10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2016.

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

For the transition period from ____________ to _____________.

001-07395

Commission File Number

AV HOMES, INC.

(Exact name of registrant as specified in its charter)

Delaware	23-1739078
(State or other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

8601 N. Scottsdale Rd., Suite 225, Scottsdale, Arizona	85253
(Address of Principal Executive Offices)	(Zip Code  )

(480) 214-7400

(Registrant’s telephone number, including area code)

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 ☐

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

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

Large Accelerated filer ☐ Accelerated filer  ☒ Non-accelerated filer  ☐ Smaller reporting company ☐

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

As of October 21, 2016, there were 22,570,116 shares of common stock, $1.00 par value, issued and outstanding.

AV HOMES, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

PART I.	Financial Information	1
Item 1.		1
	Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015	1
	Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2016 and 2015 (unaudited)	2
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)	3
	Notes to Consolidated Financial Statements (unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II.	Other Information	27
Item 1A.	Risk Factors	27
Item 6.	Exhibits	28
Signatures		29

PART I. Financial Information

ITEM 1. FINANCIAL STATEMENTS

AV HOMES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)

	September 30,		December 31,
	2016		2015
Assets	(unaudited)
Cash and cash equivalents	$	16,289	$	46,898
Restricted cash		1,139		26,948
Land and other inventories		630,909		582,531
Receivables		8,248		7,178
Property and equipment, net		34,223		34,973
Investments in unconsolidated entities		1,177		1,172
Prepaid expenses and other assets		13,033		17,144
Deferred tax assets, net		110,501		—
Goodwill		19,285		19,295
Total assets	$	834,804	$	736,139
Liabilities and Stockholders' Equity
Liabilities
Accounts payable	$	37,060	$	33,606
Accrued and other liabilities		29,389		38,826
Customer deposits		12,223		8,629
Estimated development liability		32,257		32,551
Senior notes, net		290,258		320,846
Total liabilities		401,187		434,458
Stockholders' equity
Common stock, par value $1 per share		22,692		22,444
Additional paid-in capital		401,358		399,719
Accumulated earnings (deficit)		12,586		(117,463)
		436,636		304,700
Treasury stock		(3,019)		(3,019)
Total stockholders’ equity		433,617		301,681
Total liabilities and stockholders' equity	$	834,804	$	736,139

See notes to consolidated financial statements.

1

AV HOMES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share data)

(unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Revenues
Homebuilding	$	201,821	$	151,130	$	507,659	$	280,381
Amenity and other		3,315		2,691		8,834		8,195
Land sales		291		6		1,120		3,470
Total revenues		205,427		153,827		517,613		292,046
Expenses
Homebuilding cost of revenues		163,911		121,089		414,290		228,911
Amenity and other		3,101		2,221		8,057		7,034
Land sales		295		2		685		385
Total real estate expenses		167,307		123,312		423,032		236,330
Selling, general and administrative expenses		25,484		23,191		71,639		52,492
Interest income and other		—		(36)		(1)		(325)
Interest expense		701		1,840		2,853		7,503
Income (loss) before income taxes		11,935		5,520		20,090		(3,954)
Income tax expense (benefit)		38		—		(109,959)		—
Net income (loss) and comprehensive income (loss)	$	11,897	$	5,520	$	130,049	$	(3,954)
Basic income (loss) per share	$	0.53	$	0.25	$	5.81	$	(0.18)
Diluted income (loss) per share	$	0.49	$	0.25	$	5.02	$	(0.18)

See notes to consolidated financial statements.

2

AV HOMES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2016		2015
OPERATING ACTIVITIES
Net income (loss)	$	130,049	$	(3,954)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		4,729		2,786
Amortization of share-based compensation		1,911		2,320
Change in fair value of contingent consideration		(422)		(298)
Impairment charges		335		—
Equity in loss (income) from unconsolidated entities		15		(160)
Gain from disposal of assets		(1)		(31)
Deferred income taxes, net		(110,501)		—
Changes in operating assets and liabilities:
Restricted cash		25,809		(9,826)
Land and other inventories		(48,713)		(121,154)
Receivables		(1,070)		(4,182)
Prepaid expenses and other assets		2,704		2,391
Accounts payable, estimated development liability, and accrued and other liabilities		(1,595)		16,822
Customer deposits		3,594		2,863
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		6,844		(112,423)
INVESTING ACTIVITIES
Investment in property and equipment		(1,389)		(1,075)
Proceeds from sales of property and equipment		11		31
Business acquisitions		10		(95,182)
Investment in unconsolidated entities		(20)		(2,882)
NET CASH USED IN INVESTING ACTIVITIES		(1,388)		(99,108)
FINANCING ACTIVITIES
Proceeds from issuance of debt		—		79,926
Gross proceeds from Senior Secured Credit Facility		35,000		40,000
Payments of Senior Secured Credit Facility		(20,000)		(10,000)
Debt issuance costs		—		(2,068)
Principal payments of notes		(46,793)		(53,163)
Contingent consideration and other financing activities		(4,272)		(1,246)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(36,065)		53,449
DECREASE IN CASH AND CASH EQUIVALENTS		(30,609)		(158,082)
Cash and cash equivalents at beginning of year		46,898		180,334
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	16,289	$	22,252
Non-cash transactions:
Transfer from assets held for sale to land and other inventories and property and equipment	$	—	$	4,051
Distribution of land from unconsolidated joint venture	$	—	$	19,860

See notes to consolidated financial statements.

3

AV HOMES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2016

Note 1 -Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of AV Homes, Inc. and all subsidiaries, partnerships and other entities in which AV Homes, Inc. (“AV Homes,” “we,” “us,” “our,” or “the Company”) has a controlling interest. Our investments in unconsolidated entities in which we have less than a controlling interest are accounted for using the equity method. The interim consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all information and footnotes required by U.S generally accepted accounting principles (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of AV Homes as of September 30, 2016 and for all periods presented. These statements should be read in conjunction with our consolidated financial statements and notes thereto included in AV Homes' Annual Report on Form 10-K for the year ended December 31, 2015. All significant intercompany accounts and transactions have been eliminated in consolidation.

Beginning with our Form 10-Q for the quarter ended March 31, 2016, the selling, general and administrative expenses related to homebuilding previously included in Homebuilding expenses have been combined with corporate general and administrative expenses and reclassified into a separate new line item called “Selling, general and administrative expenses” to enhance the visibility to our core homebuilding operations and conform with standard industry presentation. The selling, general and administrative expenses reclassified include commissions, other selling expenses and overhead incurred at the divisional level. For the three and nine months ended September 30, 2015, selling, general and administrative costs of $19.4 million and $40.7 million, respectively, that were previously presented in Homebuilding expenses are now included in selling,  general and administrative expenses. In addition, in accordance with adoption of Accounting Standards Update No. 2015-03, Interest-Imputation of Interest, our debt issuance costs are now presented as a deduction from the corresponding debt liability. This guidance was applied retrospectively and had the effect of reducing our prepaid expenses and other assets and senior notes, net balances in our consolidated balance sheets. As of December 31, 2015, unamortized deferred debt issuance costs of $5.9 million were previously presented in prepaid expenses and other assets on the consolidated balance sheet and are now included as a reduction to senior notes, net.

Use of Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents and Restricted Cash

We consider all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. As of September 30, 2016, our cash and cash equivalents were primarily available funds on deposit at financial institutions. Due to the short maturity period of the cash equivalents, the carrying amounts of these instruments approximates their fair values.

Our cash items that are restricted as to withdrawal or usage include deposits of $1.1 million and $26.9 million as of September 30, 2016 and December 31, 2015, respectively. The balance as of December 31, 2015 was comprised primarily of $25.6 million on deposit as a reserve to comply with a covenant in our Senior Secured Credit Facility (defined below). As of September 30, 2016, the Company was above the specified thresholds requiring the reserve.

Land and Other Inventories and Homebuilding Cost of Revenues

Land and other inventories include expenditures for land acquisition, land development, home construction, construction costs for amenities, and direct and allocated indirect costs, including interest cost capitalized until development and construction are substantially completed. These costs are assigned to components of land and other inventories based on specific identification, relative sales value, or area allocation methods.

Land and other inventories are stated at cost unless the asset is determined to be impaired, in which case the asset is written to its fair value, in accordance with Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment (“ASC 360”).

4

Homebuilding cost of revenues is comprised of direct and allocated costs, including estimated future costs for the limited warranty we provide on our homes. Land acquisition, land development and other common costs are generally allocated on a relative sales value or area allocation basis to the homes or lots within the applicable community or land parcel. Land acquisition and land development costs include related interest and real estate taxes.

We evaluate our land and other inventories for impairment on a quarterly basis in accordance with ASC 360 to reflect market conditions, including a market-by-market consideration of supply of new and resale homes for sale, level of foreclosure activity and competition. For assets held and used, if indicators are present, we perform an impairment test in which the asset is reviewed for impairment by comparing the estimated future undiscounted cash flows to be generated by the asset to its carrying value. If such cash flows are less than the asset’s carrying value, the carrying value is written down to its estimated fair value. Generally, fair value is determined by discounting the estimated cash flows at a rate commensurate with the inherent risks associated with the asset and related estimated cash flow streams. The discount rate used in the determination of fair value would vary, depending on the state of development. Assumptions and estimates used in the determination of the estimated future cash flows are based on expectations of future operations and economic conditions and certain factors described below. Changes to these assumptions could significantly affect the estimates of future cash flows, which could affect the potential for future impairments. Due to the uncertainties of the estimation process, actual results could differ significantly from such estimates.

During the three and nine months ended September 30, 2016, our impairment assessments resulted in $0.1 million and $0.3 million of impairment charges, respectively, and are included in homebuilding cost of revenues in the consolidated statements of operations and comprehensive income (loss). During the three and nine months ended September 30, 2015, our impairment assessments resulted in no impairment charges.

Receivables

Receivables primarily consist of amounts in transit or due from title companies for house closings.

Property and Equipment, net

Property and equipment, net are stated at cost and depreciation is computed by the straight-line method over the following estimated useful lives of the assets: land improvements 10 to 25 years; buildings and improvements 8 to 39 years; and machinery, equipment and fixtures 3 to 7 years. Expenses for equipment utilized in the development of land are capitalized to land inventory while ordinary repairs and maintenance are expensed as incurred.

Property and equipment, net includes certain amenities such as club facilities on properties owned by us. These amenities include expenditures for land acquisition, land development, construction, and direct and allocated costs, including interest cost incurred during development and construction.

Each reporting period, we review our property and equipment for indicators of impairment in accordance with ASC 360. For our amenities, which are located within our housing communities, indicators of impairment are similar to those of our housing communities (described above), as these factors may impact our ability to generate revenues at our amenities or cause construction costs to increase. In addition, we factor in the collectability and potential delinquency of the membership dues for our amenities. For the three and nine months ended September 30, 2016 and 2015, we did not identify indicators of impairment for property and equipment.

Investments in Partnerships and LLCs

When we are either deemed to hold the controlling interest in a voting interest entity or deemed to be the primary beneficiary of a variable interest entity (“VIE”), we are required to consolidate the investment. The primary beneficiary of a VIE is the entity that has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb the majority of losses of the VIE or the right to receive the majority of benefits from the VIE. Investments where we do not hold the controlling interest and we are not the primary beneficiary are accounted for under the equity method.

Factors considered when determining if we hold the controlling interest in a voting interest entity include who holds the general partnership or managing member interests, which partner or member makes the day-to-day decisions regarding the operations of the entity, and whether or not the other partners or members have substantive participating rights. With respect to VIEs, our variable interests may be in the form of (1) equity ownership, (2) contracts to purchase assets and/or (3) loans provided by us to the investor. We examine specific criteria and use judgment when determining if we are the primary beneficiary of a VIE. Factors considered in determining whether we are the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), sufficiency of equity to conduct the operations of the entity,

5

voting rights, involvement in decisions significantly impacting the entity's economic performance, level of economic disproportionality between us and the other partner(s) and contracts to purchase assets from VIEs.

We have investments in unconsolidated entities, including joint ventures, with independent third parties. The equity method of accounting is used for unconsolidated entities over which we have significant influence. Under the equity method of accounting, we recognize our proportionate share of the earnings and losses of these entities.

We evaluate our investments in unconsolidated entities for recoverability in accordance with ASC 323, Investments - Equity Method and JointVentures (“ASC 323”). If we determine that a loss in the value of the investment is other than temporary, we write down the investment to its estimated fair value. Any such losses are recorded to equity in (earnings) loss of unconsolidated entities in the consolidated statements of operations and comprehensive income (loss). Due to uncertainties in the estimation process and the significant volatility in demand for new housing, actual results could differ significantly from such estimates. During the three and nine months ended September 30, 2016 and 2015, we did not identify indicators of impairment for our investments in unconsolidated entities.

Business Acquisitions

When acquiring a business, we allocate the purchase price of the business to the tangible and intangible assets and liabilities acquired based on their estimated fair values. In making estimates of fair values for this purpose, we use a number of sources, including independent appraisals and information obtained about each property as a result our pre-acquisition due diligence and its marketing and housing activities.

Goodwill

Goodwill arises from business combinations and represents the excess of the cost of an acquired entity over the net fair value amounts that were assigned to the identifiable assets acquired and the liabilities assumed. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. There were no indicators of impairment during the three and nine months ended September 30, 2016 and 2015.

Homebuilding Revenue Recognition

In accordance with ASC 360, homebuilding revenue and related profit from the sales of housing units are recognized when title to and possession of the property are transferred to the buyer. In addition, revenues from land sales are recognized in full at closing, provided the buyer's initial and continuing investment is adequate, any financing is considered collectible and there is no significant continuing involvement.

Sales Incentives

When sales incentives involve a discount on the selling price of the home, we record the discount as a reduction of revenue at the time of house closing. If the sales incentive requires us to provide a free product or service to the customer, the cost of the free product or service is recorded as homebuilding cost of revenues at the time of house closing. This includes the cost related to optional upgrades and seller-paid financing costs, closing costs, homeowners’ association fees, or merchandise.

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs, sales commissions and closing costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).

Warranty Costs

Warranty reserves for houses are established to cover estimated costs for materials and labor with regard to warranty-type claims to be incurred subsequent to the closing of a house. Reserves are determined based on historical data and other relevant factors. We have, and require our subcontractors to have, general liability, property, workers’ compensation, and other business insurance. These insurance policies protect us against a portion of our risk of loss from claims, subject to certain self-insured per occurrence and aggregate retentions, deductibles, and available policy limits. We may have recourse against subcontractors for certain claims relating to workmanship and materials. Warranty reserves are included in accrued and other liabilities in the accompanying consolidated balance sheets.

6

During the three and nine months ended September 30, 2016 and 2015, changes in the warranty reserve consisted of the following (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Accrued warranty reserve, beginning of period	$	3,581	$	1,767	$	3,333	$	1,528
Reserve provided		952		1,818		2,440		2,954
Payments		(1,004)		(1,168)		(2,244)		(2,065)
Accrued warranty reserve, end of period	$	3,529	$	2,417	$	3,529	$	2,417

Income Taxes

Our income tax expense (benefit) for the three and nine months ended September 30, 2016 was less than $0.1 million and $(110.0) million, respectively, compared to income tax expense of $0.0 million for each of the three and nine months ended September 30, 2015. The income tax benefit for the nine months ended September 30, 2016 is due primarily to a $117.2 million reduction of our deferred tax asset valuation allowance in the same period. Our effective tax rate is affected by a number of factors, the most significant of which is the valuation allowance related to our deferred tax assets. Due to the impact of the changes in the valuation allowance, our effective tax rates in 2016 and 2015 are not correlated to the amount of our income or loss before income taxes.

Income taxes have been provided for using the asset and liability method under ASC 740, Income Taxes (“ASC 740”). The asset and liability method is used in accounting for income taxes where deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In assessing the realizability of deferred tax assets, we consider whether it is “more likely than not” that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment is required. Differences between the anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated results of operations or financial position.

We evaluate our deferred tax assets quarterly to determine if valuation allowances are required. ASC 740 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than not” standard. The realization of the deferred tax assets ultimately depends upon the existence of sufficient taxable income in future periods. We established a full valuation allowance against our deferred tax assets beginning in 2009 and regularly analyzed all available positive and negative evidence in determining the continuing need for a valuation allowance with respect to our deferred tax assets. This evaluation considered, among other factors, historical operating results, our three-year cumulative profit or loss position, forecasts of future profitability, and the duration of statutory carryforward periods.

From 2007 to 2014, we generated significant deferred tax assets primarily from asset impairments and reduced operational profitability. As of September 30, 2016 and December 31, 2015, we had net deferred tax assets of $117.2 million and $124.5 million, respectively. The December 31, 2015 net deferred tax asset was offset by a valuation allowance of $124.5 million. During the three months ended March 31, 2016, we recognized a decrease of $0.6 million in the valuation allowance generated from the pre-tax income for the period.  During the three months ended June 30, 2016, we evaluated both positive and negative evidence and determined it was “more likely than not” that our federal deferred tax assets and our state deferred tax assets will be realized. Accordingly, we reversed $112.9 million of valuation allowance during the three months ended June 30, 2016 and an additional $4.3 million during the three months ended September 30, 2016. The valuation allowance decreased $117.8 million during the nine months ended September 30, 2016. This reversal is reflected in our income tax benefit in the accompanying consolidated statements of operations and comprehensive income (loss). When a change in valuation allowance is recognized in an interim period, a portion of the valuation allowance to be reversed must be allocated to the remaining interim periods. The remaining valuation allowance of $6.7 million is expected to be reversed in the fourth quarter of 2016.

Any interest or penalties assessed have been minimal and immaterial to our financial results. In the event we are assessed any interest or penalties in the future, we plan to include them in our consolidated statements of operations and comprehensive income (loss) as income tax expense.

During the nine months ended September 30, 2016 and 2015, we made income tax payments of $0.8 million and $0.0 million, respectively, related to alternative minimum tax and state income tax in North Carolina and South Carolina.

7

Share-Based Compensation

On June 3, 2015, shareholders approved and we adopted the 2015 Incentive Compensation Plan (the “2015 Plan”), which replaced the Amended and Restated 1997 Incentive and Capital Accumulation Plan (2011 Restatement), as amended (the “Incentive Plan”). Each of the Incentive Plan and 2015 Plan provide for the grant of stock options, stock appreciation rights, stock awards, performance awards, and stock units to officers, employees and directors of AV Homes. The exercise prices of stock options granted under the Incentive Plan or the 2015 Plan may not be less than the stock exchange closing price of our common stock on the date of grant. Stock option awards under the Incentive Plan and 2015 Plan generally expire 10 years after the date of grant.

As of September 30, 2016, there were an aggregate of 559,579 shares available for grant under the 2015 Plan and 35,483 shares reserved for future issuance relating to restricted stock units previously awarded and currently outstanding under the 2015 Plan. Additionally, as of September 30, 2016, for outstanding options and restricted stock units previously awarded under the Incentive Plan, an aggregate of 540,483 shares of our common stock were reserved for future issuance.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of AV Homes. The computation of diluted earnings per share for the three and nine months ended September 30, 2016 did not assume the effect of employee stock options because the effects were antidilutive. The computation of diluted earnings (loss) per share for the three and nine months ended September 30, 2015 did not assume the effect of restricted stock, restricted stock units, employee stock options, or convertible notes because the effects were antidilutive.

