WLS Welsh Property Trust Common Stock

William Lyon Homes (NYSE:WLS): -0- *T Financial Highlights *T 2005 Second Quarter -- Net income of $44.1 million, up 42% from $31.1 million in the second quarter of 2004 -- Diluted earnings per share of $5.07, up 61% from $3.14 in the second quarter of 2004 (based on weighted average shares outstanding of 8,693,425 in 2005 as compared to 9,931,572 in 2004) -- Homebuilding gross margin of $95.2 million, up 13% from $84.2 million in the second quarter of 2004 -- Homebuilding gross margin percentage of 26.3%, up 330 basis points from 23.0% in the second quarter of 2004 -- Lots, land and other gross margin of $23.3 million as compared to $3.6 million in the second quarter of 2004 -- Operating revenue from home sales of $362.1 million, down 1.4% from $367.1 million in the second quarter of 2004 -- Operating revenue from lots, land and other sales of $45.4 million as compared to $17.4 million in the second quarter of 2004 -- Record net new home orders of 1,154, up 2% from 1,127 in the second quarter of 2004 and representing the highest number of net new home orders for any quarter in the Company's history -- Record backlog of homes sold but not closed at June 30, 2005 of 2,115, up slightly from 2,088 at June 30, 2004 and representing the highest backlog for any quarter-end in the Company's history -- Homes closed of 619, down 22% from 794 in the second quarter of 2004 -- Consolidated operating revenue of $407.5 million, up 6% from $384.5 million in the second quarter of 2004 William Lyon Homes (NYSE:WLS) today reported that net income for the second quarter ended June 30, 2005 increased 42% to $44,100,000, or $5.07 per diluted share, as compared to net income of $31,148,000, or $3.14 per diluted share, for the comparable period a year ago. Consolidated operating revenue increased 6% to $407,489,000 for the quarter ended June 30, 2005, as compared to $384,483,000 for the comparable period a year ago. The Company reported that net income for the six months ended June 30, 2005 increased 39% to $64,593,000, or $7.43 per diluted share, as compared to net income of $46,557,000, or $4.70 per diluted share, for the comparable period a year ago. Consolidated operating revenue increased 2% to $654,171,000 for the six months ended June 30, 2005, as compared to $639,031,000 for the comparable period a year ago. Operating revenue for the three months ended June 30, 2005 and 2004 included $45,366,000 and $17,423,000, respectively, from the sales of land resulting in gross profit of approximately $23,342,000 and $3,597,000, respectively. Operating revenue for the six months ended June 30, 2005 and 2004 included $47,392,000 and $17,423,000, respectively, from the sales of land resulting in gross profit of approximately $23,555,000 and $3,597,000, respectively. Net new home orders for the three months ended June 30, 2005 increased 2% to 1,154 homes, a record for any quarter in the Company's history, as compared to 1,127 homes for the three months ended June 30, 2004, which had been the previous record for any quarter in the Company's history. The average number of sales locations during the three months ended June 30, 2005 was 42, down 9% from 46 during the three months ended June 30, 2004. The Company's number of new home orders per average sales location increased to 27.5 for the three months ended June 30, 2005, as compared to 24.5 for the three months ended June 30, 2004. Net new home orders for the six months ended June 30, 2005 were 2,027 homes, down 9% from 2,219 homes for the six months ended June 30, 2004. The average number of sales locations during the six months ended June 30, 2005 was 40, down 9% from 44 during the six months ended June 30, 2004. The Company's number of new home orders per average sales location increased to 50.7 for the six months ended June 30, 2005, as compared to 50.4 for the six months ended June 30, 2004. The number of homes closed in the three months ended June 30, 2005 was 619 homes, down 22% from 794 homes closed in the three months ended June 30, 2004. The number of homes closed for the six months ended June 30, 2005 was 1,078, down 23% from 1,397 homes closed in the six months ended June 30, 2004. At June 30, 2005, the backlog of homes sold but not closed totaled 2,115 homes, a record for any quarter-end in the Company's history, up slightly from 2,088 homes at June 30, 2004, which had been the previous record for any quarter in the Company's history. At June 30, 2005, the dollar amount of backlog of homes sold but not closed totaled $1,125,579,000, down slightly from $1,140,788,000 at June 30, 2004, and up 29% from $871,192,000 at March 31, 2005. Selected financial and operating information for the Company including joint ventures