William Lyon Homes (WLH) 8-K Results of Operations and Financial Condition

Exhibit 99.1

Contact:	Investor Relations
	W. Douglass Harris
	William Lyon Homes
	(949) 833-3600

WILLIAM LYON HOMES REPORTS FIRST QUARTER RESULTS;

NET INCOME UP 28%

Financial Highlights

2006 First Quarter

• Net income of $26.2 million, up 28%

• Earnings per diluted share of $3.02, up 28%

• Consolidated operating revenue of $307.4 million, up 25%

• Homebuilding gross margins of 25.4%, down 310 basis points

• Quarter-end backlog of 1,357 homes, valued at $721.2 million

• Net new home orders of 647, down 26%

NEWPORT BEACH, CA—May 5, 2006—William Lyon Homes (NYSE: WLS) today reported that net income for the first quarter ended March 31, 2006 increased 28% to $26,214,000, or $3.02 per diluted share, as compared to net income of $20,493,000, or $2.36 per diluted share, for the comparable period a year ago. Consolidated operating revenue increased 25% to $307,381,000 for the quarter ended March 31, 2006, as compared to $246,682,000 for the comparable period a year ago.

The Company’s consolidated results including joint ventures were as follows: The number of homes closed in the first quarter of 2006 was 581 homes, up 27% from 459 homes in the first quarter of 2005. At March 31, 2006, the backlog of homes sold but not closed totaled 1,357 homes, down 14% from 1,580 homes at March 31, 2005, and up 5% from 1,291 homes at December 31, 2005. The dollar amount of backlog of homes sold but not closed was

$721,183,000, down 17% from $871,192,000 a year ago, and up 4% from $691,627,000 at December 31, 2005. The Company’s cancellation rate for the three months ended March 31, 2006 was 28%, compared to 12% for the three months ended March 31, 2005.

During the last half of the fourth quarter of 2005, the Company began to experience some slowing in new orders in many of its markets, increases in cancellation rates and increasing pricing pressures from several of its competitors who initiated aggressive incentive and discounting programs. This softening in the Company’s markets is continuing into 2006. Net new home orders for the quarter ended March 31, 2006 were 647 homes, down 26% from 873 homes for the quarter ended March 31, 2005.

The average number of sales locations during the quarter ended March 31, 2006 was 48, up 26% from 38 in the comparable period a year ago, as a result of the Company’s focus begun in 2005 to increase the number of sales locations in each of its markets. The Company’s number of new home orders per average sales location decreased to 13.5 for the quarter ended March 31, 2006 as compared to 23.0 for the quarter ended March 31, 2005.

During the first quarter of 2006, the average sales price of homes (including joint ventures) was $529,100, down slightly from $533,000 for the comparable period a year ago. The lower average sales price reflects a change in product mix.

The consolidated homebuilding gross margin percentage decreased to 25.4% for the quarter ended March 31, 2006 from 28.5% for the quarter ended March 31, 2005. The lower gross margin percentages primarily reflect the close out of projects with higher average gross margin percentages, and a shift in product mix and increases in land costs which resulted in higher cost of sales when homes closed.

Selected financial and operating information for the Company, including joint ventures, is set forth in greater detail in the schedule attached to this press release.

* * * * * *

William Lyon Homes is one of the oldest and largest homebuilders in the Southwest with development communities in California, Arizona and Nevada and at March 31, 2006 had 49 sales locations. The Company’s corporate headquarters are located in Newport Beach, California.

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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 regarding 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.

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WILLIAM LYON HOMES

SELECTED FINANCIAL AND OPERATING INFORMATION

(unaudited)

