WLS Welsh Property Trust Common Stock

William Lyon Homes (NYSE:WLS): -0- *T Financial Highlights 2005 Fourth Quarter -- Net income of $88.0 million, up 10% -- Earnings per diluted share of $10.11, up 18% -- Record new home deliveries of 1,468, up 21% -- Consolidated operating revenue of $825.9 million, up 17% -- Homebuilding gross margins of 23.5%, down 470 basis points -- Gross profit from land sales of $35.5 million, up from $9.6 million 2005 Full Year -- Net income of $190.6 million, up 11% -- Earnings per diluted share of $21.98, up 25% -- New home deliveries of 3,196, down 8% -- Consolidated operating revenue of $1.856 billion, up 2% -- Homebuilding gross margins of 25.1%, down 60 basis points -- Gross profit from land sales of $66.5 million, up from $13.1 million -- Year-end backlog of 1,291 homes valued at a record $691.6 million -- Return on average stockholders' equity of 45% *T William Lyon Homes (NYSE:WLS) today reported the Company's 2005 fourth quarter and fiscal year operating results which were at record levels for any comparable periods in the Company's history. Net income for the fourth quarter ended December 31, 2005 increased 10% to $87,955,000, or $10.11 per diluted share, a record for any quarter in the Company's history, as compared to net income of $80,155,000, or $8.58 per diluted share, for the comparable period a year ago. Consolidated operating revenue increased 17% to $825,881,000 for the quarter ended December 31, 2005, as compared to $707,866,000 for the comparable period a year ago. For the year ended December 31, 2005, the Company reported record net income of $190,631,000, or $21.98 per diluted share, an increase of 11% as compared to net income of $171,649,000, or $17.55 per diluted share, for the comparable period a year ago. Consolidated operating revenue increased 2% to $1,856,383,000 for the year ended December 31, 2005, as compared with $1,821,847,000 for the comparable period a year ago. Operating revenue for the three months ended December 31, 2005 and 2004 included $46,344,000 and $18,207,000, respectively, from the sales of land resulting in gross profit of approximately $35,462,000 and $9,645,000, respectively. Operating revenue for the years ended December 31, 2005 and 2004 included $111,316,000 and $36,258,000, respectively, from the sales of land resulting in gross profit of approximately $66,542,000 and $13,085,000, respectively. In accordance with the Company's long established policy, and in the ordinary course of business, the Company continually evaluates land sales as market and business conditions warrant. In 2005, these significant land sales occurred in the Company's Arizona and Southern California Divisions. The Company's combined results including joint ventures were as follows: The number of homes closed for the year ended December 31, 2005 was 3,196, a decrease of 8% as compared to 3,471 for the year ended December 31, 2004. The number of homes closed for the three months ended December 31, 2005 was 1,468, up 21% as compared to 1,210 for the three months ended December 31, 2004. The Company's backlog of homes sold but not closed was 1,291 at December 31, 2005, a record for any fourth quarter in the Company's history, and up 11% from 1,166 at December 31, 2004. The Company's dollar amount of backlog of homes sold but not closed at December 31, 2005, was $691,627,000, up 11% from $623,578,000 at December 31, 2004. The cancellation rate of buyers who contracted to buy a home but did not close escrow was approximately 16% during 2005 and 17% during 2004. Net new home orders for the three months ended December 31, 2005 were 460, a decrease of 7% as compared to 493 for the three months ended December 31, 2004. Net new home orders for the year ended December 31, 2005 were 3,321, a decrease of 2% as compared to 3,371 for the year ended December 31, 2004. The average number of sales locations was unchanged at 41 for the years ended December 31, 2005 and 2004. During the fourth quarter of 2005, the average sales price of homes (including joint ventures) was $531,000, down 7% as compared to $570,000 for the comparable period a year ago. The lower average sales price reflects a change in product mix. For the quarter ended December 31, 2005, the Company's homebuilding gross margin percentage decreased to 23.5% from 28.2% for the quarter ended December 31, 2004. For the year ended December 31, 2005, the Company's homebuilding gross margin percentage decreased to 25.1% from 25.7% for the year ended December 