WLS Welsh Property Trust Common Stock

William Lyon Homes (NYSE:WLS): -0- *T Financial Highlights *T -- Net new home orders of 834, up 27% from 659 in the third quarter of 2004 -- Record backlog of homes sold but not closed at September 30, 2005 of 2,299, up 22% from 1,883 at September 30, 2004 and representing the highest backlog for any quarter-end in the Company's history. -- Record dollar backlog of homes sold but not closed at September 30, 2005 of $1,210,356,000, up 16% from $1,042,572,000 at September 30, 2004 and representing the highest backlog for any quarter-end in the Company's history. -- Homes closed of 650, down 25% from 864 in the third quarter of 2004 -- Operating revenue from home sales of $358.8 million, down 24% from $474.3 million in the third quarter of 2004 -- Operating revenue from lots, land and other sales of $17.6 million as compared to $0.6 million in the third quarter of 2004 -- Consolidated operating revenue of $376.3 million, down 21% from $475.0 million in the third quarter of 2004 -- Homebuilding gross margin of $89.7 million, down 29% from $125.7 million in the third quarter of 2004 -- Homebuilding gross margin percentage of 25.0%, down 150 basis points from 26.5% in the third quarter of 2004 -- Lots, land and other gross margin of $7.5 million as compared to $(0.2) million in the third quarter of 2004 -- Net income of $38.1 million, down 15% from $44.9 million in the third quarter of 2004 -- Diluted earnings per share of $4.39, down 3% from $4.51 in the third quarter of 2004 (based on weighted average shares outstanding of 8,677,410 in the 2005 period as compared to 9,965,762 in the 2004 period) William Lyon Homes (NYSE:WLS) today reported that net income for the third quarter ended September 30, 2005 decreased 15% to $38,083,000, or $4.39 per diluted share, as compared to net income of $44,937,000, or $4.51 per diluted share, for the comparable period a year ago. Consolidated operating revenue decreased 21% to $376,331,000 for the quarter ended September 30, 2005, as compared to $474,950,000 for the comparable period a year ago. The Company reported that net income for the nine months ended September 30, 2005 increased 12% to $102,676,000, or $11.85 per diluted share, as compared to net income of $91,494,000, or $9.22 per diluted share, for the comparable period a year ago. Consolidated operating revenue decreased 7% to $1,030,502,000 for the nine months ended September 30, 2005, as compared with $1,113,981,000 for the comparable period a year ago. Operating revenue for the three months ended September 30, 2005 and 2004 included $17,580,000 and $628,000, respectively, from the sales of land resulting in gross profit (loss) of approximately $7,525,000 and $(157,000), respectively. Operating revenue for the nine months ended September 30, 2005 and 2004 included $64,972,000 and $18,051,000, respectively, from the sales of land resulting in gross profit of approximately $31,080,000 and $3,440,000, respectively. Net new home orders for the three months ended September 30, 2005 increased 27% to 834 homes, compared to 659 homes for the three months ended September 30, 2004. The average number of sales locations during the three months ended September 30, 2005 was 42, up 5% from 40 during the three months ended September 30, 2004. The Company's number of new home orders per average sales location increased to 19.9 for the three months ended September 30, 2005, as compared to 16.5 for the three months ended September 30, 2004. Net new home orders for the nine months ended September 30, 2005 were 2,861 homes, down slightly from 2,878 homes for the nine months ended September 30, 2004. The average number of sales locations during the nine months ended September 30, 2005 was 41, down 5% from 43 during the nine months ended September 30, 2004. The Company's number of new home orders per average sales location increased to 69.8 for the nine months ended September 30, 2005, as compared to 66.9 for the nine months ended September 30, 2004. The number of homes closed in the three months ended September 30, 2005 was 650 homes, down 25% from 864 homes closed in the three months ended September 30, 2004. The number of homes closed for the nine months ended September 30, 2005 was 1,728, down 24% from 2,261 homes closed in the nine months ended September 30, 2004. At September 30, 2005, the backlog of homes sold but not closed totaled 2,299 homes, a record for any quarter-end in the Company's history, up 22% from 1,883 homes at September 30, 2004. At September 30, 2005, the dollar