- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-18001
WILLIAM LYON HOMES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<Table>
DELAWARE 33-0864902
(STATE OR JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4490 VON KARMAN AVENUE 92660
NEWPORT BEACH, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</Table>
(949) 833-3600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<Table>
<Caption>
OUTSTANDING AT
CLASS OF COMMON STOCK NOVEMBER 7, 2001
--------------------- ----------------
Common stock, par value $.01 10,588,560
</Table>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WILLIAM LYON HOMES
INDEX
<Table>
<Caption>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets -- September 30, 2001 and
December 31, 2000......................................... 3
Consolidated Statements of Income -- Three and Nine Months
Ended
September 30, 2001 and 2000............................... 4
Consolidated Statement of Stockholders' Equity -- Nine
Months Ended September 30, 2001........................... 5
Consolidated Statements of Cash Flows -- Nine Months Ended
September 30, 2001 and 2000............................... 6
Notes to Consolidated Financial Statements.................. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 35
PART II. OTHER INFORMATION........................................... 36
ITEM 1. NOT APPLICABLE.............................................. 36
ITEM 2. NOT APPLICABLE.............................................. 36
ITEM 3. NOT APPLICABLE.............................................. 36
ITEM 4. NOT APPLICABLE.............................................. 36
ITEM 5. NOT APPLICABLE.............................................. 36
ITEM 6. NOT APPLICABLE.............................................. 36
SIGNATURES........................................................... 37
</Table>
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
WILLIAM LYON HOMES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT NUMBER OF SHARES AND PAR VALUE PER SHARE)
ASSETS
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(UNAUDITED)
Cash and cash equivalents................................... $ 5,796 $ 14,711
Receivables................................................. 19,542 18,538
Real estate inventories..................................... 319,250 214,418
Investments in and advances to unconsolidated joint
ventures -- Note 2........................................ 57,975 49,966
Property and equipment, less accumulated depreciation of
$4,028 and $3,112 at September 30, 2001 and December 31,
2000, respectively........................................ 2,323 2,818
Deferred loan costs......................................... 2,861 754
Goodwill, net -- Note 1..................................... 6,207 7,138
Other assets................................................ 19,479 21,937
-------- --------
$433,433 $330,280
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 27,801 $ 25,762
Accrued expenses............................................ 28,931 35,096
Notes payable............................................... 176,374 89,709
12 1/2% Senior Notes -- Note 3.............................. 70,279 77,201
-------- --------
303,385 227,768
-------- --------
Stockholders' equity -- Notes 1 and 6
Common stock, par value $.01 per share; 30,000,000 shares
authorized; 10,588,560 and 10,570,223 shares issued and
outstanding at September 30, 2001 and December 31,
2000, respectively..................................... 106 106
Additional paid-in capital................................ 126,767 126,608
Retained earnings (accumulated deficit) from January 1,
1994................................................... 3,175 (24,202)
-------- --------
130,048 102,512
-------- --------
$433,433 $330,280
======== ========
</Table>
See accompanying notes.
3
WILLIAM LYON HOMES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER COMMON SHARE AMOUNTS)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
2001 2000 2001 2000
--------- -------- --------- ---------
Operating revenue
Home sales................................... $ 107,629 $ 88,633 $ 278,252 $ 247,384
Lots, land and other sales................... -- 83 7,054 1,050
Management fee income........................ 1,864 2,325 4,962 6,296
--------- -------- --------- ---------
109,493 91,041 290,268 254,730
--------- -------- --------- ---------
Operating costs
Cost of sales -- homes....................... (89,413) (73,816) (231,977) (202,737)
Cost of sales -- lots, land and other........ (188) (139) (4,380) (1,022)
Sales and marketing.......................... (4,598) (4,120) (12,956) (11,102)
General and administrative................... (8,416) (7,421) (25,318) (23,806)
Amortization of goodwill -- Note 1........... (310) (310) (931) (934)
--------- -------- --------- ---------
(102,925) (85,806) (275,562) (239,601)
--------- -------- --------- ---------
Equity in income of unconsolidated joint
ventures -- Note 2........................... 4,789 3,795 12,087 14,281
--------- -------- --------- ---------
Operating income............................... 11,357 9,030 26,793 29,410
Interest expense, net of amounts capitalized... -- (1,249) (227) (4,726)
Other income (expense), net -- Note 4.......... 1,789 1,115 4,128 3,686
--------- -------- --------- ---------
Income before income taxes..................... 13,146 8,896 30,694 28,370
Provision for income taxes -- Note 1
Income taxes -- benefit credited to paid-in
capital................................... -- (1,438) -- (5,160)
Income taxes -- alternative minimum tax...... (1,468) 106 (3,317) (836)
--------- -------- --------- ---------
Income before extraordinary item............... 11,678 7,564 27,377 22,374
Extraordinary item -- gain from retirement of
debt, net of applicable income taxes -- Note
3............................................ -- -- -- 496
--------- -------- --------- ---------
Net income..................................... $ 11,678 $ 7,564 $ 27,377 $ 22,870
========= ======== ========= =========
Basic earnings per common share:
-- Note 1
Before extraordinary item.................... $ 1.10 $ 0.72 $ 2.59 $ 2.13
Extraordinary item........................... -- -- -- 0.05
--------- -------- --------- ---------
After extraordinary item..................... $ 1.10 $ 0.72 $ 2.59 $ 2.18
========= ======== ========= =========
Diluted earnings per common share:
-- Note 1
Before extraordinary item.................... $ 1.08 $ 0.72 $ 2.55 $ 2.13
Extraordinary item........................... -- -- -- 0.05
--------- -------- --------- ---------
After extraordinary item..................... $ 1.08 $ 0.72 $ 2.55 $ 2.18
========= ======== ========= =========
</Table>
See accompanying notes.
4
WILLIAM LYON HOMES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
RETAINED
EARNINGS
COMMON STOCK ADDITIONAL (ACCUMULATED
---------------- PAID-IN DEFICIT) FROM
SHARES AMOUNT CAPITAL JANUARY 1, 1994 TOTAL
------ ------ ---------- --------------- --------
Balance -- December 31, 2000......... 10,570 $106 $126,608 $(24,202) $102,512
Issuance of common stock upon
exercise of stock options -- Note
6.................................. 19 -- 159 -- 159
Net income........................... -- -- -- 27,377 27,377
------ ---- -------- -------- --------
Balance -- September 30, 2001........ 10,589 $106 $126,767 $ 3,175 $130,048
====== ==== ======== ======== ========
</Table>
See accompanying notes.