31, 2004. These lower gross margin percentages were primarily due to the earlier close out of projects with higher gross margins, a shift in product mix and increases in land costs which resulted in higher cost of sales when homes closed. The reduction of 8% in new home deliveries in 2005 as compared to 2004 resulted primarily from a reduction in sales locations in the first half of 2005 as compared to 2004. The reduction of open sales locations in the first half of the year combined with the adverse weather conditions experienced in the first two months of 2005 delayed some of the Company's construction schedules and ultimately negatively impacted the Company's closings for the year. In 2005, the Company was focused on increasing the number of sales locations in each of its markets and at December 31, 2005, the Company ended the year with 44 active sales locations as compared to 37 active sales locations at December 31, 2004. In 2006, the Company will continue its focus on increasing its sales locations in each of its markets. During the last half of the fourth quarter of 2005, the Company began to experience some slowing in new orders in many of its markets, increases in cancellation rates and increasing pricing pressures from several of its competitors who initiated aggressive incentive and discounting programs. This softening in the Company's markets is continuing into 2006 as the Company's orders have declined for the first eight weeks of 2006 by 31% over the comparable period in 2005. Cancellation rates have increased in this period in 2006 to 26% from 12% in the comparable period in 2005. The Company is also seeing increases in its standing and unsold completed inventory in 2006 as compared to 2005. Based upon these changing market conditions, the Company is now targeting approximately 3,100 deliveries, including consolidated joint ventures, for the full year 2006, which will result in homebuilding revenue of approximately $1.65 billion. The Company has lowered its expectations for additional price appreciation in certain markets as well as factored in some additional incentives to move certain products, all of which have a negative impact on consolidated homebuilding gross margin percentage. The Company is currently projecting a homebuilding gross margin percentage of 22% for the full year 2006. Full year 2006 earnings are estimated to be in a range of between $14.00 and $15.00 per share on a diluted basis. Selected financial and operating information for the Company, including joint ventures, is set forth in greater detail in a schedule attached to this release. The Company will hold a conference call on Thursday, March 2, 2006 at 11:00 a.m. Pacific Time to discuss the fourth quarter and year end 2005 earnings results. The dial-in number is (866) 271-6130 (enter passcode number 55617682). 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 March 2, 2006 at 1:00 p.m. Pacific Time through midnight on March 24, 2006. The dial-in number for the replay is (888) 286-8010 (enter passcode number 59691124). 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. For more information about the Company and its new home developments, please visit the Company's website at www.lyonhomes.com. 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 December 31, 2005 Wholly- Joint Consolidated Owned Ventures Total Selected Financial Information (dollars in thousands) Homes closed 1,122 346 1,468 Home sales revenue $594,867 $184,670 $779,537 Cost of sales (463,106) (132,979) (596,085) Gross margin $131,761 $51,691 $183,452 Gross margin percentage 22.1% 28.0% 23.5% Number of homes closed California 723 346 1,069 Arizona 191 - 191 Nevada 208 - 208 Total 1,122 346 1,468 Average sales price California $625,800 $533,700 $596,000 Arizona 366,500 - 366,500 Nevada 348,100 - 348,100 Total $530,200 $533,700 $531,000 Number of net new home orders California 229 61 290 Arizona 88 - 88 Nevada 82 - 82 Total 399 61 460 Average number of sales locations during quarter California 23 7 30 Arizona 5 - 5 Nevada 9 - 9 Total 37 7 44 Three Months Ended December 31, 2004 Wholly- Joint Consolidated Owned Ventures Total Selected Financial Information (dollars in thousands) Homes closed 773 437 1,210 Home sales revenue $446,494 $243,165 $689,659 Cost of sales (328,267) (166,920) (495,187) Gross margin $118,227 $76,245 $194,472 Gross margin percentage 26.5% 31.4% 28.2% Number of homes closed California 413 437 850 Arizona 136 - 136 Nevada 224 - 224 Total 773 437 1,210 Average sales price