amount of backlog of homes sold but not closed totaled $1,210,356,000, a record for any quarter-end in the Company's history, up 16% from $1,042,572,000 at September 30, 2004, and up 8% from $1,125,579,000 at June 30, 2005. Selected financial and operating information for the Company including joint ventures is set forth in greater detail in a schedule attached to this release. General William Lyon, Chairman and Chief Executive Officer, stated: "While the Company's net income for the quarter ended September 30, 2005 was down approximately 15% from the comparable prior period as a result of reduced closings and lower gross margins, nevertheless the results for the quarter exceeded our expectations and our business plan for the quarter." General Lyon added: "We had anticipated that our closings for the quarter would fall short of the closings for the comparable prior period as a result of a reduction in the average number of sales locations in the first half of 2005 as compared to the first half of 2004, resulting in a lack of available product to sell." General Lyon further stated: "Our results for the quarter were also negatively impacted by a reduction of 150 basis points in our gross margin percentages for the quarter ended September 30, 2005 as compared to the quarter ended September 30, 2004 primarily due to the earlier close out of projects with higher average gross margins and a shift in product mix." Wade H. Cable, President and Chief Operating Officer, stated: "As we have previously indicated, we are continuing our focus on increasing the number of sales locations in the geographic markets in which we operate. While we ended 2004 with only 37 active sales locations, we now expect to open 35 new locations this year resulting in 47 active sales locations by the end of 2005." General Lyon concluded: "As we enter the fourth quarter, I am pleased by the 27% increase in the number of net new home orders to 834 for the third quarter of 2005 as compared to 659 for the third quarter of 2004. In addition, our backlog of homes sold but not closed at September 30, 2005 increased 22% to 2,299 homes with a dollar value of $1,210,356,000, both records for any quarter in the Company's history." For the full year 2005, the Company continues to target deliveries at approximately 3,200, including consolidated joint ventures, which will result in total revenues in excess of $1.8 billion. However, as the Company has previously stated, a significant portion of the Company's anticipated deliveries for the fourth quarter are expected to occur in the second half of the quarter. Because of the uncertainty of the timing of these deliveries and certain land sales in the fourth quarter of 2005, the Company continues to estimate that its full year 2005 earnings will be in a broad range of between $17.75 and $20.00 per share on a diluted basis. The Company will hold a conference call on Thursday, November 10, 2005 at 11:00 a.m. Pacific Time to discuss the third quarter 2005 earnings results. The dial-in number is (866) 770-7129 (enter passcode number 11061305). Participants may call in beginning at 10:45 a.m. Pacific Time. In addition, the call will be broadcast from William Lyon Homes' website at www.lyonhomes.com in the "Investor Relations" section of the site. The call will be recorded and replayed beginning on November 10, 2005 at 1:00 p.m. Pacific Time through midnight on December 2, 2005. The dial-in number for the replay is (888) 286-8010 (enter passcode number 82369476). Replays of the call will also be available on the Company's website approximately two hours after broadcast. William Lyon Homes is primarily engaged in the design, construction and sales of new single-family detached and attached homes in California, Arizona and Nevada. The Company's corporate headquarters are located in Newport Beach, California. Certain statements contained in this release that are not historical information contain forward-looking statements. The forward-looking statements involve risks and uncertainties and actual results may differ materially from those projected or implied. Further, certain forward-looking statements are based on assumptions of future events which may not prove to be accurate. Factors that may impact such forward-looking statements include, among others, changes in general economic conditions and in the markets in which the Company competes, terrorism or hostilities involving the United States, changes in mortgage and other interest rates, changes in prices of homebuilding materials, weather conditions, the