, development and construction financing to land development and homebuilding joint ventures and, as market conditions become more challenging, it may be difficult or impossible to obtain financing for our unconsolidated joint ventures on commercially reasonable terms. Due to tighter credit markets, financing for newly created unconsolidated joint ventures has been difficult to obtain. In addition, since we lack a controlling interest in our unconsolidated joint ventures, we are usually unable to require these unconsolidated joint ventures to sell assets or return invested capital, make additional capital contributions, or take other action without the vote of at least one other venture partner. Therefore, absent partner agreement, we may be unable to liquidate our unconsolidated joint ventures investments to generate cash.

Our substantial debt could adversely affect our financial condition and results of operations.

We have a significant amount of debt. At December 31, 2013, the total principal amount of our debt was $751.7 million. In addition, we have a substantial number of contingent liabilities which could affect our business.

Our substantial debt and contingent liabilities could have important consequences for the holders of our notes, including:

We may incur additional indebtedness, which indebtedness might rank equal to our notes or the guarantees thereof.

Despite our indebtedness, we and our subsidiaries may be able to incur significant additional indebtedness, including secured indebtedness, in the future, including under our new revolving credit facility, which is secured on a pari-passu basis with our notes but will have the benefit of payment priority upon enforcement against the collateral. Although the indenture governing our notes contains restrictions on our and our subsidiaries’ ability to incur additional indebtedness, these restrictions are subject to qualifications and exceptions, and, under certain circumstances, the indebtedness incurred in compliance with such restrictions could be substantial and certain of this indebtedness may be secured by the same collateral securing our notes, and the respective guarantees thereof. If new indebtedness is added to our and our subsidiaries’ debt levels, the related risks that we and the note guarantors face would be increased, and we may not be able to meet all our debt obligations, including repayment of our notes, in whole or in part. If we incur any additional debt that is secured on an equal and ratable basis with our notes or the guarantees thereof, the holders of that debt will be entitled to share ratably with the holders of our notes in any proceeds distributed in connection with any enforcement against the collateral or an insolvency, liquidation, reorganization, dissolution or other winding-up of the applicable note issuer or guarantor. This may have the effect of reducing the amount of proceeds paid to holders of our notes.

Our ability to access capital on favorable terms is a key factor in our ability to service our debt and fund our operations. Downgrades to our credit ratings and negative changes to the outlook for such credit ratings have in the past required, and may in the future require, significant management time and effort to address. Such changes in the past have made it difficult and costly for us to access debt capital and engage in other ordinary course financing transactions relating to our new developments. Any future adverse action by any of the principal credit agencies may exacerbate these difficulties.

Credit ratings assigned to our notes may not reflect all risks of an investment in our notes.

Credit ratings assigned to our notes reflect the rating agencies’ assessments of our ability to make payments on our notes when due. Consequently, real or anticipated changes in these credit ratings, or to the outlook for such credit ratings, will generally affect the market value of our notes. These credit ratings, however, may not reflect the potential impact of risks related to structure, market or other factors related to the value of our notes.

We have a significant number of affiliated entities with whom we have entered into many transactions. Our relationship with these entities could adversely affect us.

We are part of the Shea Family Owned Companies, which are operated in three major groups: homebuilding, heavy construction and commercial property development and management. Though our business forms the core of the homebuilding group, we have historically entered into many transactions with other Shea Family Owned Companies which are not part of the homebuilding group. These transactions range from management and administrative-related matters to joint ventures, transfers of assets and financial guarantees and other credit support arrangements. We are currently party to many such affiliate transactions, not all of which are memorialized in formal written agreements. In the future, we will continue to be party to many of the affiliate transactions currently in existence, and it is likely we will enter into new affiliate transactions.

The homebuilding group of the Shea Family Owned Companies, which is operated largely through us, has only recently been operated as an independent business without credit support from the other Shea Family Owned Companies. If we are unable to continue to operate without such credit support, it could materially adversely affect our business, financial condition and results of operations. In addition, though we do not expect to receive new credit support from other Shea Family Owned Companies, we will still depend on our affiliates to provide us with certain management and administrative services. If these affiliates become unable to provide us with such services, we could incur significant additional costs to obtain them through other means due to lost efficiencies.

Until August 2011, one of our affiliates, JFSCI, provided us with centralized cash management services. As part of this function, we engaged in related party transactions and monetary transfers to settle amounts owed. The resultant accounts receivables and payables from these transfers were paid monthly. In August 2011, we ceased our participation in the centralized cash management service and performed the function independently. In addition, SHI has an unsecured term note receivable from JFSCI (the “Intercompany Debt Balance”), which bears interest at 4%, is payable in equal quarterly installments and due May 15, 2019, and has an outstanding balance, including accrued interest, at December 31, 2013 of $21.6 million. Subsequent to December 31, 2013, JFSCI made an $8.4 million payment, including accrued interest. Quarterly, we evaluate collectability of the Intercompany Debt Balance, which includes consideration of JFSCI’s payment history, operating performance and future payment requirements under the note. Based on this criteria, and as JFSCI applied prepayments under the note to defer future installments until November 2016, we do not presently anticipate collection risks on the Intercompany Debt Balance. However, JFSCI’s inability to honor its obligation with respect to the Intercompany Debt Balance could have a material adverse effect on our financial condition, results of operations and capital resources.

Although the indenture governing our notes contains a covenant limiting transactions with affiliates, this covenant has a number of significant exceptions and, in any case, does not prohibit transactions with affiliates but only requires they be on arm’s length terms. In particular, with respect to transactions involving the transfer of real property, we are required to obtain third party independent estimates of the value of such real property when the transaction involves consideration exceeding $10.0 million. With respect to all other affiliate transactions, we are required to obtain an independent third party fairness opinion in connection with transactions involving consideration exceeding $5.0 million.

Finally, though the current intention with respect to the Shea Family Owned Companies is to create three independent businesses that do not provide credit support to each other, it is possible the homebuilding group would be adversely affected by future financial and other difficulties arising with respect to either the heavy construction or commercial property group. For example, if any of the Shea Family Owned Companies not a part of the homebuilding group requires financial support, it is likely the attention and financial resources of the Shea family members could be diverted from us and toward the business in need of additional support. Moreover if any of the Shea Family Owned Companies becomes subject to a bankruptcy, liquidation or similar proceeding, such proceeding could have a substantial effect on our business. It is possible that, among other consequences:

The families and family trusts that own our equity interests may have interests different from yours.

Entities directly or indirectly owned by the Shea family beneficially own substantially all of the equity interests in SHLP. As a result, members of the Shea family have the ability to control SHLP and, except as otherwise provided by law or our organizational documents, to approve or disapprove matters that may be submitted to a vote of SHLP’s limited partners. Each director is a member of the Shea family or an employee of other Shea Family Owned Companies. We have been advised that Shea family members do not currently plan to appoint any nonaffiliated or independent directors.

Our ownership group and their affiliates operate businesses using the Shea Homes brand that derive revenue from homebuilding and land development, including Shea Homes North Carolina, which are not owned by SHLP. We do not receive any brand licensing or sales revenue from these businesses, although in certain circumstances we provide them with management and administrative services. Certain of these affiliated entities have also engaged, and will continue to engage, in transactions with us. Shea Mortgage derives revenue from loan fees paid by our customers. Shea Properties develops commercial properties that are sometimes built on land purchased from us, and we develop properties on land that is sometimes purchased from Shea Properties. In the future, we may enter into other agreements with affiliates of Shea Properties. Shea family members comprising our ownership group are not restricted from engaging in homebuilding or land development activities through independent entities.

The interests of our limited partners and owners of J.F. Shea Construction Management, Inc., our ultimate general partner, could conflict with interests of our note holders. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of our equity holders might conflict with the interests of our note holders. In addition, our owners may have interests in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their investments, even though such transactions might involve risks to our note holders. Furthermore, our owners currently own and may in the future own businesses,

which may operate under the Shea Homes brand, that directly compete with our business. In addition, although the indenture governing our notes contains a covenant limiting transactions with affiliates, this covenant has a number of significant exceptions and, in any case, does not prohibit transactions with affiliates but only requires they be on arm’s length terms. No owner has any obligation to provide us with any additional debt or equity financing.

The IRS can challenge our income and expense recognition methodologies. If we are unsuccessful in supporting or defending our positions, we could become subject to a substantial tax liability from previous years.

In the normal course of business, we are audited by various federal, state and local authorities regarding income tax matters. Significant judgment is required to determine our provision for income taxes and our liabilities for federal, state, local and other taxes. Any changes as a result of IRS and state audits could have a material adverse effect on our income tax provision or benefit, or other tax reserves, in the reporting period in which such determination is made and, consequently, on our results of operations, financial position and/or cash flows for such period.

Since 2002, SHLP and SHI have used the CCM to recognize taxable income or loss with respect to the majority of their respective homebuilding operations. The CCM allows SHLP and SHI to defer taxable income/loss recognition from their homebuilding operations until projects are substantially complete, rather than annually based on the sale of individual homes to buyers of those homes. The Internal Revenue Service (the “IRS”) has assessed a tax deficiency against SHLP and SHI, contending they did not accurately and appropriately apply the relevant U.S. Treasury Regulations in calculating their respective homebuilding projects’ income/loss pursuant to the CCM for years 2004 through 2008, and years 2003 through 2008, respectively. SHLP and SHI believe their use of the CCM complies with the relevant regulations and have filed a petition with the United States Tax Court to challenge the IRS position. The Tax Court heard trial testimony in July 2012 and ordered the Company and the IRS to exchange briefs, which were filed. On February 12, 2014, the Tax Court ruled in favor of SHLP and SHI (the “Tax Court Decision”). Pursuant to the ruling, the Company is permitted to continue to report income and loss from the sale of homes in their planned developments using the completed contract method of accounting for homebuilding operations. As a result, no additional tax, interest or penalties are currently due and owing by the Company or the Partners. The Tax Court Decision is subject to appeal by the IRS to the U.S. Court of Appeals for the Ninth Circuit. The IRS must elect whether to appeal within 90 days after the Tax Court enters a decision document, which has not yet occurred.

If the Tax Court Decision is appealed and overturned, SHLP and SHI would be required to recognize income for prior years that would otherwise be deferred until future years. With respect to SHI, this earlier recognition of income could result in a tax liability of up to $65 million (federal and state income taxes inclusive of interest). With respect to SHLP, the earlier recognition of income could result in the owners of SHLP incurring an additional tax liability of up to $108 million (federal and state income taxes inclusive of interest) for the years at issue, and SHLP would be required to make a distribution to its owners to pay a portion of such tax liability. The indenture governing the notes restricts SHLP’s ability to make distributions to its partners pursuant to an agreement which requires SHLP to distribute cash payments to its partners for taxes incurred by such partners (or their direct or indirect holders) for their ownership interest in SHLP (the “Tax Distribution Agreement”) in excess of an amount specified by the indenture (such maximum amount of collective distributions referred to as the “Maximum CCM Payment”), unless SHLP receives a cash equity contribution from JFSCI for such excess. The initial Maximum CCM Payment is $70.0 million, which amount will be reduced by payments made by SHI in connection with any resolution of our dispute with the IRS regarding our use of CCM and payments made by SHLP on certain guarantee obligations described in the indenture. Such potential additional taxes imposed on SHI and tax distributions by SHLP may have a material adverse effect on the financial condition and results of operations of SHI and SHLP, respectively, which could compromise our ability to service our debt, including our notes.

Under our Tax Distribution Agreement, we are required to make distributions to our equity holders from time to time based on their ownership in SHLP, which is a limited partnership and, under certain circumstances, those distributions may occur even if SHLP does not have taxable income.

Under our Tax Distribution Agreement, SHLP will be required to make cash distributions to the partners of SHLP (or their direct or indirect holders) for taxable income allocated to them in connection with their ownership interests in SHLP. In addition, SHLP will be required under the Tax Distribution Agreement to provide tax distributions to the partners of SHLP (or their direct or indirect holders) for any additional taxable income allocated to them as a result of any audit, tax proceeding or tax contest arising from or in connection with any tax position taken by SHLP (or any entity treated as a “pass-through” entity under U.S. federal income tax principles in which SHLP has an ownership interest). If any audit, proceeding or contest in connection with years prior to 2011 (including those related to the CCM) ultimately results in an increase in taxable income allocated to our partners, or any disallowance of losses or deductions previously allocated to our partners, then we would be required to make additional tax distributions to them, even if the audit, proceeding or contest resulted in a reduction of a tax loss previously allocated for such period and no taxable income had been previously allocated to them for such period or would be so allocated after such reduction. Any distribution under the Tax Distribution Agreement could have a material adverse effect on our business, financial condition and results of operations, which could compromise our ability to service our debt, including our notes.

Decreases in the market value of our investments in marketable securities could have an adverse impact on our results of operations.

We have investments in marketable securities, money market funds and other short-term investments, the market value of which is subject to changes from period to period. Furthermore, during periods of financial stress, the value of money market and short-term securities funds have come under pressure. Decreases in the market value in these investments could have an adverse impact on our statements of financial position, results of operations and cash flow.

We lease 145,668 square feet of office space in various locations from related and unrelated parties. All rents were at market rates at the time of lease execution. We have satellite offices in Aliso Viejo, California; Corona, California; Livermore, California; San Diego, California; Scottsdale, Arizona; Highlands Ranch, Colorado; and Houston, Texas. The total square footage leased from related parties is 79,735 and comprises offices in Livermore, San Diego and Highlands Ranch. Our corporate office is in Walnut, California, approximately 35 miles east of Los Angeles, California. JFSCI leases this office from a related party and SHLP bears 61.0% of its total cost. For information about land owned or controlled by us for use in our homebuilding activities, see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Selected Homebuilding Operational Data—Land and Homes in Inventory.”

Lawsuits, claims and proceedings have been and will likely be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices and environmental protection. As a result, we are subject to periodic examinations or inquiry by agencies that administer these laws and regulations.

We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates when necessary. In such cases, there may exist an exposure to loss in excess of amounts accrued. In view of the inherent difficulty of predicting the outcome of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. While their outcome cannot be predicted with certainty, we believe we have appropriately reserved for these claims or matters. Other than the CCM matter described below in “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” and in Note 13 to our consolidated financial statements, we do not believe we are subject to any material legal claims and regulatory matters at this time. However, to the extent the liabilities arising from the ultimate resolution of legal claims or regulatory matters exceeds their recorded reserves, we could incur additional charges that could be significant.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

We are a privately held company, with no public or private trading market for our common equity. Ownership interests in SHLP are held in three classes: Class B, Class C and Class D. At December 31, 2013, there is one holder of our Class B limited partnership interests, eight holders of our Class C limited partnership interests and six holders of our Class D limited partnership interests. See “Item 12: Security Ownership of Certain Beneficial Owners and Management” for information regarding the beneficial ownership of SHLP.

No dividends were paid to our equity holders in 2013 or 2012. Our new $125.0 million revolving credit facility and the indenture governing our 8.625% Senior Secured Notes (the “Secured Notes”) contain covenants that limit, among other things, our ability to pay dividends and distributions on our equity. See “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Notes Payable” for information about limitations on our ability to pay dividends.

The following should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the section “Selected Financial Data” and our consolidated financial statements and the related notes included elsewhere in this Form 10-K.

The tabular homebuilding operating data presented throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes data for SHLP and its wholly owned subsidiaries and consolidated joint ventures. Data for our unconsolidated joint ventures is presented separately where indicated. Our ownership interest in unconsolidated joint ventures varies, but is generally less than or equal to 50%.

In 2013, we experienced a continuation of improved housing conditions that emerged in 2012. Generally, demand for new homes remained healthy, however, during the second half of 2013, the housing market experienced a modest slowdown from higher mortgage interest rates. We continue to believe, however, the fundamentals remain in place for a continued recovery in the new home market.

For the year ended December 31, 2013, compared to the year ended December 31, 2012, new home sales orders decreased 10% and new home sales orders per community increased 1%. The decrease in new home sales orders for the year is primarily a result of the lower number of active selling communities. For the year ended December 31, 2013, compared to the year ended December 31, 2012, homes closed increased 20% and homebuilding revenues increased 37%, primarily attributable to a 98% higher backlog at the beginning of 2013 versus 2012. Gross margin, as a percentage of revenues, improved from 20.8% to 23.8% and we ended 2013 with a backlog of 849 homes, down 7% from December 31, 2012.We have $216.8 million in cash, cash equivalents and restricted cash and expect to continue investing in land opportunities in desirable locations to supplement our existing land positions.

In 2013, net income attributable to SHLP was $125.9 million compared to $29.0 million in 2012. This increase was primarily attributable to a $79.5 million improvement in gross margins (from higher revenues and gross margin percentages), a $14.8 million decrease in interest expense (due to higher qualified inventory), a $14.0 million improvement in our reinsurance transaction results, and a $15.6 million reversal of the deferred tax valuation allowance. These improvements were partially offset by a $9.9 million decrease in other income (expense) (from decreased income on the sale of marketable securities), a $8.6 million increase in selling expenses (from higher home closings and revenues) and a $6.3 million increase in general and administrative expenses (from higher volume and compensation expenses).

In 2012, net income (loss) attributable to SHLP was $29.0 million compared to $(114.4) million in 2011. This increase was primarily attributable to a 16% increase in revenues, higher gross margins (reflecting no inventory impairment in 2012 compared to a $30.6 million inventory impairment in 2011), and the $88.4 million loss on debt extinguishment in connection with the payoff of previously outstanding indebtedness in May 2011. In 2012, we also recognized an $8.8 million gain on sale of investments and a $7.0 million decrease in income attributable to non-controlling interests, offset by a $12.0 million charge primarily for actuarial adjustments to our loss reserves on completed operations policies that were reinsured in 2009, compared to a $3.1 million gain in 2011, a $3.1 million increase in interest expense, a $6.9 million increase in selling, general and administrative expenses, and a $3.7 million increase in income tax expense.

Revenues are derived primarily from home closings and land sales. House and land revenues are recorded at closing. Management fees from homebuilding ventures and projects are in other homebuilding revenues. Revenues from corporate, insurance brokerage services and our captive insurance company, Partners Insurance Company (“PIC”), are in other revenues.

In 2013, total revenues were $930.6 million compared to $680.1 million in 2012. This increase was primarily attributable to a 20% increase in homes closed and a 15% increase in the average selling price (“ASP”) of homes closed.

In 2012, total revenues were $680.1 million compared to $587.8 million in 2011. This increase was primarily attributable to a 17% increase in homes closed and an increase in land revenues, partially offset by a 3% decrease in ASP of homes closed.

For the years ended December 31, 2013, 2012 and 2011, homebuilding revenues by segment were as follows:

In 2013, total homebuilding revenues were $929.7 million compared to $679.2 million in 2012. This increase was primarily attributable to a 20% increase in homes closed and a 15% increase in the ASP of homes closed. The increase in home closings was primarily attributable to a 98% higher backlog at the beginning of 2013 versus 2012 due to the beginning of the housing recovery, which began to emerge in the second half of 2012.

In 2012, total homebuilding revenues were $679.2 million compared to $586.4 million in 2011. This increase was primarily attributable to a 17% increase in homes closed, partially offset by a 3% decrease in the ASP of homes closed.

For the years ended December 31, 2013, 2012 and 2011, homes closed and the ASP of homes closed by segment were as follows:

In all of our segments, new house sales orders were lower in 2013 compared to 2012 primarily attributable to a lower number of active selling communities. Home closings in all of our segments, except East, were higher in 2013 compared to 2012. ASP in all of our segments, except Mountain West, was higher in 2013 compared to 2012. The increase in closings was primarily attributable to a 98% higher backlog at the beginning of 2013 compared to 2012. The increase in ASP of homes closed was primarily attributable to general price increases in all of our segments resulting from the improvements in demand for new homes which emerged in the second half of 2012.

In all of our segments, except Southern California, new house sales orders and home closings were higher in 2012 compared to 2011 due to improved housing market conditions. In the Southern California segment, homes closed and the ASP of homes closed decreased 20% and 2%, respectively. The decrease in homes closed was primarily attributable to closeouts of several communities and a lower year-over-year community count, and the decrease in ASP of homes closed was primarily attributable to a shift towards lower-priced homes, partially offset by general price increases. In the San Diego and Northern California segments, homes closed increased and the ASP of homes closed decreased. The decreases in the ASP of homes closed were primarily attributable to the shift towards lower-priced homes, partially offset by general price increases, especially in Northern California. In the Mountain West, South West and East segments, the increases in the ASP of homes closed were primarily attributable to general price increases.

Gross margin is revenues less cost of sales and is comprised of gross margins from our homebuilding and corporate segments.

Gross margins for the years ended December 31, 2013, 2012 and 2011 were as follows:

In 2013, our gross margin was $221.2 million compared to $141.7 million in 2012. This increase was primarily attributable to higher revenues, primarily from increased new home closings and a higher gross margin percentage from general price increases in all our segments.

