William Lyon Homes (WLH) 8-K Regulation FD Disclosure

Exhibit 99.5

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following sets forth certain unaudited pro forma condensed combined financial data giving effect to the Polygon Acquisition, this offering of $250.0 million in notes, the concurrent offering of $50.0 million in additional 2019 notes, $120.0 million in expected borrowings under the Senior Unsecured Facility and the use of $119.7 million in cash on hand (including $100.0 million of cash generated from the Land Bank Arrangements) to finance the Polygon Acquisition and to pay related fees and expenses. The unaudited pro forma condensed combined financial data set forth below has been presented for informational purposes only. The pro forma data is not necessarily indicative of what the combined Company’s financial position or results of operations actually would have been had the Polygon Acquisition been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial data does not purport to project the future financial position or operating results of the Company following the consummation of the Polygon Acquisition. There were no material transactions between the Company and Polygon Northwest Homes during the periods presented in the unaudited pro forma condensed combined financial statements that would need to be eliminated.

The unaudited pro forma condensed combined balance sheet assumes that the Polygon Acquisition took place on March 31, 2014.

The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2014 assumes that the Polygon Acquisition took place on January 1, 2013.

The unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2013 assumes that the Polygon Acquisition took place on January 1, 2013.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 assumes that the Polygon Acquisition took place on January 1, 2013.

The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the Polygon Acquisition, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined company. The unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial statements. In addition, the unaudited pro forma condensed combined financial information was based on and should be read in conjunction with the following historical consolidated financial statements and accompanying notes of the Company for the applicable periods, which are incorporated by reference in this offering memorandum, and Polygon Northwest Homes for the applicable periods, which are included in this offering memorandum:

• historical financial statements of the Company for the year ended December 31, 2013 and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013;

• historical financial statements of the Company as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 and the related notes included in the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2014;

• historical financial statements of Polygon Northwest Homes for the year ended December 31, 2013 and the related notes included in Polygon Northwest Homes’ audited combined financial statements for the year ended December 31, 2013, included in this offering memorandum; and

• historical financial statements of Polygon Northwest Homes as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 and the related notes included in Polygon Northwest Homes’ unaudited combined financial statements for the period ended March 31, 2014, included in this offering memorandum.

The unaudited pro forma condensed combined financial data has been prepared using the acquisition method of accounting under GAAP, which is subject to change and interpretation. The Company has been treated

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as the acquiror in the Polygon Acquisition for accounting purposes. The acquisition method of accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial data. Differences between these preliminary estimates and the final acquisition accounting will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined company’s future results of operations and financial position.

The unaudited pro forma condensed combined financial data does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the Polygon Acquisition, the costs to combine the operations of the Company and Polygon Northwest Homes or the costs necessary to achieve any of the foregoing cost savings, operating synergies and revenue enhancements.

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Unaudited Pro Forma Condensed Combined Balance Sheet

As of March 31, 2014

(in thousands, except per share data)

	Historical
	William Lyon Homes		Polygon Northwest Homes		Pro Forma Adjustments				Pro Forma Combined
ASSETS
Cash and cash equivalents	$	151,029	$	35,039	$	(19,729	)	(a)	$	131,300
						(35,039	)	(b)
Restricted cash		854		3,724		(3,724	)	(b)		854
Receivables		22,322		7,969		(7,969	)	(b)		22,322
Real Estate inventories
Owned		862,218		276,602		212,398		(c)		1,251,218
						(100,000	)	(d)
Not owned		12,960		-		-				12,960
Deferred loan costs, net		12,058		-		14,770		(e)		26,828
Goodwill		14,209		-		36,773		(c)		50,982
Intangibles, net		2,148		-		5,000		(c)		7,148
Deferred income taxes		93,457		-		-				93,457
Other assets, net		12,297		3,392		1,608		(c)		17,297
Total assets		1,183,552		326,726		104,088				1,614,366
LIABILITIES AND EQUITY
Accounts payable		18,720		23,205		(8,105	)	(b)		33,820
Accrued expenses		65,881		3,985		(3,312	)	(b)		66,554
Liabilities from inventories not owned		12,960		-		-				12,960
Notes payable		41,120		214,187		(214,187	)	(b)		161,120
						120,000		(f)
5.75% Senior Notes due 2019		150,000		-		50,000		(f)		200,000
8.5% Senior Notes due 2020		431,016		-		-				431,016
Senior Notes		-		-		250,000		(f)		250,000
		719,697		241,377		194,396				1,155,470
Common stock		318		-		-				318
APIC		311,599		-		-				311,599
Controlling members’ net investment		-		54,521		(54,521	)	(i)		-
Retained earnings		124,699		-		(4,959	)	(g)		119,740
		436,616		54,521		(59,480	)			431,657
Noncontrolling interests		27,239		30,828		(30,828	)	(h)		27,239
Total liabilities and equity	$	1,183,552	$	326,726	$	104,088			$	1,614,366

