<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
TO
COMMISSION FILE NUMBER 0-18001
THE PRESLEY COMPANIES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 33-0475923
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>
19 CORPORATE PLAZA
NEWPORT BEACH, CALIFORNIA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 640-6400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
SERIES A COMMON STOCK, PAR VALUE $.01 PER NEW YORK STOCK EXCHANGE
SHARE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 16, 1998 was $12,711,239. (This calculation assumes
that all officers and directors of the Company and subsidiaries are affiliates.)
The number of shares of Series A and Series B Common Stock outstanding as
of March 16, 1998 was 20,516,371 and 31,679,307, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's Proxy Statement for the Annual Meeting of Holders
of Series A Common Stock to be held on May 14, 1998 are incorporated herein by
reference into Part III.
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<PAGE> 2
THE PRESLEY COMPANIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I
Item 1. Business.................................................. 1
Item 2. Properties................................................ 10
Item 3. Legal Proceedings......................................... 10
Item 4. Submission of Matters to a Vote of Security Holders....... 10
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.................................... 11
Item 6. Selected Financial Data................................... 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 13
Item 8. Financial Statements and Supplementary Data............... 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 22
PART III
Item 10. Directors and Executive Officers of the Registrant........ 22
Item 11. Executive Compensation.................................... 22
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................. 22
Item 13. Certain Relationships and Related Transactions............ 22
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules and
Reports on Form 8-K.................................... 23
Index to Consolidated Financial Statements................ F-1
</TABLE>
i
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
The Presley Companies and subsidiaries ("Presley" or the "Company") are
primarily engaged in designing, constructing and selling single family detached
and attached homes in California, Arizona, New Mexico and Nevada. Since its
founding in 1956, Presley has sold over 40,000 homes. The Company believes that
it was one of the largest homebuilders in California in terms of both sales and
homes delivered in 1997. Approximately 63% of the Company's home closings were
derived from its California operations. In 1997, the Company had consolidated
revenues of $329.9 million and delivered 1,597 homes. Beginning in early 1996,
the Company's homebuilding operations have been conducted under the name Presley
Homes.
The Company designs, constructs and sells a wide range of homes designed to
meet the specific needs of each of its markets, although it primarily emphasizes
sales to the entry-level and move-up home buyer markets. The Company currently
markets its homes through 12 sales locations in its six master-planned
communities and 28 sales locations at its other projects. In 1997, the average
sales price for homes delivered was $192,000, with homes priced from $79,900 to
$819,000.
The Company and its unconsolidated joint ventures currently own
approximately 6,527 lots and control an additional 513 lots on which to
construct homes. Substantially all lots are entitled and approximately 43% are
located in the Company's six master-planned communities. Prior to 1994, the
Company had focused on the development of master-planned communities as a source
of supply of developed lots for its homebuilding operations. As used in this
Annual Report on Form 10-K, "entitled" land has a Development Agreement and/or
Vesting Tentative Map, or a final recorded plat or map from the appropriate
county or city government. Development Agreements and Vesting Tentative Maps
generally provide for the right to develop the land in accordance with the
provisions of the Development Agreement or Vesting Tentative Map unless an issue
arises concerning health, safety or general welfare. Development of
master-planned communities, which generally takes five to fifteen years from the
date of initial land acquisition to completion, includes selecting sites and
acquiring large parcels of undeveloped land, obtaining all necessary government
approvals to build, and developing land, infrastructure and finished lots. The
Company estimates that its current inventory of land is adequate to supply its
homebuilding operations at current operating levels for approximately 2 years.
Beginning in 1994, the Company's land acquisition strategy, to the extent
permitted by the Company's financing arrangements, has been to undertake
projects with shorter life-cycles in order to reduce development and market risk
while maintaining an inventory of lots sufficient for construction of homes over
a two or three year period. As part of this strategy, the Company's current
plans are to: (i) acquire and develop parcels of land with up to approximately
300 lots, (ii) expand its homebuilding operations in the Southwest, particularly
in its long established markets in California and Arizona, and in Nevada, where
the Company entered the market in 1995 and (iii) continue to evaluate
opportunities in land development and master-planned communities with the
intention that any such projects would be funded in significant part by sources
other than the Company.
In accordance with the bond indenture agreement governing the Company's
Senior Notes which are due in 2001, because the Company's Consolidated Tangible
Net Worth was less than $60 million as of September 30, 1997, the Company was,
effective on December 4, 1997, required to make an offer 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. The Company acquired
Senior Notes with a face amount of $20 million prior to December 4, 1997 and
therefore was not required to make said offer.
Each 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 $20.0 million of
Senior Notes. At December 31, 1997, the Company's Consolidated Tangible Net
Worth was a deficit of $8.9 million. The Company's management has previously
held discussions, and may in the future hold discussions, with representatives
of the holders of the Senior Notes with respect to modifying
1
<PAGE> 4
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 each 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 in California 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 use of joint venture partnerships will better enable it to reduce its
capital investment and risk in the highly capital intensive California markets,
as well as to repurchase the Company's Senior Notes as described above. The
Company would generally receive, after priority returns and capital
distributions to its partners, approximately 50% of the profits and losses, and
cash flows from these joint ventures.
As of December 31, 1997, the Company had formed four joint ventures in
California which had acquired land at a cost of approximately $32 million. The
Company contributed approximately $7 million to these joint ventures. In January
1998, the Company formed an additional joint venture in California which
acquired land from the Company at the Company's approximate book value of $23.2
million (which also approximated the land's current market value). The Company
contributed approximately $5.1 million to this joint venture and the joint
venture assumed the Company's non-recourse note payable of $12.5 million
relating to the purchase of this property. These projects are currently in the
initial development stages and, based upon current estimates of project revenues
and costs, all future development and construction costs will be funded by the
Company's venture partners.
The Company will continue to utilize its current inventory of lots and
future land acquisitions to conduct its operating strategy which consists of:
(i) offering a diverse product line at a variety of prices to suit a wide range
of consumer tastes, (ii) limiting completed housing inventory exposure, (iii)
emphasizing well-designed cost-effective products, (iv) utilizing market
research to allow for a quick response to local market conditions, (v)
maintaining budget and control systems to facilitate effective cost controls and
(vi) using extensive marketing and sales efforts.
The Company had total revenues from operations of $329.9 million, $319.0
million and $285.5 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Homes closed by the Company were 1,597, 1,838 and 1,425 for the
years ended December 31, 1997, 1996 and 1995, respectively.
Presley's operations are dependent to a significant extent on debt
financing and, beginning in 1997, on joint venture financing. The Company's
principal credit sources are its 12 1/2% Senior Notes, a Working Capital
Facility, a joint venture facility, and seller-provided financing. The Company
filed with the Securities and Exchange Commission a Registration Statement on
Form S-1 for the sale of $200.0 million of 12 1/2% Senior Notes which became
effective on June 23, 1994. The offering closed on June 29, 1994 and was fully
subscribed and issued. The Working Capital Facility is a revolving line of
credit facility with a maximum commitment of $72.0 million. The Working Capital
Facility is secured by substantially all of the Company's assets. At December
31, 1997, the outstanding principal amount under the Working Capital Facility
was $43.0 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition and Liquidity" and
Notes 2 and 6 of "Notes to Consolidated Financial Statements."
The Company's principal executive offices are located at 19 Corporate
Plaza, Newport Beach, California 92660 and its telephone number is (714)
640-6400. The Company was incorporated in the State of Delaware on August 7,
1991.
2
<PAGE> 5
THE COMPANY'S MARKETS
The Company is currently operating in six geographic regions: the Southern
California Region, the San Diego Region, the Northern California Region, the New
Mexico Region, the Arizona Region, and the Nevada Region. Each of the regions
has responsibility for the Company's homebuilding and development operations as
well as new land acquisitions within the geographic boundaries of the region.
The following table sets forth sales from real estate operations
attributable to each of Presley's homebuilding regions during the preceding
three fiscal years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
DOLLAR % OF DOLLAR % OF DOLLAR % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Southern California(1)...... $120,641 37% $128,153 40% $113,281 39%
San Diego(2)................ 30,464 9% 40,799 13% 70,161 25%
Northern California(3)...... 83,171 25% 68,100 21% 84,943 30%
Arizona(4).................. 50,550 15% 57,065 18% 2,778 1%
New Mexico(5)............... 19,996 6% 16,180 5% 14,342 5%
Nevada(6)................... 25,120 8% 8,700 3% -- 0%
-------- --- -------- --- -------- ---
$329,942 100% $318,997 100% $285,505 100%
======== === ======== === ======== ===
</TABLE>
- ---------------
(1) The Southern California Region consists of operations in Los Angeles,
Orange, Riverside, San Bernardino and Ventura Counties.
(2) The San Diego Region consists of operations in San Diego and Riverside
Counties.
(3) The Northern California Region consists of operations in Alameda, Contra
Costa, El Dorado, Sacramento, Solano, Yolo and Santa Clara Counties.
(4) The Arizona Region consists of operations in Phoenix and Tucson.
(5) The New Mexico Region consists of operations in Albuquerque and Santa Fe.
(6) The Nevada Region consists of operations in the Las Vegas area.
HOMEBUILDING
The Company currently has a wide variety of product lines which enables it
to meet the specific needs of each of its markets. The Company's products
include entry-level, move-up and luxury homes and lots for custom homes,
although it primarily emphasizes sales to the entry-level and move-up home
markets. The Company believes that this diversified product strategy enables it
to mitigate some of the risks inherent in the homebuilding industry and to meet
a variety of market conditions. In order to reduce exposure to local market
conditions, the Company's sales locations are geographically dispersed. The
Company currently has 40 sales locations, including 12 in its master-planned
communities and 28 at its other projects.
Because the decision as to which product to develop is based on the
Company's assessment of market conditions and the restrictions imposed by
government regulations, homestyles and sizes vary from project to project. The
Company's attached housing ranges in size from 761 to 1,575 square feet, and the
Company's detached housing ranges from 814 to 4,345 square feet.
Due to Presley's product and geographic diversification strategy, the
prices of Presley's homes also vary substantially. Prices for Presley's attached
housing range from approximately $97,000 to $210,000 and prices for detached
housing range from approximately $79,900 to $819,000. The average sales price of
Presley's homes for the year ended December 31, 1997 was $192,000.
The Company generally standardizes and limits the number of home designs
within any given product line. This standardization permits on-site mass
production techniques and bulk purchasing of materials and components, thus
enabling the Company to better control and sometimes reduce construction costs.
3
<PAGE> 6
Presley contracts with a number of architects and other consultants who are
involved in the design process of Presley homes. Designs are constrained by
zoning requirements, building codes, energy efficiency laws and local
architectural guidelines, among other factors. Engineering, landscaping,
master-planning and environmental impact analysis work are subcontracted to
independent firms which are familiar with local requirements.
Substantially all construction work is done by subcontractors with Presley
acting as the general contractor. The Company manages subcontractor activities
with on-site supervisory employees and management control systems. The Company
does not have long-term contractual commitments with its subcontractors or
suppliers. However, the Company generally has been able to obtain sufficient
materials and subcontractors during times of material shortages. The Company
believes its relationships with its suppliers and subcontractors are good.
DESCRIPTION OF PROJECTS
During the year ended December 31, 1997, approximately 44% of the homes
closed by the Company were in the Company's six master-planned communities.
Presley's master-planned communities usually involve the development of hundreds
of acres of raw land into a large community providing homeowners with the
opportunity for employment, recreation, shopping and education within the
community or in close proximity to it. The homes within these communities
include a wide variety of detached and attached entry-level, move-up and luxury
homes, and may also contain apartments. Within these communities Presley also
may sell individual lots for custom homes, multiple lots for construction of
homes by other builders and parcels for commercial, industrial and apartment
development. These communities typically offer a variety of recreational
amenities which may include golf courses, equestrian centers, tennis courts and
swimming pools, among others.
The Company's master-planned communities normally take five to fifteen
years to complete depending on the project's size, economic conditions
prevailing at the time, geological conditions at the site and the Company's
strategy for the particular project. Presley's other homebuilding projects
usually take two to five years to develop. Substantially all of the Company's
master-planned communities are in the later stages of land development.
The following table presents project information relating to each of the
Company's homebuilding regions.
<TABLE>
<CAPTION>
UNITS LOTS HOMES CLOSED
ESTIMATED CLOSED REMAINING FOR YEAR BACKLOG
YEAR OF NUMBER OF AS OF AS OF ENDED AT
PROJECT (COUNTY) FIRST HOMES AT DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
PRODUCT DELIVERY COMPLETION(1) 1997 1997 1997 1997(2)(4)
---------------- -------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SOUTHERN CALIFORNIA
WHOLLY-OWNED:
Sun Lakes Country Club (Riverside County)
Previously Closed Products 1987 395 395 0 0 0
Patio-Legend 1987 582 582 0 2 0
Single Family-Resort 1987 817 817 0 4 0
Villa Duplexes 1990 176 172 4 6 0
Veranda 1994 25 23 2 3 0
Executive Series 1995 87 75 12 31 1
Promenade 1996 596 29 567 25 0
Atrium 1996 423 26 397 17 0
Terrace 1996 316 24 292 21 1
------ ------ ----- ----- ---
3,417 2,143 1,274 109 2
------ ------ ----- ----- ---
Horsethief Canyon Ranch (Riverside County)
Previously Closed Products 1989 847 847 0 0 0
Series "300" 1998 262 0 262 0 0
Series "400" 1995 474 96 378 56 12
Series "500" 1995 403 78 325 45 19
------ ------ ----- ----- ---
1,986 1,021 965 101 31
------ ------ ----- ----- ---
The Highlands (Orange County)
Previously Closed Products 1989 1,332 1,332 0 0 0
Skyline 1992 145 145 0 1 0
New Viewpointe North 1992 104 104 0 35 0
<CAPTION>
PROJECT (COUNTY) SALES PRICE
PRODUCT RANGE(3)
---------------- -----------
<S> <C>
SOUTHERN
CALIFORNIA
WHOLLY-OWNED:
Sun Lakes Country Club (Riversi
Previously Closed Products
Patio-Legend $101,900-138,900
Single Family-Resort $108,900-154,900
Villa Duplexes $ 97,900-124,900
Veranda $ 89,990-125,990
Executive Series $108,900-135,900
Promenade $113,900-125,900
Atrium $129,900-142,900
Terrace $161,900-185,900
Horsethief Canyon Ranch (Rivers
Previously Closed Products
Series "300" $107,000-123,000
Series "400" $124,900-144,900
Series "500" $153,900-165,900
The Highlands (Orange County)
Previously Closed Products
Skyline $245,000-285,000
New Viewpointe North $135,000-174,000
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
UNITS LOTS HOMES CLOSED
ESTIMATED CLOSED REMAINING FOR YEAR BACKLOG
YEAR OF NUMBER OF AS OF AS OF ENDED AT
PROJECT (COUNTY) FIRST HOMES AT DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
PRODUCT DELIVERY COMPLETION(1) 1997 1997 1997 1997(2)(4)
---------------- -------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Monaco 1995 408 388 20 107 20
Legacy 1995 84 78 6 27 6
Canyon Crest 1995 98 98 0 24 0
Canyon Ridge 1996 69 69 0 29 0
------ ------ ----- ----- ---
2,240 2,214 26 223 26
------ ------ ----- ----- ---
Beltierra (Los Angeles County)
Previously Closed Products 1991 225 225 0 0 0
Andora 1991 233 233 0 1 0
Las Brisas 1995 185 124 61 51 8
------ ------ ----- ----- ---
643 582 61 52 8
------ ------ ----- ----- ---
Fontana - (Riverside County) 1998 300 0 300 0 0
------ ------ ----- ----- ---
Boardwalk - Huntington Beach -
(Orange County) 1996 58 58 0 31 0
------ ------ ----- ----- ---
Park Place - Huntington Beach -
(Orange County) 1996 58 58 0 41 0
------ ------ ----- ----- ---
North Park - Valencia -
(Los Angeles County) 1996 48 47 1 47 1
------ ------ ----- ----- ---
Carey Ranch - Sylmar -
(Los Angeles County) 1997 138 21 117 21 7
------ ------ ----- ----- ---
Granada Hills -
(Los Angeles County) 1998 37 0 37 0 0
------ ------ ----- ----- ---
Total wholly-owned 8,925 6,144 2,781 625 75
------ ------ ----- ----- ---
UNCONSOLIDATED JOINT VENTURES:
Thousand Oaks -
(Ventura County) 1998 110 0 110 0 0
------ ------ ----- ----- ---
SOUTHERN CALIFORNIA REGION
TOTAL 9,035 6,144 2,891 625 75
====== ====== ===== ===== ===
SAN DIEGO
WHOLLY-OWNED:
Bridlevale (Riverside County)
Previously Closed Products 1992 377 377 0 0 0
County Glen 1992 142 142 0 3 0
Sutter Ridge 1995 134 134 0 16 0
------ ------ ----- ----- ---
653 653 0 19 0
------ ------ ----- ----- ---
Discovery Hills (San Diego
County)
Previously Closed Products 1991 343 343 0 0 0
Glen Arbor 1993 269 269 0 32 0
Woodwind 1994 122 122 0 12 0
Discovery Meadows 1997 143 53 90 53 21
------ ------ ----- ----- ---
877 787 90 97 21
------ ------ ----- ----- ---
Carmel Mountain Ranch (San Diego County)
Previously Closed Products 1986 5,044 5,044 0 0 0
The Summit 1997 86 0 86 0 9
The Bluffs 1997 114 6 108 6 31
------ ------ ----- ----- ---
5,244 5,050 194 6 40
------ ------ ----- ----- ---
Sycamore Ranch (Riverside
County) 1997 195 6 189 6 12
------ ------ ----- ----- ---
Stonecrest (San Diego County) 1998 110 0 110 0 0
------ ------ ----- ----- ---
Total wholly-owned 7,079 6,496 583 128 73
------ ------ ----- ----- ---
UNCONSOLIDATED JOINT VENTURES:
Torrey Unit I (San Diego
County) 1998 107 0 107 0 0
------ ------ ----- ----- ---
Torrey Unit 4 (San Diego
County) 1998 59 0 59 0 0
------ ------ ----- ----- ---
Mercy Road (San Diego County) 1999 113 0 113 0 0
------ ------ ----- ----- ---
<CAPTION>
PROJECT (COUNTY) SALES PRICE
PRODUCT RANGE(3)
---------------- -----------
<S> <C>
Monaco $ 97,000-157,000
Legacy $380,000-445,000
Canyon Crest $239,900-271,900
Canyon Ridge $275,000-315,000
Beltierra (Los Angeles County)
Previously Closed Products
Andora $ 92,500-114,500
Las Brisas $197,900-229,900
Fontana - (Riverside County) $132,000-150,000
Boardwalk - Huntington Beach -
(Orange County) $280,000-330,000
Park Place - Huntington Beach -
(Orange County) $280,000-330,000
North Park - Valencia -
(Los Angeles County) $225,990-240,900
Carey Ranch - Sylmar -
(Los Angeles County) $197,900-229,900
Granada Hills -
(Los Angeles County) $415,000-485,000
Total wholly-owned
UNCONSOLIDATED JOINT VENTURES:
Thousand Oaks -
(Ventura County) $265,000-300,000
SOUTHERN CALIFORNIA REGION
TOTAL
SAN DIEGO
WHOLLY-OWNED:
Bridlevale (Riverside County)
Previously Closed Products
County Glen $ 95,900-119,900
Sutter Ridge $122,900-169,900
Discovery Hills (San Diego
County)
Previously Closed Products
Glen Arbor $153,900-187,900
Woodwind $133,900-147,900
Discovery Meadows $157,900-186,900
Carmel Mountain Ranch (San Dieg
Previously Closed Products
The Summit $304,200-338,900
The Bluffs $229,400-253,400
Sycamore Ranch (Riverside
County) $283,000-338,000
Stonecrest (San Diego County) $187,000-218,000
Total wholly-owned
UNCONSOLIDATED JOINT VENTURES:
Torrey Unit I (San Diego
County) $276,000-306,000
Torrey Unit 4 (San Diego
County) $351,000-374,000
Mercy Road (San Diego County) $177,900-199,900
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
UNITS LOTS HOMES CLOSED
ESTIMATED CLOSED REMAINING FOR YEAR BACKLOG
YEAR OF NUMBER OF AS OF AS OF ENDED AT
PROJECT (COUNTY) FIRST HOMES AT DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
PRODUCT DELIVERY COMPLETION(1) 1997 1997 1997 1997(2)(4)
---------------- -------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total unconsolidated
joint ventures 279 0 279 0 0
------ ------ ----- ----- ---
SAN DIEGO REGION TOTAL 7,358 6,496 862 128 73
====== ====== ===== ===== ===
NORTHERN CALIFORNIA
WHOLLY-OWNED:
Oakhurst Country Club (Contra
Costa County)
Previously Closed Products 1989 558 558
Black Diamond 1989 226 226 0 1 0
Falcon Ridge 1996 145 63 82 48 7
Diablo Ridge 1994 136 136 0 21 0
Oak Hollow 1994 143 143 0 7 0
Peacock Creek 1996 142 57 85 25 5