In 2012, our gross margin was $141.7 million compared to $72.2 million in 2011. This increase was primarily attributable to higher revenues, primarily from increased home closings, a higher gross margin percentage from price increases in most of our segments, and no inventory impairment in 2012 compared to $30.6 million in 2011.

Housing impairments are generally attributable to lower home prices driven by increased incentives and price reductions in response to weak housing demand and economic conditions, including elevated levels of foreclosures, higher unemployment, lower consumer confidence and tighter lending standards. Since the fourth quarter 2009, the housing market experienced some stabilization and, as a result, impairments significantly diminished. Impairment by segment and type for the years ended December 31, 2013, 2012 and 2011 were as follows:

Selling, general and administrative expenses for the years ended December 31, 2013, 2012 and 2011 were as follows:

In 2013, selling expense was $54.3 million compared to $45.8 million in 2012, but decreased as a percentage of revenues due to the increase in homebuilding revenues. While many selling expenses fluctuate directly with changes in revenues, as homebuilding revenues increase, we achieved economies of scale and efficiencies on certain expenses that are more fixed in nature.

In 2012, selling expense was $45.8 million compared to $45.3 million in 2011, but decreased as a percentage of revenues due to the increase in homebuilding revenues.

In 2013, general and administrative expenses increased $6.3 million to $50.1 million, primarily attributable to increased compensation expense due to incentive compensation plans tied to the Company’s overall level of profitability, partially offset by decreased legal expenses. In 2012, we incurred $3.3 million in legal expenses related to the CCM Tax Court case.

In 2012, general and administrative expense increased $6.4 million to $43.7 million, partially attributable to $3.7 million in increased legal expenses primarily attributable to the CCM Tax Court case for which trial testimony was heard in July 2012. In addition, on August 8, 2012, the Company approved two incentive compensation plans, one designed as a financial incentive to recognize individual and Company performance for 2012, and the other a multi-year plan to promote the Company’s long-term success. The addition of these plans resulted in a $4.7 million increase in incentive compensation costs for the year ended December 31, 2012. Partially offsetting these increases was a decrease of $2.5 million in tax consulting expenses.

Equity in income (loss) from unconsolidated joint ventures represents our share of income (loss) from unconsolidated joint ventures accounted for under the equity method. These joint ventures are generally involved in homebuilding and real property development.

In 2013, equity in income (loss) from unconsolidated joint ventures was $(1.1) million compared to $.4 million in 2012. There were no significant earnings or losses from any unconsolidated joint venture.

In 2012, equity in income (loss) from unconsolidated joint ventures was $0.4 million compared to $(5.1) million in 2011. The increase in earnings was primarily attributable to a $2.4 million charge in 2011 for our share of unconsolidated joint venture impairments compared to none in 2012, and $1.0 million of losses in 2011 related to a joint venture disposition that we completed in December 2011. There was no other significant activity pertaining to the Company’s remaining unconsolidated joint ventures.

Concurrent with the payoff of the outstanding obligations of the Company’s previous secured revolving lines of credit and notes payable (the “Secured Facilities”) on May 10, 2011, an $88.4 million loss on debt extinguishment was recognized. This included a $65.0 million write-off of the Secured Facilities discount, which increased the Secured Facilities principal to its face value of $779.6 million, and a $23.4 million write-off of prepaid professional and loan fees incurred in connection with the Secured Facilities.

Completed operations claims for policy years August 1, 2001 to July 31, 2007, and workers’ compensation and general liability risks for policy years August 1, 2001 to July 31, 2005, were previously insured through PIC. In December 2009, PIC entered into a series of transactions (the “PIC Transaction”) in which these policies were either novated to JFSCI or reinsured with third-party insurance carriers. As a result of the PIC Transaction, a $34.8 million gain was generated but deferred and to be recognized as income when related claims are paid. In addition, the deferred gain can be adjusted based on changes in actuarial estimates. Any change to the deferred gain will be recognized in the current period.

In 2013, we recognized $2.0 million of income as a result of claims paid on these policies. In 2012, a $12.0 million charge was recognized as a result of an increase in the actuary’s estimate of ultimate losses to be paid on these policies. This increase was based on trends in completed operations claims related to our markets and products built, claim settlement patterns and insurance industry practices.

Interest expense is interest incurred and not capitalized. For 2013 and 2012, most interest incurred was capitalized to inventory with the remainder expensed as a result of debt exceeding the qualified asset amounts. Assets qualify for interest capitalization during their development and other qualifying activities such as construction; however, if qualified assets are less than the total debt, a portion of interest is expensed.

In 2013, interest expense was $5.1 million compared to $19.9 million in 2012. This decrease was primarily attributable to higher qualified assets.

In 2012, interest expense was $19.9 million compared to $16.8 million in 2011. This increase was primarily attributable to lower qualified assets.

Other income (expense), net is comprised of interest income, gains (losses) on sales of investments, pre-acquisition cost and deposit write-offs, property tax expense and other income (expense). Interest income is primarily from related party notes receivables, investments and interest bearing cash accounts.

For the years ended December 31, 2013, 2012 and 2011, other income (expense), net was as follows:

In 2013, other income (expense), net was $(0.8) million compared to $9.1 million in 2012. The decrease in income was primarily attributable to an $8.8 million gain on sale of marketable securities in 2012, plus a $2.1 million decrease in interest income, partially offset by a $0.6 million decrease in pre-acquisition cost and deposit write-offs and a $0.4 million decrease in property taxes.

In 2012, other income (expense), net was $9.1 million compared to $7.4 million in 2011. This increase was primarily attributable to an $8.8 million gain on sale of marketable securities (mostly impaired by $5.0 million in 2009). This gain was partially offset by a $1.8 million increase in pre-acquisition cost and deposit write-offs.

SHLP is treated as a partnership for income tax purposes. As a limited partnership, SHLP is subject to certain minimal state taxes and fees; however, taxes on income realized by SHLP are generally the obligation of SHLP’s general and limited partners and their owners. As SHI is a C corporation, federal and state income taxes are included in these consolidated financial statements.

At December 31, 2013 and 2012, net deferred tax assets of SHI before reserves were $16.8 million and $32.7 million, respectively, which primarily related to available loss carryforwards, inventory and investment impairments, and housing and land inventory basis differences. At December 31, 2013, SHI had net operating loss carryforwards of approximately $18.8 million, net, that expire by 2018 and are subject to annual limitations of $4.6 million.

When assessing the realizability of deferred tax assets, we consider whether it is more-likely-than-not that our deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon generating sufficient taxable income in the future. We record a valuation allowance when we determine it is more-likely-than-not a portion of the deferred tax assets will not be realized.

Because of the continued annual pretax losses of SHI through the year ended December 31, 2009, we determined it was more-likely-than-not, at December 31, 2009, the net deferred tax asset of $51.9 million would not be realized. Accordingly, for the year ended December 31, 2009, the deferred tax asset valuation allowance increased $32.7 million to fully reserve the net deferred tax asset. At December 2011 and 2010, our assessment of deferred tax assets was consistent with 2009 and the net deferred tax asset of $38.2 million and $48.8 million, respectively, remained fully reserved. For the year ended December 31, 2012, SHI generated pretax income for the first time since 2007, a result of the housing industry recovery. However, since we only returned to profitability in 2012 and the housing recovery being in its early stages, the $32.7 million net deferred tax assets at December 31, 2012 remained fully reserved.

At December 31, 2013, after considering the continuation of improving profits from operations, we determined it was more-likely-than-not that most of the net deferred tax assets would be realized, which, during the fourth quarter, resulted in a $15.6 million reversal of the valuation allowance on our deferred tax assets. We based this conclusion on positive evidence related to the actual pre-tax profits achieved during the year and higher levels of forecasted profitability in the future. We expected these increased profits to result in a greater realization of our NOL carryforwards before they expire than previously estimated, and the realization of deferred tax assets associated with impairments and basis differences of our inventory. At December 31, 2013, the remaining $0.5 million valuation allowance relates to capital losses that expire in 2016 and 2017, and impairment of debt securities that mature in 2021 and 2022, as it is unknown if these deferred tax assets will be realized.

The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcome of these future results could result in changes in our estimates of the valuation of our deferred tax assets and related valuation allowances, and could also have a material impact on our consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of our deferred tax assets.

In 2014, we anticipate filing Form 3115 with the IRS to change our tax accounting method of how we record certain expenses on our tax returns. As we believe it is more-likely-than-not the change will be approved by the IRS, we will reflect this tax accounting method in preparing the 2014 tax provision and, accordingly, this change may increase our effective tax rate.

In 2013, income tax benefit (expense) was $14.1 million compared to $(0.6) million in 2012. The income tax benefit in 2013 was primarily attributable to the $15.6 million reversal of the valuation allowance, partially offset by increased taxable income compared to 2012.

In 2012, the income tax benefit (expense) was $(0.6) million compared to $3.1 million in 2011. This decrease in tax benefit was primarily attributable to income of SHI compared to losses in 2011, and the reduction of certain deferred tax assets in 2011 that were previously reserved.

Joint ventures are consolidated when we have a controlling interest or, absent a controlling interest, when we can substantially influence its business. Net (income) loss attributable to non-controlling interests represents the share of (income) loss attributable to the parties having a non-controlling interest. The net (income) loss attributable to non-controlling interests in 2013 and 2012 was not material. In 2011, net (income) attributable to non-controlling interests was $(7.1) million and included income allocated to our non-controlling partner in the sale of Vistancia LLC’s interest in an unconsolidated joint venture.

Home sales orders are contracts executed with homebuyers to purchase homes and are stated net of cancellations. Except where market conditions or other factors justify increasing available unsold home inventory, construction of a home typically begins when a sales contract for that home is executed and other conditions are satisfied, such as financing approval. Therefore, recognition of a home sales order usually represents the beginning of the home’s construction cycle. Homebuilding construction expenditures and, ultimately, homebuilding revenues and cash flow, are therefore dependent on the timing and magnitude of home sales orders.

An active selling community represents a new home community that advertises, markets and sells homes through a sales office located at a model complex in the community. Sales offices in communities near the end of their sales cycle are not designated as an active selling community. An active selling community is a designation similar to a store or sales outlet and is used to measure home sales order results on a per active selling community basis. Presentation of home sales orders per active selling community is a means of assessing sales growth or reductions across communities through a common analytical measurement. The average number of active selling communities for a particular period represents the aggregate number of active selling communities in operation at the end of each month in such period divided by the number of months in such period.

For the years ended December 31, 2013, 2012 and 2011 home sales orders, net of cancellations, were as follows:

For the years ended December 31, 2013, 2012 and 2011, cancellation rates were as follows:

For the years ended December 31, 2013, 2012 and 2011, average active selling communities were as follows:

In 2013, consolidated home sales order per consolidated active selling community were 31.5 compared to 31.1 in 2012. The increase was primarily attributable to the housing recovery which began in the second half of 2012 and continued in 2013. Demand was stronger in the first half of 2013 compared to the second half of 2013 as demand for new homes slowed in the second half of 2013 when mortgage rates spiked in the middle of 2013. In 2012, consolidated home sales order per consolidated active selling community were 31.1 compared to 18.0 in 2011.

Sales order backlog represents homes sold and under contract to be built, but not closed. Backlog sales value is the revenue estimated to be realized at closing. A home is sold when a sales contract is signed by the seller and buyer, and upon receipt of a prerequisite deposit. A home is closed when all conditions of escrow are met, including delivery of the home, title passage, and appropriate consideration is received or collection of associated receivables, if any, is reasonably assured. A sold home is classified “in backlog” during the time between its sale and close. During that time, construction costs are generally incurred to complete the home except where market conditions or other factors justify increasing available unsold home inventory. Backlog is therefore an important performance measurement in analysis of cash outflows and inflows. However, because sales order contracts are cancelled by the buyer at times, not all homes in backlog will result in closings.

Inventory is comprised of housing projects under development, land under development, land held for future development, land held for sale, deposits and pre-acquisition costs. As land is acquired and developed, and homes are constructed, the underlying costs are capitalized to inventory. As homes and land transactions close, these costs are relieved from inventory and charged to cost of sales.

As land is acquired and developed, each parcel is assigned a lot count. For parcels of land, an estimated number of lots are added to inventory once entitlement occurs. Occasionally, when the intended use of a parcel changes, lot counts are adjusted. As homes and land are sold, lot counts are reduced. Lots are categorized as (i) owned, (ii) controlled (which includes a contractual right to purchase) or (iii) owned or controlled through unconsolidated joint ventures. The status of each lot is identified by land held for development, land under development, land held for sale, lots available for construction, homes under construction, completed homes and models. Homes under construction and completed homes are also classified as sold or unsold.

At December 31, 2013, 2012 and 2011, total lots owned or controlled were as follows:

At December 31, 2013, 2012 and 2011, total homes under construction and completed homes were as follows:

Operating and other short-term cash liquidity needs have been primarily funded from cash on our balance sheet and our homebuilding operations primarily through home closings and land sales, net of the underlying expenditures to fund these operations. In addition, the Company has, and will continue to utilize, land option contracts, public and private note offerings, land seller notes, joint venture structures (which typically obtain project level financing to reduce the amount of partner capital invested), assessment district bond financing, letters of credit and surety bonds, tax refunds and proceeds from related party note receivables as sources of liquidity. At December 31, 2013, we did not have a revolving credit facility to fund short-term cash liquidity needs, however, in February 2014, we entered into a $125.0 million secured revolving credit facility (see below). At December 31, 2013, cash and cash equivalents were $206.2 million, restricted cash was $1.2 million and total debt was $751.7 million, compared to cash and cash equivalents of $279.8 million, restricted cash of $13.0 million and total debt of $758.2 million at December 31, 2012. Restricted cash includes customer deposits temporarily restricted in accordance with regulatory requirements and cash used in lieu of bonds.

In February 2014, we replaced our $75.0 million letter of credit facility with a $125.0 million secured revolving credit facility (the “Revolver”), which bears interest at LIBOR plus 2.75% and matures March 1, 2016. Borrowing availability is determined by a borrowing base formula and we are subject to financial covenants, including minimum net worth and leverage and interest coverage ratios. If we do not maintain compliance with these financial covenants, the Revolver converts to an 18-month amortizing term loan. At February 28, 2014, no amounts were outstanding under the Revolver.

We believe the Revolver, combined with the other sources available to us, such as our existing cash, cash equivalents and cash from operations, will be sufficient to provide for our cash requirements in the next twelve months. In evaluating this sufficiency, we considered the expected cash flow to be generated by homebuilding operations, our current cash position and other sources of liquidity available to us, compared to anticipated cash requirements for interest payments on the Secured Notes and Revolver, land purchase commitments and land development expenditures, joint venture funding requirements and other cash operating expenses. We also continually monitor current and expected operational requirements to evaluate and determine the use and amount of our cash needs which includes, but is not limited to, the following disciplines:

The availability of additional capital, whether from private capital sources (including banks) or the public capital markets, fluctuates as market conditions change. There may be times when the private capital markets and the public debt markets lack sufficient liquidity or when our securities cannot be sold at attractive prices, in which case we would be unable to access capital from these sources. A weakening of our financial condition, including a material increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, result in a credit rating downgrade or change in outlook, or otherwise increase our cost of borrowing.

In 2009, we filed a petition with the United States Tax Court (the “Tax Court”) regarding our position on the completed contract method (“CCM”) of accounting for our homebuilding operations. During 2010 and 2011, we engaged in formal and informal discovery with the IRS and the Tax Court heard trial testimony in July 2012 and ordered the Company and IRS to exchange briefs, which were filed. On February 12, 2014, the Tax Court ruled in favor of the Company (the “Tax Court Decision”). Pursuant to the ruling, the Company is permitted to continue to report income and loss from the sale of homes in their planned developments using CCM. As a result, no additional tax, interest or penalties are currently due and owing by the Company or the Partners. The Tax Court Decision is subject to appeal by the IRS to the U.S. Court of Appeals for the Ninth Circuit. The IRS must elect whether to appeal within 90 days after the Tax Court enters a decision document, which has not occurred.

If the Tax Court Decision is appealed and overturned, SHI could be obligated to pay the IRS and applicable state taxing authorities up to $65 million and, under the Tax Distribution Agreement, SHLP could be obligated to make a distribution to the Partners up to $108 million to fund their related payments to the IRS and applicable state taxing authorities.

Notwithstanding, the Indenture governing the Secured Notes (the “Indenture”) restricts SHLP’s ability to make distributions to its partners pursuant to the Tax Distribution Agreement in excess of an amount specified by the Indenture (such maximum amount of collective distributions referred to as the “Maximum CCM Payment”), unless SHLP receives a cash equity contribution from JFSCI for such excess. The initial Maximum CCM Payment is $70.0 million, which amount will be reduced by payments made by SHI in connection with any resolution of our dispute with the IRS regarding our use of CCM and payments made by SHLP on certain guarantee obligations described in the Indenture. Payments of CCM-related tax liabilities by SHLP pursuant to the Tax Distribution Agreement or by SHI will not impact our Consolidated Fixed Charge Coverage Ratio (as defined below) or our ability to incur additional indebtedness under the terms of the Indenture.

If necessary, SHLP and SHI expect to pay any CCM-related tax liability from existing cash, cash from operations and, to the extent SHLP is required by the Tax Distribution Agreement to pay amounts in excess of the Maximum CCM Payment, from cash equity contributions by JFSCI. However, cash from homebuilding operations may be insufficient to cover such payments. See “Item 1A: Risk Factors—The IRS has disallowed certain income recognition methodologies. If we are unsuccessful in appealing this decision, we could become subject to a substantial tax liability from previous years” and “Item 1A: Risk Factors—Under our Tax Distribution Agreement, we are required to make distributions to our equity holders from time to time based on their ownership in SHLP, which is a limited partnership and, under certain circumstances, those distributions may occur even if SHLP does not have taxable income.”

We are unable to extend our evaluation of the sufficiency of our liquidity beyond twelve months, and we cannot assure in the future our homebuilding operations will generate sufficient cash flow to enable us to grow our business, service our indebtedness, make payments toward land purchase commitments, or fund our joint ventures. For more information, see “Item 1A: Risk Factors—Our ability to generate sufficient cash or access other limited sources of liquidity to operate our business and service our debt depends on many factors, some of which are beyond our control” and “Item 1A: Risk Factors—We have a significant number of contingent liabilities, and if any are satisfied by us, could have a material adverse effect on our liquidity and results of operations.”

The Indenture governing the Secured Notes provides that we and our restricted subsidiaries may not incur or guarantee the payment of any indebtedness (other than certain specified types of permitted indebtedness) unless, immediately after giving effect to such incurrence or guarantee and the application of the proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture) would be at least 2.0 to 1.0. “Consolidated Fixed Charge Coverage Ratio” is defined in the Indenture as the ratio of (i) our Consolidated Cash Flow Available for Fixed Charges (as defined in the Indenture) for the prior four full fiscal quarters, to (ii) our aggregate Consolidated Interest Expense (as defined in the Indenture) for such prior four full fiscal quarters, in each case giving pro forma effect to certain transactions as specified in the Indenture. At December 31, 2013, our Consolidated Fixed Charge Coverage Ratio, determined as specified in the Indenture, was 2.44. The increase in the Consolidated Fixed Charge Coverage Ratio from 1.80 at December 31, 2012 was due to the increasing income of the Company.

The following tables present cash provided by (used in) operating, investing and financing activities:

In 2013, cash provided by (used in) operating activities was $(45.9) million compared to $(6.2) million in 2012. This decrease was primarily due to increased land acquisitions, land development costs, construction costs and selling, general administration costs, partially offset by increased cash receipts from deliveries of homes and sales of land. Total land acquisitions and development costs for 2013 were $(341.3) million compared to $(215.9) million in 2012. The year-over-year increase in land acquisition and development costs was attributable to the improved housing market conditions that continued in 2013 and our desire to add to our land positions in anticipation of continued demand for new homes.

In 2012, cash provided by (used in) operating activities was $(6.2) million compared to $38.9 million in 2011. This decrease was primarily due to increased land acquisitions, land development and construction costs, partially offset by increased cash receipts from deliveries of homes and sales of land. Total land acquisitions and development costs for 2012 were $(215.9) million compared to $(107.4) million in 2011. The year-over-year increase in land acquisition and development costs was attributable to the improved housing market conditions that emerged in 2012 and our desire to add to our land positions in anticipation of continued demand for new homes.

In 2013, cash provided by (used in) investing activities was $(16.8) million compared to $16.4 million in 2012.This decrease was primarily attributable to $(21.3) million of net contributions to unconsolidated joint ventures in 2013, of which $(11.5) million related to two unconsolidated joint ventures formed in 2013, compared to $(11.6) million contributed in 2012. In addition, we received $3.2 million of proceeds from the maturity and sales of available-for-sale investments in 2013 compared to $26.5 million in 2012.