is set forth in greater detail in a schedule attached to this release. General William Lyon, Chairman and Chief Executive Officer stated: "On an overall basis, we are pleased with the Company's results for the first six months of 2005. As we stated at the end of 2004, the Company experienced a reduction in order activity for the six months ended December 31, 2004 primarily reflecting a lack of available product for sale due to stronger than anticipated absorption levels in the first two quarters of 2004, a decrease in the average number of sales locations, and slower sales in certain of the Company's markets, primarily in Southern California and Las Vegas." General Lyon further stated: "As a result of this reduction in order activity in late 2004, the Company's closings in the first six months of 2005 were reduced accordingly when compared to the comparable periods a year ago. However, due to an increase of 330 basis points in homebuilding gross margin percentage to 26.3% in the three months ended June 30, 2005 as compared to 23.0% in the three months ended June 30, 2004, the Company reported homebuilding gross margin of $95.2 million for the three months ended June 30, 2005, up 13% from $84.2 million for the three months ended June 30, 2004. These higher gross margin percentages were driven primarily by increases in sales prices during the past several quarters as a result of strong housing demand in most of the markets in which the Company operates." Wade H. Cable, President and Chief Operating Officer stated: "In 2005, the Company has continued its focus on increasing the number of sales locations in the geographic markets in which it operates. We ended 2004 with only 37 active sales locations and now expect to open 37 new locations this year, resulting in 51 active sales locations by the end of 2005. Many of these new locations will be opening in the latter part of this year and will only begin delivering homes in 2006." Mr. Cable further stated: "As a result of the continued strong housing demand in most of our markets and an increase in the number of sales locations through June 30, 2005, our net new home orders for the second quarter ended June 30, 2005 increased to 1,154 homes and our backlog of homes sold but not closed at June 30, 2005 increased to 2,115 homes, both records for any quarter in the Company's history." Based on the Company's results experienced in the first half of the year, which included income from certain opportunistic land sales, and the better than expected rate of new home orders in most of our markets during the first half of the year, we are updating our guidance for 2005. We are now targeting 3,200 deliveries, including our consolidated joint ventures, which will result in total revenues in excess of $1.8 billion. However, based on the seasonal pattern of new orders, the timing of the opening of new sales locations and adverse weather conditions in the first quarter which led to construction delays, we anticipate that over 1,500 of our remaining 2005 deliveries will occur in the fourth quarter. A significant portion of the deliveries in the fourth quarter are expected to occur in the second half of the quarter. Because of the uncertainty of the timing of these deliveries and the potential for certain additional land sales in the fourth quarter of 2005, our full year 2005 earnings are estimated to be a broad range of between $17.75 and $20.00 per share on a diluted basis (based on estimated weighted average shares outstanding of 8,693,000 shares), reflecting an increase of up to 14% over our full year 2004 earnings of $17.55 per share on a diluted basis (based on weighted average shares outstanding of 9,777,810 shares). On April 26, 2005, General William Lyon announced that he was proposing to acquire the outstanding publicly held minority interest in the Company's common stock for $82 per share in cash. General Lyon stated that this transaction would be contingent upon approval by the Board of Directors or a duly appointed special committee of the Board of Directors. The Board of Directors subsequently formed a special committee of independent directors to consider General Lyon's proposal with the assistance of outside financial and legal advisors which the special committee retained. On June 20, 2005, the special committee announced that it had determined that the proposal by General Lyon was inadequate. On June 28, 2005, General Lyon announced that he was withdrawing his proposal. On July 25, 2005, the Company announced that its Board of Directors had disbanded the special committee. On July 25, 2005, General Lyon announced that he was discontinuing his efforts at that time to take the Company private. In connection with the special committee's consideration