Town Center 1999 40 0 40 0 0
------ ------ ----- ----- ---
1,390 1,183 207 102 12
------ ------ ----- ----- ---
Prominence (Alameda County) 1991 151 151 0 19 0
------ ------ ----- ----- ---
The Preserve (Alameda County) 1997 100 8 92 8 9
------ ------ ----- ----- ---
Twin Cities Heritage
(Sacramento County) 1992 107 107 0 4 0
------ ------ ----- ----- ---
Twin Cities Mill Creek
(Sacramento County) 1996 116 46 70 34 4
------ ------ ----- ----- ---
Mira Lago
(Sacramento County) 1995 57 57 0 19 0
------ ------ ----- ----- ---
Marina Woods
(El Dorado County) 1996 79 67 12 38 6
------ ------ ----- ----- ---
Eagle Ridge
(Solano County) 1997 364 0 364 0 22
------ ------ ----- ----- ---
Mace Ranch - Classics
(Yolo County) 1997 121 18 103 18 11
------ ------ ----- ----- ---
Mace Ranch - Affordables
(Yolo County) 1997 28 5 23 5 5
------ ------ ----- ----- ---
Cerro Plata
(Santa Clara County)(5) 2000 550 0 550 0 0
------ ------ ----- ----- ---
NORTHERN CALIFORNIA REGION
TOTAL 3,063 1,642 1,421 247 69
====== ====== ===== ===== ===
ARIZONA
WHOLLY-OWNED:
Settler's Point
(Maricopa County) 1995 103 102 1 37 0
------ ------ ----- ----- ---
McDowell Mt. Ranch
(Maricopa County) 1995 75 74 1 4 0
------ ------ ----- ----- ---
Tatum Highlands 14
(Maricopa County) 1995 125 125 0 24 0
------ ------ ----- ----- ---
Tatum Highlands 17
(Maricopa County) 1995 87 87 0 37 0
------ ------ ----- ----- ---
Estrella
(Maricopa County) 1995 113 61 52 31 14
------ ------ ----- ----- ---
Eagle Mountain
(Maricopa County) 1996 101 45 56 33 11
------ ------ ----- ----- ---
Continental Ranch
(Pima County) 1995 97 67 30 29 5
------ ------ ----- ----- ---
Legend Trail
(Maricopa County) 1996 102 27 75 25 10
------ ------ ----- ----- ---
Williams Centre - Haciendas
(Pima County) 1996 50 17 33 16 7
------ ------ ----- ----- ---
Williams Centre - Las Villas
(Pima County) 1997 46 0 46 0 12
------ ------ ----- ----- ---
<CAPTION>
PROJECT (COUNTY) SALES PRICE
PRODUCT RANGE(3)
---------------- -----------
<S> <C>
Total unconsolidated
joint ventures
SAN DIEGO REGION TOTAL
NORTHERN
CALIFORNIA
WHOLLY-OWNED:
Oakhurst Country Club (Contra
Costa County)
Previously Closed Products
Black Diamond
Falcon Ridge $331,450-375,450
Diablo Ridge $154,900-210,000
Oak Hollow $230,900-270,900
Peacock Creek $391,500-492,500
Town Center $205,900-253,900
Prominence (Alameda County) $355,000-428,000
The Preserve (Alameda County) $692,600-819,000
Twin Cities Heritage
(Sacramento County) $118,000-154,000
Twin Cities Mill Creek
(Sacramento County) $109,900-129,900
Mira Lago
(Sacramento County) $179,900-239,900
Marina Woods
(El Dorado County) $243,900-292,900
Eagle Ridge
(Solano County) $188,300-248,000
Mace Ranch - Classics
(Yolo County) $179,900-219,900
Mace Ranch - Affordables
(Yolo County) $118,300-135,500
Cerro Plata
(Santa Clara County)(5) $325,000-720,000
NORTHERN CALIFORNIA REGION
TOTAL
ARIZONA
WHOLLY-OWNED:
Settler's Point
(Maricopa County) $125,900-156,900
McDowell Mt. Ranch
(Maricopa County) $195,900-234,700
Tatum Highlands 14
(Maricopa County) $116,400-143,900
Tatum Highlands 17
(Maricopa County) $143,500-188,100
Estrella
(Maricopa County) $121,900-149,900
Eagle Mountain
(Maricopa County) $210,900-243,900
Continental Ranch
(Pima County) $133,900-163,200
Legend Trail
(Maricopa County) $164,900-177,900
Williams Centre - Haciendas
(Pima County) $170,900-193,900
Williams Centre - Las Villas
(Pima County) $124,000-137,400
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
UNITS LOTS HOMES CLOSED
ESTIMATED CLOSED REMAINING FOR YEAR BACKLOG
YEAR OF NUMBER OF AS OF AS OF ENDED AT
PROJECT (COUNTY) FIRST HOMES AT DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
PRODUCT DELIVERY COMPLETION(1) 1997 1997 1997 1997(2)(4)
---------------- -------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
McDowell Mt. Ranch "P"
(Maricopa County) 1997 69 26 43 26 7
------ ------ ----- ----- ---
Lone Mountain
(Maricopa County) 1997 57 3 54 3 11
------ ------ ----- ----- ---
Manzanita Heights
(Maricopa County) 1997 73 18 55 18 18
------ ------ ----- ----- ---
Crystal Gardens
(Maricopa County) 1997 157 7 150 7 9
------ ------ ----- ----- ---
Monument Vista
(Pima County) 1997 106 2 104 2 12
------ ------ ----- ----- ---
ARIZONA REGION TOTAL 1,361 661 700 292 116
====== ====== ===== ===== ===
NEW MEXICO
WHOLLY-OWNED:
Summerfield (Bernalillo County) 1995 289 114 175 31 23
------ ------ ----- ----- ---
Tuscany (Bernalillo County) 1996 87 51 36 21 3
------ ------ ----- ----- ---
Tierra Colinas (Santa Fe
County) 1996 21 16 5 9 0
------ ------ ----- ----- ---
Tuscany Hills (Bernalillo
County) 1996 30 4 26 3 1
------ ------ ----- ----- ---
Rancho del Sol (Santa Fe
County) 1996 195 62 133 54 5
------ ------ ----- ----- ---
The Courtyards at Park West
(Bernalillo County) 1996 100 20 80 20 6
------ ------ ----- ----- ---
Ventana (Bernalillo County) 1997 81 2 79 2 5
------ ------ ----- ----- ---
NEW MEXICO REGION TOTAL 803 269 534 140 43
====== ====== ===== ===== ===
NEVADA
WHOLLY-OWNED:
Mountainside (Clark County) 1996 158 136 22 81 9
------ ------ ----- ----- ---
Prominence (Clark County) 1996 100 47 53 39 5
------ ------ ----- ----- ---
Camden Park (Clark County) 1997 150 21 129 21 11
------ ------ ----- ----- ---
Monte Nero (Clark County) 1997 193 24 169 24 2
------ ------ ----- ----- ---
Royal Woods (Clark County) 1998 142 0 142 0 0
------ ------ ----- ----- ---
Deer Springs Ranch (Clark
County) 1998 117 0 117 0 0
------ ------ ----- ----- ---
NEVADA REGION TOTAL 860 228 632 165 27
====== ====== ===== ===== ===
GRAND TOTALS:
WHOLLY-OWNED 22,091 15,440 6,651 1,597 403
UNCONSOLIDATED JOINT
VENTURES 389 0 389 0 0
------ ------ ----- ----- ---
22,480 15,440 7,040 1,597 403
====== ====== ===== ===== ===
<CAPTION>
PROJECT (COUNTY) SALES PRICE
PRODUCT RANGE(3)
---------------- -----------
<S> <C>
McDowell Mt. Ranch "P"
(Maricopa County) $199,300-235,300
Lone Mountain
(Maricopa County) $225,900-274,900
Manzanita Heights
(Maricopa County) $ 79,900-92,900
Crystal Gardens
(Maricopa County) $ 96,900-117,900
Monument Vista
(Pima County) $184,000-237,000
ARIZONA REGION TOTAL
NEW MEXICO
WHOLLY-OWNED:
Summerfield (Bernalillo County) $ 96,150-121,900
Tuscany (Bernalillo County) $103,900-122,900
Tierra Colinas (Santa Fe
County) $146,500-262,900
Tuscany Hills (Bernalillo
County) $118,900-185,000
Rancho del Sol (Santa Fe
County) $ 93,900-161,900
The Courtyards at Park West
(Bernalillo County) $122,900-164,900
Ventana (Bernalillo County) $123,900-159,900
NEW MEXICO REGION TOTAL
NEVADA
WHOLLY-OWNED:
Mountainside (Clark County) $121,990-150,500
Prominence (Clark County) $146,800-174,500
Camden Park (Clark County) $173,000-199,000
Monte Nero (Clark County) $133,990-167,500
Royal Woods (Clark County) $147,000-179,000
Deer Springs Ranch (Clark
County) $115,990-141,990
NEVADA REGION TOTAL
GRAND TOTALS:
WHOLLY-OWNED
UNCONSOLIDATED JOINT
VENTURES
</TABLE>
- ---------------
(1) The estimated number of homes to be built at completion is subject to
change, and there can be no assurance that the Company will build these
homes.
(2) Backlog consists of homes sold under sales contracts that have not yet
closed, and there can be no assurance that closings of sold homes will
occur.
(3) Sales price range reflects base price only and excludes any lot premium,
buyer incentive and buyer selected options, which vary from project to
project.
(4) Of the total homes subject to pending sales contracts as of December 31,
1997, 310 represent homes completed or under construction and 93 represent
homes not yet under construction.
(5) Effective in January 1998, the Company and an outside financial partner
formed a joint venture which acquired the Cerro Plata project from the
Company.
7
<PAGE> 10
SALES AND MARKETING
The management team responsible for a specific project develops marketing
objectives, formulates pricing and sales strategies and develops advertising and
public relations programs for approval of senior management. The Company makes
extensive use of advertising and other promotional activities, including
newspaper advertisements, brochures, television and radio commercials, direct
mail and the placement of strategically located sign boards in the immediate
areas of its developments. In general, the Company's advertising emphasizes
Presley's strengths with respect to the quality and value of its products.
The Company normally builds, decorates, furnishes and landscapes three to
five model homes for each product line and maintains on-site sales offices,
which typically are open seven days a week. Management believes that model homes
play a particularly important role in the Company's marketing efforts.
Consequently, the Company expends a significant amount of effort in creating an
attractive atmosphere at its model homes. Interior decorations vary among the
Company's models and are carefully selected based upon the lifestyles of
targeted buyers. Structural changes in design from the model homes are not
generally permitted, but home buyers may select various other optional
construction and design amenities.
Presley employs in-house commissioned sales personnel and, on a limited
basis, outside brokers in the selling of its homes. Presley typically engages
its sales personnel on a long-term, rather than a project-by-project basis,
which it believes results in a more motivated sales force with an extensive
knowledge of the Company's operating policies and products. Sales personnel are
trained by the Company and attend weekly meetings to be updated on the
availability of financing, construction schedules and marketing and advertising
plans.
The Company strives to provide a high level of customer service during the
sales process and after a home is sold. The participation of the sales
representatives, on-site construction supervisors and the post-closing customer
service personnel, working in a team effort, is intended to foster the Company's
reputation for quality and service, and ultimately lead to enhanced customer
retention and referrals.
In the past, and more so during the recent California recession, Presley
has used a variety of incentives in order to attract buyers. Sales incentives
may include upgrades in interior design features such as carpet or fixtures, or
added amenities such as a fireplace or an outdoor deck. The use of incentives
depends largely on prevailing economic conditions and the Company's success in
marketing its products.
The Company's homes are typically sold before or during construction
through sales contracts which are usually accompanied by a small cash deposit.
Such sales contracts are usually subject to certain contingencies such as the
buyer's ability to qualify for financing. The cancellation rate of buyers who
contracted to buy a home but did not close escrow at Presley's projects was
approximately 18% during 1997. The Company believes its cancellation rate
compares favorably to that of its competitors.
The Company generally provides a one-year limited warranty of workmanship
and materials with each of its homes. From January 1, 1992 through March 31,
1995, the Company provided a five-year limited warranty for certain homes in the
Company's Southern California Region. This five-year warranty exceeded the
warranty offered by competitors and served as a marketing tool for the Company.
The Company normally reserves one percent of the sales price of its homes
against the possibility of future charges relating to its one-year limited
warranty and similar potential claims. The Company's historical experience is
that one-year warranty claims generally fall within the one percent reserve. In
addition, California law provides that consumers can seek redress for patent
defects in new homes within four years from when the defect is discovered, or
should have been discovered, provided that if the defect is latent there is an
outside limit for seeking redress which is ten years from the completion of
construction. In addition, because the Company generally subcontracts its
homebuilding work to qualified subcontractors who generally provide the Company
with an indemnity and a certificate of insurance prior to receiving payment from
the Company for their work, the Company generally has recourse against the
subcontractors or their insurance carriers for claims relating to the
subcontractors' workmanship or materials.
8
<PAGE> 11
CUSTOMER FINANCING -- PRESLEY MORTGAGE COMPANY
The Company seeks to assist its home buyers in obtaining financing by
arranging with mortgage lenders to offer qualified buyers a variety of financing
options. Substantially all home buyers utilize long-term mortgage financing to
purchase a home and mortgage lenders will usually make loans only to qualified
borrowers. The Company attempts to minimize potential risks relating to customer
financing by acquiring mortgage financing commitments that lock in the
availability of funds and interest costs at specified levels.
Presley Mortgage Company, a wholly owned subsidiary, began operations
effective December 1, 1994 and is in operation to service all of the Company's
operating regions. The mortgage company operates as a mortgage broker/loan
correspondent and originates conventional, FHA and VA loans.
SALE OF LOTS AND LAND
In the ordinary course of business, the Company continually evaluates land
sales and has sold, and expects that it will continue to sell, land as market
and business conditions warrant. Presley also sells both multiple lots to other
builders (bulk sales) and improved individual lots for the construction of
custom homes where the presence of such homes adds to the quality of the
community. In addition, the Company may acquire sites with commercial,
industrial and multi-family parcels which will generally be sold to third-party
developers.
INFORMATION SYSTEMS AND CONTROLS
The Company assigns a high priority to the development and maintenance of
its budget and cost control systems and procedures. The Company's regional and
area offices are connected to corporate headquarters through a fully integrated
accounting, financial and operational management information system. Through
this system, management regularly evaluates the status of its projects in
relation to budgets to determine the cause of any variances and, where
appropriate, adjusts its operations to capitalize on favorable variances or to
limit adverse financial impacts.
COMPETITION
The homebuilding industry is highly competitive, particularly in the low
and medium-price range where the Company currently concentrates its activities.
Although Presley is one of California's largest homebuilders, the Company does
not believe it has a significant market position in any geographic area which it
serves due to the fragmented nature of the market. Due in significant part to
the recent recession and its effect on the housing market, the Company has,
since 1990, had to reduce its sales prices and offer greater incentives to
buyers in order to effectively compete for sales in several of its markets.
During the first quarter of 1998 the market has generally rebounded allowing the
Company to selectively increase sales prices and reduce incentives while
remaining competitive. A number of Presley's competitors have larger staffs,
larger marketing organizations, and substantially greater financial resources
than those of Presley. However, the Company believes that it competes
effectively in its existing markets as a result of its product and geographic
diversity, substantial development expertise, and its reputation as a low-cost
producer of quality homes. Further, the Company sometimes gains a competitive
advantage in locations where changing regulations make it difficult for
competitors to obtain entitlements and/or government approvals which the Company
has already obtained.
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS
The Company and its competitors are subject to various local, state and
Federal statutes, ordinances, rules and regulations concerning zoning, building
design, construction and similar matters, including local regulation which
imposes restrictive zoning and density requirements in order to limit the number
of homes that can ultimately be built within the boundaries of a particular
project. The Company and its competitors may also be subject to periodic delays
or may be precluded entirely from developing in certain communities due to
building moratoriums or "slow-growth" or "no-growth" initiatives that could be
implemented in the future in the states in which it operates. Because the
Company usually purchases land with entitlements, the Company believes that the
moratoriums would adversely affect the Company only if they arose from
unforeseen health, safety and welfare issues such as insufficient water or
sewage facilities. Local and state
9
<PAGE> 12
governments also have broad discretion regarding the imposition of development
fees for projects in their jurisdiction. However, these are normally locked-in
when the Company receives entitlements.
The Company and its competitors are also subject to a variety of local,
state and Federal statutes, ordinances, rules and regulations concerning
protection of health and the environment. The particular environmental laws
which apply to any given community vary greatly according to the community site,
the site's environmental conditions and the present and former uses of the site.
These environmental laws may result in delays, may cause the Company and its
competitors to incur substantial compliance and other costs, and may prohibit or
severely restrict development in certain environmentally sensitive regions or
areas. The Company's projects in California are especially susceptible to
restrictive government regulations and environmental laws. However,
environmental laws have not, to date, had a material adverse impact on the
Company's operations.
CORPORATE ORGANIZATION AND PERSONNEL
Each of the Company's operating regions has responsibility for the
Company's homebuilding and development operations within the geographical
boundaries of that region.
The Company's seven executive officers at the corporate level average more
than 20 years of experience in the homebuilding and development industries. The
Company combines decentralized management in those aspects of its business where
detailed knowledge of local market conditions is important (such as governmental
processing, construction, land development and sales and marketing), with
centralized management in those functions where the Company believes central
control is required (such as financial, personnel and legal matters). Land
acquisition and certain other strategic decisions combine centralized
management, for financial and strategic control, with decentralized management,
for identification of opportunistic purchases and in-depth knowledge of local
market conditions.
As of December 31, 1997, Presley's real estate development and homebuilding
operations employed approximately 328 full-time and 30 part-time employees,
including corporate staff, supervisory personnel of construction projects,
maintenance crews to service completed projects, as well as persons engaged in
administrative, finance and accounting, engineering, land acquisition, sales and
marketing activities.
Presley believes that its relations with its employees have been good. Some
employees of the subcontractors which Presley utilizes are unionized, but
virtually none of Presley's employees are union members. Although there have
been temporary work stoppages in the building trades in Presley's areas of
operation, to date none has had any material impact upon Presley's overall
operations.
ITEM 2. PROPERTIES
Headquarters
Presley owns a 15,800 square foot building on leased land in Newport Beach,
California which it uses for its corporate headquarters. The Company leases or
owns properties for its area offices, but none of these properties is material
to the operation of Presley's business.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings, most of which relate
to routine litigation and some of which are covered by insurance. In the opinion
of the Company's management, none of the uninsured claims involve claims which
will have a material adverse effect on the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's stockholders during the fourth
quarter of 1997.
10
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Series A Common Stock is traded on the New York Stock
Exchange (the "NYSE") under the symbol PDC. Public trading of the Series A
Common Stock commenced on October 11, 1991. Prior to that date, there was no
public market for the Series A Common Stock. The following table sets forth the
high and low sales prices for the Series A Common Stock as reported on the NYSE
for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter............................................. $1 7/8 $1 1/4
Second Quarter............................................ 1 7/ 1 3/
Third Quarter............................................. 1 3/ 1 1/
Fourth Quarter............................................ 1 3/ 7
1997
First Quarter............................................. $1 1/4 $ 7/8
Second Quarter............................................ 1 7/ 1
Third Quarter............................................. 1 15/1 13/
Fourth Quarter............................................ 1 1/1 9/
</TABLE>
As of March 16, 1998, the closing price for the Company's Series A Common
Stock as reported on the NYSE was $1 1/16.
As of March 16, 1998, there were 369 holders of record of the Company's
Series A Common Stock.
The Company has not paid any cash dividends on its Common Stock during the
last two fiscal years and expects that for the foreseeable future it will follow
a policy of retaining earnings in order to help finance its business. Payment of
dividends is within the discretion of the Company's Board of Directors and will
depend upon the earnings, capital requirements, general economic conditions and
operating and financial condition of the Company, among other factors. In
addition, the effect of the Company's principal financing agreements currently
prohibits the payment of dividends by the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Financial
Condition and Liquidity" and Notes 2 and 6 of "Notes to Consolidated Financial
Statements."
11
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company have been
derived from the Consolidated Financial Statements of the Company and other
available information. The summary should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto appearing elsewhere
herein.
As described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in Note 2 of "Notes to Consolidated
Financial Statements," the consolidated financial statements for 1994, 1995,
1996 and 1997 have been prepared after giving retroactive effect as of January
1, 1994 to a capital restructuring and quasi-reorganization. The restructuring
and quasi-reorganization resulted in a reduction of the book value of the
Company's real estate assets and liabilities as of January 1, 1994, and as a
result, cost of sales and interest expense are lower in 1994, 1995, 1996 and
1997 than they would have been otherwise, affecting comparability of 1994, 1995,
1996 and 1997 results to 1993 and prior years.