occurrence of events such as landslides, soil subsidence and earthquakes that are uninsurable, not economically insurable or not subject to effective indemnification agreements, the availability of labor and homebuilding materials, changes in governmental laws and regulations, the timing of receipt of regulatory approvals and the opening of projects, and the availability and cost of land for future development, as well as the other factors discussed in the Company's reports filed with the Securities and Exchange Commission. -0- *T WILLIAM LYON HOMES SELECTED FINANCIAL AND OPERATING INFORMATION (unaudited) Three Months Ended September 30, 2005 Wholly- Joint Consolidated Owned Ventures Total Selected Financial Information (dollars in thousands) Homes closed 524 126 650 Home sales revenue $278,525 $80,226 $358,751 Cost of sales (210,757) (58,251) (269,008) Gross margin $67,768 $21,975 $89,743 Gross margin percentage 24.3% 27.4% 25.0% Number of homes closed California 261 126 387 Arizona 140 - 140 Nevada 123 - 123 Total 524 126 650 Average sales price California $726,300 $636,700 $697,200 Arizona 327,300 - 327,300 Nevada 350,700 - 350,700 Total $531,500 $636,700 $551,900 Number of net new home orders California 403 120 523 Arizona 118 - 118 Nevada 193 - 193 Total 714 120 834 Average number of sales locations during period California 22 7 29 Arizona 5 - 5 Nevada 8 - 8 Total 35 7 42 Three Months Ended September 30, 2004 Wholly- Joint Consolidated Owned Ventures Total Selected Financial Information (dollars in thousands) Homes closed 574 290 864 Home sales revenue $321,091 $153,231 $474,322 Cost of sales (238,765) (109,841) (348,606) Gross margin $82,326 $43,390 $125,716 Gross margin percentage 25.6% 28.3% 26.5% Number of homes closed California 338 290 628 Arizona 97 - 97 Nevada 139 - 139 Total 574 290 864 Average sales price California $737,000 $528,400 $640,900 Arizona 269,200 - 269,200 Nevada 329,900 - 329,400 Total $559,400 $528,400 $549,000 Number of net new home orders California 159 159 318 Arizona 192 - 192 Nevada 149 - 149 Total 500 159 659 Average number of sales locations during period California 15 11 26 Arizona 7 - 7 Nevada 7 - 7 Total 29 11 40 WILLIAM LYON HOMES SELECTED FINANCIAL AND OPERATING INFORMATION (Continued) (unaudited) As of September 30, 2005 Wholly- Joint Consolidated Owned Ventures Total Backlog of homes sold but not closed at end of period California 1,102 408 1,510 Arizona 499 - 499 Nevada 290 - 290 Total 1,891 408 2,299 Dollar amount of homes sold but not closed at end of period (in thousands) California $720,999 $213,302 $934,301 Arizona 174,487 - 174,487 Nevada 101,568 - 101,568 Total $997,054 $213,302 $1,210,356 Lots controlled at end of period Owned lots California 4,516 1,636 6,152 Arizona 3,657 367 4,024 Nevada 1,517 - 1,517 Total 9,690 2,003 11,693 Optioned lots (1) California 3,296 Arizona 6,329 Nevada 2,044 Total 11,669 Total lots controlled California 9,448 Arizona 10,353 Nevada 3,561 Total 23,362 As of September 30, 2004 Wholly- Joint Consolidated Owned Ventures Total Backlog of homes sold but not closed at end of period California 587 535 1,122 Arizona 518 - 518 Nevada 243 - 243 Total 1,348 535 1,883 Dollar amount of homes sold but not closed at end of period (in thousands) California $494,028 $316,187 $810,215 Arizona 137,967 - 137,967 Nevada 94,390 - 94,390 Total $726,385 $316,187 $1,042,572 Lots controlled at end of period Owned lots California 2,659 1,786 4,445 Arizona 4,069 - 4,069 Nevada 1,256 - 1,256 Total 7,984 1,786 9,770 Optioned lots (1) California 4,817 Arizona 4,038 Nevada 1,411 Total 10,266 Total lots controlled California 9,262 Arizona 8,107 Nevada 2,667 Total 20,036 (1) Optioned lots may be purchased by the Company as wholly-owned projects or may be purchased by newly formed joint ventures. WILLIAM LYON HOMES SELECTED FINANCIAL AND OPERATING INFORMATION (unaudited) Nine Months Ended September 30, 2005 Wholly- Joint Consolidated Owned Ventures Total Selected Financial Information (dollars in thousands) Homes closed 1,386 342 1,728 Home sales revenue $743,341 $222,189 $965,530 Cost of sales (549,656) (161,286) (710,942) Gross margin $193,685 $60,903 $254,588 Gross margin percentage 26.1% 27.4% 26.4% Number of homes closed California 592 342 934 Arizona 437 - 437 Nevada 357 - 357 Total 1,386 342 1,728 Average sales price California $807,100 $649,700 $749,500 Arizona 301,900 - 301,900 Nevada 374,200 - 374,200 Total $536,300 $649,700 $558,800 Number of net new home orders California 1,337 505 1,842 Arizona 454 - 454 Nevada 565 - 565 Total 2,356 505 