of this proposed transaction, the Company has incurred approximately $2,191,000 in financial advisory and legal expenses which are reflected as a charge in the Company's results of operations for the three and six month periods ended June 30, 2005. The Company will hold a conference call on Wednesday, August 10, 2005 at 11:00 a.m. Pacific Time to discuss the second quarter 2005 earnings results. The dial-in number is (800) 599-9829 (enter passcode number 18570885). Participants may call in beginning at 10:45 a.m. Pacific Time. In addition, the call will be broadcast from William Lyon Homes' website at www.lyonhomes.com in the "Investor Relations" section of the site. The call will be recorded and replayed beginning on August 10, 2005 at 1:00 p.m. Pacific Time through midnight on August 31, 2005. The dial-in number for the replay is (888) 286-8010 (enter passcode number 41855566). Replays of the call will also be available on the Company's website approximately two hours after broadcast. William Lyon Homes is primarily engaged in the design, construction and sale of single family detached and attached homes in California, Arizona and Nevada and at June 30, 2005 had 41 sales locations. The Company's corporate headquarters are located in Newport Beach, California. For more information about the Company and its new home developments, please visit the Company's website at www.lyonhomes.com. Certain statements contained in this release that are not historical information contain forward-looking statements. The forward-looking statements involve risks and uncertainties and actual results may differ materially from those projected or implied. Further, certain forward-looking statements are based on assumptions of future events which may not prove to be accurate. Factors that may impact such forward-looking statements include, among others, changes in general economic conditions and in the markets in which the Company competes, the outbreak, continuation or escalation of war or other hostilities, including terrorism, involving the United States, changes in mortgage and other interest rates, changes in prices of homebuilding materials, weather, the occurrence of events such as landslides, soil subsidence and earthquakes that are uninsurable, not economically insurable or not subject to effective indemnification agreements, the availability of labor and homebuilding materials, changes in governmental laws and regulations, the timing of receipt of regulatory approvals and the opening of projects, and the availability and cost of land for future development, as well as the other factors discussed in the Company's reports filed with the Securities and Exchange Commission. -0- *T WILLIAM LYON HOMES SELECTED FINANCIAL AND OPERATING INFORMATION (unaudited) Three Months Ended June 30, 2005 Wholly- Joint Consolidated Owned Ventures Total Selected Financial Information (dollars in thousands) Homes closed 498 121 619 Home sales revenue $277,382 $84,741 $362,123 Cost of sales (203,384) (63,568) (266,952) Gross margin $73,998 $21,173 $95,171 Gross margin percentage 26.7% 25.0% 26.3% Number of homes closed California 214 121 335 Arizona 171 - 171 Nevada 113 - 113 Total 498 121 619 Average sales price California $872,900 $700,300 $810,500 Arizona 291,800 - 291,800 Nevada 360,000 - 360,000 Total $557,000 $700,300 $585,000 Number of net new home orders California 532 206 738 Arizona 177 - 177 Nevada 239 - 239 Total 948 206 1,154 Average number of sales locations during period California 19 9 28 Arizona 6 - 6 Nevada 8 - 8 Total 33 9 42 Three Months Ended June 30, 2004 Wholly- Joint Consolidated Owned Ventures Total Selected Financial Information (dollars in thousands) Homes closed 635 159 794 Home sales revenue $285,123 $81,937 $367,060 Cost of sales (218,602) (64,226) (282,828) Gross margin $66,521 $17,711 $84,232 Gross margin percentage 23.3% 21.6% 23.0% Number of homes closed California 311 159 470 Arizona 107 - 107 Nevada 217 - 217 Total 635 159 794 Average sales price California $637,200 $515,300 $595,900 Arizona 234,900 - 234,900 Nevada 284,900 - 284,900 Total $449,000 $515,300 $462,300 Number of net new home orders California 354 276 630 Arizona 278 - 278 Nevada 219 - 219 Total 851 276 1,127 Average number of sales locations during period California 20 12 32 Arizona 7 - 7 Nevada 7 - 7 Total 34 12 46 WILLIAM LYON HOMES SELECTED FINANCIAL AND OPERATING INFORMATION (Continued) (unaudited) As of June 30, 2005 Wholly- Joint Consolidated Owned Ventures Total Backlog of homes sold but not closed at end of period California 934 440 1,374 Arizona 521 - 521 Nevada 220 - 220 Total 1,675 440 2,115 Dollar amount of homes sold but not closed at end of period (in thousands) California $600,957 $274,920 $875,877 Arizona 