In 2012, cash provided by (used in) investing activities was $16.4 million compared to $105.0 million in 2011. In 2012, we received $26.5 million of proceeds from the sale of marketable securities and collected $2.0 million on promissory notes receivables from related parties, offset by $(11.6) million of net contributions to unconsolidated joint ventures. In 2011, we collected $107.7 million on promissory notes from related parties (see below), primarily from JFSCI as a condition of the issuance of the Secured Notes; $1.7 million from the sale of investments; $14.0 million, through our consolidated joint venture, Vistancia, LLC, from the sale of our 10% interest in an unconsolidated joint venture; and $14.4 million from the sale of property and equipment to a related party, of which $1.5 million was recorded as an equity contribution from the owners of SHLP. These cash proceeds in 2011 were partially offset by the purchase of $(20.2) million of marketable securities and $(9.3) million of net contributions to unconsolidated joint ventures.

In 2013, cash provided by (used in) financing activities was $(10.9) million compared to $1.2 million in 2012. This decrease was primarily attributable to higher principal payments to financial institutions and others.

In 2012, cash provided by (used in) financing activities was $1.2 million compared to $(42.4) million in 2011. In October 2012, we sold land in Colorado to a related party for $4.6 million. As the related party is under common control, the $2.4 million of net sales proceeds received in excess of the net book value of the land sold was recorded as an equity contribution. We also received $1.4 million in net contributions from non-controlling interests, which were offset by $(2.4) million in payments on notes payable. In 2011, cash used in financing activities was primarily related to a $(20.0) million principal payment and the $(779.6) million payoff of the Secured Facilities in May 2011, which was primarily funded by the issuance of the $750.0 million of Secured Notes. In addition, there was a $2.0 million equity contribution from the owners of SHLP, which represented (1) the consideration received in excess of net book value from the sale of fixed assets and land to a related party under common control and (2) $0.5 million for the sale of land to a related party under common control.

On May 10, 2011, our Secured Notes were issued in the aggregate principal amount of $750.0 million and the outstanding obligations of the Company’s secured revolving lines of credit and notes payable (the “Secured Facilities”) were paid off and terminated. Principal and interest paid in 2011 under the Secured Facilities was $779.6 million and $2.5 million, respectively. Concurrent with the payoff of the Secured Facilities, an $88.4 million loss on debt extinguishment was recognized, which included a $65.0 million write-off of the discount related to the Secured Facilities, which increased the principal to its face value of $779.6 million, and a $23.4 million write-off of prepaid professional and loan fees incurred in connection with the Secured Facilities. All payable-in-kind interest, $5.0 million of principal and certain fees were waived, all of which were netted against the $88.4 million charge. In addition, of the $19.1 million of then outstanding letters of credit, $4.0 million were returned and $15.1 million were paid by the Company, of which $14.5 million was reimbursed by JFSCI for its share of the letters of credit paid by the Company.

The Secured Notes bear interest at 8.625%, paid semi-annually on May 15 and November 15, and do not require principal payments until maturity on May 15, 2019. The Secured Notes are redeemable, in whole or in part, at the Company’s option beginning on May 15, 2015 at a price of 104.313 per bond, reducing to 102.156 on May 15, 2016 and are redeemable at par beginning on May 15, 2017. At December 31, 2013 and 2012, accrued interest was $8.1 million and $8.1 million, respectively.

The Indenture governing the Secured Notes contains covenants that limit, among other things, our ability to incur additional indebtedness (including the issuance of certain preferred stock), pay dividends and distributions on our equity interests, repurchase our equity interests, retire unsecured or subordinated notes more than one year prior to their maturity, make investments in subsidiaries and joint ventures that are not restricted subsidiaries that guarantee the Secured Notes, sell certain assets, incur liens, merge with or into other companies, expand into unrelated businesses, and enter into certain transactions with our affiliates. At December 31, 2013 and 2012, we were in compliance with these covenants.

The Indenture governing the Secured Notes provides that we and our restricted subsidiaries may not incur or guarantee the payment of any indebtedness (other than certain specified types of permitted indebtedness) unless, immediately after giving effect to such incurrence or guarantee and the application of the proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture) would be at least 2.0 to 1.0. “Consolidated Fixed Charge Coverage Ratio” is defined in the Indenture as the ratio of (i) our Consolidated Cash Flow Available for Fixed Charges (as defined in the Indenture) for the prior four full fiscal quarters, to (ii) our aggregate Consolidated Interest Expense (as defined in the indenture governing the Secured Notes) for such prior four full fiscal quarters, in each case giving pro forma effect to certain transactions as specified in the Indenture. At December 31, 2013, our Consolidated Fixed Charge Coverage Ratio, determined as specified in the Indenture, was 2.44.

In addition, our ability to make joint venture and other restricted payments and investments is governed by the Indenture. We are permitted to make otherwise restricted payments under (i) a $70.0 million revolving basket available solely for joint venture investments and (ii) a broader restricted payment basket available as long as our Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture) is at least 2.0 to 1.0. At December 31, 2013, the aggregate amount of the restricted payments made under this broader restricted payment basket cannot exceed 50% of our cumulative Consolidated Net Income (as defined in the Indenture), generated from and including October 1, 2013, plus the aggregate net cash proceeds of, and the fair market value of, any property or other asset received by the Company as a capital contribution or upon the issuance of indebtedness or certain securities by the Company from and including October 1, 2013, plus, to the extent not included in Consolidated Net Income, certain amounts received in connection with dispositions, distributions or repayments of restricted investments, plus the value of any unrestricted subsidiary which is redesignated as a restricted subsidiary under the Indenture. We have a number of joint ventures which have used, and are expected to use, capacity under these restricted payment baskets. During the second quarter of 2013, we entered into a joint venture in Southern California and committed to contribute up to $45.0 million of capital. At December 31, 2013, we made aggregate capital contributions of $15.1 million to this joint venture. We project our peak investment of $45.0 million in this joint venture will occur in the fourth quarter of 2014 and, shortly thereafter, will be returned to us. In addition, we anticipate making additional investments in this joint venture in 2015 at amounts below the $45.0 million commitment, and expect such additional investments will be returned to us by the end of 2015. We anticipate making additional investments in other joint ventures which are not expected to be material.

CONTRACTUAL OBLIGATIONS, COMMERCIAL COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

Primary contractual obligations are payments under notes payable, operating leases and purchase obligations. Purchase obligations primarily represent land purchase and option contracts, and purchase obligations for water system connection rights.

At December 31, 2013, future estimated payments under existing contractual obligations, including estimated future cash payments, are as follows:

We expect to fund contractual obligations in the ordinary course of business with existing cash resources, cash flows generated from operations, a $125.0 million secured revolving credit facility obtained in February 2014, and issuance of new debt as market conditions permit.

In the ordinary course of business, we enter into land purchase and option contracts to procure land for construction of homes. These contracts typically require a cash deposit and the purchase is often contingent on satisfaction of certain requirements by land sellers, including securing property and development entitlements. We utilize option contracts to acquire large tracts of land in smaller parcels to better manage financial and market risk of holding land and to reduce use of funds. Option contracts generally require a non-refundable deposit after a diligence period for the right to acquire lots over a specified period of time at a predetermined price. However, in certain circumstances, the purchase price may not, in whole or in part, be determinable and payable until the homes or lots are closed. In such instances, an estimated purchase price for the unknown portion is not included in the total remaining purchase price. At December 31, 2013, we had owned or controlled 7,206 lots in Colorado for which the entire purchase price is determined at the time the underlying lots close with a home buyer or other purchaser of the lot. At our discretion, we generally have rights to terminate our obligations under purchase and option contracts by forfeiting our cash deposit or repaying amounts drawn under our letters of credit with no further financial responsibility to the land seller. However, purchase contracts can contain additional development obligations that must be completed even if a contract is terminated.

Use of option contracts is dependent on the willingness of land sellers, availability of capital, housing market conditions and geographic preferences. Options may be more difficult to obtain from land sellers in stronger housing markets and are more prevalent in certain geographic regions.

At December 31, 2013, we had $21.0 million in option contract deposits on land with a total remaining purchase price, excluding land subject to option contracts that do not specify a purchase price, of $422.3 million, compared to $5.3 million and $200.2 million, respectively, at December 31, 2012.

At a homebuilding project in Colorado, we have a contractual obligation to purchase and receive water system connection rights which, at December 31, 2013, was $30.5 million. This amount is less than the estimated market value of the water system connection rights. These water system connection rights are held and then transferred to homebuyers upon closing of their home or transferred upon the sale of land to the respective buyer. These water system connection rights can also be sold or leased but generally only within the local jurisdiction.

We enter into land development and homebuilding joint ventures for the following purposes:

These joint ventures typically obtain secured acquisition, development and construction financing, each designed to reduce use of corporate funds.

In December 2012, an unconsolidated joint venture, RRWS, LLC (“RRWS”), was formed and is owned 50% by the Company and 50% by a third-party real estate developer (“the RRWS Partner”). Through two wholly-owned subsidiaries, RRWS owns land in two master planned communities in the central coast of California. One subsidiary develops lots and constructs and sells single family attached and detached homes. This subsidiary is also under contract to acquire residential lots from an entity controlled by the RRWS Partner. The other subsidiary owns commercial and residential land in which the residential land is intended to be sold to the Company for construction and sales of active lifestyle targeted homes.

Several acquisition, development and construction loans were entered into by RRWS, each with two-year terms and options to extend for one year, subject to certain conditions. Each loan is cross collateralized and cross-defaulted with the other loan. The Company and RRWS Partner each executed limited completion, interest and carry guarantees and environmental indemnities on a joint and several basis. In addition, the Company and RRWS Partner executed loan-to-value maintenance agreements for each loan on a joint and several basis. The Company has a maximum aggregate liability under the re-margin arrangements of the lesser of 50% of the outstanding balance or $35.0 million in total. Obligations of the Company and RRWS Partner under the re-margin arrangements are limited during the first two years of the loans. In addition to re-margin arrangements, the RRWS Partner, and several of its principals, executed repayment guarantees with no limit on their liability. At December 31, 2013, outstanding bank notes payable were $47.7 million, of which the Company has a maximum remargin obligation of $23.8 million. The Company also has an indemnification agreement, under which the Company could potentially recover a portion of any remargin payments made by the Company. However, the Company cannot provide assurance it could collect under this indemnity agreement.

In November 2012, an unconsolidated joint venture, Polo Estates Ventures, LLC (“Polo”), was formed and is owned 50% by the Company and 50% by a third-party investor (“Polo Partner”). Polo entered into acquisition, development and construction loans in July 2013 with two-year terms and options to extend for one year, subject to certain conditions. Each loan is cross collateralized and cross defaulted with the other loans. The Company and Polo Partner each issued loan-to-value maintenance arrangements for each loan on a joint and several basis. At December 31, 2013, outstanding bank notes payable were $4.8 million and total maximum borrowings permitted on these loans were $21.6 million. The Company also has reimbursement rights under which the Company could potentially recover a portion of any remargin payments made by the Company. However, the Company cannot provide assurance it could collect such reimbursements.

In May 2013, the Company entered into an unconsolidated joint venture, RMV PA2 Development, LLC (“RMV”), to develop and sell land located in Southern California to the joint venture members and other parties. The Company has a preferred interest that earns a stated 10% preferred rate, with the potential to earn additional earnings based on the cash flows of RMV up to a maximum of a 15% internal rate of return. The Company committed to contribute up to $45.0 million of capital. At December 31, 2013, the Company made aggregate capital contributions of $15.1 million to RMV.

In December 2011, Vistancia, LLC, a consolidated joint venture, sold its remaining interest in an unconsolidated joint venture (the “Vistancia Sale”). As a result of the Vistancia Sale, no other assets of Vistancia, LLC economically benefited the non-controlling member and we recorded an obligation for the remaining $3.3 million distribution payable to this member, which is paid $0.1 million quarterly. In May 2012, for a nominal amount, SHLP purchased this member’s entire 16.7% interest; however, the distribution payable remained. At December 31, 2013, the distribution payable was $2.5 million.

At December 31, 2013 and 2012, total unconsolidated joint ventures’ notes payable consisted of the following:

At December 31, 2013 and 2012, remargin obligations and guarantees provided on debt of our unconsolidated joint ventures were on a joint and/or several basis and include, but are not limited to, project completion, interest and carry, and loan-to-value maintenance guarantees.

For RRWS, we have a remargin obligation that is limited to the lesser of 50% of the outstanding balances or $35.0 million in total for the joint venture loans, which outstanding loan balances at December 31, 2013 and 2012 were $47.7 million and $45.6 million, respectively. Consequently, our maximum remargin obligation at December 31, 2013 and 2012 was $23.8 million and $22.8 million, respectively. We also have an indemnification agreement where we could potentially recover a portion of any remargin payments made by the Company. However, we cannot provide assurance we could collect under this indemnity agreement.

For Polo, in 2013, we issued a joint and several remargin guarantee on loan obligations, which in total at December 31, 2013 were $4.8 million. At December 31, 2013, the total maximum borrowings permitted on these loans were $21.6 million. We also have reimbursement rights where we could potentially recover a portion of any remargin payments made by the Company. However, we cannot provide assurance we could collect such reimbursements.

No liabilities were recorded for these guarantees at December 31, 2013 and 2012 as the fair value of the secured real estate assets exceeded the threshold at which a remargin payment would be required.

We may be required to use our funds for obligations of these joint ventures, such as:

At December 31, 2013 and 2012, maximum unrecorded loan remargin or other guarantees, surety obligations and certain other contingencies were as follows:

On May 10, 2011, we entered into a $75.0 million letter of credit facility. At December 31, 2013, there were no letters of credit outstanding. At December 31, 2012, outstanding letters of credit issued under the letter of credit facility were $4.2 million. This facility was terminated in February 2014 upon the execution of the Company’s new $125.0 million revolving credit facility, under which up to $62.5 million of letters of credit may be issued.

We provide surety bonds that guarantee completion of certain infrastructure serving our homebuilding projects. At December 31, 2013, there were $77.3 million of costs to complete in connection with $169.7 million of surety bonds issued. At December 31, 2012, there were $85.5 million of costs to complete in connection with $186.0 million of surety bonds issued.

We also provided indemnification for bonds issued by certain unconsolidated joint ventures and other related party projects in which we have no ownership interest. At December 31, 2013, there were $22.8 million of costs to complete in connection with $63.7 million of surety bonds issued for unconsolidated joint venture projects, and $1.6 million of costs to complete in connection with $4.9 million of surety bonds issued for related party projects. At December 31, 2012, there were $30.8 million of costs to complete in connection with $71.6 million of surety bonds issued for unconsolidated joint venture projects, and $2.3 million of costs to complete in connection with $6.1 million of surety bonds issued for related party projects.

Certain of our homebuilding projects utilize community facility district, metro-district and other local government bond financing programs to fund acquisition or construction of infrastructure improvements. Interest and principal on these bonds are typically paid from taxes and assessments levied on homeowners following the closing of new homes in the project. Occasionally, we enter into credit support arrangements requiring us to pay interest and principal on these bonds if taxes and assessments levied on landowners and/or homeowners are insufficient to cover such obligations. Furthermore, reimbursement of these payments to us is dependent on the district or local government’s ability to generate sufficient tax and assessment revenues from the new homes. At December 31, 2013 and 2012, in connection with credit support arrangements, there was $8.6 million and $4.9 million, respectively, reimbursable to us from certain agencies in Colorado and, accordingly, recorded these in inventory as a recoverable project cost.

We also pay certain fees and costs associated with the construction of infrastructure improvements in homebuilding projects that utilize these district bond financing programs. These fees and costs are typically reimbursable to us from, and therefore dependent on, bond proceeds or taxes and assessments levied on landowners and/or homeowners. At December 31, 2013 and 2012, in connection with certain funding arrangements, there was $13.1 million and $16.3 million, respectively, reimbursable to us from certain agencies, including $11.9 million and $11.9 million, respectively, from a metro-district in Colorado and, accordingly, recorded these in inventory as a recoverable project cost.

Until bond proceeds or tax and assessment revenues are sufficient to cover our obligations and/or reimburse us, our responsibility to make interest and principal payments on these bonds or pay fees and costs associated with the construction of infrastructure improvements could be prolonged and significant.

In December 2011, Vistancia, LLC, a consolidated joint venture, sold its remaining interest in an unconsolidated joint venture (the “Vistancia Sale”). As a condition of the Vistancia Sale, and the purchase of the non-controlling member’s remaining interest in Vistancia, LLC, the Company effectively remains a 10% guarantor on certain community facility district bond obligations to which the Company must meet a minimum calculated tangible net worth; otherwise, the Company is required to fund collateral to the bond issuer. At December 31, 2013 and 2012, the Company exceeded the minimum tangible net worth requirement.

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates and judgments that affect reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those that impact our most critical accounting policies. We base our estimates and judgments on historical experience and various other assumptions believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe accounting policies related to the following accounts or activities are those most critical to the portrayal of our consolidated financial condition and results of operations and require the most significant judgments and estimates.

We capitalize preacquisition, land, development and other allocated costs, including interest, during development and home construction. Applicable costs incurred after development or construction is substantially complete are charged to selling, general and administrative, and other expenses as appropriate. Preacquisition costs, including non-refundable land deposits, are expensed to other income (expense), net when we determine continuation of the respective project is not probable.

Land, development and other indirect costs are typically allocated to inventory using a methodology that approximates the relative-sales-value method. Home construction costs are recorded using the specific identification method. Cost of sales for homes closed includes the specific construction costs of each home and all applicable land acquisition, land development and related costs (both incurred and estimated to be incurred) based upon the total number of homes expected to close in each community. Changes to estimated total development costs subsequent to initial home closings in a community are generally allocated on a relative-sales-value method to remaining homes in the community.

Inventory is stated at cost, unless the carrying amount is determined not to be recoverable, in which case inventory is adjusted to fair value or fair value less cost to sell. Quarterly, we review our real estate assets at each community for indicators of impairment. Real estate assets include projects actively selling, under development, held for future development or held for sale. Indicators of impairment include, but are not limited to, significant decreases in local housing market values and prices of comparable homes, significant decreases in gross margins and sales absorption rates, costs in excess of budget, and actual or projected cash flow losses.

If there are indications of impairment, we analyze the budgets and cash flows of our real estate assets and compare the estimated remaining undiscounted future cash flows of the community to the asset’s carrying value. If the undiscounted cash flows exceed the asset’s carrying value, no impairment adjustment is required. If the undiscounted cash flows are less than the asset’s carrying value, the asset is deemed impaired and adjusted to fair value. For land held for sale, if the fair value less costs to sell exceed the asset’s carrying value, no impairment adjustment is required. These impairment evaluations require use of estimates and assumptions regarding future conditions, including timing and amounts of development costs and sales prices of real estate assets, to determine if estimated future undiscounted cash flows will be sufficient to recover the asset’s carrying value.

When estimating undiscounted cash flows of a community, various assumptions are made, including: (i) the number of homes available and the expected prices and incentives offered by us or builders in other communities, and future price adjustments based on market and economic trends; (ii) expected sales pace and cancellation rates based on local housing market conditions, competition and historical trends; (iii) costs to date and expected to be incurred, including, but not limited to, land and land development, home construction, interest, indirect construction and overhead, and selling and marketing costs; (iv) alternative product offerings that could impact sales pace, sales price and/or building costs; and (v) alternative uses for the property.

Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For example, increasing or decreasing sales rates have a direct impact on the estimated price of a home, the level of time sensitive costs (such as indirect construction, overhead and interest), and selling and marketing costs (such as model maintenance and advertising). Depending on the underlying objective of the community, assumptions could have a significant impact on the projected cash flows. For example, if our objective is to preserve operating margins, our cash flows will be different than if the objective is to increase sales. These objectives may vary significantly by community over time.

If assets are considered impaired, the impairment charge is the amount the asset’s carrying value exceeds its fair value. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with real estate assets or other valuation techniques. These discounted cash flows are impacted by expected risk based on estimated land development, construction and delivery timelines; market risk of price erosion; uncertainty of development or construction cost increases; and other risks specific to the asset or market conditions where the asset is located when the assessment is made. These factors are specific to each community and may vary among communities. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage. We generally use discount rates ranging from 10% to 25%, subject to perceived risks associated with the community’s cash flow streams relative to its inventory.

We maintain, and require our subcontractors to maintain, general liability insurance which includes coverage for completed operations losses and damages. Most subcontractors carry this insurance through our “rolling wrap-up” insurance program, where our risks and risks of participating subcontractors are insured through a common set of master policies.

Completed operations claims reserves primarily represent claims for property damage to completed homes and projects outside of our one- to two-year warranty period. Specific terms and conditions of completed operations warranties vary depending on the market in which homes are closed and can range up to 12 years from the closing of a home.

We record expenses and liabilities for estimated costs of potential completed operations claims based upon aggregated loss experience, which includes an estimate of completed operations claims incurred but not reported and is actuarially estimated using individual case-basis valuations and statistical analysis. These estimates make up our entire reserve and are subject to a high degree of variability due to uncertainties such as trends in completed operations claims related to our markets and products built, changes in claims reporting and settlement patterns, third party recoveries, insurance industry practices, insurance regulations and legal precedent. Because state regulations vary, completed operations claims are reported and resolved over an extended period, sometimes exceeding twelve years. As a result, actual costs may differ significantly from estimates.