<TABLE>
<CAPTION>
JANUARY 1,
1997 1996 1995 1994 1994(3) 1993
-------- -------- -------- -------- ---------- --------
(IN THOUSANDS EXCEPT NET INCOME (LOSS)
PER COMMON SHARE AMOUNTS AND NUMBER OF HOMES)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales
Homes................................... $307,332 $317,366 $231,204 $262,866 $261,672
Lots, land and other.................... 22,610 1,631 54,301 7,302 9,565
-------- -------- -------- -------- -------- --------
Total sales.......................... 329,942 318,997 285,505 270,168 271,237
Operating income (loss)(2)................ (84,534) 163 (41,335) 14,318 (49,397)
Income (loss) before income taxes and
extraordinary item...................... (89,894) 152 (41,653) 10,232 (67,297)
Credit (provision) for income taxes....... -- -- 1,868 (4,195) 3,041
Income (loss) before extraordinary item... (89,894) 152 (39,785) 6,037 (64,256)
Extraordinary item-gain from retirement of
debt, net of applicable taxes........... -- -- 2,688 -- --
Net income (loss)......................... (89,894) 152 (37,097) 6,037 (64,256)
Basic and diluted earnings per common
share(4):
Before extraordinary item............ $(1.72) $-- $(0.76) $0.11 $(3.47)
Extraordinary item................... -- -- 0.05 -- --
-------- -------- -------- -------- -------- --------
After extraordinary item............. $(1.72) $-- $(0.71) $0.11 $(3.47)
Ratio of earnings to fixed charges(1)..... (2) (2) (2) (2) (2)
BALANCE SHEET DATA:
Real estate inventories................... $255,472 $306,381 $315,535 $382,055 $374,048 $439,548
Total assets.............................. 285,244 331,615 340,933 425,637 419,914 485,414
Notes payable............................. 254,935 208,524 224,434 272,717 277,198 372,198
Stockholders' equity (deficit)............ (5,681) 84,213 84,061 121,158 110,890 81,390
OPERATING DATA:
Number of homes sold...................... 1,718 1,804 1,488 1,423 1,509
Number of homes closed.................... 1,597 1,838 1,425 1,442 1,475
Number of homes in escrow at end of
period.................................. 403 282 316 253 272
Average sales prices of homes closed...... $192 $173 $162 $182 $177
</TABLE>
- ---------------
(1) Ratio of earnings to fixed charges is calculated by dividing income as
adjusted by fixed charges. For this purpose, "income as adjusted" means
income (loss) before (i) minority partners' interest in consolidated income
(loss) and (ii) income taxes, plus (i) interest expense and (ii)
amortization of capitalized interest included in cost of sales. For this
purpose "fixed charges" means (i) interest expense and (ii) interest
capitalized during the period.
(2) Earnings were not adequate to cover fixed charges by $25.4 million, $21.1
million, $67.1 million, $13.9 million, and $65.6 million for the years ended
December 31, 1997, 1996, 1995, 1994, and 1993, respectively. These deficits,
as well as the operating income (loss), include the effect of an impairment
loss on real estate assets of $74 million in 1997 and $16.8 million in 1995
and reductions of real estate assets to estimated net realizable value of
$9.4 million and $46.6 million in 1995 and 1993, respectively.
(3) The amounts at January 1, 1994 include the effects of the capital
restructuring and quasi-reorganization on the consolidated balance sheet as
of December 31, 1993 as described in Note 2 of "Notes to Consolidated
Financial Statements."
(4) All earnings per share amounts for all periods presented conform to FASB
Statement 128. Basic and diluted earnings per share for the four years ended
December 31, 1997 are based on 52,195,678 shares of Series A and Series B
common stock outstanding. Basic and diluted earnings per share for the year
ended December 31, 1993 are based on 18,500,000 shares of common stock
outstanding before the capital restructuring and quasi-reorganization
described in Footnote (3) above.
12
<PAGE> 15
ITEM 7. 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 Selected Financial Data and the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Annual Report on Form 10-K.
GENERAL OVERVIEW. The Company's financial condition as of December 31, 1997
reflects the severe economic conditions encountered in the Company's primary
homebuilding markets within California, together with the Company's highly
leveraged debt and capital structure. The declining economic conditions began to
affect the Company's primary homebuilding markets during 1989 and continued off
and on since then. In view of substantial declines in the value of certain of
the Company's real estate assets since 1992, the Company has been required to
write down the book value of these real estate assets, in accordance with
generally accepted accounting principles. The loss for the year ended December
31, 1997 includes a non-cash charge of $74 million as a result of the
recognition of impairment losses on certain of the Company's real estate assets
in accordance with Statement of Financial Accounting Standards No. 121. As a
result of the substantial losses realized by the Company since 1992, the Company
has a stockholders' deficit of $5.7 million at December 31, 1997.
In accordance with the bond indenture agreement governing the Company's
Senior Notes which are due in 2001, because the Company's Consolidated Tangible
Net Worth was less than $60 million as of September 30, 1997, the Company was,
effective on December 4, 1997, required to make an offer 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. The Company acquired
Senior Notes with a face amount of $20 million prior to December 4, 1997 and
therefore was not required to make said offer.
Each 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 $20.0 million of
Senior Notes. At December 31, 1997, the Company's Consolidated Tangible Net
Worth was a deficit of $8.9 million. The Company's management has previously
held discussions, and may in the future hold discussions, with representatives
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 each 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 in California 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 use of joint venture partnerships will better enable it to reduce its
capital investment and risk in the highly capital intensive California markets,
as well as to repurchase the Company's Senior Notes as described above. The
Company would generally receive, after priority returns and capital
distributions to its partners, approximately 50% of the profits and losses, and
cash flows from these joint ventures.
As of December 31, 1997, the Company had formed four joint ventures in
California which had acquired land at a cost of approximately $32 million. The
Company contributed approximately $7 million to these joint ventures. In January
1998, the Company formed an additional joint venture in California which
acquired land from the Company at the Company's approximate book value of $23.2
million (which also approximated the land's current market value). The Company
contributed approximately $5.1 million to this joint venture and the joint
venture assumed the Company's non-recourse note payable of $12.5 million
relating to the purchase of this property. These projects are currently in the
initial development stages and, based upon current estimates of project revenues
and costs, all future development and construction costs will be funded by the
Company's venture partners.
13
<PAGE> 16
RESULTS OF OPERATIONS
Homes sold, closed and in backlog as of and for the periods presented are
as follows:
<TABLE>
<CAPTION>
AS OF AND FOR YEARS ENDED
DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Number of homes sold........................................ 1,718 1,804 1,488
===== ===== =====
Number of homes closed...................................... 1,597 1,838 1,425
===== ===== =====
Backlog of homes sold but not closed at end of period....... 403 282 316
===== ===== =====
</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 December 31, 1997
was $84.6 million as compared to $52.7 million as of December 31, 1996 and $81.3
million as of September 30, 1997. The cancellation rate of buyers who contracted
to buy a home but did not close escrow at the Company's projects was
approximately 18% during 1997.
The number of homes closed in the fourth quarter of 1997 was down 20
percent to 411 from 512 in the fourth quarter of 1996. Net new home orders for
the quarter ended December 31, 1997 increased 38 percent to 422 units from 306
for the quarter ended December 31, 1996. For the fourth quarter of 1997, net new
orders decreased 1 percent to 422 from 419 units in the third quarter of 1997.
The backlog of homes sold as of December 31, 1997 was 403, up 43 percent from
282 units as of December 31, 1996, and up 3 percent from 392 units at September
30, 1997. The Company's inventory of completed and unsold homes as of December
31, 1997 decreased to 111 units from 122 units as of December 31, 1996.
In March 1995, the Financial Accounting Standards Board (FASB) issued
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 new
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. This was a significant change from the previous accounting standard that
required homebuilders to carry real estate assets at the lower of cost or net
realizable value. The net loss for the year ended December 31, 1997 included a
non-cash charge of $74,000,000 to record impairment losses on certain of the
Company's real estate assets. The net loss for the year ended December 31, 1995
included a non-cash charge of $16,811,000 to record impairment losses on certain
of the Company's real estate assets.
The Company periodically evaluates its real estate assets to determine
whether such assets have been impaired and therefore would be required to be
adjusted to fair value. Fair value represents the amount at which an asset could
be bought or sold in a current transaction between willing parties, that is,
other than in a forced or liquidation sale. The estimation process involved in
determining if assets have been impaired and in the determination of fair value
is inherently uncertain since it requires estimates of current market yields as
well as future events and conditions. Such future events and conditions include
economic and market conditions, as well as the availability of suitable
financing to fund development and construction activities. The realization of
the Company's real estate projects is dependent upon future uncertain events and
conditions and, accordingly, the actual timing and amounts realized by the
Company may be materially different from the estimated fair values as described
herein.
Prior to the adoption of Statement No. 121, the Company evaluated its real
estate inventories to determine if such assets were stated at the lower of cost
or estimated net realizable value, as required by the
14
<PAGE> 17
then applicable accounting pronouncements. The evaluations considered the
depressed nature of the real estate business in the Company's principal markets,
the reduced demand from prospective homebuyers, decreased sales prices,
increased sales incentives, future costs of development and holding costs during
development. Based on these evaluations, reductions of certain real estate
assets to estimated net realizable value amounting to $9,400,000 were recorded
during 1995.
This Annual Report on Form 10-K does not attempt to discuss or describe all
of the factors that influence or impact the evaluation of an impairment of or
the net realizable value of the Company's real estate assets.
Interest incurred during the period in which real estate projects are not
under development or during the period subsequent to the completion of product
available for sale is expensed in the period incurred. Economic conditions in
the real estate industry can cause a delay in the development of certain real
estate projects and, as a result, can lengthen the periods when such projects
are not under development and, accordingly, have a significant impact on
profitability as a result of expensed interest. Interest expense during 1997,
1996, and 1995 was approximately $7,812,000, $2,256,000 and $2,226,000,
respectively.
In general, housing demand is adversely affected by increases in interest
and housing costs. 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, which has generally been the case recently, 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.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996. Sales (which
represent recorded revenues from closings) for the year ended December 31, 1997
were $329.9 million, an increase of $10.9 million (3.4%), from sales of $319.0
million for the year ended December 31, 1996. Revenue from sales of homes
decreased $10.1 million to $307.3 million in 1997 from $317.4 million in 1996.
This decrease was due primarily to a decrease in the number of homes closed to
1,597 in 1997 from 1,838 in 1996, partially offset by an increase in the average
sales prices of homes to $192,000 in 1997 from $173,000 in 1996 which resulted
primarily from increased sales prices, decreased buyer incentives and a change
in the mix of product. Revenue from lots, land and other increased $21.0 million
to $22.6 million in 1997 from $1.6 million in 1996, primarily as a result of
sales of land to be used for commercial purposes, as well as the sale of a golf
course formerly owned and operated by the Company.
Total operating income (loss) decreased from income of $0.2 million in 1996
to a loss of $84.5 million in 1997. The excess of revenue from sales of homes
over the related cost of sales decreased by $8.4 million, to $29.0 million in
1997 from $37.4 million in 1996. These decreases were primarily due to a
decrease in the number of homes closed as described above and increases in costs
such as interest and development. The excess of revenue from sales of lots, land
and other over the related cost of sales decreased by $0.9 million to a loss of
$1.3 million in 1997 from a loss of $0.4 million in 1996. Impairment losses on
real estate assets amounting to $74.0 million were recorded in 1997 as compared
to none in 1996. Sales and marketing expenses decreased by $0.6 million (2.6%)
to $22.3 million in 1997 from $22.9 million in 1996 primarily as a result of a
decrease in sales commissions directly attributable to a decrease in closed
units, partially offset by an increase in advertising and other selling expenses
in 1997 compared to 1996. General and administrative expenses increased by $2.0
million (14.3%) to $16.0 million in 1997 from $14.0 million in 1996, primarily
as the result of additional staffing in expanding operating units in Arizona and
Nevada.
Total interest incurred of $33.0 million during 1997 increased $1.4 million
(4.4%) from 1996 as a result of increased interest rates and higher debt levels
in 1997. Net interest expense increased to $7.8 million in 1997 from $2.3
million for 1996. This increase was due primarily to a reduction in real estate
assets which qualify for interest capitalization.
Other (income) expense, net increased $0.3 million to a net income of $2.5
million in 1997 from a net income of $2.2 million in 1996 primarily as a result
of increased income from design center operations.
15
<PAGE> 18
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995. Sales (which
represent recorded revenues from closings) for the year ended December 31, 1996
were $319.0 million, an increase of $33.5 million (11.7%), from sales of $285.5
million for the year ended December 31, 1995. Revenue from sales of homes
increased $86.2 million to $317.4 million in 1996 from $231.2 million in 1995.
This increase was due primarily to an increase in the number of homes closed to
1,838 in 1996 from 1,425 in 1995 and an increase in the average sales prices of
homes to $173,000 in 1996 from $162,000 in 1995. Revenue from lots, land and
other decreased $52.7 million to $1.6 million in 1996 from $54.3 million in
1995.
Total operating income (loss) changed from a loss of $41.3 million in 1995
to income of $0.2 million in 1996. The excess of revenue from sales of homes
over the related cost of sales increased by $17.0 million, to $37.4 million in
1996 from $20.4 million in 1995 primarily due to increased sales prices and an
increase in the number of homes closed as described above and decreases in buyer
incentives. The excess of revenue from sales of lots, land and other over the
related cost of sales changed by $1.0 million to a loss of $0.4 million in 1996
from a loss of $1.4 million in 1995. Impairment losses on real estate assets
amounting to $16.8 million were recorded in 1995 as compared to none in 1996.
Reductions of real estate assets to estimated net realizable value amounting to
$9.4 million were recorded in 1995 as compared to none in 1996. Sales and
marketing expenses increased by $1.5 million to $22.9 million in 1996 from $21.4
million in 1995 primarily as a result of increased closing costs (directly
related to revenue from increased closings) in 1996 compared to 1995. General
and administrative expenses increased by $1.3 million to $14.0 million in 1996
from $12.7 million in 1995, primarily as a result of increased overhead from
start-up operations in Arizona and Nevada. General and administrative expenses
as a percentage of sales was 4.4% in both 1996 and 1995.
Total interest incurred during 1996 decreased $2.6 million (7.6%) from 1995
as a result of lower debt balances in 1996. Net interest expense increased
slightly to $2.3 million in 1996 from $2.2 million for 1995.
Other (income) expense, net increased $0.3 million to a net income of $2.2
million in 1996 from a net income of $1.9 million in 1995 primarily as a result
of (i) increased income from recreational facilities and (ii) increased income
from mortgage and design center operations.
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 1997, by joint venture financing from newly formed
joint ventures with venture partners that will 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"), a
secured revolving lending facility (the "Working Capital Facility") and a
revolving line of credit relating to Carmel Mountain Ranch, its wholly-owned
joint venture partnership (the "CMR Facility").
The ability of the Company to meet its obligations on the Senior Notes
(including the repurchase obligation described in General Overview 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 withstand adverse business conditions or to capitalize on business
opportunities.
The Company will in all likelihood be required to refinance the Working
Capital Facility and the Senior Notes when they mature, and no assurances can be
given that the Company will be successful in that regard.
Capital Restructuring and Quasi-Reorganization
On March 28, 1994 the Company's Board of Directors approved a Plan for
Capital Restructuring, which was approved by the Company's Stockholders at the
Annual Meeting of Stockholders held on May 20, 1994.
In accordance with the Plan for Capital Restructuring, on March 29, 1994
the Company executed a definitive agreement with its lenders to restructure the
Company's $340,000,000 revolving line of credit (the "Revolving Facility"). The
Plan was approved at the Company's Annual Meeting held on May 20, 1994 and on
that date the lender group under the Company's Revolving Facility converted
$95,000,000 of outstanding
16
<PAGE> 19
debt under the Revolving Facility to equity through the issuance of 43,166,667
shares of a new series of common stock representing initially 70% of the
outstanding shares of all series of common stock of the Company. As provided in
the agreement with its lenders, when the Company completed its Senior Notes
Offering of $200,000,000 on June 29, 1994, as described below, the lending group
returned to the Company a total of 8,809,524 shares of the new series of common
stock, reducing their aggregate equity interest in the Company to 65% from 70%.
In order to implement the Plan for Capital Restructuring, the Company's
Certificate of Incorporation was amended to redesignate existing common stock as
Series A Common Stock (the "Series A Common"), to establish a second series of
common stock which was issued to the lender group (the "Series B Common"), and
to increase the number of directors of the Company to nine, of which six are
elected by holders of outstanding shares of Series A Common, and the remaining
three are elected by the holders of outstanding shares of Series B Common.
Concurrent with the conversion of debt to equity, under the Plan for
Capital Restructuring, the Revolving Facility was reduced by $95,000,000 to a
total of $245,000,000, comprised of a $150,000,000 term facility ("the Term
Facility") and a $95,000,000 working capital facility ("the Working Capital
Facility") (collectively, "the Debt Facilities"). In addition the lender group
increased the Working Capital Facility by $20,000,000 to a total of
$115,000,000. Revolving credit loans under the Working Capital Facility may be
borrowed, repaid and reborrowed from time to time prior to the termination date
of the Working Capital Facility. The lender group had therefore provided Debt
Facilities totaling $265,000,000 to the Company.
As described more fully below, the Company filed with the Securities and
Exchange Commission a Registration Statement on Form S-1 for the sale of
$200,000,000 of Senior Notes which became effective on June 23, 1994. The
offering closed on June 29, 1994 and was fully subscribed and issued. The Term
Facility was repaid in full and the Working Capital Facility was reduced by
$43,000,000 from a portion of the proceeds from the issuance of the Senior
Notes.
The terms of the Working Capital Facility are described more fully below.
The Series B Common ranks pari passu with the Series A Common in any
liquidation of the Company. The Company may not declare or pay any dividends on
the Series A Common unless equal dividends are declared and paid on the Series B
Common.
The Series B Common became convertible into Series A Common on a
share-for-share basis at the option of the holder from and after May 20, 1997.
On January 30, 1998, the Company issued an aggregate of 2,677,836 shares of its
Series A Common Stock as a result of the conversion of a like number of shares
of its Series B Common Stock.
As part of the Plan for Capital Restructuring, the Company's Board of
Directors also approved a Plan for Quasi-Reorganization retroactive to January
1, 1994. The Company implemented the quasi-reorganization at that time because
it was implementing a substantial change in its capital structure in accordance
with the Plan for Capital Restructuring. A quasi-reorganization allows certain
companies which are undergoing a substantial change in capital structure to
utilize "fresh start accounting."
Under the Plan for Quasi-Reorganization, the Company implemented an overall
accounting readjustment effective January 1, 1994, which resulted in the
adjustment of assets and liabilities to estimated fair values, and the
elimination of the accumulated deficit. The net amount of such revaluation
adjustments and costs related to the capital restructuring, together with the
accumulated deficit as of the date thereof, was transferred to paid-in capital
in accordance with the accounting principles applicable to
quasi-reorganizations.
The estimation process involved in the determination of the fair value of
those assets as to which an adjustment was made is inherently uncertain since it
required estimates and assumptions as to future events and conditions. Such
future events and conditions include economic and market conditions, the
availability and cost of governmental entitlements necessary to develop and
build product, the cost of financing to fund development and construction
activities, and the availability and cost of labor and materials necessary to
develop, build and sell product.
17
<PAGE> 20
Because the amount and timing of the realization of the investments by the
Company and its subsidiaries in their respective real estate projects are
dependent upon such future uncertain events and conditions, the actual timing
and amounts may be materially different from the estimates and assumptions used
in determining fair value estimates utilized for purposes of the Plan for
Quasi-Reorganization.
The quasi-reorganization affects the comparability of operating statements
for periods beginning after December 31, 1993 with those for periods beginning
on or before December 31, 1993. Moreover, any income tax benefits resulting from
the utilization of net operating loss and other carryforwards existing at
January 1, 1994 and temporary differences resulting from the
quasi-reorganization, are excluded from the results of operations and credited
to paid-in capital.
Senior Notes
The 12 1/2% Senior Notes due 2001 were offered by The Presley Companies, a
Delaware corporation ("Delaware Presley" or the "Company"), and are
unconditionally guaranteed on a senior basis by Presley Homes (formerly The
Presley Companies), a California corporation and a wholly owned subsidiary of
Delaware Presley ("California Presley"). However, California Presley has granted
liens on substantially all of its assets as security for its obligations under
the Working Capital Facility and other loans. Because the California Presley
guarantee is not secured, holders are effectively junior to borrowings under the
Working Capital Facility with respect to such assets. Delaware Presley and its
consolidated subsidiaries are referred to collectively herein as "Presley" or
the "Company." 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 not redeemable by Presley
prior to July 1, 1998. Thereafter, the Senior Notes will be redeemable at the
option of Delaware Presley, in whole or in part, at the redemption prices set
forth in the Indenture.
The Senior Notes are senior obligations of Presley and rank pari passu in
right of payment to all existing and future unsecured indebtedness of Presley,
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, Presley 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
Presley's Consolidated Tangible Net Worth is less than $60,000,000 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, Presley 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, among other things: (i)
the payment of dividends on and redemptions of capital stock by Presley, (ii)
the incurrence of indebtedness by Presley or the issuance of preferred stock by
Delaware Presley's subsidiaries, (iii) the creation of certain liens, (iv)
Delaware Presley's ability to consolidate or merge with or into, or to transfer
all or substantially all of its assets to, another person, and (v) transactions
with affiliates. These restrictions are subject to a number of important
qualifications and exceptions.
The net proceeds of this offering were used to repay amounts outstanding
under the Term Facility and to reduce the outstanding debt and commitment level
under the Working Capital Facility in connection with the Plan for Capital
Restructuring as more fully described above.
