<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-18001
WILLIAM LYON HOMES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0864902
(STATE OR JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4490 VON KARMAN AVENUE 92660
NEWPORT BEACH, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
(949) 833-3600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING
AT
CLASS OF COMMON STOCK MAY 9, 2000
--------------------- ------------
<S> <C>
Common stock, par value $.01 10,439,135
</TABLE>
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<PAGE> 2
WILLIAM LYON HOMES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets -- March 31, 2000 and December
31, 1999.................................................. 3
Consolidated Statements of Income -- Three Months Ended
March 31, 2000 and 1999................................... 4
Consolidated Statement of Stockholders' Equity -- Three
Months Ended March 31, 2000............................... 5
Consolidated Statements of Cash Flows -- Three Months Ended
March 31, 2000 and 1999................................... 6
Notes to Consolidated Financial Statements.................. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 19
ITEM 3. NOT APPLICABLE.
PART II. OTHER INFORMATION........................................... 29
ITEM 1. NOT APPLICABLE
ITEM 2. NOT APPLICABLE
ITEM 3. NOT APPLICABLE
ITEM 4. NOT APPLICABLE
ITEM 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 29
SIGNATURES........................................................... 30
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
WILLIAM LYON HOMES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT NUMBER OF SHARES AND PAR VALUE PER SHARE)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 15,455 $ 2,154
Receivables................................................. 8,987 12,063
Real estate inventories..................................... 183,688 184,271
Investments in and advances to unconsolidated joint
ventures -- Note 4........................................ 53,374 50,282
Property and equipment, less accumulated depreciation of
$4,120 and $4,167 at March 31, 2000 and December 31, 1999,
respectively.............................................. 2,320 2,183
Deferred loan costs......................................... 1,412 1,726
Goodwill -- Note 2.......................................... 8,068 8,382
Other assets................................................ 23,619 17,422
-------- ---------
$296,923 $ 278,483
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 21,582 $ 15,653
Accrued expenses............................................ 23,206 32,899
Notes payable............................................... 91,195 76,630
12 1/2% Senior Notes due 2001 -- Note 5..................... 100,000 100,000
-------- ---------
235,983 225,182
-------- ---------
Stockholders' equity -- Notes 1 and 3
Common stock, par value $.01 per share; 30,000,000 shares
authorized; 10,439,135 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively..... 104 104
Additional paid-in capital................................ 116,667 116,667
Accumulated deficit from January 1, 1994.................. (55,831) (63,470)
-------- ---------
60,940 53,301
-------- ---------
$296,923 $ 278,483
======== =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
WILLIAM LYON HOMES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER COMMON SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Operating revenue
Homes sales............................................... $ 64,609 $ 82,071
Lots, land and other sales................................ 764 226
Management fee income -- Note 1........................... 1,625 937
-------- --------
66,998 83,234
-------- --------
Operating costs
Cost of sales -- homes.................................... (52,511) (68,020)
Cost of sales -- lots, land and other..................... (675) (675)
Sales and marketing....................................... (3,536) (4,075)
General and administrative -- Note 1...................... (7,480) (4,868)
Amortization of goodwill -- Note 2........................ (314) --
-------- --------
(64,516) (77,638)
-------- --------
Equity in income of unconsolidated joint ventures........... 5,126 2,945
-------- --------
Operating income............................................ 7,608 8,541
Interest expense, net of amounts capitalized................ (1,545) (2,215)
Financial advisory expenses -- Note 3....................... -- (692)
Other income (expense), net -- Note 6....................... 1,969 667
-------- --------
Income before income taxes.................................. 8,032 6,301
Provision for income taxes.................................. (393) (905)
-------- --------
Net income.................................................. $ 7,639 $ 5,396
======== ========
Basic and diluted earnings per common share -- Notes 1 and
3......................................................... $ 0.73 $ 0.51
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
WILLIAM LYON HOMES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL DEFICIT FROM
---------------- PAID-IN JANUARY 1,
SHARES AMOUNT CAPITAL 1994 TOTAL
------ ------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C>
Balance -- December 31, 1999............ 10,439 $104 $116,667 $(63,470) $53,301
Net income.............................. -- -- -- 7,639 7,639
------ ---- -------- -------- -------
Balance -- March 31, 2000............... 10,439 $104 $116,667 $(55,831) $60,940
====== ==== ======== ======== =======
</TABLE>
See accompanying notes.
5
<PAGE> 6
WILLIAM LYON HOMES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 7,639 $ 5,396
Adjustments to reconcile net income to net cash (used in)
provided by operating activities
Depreciation and amortization.......................... 762 308
Equity in income of unconsolidated joint ventures...... (5,126) (2,945)
Provision for income taxes............................. 393 905
Net changes in operating assets and liabilities:
Other receivables.................................... 2,987 (2,051)
Real estate inventories.............................. 583 11,441
Deferred loan costs.................................. 197 388
Other assets......................................... (6,197) (50)
Accounts payable..................................... 5,929 (345)
Accrued expenses..................................... (10,086) (4,352)
--------- --------
Net cash (used in) provided by operating activities....... (2,919) 8,695
--------- --------
Cash flows from investing activities
Investments in and advances to unconsolidated joint
ventures............................................... (5,429) (109)
Distributions from unconsolidated joint ventures.......... 7,463 --
Issuance of notes receivable.............................. (3,133) (98)
Principal payments on notes receivable.................... 3,222 12
Property and equipment, net............................... (468) (106)
--------- --------
Net cash provided by (used in) investing activities....... 1,655 (301)
--------- --------
Cash flows from financing activities
Proceeds from borrowing on notes payable.................. 41,411 17,185
Principal payments on notes payable....................... (26,846) (47,450)
--------- --------
Net cash provided by (used in) financing activities....... 14,565 (30,265)
--------- --------
Net increase (decrease) in cash and cash equivalents........ 13,301 (21,871)
Cash and cash equivalents -- beginning of period............ 2,154 23,955
--------- --------
Cash and cash equivalents -- end of period.................. $ 15,455 $ 2,084
========= ========
Supplemental disclosures of cash flow information
Cash paid during the period for interest, net of amounts
capitalized............................................ $ 4,366 $ 6,798
========= ========
Issuance of notes payable for land acquisitions........... $ -- $ 1,637
========= ========
</TABLE>
See accompanying notes.
6
<PAGE> 7
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
William Lyon Homes, a Delaware corporation (formerly named The Presley
Companies -- see Notes 2 and 3) and subsidiaries (the "Company") are primarily
engaged in designing, constructing and selling single family detached and
attached homes in California, Arizona, New Mexico and Nevada.
The unaudited consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the rules and regulations of the
Securities and Exchange Commission. The consolidated financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The consolidated
financial statements included herein should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
The interim consolidated financial statements have been prepared in
accordance with the Company's customary accounting practices. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a presentation in accordance with generally accepted accounting
principles have been included. Operating results for the three months ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries and joint ventures. Investments in joint
ventures in which the Company has a 50% or less ownership interest are accounted
for using the equity method. The accounting policies of the joint ventures are
substantially the same as those of the Company. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The Company designs, constructs and sells a wide range of homes designed to
meet the specific needs of each of its markets. For internal reporting purposes,
the Company is organized into six geographic home building regions and its
mortgage operations. Because each of the Company's geographic home building
regions has similar economic characteristics, housing products and class of
prospective buyers, the geographic home building regions have been aggregated
into a single home building segment. Mortgage company operations did not meet
the materiality thresholds which would require disclosure for the three months
ended March 31, 2000 and 1999, and accordingly, are not separately reported.
The Company evaluates performance and allocates resources primarily based
on the operating income of individual home building projects. Operating income
is defined by the Company as sales of homes, lots and land and management fee
income; less cost of sales, impairment losses on real estate, selling and
marketing, general and administrative expenses and amortization of goodwill.
Accordingly, operating income excludes certain expenses included in the
determination of net income. Operating income from home building operations,
including income from the Company's investment in unconsolidated joint ventures,
totaled $7.6 million and $8.5 million for the three months ended March 31, 2000
and 1999, respectively. All other segment measurements are disclosed in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
All revenues are from external customers and no revenues are generated from
transactions with other segments. There were no customers that contributed 10%
or more of the Company's total revenues during the three months ended March 31,
2000 and 1999.
Management fee income represents income recognized in the current period
from fees from unconsolidated joint ventures in accordance with joint venture
and/or operating agreements. Such fees are reimbursements of overhead expenses
incurred by the Company as the managing partner or member of the unconsolidated
joint ventures. Prior to January 1, 2000, management fee income had been
reflected as a reduction of general and administrative expense. For the three
months ended March 31, 2000, management
7
<PAGE> 8
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
fee income has been reported as a separate item and not reflected as a reduction
of general and administrative expense. The corresponding amounts of management
fee income for the three months ended March 31, 1999 have been reclassified to
conform to the presentation for the three months ended March 31, 2000. This
reclassification did not change the reported amount of operating income or net
income for any periods presented.