The actuarial analyses that determine these incurred but not reported claims consider various factors, including frequency and severity of losses, which are based on our historical claims experience supplemented by industry data. The actuarial analyses of these claims and reserves also consider historical third party recovery rates and claims management expenses. Due to inherent uncertainties related to each of these factors, periodic changes to such factors based on updated relevant information could result in actual costs to differ significantly from estimated costs.

In accordance with our underlying completed operations insurance policies, completed operations claims costs are recoverable from our subcontractors or insurance carriers. Completed operations claims through July 31, 2009 are insured or reinsured with third-party insurance carriers and completed operations claims commencing August 1, 2009 are insured with third-party and affiliate insurance carriers.

In accordance with Accounting Standards Codification (“ASC”) 360, revenues from housing and other real estate sales are recognized when the respective units are closed. Housing and other real estate sales close when all conditions of escrow are met, including delivery of the home or other real estate asset, title passage, appropriate consideration is received or collection of associated receivables, if any, is reasonably assured and when we have no other continuing involvement in the asset. Sales incentives are a reduction of revenues when the respective unit is closed.

SHI and PIC are C corporations. Federal and state income taxes are provided for these entities in accordance with ASC 740. The provision for, or benefit from, income taxes is calculated using the asset and liability method, whereby deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect the year in which differences are expected to reverse.

Deferred tax assets are evaluated to determine whether a valuation allowance should be established based on our determination of whether it is more likely than not some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends primarily on generation of future taxable income during periods in which those temporary differences become deductible. The assessment of a valuation allowance includes giving appropriate consideration to all positive and negative evidence related to the realization of the deferred tax asset. This assessment considers, among other things, the nature, frequency and severity of current and cumulative losses over recent years, forecasts of future profitability, the duration of statutory carryforward periods, our experience with operating loss and tax credit carryforwards before they expire, and tax planning alternatives. Judgment is required in determining future tax consequences of events that have been recognized in the consolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated financial position or results of operations.

We follow certain accounting guidance with respect to how uncertain tax positions should be accounted for and disclosed in the consolidated financial statements. The guidance requires the assessment of tax positions taken or expected to be taken in the tax returns and to determine whether the tax positions are “more-likely-than-not” of being sustained upon examination by the applicable tax authority. Tax positions deemed to meet the more-likely-than-not criteria would be recorded as a tax benefit or expense in the current year. We are required to assess open tax years, as defined by the statute of limitations, for all major jurisdictions, including federal and certain states. Open tax years are those that are open for examination by taxing authorities. We have examinations in progress but believe there are no uncertain tax positions that do not meet the more-likely-than-not level of authority.

We are exposed to market risk primarily from interest rate fluctuations. Historically, we have incurred fixed-rate and variable-rate debt. For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not earnings or cash flow. Conversely, for variable-rate debt, changes in interest rates generally do not affect the fair market value of the debt but do affect earnings and cash flow. We did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial instruments at or during the year ended December 31, 2013. We have not entered into and currently do not hold derivatives for trading or speculative purposes. As we do not have an obligation to prepay fixed-rate debt prior to maturity, and we do not currently have a significant amount of variable-rate debt, interest rate risk and changes in fair market value should not have a significant impact on such debt until we refinance.

On May 10, 2011, the existing Secured Facilities were paid off from the proceeds of the $750.0 million of Secured Notes that bear interest at a fixed rate of 8.625%. No principal payments on the Secured Notes are due until maturity on May 15, 2019. At December 31, 2013, there was no other material indebtedness outstanding.

In February 2014, we replaced our $75.0 million letter of credit facility with a $125.0 million secured revolving credit facility (the “Revolver”) which bears interest at LIBOR plus 2.75% and matures March 1, 2016. Borrowing availability is determined by a borrowing base formula and we are subject to financial covenants, including minimum net worth and leverage and interest coverage ratios. If we do not maintain compliance with these financial covenants, the Revolver converts to an 18-month amortizing term loan.

We have audited the accompanying consolidated balance sheets of Shea Homes Limited Partnership (the Company), a California limited partnership, as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Shea Homes Limited Partnership at December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013 in conformity with U. S. generally accepted accounting principles.

Shea Homes Limited Partnership, a California limited partnership (“SHLP”), was formed January 4, 1989, pursuant to an agreement of partnership (the “Agreement”), as most recently amended August 6, 2013, by and between J.F. Shea, GP, a Delaware general partnership, as general partner, and the Company’s limited partners who are comprised of entities and trusts, including J.F. Shea Co., Inc. (“JFSCI”), under the common control of Shea family members (collectively, the “Partners”). J.F. Shea, GP is 96% owned by JFSCI.

Our principal business purpose is homebuilding, which includes acquiring and developing land and constructing and selling residential homes thereon. To a lesser degree, we develop lots and sell them to other homebuilders. Our principal markets are California, Arizona, Colorado, Washington, Nevada, Florida, Virginia and Houston, Texas.

We own a captive insurance company, Partners Insurance Company, Inc. (“PIC”), which provided warranty, general liability, workers’ compensation and completed operations insurance for related companies and third-party subcontractors. Effective for the policy years commencing in 2007, PIC ceased issuing policies for these coverages (see Note 11).

The accompanying consolidated financial statements include the accounts of SHLP and its wholly-owned subsidiaries, including Shea Homes, Inc. (“SHI”) and its wholly-owned subsidiaries. The Company consolidates all joint ventures in which it has a controlling interest or other ventures in which it is the primary beneficiary of a variable interest entity (“VIE”). Material intercompany accounts and transactions are eliminated.

Unless the context otherwise requires, the terms “we”, “us”, “our” and “the Company” refer to SHLP, its subsidiaries and its consolidated joint ventures.

Preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires the Company to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Estimates relate primarily to valuation of certain real estate and reserves for self-insured risks. Actual results could differ significantly from those estimates.

Certain reclassifications were made in the 2012 consolidated financial statements to conform to classifications in 2013. At December 31, 2012, investments of $12.1 million and property and equipment of $2.2 million were reclassified to other assets in the consolidated balance sheet.

All highly liquid investments (original maturities of 90 days or less) are considered to be cash equivalents.

Financial instruments representing concentrations of credit risk are primarily cash, cash equivalents, investments and insurance receivables.

Cash in banks exceeded the federally insured limits; cash equivalents comprised primarily of money market securities and securities backed by the U.S. government; and insurance receivables were with highly rated insurers and/or collateralized. We have incurred no losses on deposits of cash and cash equivalents and believe our depository institutions are financially sound and present minimal credit risk.

In accordance with Accounting Standards Codification (“ASC”) 360, revenues from housing and other real estate sales are recognized when the respective units close. Housing and other real estate sales close when all conditions of escrow are met, including delivery of the home or other real estate asset, title passage, appropriate consideration is received or collection of associated receivables, if any, is reasonably assured and when we have no other continuing involvement in the asset. Sales incentives are a reduction of revenues when the respective unit is closed.

We expense advertising costs as incurred. For the years ended December 31, 2013, 2012 and 2011, we incurred and expensed advertising costs of $7.4 million, $6.6 million and $6.2 million, respectively.

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”), which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, ASU 2013-02 requires an entity to present, either on the face of the income statement or in the notes to financial statements, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income in financial statements. For public entities, the amendments in ASU 2013-02 are effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted ASU 2013-02 effective January 1, 2013, which concerned disclosure requirements only and did not impact our consolidated financial statements.

At December 31, 2013, restricted cash included customer deposits temporarily restricted in accordance with regulatory requirements and cash used in lieu of bonds. In addition, at December 31, 2012, $10.0 million of restricted cash included cash used as collateral for potential obligations paid by the Company’s bank. In January 2013, this $10.0 million of restricted cash was released to the Company. At December 31, 2013 and December 31, 2012, restricted cash was $1.2 million and $13.0 million, respectively.

At December 31, 2013 and 2012, as required by ASC 825, the following presents net book values and estimated fair values of notes payable:

The $750.0 million 8.625% senior secured notes due May 2019 (the “Secured Notes”) are level 2 financial instruments in which fair value was based on quoted market prices in an inactive market at the end of the year.

Other financial instruments consist primarily of cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable and other liabilities and secured promissory notes. Book values of these financial instruments approximate fair value due to their relatively short-term nature. In addition, included in other assets are available-for-sale marketable securities, which are recorded at fair value.

At December 31, 2013 and 2012, accounts and other receivables, net were as follows:

Insurance receivables are from insurance carriers for reimbursable claims pertaining to resultant damage from construction defects on closed homes (see Note 11). Closed homes for policy years August 1, 2001 to July 31, 2009 are insured or reinsured with third-party insurance carriers, and closed homes for policy years commencing August 1, 2009 are insured with third-party and affiliate insurance carriers. At December 31, 2013 and 2012, insurance receivables from affiliate insurance carriers were $44.0 million and $30.2 million, respectively.

Model homes, completed homes for sale and homes under construction include all costs associated with home construction, including land, development, indirects, permits and vertical construction. Lots available for construction include costs incurred prior to home construction such as land, development, indirects and permits. Land under development includes costs incurred during site development such as land, development, indirects and permits. Land under development transfers to lots available for construction once site development is complete and is ready for vertical construction. Land is classified as held for future development if no significant development has occurred. Land held for sale, including water system connection rights, represents residential and commercial land designated for sale, as well as water system connection rights held that will be transferred to homebuyers upon closing of their home, transferred upon sale of land to the respective buyer, sold or leased.

Inventory, including the captions above, are stated at cost, unless the carrying amount is determined to be unrecoverable, in which case inventories are adjusted to fair value or fair value less costs to sell (see Note 2).

For the years ended December 31, 2013, 2012 and 2011, inventory impairment charges were as follows:

Land deposits and preacquisition costs for potential acquisitions and land option contracts are included in inventory. When a potential acquisition or land option contract is abandoned, related deposits and preacquisition costs are written off to other income (expense), net. For the years ended December 31, 2013, 2012 and 2011, write-offs of deposits and preacquisition costs were $1.4 million, $2.0 million and $0.2 million, respectively.

Interest is capitalized to inventory and investments in unconsolidated joint ventures during development and other qualifying activities. Interest capitalized as a cost of inventory is included in cost of sales as related units close. Interest capitalized to investments in unconsolidated joint ventures is included in equity in income (loss) from unconsolidated joint ventures when related units in the joint ventures close.

For the years ended December 31, 2013, 2012 and 2011, interest incurred, capitalized and expensed was as follows:

Certain costs of model homes are capitalized and subsequently amortized as selling expense when the related units in the respective communities close. For the years ended December 31, 2013, 2012 and 2011, amortized model homes costs were $10.3 million, $8.2 million and $9.9 million, respectively.

Unconsolidated joint ventures, which we do not control but have significant influence through ownership interests generally up to 50%, are accounted for using the equity method of accounting. These joint ventures are generally involved in real property development. Earnings and losses are allocated in accordance with terms of joint venture agreements.

Losses and distributions from joint ventures in excess of the carrying amount of our investment (“Deficit Distributions”) are included in other liabilities. We record Deficit Distributions since we are liable for this deficit to the respective joint ventures. Deficit Distributions are offset by future earnings of, or future contributions to, the joint ventures. At December 31, 2013 and 2012, Deficit Distributions were $0.4 million and $0.7 million, respectively.

For the year ended December 31, 2011, impairment charges on investments in joint ventures were $2.4 million and included in equity in income (loss) from joint ventures.

At December 31, 2013 and 2012, and for the years ended December 31, 2013, 2012 and 2011, condensed financial information for our unconsolidated joint ventures was as follows:

At December 31, 2013 and 2012, total unconsolidated joint ventures’ notes payable consisted of the following:

For a joint venture, RRWS, LLC (“RRWS”), we have a remargin obligation that is limited to the lesser of 50% of the outstanding balances or $35.0 million in total for the joint venture loans, which outstanding loan balances at December 31, 2013 and 2012 were $47.7 million and $45.6 million, respectively. Consequently, our maximum remargin obligation at December 31, 2013 and 2012 was $23.8 million and $22.8 million, respectively. We also have an indemnification agreement where we could potentially recover a portion of any remargin payments made by the Company. However, we cannot provide assurance we could collect under this indemnity agreement.

For a second joint venture, Polo Estates Ventures, LLC (“Polo”), in 2013 we issued a joint and several remargin guarantee on loan obligations, which in total at December 31, 2013 were $4.8 million. At December 31, 2013, the total maximum borrowings permitted on these loans were $21.6 million. We also have reimbursement rights where we could potentially recover a portion of any remargin payments made by the Company. However, we cannot provide assurance we could collect such reimbursements.

Our ability to make joint venture and other restricted payments and investments is governed by the Indenture governing the Secured Notes (the “Indenture”). We are permitted to make otherwise restricted payments under (i) a $70.0 million revolving basket available solely for joint venture investments and (ii) a broader restricted payment basket available as long as our Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture) is at least 2.0 to 1.0. The aggregate amount of restricted payments made under this broader restricted payment basket cannot exceed 50% of our cumulative Consolidated Net Income (as defined in the Indenture) generated from and including October 1, 2013 plus the aggregate net cash proceeds of, and the fair market value of, any property or other asset received by the Company as a capital contribution or upon the issuance of indebtedness or certain securities by the Company from and including October 1, 2013, plus, to the extent not included in Consolidated Net Income, certain amounts received in connection with dispositions, distributions or repayments of restricted investments, plus the value of any unrestricted subsidiary which is redesignated as a restricted subsidiary under the Indenture. We have joint ventures which have used, and are expected to use, capacity under these restricted payment baskets. During the second quarter of 2013, we entered into a joint venture in Southern California and committed to contribute up to $45.0 million of capital. At December 31, 2013, we made aggregate capital contributions of $15.1 million to this joint venture.

ASC 810 requires a VIE to be consolidated in the financial statements of a company if it is the primary beneficiary of the VIE. Accordingly, the primary beneficiary has the power to direct activities of the VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb its losses or the right to receive its benefits. All VIEs with which we were involved at December 31, 2013 and 2012 were evaluated to determine the primary beneficiary.

We enter into joint ventures for homebuilding and land development activities. Investments in these joint ventures may create a variable interest in a VIE, depending on contractual terms of the venture. We analyze our joint ventures in accordance with ASC 810 to determine whether they are VIEs and, if so, whether we are the primary beneficiary. At December 31, 2013 and 2012, these joint ventures were not consolidated in our consolidated financial statements since they were not VIEs, or if they were VIEs, we were not the primary beneficiary.

At December 31, 2013 and 2012, we had a variable interest in an unconsolidated joint venture determined to be a VIE. The joint venture, RRWS, was formed in December 2012 and is owned 50% by the Company and 50% by a third-party real estate developer (the “RRWS Partner”). Several acquisition, development and construction loans were entered into by RRWS, each with two-year terms and options to extend for one year, subject to certain conditions. Each loan is cross collateralized and cross defaulted with the other loan. The Company and RRWS Partner each executed limited completion, interest and carry guarantees and environmental indemnities on a joint and several basis. In addition, the Company and RRWS Partner executed loan-to-value maintenance agreements for each loan on a joint and several basis. The Company has a maximum aggregate liability under the re-margin arrangements of the lesser of 50% of the outstanding balances or $35.0 million in total. Obligations of the Company and RRWS Partner under the re-margin arrangements are limited during the first two years of the loans. In addition to re-margin arrangements, the RRWS Partner, and several of its principals, executed repayment guarantees with no limit on their liability. At December 31, 2013 and 2012, outstanding bank notes payable were $47.7 million and $45.6 million, respectively, of which the Company has a maximum remargin obligation of $23.8 million and $22.8 million, respectively. The Company also has an indemnification agreement, under which the Company could potentially recover a portion of any remargin payments made by the Company. However, the Company cannot provide assurance it could collect under this indemnity agreement.

At December 31, 2013 and 2012, we had a variable interest in a second unconsolidated joint venture determined to be a VIE. The joint venture, Polo, was formed in November 2012 and is owned 50% by the Company and 50% by a third-party investor (“Polo Partner”). Polo entered into acquisition, development and construction loans in July 2013 with two-year terms and options to extend for one year, subject to certain conditions. Each loan is cross collateralized and cross defaulted with the other loans. The Company and Polo Partner each issued loan-to-value maintenance arrangements for each loan on a joint and several basis. At December 31, 2013, outstanding bank notes payable were $4.8 million and total maximum borrowings permitted on these loans were $21.6 million. The Company also has reimbursement rights where the Company could potentially recover a portion of any remargin payments made by the Company. However, the Company cannot provide assurance it could collect such reimbursements.

In accordance with ASC 810, we determined we were not the primary beneficiaries of RRWS and Polo because we did not have the power to direct activities that most significantly impact the economic performance of RRWS and Polo, such as determining or limiting the scope or purpose of the respective entity, selling or transferring property owned or controlled by the respective entity, and arranging financing for the respective entity.

We enter into land option contracts to procure land for home construction. Use of land option and similar contracts allows us to reduce market risks associated with direct land ownership and development, reduces capital and financial commitments, including interest and other carrying costs, and minimizes land inventory. Under these contracts, we pay a specified deposit for the right to purchase land, usually at a predetermined price. Under the requirements of ASC 810, certain contracts may create a variable interest with the land seller.

In accordance with ASC 810, we analyzed our land option and similar contracts to determine if respective land sellers are VIEs and, if so, if we are the primary beneficiary. Although we do not have legal title to the optioned land, ASC 810 requires us to consolidate a VIE if we are the primary beneficiary. At December 31, 2013 and 2012, we determined we were not the primary beneficiary of such VIEs because we did not have the power to direct activities of the VIE that most significantly impact the VIE’s economic performance, such as selling, transferring or developing land owned by the VIE.

At December 31, 2013, we had $1.5 million of refundable and non-refundable cash deposits associated with land option contracts with unconsolidated VIEs, having a $72.7 million remaining purchase price. We also had $19.5 million of refundable and non-refundable cash deposits associated with land option contracts that were not with VIEs, having a $349.6 million remaining purchase price.

Our loss exposure on land option contracts consists of non-refundable deposits, which were $6.9 million and $5.0 million at December 31, 2013 and 2012, respectively, and capitalized preacquisition costs of $12.0 million and $2.0 million, respectively, which were included in inventory in the consolidated balance sheets.

Investments consist of available-for-sale securities, primarily private debt obligations, and are measured at fair value, which is based on quoted market prices or cash flow models. Accordingly, unrealized gains and temporary losses on investments, net of tax, are reported as accumulated other comprehensive income (loss). Realized gains and losses are determined using the specific identification method.

For the years ended December 31, 2013 and 2012, there were $0.1 million and $8.8 million of realized gains on available-for-sale securities.

In accordance with ASC 470, these amounts are loan origination fees, which are amortized as interest over the term of the related debt and, in 2013, include $2.5 million paid to obtain senior secured note holder consent for a secured revolving credit facility executed in February 2014 (see Note 21).

We are required to make cash deposits in lieu of bonds with various agencies for some of our homebuilding projects. These deposits may be returned as the collateral requirements decrease or they are replaced with new bonds.

On May 10, 2011, our Secured Notes were issued in the aggregate principal amount of $750.0 million and the outstanding obligations of the Company’s secured revolving lines of credit and notes payable (the “Secured Facilities”) were paid off and terminated. Principal and interest paid in 2011under the Secured Facilities was $779.6 million and $2.5 million, respectively. Concurrent with the payoff of the Secured Facilities, an $88.4 million loss on debt extinguishment was recognized, which included a $65.0 million write-off of the discount related to the Secured Facilities, which increased the principal to its face value of $779.6 million, and a $23.4 million write-off of prepaid professional and loan fees incurred in connection with the Secured Facilities. All payable-in-kind interest, $5.0 million of principal and certain fees were waived, all of which were netted against the $88.4 million charge. In addition, of the $19.1 million of then outstanding letters of credit, $4.0 million were returned and $15.1 million were paid by the Company, of which $14.5 million was reimbursed by JFSCI for its share of the letters of credit paid by the Company.

The Secured Notes bear interest at 8.625% paid semi-annually on May 15 and November 15, and do not require principal payments until maturity on May 15, 2019. The Secured Notes are redeemable, in whole or in part, at the Company’s option beginning on May 15, 2015 at a price of 104.313 per bond, reducing to 102.156 on May 15, 2016 and are redeemable at par beginning on May 15, 2017. At December 31, 2013 and 2012, accrued interest was $8.1 million and $8.1 million, respectively.

Reserves for completed operations primarily represent claims for property damage to completed homes and projects outside of our one-to-two year warranty period. Specific terms and conditions of completed operations claims vary depending on the market in which homes close and can range up to 12 years from the close of a home. Expenses and liabilities are recorded for potential completed operations claims based upon aggregated loss experience, which includes an estimate of completed operations claims incurred but not reported, and is actuarially estimated using individual case-based valuations and statistical analysis. For policy years from August 1, 2001 through the present, completed operations claims are insured through a combination of third-party and affiliate insurance carriers.