18
<PAGE> 21
The proceeds of the offering were used as follows:
<TABLE>
<S> <C>
Repayment of Term Facility............................. $150,000,000
Reduction of Working Capital Facility.................. 43,000,000
Underwriting discount.................................. 6,000,000
Offering costs......................................... 1,000,000
------------
$200,000,000
============
</TABLE>
In April 1995, the Company purchased $10,000,000 principal amount of its
outstanding Senior Notes at a cost of $8,465,000, resulting in a net gain of
$724,000 after giving effect to related deferred loan costs and income taxes.
These Senior Notes were held by the Company in treasury and were resold in
November 1997 by the Company to an institutional investor in a private
placement. Although it has no definitive program to purchase outstanding Senior
Notes, the Company may make such purchases from time to time in the future if
management believes such purchases are in the Company's best interest.
As of December 31, 1997, the outstanding 12 1/2% Senior Notes with a face
value of $180,000,000 have an estimated fair value of $172,800,000, based on the
Company's repurchase of Senior Notes in late November and early December 1997.
Working Capital Facility
The collateral for the loans provided by the Working Capital Facility
includes substantially all real estate and other assets of the Company
(excluding assets of partnerships and the portion of the partnership interests
in the Carmel Mountain Ranch partnership which are currently pledged to other
lenders). The borrowing base is calculated based on specified percentages of
book values of real estate assets. The borrowing base at December 31, 1997 was
approximately $138,000,000; however, the maximum loan under the Working Capital
Facility is limited to $72,000,000. The principal outstanding under the Working
Capital Facility at December 31, 1997 was $43,000,000.
The Working Capital Facility had a termination date of May 20, 1997, with
two one-year extensions at the Company's option. On April 18, 1997, the Company
exercised its option to extend the termination date of the Working Capital
Facility for one period of twelve months from May 20, 1997 to May 20, 1998. Upon
the extension of the termination date, the Company paid an extension fee of 1%
of the Working Capital Facility commitment amount (in addition to the loan fee
described below). The Company still holds the option to extend the termination
date for an additional twelve (12) months. If the Company elects to exercise
this option in the future, an additional extension fee of 1% of the Working
Capital Facility commitment amount (in addition to the loan fee described below)
would be incurred.
Pursuant to the terms of the Working Capital Facility, outstanding advances
bear interest at the prime rate plus 2%. An alternate option provides for
interest based on a specified overseas base rate plus 4.44%, but not less than
the prime rate option in effect at December 31, 1993 (8.00%). In addition, the
Company pays a loan fee of 1% per annum, payable quarterly, on the total Working
Capital Facility commitment amount.
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.
19
<PAGE> 22
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
$20,000,000 in the principal operating accounts of the Company.
CMR Facility
Carmel Mountain Ranch ("CMR"), the partnership that owns the Carmel
Mountain Ranch master-planned community, is a California general partnership and
is 100% owned by The Presley Companies and its wholly-owned subsidiary.
Effective in March 1995, the development and construction of CMR, a consolidated
joint venture, is financed through a revolving line of credit. The revolving
line of credit consists of several components relating to production units,
models and residential lots. At December 31, 1997, the revolving line of credit
had an outstanding balance of $9,440,000. Availability under the line is subject
to a number of limitations, but in any case cannot exceed $10,000,000. Interest
on the outstanding balance is at prime plus 1.00%. In March 1998, the maturity
date of this line was extended to June 16, 1998. Management is currently in
discussions with the lender to extend the maturity date of this line for an
additional twelve month period to June 16, 1999. Although management believes
that current discussions with this lender will result in this longer term
extension, no assurances can be given in that regard.
Seller Financing
Another source of financing available to the Company is seller-provided
financing for land acquired by the Company. At December 31, 1997, the Company
had outstanding notes payable related to land acquisitions for which seller
financing was provided in the amount of $22,495,000, as described below.
In October 1997, the Company executed a promissory note secured by a deed
of trust on land purchased within the Company's Northern California Region in
the amount of $12,500,000. Interest on the outstanding balance is 8% per annum
and is payable annually. The loan is to be repaid in annual installments of
$3,125,000. This note, which is non-recourse to the Company, was assumed in
January 1998 by a joint venture which acquired the land from the Company, as
described below under "Joint Venture Financing."
In December 1997, the Company executed a promissory note secured by a deed
of trust on land purchased within the Company's San Diego Region in the amount
of $4,515,000. Interest on the outstanding balance is 8% per annum. Principal
and interest are due and payable thirty days following substantial completion of
land improvements by the seller, as defined in the purchase agreement.
Substantial completion of the improvements is expected in April 1998. Management
currently intends to form of a joint venture with an outside financial partner
that would assume or repay this note and provide a substantial portion of the
capital for this project. No assurance can be given that management will be
successful in forming this joint venture.
The balance of notes payable from seller financing includes several smaller
notes payable to sellers of land purchased within the Company's Arizona, New
Mexico and Nevada Regions.
Joint Venture Financing
As of December 31, 1997, the Company had formed four joint ventures in
California which had acquired land at a cost of approximately $32,000,000. The
Company contributed approximately $7,000,000 to these joint ventures and the
Company's venture partners contributed approximately $25,000,000 to these joint
ventures. In January 1998, the Company formed an additional joint venture in
California which acquired land from the Company at the Company's approximate
book value of $23,200,000 (which also approximated the land's current market
value). The Company contributed approximately $5,100,000 million to this joint
venture and the Company's venture partners contributed approximately $5,600,000
to this joint venture, and the joint venture assumed the Company's non-recourse
note payable of $12,500,000 million relating to the purchase of this property.
These projects are currently in the initial development stages and, based upon
current estimates of project revenues and costs, all future development and
construction costs will be funded by the Company's venture partners.
20
<PAGE> 23
Assessment District Bonds
In some locations in which the Company develops its projects, 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 Presley'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 Years Ended December 31, 1997 and 1996
Net cash provided by (used in) operating activities changed from a source
of $15.6 million in 1996 to a use of $14.1 million in 1997. The change was
primarily due to the incurrence of the net loss in 1997 compared to income in
1996.
Net cash provided by (used in) investing activities changed from a source
of $0.7 million in 1996 to a use of $8.7 million in 1997. The change was due
primarily to an increase in investments in joint ventures, an increase in the
amount of new notes receivable issued, a decrease in principal payments received
on notes receivable and an increase in purchases of property and equipment.
Net cash provided by (used in) financing activities changed from a use of
$15.9 million in 1996 to a source of $22.9 million in 1997. The change was
primarily due to a $139.1 million repayment of debt and a $20.0 million
retirement of Senior Notes, offset by borrowings on notes payables totaling
$172.0 million.
Cash Flows -- Comparison of Years Ended December 31, 1996 and 1995
Net cash provided by operating activities decreased from $27.7 million in
1995 to $15.6 million in 1996. The change was primarily due to reduced proceeds
from reductions in land sales, offset by the net income in 1996 compared to a
net loss in 1995.
Net cash provided by (used in) investing activities changed from a use of
$0.4 million in 1995 to a source of $0.7 million for 1996. The change was due
primarily to a reduction in the issuance of notes receivable, offset by a
reduction in the principal payments on notes receivable and an increase in the
purchase of property and equipment.
Net cash used in financing activities decreased $27.8 million to $15.9
million in 1996 from $43.7 million in 1995. The change was primarily due to the
reduction of debt in 1995.
Impact of Year 2000
The Company has conducted an assessment of its computer systems to
ascertain what modifications it will be required to make so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. Management believes that any such modifications will have minimal
effects on its systems and the costs incurred in that connection will not be
material.
------------------------
Certain statements contained herein 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, changes in
interest rates and competition.
21
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Presley's consolidated financial statements and the report of the
independent auditors, listed under Item 14, are submitted as a separate section
of this report beginning on page F-1 and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required by this item is incorporated by reference from the
Company's Proxy Statement for the 1998 Annual Meeting of Holders of Series A
Common Stock to be held on May 14, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Company's Proxy Statement for the 1998 Annual Meeting of Holders of Series A
Common Stock to be held on May 14, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
Company's Proxy Statement for the 1998 Annual Meeting of Holders of Series A
Common Stock to be held on May 14, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Company's Proxy Statement for the 1998 Annual Meeting of Holders of Series A
Common Stock to be held on May 14, 1998.
22
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of the Company are included
in a separate section of this Annual Report on Form 10-K commencing on the page
numbers specified below:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
(2) Financial Statement Schedules:
Schedules are omitted as the required information is not present, is not
present in sufficient amounts, or is included in the Consolidated
Financial Statements or Notes thereto.
(3) Listing of Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<S> <C> <C>
3.1 (1) Certificate of Incorporation of the Company.
3.3 (1) Bylaws of the Company.
4.1 (1) Specimen certificate of Common Stock.
10.1 (1) First Amended and Restated Loan Agreement dated as of
December 18, 1989 among the Company, as Borrower, Security
Pacific National Bank, First Interstate Bank of California,
The Bank of California, N.A., California Federal Bank, a
Federal Savings Bank, and Continental Bank, N.A., as the
Banks, and Security Pacific National Bank as the Agent (the
"1989 Revolving Facility").
10.2 (1) First Amendment to the 1989 Revolving Facility, dated
February 1, 1991.
10.3 (1) Letter, dated December 11, 1990, providing for the extension
of the 1989 Revolving Facility.
10.4 (1) Commitment Letter, dated August 19, 1991, among the Banks,
the Agent and the Company relating to the amendment and
extension of the 1989 Revolving Facility.
10.5 (1) Loan Agreement, dated as of September 27, 1988, between
Carmel Mountain Ranch, as Borrower, Security Pacific
National Bank, Bank of America National Trust and Savings
Association and Bankers Trust Company, as the Banks, and
Security Pacific National Bank, as the Agent (the "CMR Loan
Agreement").
10.6 (1) First Amendment to the CMR Loan Agreement, dated April 3,
1989.
10.7 (1) Second Amendment to the CMR Loan Agreement, dated December
21, 1989.
10.8 (1) Third Amendment to the CMR Loan Agreement, dated January 1,
1991.
10.9 (1) Fourth Amendment to the CMR Loan Agreement, dated March 1,
1991.
10.10 (1) Building Loan Agreement, dated November 4, 1988, between
Horsethief Canyon Partners and First Interstate Bank of
California (the "HCP Loan Agreement").
10.11 (1) Note, dated November 4, 1988, in favor of First Interstate
Bank of California by Horsethief Canyon Partners (the "HCP
Note").
10.12 (1) Amendment to the HCP Loan Agreement, dated March 28, 1989.
10.13 (1) Modification to the HCP Note, dated November 26, 1990.
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10.14 (1) Modification to the HCP Note, dated February 27, 1991.
10.15 (1) Modification to the HCP Note, dated June 18, 1991.
10.16 (1) Additional Funds Agreement, dated June 18, 1991, between
Horsethief Canyon Partners and First Interstate Bank of
California.
10.17 (1) Office Building Lease, dated June 1, 1989, between Corporate
Plaza and Associates and the Company.
10.18 (1) Form of Employment Agreement, dated October 17, 1991,
between Wade H. Cable and the Company.
10.19 (1) Form of Employment Agreement, dated October 17, 1991,
between David M. Siegel and the Company.
10.20 (1) Form of Employment Agreement, dated October 17, 1991,
between L.C. Albertson, Jr. and the Company.
10.21 (1) Form of Employment Agreement, dated October 17, 1991,
between Peter N. Hellmann and the Company.
10.22 (1) Form of Employment Agreement, dated October 17, 1991,
between Gerald P. Nordeman and the Company.
10.23 (1) Form of Employment Agreement, dated October 17, 1991,
between Charles W. Reynolds and the Company.
10.24 (1) Form of Employment Agreement, dated October 17, 1991,
between Lewis N. Wilmot and the Company.
10.25 (1) Form of Employment Agreement, dated October 17, 1991,
between Nancy M. Harlan and the Company.
10.26 (1) Form of Employment Agreement, dated October 17, 1991,
between Linda L. Foster and the Company.
10.27 (1) Form of Indemnity Agreement, dated October 18, 1991, between
the Company and Messrs. Lyon and Cable as Directors, and
dated December 12, 1991 as to the other Directors.
10.28 (1) Form of Registration Rights Agreement, dated October 7,
1991, between the Company and William Lyon.
10.29 (1) Form of Registration Rights Agreement, dated October 7,
1991, between the Company and each of the existing
stockholders other than William Lyon.
10.30 (1) 1991 Stock Option Plan.
10.31 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and Wade H. Cable.
10.32 (1) Secured Promissory Note, dated February 1, 1990, made by
Wade H. Cable in favor of the Company.
10.33 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and Wade H. Cable and
Susan M. Cable, Trustees of the Cable Family Trust Est.
7-11-88.
10.34 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and David M. Siegel.
10.35 (1) Secured Promissory Note, dated February 1, 1990, made by
David M. Siegel in favor of the Company.
10.36 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and David M. Siegel
and Linda A. Siegel, Trustees of the Siegel Family Trust
U/D/T Est. 6-20-89.
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10.37 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and L.C. Albertson, Jr.
10.38 (1) Secured Promissory Note, dated February 1, 1990, made by
L.C. Albertson, Jr. in favor of the Company.
10.39 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and Lloyd C.
Albertson, Jr. and Dorothy K. Albertson, Trustees of the
Lloyd C. Albertson, Jr. Family Trust Est. 6-15-79.
10.40 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and Charles W. Reynolds.
10.41 (1) Secured Promissory Note, dated February 1, 1990, made by
Charles W. Reynolds in favor of the Company.
10.42 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and Charles W.
Reynolds.
10.43 (1) Note and Pledge Agreement, dated February 1, 1990 between
the Company and Lewis N. Wilmot.
10.44 (1) Secured Promissory Note, dated February 1, 1990, made by
Lewis N. Wilmot in favor of the Company.
10.45 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and Lewis N. Wilmot.
10.46 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and G. Ross Crawford.
10.47 (1) Secured Promissory Note, dated February 1, 1990, made by G.
Ross Crawford in favor of the Company.
10.48 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and Gordon Ross
Crawford and Carol Georgia Crawford, Trustees of The
Crawford Family Trust Est. 5-26-83.
10.49 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and Alan D. Uman.
10.50 (1) Secured Promissory Note, dated February 1, 1990, made by
Alan D. Uman in favor of the Company.
10.51 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and Alan D. Uman.
10.52 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and C. Dean Stewart.
10.53 (1) Secured Promissory Note, dated February 1, 1990, made by C.
Dean Stewart in favor of the Company.
10.54 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and C. Dean Stewart.
10.55 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and Linda L. Foster.
10.56 (1) Secured Promissory Note, dated February 1, 1990, made by
Linda L. Foster in favor of the Company.
10.57 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991,between the Company and Linda L. Foster.
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10.58 (2) Second Amended and Restated Loan Agreement dated as of
January 31, 1992 between the Company, as Borrower, Security
Pacific National Bank, First Interstate Bank of California,
The Bank of California N.A., California Federal Bank, a
Federal Savings Institution and Continental Bank, N.A., as
the Banks, and Security Pacific Bank, as the Agent (the
"Second Amended Loan Agreement").
10.59 (2) Letter Agreement dated January 31, 1992 between Security
Pacific Bank, individually and as Agent for the Banks, and
the Company regarding Section 2.8 of the Second Amended Loan
Agreement.
10.60 (3) Agreement for Redemption of Partnership Interest dated
December 30, 1992 between Carmel Mountain Ranch, a
California general partnership, The Presley Companies, a
California corporation, Presley CMR, Inc., a California
corporation, Home Capital Corporation, a California
corporation and Humboldt Financial Services Corp., a
California corporation.
10.61 (3) Letter Waiver dated December 31, 1992 between the Company,
as Borrower, Bank of America National Trust and Savings
Association, Continental Bank, N.A., The Bank of California,
N.A., First Interstate Bank of California and California
Federal Bank, a Federal Savings Bank, as the Banks, and Bank
of America National Trust and Savings Association (as
successor by merger with Security Pacific National Bank) as
Agent.
10.62 (3) Amended Statement of Partnership of Carmel Mountain Ranch
dated December 30, 1992.
10.63 (3) Amendment to Amended and Restated Partnership Agreement of
Carmel Mountain Ranch dated December 29, 1992.
10.64 (3) Commitment Letter Extension Agreement dated January 18, 1993
between Horsethief Canyon Partners, as Borrower and First
Interstate Bank of California, as Lender.
10.65 (3) Fourth Modification of Note Agreement dated January 18, 1993
between Horsethief Canyon Partners, as Borrower and First
Interstate Bank of California, as Lender.
10.66 (3) Fifth Modification Agreement dated January 11, 1993 between
Carmel Mountain Ranch, as Borrower and Bank of America
National Trust and Savings Association and The Bank of
California, N.A., as Lenders.
10.67 (3) Conditional Forbearance Agreement dated January 29, 1993
between the Company, as Borrower, Bank of America National
Trust and Savings Association, Continental Bank, N.A., The
Bank of California, N.A., First Interstate Bank of
California and California Federal Bank, a Federal Savings
Bank, as the Banks, and Bank of America National Trust and
Savings Association (as successor by merger with Security
Pacific National Bank), as Agent (the "Conditional
Forbearance Agreement").
10.68 (3) Amendment to Conditional Forbearance Agreement dated March
26, 1993, effective March 31, 1993, between the Company, as
Borrower, Bank of America National Trust and Savings
Association, Continental Bank, N.A., The Bank of California,
N.A., First Interstate Bank of California and Foothill
Capital Corporation, as the Banks, and Bank of America
National Trust and Savings Association (as successor by
merger with Security Pacific National Bank), as Agent (the
"Amendment to Conditional Forbearance Agreement").
10.69 (3) Commitment Letter dated March 30, 1993 between the Company,
as Borrower, Bank of America National Trust and Savings
Association, Continental Bank, N.A., The Bank of California,
N.A., First Interstate Bank of California and Foothill
Capital Corporation, as the Banks, and Bank of America
National Trust and Savings Association (as successor by
merger with Security Pacific National Bank), as Agent (the
"Commitment Letter").
10.70 (3) Modification of Commitment Letter Extension Agreement dated
March 29, 1993 between Horsethief Canyon Partners, as
Borrower and First Interstate Bank of California, as Lender.
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10.71 (3) Fifth Modification of Note Agreement dated March 29, 1993
between Horsethief Canyon Partners, as Borrower and First
Interstate Bank of California, as Lender.
10.72 (3) Commitment Letter dated March 30, 1993 between Horsethief
Canyon Partners, as Borrower and First Interstate Bank of
California, as Lender.
10.73 (4) Second Amendment to Conditional Forbearance Agreement dated
April 29, 1993, between the Company, as Borrower, Bank of
America National Trust and Savings Association, Continental
Bank, N.A., The Bank of California, N.A., First Interstate
Bank of California and Foothill Capital Corporation, as the
Banks, and Bank of America National Trust and Savings
Association (as successor by merger with Security Pacific
National Bank), as Agent.
10.74 (4) Amendment to Commitment Letter dated April 29, 1993, between
the Company, as Borrower, Bank of America National Trust and
Savings Association, Continental Bank, N.A., The Bank of
California, N.A., First Interstate Bank of California and
Foothill Capital Corporation, as the Banks, and Bank of
America National Trust and Savings Association (as successor
by merger with Security Pacific National Bank), as Agent.
10.75 (4) Third Amended and Restated Loan Agreement dated as of May 7,
1993, between the Company, as Borrower, Bank of America
National Trust and Savings Association, Continental Bank,
N.A., The Bank of California, N.A. and Foothill Capital
Corporation, as the Lenders, and Bank of America National
Trust and Savings Association, as the Agent, and Bank of
America National Trust and Savings Association, as the Lead
Bank.
10.76 (4) Warrant Certificate dated as of May 7, 1993 for Warrants to
Purchase Common Stock issued to Bank of America Trust and
Savings Association.
10.77 (4) Warrant Certificate dated as of May 7, 1993 for Warrants to
Purchase Common Stock issued to Continental Bank, N.A.
10.78 (4) Warrant Certificate dated as of May 7, 1993 for Warrants to
Purchase Common Stock issued to The Bank of California, N.A.
10.79 (4) Warrant Certificate dated as of May 7, 1993 for Warrants to
Purchase Common Stock issued to Foothill Capital
Corporation.
10.80 (5) Amended and Restated Loan Agreement dated as of June 1, 1993
among Carmel Mountain Ranch, a California general
partnership, as the Borrower, Bank of America National Trust
and Savings Association and The Bank of California, N.A., as
the Banks and Bank of America National Trust and Savings
Association, as the Agent, and Bank of America National
Trust and Savings Association, as the Lead Bank.
10.81 (5) Commitment Letter Extension Agreement dated July 29, 1993
between Horsethief Canyon Partners, a California general
partnership, as the Borrower, and First Interstate Bank of
California.
10.82 (6) Second Amendment, dated as of September 23, 1993, to Third
Amended and Restated Loan Agreement dated as of May 7, 1993,
between The Presley Companies, a California corporation, as
the Borrower, Bank of America National Trust and Savings
Association, Foothill Capital Corporation, Mellon Bank, N.A.
as Trustee of First Plaza Group Trust, a New York trust, and
Foothill Capital Corporation (as successors by assignment of
the interest of The Bank of California, N.A.) and Pearl
Street L.P. (c/o Goldman, Sachs & Co.), and Internationale
Nederlanden (U.S.) Capital Corporation (previously known as
ING Bank) (as successors by assignment of the interest of
Continental Bank, N.A.), as the Lenders, and Bank of America
National Trust and Savings Association, as the Agent and the
Lead Bank.