See accompanying notes to the unaudited pro forma condensed combined financial statements, which are an integral part of these statements

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Unaudited Pro Forma Condensed Combined Statement of Operations

For the Three Months Ended March 31, 2014

(in thousands, except per share data)

	Historical
	William Lyon Homes			Polygon Northwest Homes			Pro Forma   Adjustments				Pro Forma Combined
Home sales	$	140,299		$	43,085		$	-			$	183,384
Construction services		9,652			85			-				9,737
		149,951			43,170			-				193,121
Cost of sales - homes		(106,212	)		(29,823	)		(6,368	)	(1)		(142,403	)
Construction services		(8,068	)		-			-				(8,068	)
Sales and marketing		(6,558	)		(2,298	)		-				(8,856	)
General and administrative		(12,136	)		(2,959	)		-				(15,095	)
Amortization of intangible assets		(618	)		-			-				(618	)
Other		(562	)		-			-				(562	)
		(134,154	)		(35,080	)		(6,368	)			(175,602	)
Operating income		15,797			8,090			(6,368	)			17,519
Interest expense, net of amounts capitalized		-			(50	)		50		(5)		-
Other income, net		119			(862	)		1,551		(6)		808
Income before taxes		15,916			7,178			(4,767	)			18,327
Income taxes		(4,574	)		-			(875	)	(3)		(5,449	)
Net income		11,342			7,178			(5,642	)			12,878
Net income attributable to noncontrolling interests		(2,645	)		(1,892	)		1,892		(4)		(2,645	)
Net income attributable to William Lyon Homes		8,697			5,286			(3,750	)			10,233
Net income available to common stockholders	$	8,697		$	5,286		$	(3,750	)		$	10,233
Income per common share:
Basic	$	0.28									$	0.33
Diluted	$	0.27									$	0.31
Weighted-average common shares outstanding:
Basic		31,106,310										31,106,310
Diluted		32,604,620										32,604,620

See accompanying notes to the unaudited pro forma condensed combined financial statements, which are an integral part of these statements

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Unaudited Pro Forma Condensed Combined Statement of Operations

For the Three Months Ended March 31, 2013

(in thousands, except per share data)

	Historical
	William Lyon Homes			Polygon Northwest Homes			Pro Forma Adjustments				Pro Forma Combined
Home sales	$	76,434		$	50,251		$	-			$	126,685
Construction services		4,419			353			-				4,772
		80,853			50,604			-				131,457
Cost of sales - homes		(63,328	)		(38,865	)		(3,848	)	(1)		(106,041	)
Construction services		(4,038	)		-			-				(4,038	)
Sales and marketing		(4,668	)		(2,608	)		-				(7,276	)
General and administrative		(8,524	)		(2,225	)		-				(10,749	)
Amortization of intangible assets		(622	)		-			(625	)	(2)		(1,247	)
Other		(485	)		-			-				(485	)
		(81,665	)		(43,698	)		(4,473	)			(129,836	)
Operating (loss) income		(812	)		6,906			(4,473	)			1,621
Interest expense, net of amounts capitalized		(1,284	)		(118	)		-				(1,402	)
Other income, net		87			420			74		(6)		581
(Loss) income before reorg items and taxes		(2,009	)		7,208			(4,399	)			800
Reorganization items, net		(464	)		-			-				(464	)
(Loss) income before taxes		(2,473	)		7,208			(4,399	)			336
Income taxes		-			-			(122	)	(3)		(122	)
Net (loss) income		(2,473	)		7,208			(4,521	)			214
Net income attributable to noncontrolling interests		(75	)		(1,645	)		1,645		(4)		(75	)
Net (loss) income attributable to William Lyon Homes		(2,548	)		5,563			(2,876	)			139
Preferred stock dividends		(974	)		-			-				(974	)
Net (loss) income available to common stockholders	$	(3,522	)	$	5,563		$	(2,876	)		$	(835	)
Income per common share:
Basic	$	(0.24	)								$	(0.06	)
Diluted	$	(0.24	)								$	(0.06	)
Weighted-average common shares outstanding:
Basic		14,581,897										14,581,897
Diluted		14,581,897										14,581,897