172,240 - 172,240 Nevada 77,462 - 77,462 Total $850,659 $274,920 $1,125,579 Lots controlled at end of period Owned lots California 3,938 1,762 5,700 Arizona 3,812 269 4,081 Nevada 959 - 959 Total 8,709 2,031 10,740 Optioned lots (1) California 3,525 Arizona 5,132 Nevada 1,489 Total 10,146 Total lots controlled California 9,225 Arizona 9,213 Nevada 2,448 Total 20,886 As of June 30, 2004 Wholly- Joint Consolidated Owned Ventures Total Backlog of homes sold but not closed at end of period California 766 666 1,432 Arizona 423 - 423 Nevada 233 - 233 Total 1,422 666 2,088 Dollar amount of homes sold but not closed at end of period (in thousands) California $581,939 $367,268 $949,207 Arizona 106,573 - 106,573 Nevada 85,008 - 85,008 Total $773,520 $367,268 $1,140,788 Lots controlled at end of period Owned lots California 2,486 2,248 4,734 Arizona 1,249 - 1,249 Nevada 1,362 - 1,362 Total 5,097 2,248 7,345 Optioned lots (1) California 4,192 Arizona 7,228 Nevada 1,250 Total 12,670 Total lots controlled California 8,926 Arizona 8,477 Nevada 2,612 Total 20,015 (1) Optioned lots may be purchased by the Company as wholly-owned projects or may be purchased by newly formed joint ventures. WILLIAM LYON HOMES SELECTED FINANCIAL AND OPERATING INFORMATION (unaudited) Six Months Ended June 30, 2005 Wholly- Joint Consolidated Owned Ventures Total Selected Financial Information (dollars in thousands) Homes closed 862 216 1,078 Home sales revenue $464,816 $141,963 $606,779 Cost of sales (338,899) (103,035) (441,934) Gross margin $125,917 $38,928 $164,845 Gross margin percentage 27.1% 27.4% 27.2% Number of homes closed California 331 216 547 Arizona 297 - 297 Nevada 234 - 234 Total 862 216 1,078 Average sales price California $870,800 $657,200 $786,500 Arizona 289,900 - 289,900 Nevada 386,600 - 386,600 Total $539,200 $657,200 $562,900 Number of net new home orders California 908 411 1,319 Arizona 336 - 336 Nevada 372 - 372 Total 1,616 411 2,027 Average number of sales locations during period California 17 9 26 Arizona 6 - 6 Nevada 8 - 8 Total 31 9 40 Six Months Ended June 30, 2004 Wholly- Joint Consolidated Owned Ventures Total Selected Financial Information (dollars in thousands) Homes closed 1,100 297 1,397 Home sales revenue $478,694 $142,914 $621,608 Cost of sales (370,002) (113,262) (483,264) Gross margin $108,692 $29,652 $138,344 Gross margin percentage 22.7% 20.7% 22.3% Number of homes closed California 561 297 858 Arizona 169 - 169 Nevada 370 - 370 Total 1,100 297 1,397 Average sales price California $588,800 $481,200 $551,600 Arizona 219,000 - 219,000 Nevada 301,000 - 301,000 Total $435,200 $481,200 $445,000 Number of net new home orders California 815 649 1,464 Arizona 385 - 385 Nevada 370 - 370 Total 1,570 649 2,219 Average number of sales locations during period California 20 12 32 Arizona 5 - 5 Nevada 7 - 7 Total 32 12 44 WILLIAM LYON HOMES CONSOLIDATED STATEMENTS OF INCOME (in thousands except per common share amounts) (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2005 2004 2005 2004 Operating revenue Home sales $362,123 $367,060 $606,779 $621,608 Lots, land and other sales 45,366 17,423 47,392 17,423 407,489 384,483 654,171 639,031 Operating costs Cost of sales - homes (266,952) (282,828) (441,934) (483,264) Cost of sales - lots, land and other (22,024) (13,826) (23,837) (13,826) Sales and marketing (13,282) (12,879) (24,397) (23,292) General and administrative (23,963) (17,054) (41,404) (30,718) Other (526) (434) (1,208) (767) (326,747) (327,021) (532,780) (551,867) Equity in income (loss) of unconsolidated joint ventures 252 (87) (159) (183) Minority equity in income of consolidated entities (5,699) (6,652) (11,959) (10,912) Operating income 75,295 50,723 109,273 76,069 Financial advisory expenses (2,191) - (2,191) - Other (expense) income, net (212) 1,300 (317) 1,705 Income before provision for income taxes 72,892 52,023 106,765 77,774 Provision for income taxes (28,792) (20,875) (42,172) (31,217) Net income $44,100 $31,148 $64,593 $46,557 Earnings per common share Basic $5.12 $3.16 $7.50 $4.74 Diluted $5.07 $3.14 $7.43 $4.70 WILLIAM LYON HOMES CONSOLIDATED BALANCE SHEETS (in thousands except number of shares and par value per share) June 30, December 31, 2005 2004 (unaudited) ASSETS Cash and cash equivalents $50,659 $96,074 Receivables 34,428 39,302 Real estate inventories 1,303,947 1,059,173 Investments in and advances to unconsolidated joint ventures 15,473 17,911 Property and equipment, less accumulated depreciation of $8,848 and $7,844 at June 30, 2005 and December 31, 2004, respectively 18,632 18,066 Deferred loan costs 13,267 13,982 Goodwill 5,896 5,896 Other assets 26,292 24,158 $1,468,594 $1,274,562 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $53,392 $39,364 Accrued