5
WILLIAM LYON HOMES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
2001 2000
--------- ---------
Operating activities
Net income................................................ $ 27,377 $ 22,870
Adjustments to reconcile net income to net cash used in
operating activities
Depreciation and amortization.......................... 1,906 1,998
Equity in income of unconsolidated joint ventures...... (12,087) (14,281)
Extraordinary gain on repurchase of senior notes....... -- (522)
Provision for income taxes............................. 3,317 6,022
Net changes in operating assets and liabilities:
Receivables.......................................... 7,482 2,247
Real estate inventories.............................. (85,639) (43,169)
Deferred loan costs.................................. (2,107) 682
Other assets......................................... 2,458 (9,706)
Accounts payable..................................... 2,039 12,093
Accrued expenses..................................... (9,482) (7,751)
--------- ---------
Net cash used in operating activities..................... (64,736) (29,517)
--------- ---------
Investing activities
Investments in and advances to unconsolidated joint
ventures............................................... (18,154) (21,356)
Distributions from unconsolidated joint ventures.......... 15,330 32,516
Mortgage notes receivable originations/issuances.......... (136,941) (62,319)
Mortgage notes receivable sales/repayments................ 136,457 60,392
Purchases of property and equipment....................... (480) (1,763)
--------- ---------
Net cash (used in) provided by investing activities....... (3,788) 7,470
--------- ---------
Financing activities
Proceeds from borrowing on notes payable.................. 491,948 315,881
Principal payments on notes payable....................... (425,576) (259,590)
Repurchase of 12 1/2% Senior Notes........................ (51,637) (21,125)
Reissuance of 12 1/2% Senior Notes........................ 44,715 --
Common stock issued for exercised options................. 159 656
--------- ---------
Net cash provided by financing activities................. 59,609 35,822
--------- ---------
Net (decrease) increase in cash and cash equivalents........ (8,915) 13,775
Cash and cash equivalents -- beginning of period............ 14,711 2,154
--------- ---------
Cash and cash equivalents -- end of period.................. $ 5,796 $ 15,929
========= =========
Supplemental disclosures of cash flow information
Cash paid during the period for interest, net of amounts
capitalized............................................ $ 1,158 $ 7,677
========= =========
Contribution of land to unconsolidated joint venture...... $ 1,100 $ --
========= =========
Issuance of notes payable for land acquisitions........... $ 20,293 $ 10,042
========= =========
</Table>
See accompanying notes.
6
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
William Lyon Homes, a Delaware corporation and subsidiaries (the "Company")
are primarily engaged in designing, constructing and selling single family
detached and attached homes in California, Arizona and Nevada.
The unaudited consolidated financial statements of the Company have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and in accordance with the rules
and regulations of the Securities and Exchange Commission. The consolidated
financial statements do not include all of the information and footnotes
required by accounting principles generally accepted in the United States for
complete financial statements. The consolidated financial statements included
herein should be read in conjunction with the Company's Annual Report on Form
10-K for the year ended December 31, 2000.
The interim consolidated financial statements have been prepared in
accordance with the Company's customary accounting practices. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a presentation in accordance with accounting principles generally
accepted in the United States have been included. Operating results for the
three and nine months ended September 30, 2001 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2001.
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries and joint ventures. Investments in joint
ventures in which the Company has a 50% or less ownership interest are accounted
for using the equity method. The accounting policies of the joint ventures are
substantially the same as those of the Company. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The Company designs, constructs and sells a wide range of homes designed to
meet the specific needs of each of its markets. For internal reporting purposes,
the Company is organized into five geographic home building regions and its
mortgage origination operation. Because each of the Company's geographic home
building regions has similar economic characteristics, housing products and
class of prospective buyers, the geographic home building regions have been
aggregated into a single home building segment.
The Company evaluates performance and allocates resources primarily based
on the gross margin and operating income of individual home building projects.
Gross margin is defined by the Company as home sales less cost of sales.
Operating income is defined by the Company as sales of homes, lots and land and
management fee income; less cost of sales, impairment losses on real estate,
selling and marketing, general and administrative expenses and amortization of
goodwill. Accordingly, both gross margin and operating income exclude certain
items included in the determination of net income. All other segment
measurements are disclosed in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000.
Management fee income represents income recognized in the current period
from unconsolidated joint ventures in accordance with joint venture and/or
operating agreements.
The amount paid for business acquisitions over the net fair value of assets
acquired and liabilities assumed is reflected as goodwill and is being amortized
on a straight-line basis over seven years. Accumulated amortization was
$2,482,000 and $1,551,000 as of September 30, 2001 and December 31, 2000,
respectively. In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets ("Statement No. 142"), effective for fiscal years beginning
after December 15, 2001. Under the new rule, goodwill will no longer be
amortized but will be subject to annual impairment tests in accordance with
Statement No. 142. The Company will apply the new rule on accounting for
goodwill beginning in the first quarter of 2002. Application of the
nonamortization provisions of
7
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Statement No. 142 is expected to result in an increase in net income of
$1,110,000 ($0.10 per share) per year. During 2002, the Company will perform the
first of the required impairment tests of goodwill as of January 1, 2002 and has
not yet determined what the effect of these tests will be on the earnings and
financial position of the Company.
Earnings per share amounts for all periods presented conform to Financial
Accounting Standards Board Statement No. 128, "Earnings Per Share." Basic and
diluted earnings per common share for the three months ended September 30, 2001
are based on 10,588,560 and 10,804,075 weighted average shares of common stock
outstanding, respectively. Basic and diluted earnings per common share for the
nine months ended September 30, 2001 are based on 10,578,344 and 10,728,291
weighted average shares of common stock outstanding, respectively. Basic and
diluted earnings per common share for the three months ended September 30, 2000
are based on 10,524,349 and 10,527,639 weighted average shares of common stock
outstanding, respectively. Basic and diluted earnings per common share for the
nine months ended September 30, 2000 are based on 10,476,567 and 10,479,706
weighted average shares of common stock outstanding, respectively.
The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
the assets and liabilities as of September 30, 2001 and December 31, 2000 and
revenues and expenses for the periods presented. Accordingly, actual results
could differ materially from those estimates in the near-term.
The Company completed a capital restructuring and quasi-reorganization
which resulted in the adjustment of assets and liabilities to their estimated
fair values effective January 1, 1994. Income tax benefits resulting from the
utilization of net operating losses and other carryforwards existing at January
1, 1994 and temporary differences existing prior to or resulting from the
quasi-reorganization ("quasi-reorganization income tax benefits") have been
excluded from the results of operations and credited to paid-in capital. As of
December 31, 2000, all quasi-reorganization income tax benefits have been fully
utilized.
8
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2 -- INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES
The Company and certain of its subsidiaries are general partners or members
in joint ventures involved in the development and sale of residential projects.