See accompanying notes to the unaudited pro forma condensed combined financial statements, which are an integral part of these statements

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Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2013

(in thousands, except per share data)

	Historical
	William Lyon Homes			Polygon Northwest Homes			Pro Forma Adjustments				Pro Forma Combined
Home sales	$	521,310		$	290,078		$	-			$	811,388
Lots, land and other sales		18,692			-			-				18,692
Construction services		32,533			1,801			-				34,334
		572,535			291,879			-				864,414
Cost of sales - homes		(405,496	)		(212,915	)		(33,651	)	(1)		(652,062	)
Cost of sales - lots, land and other		(14,692	)		-			-				(14,692	)
Construction services		(25,598	)		-			-				(25,598	)
Sales and marketing		(26,102	)		(14,386	)		-				(40,488	)
General and administrative		(40,770	)		(11,919	)		-				(52,689	)
Amortization of intangible assets		(1,854	)		-			(2,500	)	(2)		(4,354	)
Other		(2,166	)		-			-				(2,166	)
		(516,678	)		(239,220	)		(36,151	)			(792,049	)
Operating income		55,857			52,659			(36,151	)			72,365
Interest expense, net of amounts capitalized		(2,602	)		(207	)		207		(7)		(2,602	)
Other income, net		510			4,500			(2,389	)	(6)		2,621
Income before reorg items and taxes		53,765			56,952			(38,333	)			72,384
Reorganization items, net		(464	)		-			-				(464	)
Income before taxes		53,301			56,952			(38,333	)			71,920
Income taxes		82,302			-			(6,759	)	(3)		75,543
Net income		135,603			56,952			(45,092	)			147,463
Net income attributable to noncontrolling interests		(6,471	)		(13,867	)		13,867		(4)		(6,471	)
Net income attributable to William Lyon Homes		129,132			43,085			(31,225	)			140,992
Preferred stock dividends		(1,528	)		-			-				(1,528	)
Net income available to common stockholders	$	127,604		$	43,085		$	(31,225	)		$	139,464
Income per common share:
Basic	$	5.16									$	5.64
Diluted	$	4.95									$	5.41
Weighted-average common shares outstanding:
Basic		24,736,841										24,736,841
Diluted		25,796,197										25,796,197

See accompanying notes to the unaudited pro forma condensed combined financial statements, which are an integral part of these statements

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Notes to the Unaudited Pro Forma Condensed Combined Financial Statements

1. Description of Transaction

On June 22, 2014, the Company entered into a definitive purchase and sale agreement (the “Acquisition Agreement”) with PNW Home Builders, L.L.C. (“PNW Parent”), PNW Home Builders North, L.L.C., PNW Home Builders South, L.L.C. and Crescent Ventures, L.L.C. (collectively, the “Sellers”), to acquire the residential homebuilding business of PNW Parent. The residential homebuilding operations of Polygon Northwest Homes and its affiliates are not conducted through a stand-alone legal entity, but rather are a combination of the residential homebuilding operations owned by Sellers through their direct and indirect ownership of certain limited liability companies that own real property (such operations being referred to herein as “Polygon Northwest Homes”) and conduct business as Polygon Northwest Company (“Polygon”). Pursuant to the Acquisition Agreement, California Lyon has agreed to purchase Polygon Northwest Homes through its acquisition of the membership interests of the underlying limited liability companies and certain service companies and other assets, for an aggregate cash purchase price of $520.0 million (the “Polygon Acquisition”). Separately, PNW Parent is also engaged in commercial building activities and rental operations, which are excluded from the Polygon Acquisition and are not being acquired by us.

