LGI Homes Inc Annual Report 2015

Plain-text annual report

LGI HOMES, INC. FORM 10-K (Annual Report) Filed 03/09/16 for the Period Ending 12/31/15 Address Telephone CIK Symbol SIC Code Fiscal Year 1450 LAKE ROBBINS DRIVE SUITE 430 THE WOODLANDS, TX 77380 281-362-8998 0001580670 LGIH 1531 - Operative Builders 12/31 http://www.edgar-online.com © Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended December 31, 2015Commission file number 001-36126 LGI HOMES, INC.(Exact name of registrant as specified in its charter) Delaware 46-3088013(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1450 Lake Robbins Drive, Suite 430, The Woodlands, Texas 77380(Address of principal executive offices) (Zip code)(281) 362-8998(Registrant’s Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act:Title of each classCommon Stock ($0.01 par value)Name of each exchange on which registeredNASDAQSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ýIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ýIndicate 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 preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted 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 submitand post such files). Yes ý No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, tothe best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨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 “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ýAs of June 30, 2015, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $316.6 million based on the closingprice as reported on the NASDAQ Stock Market. As of March 7, 2016 , there were 20,270,389 shares of the registrant’s common stock, par value $.01 per share, issued andoutstanding. DOCUMENTS INCORPORATED BY REFERENCEPortions from the registrant’s definitive Proxy Statement for the 2016 Annual Meeting of Stockholders are incorporated herein by reference (to the extent indicated) into Part III.Table of ContentsTABLE OF CONTENTS PagePART I Item 1.Business3Item 1A.Risk Factors12Item 1B.Unresolved Staff Comments27Item 2.Properties27Item 3.Legal Proceedings27Item 4.Mine Safety Disclosures28PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities29Item 6.Selected Financial Data32Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations34Item 7A.Quantitative and Qualitative Disclosures About Market Risk53Item 8.Financial Statements and Supplementary Data54Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure83Item 9A.Controls and Procedures83Item 9B.Other Information84PART III Item 10.Directors, Executive Officers and Corporate Governance85Item 11.Executive Compensation85Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters85Item 13.Certain Relationships and Related Transactions, and Director Independence85Item 14.Principal Accounting Fees and Services85PART IV Item 15.Exhibits and Financial Statement Schedules86 SIGNATURES EXHIBIT INDEX 2Table of ContentsPART IExplanatory NoteUnless otherwise indicated or the context requires, “LGI,” the “Company,” “we,” “our” and “us” refer collectively to LGI Homes, Inc. and its subsidiaries.On November 13, 2013, we completed an initial public offering (the “IPO”) of 10,350,000 shares of our common stock. As a result of the reorganizationtransactions completed in connection with the IPO (the “Reorganization Transactions”), for accounting purposes, our historical results included herein present thecombined assets, liabilities and results of operations of LGI Homes, Inc. since the date of its formation and LGI Homes Group, LLC, LGI Homes Corporate, LLC,LGI Homes II, LLC, LGI Homes-Sunrise Meadow, LLC, LGI Homes-Canyon Crossing, LLC, LGI Homes-Deer Creek, LLC and their direct and indirectsubsidiaries prior to the IPO (collectively, our “Predecessor”). For the period subsequent to the IPO, the assets, liabilities and results of operations present theconsolidated results of the Company.Prior to the completion of the IPO, our Predecessor owned a 15% equity interest in and managed the day-to-day operations of four joint venture entities (the“LGI/GTIS Joint Ventures”). Concurrent with the IPO, LGI Homes, Inc. acquired all of the equity interests in the LGI/GTIS Joint Ventures that it did not ownimmediately prior to the IPO (the “GTIS Acquisitions”). Our financial statements present our Predecessor’s historical interest in the LGI/GTIS Joint Venturesusing the equity method and our Predecessor’s share of the LGI/GTIS Joint Ventures’ net earnings are included in income from unconsolidated joint ventures.Effective November 13, 2013, we own all of the equity interests in the LGI/GTIS Joint Ventures and we account for them on a consolidated basis after such date.ITEM 1. BUSINESSGeneralWe are one of the nation’s fastest growing public homebuilders in terms of percentage increase of home closings. We are engaged in the design, construction,marketing and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, South Carolina, North Carolina, Colorado, Washington andTennessee. Our core markets include Houston, San Antonio, Dallas/Fort Worth, Austin, Phoenix, Tucson, Tampa, Orlando, Fort Myers, Atlanta, Albuquerque,Charlotte, Denver, Seattle, Colorado Springs, Nashville and Jacksonville. Our management team has been in the residential land development business since themid-1990s. Since commencing home building operations in 2003, we have constructed and closed over 12,000 homes. During the year ended December 31, 2015 ,we had 3,404 home closings, compared to 2,356 home closings in 2014.The following is a summary of our history:2003 - LGI Homes began operations building homes in the Houston market2006 - We entered the San Antonio market2009 - We entered the Dallas/Ft. Worth market2010 - We formed our first LGI/GTIS Joint Venture2011:• We entered the Phoenix market and formed our Southwest Division• We expanded our Texas Division by entering the Austin market2012 - An LGI/GTIS Joint Venture entered the Tampa market and we formed our Florida Division2013:• We expanded our Florida Division by entering the Orlando market• We entered the Atlanta market and formed our Southeast Division• We expanded our Southwest Division by entering the Tucson and Albuquerque markets• LGI Homes, Inc. was formed. We completed our IPO, Reorganization Transactions and GTIS Acquisitions3Table of Contents2014:• We expanded our Southeast Division by entering the Charlotte market and acquiring the homebuilding relatedassets of Oakmont Home Builders, Inc. and its affiliate in that market• We expanded our Southwest Division by entering the Denver market• We launched our first Terrata Homes community in the San Antonio market2015:• We expanded our Florida Division by entering the Jacksonville market• We expanded our Southwest Division with start-up operations in the Colorado Springs market• We expanded our Southeast Division with start-up operations in the Nashville market• We entered and formed our Northwest Division with start-up operations in the Seattle marketLGI Homes, Inc. is a Delaware corporation incorporated on July 9, 2013. Our principal executive offices are located at 1450 Lake Robbins Drive, Suite 430,The Woodlands, Texas 77380, and our telephone number is (281) 362-8998. Information on or linked to our website is not incorporated by reference into thisAnnual Report on Form 10-K unless expressly noted.Business OpportunitiesWe believe there is a significant opportunity to continue to grow in our existing markets. Given our knowledge of and proven success in these markets, aswell as the favorable demographic and economic trends forecasted for these markets, we expect to continue to grow in these markets.We see opportunities to develop properties with multiple product lines within the same communities which we believe will enable us to grow our business byincreasing the number of price points in some of our existing markets. Our current product offerings include entry-level homes and move-up homes sold under ourLGI Homes brand, and our premium move-up homes, which are sold under our Terrata Homes brand.Our Terrata Homes brand allows us to leverage our systems and process approach, including our distinguished customer centric sales system, to delivermove-in ready homes with standardized features at a higher price point, with sales prices starting at $350,000 for homes larger than 2,500 square feet. Our firstTerrata Homes community is Potranco Ranch in San Antonio, Texas. Our second Terrata Homes community is Riverchase Estates in Lancaster, South Carolina, 30miles south of Charlotte, North Carolina. During 2015, we closed 33 Terrata Homes with an average sales price of $408,000.We expect to continue to pursue a flexible land acquisition strategy of purchasing or optioning finished lots, if they can be acquired at attractive prices, orpurchasing raw land for residential development. We generally target land acquisitions that are further away from urban centers than many other suburbancommunities but have access to major thoroughfares, retail districts and centers of business. These target areas that are further away from urban centers result in abetter value for the homeowner through either lower price points or larger lot sizes. We consider development opportunities that meet our profit and returnobjectives, including opportunities which may involve the sale of home sites as a part of the product mix. We will continue to focus on entry-level home buyers,and expect our home closings in communities with higher price points or those that include the sales of home sites will be less than 5% of our annual homeclosings during 2016. In addition, during 2016 we plan to further diversify our entry level offerings with more townhome products in select markets.We intend to continue to expand into new markets where we identify opportunities to build homes and develop communities that meet our profit and returnobjectives. One of the keys to our successful geographic expansion has been our unique operating model. After successfully implementing this operating model inthe Houston market, we expanded into 13 additional markets, and have start-up operations in three additional markets, including Nashville, Tennessee, Seattle,Washington and Colorado Springs, Colorado that are expected to open for sales in 2016. In addition, during October 2014, we completed our first acquisition ofanother home-builder when we acquired the homebuilding related assets and liabilities of Oakmont Home Builders, Inc. and its affiliate (collectively, “Oakmont”)in Charlotte, North Carolina. We will continue to evaluate potential opportunities, including acquisitions of other homebuilders and further diversifying ourproducts, to expand our presence in our existing markets or to expand into new markets.4Table of ContentsUnique Operating ModelWe developed our unique operating model based on our belief that there is a more effective and efficient method of constructing and selling homes. We arefocused on maintaining an appropriate supply of move-in ready homes to fuel our dynamic sales force. We believe that the key competitive advantages of ouroperational business model include our sales and marketing expertise; recruitment, selection, training and development of our people; our disciplined landacquisition process; our commitment to systems and processes across our organization; and our quality assurance and quality control procedures associated withour homebuilding operations.Our unique operating model has been refined since our inception. We believe our operating model will be effective with respect to home sales across all pricepoints, including in our new markets. We believe that our business model can be adapted as needed, for the requirements of individual communities and newgeographic markets.Sales and MarketingWe utilize a well-defined sales and marketing approach to identify leads for our communities and to educate potential buyers on the process and benefits ofhomeownership. For many of our communities, our marketing efforts are focused on converting renters of apartments and single-family homes into homeowners.We use extensive print and digital advertising to attract potential homebuyers. We employ sophisticated marketing techniques such as direct mail, newspaperadvertisements, social media and interactive online media as well as directional signage and billboards to attract and drive potential homebuyers to our salescenters.Our print advertising methods are extensive and have proven to be highly effective in placing potential homebuyers in front of our highly trained salesprofessionals. Direct mail has also proven to be very effective in reaching our target market and communicating our core message of value and dream fulfillment.With respect to our communities with higher price points or that include the sale of home sites, our sales and marketing approaches are tailored to thepotential purchasers of such homes and home sites and include more involvement by real estate agents and brokers.Across all price points, our marketing strategy calls for a balanced approach of corporate support and local expertise to attract potential homebuyers in afocused, efficient and cost-effective manner. Our proprietary customer relationship management system provides our management team with tools to continuallymonitor and measure the performance level of every sales professional through each phase of the sales process. Utilization of these tools allows us to assess thecost effectiveness of a particular advertising campaign and marketing medium as well as the strengths and weaknesses of every member of our sales team.Our marketing efforts are generally designed to encourage the prospective homebuyer to call our sales offices to schedule an appointment and our primaryobjective is to establish direct communication between the prospective homebuyer and the salesperson. Our professional salespeople are well-trained to determinespecific needs and wants of the potential homebuyer and to provide the potential homebuyer with all information required to make a buying decision.Our sales offices are open approximately 12 hours per day, 360 days per year, and generally staffed by two to five sales professionals and supported by anindependent on-site loan officer. Our commission-based sales professionals provide potential homebuyers with a comprehensive and thorough understanding of thesteps required to achieve homeownership. Throughout the sales process, our sales professionals learn about the current housing situation of the potentialhomebuyers and seek to understand their individual needs while also educating them on the value we provide through superior quality and affordable prices.We provide information regarding floor plans and pricing, credit and income qualifications and conduct tours of our homes based on the potentialhomebuyer’s budget. In addition, we provide each potential homebuyer with a comprehensive introduction to the community and the surrounding area, providingthem with detailed information regarding utilities, schools, homeowners association dues and restrictions, local entertainment and nearby dining and shoppingoptions. We provide our potential homebuyers with a clear understanding of who we are by sharing our history, vision and values. As a result of our transparentapproach, potential homebuyers receive all this information before making a buying decision, which we believe eliminates confusion during the home buyingprocess and sets clear expectations. In addition, the potential home buyers benefit from the availability of move-in ready homes by seeing the completed or near-completed home that they will own.5Table of ContentsRecruitment, Training and DevelopmentWe focus on identifying and attracting the best talent and providing them with world-class training and continuous development. We directly invest in oursales professionals by conducting an intensive 100-day introductory training program consisting of 30 days of initial in-depth, in-house education about our time-proven selling strategies, which includes a two-week intensive training program at our headquarters, and an additional 70 days of secondary training at the localdivision. Our continued commitment to our sales personnel is reflected in the ongoing weekly training sessions held in each of our sales offices coupled withquarterly regional training events. We also work closely with our subcontractors and construction managers, training them using a comprehensive constructionmanual that outlines the most efficient way to build an LGI home. Many of our subcontractors have worked on our homes since we commenced homebuildingoperations in 2003, and therefore, are familiar with our business model.Homebuilding OperationsOur homebuilding operations are organized and managed by divisions:Texas Southwest Southeast Florida NorthwestHouston, TX Phoenix, AZ Atlanta, GA Tampa, FL Seattle, WADallas/Ft. Worth, TX Tucson, AZ Charlotte, NC Orlando, FL San Antonio, TX Albuquerque, NM Nashville, TN Fort Myers, FL Austin, TX Denver, CO Jacksonville, FL Colorado Springs, CO Our five divisions are aggregated into one reporting segment. See Note 17 “ Segment Information ” to our consolidated financial statements included in PartII. Item 8 of this Annual Report on Form 10-K.Our even-flow, or continuous, construction methodology enables us to build and maintain an inventory of move-in ready homes that are available forimmediate sale. We offer a set number of floor plans in each community with standardized features that commonly include upgrades such as granite countertops,appliances and ceramic tile flooring. Our homes are designed to meet the preferences of our target market of potential homebuyers and enable cost efficient andeffective construction processes. We have developed a collection of home designs, which can be modified for local conditions and market preferences, andimplemented across multiple communities to maximize efficiency. We maintained an average home completion time of approximately 45 to 60 d ays d uring 2015and 2014; the homes closed during 2015 ranged from 1,100 to 4,000 square feet with prices ranging from the $110,000's to the $475,000's.We believe in 2016 and beyond, we will continue to focus on our target market of entry level homebuyers. Our townhome product in select markets willfurther enable us to offer affordable (well-priced) products in desirable locations. We expect that sales of Terrata Homes will represent less than 5% of our homeclosings through 2016. We expect to continue to utilize our even flow construction methodology in communities with homes at all of our price points and willmaintain our focus on marketing complete or move-in ready homes with standardized features.We employ experienced construction management professionals to perform the tasks of general contractors for home construction in each of ourcommunities. Our employees provide the purchasing, construction management and quality assurance for the homes we build, while third-party subcontractorsprovide the material and labor components of our homes. In each of our markets, we employ construction managers with local market knowledge and expertise.Additionally, our construction managers monitor our compliance with zoning and other regulations, production schedules, and quality standards for their projects.We endeavor to obtain favorable pricing from subcontractors through long-term relationships and consistent workflow. As we have expanded into newmarkets outside of Texas, the employees that we have hired in those markets have brought long-term relationships with several subcontracting firms. We haveexpanded upon existing relationships with subcontracting firms also located in Texas. A number of our trade partners have subcontracted on our projects since wecommenced homebuilding operations in 2003. We purchase some components and materials centrally to leverage our purchasing power to achieve volumediscounts, a practice that often reduces costs and ensures timely deliveries. We typically do not store significant inventories of construction materials, except forwork in progress materials for homes under construction. Consistency of our trade partners is an integral part of our homebuilding operations that also leads us toreduced warranty costs. We believe in building long lasting relationships with our trade partners in order to provide consistent, quality and timely deliveries acrossour markets. We also work closely with our construction managers and subcontractors and train them using a comprehensive construction manual that outlines themost efficient6Table of Contentsway to build an LGI home. We believe our emphasis on developing and educating our employees and subcontractors is a key differentiator relative to our peers.Throughout our homebuilding operations, we utilize a paperless purchase order system to conduct business with our subcontractors and suppliers. Our masterbuild schedule allows our trade partners to receive their specific task from our electronic system and plan several weeks in advance before starting their work. Thismeans of communication allows our subcontractors to schedule their crews efficiently, thereby allowing for better pricing and better quality of work. Typically, ourcontractors are paid every two weeks, which contributes to the strength of our business relationships with them.Land Acquisition Policies and DevelopmentWe continue to be an active and opportunistic acquirer of land for residential development in our markets. We source land from a wide range of landowners,brokers, lenders and other land development companies. We generally acquire finished lots and raw land in affordable locations that are further away from urbancenters than many other suburban communities but have access to major thoroughfares, retail districts and centers of business. We conduct thorough due diligenceon each of our potential land acquisitions, and we look at numerous opportunities before finding one that meets our requirements. We test the market and speakwith potential homebuyers before committing to purchase land. We also maintain a pipeline of desirable land positions for replacement communities and newcommunities. We increased our active communities from 39 as of December 31, 2014 to 52 as of December 31, 2015. We also increased our lot inventory from19,883 owned or controlled lots as of December 31, 2014 to 23,915 owned or controlled lots as of December 31, 2015.Our allocation of capital for land investment is performed at the corporate level with a disciplined approach to portfolio management. Our AcquisitionsCommittee meets periodically and consists of our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and Executive Vice President ofAcquisitions. Annually, our divisions prepare a strategic plan for their respective geographic areas. Supply and demand are analyzed to ensure land investment istargeted appropriately. The long-term plan is compared on an ongoing basis to evolving realities in the marketplace and is then adjusted to the extent necessary.We have also purchased larger tracts of land across our markets which will provide us with more opportunities to build homes with multiple price points inour communities. We believe that our land development expertise will allow us to meet our growth and profit objectives with respect to opportunities in which weare the developer. Similar to our home building operations, our personnel oversee the contractors who perform the development work. Our land developmentprojects may include the sale of home sites as a part of the project.We have strong relationships with the land brokerage community in all of our markets. We believe that in the brokerage community, we have a reputation forknowing our business, having the capital to close deals, and making accurate and timely decisions that benefit both the buyer and seller. For these reasons, webelieve that brokers routinely notify us when desirable tracts of land are available for purchase.In our land acquisition process, projects of interest are evaluated at the division level using an extensive due diligence checklist which includes assessing thepermitting and regulatory requirements, environmental considerations, local market conditions, and anticipated floor plans, pricing, and financial returns. We alsodetermine the number of residents in the market and rental households that are within driving distance to the proposed project and conduct test marketing whichincludes mailings to prospective homebuyers to get their feedback on our potential land acquisition. By testing the market before entering it and acquiring land init, we are able to assess the level of interest in the location and amenities, determine the cost of rent in the area, and assess the size of the market opportunity. Theamount of information that we are able to ascertain about potential home buyers, including renters, allows us to better identify the opportunity to sell move-in readyhomes.7Table of ContentsThe table below shows (i) home closings by division for the year ended December 31, 2015 and (ii) our owned or controlled lots by division as ofDecember 31, 2015. Year Ended December 31, 2015 As of December 31, 2015Division Home Closings Owned (1) Controlled TotalTexas 1,856 10,720 2,174 12,894Southwest 565 1,679 1,013 2,692Florida 396 1,571 357 1,928Southeast 587 3,516 2,370 5,886Northwest — 111 404 515Total 3,404 17,597 6,318 23,915(1)Of the 17,597 owned lots as of December 31, 2015, 11,863 were raw/under development lots and 5,734 were finished lots.Homes in InventoryWhen entering a new community, we build a sufficient number of move-in ready homes to meet our budgets. We base future home starts on closings. Ashomes are closed, we start more homes to maintain our inventory. As of December 31, 2015, we had a total of 684 completed homes and 1,026 homes in progress.The following is a summary of our homes in inventory by division as of December 31, 2015 (dollar values in thousands):Division Homes in Inventory (1) Inventory Value (1) Texas 716 $89,507Southwest 391 44,508Florida 278 34,269Southeast 306 32,118Northwest 19 2,429Total 1,710 $202,831(1)Includes homes in progress and completed homes; excludes sales offices.BacklogSee discussion included in “Management's Discussion and Analysis of Financial Condition and Results of Operations─Backlog.”Raw MaterialsWhen constructing homes, we use various materials and components. We generally contract for our materials and labor at a fixed price for the anticipatedconstruction period of our homes. This allows us to mitigate the risks associated with increases in building materials and labor costs between the time constructionbegins on a home and the time it is closed. Typically, the raw materials and most of the components used in our business are readily available in the United States.In addition, the majority of our raw materials is supplied to us by our subcontractors, and is included in the price of our contract with such contractors. Most of theraw materials necessary for our subcontractors are standard items carried by major suppliers. Substantially all of our construction work is done by third partysubcontractors, most of whom are non-unionized. We continue to monitor the supply markets to achieve the best prices available. Typically, the price changes thatmost significantly influence our operations are price increases in commodities and lumber.8Table of ContentsSeasonalityThe homebuilding industry generally exhibits seasonality. We have historically experienced, and in the future expect to continue to experience, variability inour results on a quarterly basis. See discussion included in “Management’s Discussion and Analysis of Financial Condition and Results ofOperations─Seasonality.” Government Regulation and Environmental MattersWe are subject to numerous local, state, federal and other statutes, ordinances, rules and regulations concerning zoning, development, building design,construction and similar matters which impose restrictive zoning and density requirements, the result of which is to limit the number of homes that can be builtwithin the boundaries of a particular area. Projects that are not entitled may be subjected to periodic delays, changes in use, less intensive development orelimination of development in certain specific areas due to government regulations. We may also be subject to periodic delays or may be precluded entirely fromdeveloping in certain communities due to building moratoriums or “slow-growth” or “no-growth” initiatives that could be implemented in the future. Localgovernments also have broad discretion regarding the imposition of development fees for projects in their jurisdiction. Projects for which we have received landuse and development entitlements or approvals may still require a variety of other governmental approvals and permits during the development process and canalso be impacted adversely by unforeseen health, safety and welfare issues, which can further delay these projects or prevent their development.We are also subject to a variety of local, state, federal and other statutes, ordinances, rules and regulations concerning the environment. The particularenvironmental laws which apply to any given homebuilding site vary according to multiple factors, including the site’s location, its environmental conditions andthe present and former uses of the site, as well as adjoining properties. Environmental laws and conditions may result in delays, may cause us to incur substantialcompliance and other costs, and can prohibit or severely restrict homebuilding activity in environmentally sensitive regions or areas. In addition, in those caseswhere an endangered or threatened species is involved, environmental rules and regulations can result in the restriction or elimination of development in identifiedenvironmentally sensitive areas. From time to time, the United States Environmental Protection Agency (the “EPA”) and similar federal or state agencies reviewhomebuilders’ compliance with environmental laws and may levy fines and penalties for failure to strictly comply with applicable environmental laws or imposeadditional requirements for future compliance as a result of past failures. Any such actions taken with respect to us may increase our costs. Further, we expect thatincreasingly stringent requirements may be imposed on homebuilders in the future. Environmental regulations can also have an adverse impact on the availabilityand price of certain raw materials such as lumber.Under various environmental laws, current or former owners of real estate, as well as certain other categories of parties, may be required to investigate andclean up hazardous or toxic substances or petroleum product releases, and may be held liable to a governmental entity or to third parties for related damages,including for bodily injury, and for investigation and clean-up costs incurred by such parties in connection with the contamination. A mitigation system may beinstalled during the construction of a home if a cleanup does not remove all contaminants of concern or to address a naturally occurring condition such as methane.Some homebuyers may not want to purchase a home with a mitigation system.CompetitionThe U.S. homebuilding industry is highly competitive. We compete in each of our markets with numerous other national, regional and local homebuilders forhomebuyers, desirable properties, raw materials and skilled labor. We also compete with sales of existing homes and with the rental housing market. Our homescompete on the basis of quality, price, design, mortgage financing terms and location. There has been some consolidation among national homebuilders in theUnited States and expect that this trend will continue.In order to maximize our sales volumes, profitability and product strategy, we strive to understand our competition and their pricing, product and salesvolume strategies and results.EmployeesAs of December 31, 2015, we employed 489 people of whom 63 were located at our corporate headquarters, 310 were on-site sales and support personneland 116 were involved with construction. None of our employees are covered by collective bargaining agreements. We believe we have good relations with ouremployees.9Table of ContentsAvailable InformationWe make available, as soon as reasonably practicable, on our website, www.lgihomes.com , all of our reports required to be filed with the Securities andExchange Commission (“SEC”). These reports can be found on the “Investor Relations” page of our website under “SEC Filings” and include our annual andquarterly reports on Form 10-K and 10-Q (including related filings in XBRL format), current reports on Form 8-K, beneficial ownership reports on Forms 3, 4, and5, proxy statements and amendments to such reports. Our SEC filings are also available to the public on the SEC’s website at www.sec.gov , and the public mayread and copy any document we file at the SEC’s public reference room located at 100 F Street NE, Washington, D.C. 20549. Further information on the operationof the public reference room can be obtained by calling the SEC at 1-800-SEC-0330. In addition to our SEC filings, our corporate governance documents,including our Corporate Governance Guidelines and Code of Business Conduct and Ethics, are available on the “Investor Relations” page of our website under“Corporate Governance.” Our stockholders may also obtain these documents in paper format free of charge upon request made to our Investor Relationsdepartment.Executive OfficersThe following table sets forth information regarding our executive officers as of March 9, 2016: Name Age PositionEric Lipar 45 Chief Executive Officer and Chairman of the BoardMichael Snider 44 President and Chief Operating OfficerCharles Merdian 46 Chief Financial Officer, Secretary and TreasurerJack Lipar 47 Executive Vice President of AcquisitionsMargaret Britton 53 Chief Administrative OfficerRachel Eaton 34 Executive Vice President and Chief Marketing Officer Eric Lipar. Mr. Lipar is our Chief Executive Officer and serves as Chairman of our Board of Directors. He has served as our Chief Executive Officer since2009, as a director since June 2013 and as Chairman of the Board since July 2013. Previously, Mr. Lipar served as our President from 2003 until 2009. Mr. Liparhas been in the residential land development business since the mid-1990s and is one of our founders. He has overseen land acquisition, development and the salesof over 12,000 homes since our inception. Mr. Lipar currently serves on the Residential Neighborhood Development Council for the Urban Land Institute.Michael Snider. Mr. Snider has served as our President since 2009, and Chief Operating Officer since July 2013. He oversees all aspects of our sales,construction, and product development. Prior to serving as our President, Mr. Snider was Executive Vice President of Homebuilding (2005-2009). Prior to joiningLGI in 2004, Mr. Snider was a Project Manager for Tadian Homes, a homebuilder based in Troy, Michigan.Charles Merdian. Mr. Merdian serves as our Chief Financial Officer, Secretary and Treasurer. He was elected Secretary and Treasurer in 2013. Prior tobecoming our Chief Financial Officer in 2010, Mr. Merdian was our Controller from 2004 through 2010. Prior to joining us in 2004, Mr. Merdian served asAccounting and Finance Manager for The Woodlands Operating Company where he specialized in accounting and financial analysis of real estate ventures,focusing primarily on residential and commercial developments. Prior to The Woodlands Operating Company, Mr. Merdian served as an accounting managerworking at the Williamson-Dickie Manufacturing Co. and as a senior auditor for Coopers & Lybrand, L.L.P. Mr. Merdian has worked in residential real estate andhomebuilding finance since 1998. Mr. Merdian is a Certified Public Accountant and is a member of the Texas Society of Certified Public Accountants.Jack Lipar. Mr. Lipar has served as our Executive Vice President of Acquisitions since March 2013. He previously served as Vice President ofAcquisitions from December 2010 through February 2013, and Acquisitions Manager from 2006 to December 2010. Mr. Lipar oversees land acquisitions anddevelopment for LGI. Prior to joining us, Mr. Lipar worked at HP Pelzer, an auto parts manufacturing company based in Germany, as the Vice President ofPurchasing and Director of Operations. Mr. Lipar was also the General Manager and a member of the Board of Directors at Alliance Interiors, an affiliate of HPPelzer. Prior to HP Pelzer, Mr. Lipar was a worldwide Purchasing Manager for Cooper Standard, one of the world’s leading manufacturers of automotive parts.Margaret Britton. Mrs. Britton has served as our Chief Administrative Officer since August 2013. She is responsible for various corporate areas, includinggovernance, risk and compliance matters. From 2008 to 2012, Mrs. Britton was a Director at Deloitte Financial Advisory Services, LLP, where she providedadvisory services and was a leader in their national environmental10Table of Contentsconsulting practice. She worked as a consultant from 2003 to 2007 and, as such, among other things, assisted two multinational energy companies with theimplementation and oversight of their Sarbanes-Oxley Act requirements. Prior to 2002, Mrs. Britton was an assurance partner at Arthur Andersen LLP. Mrs.Britton is a Certified Public Accountant and a member of the Board of Directors for the Girl Scouts of San Jacinto Council.Rachel Eaton. Mrs. Eaton serves as our Chief Marketing Officer and is responsible for the overall growth and direction of our marketing initiatives, brandimage and social media. Prior to becoming our Chief Marketing Officer in June 2013, Mrs. Eaton served as our Vice President of Marketing and Administrationfrom May 2012 through May 2013, Director of Marketing & Special Events from 2007 to May 2012, Executive Assistant from 2004 to 2007. Mrs. Eaton joined theCompany in 2003.Board of Directors of LGI Homes, Inc.Mr. Eric Lipar - Chief Executive Officer of LGI Homes, Inc. and serves as Chairman of our Board of Directors.Mr. Bryan Sansbury - Chief Operating Officer and Chief Information Officer of Aon Hewitt, a global human capital and management consulting firm, and servesas our Lead Independent Director.Mr. Ryan Edone - Chief Financial Officer of Petroleum Wholesale L.P., a distributor of branded and wholesale motor fuel products and operator of retailconvenience stores/travel centers.Mr. Duncan Gage - Former President and CEO of Giant Cement Holdings, Inc. and currently managing his personal investments.Mr. Steven Smith - Managing Partner of the Washington, D.C. office of Ober, Kaler, Grimes & Shriver, a law firm.Mr. Robert Vahradian - Senior Managing Director of GTIS Partners, LP, a global real estate investment firm.11Table of ContentsITEM 1A. RISK FACTORSDiscussion of our business and operations included in this Annual Report on Form 10-K should be read together with the risk factors set forth below. Theydescribe various risks and uncertainties we are or may become subject to, many of which are difficult to predict or beyond our control. These risks anduncertainties, together with other factors described elsewhere in this report, have the potential to affect our business, financial condition, results of operations, cashflows, strategies or prospects in a material and adverse manner.Risks Related to Our BusinessContinued or additional tightening of mortgage lending standards and mortgage financing requirements and rising interest rates could adversely affectthe availability of mortgage loans for potential purchasers of our homes and thereby reduce our sales.Almost all purchasers of our homes finance their acquisition through lenders that provide mortgage financing. According to the Federal Home LoanMortgage Corporation (“Freddie Mac”), the 30-year average mortgage rate was approximately 3.87% in January 2016 and may increase during 2016. If mortgageinterest rates increase, the ability of prospective homebuyers to finance home purchases may be adversely affected, and, as a result, our operating results may besignificantly negatively impacted. Our homebuilding activities are dependent upon the availability of mortgage financing to homebuyers. The availability ofmortgage financing continues to be constrained, due in part to continued regulatory changes and lower risk appetite by lenders. Lenders continue to requireincreased levels of financial documentation, and may require larger down payments and more restrictive income to debt ratios. First-time homebuyers are generallymore affected by the availability of mortgage financing than other potential homebuyers. These homebuyers are a key source of demand for our new homes. Alimited availability of home mortgage financing may adversely affect the volume and sales price of our home sales.The federal government has a significant role in supporting mortgage lending through its conservatorship of Federal National Mortgage Association (“FannieMae”) and Freddie Mac, both of which purchase or insure mortgage loans and mortgage loan-backed securities, and its insurance of mortgage loans through or inconnection with the Federal Housing Administration (“FHA”), the Veterans Administration (“VA”) and the U.S. Department of Agriculture (“USDA”). FHA andUSDA backing of mortgage loans has been particularly important to the mortgage finance industry and to our business. If either the FHA or USDA raised theirdown payment requirements or lowered maximum loan amounts, our business could be materially affected. The USDA rural development program provides forzero down payment and 100% financing for homebuyers in qualifying areas. As of December 31, 2015, the USDA program is available in all our markets and isavailable to approximately 50% of our active communities. If the USDA program was discontinued or if funding was decreased, then our business could beadversely affected. In addition, if the USDA changed its determination of areas that are eligible to qualify for the program, it could have an adverse effect on ourbusiness. In addition, changes in governmental regulation with respect to mortgage lenders could adversely affect demand for housing.The availability and affordability of mortgage loans, including interest rates for such loans, could also be adversely affected by a scaling back or terminationof the federal government’s mortgage loan-related programs or policies. Because Fannie Mae-, Freddie Mac-, FHA-, USDA- and VA-backed mortgage loans havebeen an important factor in marketing and selling many of our homes, any limitations or restrictions in the availability of, or higher consumer costs for, suchgovernment-backed financing could reduce our business, prospects, liquidity, financial condition and results of operations could be materially and adverselyaffected. The elimination or curtailment of state bonds to assist homebuyers could materially and adversely affect our business, prospects, liquidity, financialcondition and results of operations.In addition, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act established several new standards and requirements relating to theorigination, securitizing and servicing of residential consumer mortgage loans. These and other laws and regulations could further restrict the availability andaffordability of mortgage loans, which could adversely affect our home sales, financial condition and results of operations.Our long-term growth depends in part upon our ability to acquire finished lots and land parcels suitable for residential homebuilding at reasonableprices.Our long-term growth depends in large part on the price at which we are able to obtain suitable finished lots and land parcels for development to support ourhomebuilding operation. Our ability to acquire finished lots and land parcels for new single-family homes and other projects may be adversely affected by changesin the general availability of land parcels, the willingness of land sellers to sell land parcels at reasonable prices, competition for available land parcels, availabilityof financing to acquire land parcels, zoning, regulations that limit housing density, the ability to obtain building permits, environmental requirements and other12Table of Contentsmarket conditions and regulatory requirements. If suitable lots or land at reasonable prices become less available, the number of homes we may be able to build andsell could be reduced, and the cost of land could be increased substantially, which could adversely impact us. As competition for suitable land increases, the cost ofundeveloped lots and the cost of developing owned land could rise and the availability of suitable land at acceptable prices may decline, which could adverselyimpact us. The availability of suitable land assets could also affect the success of our land acquisition strategy, which may impact our ability to increase the numberof our active communities, grow our revenue and margins, and achieve or maintain profitability. Additionally, developing undeveloped land is capital intensive andtime consuming and we may develop land based upon forecasts and assumptions that prove to be inaccurate, resulting in projects that are not economically viable.Risks associated with our land and lot inventories could adversely affect our business or financial results.Risks inherent in controlling, purchasing, holding and developing land for new home construction are substantial. The risks inherent in purchasing anddeveloping land parcels increase as consumer demand for housing decreases and the holding period increases. As a result, we may buy and develop land parcels onwhich homes cannot be profitably built and sold. In certain circumstances, a grant of entitlements or development agreement with respect to a particular parcel ofland may include restrictions on the transfer of such entitlements to a buyer of such land, which would negatively impact the price of such entitled land byrestricting our ability to sell it for its full entitled value. In addition, inventory carrying costs can be significant and can result in reduced margins or losses in apoorly performing community or market. Developing land and constructing homes takes a significant amount of time and requires a substantial cash investment. InTexas, land development is a key part of our operations and we expect to expand our development activities in our other markets as well. The time and investmentrequired for development may adversely impact our business. We have substantial real estate inventories which regularly remain on our balance sheet forsignificant periods of time, during which time we are exposed to the risk of adverse market developments, prior to their sale. Our business model is based onbuilding homes before a sales contract is executed and a customer deposit is received. Because interest and other expenses are capitalized only during construction,we recognize interest and maintenance expense on unsold completed homes inventory. As of December 31, 2015, we had 684 completed homes in inventory and1,026 homes in progress in inventory. In the event there is a downturn in housing sales in our markets, our inventory of completed homes could increase, leading toadditional financing costs and lower margins, which could have a material adverse effect on our financial results and operations. In the event of significant changesin economic or market conditions, we may have to sell homes at significantly lower margins or at a loss, if we are able to sell them at all. Additionally,deteriorating market conditions could cause us to record significant inventory impairment charges. The recording of a significant inventory impairment couldnegatively affect our reported earnings per share and negatively impact the market perception of our business.Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties for reasonable prices in response to changingeconomic, financial and investment conditions may be limited and we may be forced to hold non-income producing properties for extended periods oftime.Real estate investments are relatively difficult to sell quickly. As a result, our ability to promptly sell one or more properties in response to changingeconomic, financial and investment conditions is limited and we may be forced to hold non-income producing assets for an extended period of time or sell homesor land at a loss either of which may require us to record impairment charges. We cannot predict whether we will be able to sell any property for the price or on theterms that we set or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of timeneeded to find a willing purchaser and to close the sale of a property.Labor and raw material shortages and price fluctuations could delay or increase the cost of home construction, which could materially and adverselyaffect us.The residential construction industry experiences serious labor and raw material shortages from time to time, including shortages in qualified tradespeople,and supplies of insulation, drywall, cement, steel and lumber. These labor and raw material shortages can be more severe during periods of strong demand forhousing or during periods following natural disasters that have a significant impact on existing residential and commercial structures. Our markets may exhibit areduced level of skilled labor relative to increased homebuilding demand in these markets. Labor and raw material shortages and any resulting price increases couldcause delays in and increase our costs of home construction, which in turn could have a material adverse effect on our business, prospects, liquidity, financialcondition and results of operations.Our business and results of operations are dependent on the availability and skill of subcontractors.We engage subcontractors to perform the construction of our homes, and in many cases, to select and obtain the raw materials. Accordingly, the timing andquality of our construction depend on the availability and skill of our subcontractors. While we anticipate being able to obtain sufficient materials and reliablesubcontractors and believe that our relationships with subcontractors13Table of Contentsare good, we do not have long-term contractual commitments with any subcontractors, and we can provide no assurance that skilled subcontractors will continue tobe available at reasonable rates and in our markets. The inability to contract with skilled subcontractors at reasonable rates on a timely basis could have a materialadverse effect on our business, prospects, liquidity, financial condition and results of operations.Despite our quality control efforts, we may discover that our subcontractors have engaged in improper construction practices or have installed defectivematerials in our homes. When we discover these issues, we utilize our subcontractors to repair the homes in accordance with our new home warranty and asrequired by law. The adverse costs of satisfying our warranty and other legal obligations in these instances may be significant and we may be unable to recover thecosts of warranty-related repairs from subcontractors, suppliers and insurers, which could have a material impact on our business, prospects, liquidity, financialcondition and results of operations.Any limitation on, or reduction or elimination of, tax benefits associated with homeownership would have an adverse effect upon the demand for homes,which could be material to our business.Changes in federal and state income tax laws may affect demand for new homes. Current tax laws generally permit significant expenses associated withhomeownership, primarily mortgage interest expense and real estate taxes, to be deducted for the purpose of calculating an individual’s federal and, in many cases,state taxable income. Proposals have been publicly discussed to limit mortgage interest deductions and to limit the exclusion of gain from the sale of a principalresidence. For instance, under the American Taxpayer Relief Act of 2012, which was signed into law in January 2013, the federal government enacted higherincome tax rates and limits on the value of tax deductions for certain high-income individuals and households. If the federal government or a state governmentchanges or further changes its income tax laws, as some lawmakers have proposed, by eliminating, limiting or substantially reducing these income tax benefitswithout offsetting provisions, the after-tax cost of owning a new home would increase for many of our potential homebuyers. Enactment of any such proposal mayhave an adverse effect on the homebuilding industry in general, as the loss or reduction of homeowner tax deductions could decrease the demand for new homes.The recent growth in the housing market may not continue at the same rate, and any decline in the growth rate in our served housing markets or for thehomebuilding industry may materially and adversely affect our business and financial condition.Although the housing markets in the geographic areas in which we operate are generally stronger than they have been in recent years, we cannot predictwhether and to what extent this will continue, particularly if interest rates for mortgage loans rise. Other factors which might impact growth in the homebuildingindustry include uncertainty in domestic and international financial, credit and consumer lending markets amid slow growth or recessionary conditions in variousregions or industries around the world; tight lending standards and practices for mortgage loans that limit consumers’ ability to qualify for mortgage financing topurchase a home, including increased minimum credit score requirements, credit risk/mortgage loan insurance premiums and/or other fees and required downpayment amounts, more conservative appraisals, higher loan-to-value ratios and extensive buyer income and asset documentation requirements, changes tomortgage regulations, slower rates of population growth or population decline in our markets, or Federal Reserve policy changes. Given these factors, we canprovide no assurance that present housing market trends will continue, whether overall or in our markets.If there is limited economic growth or declines in employment and consumer income and/or tightening of mortgage lending standards, practices andregulation in the geographic areas in which we operate or if interest rates for mortgage loans rise, there could likely be a corresponding adverse effect on ourbusiness, prospects, liquidity, financial condition and results of operations, including, but not limited to, the number of homes we sell, our average selling prices,the amount of revenues or profits we generate, and the effect may be material.If we are unable to develop our communities successfully or within expected time-frames, our results of operations could be adversely affected.Before a community generates any revenue, time and material expenditures are required to acquire land, obtain development approvals and constructsignificant portions of project infrastructure, amenities and sales facilities. It can take several years from the time we acquire control of an undeveloped property tothe time we make our first home sale on the site. Delays in the development of communities expose us to the risk of changes in market conditions for homes. Adecline in our ability to develop and market one of our new undeveloped communities successfully and to generate positive cash flow from these operations in atimely manner could have a material adverse effect on our business and results of operations and on our ability to service our debt and to meet our working capitalrequirements. In addition, higher than expected absorption rates in existing communities may result in lower than expected inventory levels until the developmentfor replacement communities is completed.14Table of ContentsThird-party lenders may not complete mortgage loan originations for our homebuyers in a timely manner or at all, which can lead to cancellations and alower backlog of orders, or to significant delays in our closing homes sales and recognizing revenues from those homes.Our homebuyers may obtain mortgage financing for their home purchases from any lender or other provider of their choice. If, due to credit or consumerlending market conditions, reduced liquidity, increased risk retention or minimum capital level obligations and/or regulatory restrictions related to the Dodd-FrankAct or other laws, or other factors or business decisions, these lenders refuse or are unable to provide mortgage loans to our homebuyers, or increase the costs toborrowers to obtain such loans, the number of homes we close and our business, prospects, liquidity, financial condition and results of operations may be materiallyadversely affected. Additional rules regarding loan estimates, closing disclosures and fees were implemented in October 2015 by the Consumer ProtectionFinancial Bureau. The effects of these rules on our business, prospects and results of operations have yet to be determined, and these rules could affect theavailability and cost of mortgage credit.We may be unable to obtain suitable bonding for the development of our housing projects.We are often required to provide bonds to governmental authorities and others to ensure the completion of our projects. As a result of market conditions,some surety providers have been reluctant to issue new bonds and providers may require credit enhancements (such as cash deposits or letters of credit) in order tomaintain existing bonds or to issue new bonds. If we are unable to obtain required bonds in the future for our projects, or if we are required to provide creditenhancements with respect to our current or future bonds, our business, prospects, liquidity, financial condition and results of operations could be materially andadversely affected.We may incur a variety of costs to engage in future growth or expansion of our operations and the anticipated benefits may never be realized.We intend to grow our operations in existing markets, and we may expand into new markets or acquire other home builders. We may be unable to achievethe anticipated benefits of any such growth or expansion, including through acquisition, the anticipated benefits may take longer to realize than expected or we mayincur greater costs than expected in attempting to achieve the anticipated benefits. In such cases, we will likely need to employ additional personnel or consultantsthat are knowledgeable of such markets. There can be no assurance that we will be able to employ or retain the necessary personnel, to successfully implement adisciplined management process and culture with local management, or that our expansion operations will be successful. This could disrupt our ongoing operationsand divert management resources that would otherwise focus on developing our existing business, or that we will be able to successfully integrate any acquiredhomebuilder. Accordingly, any such expansion could expose us to significant risks, beyond those associated with operating our existing business, and mayadversely affect our business, prospects, liquidity, financial condition and results of operations.The homebuilding industry is highly competitive and, if our competitors are more successful or offer better value to our customers, our business coulddecline.We operate in a very competitive environment which is characterized by competition from a number of other homebuilders and land developers in eachmarket in which we operate. Additionally, there are relatively low barriers to entry into our business. We compete with large national and regional homebuildingcompanies, many of which have greater financial and operational resources than us, and with smaller local homebuilders and land developers, some of which mayhave lower administrative costs than us. We may be at a competitive disadvantage with regard to certain of our large national and regional homebuildingcompetitors whose operations are more geographically diversified than ours, as these competitors may be better able to withstand any future regional downturn inthe housing market. Furthermore, we generally have a lower market share in each of our markets as compared to many of our competitors. Many of our competitorsmay also have longer operating histories and longstanding relationships with subcontractors and suppliers in the markets in which we operate. This may give ourcompetitors an advantage in marketing their products, securing materials and labor at lower prices and allowing their homes to be delivered to customers morequickly and at more favorable prices. We compete for, among other things, homebuyers, desirable land parcels, financing, raw materials and skilled managementand labor resources. Our competitors may independently develop land and construct homes that are substantially similar to our products.Increased competition could hurt our business, as it could prevent us from acquiring attractive land parcels on which to build homes or make suchacquisitions more expensive, hinder our market share expansion and cause us to increase our selling incentives and reduce our prices. An oversupply of homesavailable for sale or discounting of home prices could adversely affect pricing for homes in the markets in which we operate. Oversupply and price discountinghave periodically adversely affected certain markets, and it is possible that our markets will be adversely affected by these factors in the future.15Table of ContentsIf we are unable to compete effectively in our markets, our business could decline disproportionately to our competitors, and our results of operations andfinancial condition could be adversely affected. We can provide no assurance that we will be able to continue to compete successfully in any of our markets. Ourinability to continue to compete successfully in any of our markets could have a material adverse effect on our business, prospects, liquidity, financial condition orresults of operations.We cannot make any assurances that our growth or expansion strategies will be successful or not expose us to additional risks.We have primarily focused on internal growth in recent years by increasing our investments in land, lot and home inventories in our existing homebuildingmarkets. We have also expanded our business through selected investments in new geographic markets and by diversifying our products in certain markets.Investments in land, lots and home inventories can expose us to risks of economic loss and inventory impairments if housing conditions weaken or we areunsuccessful in implementing our growth strategies.We may develop communities in which we build townhomes or other multi-family homes in addition to single-family homes, sell acreage home sites as apart of the development, sell homes to investors or portfolio management companies, or develop commercial properties that may be complementary to ourcommunities. We might acquire another homebuilder or developer in order to accomplish our growth or expansion strategies. We can give no assurance that wewill be able to successfully identify, acquire or implement these new strategies in the future. Accordingly, any such expansion, including through acquisition, couldexpose us to significant risks, beyond those associated with operating our existing business, including diversion of our management's attention from ongoingbusiness concerns, difficulties in integrating an acquired business, and incurrence of unanticipated liabilities and expenses and may materially adversely affect ourbusiness, prospects, liquidity, financial condition and results of operations.New and existing laws and regulations or other governmental actions, including with respect to zoning and entitlement, may increase our expenses, limitthe number of homes that we can build or delay completion of our projects.We are subject to numerous local, state, federal and other statutes, ordinances, rules and regulations concerning zoning, development, building design,construction and similar matters which impose restrictive zoning and density requirements, the result of which is to limit the number of homes that can be builtwithin the boundaries of a particular area. We may encounter issues with entitlement, not identify all entitlement requirements during the pre-development reviewof a project site, or encounter zoning changes that impact our operations. Projects that are not entitled may be subjected to periodic delays, changes in use, lessintensive development or elimination of development in certain specific areas due to government regulations. We may also be subject to periodic delays or may beprecluded entirely from developing in certain communities due to building moratoriums or zoning changes. Such moratoriums generally relate to insufficient watersupplies, sewage facilities, delays in utility hook-ups, or inadequate road capacity within specific market areas or subdivisions. Local governments also have broaddiscretion regarding the imposition of development fees for projects in their jurisdiction. Projects for which we have received land use and developmententitlements or approvals may still require a variety of other governmental approvals and permits during the development process and can also be impactedadversely by unforeseen health, safety and welfare issues, which can further delay these projects or prevent their development. As a result, home sales could bedelayed, could decline and costs could increase, which could have a material adverse effect on our business, prospects, liquidity, financial condition and results ofoperations.We are subject to environmental laws and regulations, which may increase our costs, result in liabilities, limit the areas in which we can build homes anddelay completion of our projects.We are subject to a variety of local, state, federal and other laws, statutes, ordinances, rules and regulations concerning the environment, hazardous materials,the discharge of pollutants and human health and safety. The particular environmental requirements which apply to any given site vary according to multiplefactors, including the site’s location, its environmental conditions, the current and former uses of the site, the presence or absence of endangered plants or animalsor sensitive habitats, and conditions at nearby properties. We may not identify all of these concerns during any pre-acquisition or pre-development review ofproject sites. Environmental requirements and conditions may result in delays, may cause us to incur substantial compliance and other costs, and can prohibit orseverely restrict development and homebuilding activity in environmentally sensitive regions or in areas contaminated by others before we commencedevelopment. We are also subject to third-party challenges, such as by environmental groups or neighborhood associations, under environmental laws andregulations to the permits and other approvals for our projects and operations. Sometimes regulators from different governmental agencies do not concur ondevelopment, remedial standards or property use restrictions for a project, and the resulting delays or additional costs can be material for a given project.16Table of ContentsFrom time to time, the EPA and similar federal, state or local agencies review land developers’ and homebuilders’ compliance with environmental laws andmay levy fines and penalties or other enforcement actions for failure to strictly comply with applicable environmental laws, including those applicable to controlstorm water discharges during construction, or impose additional requirements for future compliance as a result of past failures. Any such actions taken withrespect to us may increase our costs and result in project delays. We expect that increasingly stringent requirements will be imposed on land developers andhomebuilders in the future. We cannot assure you that environmental, health and safety laws will not change or become more stringent in the future in a mannerthat could have a material adverse effect on our business.Environmental regulations can also have an adverse impact on the availability and price of certain raw materials, such as lumber.There is a variety of new legislation being enacted, or considered for enactment at the federal, state and local level relating to energy and climate change. Thislegislation relates to items such as carbon dioxide emissions control and building codes that impose energy efficiency standards. New building code requirementsthat impose stricter energy efficiency standards could significantly increase our cost to construct homes. As climate change concerns continue to grow, legislationand regulations of this nature are expected to continue and become more costly to comply with. Similarly, energy-related initiatives affect a wide variety ofcompanies throughout the U.S. and because our operations are heavily dependent on significant amounts of raw materials, such as lumber, steel, and concrete, theycould have an indirect adverse impact on our operations and profitability to the extent the manufacturers and suppliers of our materials are burdened with expensivecap and trade and similar energy related regulations.Ownership, leasing or occupation of land and the use of hazardous materials carries potential environmental risks and liabilities.We are subject to a variety of local, state and federal statutes, rules and regulations concerning land use and the protection of health and the environment,including those governing discharge of pollutants to soil, water and air, including asbestos, the handling of hazardous materials and the cleanup of contaminatedsites. We may be liable for the costs of removal, investigation or remediation of man-made or natural hazardous or toxic substances located on, under or in aproperty currently or formerly owned, leased or occupied by us, whether or not we caused or knew of the pollution.The particular impact and requirements of environmental laws that apply to any given community vary greatly according to the site, its environmentalconditions and the present and former uses of the site. We expect that increasingly stringent requirements may be imposed on land developers and homebuilders inthe future. Environmental laws may result in delays, cause us to implement time consuming and expensive compliance programs and prohibit or severely restrictdevelopment in certain environmentally sensitive regions or areas, such as wetlands. Concerns could arise due to post-acquisition changes in laws or agencypolicies, or the interpretation thereof.Furthermore, we could incur substantial costs, including cleanup costs, fines, penalties and other sanctions and damages from third-party claims for propertydamage or personal injury, as a result of our failure to comply with, or liabilities under, applicable environmental laws and regulations. In addition, we are subjectto third-party challenges, such as by environmental groups or neighborhood associations, under environmental laws and regulations to the permits and otherapprovals required for our projects and operations. These matters could adversely affect our business, prospects, liquidity, financial condition and results ofoperations.As a homebuilding and land development business with a wide variety of historic ownership, development, homebuilding and construction activities, wecould be liable for future claims for damages as a result of the past or present use of hazardous materials, including building materials or fixtures known orsuspected to be hazardous or to contain hazardous materials or due to use of building materials or fixtures which are associated with elevated mold. Any suchclaims may adversely affect our business, prospects, financial condition and results of operations. Insurance coverage for such claims may be limited ornonexistent.Difficulties with appraisal valuations in relation to the proposed sales price of our homes could force us to reduce the price of our homes for sale.Each of our home sales may require an appraisal of the home value before closing. These appraisals are professional judgments of the market value of theproperty and are based on a variety of market factors. If our internal valuations of the market and pricing do not line up with the appraisal valuations and appraisalsare not at or near the agreed upon sales price, we may be forced to reduce the sales price of the home to complete the sale. These appraisal issues could have amaterial adverse effect on our business and results of operations.17Table of ContentsBecause of the seasonal nature of our business, our quarterly operating results fluctuate.As discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality,” we have historicallyexperienced, and in the future expect to continue to experience, variability in our results on a quarterly basis. We close more homes in our second, third and fourthquarters. Thus, our revenue may fluctuate on a quarterly basis and we may have higher capital requirements in our second, third and fourth quarters. Accordingly,there is a risk that we will invest significant amounts of capital in the acquisition and development of land and construction of homes that we do not sell atanticipated pricing levels or within anticipated time frames. If, due to market conditions, construction delays or other causes, we do not complete home sales atanticipated pricing levels or within anticipated time frames, our business, prospects, liquidity, financial condition and results of operations would be adverselyaffected. We expect this seasonal pattern to continue over the long term but we can make no assurances as to the degree to which our historical seasonal patternswill occur in the future.Adverse weather and geological conditions may increase costs, cause project delays and reduce consumer demand for housing, all of which couldmaterially and adversely affect us.As a homebuilder and land developer, we are subject to the risks associated with numerous weather-related and geologic events. These weather-related andgeologic events include but are not limited to hurricanes, tornados, droughts, floods, brushfires, wildfires, landslides, soil subsidence and earthquakes and othernatural disasters. The occurrence of any of these events could damage our land parcels and projects, cause delays in completion of our projects, reduce consumerdemand for housing, and cause shortages and price increases in labor or raw materials, any of which could affect our sales and profitability. In addition to directlydamaging our land or projects, many of these natural events could damage roads and highways providing access to those assets or affect the desirability of our landor projects, thereby adversely affecting our ability to market homes or sell land in those areas and possibly increasing the costs of homebuilding completion.There are some risks of loss for which we may be unable to purchase insurance coverage. For example, losses associated with hurricanes, landslides,earthquakes and other weather-related and geologic events may not be insurable and other losses, such as those arising from terrorism, may not be economicallyinsurable. A sizeable uninsured loss could materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.Our geographic concentration could materially and adversely affect us if the homebuilding industry in our current markets should experience a decline.Our business strategy is focused on the acquisition of suitable land and the design, construction and sale of primarily single-family homes in residentialsubdivisions, including planned communities, in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington andTennessee. Because our operations are currently concentrated in these areas, a prolonged economic downturn in the future in one or more of these areas or aparticular industry that is fundamental to one of these areas, particularly within Texas, could have a material adverse effect on our business, prospects, liquidity,financial condition and results of operations, and a disproportionately greater impact on us than other homebuilders with more diversified operations. To the extentthe oil and gas industries, which can be very volatile, are negatively impacted by declining commodity prices, climate change, legislation or other factors, a resultcould be a reduction in employment, or other negative economic consequences, which in turn could adversely impact our home sales and activities in Texas andcertain of our other markets. Moreover, certain insurance companies doing business in Florida and Texas have restricted, curtailed or suspended the issuance of homeowners’ insurancepolicies on single-family homes. This has both reduced the availability of hurricane and other types of natural disaster insurance in Florida and Texas, in general,and increased the cost of such insurance to prospective purchasers of homes in Florida and Texas. Mortgage financing for a new home is conditioned, among otherthings, on the availability of adequate homeowners’ insurance. There can be no assurance that homeowners’ insurance will be available or affordable to prospectivepurchasers of our homes offered for sale in the Florida and Texas markets. Long-term restrictions on, or unavailability of, homeowners’ insurance in the Floridaand Texas markets could have an adverse effect on the homebuilding industry in that market in general, and on our business within that market in particular.Additionally, the availability of permits for new homes in new and existing developments has been adversely affected by the significantly limited capacity of theschools, roads, and other infrastructure in that market.If adverse conditions in these markets develop in the future, it could have a material adverse effect on our business, prospects, liquidity, financial conditionand results of operations. Furthermore, if buyer demand for new homes in these markets decreases, home prices could decline, which would have a materialadverse effect on our business.18Table of ContentsDifficulty in obtaining sufficient capital could result in an inability to acquire land for our developments or increased costs and delays in the completion ofdevelopment projects, increase home construction costs or delay home construction entirely.The homebuilding and land development industry is capital-intensive and requires significant up-front expenditures to acquire land parcels and begindevelopment. In addition, if housing markets are not favorable or permitting or development takes longer than anticipated, we may be required to hold ourinvestments in land for extended periods of time. If internally generated funds are not sufficient, we may seek additional capital in the form of equity or debtfinancing from a variety of potential sources, including additional bank financings and/or securities offerings. The availability of borrowed funds, especially forland acquisition and construction financing, may be constrained regionally or nationally, and the lending community may require increased amounts of equity to beinvested in a project by borrowers in connection with both new loans and the extension of existing loans. The credit and capital markets continue to experiencevolatility. If we are required to seek additional financing to fund our operations, continued volatility in these markets may restrict our flexibility to access suchfinancing. If we are not successful in obtaining sufficient funding for our planned capital and other expenditures, we may be unable to acquire additional land fordevelopment and/or to develop new housing. Additionally, if we cannot obtain additional financing to fund the purchase of land under our purchase or optioncontracts, we may incur contractual penalties, fees and increased expenses from the write-off of due diligence and pre-acquisition costs. Any difficulty in obtainingsufficient capital for planned development expenditures could also cause project delays and any such delay could result in cost increases. Any one or more of theforegoing events could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.Our industry is cyclical and adverse changes in general and local economic conditions could reduce the demand for homes and, as a result, could have amaterial adverse effect on us.Our business can be substantially affected by adverse changes in general economic or business conditions that are outside of our control, including changesin short-term and long-term interest rates; employment levels and job and personal income growth; housing demand from population growth, household formationand other demographic changes, among other factors; availability and pricing of mortgage financing for homebuyers; consumer confidence generally and theconfidence of potential homebuyers in particular; financial system and credit market stability; private party and government mortgage loan programs (includingchanges in FHA, USDA, VA, Fannie Mae and Freddie Mac conforming mortgage loan limits, credit risk/mortgage loan insurance premiums and/or other fees,down payment requirements and underwriting standards), and federal and state regulation, oversight and legal action regarding lending, appraisal, foreclosure andshort sale practices; federal and state personal income tax rates and provisions, including provisions for the deduction of mortgage loan interest payments, realestate taxes and other expenses; supply of and prices for available new or resale homes (including lender-owned homes) and other housing alternatives, such asapartments, single-family rentals and other rental housing; homebuyer interest in our current or new product designs and new home community locations, andgeneral consumer interest in purchasing a home compared to choosing other housing alternatives; and real estate taxes. Adverse changes in these conditions mayaffect our business nationally or may be more prevalent or concentrated in particular submarkets in which we operate. Inclement weather, natural disasters (such asearthquakes, hurricanes, tornadoes, floods, droughts and fires), and other environmental conditions can delay the delivery of our homes and/or increase our costs.Civil unrest or acts of terrorism can also have a negative effect on our business.The potential difficulties described above can cause demand and prices for our homes to fall or cause us to take longer and incur more costs to develop theland and build our homes. We may not be able to recover these increased costs by raising prices because of market conditions. The potential difficulties could alsolead some homebuyers to cancel or refuse to honor their home purchase contracts altogether.Inflation could adversely affect our business and financial results.Inflation could adversely affect our business and financial results by increasing the costs of land, raw materials and labor needed to operate our business. Ifour markets have an oversupply of homes relative to demand, we may be unable to offset any such increases in costs with corresponding higher sales prices for ourhomes. Inflation may also accompany higher interests rates, which could adversely impact potential customers’ ability to obtain financing on favorable terms,thereby further decreasing demand. If we are unable to raise the prices of our homes to offset the increasing costs of our operations, our margins could decrease.Furthermore, if we need to lower the price of our homes to meet demand, the value of our land inventory may decrease. Inflation may also raise our costs of capitaland decrease our purchasing power, making it more difficult to maintain sufficient funds to operate our business.Interest rate changes may adversely affect us.We currently do not hedge against interest rate fluctuations. We may obtain in the future one or more forms of interest rate protection in the form of swapagreements, interest rate cap contracts or similar agreements to hedge against the possible negative19Table of Contentseffects of interest rate fluctuations. However, we cannot assure you that any hedging will adequately relieve the adverse effects of interest rate increases or thatcounterparties under these agreements will honor their obligations thereunder. In addition, we may be subject to risks of default by hedging counterparties. Adverseeconomic conditions could also cause the terms on which we borrow to be unfavorable. We could be required to liquidate one or more of our assets at times whichmay not permit us to receive an attractive return on our assets in order to meet our debt service obligations.We are subject to warranty and liability claims arising in the ordinary course of business that can be significant.As a homebuilder, we are subject to construction defect, product liability and home warranty claims, including moisture intrusion and related claims, arisingin the ordinary course of business. These claims are common to the homebuilding industry and can be costly. There can be no assurance that any developments weundertake will be free from defects once completed and any defects attributable to us may lead to significant contractual or other liabilities. We maintain, andrequire our subcontractors to maintain, general liability insurance (including construction defect and bodily injury coverage) and workers’ compensation insuranceand generally seek to require our subcontractors to indemnify us for liabilities arising from their work. While these insurance policies, subject to deductibles andother coverage limits, and indemnities protect us against a portion of our risk of loss from claims related to our homebuilding activities, we cannot provideassurance that these insurance policies and indemnities will be adequate to address all our home warranty, product liability and construction defect claims in thefuture, or that any potential inadequacies will not have an adverse effect on our financial statements. Additionally, the coverage offered by and the availability ofgeneral liability insurance for construction defects are currently limited and costly. We cannot provide assurance that coverage will not be further restricted,increasing our risks and financial exposure to claims, and/or become more costly.We may suffer uninsured losses or suffer material losses in excess of insurance limits.We could suffer physical damage to property and liabilities resulting in losses that may not be fully recoverable by insurance. Insurance against certain typesof risks, such as terrorism, earthquakes or floods or personal injury claims, may be unavailable, available in amounts that are less than the full market value orreplacement cost of investment or underlying assets or subject to a large deductible. In addition, there can be no assurance certain types of risks which are currentlyinsurable will continue to be insurable on an economically feasible basis. Should an uninsured loss or a loss in excess of insured limits occur or be subject todeductibles, we could sustain financial loss or lose capital invested in the affected property as well as anticipated future income from that property. Furthermore,we could be liable to repair damage or meet liabilities caused by risks that are uninsured or subject to deductibles. We may be liable for any debt or other financialobligations related to affected property. Material losses or liabilities in excess of insurance proceeds may occur in the future.If the market value of our land inventory decreases, our results of operations could be adversely affected by impairments and write-downs.The market value of our land and housing inventories depends on market conditions. We acquire land for expansion into new markets and for replacement ofland inventory and expansion within our current markets. There is an inherent risk that the value of the land owned by us may decline after purchase. The valuationof property is inherently subjective and based on the individual characteristics of each property. We may have acquired options on or bought and developed land ata cost we will not be able to recover fully or on which we cannot build and sell homes profitably. In addition, our deposits for lots controlled under purchase,option or similar contracts may be put at risk.Factors such as changes in regulatory requirements and applicable laws (including in relation to building regulations, taxation and planning), politicalconditions, the condition of financial markets, both local and national economic conditions, the financial condition of customers, potentially adverse taxconsequences, and interest and inflation rate fluctuations subject valuations to uncertainty. Moreover, our valuations are made on the basis of assumptions that maynot prove to reflect economic or demographic reality.If housing demand fails to meet our expectations when we acquired our inventory, our profitability may be adversely affected and we may not be able torecover our costs when we build and sell houses. We regularly review the value of our land holdings and continue to review our holdings on a periodic basis.Material write-downs and impairments in the value of our inventory may be required, and we may in the future sell land or homes at a loss, which could adverselyaffect our results of operations and financial condition.Fluctuations in real estate values may require us to write-down the book value of our real estate assets.The homebuilding and land development industries are subject to significant variability and fluctuations in real estate values. As a result, we may be requiredto write-down the book value of our real estate assets in accordance with U.S. GAAP, and some20Table of Contentsof those write-downs could be material. Any material write-downs of assets could have a material adverse effect on our business, prospects, liquidity, financialcondition and results of operations.Acts of war or terrorism may seriously harm our business.Acts of war, any outbreak or escalation of hostilities between the United States and any foreign power or acts of terrorism may cause disruption to the U.S.economy, or the local economies of the markets in which we operate, cause shortages of building materials, increase costs associated with obtaining buildingmaterials, result in building code changes that could increase costs of construction, result in uninsured losses, affect job growth and consumer confidence, or causeeconomic changes that we cannot anticipate, all of which could reduce demand for our homes and adversely impact our business, prospects, liquidity, financialcondition and results of operations.A major health and safety incident relating to our business could be costly in terms of potential liabilities and reputational damage.Building sites are inherently dangerous, and operating in the homebuilding and land development industry poses certain inherent health and safety risks. Dueto health and safety regulatory requirements and the number of projects we work on, health and safety performance is critical to the success of all areas of ourbusiness.Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements or litigation, and a failure thatresults in a major or significant health and safety incident is likely to be costly in terms of potential liabilities incurred as a result. Such a failure could generatesignificant negative publicity and have a corresponding impact on our reputation and our relationships with relevant regulatory agencies, governmental authoritiesand local communities, which in turn could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.We may become subject to litigation, which could materially and adversely affect us.In the future, we may become subject to litigation or enforcement actions, including claims relating to our operations, securities offerings and otherwise inthe ordinary course of business. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which arenot, or cannot be, insured against. We cannot be certain of the ultimate outcomes of any claims that may arise in the future. Resolution of these types of mattersagainst us may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments and settlements exceed insuredlevels, could adversely impact our earnings and cash flows, thereby materially and adversely affecting us. Certain litigation or the resolution of certain litigationmay affect the availability or cost of some of our insurance coverage, which could materially and adversely impact us, expose us to increased risks that would beuninsured, and materially and adversely impact our ability to attract directors and officers.Poor relations with the residents of our communities could negatively impact sales, which could cause our revenue or results of operations to decline.Residents of communities we develop rely on us to resolve issues or disputes that may arise in connection with the operation or development of theircommunities. Efforts made by us to resolve these issues or disputes could be deemed unsatisfactory by the affected residents and subsequent actions by theseresidents could adversely affect our sales or our reputation. In addition, we could be required to make material expenditures related to the settlement of such issuesor disputes or to modify our community development plans, which could adversely affect our results of operations.An information systems interruption or breach in security could adversely affect us.We rely on accounting, financial and operational management information systems to conduct our operations. Any disruption in these systems couldadversely affect our ability to conduct our business. Furthermore, any security breach of information systems or data could result in a violation of applicableprivacy and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures, which could harm ourbusiness.Termination of the employment agreement with our Chief Executive Officer could be costly and prevent a change in control of our company.The employment agreement with our Chief Executive Officer, Eric Lipar, provides that if his employment with us terminates under certain circumstances,we may be required to pay him a significant amount of severance compensation, thereby making it costly to terminate his employment. Furthermore, theseprovisions could delay or prevent a transaction or a change in control of21Table of Contentsour company that might involve a premium paid for shares of our common stock or otherwise be in the best interests of our stockholders, which could adverselyaffect the market price of our common stock.Any future government shutdowns or slowdowns may materially adversely affect our business or financial results.The U.S. federal government shutdown in the first part of October 2013 which impacted FHA and the USDA, among other federal agencies, and theirbacking of mortgage loans, negatively affected our closings in October 2013. Any future government shutdowns or slowdowns may materially adversely affect ourbusiness or financial results. We can make no assurances that potential closings affected by any such shutdown or slowdown will occur after the shutdown orslowdown has ended.Negative publicity could adversely affect our reputation as well as our business, financial results and stock price.Unfavorable media related to our industry, company, brands, marketing, personnel, operations, business performance, or prospects may affect our stock priceand the performance of our business, regardless of its accuracy or inaccuracy. The speed at which negative publicity can be disseminated has increaseddramatically with the capabilities of electronic communication, including social media outlets, websites, blogs, or newsletters. Our success in maintaining,extending and expanding our brand image depends on our ability to adapt to this rapidly changing media environment. Adverse publicity or negative commentaryfrom any media outlets could damage our reputation and reduce the demand for our homes, which would adversely affect our business.Risks Related to Our Organization and StructureWe depend on key management personnel and other experienced employees.Our success depends to a significant degree upon the contributions of certain key management personnel including, but not limited to, Eric Lipar, our ChiefExecutive Officer and Chairman of our board. Although we have entered into an employment agreement with Mr. Lipar, there is no guarantee that Mr. Lipar willremain employed by us. If any of our key management personnel were to cease employment with us, our operating results could suffer. Our ability to retain our keymanagement personnel or to attract suitable replacements should any members of our management team leave is dependent on the competitive nature of theemployment market. The loss of services from key management personnel or a limitation in their availability could materially and adversely impact our business,prospects, liquidity, financial condition and results of operations. Further, such a loss could be negatively perceived in the capital markets. We have not obtainedkey man life insurance that would provide us with proceeds in the event of death or disability of any of our key management personnel.Experienced employees in the homebuilding, land acquisition, development, and construction industries are fundamental to our ability to generate, obtainand manage opportunities. In particular, local knowledge and relationships are critical to our ability to source attractive land acquisition opportunities. Experiencedemployees working in the homebuilding, development and construction industries are highly sought after. Failure to attract and retain such personnel or to ensurethat their experience and knowledge is not lost when they leave the business through retirement, redundancy or otherwise may adversely affect the standards of ourservice and may have an adverse impact on our business, prospects, liquidity, financial condition and results of operations. The loss of any of our key personnelcould adversely impact our business, prospects, financial condition and results of operations.We may change our operational policies, investment guidelines and our business and growth strategies without stockholder consent, which may subject usto different and more significant risks in the future.Our board of directors will determine our operational policies, investment guidelines and our business and growth strategies. Our board of directors maymake changes to, or approve transactions that deviate from, those policies, guidelines and strategies without a vote of, or notice to, our stockholders. This couldresult in us conducting operational matters, making investments or pursuing different business or growth strategies than those contemplated in this Annual Report.Under any of these circumstances, we may expose ourselves to different and more significant risks in the future, which could have a material adverse effect on ourbusiness, prospects, liquidity, financial condition and results of operations.Changes in accounting rules, assumptions and/or judgments could materially and adversely affect us.Accounting rules and interpretations for certain aspects of our financial reporting, including those relating to our goodwill and other intangibles, operationsare highly complex and involve significant assumptions and judgment. These complexities could lead to a delay in the preparation and dissemination of ourfinancial statements. Furthermore, changes in accounting rules and interpretations or in our accounting assumptions and/or judgments, such as asset impairments,could significantly impact our22Table of Contentsfinancial statements. In some cases, we could be required to apply a new or revised standard retroactively, resulting in restating prior period financial statements.Any of these circumstances could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.We expect to use leverage in executing our business strategy, which may adversely affect the return on our assets.We expect to employ prudent levels of leverage to finance the acquisition and development of our lots and construction of our homes. Our existingindebtedness is recourse to us and we anticipate that future indebtedness will likewise be recourse. As of December 31, 2015, we had a $255.0 million revolvingcredit facility (the “Credit Facility” or “Credit Agreement”) to finance our construction and development activities. As of December 31, 2015, we had outstandingborrowings of $230.0 million under the Credit Facility and we could borrow an additional $21.6 million under the Credit Facility. As of December 31, 2015,borrowings under the Credit Facility bore interest at a rate of 3.50% per annum. On January 6, 2016, we increased the amount of available borrowings under theCredit Facility to $300.0 million. As of January 6, 2016, we had outstanding borrowings of $230.0 million under the Credit Facility and we could borrow anadditional $70.0 million under the Credit Facility. In November 2014, the Company issued $85.0 million aggregate principal amount of its 4.25% ConvertibleNotes due 2019 (the “Convertible Notes”).Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence ofnew indebtedness, including the purchase price of assets to be acquired with debt financing, if any, the estimated market value of our assets and the ability ofparticular assets, and our company as a whole, to generate cash flow to cover the expected debt service. As a means of sustaining our long-term financial health andlimiting our exposure to unforeseen dislocations in the debt and financing markets, we currently expect to remain conservatively capitalized. However, ourcertificate of incorporation does not contain a limitation on the amount of indebtedness we may incur and our board of directors may change our target debt levelsat any time without the approval of our stockholders.Incurring substantial indebtedness could subject us to many risks that, if realized, would adversely affect us, including the risk that:•our cash flow from operations may be insufficient to make required payments of principal of and interest on the debt which is likely to result in accelerationof such indebtedness;•our indebtedness may increase our vulnerability to adverse economic and industry conditions with no assurance that our profitability will increase withhigher financing cost;•we may be required to dedicate a portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for operationsand capital expenditures, future investment opportunities or other purposes; and•the terms of any refinancing may not be as favorable as the terms of the indebtedness being refinanced.If we do not have sufficient funds to repay our indebtedness at maturity, it may be necessary to refinance the indebtedness through additional debt oradditional equity financings. If, at the time of any refinancing, prevailing interest rates or other factors result in higher interest rates on refinancings, increases ininterest expense could adversely affect our cash flows and results of operations. If we are unable to refinance our indebtedness on acceptable terms, we may beforced to dispose of our assets on disadvantageous terms, potentially resulting in losses. To the extent we cannot meet any future debt service obligations, we willrisk losing some or all of our assets that may be pledged to secure our obligations to foreclosure. Unsecured debt agreements may contain specific cross-defaultprovisions with respect to specified other indebtedness, giving the unsecured lenders the right to declare a default if we are in default under other indebtedness insome circumstances. Defaults under the Credit Facility and our other debt agreements, if any, could have a material adverse effect on our business, prospects,liquidity, financial condition and results of operations.Access to financing sources may not be available on favorable terms, or at all, especially in light of current market conditions, which could adverselyaffect our ability to maximize our returns.Our access to additional third-party sources of financing will depend, in part, on:•general market conditions;•the market’s perception of our growth potential;•with respect to acquisition and/or development financing, the market’s perception of the value of the land parcels to be acquired and/or developed;•our current debt levels;•our current and expected future earnings;•our cash flow; and•the market price per share of our common stock.23Table of ContentsSince the global recession in 2008, domestic financial markets have, from time to time, experienced unusual volatility, uncertainty and a tightening ofliquidity in both the high yield debt and equity capital markets. Credit spreads for major sources of capital widened significantly during the U.S. credit crisis asinvestors demanded a higher risk premium. Given such possible volatility and weakness in the capital and credit markets, potential lenders may be unwilling orunable to provide us with financing that is attractive to us or may charge us prohibitively high fees in order to obtain financing. Consequently, our ability to accessthe credit market in order to attract financing on reasonable terms may be adversely affected. Investment returns on our assets and our ability to make acquisitionscould be adversely affected by our inability to secure additional financing on reasonable terms, if at all.Depending on market conditions at the relevant time, we may have to rely more heavily on additional equity financings or on less efficient forms of debtfinancing that require a larger portion of our cash flow from operations, thereby reducing funds available for our operations, future business opportunities and otherpurposes. We may not have access to such equity or debt capital on favorable terms at the desired times, or at all.Our current financing arrangements contain, and our future financing arrangements likely will contain, restrictive provisions.Our current financing arrangements contain, and the financing arrangements we enter into in the future likely will contain, provisions that limit our ability todo certain things. In particular, the Credit Agreement requires us to maintain a tangible net worth of not less than $160.5 million plus 75% of the net proceeds ofany equity issuances plus 50% of the amount of our net income in any fiscal quarter after the date of the Credit Agreement, a leverage ratio of not greater than67.5%, liquidity of at least $40.0 million and a ratio of EBITDA to interest expense for the most recent four quarters of at least 2.50 to 1.0. The Credit Agreementalso prohibits us from making any investments other than those permitted under the Credit Agreement. In addition, the Credit Agreement contains variouscovenants that, among other restrictions, limit the amount of our additional debt.If we fail to meet or satisfy any of these provisions, we would be in default under the Credit Agreement and our lender could elect to declare outstandingamounts due and payable, terminate their commitments, require the posting of additional collateral and enforce their respective interests against existing collateral.A default also could limit significantly our financing alternatives, which could cause us to curtail our investment activities and/or dispose of assets when weotherwise would not choose to do so. In addition, future indebtedness may contain financial covenants limiting our ability to, for example, incur additionalindebtedness, make certain investments, reduce liquidity below certain levels and pay dividends to our stockholders, and otherwise affect our operating policies. Ifwe default on one or more of our debt agreements, it could have a material adverse effect on our business, prospects, liquidity, financial condition and results ofoperations.In addition, upon the occurrence of a “Fundamental Change” (as defined in the indenture governing the Convertible Notes), subject to certain conditions, theConvertible Notes include terms that allow a holder of the Convertible Notes to require to purchase all or a portion of such holder's Convertible Notes for cash at aprice equal to 100% of the principal amount of the Convertible Notes to be purchased, plus any then accrued, but unpaid, interest.Interest expense on debt we incur may limit our cash available to fund our growth strategies.As of December 31, 2015, we had a $255.0 million revolving credit facility, which was expanded to a $300.0 million revolving credit facility in earlyJanuary 2016. As of December 31, 2015, we had outstanding borrowings of $230.0 million under the Credit Facility and we could borrow an additional $21.6million under the Credit Facility. As of January 6, 2016, the date the Credit Facility was increased to $300.0 million, we could borrow an additional $70 millionunder the Credit Facility. As of December 31, 2015, borrowings under the Credit Facility bore interest at a rate of 3.50% per annum. During November 2014, theCompany issued $85.0 million aggregate principal amount of its 4.25% Convertible Notes due 2019. If our operations do not generate sufficient cash fromoperations at levels currently anticipated, we may seek additional capital in the form of debt financing. Our current indebtedness includes, and any additionalindebtedness we subsequently incur may have, a floating rate of interest. Higher interest rates could increase debt service requirements on our current floating rateindebtedness and on any floating rate indebtedness we subsequently incur, and could reduce funds available for operations, future business opportunities or otherpurposes. If we need to repay existing indebtedness during periods of rising interest rates, we could be required to refinance our then-existing indebtedness onunfavorable terms or liquidate one or more of our assets to repay such indebtedness at times which may not permit realization of the maximum return on suchassets and could result in a loss. The occurrence of either such event or both could materially and adversely affect our cash flows and results of operations.24Table of ContentsWe are a holding company, and we are accordingly dependent upon distributions from our subsidiaries to pay dividends, if any, taxes and other expenses.We are a holding company and will have no material assets other than our ownership of membership interests or limited partnership interests in oursubsidiaries. We have no independent means of generating revenue. We intend to cause our subsidiaries to make distributions to their members or partners in anamount sufficient to cover all applicable taxes payable and dividends, if any, declared by us. Future financing arrangements may contain negative covenants,limiting the ability of our subsidiaries to declare or pay dividends or make distributions. To the extent that we need funds, and our subsidiaries are restricted frommaking such dividends or distributions under applicable law or regulations, or otherwise unable to provide such funds, for example, due to restrictions in futurefinancing arrangements that limit the ability of our operating subsidiaries to distribute funds, our liquidity and financial condition could be materially harmed.The obligations associated with being a public company will require significant resources and management attention.As a public company with listed equity securities, we must comply with laws, regulations and requirements, including the requirements of the SecuritiesExchange Act of 1934, as amended, or the Exchange Act, certain corporate governance provisions of the Sarbanes-Oxley Act, related regulations of the SEC andrequirements of the NASDAQ Global Select Market. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business andfinancial condition. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financialreporting.Section 404 of the Sarbanes-Oxley Act requires our management and independent auditors to report annually on the effectiveness of our internal control overfinancial reporting. However, we are an “emerging growth company,” as defined in the JOBS Act, and, so for as long as we continue to be an emerging growthcompany, we intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to emerging growthcompanies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404.Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will berequired to include an opinion from our independent auditors on the effectiveness of our internal control over financial reporting.These reporting and other obligations place significant demands on our management, administrative, operational and accounting resources and cause us toincur significant expenses. We may need to upgrade our systems or create new systems, implement additional financial and management controls, reportingsystems and procedures, create or outsource an internal audit function, and hire additional accounting and finance staff. If we are unable to accomplish theseobjectives in a timely and effective fashion, our ability to comply with the financial reporting requirements and other rules that apply to reporting companies couldbe impaired. Any failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, prospects, liquidity,financial condition and results of operations.We are an “emerging growth company,” and, as a result of the reduced disclosure and governance requirements applicable to emerging growthcompanies, our common stock may be less attractive to investors.We are an “emerging growth company,” as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reportingrequirements applicable to other public companies but not to emerging growth companies, including, but not limited to, a requirement to present only two years ofaudited financial statements, an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act, reduced disclosure about executivecompensation arrangements pursuant to the rules applicable to smaller reporting companies and no requirement to seek non-binding advisory votes on executivecompensation or golden parachute arrangements. We have elected to adopt these reduced disclosure requirements. We could be an emerging growth company untilthe last day of the fiscal year following the fifth anniversary of the completion of our IPO, although a variety of circumstances could cause us to lose that statusearlier. We cannot predict if investors will find our common stock less attractive as a result of our taking advantage of these exemptions. If some investors find ourcommon stock less attractive as a result of our choices, there may be a less active trading market for our common stock and our stock price may be more volatile.In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided inSection 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised financial accounting standards. An emerginggrowth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, wehave determined to opt out of such extended transition period and, as a result, we will comply with new or revised financial accounting standards on the relevantdates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act25Table of Contentsprovides that our decision to opt out of the extended transition period for complying with new or revised financial accounting standards is irrevocable.If we fail to implement and maintain an effective system of internal controls, we may not be able to accurately determine our financial results or preventfraud. As a result, our stockholders could lose confidence in our financial results, which could materially and adversely affect us.Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We may in the future discover areas of ourinternal controls that need improvement. We cannot be certain that we will be successful in maintaining adequate internal control over our financial reporting andfinancial processes. Furthermore, as we grow our business, our internal controls will become more complex, and we will require significantly more resources toensure our internal controls remain effective. Additionally, the existence of any material weakness or significant deficiency would require management to devotesignificant time and incur significant expense to remediate any such material weakness or significant deficiency and management may not be able to remediate anysuch material weakness or significant deficiency in a timely manner. The existence of any material weakness in our internal control over financial reporting couldalso result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and causestockholders to lose confidence in our reported financial information, all of which could materially and adversely affect us.Any joint venture investments that we make could be adversely affected by our lack of sole decision making authority, our reliance on the financialcondition of our joint venture partners and disputes between us and our joint venture partners.We may co-invest in the future with third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in or sharingresponsibility for managing the affairs of a land acquisition and/or a development. In this event, we would not be in a position to exercise sole decision-makingauthority regarding the acquisition and/or development, and our investment may be illiquid due to our lack of control. Investments in partnerships, joint ventures,or other entities may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that our joint venture partnersmight become bankrupt, fail to fund their share of required capital contributions, make poor business decisions or block or delay necessary decisions. Our jointventure partners may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to takeactions contrary to our policies or objectives. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor ourjoint venture partners would have full control over the land acquisition or development. Disputes between us and our joint venture partners may result in litigationor arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. In addition, we may incertain circumstances be liable for the actions of our joint venture partners.Cautionary Statement about Forward-Looking StatementsFrom time to time we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlyingassumptions and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private SecuritiesLitigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. You can generally identify our forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,”“potential,” “predict,” “projection,” “should,” “will” or other similar words.We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the timethe statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about future events may and often do vary materiallyfrom actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-lookingstatements.The following are some of the factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements:•adverse economic changes either nationally or in the markets in which we operate, including, among other things, increases in unemployment, volatility ofmortgage interest rates and inflation and decreases in housing prices;•a slowdown in the homebuilding industry;•volatility and uncertainty in the credit markets and broader financial markets;•the cyclical and seasonal nature of our business;•our future operating results and financial condition;•our business operations;•changes in our business and investment strategy;26Table of Contents•the success of our operations in recently opened new markets and our ability to expand into additional new markets;•our ability to successfully extend our business model to building homes with higher price points, developing larger communities, multi-unit products andsales of acreage home sites;•an inability to develop our projects successfully or within expected timeframes;•our ability to identify potential acquisition targets and close such acquisitions;•our ability to successfully integrate any acquisitions with our existing operations;•availability of land to acquire and our ability to acquire such land on favorable terms or at all;•availability, terms and deployment of capital;•decisions of the lender group of our revolving credit facility;•the occurrence of the specific conversion events that enable early conversion of our 4.25% Convertible Notes due 2019;•decline in the market value of our land portfolio;•continued or increased disruption in the terms or availability of mortgage financing or increase in the number of foreclosures in our markets;•shortages of or increased prices for labor, land or raw materials used in land development and housing construction;•delays in land development or home construction resulting from natural disasters, adverse weather conditions or other events outside our control;•uninsured losses in excess of insurance limits;•the cost and availability of insurance and surety bonds;•changes in, liabilities under, or the failure or inability to comply with, governmental laws and regulations;•the timing of receipt of regulatory approvals and the opening of projects;•the degree and nature of our competition;•increases in taxes or government fees;•poor relations with the residents of our projects;•future litigation, arbitration or other claims;•availability of qualified personnel and third party contractors and our ability to retain our key personnel;•our leverage and future debt service obligations;•the impact on our business of any future government shutdown similar to the one that occurred in October 2013;•other risks and uncertainties inherent in our business; and•other factors we discuss under the section entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations.”You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement.We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements to reflect any change in our expectations withregard thereto or any change in events, conditions or circumstances on which any such statements are based. All subsequent written and oral forward-lookingstatements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Annual Report onForm 10-K.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.ITEM 2. PROPERTIESWe lease approximately 15,600 square feet in The Woodlands, Texas for our corporate headquarters; this lease expires in 2018. In addition, we leasedivisional offices in Arizona, Florida, and Georgia. We lease approximately 1,800 square feet in Arizona and this lease expires in 2018. We lease approximately6,600 square feet in Florida for a divisional office and an information center, and these leases expire in 2019 and 2017, respectively. We lease approximately 1,900square feet in Georgia and this lease expires in 2019. See “Business—Land Acquisition Policies and Development” for a summary of the other property which weowned or controlled as of December 31, 2015.ITEM 3. LEGAL PROCEEDINGSIn the ordinary course of doing business, we are subject to claims or proceedings from time to time relating to the purchase, development, and sale of realestate. Management believes that these claims include usual obligations incurred by real estate developers in the normal course of business. In the opinion ofmanagement, these matters will not have a material effect on our financial position, results of operations or cash flows.27Table of ContentsWe have provided unsecured environmental indemnities to certain lenders and other contractual counterparties. In each case, we have performed duediligence on the potential environmental risks including obtaining an independent environmental review from outside environmental consultants. These indemnitiesobligate us to reimburse the guaranteed parties for damages related to environmental matters. There is no term or damage limitation on these indemnities; however,if an environmental matter arises, we may have recourse against other previous owners. Management is not aware of any environmental claims or occurrences andhas recorded no reserves for environmental matters.