Earnings per share amounts for all periods presented conform to Financial
Accounting Standards Board Statement No. 128, Earnings Per Share. Basic earnings
per common share for the three months ended March 31, 2000 and 1999 and diluted
earnings per common share for the three months ended March 31, 1999 are based on
10,439,135 shares of common stock outstanding, after adjustment for the
retroactive effect of the merger with a wholly-owned subsidiary and the
conversion of each share of previously outstanding Series A and Series B common
stock into 0.2 common share of the surviving company, as described in Note 3.
Diluted earnings per common share for the three months ended March 31, 2000 is
based on 10,447,518 shares (adjusted for dilutive options).
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of the assets and liabilities
as of March 31, 2000 and December 31, 1999 and revenues and expenses for the
periods presented. Accordingly, actual results could differ materially from
those estimates in the near-term.
Effective as of January 1, 1994, the Company completed a capital
restructuring and quasi-reorganization. The quasi-reorganization resulted in the
adjustment of assets and liabilities to estimated fair values and the
elimination of an accumulated deficit effective January 1, 1994. Income tax
benefits resulting from the utilization of net operating loss and other
carryforwards existing at January 1, 1994 and temporary differences existing
prior to or resulting from the quasi-reorganization, are excluded from the
results of operations and credited to paid-in capital. During the three months
ended March 31, 1999 income tax benefits of $905,000, were excluded from results
of operations and credited to paid-in capital.
NOTE 2 -- ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF WILLIAM LYON HOMES,
INC.
On November 5, 1999, the Company as described below, acquired substantially
all of the assets and assumed substantially all of the related liabilities of
William Lyon Homes, Inc. ("Old William Lyon Homes"), in accordance with a
Purchase Agreement executed as of October 7, 1999 with Old William Lyon Homes,
William Lyon and William H. Lyon. William Lyon is Chairman of the Board of Old
William Lyon Homes and also Chairman of the Board and Chief Executive Officer of
the Company. William H. Lyon is the son of William Lyon and a director and an
employee of the Company.
The total purchase price consisted of approximately $42,598,000 in cash and
the assumption of approximately $101,058,000 of liabilities of Old William Lyon
Homes. The acquisition has been accounted for as a purchase and, accordingly,
the purchase price has been allocated based on the fair value of the assets and
liabilities acquired. The excess of the purchase price over the net assets
acquired amounting to approximately $8,689,000 has been reflected as goodwill
and is being amortized on a straight-line basis over an estimated useful life of
seven years.
After the acquisition described above and prior to the effectiveness of the
merger as described below, William Lyon and a trust of which William H. Lyon is
the beneficiary acquired (1) 5,741,454 shares of the Company's Series A Common
Stock for $0.655 per share in a tender offer for the purchase of up to
10,678,792 shares of the Company's Series A Common Stock which closed on
November 5, 1999 and (2) 14,372,150 shares of the Company's Series B Common
Stock for $0.655 per share under agreements with certain holders of the
Company's Series B Common Stock which closed on November 8, 1999. On November 5,
1999 William Lyon and the Company cancelled all of William Lyon's outstanding
options to purchase 750,000
8
<PAGE> 9
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
shares of the Company's Series A Common Stock. The completion of these
transactions, together with the previous disposition on August 12, 1999 of
3,000,000 shares by William Lyon and a trust of which William H. Lyon is the
beneficiary, resulted in William Lyon and a trust of which William H. Lyon is a
beneficiary owning approximately 49.9% of the Company's outstanding Common
Stock.
NOTE 3 -- COMPANY MERGES WITH AND INTO WHOLLY-OWNED SUBSIDIARY
On November 5, 1999 at a Special Meeting of Holders of Common Stock, the
Holders of Common Stock approved a proposal to adopt a certificate of ownership
and merger pursuant to which The Presley Companies would merge with and into
Presley Merger Sub, Inc., a newly-formed Delaware corporation and wholly owned
subsidiary of The Presley Companies, with Presley Merger Sub, Inc. being the
surviving corporation. In the merger, each outstanding share of common stock of
The Presley Companies became exchangeable for 0.2 share of common stock of
Presley Merger Sub, Inc. In the merger, the surviving corporation was named "The
Presley Companies," which in turn was renamed William Lyon Homes on December 31,
1999. On November 11, 1999, the certificate of ownership and merger was filed in
the State of Delaware and the merger became effective. Beginning on November 12,
1999, the shares of the surviving company (then named The Presley Companies)
commenced trading on the New York Stock Exchange under the symbol "PDC."
The principal purpose of the merger is to help preserve the Company's
substantial net operating loss carryforwards and other tax benefits for use in
offsetting future taxable income by decreasing, but not eliminating, the risk of
an "ownership change" for federal income tax purposes.
In general, the transfer restrictions prohibit, without prior approval of
the board of directors of the Company, the direct or indirect disposition or
acquisition of any stock of the Company by or to any holder who owns or would so
own upon the acquisition (either directly or through the tax attribution rules)
5% or more of the Company's stock.
The Company after the consummation of the merger had substantially the same
financial position as that of The Presley Companies immediately before the
merger (the merger took effect after consummation of the transactions
contemplated in the Purchase Agreement with Old William Lyon Homes -- see Note
2). Except for the transfer restrictions and the elimination of provisions
dividing the common stock into two series, the new shares of common stock issued
by the surviving company in the merger have terms substantially similar to the
old shares of common stock.
In connection with the acquisition and merger, the Company incurred costs
of approximately $692,000 for the three months ended March 31, 1999, which are
reflected in the Consolidated Statement of Income as financial advisory
expenses.
Effective on November 5, 1999, Old William Lyon Homes changed its name to
Corporate Enterprises, Inc. Effective after the close of business on December
31, 1999, The Presley Companies changed its name to William Lyon Homes.
Effective on January 3, 2000, the Company's stock ticker symbol changed from PDC
to WLS. The Company's common stock continues to trade on the New York Stock
Exchange under the stock symbol WLS.
NOTE 4 -- INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES
The Company and certain of its subsidiaries are general partners or members
in twenty-two joint ventures involved in the development and sale of residential
projects. Such joint ventures are 50% or less owned and, accordingly, the
financial statements of such joint ventures are not consolidated with the
Company's financial statements. The Company's investments in unconsolidated
joint ventures are accounted for using the equity
9
<PAGE> 10
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
method. Condensed combined financial information of these joint ventures as of
March 31, 2000 and December 31, 1999 and for the three months ended March 31,
2000 and 1999 is summarized as follows:
CONDENSED COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 4,876 $ 7,197
Receivables................................................. 2,866 1,275
Real estate inventories..................................... 258,686 240,056
Other assets................................................ 158 735
-------- --------
$266,586 $249,263
======== ========
LIABILITIES AND OWNERS' CAPITAL
Accounts payable............................................ $ 11,798 $ 8,558
Accrued expenses............................................ 4,834 5,488
Notes payable............................................... 63,030 54,069
Advances from William Lyon Homes and subsidiaries........... 1,837 1,055
-------- --------
81,499 69,170
-------- --------
Owners' capital
William Lyon Homes and subsidiaries....................... 51,537 49,227
Others.................................................... 133,550 130,866
-------- --------
185,087 180,093
-------- --------
$266,586 $249,263
======== ========
</TABLE>
CONDENSED COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Sales
Homes..................................................... $ 69,072 $ 37,917
Operating costs
Cost of sales -- homes.................................... (56,583) (30,831)
Sales and marketing....................................... (2,521) (1,404)
-------- --------
Operating income............................................ 9,968 5,682
Other income, net........................................... 244 177
-------- --------
Net income.................................................. $ 10,212 $ 5,859
======== ========
Allocation to owners
William Lyon Homes and subsidiaries....................... $ 5,126 $ 2,945
Others.................................................... 5,086 2,914
-------- --------
$ 10,212 $ 5,859
======== ========
</TABLE>
10
<PAGE> 11
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Based upon current estimates, substantially all future development and
construction costs will be funded by the Company's venture partners or from the
proceeds of construction financing obtained by the joint ventures.