The $520.0 million purchase price provided for in the Acquisition Agreement will take place on a “zero cash, zero debt” basis, such that the Company will not be acquiring any cash on the balance sheet of Polygon Northwest Homes at closing and will not be assuming any of Polygon Northwest Homes’ existing debt, which will get paid off by the Sellers in connection with closing of the Polygon Acquisition. Sellers will retain all pre-closing liabilities pursuant to the terms of the Acquisition Agreement, except for certain limited assumed current liabilities including accounts payable and accrued other expenses. The purchase price is subject to working capital adjustments and pursuant to the terms of the Acquisition Agreement, we expect the Polygon Acquisition to close on or before August 15, 2014.

2. Basis of Presentation

The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting, and were based on the historical financial statements of the Company and Polygon Northwest Homes. The historical William Lyon Homes and Polygon Northwest Homes columns in the Unaudited Pro Forma Condensed Combined Balance Sheet and the Condensed Combined Statement of Operations represent the unaudited results as of March 31, 2014 and for the three months ended March 31, 2014 and 2013, and for the year ended December 31, 2013.

The Unaudited Pro Forma Condensed Combined Statement of Operations give effect to the Pro Forma adjustments (as described below) as if the Polygon Acquisition had occurred or had become effective as of January 1, 2013. The Unaudited Condensed Combined Balance Sheet gives effect to the Pro Forma adjustments as if the Polygon Acquisition had occurred on March 31, 2014.

The unaudited pro forma condensed combined financial information is based on available information and certain assumptions that the Company believes are reasonable. The unaudited pro forma condensed combined financial information is for illustrative and informational purposes only and does not necessarily reflect the Company’s results of operations or financial condition had the pro forma transactions occurred at an earlier date and should not be considered representative of the Company’s future financial condition or results of operations.

Accounting standards require that the assets and liabilities of the acquired entity are recognized at their acquisition-date fair value and that the consideration transferred be measured at the closing date of the acquisition at the then-current market price.

GAAP defines the term “fair value”, and sets forth the valuation requirements for any asset or liability measured at fair value, and specifies a hierarchy of valuation techniques based on the inputs used to develop the fair value measures. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Under this definition, market participants are assumed to be buyers and sellers in the principal (or most advantageous) market for the

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asset or liability. Many of these fair value measurements can be highly subjective, and it is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

Under the acquisition method of accounting, the assets acquired and liabilities assumed are recorded as of the completion of the acquisition, primarily at their respective fair values and added to the existing assets and liabilities of the Company. Financial statements and reported results of operations of the Company issued after the completion of the acquisition will reflect these values, but will not be retroactively restated to reflect the historical financial position or results of operations of Polygon Northwest Homes as of any date or for any period prior to the acquisition.

3. Accounting Policies

The Company will continue to review Polygon Northwest Homes’ accounting policies. As a result of the ongoing review, the Company may identify differences between the accounting policies of the two companies that could have a material impact on the combined pro forma financial statements. At this time, the Company is not aware of any differences that would have a material impact on the combined pro forma financial statements. The unaudited pro forma condensed combined financial statements assume there are no differences in accounting policies between the two companies.

4. Allocation of the Purchase Price

The pro forma adjustments are preliminary and based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed as of the transaction date, and have been prepared to illustrate the estimated effect of the transaction. Due to the preliminary nature of these estimates, actual results could differ significantly from such estimates.

(a) Inventory

Acquisition date fair value of inventory was estimated using a combination of the discounted cash flow method as well as a residual value and spot value underwriting approach on land and land under development that the Company traditionally applies during the land acquisition process. The final determination of the fair value of real estate inventory could be impacted by expected average selling price, sales pace, cost to complete estimates, highest and best use of the projects prior to acquisition, or comparable land values.

(b) Intangible Assets

The Company valued the estimated homes in backlog as an Intangible Asset using the income method, assuming a with/without approach to income. The final determination of the fair value of backlog will depend on the final number of homes in backlog received as of the transaction date, as well as the expected selling price of those homes.

The acquisition date fair value of brand intangible was estimated using comparable values ascribed in other recent market transactions, and taking into account Polygon Northwest Homes market position as a leading builder in the Seattle and Portland residential markets. This asset is deemed to have an indefinite life.