The following table represents a reconciliation of the net income (loss) and weighted average shares outstanding for the calculation of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2016 and 2015 (in thousands, except share and per share data):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Numerator:
Basic net income (loss)	$	11,897	$	5,520	$	130,049	$	(3,954)
Diluted net income (loss)	$	13,098	$	5,520	$	133,649	$	(3,954)
Denominator:
Basic weighted average shares outstanding		22,415,780		22,018,449		22,402,799		22,006,460
Diluted weighted average shares outstanding		26,654,287		22,166,873		26,606,199		22,006,460
Basic earnings (loss) per share	$	0.53	$	0.25	$	5.81	$	(0.18)
Diluted earnings (loss) per share	$	0.49	$	0.25	$	5.02	$	(0.18)

Comprehensive Income (Loss)

Net income (loss) and comprehensive income (loss) are the same for the three and nine months ended September 30, 2016 and 2015 because we do not have components of comprehensive income.

8

Recent Accounting Pronouncements

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 reduces the existing diversity in practice in financial reporting across all industries by clarifying certain existing principles in ASC 230, Statement of Cash Flows, including providing additional guidance on how and what an entity should consider in determining the classification of certain cash flows. ASU 2016-15 may be effective for us for the fiscal year beginning January 1, 2018 and subsequent interim periods. The adoption of ASU 2016-15 will modify our current disclosures and reclassifications within the consolidated statement of cash flows but is not expected to have a material effect on our consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 will require organizations that lease assets — referred to as “lessees” — to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under ASU 2016-02, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Lessor accounting remains substantially similar to current GAAP. In addition, disclosures of leasing activities are to be expanded to include qualitative along with specific quantitative information. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As a result, the standard is effective for us for annual and interim periods beginning January 1, 2019 and mandates a modified retrospective transition method. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In August 2015, the FASB issued Accounting Standards Update No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which clarifies the treatment of debt issuance costs from line-of-credit arrangements after adoption of Accounting Standards Update 2015-03 (“ASU 2015-15”). ASU 2015-15 clarifies that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We have applied the provisions of ASU 2015-15 to the capitalized deferred financing costs related to our Senior Secured Credit Facility.

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. We have applied the provisions of ASU 2015-02 and there was no material effect on our consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date by one year. As a result, the standard is effective for us for annual and interim periods beginning January 1, 2018 and allows for full retrospective or modified retrospective methods of adoption. We are currently evaluating the impact that the standard will have on our consolidated financial statements.

Note 2 - Business Acquisitions

Bonterra Builders Acquisition

On July 1, 2015, we acquired substantially all of the assets and certain liabilities of Bonterra Builders, LLC (“Bonterra Builders”) for approximately $99.8 million, subject to customary post-closing adjustments. Part of the aggregate consideration includes a $6.0 million estimated earn-out. The actual amount of the earn-out may be more or less than the $6.0 million target amount based on the performance of the Bonterra Builders business through the end of 2016, of which $3.3 million has been paid as of September 30, 2016. A portion of the aggregate consideration equal to $0.8 million was held back by us at the closing as security for Bonterra Builder's indemnification and other potential obligations under the purchase agreement, of which $0.4 million has been paid as of September 30, 2016. Bonterra Builders acquires raw and developed land, develops raw land and constructs single-family homes in the Charlotte, North Carolina area. With approximately 1,700 lots owned or

9

controlled at the time of acquisition, Bonterra Builders significantly enhances our position in a key growth market. The results of Bonterra Builders operations are included in our consolidated financial statements from the acquisition date of July 1, 2015.

The Bonterra Builders acquisition was accounted for in accordance with ASC 805, Business Combinations (“ASC 805”). We recorded the acquired assets and liabilities at their estimated fair value. We determined the estimated fair values with the assistance of appraisals or valuations performed by independent third-party specialists, discounted cash flow analyses, quoted market prices where available, and estimates by management. To the extent the consideration transferred exceeded the fair value of the net assets acquired in this transaction, such excess was assigned to goodwill.

Note 3 - Land and Other Inventories

Land and other inventories consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Land held for future development	$	22,429	$	21,403
Land developed and in process of development		353,008		348,648
Homes completed or under construction		255,472		212,480
Total	$	630,909	$	582,531

We capitalize interest to inventories during the period of development in accordance with ASC 835, Interest (“ASC 835”). Homebuilding interest capitalized to cost of inventory is included in cost of sales as related units or lots are closed. To the extent our homebuilding debt exceeds our qualified assets, as defined in ASC 835, we expense a portion of interest incurred. Qualified homebuilding assets consist of land, lots and homes that are under development or construction, excluding finished unsold homes or finished models.

The following table represents interest incurred, interest capitalized, and interest expense for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Interest incurred	$	6,483	$	7,501	$	19,873	$	21,002
Interest capitalized		(5,782)		(5,661)		(17,020)		(13,499)
Interest expense	$	701	$	1,840	$	2,853	$	7,503

Note 4 - Investments in Unconsolidated Entities

We participate in entities with equity interests ranging from 20% to 58% for the purpose of acquiring and/or developing land. We determine the method for accounting for our investment at inception or upon a reconsideration event.

We share in the profits and losses of unconsolidated entities generally in accordance with our ownership interests. We and our equity partners typically make initial and ongoing capital contributions to these unconsolidated entities on a pro rata basis. The obligation to make capital contributions is governed by each unconsolidated entity’s respective operating agreement or other governing documents. We made contributions totaling less than $0.1 million to our unconsolidated entities during the three and nine months ended September 30, 2016. We made contributions totaling $0.0 million and $2.9 million to our unconsolidated entities during the three and nine months ended September 30, 2015, respectively. The balance of our investments in unconsolidated entities was $1.2 million as of September 30, 2016 and December 31, 2015.

In May 2012, we entered into an agreement with JEN Arizona 4, LLC to form a limited liability company, EM 646, LLC (“EM 646”). We hold a 58% interest in the venture, which was organized for the purpose of acquiring, entitling, developing, and distributing specific sections of real property located in Mesa, Arizona. The property was originally acquired in November 2012 and in April 2015 the final distribution of developed land to the partners was completed at cost.

As of September 30, 2016, EM 646 was financed by partner equity and does not have third-party debt. In addition, we have not provided any guarantees to the entity or our equity partner. The assets of our investee can only be used to settle obligations of the investee.

10

Note 5 – Senior Notes

Our senior notes are summarized as follows (in thousands):

	September 30, 2016		December 31, 2015
7.50% Senior Convertible Notes due 2016	$	—	$	46,793
8.50% Senior Notes due 2019		200,000		200,000
6.00% Senior Convertible Notes due 2020		80,000		80,000
Senior Secured Credit Facility		15,000		—
Total Senior Notes		295,000		326,793
Deferred debt issuance costs		(4,684)		(5,877)
Debt discount		(58)		(70)
Total Senior Notes, net	$	290,258	$	320,846

We made interest payments of $11.4 million and $24.5 million for the three and nine months ended September 30, 2016, respectively. We made interest payments of $2.0 million and $24.0 million for the three and nine months ended September 30, 2015, respectively. We were in compliance with all debt covenants in our senior notes as of September 30, 2016 and December 31, 2015.

7.50% Senior Convertible Notes and 7.50% Senior Exchange Convertible Notes due 2016

On February 4, 2011, we completed an underwritten public offering for $100.0 million aggregate principal amount of our 7.50% Senior Convertible Notes due 2016 (the “7.50% Notes”). The maturity date of the 7.50% Notes was February 15, 2016. The 7.50% Notes were governed by the Indenture and the First Supplemental Indenture, each dated February 4, 2011, between us and the trustee named therein. Interest on the 7.50% Notes was payable semi-annually in arrears in cash on February 15 and August 15 of each year.

In July 2012, we entered into exchange agreements under which we retired $44.5 million in aggregate principal amount of our 7.50% Notes, in exchange for the issuance of $44.5 million in aggregate principal of new 7.50% Senior Exchange Convertible Notes due 2016 (“7.50% Exchange Notes”). The maturity date of the 7.50% Exchange Notes was February 15, 2016. The 7.50% Exchange Notes were governed by the Indenture dated February 4, 2011 and the Second Supplemental Indenture dated July 25, 2012 between us and the trustee named therein. Interest on the 7.50% Exchange Notes was payable semi-annually in arrears in cash on February 15 and August 15 of each year, commencing February 15, 2013. In connection with the issuance of the 6.00% Notes (defined below), $20.5 million of 7.50% Exchange Notes and $8.7 million of 7.50% Notes were repurchased on June 23, 2015. On July 20, 2015, the remaining 7.50% Exchange Notes were redeemed, pursuant to our option to redeem such notes at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest. On February 16, 2016, the remaining 7.50% Notes were repaid at maturity.

8.50% Senior Notes due 2019

On June 30, 2014, we completed an underwritten offering for $200.0 million aggregate principal amount of our 8.50% Senior Notes due 2019 (the “8.50% Notes”). The 8.50% Notes mature on July 1, 2019, unless earlier converted, redeemed or repurchased. Interest on the 8.50% Notes is 8.50% per year, payable semi-annually in arrears in cash on January 1 and July 1 of each year, commencing January 1, 2015. The 8.50% Notes are redeemable at our option, in whole or in part, at any time on or after July 1, 2016, at certain redemption prices, together with accrued and unpaid interest, if any, to, but excluding, the date of redemption.

Certain of our subsidiaries are guarantors of the 8.50% Senior Notes. All of the subsidiary guarantors are 100% owned by us, and all of the guarantees are full, unconditional, and joint and several. We have no independent assets or operations and our subsidiaries, other than the subsidiary guarantors, are minor.

6.00% Senior Convertible Notes due 2020

On June 23, 2015, we completed a private offering of $80.0 million aggregate principal amount of 6.00% Senior Convertible Notes due 2020 (the “6.00% Notes”). The proceeds of the 6.00% Notes were used to (i) repurchase 7.50% Exchange Notes and 7.50% Notes, and (ii) pay approximately $1.5 million of accrued interest (in respect of the notes being exchanged or repurchased) and premium (in respect of the notes being repurchased). The 6.00% Notes will mature on July 1, 2020, unless earlier repurchased or converted. The 6.00% Notes are governed by the Indenture dated February 4, 2011 and the Third Supplemental Indenture dated June 23, 2015 between us and the trustee named therein. The 6.00% Notes bear regular cash interest on the principal amount of each note, payable semi-annually in arrears on January 1 and July 1 of each year, beginning on January 1, 2016.

11

The 6.00% Notes were issued pursuant a series of separate, privately negotiated note purchase agreements (the “Note Purchase Agreements”) entered into on June 17, 2015 by us and certain qualified institutional buyers. TPG Aviator, L.P. (“TPG”), purchased $20.0 million aggregate principal amount of the 6.00% Notes for $20.0 million in cash and waived its rights to purchase additional 6.00% Notes, resulting in a fully diluted beneficial ownership for TPG of approximately 43.8% of our common stock. Pursuant to the terms of our Related Person Transaction Policy, the audit committee of our board of directors reviewed and approved the terms of the 6.00% Notes and TPG’s purchase of 6.00% Notes.

Senior Secured Credit Facility

On April 7, 2014 we entered into a $65.0 million senior secured credit facility with JPMorgan Chase Bank, N.A., as agent, a lender and a letter of credit issuer, which became effective on June 6, 2014 (the “Senior Secured Credit Facility”). The other original lenders and letter of credit issuers include Royal Bank of Canada and Credit Suisse AG. Later in 2014, we increased the Senior Secured Credit Facility by $40.0 million with the addition of Citibank, N.A., and Deutsche Bank, A.G., as additional lenders. The Senior Secured Credit Facility included revolving credit and letter of credit facilities in an aggregate principal amount of up to $105.0 million, with an “accordion” feature that allowed us, with the consent of the lenders, to increase the aggregate amount to $175.0 million. The Senior Secured Credit Facility also included a swing line loan facility in an aggregate principal amount of up to $30.0 million.

On July 28, 2016, we entered into an amendment to our Senior Secured Credit Facility and existing Guarantee and Collateral Agreement (the “Amendment”), which included the addition of Flagstar Bank, FSB and U.S. Bank, National Association as additional lenders. Pursuant to the Amendment, from the period beginning on July 28, 2016 and ending on June 5, 2017, the Amendment increases the committed amount available under the Senior Secured Credit Facility to $165.0 million. On June 6, 2017, Deutsche Bank, A.G.’s commitment will expire and the total committed amount available under the Senior Secured Credit Facility will be reduced to $150.0 million (the “Extended Commitments”). The Extended Commitments will expire on July 28, 2019 and any loans outstanding on such date will mature and be payable. In connection with the Amendment, the “accordion” feature was increased from $175.0 million to $200.0 million and the $30.0 million swing line loan facility was discontinued. As of September 30, 2016, we had sufficient qualified assets in the borrowing base to cover the full $165.0 million capacity and had $15.0 million in borrowings outstanding.

Note 6 - Estimated Development Liability

The estimated development liability consists primarily of utility completion obligations in Rio Rico, Arizona and Poinciana, Florida for more than 8,000 home sites previously sold, in most cases prior to 1980. The estimated development liability is reduced by actual expenditures and is evaluated and adjusted, as appropriate, to reflect management’s estimate of potential costs. In addition, we obtain third-party engineer evaluations on an annual basis and adjust this liability to reflect changes in the estimated completion costs. Cash expenditures associated with these obligations were $0.2 million and $0.3 million during the three and nine months ended September 30, 2016, respectively, and $0.1 million and $0.2 million during the three and nine months ended September 30, 2015, respectively. Future increases or decreases of costs for construction, material and labor, as well as other land development and utilities infrastructure costs, may have a significant effect on the estimated development liability. The balance of the estimated development liability was $32.3 million and $32.6 million as of September 30, 2016 and December 31, 2015, respectively.

Note 7 - Commitments and Contingencies

Legal

We are involved in litigation from time to time, primarily arising in the normal course of our business. These cases are in various procedural stages. In view of the inherent difficulty of predicting the outcome of these legal and regulatory matters, we generally cannot predict the ultimate resolution of the pending matters, the related timing, or the eventual loss. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows.

Surety Bonds

Surety bonds, issued by third-party entities, are used primarily to guarantee our performance to construct improvements in our various communities. As of September 30, 2016, we had outstanding surety bonds of approximately $28.3 million. The amount of outstanding surety bonds could fluctuate depending on the level of development activity. We do not believe that it is likely any of these outstanding surety bonds will be drawn upon.

12

Note 8 - Segment Information

Our operating segments are defined as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the chief operating decision maker to evaluate performance and make operating decisions. We have identified our chief operating decision maker as our Chief Executive Officer. Our reportable segments are as follows: Florida, Arizona and the Carolinas.

The following table summarizes our information for reportable segments for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Operating income:
Florida
Revenues:
Homebuilding	$	96,943	$	86,892	$	251,587	$	185,484
Amenity and other		3,315		2,691		8,834		8,195
Land sales		26		6		670		3,470
Total revenues		100,284		89,589		261,091		197,149
Expenses:
Homebuilding cost of revenues		74,872		68,409		196,045		149,033
Homebuilding selling, general and administrative		12,189		11,419		33,374		26,172
Amenity and other		3,075		2,199		7,978		6,938
Land sales		6		2		225		385
Segment operating income	$	10,142	$	7,560	$	23,469	$	14,621
Arizona
Revenues:
Homebuilding	$	42,014	$	20,012	$	104,255	$	45,196
Land sales		—		—		185		—
Total revenues		42,014		20,012		104,440		45,196
Expenses:
Homebuilding cost of revenues		35,236		16,497		87,672		38,704
Homebuilding selling, general and administrative		3,854		3,009		10,773		7,846
Amenity and other		26		22		79		96
Land sales		—		—		171		—
Segment operating income (loss)	$	2,898	$	484	$	5,745	$	(1,450)
Carolinas
Revenues:
Homebuilding	$	62,864	$	44,226	$	151,817	$	49,701
Land sales		265		—		265		—
Total revenues		63,129		44,226		152,082		49,701
Expenses:
Homebuilding cost of revenues		53,803		36,182		130,573		41,174
Homebuilding selling, general and administrative		5,744		4,944		15,525		6,718
Land sales		289		—		289		—
Segment operating income	$	3,293	$	3,100	$	5,695	$	1,809
Operating income	$	16,333	$	11,144	$	34,909	$	14,980
Unallocated income (expenses):
Interest income and other		—		36		1		325
Corporate general and administrative expenses		(3,697)		(3,820)		(11,967)		(11,756)
Interest expense		(701)		(1,840)		(2,853)		(7,503)
Income (loss) before income taxes		11,935		5,520		20,090		(3,954)
Income tax expense (benefit)		38		—		(109,959)		—
Net income (loss)	$	11,897	$	5,520	$	130,049	$	(3,954)

13

Note 9 - Fair Value Disclosures

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) provides guidance for using fair value to measure assets and liabilities, defines fair value, establishes a framework for measuring fair value under GAAP, expands disclosures about fair value measurements, and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The accounting standards require that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Fair value determined based on quoted market prices in active markets for identical assets and liabilities.

Level 2: Fair value determined using significant observable inputs, such as quoted prices for similar assets or liabilities or quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data, by correlation or other means.

Level 3: Fair value determined using significant unobservable inputs, such as discounted cash flows, or similar techniques.

The carrying value of cash and cash equivalents, restricted cash, receivables, and accounts payable and theSenior Secured Credit Facility approximates the fair value due to their short-term nature.

Certain assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value may not be recoverable.

The carrying amounts and fair values of our financial liabilities as of September 30, 2016 and December 31, 2015 are as follows (in thousands):

	September 30, 2016				December 31, 2015
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Senior Notes:
7.50% Notes	$	—	$	—	$	46,793	$	45,389
8.50% Notes, net (1)		196,460		208,360		195,495		199,000
6.00% Notes, net (1)		78,798		86,840		78,558		75,368
Senior Secured Credit Facility		15,000		15,000		—		—
Contingent consideration (earn-out) (2)		2,400		2,400		7,083		7,083

⁽¹⁾ The carrying amount of the debt instruments are net of unamortized deferred financing costs and certain debt discounts.

⁽²⁾ During the nine months ended September 30, 2016, we paid $4.3 million of the earn-out. During the three months ended September 30, 2016, we also reduced the carrying amount of the earn-out by $0.4 million to its estimated fair value.

In estimating the fair value of financial liabilities, we used the following methods and assumptions:

7.50% Notes, 8.50% Notes and 6.00% Notes

As of September 30, 2016 and December 31, 2015, the fair value of the 7.50% Notes, the 8.50% Notes and the 6.00% Notes is estimated, based on quoted or estimated market prices. These fall within Level 2 of the fair value hierarchy.

Contingent Consideration (“earn-out”)

This was first recognized as part of the purchase price paid for the Royal Oak Homes and Bonterra Builders acquisitions in 2014 and 2015, respectively, and falls within Level 3 of the fair value hierarchy. For the fair value as of December 31, 2015, valuation models were used to value the earn-outs by simulating earnings, applying the terms of the earn-out in each simulated path, determining the average payment in each year across all the trials of the simulation, and calculating the sum of the present values of the payments in each year. The primary inputs and key assumptions include estimated future earnings, probabilities of achievement, earnings volatility, and the discount rate.