Such joint ventures are 50% or less owned and, accordingly, the financial
statements of such joint ventures are not consolidated with the Company's
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 September 30, 2001 and December 31,
2000 and for the three and nine months ended September 30, 2001 and 2000 is
summarized as follows:
CONDENSED COMBINED BALANCE SHEETS
(IN THOUSANDS)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(UNAUDITED)
ASSETS
Cash and cash equivalents.................................. $ 13,169 $ 10,693
Receivables................................................ 1,000 1,440
Real estate inventories.................................... 305,330 240,019
Other assets............................................... -- 275
-------- --------
$319,499 $252,427
======== ========
LIABILITIES AND OWNERS' CAPITAL
Accounts payable........................................... $ 23,424 $ 15,921
Accrued expenses........................................... 2,617 4,984
Notes payable.............................................. 75,863 45,162
Advances from William Lyon Homes........................... 8,933 1,959
-------- --------
110,837 68,026
-------- --------
Owners' capital
William Lyon Homes....................................... 49,042 48,007
Others................................................... 159,620 136,394
-------- --------
208,662 184,401
-------- --------
$319,499 $252,427
======== ========
</Table>
9
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONDENSED COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ---------------------
2001 2000 2001 2000
-------- -------- --------- ---------
Home sales............................. $ 63,774 $ 62,844 $ 173,308 $ 211,229
Operating costs
Cost of sales -- homes............... (50,976) (52,763) (140,373) (175,320)
Sales and marketing.................. (2,406) (2,292) (6,305) (7,547)
-------- -------- --------- ---------
Operating income....................... 10,392 7,789 26,630 28,362
Other income, net...................... 89 62 205 378
-------- -------- --------- ---------
Net income............................. $ 10,481 $ 7,851 $ 26,835 $ 28,740
======== ======== ========= =========
Allocation to owners
William Lyon Homes................... $ 4,789 $ 3,795 $ 12,087 $ 14,281
Others............................... 5,692 4,056 14,748 14,459
-------- -------- --------- ---------
$ 10,481 $ 7,851 $ 26,835 $ 28,740
======== ======== ========= =========
</Table>
NOTE 3 -- 12 1/2% SENIOR NOTES
As of September 30, 2001, the Company's outstanding balance under its
12 1/2% Senior Notes was $70,279,000. On May 1, 2001, the Company completed a
consent solicitation with respect to the 12 1/2% Senior Notes and received
consents from holders of $39,279,000 of the then outstanding notes to extend the
maturity date from July 1, 2001 to July 1, 2003 and to make certain amendments
to the note covenants. Although the Company initially intended to accept
consents from no more than 50% of holders, the Company elected to accept
additional consents, as contemplated by the consent solicitation documents. The
consenting holders received a consent fee of 4% of the principal balance.
Subsequently, during May and June 2001, the Company had also repurchased
$31,444,000 of the Senior Notes from non-consenting holders.
In June 2001, General William Lyon, Chairman and Chief Executive Officer of
the Company, and a trust for which his son William Harwell Lyon is a
beneficiary, purchased at par $30,000,000 of the 12 1/2% Senior Notes. William
Harwell Lyon is also an employee and a Director of the Company. Effective in
July 2001, William H. McFarland, another member of the Company's Board of
Directors, purchased at par $1,000,000 of the 12 1/2% Senior Notes. In parity
with holders consenting during the consent solicitation, these Directors
received a consent fee of 4% of the principal balance and consented to the
amendments effected by the Company's consent solicitation statement dated
February 28, 2001.
In July 2001, the Company repaid all of the remaining 12 1/2% Senior Notes
which matured on July 1, 2001 amounting to $5,893,000.
In April and May 2000, the Company purchased $21,775,000 principal amount
of its outstanding Senior Notes at a cost of $21,125,000. The net gain resulting
from the purchase was $496,000 after giving effect to income taxes of $26,000
and amortization of related loan costs of $128,000. Such gain is reflected as an
extraordinary item in the Company's results of operations for the nine months
ended September 30, 2000.
The 12 1/2% Senior Notes are obligations of William Lyon Homes, a Delaware
corporation ("Delaware Lyon"), and are unconditionally guaranteed on a senior
basis by William Lyon Homes, Inc., a California corporation and a wholly-owned
subsidiary of Delaware Lyon. However, William Lyon Homes, Inc. has granted liens
on substantially all of its assets as security for its obligations under certain
revolving credit
10
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
facilities and other loans. Because the William Lyon Homes, Inc. guarantee is
not secured, holders of the Senior Notes are effectively junior to borrowings
under the revolving credit facilities with respect to such assets. Delaware Lyon
and its consolidated subsidiaries are referred to collectively herein as the
"Company." Interest on the Senior Notes is payable on January 1 and July 1 of
each year.
Supplemental consolidating financial information of the Company,
specifically including information for William Lyon Homes, Inc. is presented
below. Investments in subsidiaries are presented using the equity method of
accounting. Separate financial statements of William Lyon Homes, Inc. are not
provided, as the consolidating financial information contained herein provides a
more meaningful disclosure to allow investors to determine the nature of assets
held and the operations of the combined groups.
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2001
(IN THOUSANDS)
<Table>
<Caption>
UNCONSOLIDATED
---------------------------------------
DELAWARE WILLIAM LYON NON-GUARANTOR ELIMINATING CONSOLIDATED
LYON HOMES, INC. SUBSIDIARIES ENTRIES COMPANY
-------- ------------ ------------- ----------- ------------
ASSETS
Cash and cash equivalents........... $ -- $ 4,026 $ 1,770 $ -- $ 5,796
Receivables......................... -- 5,521 14,021 -- 19,542
Real estate inventories............. -- 319,193 57 -- 319,250
Investments in and advances to
unconsolidated joint ventures..... -- 22,625 35,350 -- 57,975
Property and equipment, net......... -- 2,089 234 -- 2,323
Deferred loan costs................. 2,652 209 -- -- 2,861
Goodwill............................ -- 6,207 -- -- 6,207
Other assets........................ -- 19,412 67 -- 19,479
Investments in subsidiaries......... 126,339 41,305 -- (167,644) --
Intercompany receivables............ 79,308 7,972 -- (87,280) --
-------- -------- ------- --------- --------
$208,299 $428,559 $51,499 $(254,924) $433,433
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................... $ -- $ 27,607 $ 194 $ -- $ 27,801
Accrued expenses.................... -- 27,949 982 -- 28,931
Notes payable....................... -- 170,771 5,603 -- 176,374
12 1/2% Senior Notes................ 70,279 -- -- -- 70,279
Intercompany payables............... 7,972 79,308 -- (87,280) --
-------- -------- ------- --------- --------
Total liabilities......... 78,251 305,635 6,779 (87,280) 303,385
Stockholders' equity................ 130,048 122,924 44,720 (167,644) 130,048