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.28Table of ContentsPART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESOur common stock is listed on the NASDAQ Stock Market (NASDAQ) under the symbol “LGIH.” The following table sets forth, for the periods indicated,the range of high and low sales prices for our common stock, as reported by the NASDAQ. High Low2014 1st Quarter $20.75 $15.762nd Quarter $19.30 $13.803rd Quarter $22.21 $17.854th Quarter $19.72 $13.502015 1st Quarter $16.69 $12.662nd Quarter $19.92 $16.473rd Quarter $29.58 $18.474th Quarter $35.54 $21.81As of March 7, 2016, the closing price of our common stock on the NASDAQ was $22.55, and we had 56 stockholders of record, including Cede & Co. asnominee of The Depository Trust Company.Initial Public OfferingOn November 13, 2013, we completed an IPO of 10,350,000 shares of our common stock, which was conducted pursuant to our Registration Statement onForm S-1 (File No. 333-190853), as amended, that was declared effective on November 6, 2013. The IPO provided us with net proceeds of $102.6 million. DuringNovember 2013, we used $36.9 million of the net proceeds from the IPO for the cash portion of the purchase price to acquire all of the joint venture interests of ourjoint venture partners in the LGI/GTIS Joint Ventures. The remaining proceeds were used for working capital and general corporate purposes, including theacquisition of land, development lots and construction of homes. Purchases of Equity SecuritiesIn November 2014, in connection with the issuance of the Convertible Notes, we purchased 1.0 million shares of our common stock at $16.55 per share.Shelf Registration Statement and ATM Offering ProgramWe filed a shelf registration statement on Form S-3 (the “Registration Statement”) to offer and sell from time to time various securities with a maximumoffering price of $300.0 million. The Registration Statement was declared effective in August 2015. Under the Registration Statement, we established an at themarket common stock offering program (the “ATM Program”) in August 2015 with Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, JMP SecuritiesLLC and Builder Advisor Group, LLC, as sales agents. Under the ATM Program, we may issue and sell from time to time shares of our common stock having anaggregate offering price of up to $30.0 million. We issued and sold 345,760 shares of our common stock under the ATM Program and received net proceeds ofapproximately $9.6 million during the year ended December 31, 2015 .DividendsWe currently intend to retain our future earnings, if any, to finance the development and expansion of our business and, therefore, do not intend to pay cashdividends on our common stock for the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and willdepend on our financial condition, results of operations, capital requirements, restrictions contained in any of our financing arrangements and such other factors asour board of directors may deem relevant. We have not previously declared or paid any cash dividends on our common stock.29Table of ContentsEquity Compensation PlansThe table below sets forth the information as of December 31, 2015 for our equity compensation plan:Plan Category Number of securities to beissued upon exercise ofoutstanding options,warrants and rights Weighted-average exerciseprice of outstanding options,warrants and rights Number of securitiesremaining available forfuture issuance under equitycompensation plansEquity compensation plan approved by securityholders 297,831 $— 1,540,887A total of 2,000,000 of the Company’s common shares have been reserved for issuance under the LGI Homes, Inc. 2013 Equity Incentive Plan. There were107,814 restricted stock units (RSUs) outstanding at December 31 2015, that were issued at a $0.00 exercise price. At December 31, 2015, there were 190,017performance-based restricted stock units (“PSUs”) outstanding that have been granted to certain members of management at a $0.00 exercise price. The number ofshares of Company common stock underlying the PSUs that will be issued to the recipient may range from 0% to 200% of the base award depending on actualperformance metrics as compared to the target performance metrics. See Note 12 “ Stock-Based Compensation ” in the accompanying consolidated financialstatements for a description of the plan.Stock Performance GraphThis chart compares the cumulative total return on our common stock with that of the Standard & Poor's 500 Companies Stock Index (the “S&P 500 Index”)and the Standard & Poor's Homebuilders Select Industry Index (the “S&P Homebuilders Index”). The chart assumes $100.00 was invested at the close of marketon November 7, 2013, the first day shares of our common stock traded on the NASDAQ Global Select Market, which was the day after we priced our initial publicoffering, in shares of our common stock, the S&P 500 Index and the S&P Homebuilders Index, and assumes the reinvestment of any dividends. The stock priceperformance on the following graph is not necessarily indicative of future stock price performance.Comparison of Cumulative Total Return among LGI Homes, Inc. Common Stock, the S&P 500 Index, and the S&P Homebuilders Index for the yearsended December 31, 2015 and 2014 and from November 7, 2013 to December 31, 201330Table of Contents 11/7/2013 12/31/2013 12/31/2014 12/31/2015LGIH$100.00 $137.91 $115.66 $188.60S&P 500 Index$100.00 $105.79 $117.84 $116.99S&P Homebuilders Index$100.00 $110.54 $113.33 $113.5431Table of ContentsITEM 6. SELECTED FINANCIAL DATAThe following table presents our selected historical financial and operating data as of the dates and for the periods indicated.The selected historical balance sheet and statement of operations information presented as of December 31, 2015, 2014 2013, 2012 and 2011 and for theyears then ended have been derived from our audited historical consolidated financial statements. The following table should be read together with, and is qualifiedin its entirety by reference to, our historical consolidated financial statements and the accompanying notes included elsewhere in this Annual Report. The tableshould also be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For discussion of pro formafinancial information for the year ended December 31, 2013 please see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Pro Forma Financial Information” and “Management's Discussion and Analysis of Financial Condition and Results of Operations—Supplemental Management'sDiscussion and Analysis”. Year Ended December 31, 2015 2014 2013 2012 2011 (dollars in thousands, except share data and average home sales price)Statement of Operations Data: Revenues: Home sales $630,236 $383,268 $160,067 $73,820 $49,270 Management and warranty fees — — 2,729 2,401 1,186Total revenues 630,236 383,268 162,796 76,221 50,456Expenses: Cost of sales 463,304 280,481 121,326 54,531 36,700 Selling expenses 52,998 36,672 15,769 7,269 4,884 General and administrative 34,260 23,744 13,604 6,096 5,126Income from unconsolidated joint ventures — — (4,287) (1,526) (715) Operating income 79,674 42,371 16,384 9,851 4,461Interest expense, net — — 51 1 28Gain on remeasurement of interests in LGI/GTISJoint Ventures——(6,446) — —Other income, net (606) (708) (24) (173) (204) Net income before income taxes 80,280 43,079 22,803 10,023 4,637Income tax provision 27,450 14,868 1,066 155 125 Net income 52,830 28,211 21,737 9,868 4,512(Income) loss attributable to non-controlling interests — — 590 (163) (1,162)Net income attributable to owners $52,830 $28,211 $22,327 $9,705 $3,350Basic earnings per share (1)$2.65 $1.37 $0.34 Diluted earnings per share (1)$2.44 $1.33 $0.34 Other Financial and Operating Data: Active communities at end of year 52 39 25 10 5Home closings 3,404 2,356 1,062 536 376Average sales price of homes closed (in wholedollars) $185,146 $162,677 $150,722 $137,724 $131,037Gross margin (2) $166,932 $102,787 $38,741 $19,289 $12,570Gross margin % (3) 26.5% 26.8% 24.2% 26.1% 25.5%Adjusted gross margin (4) $175,120 $108,111 $43,371 $20,236 $14,033Adjusted gross margin % (3)(4) 27.8% 28.2% 27.1% 27.4% 28.5%Adjusted EBITDA (5) $88,746 $48,357 $21,309 $10,983 $6,005Adjusted EBITDA margin % (3)(5) 14.1% 12.6% 13.3% 14.9% 12.2%32Table of Contents December 31, 2015 2014 2013 2012 2011Balance Sheet Data (as of end of year): (in thousands)Cash and cash equivalents $37,568 $31,370 $54,069 $7,069 $5,106Real estate inventory $531,228 $367,908 $141,983 $28,489 $12,526Goodwill and intangibles, net $12,234 $12,481 $12,728 $— $—Total assets $622,333 $438,127 $221,010 $45,556 $23,513Notes payable $308,192 $216,099 $35,535 $14,969 $6,415Total liabilities $374,944 $255,628 $56,636 $20,345 $8,878Total equity $247,389 $182,499 $164,374 $25,211 $14,635 (1)Earnings per share is presented for the years ended December 31, 2015 and 2014 and the period from November 13, 2013 (date of closing of IPO) to December 31,2013. See Note 11- “ Equity ” to our consolidated financial statements included in Part II, Item 8 of this Annual Report of this Form 10-K for calculation of earnings pershare .(2)Gross margin is home sales revenues less cost of sales.(3)Calculated as a percentage of home sales revenues.(4)Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted grossmargin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales. Our managementbelieves this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin. However, becauseadjusted gross margin information excludes capitalized interest and purchase accounting adjustment, which have real economic effects and could impact our results, theutility of adjusted gross margin information as a measure of our operating performance may be limited. In addition, other companies may not calculate adjusted grossmargin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margininformation as a measure of our performance. Please see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAPMeasures—Adjusted Gross Margin” for a reconciliation of adjusted gross margin to gross margin, which is the GAAP financial measure that our management believesto be most directly comparable.(5)Adjusted EBITDA is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted EBITDAas net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) capitalized interest charged to the cost of sales, (v) other income, netand (vi) adjustments resulting from the application of purchase accounting. Our management believes that the presentation of adjusted EBITDA provides usefulinformation to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and valueof our business. Adjusted EBITDA provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates,levels of depreciation or amortization and items considered to be non-recurring. Accordingly, our management believes that this measurement is useful for comparinggeneral operating performance from period to period. Other companies may define adjusted EBITDA differently and, as a result, our measure of adjusted EBITDA maynot be directly comparable to adjusted EBITDA of other companies. Although we use adjusted EBITDA as a financial measure to assess the performance of ourbusiness, the use of adjusted EBITDA is limited because it does not include certain costs, such as interest and taxes, necessary to operate our business. AdjustedEBITDA should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance. Our presentation ofadjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or nonrecurring items. Our adjusted EBITDA is limitedas an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Please see “Management'sDiscussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures—Adjusted EBITDA” for a reconciliation of adjusted EBITDA to netincome, which is the GAAP financial measure that our management believes to be most directly comparable.33Table of ContentsITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSFor purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operation, references to “we,” “our,” “us” or similar termswhen used in a historical context refer to LGI Homes, Inc. and its subsidiaries. See Note 1 “Organization and Business — Initial Public Offering andReorganization Transactions” and Note 2 “Acquisitions” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-Kfor more information regarding the reorganization transactions, the initial public offering and our acquisitions of our joint venture partners' interests in theLGI/GTIS Joint Ventures.Key ResultsKey financial results as of and for the year ended December 31, 2015 , as compared to the year ended December 31, 2014 , were as follows:•Home sales revenues increased 64.4% to $630.2 million from $383.3 million .•Homes closed increased 44.5% to 3,404 homes from 2,356 homes.•Average sales price of our homes increased 13.8% to $ 185,146 from $162,677 .•Gross margin as a percentage of home sales revenues decreased to 26.5% from 26.8% .•Adjusted gross margin (non-GAAP) as a percentage of home sales revenues decreased to 27.8% from 28.2% .•Net income before income taxes increased 86.4% to $80.3 million from $43.1 million .•Adjusted EBITDA (non-GAAP) margin as a percentage of home sales revenues increased to 14.1% from 12.6% .•Active communities at the end of 2015 increased to 52 from 39 . Eight of the thirteen active communities added during 2015 are outside of ourTexas markets, contributing to the further geographic diversification of our business to markets outside of Texas.•Total owned and controlled lots increased 20.3% to 23,915 lots at December 31, 2015 from 19,883 lots at December 31, 2014 . Recent DevelopmentsThe Credit Facility was increased by $30.0 million and $45.0 million to $300.0 million in accordance with the accordion feature of the Credit Agreementduring November 2015 and January 2016, respectively.34Table of ContentsResults of OperationsThe following table sets forth our results of operations for the periods indicated: Year Ended December 31, 2015 2014 2013 (dollars in thousands, except share data and average home sales price) Statement of Income Data: Revenues: Home sales $630,236 $383,268 $160,067Management and warranty fees — — 2,729 Total revenues 630,236 383,268 162,796Expenses: Cost of sales 463,304 280,481 121,326Selling expenses 52,998 36,672 15,769General and administrative 34,260 23,744 13,604Income from unconsolidated joint ventures — — (4,287) Operating income 79,674 42,371 16,384Interest expense, net — — 51Gain on remeasurement of interests in LGI/GTIS Joint Ventures — — (6,446)Other income, net (606) (708) (24) Net income before income taxes 80,280 43,079 22,803Income tax provision 27,450 14,868 1,066 Net income 52,830 28,211 21,737Loss attributable to non-controlling interests — — 590Net income attributable to owners $52,830 $28,211 $22,327Basic earnings per share (1) $2.65 $1.37 $0.34Diluted earnings per share (1) $2.44 $1.33 $0.34Other Financial and Operating Data: Active communities at end of year52 39 25Home closings3,404 2,356 1,062Average sales price of homes closed (in whole dollars)$185,146 $162,677 $150,722Gross margin (2)$166,932 $102,787 $38,741Gross margin % (3)26.5% 26.8% 24.2%Adjusted gross margin (4)$175,120 $108,111 $43,371Adjusted gross margin % (3)(4)27.8% 28.2% 27.1%Adjusted EBITDA (5)$88,746 $48,357 $21,309Adjusted EBITDA margin % (3)(5)14.1% 12.6% 13.3% (1)Earnings per share is presented for the years ended December 31, 2015 and 2014 and the period from November 13, 2013 (date of closing of IPO) to December 31,2013. See Note 11- “ Equity ” to our consolidated financial statements included in Part II, Item 8 of this Annual Report for calculation of earnings per share.(2)Gross margin is home sales revenues less cost of sales.(3)Calculated as a percentage of home sales revenues.(4)Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted grossmargin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales. Our managementbelieves this information is useful because it isolates the impact35Table of Contentsthat capitalized interest and purchase accounting adjustments have on gross margin. However, because adjusted gross margin information excludes capitalized interestand purchase accounting adjustment, which have real economic effects and could impact our results, the utility of adjusted gross margin information as a measure of ouroperating performance may be limited. In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly,adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance. Please see “—Non-GAAPMeasures—Adjusted Gross Margin” for a reconciliation of adjusted gross margin to gross margin, which is the GAAP financial measure that our management believesto be most directly comparable.(5)Adjusted EBITDA is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted EBITDAas net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) capitalized interest charged to the cost of sales, (v) other income, netand (vi) adjustments resulting from the application of purchase accounting. Our management believes that the presentation of adjusted EBITDA provides usefulinformation to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and valueof our business. Adjusted EBITDA provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates,levels of depreciation or amortization and items considered to be non-recurring. Accordingly, our management believes that this measurement is useful for comparinggeneral operating performance from period to period. Other companies may define adjusted EBITDA differently and, as a result, our measure of adjusted EBITDA maynot be directly comparable to adjusted EBITDA of other companies. Although we use adjusted EBITDA as a financial measure to assess the performance of ourbusiness, the use of adjusted EBITDA is limited because it does not include certain costs, such as interest and taxes, necessary to operate our business. AdjustedEBITDA should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance. Our presentation ofadjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or nonrecurring items. Our adjusted EBITDA is limitedas an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Please see “—Non-GAAPMeasures—Adjusted EBITDA” for a reconciliation of adjusted EBITDA to net income, which is the GAAP financial measure that our management believes to be mostdirectly comparable.36Table of ContentsYear Ended December 31, 2015 Compared to Year Ended December 31, 2014Homes Sales. Our home sales revenues and closings by division for the years ended December 31, 2015 and 2014 were as follows (dollars in thousands): Year Ended December 31, 2015 2014 Revenues Closings Revenues ClosingsTexas $350,674 1,856 $255,355 1,575Southwest 109,878 565 45,725 273Florida 73,735 396 43,374 255Southeast 95,949 587 38,814 253Total home sales $630,236 3,404 $383,268 2,356 Home sales revenues for the year ended December 31, 2015 were $630.2 million , an increase of $247.0 million , or 64.4% , from $383.3 million for the yearended December 31, 2014 . The increase in home sales revenues is primarily due to a 44.5% increase in homes closed and an increase in the average selling priceper home during the year ended December 31, 2015 as compared to the year ended December 31, 2014 . We closed 3,404 homes during 2015, as compared to2,356 homes closed during 2014. This increase in home closings was largely due to the increase in the number of active communities in 2015 as well as 269 homeclosings in 2015 attributed to the assets acquired in connection with the Oakmont Acquisition. The average selling price per home closed during the year endedDecember 31, 2015 was $185,146 , an increase of $ 22,469 , or 13.8% , from the average selling price per home of $162,677 for the year ended December 31, 2014. This increase in the average selling price per home was primarily due to changes in product mix, higher price points in certain new markets and a favorablepricing environment.Cost of Sales and Gross Margin (home sales revenues less cost of sales). Cost of sales increased for the year ended December 31, 2015 to $463.3 million ,an increase of $182.8 million , or 65.2% , from $280.5 million for the year ended December 31, 2014 . This increase is primarily due to a 44.5% increase in homesclosed during 2015 as compared to 2014 as well as changes in our product mix and higher price points in certain new markets. Gross margin for the year endedDecember 31, 2015 was $166.9 million , an increase of $64.1 million , or 62.4% , from $102.8 million for the year ended December 31, 2014 . Gross margin as apercentage of home sales revenues was 26.5% for the year ended December 31, 2015 and 26.8% for the year ended December 31, 2014 . The decrease in grossmargin as a percentage of home sales revenues reflects increased construction costs, overall higher lot costs and higher carrying costs (including capitalizedinterest) attributed to closed homes partially offset by higher average home sales price for the year ended December 31, 2015 as compared to the year endedDecember 31, 2014 .Selling Expenses. Selling expenses as a percentage of home sales revenues were 8.4% and 9.6% for the years ended December 31, 2015 and 2014,respectively. The decrease of selling expenses as a percentage of home sales revenues in 2015 was primarily due to leveraging our marketing spend and advertisingduring 2015 as compared to 2014. Selling expenses for the year ended December 31, 2015 were $53.0 million , an increase of $16.3 million , or 44.5% , from $36.7million for the year ended December 31, 2014 . Sales commissions increased to $25.1 million for the year ended December 31, 2015 from $14.7 million during2014 largely due to a 44.5% increase in homes closed during 2015 as compared to 2014. Advertising and direct mail costs increased to $9.3 million during the yearended December 31, 2015 from $8.6 million for 2014 primarily due to the increase in the number of active communities in 2015 as compared to 2014.General and Administrative. General and administrative expenses as a percentage of home sales revenues were 5.4% and 6.2% for the years endedDecember 31, 2015 and 2014, respectively. The decrease in general and administrative expenses as a percentage of home sales revenues in 2015 reflects improvedleverage realized from the increase in home sales revenues in 2015. General and administrative expenses for the year ended December 31, 2015 were $34.3 million, an increase of $10.5 million , or 44.3% , from $23.7 million for the year ended December 31, 2014 . The increase in the amount of general and administrativeexpenses during 2015 as compared to 2014 is primarily attributable to additional employees added to support the increased number of active communities and thehigher number of home closings.Other Income. Other income, net of other expenses was $0.6 million for the year ended December 31, 2015 , a decrease of $0.1 million from $0.7 million forthe year ended December 31, 2014 . Other income in 2015 includes $0.2 million from the sales of lots. Other income in 2014 included a $0.6 million gain realizedfrom the sale of certain land tracts not directly associated with our core homebuilding operations.37Table of ContentsOperating Income and Net Income. Operating income for the year ended December 31, 2015 was $79.7 million , an increase of $37.3 million , or 88.0% ,from $42.4 million for the year ended December 31, 2014 . Net income for the year ended December 31, 2015 was $52.8 million , an increase of $24.6 million , or87.3% , from $28.2 million for the year ended December 31, 2014 . The increases are primarily attributed to a 44.5% increase in homes closed, a higher averagesales price and improved leverage realized during 2015 as compared to 2014.Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013Homes Sales. Our home sales revenues and closings by division for the years ended December 31, 2014 and 2013 were as follows (dollars in thousands): Year Ended December 31, 2014 2013 Revenues Closings Revenues ClosingsTexas $255,355 1,575 $133,831 892Southwest 45,725 273 18,214 118Florida 43,374 255 6,171 40Southeast 38,814 253 1,851 12Total home sales $383,268 2,356 $160,067 1,062 Home sales revenues for the year ended December 31, 2014 were $383.3 million, an increase of $223.2 million, or 139.4%, from $160.1 million for the yearended December 31, 2013. The increase in home sales revenues is primarily due to a 121.8% increase in homes closed and an increase in the average selling priceper home during the year ended December 31, 2014 as compared to the year ended December 31, 2013. We closed 2,356 homes during the year ended December31, 2014, as compared to 1,062 homes closed during the year ended December 31, 2013. This increase in home closings was largely due to more activecommunities in 2014 and the GTIS acquisition that was completed in November 2013. The average selling price per home closed during the year ended December31, 2014 was $162,677, an increase of $11,955, or 7.9%, from the average selling price per home of $150,722 for the year ended December 31, 2013. This increasein the average selling price per home was primarily due to changes in product mix and a favorable pricing environment.Management and Warranty Fees. Management and warranty fees for the year ended December 31, 2013 were $2.7 million. Management and warranty feeswere received from the LGI/GTIS Joint Ventures through November 2013 when the Company acquired the joint venture interests that it did not own prior to suchdate. Total home closings on a combined basis for the LGI/GTIS Joint Ventures were 555 for the period January 1, 2013 to November 13, 2013. There were nomanagement and warranty fees for the year ended December 31, 2014 as the LGI/GTIS Joint Ventures have been consolidated since the GTIS Acquisitions.Cost of Sales and Gross Margin (home sales revenues less cost of sales). Cost of sales increased for the year ended December 31, 2014 to $280.5 million, anincrease of $159.2 million, or 131.2%, from $121.3 million for the year ended December 31, 2013. This increase is primarily due to a 121.8% increase in homesclosed during 2014 as compared to 2013. Gross margin for the year ended December 31, 2014 was $102.8 million, an increase of $64.0 million, or 165.3%, from$38.7 million for the year ended December 31, 2013. Gross margin as a percentage of home sales revenues was 26.8% for the year ended December 31, 2014 and24.2% for the year ended December 31, 2013. The increase in gross margin as a percentage of home sales revenues reflects the higher average homes sales pricesoffset by increased construction costs and higher lot costs for the year ended December 31, 2014 as compared to the year ended December 31, 2013.Selling Expenses. Selling expenses as a percentage of home sales revenues were 9.6% and 9.9% for the years ended December 31, 2014 and 2013,respectively. The decrease of selling expenses as a percentage of home sales revenues was primarily due to the operating leverage realized from our salaried salespersonnel during the year ended December 31, 2014 compared to the year ended December 31, 2013. Selling expenses for the year ended December 31, 2014 were$36.7 million, an increase of $20.9 million, or 132.6%, from $15.8 million for the year ended December 31, 2013. Sales commissions increased to $14.7 million forthe year ended December 31, 2014 from $6.0 million during that same period in the prior year largely due to a 121.8% increase in homes closed during the yearended December 31, 2014 as compared to the year ended December 31, 2013. Advertising and direct mail costs increased to $8.6 million during the year endedDecember 31, 2014 from $3.3 million for the same period in the prior year primarily due to the increase in the number of active communities in 2014 as comparedto 2013.38Table of ContentsGeneral and Administrative. General and administrative expenses as a percentage of home sales revenues were 6.2% and 8.5% for the years ended December31, 2014 and 2013, respectively. The decrease in general and administrative expenses as a percentage of home sales revenues reflects leverage realized from theincrease in home sales revenues in 2014 and less accounting and professional expenses incurred during 2014 as compared to those incurred in 2013 in connectionwith the Reorganization Transactions and financial reporting for the IPO. General and administrative expenses for the year ended December 31, 2014 were $23.7million, an increase of $10.1 million, or 74.5%, from $13.6 million for the year ended December 31, 2013. The increase in the amount of general andadministrative expenses during the year ended December 31, 2014 as compared to the year ended December 31, 2013 is primarily attributable to additionalemployees added during 2014 to support the increased number of active communities and the higher number of home closings.Income from unconsolidated joint ventures. Our share of income from the LGI/GTIS Joint Ventures for the year ended December 31, 2013 was $4.3 million.We acquired our joint venture partner's interests in the LGI/GTIS Joint Ventures on November 13, 2013 in the GTIS Acquisitions.Gain on remeasurement of interests in LGI/GTIS Joint Ventures. A gain of $6.4 million was recognized by the Company for the year ended December 31,2013 on the remeasurement of our Predecessor's equity interests in the LGI/GTIS Joint Ventures in connection with the GTIS Acquisitions.Other Income. Other income, net of other expenses was $0.7 million for the year ended December 31, 2014, an increase of $0.7 million from $0.02 millionfor the year ended December 31, 2013. The increase in other income reflects the gain realized from the sale of land not directly associated with our corehomebuilding operations.(Income) loss attributable to non-controlling interests. The loss attributable to non-controlling interests for the year ended December 31, 2013 was $0.6million. During the year ended December 31, 2013, the losses are related to the initial operations of LGI Fund III Holdings, LLC formed in March 2013.Operating Income and Net Income. Operating income for the year ended December 31, 2014 was $42.4 million, an increase of $26.0 million, or 158.6%,from $16.4 million for the year ended December 31, 2013. Net income for the year ended December 31, 2014 was $28.2 million, an increase of $6.5 million, or30.0%, from $21.7 million for the year ended December 31, 2013. The increases are primarily attributed to a 121.8% increase in homes closed during 2014 ascompared to 2013, and offset by the (i) $6.4 million gain on remeasurement of our interests in the LGI/GTIS Joint Ventures in connection with the GTISAcquisitions recorded in 2013, (ii) $4.3 million of our share of income from the LGI/GTIS Joint Ventures in 2013, and (iii) increase in income tax expense reportedin 2014.39Table of ContentsUnaudited Pro Forma Financial InformationThe following unaudited pro forma statements of operations have been developed by applying pro forma adjustments to our audited statements of operationsfor the year ended December 31, 2013 and audited financial statements of the LGI/GTIS Joint Ventures. The unaudited pro forma statements of operations for theyear ended December 31, 2013 give effect to the GTIS Acquisitions as if they had occurred on January 1, 2012.The pro forma adjustments are based upon certain assumptions that we believe are reasonable under the circumstances. The pro forma financial data ispresented for informational purposes only. The pro forma financial data does not purport to represent what our results of operations would have been had the GTISAcquisitions actually occurred on the date indicated and does not purport to project our results of operations for any future period. The pro forma financialstatements should be read in conjunction with the information contained in other sections of this Annual Report including “Selected Financial Data,” in ourhistorical audited financial statements and related notes thereto, and other sections of this “Management’s Discussion and Analysis of Financial Condition andResults of Operations” appearing elsewhere in this Annual Report. All pro forma adjustments and their underlying assumptions are described more fully in thenotes to our pro forma statements of operations.The unaudited pro forma financial information has been prepared to give effect to the GTIS Acquisitions in accordance with ASC Topic 805, “BusinessCombinations”, (“ASC 805”). A fair value step-up adjustment of approximately $7.4 million was recorded to the real estate inventory and certain lot optioncontracts in connection with the GTIS Acquisitions. The pro forma adjustments do not reflect cost of sales related to the step-up adjustment since the step-up doesnot have a continuing impact on our results of operations due to the short-term impact on our financial performance.All pro forma adjustments and their underlying assumptions are described more fully in the notes to the pro forma statements of operations.40Table of ContentsUnaudited Pro Forma Statement of Operationsfor the Year Ended December 31, 2013LGI Homes,Inc. LGI/GTIS JointVentures (1) AdjustmentsLGI Homes,Inc. ProForma(dollars in thousands)Revenues: Home sales$160,067 $80,896 $—$240,963 Management and warranty fees2,729 — (2,729)(c)— Total revenues162,796 80,896 (2,729) 240,963Expenses: Cost of sales121,326 58,718 (213)(c)179,831 Selling expenses15,769 7,279 —23,048 General and administrative13,604 3,906 (2,300)(b)(c)15,210Income from unconsolidated LGI/GTISJoint Ventures(4,287) — 4,287(a)— Operating income16,384 10,993 (4,503) 22,874Interest expense51 — —51Gain on remeasurement of interest inLGI/GTIS Joint Ventures(6,446) — 6,446(d)—Other income, net(24) (75) —(99) Net income before income taxes22,80311,068(10,949)22,922Income tax provision1,066 194 —1,260 Net income21,73710,874(10,949)21,662Loss attributable to non-controllinginterests590 — —590Net income attributable to owners$22,327$10,874$(10,949)$22,252(1)This column is a combination of the financial statements of LGI-GTIS Holdings, LLC, LGI-GTIS Holdings II, LLC, LGI-GTIS Holdings III, LLC and LGI-GTIS HoldingsIV, LLC, for the period January 1, 2013 through November 13, 2013.Notes to Unaudited Pro Forma Statement of Operations for Year Ended December 31, 2013(a) Eliminates our Predecessor’s equity in the income of the LGI/GTIS Joint Ventures.(b) Reflects amortization of the $0.7 million marketing related intangible asset (i.e., trade name rights) recorded in the GTIS Acquisitions. The trade name rightshave an estimated useful life of three years based upon the timing of the majority of the forecasted revenues to be earned over the remaining development cycle ofthe LGI/GTIS Joint Ventures’ communities. Amortization is recorded on a straight-line basis. Pro forma amortization expense was $0.2 million for the year endedDecember 31, 2013.(c) Reflects the elimination of $2.7 million of management and warranty fees our Predecessor charged to the LGI/GTIS Joint Ventures during the period pursuantto certain management services agreements. The applicable management services agreements were terminated in connection with the GTIS Acquisitions. Thecorresponding charges of $2.5 million and $0.2 million were recorded to general and administrative expense and cost of sales, respectively, by the LGI/GTIS JointVentures.(d) Represents the elimination of gain on remeasurement of our Predecessor's equity interests in the LGI/GTIS Joint Ventures in connection with the GTISAcquisitions. The gain on remeasurement represents the Predecessor's equity interests at fair value less the carrying value of Predecessor's equity interest using theequity method of accounting.41Table of ContentsSupplemental Management's Discussion and AnalysisYear Ended December 31, 2014 Compared to Pro Forma Year Ended December 31, 2013Pro forma Homes Sales. Our home sales revenues and closings by division for the year ended December 31, 2014 and pro forma home sales revenues andclosings by division for the year ended December 31, 2013 were as follows (dollars in thousands, except average sales price): Pro Forma Year Ended December 31,2014 Year Ended December 31,2013 Revenues Closings Revenues ClosingsTexas $255,355 1,575 $201,121 1,358Southwest 45,725 273 26,191 170Florida 43,374 255 11,800 77Southeast 38,814 253 1,851 12Total home sales $383,268 2,356 $240,963 1,617Other Financial and Operating Data: 2014 2013Active communities at end of period 39 25Average sales price of homes closed $162,677 $149,018Gross margin (1) $102,787 $61,132Gross margin % (2) 26.8% 25.4%(1)Gross margin is home sales revenues less cost of sales.(2)Calculated as a percentage of home sales revenues.Home sales revenues for the year ended December 31, 2014 were $383.3 million, an increase of $142.3 million, or 59.1%, from pro forma home salesrevenues of $241.0 million for the year ended December 31, 2013. The increase in home sales revenues is primarily due to a 45.7% increase in homes closed andan increase in the average home sales price per home during the year ended December 31, 2014 as compared to year ended December 31, 2013, on a pro formabasis. We closed 2,356 homes during the year ended December 31, 2014, an increase of 739 homes closed, or 45.7%, over the 1,617 homes closed on a pro formabasis for the year ended December 31, 2013. This increase was primarily due to more active communities in 2014. The average home sales price for the year endedDecember 31, 2014 was $162,677, an increase of $13,659, or 9.2%, from the pro forma average home sales price of $149,018 for year ended December 31, 2013.This increase was primarily due to changes in product mix and a favorable pricing environment.Pro forma Cost of Sales and Gross Margin (pro forma home sales revenues less pro forma cost of sales). Cost of sales for the year ended December 31,2014 was $280.5 million, an increase of $100.7 million, or 56.0%, from pro forma cost of sales of $179.8 million for the year ended December 31, 2013. Thisincrease is primarily due to a 739-unit, or 45.7%, increase in homes closed for the year ended December 31, 2014 as compared to homes closed on a pro formabasis for the year ended December 31, 2013. Gross margin for the year ended December 31, 2014 was $102.8 million, an increase of $41.7 million, or 68.1%, frompro forma gross margin of $61.1 million for the year ended December 31, 2013. Gross margin as a percentage of home sales revenues was 26.8% for the yearended December 31, 2014 as compared to 25.4% for the year ended December 31, 2013, on a pro forma basis. The increase in gross margin as a percentage ofhome sales revenues reflects the higher average home sales prices for the year ended December 31, 2014 as compared to the year ended December 31, 2013, on apro forma basis partially offset by increased construction costs and higher lot costs.Pro forma Selling Expenses. Selling expenses as a percentage of home sales revenues were 9.6% in each of the years ended December 31, 2014 and 2013 (ona pro forma basis). Selling expenses for the year ended December 31, 2014 were $36.7 million, an increase of $13.6 million, or 59.1%, from pro forma sellingexpenses of $23.0 million for the year ended December 31, 2013. This increase is largely due to the higher number of home closings and the growth in activecommunities for the year ended December 31, 2014 as compared to the year ended December 31, 2013 on a pro forma basis. Sales commissions increased to $14.7million from $8.0 million and advertising and direct mail costs increased to $8.6 million for the year ended December 31, 2014 from $4.9 million for the yearended December 31, 2013, on a pro forma basis.42Table of ContentsPro forma General and Administrative. General and administrative expenses as a percentage of home sales revenues were 6.2% for the year ended December31, 2014 and pro forma general and administrative expenses as a percentage of pro forma home sales revenues were 6.3% for the year ended December 31, 2013.The decrease in general and administrative expenses as a percentage of home sales revenues reflects leverage from the increase in home sales revenues during 2014and less accounting and professional fees during 2014 as compared to those incurred in 2013 in connection with the Reorganization Transactions and financialreporting for the IPO. General and administrative expenses for the year ended December 31, 2014 were $23.7 million, an increase of $8.5 million, or 56.1%, frompro forma general and administrative expenses of $15.2 million for the year ended December 31, 2013. The increase in the amount of general and administrativeexpenses for the year ended December 31, 2014 as compared to the pro forma amount for the year ended December 31, 2013 is primarily due to the higher numberof home closings and active communities for 2014 as compared to 2013, on a pro forma basis. As a result of the increased number of active communities, we hiredmore employees during 2014.Pro forma Operating Income and Pro forma Net Income. Operating income for the year ended December 31, 2014 was $42.4 million, an increase of $19.5million, or 85.2%, from pro forma operating income of $22.9 million for the year ended December 31, 2013. Net income for the year ended December 31, 2014was $28.2 million, an increase of $6.5 million, or 30.2%, from pro forma net income of $21.7 million for the year ended December 31, 2013. The increase in netincome is primarily attributed to a 739-unit increase in homes closed and the increase in average home sales prices during the year 2014 as compared to 2013, on apro forma basis, net of the increase in income tax expense recorded in the year ended December 31, 2014, and increased expenses associated with newcommunities.Non-GAAP MeasuresIn addition to the results reported in accordance with U.S. GAAP, we have provided information in this Annual Report on Form 10-K relating to “adjustedgross margin,” and “adjusted EBITDA.”Adjusted gross marginAdjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We defineadjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales.Our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on grossmargin. However, because adjusted gross margin information excludes capitalized interest and purchase accounting adjustment, which have real economic effectsand could impact our results, the utility of adjusted gross margin information as a measure of our operating performance may be limited. In addition, othercompanies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should beconsidered only as a supplement to gross margin information as a measure of our performance.43Table of ContentsThe following table reconciles adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be mostdirectly comparable (dollars in thousands): Pro Forma Year Ended December 31, Year EndedDecember 31, 2015 2014 2013 2013Home sales $630,236 $383,268 $160,067 $240,963Cost of sales 463,304 280,481 121,326 179,831Gross margin 166,932 102,787 38,741 61,132Purchase accounting adjustments (a) 2,131 3,620 3,526 3,526Capitalized interest charged to cost of sales 6,057 1,704 1,104 1,104Adjusted gross margin $175,120 $108,111 $43,371 $65,762Gross margin % (b) 26.5% 26.8% 24.2% 25.4%Adjusted gross margin % (b) 27.8% 28.2% 27.1% 27.3% (a)Adjustments result from the application of purchase accounting for the GTIS Acquisitions and the acquisition of Oakmont (collectively the “Acquisitions”) and representthe amount of the fair value step-up adjustments included in cost of sales for real estate inventory sold after the acquisition dates.(b)Calculated as a percentage of home sales revenues.Adjusted EBITDAAdjusted EBITDA is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We defineadjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) capitalized interest charged to cost of sales,(v) other income, net and (vi) adjustments resulting from the application of purchase accounting. Our management believes that the presentation of adjustedEBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing andbenchmarking the performance and value of our business. Adjusted EBITDA provides an indicator of general economic performance that is not affected byfluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be non-recurring. Accordingly, our managementbelieves that this measurement is useful for comparing general operating performance from period to period. Other companies may define adjusted EBITDAdifferently and, as a result, our measure of adjusted EBITDA may not be directly comparable to adjusted EBITDA of other companies. Although we use adjustedEBITDA as a financial measure to assess the performance of our business, the use of adjusted EBITDA is limited because it does not include certain material costs,such as interest and taxes, necessary to operate our business. Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income inaccordance with GAAP as a measure of performance. Our presentation of adjusted EBITDA should not be construed as an indication that our future results will beunaffected by unusual or nonrecurring items. Our adjusted EBITDA is limited as an analytical tool, and you should not consider it in isolation or as a substitute foranalysis of our results as reported under GAAP. Some of these limitations are:•it does not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments, including for the purchase of land;•it does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or requireimprovements in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements or improvements;•it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;•it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and44Table of Contents•other companies in our industry may calculate it differently than we do, limiting its usefulness as a comparative measure.Because of these limitations, our adjusted EBITDA should not be considered a measure of discretionary cash available to us to invest in the growth of ourbusiness or as a measure of cash that will be available to us to meet our obligations. We compensate for these limitations by using our adjusted EBITDA along withother comparative tools, together with GAAP measurements, to assist in the evaluation of operating performance. These GAAP measurements include operatingincome, net income and cash flow data. We have significant uses of cash flows, including capital expenditures, interest payments and other non-recurring charges,which are not reflected in our adjusted EBITDA.Adjusted EBITDA is not intended as an alternative to net income as an indicator of our operating performance, as an alternative to any other measure ofperformance in conformity with GAAP or as an alternative to cash flows as a measure of liquidity. You should therefore not place undue reliance on our adjustedEBITDA calculated using this measure. Our GAAP-based measures can be found in our consolidated financial statements and related notes included elsewhere inthis Annual Report.The following table reconciles adjusted EBITDA to net income, which is the GAAP financial measure that our management believes to be most directlycomparable (dollars in thousands): Pro Forma Year Ended December 31, Year EndedDecember 31, 2015 2014 2013 2013Net income $52,830 $28,211 $21,737 $21,662Interest expense — — 51 51Income taxes 27,450 14,868 1,066 1,260Depreciation and amortization 884 662 295 820Purchase accounting adjustments (a) 2,131 3,620 3,526 3,526Capitalized interest charged to cost of sales 6,057 1,704 1,104 1,104Gain on remeasurement of interest in LGI/GTIS Joint Ventures (b) — — (6,446) —Other income, net (606) (708) (24) (99)Adjusted EBITDA $88,746 $48,357 $21,309 $28,324Adjusted EBITDA margin % (c) 14.1% 12.6% 13.3% 11.8% (a)Adjustments result from the application of purchase accounting for the Acquisitions and represent the amount of the fair value step-up adjustments included in cost ofsales for real estate inventory sold after the acquisition dates.(b)This adjustment results from the non-recurring gain recognized by us on the remeasurement of the Predecessor’s equity interest in the LGI/GTIS Joint Ventures inconnection with the GTIS Acquisitions.(c)Calculated as a percentage of home sales revenues.BacklogWe sell our homes under standard purchase contracts, which generally require a homebuyer to pay a deposit at the time of signing the purchase contract. Theamount of the required deposit is minimal (generally $1,000 or less). The deposits are refundable if the homebuyer is unable to obtain mortgage financing. Wepermit our homebuyers to cancel the purchase contract and obtain a refund of their deposit in the event mortgage financing cannot be obtained within a certainperiod of time, as specified in their purchase contract. Typically our homebuyers provide documentation regarding their ability to obtain mortgage financing within14 days after the purchase contract is signed. If we determine that the homebuyer is not qualified to obtain mortgage financing or is not otherwise financially ableto purchase the home, we will terminate the purchase contract. If a purchase contract has not been cancelled or terminated within 14 days after the purchasecontract has been signed, then the homebuyer has met the preliminary criteria to obtain mortgage financing. Only purchase contracts that are signed by homebuyerswho have met the preliminary criteria to obtain mortgage financing are included in new (gross) orders.45Table of ContentsOur “backlog” consists of homes that are under a purchase contract that are signed by homebuyers who have met the preliminary criteria to obtain mortgagefinancing but have not yet closed. Since our business model is based on building move-in ready homes before a purchase contract is signed, the majority of ourhomes in backlog are complete. Ending backlog represents the number of homes in backlog from the previous period plus the number of net orders (new orders forhomes less cancellations) generated during the current period minus the number of homes closed during the current period. Our backlog at any given time will beaffected by cancellations, the number of our active communities, and the timing of home closings. Homes in backlog are generally closed within one to twomonths, although we may experience cancellations of purchase contracts at any time prior to closing. It is important to note that net orders, backlog andcancellation metrics are operational, rather than accounting data, and should be used only as a general gauge to evaluate performance. Backlog may be impacted bycustomer cancellations for various reasons that are beyond our control, and in light of our minimal required deposit, there is little negative impact to the potentialhomebuyer from the cancellation of the purchase contract. As of the dates set forth below, our net orders, cancellation rate, and ending backlog homes and valuewere as follows (dollars in thousands): Backlog Data Year Ended December 31,2015 2014 2013Net orders (1) 3,628 2,259 1,080Cancellation rate (2) 27.2% 31.3% 23.5%Ending backlog – homes (3) 523 152 190Ending backlog – value (3) $102,593 $27,067 $30,095(1)Net orders are new (gross) orders for the purchase of homes during the period, less cancellations of existing purchase contracts during the period. New orders for 2014include home sale contracts acquired in the Oakmont Acquisition.(2)Cancellation rate for a period is the total number of purchase contracts cancelled during the period divided by the total new (gross) orders for the purchase of homesduring the period.(3)Ending backlog consists of homes at the end of the period that are under a purchase contract that have met our preliminary financing criteria but have not yet closed.Ending backlog is valued at the contract amount.Land Acquisition Policies and DevelopmentSee discussion included in “Business — Land Acquisition Policies and Development.”Homes in InventorySee discussion included in “Business — Homes in Inventory.”Raw MaterialsSee discussion included in “Business — Raw Materials.”SeasonalityIn all of our regions, we have historically experienced similar variability in our results of operations and in capital requirements from quarter to quarter dueto the seasonal nature of the homebuilding industry. We generally close more homes in our second, third and fourth quarters. Thus, our revenue may fluctuate on aquarterly basis and we may have higher capital requirements in our second, third and fourth quarters in order to maintain our inventory levels. Our revenue andcapital requirements are generally similar across our second, third and fourth quarters.As a result of seasonal activity, our quarterly results of operation and financial position at the end of a particular quarter, especially the first quarter, are notnecessarily representative of the results we expect at year end. We expect this seasonal pattern to continue in the long term.Liquidity and Capital ResourcesOverviewAs of December 31, 2015 , we had $37.6 million of cash and cash equivalents. Cash flows for each of our active communities depend on the status of thedevelopment cycle and can differ substantially from reported earnings. Early stages of development46Table of Contentsor expansion require significant cash outlays for land acquisitions, land development, plats, vertical development, construction of sales offices, general landscapingand other amenities. Because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes, we incursignificant cash outflows prior to recognition of revenues. In the later stages of an active community, cash inflows may significantly exceed revenues reported forfinancial statement purposes, as the costs associated with home and land construction were previously incurred.Our principal uses of capital are operating expenses, land and lot purchases, lot development, home construction, interest costs on our indebtedness and thepayment of various liabilities. In addition, we may purchase land, lots, homes under construction or other assets as part of a business combination.We generally rely on our ability to finance our operations by generating operating cash flows, borrowing under our revolving credit facility, and the issuanceand sale of shares of our common stock under our ATM program. We also rely on our ability to obtain performance, payment and completion surety bonds as wellas letters of credit to finance our projects.In addition, under our $300 million Form S-3 shelf registration statement, effective September 2015, we have the ability to access the debt and equity capitalmarkets, as needed as part of our ongoing financing strategy. Under the ATM Program, we may issue and sell from time to time shares of our common stockhaving an aggregate offering price of up to $30.0 million. We issued and sold 345,760 shares of our common stock under the ATM Program and received netproceeds of approximately $9.6 million during the year ended December 31, 2015 . At December 31, 2015, we have approximately $20.2 million of additionalequity issuances that have been authorized by our Board and can be issued under our ATM Program.We believe that we will be able to fund our current and foreseeable liquidity needs for at least the next twelve months with our cash on hand, cash generatedfrom operations, cash expected to be available from our revolving credit facility, and the issuance and sale of shares of our common stock under our ATM Programor through accessing debt or equity capital, as needed, under our shelf registration statement.Revolving Credit FacilityIn May 2015, we entered into a credit agreement (the “Credit Facility” or “Credit Agreement”) with several financial institutions, and Wells Fargo Bank,National Association, as administrative agent. The Credit Agreement provided for an initial revolving credit facility of $225.0 million , which could be increasedupon our request up to $300.0 million . The Credit Facility was increased by $30.0 million and $45 million to $300.0 million in accordance with the accordionfeature of the Credit Agreement during November 2015 and January 2016, respectively. The Credit Agreement matures on May 26, 2018. Prior to each annualanniversary of the Credit Agreement, we may request a one-year extension of the maturity date. The Credit Agreement is guaranteed by each of our subsidiarieshaving gross assets equal to or greater than $0.5 million. Prior to the occurrence of a trigger event under the Credit Agreement, the revolving credit facility isunsecured except for a first priority lien on certain land held for development, lots under development and/or finished lots with an aggregate land value of at least$35.0 million.As of December 31, 2015 , the borrowing base was $255.0 million , of which $230.0 million was outstanding, $3.4 million represents letter of creditassurances, and the remaining $21.6 million was available to borrow.The Credit Agreement requires us to maintain a tangible net worth of not less than $160.5 million plus (i) 75% of the net proceeds of any equity issuancesand (ii) 50% of the amount of our net income in any fiscal quarter after the date of the Credit Agreement, a leverage ratio of not greater than 67.5%, liquidity of atleast $40.0 million and a ratio of EBITDA to interest expense for the most recent four quarters of at least 2.50 to 1.0. The Credit Agreement also prohibits us frommaking any investments except as permitted under the Credit Agreement. In addition, the Credit Agreement contains various covenants that, among otherrestrictions, limit the amount of our additional debt. At December 31, 2015 , we were in compliance with all of the covenants contained in the Credit Agreement.Convertible NotesIn November 2014, we issued $85.0 million aggregate principal amount of our 4.25% Convertible Notes due 2019. The Convertible Notes mature onNovember 15, 2019 and bear interest at a rate of 4.25%, payable semiannually in May and November. Prior to May 15, 2019, the Convertible Notes will beconvertible only upon satisfaction of any of the specified conversion events. On or after May 15, 2019, note holders can convert their Convertible Notes at any timeat their option.On April 30, 2015, our stockholders approved the flexible settlement provisions of the Convertible Notes at the Company's 2015 Annual Meeting ofStockholders, which allows the Company to settle the conversion of the Convertible Notes using any combination of cash and shares of our common stock. Theinitial conversion rate is 46.4792 shares of our common stock for each $1,000 principal amount of the Convertible Notes, which represents an initial conversionprice of approximately $21.52 per share of our common stock. The conversion rate is subject to adjustments upon the occurrence of certain specified events.47Table of ContentsThe issuance of our Convertible Notes was recorded at the issuance date fair value of $76.5 million . The fair value was determined using a discount rate of6.6% based on the rate of return investors would require for a similar liability, reflecting an $8.5 million discount. $5.5 million of the remaining proceeds wasrecorded to additional paid-in capital to reflect the equity component of the Convertible Notes and $3.0 million was recorded as a deferred tax liability. Thecarrying amount of the Convertible Notes is being accreted over the term to maturity. The net proceeds from the offering of the Convertible Notes wasapproximately $82.0 million . Of the $3.0 million of debt issuance costs, $2.7 million was allocated to the liability component and the remaining $0.3 million wasallocated as an offset to the equity component of the Convertible Notes. At December 31, 2015, Notes payable in our accompanying consolidated financialstatements include $78.2 million representing the accreted principal amount of the Convertible Notes.Concurrent with the issuance of the Convertible Notes, we utilized, approximately $16.6 million of the net proceeds from the sale of the Convertible Notes torepurchase 1.0 million shares of our common stock held as treasury stock. The remaining net proceeds from issuance of the Convertible Notes were used for thepurchase of land and lots and general corporate purposes, including repayment of borrowings under our revolving credit facility.Letters of Credit, Surety Bonds and Financial GuaranteesWe are often required to provide letters of credit and surety bonds to secure our performance under construction contracts, development agreements andother arrangements. The amount of such obligations outstanding at any time varies in accordance with our pending development activities. In the event any suchbonds or letters of credit are drawn upon, we would be obligated to reimburse the issuer of such bonds or letters of credit.Under these letters of credit, surety bonds and financial guarantees, we are committed to perform certain development and construction activities and providecertain guarantees in the normal course of business. Outstanding letters of credit, surety bonds and financial guarantees under these arrangements, totaled $20.8million as of December 31, 2015. Although significant development and construction activities have been completed related to the improvements at these sites, theletters of credit and surety bonds are not generally released until all development and construction activities are completed. We do not believe that it is probablethat any outstanding letters of credit, surety bonds or financial guarantees as of December 31, 2015 will be drawn upon.Cash FlowsYear Ended December 31, 2015 compared to Year Ended December 31, 2014Net cash used in operating activities during the year ended December 31, 2015 was $89.2 million as compared to $173.2 million during the year endedDecember 31, 2014 . The $84.1 million decrease in net cash used in operating activities was primarily attributable to a $46.7 million net decrease in our investmentin real estate inventory for 2015 as compared to 2014. The decrease in net cash used in operating activities between periods also reflects a $24.6 million increase innet income, and $14.2 million increase in accounts payable, and accrued expenses and other liabilities during the year ended December 31, 2015, as a result of ourcontinued growth and the increased number of our active communities.Net cash used in investing activities during the year ended December 31, 2015 was $1.1 million as compared to $16.4 million used in investing activitiesduring the year ended December 31, 2014 . The decrease is due to our investment in the Oakmont Acquisition, completed in October 2014.Net cash provided by financing activities totaled $96.5 million during the year ended December 31, 2015 as compared to $166.9 million during the yearended December 31, 2014 . The $70.4 million decrease in net cash provided by financing activities is primarily due to the decrease in net borrowings in 2015 ascompared to 2014, partially offset by $9.6 million of net proceeds from the issuance and sale of shares of our common stock under our ATM Program in 2015.Year Ended December 31, 2014 compared to Year Ended December 31, 2013Net cash used in operating activities during the year ended December 31, 2014 was $173.2 million as compared to $54.5 million during the year endedDecember 31, 2013. The $118.7 million increase in net cash used in operating activities was primarily attributable to a $123.8 million net increase in real estateinventory for the year ended December 31, 2014 as compared to the year ended December 31, 2013. We made land and finished lot purchases in all of ourdivisions with the majority of purchases in Texas. Net cash used in operating activities is partially offset by an $6.5 million increase in net income in 2014.48Table of ContentsNet cash used in investing activities during the year ended December 31, 2014 was $16.4 million as compared to $31.3 million used in investing activitiesduring the year ended December 31, 2013. Net cash used of $15.2 million was associated with the Oakmont acquisition during the year ended December 31, 2014as compared to net cash payment of $30.1 million during the year ended December 31, 2013 associated with the GTIS Acquisitions.Net cash provided by financing activities totaled $166.9 million during the year ended December 31, 2014 as compared to $132.7 million during the yearended December 2013. The $34.1 million increase in net cash provided by financing activities is primarily due to the (i) $83.0 million increase in net borrowingsfrom our credit facility in the year ended December 31, 2014 as compared to the year ended December 31, 2013; (ii) the issuance of $85.0 million aggregateprincipal amount of Convertible Notes, which are offset by approximately $16.6 million of the net proceeds from the sale of the Convertible Notes used torepurchase 1.0 million shares of our common stock. Net cash provided by financing activities in 2013 included $113.9 million of net proceeds received from thesale of the Company’s common stock in the IPO, net of $11.2 million of underwriting discounts and commissions and offering related expenses.Off-Balance Sheet ArrangementsIn the ordinary course of business, we enter into land option contracts in order to procure land and lots for the construction of our homes. We are subject tocustomary obligations associated with entering into contracts for the purchase of land and improved lots. These purchase contracts typically require cash depositsand the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, which may include obtainingapplicable property and development entitlements. We also utilize option contracts with land sellers as a method of acquiring lots and land in staged takedowns, tohelp us manage the financial and market risk associated with land holdings, and to minimize the use of funds from our corporate financing sources. Optioncontracts generally require a non-refundable deposit for the right to acquire land or lots over a specified period of time at pre-determined prices. We generally havethe right at our discretion to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit with no further financialobligations to the land seller. In addition, our deposit may also be refundable if the land seller does not satisfy all conditions precedent in the respective contract. Asof December 31, 2015 , we had $6.4 million of cash deposits pertaining to land option contracts and purchase contracts for 6,318 lots with an aggregate purchaseprice of $155.5 million . Approximately $0.3 million of the cash deposits as of December 31, 2015 are related to purchase contracts to deliver finished lots andthese deposits are refundable under certain circumstances and secured by indemnity mortgages on the related property.Our utilization of land option contracts is dependent on, among other things, the availability of land, sellers willing to enter into option takedownarrangements, the availability of capital to financial intermediaries to finance the development of optioned lots, general housing conditions, and local marketdynamics. Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain markets.InflationOur business can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs. In addition, inflation canlead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to home buyers.Contractual Obligations TableThe following is a summary of our contractual obligations as of December 31, 2015 and the effect such obligations are expected to have on our liquidity andcash flows in future periods. 49Table of Contents Payments due by period (dollars in thousands)Contractual Obligations Total Lessthan1 year 1-3years 3-5years More than5 yearsBorrowings: Credit Facility (a) $230,000 $— $230,000 $— $—Convertible Notes (b) 85,000 — — 85,000 —Inventory related obligations (c) 17,389 343 784 882 15,380Interest and fees (d) 56,845 13,556 27,023 5,300 10,966Consulting agreements (e) 83 83 — — —Operating leases 1,602 590 998 14 —Total $390,919 $14,572 $258,805 $91,196 $26,346(a)Represents borrowings under our $255.0 million revolving credit facility (increased to $300.0 million in January 2016) which matures on May 26, 2018. See Note 9 “Notes Payable ” to our consolidated financial statements included in Part II Item 8 of this Annual Report on Form 10-K for additional information regarding our long-term debt.(b)Represents $85.0 million aggregate principal amount of our 4.25% Convertible Notes due 2019. The Convertible Notes mature on November 15, 2019. See Note 9 “Notes Payable ” to our consolidated financial statements included in Part II Item 8 of this Annual Report on Form 10-K for additional information regarding our long-term debt.(c)The Company owns lots in certain communities that have Community Development Districts (“CDD”) or similar utility and infrastructure development specialassessment programs that allocate a fixed amount of debt service associated with development activities to each lot. Such obligations represent a non-cash cost of thelots.(d)All of the outstanding borrowings under our Credit Facility is at variable rates based on LIBOR, or subject to an interest rate floor. The interest rate for our variable rateindebtedness as of December 31, 2015 was 3.50%. Fees on the Credit Facility are approximately $0.1 million per year. Interest on our Convertible Notes accrues at afixed rate of 4.25% per year and is payable semiannually beginning on May 15, 2015 through November 15, 2019. Inventory related obligations for infrastructuredevelopment attached to the land are subject to a fixed interest rate generally ranging from 1.32% to 7.13%, typically payable over a 30 year period, and are ultimatelyassumed by the homebuyer when home sales are closed.(e)We have a consulting agreement that requires monthly installments of $8,333 through October 2016. This is a non-interest bearing obligation.In connection with the Oakmont acquisition, we recorded an earnout obligation on the acquisition date which was determined based on the forecastednumber of home closings. The actual amount of the earnout may be more or less than the estimated amount and will be based on the actual number of homes closedfrom the acquired assets and the timing of the home closings from the acquisition date through December 31, 2017. The earnout obligation is estimated to be $1.4million at December 31, 2015. We have not included this obligation in the table above.Critical Accounting PoliciesDiscussed below are accounting policies that we believe are critical because of the significance of the activity to which they relate or because they require theuse of significant judgment in their application.Revenue RecognitionHome Sales . In accordance with ASC Topic 360—20, Real Estate Sales, revenues from home sales are recorded at the time each home sale is closed, titleand possession are transferred to the buyer, and the Company has no significant continuing involvement with the home. Home sales proceeds are generallyreceived from the title company within a few days from closing. Home sales are reported net of sales discounts and incentives granted to homebuyers, which areprimarily seller-paid closing costs. The profit we record on each home sale is based on the calculation of cost of sales, which is dependent on our allocation ofcosts, as described in more detail in “—Real Estate Inventory and Cost of Home Sales” below.Real Estate Inventory and Cost of Home SalesInventory consists of land, land under development, finished lots, sales offices, homes in progress and completed homes. Inventory is stated at cost unless thecarrying amount is determined not to be recoverable, in which case inventory is written down to fair value.50Table of ContentsPre-acquisition costs, land, development and other project costs, including interest and property taxes, incurred during development and home construction,and net of expected reimbursements of development costs, are capitalized to real estate inventory. Pre-acquisition costs, land development and other common coststhat benefit the entire community, including field construction supervision and related direct overhead, are allocated to individual lots or homes, as appropriate, ona [pro rata basis which we believe approximates the costs that would be determined using an allocation method based on relative sales values since the individuallots or homes within a community are similar in value.]Changes to estimated total development costs subsequent to initial home closings in a community are allocated to the remaining unsold homes in thecommunity on a prospective basis. Home construction costs and related carrying charges are allocated to the cost of individual homes using the specificidentification method and are capitalized as they are incurred. Capitalized interest, property taxes, and other carrying costs are generally capitalized to real estateinventory from the point development begins to the point construction is completed. Costs associated with homes sold are charged to cost of sales simultaneouslywith revenue recognition.Impairment of Real Estate Inventories. In accordance with ASC Topic 360, Property, Plant, and Equipment , real estate inventory is evaluated for indicatorsof impairment by each community during each reporting period. In conducting our review for indicators of impairment on a community level, we evaluate, amongother things, the margins on homes that have been delivered, communities with slow moving inventory, projected margins on future home sales over the life of thecommunity, and the estimated fair value of the land. We pay particular attention to communities in which inventory is moving at a slower than anticipatedabsorption pace and communities whose average sales prices and/or margins are trending downward and are anticipated to continue to trend downward. Duelargely to the relatively short development and construction periods for our communities and our growth, we have not experienced circumstances during 2015 or2014 that are indicators of impairment. Our future sales and margins may be impacted by our inability to realize continued growth, increased cost associated withholding and developing land, local economic factors, pressure on home sales prices, increased carrying costs, and insufficient access to labor and materials atreasonable costs. For individual communities with indicators of impairment, we perform additional analysis to estimate the community’s undiscounted future cashflows. If the estimated undiscounted future cash flows are greater than the carrying value of the asset, no impairment adjustment is required. If the undiscountedcash flows are less than the asset’s carrying value, the asset is impaired and is written down to its fair value. We estimate the fair value of communities using adiscounted cash flow model; changes to the expected cash flows may lead to changes in the outcome of our impairment analysis.The life cycle of a community generally ranges from three to five years, commencing with the acquisition of land, continuing through the land developmentphase, and concluding with the construction, sale, and delivery of homes. A constructed home is used as the community sales office during the life of thecommunity and then sold. Actual individual community lives will vary based on the size of the community, the sales absorption rate, and whether we purchased theproperty as raw land or finished lots.Impairment of land and land under development . For raw land, land under development and completed lots that our management anticipates will be utilizedfor future homebuilding activities or to be sold as finished lots to individuals, the recoverability of assets is measured by comparing the carrying amount of theassets to future undiscounted cash flows expected to be generated by the assets based on home sales or lot sale, consistent with the evaluation of operatingcommunities discussed above. As of December 31, 2015, we had not identified any raw land, land under development or completed lots that management intendsto market for sale in bulk to a third party.Pre-acquisition costs and controlled lots not owned . We enter into land deposit and option agreements in the ordinary course of business in order to secureland for the construction of homes in the future. Pursuant to these land option agreements, we typically provide a deposit to the seller as consideration for the rightto purchase land at different times in the future, usually at predetermined prices. We do not have title to the property and our obligations with respect to the optioncontracts are generally limited to the forfeiture of the related nonrefundable cash deposits.To the extent that any deposits are nonrefundable and the associated land acquisition process is terminated or no longer determined probable, the deposit andany related pre-acquisition costs (e.g. due diligence costs) are charged to other income, net. We review the likelihood of the acquisition of contracted lots inconjunction with our periodic real estate impairment analysis.Warranty ReservesWe typically provide homebuyers with a one-year warranty on the house and a ten-year limited warranty for major defects in structural elements. Estimatedfuture direct warranty costs are accrued and charged to cost of sales in connection with our home sales. In addition, prior to November 13, 2013, for each homesold by the LGI/GTIS Joint Ventures, we were obligated to fund the warranty costs of the LGI/GTIS Joint Ventures under the respective management servicesagreements and we collected a warranty fee of $250 from the LGI/GTIS Joint Ventures.51Table of ContentsOur warranty liability is based upon historical warranty cost experience on a per house basis established based on (i) trends in historical warranty paymentlevels, (ii) the historical range of amounts paid per house, (iii) any warranty expenditures not considered to be normal and recurring and is adjusted as appropriateto reflect qualitative risks associated with the types of homes built, the geographic areas in which they are built, and potential impacts of our expansion. Ouranalysis also considers improvements in quality control and construction techniques expected to impact future warranty expenditures and the expertise of ourpersonnel. Our warranty reserves are reviewed quarterly to assess the reasonableness and adequacy and we make adjustments to the balance of the pre-existingreserves, as needed, to reflect changes in trends and historical data as information becomes available.Business CombinationsWe account for businesses we acquire in accordance with ASC 805. Under the purchase method of accounting, the assets acquired and liabilities assumed arerecorded at their estimated fair values. Any excess of the purchase consideration over the net fair values of tangible and identified intangible assets acquired lessliabilities assumed is recorded as goodwill. Our reported income from an acquired company includes the operations of the acquired company from the effectivedate of acquisition. Contingent consideration is recorded at fair value at the acquisition date; in subsequent periods any change in the fair value of the contingentconsideration is recognized in the income statement as cost of sales.Goodwill We record goodwill associated with our acquisitions of businesses when the consideration paid exceeds the fair value of the net tangible and identifiableintangible assets acquired. We evaluate our goodwill balances for potential impairment on an annual basis. The current guidance allows an entity to assessqualitatively whether it is necessary to perform step one of a prescribed two-step annual goodwill impairment test. If an entity believes, as a result of its qualitativeassessment, that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, the two-step goodwill impairment test is not required.TaxesWe utilize the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are recognized using enacted taxrates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Deferred tax assets are reduced by a valuationallowance if it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Our ability to realize deferred tax assets is assessedthroughout the year and a valuation allowance is established, if required. We recognize the impact of a tax position only if it is more likely than not to be sustainedupon examination based on the technical merits of the position. We recognize potential interest and penalties related to uncertain tax positions in income taxexpense, as applicable.Implications of Being an Emerging Growth Company We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Thus, we are not required toprovide more than two years of audited financial statements, selected financial data and related Management’s Discussion and Analysis of Financial Condition andResults of Operations in this Annual Report. For as long as we are an emerging growth company, unlike other public companies, we will not be required to:•provide an attestation and report from our auditors on management’s assessment of the effectiveness of our system of internal control overfinancial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;•comply with certain new requirements adopted by the PCAOB;•comply with certain new audit rules adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise;•provide disclosures regarding executive compensation required of larger public companies; and•obtain stockholder approval of any golden parachute payments not previously approved.We intend to take advantage of all of these exemptions. We will cease to be an emerging growth company when any of the following conditions apply:•we have $1.0 billion or more in annual revenues;•at least $700 million in market value of our common stock are held by non-affiliates;•we issue more than $1.0 billion of non-convertible debt over a three-year period; or•the last day of the fiscal year following the fifth anniversary of our initial public offering has passed.52Table of ContentsIn addition, an emerging growth company can delay its adoption of certain accounting standards until those standards would otherwise apply to privatecompanies. However, we have chosen to “opt out” of such extended transition period, and as a result, we will comply with any new or revised accounting standardson the relevant dates on which non-emerging growth companies must adopt such standards. Section 107 of the JOBS Act provides that our decision to opt out ofthe extended transition period for complying with new or revised accounting standards is irrevocable.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKOur operations are interest rate sensitive. As overall housing demand is adversely affected by increases in interest rates, a significant increase in mortgageinterest rates may negatively affect the ability of homebuyers to secure adequate financing. Higher interest rates could adversely affect our revenues, gross marginand net income. We do not enter into, or intend to enter into, derivative financial instruments for trading or speculative purposes.Quantitative and Qualitative Disclosures About Interest Rate RiskWe utilize both fixed-rate debt ($85.0 million aggregate principal amount of our 4.25% Convertible Notes) and variable-rate debt, (our $255.0 millionrevolving credit facility which was increased to $300.0 million in January 2016) as part of financing our operations. On April 30, 2015, our stockholders approvedthe flexible settlement provisions of the Convertible Notes at our 2015 Annual Meeting of Stockholders, which allows us to settle the conversion of our ConvertibleNotes using any combination of cash and shares of our common stock. We do not have the obligation to prepay the Convertible Notes or our fixed-rate inventoryrelated obligations prior to maturity, and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed-rate debt.We are exposed to market risks related to fluctuations in interest rates on our outstanding variable rate indebtedness. We did not utilize swaps, forward oroption contracts on interest rates or commodities, or other types of derivative financial instruments as of or during the year ended December 31, 2015. We have notentered into and currently do not hold derivatives for trading or speculative purposes, but we may do so in the future. Many of the statements contained in thissection are forward looking and should be read in conjunction with our disclosures under the heading “Cautionary Statement about Forward-Looking Statements”in Item 1A. Risk Factors.As of December 31, 2015, we had $230.0 million of variable rate indebtedness outstanding under our revolving credit facility. All of the outstandingborrowings under our credit facility are at variable rates based on LIBOR plus a credit spread determined based on leverage ratio, or subject to an interest ratefloor. The interest rate for our variable rate indebtedness as of December 31, 2015 was 3.50% . A hypothetical 100 basis point increase in the average interest rateon our variable rate indebtedness would increase our annual interest expense based on the current outstanding balance by approximately $2.3 million .Based on the current interest rate management policies we have in place with respect to our outstanding indebtedness, we do not believe that the futureinterest rate risks related to our existing indebtedness will have a material adverse impact on our financial position, results of operations or liquidity.53Table of ContentsITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMT he Board of Directors and Shareholders of LGI Homes, Inc.We have audited the accompanying consolidated balance sheets of LGI Homes, Inc. as of December 31, 2015 and 2014, and the related consolidated statements ofoperations, equity and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audits. With respect to the period from January 1,2013 through November 13, 2013, we did not audit the financial statements of: LGI - GTIS Holdings, LLC; LGI - GTIS Holdings II, LLC; LGI - GTIS HoldingsIII, LLC; and LGI- GTIS Holdings IV, LLC (collectively GTIS Entities), which entities are limited liability companies in which the Company had equity interests.In the consolidated financial statements, the Company’s equity in the net income of the GTIS Entities is stated at $4,286,639 for the period from January 1, 2013through November 13, 2013. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to theamounts included for GTIS Entities, is based solely on the report of the other auditors.