10.83 (7) Third Amendment dated as of December 30, 1993 among The
Presley Companies, a California corporation (the Borrower),
the lending parties to the Third Amended and Restated Loan
Agreement dated as of May 7, 1993 and Bank of America
National Trust and Savings Association, as agent and lead
bank for the lenders thereunder.
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10.84 (7) Fourth Amendment dated as of February 2, 1994 among The
Presley Companies, a California corporation (the Borrower),
the lending parties to the Third Amended and Restated Loan
Agreement dated as of May 7, 1993, and Foothill Capital
Corporation, as agent for the lenders thereunder.
10.85 (7) Fourth Amended and Restated Loan Agreement dated as of March
25, 1994 among The Presley Companies, a California
corporation (the Borrower), Foothill Capital Corporation
("Foothill"), Continental Illinois Commercial Corporation,
First Plaza Group Trust (Mellon Bank, N.A., acting as
trustee as directed by General Motors Investment Management
Corporation), Pearl Street, L.P., International Nederlanden
(U.S.) Capital Corporation, and Whippoorwill/Presley
Obligations Trust -- 1994 (Continental Stock Transfer &
Trust Company, as trustee under that certain trust agreement
dated as of January 11, 1994), as the lenders, and Foothill,
as the Agent for the Lenders under the Loan Documents.
10.86 (7) Agreement to Issue and Purchase Stock as dated for reference
purposes the 25th day of March, 1994 by and among The
Presley Companies, a Delaware corporation, and Foothill
Capital Corporation, Continental Illinois Commercial
Corporation, First Plaza Group Trust (Mellon Bank, N.A.,
acting as trustee as directed by General Motors Investment
Management Corporation), Pearl Street, L.P., International
Nederlanden (U.S.) Capital Corporation, and
Whippoorwill/Presley Obligations Trust -- 1994 (Continental
Stock Transfer & Trust Company, as trustee under that
certain trust agreement dated as of January 11, 1994).
10.87 (8) First Amendment to the Agreement to Issue and Purchase Stock
dated as of April 8, 1994 by and among The Presley
Companies, a Delaware corporation, and Foothill Capital
Corporation, Continental Illinois Commercial Corporation,
First Plaza Group Trust (Mellon Bank, N.A., acting as
trustee as directed by General Motors Investment Management
Corporation), Pearl Street, L.P., International Nederlanden
(U.S.) Capital Corporation, and Whippoorwill/Presley
Obligations Trust -- 1994 (Continental Stock Transfer &
Trust Company, as trustee under that certain trust agreement
dated as of January 11, 1994).
10.88 (9) First Amendment to the Fourth Amended and Restated Loan
Agreement and Second Amendment to the Agreement to Issue and
Purchase Stock dated as of May 20, 1994 by and among The
Presley Companies, a Delaware corporation. The Presley
Companies, a California corporation, and Foothill Capital
Corporation, individually and as Agent, Continental Illinois
Commercial Corporation, First Plaza Group Trust (Mellon
Bank, N.A., acting as trustee as directed by General Motors
Investment Management Corporation), Pearl Street, L.P.,
International Nederlanden (U.S.) Capital Corporation, and
Whippoorwill/Presley Obligations Trust -- 1994 (Continental
Stock Transfer & Trust Company, as trustee under that
certain trust agreement dated as of January 11, 1994).
10.89 (9) Second Amendment to the Fourth Amended and Restated Loan
Agreement dated as of May 31, 1994 by and among The Presley
Companies, a California corporation, Foothill Capital
Corporation, individually and as agent, First Plaza Group
Trust (Mellon Bank, N.A., acting as trustee as directed by
General Motors Investment Management Corporation), Pearl
Street, L.P., International Nederlanden (U.S.) Capital
Corporation, and Whippoorwill/ Presley Obligations
Trust -- 1994 (Continental Stock Transfer & Trust Company,
as trustee under that certain trust agreement dated as of
January 11, 1994).
10.90 (8) Form of Shareholders' Agreement dated as of May 20, 1994, by
and among The Presley Companies, a Delaware corporation,
each of the holders of shares of the Series B Common Stock
and certain holders of shares of the Series A Common Stock.
10.91 (8) Form of Registration Rights Agreement dated as of May 20,
1994, by and among The Presley Companies, a Delaware
corporation and each of the holders of shares of the Series
B Common Stock.
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10.92 (8) Amended and Restated 1991 Stock Option Plan of The Presley
Companies, a Delaware corporation.
10.93 (9) Forms of Stock Option Agreements, dated as of May 20, 1994,
between the Company and Wade H. Cable.
10.94 (9) Forms of Stock Option Agreements, dated as of May 20, 1994,
between the Company and David M. Siegel.
10.95 (9) Forms of Stock Option Agreements, dated as of May 20, 1994,
between the Company and L.C. Albertson, Jr.
10.96 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and Gerald P. Nordeman.
10.97 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and Charles W. Reynolds.
10.98 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and Lewis N. Wilmot.
10.99 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and Nancy M. Harlan.
10.100 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and Linda L. Foster.
10.101 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and W. Douglass Harris.
10.102 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and C. Dean Stewart.
10.103 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and G. Ross Crawford.
10.104 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and Alan Uman.
10.105 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and William Lyon.
10.106 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between Wade H. Cable and the Company.
10.107 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between David M. Siegel and the Company.
10.108 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between L.C. Albertson, Jr. and the
Company.
10.109 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between Gerald P. Nordeman and the Company.
10.110 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between Charles W. Reynolds and the
Company.
10.111 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between Lewis N. Wilmot and the Company.
10.112 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between Nancy M. Harlan and the Company.
10.113 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between Linda L. Foster and the Company.
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10.114 (9) Form of Employment Agreement, dated as of May 20, 1994,
between W. Douglass Harris and the Company.
10.115 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between C. Dean Stewart and the Company.
10.116 (8) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between G. Ross Crawford and the Company.
10.117 (8) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between Alan Uman and the Company.
10.118 (10) Third Amendment of Fourth Amended and Restated Loan
Agreement, dated for reference purposes June 30, 1994, by
and among (i) The Presley Companies, a California
corporation, as the borrower, (ii) Foothill Capital
Corporation ("Foothill"), First Plaza Group Trust (Mellon
Bank, N.A., acting as trustee as directed by General Motors
Investment Management Corporation), Pearl Street, L.P.,
International Nederlanden (U.S.) Capital Corporation, and
Whippoorwill/Presley Obligations Trust -- 1994 (Continental
Stock Transfer & Trust Company, as trustee under that
certain trust agreement dated as of January 11, 1994), as
the lenders, and Foothill, as the agent for the lenders.
10.119 (10) Agreement and Assignment; Mutual Releases, as of August 23,
1994, by and between Gateway Highlands, a California limited
partnership, HSP Inc., a California corporation and The
Presley Companies, a California corporation.
10.120 (11) Master Credit Agreement by and between Carmel Mountain
Ranch, a California general partnership and Bank One,
Arizona, N.A., a national banking association dated as of
February 15, 1995.
10.121 (12) Fifth Amendment to Fourth Amended and Restated Loan
Agreement, dated for reference purposes June 30, 1995, by
and among (i) The Presley Companies, a California
corporation, as the borrower, (ii) Foothill Capital
Corporation ("Foothill"), First Plaza Group Trust (Mellon
Bank, N.A., acting as trustee as directed by General Motors
Investment Management Corporation), Internationale
Nederlanden (U.S.) Capital Corporation, and
Whippoorwill/Presley Obligations Trust -- 1994 (Continental
Stock Transfer & Trust Company, as trustee under that
certain trust agreement dated as of January 11, 1994), as
the lenders, and (iii) Foothill, as the Agent for the
Lenders.
10.122 (13) Commitment Letter and Settlement Agreement dated September
11, 1995 by and among First Interstate Bank of California,
Horsethief Canyon Partners, a California general partnership
("Borrower"), and The Presley Companies, a California
corporation, the Borrower's managing general partner.
10.123 (13) Master Credit Agreement by and between The Presley
Companies, a California corporation, and Bank One, Arizona,
NA, a national banking association, dated as of October 10,
1995.
10.124 (13) First Amendment to Master Credit Agreement by and between
Carmel Mountain Ranch, a California general partnership and
Bank One, Arizona, NA dated as of October 10, 1995.
10.125 (14) Master Credit Agreement by and between Horsethief Canyon
Partners, a California general partnership ("Borrower"), and
Bank One, Arizona, NA, a national banking association
("Bank"), dated as of October 4, 1996.
10.126 (14) Amendment to Master Credit Agreement and Secured Promissory
Note by and between Presley Homes (formerly known as The
Presley Companies), a California corporation ("Borrower"),
and Bank One, Arizona, NA, a national banking association
("Bank"), dated as of October 4, 1996.
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10.127 (14) Second Amendment to Master Credit Agreement and Secured
Promissory Note by and between Carmel Mountain Ranch, a
California general partnership ("Borrower"), and Bank One,
Arizona, NA, a national banking association ("Bank"), dated
as of October 4, 1996.
10.128 (15) Notice of Exercise of Option for Extension of Termination
Date dated as of April 18, 1997 under that certain Fourth
Amended and Restated Loan Agreement dated as of March 25,
1994 between The Presley Companies, a California
corporation, as the borrower, Foothill Capital Corporation,
Mellon Bank, N.A., as Trustee of First Plaza Group Trust, a
New York trust, Pearl Street L.P. (c/o Goldman, Sachs &
Co.), Internationale Nederlanden (U.S.) Capital Corporation,
and Continental Stock Transfer & Trust Company, as Trustee
for the Whippoorwill/Presley Obligations Trust -1994, as the
Lenders, and Foothill Capital Corporation, as the Agent and
Lead Bank.
10.129 (16) Sixth Amendment to Fourth Amended and Restated Loan
Agreement, dated for reference purposes June 30, 1997, by
and among (i) Presley Homes, formerly The Presley Companies,
a California corporation, as the borrower, (ii) Foothill
Capital Corporation, First Plaza Group Trust (Mellon Bank,
N.A., acting as trustee as directed by General Motors
Investment Management Corporation), Internationale
Nederlanden (U.S.) Capital Corporation, and
Whippoorwill/Presley Obligations Trust -- 1994 (Continental
Stock Transfer & Trust Company, as trustee under that
certain trust agreement dated as of January 11, 1994), as
the Lenders, and Foothill Capital Corporation, as the Agent
for the Lenders.
10.130 (17) Third Amendment to Master Credit Agreement, dated as of
September 25, 1997, by and between Carmel Mountain Ranch, a
California general partnership ("Borrower"), and Bank One,
Arizona, NA, a national banking association ("Bank").
21.1 List of Subsidiaries of the Company.
27 Financial Data Schedule.
</TABLE>
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(1) Previously filed in connection with the Company's Registration Statement on
Form S-1, and amendments thereto, (S.E.C. Registration No. 33-42161) and
incorporated herein by this reference.
(2) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1992 and incorporated herein
by this reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992 and incorporated herein by this
reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1993 and incorporated herein
by this reference.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1993 and incorporated herein
by this reference.
(6) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1993 and incorporated
herein by this reference.
(7) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993 and incorporated herein by this
reference.
(8) Previously filed as an exhibit to the Company's Proxy Statement for Annual
Meeting of Stockholders held on May 20, 1994 and incorporated herein by
this reference.
(9) Previously filed in connection with the Company's Registration Statement on
Form S-1, and amendments thereto (S.E.C. Registration No. 33-79088) and
incorporated herein by this reference.
(10) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1994 and incorporated
herein by this reference.
(11) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1995 and incorporated herein
by this reference.
(12) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1995 and incorporated herein
by this reference.
(13) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1995 and incorporated
herein by this reference.
31
<PAGE> 34
(14) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1996 and incorporated
herein by this reference.
(15) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1997.
(16) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997.
(17) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1997.
(b) Reports on Form 8-K
DECEMBER 9, 1997. A Report on Form 8-K was filed by the Company in
reference to the repurchase and cancelation of $20,000,000 principal amount
of 12 1/2% Senior Notes due 2001, as well as the sale of $10,000,000
principal amount of 12 1/2% Senior Notes due 2001 held by the Company in
treasury.
FEBRUARY 6, 1998. A Report on Form 8-K was filed by the Company in
reference to the issuance of 2,677,836 shares of its Series A Common Stock
as a result of the conversion of a like number of shares of its Series B
Common Stock.
32
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE PRESLEY COMPANIES
By: /s/ DAVID M. SIEGEL
------------------------------------
David M. Siegel
Senior Vice President,
Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
WILLIAM LYON Chairman of the Board and March 24, 1998
- ----------------------------------------------------- Director
William Lyon
WADE H. CABLE Director, Chief Executive March 24, 1998
- ----------------------------------------------------- Officer and President
Wade H. Cable (Principal Executive Officer)
JAMES E. DALTON Director March 24, 1998
- -----------------------------------------------------
James E. Dalton
GREGORY P. FLYNN Director March 24, 1998
- -----------------------------------------------------
Gregory P. Flynn
Director March 24, 1998
- -----------------------------------------------------
Charles Froland
STEVEN B. SAMPLE Director March 24, 1998
- -----------------------------------------------------
Steven B. Sample
KAREN SANDLER Director March 24, 1998
- -----------------------------------------------------
Karen Sandler
MARSHALL E. STEARNS Director March 24, 1998
- -----------------------------------------------------
Marshall E. Stearns
RAY A. WATT Director March 24, 1998
- -----------------------------------------------------
Ray A. Watt
DAVID M. SIEGEL Senior Vice President, Chief March 24, 1998
- ----------------------------------------------------- Financial Officer and Treasurer
David M. Siegel (Principal Financial Officer)
W. DOUGLASS HARRIS Vice President and Corporate March 24, 1998
- ----------------------------------------------------- Controller (Principal
W. Douglass Harris Accounting Officer)
</TABLE>
33
<PAGE> 36
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
THE PRESLEY COMPANIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
REQUIRED SCHEDULES
Schedules are omitted as the required information is not present, is not present
in sufficient amounts, or is included in the Consolidated Financial Statements
or Notes thereto.
F-1
<PAGE> 37
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
The Presley Companies
We have audited the accompanying consolidated balance sheets of The Presley
Companies as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Presley
Companies at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Newport Beach, California
February 18, 1998
F-2
<PAGE> 38
THE PRESLEY COMPANIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT NUMBER OF SHARES AND PAR VALUE PER SHARE)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 4,569 $ 4,550
Receivables -- Note 3....................................... 8,652 4,225
Real estate inventories -- Notes 1 and 4.................... 255,472 306,381
Investments in and advances to unconsolidated joint
ventures -- Note 5........................................ 7,077 --
Property and equipment, less accumulated depreciation of
$2,339 and $1,432 at December 31, 1997 and 1996,
respectively.............................................. 3,613 3,047
Deferred loan costs -- Note 1............................... 3,266 4,347
Other assets................................................ 2,595 9,065
-------- --------
$285,244 $331,615
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable............................................ $ 12,854 $ 18,428
Accrued expenses............................................ 23,136 20,450
Notes payable -- Note 6..................................... 74,935 18,524
12 1/2% Senior Notes Due 2001 -- Note 6..................... 180,000 190,000
-------- --------
290,925 247,402
-------- --------
Commitments and contingencies -- Note 10
Stockholders' equity (deficit) -- Notes 2 and 7
Common stock:
Series A common stock, par value $.01 per share;
100,000,000 shares authorized; 17,838,535 issued and
outstanding at December 31, 1997 and 1996,
respectively.......................................... 178 178
Series B restricted voting convertible common stock,
par value $.01 per share; 50,000,000 shares
authorized; 34,357,143 shares issued and outstanding
at December 31, 1997 and 1996, respectively........... 344 344
Additional paid-in capital................................ 114,599 114,599
Accumulated deficit from January 1, 1994.................. (120,802) (30,908)
-------- --------
(5,681) 84,213
-------- --------
$285,244 $331,615
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 39
THE PRESLEY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Sales
Homes..................................................... $ 307,332 $ 317,366 $ 231,204
Lots, land and other...................................... 22,610 1,631 54,301
--------- --------- ---------
329,942 318,997 285,505
--------- --------- ---------
Operating costs
Cost of sales -- homes.................................... (278,299) (279,988) (210,808)
Cost of sales -- lots, land and other..................... (23,902) (1,991) (55,703)
Impairment loss on real estate assets -- Note 1........... (74,000) -- (16,811)
Reduction of real estate assets to estimated net
realizable value -- Note 1............................. -- -- (9,400)
Sales and marketing....................................... (22,279) (22,877) (21,400)
General and administrative................................ (15,996) (13,978) (12,718)
--------- --------- ---------
(414,476) (318,834) (326,840)
--------- --------- ---------
Operating income (loss)..................................... (84,534) 163 (41,335)
Interest expense, net of amounts capitalized -- Note 6...... (7,812) (2,256) (2,226)
Other income (expense), net................................. 2,452 2,245 1,908
--------- --------- ---------
Income (loss) before income taxes and extraordinary item.... (89,894) 152 (41,653)
Credit for income taxes -- Note 8........................... -- -- 1,868
--------- --------- ---------
Income (loss) before extraordinary item..................... (89,894) 152 (39,785)
Extraordinary item -- gain from retirement of debt, net of
applicable income taxes of $1,868 -- Note 9............... -- -- 2,688
--------- --------- ---------
Net income (loss)........................................... $ (89,894) $ 152 $ (37,097)
========= ========= =========
Basic and diluted earnings per common share: -- Note 1
Before extraordinary item................................. $ (1.72) $ -- $ (0.76)
Extraordinary item........................................ -- -- 0.05
--------- --------- ---------
After extraordinary item.................................. $ (1.72) $ -- $ (0.71)
========= ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE> 40
THE PRESLEY COMPANIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
EARNINGS
COMMON STOCK (ACCUMULATED
--------------------------------- DEFICIT
SERIES A SERIES B ADDITIONAL FROM)
--------------- --------------- PAID-IN JANUARY 1,
SHARES AMOUNT SHARES AMOUNT CAPITAL 1994 TOTAL
------ ------ ------ ------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- December 31,
1994........................ 17,839 $178 34,357 $344 $ 114,599 $ 6,037 $121,158
Net loss...................... -- -- -- -- -- (37,097) (37,097)
------ ---- ------ ---- --------- --------- --------
Balance -- December 31,
1995........................ 17,839 178 34,357 344 114,599 (31,060) 84,061
Net income.................... -- -- -- -- -- 152 152
------ ---- ------ ---- --------- --------- --------
Balance -- December 31,
1996........................ 17,839 178 34,357 344 114,599 (30,908) 84,213
Net loss...................... -- -- -- -- -- (89,894) (89,894)
------ ---- ------ ---- --------- --------- --------
Balance -- December 31,
1997........................ 17,839 $178 34,357 $344 $ 114,599 $(120,802) $ (5,681)
====== ==== ====== ==== ========= ========= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 41
THE PRESLEY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income (loss)........................................ $(89,894) $ 152 $(37,097)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 907 585 463
Reduction of certain real estate assets to estimated
net realizable value................................ -- -- 9,400
Impairment loss on real estate assets................. 74,000 -- 16,811
Gain from retirement of debt, before applicable income
taxes............................................... -- -- (4,556)
Provision for uncollectible notes receivable.......... -- 145 --
Net changes in operating assets and liabilities:
Other receivables................................... (4,273) (778) 2,809
Real estate inventories............................. (680) 11,409 40,309
Deferred loan costs................................. 1,081 1,019 1,196
Other assets........................................ 6,470 (3,386) (2,270)
Accounts payable.................................... (5,574) 7,877 1,403
Accrued expenses.................................... 3,819 (1,437) (727)
-------- -------- --------
Net cash provided by (used in) operating activities...... (14,144) 15,586 27,741
-------- -------- --------
Investing activities
Investment in joint ventures............................. (7,077) -- --
Issuance of notes receivable............................. (637) -- (2,175)
Principal payments on notes receivable................... 483 1,712 2,529
Purchases of property and equipment...................... (1,473) (1,055) (794)
-------- -------- --------
Net cash provided by (used in) investing activities...... (8,704) 657 (440)
-------- -------- --------
Financing activities
Proceeds from borrowings on notes payable................ 171,964 107,891 75,339
Principal payments on notes payable...................... (139,097) (123,801) (94,851)
Retirement of debt....................................... (20,000) -- (24,215)
Sale of Senior Notes held in treasury.................... 10,000 -- --
-------- -------- --------
Net cash provided by (used in) financing activities...... 22,867 (15,910) (43,727)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 19 333 (16,426)
Cash and cash equivalents -- beginning of period........... 4,550 4,217 20,643
-------- -------- --------
Cash and cash equivalents -- end of period................. $ 4,569 $ 4,550 $ 4,217
======== ======== ========
Supplemental disclosures of cash flow and non-cash
financing activities
Cash paid during the period for interest, net of amounts
capitalized........................................... $ 7,277 $ 2,517 $ 2,018
======== ======== ========
Issuance of notes payable for land acquisitions.......... $ 22,411 $ -- $ --
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 42
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
The Presley Companies (the "Company") is primarily engaged in designing,
constructing and selling single family detached and attached homes in
California, Arizona, New Mexico and Nevada.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and all majority-owned or controlled subsidiaries and joint ventures. The equity
interests of other partners are reflected as minority partners' interest. All
significant intercompany accounts and transactions have been eliminated.