-------- -------- ------- --------- --------
$208,299 $428,559 $51,499 $(254,924) $433,433
======== ======== ======= ========= ========
</Table>
11
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000
(IN THOUSANDS)
<Table>
<Caption>
UNCONSOLIDATED
---------------------------------------
DELAWARE WILLIAM LYON NON-GUARANTOR ELIMINATING CONSOLIDATED
LYON HOMES, INC. SUBSIDIARIES ENTRIES COMPANY
-------- ------------ ------------- ----------- ------------
ASSETS
Cash and cash equivalents............ $ -- $ 12,746 $ 1,965 $ -- $ 14,711
Receivables.......................... -- 7,541 10,997 -- 18,538
Real estate inventories.............. -- 213,921 497 -- 214,418
Investments in and advances to
unconsolidated joint ventures...... -- 17,008 32,958 -- 49,966
Property and equipment, net.......... -- 2,564 254 -- 2,818
Deferred loan costs.................. 181 573 -- -- 754
Goodwill............................. -- 7,138 -- -- 7,138
Other assets......................... -- 21,844 93 -- 21,937
Investments in subsidiaries.......... 98,558 34,662 -- (133,220) --
Intercompany receivables............. 86,194 5,220 -- (91,414) --
-------- -------- ------- --------- --------
$184,933 $323,217 $46,764 $(224,634) $330,280
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................... $ -- $ 25,515 $ 247 $ -- $ 25,762
Accrued expenses..................... -- 33,303 1,793 -- 35,096
Notes payable........................ -- 82,546 7,163 -- 89,709
12 1/2% Senior Notes................. 77,201 -- -- -- 77,201
Intercompany payables................ 5,220 86,194 -- (91,414) --
-------- -------- ------- --------- --------
Total liabilities.......... 82,421 227,558 9,203 (91,414) 227,768
Stockholders' Equity................. 102,512 95,659 37,561 (133,220) 102,512
-------- -------- ------- --------- --------
$184,933 $323,217 $46,764 $(224,634) $330,280
======== ======== ======= ========= ========
</Table>
12
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
<Table>
<Caption>
UNCONSOLIDATED
---------------------------------------
DELAWARE WILLIAM LYON NON-GUARANTOR ELIMINATING CONSOLIDATED
LYON HOMES, INC. SUBSIDIARIES ENTRIES COMPANY
-------- ------------ ------------- ----------- ------------
Operating revenue
Sales............................... $ -- $ 97,175 $ 10,454 $ -- $ 107,629
Management fee income............... -- 1,194 670 -- 1,864
------- -------- -------- -------- ---------
-- 98,369 11,124 -- 109,493
------- -------- -------- -------- ---------
Operating costs
Cost of sales....................... -- (79,831) (9,770) -- (89,601)
Sales and marketing................. -- (4,027) (571) -- (4,598)
General and administrative.......... -- (8,349) (67) -- (8,416)
Amortization of goodwill............ -- (310) -- -- (310)
------- -------- -------- -------- ---------
-- (92,517) (10,408) -- (102,925)
------- -------- -------- -------- ---------
Equity in income of unconsolidated
joint ventures...................... -- 931 3,858 -- 4,789
------- -------- -------- -------- ---------
Income from subsidiaries.............. 11,678 5,090 -- (16,768) --
------- -------- -------- -------- ---------
Operating income...................... 11,678 11,873 4,574 (16,768) 11,357
Other income (expense), net........... -- 546 1,243 -- 1,789
------- -------- -------- -------- ---------
Income before income taxes............ 11,678 12,419 5,817 (16,768) 13,146
Provision for income taxes............ -- (1,468) -- -- (1,468)
------- -------- -------- -------- ---------
Net income............................ $11,678 $ 10,951 $ 5,817 $(16,768) $ 11,678
======= ======== ======== ======== =========
</Table>
13
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
<Table>
<Caption>
UNCONSOLIDATED
---------------------------------------
DELAWARE WILLIAM LYON NON-GUARANTOR ELIMINATING CONSOLIDATED
LYON HOMES, INC. SUBSIDIARIES ENTRIES COMPANY
-------- ------------ ------------- ----------- ------------
Operating revenue
Sales............................... $ -- $ 78,898 $ 9,818 $ -- $ 88,716
Management fee income............... -- 221 2,104 -- 2,325
------- -------- -------- -------- --------
-- 79,119 11,922 -- 91,041
------- -------- -------- -------- --------
Operating costs
Cost of sales....................... -- (65,049) (8,906) -- (73,955)
Sales and marketing................. -- (3,637) (483) -- (4,120)
General and administrative.......... -- (7,338) (83) -- (7,421)
Amortization of goodwill............ -- (310) -- -- (310)
------- -------- -------- -------- --------
-- (76,334) (9,472) -- (85,806)
------- -------- -------- -------- --------
Equity in income of unconsolidated
joint ventures...................... -- 587 3,208 -- 3,795
------- -------- -------- -------- --------
Income from subsidiaries.............. 7,564 6,086 -- (13,650) --
------- -------- -------- -------- --------
Operating income...................... 7,564 9,458 5,658 (13,650) 9,030
Interest expense, net of amounts
capitalized......................... -- (1,239) (10) -- (1,249)
Other income (expense), net........... -- 675 440 -- 1,115
------- -------- -------- -------- --------
Income before income taxes............ 7,564 8,894 6,088 (13,650) 8,896
Provision for income taxes
Income taxes -- benefit credited to
paid-in capital.................. -- (1,438) -- -- (1,438)
Income taxes -- alternative minimum
tax.............................. -- 106 -- -- 106
------- -------- -------- -------- --------
Net income............................ $ 7,564 $ 7,562 $ 6,088 $(13,650) $ 7,564
======= ======== ======== ======== ========
</Table>
14
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
<Table>
<Caption>
UNCONSOLIDATED
---------------------------------------
DELAWARE WILLIAM LYON NON-GUARANTOR ELIMINATING CONSOLIDATED
LYON HOMES, INC. SUBSIDIARIES ENTRIES COMPANY
-------- ------------ ------------- ----------- ------------
Operating revenue
Sales............................... $ -- $ 256,191 $ 29,115 $ -- $ 285,306
Management fee income............... -- 2,750 2,212 -- 4,962
------- --------- -------- -------- ---------
-- 258,941 31,327 -- 290,268
------- --------- -------- -------- ---------
Operating costs
Cost of sales....................... -- (209,664) (26,693) -- (236,357)
Sales and marketing................. -- (11,396) (1,560) -- (12,956)
General and administrative.......... -- (25,112) (206) -- (25,318)
Amortization of goodwill............ -- (931) -- -- (931)
------- --------- -------- -------- ---------
-- (247,103) (28,459) -- (275,562)
------- --------- -------- -------- ---------
Equity in income of unconsolidated
joint ventures...................... -- 2,872 9,215 -- 12,087
------- --------- -------- -------- ---------
Income from subsidiaries.............. 27,377 13,292 -- (40,669) --
------- --------- -------- -------- ---------
Operating income...................... 27,377 28,002 12,083 (40,669) 26,793
Interest expense, net of amounts
capitalized......................... -- (227) -- -- (227)
Other income (expense), net........... -- 1,438 2,690 -- 4,128
------- --------- -------- -------- ---------
Income before income taxes............ 27,377 29,213 14,773 (40,669) 30,694
Provision for income taxes............ -- (3,317) -- -- (3,317)
------- --------- -------- -------- ---------
Net income............................ $27,377 $ 25,896 $ 14,773 $(40,669) $ 27,377
======= ========= ======== ======== =========
</Table>
15
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
<Table>
<Caption>
UNCONSOLIDATED
---------------------------------------
DELAWARE WILLIAM LYON NON-GUARANTOR ELIMINATING CONSOLIDATED