California $795,900 $556,400 $672,800 Arizona 250,600 - 250,600 Nevada 373,700 - 373,700 Total $577,600 $556,400 $570,000 Number of net new home orders California 183 147 330 Arizona 100 - 100 Nevada 63 - 63 Total 346 147 493 Average number of sales locations during quarter California 14 10 24 Arizona 6 - 6 Nevada 7 - 7 Total 27 10 37 WILLIAM LYON HOMES SELECTED FINANCIAL AND OPERATING INFORMATION (Continued) (unaudited) As of December 31, 2005 Wholly- Joint Consolidated Owned Ventures Total Backlog of homes sold but not closed at end of period California 608 123 731 Arizona 396 - 396 Nevada 164 - 164 Total 1,168 123 1,291 Dollar amount of homes sold but not closed at end of period (in thousands) California $427,103 $64,354 $491,457 Arizona 141,132 - 141,132 Nevada 59,038 - 59,038 Total $627,273 $64,354 $691,627 Lots controlled at end of period Owned lots California 4,296 1,290 5,586 Arizona 3,627 822 4,449 Nevada 1,483 - 1,483 Total 9,406 2,112 11,518 Optioned lots (1) California 4,650 Arizona 8,232 Nevada 2,189 Total 15,071 Total lots controlled California 10,236 Arizona 12,681 Nevada 3,672 Total 26,589 As of December 31, 2004 Wholly- Joint Consolidated Owned Ventures Total Backlog of homes sold but not closed at end of period California 357 245 602 Arizona 482 - 482 Nevada 82 - 82 Total 921 245 1,166 Dollar amount of homes sold but not closed at end of period (in thousands) California $292,298 $160,280 $452,578 Arizona 136,815 - 136,815 Nevada 34,185 - 34,185 Total $463,298 $160,280 $623,578 Lots controlled at end of period Owned lots California 2,702 1,445 4,147 Arizona 3,518 - 3,518 Nevada 1,193 - 1,193 Total 7,413 1,445 8,858 Optioned lots (1) California 4,532 Arizona 3,960 Nevada 1,262 Total 9,754 Total lots controlled California 8,679 Arizona 7,478 Nevada 2,455 Total 18,612 (1) Optioned lots may be purchased as wholly-owned projects or by newly formed joint ventures. WILLIAM LYON HOMES SELECTED FINANCIAL AND OPERATING INFORMATION (unaudited) Twelve Months Ended December 31, 2005 Wholly- Joint Consolidated Owned Ventures Total Selected Financial Information (dollars in thousands) Homes closed 2,508 688 3,196 Home sales revenue $1,338,208 $406,859 $1,745,067 Cost of sales (1,012,761) (294,266) (1,307,027) Gross margin $325,447 $112,593 $438,040 Gross margin percentage 24.3% 27.7% 25.1% Number of homes closed California 1,315 688 2,003 Arizona 628 - 628 Nevada 565 - 565 Total 2,508 688 3,196 Average sales price California $707,400 $591,400 $667,600 Arizona 321,500 - 321,500 Nevada 364,600 - 364,600 Total $533,600 $591,400 $546,000 Number of net new home orders California 1,566 566 2,132 Arizona 542 - 542 Nevada 647 - 647 Total 2,755 566 3,321 Average number of sales locations during period California 20 8 28 Arizona 5 - 5 Nevada 8 - 8 Total 33 8 41 Twelve Months Ended December 31, 2004 Wholly- Joint Consolidated Owned Ventures Total Selected Financial Information (dollars in thousands) Homes closed 2,447 1,024 3,471 Home sales revenue $1,246,277 $539,312 $1,785,589 Cost of sales (941,225) (385,832) (1,327,057) Gross margin $305,052 $153,480 $458,532 Gross margin percentage 24.5% 28.5% 25.7% Number of homes closed California 1,312 1,024 2,336 Arizona 402 - 402 Nevada 733 - 733 Total 2,447 1,024 3,471 Average sales price California $692,200 $526,700 $619,600 Arizona 241,800 - 241,800 Nevada 328,700 - 328,700 Total $509,300 $526,700 $514,400 Number of net new home orders California 1,157 955 2,112 Arizona 677 - 677 Nevada 582 - 582 Total 2,416 955 3,371 Average number of sales locations during period California 17 11 28 Arizona 6 - 6 Nevada 7 - 7 Total 30 11 41 WILLIAM LYON HOMES CONSOLIDATED STATEMENTS OF INCOME (in thousands except per common share amounts) (unaudited) Three Months Ended Twelve Months Ended December 31, December 31, 2005 2004 2005 2004 Operating revenue Home sales $779,537 $689,659 $1,745,067 $1,785,589 Lots, land and other sales 46,344 18,207 111,316 36,258 Management fees - - - - 825,881 707,866 1,856,383 1,821,847 Operating costs Cost of sales - homes (596,085) (495,187) (1,307,027) (1,327,057) Cost of sales - lots, land and other (10,882) (8,562) (44,774) (23,173) Sales and marketing (22,585) (21,227) (59,422) (58,792) General and administrative (27,165) (26,530) (90,045) (80,784) Other (5,268) (680) (7,050) (2,105) (661,985) (552,186) (1,508,318) (1,491,911) Equity in (loss) income of unconsolidated joint ventures (212) (248) 4,301 (699) Minority equity in income of consolidated entities (20,539) (24,891) (37,571) (49,661) Operating