NOTE 5 -- 12 1/2% SENIOR NOTES DUE 2001
In accordance with the bond indenture agreement governing the Company's
Senior Notes which are due on July 1, 2001, if the Company's Consolidated
Tangible Net Worth is less than $60,000,000 for two consecutive fiscal quarters,
the Company is required to offer to purchase $20,000,000 in principal amount of
the Senior Notes. Because the Company's Consolidated Tangible Net Worth has been
less than $60,000,000 beginning with the quarter ended June 30, 1997, the
Company would, effective on December 4, 1997, June 4, 1998, December 4, 1998,
June 4, 1999 and December 4, 1999 have been required to make offers to purchase
$20,000,000 of the Senior Notes at par plus accrued interest, less the face
amount of Senior Notes acquired by the Company after September 30, 1997, March
31, 1998, September 30, 1998, March 31, 1999 and September 30, 1999,
respectively. The Company acquired Senior Notes with a face amount of
$20,000,000 after September 30, 1997 and prior to December 4, 1997, again after
March 31, 1998 and prior to June 4, 1998, again after September 30, 1998 and
prior to December 4, 1998, again after March 31, 1999 and prior to June 4, 1999
and again after September 30, 1999 and prior to December 4, 1999 and therefore
was not required to make offers to purchase Senior Notes.
Because the Company's Consolidated Tangible Net Worth was less than
$60,000,000 as of March 31, 2000, the Company would, effective on June 4, 2000,
be required to make similar offers to purchase $20,000,000 in principal amount
of the Senior Notes. However, in April and May 2000 the Company acquired Senior
Notes with a face amount of $21,775,000 and therefore will not be required to
make such offers effective on June 4, 2000.
Every six months, until the Company's Consolidated Tangible Net Worth is
$60,000,000 or more at the end of a fiscal quarter, the Company will be required
to make similar offers to purchase $20,000,000 of Senior Notes. At March 31,
2000, the Company's Consolidated Tangible Net Worth was $51,460,000.
Because of the Company's obligation to offer to purchase $20,000,000 in
principal amount of the Senior Notes every six months so long as the Company's
Consolidated Tangible Net Worth is less than $60,000,000, the Company is
restricted in its ability to acquire, hold and develop real estate projects. The
Company changed its operating strategy during 1997 to finance certain projects
by forming joint ventures with venture partners that would provide a substantial
portion of the capital necessary to develop these projects.
The 12 1/2% Senior Notes due July 1, 2001 are obligations of William Lyon
Homes (formerly The Presley Companies), a Delaware corporation ("Delaware
Lyon"), and are unconditionally guaranteed on a senior basis by William Lyon
Homes, Inc. (formerly Presley Homes), a California corporation and a
wholly-owned subsidiary of Delaware Lyon. However, William Lyon Homes, Inc. has
granted liens on substantially all of its assets as security for its obligations
under the Working Capital Facility and other loans. Because the William Lyon
Homes, Inc. guarantee is not secured, holders of the Senior Notes are
effectively junior to borrowings under the Working Capital Facility with respect
to such assets. Delaware Lyon and its consolidated subsidiaries are referred to
collectively herein as the "Company." Interest on the Senior Notes is payable on
January 1 and July 1 of each year, commencing January 1, 1995.
11
<PAGE> 12
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Supplemental consolidating financial information of the Company,
specifically including information for William Lyon Homes, Inc. is presented
below. Investments in subsidiaries are presented using the equity method of
accounting. Separate financial statements of William Lyon Homes, Inc. are not
provided, as the consolidating financial information contained herein provides a
more meaningful disclosure to allow investors to determine the nature of assets
held and the operations of the combined groups.
CONSOLIDATING BALANCE SHEET
MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCONSOLIDATED
---------------------------------------
DELAWARE WILLIAM LYON NON-GUARANTOR ELIMINATING CONSOLIDATED
LYON HOMES, INC. SUBSIDIARIES ENTRIES COMPANY
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........... $ -- $ 14,639 $ 816 $ -- $ 15,455
Receivables......................... -- 5,702 3,285 -- 8,987
Real estate inventories............. -- 176,420 7,268 -- 183,688
Investments in and advances to
unconsolidated joint ventures..... -- 13,360 40,014 -- 53,374
Property and equipment, net......... -- 2,112 208 -- 2,320
Deferred loan costs................. 587 825 -- -- 1,412
Goodwill............................ -- 8,068 -- -- 8,068
Other assets........................ -- 23,215 404 -- 23,619
Investments in subsidiaries......... 57,482 48,267 -- (105,749) --
Intercompany receivables............ 108,340 5,469 -- (113,809) --
-------- -------- ------- --------- --------
$166,409 $298,077 $51,995 $(219,558) $296,923
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................... $ -- $ 21,189 $ 393 $ -- $ 21,582
Accrued expenses.................... -- 21,510 1,696 -- 23,206
Notes payable....................... -- 91,195 -- -- 91,195
12 1/2% Senior Notes................ 100,000 -- -- -- 100,000
Intercompany payables............... 5,469 108,340 -- (113,809) --
-------- -------- ------- --------- --------
Total liabilities......... 105,469 242,234 2,089 (113,809) 235,983
Stockholders' equity................ 60,940 55,843 49,906 (105,749) 60,940
-------- -------- ------- --------- --------
$166,409 $298,077 $51,995 $(219,558) $296,923
======== ======== ======= ========= ========
</TABLE>
12
<PAGE> 13
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCONSOLIDATED
-----------------------------------------
DELAWARE WILLIAM LYON NON-GUARANTOR ELIMINATING CONSOLIDATED
LYON HOMES, INC. SUBSIDIARIES ENTRIES COMPANY
-------- -------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........... $ -- $ 1,344 $ 810 $ -- $ 2,154
Receivables......................... -- 6,792 5,271 -- 12,063
Real estate inventories............. -- 178,280 5,991 -- 184,271
Investments in and advances to
unconsolidated joint ventures..... -- 16,229 34,053 -- 50,282
Property and equipment, net......... -- 2,115 68 -- 2,183
Deferred loan costs................. 704 1,022 -- -- 1,726
Goodwill............................ -- 8,382 -- -- 8,382
Other assets........................ -- 17,400 22 -- 17,422
Investments in subsidiaries......... 49,843 39,819 -- (89,662) --
Intercompany receivables............ 108,340 5,586 -- (113,926) --
-------- -------- ------- --------- --------
$158,887 $276,969 $46,215 $(203,588) $278,483
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................... $ -- $ 15,215 $ 438 $ -- $ 15,653
Accrued expenses.................... -- 31,201 1,698 -- 32,899
Notes payable....................... -- 73,497 3,133 -- 76,630
12 1/2% Senior Notes................ 100,000 -- -- -- 100,000
Intercompany payables............... 5,586 108,340 -- (113,926) --
-------- -------- ------- --------- --------
Total liabilities......... 105,586 228,253 5,269 (113,926) 225,182
Stockholders' Equity................ 53,301 48,716 40,946 (89,662) 53,301
-------- -------- ------- --------- --------
$158,887 $276,969 $46,215 $(203,588) $278,483
======== ======== ======= ========= ========
</TABLE>
13
<PAGE> 14
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCONSOLIDATED
---------------------------------------
DELAWARE WILLIAM LYON NON-GUARANTOR ELIMINATING CONSOLIDATED
LYON HOMES, INC. SUBSIDIARIES ENTRIES COMPANY
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenue
Sales............................... $ -- $ 63,521 $ 1,852 -- $ 65,373
Management fee income............... -- 563 1,062 -- 1,625
------ -------- ------- -------- --------
-- 64,084 2,914 -- 66,998
------ -------- ------- -------- --------
Operating costs
Cost of sales....................... -- (51,680) (1,506) -- (53,186)
Sales and marketing................. -- (3,235) (301) -- (3,536)
General and administrative.......... -- (7,418) (62) -- (7,480)
Amortization of goodwill............ -- (314) -- -- (314)
------ -------- ------- -------- --------
-- (62,647) (1,869) -- (64,516)
------ -------- ------- -------- --------
Equity in income of unconsolidated
joint ventures...................... -- 674 4,452 -- 5,126
------ -------- ------- -------- --------
Income from subsidiaries.............. 7,639 5,430 -- (13,069) --
------ -------- ------- -------- --------
Operating income...................... 7,639 7,541 5,497 (13,069) 7,608
Interest expense, net of amounts
capitalized......................... -- (1,451) (94) -- (1,545)
Other income (expense), net........... -- 2,128 (159) -- 1,969
------ -------- ------- -------- --------
Income before income taxes............ 7,639 8,218 5,244 (13,069) 8,032
Provision for income taxes............ -- (393) -- -- (393)
------ -------- ------- -------- --------
Net income............................ $7,639 $ 7,825 $ 5,244 $(13,069) $ 7,639
====== ======== ======= ======== ========
</TABLE>
14
<PAGE> 15
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCONSOLIDATED
---------------------------------------
DELAWARE WILLIAM LYON NON-GUARANTOR ELIMINATING CONSOLIDATED
LYON HOMES, INC. SUBSIDIARIES ENTRIES COMPANY