14

Note 10 – Subsequent Event

On October 26, 2016, we received a commitment from Wells Fargo Bank, N.A. to become an additional lender under our Senior Secured Credit Facility, increasing the amount committed under the Senior Secured Credit Facility by $25 million. The addition of Wells Fargo to our Senior Secured Credit Facility is subject to customary closing conditions and we anticipate completing the addition in the fourth quarter.

15

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

We are engaged in the business of homebuilding and community development in Florida, Arizona and the Carolinas. We also engage to a limited degree in other real estate activities, such as the operation of amenities and the sale of land for third-party development. We manage our business through three reportable segments: Florida, Arizona and the Carolinas.

For the nine months ended September 30, 2016, we derived 51% of our revenues from Florida, 20% of our revenues from Arizona and 29% of our revenues from the Carolinas.

Our primary business is the development of land and the construction and sale of homes for people of all ages, including active adults (55 years and older). Our current homebuilding sales activities include locations in Florida, Arizona and the Carolinas, with additional communities in the pipeline for each state. Within each geographical segment, we build both active adult communities, which are restricted to homeowners that are age 55 and older, and primary residential communities, which are open to all ages. This geographic and product segment diversification helps mitigate our overall business risks. We also opportunistically sell existing non-core commercial and industrial assets, as well as scattered lot positions and land assets, that are in excess of our needed supply in a given market.

As of September 30, 2016, our current selling community count included 63 locations, 28 in Florida, nine in Arizona and 26 in the Carolinas, with additional communities in the pipeline for each area. Our count of communities with closings as of September 30, 2016 included 60 locations, 26 in Florida, nine in Arizona and 25 in the Carolinas.

Our active adult communities, Solivita and Vitalia, in Florida; CantaMia and Encore in Arizona; and Creekside at Bethpage in Raleigh, North Carolina currently serve as our flagship communities in the active adult market. These communities broaden our geographic footprint and product offering, and provide us with market participation in the longer term growth of demand from the wave of Baby Boomers entering their retirement years.

We continue to invest in the primary residential market to create a more diversified portfolio that mitigates cyclical impact over time. Through homebuilder acquisitions and by acquiring new land and lot positions, we have expanded and continue to expand within our existing markets in Central Florida, Charlotte, Raleigh, Jacksonville and the greater Phoenix area. Replacement lot positions require new acquisitions of developed lots or platted or unplatted undeveloped land, or we may decide to develop current land holdings, depending on market conditions within the submarket of these assets.

Our business is significantly influenced by a number of factors that affect our revenues, costs and capital expenditures. In managing our business and the influence of these factors, we track several key operating metrics described below.

Key Operating Metrics

Contracts signed. Net contracts signed for a given period represents the number of contracts we have entered into with home buyers for the purchase and sale of homes, less the number of contracts that were cancelled in the same period. We consider a home sales contract cancelled when the customer terminates the contract or when we provide notice of termination due to a failure on the part of the customer to close on the home or meet a contingency under the contract.

Home starts. Home starts is the number of new homes on which we have started construction in a given period. Home starts are monitored by management in order to minimize the time between contract signing and home closing.

Closings. Closings represents the number of home sales closed in the period. We recognize revenue equal to the sales price of a home when the sales are closed and title passes to the purchasers.

Backlog. Backlog is the number of homes we are building that are under contract for sale that have not closed as of the end of the period being presented. The dollar value of backlog is the revenue anticipated to be realized at closing equal to the purchase price provided in the applicable contract. Backlog is an important indicator of home closings and homebuilding revenues in future periods.

Average sales price. Average sales price represents total revenue for a given period divided by the number of closings for such period.

16

Seasonality

Our quarterly operating results generally fluctuate by season. We typically experience the highest new home order activity in the winter and spring months, although new order activity is also highly dependent on the number of actively selling communities and the timing of new community openings and closings as well as other market factors. We may experience higher liquidity demands during the first half of the calendar year as we incur the costs associated with new construction resulting from the increased sales volume. If, due to construction delays or other reasons, we are unable to deliver our expected number of homes in the second half of the calendar year, our full year results of operations may be adversely affected.

Results of Operations

The following table provides a comparison of certain financial data related to our operations for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Operating income:
Florida
Revenues:
Homebuilding	$	96,943	$	86,892	$	251,587	$	185,484
Amenity and other		3,315		2,691		8,834		8,195
Land sales		26		6		670		3,470
Total revenues		100,284		89,589		261,091		197,149
Expenses:
Homebuilding cost of revenues		74,872		68,409		196,045		149,033
Homebuilding selling, general and administrative		12,189		11,419		33,374		26,172
Amenity and other		3,075		2,199		7,978		6,938
Land sales		6		2		225		385
Segment operating income	$	10,142	$	7,560	$	23,469	$	14,621
Arizona
Revenues:
Homebuilding	$	42,014	$	20,012	$	104,255	$	45,196
Land sales		—		—		185		—
Total revenues		42,014		20,012		104,440		45,196
Expenses:
Homebuilding cost of revenues		35,236		16,497		87,672		38,704
Homebuilding selling, general and administrative		3,854		3,009		10,773		7,846
Amenity and other		26		22		79		96
Land sales		—		—		171		—
Segment operating income (loss)	$	2,898	$	484	$	5,745	$	(1,450)
Carolinas
Revenues:
Homebuilding	$	62,864	$	44,226	$	151,817	$	49,701
Land sales		265		—		265		—
Total revenues		63,129		44,226		152,082		49,701
Expenses:
Homebuilding cost of revenues		53,803		36,182		130,573		41,174
Homebuilding selling, general and administrative		5,744		4,944		15,525		6,718
Land sales		289		—		289		—
Segment operating income	$	3,293	$	3,100	$	5,695	$	1,809
Operating income	$	16,333	$	11,144	$	34,909	$	14,980
Unallocated income (expenses):
Interest income and other		—		36		1		325
Corporate general and administrative expenses		(3,697)		(3,820)		(11,967)		(11,756)
Interest expense		(701)		(1,840)		(2,853)		(7,503)
Income (loss) before income taxes		11,935		5,520		20,090		(3,954)
Income tax expense (benefit)		38		—		(109,959)		—
Net income (loss)	$	11,897	$	5,520	$	130,049	$	(3,954)

17

Data from closings for the Florida, Arizona and the Carolinas segments for the three and nine months ended September 30, 2016 and 2015 is summarized as follows (dollars in thousands):

				Average
	Number			Price
For the three months ended September 30,	of Units	Revenues		Per Unit
2016
Florida	340	$	96,943	$	285
Arizona	129		42,014		326
Carolinas	166		62,864		379
Total	635	$	201,821		318
2015
Florida	317	$	86,892	$	274
Arizona	71		20,012		282
Carolinas	127		44,226		348
Total	515	$	151,130		293

				Average
	Number			Price
For the nine months ended September 30,	of Units	Revenues		Per Unit
2016
Florida	904	$	251,587	$	278
Arizona	340		104,255		307
Carolinas	413		151,817		368
Total	1,657	$	507,659		306
2015
Florida	704	$	185,483	$	263
Arizona	170		45,196		266
Carolinas	145		49,702		343
Total	1,019	$	280,381		275

Third Quarter 2016 Highlights

During the third quarter of 2016, we continued to execute our strategic and operational business plan through (i) the continued deployment of existing capital into land and lot acquisitions, (ii) the development of existing land and lot positions, in addition to the construction of homes for sale, and (iii) the increase in the number of homes sold and closed.

Three Months Ended September 30, 2016 and 2015

Consolidated Results

Overall revenue increased by $51.6 million or 33.5% to $205.4 million during the three months ended September 30, 2016 compared to the three months ended September 30, 2015. This increase was comprised of homebuilding revenue, which increased by $50.7 million or 33.5% compared to the same period of 2015. The increase in homebuilding revenue was driven by a 23.3% increase in units closed and an 8.5% increase in the average sales price for homes closed. Amenity and other revenue and land sales increased $0.9 million in total compared to the same period of 2015.

Homebuilding Operations

Homebuilding revenue, which is revenue from home closings, increased $50.7 million or 33.5% to $201.8 million for the three months ended September 30, 2016 compared to the same period in 2015 primarily due to a 23.3% increase in units closed and an 8.5% increase in the average sales price for homes closed. In the Florida segment, homebuilding revenue increased $10.1 million or 11.6% for the three months ended September 30, 2016 compared to the same period in 2015 primarily driven by a 7.3% increase in units closed due to an increase in the number of communities in which we had closings from 21 to 26. In the Arizona

18

segment, revenues increased $22.0 million or 109.9% for the three months ended September 30, 2016 compared to the same period in 2015 driven by an 81.7% increase in units closed primarily in our active adult communities and our communities that opened in 2015 and 2016. In the Carolinas segment, revenues increased by $18.6 million or 42.1% for the three months ended September 30, 2016 compared to the same period in 2015 primarily due to an increase in the number of communities in which we had closings from 22 to 25. Additionally, the average selling prices increased 4.0%, 15.6% and 8.9% for the Florida, Arizona and Carolinas segments, respectively, due to a combination of selective price increases and the mix of communities with closings, as many of the newly opened communities had average selling prices that were higher than the overall average for the segment.

Gross margin from total home closings decreased by 110 basis points to 18.8% from 19.9% for the three months ended September 30, 2016 compared to the same period in 2015. Gross margin from the Florida segment increased by 150 basis points to 22.8% from 21.3% for the three months ended September 30, 2016 compared to the same period in 2015. Gross margin from the Arizona segment decreased by 150 basis points to 16.1% from 17.6% for the three months ended September 30, 2016 compared to the same period in 2015 primarily due to an increase in warranty expense as a result of the 2015 gross margin benefiting from the favorable impact of reduced warranty costs from older communities exiting the warranty period in 2015.  Excluding the impact of warranty, gross margins were comparable between periods. Gross margin from the Carolinas segment decreased by 380 basis points to 14.4% from 18.2% for the three months ended September 30, 2016 compared to the same period in 2015 primarily due to increased construction and land development costs, a 160 basis point increase in previously capitalized interest and the mix of communities with closings. Capitalized interest included in cost of sales for the Florida, Arizona and Carolinas segments was $2.3 million, $1.5 million and $1.6 million, respectively, for the three months ended September 30, 2016 and was $1.9 million, $0.6 million and $0.4 million, respectively, for the same period in 2015.

Total selling, general and administrative expenses as a percentage of homebuilding revenue improved to 12.6% for the three months ended September 30, 2016 from 15.3% for the same period in 2015. Homebuilding selling, general and administrative expenses as a percentage of homebuilding revenue improved to 10.8% for the three months ended September 30, 2016 from 12.8% for the same period in 2015 as we were able to continue to leverage the cost base over our increased revenues. Homebuilding selling, general and administrative expenses for the Florida segment as a percentage of homebuilding revenue for the Florida segment improved to 12.6% for the three months ended September 30, 2016 compared to 13.1% for the three months ended September 30, 2015. Homebuilding selling, general and administrative expenses for the Arizona segment as a percentage of homebuilding revenue improved to 9.2% for the three months ended September 30, 2016 from 15.0% for the three months ended September 30, 2015 primarily due to the cost leverage achieved from the more than doubling of revenue from the same period last year and lower sales and marketing costs. Homebuilding selling, general and administrative expenses for the Carolinas segment as a percentage of homebuilding revenue for the Carolinas segment improved to 9.1% for the three months ended September 30, 2016 compared to 11.2% for the three months ended September 30, 2015 due to leveraging our cost base over increased revenue.

Corporate general and administrative expenses decreased by $0.1 million to $3.7 million for the three months ended September 30, 2016 compared to the same period in 2015. As a percentage of homebuilding revenue, corporate general and administrative expenses improved to 1.8% for the three months ended September 30, 2016 compared to 2.5% for the same period in 2015. The decrease as a percentage of revenue was driven by the increase in revenue, while containing our costs, and a $0.4 million decrease in our contingent consideration (earn-out) liability.

Interest expense decreased by $1.1 million to $0.7 million for the three months ended September 30, 2016 compared to the same period in 2015. The decrease in interest expense is primarily attributable to the decrease in outstanding debt in 2016 as compared to 2015.

Income tax expense for the three months ended September 30, 2016 and 2015 was less than $0.1 million and $0.0 million, respectively.

Net income for the three months ended September 30, 2016 was $11.9 million or $0.49 per diluted share compared to net income of $5.5 million or $0.25 per diluted share for the three months ended September 30, 2015. The increase in net income for the three months ended September 30, 2016 compared to the same period in 2015 was primarily due to the higher volume of closings, increases in average selling price and leveraging our cost base.

19

Nine Months Ended September 30, 2016 and 2015

Consolidated Results

Overall revenue increased by $225.6 million or 77.2% to $517.6 million during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. This increase was comprised of homebuilding revenue, which increased by $227.3 million or 81.1% compared to the same period of 2015, partially offset by a decrease in land sales revenue of $2.4 million. The increase in homebuilding revenue was driven by a 62.6% increase in units closed and an 11.3% increase in the average sales price for homes closed. The decrease in land sales is primarily due to non-recurring sales of non-core assets in Florida in 2015. Land sales can be highly variable from quarter-to-quarter and large fluctuations may occur. The gain on land sales during the nine months ended September 30, 2016 was $0.4 million compared to $3.1 million during the same period in 2015.

Homebuilding Operations

Homebuilding revenue, which is revenue from home closings, increased $227.3 million or 81.1% to $507.7 million for the nine months ended September 30, 2016 compared to the same period in 2015 primarily due to a 62.6% increase in units closed and an 11.3% increase in the average sales price for homes closed. In the Florida segment, homebuilding revenue increased $66.1 million or 35.6% for the nine months ended September 30, 2016 compared to the same period in 2015 driven by a 28.4% increase in units closed due to an increase in the number of communities in which we had closings from 21 to 26. In the Arizona segment, revenues increased $59.1 million or 130.7% for the nine months ended September 30, 2016 compared to the same period in 2015 driven by a 100.0% increase in units closed due to an increase in the number of communities in which we had closings from eight to nine, and a significant increase in closings at newly opened primary residential communities and at one of our active adult communities. In the Carolinas segment, revenues increased by $102.1 million for the nine months ended September 30, 2016 compared to the same period in 2015 primarily due to the Bonterra Builders acquisition in July 2015. Additionally, the average selling prices increased 5.7%, 15.4% and 7.3% for the Florida, Arizona and Carolinas segments, respectively, due to a combination of selective price increases and the mix of communities with closings in each respective period.

Gross margin from total home closings remained comparable at 18.4% for the nine months ended September 30, 2016 and 2015. Gross margin from the Florida segment increased by 240 basis points to 22.1% from 19.7% for the nine months ended September 30, 2016 compared to the same period in 2015 primarily due to cost reduction initiatives favorably impacting our construction costs and selective price increases. Gross margin from the Arizona segment increased by 150 basis points to 15.9% from 14.4% for the nine months ended September 30, 2016 compared to the same period in 2015 primarily due to the addition of higher margin communities and selective price increases driving improvements in margins. Gross margin from the Carolinas segment decreased by 320 basis points to 14.0% from 17.2% for the nine months ended September 30, 2016 compared to the same period in 2015 primarily due to increased construction and land development costs, a 160 basis point increase in previously capitalized interest and the mix of communities with closings. The Carolinas gross margin for the nine months ended September 30, 2016 and 2015 also includes $1.6 million and $1.2 million, respectively, of expense associated with the purchase accounting write-up of the Bonterra Builders in-process inventory. Capitalized interest included in cost of sales for the Florida, Arizona and Carolinas segments was $6.1 million, $3.9 million and $4.0 million, respectively, for the nine months ended September 30, 2016 and was $4.1 million, $1.3 million and $0.5 million, respectively, for the same period in 2015.

Total selling, general and administrative expenses as a percentage of homebuilding revenue improved to 14.1% for the nine months ended September 30, 2016 from 18.7% for the same period in 2015. Homebuilding selling, general and administrative expenses as a percentage of homebuilding revenue improved to 11.8% for the nine months ended September 30, 2016 from 14.5% for the same period in 2015 as we were able to continue to leverage the cost base over our increased revenues. Homebuilding selling, general and administrative expenses for the Florida segment as a percentage of homebuilding revenue for the Florida segment improved to 13.3% for the nine months ended September 30, 2016 from 14.1% for the nine months ended September 30, 2015. Homebuilding selling, general and administrative expenses for the Arizona segment as a percentage of homebuilding revenue for the Arizona segment improved to 10.3% for the nine months ended September 30, 2016 compared to 17.4% for the nine months ended September 30, 2015 primarily due to the cost leverage achieved from the more than doubling of revenue from the same period in 2015. Homebuilding selling, general and administrative expenses for the Carolinas segment as a percentage of homebuilding revenue for the Carolinas segment improved to 10.2% for the nine months ended September 30, 2016 compared to 13.5% for the nine months ended September 30, 2015 due to the significant increase in revenue primarily from the acquisition of Bonterra Builders.

Corporate general and administrative expenses increased by $0.2 million to $12.0 million for the nine months ended September 30, 2016 compared to the same period in 2015. As a percentage of homebuilding revenue, corporate general and

20

administrative expenses improved to 2.4% for the nine months ended September 30, 2016 compared to 4.2% for the same period in 2015. The decrease as a percentage of revenue was driven by the significant increase in revenue, while containing our costs.

Interest expense decreased by $4.7 million to $2.9 million for the nine months ended September 30, 2016 compared to $7.5 million in the same period in 2015. The decrease in interest expense is primarily attributable to a reduction in debt and an increase in capitalized interest due to an expansion of inventory under development in 2016 as compared to 2015.

Income tax benefit for the nine months ended September 30, 2016 increased to $110.0 million from $0.0 million for the same period in 2015 due to the reversal of the deferred tax asset valuation allowance in the second and third quarters of 2016.

Net income for the nine months ended September 30, 2016 was $130.0 million or $5.02 per diluted share compared to a net loss of $4.0 million or $0.18 per diluted share for the nine months ended September 30, 2015. The increase in net income for the nine months ended September 30, 2016 compared to the same period in 2015 was primarily due to (i) the reversal of the deferred tax valuation allowance in the second and third quarters of 2016 and (ii) the higher volume of closings, increases in average selling price and leveraging our cost base, partially offset by a decrease of $2.7 million in land sale gains.