LYON HOMES, INC. SUBSIDIARIES ENTRIES COMPANY
-------- ------------ ------------- ----------- ------------
Operating revenue
Sales............................... $ -- $ 225,001 $ 23,433 $ -- $ 248,434
Management fee income............... -- 896 5,400 -- 6,296
------- --------- -------- -------- ---------
-- 225,897 28,833 -- 254,730
------- --------- -------- -------- ---------
Operating costs
Cost of sales....................... -- (183,322) (20,437) -- (203,759)
Sales and marketing................. -- (9,847) (1,255) -- (11,102)
General and administrative.......... -- (23,604) (202) -- (23,806)
Amortization of goodwill............ -- (934) -- -- (934)
------- --------- -------- -------- ---------
-- (217,707) (21,894) -- (239,601)
------- --------- -------- -------- ---------
Equity in income of unconsolidated
joint ventures...................... -- 1,381 12,900 -- 14,281
------- --------- -------- -------- ---------
Income from subsidiaries.............. 22,374 20,276 -- (42,650) --
------- --------- -------- -------- ---------
Operating income...................... 22,374 29,847 19,839 (42,650) 29,410
Interest expense, net of amounts
capitalized......................... -- (4,472) (254) -- (4,726)
Other income (expense), net........... -- 2,998 688 -- 3,686
------- --------- -------- -------- ---------
Income before income taxes and
extraordinary item.................. 22,374 28,373 20,273 (42,650) 28,370
Provision for income taxes
Income taxes -- benefit credited to
paid-in capital.................. -- (5,160) -- -- (5,160)
Income taxes -- alternative minimum
tax.............................. -- (836) -- -- (836)
------- --------- -------- -------- ---------
Income before extraordinary item...... 22,374 22,377 20,273 (42,650) 22,374
Extraordinary item -- gain from
retirement of debt, net of
applicable income taxes............. 496 -- -- -- 496
------- --------- -------- -------- ---------
Net income............................ $22,870 $ 22,377 $ 20,273 $(42,650) $ 22,870
======= ========= ======== ======== =========
</Table>
16
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS)
<Table>
<Caption>
UNCONSOLIDATED
---------------------------------------
DELAWARE WILLIAM LYON NON-GUARANTOR ELIMINATING CONSOLIDATED
LYON HOMES, INC. SUBSIDIARIES ENTRIES COMPANY
-------- ------------ ------------- ----------- ------------
Operating activities:
Net income................................... $ 27,377 $ 25,896 $ 14,773 $(40,669) $ 27,377
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation and amortization............. -- 1,816 90 -- 1,906
Equity in income of unconsolidated joint
ventures................................ -- (2,872) (9,215) -- (12,087)
Equity in earnings of subsidiaries........ (27,500) (13,292) -- 40,792 --
Provision for income taxes................ -- 3,317 -- -- 3,317
Net changes in operating assets and
liabilities:
Receivables............................. -- 2,020 5,462 -- 7,482
Intercompany receivables/payables....... 2,594 (2,471) -- (123) --
Real estate inventories................. -- (86,079) 440 -- (85,639)
Deferred loan costs..................... (2,471) 364 -- -- (2,107)
Other assets............................ -- 2,432 26 -- 2,458
Accounts payable........................ -- 2,092 (53) -- 2,039
Accrued expenses........................ -- (8,671) (811) -- (9,482)
-------- --------- --------- -------- ---------
Net cash (used in) provided by operating
activities................................ -- (75,448) 10,712 -- (64,736)
-------- --------- --------- -------- ---------
Investing activities:
Net change in investment in unconsolidated
joint ventures............................ -- (1,645) (1,179) -- (2,824)
Payments on (issuance of) notes receivable,
net....................................... -- -- (484) -- (484)
Purchases of property and equipment.......... -- (410) (70) -- (480)
Investment in subsidiaries................... -- 6,649 -- (6,649) --
Advances from affiliates..................... 6,763 -- -- (6,763) --
-------- --------- --------- -------- ---------
Net cash provided by (used in) investing
activities................................ 6,763 4,594 (1,733) (13,412) (3,788)
-------- --------- --------- -------- ---------
Financing activities:
Proceeds from borrowings on notes payable.... -- 357,054 134,894 -- 491,948
Principal payments on notes payable.......... -- (289,122) (136,454) -- (425,576)
Repurchase of 12 1/2% Senior Notes........... (51,637) -- -- -- (51,637)
Reissuance of 12 1/2% Senior Notes........... 44,715 -- -- -- 44,715
Distributions to/contributions from
shareholders.............................. -- 1,369 (7,614) 6,245 --
Common stock issued for exercised options.... 159 -- -- -- 159
Advances to affiliates....................... -- (7,167) -- 7,167 --
-------- --------- --------- -------- ---------
Net cash (used in) provided by financing
activities................................ (6,763) 62,134 (9,174) 13,412 59,609
-------- --------- --------- -------- ---------
Net decrease in cash and cash equivalents...... -- (8,720) (195) -- (8,915)
Cash and cash equivalents at beginning of
period....................................... -- 12,746 1,965 -- 14,711
-------- --------- --------- -------- ---------
Cash and cash equivalents at end of period..... $ -- $ 4,026 $ 1,770 $ -- $ 5,796
======== ========= ========= ======== =========
</Table>
17
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
<Table>
<Caption>
UNCONSOLIDATED
---------------------------------------
DELAWARE WILLIAM LYON NON-GUARANTOR ELIMINATING CONSOLIDATED
LYON HOMES, INC. SUBSIDIARIES ENTRIES COMPANY
-------- ------------ ------------- ----------- ------------
Cash flows from operating activities:
Net income.............................. $ 22,870 $ 22,377 $ 20,273 $(42,650) $ 22,870
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Depreciation and amortization........ -- 1,939 59 -- 1,998
Equity in income of unconsolidated
joint ventures..................... -- (1,381) (12,900) -- (14,281)
Equity in earnings of subsidiaries... (22,374) (20,276) -- 42,650 --
Extraordinary gain on repurchase of
senior notes....................... (522) -- -- -- (522)
Provision for income taxes........... -- 6,022 -- -- 6,022
Net changes in operating assets and
liabilities:
Other receivables.................. -- 3,131 (884) -- 2,247
Intercompany
receivables/payables............ (275) 275 -- -- --
Real estate inventories............ -- (46,624) 3,455 -- (43,169)
Deferred loan costs................ 301 381 -- -- 682
Other assets....................... -- (9,728) 22 -- (9,706)
Accounts payable................... -- 12,192 (99) -- 12,093
Accrued expenses................... -- (7,517) (234) -- (7,751)
-------- -------- -------- -------- ---------
Net cash (used in) provided by operating
activities........................... -- (39,209) 9,692 -- (29,517)
-------- -------- -------- -------- ---------
Cash flows from investing activities:
Investment in unconsolidated joint
ventures............................. -- 140 11,020 -- 11,160
Issuance of/payments on notes
receivable........................... -- (1,927) -- -- (1,927)
Purchases of property and equipment..... -- (1,495) (268) -- (1,763)
Investment in subsidiaries.............. -- 23,625 -- (23,625) --
Advances to affiliates.................. 20,469 -- -- (20,469) --
-------- -------- -------- -------- ---------
Net cash provided by investing
activities........................... 20,469 20,343 10,752 (44,094) 7,470
-------- -------- -------- -------- ---------