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenue
Sales............................... $ -- $ 64,363 $ 17,934 $ -- $ 82,297
Management fee income............... -- 58 879 -- 937
------ --------- -------- -------- --------
-- 64,421 18,813 -- 83,234
------ --------- -------- -------- --------
Operating costs
Cost of sales....................... -- (54,350) (14,345) -- (68,695)
Sales and marketing................. -- (3,313) (762) -- (4,075)
General and administrative.......... -- (4,702) (166) -- (4,868)
------ --------- -------- -------- --------
-- (62,365) (15,273) -- (77,638)
------ --------- -------- -------- --------
Equity in income of unconsolidated
joint ventures...................... -- 168 2,777 -- 2,945
------ --------- -------- -------- --------
Income from subsidiaries.............. 6,088 6,009 -- (12,097) --
------ --------- -------- -------- --------
Operating income...................... 6,088 8,233 6,317 (12,097) 8,541
Interest expense, net of amounts
capitalized......................... -- (1,439) (776) -- (2,215)
Financial advisory expenses........... (692) -- -- -- (692)
Other income (expense), net........... -- 79 588 -- 667
------ --------- -------- -------- --------
Income before income taxes............ 5,396 6,873 6,129 (12,097) 6,301
Provision for income taxes............ -- (905) -- -- (905)
------ --------- -------- -------- --------
Net income............................ $5,396 $ 5,968 $ 6,129 $(12,097) $ 5,396
====== ========= ======== ======== ========
</TABLE>
15
<PAGE> 16
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCONSOLIDATED
---------------------------------------
DELAWARE WILLIAM LYON NON-GUARANTOR ELIMINATING CONSOLIDATED
LYON HOMES, INC. SUBSIDIARIES ENTRIES COMPANY
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 7,639 $ 7,825 $ 5,244 $(13,069) $ 7,639
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation and amortization.............. -- 750 12 -- 762
Equity in income of unconsolidated joint
ventures................................. -- (674) (4,452) -- (5,126)
Equity in earnings of subsidiaries......... (7,639) (5,430) -- 13,069 --
Provision for income taxes................. -- 393 -- -- 393
Net changes in operating assets and
liabilities:
Other receivables........................ -- 1,001 1,986 -- 2,987
Intercompany receivables/payables........ (117) 117 -- -- --
Real estate inventories.................. -- 1,860 (1,277) -- 583
Deferred loan costs...................... 117 80 -- -- 197
Other assets............................. -- (5,815) (382) -- (6,197)
Accounts payable......................... -- 5,974 (45) -- 5,929
Accrued expenses......................... -- (10,084) (2) -- (10,086)
------- -------- ------- -------- --------
Net cash (used in) provided by operating
activities................................. -- (4,003) 1,084 -- (2,919)
------- -------- ------- -------- --------
Cash flows from investing activities:
Investment in unconsolidated joint ventures... -- 3,543 (1,509) -- 2,034
Issuance of/payments on notes receivable...... -- 89 -- -- 89
Purchases of property and equipment........... -- (316) (152) -- (468)
Investment in subsidiaries.................... -- (3,018) -- 3,018 --
------- -------- ------- -------- --------
Net cash provided by (used in) investing
activities................................. -- 298 (1,661) 3,018 1,655
------- -------- ------- -------- --------
Cash flows from financing activities:
Proceeds from borrowings on notes payable..... -- 41,411 -- -- 41,411
Principal payments on notes payable........... -- (23,713) (3,133) -- (26,846)
Distributions to/contributions from
shareholders............................... -- (698) 3,716 (3,018) --
------- -------- ------- -------- --------
Net cash provided by financing activities..... -- 17,000 583 (3,018) 14,565
------- -------- ------- -------- --------
Net increase in cash and cash equivalents....... -- 13,295 6 -- 13,301
Cash and cash equivalents at beginning of
period........................................ -- 1,344 810 -- 2,154
------- -------- ------- -------- --------
Cash and cash equivalents at end of period...... $ -- $ 14,639 $ 816 $ -- $ 15,455
======= ======== ======= ======== ========
</TABLE>
16
<PAGE> 17
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNCONSOLIDATED
---------------------------------------
DELAWARE WILLIAM LYON NON-GUARANTOR ELIMINATING CONSOLIDATED
LYON HOMES, INC. SUBSIDIARIES ENTRIES COMPANY
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 5,396 $ 5,968 $ 6,129 $(12,097) $ 5,396
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization........ -- 277 31 -- 308
Equity in income of unconsolidated
joint ventures..................... -- (168) (2,777) -- (2,945)
Equity in earnings of subsidiaries... (6,088) (6,009) -- 12,097 --
Provision for income taxes........... -- 905 -- -- 905
Net changes in operating assets and
liabilities:
Other receivables.................. -- (2,060) 9 -- (2,051)
Intercompany
receivables/payables............ 528 (528) -- -- --
Real estate inventories............ -- 8,214 3,227 -- 11,441
Deferred loan costs................ 164 198 26 -- 388
Other assets....................... -- (84) 34 -- (50)
Accounts payable................... -- 144 (489) -- (345)
Accrued expenses................... -- (4,007) (345) -- (4,352)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities........................... -- 2,850 5,845 -- 8,695
-------- -------- -------- -------- --------
Cash flows from investing activities:
Investment in unconsolidated joint
ventures............................. -- (108) (1) -- (109)
Issuance of/payments on notes
receivable........................... -- (86) -- -- (86)
Purchase of property and equipment...... -- (70) (36) -- (106)
Investment in subsidiaries.............. -- 3,883 -- (3,883) --
-------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities........................... -- 3,619 (37) (3,883) (301)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from borrowings on notes
payable.............................. -- 10,001 7,184 -- 17,185
Principal payments on notes payable..... -- (38,704) (8,746) -- (47,450)
Distributions to/contributions from
shareholders......................... -- 328 (4,211) 3,883 --
-------- -------- -------- -------- --------
Net cash used in financing activities..... -- (28,375) (5,773) 3,883 (30,265)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................. -- (21,906) 35 -- (21,871)
-------- -------- -------- -------- --------
Cash and cash equivalents at beginning of
period.................................. -- 22,605 1,350 -- 23,955
-------- -------- -------- -------- --------
Cash and cash equivalents at end of
period.................................. $ -- $ 699 $ 1,385 $ -- $ 2,084
======== ======== ======== ======== ========
</TABLE>
17
<PAGE> 18
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6 -- GAIN FROM SALE OF OFFICE BUILDING
In March 2000, the Company completed the sale of an office building where
its prior executive offices were located in Newport Beach, California which was
no longer needed after the consolidation of certain of the Company's operations.
The sales price was $2,120,000 which the Company received in cash at closing.
The net gain from the sale of approximately $1,747,000 is reflected in Other
income (expense), net on the Consolidated Statement of Income for the three
months ended March 31, 2000.
NOTE 7 -- RELATED PARTY TRANSACTIONS
The Company acquired substantially all of the assets and assumed
substantially all of the related liabilities of Old William Lyon Homes as
described in Note 2.
The Company purchased real estate projects for a total purchase price of
$869,400 during the three months ended March 31, 2000 from an entity controlled
by William Lyon and William H. Lyon.
For the three months ended March 31, 2000, the Company earned management
fees and accrued on-site labor costs of $108,300 and $196,100, respectively, for
managing and selling real estate owned by entities controlled by William Lyon
and William H. Lyon of which $22,300 was due the Company at March 31, 2000. In
addition, the Company earned fees of $11,700 for tax and accounting services
performed for entities controlled by William Lyon and William H. Lyon.
For the three months ended March 31, 2000, the Company incurred charges of
$170,100 related to rent on its corporate office, from an entity controlled by
William Lyon and William H. Lyon.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
WILLIAM LYON HOMES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of results of operations and financial condition
should be read in conjunction with the consolidated financial statements and
notes thereto included in Item 1, as well as the information presented in the
Annual Report on Form 10-K for the year ended December 31, 1999.
GENERAL OVERVIEW
On November 5, 1999, the Company as described below, acquired substantially
all of the assets and assumed substantially all of the related liabilities of
William Lyon Homes, Inc. ("Old William Lyon Homes"), in accordance with a
Purchase Agreement executed as of October 7, 1999 with Old William Lyon Homes,
William Lyon and William H. Lyon. William Lyon is Chairman of the Board of Old
William Lyon Homes and also Chairman of the Board and Chief Executive Officer of
the Company. William H. Lyon is the son of William Lyon and a director and an
employee of the Company.