Data from contracts signed for the Florida, Arizona and the Carolinas segments for the three and nine months ended September 30, 2016 and 2015 is summarized as follows (dollars in thousands):

	Gross
	Number		Contracts			Average
	of Contracts		Signed, Net of	Dollar		Price Per
For the three months ended September 30,	Signed	Cancellations	Cancellations	Value		Unit
2016
Florida	373	(68)	305	$	89,076	$	292
Arizona	125	(29)	96		31,896		332
Carolinas	191	(20)	171		64,457		377
Total	689	(117)	572	$	185,429		324
2015
Florida	335	(57)	278	$	75,308	$	271
Arizona	173	(31)	142		40,425		285
Carolinas	152	(17)	135		48,229		357
Total	660	(105)	555	$	163,962		295

	Gross
	Number		Contracts			Average
	of Contracts		Signed, Net of	Dollar		Price Per
For the nine months ended September 30,	Signed	Cancellations	Cancellations	Value		Unit
2016
Florida	1,245	(201)	1,044	$	294,413	$	282
Arizona	465	(108)	357		113,427		318
Carolinas	591	(53)	538		200,827		373
Total	2,301	(362)	1,939	$	608,667		314
2015
Florida	1,143	(176)	967	$	260,492	$	269
Arizona	460	(79)	381		110,189		289
Carolinas	209	(26)	183		63,635		348
Total	1,812	(281)	1,531	$	434,316		284

Three Months Ended September 30, 2016 and 2015

The total number of net housing contracts signed during the three months ended September 30, 2016 compared to the same period in 2015 increased by 17 or 3.1%. The dollar value of housing contracts signed increased by $21.5 million or 13.1% over the same period. The increase in units and value were driven by improvements in the Florida and Carolinas segments, partially offset by a decrease in Arizona. The number of net housing contracts signed for the Florida segment during the three months ended September 30, 2016 increased by 27 or 9.7%, while the dollar value of housing contracts signed increased by $13.8

21

million or 18.3%, due to an increase in the number of selling communities from 24 to 28. The number of net housing contracts signed for the Arizona segment during the three months ended September 30, 2016 decreased by 46 or 32.4%, while the dollar value of housing contracts signed decreased by $8.5 million or 21.1%, due to a decrease in the number of selling communities from 10 to nine and two primary residential communities expected to close out in the next nine months. The number of net housing contracts signed for the Carolinas segment during the three months ended September 30, 2016 increased by 36 or 26.7%, while the dollar value of housing contracts signed increased by $16.2 million or 33.6%, primarily as a result of improved demand at newer communities. The overall increase reflects an increase in the number of selling communities from 60 to 63 as well as higher average selling prices.

The cancellation rate during the three months ended September 30, 2016 increased to 17.0% from 15.9% compared to the same period in 2015. The cancellation rate in the Florida segment increased slightly to 18.2% from 17.0% over the same period. The cancellation rate in the Arizona segment during the three months ended September 30, 2016 increased to 23.2% from 17.9% compared to the same period in 2015 primarily due to an increase in sales contract cancellations associated with buyers unable to sell their existing homes. The cancellation rate in the Carolinas segment during three months ended September 30, 2016 decreased slightly to 10.5% from 11.2% during the three months ended September 30, 2015.

Nine Months Ended September 30, 2016 and 2015

The total number of net housing contracts signed during the nine months ended September 30, 2016 compared to the same period in 2015 increased by 408 or 26.6%. The dollar value of housing contracts signed increased by $174.4 million or 40.1% over the same period. The increase in units and value were driven by improvements in the Florida and Carolinas segments. The number of net housing contracts signed for the Florida segment during the nine months ended September 30, 2016 increased by 77 or 8.0%, while the dollar value of housing contracts signed increased by $33.9 million or 13.0%, due to an increase in the number of selling communities from 24 to 28. The number of net housing contracts signed for the Arizona segment during the nine months ended September 30, 2016 decreased by 24 or 6.3%, while the dollar value of housing contracts signed increased by $3.2 million or 2.9%, due to the sales mix of homes sold. The number of net housing contracts signed for the Carolinas segment during the nine months ended September 30, 2016 increased by 355, while the dollar value of housing contracts signed increased by $137.2 million, primarily as a result of the Bonterra Builders acquisition. The overall increase reflects an increase in the number of selling communities from 60 to 63 as well as higher average selling prices.

The cancellation rate during the nine months ended September 30, 2016 increased slightly to 15.7% from 15.5% compared to the same period in 2015. The cancellation rate in the Florida segment increased slightly to 16.1% from 15.4% over the same period. The cancellation rate in the Arizona segment during the nine months ended September 30, 2016 increased to 23.2% from 17.2% compared to the same period in 2015 due to an increase in sales contract cancellations associated with buyers unable to sell their existing homes. The cancellation rate in the Carolinas segment during the nine months ended September 30, 2016 decreased to 9.0% compared to 12.4% during nine months ended September 30, 2015 due to the addition of Bonterra Builders communities, which typically focus on move-up buyers who tend to have a lower cancellation rate.

Backlog for the Florida, Arizona and the Carolinas segments as of September 30, 2016 and 2015 is summarized as follows (dollars in thousands):

				Average
	Number	Dollar		Price
As of September 30,	of Units	Volume		Per Unit
2016
Florida	556	$	160,007	$	288
Arizona	250		81,834		327
Carolinas	275		105,302		383
Total	1,081	$	347,143		321
2015
Florida	536	$	147,085	$	274
Arizona	263		78,799		300
Carolinas	227		81,635		360
Total	1,026	$	307,519		300

The backlog of housing contracts as of September 30, 2016 compared to September 30, 2015 increased by 55 or 5.4%, and the dollar value of backlog increased by $39.6 million or 12.9% over the same period. The increase in units of backlog was driven by increased sales due to higher community counts in the Florida and Carolinas segments, as well as increases in the

22

average price per unit sold due to price increases and the sales mix of product sold. The backlog of housing contracts in the Florida segment as of September 30, 2016 compared to September 30, 2015 increased by 20 or 3.7%, and the dollar value increased by $12.9 million or 8.8% over the same period, driven by the increase in selling communities from 24 to 28. The backlog of housing contracts in the Arizona segment as of September 30, 2016 compared to September 30, 2015 decreased by 13 or 4.9%, primarily due to a decrease in net housing contracts signed and the dollar value increased by $3.0 million or 3.9% over the same period, driven by a 9.0% increase in average selling price. The backlog of housing contracts in the Carolinas segment as of September 30, 2016 compared to September 30, 2015 increased by 48 or 21.1% and the dollar value increased by $23.7 or 29.0% million over the same period, primarily due the increase in the number of selling communities.

As of September 30, 2016, our inventory of unsold (speculative) homes, both completed and under construction, was 403 units, as compared to 429 units as of September 30, 2015. As of September 30, 2016, approximately 30% of unsold homes were completed compared to approximately 29% as of September 30, 2015. The decrease in speculative homes is due to our efforts to optimize our inventory of unsold (speculative) homes which typically have lower margins.

The following is a breakdown of our land holdings as of September 30, 2016 and December 31, 2015:

	September 30, 2016				December 31, 2015
		Partially		Total		Partially		Total
	Developed	Developed		Remaining	Developed	Developed		Remaining
	Lots	Lots	Raw Lots	Lots (1)	Lots	Lots	Raw Lots	Lots (1)
Florida
Active adult	875	99	5,493	6,467	737	143	5,898	6,778
Primary residential	1,770	652	957	3,379	2,111	637	1,040	3,788
	2,645	751	6,450	9,846	2,848	780	6,938	10,566
Arizona
Active adult	702	836	452	1,990	432	1,238	452	2,122
Primary residential	408	—	429	837	550	—	345	895
	1,110	836	881	2,827	982	1,238	797	3,017
Carolinas
Active adult	116	88	408	612	148	79	408	635
Primary residential	716	570	414	1,700	533	886	478	1,897
	832	658	822	2,312	681	965	886	2,532
Total principal communities	4,587	2,245	8,153	14,985	4,511	2,983	8,621	16,115

(1)Estimated lots are based on historical densities for our land. New projects may ultimately be developed into more or less than the number of lots stated.

In addition to the lots presented in the table above, we also have approximately 1,700 acres of commercial and industrial land and approximately 5,600 acres of unplatted scattered mixed-use land primarily in Florida. We also have 690 platted scattered lots, primarily in Arizona.

Income Taxes

Income taxes have been provided for using the asset and liability method under ASC 740, Income Taxes (“ASC 740”). The asset and liability method is used in accounting for income taxes where deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In assessing the realizability of deferred tax assets, we consider whether it is “more likely than not” that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment is required. Differences between the anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated results of operations or financial position.

We evaluate our deferred tax assets quarterly to determine if valuation allowances are required. ASC 740 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than not” standard. The realization of the deferred tax assets ultimately depends upon the existence of sufficient taxable income in future periods. We established a full valuation allowance against our deferred tax assets in 2009 and regularly analyzed all available positive and negative evidence in determining the continuing need for a valuation allowance with respect to our deferred tax assets. This evaluation considered, among other factors, historical operating results, our three-year cumulative profit or loss position, forecasts of future profitability, and the duration of statutory carryforward periods. After careful evaluation

23

of all positive and negative evidence, and giving more weight to objectively verifiable evidence over more subjective evidence, we concluded as of June 30, 2016 that it was “more likely than not” that all of our federal deferred tax assets and our state deferred tax assets will be realized. Even if industry conditions weaken from current levels, we believe we will be able to adjust our operations to sustain long-term profitability. Accordingly, we reversed $112.9 million of valuation allowance during the three months ended June 30, 2016. We reversed an additional $4.3 million during the three months ended September 30, 2016 for a total of $117.2 million during the nine months ended September 30, 2016. When a change in valuation allowance is recognized in an interim period, a portion of the valuation allowance to be reversed must be allocated to the remaining interim periods. The remaining valuation allowance of $6.7 million is expected to be reversed in the fourth quarter of 2016.

Any interest or penalties assessed have been minimal and immaterial to our financial results. In the event we are assessed any interest or penalties in the future, we plan to include them in our consolidated statements of operations and comprehensive income (loss) as income tax expense.

Liquidity and Capital Resources

Our primary business activities are capital intensive in nature. Significant capital resources are required to finance planned active adult and primary residential communities, homebuilding construction in process, community infrastructure, selling expenses, new projects and working capital needs, including funding of debt service requirements, operating deficits and the carrying costs of land. We finance these capital needs through our cash on hand, operating cash flows, senior credit facility, senior notes and the capital markets. For more information regarding our debt, see Note 5, Senior Notes, to our unaudited consolidated financial statements in Item 1 of this Form 10-Q.

Cash Flows

As of September 30, 2016, our cash and cash equivalents totaled $16.3 million compared to $46.9 million as of December 31, 2015. As of September 30, 2016, total consolidated indebtedness was $295.0 million compared to $326.8 million as of December 31, 2015. The decrease in cash and cash equivalents as of September 30, 2016 is primarily due to the purchase and development of land and the increase in homes under construction due to higher sales, the redemption of the 7.50% Notes and payments of outstanding amounts under our Senior Secured Credit Facility. Additionally, as of September 30, 2016, we had $1.1 million in restricted cash as compared to $26.9 million in restricted cash as of December 31, 2015, which was comprised primarily of cash on deposit as an interest reserve to comply with the terms of our Senior Secured Credit Facility. As of September 30, 2016, the Company was above the specified thresholds requiring the reserve.

Our operating cash flows fluctuate relative to the status of development within existing communities, expenditures for land, new developments and other real estate activities, sales of various homebuilding product lines within those communities and other developments and to fund operating deficits.

For the nine months ended September 30, 2016, net cash provided by operating activities was $6.8 million. The operating cash inflow was primarily due to the net income of $130.0 million offset by the $110.5 million decrease in deferred tax assets, net due to the reversal of the deferred tax asset valuation allowance in the second and third quarters of 2016. The remaining change was due to the increase in land and other inventories of $48.7 million, and an increase in customer deposits of $3.6 million, partially offset by a decrease in restricted cash of $25.8 million related to the release of the interest reserve requirement for our Senior Secured Credit Facility.

Net cash used in investing activities was $1.4 million primarily due to the purchase of property and equipment. Net cash used in financing activities was $36.1 million primarily due to the repayment of the remaining $46.8 million of 7.50% Notes at maturity, partially offset by a net draw of $15.0 million on the Senior Secured Credit Facility during the third quarter of 2016.

24

For the nine months ended September 30, 2015, net cash used in operating activities was $112.4 million. The operating cash outflow was primarily due to the increase in land and other inventories of $121.2 million and an increase in restricted cash of $9.8 million related to a covenant requirement in our Senior Secured Credit Facility. Using the proceeds from our 8.50% Notes issued in June 2014 and our 6.00% Notes issued in June 2015, we purchased land and lots for the expansion of all our homebuilding segments and increased the number of homes under construction commensurate with the increase in our home sales. These outflows were partially offset by cash inflow of $19.7 million from increased customer deposits and accrued liabilities. Net cash used in investing activities amounted to $99.1 million primarily due to the purchase of Bonterra Builders in the third quarter of 2015. Net cash provided by financing activities was $53.4 million primarily due to the issuance of $80.0 million of the 6.00% Notes, partially offset by the aggregate redemption and repurchase of the 7.50% Exchange Notes and portions of the 7.50% Notes for $55.0 million. Additionally, we had a net draw of $30.0 million on the Senior Secured Credit Facility during the third quarter of 2015.

Other

Assuming that no significant adverse changes occur in our business, we anticipate the aggregate cash on hand, cash flow generated through homebuilding and related operations, and the Senior Secured Credit Facility will provide sufficient liquidity to fund our business for the next 12 months.

Off Balance Sheet Arrangements

Performance bonds, issued by third-party entities, are used primarily to guarantee our performance to construct improvements in our various communities. As of September 30, 2016, we had outstanding performance bonds of approximately $28.3 million. The amount of outstanding performance bonds could fluctuate depending on the level of development activity. We do not believe that it is likely any of these outstanding performance bonds will be drawn upon.

Critical Accounting Policies

There were no material changes in AV Homes' critical accounting policies during the nine months ended September 30, 2016. For additional information regarding AV Homes' critical accounting policies, refer to Item 7. Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2015.

Special notes concerning forward-looking statements

Certain statements discussed in Item 2 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and elsewhere in this Form 10-Q constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other important factors include, among others: the cyclical nature of the homebuilding industry and its dependence on broader economic conditions; availability and suitability of undeveloped land and improved lots; ability to develop communities within expected timeframes; increases in interest rates and availability of mortgage financing; our ability to access sufficient capital; our ability to generate sufficient cash to service our indebtedness and potential need for additional financing; terms of our financing documents that may restrict our operations and corporate actions; fluctuations in interest rates; our ability to purchase outstanding notes upon certain fundamental changes; our ability to obtain letters of credit and surety bonds; cancellations of home sale orders; competition for home buyers, properties, financing, raw materials and skilled labor; declines in home prices in our primary regions; inflation affecting homebuilding costs or deflation affecting declines in spending and borrowing levels; the prices and supply of building materials and skilled labor; the availability and skill of subcontractors; elimination or reduction of tax benefits associated with home ownership; warranty and construction defect claims; health and safety incidents in homebuilding activities; the seasonal nature of our business; impacts of weather conditions and natural disasters; resource shortages and rate fluctuations; value and costs related to our land and lot inventory; overall market supply and demand for new homes; our ability to recover our costs in the event of reduced home sales; conflicts of interest involving our largest stockholder; contractual restrictions under a stockholders agreement with our largest stockholder; dependence on our senior management; effect of our expansion efforts on our cash flows and profitability; effects of government regulation of development and homebuilding projects; raising healthcare costs; development liabilities that may impose payment obligations on us; our ability to utilize our deferred income tax asset; costs of environmental compliance; impact of environmental changes; dependence on digital technologies and potential interruptions; future sales or dilution of our equity; impairment of intangible assets; and other factors described in our Annual

25

Report on Form 10-K for the year ended December 31, 2015. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which reflect management’s opinions only as of the date hereof.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in AV Homes' market risk during the nine months ended September 30, 2016. For additional information regarding AV Homes' market risk, refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended December 31, 2015.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this quarterly report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Internal Control Over Financial Reporting

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have determined that, during the fiscal quarter ended September 30, 2016, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

26

PART II. Other Information

ITEM 1A. RISK FACTORS

There have not been any material changes to the risk factors discussed in Part I, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2015.

27

ITEM 6. EXHIBITS 

2.1	*1	Asset Purchase Agreement, dated June 10, 2015, among AV Homes, Inc., Bel Air Acquisition Sub, LLC, Bonterra Builders, LLC, and each of the members and beneficial owners of Bonterra Builders, LLC (filed as Exhibit 2.1 to Form 8-K dated June 10, 2015 (File No. 1-7395), and incorporated herein by reference).
3.1	*	Certificate of Incorporation, as amended and restated May 28, 1998 (filed as Exhibit 3(a) to Form 10-Q for the quarter ended June 30, 1998 (File No. 1-7395), and incorporated herein by reference).
3.2	*	Certificate of Amendment of Restated Certificate of Incorporation, dated May 26, 2000 (filed as Exhibit 3(a) to Form 10-Q for the quarter ended June 30, 2000 (File No. 1-7395), and incorporated herein by reference).
3.3	*	Amended and Restated By-Laws, dated March 31, 2014 (filed as Exhibit 3.2 to Form 8-K filed on April 1, 2014 (File No. 1-7395), and incorporated herein by reference).
4.1	*	Indenture, dated February 4, 2011, between Avatar Holdings Inc. and Wilmington Trust FSB, as Trustee (filed as Exhibit 4.1 to Form 8-K dated February 4, 2011 (File No. 1-7395), and incorporated herein by reference).
4.2	*	Senior Notes Indenture, dated June 30, 2014, by and among AV Homes, Inc., certain subsidiaries of AV Homes, Inc. and Wilmington Trust, National Association, as Trustee, in respect of 8.50% Senior Notes due 2016 (filed as Exhibit 4.1 to Form 8-K dated July 1, 2014 (File No. 1-7395), and incorporated herein by reference).
4.3	*	Third Supplemental Indenture, dated June 23, 2015, between AV Homes, Inc. and Wilmington Trust FSB, as Trustee, in respect of 6.00% Senior Convertible Notes due 2020 (filed as Exhibit 4.2 to Form 8-K dated June 23, 2015 (File No. 1-7395), and incorporated herein by reference).
10.1	*	Omnibus Amendment to Credit Agreement and Guarantee on Collateral Agreement among AV Homes, Inc., the several lenders from time to time parties thereto, and JPMorgan Chase Bank, N.A., dated as of July 28, 2016 (filed as Exhibit 10.1 to Form 8-K filed on July 28, 2016 (File No. 1-7395) and incorporated herein by reference).
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1		Certification of Chief Executive Officer required by 18 U.S.C. Section 1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002) (furnished herewith).
32.2		Certification of Principal Financial Officer required by 18 U.S.C. Section 1350 (as adopted by Section 906 of the Sarbanes-Oxley Act of 2002) (furnished herewith).
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase.
101.DEF		XBRL Taxonomy Extension Definition Linkbase.
101.LAB		XBRL Taxonomy Extension Label Linkbase.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase.

*These exhibits are incorporated by reference and are on file with the Securities and Exchange Commission.

1) Excludes exhibits and schedules, which the registrant agrees to furnish supplementally to the Securities and Exchange Commission upon request.