For the years ended December 31, 2013, 2012 and 2011, changes in completed operations reserves were as follows:

Reserves provided for completed operations are generally fully offset by changes in insurance receivables (see Note 5); however, premiums paid for completed operations insurance policies are included in cost of sales. For actual completed operations claims and estimates of completed operations claims incurred but not reported, we estimate and record corresponding insurance receivables under applicable policies when recovery is probable. At December 31, 2013 and 2012, insurance receivables were $138.6 million and $131.5 million, respectively.

Expenses, liabilities and receivables related to these claims are subject to a high degree of variability due to uncertainties such as trends in completed operations claims related to our markets and products built, claim settlement patterns and insurance industry practices. Although considerable variability is inherent in such estimates, we believe reserves for completed operations claims are adequate.

We offer a limited one or two year warranty for our homes. Specific terms and conditions of these warranties vary depending on the market in which homes close. We estimate warranty costs to be incurred and record a liability and a charge to cost of sales when home revenue is recognized. We also include in our warranty reserve uncovered losses related to completed operations coverage, which approximates 12.5% of the total property damage estimate. Factors affecting warranty liability include number of homes closed, historical and anticipated warranty claims, and cost per claim history and trends. We periodically assess adequacy of our warranty liabilities and adjust amounts as necessary.

For the years ended December 31, 2013, 2012 and 2011, changes in warranty liability were as follows:

Deferred revenue/gain represents deferred revenues or profit on transactions where an insufficient down payment was received or a future performance, passage of time or event is required. At December 31, 2013 and 2012, deferred revenue/gain primarily represents the PIC Transaction described below.

Completed operations claims were insured through PIC for policy years August 1, 2001 to July 31, 2007. In December 2009, PIC entered into a series of novation and reinsurance transactions (the “PIC Transaction”).

First, PIC entered into a novation agreement with JFSCI to novate its deductible reimbursement obligations related to its workers’ compensation and general liability risks at September 30, 2009 for policy years August 1, 2001 to July 31, 2007, and its completed operations risks from August 1, 2005 to July 31, 2007. Concurrently, JFSCI entered into insurance arrangements with unrelated third party insurance carriers to insure these policies. As a result of this novation, a $19.2 million gain was generated but was deferred and to be recognized as income when related claims are paid. In addition, the deferred gain may be increased or decreased based on changes in actuarial estimates. Any changes to the deferred gain will be recognized as a current period gain or charge. At December 31, 2013 and 2012, the unamortized deferred gain was $18.9 million and $20.3 million, respectively. For the years ended December 31, 2013, 2012 and 2011, we recognized $1.4 million, $(4.7) million and $1.0 million, respectively, of this deferral as income (expense), which was included in gain (loss) on reinsurance transaction, and includes both the impact of income recognized from claims paid as well as income or expense from increases or decreases to the deferred gain from changes in actuarial estimates.

Second, PIC entered into reinsurance agreements with unrelated reinsurers that reinsured 100% of the completed operations risks from August 1, 2001 to July 31, 2005. As a result of the reinsurance, a $15.6 million gain was generated but was deferred and to be recognized as income when the related claims are paid. In addition, the deferred gain may be increased or decreased based on changes in actuarial estimates. Any changes to the deferred gain will be recognized as a current period gain or charge. At December 31, 2013 and 2012, the unamortized deferred gain was $7.8 million and $8.4 million, respectively. For the years ended December 31, 2013, 2012, and 2011, we recognized $0.6 million, $(7.3) million and $2.1 million, respectively, of this deferral as income (expense), which was included in gain (loss) on reinsurance transaction, and includes both the impact of income recognized from claims paid as well as income or expense from increases or decreases to the deferred gain from changes in actuarial estimates.

As a result of the PIC Transaction, if the estimated ultimate loss to be paid under these policies exceeds the policy limits under the novation and reinsurance transactions, the shortfall is expected to be funded by JFSCI for the policies novated to JFSCI and by PIC for the policies they reinsured.

In December 2011, our consolidated joint venture, Vistancia, LLC, sold its remaining interest in an unconsolidated joint venture (the “Vistancia Sale”). As a result of the Vistancia Sale, since no other assets of Vistancia, LLC economically benefit the former non-controlling member of Vistancia, LLC, the Company recorded the remaining $3.3 million distribution payable to this member, which is paid $0.1 million quarterly. At December 31, 2013 and 2012, the distribution payable was $2.5 million and $2.9 million, respectively.

At December 31, 2013 and 2012, receivables from related parties, net were as follows:

In May 2011, concurrent with issuance of the Secured Notes, the previous unsecured receivable from JFSCI was partially paid down and the balance converted to a $38.9 million unsecured term note receivable, bearing 4% interest, payable in equal quarterly installments and maturing May 15, 2019. During 2013 and 2012, JFSCI elected to make prepayments, including accrued interest, of $3.8 million and $1.9 million, respectively, and applied these prepayments to future installments such that JFSCI would not be required to make a payment until February 2015. At December 31, 2013 and 2012, the note receivable from JFSCI, including accrued interest, was $21.6 million and $24.5 million, respectively. Quarterly, we evaluate collectability of the note receivable from JFSCI, which includes consideration of JFSCI’s payment history, operating performance and future payment requirements under the note. Based on these criteria, and as JFSCI applied prepayments under the note to defer future installments until February 2015, we do not anticipate collection risks on the note receivable from JFSCI.

At December 31, 2013 and 2012, notes receivable from unconsolidated joint ventures, including accrued interest, were $1.0 million and $0.3 million, respectively. These notes receivable bear interest ranging from 8% to 12% and mature in 2020. Further, the note bearing 8% interest can earn additional interest to achieve a 17.5% internal rate of return, subject to available cash flows of the joint venture, and can be repaid prior to 2020. Quarterly, we evaluate collectability of these notes, which includes consideration of prior payment history, operating performance and future payment requirements under the applicable note. Based on these criteria, we do not anticipate collection risks on these notes.

At December 31, 2013 and 2012, notes receivable from other related parties, including accrued interest, were $6.0 million and $7.2 million, respectively, net of related reserves of $12.8 million and $12.8 million, respectively. These notes are unsecured and mature from August 2016 through April 2021. At December 31, 2013 and 2012, these notes bore interest ranging from Prime less 0.75% (2.5%) to Prime plus 1% (4.25%). Quarterly, we evaluate collectability of these notes which includes consideration of prior payment history, operating performance and future payment requirements under the applicable notes. Based on these criteria, two notes receivable were deemed uncollectible and fully reserved. We do not anticipate collection risks on the other notes.

The Company, entities under common control and certain unconsolidated joint ventures also engage in transactions on behalf of the other, such as payment of invoices and payroll. Amounts resulting from these transactions are recorded in receivables from related parties or payables to related parties, are non-interest bearing, due on demand and generally paid monthly. At December 31, 2013 and 2012, these receivables were $3.7 million and $2.1 million, respectively, and these payables were $0.1 million and $0.1 million, respectively.

In March 2012, the Company’s entire 58% interest in Shea Colorado, LLC (“SCLLC”), a consolidated joint venture with Shea Properties II, LLC, a related party and the non-controlling member, was redeemed by SCLLC. In valuing its 58% interest in SCLLC, and to ensure receipt of net assets of equal value to its ownership interest, the Company used third-party real estate appraisals. The estimated fair value of the assets received by the Company was $30.8 million. However, as the non-controlling member is a related party under common control, the assets and liabilities received by the Company were recorded at net book value and the difference in the Company’s investment in SCLLC and the net book value of the assets and liabilities received was recorded as a reduction to the Company’s equity.

As consideration for the redemption, SCLLC distributed assets and liabilities to the Company having a net book value of $24.0 million, including $2.2 million of cash, a $3.0 million secured note receivable, $20.0 million of inventory and $1.2 million of other liabilities. As a result of this redemption, effective March 31, 2012, SCLLC is no longer included in these consolidated financial statements. This transaction resulted in a net reduction of $41.8 million in assets and $2.0 million in liabilities, and a $39.8 million reduction in total equity, of which $11.6 million was attributable to the Company’s equity and $28.2 million was attributable to non-controlling interests.

In December 2011, Vistancia, LLC, a consolidated joint venture, sold its remaining interest in an unconsolidated joint venture to the joint venture partner for $14.0 million, of which $3.0 million was distributed to non-controlling interests (the “Vistancia Sale”). We realized a $5.2 million gain, of which $5.9 million was included in other income (expense), net and $0.7 million of interest expense previously capitalized to our investment was written off to equity in income (loss) from joint ventures. In addition, as no other assets of Vistancia, LLC economically benefit the non-controlling member, the Company recorded the remaining $3.3 million distribution payable to this member, which is included in other liabilities in the consolidated balance sheets with a corresponding charge to other income (expense), net in the consolidated statements of operations. In May 2012, for a nominal amount, SHLP purchased the non-controlling member’s entire 16.7% interest in Vistancia, LLC; however, the distribution payable remained, which is paid $0.1 million quarterly. At December 31, 2013 and 2012, the distribution payable was $2.5 million and $2.9 million, respectively (see Note 11).

As a condition of the Vistancia Sale, and the purchase of the non-controlling member’s remaining interest in Vistancia, LLC, the Company effectively remains a 10% guarantor on certain community facility district bond obligations to which the Company must meet a minimum calculated tangible net worth; otherwise, the Company is required to fund collateral to the bond issuer. At December 31, 2013 and 2012, the Company exceeded the minimum tangible net worth requirement.

In October 2012, the Company sold land in Colorado to a related party for $4.6 million. As the related party is under common control, the $2.4 million of net sales proceeds received in excess of the net book value of the land sold was recorded as an equity contribution.

In November 2011, through our consolidated joint venture SCLLC, we sold land in Colorado to a related party for $0.8 million. As the related party is under common control, the $0.5 million of consideration received in excess of net book value was recorded as an equity contribution.

In September 2011, we sold fixed assets in Colorado, comprised of three buildings and related improvements and land, to a related party. Consideration received was $14.4 million cash and a $6.5 million note receivable at 4.2% interest, payable in equal monthly installments and maturing August 2016. As the related party is under common control, the $1.5 million of consideration received in excess of net book value was recorded as an equity contribution.

In April 2011, through our consolidated joint venture SCLLC, we entered into transactions with the joint venture partner of two unconsolidated joint ventures in Colorado, in which we have a 50% ownership interest in each, SB Meridian Villages, LLC (“SBMV”) and TCD Bradbury LLC (“TCDB”). First, we assigned our membership interest in SBMV to our joint venture partner for $4.5 million, resulting in a $0.5 million gain. Second, we contributed $11.5 million in cash to TCDB and received $15.4 million of land with a $0.6 million secured promissory note payable, and the joint venture partner received $12.2 million of land and $6.5 million of cash. TCDB then paid off a bank note payable that was secured by the land distributed to the TCDB partners.

At December 31, 2013 and 2012, we were the managing member for ten unconsolidated joint ventures and received management fees from these joint ventures as reimbursement for direct and overhead costs incurred on behalf of the joint ventures and other associated costs. Fees from these unconsolidated joint ventures representing reimbursement of our costs are recorded as a reduction of general and administrative expense. Fees from these unconsolidated joint ventures representing amounts in excess of our costs are recorded as revenues. For the years ended December 31, 2013, 2012 and 2011, $8.0 million, $4.3 million and $3.6 million of management fees, respectively, were offset against general and administrative expenses, and $0.5 million, $0.2 million and $1.7 million of management fees, respectively, were included in revenues.

JFSCI provides corporate services to us, including services for management, legal, tax, information technology, risk management, facilities, accounting, treasury and human resources. For the years ended December 31, 2013, 2012 and 2011, general and administrative expenses included $20.3 million, $18.1 million and $16.4 million, respectively, for corporate services provided by JFSCI.

We obtain workers compensation insurance, commercial general liability insurance and insurance for completed operations losses and damages with respect to our homebuilding operations from affiliate and unrelated third-party insurance providers. These policies are purchased by affiliate entities and we pay premiums to these affiliates for the coverage provided by these third party and affiliate insurance providers. Policies covering these risks are written at various coverage levels but include a large self-insured retention or deductible. We have retention liability insurance from affiliated entities to insure these large retentions or deductibles. For the years ended December 31, 2013, 2012 and 2011, amounts paid to affiliates for this retention insurance coverage were $14.1 million, $13.1 million and $12.9 million, respectively.

For the years ended December 31, 2013, 2012 and 2011, major components of the income tax benefit (expense) were as follows:

For the years ended December 31, 2013, 2012 and 2011, the effective tax rate differed from the 35% federal statutory rate due to the following:

At December 31, 2013 and 2012, the tax effects of temporary differences that give rise to significant portions of deferred taxes were as follows:

Due to a change in ownership of Foundation Administration Services Corp. in 2001, NOL carryforwards utilized in a given year to offset future taxable income are subject to an annual limitation of approximately $4.6 million pursuant to Section 382 of the Internal Revenue Code. As a result of this annual limitation, available NOL carryforwards have been reduced by the amount expected to expire. At December 31, 2013, SHI had NOL carryforwards of approximately $18.8 million, net, that expire by 2018 and are subject to annual limitations of $4.6 million.

In accordance with ASC 740, deferred tax assets are evaluated to determine if valuation allowances are required. ASC 740 requires companies to assess valuation allowances based on evidence using a “more-likely-than-not” standard. A valuation allowance reflects the estimated amount of deferred tax assets that may not be realized due to inherent uncertainty of future income from homebuilding operations of SHI and potential expiration of net operating loss (the “NOL”) carryforwards. The deferred tax asset amount considered realizable may change in the future, depending on profitability.

Because of the continued annual pretax losses for SHI through the year ended December 31, 2009, the Company determined it was more-likely-than-not that at December 31, 2009, the net deferred tax assets of $51.9 million would not be realized. Accordingly, for the year ended December 31, 2009, the deferred tax asset valuation allowance increased $32.7 million to fully reserve the net deferred tax asset. At December 2011 and 2010, our assessment of deferred tax assets was consistent with 2009 and the net deferred tax asset of $38.2 million and $48.8 million, respectively, remained fully reserved. For the year ended December 31, 2012, SHI generated pretax income for the first time since 2007, a result of the beginning of a housing industry recovery. However, since we only returned to profitability in 2012 and the housing recovery being in its early stages, the $32.7 million net deferred tax assets at December 31, 2012 remained fully reserved.

At December 31, 2013, the Company determined it was more-likely-than-not most of the net deferred tax assets would be realized, which, during the fourth quarter, resulted in a $15.6 million reversal of the valuation allowance on its deferred tax assets. The Company evaluated positive and negative evidence, such as financial performance, as the case may be, to determine its ability to realize its deferred tax assets. In its evaluation, the Company gave more weight to objective evidence, such as sales backlog, compared to subjective evidence, such as tax planning strategies. Also, significant weight was given to evidence directly related to the Company’s recent financial performance, such as customer traffic at its communities and cancellation rates, compared to indirect evidence, such as mortgage interest rates, or less recent evidence.

At December 31, 2013, in evaluating the valuation allowance, the Company gave more weight to its improving financial results in 2013, especially growth in pre-tax income, gross margins and backlog sales value. The Company also estimated that if its pre-tax income continued, the NOLs would be realized before they expire in 2018. Additionally, the Company considered the subjective, direct positive evidence of improving market fundamentals and its plan to open new communities.

Prior to December 31, 2013, the Company gave substantial weight to its losses incurred during the housing downturn in addition to other negative, indirect evidence, such as weakness in the economy, consumer confidence and housing market and a more restrictive mortgage lending environment.

At December 31, 2013, the valuation allowance relates to capital losses that expire in 2016 and 2017, and the impairment of debt securities that mature in 2021 and 2022. It is unknown if these deferred tax assets will be realized.

In 2009, we filed a petition with the United States Tax Court (the “Tax Court”) regarding our position on the completed contract method (“CCM”) of accounting for homebuilding operations. During 2010 and 2011, we engaged in formal and informal discovery with the IRS and the Tax Court heard trial testimony in July 2012 and ordered the Company and IRS to exchange briefs, which were filed. On February 12, 2014, the Tax Court ruled in favor of the Company (the “Tax Court Decision”). Pursuant to the ruling, the Company is permitted to continue to report income and loss from the sale of homes in its planned developments using CCM. As a result, no additional tax, interest or penalties are currently due and owing by the Company or the Partners. The Tax Court Decision is subject to appeal by the IRS to the U.S. Court of Appeals for the Ninth Circuit. The IRS must elect whether to appeal within 90 days after the Tax Court enters a decision document, which has not occurred.

If the Tax Court Decision is appealed, we believe our position would prevail and, accordingly, have not recorded a liability for related taxes or interest for SHI. Furthermore, as a limited partnership, income taxes, interest or penalties imposed on SHLP are the Partners’ responsibility and are not reflected in the tax provision in these consolidated financial statements. However, if the Tax Court Decision is overturned, SHI could be obligated to pay the IRS and applicable state taxing authorities up to $65 million and, under the Tax Distribution Agreement, SHLP could be obligated to make a distribution to the Partners up to $108 million to fund their related payments to the IRS and the applicable state taxing authorities. However, the Indenture provides the amount we may pay on behalf of SHI and distribute to the partners of SHLP for this matter may not exceed $70.0 million. Any potential shortfall would be absorbed by the SHLP Partners.

In 2014, the Company anticipates filing Form 3115 with the IRS to change its tax accounting method of how it records certain expenses on its tax returns. As the Company believes it is more-likely-than-not the change will be approved by the IRS, the Company will reflect this tax accounting method in preparing its 2014 tax provision and, accordingly, this change may increase its effective tax rate.

Owners’ equity consists of partners’ preferred and common capital. Common capital is comprised of limited partners with a collective 78.38% ownership and a general partner with a 20.62% ownership. Preferred capital is comprised of limited partners with either series B (“Series B”) or series D (“Series D”) classification. Series B holders have no ownership interest but earn a preferred return at Prime less 2.05% per annum through December 31, 2012 (1.2% at December 31, 2012) on unreturned preferred capital balances and Series D holders have a 1% ownership interest and earn a preferred return at 7% per annum through December 31, 2012 on unreturned preferred capital balances. In August 2013, the Agreement was amended and the rates on the Series B and Series D were changed, effective January 1, 2013. Series B earns a rate of 1.2% from January 1, 2013 to December 31, 2016, 2.25% from January 1, 2017 to December 31, 2020, and Prime less 2.05% from January 1, 2021 and thereafter on unreturned capital balances. Series D earns a rate of 2.0% from January 1, 2013 to December 31, 2016, 12.75% from January 1, 2017 to December 31, 2020, and 7.0% from January 1, 2021 and thereafter on unreturned capital balances. At December 31, 2013 and 2012, accumulated undistributed preferred returns for Series B holders were $22.7 million and $20.8 million, respectively. At December 31, 2013 and 2012, accumulated undistributed preferred returns for Series D holders were $56.6 million and $52.8 million, respectively.

Net income is allocated to Partners in a priority order that considers previously allocated net losses and preferred return considerations and, thereafter, in proportion to their respective ownership interests. Net loss is allocated in a priority order to Partners generally in proportion to their ownership interests and adjusted capital account balances, and, thereafter, to the general partner.

The general partner, in its sole discretion, may make additional capital contributions or accept additional capital contributions from the limited partners. Cash distributions are made to Partners in proportion to their unpaid preferred returns, unreturned capital and, thereafter, in proportion to their ownership interests. Distributions to Partners are made at the discretion of the general partner, including payment of personal income taxes related to the Company. In addition, distributions to Partners from other entities under control of Shea family members, such as JFSCI, can be used for payment of personal incomes taxes related to the Company and other uses.

JFSCI, on our behalf, maintains a 401(k) Retirement Savings Plan that includes a profit sharing component covering all eligible employees. The plan includes employer participation in accordance with provisions of Section 401(k) of the Internal Revenue Code. The plan allows participants to make pre-tax contributions. On a discretionary basis, we may match employee contributions up to a percentage of the employee’s salary as determined by the Company. The profit sharing portion of the plan is discretionary and non-contributory, allowing us to make additional contributions based on a percentage of the employee’s salary as determined by the Company. All amounts contributed to the plan are deposited into a trust fund administered by independent trustees. For the years ended December 31, 2013 and 2012, matching 401(k) contributions were $0.5 million and $0.5 million, respectively, which represented 50 cents on each dollar, up to the first 6% of the employee’s base salary, subject to a cap, for a maximum of 3%, less forfeitures; there were no matching 401(k) contributions for the year ended December 31, 2011. For the year ended December 31, 2013, profit sharing contributions were $0.9 million, which represented 3% of the employee’s base salary, subject to a cap. For the years ended December 31, 2012 and 2011, there were no profit sharing contributions.

JFSCI, on our behalf, maintains a non-qualified Deferred Compensation Plan. The plan allows participants to defer up to 80% of base salary, 80% of commissions and 100% of bonus in a deferred account. Deferred amounts may be invested in a variety of investment funds. On behalf of each participant, on a discretionary basis, we may contribute to a separate account comprised of investment funds that correspond to such participant’s deferred account. The plan is designed to comply with Section 409A of the Internal Revenue Code. Deferred amounts may be distributed to each participant upon a separation from service, death, disability, on a scheduled withdrawal date, or with committee approval in the event of unforeseen circumstances. For the years ended December 31, 2013, 2012 and 2011, we made no contributions under the plan.