The total purchase price consisted of approximately $42,598,000 in cash and
the assumption of approximately $101,058,000 of liabilities of Old William Lyon
Homes. The acquisition has been accounted for as a purchase and, accordingly,
the purchase price has been allocated based on the fair value of the assets and
liabilities acquired. The excess of the purchase price over the net assets
acquired amounting to approximately $8,689,000 has been reflected as goodwill
and is being amortized on a straight-line basis over an estimated useful life of
seven years.
After the acquisition described above and prior to the effectiveness of the
merger as described below, William Lyon and a trust of which William H. Lyon is
the beneficiary acquired (1) 5,741,454 shares of the Company's Series A Common
Stock for $0.655 per share in a tender offer for the purchase of up to
10,678,792 shares of the Company's Series A Common Stock which closed on
November 5, 1999 and (2) 14,372,150 shares of the Company's Series B Common
Stock for $0.655 per share under agreements with certain holders of the
Company's Series B Common Stock which closed on November 8, 1999. On November 5,
1999 William Lyon and the Company cancelled all of William Lyon's outstanding
options to purchase 750,000 shares of the Company's Series A Common Stock. The
completion of these transactions, together with the previous disposition on
August 12, 1999 of 3,000,000 shares by William Lyon and a trust of which William
H. Lyon is the beneficiary, resulted in William Lyon and a trust of which
William H. Lyon is a beneficiary owning approximately 49.9% of the Company's
outstanding Common Stock.
On November 5, 1999 at a Special Meeting of Holders of Common Stock, the
Holders of Common Stock approved a proposal to adopt a certificate of ownership
and merger pursuant to which The Presley Companies would merge with and into
Presley Merger Sub, Inc., a newly-formed Delaware corporation and wholly owned
subsidiary of The Presley Companies, with Presley Merger Sub, Inc. being the
surviving corporation. In the merger, each outstanding share of common stock of
The Presley Companies became exchangeable for 0.2 share of common stock of
Presley Merger Sub, Inc. In the merger, the surviving corporation was named "The
Presley Companies," which in turn was renamed William Lyon Homes on December 31,
1999. On November 11, 1999, the certificate of ownership and merger was filed in
the State of Delaware and the merger became effective. Beginning on November 12,
1999, the shares of the surviving company (then named The Presley Companies)
commenced trading on the New York Stock Exchange under the symbol "PDC."
The principal purpose of the merger is to help preserve the Company's
substantial net operating loss carryforwards and other tax benefits for use in
offsetting future taxable income by decreasing, but not eliminating, the risk of
an "ownership change" for federal income tax purposes.
In general, the transfer restrictions prohibit, without prior approval of
the board of directors of the Company, the direct or indirect disposition or
acquisition of any stock of the Company by or to any holder who
19
<PAGE> 20
owns or would so own upon the acquisition (either directly or through the tax
attribution rules) 5% or more of the Company's stock.
The Company after the consummation of the merger had substantially the same
financial position as that of The Presley Companies immediately before the
merger (the merger took effect after consummation of the transactions
contemplated in the Purchase Agreement with Old William Lyon Homes -- see Note
2). Except for the transfer restrictions and the elimination of provisions
dividing the common stock into two series, the new shares of common stock issued
by the surviving company in the merger have terms substantially similar to the
old shares of common stock.
In connection with the acquisition and merger, the Company incurred costs
of approximately $692,000 for the three months ended March 31, 1999, which are
reflected in the Consolidated Statement of Income as financial advisory
expenses.
Effective on November 5, 1999, Old William Lyon Homes changed its name to
Corporate Enterprises, Inc. Effective after the close of business on December
31, 1999, The Presley Companies changed its name to William Lyon Homes.
Effective on January 3, 2000, the Company's stock ticker symbol changed from PDC
to WLS. The Company's common stock continues to trade on the New York Stock
Exchange under the stock symbol WLS.
In accordance with the bond indenture agreement governing the Company's
Senior Notes which are due on July 1, 2001, if the Company's Consolidated
Tangible Net Worth is less than $60 million for two consecutive fiscal quarters,
the Company is required to offer to purchase $20 million in principal amount of
the Senior Notes. Because the Company's Consolidated Tangible Net Worth has been
less than $60 million beginning with the quarter ended June 30, 1997, the
Company would, effective on December 4, 1997, June 4, 1998, December 4, 1998,
June 4, 1999 and December 4, 1999, have been required to make offers to purchase
$20 million of the Senior Notes at par plus accrued interest, less the face
amount of Senior Notes acquired by the Company after September 30, 1997, March
31, 1998, September 30, 1998, March 31, 1999 and September 30, 1999,
respectively. The Company acquired Senior Notes with a face amount of $20
million after September 30, 1997 and prior to December 4, 1997, again after
March 31, 1998 and prior to June 4, 1998, again after September 30, 1998 and
prior to December 4, 1998, again after March 31, 1999 and prior to June 4, 1999,
and again after September 30, 1999 and prior to December 4, 1999, and therefore
was not required to make said offers.
Because the Company's Consolidated Tangible Net Worth was less than $60
million as of March 31, 2000, the Company would, effective on June 4, 2000, be
required to make similar offers to purchase $20 million in principal amount of
the Senior Notes. However, in April and May 2000 the Company acquired Senior
Notes with a face amount of $21.8 million and therefore will not be required to
make such offers effective on June 4, 2000.
Every six months thereafter, until such time as the Company's Consolidated
Tangible Net Worth is $60 million or more at the end of a fiscal quarter, the
Company will be required to make similar offers to purchase $20 million of
Senior Notes. At March 31, 2000, the Company's Consolidated Tangible Net Worth
was $51.5 million. The Company's management has previously held discussions, and
may in the future hold discussions, with representatives of certain of the
holders of the Senior Notes with respect to modifying this repurchase provision
of the bond indenture agreement. To date, no agreement has been reached to
modify this repurchase provision. Any such change in the terms or conditions of
the bond indenture agreement requires the affirmative vote of at least a
majority in principal amount of the Senior Notes outstanding. No assurances can
be given that any such change will be made.
Because of the Company's obligation to offer to purchase $20 million of the
Senior Notes every six months so long as the Company's Consolidated Tangible Net
Worth is less than $60 million, the Company is restricted in its ability to
acquire, hold and develop real estate projects. The Company changed its
operating strategy during 1997 to finance certain projects by forming joint
ventures with venture partners that would provide a substantial portion of the
capital necessary to develop these projects. The Company believes that the
20
<PAGE> 21
use of joint venture partnerships better enables it to reduce its capital
investments and risks in the highly capital intensive California markets, as
well as to repurchase the Company's Senior Notes as described above. The Company
generally receives, after priority returns and capital distributions to its
partners, approximately 50% of the profits and losses, and cash flows from joint
ventures.
As of March 31, 2000, the Company and certain of its subsidiaries are
general partners or members in twenty-two joint ventures involved in the
development and sale of residential projects. Such joint ventures are 50% or
less owned and, accordingly, the financial statements of such joint ventures are
not consolidated with the Company's financial statements. The Company's
investments in unconsolidated joint ventures are accounted for using the equity
method. See Note 4 of "Notes to Consolidated Financial Statements" for condensed
combined financial information for these joint ventures. Based upon current
estimates, all future development and construction costs will be funded by the
Company's venture partners or from the proceeds of construction financing
obtained by the joint ventures.
At December 31, 1999, the Company had net operating loss carryforwards for
Federal tax purposes of approximately $106.2 million, of which $12.9 million
expires in 2008, $27.4 million expires in 2009, $35.8 million expires in 2010,
$13.7 million expires in 2011, $16.4 million expires in 2012 and $28,000 expires
in 2018. The Company's ability to utilize the tax benefits associated with its
net operating loss carryforwards will depend upon the amount of its otherwise
taxable income and may be limited in the event of an "ownership change" under
federal tax laws and regulations.
The ability of the Company to meet its obligations on its indebtedness will
depend to a large degree on its future performance which in turn will be
subject, in part, to factors beyond its control, such as prevailing economic
conditions, mortgage and other interest rates, weather, the occurrence of events
such as landslides, soil subsidence and earthquakes that are uninsurable, not
economically insurable or not subject to effective indemnification agreements,
availability of labor and homebuilding materials, changes in governmental laws
and regulations, and the availability and cost of land for future development.
At this time, the Company's degree of leverage may limit its ability to meet its
obligations, withstand adverse business or other conditions and capitalize on
business opportunities.
The Company has previously announced that it had received notification from
the New York Stock Exchange on July 28, 1999 that the Securities and Exchange
Commission has approved amendments to the NYSE's continued listing standards.