28

SIGNATURES

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

			AV HOMES, INC.
Date:	October 28, 2016	By:	/s/ Roger A. Cregg
			Roger A. Cregg President and Chief Executive Officer (Principal Executive Officer)
Date:	October 28, 2016	By:	/s/ Michael S. Burnett
			Michael S. Burnett Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

29

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Roger A. Cregg, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of AV Homes, Inc.;

2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.             The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.             The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	October 28, 2016	/s/ Roger A. Cregg
		Roger A. Cregg
		President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael S. Burnett, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of AV Homes, Inc.;

2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.             The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.             The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	October 28, 2016	/s/ Michael S. Burnett
		Michael S. Burnett
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

Certification Required by 18 U.S.C. Section 1350

(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

I, Roger A. Cregg, as President and Chief Executive Officer of AV Homes, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:

(1) the accompanying Report on Form 10-Q of the Company for the quarter ended September 30, 2016 (the “Report”), filed with the U.S. Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  October 28, 2016

/s/ Roger A. Cregg

Roger A. Cregg

President and Chief Executive Officer

(Principal Executive Officer)

EX-32.2

Exhibit 32.2

Certification Required by 18 U.S.C. Section 1350

(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

I, Michael S. Burnett, as Executive Vice President and Chief Financial Officer of AV Homes, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:

(1) the accompanying Report on Form 10-Q of the Company for the quarter ended September 30, 2016 (the “Report”), filed with the U.S. Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  October 28, 2016

/s/ Michael S. Burnett

Michael S. Burnett

Executive Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Oct. 21, 2016
Document and Entity Information
Document Fiscal Year Focus	2016
Entity Registrant Name	AV Homes, Inc.
Entity Central Index Key	0000039677
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		22,570,116
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Assets
Cash and cash equivalents	$ 16,289	$ 46,898
Restricted cash	1,139	26,948
Land and other inventories	630,909	582,531
Receivables	8,248	7,178
Property and equipment, net	34,223	34,973
Investments in unconsolidated entities	1,177	1,172
Prepaid expenses and other assets	13,033	17,144
Deferred tax assets, net	110,501	0
Goodwill	19,285	19,295
Total assets	834,804	736,139
Liabilities
Accounts payable	37,060	33,606
Accrued and other liabilities	29,389	38,826
Customer deposits	12,223	8,629
Estimated development liability	32,257	32,551
Senior notes, net	290,258	320,846
Total liabilities	401,187	434,458
Stockholders' equity
Common stock, par value $1 per share	22,692	22,444
Additional paid-in capital	401,358	399,719
Accumulated earnings (deficit)	12,586	(117,463)
Equity before treasury stock	436,636	304,700
Treasury stock	(3,019)	(3,019)
Total stockholders’ equity	433,617	301,681
Total liabilities and stockholders' equity	$ 834,804	$ 736,139

XML

Consolidated Balance Sheets (Parentheticals) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Consolidated Balance Sheets
Common stock, par value per share	$ 1	$ 1

XML

Consolidated Statements of Operations and Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues
Homebuilding	$ 201,821	$ 151,130	$ 507,659	$ 280,381
Amenity and other	3,315	2,691	8,834	8,195
Land sales	291	6	1,120	3,470
Total revenues	205,427	153,827	517,613	292,046
Expenses
Homebuilding cost of revenues	163,911	121,089	414,290	228,911
Amenity and other	3,101	2,221	8,057	7,034
Land sales	295	2	685	385
Total real estate expenses	167,307	123,312	423,032	236,330
Selling, general and administrative expenses	25,484	23,191	71,639	52,492
Interest income and other		(36)	(1)	(325)
Interest expense	701	1,840	2,853	7,503
Income (loss) before income taxes	11,935	5,520	20,090	(3,954)
Income tax expense (benefit)	38	0	(109,959)	0
Net income (loss)	11,897	5,520	130,049	(3,954)
Comprehensive income (loss)	$ 11,897	$ 5,520	$ 130,049	$ (3,954)
Basic income (loss) per share	$ 0.53	$ 0.25	$ 5.81	$ (0.18)
Diluted income (loss) per share	$ 0.49	$ 0.25	$ 5.02	$ (0.18)

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
OPERATING ACTIVITIES
Net income (loss)	$ 130,049	$ (3,954)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	4,729	2,786
Amortization of share-based compensation	1,911	2,320
Change in fair value of contingent consideration	(422)	(298)
Impairment charges	335	0
Equity in loss (income) from unconsolidated entities	15	(160)
Gain from disposal of assets	1	31
Deferred income taxes, net	(110,501)
Changes in operating assets and liabilities:
Restricted cash	25,809	(9,826)
Land and other inventories	(48,713)	(121,154)
Receivables	(1,070)	(4,182)
Prepaid expenses and other assets	2,704	2,391
Accounts payable, estimated development liability, and accrued and other liabilities	(1,595)	16,822
Customer deposits	3,594	2,863
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	6,844	(112,423)
INVESTING ACTIVITIES
Investment in property and equipment	(1,389)	(1,075)
Proceeds from sales of property and equipment	11	31
Business acquisitions	10	(95,182)
Investment in unconsolidated entities	(20)	(2,882)
NET CASH USED IN INVESTING ACTIVITIES	(1,388)	(99,108)
FINANCING ACTIVITIES
Proceeds from issuance of debt		79,926
Gross proceeds from Senior Secured Credit Facility	35,000	40,000
Payments of Senior Secured Credit Facility	(20,000)	(10,000)
Debt issuance costs		(2,068)
Principal payments of notes	(46,793)	(53,163)
Contingent consideration and other financing activities	(4,272)	(1,246)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	(36,065)	53,449
DECREASE IN CASH AND CASH EQUIVALENTS	(30,609)	(158,082)
Cash and cash equivalents at beginning of year	46,898	180,334
CASH AND CASH EQUIVALENTS AT END OF YEAR	$ 16,289	22,252
Noncash transactions:
Transfer from assets held for sale to land and other inventories and property and equipment		4,051
Distribution of land from unconsolidated joint venture		$ 19,860

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2016

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 1 -Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of AV Homes, Inc. and all subsidiaries, partnerships and other entities in which AV Homes, Inc. (“AV Homes,” “we,” “us,” “our,” or “the Company”) has a controlling interest. Our investments in unconsolidated entities in which we have less than a controlling interest are accounted for using the equity method. The interim consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all information and footnotes required by U.S generally accepted accounting principles (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of AV Homes as of September 30, 2016 and for all periods presented. These statements should be read in conjunction with our consolidated financial statements and notes thereto included in AV Homes' Annual Report on Form 10-K for the year ended December 31, 2015. All significant intercompany accounts and transactions have been eliminated in consolidation.

Beginning with our Form 10-Q for the quarter ended March 31, 2016, the selling, general and administrative expenses related to homebuilding previously included in Homebuilding expenses have been combined with corporate general and administrative expenses and reclassified into a separate new line item called “Selling, general and administrative expenses” to enhance the visibility to our core homebuilding operations and conform with standard industry presentation. The selling, general and administrative expenses reclassified include commissions, other selling expenses and overhead incurred at the divisional level. For the three and nine months ended September 30, 2015, selling, general and administrative costs of $19.4 million and $40.7 million, respectively, that were previously presented in Homebuilding expenses are now included in selling,  general and administrative expenses. In addition, in accordance with adoption of Accounting Standards Update No. 2015-03, Interest-Imputation of Interest, our debt issuance costs are now presented as a deduction from the corresponding debt liability. This guidance was applied retrospectively and had the effect of reducing our prepaid expenses and other assets and senior notes, net balances in our consolidated balance sheets. As of December 31, 2015, unamortized deferred debt issuance costs of $5.9 million were previously presented in prepaid expenses and other assets on the consolidated balance sheet and are now included as a reduction to senior notes, net.

Use of Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents and Restricted Cash

We consider all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. As of September 30, 2016, our cash and cash equivalents were primarily available funds on deposit at financial institutions. Due to the short maturity period of the cash equivalents, the carrying amounts of these instruments approximates their fair values.

Our cash items that are restricted as to withdrawal or usage include deposits of $1.1 million and $26.9 million as of September 30, 2016 and December 31, 2015, respectively. The balance as of December 31, 2015 was comprised primarily of $25.6 million on deposit as a reserve to comply with a covenant in our Senior Secured Credit Facility (defined below). As of September 30, 2016, the Company was above the specified thresholds requiring the reserve.

Land and Other Inventories and Homebuilding Cost of Revenues

Land and other inventories include expenditures for land acquisition, land development, home construction, construction costs for amenities, and direct and allocated indirect costs, including interest cost capitalized until development and construction are substantially completed. These costs are assigned to components of land and other inventories based on specific identification, relative sales value, or area allocation methods.

Land and other inventories are stated at cost unless the asset is determined to be impaired, in which case the asset is written to its fair value, in accordance with Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment (“ASC 360”).

Homebuilding cost of revenues is comprised of direct and allocated costs, including estimated future costs for the limited warranty we provide on our homes. Land acquisition, land development and other common costs are generally allocated on a relative sales value or area allocation basis to the homes or lots within the applicable community or land parcel. Land acquisition and land development costs include related interest and real estate taxes.

We evaluate our land and other inventories for impairment on a quarterly basis in accordance with ASC 360 to reflect market conditions, including a market-by-market consideration of supply of new and resale homes for sale, level of foreclosure activity and competition. For assets held and used, if indicators are present, we perform an impairment test in which the asset is reviewed for impairment by comparing the estimated future undiscounted cash flows to be generated by the asset to its carrying value. If such cash flows are less than the asset’s carrying value, the carrying value is written down to its estimated fair value. Generally, fair value is determined by discounting the estimated cash flows at a rate commensurate with the inherent risks associated with the asset and related estimated cash flow streams. The discount rate used in the determination of fair value would vary, depending on the state of development. Assumptions and estimates used in the determination of the estimated future cash flows are based on expectations of future operations and economic conditions and certain factors described below. Changes to these assumptions could significantly affect the estimates of future cash flows, which could affect the potential for future impairments. Due to the uncertainties of the estimation process, actual results could differ significantly from such estimates.

During the three and nine months ended September 30, 2016, our impairment assessments resulted in $0.1 million and $0.3 million of impairment charges, respectively, and are included in homebuilding cost of revenues in the consolidated statements of operations and comprehensive income (loss). During the three and nine months ended September 30, 2015, our impairment assessments resulted in no impairment charges.

Receivables

Receivables primarily consist of amounts in transit or due from title companies for house closings.

Property and Equipment, net

Property and equipment, net are stated at cost and depreciation is computed by the straight-line method over the following estimated useful lives of the assets: land improvements 10 to 25 years; buildings and improvements 8 to 39 years; and machinery, equipment and fixtures 3 to 7 years. Expenses for equipment utilized in the development of land are capitalized to land inventory while ordinary repairs and maintenance are expensed as incurred.

Property and equipment, net includes certain amenities such as club facilities on properties owned by us. These amenities include expenditures for land acquisition, land development, construction, and direct and allocated costs, including interest cost incurred during development and construction.

Each reporting period, we review our property and equipment for indicators of impairment in accordance with ASC 360. For our amenities, which are located within our housing communities, indicators of impairment are similar to those of our housing communities (described above), as these factors may impact our ability to generate revenues at our amenities or cause construction costs to increase. In addition, we factor in the collectability and potential delinquency of the membership dues for our amenities. For the three and nine months ended September 30, 2016 and 2015, we did not identify indicators of impairment for property and equipment.

Investments in Partnerships and LLCs

When we are either deemed to hold the controlling interest in a voting interest entity or deemed to be the primary beneficiary of a variable interest entity (“VIE”), we are required to consolidate the investment. The primary beneficiary of a VIE is the entity that has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb the majority of losses of the VIE or the right to receive the majority of benefits from the VIE. Investments where we do not hold the controlling interest and we are not the primary beneficiary are accounted for under the equity method.

Factors considered when determining if we hold the controlling interest in a voting interest entity include who holds the general partnership or managing member interests, which partner or member makes the day-to-day decisions regarding the operations of the entity, and whether or not the other partners or members have substantive participating rights. With respect to VIEs, our variable interests may be in the form of (1) equity ownership, (2) contracts to purchase assets and/or (3) loans provided by us to the investor. We examine specific criteria and use judgment when determining if we are the primary beneficiary of a VIE. Factors considered in determining whether we are the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), sufficiency of equity to conduct the operations of the entity, voting rights, involvement in decisions significantly impacting the entity's economic performance, level of economic disproportionality between us and the other partner(s) and contracts to purchase assets from VIEs.

We have investments in unconsolidated entities, including joint ventures, with independent third parties. The equity method of accounting is used for unconsolidated entities over which we have significant influence. Under the equity method of accounting, we recognize our proportionate share of the earnings and losses of these entities.

We evaluate our investments in unconsolidated entities for recoverability in accordance with ASC 323, Investments - Equity Method and JointVentures (“ASC 323”). If we determine that a loss in the value of the investment is other than temporary, we write down the investment to its estimated fair value. Any such losses are recorded to equity in (earnings) loss of unconsolidated entities in the consolidated statements of operations and comprehensive income (loss). Due to uncertainties in the estimation process and the significant volatility in demand for new housing, actual results could differ significantly from such estimates. During the three and nine months ended September 30, 2016 and 2015, we did not identify indicators of impairment for our investments in unconsolidated entities.

Business Acquisitions

When acquiring a business, we allocate the purchase price of the business to the tangible and intangible assets and liabilities acquired based on their estimated fair values. In making estimates of fair values for this purpose, we use a number of sources, including independent appraisals and information obtained about each property as a result our pre-acquisition due diligence and its marketing and housing activities.

Goodwill

Goodwill arises from business combinations and represents the excess of the cost of an acquired entity over the net fair value amounts that were assigned to the identifiable assets acquired and the liabilities assumed. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. There were no indicators of impairment during the three and nine months ended September 30, 2016 and 2015.

Homebuilding Revenue Recognition

In accordance with ASC 360, homebuilding revenue and related profit from the sales of housing units are recognized when title to and possession of the property are transferred to the buyer. In addition, revenues from land sales are recognized in full at closing, provided the buyer's initial and continuing investment is adequate, any financing is considered collectible and there is no significant continuing involvement.

Sales Incentives

When sales incentives involve a discount on the selling price of the home, we record the discount as a reduction of revenue at the time of house closing. If the sales incentive requires us to provide a free product or service to the customer, the cost of the free product or service is recorded as homebuilding cost of revenues at the time of house closing. This includes the cost related to optional upgrades and seller-paid financing costs, closing costs, homeowners’ association fees, or merchandise.

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs, sales commissions and closing costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).

Warranty Costs

Warranty reserves for houses are established to cover estimated costs for materials and labor with regard to warranty-type claims to be incurred subsequent to the closing of a house. Reserves are determined based on historical data and other relevant factors. We have, and require our subcontractors to have, general liability, property, workers’ compensation, and other business insurance. These insurance policies protect us against a portion of our risk of loss from claims, subject to certain self-insured per occurrence and aggregate retentions, deductibles, and available policy limits. We may have recourse against subcontractors for certain claims relating to workmanship and materials. Warranty reserves are included in accrued and other liabilities in the accompanying consolidated balance sheets.

During the three and nine months ended September 30, 2016 and 2015, changes in the warranty reserve consisted of the following (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Accrued warranty reserve, beginning of period	$	3,581	$	1,767	$	3,333	$	1,528
Reserve provided		952		1,818		2,440		2,954
Payments		(1,004)		(1,168)		(2,244)		(2,065)
Accrued warranty reserve, end of period	$	3,529	$	2,417	$	3,529	$	2,417

Income Taxes

Our income tax expense (benefit) for the three and nine months ended September 30, 2016 was less than $0.1 million and $(110.0) million, respectively, compared to income tax expense of $0.0 million for each of the three and nine months ended September 30, 2015. The income tax benefit for the nine months ended September 30, 2016 is due primarily to a $117.2 million reduction of our deferred tax asset valuation allowance in the same period. Our effective tax rate is affected by a number of factors, the most significant of which is the valuation allowance related to our deferred tax assets. Due to the impact of the changes in the valuation allowance, our effective tax rates in 2016 and 2015 are not correlated to the amount of our income or loss before income taxes.

Income taxes have been provided for using the asset and liability method under ASC 740, Income Taxes (“ASC 740”). The asset and liability method is used in accounting for income taxes where deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In assessing the realizability of deferred tax assets, we consider whether it is “more likely than not” that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment is required. Differences between the anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated results of operations or financial position.

We evaluate our deferred tax assets quarterly to determine if valuation allowances are required. ASC 740 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than not” standard. The realization of the deferred tax assets ultimately depends upon the existence of sufficient taxable income in future periods. We established a full valuation allowance against our deferred tax assets beginning in 2009 and regularly analyzed all available positive and negative evidence in determining the continuing need for a valuation allowance with respect to our deferred tax assets. This evaluation considered, among other factors, historical operating results, our three-year cumulative profit or loss position, forecasts of future profitability, and the duration of statutory carryforward periods.

From 2007 to 2014, we generated significant deferred tax assets primarily from asset impairments and reduced operational profitability. As of September 30, 2016 and December 31, 2015, we had net deferred tax assets of $117.2 million and $124.5 million, respectively. The December 31, 2015 net deferred tax asset was offset by a valuation allowance of $124.5 million. During the three months ended March 31, 2016, we recognized a decrease of $0.6 million in the valuation allowance generated from the pre-tax income for the period. During the three months ended June 30, 2016, we evaluated both positive and negative evidence and determined it was “more likely than not” that our federal deferred tax assets and our state deferred tax assets will be realized. Accordingly, we reversed $112.9 million of valuation allowance during the three months ended June 30, 2016 and an additional $4.3 million during the three months ended September 30, 2016. The valuation allowance decreased $117.8 million during the nine months ended September 30, 2016. This reversal is reflected in our income tax benefit in the accompanying consolidated statements of operations and comprehensive income (loss). When a change in valuation allowance is recognized in an interim period, a portion of the valuation allowance to be reversed must be allocated to the remaining interim periods. The remaining valuation allowance of $6.7 million is expected to be reversed in the fourth quarter of 2016.

Any interest or penalties assessed have been minimal and immaterial to our financial results. In the event we are assessed any interest or penalties in the future, we plan to include them in our consolidated statements of operations and comprehensive income (loss) as income tax expense.

During the nine months ended September 30, 2016 and 2015, we made income tax payments of $0.8 million and $0.0 million, respectively, related to alternative minimum tax and state income tax in North Carolina and South Carolina.

Share-Based Compensation

On June 3, 2015, shareholders approved and we adopted the 2015 Incentive Compensation Plan (the “2015 Plan”), which replaced the Amended and Restated 1997 Incentive and Capital Accumulation Plan (2011 Restatement), as amended (the “Incentive Plan”). Each of the Incentive Plan and 2015 Plan provide for the grant of stock options, stock appreciation rights, stock awards, performance awards, and stock units to officers, employees and directors of AV Homes. The exercise prices of stock options granted under the Incentive Plan or the 2015 Plan may not be less than the stock exchange closing price of our common stock on the date of grant. Stock option awards under the Incentive Plan and 2015 Plan generally expire 10 years after the date of grant.

As of September 30, 2016, there were an aggregate of 559,579 shares available for grant under the 2015 Plan and 35,483 shares reserved for future issuance relating to restricted stock units previously awarded and currently outstanding under the 2015 Plan. Additionally, as of September 30, 2016, for outstanding options and restricted stock units previously awarded under the Incentive Plan, an aggregate of 540,483 shares of our common stock were reserved for future issuance.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of AV Homes. The computation of diluted earnings per share for the three and nine months ended September 30, 2016 did not assume the effect of employee stock options because the effects were antidilutive. The computation of diluted earnings (loss) per share for the three and nine months ended September 30, 2015 did not assume the effect of restricted stock, restricted stock units, employee stock options, or convertible notes because the effects were antidilutive.

The following table represents a reconciliation of the net income (loss) and weighted average shares outstanding for the calculation of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2016 and 2015 (in thousands, except share and per share data):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Numerator:
Basic net income (loss)	$	11,897	$	5,520	$	130,049	$	(3,954)
Diluted net income (loss)	$	13,098	$	5,520	$	133,649	$	(3,954)
Denominator:
Basic weighted average shares outstanding		22,415,780		22,018,449		22,402,799		22,006,460
Diluted weighted average shares outstanding		26,654,287		22,166,873		26,606,199		22,006,460
Basic earnings (loss) per share	$	0.53	$	0.25	$	5.81	$	(0.18)
Diluted earnings (loss) per share	$	0.49	$	0.25	$	5.02	$	(0.18)

Comprehensive Income (Loss)

Net income (loss) and comprehensive income (loss) are the same for the three and nine months ended September 30, 2016 and 2015 because we do not have components of comprehensive income.