(c) Other Assets

The Company will acquire a 50% interest in a joint venture mortgage business. The acquisition date fair value assigned to this joint venture was estimated using the discounted cash flow method. The final determination of the fair value of this joint venture will depend on the estimated cash flow streams and income of the joint venture.

The final determination of purchase price allocation upon the consummation of the Polygon Acquisition will be based on Polygon Northwest Homes’ net assets acquired as of that date, and will depend on a number of factors which cannot be predicted with certainty at this time. The purchase price allocation may change

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materially based on the receipt of more detailed information, and as such the actual allocations may differ from the pro forma adjustments presented. There can be no assurances that these additional analyses and final valuations will not result in significant changes to the estimates of fair value set forth below.

The following table sets forth (in thousands) a preliminary allocation of the estimated purchase price consideration to the identifiable tangible and intangible assets acquired and liabilities assumed of Polygon Northwest Homes, with the excess recorded as goodwill:

ASSETS
Real Estate Inventories	$	489,000
Goodwill		36,773
Intangible Asset - Brand Name		2,500
Intangible Asset - Backlog		2,500
Joint Venture in Mortgage Business		5,000
Total Assets		535,773
LIABILITIES
Accounts payable		(15,100	)
Accrued expenses		(673	)
Total Liabilities		(15,733	)
Net Assets Acquired	$	520,000

5. Notes to Unaudited Pro Forma Condensed Combined Balance Sheet

(a) Reflects $520.0 million of cash paid to acquire the net assets of Polygon Northwest Homes, less (i) proceeds from financing the Polygon Acquisition and (ii) $19.5 million of acquisition-related transaction costs. Please seeNote 7 – Financing Arrangements.

(b) Represents the adjustment to eliminate assets and liabilities excluded from the Polygon Acquisition. Please seeNote 4 – Allocation of the Purchase Price.

(c) Reflects the allocation of the purchase price for the acquisition of the net assets of Polygon Northwest Homes. Please seeNote 4 – Allocation of the Purchase Price.

(d) Represents $100.0 million in inventory value transferred as part of a financing arrangement. Please seeNote 7 – Financing Arrangements.

(e) Reflects deferred financing costs incurred in relation to the issuance of debt as a result of the Polygon Acquisition. Of this amount, approximately $9.3 million of assumed costs relate to bridge financing (composed of a $7.5 million commitment fee and $1.8 million of funding costs), and $5.4 million relate to the issuance of the notes and the additional 2019 notes. Please seeNote 7 – Financing Arrangements.

(f) Portion of the senior unsecured facility expected to be used to close the Polygon Acquisition of $120.0 million, and $250.0 million in aggregate principal amount of the notes and $50.0 million in aggregate principal amount of the additional 2019 notes issued to finance a portion of the Polygon Acquisition. Please seeNote 7 – Financing Arrangements.

(g) Represents the impact, as a reduction of earnings, of transaction costs incurred that were not capitalizable under GAAP. Please seeNote 7 – Financing Arrangements.

(h) As part of the purchase of Polygon Northwest Homes, the Company is purchasing a 100% interest in the entities acquired. As such, the Company will not have a non-controlling interest related to the Polygon Acquisition.

(i) Represents elimination of Polygon Northwest Homes’ equity in acquisition accounting.

6. Notes to Unaudited Pro Forma Condensed Combined Income Statement

(1) Represents the incremental increase to Cost of sales – homes as a result of applying acquisition accounting to the net assets of Polygon Northwest Homes. Please seeNote 8 – Cost of sales – Homes.

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(2) Reflects the amortization of intangibles acquired as a result of the Polygon Acquisition. The Company assumes that the entire intangible asset attributed to backlog will be amortized during the twelve months following the Polygon Acquisition, and a portion of the backlog will be amortized during the first three months ended March 31, 2013.

(3) Reflects the pro forma adjustment to record income taxes for the operations of Polygon Northwest Homes and the pro forma adjustments for the periods presented. Please seeNote 9 – Income taxes.

(4) Represents the elimination of Net income attributable to noncontrolling interests recorded by Polygon Northwest Homes. Based upon the purchase agreement, all projects acquired would by wholly-owned, resulting in no amounts attributable to non-controlling interests.

(5) As the Company’s qualifying real estate projects under development exceeded total debt during the period presented, all interest incurred on a combined basis will be capitalized to inventory in accordance with ASC topic 835 “Capitalization of Interest”.