On August 8, 2012, the Company adopted, effective January 1, 2012, the Shea Homes Appreciation Rights Plan (the “SHAR Plan”), an equity appreciation plan designed to provide employees and non-employee service providers a financial incentive to contribute to the Company’s long-term success. The SHAR Plan provides for the issuance of units representing the right to receive payment, generally at the time such units vest, based on the increase in book value, as defined, of SHLP’s equity between the time of the units Effective Date and when the units vest. The board of directors of J.F. Shea Construction Management, Inc., our ultimate general partner, administers the SHAR Plan and has the authority to make all determinations thereunder including participants, valuations, amount and timing of grants, vesting criteria, amount and timing of payments (including interim payments), modifications and termination.

On August 8, 2012, the directors approved the SHAR Plan 2012 Grant (the “2012 Grant”), effective January 1, 2012 (the “2012 Effective Date”). Pursuant to the 2012 Grant, 1,021,947 units were issued at a stipulated base value of $10.00 per unit. The units issued pursuant to the 2012 Grant vest four years after the 2012 Effective Date. Subject to participant service eligibility requirements, appreciation in the value of the units during this period is payable to participants when such units vest. However, as a further incentive to participants, the directors concurrently approved annual interim payments of the 2012 Grant only, payable to participants in March 2013, 2014 and 2015. Upon vesting, for each eligible participant, interim payments will be offset against the full appreciation of these units and the resultant net amount payable to participant, if any, will be paid upon vesting, which occurs in March 2016.

On August 6, 2013, the directors approved the SHAR Plan 2013 Grant (the “2013 Grant”), effective January 1, 2013 (the “2013 Effective Date”). Pursuant to the 2013 Grant, 463,388 units were issued at a stipulated base value of $10.60 per unit. The units issued pursuant to the 2013 Grant vest four years after the 2013 Effective Date. Subject to participant service eligibility requirements, appreciation in the value of the units during this period is payable to participants when such units vest, which occurs in March 2017.

At December 31, 2013 and 2012, the Company accrued $4.2 million and $1.1 million, respectively, for this plan.

At December 31, 2013 and 2012, certain unrecorded contingent liabilities and commitments were as follows:

We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable, and are based on specific facts and circumstances, and we revise these estimates when necessary. At December 31, 2013 and 2012, we had reserves of $4.6 million and $4.9 million, respectively, net of expected recoveries, relating to these claims and matters, and while their outcome cannot be predicted with certainty, we believe we have appropriately reserved for them. However, if the liability arising from their resolution exceeds their recorded reserves, we could incur additional charges that could be significant.

Due to the inherent difficulty of predicting outcomes of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. If our evaluations indicate loss contingencies that could be material are not probable, but are reasonably possible, we will disclose their nature with an estimate of possible range of losses or a statement that such loss is not reasonably estimable. Other than the matter discussed in Note 13, at December 31, 2013, the range of reasonably possible losses in excess of amounts accrued was not material.

On May 10, 2011, we entered into a $75.0 million letter of credit facility. At December 31, 2013, there were no letters of credit outstanding. At December 31, 2012, outstanding letters of credit issued under the letter of credit facility were $4.2 million. This facility was terminated in February 2014 upon execution of the Company’s new $125.0 million revolving credit facility (see Note 21), under which up to $62.5 million of letters of credit may be issued.

We also provide indemnification for bonds issued by certain unconsolidated joint ventures and other related party projects in which we have no ownership interest. At December 31, 2013, there were $22.8 million of costs to complete in connection with $63.7 million of surety bonds issued for unconsolidated joint venture projects, and $1.6 million of costs to complete in connection with $4.9 million of surety bonds issued for related party projects. At December 31, 2012, there were $30.8 million of costs to complete in connection with $71.6 million of surety bonds issued for unconsolidated joint venture projects, and $2.3 million of costs to complete in connection with $6.1 million of surety bonds issued for related party projects.

Certain of our homebuilding projects utilize community facility district, metro-district and other local government bond financing programs to fund acquisition or construction of infrastructure improvements. Interest and principal on these bonds are typically paid from taxes and assessments levied on landowners and/or homeowners following the closing of new homes in the project. Occasionally, we enter into credit support arrangements requiring us to pay interest and principal on these bonds if taxes and assessments levied on homeowners are insufficient to cover such obligations. Furthermore, reimbursement of these payments to us is dependent on the district or local government’s ability to generate sufficient tax and assessment revenues from the new homes. At December 31, 2013 and 2012, in connection with credit support arrangements,

there was $8.6 million and $4.9 million, respectively, reimbursable to us from certain agencies in Colorado and, accordingly, recorded these in inventory as a recoverable project cost.

We also pay certain fees and costs associated with the construction of infrastructure improvements in homebuilding projects that utilize these district bond financing programs. These fees and costs are typically reimbursable to us from, and therefore dependent on, bond proceeds or taxes and assessments levied on homeowners. At December 31, 2013 and 2012, in connection with certain funding arrangements, there was $13.1 million and $16.3 million, respectively, reimbursable to us from certain agencies, including $11.9 million and $11.9 million, respectively, from a metro-district in Colorado and, accordingly, recorded these in inventory as a recoverable project cost.

At a consolidated homebuilding project in Colorado, we have contractual obligations to purchase and receive water system connection rights which, at December 31, 2013 and 2012, had an estimated market value in excess of their contractual purchase price of $30.5 million and $33.6 million, respectively. These water system connection rights are held and then transferred to homebuyers upon closing of their home or transferred upon sale of land to the respective buyer. These water system connection rights can also be sold or leased but generally only within the local jurisdiction.

We lease certain property and equipment under non-cancelable operating leases. Office leases are for terms of up to ten years and generally provide renewal options for terms up to an additional five years. In the normal course of business, we expect expired leases will be renewed or replaced. Equipment leases are typically for terms of three to four years. At December 31, 2013, future minimum rental payments under operating leases (excluding related party operating leases for office space – see below) having initial or remaining non-cancelable lease terms in excess of one year were as follows:

For the years ended December 31, 2013, 2012 and 2011, rental expense for non-related party operating leases was $1.7 million, $1.4 million and $1.7 million, respectively.

We also lease office space from related parties under non-cancelable operating leases. The leases are for terms of up to ten years and generally provide renewal options for terms up to an additional five years. At December 31, 2013, future minimal rental payments under related party operating leases having initial or remaining non-cancelable lease terms in excess of one year were as follows:

For the years ended December 31, 2013, 2012 and 2011, related party rental expense was $0.4 million, $0.6 million and $0.7 million, respectively.

Supplemental disclosures to the consolidated statements of cash flows were as follows:

Our homebuilding business, which is responsible for most of our operating results, constructs and sells single-family attached and detached homes designed to appeal to first-time, move-up and active lifestyle homebuyers. Our homebuilding business also provides management services to joint ventures and other related and unrelated parties. We manage each homebuilding community as an operating segment and have aggregated these communities into reportable segments based on geography as follow:

In accordance with ASC 280, in determining the most appropriate aggregation of our homebuilding communities, we also considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply.

Our Corporate segment primarily provides management services to our operating segments, and includes results of our captive insurance provider, which primarily administers claims reinsured by third party carriers and the deductibles and retentions under those third party policies. Results of our insurance brokerage services business are also included in our Corporate segment.

The reportable segments follow the same accounting policies as our consolidated financial statements described in Note 2. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.

The obligations under the Secured Notes are not guaranteed by any SHLP joint venture where SHLP Corp does not own 100% of the economic interest, including those that are consolidated, and the collateral securing the Secured Notes does not include a pledge of the capital stock of any subsidiary if such pledge would result in a requirement that SHLP Corp file separate financial statements with respect to such subsidiary pursuant to Rule 3-16 of Regulation S-X under the Securities Act.

Pursuant to the indenture governing the Secured Notes, a guarantor may be released from its guarantee obligations only under certain customary circumstances specified in the indenture, namely (1) upon the sale or other disposition (including by way of consolidation or merger) of such guarantor, (2) upon the sale or disposition of all or substantially all the assets of such guarantor, (3) upon the designation of such guarantor as an unrestricted subsidiary for covenant purposes in accordance with the terms of the indenture, (4) upon a legal defeasance or covenant defeasance pursuant thereto, or (5) upon the full satisfaction of our obligations under the indenture.

Presented herein are the condensed consolidated financial statements provided for in Rule 3-10(f) of Regulation S-X under the Securities Act for the guarantor subsidiaries and non-guarantor subsidiaries.

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

In connection with the November 2013 receipt of consent from our bondholders to amend the Indenture to allow the Company to replace its $75.0 million letter of credit facility with a $125.0 million secured revolving credit facility, JFSCI made an $8.4 million payment, including accrued interest, in January 2014 on its note with SHI. As a result of applying this payment to future installments, JFSCI is not required to make its next installment payment until November 2016.

In January 2014, the Company entered into a purchase and sale agreement and acquired undeveloped land in Northern California from a related party under common control. Consideration for the purchase includes an upfront cash payment of $4.4 million cash, the assumption of a $5.7 million liability, both of which represent the net book value of the selling party, plus future revenue participation payments (the “RAPA”). The RAPA is calculated at 11% of gross revenues from home closings and payable quarterly. The RAPA liability, based on a third-party real estate appraisal, is estimated to be $19.6 million. As the transaction is with a related party under common control, the Company will record the real estate asset at the net book value of the related party, the estimated RAPA liability of $19.6 million and a charge to equity of $25.3 million.

In February 2014, the Company replaced its $75.0 million letter of credit facility with a $125.0 million secured revolving credit facility (the “Revolver”), which bears interest at LIBOR plus 2.75% and matures March 1, 2016. Borrowing availability is determined by a borrowing base formula and the Company is subject to financial covenants, including minimum net worth and leverage and interest coverage ratios. If the Company does not maintain compliance with these financial covenants, the Revolver converts to an 18-month amortizing term loan.

In February 2014, the Company entered into a purchase and sale agreement to sell land in Southern California for $1.0 million. As the transaction is with a related party under common control, the $0.9 million of net sales proceeds received in excess of the net book value of the land sold will be recorded as an equity contribution.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

As of the end of the period covered by this annual report on Form 10-K, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures” as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation that was performed, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2013.

Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal control over financial reporting to determine whether any change occurred during the fourth quarter of the year ended December 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the fourth quarter of the period covered by this report.

The names, ages and positions of the executive officers of SHLP as of the date of this report are set forth below:

SHLP does not have a board of directors. The names and ages of the directors of J.F. Shea Construction Management, Inc., which is the ultimate general partner of SHLP, as of the date of this prospectus are set forth below. As used herein, the directors of this Company shall mean the directors listed below acting on behalf of J.F. Shea Construction Management, Inc.

Roberto Selva. Mr. Selva has served as President and Chief Executive Officer since 2002. Previously, he served as President of our Colorado homebuilding operations, which he was instrumental in founding. Before joining us in 1996, Mr. Selva served as a senior executive with KB Home from 1994 to 1996. He previously served as Chief Financial Officer of Signature Homes. Mr. Selva holds an M.B.A. from UCLA and a B.S. from the University of Southern California. Mr. Selva serves on the Executive Committee of the Lusk Center for Real Estate at the University of Southern California and is Chairman of the National Advisory Board of HomeAid America.

Andrew Parnes. Mr. Parnes has severed as Chief Financial Officer since September 2012. Prior to joining the Company, he was an independent consultant from 2009 to September 2012, focusing on real estate and financial services companies, including serving on the Board of Directors of a privately-owned regional homebuilder. From 1996 to 2009, Mr. Parnes served as Executive Vice President and Chief Financial Officer of Standard Pacific Corp, a publicly traded homebuilder, and from 1989 to 1996 as its Controller and Treasurer. He also was an auditor at the accounting firm of Arthur Andersen from 1980 to 1989. Mr. Parnes holds a B.S.B.A. with an emphasis in accounting from the University of Arizona.

Ross Kay. Mr. Kay has served as Senior Vice President and General Counsel since August 2012. Prior to joining the Company, he was at KB Home, a publicly traded homebuilder, from 1999 to 2012 and served as Vice President, Assistant General Counsel. He was also the General Counsel of The Blue Chalk Café from 1997-1999, and an associate at Orrick, Herrington & Sutcliffe and Berliner Cohen from 1990 to 1997. Mr. Kay holds a J.D. from Santa Clara University School of Law and a B.A. from the University of California, San Diego.

Andrew Roundtree. Mr. Roundtree has served as Vice President, Corporate Controller since 2005. Prior to joining the Company, he was the Chief Financial Officer of Anaheim Sports Inc., a subsidiary of The Walt Disney Company and owner of the Anaheim Angels and Mighty Ducks of Anaheim. Mr. Roundtree holds a B.S in Economics with an emphasis in accounting from Claremont Men’s College.

John F. Shea. Mr. Shea has been a member of the board of directors of the general partner of SHLP since SHLP’s formation in 1989. He is currently Chairman of the Board for JFSCI after serving as its President and CEO until he retired in 2005. Mr. Shea holds a B.C.E. from the University of Southern California.

Peter O. Shea. Mr. Shea has been a member of the board of directors of the general partner of SHLP since SHLP’s formation in 1989. Since 2005, he has also served as Executive Vice President of JFSCI, and since 2000, has served as President of J.F. Shea Construction, Inc. Mr. Shea holds a B.B.A. from the University of California, Berkeley and a B.C.E. from the University of Southern California.

Peter Shea, Jr. Mr. Shea has been a member of the board of directors of the general partner of SHLP since 2005. Since 2005, he has also served as President and Chief Executive Officer of JFSCI. Previously, he served as Chief Operating Officer of JFSCI for three years, prior to which he was Vice President of J.F. Shea Construction, Inc. Mr. Shea holds a B.S. in Civil Engineering from the University of California, Berkeley. He serves on the boards of Fidelity National Title and the Beavers, a nationwide construction engineering association, where he also served as President in 2012.

John C. Morrissey. Mr. Morrissey has been a member of the board of directors of the general partner of SHLP since 2005. Since 2005, he has also served as Executive Vice President of JFSCI and Managing Director of Shea Ventures. Prior to joining Shea in 2003, Mr. Morrissey was a partner at the law firm Bingham McCutchen LLP. He received his B.A. in Economics from Yale College. He received a degree in Philosophy, Politics & Economics from Oxford University. He earned his J.D. degree from the University of Chicago Law School.

James G. Shontere. Mr. Shontere has been a member of the board of directors of the general partner of SHLP since SHLP’s formation in 1989. He has served as Chief Financial Officer of JFSCI since 1987, where he also serves as Corporate Secretary and is a member of the Board of Directors. Previously, Mr. Shontere served as Chief Financial Officer of a privately held manufacturer/distributor, prior to which he served as director of accounting for Taco Bell, a division of PepsiCo. Mr. Shontere holds a B.A. and an M.B.A. from the University of Southern California. He serves on the board of CalTax, a business advisory board to the California state government.

John F. Shea and Peter O. Shea are first cousins. Peter Shea, Jr. is the son of Peter O. Shea.

We have adopted a Business Ethics, Employee Conduct and Confidentiality Policy (“Policy”) for our directors, officers (including our principal executive officer, principal financial officer and principal accounting officer or controller) and employees, which qualifies as a code of ethics under Item 406 of Regulation S-K. A copy of this Policy is available free of charge on the Company’s web site at www.sheahomes.com in the Investors section. We will disclose any waiver granted to our principal executive officer, principal financial officer and principal accounting officer or controller, and any amendment to this Policy, on the Company’s web site at www.sheahomes.com in the Investors section.

The following table sets forth a summary of the compensation paid or accrued during the years ended December 31, 2013 and 2012 to our Chief Executive Officer and the next two most highly compensated named executive officers. For a discussion of material factors related to named executive officer compensation see “Narrative Disclosure to Summary Compensation Table” below:

The following describes material elements of compensation for our executive compensation program. When we refer to “named executive officers” in this section, we mean our President and CEO, Bert Selva, and our two most highly compensated executive officers for 2013: Layne Marceau, President—Northern California and Rick Andreen, President—Active Lifestyle Communities.

We have not entered into employment agreements with any of the named executive officers and none of the named executive officers are entitled to severance or change in control payments in connection with a termination of employment or a change in control.

On August 6, 2013, the Board of Directors of J.F. Shea Construction Management, Inc., our ultimate general partner (the “JFSCM Board”), approved the 2013 Shea Homes Cash Bonus Plan (the “Bonus Plan”), designed as a financial incentive to employees that recognizes individual and Company performance. The objectives of the Company’s compensation plan for 2013 relative to our senior management group were to motivate our team to focus on achieving our business plan for the year, continue to excel in the area of customer service and satisfaction, promote a safe work environment, work towards interdivisional achievement and cooperation, and concentrate on simplifying our business processes.

For Bert Selva, Layne Marceau and Rick Andreen, Bonus Plan awards are based on objective criteria consisting of actual pre-tax profit, adjusted for certain non-recurring items, with qualitative adjustments based on performance in the aforementioned categories. In order to receive payments under our Bonus Plan, executives must be employed by the Company on the payment dates.

On August 8, 2012, the JFSCM Board adopted, effective January 1, 2012, the Shea Homes Appreciation Rights Plan (the “SHAR Plan”), an equity appreciation plan designed to provide employees and non-employee service providers a financial incentive to contribute to the Company’s long-term success. The SHAR Plan provides for the issuance of units representing the right to receive payment, generally at the time such units vest, based on the increase in book value, as defined, of SHLP’s equity between the time of the units Effective Date and when the units vest.

The JFSCM Board administers the SHAR Plan and has the authority to make all determinations thereunder including participants, valuations, amount and timing of grants, vesting criteria, amount and timing of payments (including interim payments), and modifications to and termination of the SHAR Plan.

On August 8, 2012, the JFSCM Board approved the SHAR Plan 2012 Grant (the “2012 Grant”), effective January 1, 2012 (the “2012 Effective Date”). Pursuant to the 2012 Grant, 1,021,947 units were issued at a stipulated base value of $10.00 per unit. The units issued pursuant to the 2012 Grant vest four years after the 2012 Effective Date. Subject to participant service eligibility requirements, appreciation in the value of the units during this period is payable to participants when such units vest. However, as a further incentive to participants, the JFSCM Board concurrently approved annual interim payments of the 2012 Grant only, payable to participants in March 2013, 2014 and 2015. Upon vesting, for each eligible participant, interim payments will be offset against the full appreciation of these units and the resultant net amount payable to participant, if any, will be paid upon vesting, which occurs in March 2016.

For 2012, Bert Selva, President and Chief Executive Officer of SHLP, was granted 153,222 units at a stipulated base value of $10.00 per unit under the SHAR Plan and is expected to receive a $250,000 annual interim payment on such units in March 2013, 2014 and 2015, respectively. Layne Marceau, President – Northern California and Rick Andreen, President – Active Lifestyle Communities, were each granted 45,965 units at a stipulated base value of $10.00 per unit under the SHAR plan, and each received, or expected to receive, a $75,000 annual interim payment on such units in March 2013, 2014 and 2015, respectively.

On August 6, 2013, the JFSCM Board approved the SHAR Plan 2013 Grant (the “2013 Grant”), effective January 1, 2013 (the “2013 Effective Date”). Pursuant to the 2013 Grant, 463,388 units were issued at a stipulated base value of $10.60 per unit. The units issued pursuant to the 2013 Grant vest four years after the 2013 Effective Date. Subject to participant service eligibility requirements, appreciation in the value of the units during this period is payable to participants when such units vest, which occurs in March 2017.

For 2013, Bert Selva was granted 64,813 units at a stipulated base value of $10.60 per unit. Layne Marceau, President – Northern California and Rick Andreen, President – Southern California, were each granted 19,443 units at a stipulated base value of $10.60 per unit under the SHAR plan. No annual interim payments are payable under the 2013 Grant.

Members of the JFSCM Board are members of the Shea family and/or employees of JFSCI. These directors receive no additional compensation for their service on the board, however, as employees of JFSCI, their costs, including compensation, are included in the allocation of shared services costs to us for corporate services provided by JFSCI.

The JFSCM Board serves the purposes of the Compensation Committee. For the year ended December 31, 2013, Bert Selva, SHLP President and Chief Executive Officer, assisted the JFSCM Board in determining executive officer compensation.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Limited partnership interests in SHLP are held in three classes: Class B, Class C and Class D. Profit allocations to the capital accounts of holders of these interests are made first to preferred returns, then to restore losses from prior periods, if any, and third to the Class C and Class D non-preferred interests.

Holders of Class B interests are allocated a preferred interest in SHLP profits, which is based on an interest rate applied to their unreturned capital account, and are allocated profits to restore prior years’ losses, if any, but no other share of profits. At December 31, 2012, the preferred interest rate was Prime less 2.05%. In August 2013, the rate was changed, effective January 1, 2013 as follows: 1.2% from January 1, 2013 to December 31, 2016, 2.25% from January 1, 2017 to December 31, 2020, and Prime less 2.05% from January 1, 2021 and thereafter.