Recent Accounting Pronouncements

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 reduces the existing diversity in practice in financial reporting across all industries by clarifying certain existing principles in ASC 230, Statement of Cash Flows, including providing additional guidance on how and what an entity should consider in determining the classification of certain cash flows. ASU 2016-15 may be effective for us for the fiscal year beginning January 1, 2018 and subsequent interim periods. The adoption of ASU 2016-15 will modify our current disclosures and reclassifications within the consolidated statement of cash flows but is not expected to have a material effect on our consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 will require organizations that lease assets — referred to as “lessees” — to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under ASU 2016-02, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Lessor accounting remains substantially similar to current GAAP. In addition, disclosures of leasing activities are to be expanded to include qualitative along with specific quantitative information. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As a result, the standard is effective for us for annual and interim periods beginning January 1, 2019 and mandates a modified retrospective transition method. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In August 2015, the FASB issued Accounting Standards Update No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which clarifies the treatment of debt issuance costs from line-of-credit arrangements after adoption of Accounting Standards Update 2015-03 (“ASU 2015-15”). ASU 2015-15 clarifies that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We have applied the provisions of ASU 2015-15 to the capitalized deferred financing costs related to our Senior Secured Credit Facility.

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. We have applied the provisions of ASU 2015-02 and there was no material effect on our consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date by one year. As a result, the standard is effective for us for annual and interim periods beginning January 1, 2018 and allows for full retrospective or modified retrospective methods of adoption. We are currently evaluating the impact that the standard will have on our consolidated financial statements.

XML

Business Acquisitions

9 Months Ended

Sep. 30, 2016

Business Acquisitions

Business Acquisition

Note 2 - Business Acquisitions

Bonterra Builders Acquisition

On July 1, 2015, we acquired substantially all of the assets and certain liabilities of Bonterra Builders, LLC (“Bonterra Builders”) for approximately $99.8 million, subject to customary post-closing adjustments. Part of the aggregate consideration includes a $6.0 million estimated earn-out. The actual amount of the earn-out may be more or less than the $6.0 million target amount based on the performance of the Bonterra Builders business through the end of 2016, of which $3.3 million has been paid as of September 30, 2016. A portion of the aggregate consideration equal to $0.8 million was held back by us at the closing as security for Bonterra Builder's indemnification and other potential obligations under the purchase agreement, of which $0.4 million has been paid as of September 30, 2016. Bonterra Builders acquires raw and developed land, develops raw land and constructs single-family homes in the Charlotte, North Carolina area. With approximately 1,700 lots owned or controlled at the time of acquisition, Bonterra Builders significantly enhances our position in a key growth market. The results of Bonterra Builders operations are included in our consolidated financial statements from the acquisition date of July 1, 2015.

The Bonterra Builders acquisition was accounted for in accordance with ASC 805, Business Combinations (“ASC 805”). We recorded the acquired assets and liabilities at their estimated fair value. We determined the estimated fair values with the assistance of appraisals or valuations performed by independent third-party specialists, discounted cash flow analyses, quoted market prices where available, and estimates by management. To the extent the consideration transferred exceeded the fair value of the net assets acquired in this transaction, such excess was assigned to goodwill.

XML

Land and Other Inventories

9 Months Ended

Sep. 30, 2016

Land and Other Inventories

Land and Other Inventories

Note 3 - Land and Other Inventories

Land and other inventories consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Land held for future development	$	22,429	$	21,403
Land developed and in process of development		353,008		348,648
Homes completed or under construction		255,472		212,480
Total	$	630,909	$	582,531

We capitalize interest to inventories during the period of development in accordance with ASC 835, Interest (“ASC 835”). Homebuilding interest capitalized to cost of inventory is included in cost of sales as related units or lots are closed. To the extent our homebuilding debt exceeds our qualified assets, as defined in ASC 835, we expense a portion of interest incurred. Qualified homebuilding assets consist of land, lots and homes that are under development or construction, excluding finished unsold homes or finished models.

The following table represents interest incurred, interest capitalized, and interest expense for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Interest incurred	$	6,483	$	7,501	$	19,873	$	21,002
Interest capitalized		(5,782)		(5,661)		(17,020)		(13,499)
Interest expense	$	701	$	1,840	$	2,853	$	7,503

XML

Investments in Unconsolidated Entities

9 Months Ended

Sep. 30, 2016

Investments in Unconsolidated Entities

Investments in Unconsolidated Entities

Note 4 - Investments in Unconsolidated Entities

We participate in entities with equity interests ranging from 20% to 58% for the purpose of acquiring and/or developing land. We determine the method for accounting for our investment at inception or upon a reconsideration event.

We share in the profits and losses of unconsolidated entities generally in accordance with our ownership interests. We and our equity partners typically make initial and ongoing capital contributions to these unconsolidated entities on a pro rata basis. The obligation to make capital contributions is governed by each unconsolidated entity’s respective operating agreement or other governing documents. We made contributions totaling less than $0.1 million to our unconsolidated entities during the three and nine months ended September 30, 2016. We made contributions totaling $0.0 million and $2.9 million to our unconsolidated entities during the three and nine months ended September 30, 2015, respectively. The balance of our investments in unconsolidated entities was $1.2 million as of September 30, 2016 and December 31, 2015.

In May 2012, we entered into an agreement with JEN Arizona 4, LLC to form a limited liability company, EM 646, LLC (“EM 646”). We hold a 58% interest in the venture, which was organized for the purpose of acquiring, entitling, developing, and distributing specific sections of real property located in Mesa, Arizona. The property was originally acquired in November 2012 and in April 2015 the final distribution of developed land to the partners was completed at cost.

As of September 30, 2016, EM 646 was financed by partner equity and does not have third-party debt. In addition, we have not provided any guarantees to the entity or our equity partner. The assets of our investee can only be used to settle obligations of the investee.

XML

Senior Notes

9 Months Ended

Sep. 30, 2016

Senior Notes

Senior Notes

Note 5 – Senior Notes

Our senior notes are summarized as follows (in thousands):

	September 30, 2016		December 31, 2015
7.50% Senior Convertible Notes due 2016	$	—	$	46,793
8.50% Senior Notes due 2019		200,000		200,000
6.00% Senior Convertible Notes due 2020		80,000		80,000
Senior Secured Credit Facility		15,000		—
Total Senior Notes		295,000		326,793
Deferred debt issuance costs		(4,684)		(5,877)
Debt discount		(58)		(70)
Total Senior Notes, net	$	290,258	$	320,846

We made interest payments of $11.4 million and $24.5 million for the three and nine months ended September 30, 2016, respectively. We made interest payments of $2.0 million and $24.0 million for the three and nine months ended September 30, 2015, respectively. We were in compliance with all debt covenants in our senior notes as of September 30, 2016 and December 31, 2015.

7.50% Senior Convertible Notes and 7.50% Senior Exchange Convertible Notes due 2016

On February 4, 2011, we completed an underwritten public offering for $100.0 million aggregate principal amount of our 7.50% Senior Convertible Notes due 2016 (the “7.50% Notes”). The maturity date of the 7.50% Notes was February 15, 2016. The 7.50% Notes were governed by the Indenture and the First Supplemental Indenture, each dated February 4, 2011, between us and the trustee named therein. Interest on the 7.50% Notes was payable semi-annually in arrears in cash on February 15 and August 15 of each year.

In July 2012, we entered into exchange agreements under which we retired $44.5 million in aggregate principal amount of our 7.50% Notes, in exchange for the issuance of $44.5 million in aggregate principal of new 7.50% Senior Exchange Convertible Notes due 2016 (“7.50% Exchange Notes”). The maturity date of the 7.50% Exchange Notes was February 15, 2016. The 7.50% Exchange Notes were governed by the Indenture dated February 4, 2011 and the Second Supplemental Indenture dated July 25, 2012 between us and the trustee named therein. Interest on the 7.50% Exchange Notes was payable semi-annually in arrears in cash on February 15 and August 15 of each year, commencing February 15, 2013. In connection with the issuance of the 6.00% Notes (defined below), $20.5 million of 7.50% Exchange Notes and $8.7 million of 7.50% Notes were repurchased on June 23, 2015. On July 20, 2015, the remaining 7.50% Exchange Notes were redeemed, pursuant to our option to redeem such notes at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest. On February 16, 2016, the remaining 7.50% Notes were repaid at maturity.

8.50% Senior Notes due 2019

On June 30, 2014, we completed an underwritten offering for $200.0 million aggregate principal amount of our 8.50% Senior Notes due 2019 (the “8.50% Notes”). The 8.50% Notes mature on July 1, 2019, unless earlier converted, redeemed or repurchased. Interest on the 8.50% Notes is 8.50% per year, payable semi-annually in arrears in cash on January 1 and July 1 of each year, commencing January 1, 2015. The 8.50% Notes are redeemable at our option, in whole or in part, at any time on or after July 1, 2016, at certain redemption prices, together with accrued and unpaid interest, if any, to, but excluding, the date of redemption.

Certain of our subsidiaries are guarantors of the 8.50% Senior Notes. All of the subsidiary guarantors are 100% owned by us, and all of the guarantees are full, unconditional, and joint and several. We have no independent assets or operations and our subsidiaries, other than the subsidiary guarantors, are minor.

6.00% Senior Convertible Notes due 2020

On June 23, 2015, we completed a private offering of $80.0 million aggregate principal amount of 6.00% Senior Convertible Notes due 2020 (the “6.00% Notes”). The proceeds of the 6.00% Notes were used to (i) repurchase 7.50% Exchange Notes and 7.50% Notes, and (ii) pay approximately $1.5 million of accrued interest (in respect of the notes being exchanged or repurchased) and premium (in respect of the notes being repurchased). The 6.00% Notes will mature on July 1, 2020, unless earlier repurchased or converted. The 6.00% Notes are governed by the Indenture dated February 4, 2011 and the Third Supplemental Indenture dated June 23, 2015 between us and the trustee named therein. The 6.00% Notes bear regular cash interest on the principal amount of each note, payable semi-annually in arrears on January 1 and July 1 of each year, beginning on January 1, 2016.

The 6.00% Notes were issued pursuant a series of separate, privately negotiated note purchase agreements (the “Note Purchase Agreements”) entered into on June 17, 2015 by us and certain qualified institutional buyers. TPG Aviator, L.P. (“TPG”), purchased $20.0 million aggregate principal amount of the 6.00% Notes for $20.0 million in cash and waived its rights to purchase additional 6.00% Notes, resulting in a fully diluted beneficial ownership for TPG of approximately 43.8% of our common stock. Pursuant to the terms of our Related Person Transaction Policy, the audit committee of our board of directors reviewed and approved the terms of the 6.00% Notes and TPG’s purchase of 6.00% Notes.

Senior Secured Credit Facility

On April 7, 2014 we entered into a $65.0 million senior secured credit facility with JPMorgan Chase Bank, N.A., as agent, a lender and a letter of credit issuer, which became effective on June 6, 2014 (the “Senior Secured Credit Facility”). The other original lenders and letter of credit issuers include Royal Bank of Canada and Credit Suisse AG. Later in 2014, we increased the Senior Secured Credit Facility by $40.0 million with the addition of Citibank, N.A., and Deutsche Bank, A.G., as additional lenders. The Senior Secured Credit Facility included revolving credit and letter of credit facilities in an aggregate principal amount of up to $105.0 million, with an “accordion” feature that allowed us, with the consent of the lenders, to increase the aggregate amount to $175.0 million. The Senior Secured Credit Facility also included a swing line loan facility in an aggregate principal amount of up to $30.0 million.

On July 28, 2016, we entered into an amendment to our Senior Secured Credit Facility and existing Guarantee and Collateral Agreement (the “Amendment”), which included the addition of Flagstar Bank, FSB and U.S. Bank, National Association as additional lenders. Pursuant to the Amendment, from the period beginning on July 28, 2016 and ending on June 5, 2017, the Amendment increases the committed amount available under the Senior Secured Credit Facility to $165.0 million. On June 6, 2017, Deutsche Bank, A.G.’s commitment will expire and the total committed amount available under the Senior Secured Credit Facility will be reduced to $150.0 million (the “Extended Commitments”). The Extended Commitments will expire on July 28, 2019 and any loans outstanding on such date will mature and be payable. In connection with the Amendment, the “accordion” feature was increased from $175.0 million to $200.0 million and the $30.0 million swing line loan facility was discontinued. As of September 30, 2016, we had sufficient qualified assets in the borrowing base to cover the full $165.0 million capacity and had $15.0 million in borrowings outstanding.

XML

Estimated Development Liability

9 Months Ended

Sep. 30, 2016

Estimated Development Liability

Estimated Development Liability

Note 6 - Estimated Development Liability

The estimated development liability consists primarily of utility completion obligations in Rio Rico, Arizona and Poinciana, Florida for more than 8,000 home sites previously sold, in most cases prior to 1980. The estimated development liability is reduced by actual expenditures and is evaluated and adjusted, as appropriate, to reflect management’s estimate of potential costs. In addition, we obtain third-party engineer evaluations on an annual basis and adjust this liability to reflect changes in the estimated completion costs. Cash expenditures associated with these obligations were $0.2 million and $0.3 million during the three and nine months ended September 30, 2016, respectively, and $0.1 million and $0.2 million during the three and nine months ended September 30, 2015, respectively. Future increases or decreases of costs for construction, material and labor, as well as other land development and utilities infrastructure costs, may have a significant effect on the estimated development liability. The balance of the estimated development liability was $32.3 million and $32.6 million as of September 30, 2016 and December 31, 2015, respectively.

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies

Commitments and Contingencies

Note 7 - Commitments and Contingencies

Legal

We are involved in litigation from time to time, primarily arising in the normal course of our business. These cases are in various procedural stages. In view of the inherent difficulty of predicting the outcome of these legal and regulatory matters, we generally cannot predict the ultimate resolution of the pending matters, the related timing, or the eventual loss. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows.

Surety Bonds

Surety bonds, issued by third-party entities, are used primarily to guarantee our performance to construct improvements in our various communities. As of September 30, 2016, we had outstanding surety bonds of approximately $28.3 million. The amount of outstanding surety bonds could fluctuate depending on the level of development activity. We do not believe that it is likely any of these outstanding surety bonds will be drawn upon.

XML

Segment Information

9 Months Ended

Sep. 30, 2016

Segment Information

Segment Information

Note 8 - Segment Information

Our operating segments are defined as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the chief operating decision maker to evaluate performance and make operating decisions. We have identified our chief operating decision maker as our Chief Executive Officer. Our reportable segments are as follows: Florida, Arizona and the Carolinas.

The following table summarizes our information for reportable segments for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Operating income:
Florida
Revenues:
Homebuilding	$	96,943	$	86,892	$	251,587	$	185,484
Amenity and other		3,315		2,691		8,834		8,195
Land sales		26		6		670		3,470
Total revenues		100,284		89,589		261,091		197,149
Expenses:
Homebuilding cost of revenues		74,872		68,409		196,045		149,033
Homebuilding selling, general and administrative		12,189		11,419		33,374		26,172
Amenity and other		3,075		2,199		7,978		6,938
Land sales		6		2		225		385
Segment operating income	$	10,142	$	7,560	$	23,469	$	14,621
Arizona
Revenues:
Homebuilding	$	42,014	$	20,012	$	104,255	$	45,196
Land sales		—		—		185		—
Total revenues		42,014		20,012		104,440		45,196
Expenses:
Homebuilding cost of revenues		35,236		16,497		87,672		38,704
Homebuilding selling, general and administrative		3,854		3,009		10,773		7,846
Amenity and other		26		22		79		96
Land sales		—		—		171		—
Segment operating income (loss)	$	2,898	$	484	$	5,745	$	(1,450)
Carolinas
Revenues:
Homebuilding	$	62,864	$	44,226	$	151,817	$	49,701
Land sales		265		—		265		—
Total revenues		63,129		44,226		152,082		49,701
Expenses:
Homebuilding cost of revenues		53,803		36,182		130,573		41,174
Homebuilding selling, general and administrative		5,744		4,944		15,525		6,718
Land sales		289		—		289		—
Segment operating income	$	3,293	$	3,100	$	5,695	$	1,809
Operating income	$	16,333	$	11,144	$	34,909	$	14,980
Unallocated income (expenses):
Interest income and other		—		36		1		325
Corporate general and administrative expenses		(3,697)		(3,820)		(11,967)		(11,756)
Interest expense		(701)		(1,840)		(2,853)		(7,503)
Income (loss) before income taxes		11,935		5,520		20,090		(3,954)
Income tax expense (benefit)		38		—		(109,959)		—
Net income (loss)	$	11,897	$	5,520	$	130,049	$	(3,954)

XML

Fair Value Disclosures

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures

Fair Value Disclosures

Note 9 - Fair Value Disclosures

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) provides guidance for using fair value to measure assets and liabilities, defines fair value, establishes a framework for measuring fair value under GAAP, expands disclosures about fair value measurements, and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The accounting standards require that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Fair value determined based on quoted market prices in active markets for identical assets and liabilities.

Level 2: Fair value determined using significant observable inputs, such as quoted prices for similar assets or liabilities or quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data, by correlation or other means.

Level 3: Fair value determined using significant unobservable inputs, such as discounted cash flows, or similar techniques.

The carrying value of cash and cash equivalents, restricted cash, receivables, and accounts payable and theSenior Secured Credit Facility approximates the fair value due to their short-term nature.

Certain assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value may not be recoverable.

The carrying amounts and fair values of our financial liabilities as of September 30, 2016 and December 31, 2015 are as follows (in thousands):

	September 30, 2016				December 31, 2015
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Senior Notes:
7.50% Notes	$	—	$	—	$	46,793	$	45,389
8.50% Notes, net (1)		196,460		208,360		195,495		199,000
6.00% Notes, net (1)		78,798		86,840		78,558		75,368
Senior Secured Credit Facility		15,000		15,000		—		—
Contingent consideration (earn-out) (2)		2,400		2,400		7,083		7,083

⁽¹⁾ The carrying amount of the debt instruments are net of unamortized deferred financing costs and certain debt discounts.

⁽²⁾ During the nine months ended September 30, 2016, we paid $4.3 million of the earn-out. During the three months ended September 30, 2016, we also reduced the carrying amount of the earn-out by $0.4 million to its estimated fair value.

In estimating the fair value of financial liabilities, we used the following methods and assumptions:

7.50% Notes, 8.50% Notes and 6.00% Notes

As of September 30, 2016 and December 31, 2015, the fair value of the 7.50% Notes, the 8.50% Notes and the 6.00% Notes is estimated, based on quoted or estimated market prices. These fall within Level 2 of the fair value hierarchy.

Contingent Consideration (“earn-out”)

This was first recognized as part of the purchase price paid for the Royal Oak Homes and Bonterra Builders acquisitions in 2014 and 2015, respectively, and falls within Level 3 of the fair value hierarchy. For the fair value as of December 31, 2015, valuation models were used to value the earn-outs by simulating earnings, applying the terms of the earn-out in each simulated path, determining the average payment in each year across all the trials of the simulation, and calculating the sum of the present values of the payments in each year. The primary inputs and key assumptions include estimated future earnings, probabilities of achievement, earnings volatility, and the discount rate.