Under these new standards, the Company would be considered "below criteria" if
it has:
- Total market capitalization of less than $50 million;
- Total stockholders' equity of less than $50 million;
- Average market capitalization of less than $15 million over a consecutive
30-day trading period; or
- Average closing price of less than $1.00 over a consecutive 30
trading-day period.
The NYSE notified the Company that it was below these new criteria on the
date of the notification. The NYSE has further informed the Company that failure
to raise its stock price above $1.00 per share within six months will result in
immediate suspension of trading and application to the SEC for delisting. In
addition, the Company would have 45 days from the date of the NYSE's
notification to present a business plan to the NYSE that would demonstrate
compliance with all aspects of the other two criteria within 12 months of the
date of the NYSE's notification. The Company submitted a business plan to the
NYSE within the 45 day period. On September 30, 1999, the NYSE notified the
Company that it had accepted the Company's business plan and would continue the
listing of the Company at that time. The NYSE notification further stated that
the NYSE would continue to monitor the Company quarterly during the twelve
months from the July 28, 1999 notification. If the Company fails to achieve the
quarterly milestones or if at the completion of the 12 months it is not in
compliance with the new continued listing criteria, the Company will be
suspended from trading on the NYSE and application will be made to the SEC for
delisting. If the Company achieves all quarterly milestones and meets the NYSE
continued listing criteria at the end of the 12 month period, the
21
<PAGE> 22
Company will be considered in "good standing" and no longer subject to business
plan review. However, the Company would be subject to the NYSE's on-going
listing review policies and procedures. As of and through March 31, 2000, the
Company was in compliance with all NYSE listing criteria and had achieved all
quarterly milestones. As of May 1, 2000, the Company had a total market
capitalization and stockholders, equity in excess of $50 million, had an average
market capitalization in excess of $15 million over the consecutive 30-day
trading period and had an average closing price in excess of $1.00 over the
consecutive 30-day trading period. There can be no assurance that the Company
will achieve the quarterly milestones included in the plan, that the Company
will comply with the new continued listing criteria at the completion of the 12
month period or maintain the $1.00 average closing price.
Failure to achieve any of the above minimum requirements at the appropriate
time will result in the Company being suspended by the NYSE with application
made to the SEC for delisting.
RESULTS OF OPERATIONS
OVERVIEW AND RECENT RESULTS
Homes sold, closed and in backlog for the Company and its unconsolidated
joint ventures as of and for the periods presented are as follows:
<TABLE>
<CAPTION>
AS OF AND FOR
THE THREE MONTHS
ENDED MARCH 31,
----------------
2000 1999
------ ------
<S> <C> <C>
Number of homes sold
Company................................................... 490 466
Unconsolidated joint ventures............................. 269 188
------ ------
759 654
====== ======
Number of homes closed
Company................................................... 319 401
Unconsolidated joint ventures............................. 200 116
------ ------
519 517
====== ======
Backlog of homes sold but not closed at end of period
Company................................................... 593 564
Unconsolidated joint ventures............................. 275 190
------ ------
868 754
====== ======
Dollar amount of backlog of homes sold but not closed at end
of period (in millions):
Company................................................... $145.3 $123.0
Unconsolidated joint ventures............................. 131.1 76.7
------ ------
$276.4 $199.7
====== ======
</TABLE>
Homes in backlog are generally closed within three to six months. The
dollar amount of backlog of homes sold but not closed as of March 31, 2000 was
$276.4 million, as compared to $199.7 million as of March 31, 1999 and $185.8
million as of December 31, 1999. The cancellation rate of buyers who contracted
to buy a home but did not close escrow at the Company's projects was
approximately 15% during 1999 and during the first three months of 2000.
The number of homes sold for the quarter ended March 31, 2000 increased 16
percent to 759 units from 654 a year ago. For the first quarter of 2000, the
number of homes sold increased 31 percent to 759 from 579 units in the fourth
quarter of 1999. The number of homes closed in the first quarter of 2000
increased 0.4 percent to 519 from 517 in the first quarter of 1999. The backlog
of homes sold as of March 31, 2000 was 868, up 15 percent from 754 units a year
earlier, and up 42 percent from 612 units at December 31, 1999. The
22
<PAGE> 23
Company's inventory of completed and unsold homes as of March 31, 2000 has
decreased by 73 percent to 19 units from 71 units as of December 31, 1999.
The increase in net new home orders for the first quarter of 2000 as
compared to the first quarter of 1999 is primarily the result of an increase in
the number of sales locations to 47 at March 31, 2000 from 42 at March 31, 1999
and improved market conditions in substantially all of the Company's markets.
Financial Accounting Standards Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
("Statement No. 121") which requires impairment losses to be recorded on assets
to be held and used by the Company when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets (excluding
interest) are less than the carrying amount of the assets. Statement No. 121
also requires that long-lived assets that are held for disposal be reported at
the lower of the assets' carrying amount or fair value less cost of disposal.
Under the pronouncement, when an impairment loss is required for assets to be
held and used by the Company, the related assets are adjusted to their estimated
fair value.
The net loss for the year ended December 31, 1997 included a non-cash
charge of $74,000,000 during the second quarter of 1997 to record impairment
losses on certain real estate assets held and used by the Company. The
impairment losses related to three of the Company's master-planned communities.
The impairment losses related to two communities, which are located in the
Inland Empire area of Southern California, arose primarily from declines in home
sales prices due to continued weak economic conditions and competitive pressures
in that area of Southern California. The impairment loss relating to the other
community, which is located in Contra Costa County in the East San Francisco Bay
area of Northern California, was primarily attributable to lower than expected
cash flow relating to one of the high end residential products in this community
and to a deterioration in the value of the non-residential portion of the
project. The significant deteriorations in the market conditions associated with
these communities resulted in the undiscounted cash flows (excluding interest)
estimated to be generated by these communities being less than their historical
book values. Accordingly, the master-planned communities were written-down to
their estimated fair value.
The following represents the home sales and excess of revenue from sales
over related cost of sales (i.e., gross profit) of the three master-planned
communities since the recordation of impairment losses on June 30, 1997:
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS FOR THE FOR THE THREE MONTHS
ENDED YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1998 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales......................... $17,662,000 $54,828,000 $79,584,000 $12,909,000
Gross profit.................. $ 1,202,000 $ 5,850,000 $13,012,000 $ 2,936,000
Gross profit %................ 6.8% 10.7% 16.4% 22.7%
</TABLE>
The gross profits recognized on the three master-planned communities
subsequent to the recordation of the impairment losses has increased due to
better than projected sales price increases beginning in 1998.
In general, housing demand is adversely affected by increases in interest
rates and housing prices. Interest rates, the length of time that assets remain
in inventory, and the proportion of inventory that is financed affect the
Company's interest cost. If the Company is unable to raise sales prices
sufficiently to compensate for higher costs or if mortgage interest rates
increase significantly, affecting prospective buyers' ability to adequately
finance home purchases, the Company's sales, gross margins and net results may
be adversely impacted. To a limited extent, the Company hedges against increases
in interest costs by acquiring interest rate protection that locks in or caps
interest rates for limited periods of time for mortgage financing for
prospective homebuyers.
23
<PAGE> 24
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 TO THREE MONTHS ENDED MARCH
31, 1999
Total sales (which represent recorded revenues from closings) for the three
months ended March 31, 2000 were $65.4 million, a decrease of $16.9 million
(20.5%) from sales of $82.3 million for the three months ended March 31, 1999.
Revenue from sales of homes decreased $17.5 million (21.3%) to $64.6 million in
the 2000 period from $82.1 million in the 1999 period. This decrease was due
primarily to a decrease in the number of wholly-owned units closed to 319 in the
2000 period from 401 in the 1999 period along with a decrease in the average
sales prices of wholly-owned units to $202,500 in the 2000 period from $204,700
in the 1999 period. Management fee income increased by $0.7 million to $1.6
million in the 2000 period from $0.9 million in the 1999 period as a direct
result of the Company's strategy of financing an increased number of projects
through unconsolidated joint ventures. Equity in income of unconsolidated joint
ventures amounting to $5.1 million was recognized in the 2000 period, compared
to $2.9 million in the comparable period for 1999 also as a direct result of the
Company's strategy of financing an increased number of projects through
unconsolidated joint ventures.