expenses 115,472 150,774 Notes payable 122,555 48,571 7 5/8% Senior Notes due December 15, 2012 150,000 150,000 10 3/4% Senior Notes due April 1, 2013 246,779 246,648 7 1/2% Senior Notes due July 1, 2014 150,000 150,000 838,198 785,357 Minority interest in consolidated entities 218,694 142,096 Stockholders' equity Common stock, par value $.01 per share; 30,000,000 shares authorized; 8,616,236 shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively; 1,275,000 shares issued and held in treasury at June 30, 2005 and December 31, 2004, respectively 86 86 Additional paid-in capital 30,250 30,250 Retained earnings 381,366 316,773 411,702 347,109 $1,468,594 $1,274,562 WILLIAM LYON HOMES SUPPLEMENTAL FINANCIAL INFORMATION SELECTED FINANCIAL DATA (dollars in thousands except per share data): Last Twelve Three Months Ended Months Ended June 30, June 30, 2005 2004 2005 2004 Net income $44,100 $31,148 $189,685 $100,020 Net cash provided by (used in) operating activities $32,593 $(38,685) $177,057 $(219,276) Interest incurred $17,298 $15,238 $63,345 $54,240 Adjusted EBITDA (1) $85,929 $67,275 $374,749 $228,742 Ratio of adjusted EBITDA to interest incurred 5.92x 4.22x Balance Sheet Data June 30, 2005 2004 Stockholders' equity per share $47.78 $30.60 Stockholders' equity $411,702 $302,583 Total debt 669,334 661,885 Total book capitalization $1,081,036 $964,468 Ratio of debt to total book capitalization 61.9% 68.6% Ratio of debt to total book capitalization (net of cash) 60.0% 67.7% Ratio of debt to LTM adjusted EBITDA 1.79x 2.89x Ratio of debt to LTM adjusted EBITDA (net of cash) 1.65x 2.77x (1) Adjusted EBITDA means net income plus (i) provision for income taxes, (ii) interest expense, (iii) amortization of capitalized interest included in cost of sales, (iv) depreciation and amortization and (v) cash distributions of income from unconsolidated joint ventures less equity in income of unconsolidated joint ventures. Other companies may calculate Adjusted EBITDA differently. Adjusted EBITDA is not a financial measure prepared in accordance with U.S. generally accepted accounting principles. Adjusted EBITDA is presented herein because it is a component of certain covenants in the indentures governing the Company's 7 5/8% Senior Notes, 10 3/4% Senior Notes and 7 1/2% Senior Notes ("Indentures"). In addition, management believes the presentation of Adjusted EBITDA provides useful information to the Company's investors regarding the Company's financial condition and results of operations because Adjusted EBITDA is a widely utilized financial indicator of a company's ability to service and/or incur debt. The calculations of Adjusted EBITDA below are presented in accordance with the requirements of the Indentures. Adjusted EBITDA should not be considered as an alternative for net income, cash flows from operating activities and other consolidated income or cash flow statement data prepared in accordance with accounting principles generally accepted in the United States or as a measure of profitability or liquidity. A reconciliation of net income to Adjusted EBITDA is provided as follows: Last Twelve Three Months Ended Months Ended June 30, June 30, 2005 2004 2005 2004 Net income $44,100 $31,148 $189,685 $100,020 Provision for income taxes 28,792 20,875 124,454 70,109 Interest expense: Interest incurred 17,298 15,238 63,345 54,240 Interest capitalized (17,298) (15,238) (63,345) (54,240) Amortization of capitalized interest in cost of sales 12,808 14,938 58,056 53,022 Depreciation and amortization 481 227 1,879 901 Cash distributions of income from unconsolidated joint ventures - - - 20,667 Equity in (income) loss of unconsolidated joint ventures (252) 87 675 (15,977) Adjusted EBITDA $85,929 $67,275 $374,749 $228,742 A reconciliation of net cash provided by (used in) operating activities to Adjusted EBITDA is provided as follows: Last Twelve Three Months Ended Months Ended June 30, June 30, 2005 2004 2005 2004 Net cash provided by (used in) operating activities $32,593 $(38,685) $177,057 $(219,276) Interest expense: Interest incurred 17,298 15,238 63,345 54,240 Interest capitalized (17,298) (15,238) (63,345) (54,240) Amortization of capitalized interest in cost of sales 12,808 14,938 58,056 53,022 Cash distributions of income from unconsolidated joint ventures - - - 20,667 Minority equity in income of consolidated entities (5,699) (6,652) (50,708) (11,353) Net changes in operating assets and liabilities: Receivables 8,524 (3,643) 2,089 13,896 Real estate inventories 32,384 99,097 86,053 314,591 Deferred loan costs (377) (146) (92) 248 Other assets 306 (1,460) 7,925 1,135 Accounts payable (4,616) (7,357) 4,621 (839) Accrued expenses 10,006 11,183 89,748 56,651 Adjusted EBITDA $85,929 $67,275 $374,749 $228,742 *T