XML

Subsequent Events

9 Months Ended

Sep. 30, 2016

Subsequent Event

Subsequent Events

Note 10 – Subsequent Event

On October 26, 2016, we received a commitment from Wells Fargo Bank, N.A. to become an additional lender under our Senior Secured Credit Facility, increasing the amount committed under the Senior Secured Credit Facility by $25 million. The addition of Wells Fargo to our Senior Secured Credit Facility is subject to customary closing conditions and we anticipate completing the addition in the fourth quarter.

XML

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements include the accounts of AV Homes, Inc. and all subsidiaries, partnerships and other entities in which AV Homes, Inc. (“AV Homes,” “we,” “us,” “our,” or “the Company”) has a controlling interest. Our investments in unconsolidated entities in which we have less than a controlling interest are accounted for using the equity method. The interim consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all information and footnotes required by U.S generally accepted accounting principles (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of AV Homes as of September 30, 2016 and for all periods presented. These statements should be read in conjunction with our consolidated financial statements and notes thereto included in AV Homes' Annual Report on Form 10-K for the year ended December 31, 2015. All significant intercompany accounts and transactions have been eliminated in consolidation.

Beginning with our Form 10-Q for the quarter ended March 31, 2016, the selling, general and administrative expenses related to homebuilding previously included in Homebuilding expenses have been combined with corporate general and administrative expenses and reclassified into a separate new line item called “Selling, general and administrative expenses” to enhance the visibility to our core homebuilding operations and conform with standard industry presentation. The selling, general and administrative expenses reclassified include commissions, other selling expenses and overhead incurred at the divisional level. For the three and nine months ended September 30, 2015, selling, general and administrative costs of $19.4 million and $40.7 million, respectively, that were previously presented in Homebuilding expenses are now included in selling,  general and administrative expenses. In addition, in accordance with adoption of Accounting Standards Update No. 2015-03, Interest-Imputation of Interest, our debt issuance costs are now presented as a deduction from the corresponding debt liability. This guidance was applied retrospectively and had the effect of reducing our prepaid expenses and other assets and senior notes, net balances in our consolidated balance sheets. As of December 31, 2015, unamortized deferred debt issuance costs of $5.9 million were previously presented in prepaid expenses and other assets on the consolidated balance sheet and are now included as a reduction to senior notes, net.

Use of Estimates

Use of Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents and Restricted Cash

Cash and Cash Equivalents and Restricted Cash

We consider all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. As of September 30, 2016, our cash and cash equivalents were primarily available funds on deposit at financial institutions. Due to the short maturity period of the cash equivalents, the carrying amounts of these instruments approximates their fair values.

Our cash items that are restricted as to withdrawal or usage include deposits of $1.1 million and $26.9 million as of September 30, 2016 and December 31, 2015, respectively. The balance as of December 31, 2015 was comprised primarily of $25.6 million on deposit as a reserve to comply with a covenant in our Senior Secured Credit Facility (defined below). As of September 30, 2016, the Company was above the specified thresholds requiring the reserve.

Land and Other Inventories and Cost of Revenue

Land and Other Inventories and Homebuilding Cost of Revenues

Land and other inventories include expenditures for land acquisition, land development, home construction, construction costs for amenities, and direct and allocated indirect costs, including interest cost capitalized until development and construction are substantially completed. These costs are assigned to components of land and other inventories based on specific identification, relative sales value, or area allocation methods.

Land and other inventories are stated at cost unless the asset is determined to be impaired, in which case the asset is written to its fair value, in accordance with Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment (“ASC 360”).

Homebuilding cost of revenues is comprised of direct and allocated costs, including estimated future costs for the limited warranty we provide on our homes. Land acquisition, land development and other common costs are generally allocated on a relative sales value or area allocation basis to the homes or lots within the applicable community or land parcel. Land acquisition and land development costs include related interest and real estate taxes.

We evaluate our land and other inventories for impairment on a quarterly basis in accordance with ASC 360 to reflect market conditions, including a market-by-market consideration of supply of new and resale homes for sale, level of foreclosure activity and competition. For assets held and used, if indicators are present, we perform an impairment test in which the asset is reviewed for impairment by comparing the estimated future undiscounted cash flows to be generated by the asset to its carrying value. If such cash flows are less than the asset’s carrying value, the carrying value is written down to its estimated fair value. Generally, fair value is determined by discounting the estimated cash flows at a rate commensurate with the inherent risks associated with the asset and related estimated cash flow streams. The discount rate used in the determination of fair value would vary, depending on the state of development. Assumptions and estimates used in the determination of the estimated future cash flows are based on expectations of future operations and economic conditions and certain factors described below. Changes to these assumptions could significantly affect the estimates of future cash flows, which could affect the potential for future impairments. Due to the uncertainties of the estimation process, actual results could differ significantly from such estimates.

During the three and nine months ended September 30, 2016, our impairment assessments resulted in $0.1 million and $0.3 million of impairment charges, respectively, and are included in homebuilding cost of revenues in the consolidated statements of operations and comprehensive income (loss). During the three and nine months ended September 30, 2015, our impairment assessments resulted in no impairment charges.

Receivables

Receivables

Receivables primarily consist of amounts in transit or due from title companies for house closings.

Property and Equipment, net

Property and Equipment, net

Property and equipment, net are stated at cost and depreciation is computed by the straight-line method over the following estimated useful lives of the assets: land improvements 10 to 25 years; buildings and improvements 8 to 39 years; and machinery, equipment and fixtures 3 to 7 years. Expenses for equipment utilized in the development of land are capitalized to land inventory while ordinary repairs and maintenance are expensed as incurred.

Property and equipment, net includes certain amenities such as club facilities on properties owned by us. These amenities include expenditures for land acquisition, land development, construction, and direct and allocated costs, including interest cost incurred during development and construction.

Each reporting period, we review our property and equipment for indicators of impairment in accordance with ASC 360. For our amenities, which are located within our housing communities, indicators of impairment are similar to those of our housing communities (described above), as these factors may impact our ability to generate revenues at our amenities or cause construction costs to increase. In addition, we factor in the collectability and potential delinquency of the membership dues for our amenities. For the three and nine months ended September 30, 2016 and 2015, we did not identify indicators of impairment for property and equipment.

Investments in Partnerships and LLCs

Investments in Partnerships and LLCs

When we are either deemed to hold the controlling interest in a voting interest entity or deemed to be the primary beneficiary of a variable interest entity (“VIE”), we are required to consolidate the investment. The primary beneficiary of a VIE is the entity that has both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb the majority of losses of the VIE or the right to receive the majority of benefits from the VIE. Investments where we do not hold the controlling interest and we are not the primary beneficiary are accounted for under the equity method.

Factors considered when determining if we hold the controlling interest in a voting interest entity include who holds the general partnership or managing member interests, which partner or member makes the day-to-day decisions regarding the operations of the entity, and whether or not the other partners or members have substantive participating rights. With respect to VIEs, our variable interests may be in the form of (1) equity ownership, (2) contracts to purchase assets and/or (3) loans provided by us to the investor. We examine specific criteria and use judgment when determining if we are the primary beneficiary of a VIE. Factors considered in determining whether we are the primary beneficiary include risk and reward sharing, experience and financial condition of other partner(s), sufficiency of equity to conduct the operations of the entity, voting rights, involvement in decisions significantly impacting the entity's economic performance, level of economic disproportionality between us and the other partner(s) and contracts to purchase assets from VIEs.

We have investments in unconsolidated entities, including joint ventures, with independent third parties. The equity method of accounting is used for unconsolidated entities over which we have significant influence. Under the equity method of accounting, we recognize our proportionate share of the earnings and losses of these entities.

We evaluate our investments in unconsolidated entities for recoverability in accordance with ASC 323, Investments - Equity Method and JointVentures (“ASC 323”). If we determine that a loss in the value of the investment is other than temporary, we write down the investment to its estimated fair value. Any such losses are recorded to equity in (earnings) loss of unconsolidated entities in the consolidated statements of operations and comprehensive income (loss). Due to uncertainties in the estimation process and the significant volatility in demand for new housing, actual results could differ significantly from such estimates. During the three and nine months ended September 30, 2016 and 2015, we did not identify indicators of impairment for our investments in unconsolidated entities.

Business Acquisitions

Business Acquisitions

When acquiring a business, we allocate the purchase price of the business to the tangible and intangible assets and liabilities acquired based on their estimated fair values. In making estimates of fair values for this purpose, we use a number of sources, including independent appraisals and information obtained about each property as a result our pre-acquisition due diligence and its marketing and housing activities.

Goodwill

Goodwill

Goodwill arises from business combinations and represents the excess of the cost of an acquired entity over the net fair value amounts that were assigned to the identifiable assets acquired and the liabilities assumed. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. There were no indicators of impairment during the three and nine months ended September 30, 2016 and 2015.

Homebuilding Revenue Recognition

Homebuilding Revenue Recognition

In accordance with ASC 360, homebuilding revenue and related profit from the sales of housing units are recognized when title to and possession of the property are transferred to the buyer. In addition, revenues from land sales are recognized in full at closing, provided the buyer's initial and continuing investment is adequate, any financing is considered collectible and there is no significant continuing involvement.

Sales Incentives

Sales Incentives

When sales incentives involve a discount on the selling price of the home, we record the discount as a reduction of revenue at the time of house closing. If the sales incentive requires us to provide a free product or service to the customer, the cost of the free product or service is recorded as homebuilding cost of revenues at the time of house closing. This includes the cost related to optional upgrades and seller-paid financing costs, closing costs, homeowners’ association fees, or merchandise.

Advertising Costs

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs, sales commissions and closing costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).

Warranty Costs

Warranty Costs

Warranty reserves for houses are established to cover estimated costs for materials and labor with regard to warranty-type claims to be incurred subsequent to the closing of a house. Reserves are determined based on historical data and other relevant factors. We have, and require our subcontractors to have, general liability, property, workers’ compensation, and other business insurance. These insurance policies protect us against a portion of our risk of loss from claims, subject to certain self-insured per occurrence and aggregate retentions, deductibles, and available policy limits. We may have recourse against subcontractors for certain claims relating to workmanship and materials. Warranty reserves are included in accrued and other liabilities in the accompanying consolidated balance sheets.

Income Taxes

Income Taxes

Our income tax expense (benefit) for the three and nine months ended September 30, 2016 was less than $0.1 million and $(110.0) million, respectively, compared to income tax expense of $0.0 million for each of the three and nine months ended September 30, 2015. The income tax benefit for the nine months ended September 30, 2016 is due primarily to a $117.2 million reduction of our deferred tax asset valuation allowance in the same period. Our effective tax rate is affected by a number of factors, the most significant of which is the valuation allowance related to our deferred tax assets. Due to the impact of the changes in the valuation allowance, our effective tax rates in 2016 and 2015 are not correlated to the amount of our income or loss before income taxes.

Income taxes have been provided for using the asset and liability method under ASC 740, Income Taxes (“ASC 740”). The asset and liability method is used in accounting for income taxes where deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In assessing the realizability of deferred tax assets, we consider whether it is “more likely than not” that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment is required. Differences between the anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated results of operations or financial position.

We evaluate our deferred tax assets quarterly to determine if valuation allowances are required. ASC 740 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than not” standard. The realization of the deferred tax assets ultimately depends upon the existence of sufficient taxable income in future periods. We established a full valuation allowance against our deferred tax assets beginning in 2009 and regularly analyzed all available positive and negative evidence in determining the continuing need for a valuation allowance with respect to our deferred tax assets. This evaluation considered, among other factors, historical operating results, our three-year cumulative profit or loss position, forecasts of future profitability, and the duration of statutory carryforward periods.

From 2007 to 2014, we generated significant deferred tax assets primarily from asset impairments and reduced operational profitability. As of September 30, 2016 and December 31, 2015, we had net deferred tax assets of $117.2 million and $124.5 million, respectively. The December 31, 2015 net deferred tax asset was offset by a valuation allowance of $124.5 million. During the three months ended March 31, 2016, we recognized a decrease of $0.6 million in the valuation allowance generated from the pre-tax income for the period. During the three months ended June 30, 2016, we evaluated both positive and negative evidence and determined it was “more likely than not” that our federal deferred tax assets and our state deferred tax assets will be realized. Accordingly, we reversed $112.9 million of valuation allowance during the three months ended June 30, 2016 and an additional $4.3 million during the three months ended September 30, 2016. The valuation allowance decreased $117.8 million during the nine months ended September 30, 2016. This reversal is reflected in our income tax benefit in the accompanying consolidated statements of operations and comprehensive income (loss). When a change in valuation allowance is recognized in an interim period, a portion of the valuation allowance to be reversed must be allocated to the remaining interim periods. The remaining valuation allowance of $6.7 million is expected to be reversed in the fourth quarter of 2016.

Any interest or penalties assessed have been minimal and immaterial to our financial results. In the event we are assessed any interest or penalties in the future, we plan to include them in our consolidated statements of operations and comprehensive income (loss) as income tax expense.

During the nine months ended September 30, 2016 and 2015, we made income tax payments of $0.8 million and $0.0 million, respectively, related to alternative minimum tax and state income tax in North Carolina and South Carolina.

Share-Based Compensation

Share-Based Compensation

On June 3, 2015, shareholders approved and we adopted the 2015 Incentive Compensation Plan (the “2015 Plan”), which replaced the Amended and Restated 1997 Incentive and Capital Accumulation Plan (2011 Restatement), as amended (the “Incentive Plan”). Each of the Incentive Plan and 2015 Plan provide for the grant of stock options, stock appreciation rights, stock awards, performance awards, and stock units to officers, employees and directors of AV Homes. The exercise prices of stock options granted under the Incentive Plan or the 2015 Plan may not be less than the stock exchange closing price of our common stock on the date of grant. Stock option awards under the Incentive Plan and 2015 Plan generally expire 10 years after the date of grant.

As of September 30, 2016, there were an aggregate of 559,579 shares available for grant under the 2015 Plan and 35,483 shares reserved for future issuance relating to restricted stock units previously awarded and currently outstanding under the 2015 Plan. Additionally, as of September 30, 2016, for outstanding options and restricted stock units previously awarded under the Incentive Plan, an aggregate of 540,483 shares of our common stock were reserved for future issuance.

Earnings (Loss) Per Share

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of AV Homes. The computation of diluted earnings per share for the three and nine months ended September 30, 2016 did not assume the effect of employee stock options because the effects were antidilutive. The computation of diluted earnings (loss) per share for the three and nine months ended September 30, 2015 did not assume the effect of restricted stock, restricted stock units, employee stock options, or convertible notes because the effects were antidilutive.

Comprehensive Income (Loss)

Comprehensive Income (Loss)

Net income (loss) and comprehensive income (loss) are the same for the three and nine months ended September 30, 2016 and 2015 because we do not have components of comprehensive income.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 reduces the existing diversity in practice in financial reporting across all industries by clarifying certain existing principles in ASC 230, Statement of Cash Flows, including providing additional guidance on how and what an entity should consider in determining the classification of certain cash flows. ASU 2016-15 may be effective for us for the fiscal year beginning January 1, 2018 and subsequent interim periods. The adoption of ASU 2016-15 will modify our current disclosures and reclassifications within the consolidated statement of cash flows but is not expected to have a material effect on our consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 will require organizations that lease assets — referred to as “lessees” — to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under ASU 2016-02, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Lessor accounting remains substantially similar to current GAAP. In addition, disclosures of leasing activities are to be expanded to include qualitative along with specific quantitative information. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As a result, the standard is effective for us for annual and interim periods beginning January 1, 2019 and mandates a modified retrospective transition method. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In August 2015, the FASB issued Accounting Standards Update No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which clarifies the treatment of debt issuance costs from line-of-credit arrangements after adoption of Accounting Standards Update 2015-03 (“ASU 2015-15”). ASU 2015-15 clarifies that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We have applied the provisions of ASU 2015-15 to the capitalized deferred financing costs related to our Senior Secured Credit Facility.

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. We have applied the provisions of ASU 2015-02 and there was no material effect on our consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date by one year. As a result, the standard is effective for us for annual and interim periods beginning January 1, 2018 and allows for full retrospective or modified retrospective methods of adoption. We are currently evaluating the impact that the standard will have on our consolidated financial statements.

XML

Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2016

Summary of Significant Accounting Policies

Changes in warranty reserve

During the three and nine months ended September 30, 2016 and 2015, changes in the warranty reserve consisted of the following (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Accrued warranty reserve, beginning of period	$	3,581	$	1,767	$	3,333	$	1,528
Reserve provided		952		1,818		2,440		2,954
Payments		(1,004)		(1,168)		(2,244)		(2,065)
Accrued warranty reserve, end of period	$	3,529	$	2,417	$	3,529	$	2,417

Reconciliation of net loss and weighted averages shares outstanding for the calculation of basic and diluted loss per share

The following table represents a reconciliation of the net income (loss) and weighted average shares outstanding for the calculation of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2016 and 2015 (in thousands, except share and per share data):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Numerator:
Basic net income (loss)	$	11,897	$	5,520	$	130,049	$	(3,954)
Diluted net income (loss)	$	13,098	$	5,520	$	133,649	$	(3,954)
Denominator:
Basic weighted average shares outstanding		22,415,780		22,018,449		22,402,799		22,006,460
Diluted weighted average shares outstanding		26,654,287		22,166,873		26,606,199		22,006,460
Basic earnings (loss) per share	$	0.53	$	0.25	$	5.81	$	(0.18)
Diluted earnings (loss) per share	$	0.49	$	0.25	$	5.02	$	(0.18)

XML

Land and Other Inventories (Tables)

9 Months Ended

Sep. 30, 2016

Land and Other Inventories

Land and Other Inventories

Land and other inventories consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Land held for future development	$	22,429	$	21,403
Land developed and in process of development		353,008		348,648
Homes completed or under construction		255,472		212,480
Total	$	630,909	$	582,531

Interest incurred, capitalized and expensed

The following table represents interest incurred, interest capitalized, and interest expense for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Interest incurred	$	6,483	$	7,501	$	19,873	$	21,002
Interest capitalized		(5,782)		(5,661)		(17,020)		(13,499)
Interest expense	$	701	$	1,840	$	2,853	$	7,503

XML

Senior Notes (Tables)

9 Months Ended

Sep. 30, 2016

Senior Notes

Schedule of Notes Payable

Our senior notes are summarized as follows (in thousands):

	September 30, 2016		December 31, 2015
7.50% Senior Convertible Notes due 2016	$	—	$	46,793
8.50% Senior Notes due 2019		200,000		200,000
6.00% Senior Convertible Notes due 2020		80,000		80,000
Senior Secured Credit Facility		15,000		—
Total Senior Notes		295,000		326,793
Deferred debt issuance costs		(4,684)		(5,877)
Debt discount		(58)		(70)
Total Senior Notes, net	$	290,258	$	320,846

XML

Segment Information (Tables)

9 Months Ended

Sep. 30, 2016

Segment Information

Reportable Segment Information

The following table summarizes our information for reportable segments for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Operating income:
Florida
Revenues:
Homebuilding	$	96,943	$	86,892	$	251,587	$	185,484
Amenity and other		3,315		2,691		8,834		8,195
Land sales		26		6		670		3,470
Total revenues		100,284		89,589		261,091		197,149
Expenses:
Homebuilding cost of revenues		74,872		68,409		196,045		149,033
Homebuilding selling, general and administrative		12,189		11,419		33,374		26,172
Amenity and other		3,075		2,199		7,978		6,938
Land sales		6		2		225		385
Segment operating income	$	10,142	$	7,560	$	23,469	$	14,621
Arizona
Revenues:
Homebuilding	$	42,014	$	20,012	$	104,255	$	45,196
Land sales		—		—		185		—
Total revenues		42,014		20,012		104,440		45,196
Expenses:
Homebuilding cost of revenues		35,236		16,497		87,672		38,704
Homebuilding selling, general and administrative		3,854		3,009		10,773		7,846
Amenity and other		26		22		79		96
Land sales		—		—		171		—
Segment operating income (loss)	$	2,898	$	484	$	5,745	$	(1,450)
Carolinas
Revenues:
Homebuilding	$	62,864	$	44,226	$	151,817	$	49,701
Land sales		265		—		265		—
Total revenues		63,129		44,226		152,082		49,701
Expenses:
Homebuilding cost of revenues		53,803		36,182		130,573		41,174
Homebuilding selling, general and administrative		5,744		4,944		15,525		6,718
Land sales		289		—		289		—
Segment operating income	$	3,293	$	3,100	$	5,695	$	1,809
Operating income	$	16,333	$	11,144	$	34,909	$	14,980
Unallocated income (expenses):
Interest income and other		—		36		1		325
Corporate general and administrative expenses		(3,697)		(3,820)		(11,967)		(11,756)
Interest expense		(701)		(1,840)		(2,853)		(7,503)
Income (loss) before income taxes		11,935		5,520		20,090		(3,954)
Income tax expense (benefit)		38		—		(109,959)		—
Net income (loss)	$	11,897	$	5,520	$	130,049	$	(3,954)

XML

Fair Value Disclosures (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures

Fair value, by Balance Sheet Grouping

The carrying amounts and fair values of our financial liabilities as of September 30, 2016 and December 31, 2015 are as follows (in thousands):

	September 30, 2016				December 31, 2015
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Senior Notes:
7.50% Notes	$	—	$	—	$	46,793	$	45,389
8.50% Notes, net (1)		196,460		208,360		195,495		199,000
6.00% Notes, net (1)		78,798		86,840		78,558		75,368
Senior Secured Credit Facility		15,000		15,000		—		—
Contingent consideration (earn-out) (2)		2,400		2,400		7,083		7,083

⁽¹⁾ The carrying amount of the debt instruments are net of unamortized deferred financing costs and certain debt discounts.