Holders of Class D interests are allocated a preferred interest in SHLP profits, which is based on an interest rate applied to their unreturned capital account, and are allocated profits to restore prior years’ losses, if any. Holders of Class D interests also receive a non-preferred allocation equal to 1% of any remaining SHLP profits after the Class B and Class D allocations described above. At December 31, 2012, the preferred interest rate was 7.0%. In August 2013, the rate was changed, effective January 1, 2013 as follows: 2.0% from January 1, 2013 to December 31, 2016, 12.75% from January 1, 2017 to December 31, 2020, and 7.0% from January 1, 2021 and thereafter.

Holders of Class C interests are allocated 99% of SHLP’s profits, after allocation of profits to holders of Class B and Class D interests in accordance with the preferred allocations described above and to restore prior year losses allocated to the Class B and Class D interests, if any.

J.F. Shea, G.P. is the general partner of SHLP and, as such, has authority to make all decisions with respect to SHLP other than those reserved to the limited partners. SHLP’s outstanding Class C and Class D interests are the only interests that carry voting rights with respect to the matters reserved to the limited partners. Class C limited partnership interests are generally weighted with 99% of the vote, and Class D limited partnership interests are generally weighted with 1% of the vote. References to “beneficial ownership” in the following table refer to the percentage of the aggregate voting interest held by the limited partners through Class C and Class D limited partnership interests.

The following table sets forth, as of March 3, 2014, the percentage beneficial ownership of each person or entity that is or is deemed to be a greater than 5% beneficial owner. The table also identifies certain other entities that have direct or indirect beneficial ownership. No executive officer of SHLP beneficially owns any of SHLP’s limited partnership interests, and SHLP does not have a board of directors.

The mailing address of each owner listed below is 655 Brea Canyon Road, Walnut, CA 91789.

SHLP is effectively controlled by members of the Shea family, primarily John Shea, Mary Shea (wife of Edmund Shea—deceased) and Peter Shea.

J.F. Shea, G.P. is 96.00% owned by JFS Management, L.P. and 4.00% owned by JFSCI.

JFS Management, L.P. is 50.00% owned by Shea Management LLC and 50.00% owned by J.F. Shea Construction Management, Inc.

J.F. Shea Construction Management, Inc. is governed by a board of directors consisting of John F. Shea, Peter O. Shea,

Peter Shea, Jr., John C. Morrissey and James G. Shontere. J.F. Shea Construction Management, Inc. is 33.33% owned by the 2013 Dorothy Shea Trust, 33.33% owned by the 2011 Mary Shea Trust and 33.33% owned by the 2011 Carolyn Shea Trust.

Shea Management LLC is 16.67% owned by Peter Shea Jr., 9.09% owned by John Morrissey, 5.68% owned by Jim Shea, and 68.56% owned by certain employees of Shea Family Owned Companies and certain of the executive officers of SHLP.

JFSCI is governed by a board of directors consisting of John F. Shea, Peter O. Shea, Peter Shea, Jr., John C. Morrissey and James G. Shontere. JFSCI is 46.07% owned by the John F. Shea Family Trust, 25.54% owned by the Descendant’s Trust under Article Tenth of E&M Shea Revocable Trust, 16.49% owned by the Peter and Carolyn Shea Revocable Trust, 3.93% owned by certain trusts for the benefit of the children of John F. Shea, 4.46% owned by certain trusts for the benefit of the children of Edmund Shea and 3.51% owned by certain trusts for the benefit of the children of Peter Shea.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

We are part of the Shea Family Owned Companies. The Shea family consists primarily of John Shea, Mary Shea (wife of his cousin, Edmund Shea, Jr.—deceased) and his cousin, Peter Shea, and their 17 children. While John Shea and Peter Shea actively participate in strategic management decisions for the Shea family companies, day-to-day management decisions with respect to the Shea family companies are made by Peter Shea, Jr. and John Morrissey, son-in-law of Edmund Shea, Jr., who serve as directors of J.F. Shea Construction Management, Inc., the ultimate general partner of SHLP.

The Shea Family Owned Companies are operated in three major groups: homebuilding, heavy construction and commercial property development and management. Much of the Shea Family Owned Companies’ business has traditionally been operated and managed through JFSCI, with each of the homebuilding, heavy construction, and commercial property businesses providing management, administrative, financial and credit support to one another. Over the past several years, the Shea family and our management have made a series of changes to the business and operating structure of the Shea Family Owned Companies so that, currently:

Transactions with JFSCI and Other Beneficial Owners of SHLP Partnership Interests

Until August 2011, we participated in a centralized cash management function operated by JFSCI, whereby net cash flows from operations were transferred daily with JFSCI and resulted in related party transactions and monetary transfers to settle amounts owed. In August 2011, we ceased participation in this function and performed it independently.

We, along with certain other Shea Family Owned Companies, receive certain administrative services from JFSCI, including management, legal, tax, information technology, risk management, facilities, accounting, treasury and human resources. This sharing and resultant allocation of costs is based on reasonable and customary practices, is governed by written agreement and requires related party transactions and monetary transfers to settle amounts owed between entities. For these services, we pay JFSCI a fee based on time spent by JFSCI employees on our related work. For the years ended December 31, 2013, 2012 and 2011, we recognized $20.3 million, $18.1 million and $16.4 million, respectively, of general and administrative expenses for corporate services provided by JFSCI.

Included in receivables from related parties, net are interest bearing note receivables from JFSCI, as follows:

These net note receivables from JFSCI result primarily from participation in JFSCI’s centralized cash management function. Previously, the net note receivable from JFSCI was unsecured and due on demand. In May 2011, concurrent with issuance of the Secured Notes, the receivable was partially paid down and the balance converted to a $38.9 million unsecured term note receivable, bearing 4% interest, payable in equal quarterly installments and maturing May 15, 2019. In January 2014, and the years 2013 and 2012, JFSCI made prepayments, including accrued interest, of $8.4 million, $3.8 million and $1.9 million, respectively, and applied these to future installments such that JFSCI would not be required to make its next installment payment until November 2016. For the years ended December 31, 2013 and 2012, the net note receivable from JFSCI earned interest of $0.9 million and $1.0 million, respectively.

We and certain other Shea Family Owned Companies, primarily JFSCI, also engage in specific transactions with third parties on behalf of each other that primarily relate to employee payroll and payment of subcontractor and supplier invoices. The resultant receivables and payables are non-interest bearing and due on demand. Payroll is funded when paid and the receivables and payables resulting from subcontractor and supplier invoice payments are settled monthly.

At December 31, 2013, 2012 and 2011, non-interest-bearing receivables from related parties, including JFSCI, were approximately $3.7 million, $2.1 million and $0.9 million, respectively. During the years ended December 31, 2013, 2012 and 2011, the highest month-end balance of non-interest-bearing receivables from related parties, including JFSCI, was $4.7 million, $2.1 million and $14.0 million, respectively.

At December 31, 2013, 2012 and 2011, non-interest-bearing payables to related parties, including JFSCI, which primarily result from payments made on our behalf by such parties, were $0.1 million, $0.1 million and $2.3 million, respectively.

SHLP, the partners of SHLP, and the direct and indirect holders of all beneficial interests in SHLP, entered into an agreement which requires SHLP to distribute cash payments to its partners for taxes incurred by such partners (or their direct or indirect holders) for their ownership interest in SHLP. Under the Tax Distribution Agreement, SHLP is required to make distributions to its partners quarterly or annually if the aggregate income tax liability of the SHLP partners (or their direct or indirect holders) with respect to allocations of income to such persons for periods commencing on or after January 1, 2011, at any time exceeds amounts previously distributed to such persons after January 1, 2011 (excluding for this purpose certain distributions otherwise permitted pursuant to the indenture). The aggregate income tax liability of the SHLP partners (or their direct or indirect holders) is determined on a notional basis by multiplying the income allocated to such partners (or their direct or indirect holders) for tax purposes by the highest aggregate marginal combined federal, state and local income tax rates applicable to such income. Under the Tax Distribution Agreement, SHLP is also required to make distributions to its partners to pay the adjusted income tax liability of the SHLP partners (or their direct or indirect holders) as a result of an adjustment to items of income, gain, loss, or deduction of SHLP upon the resolution of any tax proceeding of SHLP or any entity treated as a “pass-through” entity under

U.S. federal income tax principles in which SHLP has an ownership interest, including the CCM proceeding (see discussion of CCM proceeding in Note 13 in the accompanying notes to the consolidated financial statements). Such adjusted income tax liability of the SHLP partners (or their direct or indirect holders) is determined by multiplying the increase in income (or reduction of loss) allocated to such partners (or their direct or indirect holders) for tax purposes basis by the highest aggregate marginal combined federal, state and local income tax rates applicable to such income or loss.

SHLP, SHI and J.F. Shea Construction Management, Inc. hold contractor’s licenses in various jurisdictions and use their licenses to build homes on behalf of their wholly-owned subsidiaries. These companies do not charge a fee for performing such contracting services.

In 2010, we acquired a new project in north Las Vegas, Nevada. Because SHLP or SHI do not hold a contractor’s license in Nevada, JFSCI, which holds a contractor’s license in Nevada, is the general contractor on this project. JFSCI does not receive fees for this service. All project costs are paid by us.

In Florida, J.F. Shea Construction Management, Inc. holds the contractor’s license and acts as general contractor for our homes built in that state. J.F. Shea Construction Management, Inc. does not receive fees for this service. All project costs are paid by us.

Transactions with Unconsolidated Joint Ventures and Other Shea Family Owned Companies

Notes receivable, including accrued interest, from unconsolidated joint ventures as follows:

Notes receivable from TCD Bradbury LLC and Meridian-MB Investments, LLC were held by our consolidated joint venture SCLLC. In March 2012, our interest in SCLLC was redeemed by SCLLC and therefore, effective March 31, 2012, the two aforementioned notes receivable were no longer included in these consolidated financial statements.

At December 31, 2013 and 2012, the note receivable from Vistancia West Holdings, LP bears interest at 8% and matures in September 2020. The note receivable from AGS Jubilee, LLC bears interest at 8%, can earn additional interest to achieve a 17.5% internal rate of return, subject to available cash flows of AGS Jubilee, LLC, and can be repaid prior to its maturity in June 2020.

We also had notes receivable, including accrued interest, from the following Shea Family Owned Companies which we had no ownership interest:

At December 31, 2013 and 2012, these notes were unsecured, bore interest ranging from Prime less 0.75% (2.5%) to Prime plus 1% (4.25%), and mature from August 2016 through April 2021.

At December 31, 2013, we had remargin guarantees of outstanding unconsolidated joint venture debt of $52.5 million, where we hold an ownership interest, of which our maximum remargin obligation was $28.7 million. We also have indemnification and/or reimbursement agreements, under which we could potentially recover a portion of any remargin payments made to the bank. However, we cannot provide assurance that we would be able to collect under these indemnity/reimbursement agreements.

We provided indemnification for bonds issued by unconsolidated joint ventures and other Shea Family Owned Companies. At December 31, 2013, we had $22.8 million of costs to complete on $63.7 million of surety bonds issued by unconsolidated joint ventures and $1.6 million of costs to complete on $4.9 million of surety bonds issued by other Shea Family Owned Companies.

In addition, we may issue letters of credit under its letter of credit facility on behalf of our unconsolidated joint ventures. At December 31, 2013, we had no letters of credit outstanding on behalf of unconsolidated joint ventures.

We are the managing member for three unconsolidated joint ventures, including Riverpark Legacy, LLC, Tustin Legacy, LLC and Marina Community Partners, LLC, where one of our joint venture partners is Shea Properties LLC or Shea Properties II, LLC, both related companies.

For our services, we receive a management fee from unconsolidated joint ventures as reimbursement for direct and overhead costs incurred by us on behalf of the joint ventures and other associated costs. Fees from these unconsolidated joint ventures representing reimbursement of our costs are recorded as a reduction to general and administrative expense. Fees from these unconsolidated joint ventures representing amounts in excess of our costs are recorded as revenues. For the years ended December 31, 2013, 2012 and 2011, $8.0 million, $4.3 million and $3.6 million of management fees, respectively, were offset against general and administrative expenses, and $0.5 million, $0.2 million and $1.7 million of management fees, respectively, were included in revenues.

In March 2012, our entire 58% interest in SCLLC, a consolidated joint venture with Shea Properties, LLC, a related party and the non-controlling member, was redeemed by SCLLC. In valuing its 58% interest in SCLLC, and to ensure receipt of net assets of equal value to its ownership interest, we used third-party real estate appraisals. The estimated fair value of the assets received by us was $30.8 million. However, as the non-controlling member is a related party under common control, the assets and liabilities received by us were recorded at net book value and the difference in our investment in SCLLC and the net book value of the assets and liabilities received was recorded as a reduction to our equity.

As consideration for the redemption, SCLLC distributed assets and liabilities to us having a net book value of $24.0 million, including $2.2 million of cash, a $3.0 million secured note receivable, $20.0 million of inventory and $1.2 million of other liabilities. As a result of this redemption, effective March 31, 2012, SCLLC is no longer included in these consolidated financial statements. This transaction resulted in a net reduction of $41.8 million in assets and $2.0 million in liabilities, and a $39.8 million reduction in total equity, of which $11.6 million was attributable to our equity and $28.2 million was attributable to non-controlling interests.

In December 2011, Vistancia, LLC, a consolidated joint venture, sold its remaining interest in an unconsolidated joint venture to the joint venture partner for $14.0 million, of which $3.0 million was distributed to non-controlling interests (the “Vistancia Sale”). We realized a $5.2 million gain, of which $5.9 million was included in other income (expense), net and $0.7 million of interest expense previously capitalized to our investment was written off to equity in income (loss) from joint ventures. In addition, as no other assets of Vistancia, LLC economically benefit the non-controlling member, we recorded the remaining $3.3 million distribution payable to this member, which is included in other liabilities in the consolidated balance sheets with a corresponding charge to other income (expense), net in the consolidated statements of operations. In May 2012, for a nominal amount, we purchased the non-controlling member’s entire 16.7% interest in Vistancia, LLC; however, the distribution payable remained, which is paid $0.1 million quarterly. At December 31, 2013 and 2012, the distribution payable was $2.5 million and $2.9 million, respectively.

As a condition of the Vistancia Sale, and the purchase of the non-controlling member’s remaining interest in Vistancia, LLC, we effectively remain a 10% guarantor on certain community facility district bond obligations to which we must meet a minimum calculated tangible net worth; otherwise, we are required to fund collateral to the bond issuer. At December 31, 2013 and 2012, we exceeded the minimum tangible net worth requirement.

We require TradePartners^® be insured for workers compensation, commercial general liability and completed operations losses and damages, and most TradePartners^® carry this insurance through our “rolling wrap-up” insurance program, where our risks and risks of participating TradePartners^® working on our projects are insured through a set of master policies. These policies carry large retentions, which are our responsibility. Through retention liability policies, we obtain supplemental insurance for these “rolling wrap-up” programs from affiliated entities. Prior to July 2007, PIC provided these retention liability policies. Since August 2007, this insurance has been provided by Orlando Insurance Company, Inc., Virginia Insurance Company, Inc. and Bay Front Insurance Company, Inc., each wholly-owned by the Shea family.

From December 2009 to February 2010, PIC paid $86.2 million of insurance premiums to certain third-party insurance carriers (including, in part through JFSCI) whereby PIC either novated or reinsured its workers’ compensation, commercial general liability and certain completed operations risks, in each case, with third-party insurance carriers (the “PIC Transaction”). This premium was partially funded from the sale of PIC’s marketable securities. PIC will remain in business until the reinsured claims and matching reinsurance receivables are processed, which we estimate will occur in the next 5 years. As a result of the PIC Transaction, PIC’s financial exposure is limited to (i) the portion of PIC’s original policy limits not reinsured and (ii) to the extent of the reinsurance policies, the creditworthiness of its reinsurers, which are highly rated by AM Best and/or have sufficient loss reserves funded in trusts.

We obtain workers compensation insurance, commercial general liability insurance, and certain insurance for completed operations losses and damages with respect to our homebuilding operations from affiliate and unrelated third-party insurance providers. These policies are purchased by affiliate entities and we pay premiums to these affiliates for the coverages provided by these third party insurance providers. Policies covering these items are written at various coverage levels but include a large self-insured retention or deductible. We have retention liability insurance from Orlando Insurance Company, Inc., Virginia Insurance Company, Inc. and Bay Front Insurance Company, Inc. to insure these retentions or deductibles. For the years ended December 31, 2013 and 2012, amounts paid to these affiliates for this retention insurance coverage were $14.1 million and $13.1 million, respectively.

In the ordinary course of business, we may enter into lot purchase agreements with Shea Family Owned Companies (related parties under common control) to facilitate land development. At December 31, 2013, we were not party to such agreements. Subsequent to December 31, 2013, we entered into two agreements:

In October 2012, we sold land in Colorado to a related party for $4.6 million. As the related party is under common control, the $2.4 million of net sales proceeds received in excess of the net book value of the land sold was recorded as an equity contribution.

We and certain joint ventures lease office space under non-cancelable operating leases from the following entities in which the Shea family holds an ownership interest: Shea Center Livermore, LLC, Treena Street Partners and Highlands Ranch Shea Center II, LLC. The leases are for terms up to ten years and generally provide renewal options for terms up to an additional five years.

At December 31, 2013, future minimum rental payments under related party operating leases were as follows:

For the years ended December 31, 2013, 2012 and 2011, related party rental expense was $0.4 million, $0.6 million and $0.7 million, respectively.

Most of the Shea family homebuilding business under the Shea Homes brand is owned and operated by us. However, some homebuilding businesses and projects under the Shea Homes brand are, and will continue to be, owned and operated by legal entities that are owned and controlled by the Shea family separately from us. These legal entities are not Guarantors and their assets are not pledged as collateral for the Secured Notes. The homebuilding projects and related businesses owned and operated by these legal entities include:

We have a policy in place to routinely evaluate related party transactions. This policy, which includes obtaining JFSCM Board approval or third-party valuation appraisals where appropriate, ensures compliance with the covenants contained in the Indenture governing our Secured Notes and Revolver.

Although we are not listed on any national securities exchange, we have used the standards of director independence as promulgated by the New York Stock Exchange. None of the directors of J.F. Shea Construction Management, Inc., our ultimate general partner, are independent under the New York Stock Exchange standard for directors or for compensation committee members. The members of the audit committee of the board of directors of J.F. Shea Construction Management, Inc., which include Peter Shea, Jr., John Morrissey, James G. Shontere and Ross Kay, are also not independent under the New York Stock Exchange standards of independence for audit committee members. The board of directors of J.F. Shea Construction Management, Inc. determined that Jim Shontere qualifies as an “audit committee financial expert” as defined by SEC rules, based on his education, experience and background.

Ernst & Young LLP served as our independent registered public accounting firm for our 2013 and 2012 fiscal years. Services provided by Ernst & Young LLP and related fees billed in each of our last two fiscal years were as follows:

In 2013 and 2012, audit fees include an annual consolidated financial statement audit and three quarterly reviews. Audit related fees in 2012 include attestation services performed for the registration of our Secured Notes on Form S-4. Tax fees include fees for review of our federal and state income tax returns, tax planning and tax advice.

The audit committee has considered whether the non-audit services provided to us by Ernst & Young LLP impaired the independence of Ernst & Young LLP and concluded that they did not. All services performed by Ernst & Young LLP were pre-approved in accordance with the pre-approval policy adopted by the audit committee. The policy requires pre-approval of all audit, audit-related, tax and other permissible non-audit services provided by Ernst & Young LLP annually and additional services as needed. The policy also requires additional approval of engagements previously approved but anticipated to exceed pre-approved fee levels.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


SHEA HOMES LIMITED PARTNERSHIP (Registrant)

By:		/s/ ROBERTO F. SELVA
		Roberto F. Selva
		Chief Executive Officer

		March 17, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act:

No annual report or proxy material was sent to security holders during the last fiscal year, and no such report or material is expected to be sent in the current fiscal year.


