William Lyon Homes falls to Q2 loss of US$4.5M, compared to earnings of US$39.4M a year ago, as new home orders fall 29%, average sales price slips 12%

Mathew Kearney

NEWPORT BEACH, California , August 4, 2010 (press release) – William Lyon Homes today reported net loss of $4.5 million for the three months ended June 30, 2010, compared to net income of $39.4 million for the three months ended June 30, 2009. Consolidated operating revenue increased 12% to $86.7 million for the three months ended June 30, 2010, as compared to $77.4 million for the comparable period a year ago. Home sales revenue increased 2% to $68.7 million for the three months ended June 30, 2010, as compared to $67.4 million for the comparable period a year ago.

The Company reported net loss for the six months ended June 30, 2010 of $13.0 million compared to net loss of $29.6 million for the comparable period a year ago. Consolidated operating revenue decreased 11% to $129.9 million for the six months ended June 30, 2010, as compared to $146.7 million for the comparable period a year ago.

In the second quarter of 2010, the Company continues to see indicators of stabilization in many of its markets, including sales absorption rates, decreasing sales incentives and increasing base pricing. In certain other projects, the Company experienced slower absorption rates than anticipated during the three months ended June 30, 2010. Management of the Company will continue to monitor these projects and may increase sales incentives or use other marketing strategies to stimulate homebuyer demand and improve sales absorption.

Net new home orders for the three months ended June 30, 2010 were 192 homes, a decrease of 29% compared to 269 homes for the three months ended June 30, 2009. The Company's number of new home orders per average sales location decreased slightly to 10.1 for the three months ended June 30, 2010 as compared to 10.3 for the three months ended June 30, 2009, but is up from 9.5 for the three months ended March 31, 2010. The average number of sales locations during the three months ended June 30, 2010 was 19, down 27% from 26 in the comparable period a year ago. Net new home orders for the six months ended June 30, 2010 were 373 homes, down 17% from 451 homes for the six months ended June 30, 2009. The average number of sales locations during the six months ended June 30, 2010 was 19, down 30% from 27 during the six months ended June 30, 2009. The Company's number of new home orders per average sales location increased to 19.6 for the six months ended June 30, 2010, as compared to 16.7 for the six months ended June 30, 2009. The Company’s cancellation rate for the three months ended June 30, 2010 increased slightly to 18% from 17% for the comparable period in 2009, but is down from 19% for the three months ended March 31, 2010.

During the second quarter of 2010, the average sales price of homes closed was $295,000, down 12% from $333,700 for the comparable period a year ago. The lower average sales price was primarily due to a change in product mix and a decrease in the number of homes closed with a sale price in excess of $500,000 from 26 in the 2009 period to 13 in the 2010 period.

Consolidated homebuilding gross profit increased 30% to $11.9 million for the three months ended June 30, 2010, compared to $9.2 million in the comparable period a year ago. Consolidated homebuilding gross margin percentage increased to 17.4% for the three months ended June 30, 2010 from 13.7% for the three months ended June 30, 2009. These higher gross margin percentages were primarily attributable to a 15% decrease in the average cost per home closed to $243,800 in the 2010 period from $288,100 in the 2009 period offset by a decrease in the average sales price of homes closed of 12% from 333,700 in the 2009 period to $295,000 in the 2010 period. The average cost decline is due to declining construction prices as well as the effect of previous impairments.

Operating revenue for the three and six months ended June 30, 2010 included $17,204,000 from the sales of land resulting in gross profit of approximately $2,870,000. Operating revenue for the three and six months ended June 30, 2009 included $883,000 and $7,415,000, respectively, from the sales of land resulting in gross losses of approximately $1,420,000 and $1,250,000, respectively.

The Company incurred costs of approximately $1,239,000 during the three months ended June 30, 2010, compared to $37,900,000 for the three months ended June 30, 2009, related to the write-off of land deposits, project pre-acquisition costs and other costs, which are included in cost of sales - lots, land and other in the Consolidated Statements of Operations.

The Company incurred impairment losses on real estate assets of $291,000 during the three months ended June 30, 2010. In addition, during the six months ended June 30, 2009 the Company incurred impairment losses on real estate assets of $24,171,000. The impairments in each respective period were primarily attributable to slower than anticipated home sales and lower than anticipated net revenue due to continued depressed market conditions in the housing industry at that time. As a result, the future undiscounted cash flows estimated to be generated were determined to be less than the carrying amount of the assets. Accordingly, the real estate assets were written-down to their estimated fair value. The Company will continue to monitor its active projects for indicators of impairment.

The Company’s consolidated results were as follows: The number of homes closed for the three months ended June 30, 2010 was 233 homes, up 15% from 202 homes for the three months ended June 30, 2009. The number of homes closed for the six months ended June 30, 2010 was 365, down 6% from 390 homes closed for the six months ended June 30, 2009.

At June 30, 2010, the backlog of homes sold but not closed was 202 homes, down 33% from 301 homes at June 30, 2009, and down 17% from 243 homes at March 31, 2010. The dollar amount of backlog of homes sold but not closed at June 30, 2010 was $83.5 million, up 13% from $74.2 million a year ago, and up 5% from $79.7 million at March 31, 2010.

On November 6, 2009, the Worker, Homeownership, and Business Assistance Act of 2009 was signed into law. The act allowed net operating losses realized in either tax year 2008 or 2009 to be carried back up to five years (previously limited to a two-year carry back). As a result of this legislation, the Company elected to carry back the taxable losses generated in 2009 and recorded a deferred tax asset and related income tax benefit of $101.8 million as of and for the year ending December 31, 2009. The recorded deferred tax asset reflected the anticipated tax refund for the carry back of the estimated 2009 tax loss to 2004 and 2005. In March 2010, the Company received the refund of $101.8 million.

On June 8, 2009 the Company announced the closing of its cash tender offer to purchase its outstanding senior notes. The principal amount tendered by the Company on settlement of the tender offer totaled $53,135,000, including $29,050,000 of the 7]% Senior Notes, $2,376,000 of the 10¾% Senior Notes, and $21,709,000 of the 7½% Senior Notes. The aggregate consideration paid totaled $14,925,300, plus accrued interest. The net gain resulting from the transaction totaled $37,040,000.

During the six months ended June 30, 2009, the Company purchased, in a limited number of privately negotiated transactions, separate from the tender offer described above, $31,271,000 principal amount of its outstanding senior notes at a cost of $9,787,000, plus accrued interest. The net gain resulting from these transactions, after giving effect to amortization of related deferred loan costs, was $20,933,000. Upon settlement of the transactions, the Company authorized these Senior Notes to be cancelled.

The Company will hold a conference call on Thursday, August 5, 2010 at 11:00 a.m. Pacific Time to discuss the second quarter 2010 earnings results. The dial-in number is (866) 202-3048 (enter passcode number 56528848). 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 5, 2010 at 5:00 p.m. Pacific Time through midnight on August 27, 2010. The dial-in number for the replay is (888) 286-8010 (enter passcode number 68818573). Replays of the call will also be available on the Company’s website approximately two hours after broadcast.

William Lyon Homes is primarily engaged in the design, construction and sales of new single-family detached and attached homes in California, Arizona and Nevada. The Company’s corporate headquarters are located in Newport Beach, California. For more information about the Company and its new home developments, please visit the Company's web-site at www.lyonhomes.com.

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