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William Lyon Homes Reports 108% and 138% Increase in
Fourth Quarter and Full Year Net Income
NEWPORT BEACH, Calif., Mar 1, 2005
Financial Highlights
2004 Fourth Quarter
-- Net income of $80.2 million, up 108%
-- Earnings per diluted share of $8.58, up 121%
-- Consolidated operating revenue of $707.9 million, up 56%
-- Homebuilding gross margins of 28.2%, up 970 basis points
-- Company repurchased 1,275,000 shares of stock for $81.0 million
2004 Full Year
-- Net income of $171.6 million, up 138%
-- Earnings per diluted share of $17.55, up 141%
-- Homes closed increased to a record 3,471, up 24%
-- Consolidated operating revenue of $1.822 billion, up 103%
-- Homebuilding gross margins of 25.7%, up 700 basis points
-- Year-end backlog of 1,166 homes valued at a record $623.6 million
-- Return on average stockholders' equity of 57%
William Lyon Homes (WLS) today reported the Company's 2004 fourth quarter
and fiscal year operating results which were at record levels for any
comparable periods in the Company's history.
Net income for the fourth quarter ended December 31, 2004 increased 108% to
a record of $80,155,000, or $8.58 per diluted share, as compared to net
income of $38,596,000, or $3.89 per diluted share, for the comparable period
a year ago. Consolidated operating revenue increased 56% to $707,866,000 for
the quarter ended December 31, 2004, as compared to $452,548,000 for the
comparable period a year ago.
For the year ended December 31, 2004, the Company reported record net income
of $171,649,000, or $17.55 per diluted share, an increase of 138% as
compared to net income of $72,137,000, or $7.27 per diluted share, for the
comparable period a year ago. Consolidated operating revenue increased 103%
to $1,821,847,000 for the year ended December 31, 2004, as compared with
$897,803,000 for the comparable period a year ago.
Operating revenue for the three months ended December 31, 2004 and 2003
included $18,207,000 and $4,656,000, respectively, from the sales of land
resulting in gross profit of approximately $9,645,000 and $2,225,000,
respectively. Operating revenue for the years ended December 31, 2004 and
2003 included $36,258,000 and $21,656,000, respectively, from the sales of
land resulting in gross profit of approximately $13,085,000 and $8,387,000,
respectively.
The Company's combined results including joint ventures were as follows: The
number of homes closed for the year ended December 31, 2004 was 3,471, a
record for any year in the Company's history and an increase of 24% as
compared to 2,804 for the year ended December 31, 2003. The number of homes
closed for the three months ended December 31, 2004 was 1,210, down 6% as
compared to 1,290 for the three months ended December 31, 2003. The
Company's backlog of homes sold but not closed was 1,166 at December 31,
2004, a decrease of 8% as compared to 1,266 at December 31, 2003. The
Company's dollar amount of backlog of homes sold but not closed at December
31, 2004, was $623,578,000, a record for any fourth quarter in the Company's
history and an increase of 5% as compared to $595,180,000 at December 31,
2003. The cancellation rate of buyers who contracted to buy a home but did
not close escrow was approximately 17% during 2004 and 18% during 2003.
Net new home orders for the three months ended December 31, 2004 were 493, a
decrease of 35% as compared to 761 for the three months ended December 31,
2003. The average number of sales locations during the quarter ended
December 31, 2004 was 37, down 16% from 44 in the comparable period a year
ago. Net new home orders for the year ended December 31, 2004 were 3,371, a
decrease of 2% as compared to 3,443 for the year ended December 31, 2003.
During the fourth quarter of 2004, the average sales price of homes
(including joint ventures) was $570,000, up 29% as compared to $442,200 for
the comparable period a year ago. The higher average sales price reflects
general new home price increases and, to some extent, a change in product
mix.
For the quarter ended December 31, 2004, the Company's homebuilding gross
margin percentage increased to 28.2% from 18.5% for the quarter ended
December 31, 2003. For the year ended December 31, 2004, the Company's
homebuilding gross margin percentage increased to 25.7% from 18.7% for the
quarter ended December 31, 2003. 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.
As previously announced on November 12, 2004, the Company's Board of
Directors approved an increase in the size of the Company's previous stock
repurchase program to 3.0 million shares of its common stock (including any
shares previously repurchased by the Company under the program). Under the
program, as originally adopted in September 2001, the Company could
repurchase 20% of its then outstanding shares of common stock or
approximately 2.0 million shares. Prior to November 12, 2004, the Company
had repurchased approximately 1.2 million shares of its common stock under
the stock repurchase program. As part of its increased stock repurchase
program, the Company repurchased approximately 1.3 million shares of its
common stock on November 12, 2004 for approximately $81.0 million.
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: "Based
on record first and second quarter 2004 net new home orders of 2,219, an
increase of 30% as compared to the same period in 2003, we had anticipated,
and had reflected in our 2004 guidance, a significant reduction in net new
home orders for the third and fourth quarters when compared to the same
periods in 2003. We expect this same trend to continue in the first two
quarters of 2005 when compared to the same periods in 2004."
General Lyon further stated: "The reduction in order activity for the three
and six months ended December 31, 2004 primarily reflects 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. In Southern California,
beginning in late June through December 2004, we experienced some slowing in
part due to significant increases in new home prices particularly for higher
end products. Las Vegas experienced a slowdown in the last quarter of 2004
partially as a result of competitive companies escalating home prices to
above market levels which created a negative reaction by home buyers.
Primarily, as a result of these factors, net new home orders for the three
months ended December 31, 2004 as compared to the previous year were down
39% in California and down 56% in Nevada."