Cash flows from financing activities:
Proceeds from borrowings on notes
payable.............................. -- 253,562 62,319 -- 315,881
Principal payments on notes payable..... -- (199,930) (59,660) -- (259,590)
Purchase of 12 1/2% Senior Notes........ (21,125) -- -- -- (21,125)
Distributions to/contributions from
shareholders......................... -- (498) (22,471) 22,969 --
Common stock issued for exercised
options.............................. 656 -- -- -- 656
Advances from affiliates................ -- (21,125) -- 21,125 --
-------- -------- -------- -------- ---------
Net cash (used in) provided by financing
activities........................... (20,469) 32,009 (19,812) 44,094 35,822
-------- -------- -------- -------- ---------
Net increase in cash and cash
equivalents............................. -- 13,143 632 -- 13,775
Cash and cash equivalents at beginning of
period.................................. -- 1,344 810 -- 2,154
-------- -------- -------- -------- ---------
Cash and cash equivalents at end of
period.................................. $ -- $ 14,487 $ 1,442 $ -- $ 15,929
======== ======== ======== ======== =========
</Table>
18
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 -- GAIN FROM SALE OF OFFICE BUILDING
In March 2000, the Company completed the sale of an office building where
its prior executive offices were located in Newport Beach, California which was
no longer needed after the consolidation of certain of the Company's operations.
The sales price was $2,120,000 which the Company received in cash at closing.
The net gain from the sale of approximately $1,747,000 is reflected in Other
income (expense), net on the Consolidated Statement of Income for the nine
months ended September 30, 2000.
NOTE 5 -- RELATED PARTY TRANSACTIONS
The Company and certain members of the Company's Board of Directors entered
into certain transactions with respect to the Company's 12 1/2% Senior Notes as
described in Note 3 of Notes to Consolidated Financial Statements.
The Company purchased real estate projects for a total purchase price of
$869,000 during the nine months ended September 30, 2000 from entities
controlled by William Lyon, Chairman of the Board of Directors and Chief
Executive Officer of the Company and William H. Lyon, the son of William Lyon
and a director and employee of the Company.
On October 26, 2000, the Company's Board of Directors (with Messrs. William
Lyon and William H. Lyon abstaining) approved the purchase of 579 lots for a
total purchase price of $12,581,000 from an entity controlled by William Lyon
and William H. Lyon. The terms of the purchase agreement provided for an initial
option payment of $1,000,000 and a rolling option takedown of the lots. Phase
takedowns of approximately 20 lots each are anticipated to occur at two to three
month intervals for each of several product types through September 2004. In
addition, one-half of the net profits, as defined, in excess of six percent from
the development are to be paid to the seller. During the nine months ended
September 30, 2001, the Company purchased 104 lots under this agreement for a
total purchase price of $1,975,000. This land acquisition qualifies as an
affiliate transaction under the Company's 12 1/2% Senior Notes due July 1, 2003
Indenture dated as of June 29, 1994, as amended ("Indenture"). Pursuant to the
terms of the Indenture, the Company has determined that the land acquisition is
on terms that are no less favorable to the Company than those that would have
been obtained in a comparable transaction by the Company with an unrelated
person. The Company has delivered to the Trustee under the Indenture a
resolution of the Board of Directors of the Company set forth in an Officers'
Certificate certifying that the land acquisition is on terms that are no less
favorable to the Company than those that would have been obtained in a
comparable transaction by the Company with an unrelated person and the land
acquisition has been approved by a majority of the disinterested members of the
Board of Directors of the Company. Further, the Company has delivered to the
Trustee under the Indenture a determination of value by a real estate appraisal
firm which is of regional standing in the region in which the subject property
is located and is MAI certified.
For the three and nine months ended September 30, 2001, the Company
incurred reimbursable on-site labor costs of $72,000 and $165,000, respectively
for providing customer service to real estate projects developed by entities
controlled by William Lyon and William H. Lyon, of which $48,000 was due to the
Company at September 30, 2001.
For the three and nine months ended September 30, 2000, the Company earned
management fees of $49,000 and $330,000, respectively, and on-site labor cost
reimbursements of $132,000 and $408,000, respectively, for managing and selling
real estate owned by entities controlled by William Lyon and William H. Lyon.
For the three and nine months ended September 30, 2001, the Company
incurred charges of $183,000 and $547,000, respectively, related to rent on its
corporate office, from a trust of which William H. Lyon is the sole beneficiary.
19
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
For the three and nine months ended September 30, 2000, the Company
incurred charges of $182,000 and $535,000, respectively, related to rent on its
corporate office, from a trust of which William H. Lyon is the sole beneficiary.
During the three and nine months ended September 30, 2001, the Company
incurred charges of $36,000 and $98,000, respectively, related to the charter
and use of aircraft owned by an affiliate of William Lyon.
NOTE 6 -- STOCKHOLDERS' EQUITY
On September 20, 2001 the Company announced that the Company's Board of
Directors had authorized a program to repurchase up to 20% of the Company's
outstanding common shares. Under the plan, the stock will be purchased in the
open market or privately negotiated transactions from time to time in compliance
with Securities and Exchange Commission Rule 10b-18, subject to market
conditions, applicable legal requirements and other factors. The timing and
amounts of any purchases will be as determined by the Company's management from
time to time or may be suspended at any time or from time to time without prior
notice, depending on market conditions and other factors they deem relevant. The
repurchased shares will be held as treasury stock and used for general corporate
purposes. As of September 30, 2001, the Company had 10,588,560 shares
outstanding and no shares had been purchased under this program.
During the nine months ended September 30, 2001, certain officers and
directors exercised options to purchase 18,337 shares of the Company's common
stock at a price of $8.6875 per share in accordance with the William Lyon Homes
2000 Stock Incentive Plan.
Effective on February 21, 2001 and May 14, 2001, the Company issued options
under the William Lyon Homes 2000 Stock Incentive Plan to purchase 12,500 and
20,000 shares of common stock, at $9.10 and $13.00 per share, respectively. The
options vest one-third per year at the end of each of the first three years. All
unexercised options expire at the end of the tenth year.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
WILLIAM LYON HOMES
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 consolidated financial statements and
notes thereto included in Item 1, as well as the information presented in the
Annual Report on Form 10-K for the year ended December 31, 2000.