Investments in unconsolidated joint ventures in which the Company has less than
a controlling interest are accounted for using the equity method. The accounting
policies of the joint ventures are substantially the same as those of the
Company. Certain balances on the consolidated balance sheet as of December 31,
1996 have been reclassified to be consistent with the classification presented
in the consolidated balance sheet as of December 31, 1997.
Real Estate Inventories and Related Indebtedness
Real estate inventories are carried at cost net of impairment losses and
real estate valuation adjustments. Real estate inventories consist primarily of
raw land, lots under development, houses under construction and completed
houses. All direct and indirect land costs, offsite and onsite improvements and
applicable interest and other carrying charges are capitalized to real estate
projects during periods when the project is under development. Land and
improvement costs are allocated within a project utilizing a method that
approximates relative value. Selling expenses and other marketing costs are
expensed in the period incurred. A provision for warranty costs relating to the
Company's limited warranty plans is included in cost of sales at the time the
sale of a home is recorded. The Company normally reserves one percent of the
sales price of its homes against the possibility of future charges relating to
its one-year limited warranty and similar potential claims.
Interest incurred under the Working Capital Facility, the Senior Notes and
other notes payable, as more fully discussed in Note 6, is generally first
capitalized to real estate projects under development. Excess interest charges
related to real estate projects not under development are expensed in the period
incurred.
In March 1995, the Financial Accounting Standards Board (FASB) issued
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 new
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. This was a significant change from the previous accounting standard that
required homebuilders to carry real estate assets at the lower of cost or net
realizable value. The net loss for the year ended December 31, 1997 included a
non-cash charge of $74,000,000 to record impairment losses on certain of the
Company's real estate assets. The net loss for the year ended December 31, 1995
included a non-cash charge of $16,811,000 to record impairment losses on certain
of the Company's real estate assets.
Fair value represents the amount at which an asset could be bought or sold
in a current transaction between willing parties, that is, other than a forced
or liquidation sale. The estimation process involved in determining if assets
have been impaired and in the determination of fair value is inherently
uncertain since it requires estimates of current market yields as well as future
events and conditions. Such future events and
F-7
<PAGE> 43
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
conditions include economic and market conditions, as well as the availability
of suitable financing to fund development and construction activities. The
realization of the Company's real estate projects is dependent upon future
uncertain events and conditions and, accordingly, the actual timing and amounts
realized by the Company may be materially different from the estimated fair
values as described herein.
Prior to the adoption of Statement No. 121, 1995, the Company evaluated its
real estate inventories to determine if such assets were stated at the lower of
cost or estimated net realizable value, as required by the then applicable
accounting pronouncements. The evaluations considered the depressed nature of
the real estate business in the Company's principal markets, the reduced demand
from prospective homebuyers, decreased sales prices, increased sales incentives,
future costs of development and holding costs during development. Based on these
evaluations, reductions of certain real estate assets to estimated net
realizable value amounting to $9,400,000 were recorded during 1995.
Interest incurred during the period in which real estate projects are not
under development or during the period subsequent to the completion of projects
are expensed in the period incurred. Economic conditions in the real estate
industry can cause a delay in the development of certain real estate projects
and, as a result, can lengthen the periods when such projects are not under
development and, accordingly, have a significant impact on profitability as a
result of expensed interest. Interest expensed during 1997, 1996 and 1995 was
approximately $7,812,000, $2,256,000 and $2,226,000, respectively.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives ranging from three to
thirty-five years. Leasehold improvements are stated at cost and are amortized
using the straight-line method over the shorter of either their estimated useful
lives or term of the lease.
Deferred Loan Costs
Deferred loan costs are amortized over the term of applicable loans using a
method which approximates the interest method. Included in deferred loan costs
at December 31, 1997 and 1996, net of related amortization, are $2,958,000 and
$4,259,000, respectively, of costs associated with the issuance of the Company's
Senior Notes.
Sales and Profit Recognition
A sale is generally recorded and profit recognized when title has passed to
a buyer who has met down payment and continuing investment criteria in
accordance with the provisions of Statement of Financial Accounting Standards
No. 66, "Accounting for Sales of Real Estate." When it is determined that the
earnings process is not complete, unearned profit is deferred for recognition in
future periods.
Income Taxes
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Financial Instruments
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash investments, receivables, and
deposits. The Company typically places its cash investments in investment grade
short-term instruments. Collateral on first trust deed notes receivable is
primarily located in Southern
F-8
<PAGE> 44
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
California and Arizona. Deposits, included in other assets, are due from
municipalities or utility companies and are generally collected from such
entities through fees assessed to other developers.
For those instruments, as defined under Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments," for
which it is practical to estimate fair value, management has determined that the
carrying amounts of the Company's financial instruments approximate their fair
value at December 31, 1997, except for the 12 1/2% Senior Notes as described in
Note 6.
The Company is an issuer of, or subject to, financial instruments with
off-balance sheet risk in the normal course of business which exposes it to
credit risks. These financial instruments include letters of credit and
obligations in connection with assessment district bonds. These off-balance
sheet financial instruments are described in the applicable Notes.
Cash and Cash Equivalents
Short-term investments with a maturity of three months or less when
purchased are considered cash equivalents.
Basic and Diluted Earnings Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share ("Statement No. 128") which replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. All earnings per share amounts for all periods presented conform to
Statement No. 128 requirements. Basic and diluted earnings per common share for
each of the three years in the period ended December 31, 1997 are based on
52,195,678 shares of Series A and Series B common stock outstanding.
Use of Estimates
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 December 31, 1997 and 1996 and revenues and expenses for each of the three
years in the period ended December 31, 1997. Accordingly, actual results could
differ from those estimates in the near-term.
NOTE 2 -- CAPITAL RESTRUCTURING AND QUASI-REORGANIZATION
On March 28, 1994 the Company's Board of Directors approved a Plan for
Capital Restructuring, which was approved by the Company's Stockholders at the
Annual Meeting of Stockholders held on May 20, 1994.
In accordance with the Plan for Capital Restructuring, on March 29, 1994
the Company executed a definitive agreement with its lenders to restructure the
Company's $340,000,000 revolving line of credit. The Plan was approved at the
Company's Annual Meeting held on May 20, 1994 and on that date the lender group
under the Company's Revolving Debt Facility (see Note 6) converted $95,000,000
of outstanding debt under the Revolving Facility to equity through the issuance
of 43,166,667 shares of a new series of common stock representing initially 70%
of the outstanding shares of all series of common stock of the Company. As
provided in the agreement with its lenders, when the Company completed its
Senior Notes Offering of $200,000,000 on June 29, 1994, as described below, the
lending group returned to the Company a total of 8,809,524 shares of the new
series of common stock, reducing their aggregate equity interest in the Company
to 65% from 70%. In order to implement the Plan for Capital Restructuring, the
Company's Certificate of Incorporation was amended to redesignate existing
common stock as Series A Common Stock (the "Series A Common"), to establish a
second series of common stock which was issued to the lender group (the "Series
B Common"),
F-9
<PAGE> 45
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and to increase the number of directors of the Company to nine, of which six are
elected by holders of outstanding shares of Series A Common, and the remaining
three are elected by the holders of outstanding shares of Series B Common.
Concurrent with the conversion of debt to equity, under the Plan for
Capital Restructuring, the Revolving Debt Facility was reduced by $95,000,000 to
a total of $245,000,000, comprised of a $150,000,000 term facility ("the Term
Facility") and a $95,000,000 working capital facility ("the Working Capital
Facility"), each described below (collectively, "the Debt Facilities"). In
addition the lender group increased the Working Capital Facility by $20,000,000
to a total of $115,000,000. Revolving credit loans under the Working Capital
Facility may be borrowed, repaid and reborrowed from time to time prior to the
termination date of the Working Capital Facility. The lender group had therefore
provided Debt Facilities totaling $265,000,000 to the Company.
As described more fully in Note 6, the Company filed with the Securities
and Exchange Commission a Registration Statement on Form S-1 for the sale of
$200,000,000 of Senior Notes which became effective on June 23, 1994. The
offering closed on June 29, 1994 and was fully subscribed and issued. The Term
Facility was repaid in full and the Working Capital Facility was reduced by
$43,000,000 from a portion of the proceeds from the issuance of the Senior
Notes.
The terms of the Working Capital Facility are described more fully in Note
6.
The Series B Common ranks pari passu with the Series A Common in any
liquidation of the Company. The Company may not declare or pay any dividends on
the Series A Common unless equal dividends are declared and paid on the Series B
Common.
The Series B Common became convertible into Series A Common on a
share-for-share basis at the option of the holder from and after May 20, 1997.
On January 30, 1998, the Company issued an aggregate 2,677,836 shares of its
Series A Common Stock as a result of the conversion of a like number of shares
of its Series B Common Stock.
As part of the Plan for Capital Restructuring, the Company's Board of
Directors also approved a Plan for Quasi-Reorganization retroactive to January
1, 1994. The Company implemented the quasi-reorganization at that time because
it was implementing a substantial change in its capital structure in accordance
with the Plan for Capital Restructuring. A quasi-reorganization allows certain
companies which are undergoing a substantial change in capital structure to
utilize "fresh start accounting."
Under the Plan for Quasi-Reorganization, the Company implemented an overall
accounting readjustment effective January 1, 1994, which resulted in the
adjustment of assets and liabilities to estimated fair values, and the
elimination of the accumulated deficit. The net amount of such revaluation
adjustments and costs related to the capital restructuring, together with the
accumulated deficit as of the date thereof, was transferred to paid-in capital
in accordance with the accounting principles applicable to
quasi-reorganizations.
The estimation process involved in the determination of the fair value of
those assets as to which an adjustment was made is inherently uncertain since it
required estimates and assumptions as to future events and conditions. Such
future events and conditions include economic and market conditions, the
availability and cost of governmental entitlements necessary to develop and
build product, the cost of financing to fund development and construction
activities, and the availability and cost of labor and materials necessary to
develop, build and sell product.
Because the amount and timing of the realization of the investments by the
Company and its subsidiaries in their respective real estate projects are
dependent upon such future uncertain events and conditions, the actual timing
and amounts may be materially different from the estimates and assumptions used
in determining fair value estimates utilized for purposes of the Plan for
Quasi-Reorganization.
F-10
<PAGE> 46
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The quasi-reorganization affects the comparability of operating statements
for periods beginning after December 31, 1993 with those for periods beginning
on or before December 31, 1993. Moreover, any income tax benefits resulting from
the utilization of net operating loss and other carryforwards existing at
January 1, 1994 and temporary differences resulting from the
quasi-reorganization, are excluded from the results of operations and credited
to paid-in capital.
F-11
<PAGE> 47
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effect of the capital restructuring and quasi-reorganization on the
consolidated balance sheet as of December 31, 1993 is as follows as of January
1, 1994 (in thousands except number of shares and par value per share):
<TABLE>
<CAPTION>
HISTORICAL
BALANCE ADJUSTMENTS BALANCE
SHEET ----------------------------------- SHEET
DECEMBER 31, DEBT QUASI- JANUARY 1,
1993 CONVERSION (A) REORGANIZATION (B) 1994
------------ -------------- ------------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................. $ 26,632 $ -- $ -- $ 26,632
Receivables............................... 10,591 -- -- 10,591
Real estate inventories................... 439,548 -- (65,500) 374,048
Property and equipment.................... 1,632 -- -- 1,632
Deferred loan costs....................... 835 -- -- 835
Other assets.............................. 6,176 -- -- 6,176
-------- -------- --------- --------
$485,414 $ -- $ (65,500) $419,914
======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.......................... $ 8,440 $ -- $ -- $ 8,440
Accrued expenses.......................... 15,190 -- -- 15,190
Notes payable............................. 372,198 (95,000) -- 277,198
Minority partners' interest............... 8,196 -- -- 8,196
-------- -------- --------- --------
404,024 (95,000) -- 309,024
-------- -------- --------- --------
Stockholders' equity
Common stock:
Common stock, par value $.01 per
share; 100,000,000 shares
authorized; 18,500,000 shares
issued and outstanding (designated
as Series A common stock at January
1, 1994)........................... 185 -- -- 185
Series B restricted voting
convertible common stock, par value
$.01 per share; 50,000,000 shares
authorized; 43,166,667 shares
issued and outstanding at January
1, 1994............................ -- 432 -- 432
Additional paid-in capital.............. 155,474 94,568 (136,778) 113,264
Promissory notes related to management
stock................................ (2,991) -- -- (2,991)
Retained earnings (accumulated
deficit)............................. (71,278) -- 71,278 --
-------- -------- --------- --------
81,390 95,000 (65,500) 110,890
-------- -------- --------- --------
$485,414 $ -- $ (65,500) $419,914
======== ======== ========= ========
</TABLE>
- ---------------
(A) To reflect the conversion of $95,000,000 of the Company's Revolving Debt
Facility to equity through the issuance of 43,166,667 shares of Series B
common stock.
(B) To reflect the readjustment of the Company's accounts to estimated fair
values and the elimination of the accumulated deficit against additional
paid-in capital as of January 1, 1994.
F-12
<PAGE> 48
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- RECEIVABLES
Receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------ ------
<S> <C> <C>
First trust deed notes secured by real estate sold, interest
rates generally ranging from 8.00% to 12.00%.............. $1,165 $ 930
Other notes receivable...................................... 147 228
------ ------
1,312 1,158
Other receivables -- primarily escrow proceeds.............. 7,340 3,067
------ ------
$8,652 $4,225
====== ======
</TABLE>
Notes receivable as of December 31, 1997 mature through 2010 approximately
as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 661
1999........................................................ --
2000........................................................ 638
2001........................................................ --
2002........................................................ --
Thereafter.................................................. 13
------
$1,312
======
</TABLE>
NOTE 4 -- REAL ESTATE INVENTORIES
Real estate inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------------
COMPLETED
LAND AND INVENTORY, INCLUDING
CONSTRUCTION COMPLETED LOTS
REGION IN PROGRESS HELD FOR SALE MODELS TOTAL
------ ------------ -------------------- ------- --------
<S> <C> <C> <C> <C>
Southern California........................... $ 34,362 $11,241 $ 2,940 $ 48,543
San Diego..................................... 46,424 1,116 2,740 50,280
Northern California........................... 87,931 5,060 2,529 95,520
Arizona....................................... 21,613 5,227 1,545 28,385
New Mexico.................................... 8,766 2,903 1,584 13,253
Nevada........................................ 15,392 3,147 -- 18,539
Illinois...................................... 952 -- -- 952
-------- ------- ------- --------
$215,440 $28,694 $11,338 $255,472
======== ======= ======= ========
</TABLE>
F-13
<PAGE> 49
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------------------
COMPLETED
LAND AND INVENTORY, INCLUDING
CONSTRUCTION COMPLETED LOTS
REGION IN PROGRESS HELD FOR SALE MODELS TOTAL
------ ------------ -------------------- ------ --------
<S> <C> <C> <C> <C>
Southern California............................ $118,953 $15,621 $3,383 $137,957
San Diego...................................... 34,931 1,282 -- 36,213
Northern California............................ 81,945 5,160 3,530 90,635
Arizona........................................ 17,533 3,486 1,098 22,117
New Mexico..................................... 7,643 713 1,256 9,612
Nevada......................................... 6,998 1,477 409 8,884
Illinois....................................... 963 -- -- 963
-------- ------- ------ --------
$268,966 $27,739 $9,676 $306,381
======== ======= ====== ========
</TABLE>
NOTE 5 -- INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES
The Company and certain of its subsidiaries are general partners in four
joint ventures involved in the development and sale of residential housing
projects. Such joint ventures are not effectively controlled by the Company and,
accordingly, the financial statements of such joint ventures are not
consolidated in the preparation of the Company's consolidated financial
statements. The Company's investments in unconsolidated joint ventures are
accounted for using the equity method. Condensed combined financial information
of these joint ventures as of December 31, 1997 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 18
Receivables................................................. 293
Real estate inventories..................................... 32,097
Other assets................................................ 750
-------
$33,158
=======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............................................ $ 86
Accrued expenses............................................ 701
Advances from The Presley Companies and subsidiaries........ 127
-------
914
-------
Partners' Capital
The Presley Companies and subsidiaries.................... 6,950
Others.................................................... 25,294
-------
32,244
-------
$33,158
=======
</TABLE>
In January 1998, the Company formed an additional joint venture in
California which acquired land from the Company at the Company's approximate
book value of $23,200,000 (which also approximated the land's current market
value). The joint venture assumed the Company's non-recourse note payable of
$12,500,000 relating to the purchase of this property.
F-14
<PAGE> 50
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- 12 1/2% SENIOR NOTES AND NOTES PAYABLE
12 1/2% Senior Notes and notes payable consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
12 1/2% Senior Notes due 2001............................... $180,000 $190,000
-------- --------
Notes payable:
Working Capital Facility (Revolving Facility)............. 43,000 12,000
Notes payable:
Revolving line of credit -- consolidated joint
venture.............................................. 9,440 6,170
Purchase money notes payable -- land acquisitions...... 22,495 354
-------- --------
74,935 18,524
-------- --------
$254,935 $208,524
======== ========
</TABLE>
Interest costs relating to the above notes consist of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Interest incurred.................................. $(32,970) $(31,571) $(34,160)
Interest capitalized............................... 25,158 29,315 31,934
-------- -------- --------
Interest expense................................... $ (7,812) $ (2,256) $ (2,226)
======== ======== ========
</TABLE>
Senior Notes
Presley 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 Presley's Consolidated Tangible Net Worth is
less than $60,000,000 for any two consecutive fiscal quarters and from the
proceeds of certain asset sales. Because the Company's Consolidated Tangible Net
Worth was less than $60,000,000 as of September 30, 1997, the Company was,
effective on December 4, 1997, required to make an offer 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. The Company acquired
Senior Notes with a face amount of $20,000,000 prior to December 4, 1997 and
therefore was not required to make said offer.
Each six months thereafter, until such time as 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 December 31, 1997, the Company's Consolidated Tangible Net
Worth was a deficit of $8,947,000. The Company's management has previously held
discussions, and may in the future hold discussions, with representatives 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.
The Company's obligation to offer to purchase $20,000,000 of Senior Notes
each six months restricts its ability to acquire, hold and develop real estate
projects. The Company has changed its operating strategy during 1997 to finance
certain projects in California 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 2001 were offered by The Presley Companies, a
Delaware corporation ("Delaware Presley"), are unconditionally guaranteed on a
senior basis by Presley Homes (formerly The Presley Companies), a California
corporation and a wholly owned subsidiary of Delaware Presley ("California
Presley"). However, California Presley has granted liens on substantially all of
its assets as security for its
F-15
<PAGE> 51
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
obligations under the Working Capital Facility and other loans. Because the
California Presley guarantee is not secured, holders are effectively junior to
borrowings under the Working Capital Facility with respect to such assets.
Delaware Presley and its consolidated subsidiaries are referred to collectively
herein as "Presley" or the "Company." 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 not redeemable by Presley prior to July 1, 1998. Thereafter,
the Senior Notes will be redeemable at the option of Delaware Presley, in whole
or in part, at the redemption prices set forth in the Indenture.
The Senior Notes are senior obligations of Presley and rank pari passu in
right of payment to all existing and future unsecured indebtedness of Presley,
and senior in right of payment to all future indebtedness of the Company which
by its terms is subordinated to the Senior Notes.
Upon a Change of Control as described in the Indenture, Presley 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, among other things: (i)
the payment of dividends on and redemptions of capital stock by Presley, (ii)
the incurrence of indebtedness by Presley or the issuance of preferred stock by
Delaware Presley's subsidiaries, (iii) the creation of certain liens, (iv)
Delaware Presley's ability to consolidate or merge with or into, or to transfer
all or substantially all of its assets to, another person, and (v) transactions
with affiliates. These restrictions are subject to a number of important
qualifications and exceptions.
In April 1995, the Company purchased $10,000,000 principal amount of its
outstanding Senior Notes at a cost of $8,465,000, resulting in a net gain of
$724,000 after giving effect to related deferred loan costs and income taxes.
These Senior Notes were held by the Company in treasury and subsequently were
resold in November 1997 by the Company to an institutional investor in a private
placement. Although it has no definitive program to purchase outstanding Senior
Notes, the Company may make such purchases from time to time in the future if
management believes such purchases are in the Company's best interest.
As of December 31, 1997, the outstanding 12 1/2% Senior Notes with a face
value of $180,000,000 have an estimated fair value of $172,800,000, based on the
Company's repurchase of Senior Notes in late November and early December 1997.
Working Capital Facility
The collateral for the loans provided by the Working Capital Facility
includes substantially all real estate and other assets of the Company
(excluding assets of partnerships and the portion of the partnership interests
in the Carmel Mountain Ranch partnership which are currently pledged to other
lenders). The borrowing base is calculated based on specified percentages of
book values of real estate assets. The borrowing base at December 31, 1997 was
approximately $138,000,000; however, the maximum loan under the Working Capital
Facility is limited to $72,000,000. The principal outstanding under the Working
Capital Facility at December 31, 1997 was $43,000,000.