⁽²⁾ During the nine months ended September 30, 2016, we paid $4.3 million of the earn-out. During the three months ended September 30, 2016, we also reduced the carrying amount of the earn-out by $0.4 million to its estimated fair value.

XML

Summary of Significant Accounting Policies - Basis of Presentation (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Basis of Presentation
Homebuilding Expenses	$ 163,911	$ 121,089	$ 414,290	$ 228,911
Selling, general and administrative expenses	25,484	23,191	71,639	52,492
Prepaid expenses and other assets	13,033		13,033		$ 17,144
Senior notes, net	$ 290,258		$ 290,258		320,846
Restatement Adjustment
Basis of Presentation
Homebuilding Expenses		(19,400)		(40,700)
Selling, general and administrative expenses		$ 19,400		$ 40,700
Restatement Adjustment | Accounting Standards Update No. 2015-03, Interest-Imputation of Interest
Basis of Presentation
Prepaid expenses and other assets					(5,900)
Senior notes, net					$ (5,900)

XML

Summary of Significant Accounting Policies - Restricted Cash (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Cash and Cash Equivalents and Restricted Cash
Restricted cash	$ 1,139	$ 26,948
Deposits
Cash and Cash Equivalents and Restricted Cash
Restricted cash	$ 1,100	26,900
Senior Secured Credit Facility | Deposits
Cash and Cash Equivalents and Restricted Cash
Restricted cash		$ 25,600

XML

Summary of Significant Accounting Policies - Inventories and Property (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Land and Other Inventories
Land and other inventories, impairment assessment	$ 100	$ 0	$ 335	$ 0
Land Improvements | Minimum
Property and Equipment, net
Estimated useful lives			10 years
Land Improvements | Maximum
Property and Equipment, net
Estimated useful lives			25 years
Building and Improvements | Minimum
Property and Equipment, net
Estimated useful lives			8 years
Building and Improvements | Maximum
Property and Equipment, net
Estimated useful lives			39 years
Machinery, Equipment and Fixtures | Minimum
Property and Equipment, net
Estimated useful lives			3 years
Machinery, Equipment and Fixtures | Maximum
Property and Equipment, net
Estimated useful lives			7 years

XML

Summary of Significant Accounting Policies - Warranty Reserves (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Changes in the warranty reserve
Accrued warranty reserve, beginning of period	$ 3,581	$ 1,767	$ 3,333	$ 1,528
Reserve provided	952	1,818	2,440	2,954
Payments	(1,004)	(1,168)	(2,244)	(2,065)
Accrued warranty reserve, end of period	$ 3,529	$ 2,417	$ 3,529	$ 2,417

XML

Summary of Significant Accounting Policies - Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended				9 Months Ended
	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Income Taxes
Income tax expense (benefit)	$ 38			$ 0	$ (109,959)	$ 0
Reversal of valuation allowance included in income tax benefit					117,200
Reversal of Valuation Allowance
Net deferred tax assets	117,200				117,200		$ 124,500
Valuation allowance for deferred tax assets	6,700				6,700		$ 124,500
Decrease in deferred tax asset valuation allowance	$ 4,300	$ 112,900	$ 600		117,800
Taxes paid					$ 800	$ 0

XML

Summary of Significant Accounting Policies - Share-Based Compensation (Details)	9 Months Ended
	Sep. 30, 2016 shares
Incentive Plan
Share-based Compensation
Expiration period	10 years
Shares reserved for issuance	540,483
2015 Incentive Compensation Plan
Share-based Compensation
Expiration period	10 years
Shares available for grant (in shares)	559,579
2015 Incentive Compensation Plan | Restricted Stock Units (RSUs)
Share-based Compensation
Shares reserved for issuance	35,483

XML

Summary of Significant Accounting Policies - Loss Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Numerator:
Basic net income (loss)	$ 11,897	$ 5,520	$ 130,049	$ (3,954)
Diluted net income (loss)	$ 13,098	$ 5,520	$ 133,649	$ (3,954)
Denominator:
Basic weighted average shares outstanding	22,415,780	22,018,449	22,402,799	22,006,460
Diluted weighted average shares outstanding	26,654,287	22,166,873	26,606,199	22,006,460
Basic income (loss) per share	$ 0.53	$ 0.25	$ 5.81	$ (0.18)
Diluted income (loss) per share	$ 0.49	$ 0.25	$ 5.02	$ (0.18)

XML

Business Acquisition - Bonterra (Details) $ in Millions		9 Months Ended	15 Months Ended
	Jul. 01, 2015 USD ($) property	Sep. 30, 2016 USD ($)	Sep. 30, 2016 USD ($)
Bonterra Builders, LLC
Business Acquisitions
Acquisition price	$ 99.8
Contingent consideration payments		$ 0.4
Consideration held as security	$ 0.8
Number of primary residential lots | property	1,700
Bonterra Builders, LLC | Target threshold
Business Acquisitions
Liabilities incurred	$ 6.0
Earn-out
Business Acquisitions
Contingent consideration payments		$ 4.3
Earn-out | Bonterra Builders, LLC
Business Acquisitions
Liabilities incurred	$ 6.0
Contingent consideration payments			$ 3.3

XML

Land and Other Inventories (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Land and Other Inventories
Land held for future development	$ 22,429		$ 22,429		$ 21,403
Land developed and in process of development	353,008		353,008		348,648
Homes completed or under construction	255,472		255,472		212,480
Total Land and other inventories	630,909		630,909		$ 582,531
Interest Expense
Interest incurred	6,483	$ 7,501	19,873	$ 21,002
Interest capitalized	(5,782)	(5,661)	(17,020)	(13,499)
Interest expense	$ 701	$ 1,840	$ 2,853	$ 7,503

XML

Investments in Unconsolidated Entities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Investments in Unconsolidated Entities
Investments in unconsolidated entities	$ 1,177		$ 1,177		$ 1,172
Minimum
Investments in Unconsolidated Entities
Ownership percentage (percent)	20.00%		20.00%
Maximum
Investments in Unconsolidated Entities
Ownership percentage (percent)	58.00%		58.00%
Variable Interest Entity, Not Primary Beneficiary
Investments in Unconsolidated Entities
Contributions to unconsolidated entities		$ 0		$ 2,900
Variable Interest Entity, Not Primary Beneficiary | Maximum
Investments in Unconsolidated Entities
Contributions to unconsolidated entities	$ 100		$ 100
Variable Interest Entity, Not Primary Beneficiary | EM 646
Investments in Unconsolidated Entities
Parent ownership percentage (percent)			58.00%

XML

Senior Notes - Summary (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Debt
Total Senior Notes	$ 295,000		$ 295,000		$ 326,793
Deferred debt issuance costs	(4,684)		(4,684)		(5,877)
Debt discount	(58)		(58)		(70)
Total Senior Notes, net	290,258		290,258		320,846
Interest Paid	11,400	$ 2,000	24,500	$ 24,000
Senior Notes | 7.50% Senior Convertible Notes due 2016
Debt
Total Senior Notes	0		0		46,793
Senior Notes | 8.5% Senior Notes Due 2019
Debt
Total Senior Notes	200,000		200,000		200,000
Senior Notes | 6.00% Senior Convertible Notes Due 2020
Debt
Total Senior Notes	80,000		80,000		80,000
Senior Secured Credit Facility
Debt
Total Senior Notes	$ 15,000		$ 15,000		$ 0

XML

Senior Notes - 7.50% Senior Convertible Notes and 7.50% Senior Exchange Convertible Notes due 2016 (Details) - USD ($) $ in Millions	Jul. 20, 2015	Sep. 30, 2016	Dec. 31, 2015	Jun. 23, 2015	Jul. 31, 2012	Feb. 04, 2011
7.50% Senior Convertible Notes due 2016
Debt
Stated interest rate (percent)		7.50%	7.50%
Senior Notes | 7.50% Senior Convertible Notes due 2016
Debt
Stated interest rate (percent)						7.50%
Aggregate principal amount						$ 100.0
Face amount of debt retired				$ 8.7	$ 44.5
Senior Notes | 7.50% Senior Exchange Convertible Notes
Debt
Stated interest rate (percent)						7.50%
Aggregate principal amount					$ 44.5
Face amount of debt retired				$ 20.5
Redemption price as a percentage of principal	100.00%

XML

Senior Notes - 8.50% Senior Notes due 2019 (Details) - 8.5% Senior Notes Due 2019 - USD ($) $ in Millions	Jun. 30, 2014	Sep. 30, 2016	Dec. 31, 2015
Debt
Stated interest rate (percent)		8.50%	8.50%
Senior Notes
Debt
Stated interest rate (percent)	8.50%
Aggregate principal amount	$ 200.0
Senior Notes | Subsidiary guarantors
Debt
Ownership interest, as a percent	100.00%

XML

Senior Notes - 6.00% Senior Convertible Notes due 2020 (Details) - USD ($) $ in Millions			3 Months Ended		9 Months Ended
	Jun. 23, 2015	Jun. 17, 2015	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Debt
Interest paid			$ 11.4	$ 2.0	$ 24.5	$ 24.0
6.00% Senior Convertible Notes Due 2020
Debt
Stated interest rate (percent)			6.00%		6.00%		6.00%
TPG Aviator, L.P. | TPG Aviator, L.P.
Debt
Ownership percentage (percent)		43.80%
Senior Notes | 6.00% Senior Convertible Notes Due 2020
Debt
Stated interest rate (percent)	6.00%
Aggregate principal amount	$ 80.0
Senior Notes | 6.00% Senior Convertible Notes Due 2020 | TPG Aviator, L.P.
Debt
Aggregate principal amount		$ 20.0
Proceeds from notes		$ 20.0
Senior Notes | 7.50% Exchange Notes and 7.50% Notes
Debt
Interest paid	$ 1.5

XML

Senior Notes - Senior Secured Credit Facility (Details) - USD ($) $ in Thousands		6 Months Ended
	Jul. 28, 2016	Dec. 31, 2014	Sep. 30, 2016	Dec. 31, 2015	Apr. 07, 2014
Debt
Borrowings outstanding			$ 295,000	$ 326,793
Senior Secured Credit Facility
Debt
Maximum borrowing capacity			165,000		$ 105,000
Conditional maximum borrowing capacity	$ 175,000				175,000
Borrowings outstanding			$ 15,000	$ 0
Senior Secured Credit Facility | JPMorgan Chase Bank, N.A.
Debt
Maximum borrowing capacity					65,000
Senior Secured Credit Facility | Citibank and Deutsche Bank
Debt
Increase in maximum borrowing capacity		$ 40,000
Senior Secured Credit Facility | Amendment
Debt
Maximum borrowing capacity	165,000
Conditional maximum borrowing capacity	200,000
Senior Secured Credit Facility | Swing-line facility
Debt
Maximum borrowing capacity					$ 30,000
Extended Commitments, period from June 6, 2017 to July 28, 2019 | Senior Secured Credit Facility | Amendment
Debt
Maximum borrowing capacity	150,000
Extended Commitments, period from June 6, 2017 to July 28, 2019 | Senior Secured Credit Facility | Swing-line facility
Debt
Decrease in maximum borrowing capacity	$ 30,000

XML

Estimated Development Liability (Details) home in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) home	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) home	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Cash expenditures for obligations related to prior sales	$ 200	$ 100	$ 300	$ 200
Estimated development liability	$ 32,257		$ 32,257		$ 32,551
Minimum
Number of estimated homes the estimated liability covers (homesites) | home	8		8

XML

Commitments and Contingencies - Surety Bonds (Details) $ in Millions	Sep. 30, 2016 USD ($)
Performance Guarantee
Commitments and Contingencies
Loss contingency on certain claims	$ 28.3

XML

Segment Information - Reportable Segments (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Operating income (loss):
Homebuilding revenues	$ 201,821	$ 151,130	$ 507,659	$ 280,381
Amenity and other	3,315	2,691	8,834	8,195
Land sales	291	6	1,120	3,470
Total revenues	205,427	153,827	517,613	292,046
Expenses
Homebuilding cost of revenues	163,911	121,089	414,290	228,911
Homebuilding selling, general and administrative	25,484	23,191	71,639	52,492
Amenity and other	3,101	2,221	8,057	7,034
Land sales	295	2	685	385
Unallocated income (expenses):
Interest income and other		36	1	325
Interest expense	(701)	(1,840)	(2,853)	(7,503)
Income (loss) before income taxes	11,935	5,520	20,090	(3,954)
Income tax expense (benefit)	38	0	(109,959)	0
Net income (loss)	11,897	5,520	130,049	(3,954)
Operating Segments
Expenses
Segment operating income (loss)	16,333	11,144	34,909	14,980
Corporate, Non-Segment
Unallocated income (expenses):
Corporate general and administrative expenses	(3,697)	(3,820)	(11,967)	(11,756)
Florida | Operating Segments
Operating income (loss):
Homebuilding revenues	96,943	86,892	251,587	185,484
Amenity and other	3,315	2,691	8,834	8,195
Land sales	26	6	670	3,470
Total revenues	100,284	89,589	261,091	197,149
Expenses
Homebuilding cost of revenues	74,872	68,409	196,045	149,033
Homebuilding selling, general and administrative	12,189	11,419	33,374	26,172
Amenity and other	3,075	2,199	7,978	6,938
Land sales	6	2	225	385
Segment operating income (loss)	10,142	7,560	23,469	14,621
Arizona | Operating Segments
Operating income (loss):
Homebuilding revenues	42,014	20,012	104,255	45,196
Land sales			185	0
Total revenues	42,014	20,012	104,440	45,196
Expenses
Homebuilding cost of revenues	35,236	16,497	87,672	38,704
Homebuilding selling, general and administrative	3,854	3,009	10,773	7,846
Amenity and other	26	22	79	96
Land sales			171	0
Segment operating income (loss)	2,898	484	5,745	(1,450)
Carolinas | Operating Segments
Operating income (loss):
Homebuilding revenues	62,864	44,226	151,817	49,701
Land sales	265		265	0
Total revenues	63,129	44,226	152,082	49,701
Expenses
Homebuilding cost of revenues	53,803	36,182	130,573	41,174
Homebuilding selling, general and administrative	5,744	4,944	15,525	6,718
Land sales	289		289	0
Segment operating income (loss)	$ 3,293	$ 3,100	$ 5,695	$ 1,809

XML

Fair Value Disclosures (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015	Jun. 23, 2015	Jun. 30, 2014	Feb. 04, 2011
Fair Value Disclosures
Change in fair value of contingent consideration		$ (422)	$ (298)
Earn-out
Fair Value Disclosures
Cash paid for earn-outs		$ 4,300
Change in fair value of contingent consideration	$ (400)
7.50% Senior Convertible Notes due 2016
Fair Value Disclosures
Stated interest rate (percent)	7.50%	7.50%		7.50%
8.5% Senior Notes Due 2019
Fair Value Disclosures
Stated interest rate (percent)	8.50%	8.50%		8.50%
6.00% Senior Convertible Notes Due 2020
Fair Value Disclosures
Stated interest rate (percent)	6.00%	6.00%		6.00%
Carrying Amount | Earn-out
Fair Value Disclosures
Contingent consideration (earn-out)	$ 2,400	$ 2,400		$ 7,083
Fair Value | Level 3 | Earn-out
Fair Value Disclosures
Contingent consideration (earn-out)	2,400	2,400		7,083
Senior Notes | 7.50% Senior Convertible Notes due 2016
Fair Value Disclosures
Stated interest rate (percent)							7.50%
Senior Notes | 8.5% Senior Notes Due 2019
Fair Value Disclosures
Stated interest rate (percent)						8.50%
Senior Notes | 6.00% Senior Convertible Notes Due 2020
Fair Value Disclosures
Stated interest rate (percent)					6.00%
Senior Notes | Carrying Amount | 7.50% Senior Convertible Notes due 2016
Fair Value Disclosures
Debt				46,793
Senior Notes | Carrying Amount | 8.5% Senior Notes Due 2019
Fair Value Disclosures
Debt	196,460	196,460		195,495
Senior Notes | Carrying Amount | 6.00% Senior Convertible Notes Due 2020
Fair Value Disclosures
Debt	78,798	78,798		78,558
Senior Notes | Fair Value | Level 2 | 7.50% Senior Convertible Notes due 2016
Fair Value Disclosures
Debt				45,389
Senior Notes | Fair Value | Level 2 | 8.5% Senior Notes Due 2019
Fair Value Disclosures
Debt	208,360	208,360		199,000
Senior Notes | Fair Value | Level 2 | 6.00% Senior Convertible Notes Due 2020
Fair Value Disclosures
Debt	86,840	86,840		75,368
Senior Secured Credit Facility | Carrying Amount
Fair Value Disclosures
Debt	15,000	15,000		0
Senior Secured Credit Facility | Fair Value
Fair Value Disclosures
Debt	$ 15,000	$ 15,000		$ 0

XML

Subsequent Events (Details) $ in Millions	Oct. 26, 2016 USD ($)
Subsequent Event | Senior Secured Credit Facility
Long-term debt
Increase in maximum borrowing capacity	$ 25