RESULTS OF OPERATIONS
OVERVIEW AND RECENT RESULTS
Selected financial and operating information for the Company and its
unconsolidated joint ventures as of and for the periods presented is as follows:
<Table>
<Caption>
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------
2001 2000
----------------------------------------- -----------------------------------------
UNCONSOLIDATED UNCONSOLIDATED
COMPANY JOINT COMBINED COMPANY JOINT COMBINED
WHOLLY-OWNED VENTURES TOTAL WHOLLY-OWNED VENTURES TOTAL
------------ -------------- --------- ------------ -------------- ---------
Selected Financial
Information (dollars in
thousands)
Units closed............. 461 134 595 396 147 543
======== ======== ========= ======== ======== =========
Home sales revenue....... $107,629 $ 63,774 $ 171,403 $ 88,633 $ 62,844 $ 151,477
Cost of sales............ (89,413) (50,976) (140,389) (73,816) (52,763) (126,579)
-------- -------- --------- -------- -------- ---------
Gross margin...... $ 18,216 $ 12,798 $ 31,014 $ 14,817 $ 10,081 $ 24,898
======== ======== ========= ======== ======== =========
Gross margin
percentage...... 16.9% 20.1% 18.1% 16.7% 16.0% 16.4%
======== ======== ========= ======== ======== =========
Number of homes closed
California............... 247 134 381 279 147 426
Arizona.................. 76 0 76 58 0 58
Nevada................... 138 0 138 58 0 58
New Mexico(1)............ -- -- -- 1 0 1
-------- -------- --------- -------- -------- ---------
Total............. 461 134 595 396 147 543
======== ======== ========= ======== ======== =========
Average sales price
California............... $273,500 $475,900 $ 344,700 $245,600 $427,500 $ 308,400
Arizona.................. 137,600 0 137,600 130,700 0 130,700
Nevada................... 214,600 0 214,600 214,000 0 214,000
New Mexico(1)............ -- -- -- 123,500 0 123,500
-------- -------- --------- -------- -------- ---------
Total............. $233,500 $475,900 $ 288,100 $223,800 $427,500 $ 279,000
======== ======== ========= ======== ======== =========
Number of net new home
orders
California............... 199 153 352 277 214 491
Arizona.................. 97 0 97 81 0 81
Nevada................... 101 0 101 107 0 107
New Mexico(1)............ -- -- -- 0 0 0
-------- -------- --------- -------- -------- ---------
Total............. 397 153 550 465 214 679
======== ======== ========= ======== ======== =========
Average number of sales
locations during period
California............... 14 14 28 18 13 31
Arizona.................. 7 0 7 5 0 5
Nevada................... 6 0 6 5 0 5
New Mexico(1)............ -- -- -- 0 0 0
-------- -------- --------- -------- -------- ---------
Total............. 27 14 41 28 13 41
======== ======== ========= ======== ======== =========
</Table>
21
<Table>
<Caption>
AS OF SEPTEMBER 30,
-------------------------------------------------------------------------------------
2001 2000
----------------------------------------- -----------------------------------------
UNCONSOLIDATED UNCONSOLIDATED
COMPANY JOINT COMBINED COMPANY JOINT COMBINED
WHOLLY-OWNED VENTURES TOTAL WHOLLY-OWNED VENTURES TOTAL
------------ -------------- --------- ------------ -------------- ---------
Backlog of homes sold but
not closed at end of
period
California............... 366 333 699 400 363 763
Arizona.................. 161 0 161 137 0 137
Nevada................... 169 0 169 107 0 107
New Mexico(1)............ -- -- -- 0 0 0
-------- -------- --------- -------- -------- ---------
Total............. 696 333 1,029 644 363 1,007
======== ======== ========= ======== ======== =========
Dollar amount of backlog of
homes sold but not closed
at end of period (dollars
in thousands)
California............... $113,718 $149,677 $ 263,395 $109,013 $162,334 $ 271,347
Arizona.................. 28,792 0 28,792 19,999 0 19,999
Nevada................... 36,288 0 36,288 22,095 0 22,095
New Mexico(1)............ -- -- -- 0 0 0
-------- -------- --------- -------- -------- ---------
Total............. $178,798 $149,677 $ 328,475 $151,107 $162,334 $ 313,441
======== ======== ========= ======== ======== =========
</Table>
<Table>
<Caption>
AS OF SEPTEMBER 30,
-----------------------------
2001 2000
------------ --------------
Lots owned and controlled
California............... 6,063 5,794
Arizona.................. 2,572 1,886
Nevada................... 896 814
New Mexico(1)............ -- 6
-------- --------
Total............. 9,531 8,500
======== ========
</Table>
22
<Table>
<Caption>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------
2001 2000
----------------------------------------- -----------------------------------------
UNCONSOLIDATED UNCONSOLIDATED
COMPANY JOINT COMBINED COMPANY JOINT COMBINED
WHOLLY-OWNED VENTURES TOTAL WHOLLY-OWNED VENTURES TOTAL
------------ -------------- --------- ------------ -------------- ---------
Selected Financial
Information (dollars in
thousands)
Units closed............. 1,212 384 1,596 1,102 547 1,649
========= ========= ========= ========= ========= =========
Home sales revenue....... $ 278,252 $ 173,308 $ 451,560 $ 247,384 $ 211,229 $ 458,613
Cost of sales............ (231,977) (140,373) (372,350) (202,737) (175,320) (378,057)
--------- --------- --------- --------- --------- ---------
Gross margin...... $ 46,275 $ 32,935 $ 79,210 $ 44,647 $ 35,909 $ 80,556
========= ========= ========= ========= ========= =========
Gross margin
percentage...... 16.6% 19.0% 17.5% 18.0% 17.0% 17.6%
========= ========= ========= ========= ========= =========
Number of homes closed
California............... 656 384 1,040 725 547 1,272
Arizona.................. 201 0 201 102 0 102
Nevada................... 355 0 355 239 0 239
New Mexico(1)............ -- -- -- 36 0 36
--------- --------- --------- --------- --------- ---------
Total............. 1,212 384 1,596 1,102 547 1,649
========= ========= ========= ========= ========= =========
Average sales price
California............... $ 265,300 $ 451,300 $ 334,000 $ 255,700 $ 386,200 $ 311,800
Arizona.................. 142,200 0 142,200 136,300 0 136,300
Nevada................... 213,000 0 213,000 181,700 0 181,700
New Mexico(1)............ -- -- -- 130,800 0 130,800
--------- --------- --------- --------- --------- ---------
Total............. $ 229,600 $ 451,300 $ 282,900 $ 224,500 $ 386,200 $ 278,100
========= ========= ========= ========= ========= =========
Number of net new home
orders
California............... 816 533 1,349 839 723 1,562
Arizona.................. 282 0 282 222 0 222
Nevada................... 427 0 427 221 0 221
New Mexico(1)............ -- -- -- 21 0 21
--------- --------- --------- --------- --------- ---------
Total............. 1,525 533 2,058 1,303 723 2,026
========= ========= ========= ========= ========= =========
Average number of sales
locations during period
California............... 14 12 26 18 13 31
Arizona.................. 6 0 6 5 0 5
Nevada................... 7 0 7 5 0 5
New Mexico(1)............ -- -- -- 0 0 0
--------- --------- --------- --------- --------- ---------
Total............. 27 12 39 28 13 41
========= ========= ========= ========= ========= =========
</Table>
- ---------------
(1) The Company ceased its operations in New Mexico in mid-2000.