(6) Relates to the elimination of the income effect of derivative assets that the Company will not be acquiring as part of the Polygon Acquisition.

(7) Reflects the capitalization of interest to qualifying real estate projects included in inventory in accordance with ASC Topic 835 “Capitalization of Interest”.

7. Financing Arrangements

The Company anticipates that the Polygon Acquisition will be funded through a combination of borrowings and the transfer of land to an unrelated party, as part of a financing transaction. The Company will subsequently enter into an option agreement to repurchase the land in a series of scheduled take-downs as finished lots in the future. Estimated sources and uses of cash (in thousands) related to the Polygon Acquisition are as follows:

Sources:
Proceeds from issuance of the notes and the additional 2019 notes	$	300,000
Amount borrowed under senior unsecured facility		120,000
Proceeds from sale of land, net of related option deposit		100,000
Proceeds from financing the Polygon Northwest Homes Transaction		520,000
Uses:
Purchase price for Polygon Acquisition		(520,000	)
Acquisition-Related Costs
Acquisition-related transaction costs		(4,959	)
Payment of debt issuance costs		(14,770	)
Total acquisition-related Costs		(19,729	)
Total costs related to Polygon Acquisition		(539,729	)
Pro forma adjustment to cash and cash equivalents	$	(19,729	)

As a result of the borrowings assumed above, the Company will incur approximately $27.2 million of incremental interest based upon the assumed interest rates in effect at issuance and assuming debt is outstanding for an entire year. A 0.125% increase or decrease in the interest rates assumed above would increase or decrease interest incurred expense on a pro forma basis by $0.5 million.

In addition to the incremental interest assumed above is the amortization of $14.8 million of deferred financing fees incurred as part of the financing transaction. As the Company anticipates that qualifying real estate projects under development will exceed total debt, the additional interest incurred will initially be capitalized to inventory in accordance with ASC topic 835 “Capitalization of Interest”.

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8. Cost of Sales

Cost of sales - homes has been adjusted to reflect the impact of the purchase price allocation of Polygon Northwest Homes’ inventory. During the first year subsequent to the Polygon Acquisition, the Company expects Cost of revenues - homes on the acquired inventory of Polygon Northwest Homes to be approximately 85.0% of Homebuilding revenue for three months ended March 31, 2013, and full year ended December 31, 2013, and approximately 84.0% of Homebuilding revenue for the three months ended March 31, 2014.

As a result of the borrowings entered into in order to fund the Polygon Acquisition, the Company will incur approximately $27.2 million of incremental interest on an annual basis, based upon the assumed interest rates in effect at issuance and assuming debt is outstanding for an entire year. As the Company anticipates that qualifying real estate projects under development will exceed total debt, the additional interest incurred will initially be capitalized to inventory in accordance with ASC topic 835 “Capitalization of Interest”. The Company estimates that the amount of interest expensed through Cost of sales will approximate 4.0% of homebuilding revenues under the current interest capitalization model, which is included in the pro forma costs of sales rate mentioned above.

As such, for the three months ended March 31, 2014, three months ended March 31, 2013, and the year ended December 31, 2013, approximately $6.4 million, $3.8 million and $33.7 million, respectively, are included as an increase to Cost of sales - homes in the unaudited pro forma condensed consolidated statement of operations.

9. Income Taxes

As Polygon Northwest Homes was not previously required to record a provision for income tax due to its organizational structure, the Company applied statutory tax rates to the pro forma adjusted income before taxes to compute pro forma Provision for income taxes that would have been recorded had Polygon Northwest been a part of the Company’s consolidated operations during the three months ended March 31, 2014 and 2013, and year ended December 31, 2013. The pro forma adjustments are calculated below:

	Three months ended March 31, 2014	Three months ended March 31, 2013	Year Ended December 31, 2013
Polygon Northwest Homes Income Before Taxes and Pro Forma Adjustments*	$            2,411	$            336	$            18,619
Statutory Rate	36.3%	36.3%	36.3%
Pro Forma Tax Provision Adjustment (in thousands)	$               875	$            122	$              6,759

* In periods where the Company recorded a loss before taxes, the loss incurred by the Company was also included in the calculation of Polygon Northwest Homes’ income before taxes and pro forma adjustments

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