The Working Capital Facility had a termination date of May 20, 1997, with
two one-year extensions at the Company's option. On April 18, 1997, the Company
exercised its option to extend the termination date of the Working Capital
Facility for one period of twelve months from May 20, 1997 to May 20, 1998. Upon
the extension of the termination date, the Company paid an extension fee of 1%
of the Working Capital Facility commitment amount (in addition to the loan fee
described below). The Company still holds the option to extend the termination
date for an additional twelve (12) months. If the Company elects to exercise
this option in the future, an additional extension fee of 1% of the Working
Capital Facility commitment amount (in addition to the loan fee described below)
would be incurred.
F-16
<PAGE> 52
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pursuant to the terms of the Working Capital Facility, outstanding advances
bear interest at the prime rate plus 2%. An alternate option provides for
interest based on a specified overseas base rate plus 4.44%, but not less than
the prime rate option in effect at December 31, 1993 (8.00%). In addition, the
Company pays a loan fee of 1% per annum, payable quarterly, on the total Working
Capital Facility commitment amount.
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
$20,000,000 in the principal operating accounts of the Company.
Revolving Line of Credit -- Consolidated Joint Venture
Carmel Mountain Ranch ("CMR"), the partnership that owns the Carmel
Mountain Ranch master-planned community, is a California general partnership and
is 100% owned by The Presley Companies and its wholly-owned subsidiary.
Effective in March 1995, the development and construction of CMR, a consolidated
joint venture, is financed through a revolving line of credit. The revolving
line of credit consists of several components relating to production units,
models and residential lots. At December 31, 1997, the revolving line of credit
had an outstanding balance of $9,440,000. Availability under the line is subject
to a number of limitations, but in any case cannot exceed $10,000,000. Interest
on the outstanding balance is at prime plus 1.00%. In March 1998, the maturity
date of this line was extended to June 16, 1998. Management is currently in
discussions with the lender to extend the maturity date of this line for an
additional twelve month period to June 16, 1999. Although management believes
that current discussions with this lender will result in this longer term
extension, no assurances can be given in that regard.
Purchase Money Notes Payable -- Land Acquisitions
At December 31, 1997, the Company had notes payable outstanding related to
land acquisitions for which seller financing was provided in the amount of
$22,495,000, as described below.
In October 1997, the Company executed a promissory note secured by a deed
of trust on land purchased within the Company's Northern California Region in
the amount of $12,500,000. Interest on the outstanding balance is 8% per annum
and is payable annually. The loan is to be repaid in annual installments of
$3,125,000. This note, which is non-recourse to the Company, was assumed in
January 1998 by a joint venture which acquired the land from the Company, as
described in Note 5.
In December 1997, the Company executed a promissory note secured by a deed
of trust on land purchased within the Company's San Diego Region in the amount
of $4,515,000. Interest on the outstanding balance is 8% per annum. Principal
and interest are due and payable thirty days following substantial completion of
land improvements by the seller as defined in the purchase agreement.
Substantial completion of the improvements is expected in April, 1998.
The balance of notes payable related to land acquisitions includes several
smaller notes payable to sellers of land purchased within the Company's Arizona,
New Mexico and Nevada Regions.
F-17
<PAGE> 53
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The prime rate averaged 8.46%, 8.27% and 8.83% for 1997, 1996 and 1995,
respectively, and was 8.50% and 8.25% at December 31, 1997 and 1996,
respectively.
NOTE 7 -- STOCK OPTIONS AND INCENTIVE COMPENSATION PLANS
Stock Option Plan
Effective May 20, 1994, Delaware Presley amended the 1991 Stock Option Plan
(the "Plan") to increase the number of shares authorized for options to be
granted to 2,642,000 shares of Series A Common Stock. Under the Plan, options
may be granted from time to time to key employees, officers, directors,
consultants and advisors of the Company. The Plan is administered by the Stock
Option Committee of the Board of Directors (the "Committee"). The Committee is
generally empowered to interpret the Plan, prescribe rules and regulations
relating thereto, determine the terms of the option agreements, amend them with
the consent of the optionee, determine the employees to whom options are to be
granted, and determine the number of shares subject to each option and the
exercise price thereof. The per share exercise price for options will not be
less than 100% of the fair market value of a share of the Series A Common Stock
on the date the option is granted. The options will be exercisable for a term
determined by the Committee, not to exceed ten years from the date of grant or
upon a change of control.
On May 20, 1994, Delaware Presley issued options to purchase a total of
2,035,000 shares of Series A Common Stock at $2.875 per share. The options
outstanding at December 31, 1997 vested at various times and became fully vested
on May 20, 1997 and expire five years from the date of vesting. In connection
with a new incentive compensation plan (as described below), 725,000 stock
options outstanding were repriced effective January 1, 1997 from $2.875 to
$1.00.
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting and Disclosure of Stock-Based Compensation", issued in
October 1995, the Company has elected to continue applying the methodology
prescribed by APB Opinion 25 and related interpretations to account for
outstanding stock options. Accordingly, no compensation cost has been recognized
in the financial statements related to stock options awarded to officers,
directors and employees under the Stock Option Plan. As required by Statement
No. 123, for disclosure purposes only, the Company has measured the amount of
compensation cost which would have been recognized related to stock options had
the fair value of the options at the date of grant been used for accounting
purposes. Based on such calculations, net income and earnings per share amounts
would be approximately the same as the amounts reported by the Company. The
Company estimated the fair value of the stock options at date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rate of 6.2%; a dividend yield of 0.0%, a
volatility factor for the market price of the Company's common stock of 0.51;
and a weighted average expected life of four years for the stock options.
Incentive Compensation Plan
Effective on January 1, 1997, the Company's Board of Directors approved a
new incentive compensation plan for all of the Company's full-time, salaried
employees, including the Chief Executive Officer ("CEO") and Chief Financial
Officer ("CFO"), Executives, Managers, Field Construction Supervisors, and
certain other employees. Under the terms of this new plan, the CEO and CFO will
be eligible to receive bonuses at the discretion of the Compensation Committee
of the Board; in addition, the stock options held by the CEO and CFO (totaling
725,000 options) were repriced from $2.875 to $1.00.
In addition, the 1997 Executive Bonus Plan stipulates annual setting of
individual bonus targets, expressed as a percent of each executive's salary,
with awards based on performance against goals pertaining to each participant's
operating area.
All awards will be prorated downward if the sum of all calculated awards
for the entire Company exceeds 20% of the Company's consolidated pre-tax income
before bonuses. Awards will be paid out in three
F-18
<PAGE> 54
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
installments, with 50% paid following the determination of bonus awards, 25%
paid one year later and 25% paid two years later. The deferred amounts will be
forfeited in the event of termination for any reason except retirement, death or
disability.
NOTE 8 -- INCOME TAXES
The following summarizes the credit (provision) for income taxes (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------- ----- --------
<S> <C> <C> <C>
Current
Federal.............................................. $-- $-- $ --
State................................................ (6) (4) (4)
--- --- -------
(6) (4) (4)
--- --- -------
Deferred
Federal.............................................. -- -- 1,448
State................................................ 6 4 424
--- --- -------
6 4 1,872
--- --- -------
Credit for income taxes before extraordinary item...... -- -- 1,868
Tax provision on extraordinary item.................... -- -- (1,868)
--- --- -------
$-- $-- $ --
=== === =======
</TABLE>
Income taxes differ from the amounts computed by applying the applicable
Federal statutory rates due to the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- ---- --------
<S> <C> <C> <C>
Credit (provision) for Federal income taxes at the
statutory rate....................................... $ 31,463 $(53) $ 14,578
(Provision) credit for state income taxes, net of
Federal income tax benefits.......................... 2,583 (20) 2,517
Valuation allowance for deferred tax asset............. (34,046) (15,385)
Extraordinary item -- gain from retirement of debt..... -- -- (1,868)
Other.................................................. -- 73 158
-------- ---- --------
$ -- $ -- $ --
======== ==== ========
</TABLE>
F-19
<PAGE> 55
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Temporary differences giving rise to deferred income taxes consist of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
--------- --------
<S> <C> <C>
Deferred tax assets
Reserves deducted for financial reporting purposes not
allowable for tax purposes............................. $ 33,720 $ 13,996
Compensation deductible for tax purposes when paid........ 326 300
Net operating loss and alternative minimum tax credit
carryovers............................................. 69,231 61,922
Valuation allowance....................................... (104,416) (70,370)
State income tax provisions deductible when paid for
Federal tax purposes................................... 17,281 10,917
Other..................................................... 67 149
--------- --------
16,209 16,914
--------- --------
Deferred tax liabilities
Interest capitalized for financial reporting purposes and
deducted currently for tax purposes.................... (17,154) (17,134)
Effect of book/tax differences for joint ventures......... 945 220
--------- --------
(16,209) (16,914)
--------- --------
$ -- $ --
========= ========
</TABLE>
At December 31, 1997 the Company has net operating loss carryforwards for
Federal tax purposes of approximately $141,974,000, of which $5,066,000 expires
in 2007, $17,542,000 expires in 2008, $27,378,000 expires in 2009, $35,840,000
expires in 2010, $13,668,000 expires in 2011 and $42,480,000 expires in 2012.
Due to the transactions discussed in Note 2, the future benefits associated with
the utilization of the net operating loss carryforwards may be substantially
limited.
NOTE 9 -- GAIN FROM RETIREMENT OF DEBT
In April 1995, the Company purchased $10,000,000 principal amount of its
outstanding Senior Notes at a cost of $8,465,000, resulting in a net gain of
$724,000 after giving effect to related deferred loan costs and income taxes.
In September 1995, the Company retired a land acquisition and development
loan at its wholly-owned partnership, Horsethief Canyon Partners, resulting in a
net gain of $1,964,000, after giving effect to income taxes.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
In some jurisdictions in which the Company develops and constructs
property, assessment district bonds are issued by municipalities to finance
major infrastructure improvements. As a land owner benefited by these
improvements, the Company is responsible for the assessments on its land. When
properties are sold, the assessments are either prepaid or the buyers assume the
responsibility for the related assessments. Assessment district bonds issued
after May 21, 1992 are accounted for under the provisions of 91-10, "Accounting
for Special Assessment and Tax Increment Financing Entities' issued by the
Emerging Issues Task Force of the Financial Accounting Standards Board on May
21, 1992, and recorded as liabilities in the Company's consolidated balance
sheet, if the amounts are fixed and determinable.
The Company's commitments and contingent liabilities include the usual
obligations incurred by real estate developers in the normal course of business.
In the opinion of management, these matters will not have a material effect on
the Company's consolidated financial position.
F-20
<PAGE> 56
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company is a defendant in various lawsuits related to its normal
business activities. In the opinion of management, disposition of the various
lawsuits will have no material effect on the consolidated financial statements
of the Company.
NOTE 11 -- UNAUDITED SUMMARIZED QUARTERLY FINANCIAL INFORMATION
Summarized quarterly financial information for the years ended December 31,
1997, 1996 and 1995 is as follows (in thousands except per common share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997 TOTAL
--------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Sales................................. $ 67,795 $ 97,566 $ 68,349 $ 96,232 $ 329,942
Costs and expenses, net............... (71,369) (173,020) (71,549) (103,898) (419,836)
-------- --------- -------- --------- ---------
Income (loss) before income taxes..... (3,574) (75,454) (3,200) (7,666) (89,894)
Credit (provision) for income taxes... -- -- -- -- --
-------- --------- -------- --------- ---------
Net income (loss)(1).................. $ (3,574) $ (75,454) $ (3,200) $ (7,666) $ (89,894)
======== ========= ======== ========= =========
Basic and diluted earnings per common
share Note 1........................ $ (0.07) $ (1.45) $ (0.06) $ (0.15) $ (1.72)
======== ========= ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996 TOTAL
--------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Sales................................. $ 61,071 $ 82,219 $ 79,550 $ 96,157 $ 318,997
Costs and expenses, net............... (63,392) (81,852) (78,867) (94,734) (318,845)
-------- --------- -------- --------- ---------
Income (loss) before income taxes..... (2,321) 367 683 1,423 152
Credit (provision) for income taxes... -- -- -- -- --
-------- --------- -------- --------- ---------
Net income (loss)..................... $ (2,321) $ 367 $ 683 $ 1,423 $ 152
======== ========= ======== ========= =========
Basic and diluted earnings per common
share Note 1........................ $ (0.04) $ 0.01 $ 0.01 $ 0.03 $ --
======== ========= ======== ========= =========
</TABLE>
F-21
<PAGE> 57
THE PRESLEY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995 TOTAL
--------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Sales................................. $ 67,920 $ 60,216 $ 65,668 $ 91,701 $ 285,505
Costs and expenses, net............... (73,300) (73,572) (68,304) (111,982) (327,158)
-------- -------- -------- --------- ---------
Income (loss) before income taxes and
extraordinary item.................. (5,380) (13,356) (2,636) (20,281) (41,653)
Credit (provision) for income taxes... 2,206 2,492 1,365 (4,195) 1,868
-------- -------- -------- --------- ---------
Income (loss) before extraordinary
item................................ (3,174) (10,864) (1,271) (24,476) (39,785)
Extraordinary item -- gain from
retirement of debt, net of
applicable taxes --
Note 9.............................. -- 724 1,964 -- 2,688
-------- -------- -------- --------- ---------
Net income (loss)(2)(3)............... $ (3,174) $(10,140) $ 693 $ (24,476) $ (37,097)
======== ======== ======== ========= =========
Basic and diluted earnings per common
share Note 1
Before extraordinary item........... $ (0.06) $ (0.21) $ (0.02) $ (0.47) $ (0.76)
Extraordinary item.................... -- 0.02 0.03 -- 0.05
-------- -------- -------- --------- ---------
After extraordinary item.............. $ (0.06) $ (0.19) $ 0.01 $ (0.47) $ (0.71)
======== ======== ======== ========= =========
</TABLE>
- ---------------
(1) Results for the three months ended June 30, 1997 were adversely affected by
a $74,000,000 reduction of certain real estate assets to their estimated net
realizable value as described in Note 1.
(2) Results for the three months ended June 30, 1995 were adversely affected by
a $9,400,000 reduction of certain real estate assets to their estimated net
realizable value as described in Note 1.
(3) Results for the three months ended December 31, 1995 were adversely affected
due to recognition of an impairment loss on real estate assets amounting to
$16,811,000 as described in Note 1.
F-22
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ----------- ------------
<C> <S> <C>
3.1 (1) Certificate of Incorporation of the Company.................
3.3 (1) Bylaws of the Company.......................................
4.1 (1) Specimen certificate of Common Stock........................
10.1 (1) First Amended and Restated Loan Agreement dated as of
December 18, 1989 among the Company, as Borrower, Security
Pacific National Bank, First Interstate Bank of California,
The Bank of California, N.A., California Federal Bank, a
Federal Savings Bank, and Continental Bank, N.A., as the
Banks, and Security Pacific National Bank as the Agent (the
"1989 Revolving Facility")..................................
10.2 (1) First Amendment to the 1989 Revolving Facility, dated
February 1, 1991............................................
10.3 (1) Letter, dated December 11, 1990, providing for the extension
of the 1989 Revolving Facility..............................
10.4 (1) Commitment Letter, dated August 19, 1991, among the Banks,
the Agent and the Company relating to the amendment and
extension of the 1989 Revolving Facility....................
10.5 (1) Loan Agreement, dated as of September 27, 1988, between
Carmel Mountain Ranch, as Borrower, Security Pacific
National Bank, Bank of America National Trust and Savings
Association and Bankers Trust Company, as the Banks, and
Security Pacific National Bank, as the Agent (the "CMR Loan
Agreement").................................................
10.6 (1) First Amendment to the CMR Loan Agreement, dated April 3,
1989........................................................
10.7 (1) Second Amendment to the CMR Loan Agreement,
dated December 21, 1989.....................................
10.8 (1) Third Amendment to the CMR Loan Agreement, dated January 1,
1991........................................................
10.9 (1) Fourth Amendment to the CMR Loan Agreement, dated March 1,
1991........................................................
10.10 (1) Building Loan Agreement, dated November 4, 1988, between
Horsethief Canyon Partners and First Interstate Bank of
California (the "HCP Loan Agreement").......................
10.11 (1) Note, dated November 4, 1988, in favor of First Interstate
Bank of California by Horsethief Canyon Partners (the "HCP
Note")......................................................
10.12 (1) Amendment to the HCP Loan Agreement, dated March 28, 1989...
10.13 (1) Modification to the HCP Note, dated November 26, 1990.......
10.14 (1) Modification to the HCP Note, dated February 27, 1991.......
10.15 (1) Modification to the HCP Note, dated June 18, 1991...........
10.16 (1) Additional Funds Agreement, dated June 18, 1991, between
Horsethief Canyon Partners and First Interstate Bank of
California..................................................
10.17 (1) Office Building Lease, dated June 1, 1989, between Corporate
Plaza and Associates and the Company........................
10.18 (1) Form of Employment Agreement, dated October 17, 1991,
between Wade H. Cable and the Company.......................
10.19 (1) Form of Employment Agreement, dated October 17, 1991,
between David M. Siegel and the Company.....................
10.20 (1) Form of Employment Agreement, dated October 17, 1991,
between L.C. Albertson, Jr. and the Company.................
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ----------- ------------
<C> <S> <C>
10.21 (1) Form of Employment Agreement, dated October 17, 1991,
between Peter N. Hellmann and the Company...................
10.22 (1) Form of Employment Agreement, dated October 17, 1991,
between Gerald P. Nordeman and the Company..................
10.23 (1) Form of Employment Agreement, dated October 17, 1991,
between Charles W. Reynolds and the Company.................
10.24 (1) Form of Employment Agreement, dated October 17, 1991,
between Lewis N. Wilmot and the Company.....................
10.25 (1) Form of Employment Agreement, dated October 17, 1991,
between Nancy M. Harlan and the Company.....................
10.26 (1) Form of Employment Agreement, dated October 17, 1991,
between Linda L. Foster and the Company.....................
10.27 (1) Form of Indemnity Agreement, dated October 18, 1991, between
the Company and Messrs. Lyon and Cable as Directors, and
dated December 12, 1991 as to the other Directors...........
10.28 (1) Form of Registration Rights Agreement, dated October 7,
1991, between the Company and William Lyon..................
10.29 (1) Form of Registration Rights Agreement, dated October 7,
1991, between the Company and each of the existing
stockholders other than William Lyon........................
10.30 (1) 1991 Stock Option Plan......................................
10.31 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and Wade H. Cable...............................
10.32 (1) Secured Promissory Note, dated February 1, 1990, made by
Wade H. Cable in favor of the Company.......................
10.33 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and Wade H. Cable and
Susan M. Cable, Trustees of the Cable Family Trust Est.
7-11-88.....................................................
10.34 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and David M. Siegel.............................
10.35 (1) Secured Promissory Note, dated February 1, 1990, made by
David M. Siegel in favor of the Company.....................
10.36 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and David M. Siegel
and Linda A. Siegel, Trustees of the Siegel Family Trust
U/D/T Est. 6-20-89..........................................
10.37 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and L.C. Albertson, Jr..........................
10.38 (1) Secured Promissory Note, dated February 1, 1990, made by
L.C. Albertson, Jr. in favor of the Company.................
10.39 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and Lloyd C.
Albertson, Jr. and Dorothy K. Albertson, Trustees of the
Lloyd C. Albertson, Jr. Family Trust Est. 6-15-79...........
10.40 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and Charles W. Reynolds.........................
10.41 (1) Secured Promissory Note, dated February 1, 1990, made by
Charles W. Reynolds in favor of the Company.................
10.42 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and Charles W.
Reynolds....................................................
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ----------- ------------
<C> <S> <C>
10.43 (1) Note and Pledge Agreement, dated February 1, 1990 between
the Company and Lewis N. Wilmot.............................
10.44 (1) Secured Promissory Note, dated February 1, 1990, made by
Lewis N. Wilmot in favor of the Company.....................
10.45 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and Lewis N. Wilmot...
10.46 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and G. Ross Crawford............................
10.47 (1) Secured Promissory Note, dated February 1, 1990, made by G.
Ross Crawford in favor of the Company.......................
10.48 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and Gordon Ross
Crawford and Carol Georgia Crawford, Trustees of The
Crawford Family Trust Est. 5-26-83..........................
10.49 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and Alan D. Uman................................
10.50 (1) Secured Promissory Note, dated February 1, 1990, made by
Alan D. Uman in favor of the Company........................
10.51 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and Alan D. Uman......
10.52 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and C. Dean Stewart.............................
10.53 (1) Secured Promissory Note, dated February 1, 1990, made by C.
Dean Stewart in favor of the Company........................
10.54 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991, between the Company and C. Dean Stewart...
10.55 (1) Note and Pledge Agreement, dated February 1, 1990, between
the Company and Linda L. Foster.............................
10.56 (1) Secured Promissory Note, dated February 1, 1990, made by
Linda L. Foster in favor of the Company.....................
10.57 (1) Form of Amendment to Note and Pledge Agreement, dated
October 17, 1991,between the Company and Linda L. Foster....