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, theconsolidated financial position of LGI Homes, Inc.at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of thethree years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles./s/ Ernst & Young LLPHouston, TexasMarch 9, 201654Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and ShareholdersLGI-GTIS Holdings, LLC and SubsidiariesWe have audited the consolidated balance sheets of LGI-GTIS Holdings, LLC and Subsidiaries (the “Company”) as of November 13, 2013, and the relatedconsolidated statements of operations, members’ equity, and cash flows for the period from January 1, 2013 through November 13, 2013. These consolidatedfinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statementsbased on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were notengaged to perform an audit of the Company’s internal controls over financial reporting. An audit includes consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for ouropinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of LGI-GTIS Holdings, LLC and Subsidiaries at November 13, 2013, and the results of their operations and their cash flows for the period from January 1, 2013 throughNovember 13, 2013, in conformity with U.S. generally accepted accounting principles./s/ Armanino LLPSan Ramon, CaliforniaMarch 31, 201455Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and ShareholdersLGI-GTIS Holdings II, LLC and SubsidiariesWe have audited the consolidated balance sheets of LGI-GTIS Holdings II, LLC and Subsidiaries (the Company) as of November 13, 2013, and the relatedconsolidated statements of operations, members’ equity, and cash flows for the period from January 1, 2013 through November 13, 2013. These consolidatedfinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statementsbased on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were notengaged to perform an audit of the Company’s internal controls over financial reporting. An audit includes consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimated made bymanagement, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of LGI-GTISHoldings II, LLC and Subsidiaries at November 13, 2013, and the results of their operations and their cash flows for the period from January 1, 2013 throughNovember 13, 2013, in conformity with U.S. generally accepted accounting principles./s/ Armanino LLPSan Ramon, CaliforniaMarch 31, 201456Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and ShareholdersLGI-GTIS Holdings III, LLC and SubsidiariesWe have audited the consolidated balance sheets of LGI-GTIS Holdings III, LLC and Subsidiaries (the Company) as of November 13, 2013, and the relatedconsolidated statements of operations, members’ equity, and cash flows for the period from January 1, 2013 through November 13, 2013. These consolidatedfinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statementsbased on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were notengaged to perform an audit of the Company’s internal controls over financial reporting. An audit includes consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for ouropinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LGI-GTIS Holdings Ill,LLC and Subsidiaries at November 13, 2013, and the results of their operations and their cash flows for the period from January 1, 2013 through November 13,2013, in conformity with U.S. generally accepted accounting principles./s/ Armanino LLPSan Ramon, CaliforniaMarch 31, 201457Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and ShareholdersLGI-GTIS Holdings IV, LLC and SubsidiariesWe have audited the consolidated balance sheets of LGI-GTIS Holdings IV, LLC and Subsidiaries (the “Company”) as of November 13, 2013, and therelated consolidated statements of operations, members’ equity, and cash flows for the period from January 1, 2013 through November 13, 2013. Theseconsolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financialstatements based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were notengaged to perform an audit of the Company’s internal controls over financial reporting. An audit includes consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for ouropinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LGI-GTIS Holdings IV,LLC and Subsidiaries at November 13, 2013, and the results of their operations and their cash flows for the period from January 1, 2013 through November 13,2013, in conformity with U.S. generally accepted accounting principles. /s/ Armanino LLPSan Ramon, CaliforniaMarch 31, 201458Table of ContentsLGI HOMES, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share data) December 31, 2015 2014 ASSETS Cash and cash equivalents $37,568 $31,370Accounts receivable 17,325 7,365Real estate inventory 531,228 367,908Pre-acquisition costs and deposits 7,001 9,878Property and equipment, net 2,108 1,610Other assets 14,869 7,515Goodwill and intangible assets, net 12,234 12,481Total assets $622,333 $438,127 LIABILITIES AND EQUITY Accounts payable $24,020 $15,479Accrued expenses and other liabilities 40,006 21,365Deferred tax liabilities, net 2,726 2,685Notes payable 308,192 216,099Total liabilities 374,944 255,628COMMITMENTS AND CONTINGENCIES (Note 16) EQUITY Common stock, par value $0.01, 250,000,000 shares authorized, 21,270,389 shares issued and20,270,389 shares outstanding as of December 31, 2015 and 20,849,044 shares issued and 19,849,044shares outstanding as of December 31, 2014 213 208Additional paid-in capital 175,575 163,520Retained earnings 88,151 35,321Treasury stock, at cost, 1,000,000 shares (16,550) (16,550)Total equity 247,389 182,499Total liabilities and equity $622,333 $438,127See accompanying notes to the consolidated financial statements.59Table of ContentsLGI HOMES, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except share and per share data) For the Year Ended December 31, 201520142013 Revenues: Home sales$630,236$383,268$160,067 Management and warranty fees——2,729 Total revenues630,236383,268162,796 Cost of sales463,304280,481121,326 Selling expenses52,99836,67215,769 General and administrative34,26023,74413,604 Income from unconsolidated LGI/GTIS Joint Ventures——(4,287) Operating income79,67442,37116,384 Interest expense, net——51 Gain on remeasurement of interests in LGI/GTIS Joint Ventures——(6,446) Other income, net(606)(708)(24) Net income before income taxes80,28043,07922,803 Income tax provision27,45014,8681,066 Net income52,83028,21121,737 Loss attributable to non-controlling interests——590 Net income attributable to owners$52,830$28,211$22,327 Earnings per share: Basic$2.65 $1.37 $0.341Diluted$2.44 $1.33 $0.341 Weighted average shares outstanding: Basic19,939,761 20,666,758 20,763,4491 Diluted21,740,719 21,202,967 20,834,1241 (1) For the year ended December 31, 2013 earnings per share and weighted average shares outstanding are presented for the period from November 13, 2013 (postReorganization Transactions and date of closing of IPO) to December 31, 2013. See Note 11 - Equity for calculation of earnings per share .See accompanying notes to the consolidated financial statements.60Table of ContentsLGI HOMES, INC.CONSOLIDATED STATEMENTS OF EQUITY(In thousands, except share data) Common Stock AdditionalPaid-InCapital RetainedEarnings TreasuryStock TotalOwners’Equity Non-ControllingInterests Total Equity Shares Amount BALANCE—December 31, 2012— $— $— $— $— $25,211 $— $25,211Net income (loss) before ReorganizationTransactions (Note 1)— — — — — 15,217 (590) 14,627Contributions— — — — — 2,535 15,797 18,332Distributions— — — — — (9,111) — (9,111)Issuance of shares in connection withformation of LGI Homes, Inc., July 9, 20131,000 — 1 — — — — 1Issuance of shares in connection withReorganization Transactions10,003,358 100 48,959 — — (33,852) (15,207) —Issuance of restricted stock units in settlementof accrued bonuses— — 1,026 — — — — 1,026Compensation expense for equity awards— — 43 — — — — 43Issuance of shares in Initial public offering, netof underwriting fees and offering expensesof $11,21610,350,000 104 102,531 — — — — 102,635Issuance of shares for GTIS Acquisitions409,091 4 4,496 — — — — 4,500Net income post Reorganization Transactions— — — 7,110 — — — 7,110BALANCE—December 31, 201320,763,449 $208 $157,056 $7,110$— $— $— $164,374Net income— — — 28,211 — — — 28,211Issuance of restricted stock units in settlementof accrued bonuses— — 642 — — — — 642Compensation expense for equity awards— — 862 — — — — 862Stock issued under employee incentive plans85,595 — (240) — — — — (240)Issuance of Convertible Notes, equity portion,net of issuance costs of $297 and tax effectof $2,971— — 5,200 — — — — 5,200Repurchase of stock— — — — (16,550) — — (16,550)BALANCE—December 31, 201420,849,044 $208 $163,520 $35,321 $(16,550) $— $— $182,499Net income— — — 52,830 — — — 52,830Issuance of shares, net of offering costs345,760 4 9,492 — — — — 9,496Issuance of restricted stock units in settlementof accrued bonuses— — 238 — — — — 238Compensation expense for equity awards— — 2,279 — — — — 2,279Stock issued under employee incentive plans75,585 1 46 — — — — 47BALANCE—December 31, 201521,270,389 $213 $175,575 $88,151 $(16,550) $— $— $247,389See accompanying notes to the consolidated financial statements.61Table of ContentsLGI HOMES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) For the Year Ended December 31, 2015 2014 2013 Cash flows from operating activities: Net income $52,830 $28,211 $21,737Adjustments to reconcile net income to net cash provided by (used in) operating activities: Income from unconsolidated LGI/GTIS Joint Ventures — — (4,287)Distributions from unconsolidated LGI/GTIS Joint Ventures — — 4,414Gain on remeasurement of interests in LGI/GTIS Joint Ventures — — (6,446)Depreciation and amortization 883 825 292Gain on settlement of participation fee obligation — — (9)Loss on disposal of assets — 14 56Settlement of accrued bonuses with restricted stock units — — 1,026Excess tax benefits from stock based compensation (47) (356) —Compensation expense for equity awards 2,279 862 43Deferred income taxes 42 1 (288)Changes in assets and liabilities: Accounts receivable (9,960) (1,963) (3,871)Real estate inventory (151,707) (198,357) (74,595)Pre-acquisition costs and deposits 2,877 (6,066) (2,705)Other assets (4,795) (617) 286Accounts payable 9,630 1,480 5,827Accrued expenses and other liabilities 8,812 2,752 4,031Net cash used in operating activities (89,156) (173,214) (54,489)Cash flows from investing activities: Payment for business acquisitions, net of cash acquired — (15,169) (30,139)Purchases of property and equipment (1,117) (1,195) (685)Capital investments in unconsolidated LGI/GTIS Joint Ventures — — (928)Capital distributions from unconsolidated LGI/GTIS Joint Ventures — — 458Proceeds from disposal of assets — — 35Net cash used in investing activities (1,117) (16,364) (31,259)Cash flows from financing activities: Proceeds from notes payable 245,382 232,400 72,932Payments on notes payable (154,786) (43,531) (52,042)Loan issuance costs (2,238) (5,200) —Payment for offering costs (419) — —Payment for earnout obligation (1,108) — —Excess tax benefits (deficiencies) from equity awards 47 (240) —Stock repurchases — (16,550) —Contributions from owners — — 2,535Distributions to owners — — (9,111)Proceeds from sale of stock, net of offering expenses 9,593 — 102,636Contributions from non-controlling interests — — 15,797Net cash provided by financing activities 96,471 166,879 132,747Net increase (decrease) in cash and cash equivalents 6,198 (22,699) 46,999Cash and cash equivalents, beginning of year 31,370 54,069 7,070Cash and cash equivalents, end of year $37,568 $31,370 $54,069See accompanying notes to the consolidated financial statements.62Table of ContentsLGI HOMES, INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS1. ORGANIZATION AND BUSINESSOrganization and Description of the BusinessLGI Homes, Inc. a Delaware corporation (the “Company”, “us,” “we,” or “our,”), was organized on July 9, 2013 as a holding company for the purposes offacilitating the initial public offering (the “IPO”) of its common stock in November 2013.The Company's principal business is the development of communities and the design, construction and sale of homes. At December 31, 2015 , the Companyhad operations in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina South Carolina, Washington and Tennessee.Initial Public Offering and Reorganization TransactionsOn November 13, 2013, we completed the IPO and received net proceeds of $102.6 million . In conjunction with the IPO, the Company completed thereorganization of LGI Homes Group, LLC and LGI Homes Corporate, LLC and their consolidated subsidiaries and variable interest entities, as well as LGI HomesII, LLC, LGI Homes - Sunrise Meadow, LLC, LGI Homes - Canyon Crossing, LLC, and LGI Homes - Deer Creek, LLC, (collectively, the “Predecessor”) into LGIHomes, Inc. (the “Reorganization Transactions”).Immediate family members, a father and son (the “Family Principals”), individually or jointly owned more than 50% of the voting ownership interest of eachentity comprising the Predecessor. The Predecessor entities and the Company were under common management, operated in the same business, and werecontrolled by the Family Principals immediately before and after the Reorganization Transactions. Following the reorganization, the entities that comprised thePredecessor are wholly-owned subsidiaries of the Company. The Reorganization Transactions were accounted for at the transaction date as a consolidation ofentities under common control. In addition, since the Predecessor controlled LGI Fund III Holdings, LLC before and after the IPO, the Company accounted for theacquisition of the non-controlling interests as an equity transaction. The accompanying consolidated financial statements present the historical financial statementsof the Predecessor as though they were owned by LGI Homes, Inc. prior to the Reorganization Transactions.2. ACQUISITIONSOakmont AcquisitionOn October 2, 2014, we acquired certain home building assets and liabilities of Oakmont Home Builders, Inc. (“Oakmont”) and certain land positions of ESTProperties, LLC, an affiliate of Oakmont (the “Oakmont Acquisition”). As a result of the Oakmont Acquisition, we established an immediate presence inresidential homebuilding in the Charlotte, North Carolina, market acquiring 150 homes under construction and more than 1,000 owned and controlled lots. Thetotal purchase price for the Oakmont Acquisition was approximately $17.3 million , consisting of approximately $15.2 million , in cash and a contingent earnoutbased on home closings through December 31, 2017. The fair value of the earnout at the acquisition date was estimated to be approximately $2.2 million .The acquisition was accounted for in accordance with ASC Topic 805, “Business Combinations”, (“ASC 805”), and the acquired assets and assumedliabilities have been recorded at their estimated fair values at the acquisition date as noted below (amounts in thousands):63Table of ContentsPurchase Consideration: TotalCash paid for net assets $15,169Contingent consideration (earnout) 2,162 Total consideration $17,331Assets acquired and liabilities assumed: Real estate inventory $20,227Pre-acquisition costs, deposits and other assets 177 Total Assets $20,404Accounts payable and accrued liabilities (2,682)Customer deposits (391) Total Liabilities (3,073) Net assets acquired $17,331There were no significant intangible assets acquired in connection with the Oakmont Acquisition.We determined the estimated fair values of the real estate inventory with the assistance of appraisals performed by independent third-party specialists,discounted cash flow analyses and estimates by management. The fair value of the earnout on the acquisition date of approximately $2.2 million was determinedbased on the forecasted number of home closings adjusted to reflect probability weighted absorption scenarios and a 10% discount rate. We estimated the earnoutmay be more or less than the $2.6 million undiscounted amount associated with homes to be closed from the acquired assets and the timing of the home closingsand land development activities. The earnout liability is included in other liabilities on the consolidated balance sheet and is reassessed on a quarterly basis andsubject to adjustment based on revisions to the forecasted absorption rate and the actual number of homes closed during the earnout period. No adjustment to theestimated earnout liability was necessary as of December 31, 2015.Significant assumptions included in our estimates of the fair value of the assets acquired and the earnout include future development costs and the timing ofthe completion of development activities, absorption rates, mix of products sold in each community, and the discount rate. Based on the estimated purchaseconsideration, management believes that the purchase price for the Oakmont Acquisition was at market value and there was no excess of purchase price over thenet fair value of assets acquired and liabilities assumed.General and administrative expenses for the year ended December 31, 2014 include approximately $0.7 million of acquisition related costs for legal and duediligence services related to the Oakmont Acquisitions.During the years ended December 31, 2015 and 2014, we closed 269 homes and 71 homes, respectively, subject to the earnout. The earnout is paid quarterly.As of December 31, 2015, we have paid $1.1 million to the sellers and the balance of the earnout liability is approximately $1.4 million , including approximately$0.3 million payable during the first quarter of 2016 for fourth quarter 2015 home closings.LGI/GTIS Joint Venture Partners' InterestsConcurrent with the IPO, we acquired from GTIS Partners, LP and its affiliated entities (“GTIS”) all of GTIS’ equity interests in four unconsolidated jointventures with the Predecessor, namely LGI-JV Holdings, LLC (formerly LGI-GTIS Holdings, LLC), LGI-JV Holdings II, LLC (formerly LGI-GTIS Holdings II,LLC), LGI-JV Holdings III, LLC (formerly LGI-GTIS Holdings III, LLC) and LGI-JV Holdings IV, LLC (formerly LGI-GTIS Holdings IV, LLC) (collectively,the “LGI/GTIS Joint Ventures”), in exchange for aggregate consideration of $41.3 million , consisting of cash of approximately $36.8 million and 409,091 sharesof our common stock valued at $4.5 million on the IPO date (the “GTIS Acquisitions”). As discussed at Note 6, the LGI/GTIS Joint Ventures were historicallyaccounted for as unconsolidated joint ventures under the equity method of accounting. As a result of the GTIS Acquisitions, we began consolidating the entities. Asrequired by ASC 805, the acquired assets and assumed liabilities were accounted for at fair value and the Predecessor’s historical interests in the joint ventureswere remeasured at fair value at the acquisition date.In connection with the purchase accounting, we recorded a gain of $6.4 million on the re-measurement of the Predecessor’s equity interest in the LGI/GTISJoint Ventures and $12.7 million of goodwill and other intangibles. In addition, there was a $7.9 million step-up adjustment to record the acquisition date realestate inventory and lot option contracts at fair value. Approximately $1.2 million , $2.9 million and $3.5 million of the $7.9 million fair value step-up adjustmentis included in cost of sales for the years ended December 31, 2015, 2014 and 2013, respectively, related to real estate inventory and lot option contracts atNovember64Table of Contents13, 2013 that were sold during the respective periods. As of December 31, 2015 and 2014, a total of $7.6 million and $6.4 million of the step-up adjustment hasbeen amortized to cost of sales, respectively.In connection with the GTIS Acquisitions, certain rights to the LGI Homes trade name were reacquired. The fair value of this intangible asset was calculatedbased upon the forecasted revenues of the LGI/GTIS Joint Ventures using a relief-from-royalty valuation model. The intangible asset was valued at $0.7 millionand is being amortized on a straight line basis over 3 years .The supplemental pro forma information presented below (in thousands) presents the home sales revenues, cost of sales, and net income before income taxesfor 2013 as if the GTIS Acquisitions date had been completed on January 1, 2012.Unaudited Pro Forma Financial InformationFor the Year Ended December 31,2013Home sales revenues$240,963Cost of sales$179,831Net income before income taxes$22,922The pro forma results have been adjusted to reflect the elimination of the Predecessor's equity in earnings of the LGI/GTIS Joint Ventures. The pro formaresults also reflect $0.2 million each year for the amortization expense related to the marketing intangible asset. The pro forma financial information excludes theimpact of the gain on re-measurement and the incremental impact of the fair value step-up adjustment of real estate inventory and lot option contracts as these areconsidered to be non-recurring items.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of PresentationThe consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles ( “ GAAP ” ) and include theaccounts of LGI Homes, Inc. and all of its subsidiaries subsequent to November 13, 2013, the closing date for the Reorganization Transactions and the IPO. Allintercompany balances and transactions have been eliminated in consolidation.For the periods prior to the Reorganization Transactions, the accompanying consolidated financial statements include the accounts of LGI Homes, Inc. andthe results of operations since the date of its formation, July 9, 2013, and the Predecessor's historical combined accounts and results of operations for January 1,2013 to November 13, 2013. All intercompany balances and transactions have been eliminated in consolidation and all intracompany balances and transactionshave been eliminated in combination.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those estimates, and these differences could have a significant impact on the financial statements. Thesignificant accounting estimates include real estate inventory and cost of sales, impairment of real estate inventory and property and equipment, goodwill, warrantyreserves, our earnout liability, the fair value of the convertible debt, loss contingencies and our liability under our self-funded health benefit plan.Cash and Cash Equivalents and Concentration of Credit RiskCash and cash equivalents are defined as cash on hand, demand deposits with financial institutions, and short-term liquid investments with an initial maturitydate of less than three months. Our cash in demand deposit accounts may exceed federally insured limits and could be negatively impacted if the underlyingfinancial institutions fail or are subject to other adverse conditions in the financial markets. To date, we have experienced no loss or diminished access to cash intheir demand deposit accounts.Accounts ReceivableAccounts receivable consist primarily of proceeds due from title companies for sales closed prior to period end and are generally collected within a few daysfrom closing.65Table of ContentsReal Estate InventoryInventory consists of land, land under development, finished lots, sales offices, homes in progress, and completed homes. Inventory is stated at cost unless thecarrying amount is determined not to be recoverable, in which case the affected inventory is written down to fair value.Land, development and other project costs, including interest and property taxes incurred during development and home construction and net of expectedreimbursements of development costs, are capitalized to real estate inventory. Land development and other common costs that benefit the entire community,including field construction supervision and related direct overhead, are allocated to individual lots or homes, as appropriate. The costs of lots are transferred tohomes in progress when home construction begins. Home construction costs and related carrying charges are allocated to the cost of individual homes using thespecific identification method. Costs that are not specifically identifiable to a home are allocated on a pro rata basis using either the lot size or relative sales value.Inventory costs for completed homes are expensed to cost of sales as homes are sold. Changes to estimated total development costs subsequent to initial homeclosings in a community are generally allocated to the remaining unsold lots and homes in the community on a pro rata basis.The life cycle of a community generally ranges from two to five years, commencing with the acquisition of land, continuing through the land developmentphase, and concluding with the construction and sale of homes. A constructed home is used as the community sales office during the life of the community andthen sold. Actual individual community lives will vary based on the size of the community, the sales absorption rate, and whether the property was purchased asraw land or finished lots.In accordance with the ASC Topic 360, Property, Plant, and Equipment , real estate inventory is evaluated for indicators of impairment by each communityduring each reporting period. In conducting its review for indicators of impairment on a community level, management evaluates, among other things, the marginson homes that have been sold, communities with slow moving inventory, projected margins on future home sales over the life of the community, and the estimatedfair value of the land. For individual communities with indicators of impairment, additional analysis is performed to estimate the community’s undiscounted futurecash flows. If the estimated undiscounted future cash flows are greater than the carrying value of the community group of assets, no impairment adjustment isrequired. If the undiscounted cash flows are less than the community’s carrying value, the asset group is impaired and is written down to its fair value. We estimatethe fair value of communities using a discounted cash flow model. As of December 31, 2015 and 2014, the real estate inventory is stated at cost; there were noinventory impairment charges recorded during the years ended December 31, 2015, 2014 and 2013.Capitalized InterestInterest and other financing costs are capitalized as cost of inventory during community development and home construction activities, in accordance withASC Topic 835, Interest and expensed in cost of sales as homes in the community are sold. To the extent the debt exceeds qualified assets, a portion of the interestincurred is expensed.Pre-Acquisition Costs and DepositsAmounts paid for land options, deposits on land purchase contracts, and other pre-acquisition costs are capitalized and classified as deposits to purchase.Upon execution of the purchase, these deposits are applied to the acquisition price of the land and recorded as a cost component of the land in real estate inventory.To the extent that any deposits are nonrefundable and the associated land acquisition process is terminated or no longer determined probable, the deposit andrelated pre-acquisition costs are charged to general and administrative expense. Management reviews the likelihood of the acquisition of contracted lots inconjunction with its periodic real estate impairment analysis.Under ASC Topic 810, Consolidation (“ASC 810”), a nonrefundable deposit paid to an entity is deemed to be a variable interest that will absorb some or allof the entity's expected losses if they occur. Non-refundable land purchase and lot option deposits generally represent our maximum exposure if we elect not topurchase the optioned property. In some instances, we may also expend funds for due diligence, development and construction activities with respect to optionedland prior to close. Such costs are classified as preacquisition costs, which we would have to absorb should the option not be exercised. Therefore, whenever weenter into a land option or purchase contract with an entity and makes a nonrefundable deposit, it may have a variable interest in a variable interest entity (“VIE”).In accordance with ASC 810, we perform ongoing reassessments of whether we are the primary beneficiary of a VIE and would consolidate the VIE if we aredeemed to be the primary beneficiary. As of December 31, 2015 and December 31, 2014, we were not deemed to be the primary beneficiary for any VIEsassociated with non-refundable land deposit and option contracts.66Table of ContentsDeferred Loan CostsDeferred loan costs represent debt issuance costs and, depending on the nature and purpose of the loan, are capitalized to real estate inventory or amortized tointerest expense using the straight-line method which approximates the effective interest method.Property and EquipmentProperty, equipment and leasehold improvements are stated at cost, less accumulated depreciation. Depreciation expense is recorded in general andadministrative expenses. Upon sale or retirement, the costs and related accumulated depreciation are eliminated from the respective accounts and any resulting gainor loss is included in other income, net. Depreciation is generally computed using the straight-line method over the estimated useful lives of the assets, rangingfrom 2 to 5 years for property and equipment. Leasehold improvements are depreciated over the shorter of the asset life or the term of the lease. Maintenance andrepair costs are expensed as incurred.Impairments of long-lived assets are determined periodically when indicators of impairment are present. If such indicators are present, the determination ofthe amount of impairment is based on judgments as to the future undiscounted operating cash flows to be generated from these assets throughout the remainingestimated useful lives. If these undiscounted cash flows are less than the carrying amount of the related asset, impairment is recognized for the excess of thecarrying value over its fair value. There were no impairments of property, equipment and leasehold improvements recorded during the years ended December31, 2015, 2014 and 2013.Investments in Joint Ventures and Unconsolidated Variable Interest Entities (VIEs)The Predecessor functioned as the managing member of several joint ventures conducting homebuilding activities; these joint ventures became wholly-ownedsubsidiaries of us as a result of the Reorganization Transactions and the GTIS Acquisitions.In accordance with ASC 810, management had assessed whether these entities were VIEs. The Predecessor had variable interests in the joint venturearrangements that it managed, and these joint ventures were determined to be VIEs because the members of the joint ventures, as a group, had insufficient equity atrisk without further capital contributions. The Predecessor’s rights as well as the rights held by the other joint venture members had been evaluated to determine theprimary beneficiary of the VIE, including the extent of substantive participating rights and control of activities that most significantly affected its economicperformance. Such activities included, but were not limited to, the ability to determine the budget and scope of land development work, if any; the ability to controlfinancing decisions for the VIE; and the ability to acquire additional land into the VIE. If the Predecessor was not able to control the significant decisions, thePredecessor was not considered the primary beneficiary of the VIE. If the Predecessor was determined to be the primary beneficiary of the VIE, the entity wasconsolidated in the Predecessor's financial statements.The Predecessor had investments in four joint ventures where the Predecessor and the other joint venture members were deemed to have joint control and thePredecessor was not the primary beneficiary since all major decisions required both parties’ consent. Accordingly, the Predecessor’s interests in these jointventures were accounted for using the equity method and its share of the joint ventures’ net earnings was included in income from unconsolidated joint venturesand investments in unconsolidated joint ventures. Distributions received were credited against the related investment in the joint venture.In addition, the Predecessor had interests in two VIE’s (LGI Homes – Sterling Lakes, LLC and LGI Fund III Holdings, LLC) where it had been determinedthat the Predecessor was the primary beneficiary. In addition to the Predecessor serving as the managing member of these entities, the Family Principals of thePredecessor also held the general partner controlling interests in the non-managing members of the VIEs. As a result, the Predecessor combined with the FamilyPrincipals’ related party interests had the power to direct all significant activities of the VIEs, and had exposure to the risks and rewards of the VIEs, based on thedivision of income and loss pursuant to the joint venture agreement and the Predecessor’s ownership in the joint ventures. These two VIEs are consolidated in theaccompanying consolidated financial statements.Management evaluated our investments in unconsolidated entities for indicators of impairment during each reporting period. No impairment charges wererecorded related to investments in unconsolidated entities during the periods presented.67Table of ContentsGoodwill and Intangible AssetsThe excess of the purchase price of a business acquisition over the net fair value of assets acquired and liabilities assumed is capitalized as goodwill inaccordance with ASC 805. Goodwill and intangible assets that do not have finite lives are not amortized, but are assessed for impairment at least annually or morefrequently if certain impairment indicators are present. We recorded $12.0 million of goodwill related to the GTIS Acquisitions. No goodwill impairment chargeswere recorded in 2015, 2014 and 2013.Warranty ReservesFuture direct warranty costs are accrued and charged to cost of sales in the period when the related home is sold. Our warranty liability is based uponhistorical warranty cost experience and is adjusted as appropriate to reflect qualitative risks associated with the types of homes built, the geographic areas in whichthey are built, and potential impacts of our continued expansion.Warranty reserves are reviewed quarterly to assess the reasonableness and adequacy and to make adjustments to the balance of the pre-existing reserves, asneeded, to reflect changes in trends and historical data as information becomes available.Customer DepositsCustomer deposits are received upon signing a purchase contract and are generally $1,000 or less. Deposits are generally refundable if the customer is unableto obtain financing. Forfeited buyer deposits related to home sales are recognized in other income in the period in which it is determined that the buyer will notcomplete the purchase of the property and the deposit is nonrefundable to the buyer.Home SalesIn accordance with ASC Topic 360—20, Real Estate Sales , revenues from home sales are recorded at the time each home sale is closed, title and possessionare transferred to the buyer, and we have no significant continuing involvement with the home. Home sales proceeds are generally received from the title companywithin a few days after closing. Home sales are reported net of sales discounts and incentives granted to home buyers, which are primarily seller-paid closing costs.Cost of SalesAs discussed under Real Estate Inventory above, cost of sales for homes closed include the construction costs of each home and allocable land acquisitionand land development costs, capitalized interest, and other related common costs (both incurred and estimated to be incurred).Selling and Commission CostsSales commissions are paid and expensed based on homes sold. Other selling costs are expensed in the period incurred.Advertising CostsAdvertising and direct mail costs are expensed as incurred. Advertising and direct mail costs were $9.3 million, $8.6 million and $3.3 million for the yearsended December 31, 2015, 2014, and 2013, respectively.Income TaxesLGI Homes, Inc. is a taxable entity. Prior to the Reorganization Transactions, the Predecessor consisted of limited liability companies and limitedpartnerships, all of which were treated as partnerships for income tax purposes and federal income taxes on taxable income or losses realized by the Predecessorwere the obligation of the individual members or partners. As a result of the Reorganization Transactions, the Predecessor entities are subject to federal and stateincome taxes. The accompanying financial statements include a provision for income taxes based on the period when our operations are taxable.We utilize the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are recognized using enacted taxrates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Deferred tax assets are reduced by a valuationallowance if it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Our ability to realize deferred tax assets is assessedthroughout the year and a valuation allowance is established, if required. We recognize the impact of a tax position only if it is more likely than not to be sustained68Table of Contentsupon examination based on the technical merits of the position. We recognize potential interest and penalties related to uncertain tax positions in income taxexpense.We file income tax returns in the U.S. federal jurisdiction and in various states and does not have any unrecognized tax benefits. We are not presently underexam for income tax by any taxing jurisdiction, and no longer remains subject to exam for years before 2012 (2011 for Texas).Earnings Per ShareBasic earnings per share is based on the weighted average number of shares of common stock outstanding. Diluted earnings per share is based on theweighted average number of shares of common stock and dilutive securities outstanding. Diluted earnings per share gives effect to all dilutive potential sharesoutstanding during the period using the treasury stock method and for our 4.25% Convertible Notes due 2019 (the “Convertible Notes”) using the if-convertedmethod through April 29, 2015. On April 30, 2015, our stockholders approved the flexible settlement provisions of the Convertible Notes at our 2015 AnnualMeeting of Stockholders which allows us to settle the conversion of the Convertible Notes using any combination of cash and shares of our common stock.Therefore, subsequent to April 30, 2015, the treasury stock method is used to calculate the dilutive effect of the Convertible Notes. Diluted earnings per shareexcludes all dilutive potential shares of common stock if their effect is antidilutive.Stock-Based CompensationCompensation costs for non-performance-based restricted stock awards are measured using the closing price of our common stock on the date of grant andare expensed on a straight-line basis over the vesting period of the award. Compensation costs for performance-based restricted stock awards are also measuredusing the closing price of our common stock on the date of grant but are expensed in accordance with ASC 718-10-25-20, Compensation - Stock Compensation ,which requires an assessment of probability of attainment of the performance target. Once the performance target outcome is determined to be probable, thecumulative expense is recorded and the remaining expense is recorded on a straight-line basis through the end of the award's vesting period.Recently Issued Accounting Pronouncements In April 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update ( “ ASU ” ) No. 2015-03, “ Interest –Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs ” ( “ ASU 2015-03 ” ) as part of its initiative to reduce complexity inaccounting standards (the “ Simplification Initiative ” ). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in thebalance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and does not affect the recognition andmeasurement guidance for debt issuance costs. ASU 2015-03 will be effective for us beginning January 1, 2016. We currently present deferred financing costswithin other assets. Accordingly, the adoption of the new guidance will result in the reclassification of debt issuance costs as an offset to the related debt on thebalance sheet, which we do not expect to be material to our consolidated financial statements.In February 2015, the FASB issued ASU No. 2015-02, “ Consolidation (Topic 810): Amendments to the Consolidation Analysis ” (“ASU 2015-02”), whichamends the consolidation requirements in ASC 810, primarily related to limited partnerships and variable interest entities (“VIEs”). ASU 2015-02 will be effectivefor financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. Theadoption of ASU 2015-02 is not expected to have a material effect on our consolidated financial statements and disclosures.In August 2014, the FASB issued ASU No. 2014-15, “ Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure ofUncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”) , which requires management to evaluate, at each reporting period,whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date thefinancial statements are issued and provide related disclosures. This ASU applies to all entities and is effective for periods ending after December 15, 2016. Theadoption of ASU 2014-15 is not expected to have any effect on our consolidated financial statements or disclosures.In May 2014, the FASB issued ASU No. 2014-09, “ Revenue from Contracts with Customers” (“ASU 2014-09”) , which provides guidance for revenuerecognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer ofnonfinancial assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. This ASUalso supersedes some cost guidance included in Subtopic 605-35, “Revenue Recognition-Construction-Type and Production-Type Contracts.” ASU 2014-09’s coreprinciple is that a company will recognize revenue when it transfers promised goods or services to customers in an amount69Table of Contentsthat reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use morejudgment and make more estimates than under today’s guidance, including identifying performance obligations in the contract, estimating the amount of variableconsideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective beginningJanuary 1, 2018 and, at that time, we may adopt the new standard under the full retrospective approach or the modified retrospective approach. Early adoption ofthis ASU is not permitted. We are currently evaluating the method and impact the adoption of ASU 2014-09 will have on our consolidated financial statements anddisclosures.4. REAL ESTATE INVENTORYOur real estate inventory consists of the following (in thousands): December 31, 2015 2014Land, land under development, and finished lots $320,320 $244,658Sales offices 8,083 6,978Homes in progress 109,451 55,807Completed homes 93,374 60,465Total real estate inventory $531,228 $367,908Interest and financing costs incurred under our debt obligations, as more fully discussed in Note 9, are capitalized to qualifying real estate projects underdevelopment and homes under construction.5. PROPERTY AND EQUIPMENTProperty and equipment consist of the following (in thousands): December 31, Asset Life 2015 2014 (years) Computer equipment 2-5 $1,237 $738Machinery and equipment 5 53 52Furniture and fixtures 2-5 2,132 1,557Leasehold improvements various 240 230 Total property and equipment 3,662 2,577Less: Accumulated depreciation (1,554) (967)Property and equipment, net $2,108 $1,610Depreciation expense incurred for the years ended December 31, 2015 , 2014 and 2013 was $0.6 million, $0.4 million and $0.3 million, respectively.A non-cash settlement of vehicle notes payable in the amount of $0.3 million was recorded for a trade or assumption by the purchaser during the year endedDecember 31, 2013.6 .INVESTMENTS IN JOINT VENTURES, VARIABLE INTEREST ENTITIES AND NON-CONTROLLING INTERESTSUnconsolidated Joint VenturesPrior to the GTIS Acquisitions, the Predecessor's interests in four joint ventures LGI/GTIS Joint Ventures, were accounted for using the equity method ofaccounting since the Predecessor was not deemed to be the primary beneficiary of these variable interest entities. The LGI/GTIS Joint Ventures were each engaged in homebuilding and land development activities. GTIS Partners, LP and affiliated entities (collectively“GTIS”) were joint venture members in these entities. Management of each of the LGI/GTIS Joint Ventures was vested in the members, being the Predecessor andGTIS. The Predecessor was considered the managing member of these entities. The managing member had the responsibility and authority to operate theLGI/GTIS Joint Ventures on a day-to-70Table of Contentsday basis subject to the operating budget and business plan, which was approved by both members. The Predecessor used its sales, development and operationsteams to support operations and had significant influence even though the respective joint venture members had been deemed to have joint control underASC Topic 810. All major decisions required both members’ consent. Major decisions included, but were not limited to: the acquisition or disposition of a project;capital contributions; and changes, and updates or amendments to the operating budget or business plan. Generally, the LGI/GTIS Joint Ventures did not obtainconstruction financing from outside lenders, but financed their activities primarily through equity contributions from each of the joint venture members.Profits were allocated to the members of the LGI/GTIS Joint Ventures based on the predetermined formulas specified in the joint venture agreements for theallocation of distributable cash. The GTIS member and the Predecessor were allocated 85% and 15% of the profits, respectively, (the “Sharing Percentages”) untilsuch time as the members received cash distributions equal to their initial capital investment plus, generally, a 15% internal rate of return (“First Tier Return”).Subsequent allocations of distributable cash and profits included a priority allocation of approximately 20% to 40% to the Predecessor, depending on the amount ofcash distributions achieved over the life of the joint venture.Since the internal rates of return necessary to receive a higher proportion of distributions were calculated over the life of each LGI/GTIS Joint Venture andboth the timing and amount of future contributions and distributions would affect the Predecessor’s share of distributions, there was no certainty that thePredecessor would receive greater than 15% of the LGI/GTIS Joint Ventures’ distributions. Therefore, the Predecessor recorded its investments in the LGI/GTISJoint Ventures at 15% of each venture’s capital balance and recognized the incremental amounts due to the Predecessor as a result of reaching the higherdistribution tiers only when received.During the period ended November 13, 2013, LGI-GTIS Holdings, LLC, LGI-GTIS Holdings II, LLC and LGI-GTIS Holdings III, LLC achieved the Third-Tier Return resulting in the priority allocations to the Predecessor of up to approximately 40% . As of November 13, 2013, LGI-GTIS Holdings IV, LLC had notachieved the First-Tier Return. During the period ended November 13, 2013, the Predecessor recognized $2.7 million in priority distributions from the LGI/GTISJoint Ventures. The LGI/GTIS Joint Ventures were acquired on November 13, 2013 and as such there were no further distributions or contributions.A summarized condensed statement of operations of the LGI/GTIS Joint Ventures accounted for using the equity method is presented below for the periodthrough the date of the GTIS Acquisitions (in thousands): Period EndedNovember 13,Statement of Operations 2013Home sales $80,896Cost of sales $58,718Net earnings of unconsolidated entities $10,873Predecessor's share in net earnings of unconsolidated entities $4,287Consolidated Joint VenturesTwo consolidated joint ventures, engaged in homebuilding and land development activities, were determined to be VIEs and the Predecessor was deemed tobe the primary beneficiary under ASC Topic 810. LGI Fund III Holdings, LLC was formed March 31, 2013, and LGI Homes Group, LLC was the managingmember; this entity became a wholly-owned subsidiary of us on November 13, 2013, as a result of our acquisition of the non-controlling interests in the jointventure as part of the Reorganization Transactions (See Note 1).Historically, profits were allocated to the members of the consolidated joint ventures based on the predetermined formulas specified in the joint ventureagreements for the allocation of distributable cash. The non-managing members and the Predecessor were allocated 85% and 15% of the profits, respectively, (the“Sharing Percentages”) until such time as the members received cash distributions equal to their initial capital investment plus, generally, a 15% internal rate ofreturn (“First Tier Return”). Subsequent allocations of distributable cash and profits included a priority allocation of approximately 20% to 40% to thePredecessor’s member, depending on the amount of cash distributions achieved over the life of the joint venture.71Table of Contents7. OTHER ASSETSOther assets consist of the following (in thousands): December 31, 2015 2014Deferred loan costs $3,631 $3,732Prepaid insurance 1,301 1,176Prepaid expenses 9,024 1,497Security deposits 913 1,110Total other assets $14,869 $7,5158. ACCRUED EXPENSES AND OTHER LIABILITIESAccrued and other current liabilities consist of the following (in thousands): December 31, 2015 2014Inventory related obligations $17,389 $7,275Retentions payable 3,036 2,696Accrued compensation, bonuses and benefits 5,573 2,434Earnout liability 1,425 2,196Taxes payable 6,205 1,448Warranty reserve 1,325 900Other 5,053 4,416Total accrued expenses and other liabilities $40,006 $21,365Inventory Related ObligationsWe own lots in certain communities in Florida, Arizona, and Texas that have Community Development Districts (“CDD”) or similar utility and infrastructuredevelopment special assessment programs that allocate a fixed amount of debt service associated with development activities to each lot. This obligation forinfrastructure development is attached to the land, is typically payable over a 30 year period, and is ultimately assumed by the homebuyer when home sales areclosed. Such obligations represent a non-cash cost of the lots. At December 31, 2015 and 2014, we had CDD and other utility development obligations ofapproximately $17.4 million and $7.3 million , respectively.Estimated Warranty ReserveWe typically provide homebuyers with a one -year warranty on the house and a ten -year limited warranty for major defects in structural elements such asframing components and foundation systems. The Predecessor provided similar warranty services for homes sold by the LGI/GTIS Joint Ventures prior to theGTIS Acquisitions (see Note 13).Changes to our warranty accrual are as follows (in thousands): December 31, 2015 2014 2013Warranty reserves, beginning of year $900 $630 $450Warranty provision 1,608 1,179 764Warranty reserve acquired in GTIS Acquisitions — — 30Warranty expenditures (1,183) (909) (614)Warranty reserves, end of year $1,325 $900 $630 72Table of Contents9. NOTES PAYABLERevolving Credit AgreementIn May 2015, we entered into a credit agreement (the “Credit Agreement”) with several financial institutions, and Wells Fargo Bank, National Association, asadministrative agent. The Credit Agreement provides for a $225.0 million revolving credit facility, which could be increased upon our request up to $300.0 million. On November 6, 2015, amounts available to us under the Credit Agreement were increased by $30.0 million to $255.0 million in accordance with the accordionfeature of the Credit Agreement. See footnote 19 for a subsequent increase in the borrowing capacity under the Credit Agreement.The Credit Agreement matures on May 26, 2018 . Prior to each annual anniversary of the Credit Agreement, we may request a one-year extension of thematurity date. The Credit Agreement is guaranteed by each of our subsidiaries having gross assets equal to or greater than $0.5 million . Prior to the occurrence of atrigger event under the Credit Agreement, the revolving credit facility is unsecured except that the facility is secured by a first priority lien in land held fordevelopment, lots under development and/or finished lots with an aggregate land value of at least $35.0 million . As of December 31, 2015 , the borrowing basewas $255.0 million , of which $230.0 million was outstanding, $3.4 million represents letter of credit assurances, and the remaining $21.6 million was available toborrow.Interest on borrowings under the Credit Agreement is paid monthly at LIBOR plus 3.50% . The Credit Agreement applicable margin for LIBOR loans rangesfrom 3.00% to 3.50% based on our leverage ratio. At December 31, 2015 LIBOR was 0.36% .The Credit Agreement contains various financial covenants, including a tangible net worth ratio, a leverage ratio, a minimum liquidity amount, and anEBITDA to interest expense ratio. The Credit Agreement also prohibits us from making any investments except as permitted under the Credit Agreement. Inaddition, the Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt. At December 31, 2015 , we werein compliance with all of the covenants contained in the Credit Agreement.Convertible NotesIn November 2014, we issued $85.0 million aggregate principal amount of its 4.25% Convertible Notes due 2019. The Convertible Notes mature onNovember 15, 2019 and bear interest at a rate of 4.25%, payable semiannually each year, beginning on May 15, 2015. Prior to May 15, 2019 , the ConvertibleNotes will be convertible only upon satisfaction of any of the specified conversion events. On or after May 15, 2019, note holders can convert their ConvertibleNotes at any time at their option.When issued, the conversion of the Convertible Notes could only be settled in shares of our common stock. On April 30,2015 at our 2015 Annual Meeting of Stockholders, our stockholders approved the flexible settlement provisions of the Convertible Notes which allows us to settlethe conversion of our Convertible Notes using any combination of cash and shares of our common stock. The initial conversion rate of the Convertible Notes is46.4792 shares of Company common stock for each $1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately$21.52 per share of Company common stock. The conversion rate is subject to adjustments upon the occurrence of specific events.ASC Topic 470-20, Debt with Cash Conversion and Other Options , requires the issuer of convertible debt that may be settled wholly or partially in shares orcash upon conversion, such as the Convertible Notes, to separately account for the liability (debt) and equity (additional paid-in capital) components in a mannerreflective of the issuers’ nonconvertible debt borrowing rate. The issuance of the Convertible Notes was recorded at the issuance date fair value of $76.5 million .The fair value was determined using a discount rate of 6.6% based on the rate of return investors would require for a similar liability without the equity component,and reflects an $8.5 million discount. $5.5 million of the remaining proceeds were recorded to additional paid-in capital to reflect the equity component of theConvertible Notes and $3.0 million was recorded as a deferred tax liability. The carrying amount of the Convertible Notes is being accreted over the term tomaturity. The net proceeds from the offering of the Convertible Notes were approximately $82.0 million ; of the $3.0 million of debt issuance costs, $2.7 millionwere allocated to the liability component and the remaining $0.3 million was allocated as an offset to the equity component of the Convertible Notes.As of December 2015, we incurred approximately $1.5 million of discount accretion, $3.6 million of coupon interest, and $0.5 million of debt issuance costamortization. As of December 31, 2014, we incurred approximately $0.2 million of discount accretion, $0.4 million of coupon interest, and $0.1 million of debtissuance cost amortization. Interest and amortization of Convertible Notes discount and issuance costs are capitalized as cost of inventory: see the CapitalizedInterest table below. At December 31, 2015, notes payable in our accompanying consolidated financial statements include $78.2 million representing the accretedprincipal amount of the Convertible Notes.Concurrent with the issuance of the Convertible Notes, we utilized approximately $16.6 million of the net proceeds from the sale of the Convertible Notes torepurchase 1.0 million shares of Company common stock to be held as treasury stock. The remaining net proceeds from issuance of the Convertible Notes havebeen used for the purchase of land and lots and general corporate purposes, including repayment of borrowings under our revolving credit facility.73Table of ContentsNotes payable consist of the following (in thousands): December 31, 2015 2014Notes payable to Wells Fargo Bank, National Association and several financial institutions under theCredit Agreement ($255.0 million revolving credit facility) maturing on May 26, 2018; interest paidmonthly at LIBOR plus 3.50%; collateralized by certain land, land under development, and finishedlots (carrying value of $63.0 million at December 31, 2015) $230,000 $—Notes payable to Texas Capital Bank, National Association and a syndication of lenders under theCredit Agreement ($200.0 million secured revolving credit facility) repaid and terminated on May27, 2015; interest paid monthly at LIBOR plus 2.75%, with a LIBOR floor of 1.00% — 139,4044.25% Convertible Notes due November 15, 2019; interest paid semi-annually at 4.25%; net ofapproximately $6.8 million and $8.3 million in unamortized discount at December 31, 2015 andDecember 31, 2014, respectively 78,192 76,695Total notes payable $308,192 $216,099As of December 31, 2015, the annual aggregate maturities of our notes payable during each of the next five fiscal years are as follows (amounts inthousands): Amount2016 $—2017 —2018 230,0002019 85,0002020 — Total notes payable 315,000 Less: Convertible Notes discount (6,808) Net notes payable $308,192Capitalized InterestInterest activity, including other financing costs, for notes payable for the periods presented is as follows (in thousands): Year Ended December 31, 2015 2014 2013Interest incurred $14,198 $6,026 $1,378Less: Amounts capitalized (14,198) (6,026) (1,327)Interest expense $— $— $51 Cash paid for interest $9,766 $4,109 $1,220Included in interest incurred was amortization of deferred financing costs for notes payable and amortization of Convertible Notes discount of $3.9 millionand $1.3 million for the years ended December 31, 2015 and 2014, respectively.74Table of Contents10. INCOME TAXESAll Company operations are domestic. The provision for income taxes consisted of the following (in thousands): Year ended December 31, 2015 2014 2013Current: Federal $24,990 $13,266 $841 State 2,419 1,606 513Current tax provision 27,409 14,872 1,354Deferred: Federal 33 — (265) State 8 (4) (23)Deferred tax benefit 41 (4) (288)Total income tax provision $27,450 $14,868 $1,066 Income taxes paid were $23.7 million , $15.2 million and $0.1 million for the years ended December 31, 2015, 2014, and 2013, respectively.Prior to the Reorganization Transactions, the Predecessor consisted of limited liability companies and limited partnerships, all of which were treated aspartnerships for income tax purposes. However, as a result of the Reorganization Transactions, the Predecessor entities are subsidiaries of us, thereby becomingsubject to federal and certain state taxes beginning November 13, 2013. As a result of this tax status change, we recorded a net deferred tax liability and a one-timenon-cash charge of $0.2 million included in the income tax provision in 2013. In addition, the remeasurement of the Predecessor’s historical interests in theLGI/GTIS Joint Ventures generated approximately $4.8 million of excess book goodwill primarily attributable to the Predecessor’s carryover basis in the jointventures’ assets and liabilities that is not deductible for federal income tax purposes. This excess goodwill is not amortizable for tax purposes.A reconciliation of the provision for income taxes for 2015 and 2014 and the amount computed by applying the statutory federal income tax rate of 35% toincome before provision for income taxes for the years ended December 31, 2015, 2014 and 2013 (in thousands): Year Ended December 31, 2015 20142013Tax at federal statutory rate $28,098 35.0 % $15,078 35 % $7,981 35.0 %State income taxes (net of federal benefit) 1,568 2.0 1,037 2.4 % 439 1.9Domestic production activity deduction (2,462) (3.1) (1,294) (3)% (88) (0.4)Non deductible expenses and other 237 0.3 47 0.1 % 1 0.1Change in tax status of entity - deferred taxes 9 — — — % 245 1.1Non-taxable - gain on remeasurement — — — — % (2,256) (9.9)Income attributable to partnerships - nontaxable — — — — % (5,256) (23.1)Tax at effective rate $27,450 34.2 % $14,868 34.5 % $1,066 4.7 %75Table of ContentsThe components of net deferred tax assets and liabilities at December 31, 2015 and December 31, 2014, are as follows (in thousands): December 31 2015 2014Deferred tax assets: Accruals and reserves $1,741 $913 Inventory 536 527 Compensation related to RSUs 176 373 Deferred loan costs 84 108 Deferred Rent 44 43Total deferred tax assets 2,581 1,964Deferred tax liabilities: Discount on Convertible Notes (2,486) (3,079) Prepaids (2,078) (1,018) Tax depreciation in excess of book depreciation (441) (350) Goodwill and other assets amortized for tax (302) (202)Total deferred tax liability $(5,307) $(4,649)Total net deferred tax liability $(2,726) $(2,685)11. EQUITYWe are authorized to issue 250,000,000 shares of common stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01 pershare. As of December 31, 2015 and 2014, no shares of preferred stock were issued or outstanding.At December 31, 2014 we had 20,849,044 shares of common stock issued and 19,849,044 shares of common stock outstanding, including 1.0 milliontreasury shares of our common stock purchased November 21, 2014 at $16.55 per share. At December 31, 2015 we had 21,270,389 shares of common stock issuedand 20,270,389 shares of common stock outstanding.Shelf Registration Statement and ATM Offering ProgramWe filed a shelf registration statement on Form S-3 (the “Registration Statement”) to offer and sell from time to time various securities with a maximumoffering price of $300.0 million . The Registration Statement was declared effective in August 2015. Under the Registration Statement, we established an at themarket common stock offering program (the “ATM Program”) in August 2015 with Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, JMP SecuritiesLLC and Builder Advisor Group, LLC, as sales agents. Under the ATM Program, we may issue and sell from time to time shares of our common stock having anaggregate offering price of up to $30.0 million . We issued and sold 345,760 shares of our common stock under the ATM Program and received net proceeds ofapproximately $9.6 million during the year ended December 31, 2015 .76Table of ContentsEarnings Per ShareThe following table sets forth the computation of basic and diluted earnings per share for the year ended December 31, 2015 and 2014 and from November13, 2013 to December 31, 2013. Earnings per share is not computed for the period prior to the closing date of the IPO because the Predecessor consisted of limitedliability companies and limited partnerships and LGI Homes, Inc. did not have operations. For the year Ended December 31, For the Periodfrom November 13,2013 -December 31, 2013 2015 2014 Numerator (in thousands): Numerator for basic earnings per share $52,830 $28,211 $7,110 Effect of dilutive securities: Interest expense associated with Convertible Notes, net oftaxes 190 7 — Numerator for diluted earnings per share $53,020 $28,218 $7,110Denominator: Basic weighted average shares outstanding 19,939,761 20,666,758 20,763,449 Effect of dilutive securities: Convertible Notes - treasury stock method 463,609 — —Convertible Notes - if-converted method 1,298,871 432,957 — Restricted stock units 38,478 103,252 70,675 Diluted weighted average shares outstanding 21,740,719 21,202,967 20,834,124 Basic earnings per share $2.65 $1.37 $0.34Diluted earnings per share $2.44 $1.33 $0.34Antidilutive non-vested restricted stock units excluded fromcalculation of diluted earnings per share 23,201 3,022 $—In accordance with ASC 260-10, Earnings Per Share , we calculated the dilutive effect of the Convertible Notes using the “if-converted” method throughApril 30, 2015. The interest expense related to the Convertible Notes through April 30, 2015 is the amount included in cost of sales. On April 30, 2015, ourstockholders approved the flexible settlement provisions of the Convertible Notes at our 2015 Annual Meeting of Stockholders which allows us to settle theconversion of the Convertible Notes using any combination of cash and shares of our common stock. Therefore, subsequent to April 30, 2015, the treasury stockmethod is used to calculate the dilutive effect of the Convertible Notes, since we have the intent and ability to settle the principal amount of the outstandingConvertible Notes in cash. Under the treasury stock method, the Convertible Notes have a dilutive impact on diluted earnings per share to the extent that theaverage market price of our common stock for a reporting period exceeds the conversion price of $21.52 per share.Predecessor's Owners' EquityThe following table reflects the activity and balances in the owners’ equity of the Predecessor prior to the Reorganization Transactions (in thousands): LGI HomesGroup,LLCMembers’Capital LGI HomesCorporate,LLCMembers’Capital LGI Homes-Deer Creek,LLCMembers’Capital OtherPartnerships’Capital Total Owners’EquityBALANCE—DECEMBER 31, 2012 $17,155 $3,431 $— $4,625 $25,211Net income 11,892 1,884 — 1,441 15,217Contributions — 2,500 — 35 2,535Distributions (6,969) (1,469) — (673) (9,111)BALANCE—NOVEMBER 13, 2013 $22,078 $6,346 $— $5,428 $33,85277Table of ContentsLGI Homes Group, LLC is a Texas limited liability company formed in March 2011. EDSS Holdings, LP, a limited partnership wholly-owned by theFamily Principals, owned 50.125% of LGI Homes Group, LLC, and LGI Investment Fund II, LP, owned the remaining 49.875% . LGI Investment Fund II, LP wasformed as a Texas limited partnership in June 2011. LGI Fund II GP, LLC was the 1% general partner. LGI Fund II GP, LLC is wholly-owned by the FamilyPrincipals. The limited partners were various investors.In March 2013, LGI Homes Group, LLC formed LGI Fund III Holdings, LLC (a joint venture consolidated in the accompanying financial statements) withLGI Investment Fund III, LP (see Note 6). LGI Homes Group, LLC was the managing member. The LGI Investment Fund III, LP was formed as a Texas limitedpartnership in February 2013. LGI Fund III GP, LLC was the 1% general partner. LGI Fund III GP, LLC is wholly-owned by Eric Lipar. The limited partners werevarious investors. In accordance with the terms of the formation of LGI Investment Fund III, LP, the limited partnership exchanged its 85% ownership in LGIFund III Holdings, LLC for approximately 1.5 times the investment amount upon completion of the IPO and as part of the Reorganization Transactions.LGI Homes Corporate, LLC is a Texas limited liability company formed in March 2010 and was wholly-owned and managed by the Family Principalsprior to the Reorganization Transactions.LGI Homes—Deer Creek, LLC is a Texas limited liability company formed in June 2009 and was wholly-owned and managed by the Family Principalsprior to the Reorganization Transactions. The Other Partnerships included in the accompanying consolidated financial statements and aggregated in the above table are:•LGI Homes II, LLC , formerly LGI Homes, Ltd. and JTM Housing, Ltd., was formed as a Texas limited partnership in December 2002, renamed as LGIHomes, Ltd. in October 2004 and LGI Homes II, LLC in November 2013. LGI GP, LLC, a wholly-owned Texas limited liability company formed in 2002as a wholly-owned subsidiary of LGI Holdings, LLC, was the 1% general partner of LGI Homes II, LLC. The limited partner was 99% owned by theFamily Principals prior to the Reorganization Transactions.•LGI Homes - Sunrise Meadow, LLC , formerly LGI Homes - Sunrise Meadow, Ltd. was formed as a Texas limited partnership in February 2005 andrenamed as LGI Homes - Sunrise Meadow, LLC in November 2013. LGI GP, LLC, was the 1% general partner. The entity was wholly-owned andmanaged by the Family Principals prior to the Reorganization Transactions.•LGI Homes - Canyon Crossing, LLC , formerly LGI Homes - Canyon Crossing, Ltd. was formed as a Texas limited partnership in May 2005 andrenamed as LGI Homes - Canyon Crossing, LLC in November 2013. LGI GP, LLC, was the 1% general partner. The entity was wholly-owned andmanaged by the Family Principals prior to the Reorganization Transactions.12. STOCK-BASED COMPENSATIONNon-performance Based Restricted Stock UnitsAs approved by our stockholders, we adopted the LGI Homes, Inc. 2013 Equity Incentive Plan (the “2013 Incentive Plan”) to reward, retain and attract keypersonnel. At December 31, 2015 , 2,000,000 shares of our common stock had been reserved for issuance pursuant to the 2013 Incentive Plan. 78Table of ContentsThe following table summarizes the activity of our restricted stock units (“RSUs”): Shares Weighted AverageGrant Date FairValueBalance at January 1, 2013 — $— Granted 140,222 $11.00Balance at December 31, 2013 140,222 $11.00 Granted 82,441 $16.52 Vested (116,543) $11.00 Forfeited (3,334) $11.00Balance at December 31, 2014 102,786 $15.43 Granted 85,184 $17.40 Vested (75,687) $16.12 Forfeited (4,469) $15.85Balance at December 31, 2015 107,814 $16.48In March 2015, we issued 56,611 RSUs for 2014 bonuses to certain officers and managers under the Annual Bonus Plan. The RSUs vest over three years andwill be settled in shares of our common stock. In March 2014, we issued 37,307 RSUs to certain officers and managers under the Annual Bonus Plan; the RSUshad a one -year vesting period and could be settled only in shares of the our common stock. In addition, during the year ended December 31, 2015 and 2014, weissued 28,573 and 45,134 RSUs, respectively, to certain employees, executives and non-employee directors which vest over periods ranging from one to threeyears. The RSUs could be settled only in shares of our common stock.We recognized $0.5 million of stock-based compensation expense related to outstanding RSUs grants for both the years ended December 31, 2015 and 2014and $42,814 for the year ended December 31, 2013. At December 31, 2015, we had unrecognized compensation cost of $1.3 million related to unvested RSUs,which is expected to be recognized over a weighted average period of 2.3 years.Performance Based Restricted Stock UnitsThe Compensation Committee of our Board of Directors has granted awards of Performance-Based RSUs (“PSUs”) under the 2013 Incentive Plan to certainmembers of senior management for each of the three-year performance cycles: 2014 - 2016 and 2015 - 2017. The PSUs provide for shares of our common stock tobe issued based on the attainment of certain performance metrics over the applicable three year period. The number of shares of our common stock that may beissued to the recipients for the PSUs range from 0% to 200% of the target amount depending on actual results as compared to the target performance metrics. ThePSUs vest upon the determination date for the actual results at the end of the three -year period and require that the recipients continue to be employed by usthrough the determination date. The PSUs will be settled in shares of our common stock.Period Granted Target PSUsOutstanding December31, 2014 Target PSUsGranted Target PSUsVested Target PSUsForfeited Target PSUsOutstanding atDecember 31, 2015 WeightedAverage GrantDate Fair Value2014 62,906 — — — 62,906 $17.092015 — 127,111 — — 127,111 $13.34Total 62,906 127,111 — — 190,017 At December 31, 2015, management estimates that the recipients will receive approximately 170% and 183% of the 2014 and 2015 target number of PSUs,respectively, at the end of the applicable three -year performance cycle. We recognized $1.8 million and $0.3 million of total stock-based compensation expenserelated to outstanding Performance-Based RSUs grants for the year ended December 31, 2015 and 2014, respectively. At December 31, 2015, we had unrecognizedcompensation cost of $2.8 million , based on the target amount, related to unvested Performance-Based RSUs, which is expected to be recognized over a weightedaverage period of 1.4 years.79Table of Contents13. FAIR VALUE DISCLOSURESASC Topic 820, Fair Value Measurements (“ASC 820”) , defines fair value as “the price that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any. The principal market is the market inwhich the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in whichthe entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous. Accordingly, this exit price conceptmay result in a fair value that differs from the transaction price or market price of the asset or liability.ASC 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements, and establishes a fair valuehierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The threelevels of the fair value hierarchy are summarized as follows:Level 1 - Fair value is based on quoted prices in active markets for identical assets or liabilities.Level 2 - Fair value is determined using significant observable inputs, generally either quoted prices in active markets forsimilar assets or liabilities, or quoted prices in markets that are not active.Level 3 - Fair value is determined using one or more significant inputs that are unobservable in active markets at themeasurement date, such as a pricing model, discounted cash flow, or similar technique.We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurementsmay also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets. The fair value of financial instruments, including cash and cashequivalents and accounts receivable and accounts payable, approximate their carrying amounts due to the short term nature of these instruments. As of December31, 2015, the revolving credit facility's carrying value approximates market value since it has a floating interest rate, which increases or decreases with marketinterest rates.The Convertible Notes, as discussed in Note 9, were initially recorded at estimated fair value determined using Level 2 measurements. The fair value of theassets acquired and liabilities assumed as part of the Oakmont Acquisition and GTIS Acquisitions, as discussed in Note 2, were determined using Level 2 or Level3 measurements. In addition, the Predecessor’s historical interests in the LGI/GTIS Joint Ventures were adjusted to fair value determined using Level 3unobservable assumptions and valuation inputs.The following table below shows the level and measurement of liabilities at December 31, 2015 and 2014 (in thousands): December 31, 2015 December 31, 2014 Fair ValueHierarchy Carrying Value Estimated FairValue Carrying Value Estimated FairValue Convertible Notes Level 2 $78,192 $74,449 $76,695 $76,695Earnout liability Level 3 $1,425 $1,425 $2,196 $2,19614. RELATED PARTY TRANSACTIONSLand PurchasesWe have an option contract to purchase 106 finished lots in Montgomery County, Texas, from an affiliate of a Family Principal for a total base purchaseprice of approximately $8.0 million . The lots will be purchased in takedowns of at least 21 lots during each successive 6 month period, subject to 5% annual priceescalation and certain price protection terms. We had a $25,000 non-refundable deposit at December 31, 2015 related to this option contract. We expect the firstclosing of lots under the option contract will take place in the first quarter of 2016.On July 11, 2014, we acquired approximately 1,902 acres of land located in Lancaster County, South Carolina, from an entity owned and managed by aFamily Principal, for an aggregate purchase price of approximately $15.4 million . The purchase price was based on a third party appraisal.Consulting FeesConcurrent with the closing of the IPO on November 13, 2013, we entered into a three -year consulting agreement with a Family Principal for $100,000 peryear payable on a monthly basis. Consulting fees were approximately $100,000 for each of the80Table of Contentsyears ended December 31, 2015 and 2014 and $17,000 for the year ended December 31, 2013, respectively.Management and Warranty FeesThe Predecessor had a Management Services Agreement with each of the LGI/GTIS Joint Ventures. The Predecessor provided administration, supervision,marketing, and various other services for the joint ventures. The Predecessor charged the joint ventures a management fee of approximately 3% of home salerevenues and 3% of construction costs for the development of land, as applicable. The management and construction fees were in addition to direct costs charged tothe joint ventures. Management fees earned under the agreements were $2.6 million for the year ended December 31, 2013.The Predecessor collected a warranty fee of $250 from the LGI/GTIS Joint Ventures upon the closing of the sale of each home and provided a HomeBuilder’s Limited Warranty to the buyer of each home. The Predecessor was responsible for the performance and discharge of any warranty claims asserted againstthe joint ventures or the GTIS member. Warranty fees earned were $0.1 million for the year ended December 31, 2013.15. RETIREMENT BENEFITSOur employees are eligible to participate in a 401(k) savings plan. Employees are eligible to participate after completing ninety days of service and havingattained the age of 21 . Salary deferrals are allowed in amounts up to 100% of an eligible employee’s salary, not to exceed the maximum allowed by law. Adiscretionary match may be made by us of up to 100% of the first 3% of an eligible employee’s deferral, not to exceed $3,000 . For each of the years endedDecember 31, 2015 , 2014 and 2013 , our matching contributions were $0.5 million, $0.3 million and $0.1 million , respectively.16. COMMITMENTS AND CONTINGENCIESContingenciesIn the ordinary course of doing business, we become subject to claims or proceedings from time to time relating to the purchase, development, and sale ofreal estate. Management believes that these claims include usual obligations incurred by real estate developers and home builders in the normal course of business.In the opinion of management, these matters will not have a material effect on our combined financial position, results of operations or cash flows.We have provided unsecured environmental indemnities to certain lenders and other counterparties. In each case, we have performed due diligence on thepotential environmental risks including obtaining an independent environmental review from outside environmental consultants. These indemnities obligate theCompany to reimburse the guaranteed parties for damages related to environmental matters. There is no term or damage limitation on these indemnities; however,if an environmental matter arises, the Company may have recourse against other previous owners. Management is not aware of any environmental claims oroccurrences and has recorded no reserves for environmental matters at December 31, 2015 and 2014.Land DepositsWe have land purchase option contracts, generally through cash deposits, for the right to purchase land or lots at a future point in time with predeterminedterms. We do not have title to the property and obligations with respect to the option contracts which are generally limited to the forfeiture of the relatednonrefundable cash deposits. The following is a summary of our land purchase deposits and option contracts included in pre-acquisition costs and deposits (inthousands, except for lot count): December 31, 2015 2014Land deposits and option payments $6,406 $9,591Commitments under the land purchase option and deposit agreements if the purchases are consummated $155,548 $86,277Lots under land options and land purchase contracts 6,318 3,921As of December 31, 2015 and 2014, approximately $0.3 million and $7.4 million of the deposits are related to purchase contracts to deliver finished lots andthese deposits are refundable under certain circumstances and secured by indemnity mortgages on the related property.81Table of ContentsLeasing ArrangementsWe lease office facilities and certain equipment under non-cancellable operating lease agreements. Rent escalation provisions are accounted for using thestraight-line method. Rent expense includes common area maintenance costs. Rent expense totaled $0.8 million, $0.7 million and $0.3 million for the years endedDecember 31, 2015 , 2014 and 2013 , respectively.Future minimum lease payments under non-cancellable operating lease agreements are as follows at December 31, 2015 (in thousands):2016$590201761620183822019142020—Thereafter—Total$1,602Bonding and Letters of CreditWe have outstanding letters of credit and performance and surety bonds totaling $20.8 million (including $3.4 million under our revolving credit facility),$7.7 million and $0.4 million at December 31, 2015 , 2014 and 2013 , respectively, related to our obligations for site improvements at various projects. Certainsurety bonds are guaranteed by one of the Family Principals. Management does not believe that draws upon these bonds, if any, will have a material effect on ourconsolidated financial position, results of operations, or cash flows.17. SEGMENT INFORMATIONWe operate one principal homebuilding business which is organized and reports by division. We have five operating segments at December 31, 2015: theTexas division, the Southwest division, the Southeast division, the Florida division and the Northwest division. As of December 31, 2015, the Northwest divisionhad start-up activities and no revenues. The Texas division is the largest division and it comprised approximately 55.6% , 66.6% and 83.6% of total home salesrevenues for the years ended December 31, 2015, 2014 and 2013, respectively.In accordance with ASC Topic 280, Segment Reporting , operating segments are defined as components of an enterprise for which separate financialinformation is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding how to allocate resources and in assessingperformance. The CODM primarily evaluates performance based on the number of homes sold, gross margin and net income.The operating segments qualify for aggregation as one reporting segment. In determining the reportable segment, we concluded that all operating segmentshave similar economic and other characteristics, including similar home floor plans, average selling prices, gross margin percentage, production constructionprocesses, suppliers, subcontractors, regulatory environments, customer type, and underlying demand and supply. Each operating segment follows the sameaccounting policies and is managed by our management team. We have no inter-segment sales, as all sales are to external customers.82Table of Contents18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)Quarterly results are as follows (in thousands, except per share data): First Quarter 2015 Second Quarter 2015 Third Quarter 2015 Fourth Quarter 2015Total home sales revenues $120,690 $158,826 $173,956 $176,764Gross margin 31,462 42,573 46,007 46,890Net income before income taxes 11,721 21,246 23,221 24,092Net income 7,702 13,977 15,420 15,731Basic earnings per share 0.39 0.70 0.77 0.79Diluted earnings per share 0.33 0.66 0.76 0.75 First Quarter 2014 Second Quarter 2014 Third Quarter2014 Fourth Quarter 2014Total home sales revenues $75,919 $106,412 $92,516 $108,420Gross margin 19,530 28,396 25,260 29,601Net income before income taxes 7,067 13,904 10,534 11,574Net income 4,594 9,037 7,046 7,534Basic earnings per share 0.22 0.44 0.34 0.37Diluted earnings per share 0.22 0.43 0.34 0.3419. SUBSEQUENT EVENTOn January 6, 2016, amounts available to us under the Credit Agreement were increased by $45.0 million to $300.0 million in accordance with the accordionfeature of the Credit Agreement.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone. ITEM 9A. CONTROLS AND PROCEDURESDisclosure Controls and ProceduresUnder the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness ofthe design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) as ofDecember 31, 2015. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, our disclosure controls and proceduresare effective to ensure information is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commission’srules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate toallow timely decisions regarding required disclosure.Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures willprevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controlsmust be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faultyand that breakdowns can occur because of simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, bycollusion of two or more people or by management override of controls.83Table of ContentsThe design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance thatany design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes inconditions or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective controlsystem, misstatements due to error or fraud may occur and may not be detected.Management’s Assessment on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f)under the Exchange Act. Under the supervision and with the participation of senior management, including our Chief Executive Officer and Chief FinancialOfficer, we evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on the evaluation under that framework and applicable SEC rules, ourmanagement concluded that our internal control over financial reporting was effective as of December 31, 2015 .Changes in Internal ControlsNo change in our internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f) occurred during the year endedDecember 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.ITEM 9B. OTHER INFORMATIONNone.84Table of ContentsPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERSThe information called for by Item 10, to the extent not set forth in “Business — Executive Officers” in Item 1, will be set forth in the definitive proxystatement relating to the 2016 annual meeting of stockholders of LGI Homes, Inc. pursuant to SEC Regulation 14A. Such definitive proxy statement relates to ameeting of stockholders involving the election of directors and the portions thereof called for by Item 10 are incorporated herein by reference pursuant toInstruction G to Form 10-K.ITEM 11. EXECUTIVE COMPENSATIONThe information called for by Item 11 will be set forth in the definitive proxy statement relating to the 2016 annual meeting of stockholders of LGI Homes,Inc. pursuant to SEC Regulation 14A. Such definitive proxy statement relates to a meeting of stockholders involving the election of directors and the portionsthereof called for by Item 11 are incorporated herein by reference pursuant to Instruction G to Form 10-K.