	Three Months Ended March 31,
	2006									2005
	Wholly-owned			Joint Ventures			Consolidated Total			Wholly-owned			Joint Ventures			Consolidated Total
Selected Financial Information
(dollars in thousands)
Homes closed		516			65			581			364			95			459
Home sales revenue	$	271,220		$	36,161		$	307,381		$	187,433		$	57,223		$	244,656
Cost of sales		(206,129	)		(23,314	)		(229,443	)		(135,514	)		(39,468	)		(174,982	)
Gross margin	$	65,091		$	12,847		$	77,938		$	51,919		$	17,755		$	69,674
Gross margin percentage		24.0	%		35.5	%		25.4	%		27.7	%		31.0	%		28.5	%
Number of homes closed
California		263			65			328			117			95			212
Arizona		99			—			99			126			—			126
Nevada		154			—			154			121			—			121
Total		516			65			581			364			95			459
Average sales price
California	$	640,800		$	556,300		$	624,100		$	867,100		$	602,400		$	748,500
Arizona		417,900			—			417,900			287,300			—			287,300
Nevada		398,100			—			398,100			411,400			—			411,400
Total	$	525,600		$	556,300		$	529,100		$	514,900		$	602,400		$	533,000
Number of net new home orders
California		296			96			392			376			205			581
Arizona		116			—			116			159			—			159
Nevada		139			—			139			133			—			133
Total		551			96			647			668			205			873
Average number of sales locations during period
California		24			7			31			15			9			24
Arizona		6			—			6			6			—			6
Nevada		11			—			11			8			—			8
Total		41			7			48			29			9			38

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WILLIAM LYON HOMES

SELECTED FINANCIAL AND OPERATING INFORMATION (Continued)

(unaudited)

	As of March 31,
	2006						2005
	Wholly- owned		Joint Ventures		Consolidated Total		Wholly- owned		Joint Ventures		Consolidated Total
Backlog of homes sold but not closed at end of period
California		641		154		795		616		355		971
Arizona		413		—		413		515		—		515
Nevada		149		—		149		94		—		94
Total		1,203		154		1,357		1,225		355		1,580
Dollar amount of homes sold but not closed at end of period (in thousands)
California	$	459,291	$	77,222	$	536,513	$	453,105	$	224,482	$	677,587
Arizona		133,658		—		133,658		157,306		—		157,306
Nevada		51,012		—		51,012		36,299		—		36,299
Total	$	643,961	$	77,222	$	721,183	$	646,710	$	224,482	$	871,192
Lots controlled at end of period Owned lots
California		4,237		1,225		5,462		3,716		1,350		5,066
Arizona		2,721		1,738		4,459		3,766		—		3,766
Nevada		1,460		—		1,460		1,072		—		1,072
Total		8,418		2,963		11,381		8,554		1,350		9,904
Optioned lots (1)
California						4,101						4,060
Arizona						6,012						5,421
Nevada						2,137						1,272
Total						12,250						10,753
Total lots controlled
California						9,563						9,126
Arizona						10,471						9,187
Nevada						3,597						2,344
Total						23,631						20,657

(1) Optioned lots may be purchased by the Company as wholly-owned projects or may be purchased by newly formed joint ventures.

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WILLIAM LYON HOMES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands except per common share amounts)

(unaudited)

	Three Months Ended March 31,
	2006			2005
Operating revenue
Home sales	$	307,381		$	244,656
Lots, land and other sales		—			2,026
		307,381			246,682
Operating costs
Cost of sales - homes		(229,443	)		(174,982	)
Cost of sales - lots, land and other		(430	)		(1,813	)
Sales and marketing		(13,124	)		(11,115	)
General and administrative		(18,589	)		(17,441	)
Other		(826	)		(682	)
		(262,412	)		(206,033	)
Equity in income (loss) of unconsolidated joint ventures		3,638			(411	)
Minority equity in income of consolidated entities		(5,226	)		(6,260	)
Operating income		43,381			33,978
Financial advisory expenses		(1,500	)		—
Other income (loss), net		1,241			(105	)
Income before provision for income taxes		43,122			33,873
Provision for income taxes		(16,908	)		(13,380	)
Net income	$	26,214		$	20,493
Earnings per common share
Basic	$	3.03		$	2.38
Diluted	$	3.02		$	2.36

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WILLIAM LYON HOMES

CONSOLIDATED BALANCE SHEETS

(in thousands except number of shares and par value per share)