2,861 Average number of sales locations during period California 19 8 27 Arizona 6 - 6 Nevada 8 - 8 Total 33 8 41 Nine Months Ended September 30, 2004 Wholly- Joint Consolidated Owned Ventures Total Selected Financial Information (dollars in thousands) Homes closed 1,674 587 2,261 Home sales revenue $799,783 $296,237 $1,095,930 Cost of sales (612,958) (218,912) (831,870) Gross margin $186,825 $77,325 $264,060 Gross margin percentage 23.4% 26.1% 24.1% Number of homes closed California 899 587 1,486 Arizona 266 - 266 Nevada 509 - 509 Total 1,674 587 2,261 Average sales price California $644,600 $504,500 $589,200 Arizona 237,300 - 237,300 Nevada 308,800 - 308,800 Total $477,800 $504,500 $484,700 Number of net new home orders California 974 808 1,782 Arizona 577 - 577 Nevada 519 - 519 Total 2,070 808 2,878 Average number of sales locations during period California 18 12 30 Arizona 6 - 6 Nevada 7 - 7 Total 31 12 43 WILLIAM LYON HOMES CONSOLIDATED STATEMENTS OF INCOME (in thousands except per common share amounts) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Operating revenue Home sales $358,751 $474,322 $965,530 $1,095,930 Lots, land and other sales 17,580 628 64,972 18,051 376,331 474,950 1,030,502 1,113,981 Operating costs Cost of sales - homes (269,008) (348,606) (710,942) (831,870) Cost of sales - lots, land and other (10,055) (785) (33,892) (14,611) Sales and marketing (12,440) (14,273) (36,837) (37,565) General and administrative (21,476) (23,536) (62,880) (54,254) Other (574) (658) (1,782) (1,425) (313,553) (387,858) (846,333) (939,725) Equity in income (loss) of unconsolidated joint ventures 4,672 (268) 4,513 (451) Minority equity in income of consolidated entities (5,073) (13,858) (17,032) (24,770) Operating income 62,377 72,966 171,650 149,035 Financial advisory expenses - - (2,191) - Other income, net 570 1,244 253 2,949 Income before provision for income taxes 62,947 74,210 169,712 151,984 Provision for income taxes (24,864) (29,273) (67,036) (60,490) Net income $38,083 $44,937 $102,676 $91,494 Earnings per common share Basic $4.41 $4.54 $11.91 $9.29 Diluted $4.39 $4.51 $11.85 $9.22 WILLIAM LYON HOMES CONSOLIDATED BALANCE SHEETS (in thousands except number of shares and par value per share) September 30, December 31, 2005 2004 (unaudited) ASSETS Cash and cash equivalents $33,328 $96,074 Receivables 35,739 39,302 Real estate inventories 1,575,889 1,059,173 Investments in and advances to unconsolidated joint ventures 463 17,911 Property and equipment, less accumulated depreciation of $9,404 and $7,844 at September 30, 2005 and December 31, 2004, respectively 18,627 18,066 Deferred loan costs 13,019 13,982 Goodwill 5,896 5,896 Other assets 29,395 24,158 $1,712,356 $1,274,562 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $65,414 $39,364 Accrued expenses 128,357 150,774 Notes payable 242,173 48,571 7 5/8% Senior Notes due December 15, 2012 150,000 150,000 10 3/4% Senior Notes due April 1, 2013 246,847 246,648 7 1/2% Senior Notes due February 15, 2014 150,000 150,000 982,791 785,357 Minority interest in consolidated entities 276,471 142,096 Stockholders' equity Common stock, par value $.01 per share; 30,000,000 shares authorized; 8,652,067 and 8,616,236 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively; 1,275,000 shares issued and held in treasury at September 30, 2005 and December 31, 2004, respectively 86 86 Additional paid-in capital 33,559 30,250 Retained earnings 419,449 316,773 453,094 347,109 $1,712,356 $1,274,562 WILLIAM LYON HOMES SUPPLEMENTAL FINANCIAL INFORMATION (dollars in thousands) (unaudited) UNCONSOLIDATED JOINT VENTURE INFORMATION The Company and certain of its subsidiaries are general partners or members in joint ventures involved in the development and sale of residential projects. The consolidated financial statements of the Company include the accounts of the Company, all majority-owned and controlled subsidiaries and certain joint ventures which have been determined to be variable interest entities in which the Company is considered the primary beneficiary. The financial statements of joint ventures which have not been determined to be variable interest entities in which the Company is considered the primary beneficiary are not consolidated with the Company's financial statements. The Company's investments in unconsolidated joint ventures are accounted for using the equity method. Condensed combined statements of income for these joint ventures for the three and nine months ended September 30, 2005 and 2004 are summarized as follows: CONDENSED COMBINED