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe information called for by Item 12 will be set forth in the definitive proxy statement relating to the 2016 annual meeting of stockholders of LGI Homes,Inc. pursuant to SEC Regulation 14A. Such definitive proxy statement relates to a meeting of stockholders involving the election of directors and the portionsthereof called for by Item 12 are incorporated herein by reference pursuant to Instruction G to Form 10-K.ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEThe information called for by Item 13 will be set forth in the definitive proxy statement relating to the 2016 annual meeting of stockholders of LGI Homes,Inc. pursuant to SEC Regulation 14A. Such definitive proxy statement relates to a meeting of stockholders involving the election of directors and the portionsthereof called for by Item 13 are incorporated herein by reference pursuant to Instruction G to Form 10-K.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESThe information called for by Item 14 will be set forth in the definitive proxy statement relating to the 2016 annual meeting of stockholders of LGIHomes, Inc. pursuant to SEC Regulation 14A. Such definitive proxy statement relates to a meeting of stockholders involving the election of directors and theportions thereof called for by Item 14 are incorporated herein by reference pursuant to Instruction G to Form 10-K.85Table of ContentsPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES(1)The following Consolidated Financial Statements as set forth in Item 8 of this report are filed herein. Consolidated Financial StatementsReport of Independent Registered Public Accounting FirmConsolidated Balance Sheets as of December 31, 2015 and 2014Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013Consolidated Statements of Equity from January 1, 2013 to December 31, 2015Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013Notes to the Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013 (2) Financial Statement SchedulesAll schedules are omitted because the required information is not present, in amounts sufficient to require submission of the schedule, or because the requiredinformation is included in the financial statements and related notes thereto. (3) ExhibitsThe exhibits filed or furnished as part of this annual report on Form 10-K are listed in the Index to Exhibits immediately preceding those exhibits, whichIndex is incorporated in this Item by reference.86Table of ContentsSIGNATURESPursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized. LGI Homes, Inc. Date:March 9, 2016/s/ Eric Lipar Eric Lipar Chief Executive Officer and Chairman of the Board March 9, 2016/s/ Charles Merdian Charles Merdian Chief Financial Officer, Secretary and TreasurerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.Signature Title Date/s/ Eric Lipar Chief Executive Officer and Chairman of the Board March 9, 2016Eric T. Lipar (Principal Executive Officer) /s/ Charles Merdian Chief Financial Officer, Secretary and Treasurer March 9, 2016Charles Merdian (Principal Financial and Accounting Officer) /s/ Duncan Gage Director March 9, 2016Duncan Gage /s/ Bryan Sansbury Director March 9, 2016Bryan Sansbury /s/ Steven Smith Director March 9, 2016Steven Smith /s/ Robert Vaharadian Director March 9, 2016Robert Vaharadian /s/ Ryan Edone Director March 9, 2016Ryan Edone Table of ContentsEXHIBIT INDEXExhibit No. Description 3.1 Certificate of Incorporation of LGI Homes, Inc. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (File No.333-190853) of LGI Homes, Inc. filed on August 28, 2013).3.2 Bylaws of LGI Homes, Inc. (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (File No. 333-190853) of LGIHomes, Inc. filed on August 28, 2013).4.1 Indenture dated as of November 21, 2014, by and between LGI Homes, Inc. and Wilmington Trust, National Association, as trustee, governingLGI Homes, Inc.'s 4.25% Convertible Notes due 2019, including a form of note (incorporated by reference to Exhibit 4.01 to the Current Reporton Form 8-K (File No. 1-36126) of LGI Homes, Inc. filed on November 26, 2014).10.1 Employment Agreement, dated as of August 23, 2013, between LGI Homes, Inc. and Eric Lipar (incorporated byreference to Exhibit 10.1 to the Registration Statement on Form S-1 (File No. 333-190853) of LGI Homes, Inc.filed on August 28, 2013).10.2 LGI Homes, Inc. 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Registration Statement onForm S-1 (File No. 333-190853) of LGI Homes, Inc. filed on September 20, 2013).10.3 Credit Agreement, dated as of May 27, 2015, by and among LGI Homes, Inc., each of the financial institutions initially a signatory thereto, andWells Fargo Bank, National Association, as administrative agent, with Wells Fargo Securities, LLC, as sole Lead Arranger and sole Bookrunner,and Deutsche Bank Securities Inc. and Fifth Third Bank, as Documentation Agents (incorporated by reference to Exhibit 10.1 to the CurrentReport on Form 8-K (File No. 1-36126) of LGI Homes, Inc. filed on June 1, 2015).10.4* Amendment No.1 to Credit Agreement, dated as of the 6th day of November, 2015 (and effective as of May 27, 2015), by and among LGIHomes, Inc. and Wells Fargo Bank, National Association, as administrative agent.10.5* Lender Addition and Acknowledgement Agreement dated as of November 6, 2015 by and among LGI Homes, Inc., Fifth Third Bank, CadenceBank, N.A. and Wells Fargo Bank, National Association, as administrative agent.10.6* Lender Addition and Acknowledgement Agreement dated as of January 6, 2016 by and among LGI Homes, Inc., ZB, N.A. dba Amegy Bank,BBVA Compass Bank and Wells Fargo Bank, National Association, as administrative agent.21.1* List of Subsidiaries of LGI Homes, Inc.23.1* Consent of Independent Registered Public Accounting Firm23.2* Consent of Independent Registered Public Accounting Firm31.1* CEO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2* CFO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1* Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2* Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INS† XBRL Instance Document.101.SCH† XBRL Taxonomy Extension Schema Document.101.CAL† XBRL Taxonomy Extension Calculation Linkbase Document.101.DEF† XBRL Taxonomy Extension Definition Linkbase Document.101.LAB† XBRL Taxonomy Extension Label Linkbase Document.101.PRE† XBRL Taxonomy Extension Presentation Linkbase Document.*Filed herewith.†XBRL information is deemed not filed or a part of a registration statement or Annual Report for purposes of Sections 11 and 12 of the Securities Act of1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject toliability under such sections.Exhibit 10.4AMENDMENT NO. 1TOCREDIT AGREEMENTThis AMENDMENT NO. 1 TO CREDIT AGREEMENT (this “ Amendment ”), dated as of the 6th day of November, 2015,but effective as of May 27, 2015, among LGI HOMES, INC., a Delaware corporation (the “ Borrower ”), and WELLS FARGO BANK,NATIONAL ASSOCIATION, as Administrative Agent (the “ Administrative Agent ”).WITNESSETH :WHEREAS, the Borrower, each of the financial institutions party thereto (the “ Lenders ”), the Administrative Agent,Wells Fargo Securities, LLC, as lead arranger, and Deutsche Bank Securities Inc. and Fifth Third Bank, as documentation agents,have entered into that certain Credit Agreement, dated as of May 27, 2015 (the “ Credit Agreement ”), pursuant to which the Lenders havemade certain loans and financial accommodations available to the Borrower;WHEREAS, the Borrower has requested that the Administrative Agent and the Borrower amend the Credit Agreement to curean omission from Section 2.17 of the Credit Agreement; andWHEREAS, pursuant to Section 13.7(d) of the Credit Agreement, the Administrative Agent and the Borrower are permitted,without any further action or consent of any of other party to the Credit Agreement, to amend the Credit Agreement to cure, among otherthings, any jointly identified omission from any provision of the Credit Agreement so long as to do so would not adversely affect the interestsof the Lenders and the Issuing Bank;NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein and other good and valuableconsideration, the receipt and adequacy of which are hereby acknowledged, and pursuant to Section 13.7(d) of the Credit Agreement, theparties hereto do hereby agree as follows:1. DEFINED TERMS.Each defined term used herein and not otherwise defined herein shall have the meaning ascribed to such term in the CreditAgreement.2. AMENDMENT TO THE CREDIT AGREEMENT.2.1 Amendment to Section 2.17 . Section 2.17 of the Credit Agreement shall be amended by deleting the first sentence ofsuch paragraph and adding the following sentence in lieu thereof (added text has been denoted in bold and double underline below ):The Borrower shall have the right to request increases from time to time in the aggregate amount of the RevolvingCommitments by providing writtennotice to the Administrative Agent, which notice shall be irrevocable once given; provided , however , that aftergiving effect to any such increases the aggregate amount of increases to the Revolving Commitments shall notexceed $75,000,000.00.3. REPRESENTATIONS AND WARRANTIES.The Borrower hereby represents and warrants to the Administrative Agent and the Lenders as follows:3.1 The Amendment . This Amendment has been duly and validly executed by an authorized officer of the Borrower andconstitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms. ThisAmendment does not adversely affect the interests of the Lenders and the Issuing Bank.3.2 Credit Agreement . The Credit Agreement, as amended by this Amendment, and the other Loan Documents remain infull force and effect and remain the valid and binding obligation of the Borrower enforceable against the Borrower in accordance with itsterms. The Borrower hereby ratifies and confirms the Credit Agreement (as amended hereby) and the other Loan Documents.3.3 Claims and Defenses . As of the date of this Amendment, the Borrower has no defenses, claims, counterclaims orsetoffs with respect to the Credit Agreement (as amended hereby) or any other Loan Document or its Obligations thereunder or with respectto any actions of the Administrative Agent, any Lender or any of their respective officers, directors, shareholders, employees, agents orattorneys, and the Borrower irrevocably and absolutely waives any such defenses, claims, counterclaims and setoffs and release theAdministrative Agent, any Lender and each of their respective officers, directors, shareholders, employees, agents and attorneys from thesame.4 . REAFFIRMATION.The Borrower hereby acknowledges and agrees that the terms and provisions hereof shall not affect in any way any payment,performance, observance or other obligations or liabilities of the Borrower under the Credit Agreement or under any of the other LoanDocuments, all of which obligations and liabilities shall remain in full force and effect and extend to the further loans, extensions of creditand other Obligations incurred under the Loan Documents, and each of which obligations and liabilities are hereby ratified, confirmed andreaffirmed in all respects.5 . CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT.In addition to all of the other conditions and agreements set forth herein, the effectiveness of this Amendment is subject toeach of the following conditions precedent:5.1 Amendment No. 1 to Credit Agreement. The Administrative Agent shall have received an original counterpart of thisAmendment, executed and delivered by a duly authorized officer of the Borrower. -2-6 . MISCELLANEOUS.6.1 GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCEWITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLYPERFORMED, IN SUCH STATE.6.2 Severability . Each provision of this Amendment shall be interpreted in such manner as to be valid under applicablelaw, but if any provision hereof shall be invalid under applicable law, such provision shall be ineffective to the extent of such invalidity,without invalidating the remainder of such provision or the remaining provisions hereof.6.3 Counterparts . This Amendment may be executed in any number of counterparts and by different parties hereto inseparate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute butone and the same agreement. Delivery of an executed counterpart hereof by facsimile, in portable document format (“PDF”) or other similarelectronic means shall be effective as manual delivery of such counterpart; provided , however , that, each party hereto will promptlythereafter deliver counterpart originals of such counterpart delivered by or on behalf of such party.6.4 Nonwaiver . The execution, delivery, performance and effectiveness of this Amendment shall not operate nor bedeemed to be nor construed as a waiver (i) of any right, power or remedy of the Administrative Agent or any Lender under the CreditAgreement, nor (ii) of any term, provision, representation, warranty or covenant contained in the Credit Agreement or any otherdocumentation executed in connection therewith. Further, none of the provisions of this Amendment shall constitute, be deemed to be orconstrued as, a waiver of any Event of Default under the Credit Agreement, as amended by this Amendment.6.5 Reference to and Effect on the Credit Agreement . Upon the effectiveness of this Amendment, each reference in theCredit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein”, or words of like import shall mean and be a reference to the CreditAgreement, as amended hereby, and each reference to the Credit Agreement in any other document, instrument or agreement executed and/ordelivered in connection with the Credit Agreement shall mean and be a reference to the Credit Agreement, as amended hereby.[Signature pages follow]-3-IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by its duly authorizedofficer as of the date first above written.BORROWER:LGI HOMES, INC.,a Delaware corporationBy: /s/ Eric T. Lipar Name: Eric T. LiparTitle: Chief Executive Officer ADMINISTRATIVE AGENT :WELLS FARGO BANK, NATIONAL ASSOCIATIONBy: /s/ Douglas K. Carman Name: Douglas K. CarmanTitle: Senior Vice President Exhibit 10.5LENDER ADDITION AND ACKNOWLEDGEMENT AGREEMENTTHIS LENDER ADDITION AND ACKNOWLEDGEMENT AGREEMENT dated as of November 6, 2015 (this “ Agreement ”) isby and among each of the Persons identified as “Increasing Lenders” on the signature pages hereto (each, an “ Increasing Lender ”), LGIHomes, Inc., a Delaware corporation (the “ Borrower ”) and Wells Fargo Bank, National Association, as Administrative Agent (“Administrative Agent ”). Capitalized terms used herein but not otherwise defined herein shall have the meanings provided in the CreditAgreement.W I T N E S S E T HWHEREAS , pursuant to that certain Credit Agreement dated as of May 27, 2015 (as heretofore amended and may be furtheramended, modified, supplemented, increased or extended from time to time, the “ Credit Agreement ”) among the Borrower, the Lendersidentified therein, Administrative Agent, Wells Fargo Securities, LLC, as sole lead arranger and sole bookrunner and Deutsche BankSecurities Inc. and Fifth Third Bank as documentation agents, the Lenders have agreed to provide the Borrower with a revolving creditfacility;WHEREAS , pursuant to Section 2.17 of the Credit Agreement, the Borrower has requested an increase of the RevolvingCommitments under the Credit Agreement pursuant to this Agreement; andWHEREAS , each Increasing Lender that is an existing Lender has agreed to increase its Revolving Commitment and in the case ofany Increasing Lender that is not an existing Lender (an “ Additional Lender ”), to become a Lender under the Credit Agreement and providea Revolving Commitment in connection therewith;NOW, THEREFORE , in consideration of the premises and the mutual covenants contained herein and in the Credit Agreement, thereceipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:1. Pursuant to Section 2.17 of the Credit Agreement, the Increasing Lenders have agreed to provide commitments to increase theRevolving Commitment in the aggregate amount of THIRTY MILLION AND 00/100 U.S. DOLLARS ($30,000,000). After giving effect tothis Agreement, the Revolving Commitment for each of the Lenders shall be as set forth on Schedule I attached hereto.2. The terms of repayment and the Applicable Margin with respect to the Revolving Commitment Amount shall be the same asthose applicable to Revolving Loans, as set forth in the Credit Agreement.3. Borrower hereby represents and warrants that no Default or Event of Default exists as of the date set forth above and therepresentations and warranties made or deemed made by the Borrower and any other Loan Party in any Loan Document to which such LoanParty is a party are true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, inwhich case such representation or warranty shall be true and correct in all respects) as of the date set forth above except to the extent that suchrepresentations and warranties expressly relate solely to an earlier date (in which case such representations and warranties are true and correctin all material respects (except in the case of arepresentation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) onand as of such earlier date) and except for changes in factual circumstances specifically and expressly permitted under the Credit Agreement.4. Each of the Administrative Agent and the Borrower agrees that, as of the date hereof, each Additional Lender shall (a) be a partyto the Credit Agreement and the other Loan Documents, (b) be a “Lender” for all purposes of the Credit Agreement and the other LoanDocuments and (c) have the rights and obligations of a Lender under the Credit Agreement and the other Loan Documents.5. The address of each Additional Lender for purposes of all notices and other communications is as set forth on the AdministrativeQuestionnaire delivered by such Additional Lender to the Administrative Agent.6. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts(including by facsimile transmission or by any other electronic imaging means), and all of said counterparts taken together shall be deemed toconstitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Agreement by facsimile transmissionor by any other electronic imaging means shall be effective as delivery of a manually executed counterpart of this Agreement.7. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THESTATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE.8. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIALWITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE INCONNECTION WITH THIS AGREEMENT, THE CREDIT AGREEMENT OR THE OTHER LOAN DOCUMENTS, ANYRIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS ANDOBLIGATIONS.IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by a duly authorized officer as of thedate first above written.INCREASING LENDER : FIFTH THIRD BANKBy: /s/ Ted SmithName: Ted SmithTitle: Senior Vice PresidentADDITIONAL LENDER : CADENCE BANK, N.A.By: /s/ Evans N. GunnName: Evans N. GunnTitle: Vice PresidentBORROWER : LGI HOMES, INC.,a Delaware corporationBy: /s/ Eric T. LiparName: Eric T. LiparTitle: Chief Executive OfficerADMINISTRATIVEAGENT : WELLS FARGO BANK, NATIONAL ASSOCIATION,as Administrative Agent By: /s/ Douglas K. CarmanName: Douglas K. CarmanTitle: Senior Vice PresidentSCHEDULE ICOMMITMENTSLENDERINCREASEALLOCATIONCOMMITMENT (aftergiving effect any increaseallocation)PRO-RATA SHARE (aftergiving effect any increaseallocation)WELLS FARGO BANK, NATIONALASSOCIATION$0.00$55,000,000.0021.568627450000%FIFTH THIRD BANK$5,000,000.00$50,000,000.0019.607843140000%JPMORGAN CHASE BANK, N.A.$0.00$30,000,000.0011.764705880000%DEUTSCHE BANK AG NEW YORKBRANCH$0.00$40,000,000.0015.686274510000%CREDIT SUISSE AG, CAYMAN ISLANDSBRANCH$0.00$15,000,000.005.882352941000%CHANG HWA COMMERCIAL BANK,LTD., NEW YORK BRANCH$0.00$20,000,000.007.843137255000%TAIWAN COOPERATIVE BANK, LTD.,acting through its Los Angeles Branch$0.00$15,000,000.005.882352941000%ACADEMY BANK, a division of ArmedForces Bank, N.A.$0.00$5,000,000.001.960784314000%CADENCE BANK, N.A.$25,000,000.00$25,000,000.009.803921569000%Totals$30,000,000.00$255,000,000.00100.000000000000%CONSENT AND REAFFIRMATIONEach of the undersigned (individually and collectively, “ Guarantor ”) (a) acknowledges receipt of the foregoing Lender Addition andAcknowledgment Agreement (the “ Agreement ”), (b) consents to the execution and delivery of the Agreement, and (c) reaffirms all of itsobligations and covenants under the (i) Subsidiary Guaranty (as defined in the Credit Agreement defined in the Agreement), (ii) HazardousMaterials Indemnity Agreement (as defined in the Credit Agreement defined in the Agreement), and (iii) each of the Loan Documents (asdefined in the Credit Agreement defined in the Agreement) to which it is a party, and agrees that none of its obligations and covenants shallbe reduced or limited by the execution and delivery of the Agreement.Delivery of an executed counterpart of this consent via facsimile, telecopy, or other electronic method of transmission pursuant to which thesignature of Guarantor can be seen (including, without limitation, Adobe Corporation’s Portable Document Format) shall have the same forceand effect as the delivery of an original executed counterpart of this consent. Guarantor’s delivery of an executed counterpart of this consentby facsimile or other electronic method of transmission shall be made in conjunction with Guarantor’s delivery of an original executedcounterpart, but Guarantor’s failure to deliver said original executed counterpart shall not affect the validity, enforceability, or binding effectof this consent.[Signatures on Following Page]GUARANTORS: LGI HOMES GROUP, LLCLGI HOMES-PRESIDENTIAL GLEN, LLCLGI HOMES – FW, LLCLGI HOMES-TEXAS, LLCLGI HOMES – E SAN ANTONIO, LLCLGI HOMES – WINDMILL FARMS, LLCLGI HOMES – FLORIDA, LLCLGI HOMES – SUNRISE MEADOW, LLCLGI HOMES CORPORATE, LLCLGI HOMES AZ SALES, LLCLGI HOMES - NC, LLCLGI HOMES - SC, LLCLGI HOMES – TENNESSEE, LLCLGI HOMES – WASHINGTON, LLCBy: /s/ Eric T. LiparName: Eric T. LiparTitle: ManagerLGI HOMES AZ CONSTRUCTION, LLCLGI HOMES – GLENNWILDE, LLCLGI HOMES – ARIZONA, LLCLGI HOMES – GEORGIA, LLCLGI HOMES – NEW MEXICO, LLCLGI HOMES NM CONSTRUCTION, LLCLGI FUND III HOLDINGS, LLCLGI HOMES - COLORADO, LLCBy:LGI Homes Group, LLC,its ManagerBy: /s/ Eric T. LiparName: Eric T. LiparTitle: Manager[Signatures Continued on Next Page]LGI JV HOLDINGS III, LLCLGI JV HOLDINGS IV, LLCBy: LGI Homes Group, LLC,its Managing MemberBy: /s/ Eric T. LiparName: Eric T. LiparTitle: ManagerRIVERCHASE ESTATES PARTNERS, LLCBy:LGI Homes Group, LLC,its Sole MemberBy: /s/ Eric T. LiparName: Eric T. LiparTitle: ManagerLGI HOMES – MAPLE LEAF, LLCLGI HOMES AVONDALE, LLCLGI HOMES – STERLING LAKES PARTNERS, LLCLGI CROWLEY LAND PARTNERS, LLCLGI HOMES – MAPLE PARK, LLCBy: LGI Fund III Holdings, LLC,its ManagerBy:LGI Homes Group, LLC,its ManagerBy: /s/ Eric T. LiparName: Eric T. LiparTitle: Manager[Signatures Continued on Next Page]LGI HOMES SERVICES, LLCBy:LGI Homes Corporate, LLC,its ManagerBy: /s/ Eric T. LiparName: Eric T. LiparTitle: ManagerLGI HOMES-SONTERRA, LLCBy: LGI JV Holdings III, LLC,its ManagerBy:LGI Homes Group, LLC,its Managing MemberBy: /s/ Eric T. LiparName: Eric T. LiparTitle: ManagerLGI HOMES – BLUE HILLS, LLCBy: LGI JV Holdings III, LLC,its Sole MemberBy:LGI Homes Group, LLC,its Managing MemberBy: /s/ Eric T. LiparName: Eric T. LiparTitle: Manager[Signatures Continued on Next Page]LGI HOMES – KRENSON WOODS, LLCLGI HOMES – OAK HOLLOW PHASE 6, LLCLUCKEY RANCH PARTNERS, LLCBy: LGI JV Holdings III, LLC,its Sole MemberBy:LGI Homes Group, LLC,its Managing MemberBy: /s/ Eric T. LiparName: Eric T. LiparTitle: ManagerExhibit 10.6LENDER ADDITION AND ACKNOWLEDGEMENT AGREEMENTTHIS LENDER ADDITION AND ACKNOWLEDGEMENT AGREEMENT dated as of January 6, 2016 (this “ Agreement ”) is byand among each of the Persons identified as “Increasing Lenders” on the signature pages hereto (each, an “ Increasing Lender ”), LGI Homes,Inc., a Delaware corporation (the “ Borrower ”) and Wells Fargo Bank, National Association, as Administrative Agent (“ AdministrativeAgent ”). Capitalized terms used herein but not otherwise defined herein shall have the meanings provided in the Credit Agreement.W I T N E S S E T HWHEREAS , pursuant to that certain Credit Agreement dated as of May 27, 2015 (as heretofore amended and may be furtheramended, modified, supplemented, increased or extended from time to time, the “ Credit Agreement ”) among the Borrower, the Lendersidentified therein, Administrative Agent, Wells Fargo Securities, LLC, as sole lead arranger and sole bookrunner and Deutsche BankSecurities Inc. and Fifth Third Bank as documentation agents, the Lenders have agreed to provide the Borrower with a revolving creditfacility;WHEREAS , pursuant to Section 2.17 of the Credit Agreement, the Borrower has requested an increase of the RevolvingCommitments under the Credit Agreement pursuant to this Agreement; andWHEREAS , each Increasing Lender that is an existing Lender has agreed to increase its Revolving Commitment and in the case ofany Increasing Lender that is not an existing Lender (an “ Additional Lender ”), to become a Lender under the Credit Agreement and providea Revolving Commitment in connection therewith;NOW, THEREFORE , in consideration of the premises and the mutual covenants contained herein and in the Credit Agreement, thereceipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:1. Pursuant to Section 2.17 of the Credit Agreement, the Increasing Lenders have agreed to provide commitments to increase theRevolving Commitment by FORTY-FIVE MILLION AND 00/100 U.S. DOLLARS ($45,000,000) for an aggregate Revolving Commitmentof $300,000,000. After giving effect to this Agreement, the Revolving Commitment for each of the Lenders shall be as set forth on Schedule Iattached hereto.2. The terms of repayment and the Applicable Margin with respect to the Revolving Commitment Amount shall be the same asthose applicable to Revolving Loans, as set forth in the Credit Agreement.3. Borrower hereby represents and warrants that no Default or Event of Default exists as of the date set forth above and therepresentations and warranties made or deemed made by the Borrower and any other Loan Party in any Loan Document to which such LoanParty is a party are true and correct in all material respects (except in the case of a representation or warranty qualified by materiality, inwhich case such representation or warranty shall be true and correct in all respects) as of the date set forth above except to the extent that suchrepresentations and warranties expressly relate solely to an earlier date (in which case such representations and warranties are true and correctin all material respects (except in the case of arepresentation or warranty qualified by materiality, in which case such representation or warranty shall be true and correct in all respects) onand as of such earlier date) and except for changes in factual circumstances specifically and expressly permitted under the Credit Agreement.4. Each of the Administrative Agent and the Borrower agrees that, as of the date hereof, each Additional Lender shall (a) be a partyto the Credit Agreement and the other Loan Documents, (b) be a “Lender” for all purposes of the Credit Agreement and the other LoanDocuments and (c) have the rights and obligations of a Lender under the Credit Agreement and the other Loan Documents.5. The address of each Additional Lender for purposes of all notices and other communications is as set forth on the AdministrativeQuestionnaire delivered by such Additional Lender to the Administrative Agent.6. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts(including by facsimile transmission or by any other electronic imaging means), and all of said counterparts taken together shall be deemed toconstitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Agreement by facsimile transmissionor by any other electronic imaging means shall be effective as delivery of a manually executed counterpart of this Agreement.7. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THESTATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE.8. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIALWITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE INCONNECTION WITH THIS AGREEMENT, THE CREDIT AGREEMENT OR THE OTHER LOAN DOCUMENTS, ANYRIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS ANDOBLIGATIONS.IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by a duly authorized officer as of thedate first above written.INCREASING LENDER : WELLS FARGO BANK, NATIONAL ASSOCIATIONBy: /s/ Douglas K. CarmanName: Douglas K. CarmanTitle: Senior Vice PresidentADDITIONAL LENDERS : ZB, N.A. DBA AMEGY BANKBy: /s/ Eric WojnerName: Eric WojnerTitle: Senior Vice PresidentCOMPASS BANKBy: /s/ Brock TautenhahnName: Brock TautenhahnTitle: Senior Vice PresidentBORROWER : LGI HOMES, INC.,a Delaware corporationBy: /s/ Eric T. LiparName: Eric T. LiparTitle: Chief Executive OfficerADMINISTRATIVEAGENT : WELLS FARGO BANK, NATIONAL ASSOCIATION,as Administrative Agent By: /s/ Douglas K. CarmanName: Douglas K. CarmanTitle: Senior Vice PresidentSCHEDULE ICOMMITMENTSLENDERINCREASEALLOCATIONCOMMITMENT (aftergiving effect any increaseallocation)PRO-RATA SHARE (aftergiving effect any increaseallocation)WELLS FARGO BANK, NATIONALASSOCIATION$5,000,000.00$60,000,000.0020.000000000000%FIFTH THIRD BANK$0.00$50,000,000.0016.666666670000%JPMORGAN CHASE BANK, N.A.$0.00$30,000,000.0010.000000000000%DEUTSCHE BANK AG NEW YORKBRANCH$0.00$40,000,000.0013.333333330000%CREDIT SUISSE AG, CAYMAN ISLANDSBRANCH$0.00$15,000,000.005.000000000000%CHANG HWA COMMERCIAL BANK,LTD., NEW YORK BRANCH$0.00$20,000,000.006.666666667000%ZB, N.A. DBA AMEGY BANK$20,000,000.00$20,000,000.006.666666667000%COMPASS BANK$20,000,000.00$20,000,000.006.666666667000%TAIWAN COOPERATIVE BANK, LTD.,acting through its Los Angeles Branch$0.00$15,000,000.005.000000000000%ACADEMY BANK, a division of ArmedForces Bank, N.A.$0.00$5,000,000.001.666666667000%CADENCE BANK, N.A.$0.00$25,000,000.008.333333333000%Totals$45,000,000.00$300,000,000.00100.000000000000%CONSENT AND REAFFIRMATIONEach of the undersigned (individually and collectively, “ Guarantor ”) (a) acknowledges receipt of the foregoing Lender Addition andAcknowledgment Agreement (the “ Agreement ”), (b) consents to the execution and delivery of the Agreement, and (c) reaffirms all of itsobligations and covenants under the (i) Subsidiary Guaranty (as defined in the Credit Agreement defined in the Agreement), (ii) HazardousMaterials Indemnity Agreement (as defined in the Credit Agreement defined in the Agreement), and (iii) each of the Loan Documents (asdefined in the Credit Agreement defined in the Agreement) to which it is a party, and agrees that none of its obligations and covenants shallbe reduced or limited by the execution and delivery of the Agreement.Delivery of an executed counterpart of this consent via facsimile, telecopy, or other electronic method of transmission pursuant to which thesignature of Guarantor can be seen (including, without limitation, Adobe Corporation’s Portable Document Format) shall have the same forceand effect as the delivery of an original executed counterpart of this consent. Guarantor’s delivery of an executed counterpart of this consentby facsimile or other electronic method of transmission shall be made in conjunction with Guarantor’s delivery of an original executedcounterpart, but Guarantor’s failure to deliver said original executed counterpart shall not affect the validity, enforceability, or binding effectof this consent.[Signatures on Following Page]GUARANTORS: LGI HOMES GROUP, LLCLGI HOMES-PRESIDENTIAL GLEN, LLCLGI HOMES – FW, LLCLGI HOMES-TEXAS, LLCLGI HOMES – E SAN ANTONIO, LLCLGI HOMES – WINDMILL FARMS, LLCLGI HOMES – FLORIDA, LLCLGI HOMES – SUNRISE MEADOW, LLCLGI HOMES CORPORATE, LLCLGI HOMES AZ SALES, LLCLGI HOMES - NC, LLCLGI HOMES - SC, LLCLGI HOMES – TENNESSEE, LLCLGI HOMES – WASHINGTON, LLCBy: /s/ Eric T. LiparName: Eric T. LiparTitle: ManagerLGI HOMES AZ CONSTRUCTION, LLCLGI HOMES – GLENNWILDE, LLCLGI HOMES – ARIZONA, LLCLGI HOMES – GEORGIA, LLCLGI HOMES – NEW MEXICO, LLCLGI HOMES NM CONSTRUCTION, LLCLGI FUND III HOLDINGS, LLCLGI HOMES - COLORADO, LLCBy:LGI Homes Group, LLC,its ManagerBy: /s/ Eric T. LiparName: Eric T. LiparTitle: Manager[Signatures Continued on Next Page]LGI JV HOLDINGS III, LLCLGI JV HOLDINGS IV, LLCBy: LGI Homes Group, LLC,its Managing MemberBy: /s/ Eric T. LiparName: Eric T. LiparTitle: ManagerRIVERCHASE ESTATES PARTNERS, LLCBy:LGI Homes Group, LLC,its Sole MemberBy: /s/ Eric T. LiparName: Eric T. LiparTitle: ManagerLGI HOMES – MAPLE LEAF, LLCLGI HOMES AVONDALE, LLCLGI HOMES – STERLING LAKES PARTNERS, LLCLGI CROWLEY LAND PARTNERS, LLCLGI HOMES – MAPLE PARK, LLCBy: LGI Fund III Holdings, LLC,its ManagerBy:LGI Homes Group, LLC,its ManagerBy: /s/ Eric T. LiparName: Eric T. LiparTitle: Manager[Signatures Continued on Next Page]LGI HOMES SERVICES, LLCBy:LGI Homes Corporate, LLC,its ManagerBy: /s/ Eric T. LiparName: Eric T. LiparTitle: ManagerLGI HOMES-SONTERRA, LLCBy: LGI JV Holdings III, LLC,its ManagerBy:LGI Homes Group, LLC,its Managing MemberBy: /s/ Eric T. LiparName: Eric T. LiparTitle: ManagerLGI HOMES – BLUE HILLS, LLCBy: LGI JV Holdings III, LLC,its Sole MemberBy:LGI Homes Group, LLC,its Managing MemberBy: /s/ Eric T. LiparName: Eric T. LiparTitle: Manager[Signatures Continued on Next Page]LGI HOMES – KRENSON WOODS, LLCLGI HOMES – OAK HOLLOW PHASE 6, LLCLUCKEY RANCH PARTNERS, LLCBy: LGI JV Holdings III, LLC,its Sole MemberBy:LGI Homes Group, LLC,its Managing MemberBy: /s/ Eric T. LiparName: Eric T. LiparTitle: ManagerExhibit 21.1LIST OF SUBSIDIARIES OF LGI HOMES, INC.LGI HOMES GROUP, LLC, a Texas limited liability companyLGI HOMES - DECKER OAKS, LLC, a Texas limited liability companyLGI HOMES - E SAN ANTONIO, LLC, a Texas limited liability companyLGI HOMES - FW, LLC, a Texas limited liability companyLGI HOMES - GEORGIA, LLC, a Georgia limited liability companyLGI HOMES - LAKES OF MAGNOLIA, LLC, a Texas limited liability companyLGI HOMES - PRESIDENTIAL GLEN, LLC, a Texas limited liability companyLGI HOMES - QUAIL RUN, LLC, a Texas limited liability companyLGI HOMES - SALTGRASS, LLC, a Texas limited liability companyLGI HOMES - STEWARTS FOREST, LLC, a Texas limited liability companyLGI HOMES - TEXAS, LLC, a Texas limited liability companyLGI HOMES - WINDMILL FARMS, LLC, a Texas limited liability companyLGI HOMES - WOODLAND CREEK, LLC, a Texas limited liability companyLGI HOMES AZ CONSTRUCTION, LLC, an Arizona limited liability companyLGI HOMES AZ SALES, LLC, an Arizona limited liability companyLGI HOMES - ARIZONA, LLC, an Arizona limited liability companyLGI HOMES - FLORIDA, LLC, a Florida limited liability companyLGI HOMES - GLENNWILDE, LLC, an Arizona limited liability companyLGI HOMES - SAN TAN HEIGHTS, LLC, an Arizona limited liability companyLGI HOMES - NEW MEXICO, LLC, a New Mexico limited liability companyLGI HOMES NM CONSTRUCTION, LLC, a New Mexico limited liability companyLGI HOMES - COLORADO, LLC, a Colorado limited liability companyLGI HOMES - NC, LLC, a North Carolina limited liability companyLGI HOMES - SC, LLC, a South Carolina limited liability companyLGI FUND III HOLDINGS, LLC, a Texas limited liability companyLGI CROWLEY LAND PARTNERS, LLC, a Texas limited liability companyLGI HOMES AVONDALE, LLC, a Georgia limited liability companyLGI HOMES - MAPLE PARK, LLC, a Georgia limited liability companyLGI HOMES - MAPLE LEAF, LLC, a Texas limited liability companyLGI HOMES - SHALE CREEK, LLC, a Texas limited liability companyLGI HOMES - STERLING LAKES PARTNERS, LLC, a Texas limited liability companyLGI HOMES CORPORATE, LLC, a Texas limited liability companyLGI HOMES SERVICES, LLC, a Texas limited liability companyLGI JV HOLDINGS, LLC, a Delaware limited liability companyLGI HOMES - LUCKEY RANCH, LLC, a Delaware limited liability companyLGI JV HOLDINGS II, LLC, a Delaware limited liability companyLGI HOMES - MALLARD CROSSING, LLC, a Delaware limited liability companyLGI HOMES - WEST MEADOWS, LLC, a Delaware limited liability companyLGI JV HOLDINGS III, LLC, a Delaware limited liability companyLGI HOMES - OAK HOLLOW, LLC, a Delaware limited liability companyLGI HOMES - SONTERRA, LLC, a Delaware limited liability companyLGI JV HOLDINGS IV, LLC, a Delaware limited liability companyLGI HOMES - BLUE HILLS, LLC, an Arizona limited liability companyLGI HOMES - KRENSON WOODS, LLC, a Delaware limited liability companyLGI HOMES - NORTHPOINTE, LLC, a Delaware limited liability companyLGI HOMES - OAK HOLLOW PHASE 6, LLC, a Delaware limited liability companyLGI HOMES - SALTGRASS CROSSING, LLC, a Delaware limited liability companyLUCKEY RANCH PARTNERS, LLC, a Delaware limited liability companyLGI HOMES - CANYON CROSSING, Ltd., a Texas limited liability companyLGI HOMES - DEER CREEK, LLC, a Texas limited liability companyLGI HOMES II, LLC, a Texas limited liability companyLGI HOMES - SUNRISE MEADOW, LLC, a Texas limited liability companyRIVERCHASE ESTATES PARTNERS, LLC, a South Carolina limited liability companyLGI HOMES REALTY LLC, a Georgia limited liability companyExhibit 21.1LGI HOMES – TENNESSEE, LLC, a Tennessee limited liability companyLGI HOMES – WASHINGTON, LLC , a Washington limited liability companyLGI REALTY – WASHINGTON, LLC , a Washington limited liability companyLGI HOMES – OREGON LLC, an Oregon limited liability companyEXHIBIT 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements:(1)Registration Statement (Form S-8 No. 333-192460) pertaining to the LGI Homes, Inc. 2013 Equity Incentive Plan, and(2)Registration Statement (Form S-3 No. 333-205492) pertaining to LGI Homes, Inc. 2015 Continuous Equity Offering Plan,of our report dated March 9, 2016, with respect to the consolidated financial statements of LGI Homes, Inc., incorporated by reference in this Annual Report (Form10-K) for the year ended December 31, 2015./s/ Ernst & Young LLPHouston, TexasMarch 9, 2016EXHIBIT 23.2INDEPENDENT AUDITORS' CONSENTWe consent to the incorporation by reference in Registration Statement No. 333-192460 on Form S-8, and Registration No. 333-205492 on Form S-3, of LGIHomes, Inc. our reports dated March 31, 2014 for the following entities:LGI-GTIS Holdings, LLC and Subsidiaries;LGI-GTIS Holdings II, LLC and Subsidiaries;LGI-GTIS Holdings III, LLC and Subsidiaries; andLGI-GTIS Holdings IV, LLC and Subsidiariesappearing in this Form 10-K of LGI Homes, Inc./s/ Armanino LLPSan Ramon, CAMarch 9, 2016EXHIBIT 31.1CEO CERTIFICATIONPURSUANT TO SECTION 302 OF THESARBANES - OXLEY ACT OF 2002I, Eric Lipar, certify that:1. I have reviewed this Annual Report on Form 10-K of LGI Homes, Inc.;2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects thefinancial 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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) 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 thatmaterial information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this Annual Report is being prepared;b.Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Annual Report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; andc.Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscalquarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theRegistrant’s internal control over financial reporting; and5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’sauditors 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 toadversely affect the Registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control overfinancial reporting.Date: March 9, 2016By: /s/ Eric Lipar Eric Lipar Chief Executive Officer and Chairman of the Board LGI Homes, Inc.EXHIBIT 31.2CFO CERTIFICATIONPURSUANT TO SECTION 302 OF THESARBANES - OXLEY ACT OF 2002I, Charles Merdian, certify that:1. I have reviewed this Annual Report on Form 10-K of LGI Homes, Inc.;2. Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;3. Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects thefinancial 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 and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) 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 thatmaterial information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this Annual Report is being prepared;b.Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Annual Report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; andc.Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscalquarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theRegistrant’s internal control over financial reporting; and5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’sauditors 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 toadversely affect the Registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control overfinancial reporting.Date: March 9, 2016By: /s/ Charles Merdian Charles Merdian Chief Financial Officer, Secretary and Treasurer LGI Homes, Inc.EXHIBIT 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of LGI Homes, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2015 as filed with the Securities andExchange Commission on the date hereof (the “Report”), I, Eric Lipar, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.March 9, 2016 /s/ Eric Lipar Eric Lipar Chief Executive Officer and Chairman of the Board LGI Homes, Inc.EXHIBIT 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of LGI Homes, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2015 as filed with the Securities andExchange Commission on the date hereof (the “Report”), I, Charles Merdian, Chief Financial Officer of 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 the best of my knowledge:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.March 9, 2016 /s/ Charles Merdian Charles Merdian Chief Financial Officer, Secretary and Treasurer LGI Homes, Inc.

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