		Page No.
	PART I

Item 1.	Business		1
Item 1A.	Risk Factors		8
Item 1B.	Unresolved Staff Comments		22
Item 2.	Properties		22
Item 3.	Legal Proceedings		22
Item 4.	Mine Safety Disclosures		22

	PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		23
Item 6.	Selected Financial Data		23
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		43
Item 8.	Financial Statements and Supplementary Data		44
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		79
Item 9A.	Controls and Procedures		79
Item 9B.	Other Information		79

	PART III

Item 10.	Directors, Executive Officers and Corporate Governance		80
Item 11.	Executive Compensation		81
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		83
Item 13.	Certain Relationships and Related Transactions, and Director Independence		85
Item 14.	Principal Accounting Fees and Services		91

	PART IV

Item 15.	Exhibits and Financial Statement Schedules		92


	December 31,
	2013			2012			2011
Southern California:
Homes closed		271			249			313
Percentage of total homes closed		14	%		16	%		23	%
Average selling price	$	757,376		$	523,498		$	534,329
Total homebuilding revenues (in millions) ^(a)	$	207.6		$	134.0		$	167.4
San Diego:
Homes closed		256			194			172
Percentage of total homes closed		14	%		12	%		13	%
Average selling price	$	490,172		$	440,897		$	504,523
Total homebuilding revenues (in millions) ^(a)	$	125.5		$	86.0		$	86.9
Northern California:
Homes closed		456			323			215
Percentage of total homes closed		24	%		21	%		16	%
Average selling price	$	510,300		$	487,003		$	501,330
Total homebuilding revenues (in millions) ^(a)	$	242.4		$	166.1		$	108.8
Mountain West:
Homes closed		372			284			215
Percentage of total homes closed		20	%		18	%		16	%
Average selling price	$	444,156		$	446,352		$	419,343
Total homebuilding revenues (in millions) ^(a)	$	186.9		$	147.8		$	102.9
South West:
Homes closed		510			492			406
Percentage of total homes closed		27	%		31	%		30	%
Average selling price	$	311,951		$	280,283		$	276,487
Total homebuilding revenues (in millions) ^(a)	$	160.7		$	138.2		$	114.4
East:
Homes closed		25			31			27
Percentage of total homes closed		1	%		2	%		2	%
Average selling price	$	262,160		$	230,645		$	223,889
Total homebuilding revenues (in millions) ^(a)	$	6.6		$	7.1		$	6.0
Total:
Homes closed		1,890			1,573			1,348
Average selling price	$	473,177		$	410,045		$	423,046
Total homebuilding revenues (in millions) ^(a)	$	929.7		$	679.2		$	586.4


	Years Ended December 31,
	2013		2012		2011			2010			2009
Consolidated Statements of Operations:
Revenues	$	930,610	$	680,147	$	587,770		$	639,566		$	611,463
Net income (loss)	$	125,939	$	29,184	$	(107,242	)	$	(55,215	)	$	(423,060	)
Consolidated Balance Sheet Information (at end of year):
Cash and cash equivalents, restricted cash, and investments	$	216,833	$	304,865	$	314,512		$	190,391		$	287,989
Inventory	$	1,013,272	$	837,653	$	783,810		$	800,029		$	903,504
Total assets	$	1,505,333	$	1,373,537	$	1,328,116		$	1,414,886		$	1,618,760
Total debt	$	751,708	$	758,209	$	752,056		$	730,005		$	745,017
Total equity	$	445,457	$	319,247	$	328,003		$	432,113		$	481,206


	Years Ended December 31,
	2013			2012			2011			% Change 2012-2013			% Change 2011-2012
	(Dollars in thousands)
Revenues	$	930,610		$	680,147		$	587,770			37	%		16	%
Cost of sales		(709,412	)		(538,434	)		(515,578	)		32			4

Gross margin		221,198			141,713			72,192			56			96
Selling expenses		(54,338	)		(45,788	)		(45,251	)		19			1
General and administrative expenses		(50,080	)		(43,747	)		(37,374	)		14			17
Equity in income (loss) from unconsolidated joint ventures		(1,104	)		378			(5,134	)		—			—
Loss on debt extinguishment		0			0			(88,384	)		—			(100	)
Gain (loss) on reinsurance transaction		2,011			(12,013	)		3,072			—			—
Interest expense		(5,071	)		(19,862	)		(16,806	)		(74	)		18
Other income (expense), net		(778	)		9,119			7,374			—			24

Income (loss) before income taxes		111,838			29,800			(110,311	)		275			—
Income tax benefit (expense)		14,101			(616	)		3,069			—			—

Net income (loss)		125,939			29,184			(107,242	)		332			—
Less: Net loss (income) attributable to non-controlling interests		8			(146	)		(7,143	)		—			(98	)

Net income (loss) attributable to SHLP	$	125,947		$	29,038		$	(114,385	)		334	%		—	%


	Years Ended December 31,
	2013		Gross Margin %			2012		Gross Margin %			2011		Gross Margin %
	(Dollars in thousands)
Gross margin	$	221,198		23.8	%	$	141,713		20.8	%	$	72,192		12.3	%


	Homes						Sales Value						ASP
	December 31,						December 31,						December 31,
	2013		2012		2011		2013		2012		2011		2013		2012		2011
							(In thousands)						(In thousands)
Backlog:
Southern California		160		123		59	$	139,059	$	87,675	$	26,714	$	869	$	713	$	453
San Diego		100		107		39		50,223		47,580		18,837		502		445		483
Northern California		144		241		105		94,605		107,497		51,270		657		446		488
Mountain West		207		212		95		100,186		98,733		44,489		484		466		468
South West		238		212		152		82,565		67,519		41,309		347		318		272
East		0		16		11		0		4,192		2,111		0		262		192

Total consolidated		849		911		461		466,638		413,196		184,730		550		454		401
Unconsolidated joint ventures		122		84		34		45,805		25,724		11,933		375		306		351

Total backlog		971		995		495	$	512,443	$	438,920	$	196,663	$	528	$	441	$	397


	Payments due by period
	Total		Less than 1 Year		2 – 3 Years		4 – 5 Years		After 5 Years
	(In thousands)
Contractual obligations:
Long-term debt principal payments	$	751,708	$	1,708	$	0	$	0	$	750,000
Long-term debt interest payments		355,782		64,688		129,375		129,375		32,344
Operating leases		11,026		2,661		3,445		1,919		3,001
Purchase obligations⁽¹⁾		452,834		199,223		131,199		73,500		48,912

Total contractual obligations	$	1,571,350	$	268,280	$	264,019	$	204,794	$	834,257


	Shea Homes Limited Partnership																					Non- controlling Interests			Total Equity
	Limited Partner									General Partner			Total Owners’ Equity			Accumulated Other Comprehensive Income (Loss)			Total SHLP Equity
	Common			Preferred Series B			Preferred Series D			Common			Total Owners’ Equity			Accumulated Other Comprehensive Income (Loss)			Total SHLP Equity
Balance, December 31, 2010		71,830			194,240			121,892			18,901			406,863			5,363			412,226			20,087			432,313
Comprehensive income (loss):
Net income (loss)		(73,438	)		(20,685	)		(937	)		(19,325	)		(114,385	)		0			(114,385	)		7,143			(107,242	)
Change in unrealized gains on investments, net		0			0			0			0			0			1,029			1,029			0			1,029

Total comprehensive income (loss)																				(113,356	)		7,143			(106,213	)
Contributions from owners and non-controlling interests ^(a)		1,609			0			0			424			2,033			0			2,033			4,008			6,041
Distributions to non-controlling interests		0			0			0			0			0			0			0			(4,138	)		(4,138	)

Balance, December 31, 2011		1			173,555			120,955			0			294,511			6,392			300,903			27,100			328,003
Comprehensive income (loss):
Net income (loss)		0			0			29,038			0			29,038			0			29,038			146			29,184
Change in unrealized gains on investments, net		0			0			0			0			0			(1,875	)		(1,875	)		0			(1,875	)

Total comprehensive income (loss)																				27,163			146			27,309
Redemption of Company’s interest in consolidated joint venture (see Note 12)		0			0			(11,580	)		0			(11,580	)		0			(11,580	)		(28,239	)		(39,819	)
Contributions from owners and non-controlling interests ^(a)		1,862			0			0			490			2,352			0			2,352			1,746			4,098
Distributions to non-controlling interests		0			0			0			0			0			0			0			(344	)		(344	)

Balance, December 31, 2012	$	1,863		$	173,555		$	138,413		$	490		$	314,321		$	4,517		$	318,838		$	409		$	319,247
Comprehensive income (loss):
Net income (loss)		34,133			43,379			39,453			8,982			125,947			0			125,947			(8	)		125,939
Change in unrealized gains on investments, net		0			0			0			0			0			271			271			0			271

Total comprehensive income (loss)																				126,218			(8	)		126,210

Balance, December 31, 2013	$	35,996		$	216,934		$	177,866		$	9,472		$	440,268		$	4,788		$	445,056		$	401		$	445,457


	December 31, 2013				December 31, 2012
	Net Book Value		Estimated Fair Value		Net Book Value		Estimated Fair Value
	(In thousands)
$750,000 8.625% senior secured notes due May 2019	$	750,000	$	830,625	$	750,000	$	828,750
Secured promissory notes	$	1,708	$	1,708	$	8,209	$	8,209


Payments Due By Year	December 31,
	(In thousands)
2014	$	1,030
2015		771
2016		740
2017		735
2018 and thereafter		1,263

Total	$	4,539


	First Quarter			Second Quarter			Third Quarter		Fourth Quarter		Total (1)
2013:
Revenues	$	134,960		$	217,310		$	238,309	$	340,031	$	930,610
Gross margin	$	31,536		$	48,426		$	55,848	$	85,388	$	221,198
Net income (loss)	$	6,837		$	19,532		$	25,826	$	73,744	$	125,939
Net income (loss) attributable to SHLP	$	6,838		$	19,534		$	25,824	$	73,751	$	125,947

2012:
Revenues	$	105,603		$	132,468		$	146,421	$	295,655	$	680,147
Gross margin	$	20,568		$	24,490		$	31,196	$	65,459	$	141,713
Net income (loss)	$	(198	)	$	(12,120	)	$	8,300	$	33,202	$	29,184
Net income (loss) attributable to SHLP	$	(411	)	$	(12,101	)	$	8,330	$	33,220	$	29,038


	SHLP Corp ^(a)		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total
	(In thousands)
Assets
Cash and cash equivalents	$	153,794	$	43,803	$	8,608	$	0		$	206,205
Restricted cash		695		354		140		0			1,189
Accounts and other receivables, net		120,299		26,754		28,696		(28,250	)		147,499
Receivables from related parties, net		9,251		22,027		796		276			32,350
Inventory		749,832		263,213		3,361		(3,134	)		1,013,272
Investments in unconsolidated joint ventures		22,068		1,091		24,589		0			47,748
Investments in subsidiaries		748,326		69,755		90,484		(908,565	)		0
Other assets, net		24,030		32,957		83		0			57,070
Intercompany		0		465,706		0		(465,706	)		0

Total assets	$	1,828,295	$	925,660	$	156,757	$	(1,405,379	)	$	1,505,333

Liabilities and equity
Liabilities:
Notes payable	$	751,708	$	0	$	0	$	0		$	751,708
Payables to related parties		20		0		1		0			21
Accounts payable		36,594		25,334		418		0			62,346
Other liabilities		171,470		41,370		61,211		(28,250	)		245,801
Intercompany		423,447		0		45,117		(468,564	)		0

Total liabilities		1,383,239		66,704		106,747		(496,814	)		1,059,876
Equity:
SHLP equity:
Owners’ equity		440,268		854,168		49,609		(903,777	)		440,268
Accumulated other comprehensive income		4,788		4,788		0		(4,788	)		4,788

Total SHLP equity		445,056		858,956		49,609		(908,565	)		445,056
Non-controlling interests		0		0		401		0			401

Total equity		445,056		858,956		50,010		(908,565	)		445,457

Total liabilities and equity	$	1,828,295	$	925,660	$	156,757	$	(1,405,379	)	$	1,505,333


	Year		Salary		Non-Equity Incentive Plan Compensation⁽¹⁾		All Other Compensation⁽²⁾		Total Compensation
Bert Selva President and Chief Executive Officer		2013	$	556,803	$	1,898,950	$	30,786	$	2,486,539
		2012		490,474		1,335,700		22,904		1,849,078
Layne Marceau President—Northern California		2013		240,890		975,327		28,262		1,244,479
		2012		233,857		654,000		21,054		908,911
Rick Andreen President—Active Lifestyle Communities		2013		241,323		958,178		27,080		1,237,581


Name of Beneficial Owner	Percentage Beneficial Ownership⁽¹⁾
Direct Owners
J.F. Shea, G.P.⁽²⁾		20.62	%
Orlando Road LLC⁽³⁾		33.18
Virginia Road LLC⁽⁴⁾		20.09
Bay Front Drive LLC⁽⁵⁾		12.81
Tahoe Partnership I⁽⁶⁾		3.43
The John F. Shea Family Trust⁽⁷⁾		3.56
Shea Investments⁽⁸⁾		3.09
Balboa Partnership⁽⁶⁾		2.79
Survivor’s Trust under Article Eighth of the E&M Shea Revocable Trust⁽⁹⁾		0.26
Peter and Carolyn Shea Revocable Trust⁽¹⁰⁾		0.16
Indirect Owners
2013 Dorothy B. Shea Trust⁽³⁾		33.18	%
2011 Mary Shea Trust⁽⁴⁾		20.09
2011 Carolyn Shea Trust⁽⁵⁾		12.81
Perry Dray, as Trustee⁽³⁾⁽⁸⁾		36.27
John F. Shea, as Trustee⁽⁷⁾		3.56
Mary Shea, as Trustee⁽⁹⁾		0.26
John C. Morrissey, as Trustee⁽⁹⁾		0.26
Peter and Carolyn Shea, as Trustees⁽¹⁰⁾		0.16
JFS Management, L.P.⁽²⁾		20.62
JFSCI⁽²⁾		20.62
J.F. Shea Construction Management, Inc.⁽²⁾		20.62


At December 31,	JFSCI (net)		Highest Monthly Ending Balance
	(In thousands)
2013	$	21,588	$	24,648
2012		24,498		25,806
2011		25,381		166,050


	Amount Outstanding at December 31,
Borrower	2013		2012		2011
			(In thousands)
TCD Bradbury LLC	$	0	$	0	$	15,122
Meridian-MB Investments, LLC		0		0		10,136
Vistancia West Holdings, LP		771		0		0
AGS Jubilee, LLC		266		268		373

Total	$	1,037	$	268	$	25,631


	Amount Outstanding at December 31,
Borrower	2013			2012			2011
				(In thousands)
Shea Management LLC	$	2,292		$	2,219		$	2,147
Shea Properties Management Company, Inc.		10,572			10,572			10,573
Shea Baker Ranch, LLC		2,254			2,160			2,070
Shea Properties II, LLC		3,704			4,989			6,223
Shea Properties LLC		0			0			0

Subtotal		18,822			19,940			21,013
Valuation reserve⁽¹⁾		(12,842	)		(12,766	)		(12,697	)

Total	$	5,980		$	7,174		$	8,316


Payments Due By Year	December 31, 2013
	(In thousands)
2014	$	1,631
2015		1,267
2016		667
2017		366
2018 and thereafter		2,556

Total	$	6,487


		Page Reference
(a)(1)	Financial Statements, included in Part II of this report:

	Report of Independent Registered Public Accounting Firm		44
	Consolidated Balance Sheets at December 31, 2013 and 2012		45
	Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012 and 2011		46
	Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2013, 2012 and 2011		47
	Consolidated Statements of Changes in Equity for the Years Ended December 31, 2013, 2012 and 2011		48
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011		49
	Notes to Consolidated Financial Statements		50

(2)	Financial Statement Schedules

	Financial Statement Schedules are omitted since the required information is not present or is not present in the amounts sufficient to require submission of a schedule, or because the information required is included in the consolidated financial statements, including the notes thereto.

(3)	Index to Exhibits

	See Index to Exhibits on pages 94 – 95 below

(b)	Index to Exhibits. See Index to Exhibits on pages 94 – 95 below

(c)	Financial Statements required by Regulation S-X excluded from the annual report to shareholders by Rule 14a-3(b). Not applicable


Signature	Title	Date

/S/ ROBERTO F. SELVA (Roberto F. Selva)	President and Chief Executive Officer (Principal Executive Officer)	March 17, 2014

/S/ ANDREW H. PARNES (Andrew H. Parnes)	Chief Financial Officer (Principal Financial Officer)	March 17, 2014

/S/ ANDREW T. ROUNDTREE (Andrew T. Roundtree)	Vice President, Corporate Controller (Principal Accounting Officer)	March 17, 2014

/S/ JOHN F. SHEA (John F. Shea)	Director	March 17, 2014

/S/ PETER O. SHEA (Peter O. Shea)	Director	March 17, 2014

/S/ PETER O. SHEA, JR. (Peter O. Shea, Jr.)	Director	March 17, 2014

/S/ JOHN C. MORRISSEY (John C. Morrissey)	Director	March 17, 2014

/S/ JAMES G. SHONTERE (James G. Shontere)	Director	March 17, 2014


Exhibit No.		Description

3.1		Certificate of Limited Partnership of Shea Homes Limited Partnership (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 filed with the SEC on October 14, 2011 (File No. 333-177328))

3.2		First Amendment to Seventh Amended and Restated Agreement of Limited Partnership (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2013 (File No. 333-177328)).

4.1		Indenture, dated May 10, 2011, between and among Shea Homes Limited Partnership, Shea Homes Funding Corp., the guarantors party thereto, and Wells Fargo Bank, National Association, as Trustee (including the form of 8.625% Senior Secured Notes due 2019) (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-4 filed with the SEC on October 14, 2011 (File No. 333-177328))

4.2		Registration Rights Agreement, dated May 10, 2011 between and among Shea Homes Limited Partnership, Shea Homes Funding Corp., the guarantors party thereto, and Credit Suisse Securities (USA) LLC, as Initial Purchaser (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-4 filed with the SEC on October 14, 2011 (File No. 333-177328))

4.3		Intercreditor Agreement, dated May 10, 2011, among Shea Homes Limited Partnership, the grantors party thereto, Wells Fargo Bank, National Association and Credit Suisse AG (incorporated by reference to Exhibit 4.3 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 filed with the SEC on January 24, 2012 (File No. 333-177328))

4.4		First Supplemental Indenture, dated October 16, 2013, among Shea Homes Limited Partnership, and Shea Homes Funding Corp., as issuers, the guarantors party thereto, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-Q filed with the SEC on November 12, 2013 (File No. 333-177328))

4.5		Second Supplemental Indenture, dated November 4, 2013, among Shea Homes Limited Partnership, and Shea Homes Funding Corp., as issuers, the guarantors party thereto, and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on November 4, 2013 (File No. 333-177328))

4.6		Third Supplemental Indenture, dated February 25, 2014, among Shea Homes Limited Partnership, and Shea Homes Funding Corp., as issuers, the guarantors party thereto, and Wells Fargo Bank, National Association, as Trustee

10.1		Letter of Credit Facility, dated as of May 10, 2011, among Shea Homes Limited Partnership, Shea Homes Funding Corp., the subsidiary guarantors party thereto, the participants party thereto and Credit Suisse AG, including exhibits and schedules thereto (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-4 filed with the SEC on October 14, 2011 (File No. 333-177328))

10.2		Security Agreement, dated as of May 10, 2011, between and among Shea Homes Limited Partnership, Shea Homes Funding Corp., the guarantors identified therein, Credit Suisse AG, as Administrative Agent and Wells Fargo Bank, National Association, as Collateral Agent (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-4 filed with the SEC on October 14, 2011 (File No. 333-177328))

10.3		Tax Distribution Agreement, dated as of May 10, 2011 (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-4 filed with the SEC on October 14, 2011 (File No. 333-177328))

10.4		Promissory Note, dated May 10, 2011 from J.F. Shea, Co., Inc. to Shea Homes, Inc. (incorporated by reference to Exhibit 10.4 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 filed with the SEC on December 22, 2011 (File No. 333-177328))

10.5		Services Agreement, dated as of May 1, 2011, among Shea Homes Limited Partnership, Shea Homes, Inc. and J.F. Shea Co., Inc. (incorporated by reference to Exhibit 10.5 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 filed with the SEC on January 24, 2012 (File No. 333-177328))

10.6		Services Agreement, dated as of May 1, 2011, among Shea Homes Limited Partnership, Shea Homes, Inc., J.F. Shea, L.P. and J.F. Shea Construction Management, Inc. (incorporated by reference to Exhibit 10.6 to Amendment No. 2 to the Company’s Registration Statement on Form S-4 filed with the SEC on January 24, 2012 (File No. 333-177328))


Exhibit No.		Description

10.7		Shea Homes Appreciation Rights Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 10, 2012 (File No. 333-177328)) ⁺

10.8		Offer Letter from Shea Homes Limited Partnership to Andrew H. Parnes (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 5, 2012 (File No. 333-177328)) ⁺

10.9		Credit Agreement dated as of February 20, 2014, by and among Shea Homes Limited Partnership, the lenders from time to time party thereto, and U.S. Bank National Association as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 20, 2014 (File No. 333-177328))

10.10		Amended and Restated Security Agreement dated as of February 20, 2014 among the Company, the Guarantors and Wells Fargo Bank, National Association as collateral agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 20, 2014 (File No. 333-177328))

12.1		Statement of Computation of Ratio of Earnings to Fixed Charges

21.1		Subsidiaries of the Registrant

31.1		Certification of Chief Executive Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as Adopted 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		The following materials from Shea Homes Limited Partnership’s annual report on Form 10-K for the year ended December 31, 2013, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Changes in Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.