	March 31, 2006		December 31, 2005
	(unaudited)
ASSETS
Cash and cash equivalents	$	24,994	$	52,369
Receivables		33,092		143,481
Real estate inventories		1,544,545		1,419,248
Investments in and advances to unconsolidated joint ventures		1,527		397
Property and equipment, less accumulated depreciation of $10,517 and $9,936 at March 31, 2006 and December 31, 2005, respectively		18,577		18,553
Deferred loan costs		12,082		12,323
Goodwill		5,896		5,896
Other assets		39,027		38,735
	$	1,679,740	$	1,691,002
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	56,067	$	67,326
Accrued expenses		119,781		181,068
Notes payable		199,959		125,619
7 5/8% Senior Notes due December 15, 2012		150,000		150,000
10 3/4% Senior Notes due April 1, 2013		246,989		246,917
7 1/2% Senior Notes due February 15, 2014		150,000		150,000
		922,796		920,930
Minority interest in consolidated entities		186,734		227,178
Stockholders’ equity
Common stock, par value $.01 per share; 30,000,000 shares authorized; 8,652,067 shares issued and outstanding at March 31, 2006 and December 31, 2005, respectively; 1,275,000 shares issued and held in treasury at March 31, 2006 and December 31, 2005, respectively		86		86
Additional paid-in capital		36,506		35,404
Retained earnings		533,618		507,404
		570,210		542,894
	$	1,679,740	$	1,691,002

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WILLIAM LYON HOMES

SUPPLEMENTAL FINANCIAL INFORMATION

SELECTED FINANCIAL DATA (dollars in thousands except per share data):

	Three Months Ended March 31,						Last Twelve Months Ended March 31,
	2006			2005			2006		2005
Net income	$	26,214		$	20,493		$	196,352	$	176,733
Net cash (used in) provided by operating activities	$	(77,753	)	$	(168,338	)	$	46,051	$	105,778
Interest incurred	$	18,671		$	15,203		$	76,608	$	62,540
Adjusted EBITDA (1)	$	52,799		$	42,662		$	381,164	$	356,095
Ratio of adjusted EBITDA to interest incurred								4.98x		5.69x

Balance Sheet Data

	March 31,
	2006			2005
Stockholders’ equity per share	$	65.90		$	42.66
Stockholders’ equity	$	570,210		$	367,602
Total debt		746,948			703,117
Total book capitalization	$	1,317,158		$	1,070,719
Ratio of debt to total book capitalization		56.7	%		65.7	%
Ratio of debt to total book capitalization (net of cash)		55.9	%		64.6	%
Ratio of debt to LTM adjusted EBITDA		1.96x			1.97x
Ratio of debt to LTM adjusted EBITDA (net of cash)		1.89x			1.88x

(1) Adjusted EBITDA means consolidated 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

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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:

	Three Months Ended March 31,						Last Twelve Months Ended March 31,
	2006			2005			2006			2005
Net income	$	26,214		$	20,493		$	196,352		$	176,733
Provision for income taxes		16,908			13,380			127,677			116,537
Interest expense:
Interest incurred		18,671			15,203			76,608			62,540
Interest capitalized		(18,671	)		(15,203	)		(76,608	)		(62,540	)
Amortization of capitalized interest in cost of sales		10,135			7,855			58,028			60,186
Depreciation and amortization		581			523			2,150			1,625
Cash distributions of income from unconsolidated joint ventures		2,599			—			5,307			—
Equity in (income) loss of unconsolidated joint ventures		(3,638	)		411			(8,350	)		1,014
Adjusted EBITDA	$	52,799		$	42,662		$	381,164		$	356,095

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A reconciliation of net cash (used in) provided by operating activities to Adjusted EBITDA is provided as follows:

	Three Months Ended March 31,						Last Twelve Months Ended March 31,
	2006			2005			2006			2005
Net cash (used in) provided by operating activities	$	(77,753	)	$	(168,338	)	$	46,051		$	105,778
Interest expense:
Interest incurred		18,671			15,203			76,608			62,540
Interest capitalized		(18,671	)		(15,203	)		(76,608	)		(62,540	)
Amortization of capitalized interest in costs of sales		10,135			7,855			58,028			60,186
Non-cash impairment charge		—			—			(4,600	)		—
State income tax refund from pre-quasi built-in losses		(10	)		—			(1,855	)		—
Minority equity in income of consolidated entities		(5,226	)		(6,260	)		(36,537	)		(51,661	)
Net changes in operating assets and liabilities:
Receivables		(110,389	)		(13,398	)		7,188			(10,078	)
Real estate inventories		139,225			163,257			208,208			152,767
Deferred loan costs		(241	)		(338	)		(1,562	)		139
Other assets		8,696			1,828			13,041			6,159
Accounts payable		11,259			(9,412	)		(7,291	)		1,880
Accrued expenses		77,103			67,468			100,493			90,925
Adjusted EBITDA	$	52,799		$	42,662		$	381,164		$	356,095

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