Total operating income decreased from $8.5 million in the 1999 period to
$7.6 million in the 2000 period. The excess of revenue from sales of homes over
the related cost of sales decreased by $2.0 million to $12.1 million in the 2000
period from $14.1 million in the 1999 period. This decrease was primarily due to
a decrease in the average sales price of wholly-owned units to $202,500 in the
2000 period from $204,700 in the 1999 period, along with a decrease in the
number of wholly-owned units closed to 319 units in the 2000 period from 401
units in the 1999 period. The Company's revenues and total operating income are
affected by the proportion of units sold by the Company and those sold by
unconsolidated joint ventures. While the average sales price of homes sold by
joint ventures has been higher than the average sales price of wholly-owned
units, the Company generally receives after priority returns and capital
distributions approximately 50% of the profits and losses and cash flows from
joint ventures. Sales and marketing expenses decreased by $0.6 million to $3.5
million in the 2000 period from $4.1 million in the 1999 period primarily as a
result of a reduction in direct selling expenses due to a decrease in the number
of wholly-owned units closed to 319 units in the 2000 period from 401 units in
the 1999 period. General and administrative expenses increased by $2.6 million
to $7.5 million in the 2000 period from $4.9 million in the 1999 period,
primarily as a result of 1) increases in salaries and benefits primarily as a
result of an increase in the total number of employees related to the Company's
increased operations ($1.2 million); 2) increases in office expenses related to
increased employment levels ($0.5 million); 3) increases in outside services
primarily related to the consolidation and conversion of the accounting and
operational systems for all of the projects acquired in November 1999 as
described in Note 2 of Notes to Consolidated Financial Statements ($0.6
million); and 4) increases in provisions for increased bonuses due to the
Company's improved results of operations ($0.3 million).
Total interest incurred decreased $0.1 million (2%) from $6.2 million in
the 1999 period to $6.1 million in the 2000 period primarily as a result of a
decrease in the average amount of outstanding debt, offset by increases in
interest rates. Net interest expense decreased to $1.5 million in the 2000
period from $2.2 million in the 1999 period as a result of an increase in real
estate assets which qualify for interest capitalization.
As a result of the acquisition and merger described in Notes 2 and 3 of
Notes to Consolidated Financial Statements, the Company incurred financial
advisory expenses of $0.7 million for the three months ended March 31, 1999,
with no corresponding amounts for the three months ended March 31, 2000.
Other income (expense), net increased to $2.0 million in the 2000 period
from $0.7 million in the 1999 period primarily as a result of the gain of $1.7
million on the sale of an office building in the 2000 period, offset by reduced
income from the Company's mortgage company operations.
For the three months ended March 31, 2000, post quasi-reorganization
temporary differences, partially offset by temporary differences that existed
prior to the quasi-reorganization, along with pre quasi-reorganization net
operating loss carryforwards resulted in income tax expense, at Alternative
Minimum Tax rates, of $393,000. For the three months ended March 31, 1999,
income tax benefits of $905,000 related to temporary differences resulting from
the quasi-reorganization were excluded from the results of operations and
credited to additional paid-in capital.
24
<PAGE> 25
FINANCIAL CONDITION AND LIQUIDITY
The Company provides for its ongoing cash requirements principally from
internally generated funds from the sales of real estate and from outside
borrowings and, beginning in the fourth quarter of 1997, by joint venture
financing from newly formed joint ventures with venture partners that provide a
substantial portion of the capital required for certain projects. The Company
currently maintains the following major credit facilities: 12 1/2% Senior Notes
(the "Senior Notes") and a secured revolving lending facility (the "Working
Capital Facility"). The Company also finances certain projects with construction
loans secured by real estate inventories and finances certain land acquisitions
with seller-provided financing.
The ability of the Company to meet its obligations on the Senior Notes
(including the repurchase obligation described above) and its other indebtedness
will depend to a large degree on its future performance, which in turn will be
subject, in part, to factors beyond its control, such as prevailing economic
conditions. The Company's degree of leverage may limit its ability to meet its
obligations, withstand adverse business conditions and capitalize on business
opportunities.
The Company will in all likelihood be required to refinance the Senior
Notes and the Working Capital Facility when they mature, and no assurances can
be given that the Company will be successful in that regard.
SENIOR NOTES
The 12 1/2% Senior Notes due July 1, 2001 (the "Senior Notes") are
obligations of William Lyon Homes (formerly The Presley Companies), a Delaware
corporation ("Delaware Lyon"), and are unconditionally guaranteed on a senior
basis by William Lyon Homes, Inc. (formerly Presley Homes), a California
corporation and a wholly-owned subsidiary of Delaware Lyon. However, William
Lyon Homes, Inc. has granted liens on substantially all of its assets as
security for its obligations under the Working Capital Facility and other loans.
Because the William Lyon Homes, Inc. guarantee is not secured, holders of the
Senior Notes are effectively junior to borrowings under the Working Capital
Facility with respect to such assets. Interest on the Senior Notes is payable on
January 1 and July 1 of each year, commencing January 1, 1995.
Except as set forth in the Indenture Agreement (the "Indenture"), the
Senior Notes are redeemable at the option of Delaware Lyon, in whole or in part,
at the redemption prices set forth in the Indenture.
The Senior Notes are senior obligations of Delaware Lyon and rank pari
passu in right of payment to all existing and future unsecured indebtedness of
Delaware Lyon, and senior in right of payment to all future indebtedness of the
Company which by its terms is subordinated to the Senior Notes.
As described above in General Overview, Delaware Lyon is required to offer
to repurchase certain Senior Notes at a price equal to 100% of the principal
amount plus any accrued and unpaid interest to the date of repurchase if
Delaware Lyon's Consolidated Tangible Net Worth is less than $60.0 million for
any two consecutive fiscal quarters, as well as from the proceeds of certain
asset sales.
Upon certain changes of control as described in the Indenture, Delaware
Lyon must offer to repurchase Senior Notes at a price equal to 101% of the
principal amount plus accrued and unpaid interest, if any, to the date of
repurchase.
The Indenture governing the Senior Notes restricts Delaware Lyon and
certain of its subsidiaries with respect to, among other things: (i) the payment
of dividends on and redemptions of capital stock, (ii) the incurrence of
indebtedness or the issuance of preferred stock, (iii) the creation of certain
liens, (iv) consolidation or mergers with or transfers of all or substantially
all of its assets and (v) transactions with affiliates. These restrictions are
subject to a number of important qualifications and exceptions.
WORKING CAPITAL FACILITY
On July 6, 1998 the Company completed an agreement with the Agent of its
existing lender group under its Working Capital Facility to (1) extend this loan
facility to May 20, 2001, (2) increase the loan commitment to $100.0 million,
and (3) decrease the fees and costs compared to the prior revolving facility.
25
<PAGE> 26
The collateral for the loans provided by the Working Capital Facility
continues to include substantially all real estate and other assets of the
Company (excluding assets of partnerships and limited liability companies and
assets which are pledged as collateral for construction notes payable described
below). The borrowing base is calculated based on specified percentages of book
values of real estate assets. The borrowing base at March 31, 2000 was
approximately $101.5 million; however, the maximum loan under the Working
Capital Facility, as stated above, is limited to $100.0 million. The principal
outstanding under the Working Capital Facility at March 31, 2000 was $63.0
million.
Pursuant to the terms of the Working Capital Facility, outstanding advances
bear interest at the "reference rate" of Chase Manhattan Bank plus 2%. An
alternate option provides for interest based on a specified overseas base rate
plus 4.44%, but not less than 8%. In addition, the Company pays a monthly fee of
0.25% on the average daily unused portion of the loan facility.
Upon completion of the new Working Capital Facility agreement, the Company
paid a one-time, non-refundable Facility Fee of $2.0 million, as well as a
yearly non-refundable Administrative Fee of $100,000.
The Working Capital Facility requires certain minimum cash flow and pre-tax
and pre-interest tests. The Working Capital Facility also includes negative
covenants which, among other things, place limitations on the payment of cash
dividends, merger transactions, transactions with affiliates, the incurrence of
additional debt and the acquisition of new land as described in the following
paragraph.
Under the terms of the Working Capital Facility, the Company may acquire
new improved land for development of housing units of no more than 300 lots in
any one location without approval from the lenders if certain conditions are
satisfied. The Company may, however, acquire any new raw land or improved land
provided the Company has obtained the prior written approval of lenders holding
two-thirds of the obligations under the Working Capital Facility.
The Working Capital Facility requires that mandatory prepayments be made to
reduce the outstanding balance of loans to the extent of all funds in excess of
$20.0 million in the principal operating accounts of the Company.
CONSTRUCTION NOTES PAYABLE
At March 31, 2000, the Company had construction notes payable amounting to
$17.9 million related to various real estate projects. The notes are due as
units close or at various dates on or before August 5, 2001 and bear interest at
rates of prime plus 0.25% to prime plus 0.50%.