10.58 (2) Second Amended and Restated Loan Agreement dated as of
January 31, 1992 between the Company, as Borrower, Security
Pacific National Bank, First Interstate Bank of California,
The Bank of California N.A., California Federal Bank, a
Federal Savings Institution and Continental Bank, N.A., as
the Banks, and Security Pacific Bank, as the Agent (the
"Second Amended Loan Agreement")............................
10.59 (2) Letter Agreement dated January 31, 1992 between Security
Pacific Bank, individually and as Agent for the Banks, and
the Company regarding Section 2.8 of the Second Amended Loan
Agreement...................................................
10.60 (3) Agreement for Redemption of Partnership Interest dated
December 30, 1992 between Carmel Mountain Ranch, a
California general partnership, The Presley Companies, a
California corporation, Presley CMR, Inc., a California
corporation, Home Capital Corporation, a California
corporation and Humboldt Financial Services Corp., a
California corporation......................................
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ----------- ------------
<C> <S> <C>
10.61 (3) Letter Waiver dated December 31, 1992 between the Company,
as Borrower, Bank of America National Trust and Savings
Association, Continental Bank, N.A., The Bank of California,
N.A., First Interstate Bank of California and California
Federal Bank, a Federal Savings Bank, as the Banks, and Bank
of America National Trust and Savings Association (as
successor by merger with Security Pacific National Bank) as
Agent.......................................................
10.62 (3) Amended Statement of Partnership of Carmel Mountain Ranch
dated December 30, 1992.....................................
10.63 (3) Amendment to Amended and Restated Partnership Agreement of
Carmel Mountain Ranch dated December 29, 1992...............
10.64 (3) Commitment Letter Extension Agreement dated January 18, 1993
between Horsethief Canyon Partners, as Borrower and First
Interstate Bank of California, as Lender....................
10.65 (3) Fourth Modification of Note Agreement dated January 18, 1993
between Horsethief Canyon Partners, as Borrower and First
Interstate Bank of California, as Lender....................
10.66 (3) Fifth Modification Agreement dated January 11, 1993 between
Carmel Mountain Ranch, as Borrower and Bank of America
National Trust and Savings Association and The Bank of
California, N.A., as Lenders................................
10.67 (3) Conditional Forbearance Agreement dated January 29, 1993
between the Company, as Borrower, Bank of America National
Trust and Savings Association, Continental Bank, N.A., The
Bank of California, N.A., First Interstate Bank of
California and California Federal Bank, a Federal Savings
Bank, as the Banks, and Bank of America National Trust and
Savings Association (as successor by merger with Security
Pacific National Bank), as Agent (the "Conditional
Forbearance Agreement").....................................
10.68 (3) Amendment to Conditional Forbearance Agreement dated March
26, 1993, effective March 31, 1993, between the Company, as
Borrower, Bank of America National Trust and Savings
Association, Continental Bank, N.A., The Bank of California,
N.A., First Interstate Bank of California and Foothill
Capital Corporation, as the Banks, and Bank of America
National Trust and Savings Association (as successor by
merger with Security Pacific National Bank), as Agent (the
"Amendment to Conditional Forbearance Agreement")...........
10.69 (3) Commitment Letter dated March 30, 1993 between the Company,
as Borrower, Bank of America National Trust and Savings
Association, Continental Bank, N.A., The Bank of California,
N.A., First Interstate Bank of California and Foothill
Capital Corporation, as the Banks, and Bank of America
National Trust and Savings Association (as successor by
merger with Security Pacific National Bank), as Agent (the
"Commitment Letter")........................................
10.70 (3) Modification of Commitment Letter Extension Agreement dated
March 29, 1993 between Horsethief Canyon Partners, as
Borrower and First Interstate Bank of California, as
Lender......................................................
10.71 (3) Fifth Modification of Note Agreement dated March 29, 1993
between Horsethief Canyon Partners, as Borrower and First
Interstate Bank of California, as Lender....................
10.72 (3) Commitment Letter dated March 30, 1993 between Horsethief
Canyon Partners, as Borrower and First Interstate Bank of
California, as Lender.......................................
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ----------- ------------
<C> <S> <C>
10.73 (4) Second Amendment to Conditional Forbearance Agreement dated
April 29, 1993, between the Company, as Borrower, Bank of
America National Trust and Savings Association, Continental
Bank, N.A., The Bank of California, N.A., First Interstate
Bank of California and Foothill Capital Corporation, as the
Banks, and Bank of America National Trust and Savings
Association (as successor by merger with Security Pacific
National Bank), as Agent....................................
10.74 (4) Amendment to Commitment Letter dated April 29, 1993, between
the Company, as Borrower, Bank of America National Trust and
Savings Association, Continental Bank, N.A., The Bank of
California, N.A., First Interstate Bank of California and
Foothill Capital Corporation, as the Banks, and Bank of
America National Trust and Savings Association (as successor
by merger with Security Pacific National Bank), as Agent....
10.75 (4) Third Amended and Restated Loan Agreement dated as of May 7,
1993, between the Company, as Borrower, Bank of America
National Trust and Savings Association, Continental Bank,
N.A., The Bank of California, N.A. and Foothill Capital
Corporation, as the Lenders, and Bank of America National
Trust and Savings Association, as the Agent, and Bank of
America National Trust and Savings Association, as the Lead
Bank........................................................
10.76 (4) Warrant Certificate dated as of May 7, 1993 for Warrants to
Purchase Common Stock issued to Bank of America Trust and
Savings Association.........................................
10.77 (4) Warrant Certificate dated as of May 7, 1993 for Warrants to
Purchase Common Stock issued to Continental Bank, N.A. .....
10.78 (4) Warrant Certificate dated as of May 7, 1993 for Warrants to
Purchase Common Stock issued to The Bank of California,
N.A. .......................................................
10.79 (4) Warrant Certificate dated as of May 7, 1993 for Warrants to
Purchase Common Stock issued to Foothill Capital
Corporation.................................................
10.80 (5) Amended and Restated Loan Agreement dated as of June 1, 1993
among Carmel Mountain Ranch, a California general
partnership, as the Borrower, Bank of America National Trust
and Savings Association and The Bank of California, N.A., as
the Banks and Bank of America National Trust and Savings
Association, as the Agent, and Bank of America National
Trust and Savings Association, as the Lead Bank.............
10.81 (5) Commitment Letter Extension Agreement dated July 29, 1993
between Horsethief Canyon Partners, a California general
partnership, as the Borrower, and First Interstate Bank of
California..................................................
10.82 (6) Second Amendment, dated as of September 23, 1993, to Third
Amended and Restated Loan Agreement dated as of May 7, 1993,
between The Presley Companies, a California corporation, as
the Borrower, Bank of America National Trust and Savings
Association, Foothill Capital Corporation, Mellon Bank, N.A.
as Trustee of First Plaza Group Trust, a New York trust, and
Foothill Capital Corporation (as successors by assignment of
the interest of The Bank of California, N.A.) and Pearl
Street L.P. (c/o Goldman, Sachs & Co.), and Internationale
Nederlanden (U.S.) Capital Corporation (previously known as
ING Bank) (as successors by assignment of the interest of
Continental Bank, N.A.), as the Lenders, and Bank of America
National Trust and Savings Association, as the Agent and the
Lead Bank...................................................
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ----------- ------------
<C> <S> <C>
10.83 (7) Third Amendment dated as of December 30, 1993 among The
Presley Companies, a California corporation (the Borrower),
the lending parties to the Third Amended and Restated Loan
Agreement dated as of May 7, 1993 and Bank of America
National Trust and Savings Association, as agent and lead
bank for the lenders thereunder.............................
10.84 (7) Fourth Amendment dated as of February 2, 1994 among The
Presley Companies, a California corporation (the Borrower),
the lending parties to the Third Amended and Restated Loan
Agreement dated as of May 7, 1993, and Foothill Capital
Corporation, as agent for the lenders thereunder............
10.85 (7) Fourth Amended and Restated Loan Agreement dated as of March
25, 1994 among The Presley Companies, a California
corporation (the Borrower), Foothill Capital Corporation
("Foothill"), Continental Illinois Commercial Corporation,
First Plaza Group Trust (Mellon Bank, N.A., acting as
trustee as directed by General Motors Investment Management
Corporation), Pearl Street, L.P., International Nederlanden
(U.S.) Capital Corporation, and Whippoorwill/Presley
Obligations Trust -- 1994 (Continental Stock Transfer &
Trust Company, as trustee under that certain trust agreement
dated as of January 11, 1994), as the lenders, and Foothill,
as the Agent for the Lenders under the Loan Documents.......
10.86 (7) Agreement to Issue and Purchase Stock as dated for reference
purposes the 25th day of March, 1994 by and among The
Presley Companies, a Delaware corporation, and Foothill
Capital Corporation, Continental Illinois Commercial
Corporation, First Plaza Group Trust (Mellon Bank, N.A.,
acting as trustee as directed by General Motors Investment
Management Corporation), Pearl Street, L.P., International
Nederlanden (U.S.) Capital Corporation, and
Whippoorwill/Presley Obligations Trust -- 1994 (Continental
Stock Transfer & Trust Company, as trustee under that
certain trust agreement dated as of January 11, 1994).......
10.87 (8) First Amendment to the Agreement to Issue and Purchase Stock
dated as of April 8, 1994 by and among The Presley
Companies, a Delaware corporation, and Foothill Capital
Corporation, Continental Illinois Commercial Corporation,
First Plaza Group Trust (Mellon Bank, N.A., acting as
trustee as directed by General Motors Investment Management
Corporation), Pearl Street, L.P., International Nederlanden
(U.S.) Capital Corporation, and Whippoorwill/ Presley
Obligations Trust -- 1994 (Continental Stock Transfer &
Trust Company, as trustee under that certain trust agreement
dated as of January 11, 1994)...............................
10.88 (9) First Amendment to the Fourth Amended and Restated Loan
Agreement and Second Amendment to the Agreement to Issue and
Purchase Stock dated as of May 20, 1994 by and among The
Presley Companies, a Delaware corporation. The Presley
Companies, a California corporation, and Foothill Capital
Corporation, individually and as Agent, Continental Illinois
Commercial Corporation, First Plaza Group Trust (Mellon
Bank, N.A., acting as trustee as directed by General Motors
Investment Management Corporation), Pearl Street, L.P.,
International Nederlanden (U.S.) Capital Corporation, and
Whippoorwill/Presley Obligations Trust -- 1994 (Continental
Stock Transfer & Trust Company, as trustee under that
certain trust agreement dated as of January 11, 1994).......
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ----------- ------------
<C> <S> <C>
10.89 (9) Second Amendment to the Fourth Amended and Restated Loan
Agreement dated as of May 31, 1994 by and among The Presley
Companies, a California corporation, Foothill Capital
Corporation, individually and as agent, First Plaza Group
Trust (Mellon Bank, N.A., acting as trustee as directed by
General Motors Investment Management Corporation), Pearl
Street, L.P., International Nederlanden (U.S.) Capital
Corporation, and Whippoorwill/ Presley Obligations
Trust -- 1994 (Continental Stock Transfer & Trust Company,
as trustee under that certain trust agreement dated as of
January 11, 1994)...........................................
10.90 (8) Form of Shareholders' Agreement dated as of May 20, 1994, by
and among The Presley Companies, a Delaware corporation,
each of the holders of shares of the Series B Common Stock
and certain holders of shares of the Series A Common
Stock.......................................................
10.91 (8) Form of Registration Rights Agreement dated as of May 20,
1994, by and among The Presley Companies, a Delaware
corporation and each of the holders of shares of the Series
B Common Stock..............................................
10.92 (8) Amended and Restated 1991 Stock Option Plan of The Presley
Companies, a Delaware corporation...........................
10.93 (9) Forms of Stock Option Agreements, dated as of May 20, 1994,
between the Company and Wade H. Cable.......................
10.94 (9) Forms of Stock Option Agreements, dated as of May 20, 1994,
between the Company and David M. Siegel.....................
10.95 (9) Forms of Stock Option Agreements, dated as of May 20, 1994,
between the Company and L.C. Albertson, Jr..................
10.96 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and Gerald P. Nordeman..................
10.97 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and Charles W. Reynolds.................
10.98 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and Lewis N. Wilmot.....................
10.99 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and Nancy M. Harlan.....................
10.100 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and Linda L. Foster.....................
10.101 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and W. Douglass Harris..................
10.102 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and C. Dean Stewart.....................
10.103 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and G. Ross Crawford....................
10.104 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and Alan Uman...........................
10.105 (9) Form of Stock Option Agreement, dated as of May 20, 1994,
between the Company and William Lyon........................
10.106 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between Wade H. Cable and the Company......
</TABLE>
<PAGE> 65
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ----------- ------------
<C> <S> <C>
10.107 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between David M. Siegel and the Company....
10.108 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between L.C. Albertson, Jr. and the
Company.....................................................
10.109 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between Gerald P. Nordeman and the
Company.....................................................
10.110 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between Charles W. Reynolds and the
Company.....................................................
10.111 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between Lewis N. Wilmot and the Company....
10.112 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between Nancy M. Harlan and the Company....
10.113 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between Linda L. Foster and the Company....
10.114 (9) Form of Employment Agreement, dated as of May 20, 1994,
between W. Douglass Harris and the Company..................
10.115 (9) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between C. Dean Stewart and the Company....
10.116 (8) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between G. Ross Crawford and the Company...
10.117 (8) Form of Amended and Restated Employment Agreement, dated as
of May 20, 1994, between Alan Uman and the Company..........
10.118 (10) Third Amendment of Fourth Amended and Restated Loan
Agreement, dated for reference purposes June 30, 1994, by
and among (i) The Presley Companies, a California
corporation, as the borrower, (ii) Foothill Capital
Corporation ("Foothill"), First Plaza Group Trust (Mellon
Bank, N.A., acting as trustee as directed by General Motors
Investment Management Corporation), Pearl Street, L.P.,
International Nederlanden (U.S.) Capital Corporation, and
Whippoorwill/Presley Obligations Trust -- 1994 (Continental
Stock Transfer & Trust Company, as trustee under that
certain trust agreement dated as of January 11, 1994), as
the lenders, and Foothill, as the agent for the lenders.....
10.119 (10) Agreement and Assignment; Mutual Releases, as of August 23,
1994, by and between Gateway Highlands, a California limited
partnership, HSP Inc., a California corporation and The
Presley Companies, a California corporation.................
10.120 (11) Master Credit Agreement by and between Carmel Mountain
Ranch, a California general partnership and Bank One,
Arizona, N.A., a national banking association dated as of
February 15, 1995...........................................
10.121 (12) Fifth Amendment to Fourth Amended and Restated Loan
Agreement, dated for reference purposes June 30, 1995, by
and among (i) The Presley Companies, a California
corporation, as the borrower, (ii) Foothill Capital
Corporation ("Foothill"), First Plaza Group Trust (Mellon
Bank, N.A., acting as trustee as directed by General Motors
Investment Management Corporation), Internationale
Nederlanden (U.S.) Capital Corporation, and
Whippoorwill/Presley Obligations Trust -- 1994 (Continental
Stock Transfer & Trust Company, as trustee under that
certain trust agreement dated as of January 11, 1994), as
the lenders, and (iii) Foothill, as the Agent for the
Lenders.....................................................
</TABLE>
<PAGE> 66
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ----------- ------------
<C> <S> <C>
10.122 (13) Commitment Letter and Settlement Agreement dated September
11, 1995 by and among First Interstate Bank of California,
Horsethief Canyon Partners, a California general partnership
("Borrower"), and The Presley Companies, a California
corporation, the Borrower's managing general partner........
10.123 (13) Master Credit Agreement by and between The Presley
Companies, a California corporation, and Bank One, Arizona,
NA, a national banking association, dated as of October 10,
1995........................................................
10.124 (13) First Amendment to Master Credit Agreement by and between
Carmel Mountain Ranch, a California general partnership and
Bank One, Arizona, NA dated as of October 10, 1995..........
10.125 (14) Master Credit Agreement by and between Horsethief Canyon
Partners, a California general partnership ("Borrower"), and
Bank One, Arizona, NA, a national banking association
("Bank"), dated as of October 4, 1996.......................
10.126 (14) Amendment to Master Credit Agreement and Secured Promissory
Note by and between Presley Homes (formerly known as The
Presley Companies), a California corporation ("Borrower"),
and Bank One, Arizona, NA, a national banking association
("Bank"), dated as of October 4, 1996.......................
10.127 (14) Second Amendment to Master Credit Agreement and Secured
Promissory Note by and between Carmel Mountain Ranch, a
California general partnership ("Borrower"), and Bank One,
Arizona, NA, a national banking association ("Bank"), dated
as of October 4, 1996.......................................
10.128 (15) Notice of Exercise of Option for Extension of Termination
Date dated as of April 18, 1997 under that certain Fourth
Amended and Restated Loan Agreement dated as of March 25,
1994 between The Presley Companies, a California
corporation, as the borrower, Foothill Capital Corporation,
Mellon Bank, N.A., as Trustee of First Plaza Group Trust, a
New York trust, Pearl Street L.P. (c/o Goldman, Sachs &
Co.), Internationale Nederlanden (U.S.) Capital Corporation,
and Continental Stock Transfer & Trust Company, as Trustee
for the Whippoorwill/Presley Obligations Trust -- 1994, as
the Lenders, and Foothill Capital Corporation, as the Agent
and Lead Bank...............................................
10.129 (16) Sixth Amendment to Fourth Amended and Restated Loan
Agreement, dated for reference purposes June 30, 1997, by
and among (i) Presley Homes, formerly The Presley Companies,
a California corporation, as the borrower, (ii) Foothill
Capital Corporation, First Plaza Group Trust (Mellon Bank,
N.A., acting as trustee as directed by General Motors
Investment Management Corporation), Internationale
Nederlanden (U.S.) Capital Corporation, and
Whippoorwill/Presley Obligations Trust -- 1994 (Continental
Stock Transfer & Trust Company, as trustee under that
certain trust agreement dated as of January 11, 1994), as
the Lenders, and Foothill Capital Corporation, as the Agent
for the Lenders.............................................
10.130 (17) Third Amendment to Master Credit Agreement, dated as of
September 25, 1997, by and between Carmel Mountain Ranch, a
California general partnership ("Borrower"), and Bank One,
Arizona, NA, a national banking association ("Bank")........
21.1 List of Subsidiaries of the Company.........................
27 Financial Data Schedule.....................................
</TABLE>
<PAGE> 67
- ------------
(1) Previously filed in connection with the Company's Registration Statement on
Form S-1, and amendments thereto, (S.E.C. Registration No. 33-42161) and
incorporated herein by this reference.
(2) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1992 and incorporated herein
by this reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992 and incorporated herein by this
reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1993 and incorporated herein
by this reference.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1993 and incorporated herein
by this reference.
(6) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1993 and incorporated
herein by this reference.
(7) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993 and incorporated herein by this
reference.
(8) Previously filed as an exhibit to the Company's Proxy Statement for Annual
Meeting of Stockholders held on May 20, 1994 and incorporated herein by
this reference.
(9) Previously filed in connection with the Company's Registration Statement on
Form S-1, and amendments thereto (S.E.C. Registration No. 33-79088) and
incorporated herein by this reference.
(10) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1994 and incorporated
herein by this reference.
(11) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1995 and incorporated herein
by this reference.
(12) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1995 and incorporated herein
by this reference.
(13) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1995 and incorporated
herein by this reference.
(14) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1996 and incorporated
herein by this reference.
(15) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1997.
(16) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997.
(17) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1997.
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Presley Homes (formerly The Presley Companies)
State of Incorporation: California
PH Institutional Ventures
State of Incorporation: California
PH Ventures -- San Jose
State of Incorporation: California
Presley CMR, Inc.
State of Incorporation: California
HSP Inc.
State of Incorporation: California
Presley Mortgage Company
State of Incorporation: California
Presley Southwest, Inc.
State of Incorporation: Arizona
Other names under which The Presley Companies conducts business:
Presley of Southern California
Presley of Northern California
Presley of San Diego
Presley of Central California
Presley of Arizona
Presley of Illinois
Presley of New Mexico
Presley of Nevada
Presley of the Southwest
Carmel Mountain Ranch
Presley Sports Management Group
Palm Desert Resorter
Horsethief Canyon Partners
BCED/Presley Corona Hills
Sun Lakes Country Club
American Self Storage
Oakhurst Country Club
Presley Homes Thousand Oaks, LP
Presley Torrey I Associates, LLC
Presley Torrey II Associates, LLC
Presley Mercy Associates, LLC
Cerro Plata Associates, LLC
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS INCLUDED IN ANNUAL REPORT
ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,569
<SECURITIES> 0
<RECEIVABLES> 8,652
<ALLOWANCES> 0
<INVENTORY> 255,472
<CURRENT-ASSETS> 0
<PP&E> 5,952
<DEPRECIATION> 2,339
<TOTAL-ASSETS> 285,244
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 522
<OTHER-SE> (6,203)
<TOTAL-LIABILITY-AND-EQUITY> 285,244
<SALES> 329,942
<TOTAL-REVENUES> 329,942
<CGS> 302,201
<TOTAL-COSTS> 302,201
<OTHER-EXPENSES> 109,823
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,812
<INCOME-PRETAX> (89,894)
<INCOME-TAX> 0
<INCOME-CONTINUING> (89,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (89,894)
<EPS-PRIMARY> (1.72)
<EPS-DILUTED> (1.72)
</TABLE>