income 143,145 130,541 314,795 279,576 Financial advisory expenses - - (2,191) - Other income, net 1,923 2,623 2,176 5,572 Income before provision for income taxes 145,068 133,164 314,780 285,148 Provision for income taxes (57,113) (53,009) (124,149) (113,499) Net income $87,955 $80,155 $190,631 $171,649 Earnings per common share Basic $10.17 $8.65 $22.09 $17.69 Diluted $10.11 $8.58 $21.98 $17.55 WILLIAM LYON HOMES CONSOLIDATED BALANCE SHEETS (in thousands except number of shares and par value per share) December 31, 2005 2004 (unaudited) ASSETS Cash and cash equivalents $52,369 $96,074 Receivables 143,481 39,302 Real estate inventories 1,419,248 1,059,173 Investments in and advances to unconsolidated joint ventures 397 17,911 Property and equipment, less accumulated depreciation of $9,936 and $7,844 at December 31, 2005 and 2004, respectively 18,553 18,066 Deferred loan costs 12,323 13,982 Goodwill 5,896 5,896 Other assets 38,735 24,158 $1,691,002 $1,274,562 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $67,326 $39,364 Accrued expenses 181,068 150,774 Notes payable 125,619 48,571 7 5/8% Senior Notes due December 15, 2012 150,000 150,000 10 3/4% Senior Notes due April 1, 2013 246,917 246,648 7 1/2% Senior Notes due February 15, 2014 150,000 150,000 920,930 785,357 Minority interest in consolidated entities 227,178 142,096 Stockholders' equity Common stock, par value $0.01 per share; 30,000,000 shares authorized; 8,652,067 and 8,616,236 shares issued and outstanding at December 31, 2005 and 2004, respectively; 1,275,000 shares issued and held in treasury at December 31, 2005 and 2004 86 86 Additional paid-in capital 35,404 30,250 Retained earnings 507,404 316,773 542,894 347,109 $1,691,002 $1,274,562 WILLIAM LYON HOMES SUPPLEMENTAL FINANCIAL INFORMATION SELECTED FINANCIAL DATA (dollars in thousands except per share data): Last Twelve Three Months Ended Months Ended December 31, December 31, 2005 2004 2005 2004 Net income $87,955 $80,155 $190,631 $171,649 Net cash provided by (used in) operating activities $229,392 $245,818 $(44,534) $87,293 Interest incurred $21,096 $14,908 $73,208 $59,024 Adjusted EBITDA (1) $168,579 $154,902 $371,027 $349,845 Ratio of adjusted EBITDA to interest incurred 5.07x 5.93x Balance Sheet Data December 31, 2005 2004 Stockholders' equity per share $62.75 $40.29 Stockholders' equity $542,894 $347,109 Total debt 672,536 595,219 Total book capitalization $1,215,430 $972,328 Ratio of debt to total book capitalization 55.3% 63.2% Ratio of debt to total book capitalization (net of cash) 53.3% 59.0% Ratio of debt to LTM adjusted EBITDA 1.81x 1.70x Ratio of debt to LTM adjusted EBITDA (net of cash) 1.67x 1.43x (1) 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 7 5/8% Senior Notes, 10 3/4% Senior Notes and 7 1/2% 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 December 31, December 31, 2005 2004 2005 2004 Net income $87,955 $80,155 $190,631 $171,649 Provision for income taxes 57,113 53,009 124,149 113,499 Interest expense: Interest incurred 21,096 14,908 73,208 59,024 Interest capitalized (21,096) (14,908) (73,208) (59,024) Amortization of capitalized interest in cost of sales 22,832 20,951 55,748 62,671 Depreciation and amortization 532 539 2,092 1,327 Cash distributions of income from unconsolidated joint ventures (65) - 2,708 - Equity in loss (income) of unconsolidated joint ventures 212 248 (4,301) 699 Adjusted EBITDA $168,579 $154,902 $371,027 $349,845 A reconciliation of net cash used in operating activities to adjusted EBITDA is provided as follows: Last Twelve Three Months Ended Months Ended December 31, December 31, 2005 2004 2005 2004 Net cash provided by (used in) operating activities $229,392 $245,818 $(44,534) $87,293 Interest expense: Interest incurred 21,096 14,908 73,208 59,024 Interest capitalized (21,096) (14,908) (73,208) (59,024) Amortization of capitalized interest in cost of sales 22,832 20,951 55,748 62,671 Non-cash impairment charge (4,600) - (4,600) - State income tax refund credited to additional paid- in capital (1,845) - (1,845) - Minority equity in (income) loss of consolidated entities (20,539) (24,891) (37,571) (49,661) Net changes in operating assets and liabilities: Receivables 107,742 11,155 104,179 (9,168) Real estate inventories (167,133) (125,620) 232,240 195,340 Deferred loan costs (696) 617 (1,659) 1,004 Other assets 936 7,159 6,173 5,122 Accounts payable (1,912) 18,263 (27,962) 2,612 Accrued expenses 4,402 1,450 90,858 54,632 Adjusted EBITDA $168,579 $154,902 $371,027 $349,845 *T