SELLER FINANCING
Another source of financing available to the Company is seller-provided
financing for land acquired by the Company. At March 31, 2000, the Company had
various notes payable outstanding related to land acquisitions for which seller
financing was provided in the amount of $10.3 million.
JOINT VENTURE FINANCING
As of March 31, 2000, the Company and certain of its subsidiaries are
general partners or members in twenty-two joint ventures involved in the
development and sale of residential projects. Such joint ventures are 50% or
less owned and, accordingly, the financial statements of such joint ventures are
not consolidated with the Company's financial statements. The Company's
investments in unconsolidated joint ventures are accounted for using the equity
method. See Note 4 of "Notes to Consolidated Financial Statements" for condensed
combined financial information for these joint ventures. Based upon current
estimates, all future development and construction costs will be funded by the
Company's venture partners or from the proceeds of construction financing
obtained by the joint ventures.
As of March 31, 2000, the Company's investment in such joint ventures was
approximately $51.5 million and the Company's venture partners' investment in
such joint ventures was approximately $133.5 million. In
26
<PAGE> 27
addition, certain joint ventures have obtained financing from land sellers or
construction lenders which amounted to approximately $63.0 million at March 31,
2000.
ASSESSMENT DISTRICT BONDS
In some jurisdictions in which the Company develops and constructs
property, assessment district bonds are issued by municipalities to finance
major infrastructure improvements and fees. Such financing has been an important
part of financing master-planned communities due to the long-term nature of the
financing, favorable interest rates when compared to the Company's other sources
of funds and the fact that the bonds are sold, administered and collected by the
relevant government entity. As a landowner benefited by the improvements, the
Company is responsible for the assessments on its land. When the Company's homes
or other properties are sold, the assessments are either prepaid or the buyers
assume the responsibility for the related assessments.
CASH FLOWS -- COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 TO THREE MONTHS
ENDED MARCH 31, 1999
Net cash (used in) provided by operating activities changed from a
provision of $8.7 million in the 1999 period to a use of $2.9 million in the
2000 period primarily as a result of higher reductions in real estate
inventories in the 1999 period as compared to the 2000 period.
Net cash provided by (used in) investing activities changed from a use of
$0.3 million in the 1999 period to a provision of $1.7 million in the 2000
period primarily as a result of increased net proceeds received from investments
in and advances to unconsolidated joint ventures.
Net cash provided by (used in) financing activities increased from a use of
$30.3 million in the 1999 period to a provision of $14.6 million in the 2000
period as a result of increased net borrowings on notes payable.
IMPACT OF YEAR 2000
The term "year 2000 issue" is a general term used to describe the
complications that may be caused by existing computer hardware and software that
were designed without consideration for the change in the century. If not
corrected, such programs may have caused computer systems and equipment to fail
or to miscalculate data. Due to the year 2000 issue, the Company undertook
initiatives to modify or replace portions of its existing computer operating
systems so that they would function properly with respect to dates in the year
2000 and thereafter.
The Company's year 2000 compliance effort was focused on its core business
computer applications (i.e., those systems that the Company is dependent upon
for the conduct of day-to-day business operations). The Company determined that
the highest priority project based on greatest business risk and greatest
technical effort should be the conversion and upgrade of the Company's JD
Edwards accounting systems (the "JD Edwards Programs"). The Company acquired and
installed a Year 2000 compliant version of the software in October 1998 and
completed extensive testing of such software and developed programs to convert
its current applications to the new version of the software. The Company
completed this conversion effective on June 30, 1999. The conversion had minimal
effects on the Company's systems and the cost incurred in that connection was
not material.
The Company undertook an assessment of other internal systems used by the
Company in various of its operations. Internal systems used by the Company in
its mortgage company operations, payroll processing and banking interfaces were
all converted during 1998 to systems which are Year 2000 compliant. The
implementation had minimal effect on its systems and the costs incurred in that
connection were not material. Internal systems used by the Company in its design
center operations were converted to a system which is Year 2000 compliant
effective on August 31, 1999 and the cost incurred in that connection was not
material.
The Company has incurred approximately $300,000 in connection with its Year
2000 initiatives. To date the Year 2000 issue has not had a material adverse
effect on the Company's liquidity, financial condition and
27
<PAGE> 28
results of operations. However, the failure to resolve a material Year 2000
issue by the Company, third party suppliers, or the government could have a
material adverse effect on the Company's results of operations, liquidity or
financial condition.
INFLATION
Although inflation rates have been low in recent years, the Company's
revenues and profitability may be affected by increased inflation rates and
other general economic conditions. In periods of high inflation, demand for the
Company's homes may be reduced by increases in mortgage interest rates. Further,
the Company's profits will be affected by its ability to recover through higher
sales prices increases in the costs of land, construction, labor and
administrative expenses. The Company's ability to raise prices at such times
will depend upon demand and other competitive factors.
FORWARD LOOKING STATEMENTS
Investors are cautioned that certain statements contained in this Quarterly
Report on Form 10-Q, as well as some statements by the Company in periodic press
releases and some oral statements by Company officials to securities analysts
and stockholders during presentations about the Company are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Act"). Statements which are predictive in nature, which depend
upon or refer to future events or conditions, or which include words such as
"expects", "anticipates", "intends", "plans", "believes", "estimates", "hopes",
and similar expressions constitute forward-looking statements. In addition, any
statements concerning future financial performance (including future revenues,
earnings or growth rates), ongoing business strategies or prospects, and
possible future Company actions, which may be provided by management are also
foward-looking statements as defined in the Act. Forward-looking statements are
based upon expectations and projections about future events and are subject to
assumptions, risks and uncertainties about, among other things, the Company,
economic and market factors and the homebuilding industry.
Actual events and results may differ materially from those expressed or
forecasted in the forward-looking statements due to a number of factors. The
principal factors that could cause the Company's actual performance and future
events and actions to differ materially from such forward-looking statements
include, but are not limited to, changes in general economic conditions either
nationally or in regions in which the Company operates, whether an ownership
change occurs which results in the limitation of the Company's ability to
utilize the tax benefits associated with its net operating loss carryforward,
changes in home mortgage interest rates, changes in prices of homebuilding
materials, labor shortages, adverse 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,
changes in governmental laws and regulations, whether the Company is able to
refinance the outstanding balances of Senior Notes and Working Capital Facility
at their respective maturities, the timing of receipt of regulatory approvals
and the opening of projects and the availability and cost of land for future
growth.
28
<PAGE> 29
WILLIAM LYON HOMES
PART II. OTHER INFORMATION
ITEMS 1, 2, 3, 4 AND 5.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
<TABLE>
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K.
JANUARY 5, 2000. A Report on Form 8-K was filed by the Company in
reference to the announcement by the Company of its name change to William Lyon
Homes effective after the close of business on Friday, December 31, 1999. The
Company also announced that it had changed its New York Stock Exchange stock
ticker symbol from PDC to WLS effective Monday, January 3, 2000.
JANUARY 18, 2000. A Report on Form 8-K/A was filed by the Company in
reference to additional information related to the Company's acquisition of
substantially all of the real estate assets and assumption of substantially all
of the related liabilities of William Lyon Homes, Inc. pursuant to a Purchase
Agreement with William Lyon Homes, Inc., William Lyon and William H. Lyon on
October 7, 1999.
29
<PAGE> 30
WILLIAM LYON HOMES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 12, 2000 By: /s/ DAVID M. SIEGEL
------------------------------------
DAVID M. SIEGEL
Senior Vice President,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
Date: May 12, 2000 By: /s/ W. DOUGLASS HARRIS
------------------------------------
W. DOUGLASS HARRIS
Vice President, Corporate Controller
(Principal Accounting Officer)
30
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME INCLUDED IN QUARTERLY REPORT
ON FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS
ENDED MARCH 31, 2000.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 15,455
<SECURITIES> 0
<RECEIVABLES> 8,987
<ALLOWANCES> 0
<INVENTORY> 183,688
<CURRENT-ASSETS> 0
<PP&E> 6,440
<DEPRECIATION> 4,120
<TOTAL-ASSETS> 296,923
<CURRENT-LIABILITIES> 0
<BONDS> 191,195
0
0
<COMMON> 104
<OTHER-SE> 60,836
<TOTAL-LIABILITY-AND-EQUITY> 296,923
<SALES> 65,373
<TOTAL-REVENUES> 1,625
<CGS> 53,186
<TOTAL-COSTS> 53,186
<OTHER-EXPENSES> 4,235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,545
<INCOME-PRETAX> 8,032
<INCOME-TAX> 393
<INCOME-CONTINUING> 7,639
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,639
<EPS-BASIC> 0.73
<EPS-DILUTED> 0.73
</TABLE>