STATEMENTS OF INCOME (dollars in thousands) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Operating revenue Land sales $26,091 $- $26,091 $- Operating costs Cost of sales--land (23,338) - (23,338) - Sales and marketing (284) (51) (284) (72) General and administrative (2) (4) (16) (12) Other (354) (236) (985) (245) (23,978) (291) (24,623) (329) Equity in income (loss) of unconsolidated joint ventures 18,102 (244) 19,498 (572) Net income (loss) $20,215 $(535) $20,966 $(901) Allocation to owners William Lyon Homes $10,108 $(268) $10,483 $(451) Others 10,107 (267) 10,483 (450) $20,215 $(535) $20,966 $(901) WILLIAM LYON HOMES SUPPLEMENTAL FINANCIAL INFORMATION SELECTED FINANCIAL DATA (dollars in thousands except per share data): Last Twelve Three Months Ended Months Ended September 30, September 30, 2005 2004 2005 2004 Net income $38,083 $44,937 $182,831 $130,090 Net cash (used in) provided by operating activities $(138,181) $66,984 $(28,108) $(85,184) Interest incurred (1) $19,612 $15,936 $67,020 $58,129 Adjusted EBITDA (2) $73,857 $91,256 $357,350 $284,192 Ratio of adjusted EBITDA to interest incurred 5.33x 4.89x (1) Interest incurred for the three and twelve months ended September 30, 2005 includes $79,000 and $1,287,000, respectively, of interest related to debt of consolidated entities which totaled $16,203,000 at September 30, 2005, due to the adoption of Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, as amended. (2) Adjusted EBITDA means net income plus (i) provision for income taxes, (ii) interest expense, (iii) amortization of capitalized interest included in cost of sales, (iv) depreciation and amortization and (v) cash distributions of income from unconsolidated joint ventures less equity in income of unconsolidated joint ventures. Other companies may calculate adjusted EBITDA differently. Adjusted EBITDA is not a financial measure prepared in accordance with generally accepted accounting principles. Adjusted EBITDA is presented herein because it is a component of certain covenants in the indentures governing the Company's 10 3/4% Senior Notes, 7 1/2% Senior Notes and 7 5/8% Senior Notes ("Indentures"). In addition, management believes the presentation of adjusted EBITDA provides useful information to the Company's investors regarding the Company's financial condition and results of operations because adjusted EBITDA is a widely utilized financial indicator of a company's ability to service and/or incur debt. The calculations of adjusted EBITDA below are presented in accordance with the requirements of the Indentures. Adjusted EBITDA should not be considered as an alternative for net income, cash flows from operating activities and other consolidated income or cash flow statement data prepared in accordance with accounting principles generally accepted in the United States or as a measure of profitability or liquidity. A reconciliation of net income to adjusted EBITDA is provided as follows: Last Twelve Three Months Ended Months Ended September 30, September 30, 2005 2004 2005 2004 Net income $38,083 $44,937 $182,831 $130,090 Provision for income taxes 24,864 29,273 120,045 89,848 Interest expense: Interest incurred 19,612 15,936 67,020 58,128 Interest capitalized (19,612) (15,936) (67,020) (58,128) Amortization of capitalized interest in cost of sales 12,253 16,442 53,867 60,659 Depreciation and amortization 556 336 2,099 1,002 Cash distributions of income from unconsolidated joint ventures 2,773 - 2,773 13,644 Equity in (income) loss of unconsolidated joint ventures (4,672) 268 (4,265) (11,051) Adjusted EBITDA $73,857 $91,256 $357,350 $284,192 A reconciliation of net cash (used in) provided by operating activities to Adjusted EBITDA is provided as follows: Last Twelve Three Months Ended Months Ended September 30, September 30, 2005 2004 2005 2004 Net cash (used in) provided by operating activities $(138,181) $66,984 $(28,108) $(85,184) Interest expense: Interest incurred 19,612 15,936 67,020 58,129 Interest capitalized (19,612) (15,936) (67,020) (58,129) Amortization of capitalized interest in cost of sales 12,253 16,442 53,867 60,659 Minority equity in income of consolidated entities (5,073) (13,858) (41,923) (25,246) Net changes in operating assets and liabilities: Receivables 1,311 (4,192) 7,592 2,911 Real estate inventories 203,732 16,032 273,753 262,412 Deferred loan costs (248) 6 (346) 519 Other assets 3,103 (1,368) 12,396 (1,877) Accounts payable (12,022) 386 (7,787) 3,773 Accrued expenses 8,982 10,824 87,906 66,225 Adjusted EBITDA $73,857 $91,256 $357,350 $284,192 *T