General Lyon further stated: "Our orders in Arizona were up 28%, which
reflects the market's acceptance of our new communities as well as the
strength of the Phoenix market. More recently, the Company has begun to
regulate the release of homes for sale in Phoenix to better match our
backlog and production capabilities which are constrained in this market."
General Lyon also stated: "Notwithstanding this overall decrease in order
activity for the three and six months ended December 31, 2004, our overall
net new home orders for the year ended December 31, 2004 were 3,371, down 2%
from 3,443 for the prior year. The number of homes closed for the year ended
December 31, 2004 totaled a record 3,471, up 24% from 2,804 for the prior
year."
General Lyon concluded: "We are proud to report to our shareholders that our
return on average shareholders' equity for 2004 was approximately 57% which
we believe to be among the highest in the homebuilding industry."
Wade H. Cable, President and Chief Operating Officer stated: "In 2005, the
Company will focus on increasing our sales locations. We ended 2004 with
only 37 active sales locations and expect to open 41 new locations this
year, resulting in 55 active locations by the end of 2005. However, the
majority of these locations will be opening towards the latter half of the
year which will impact our new home orders during the first half of the year
as mentioned above."
Mr. Cable further stated: "The extreme weather conditions in each of our
markets during the first two months of 2005 and the related delays impacting
our production schedules, as well as the impact of reduced new orders as
described above, have been taken into consideration in our initial guidance
for the full fiscal year 2005. We are anticipating a decrease of between 10%
and 15% in deliveries, homebuilding revenues, adjusted EBITDA and EPS from
2004. We will continue to monitor our progress and update our guidance as we
deem appropriate throughout the year."
Financial Accounting Standards Board Interpretation No. 46, Consolidation of
Variable Interest Entities, as amended ("Interpretation No. 46") addresses
the consolidation of variable interest entities ("VIEs"). Under
Interpretation No. 46, arrangements that are not controlled through voting
or similar rights are accounted for as VIEs. An enterprise is required to
consolidate a VIE if it is the primary beneficiary of the VIE. VIEs include
certain homebuilding and land development joint ventures, and certain
entities with which the Company enters into option agreements for the
purchase of land or lots and pays a non-refundable deposit or enters into
land banking arrangements. Interpretation No. 46 applied immediately to
arrangements created after January 31, 2003 and, with respect to
arrangements created before February 1, 2003, the interpretation was applied
to the Company as of January 1, 2004.
Based on the Company's analysis of arrangements created after January 31,
2003, no VIEs have been created for the period February 1, 2003 through
December 31, 2003 with respect to option agreements as identified in the
previous paragraph. At December 31, 2003, certain joint ventures and one
land banking arrangement created after January 31, 2003 had been determined
to be VIEs under Interpretation No. 46 in which the Company is considered
the primary beneficiary. Accordingly, the assets, liabilities and operations
of these joint ventures and one land banking arrangement have been
consolidated with the Company's financial statements as of December 31, 2003
and for the period then ended. Effective January 1, 2004, certain additional
joint ventures and land banking arrangements created prior to February 1,
2003 have been determined to be VIEs under Interpretation No. 46 in which
the Company is considered the primary beneficiary. Accordingly, the assets,
liabilities and operations of all of these joint ventures and land banking
arrangements have been consolidated with the Company's financial statements
as of January 1, 2004 and for the period ended December 31, 2004. Included
in the Company's consolidated balance sheet at December 31, 2004 are real
estate inventories related to the VIEs of $234,930,000, together with the
related notes payable of $31,614,000 and minority interest of $142,096,000.
Because the Company already recognized its proportionate share of joint
venture earnings and losses under the equity method of accounting, the
adoption of Interpretation No. 46 did not affect the Company's consolidated
net income.
The Company will hold a conference call on Thursday, March 3, 2005 at 11:00
a.m. Pacific Time to discuss the fourth quarter and year end 2004 earnings
results. The dial-in number is (800) 299-9630 (enter passcode number
31126387). Participants may call in beginning at 10:45 a.m. Pacific Time. In
addition, the call will be broadcast from William Lyon Homes' website at
www.lyonhomes.com in the "Investor
Relations" section of the site. The call will be recorded and replayed
beginning on March 3, 2005 at 1:00 p.m. Pacific Time through midnight on
March 31, 2005. The dial-in number for the replay is (888) 286-8010 (enter
passcode number 69034687). Replays of the call will also be available on the
Company's website approximately two hours after broadcast.
William Lyon Homes is one of the oldest and largest homebuilders in the
Southwest with development communities in California, Arizona and Nevada and
at December 31, 2004 had 37 sales locations. The Company's corporate
headquarters are located in Newport Beach, California.
Certain statements contained in this release that are not
historical information contain forward-looking statements. The
forward-looking statements involve risks and uncertainties and actual
results may differ materially from those projected or implied. Further,
certain forward-looking statements are based on assumptions of future events
which may not prove to be accurate. Factors that may impact such
forward-looking statements include, among others, changes in general
economic conditions and in the markets in which the Company competes,
terrorism or hostilities involving the United States, changes in mortgage
and other interest rates, changes in prices of homebuilding materials,
weather conditions, the occurrence of events such as landslides, soil
subsidence and earthquakes that are uninsurable, not economically insurable
or not subject to effective indemnification agreements, the availability of
labor and homebuilding materials, changes in governmental laws and
regulations, the timing of receipt of regulatory approvals and the opening
of projects, and the availability and cost of land for future development,
as well as the other factors discussed in the Company's reports filed with
the Securities and Exchange Commission.
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