Homes in backlog are generally closed within three to six months. The
dollar amount of backlog of homes sold but not closed as of September 30, 2001
was $328.5 million, as compared to $313.4 million as of September 30, 2000 and
$330.1 million as of June 30, 2001. The cancellation rate of buyers who
contracted to buy a home but did not close escrow at the Company's projects was
approximately 20% during 2000, 22% during the first nine months of 2001 and 33%
during the three months ended September 30, 2001.
The number of net new home orders for the quarter ended September 30, 2001
decreased 19% to 550 units from 679 for the third quarter of 2000. For the third
quarter of 2001, the number of net new home orders decreased 28% to 550 from 767
units in the second quarter of 2001. The number of homes closed in the third
quarter of 2001 increased 10 percent to 595 from 543 in the third quarter of
2000. The backlog of homes sold but not closed as of September 30, 2001 was
1,029, up 2 percent from 1,007 units a year earlier, and down 4 percent from
1,074 units at June 30, 2001.
23
The Company believes that the decrease in the number of net new home orders
and the increase in the cancellation rate during the third quarter of 2001, as
described above, are indications of a weakening economy whose short-term outlook
has become more uncertain following the unprecedented and tragic events of
September 11, 2001. The full impact of these events and the weakening economy on
the homebuilding industry and the Company's operations is unknown at this time;
however, consumer uncertainty could have an adverse effect on housing demand.
In general, housing demand is adversely affected by increases in interest
rates and housing prices. 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 or if mortgage interest rates
increase significantly, affecting prospective buyers' ability to adequately
finance home purchases, the Company's sales, gross margins and operating results
may be adversely impacted.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2001 TO THREE MONTHS ENDED
SEPTEMBER 30, 2000
Operating revenue for the three months ended September 30, 2001 was $109.5
million, an increase of $18.5 million (20.3%) from operating revenue of $91.0
million for the three months ended September 30, 2000. Revenue from sales of
homes increased $19.0 million (21.4%) to $107.6 million in the 2001 period from
$88.6 million in the 2000 period. This increase was primarily due to an increase
in the number of wholly-owned units closed to 461 in the 2001 period from 396 in
the 2000 period, along with an increase in the average sales prices of
wholly-owned units due to product mix to $233,500 in the 2001 period from
$223,800 in the 2000 period. Management fee income decreased by $0.4 million to
$1.9 million in the 2001 period from $2.3 million in the 2000 period primarily
due to a decrease in the number of unconsolidated joint venture units closed to
134 in the 2001 period from 147 in the 2000 period.
Total operating income increased from $9.0 million in the 2000 period to
$11.4 million in the 2001 period. The excess of revenue from sales of homes over
the related cost of sales increased by $3.4 million to $18.2 million in the 2001
period from $14.8 million in the 2000 period, resulting in an increase in gross
margins of 0.2 percent to 16.9 percent in the 2001 period from 16.7 percent in
the 2000 period. This was primarily due to an increase in the number of
wholly-owned units closed to 461 units in the 2001 period from 396 units in the
2000 period, together with an increase in the average sales prices of
wholly-owned units due to product mix to $233,500 in the 2001 period from
$223,800 in the 2000 period. The Company's revenues and total operating income
are affected by the proportion of units sold by the Company and those sold by
unconsolidated joint ventures. While the average sales price of homes sold by
joint ventures has been higher than the average sales price of wholly-owned
units, the Company generally receives, after priority returns and capital
distributions, approximately 50% of the profits and losses and cash flows from
joint ventures. Sales and marketing expenses increased by $0.5 million to $4.6
million in the 2001 period from $4.1 million in the 2000 period primarily due to
the increased sales volume. General and administrative expenses increased by
$1.0 million to $8.4 million in the 2001 period from $7.4 million in the 2000
period, primarily as a result of increases in salaries and benefits related to
the Company's increased operations. Equity in income of unconsolidated joint
ventures amounting to $4.8 million was recognized in the 2001 period, up from
$3.8 million in the comparable period for 2000, primarily as a result of
increased margins realized by the unconsolidated joint ventures, offset by a
decrease in the number of units closed to 134 in the 2001 period from 147 in the
2000 period.
Total interest incurred decreased $1.4 million (20.0%) from $7.0 million in
the 2000 period to $5.6 million in the 2001 period primarily as a result of (1)
the replacement of the Company's prior $100.0 million working capital facility
with revolving credit facilities (see description below) with lower effective
borrowing costs, (2) reduction of the outstanding principal balance of 12 1/2%
Senior Notes through the secured working capital facilities with lower effective
borrowing costs and (3) decreases in interest rates. All interest incurred was
capitalized in the 2001 period while $1.2 million of interest incurred was
expensed in the 2000 period as a result of a decrease in total interest incurred
and an increase in interest capitalized to real estate inventories.
24
Other income (expense), net increased to $1.8 million in the 2001 period
from $1.1 million in the 2000 period primarily as a result of increased income
from the Company's design center and mortgage company operations.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2001 TO NINE MONTHS ENDED
SEPTEMBER 30, 2000
Operating revenue for the nine months ended September 30, 2001 was $290.3
million, an increase of $35.6 million (14.0%) from operating revenue of $254.7
million for the nine months ended September 30, 2000. Revenue from sales of
homes increased $30.9 million (12.5%) to $278.3 million in the 2001 period from
$247.4 million in the 2000 period. This increase was primarily due to an
increase in the number of wholly-owned units closed to 1,212 in the 2001 period
from 1,102 in the 2000 period, and an increase in the average sales prices of
wholly-owned units to $229,600 in the 2001 period from $224,500 in the 2000
period. Revenue from sales of lots, land and other increased $6.1 million to
$7.1 million in the 2001 period from $1.0 million in the 2000 period as a result
of the sale of two commercial sites in Southern California and Arizona in the
2001 period. Management fee income decreased by $1.3 million to $5.0 million in
the 2001 period from $6.3 million in the 2000 period primarily due to a decrease
in the number of unconsolidated joint venture units closed to 384 in the 2001
period from 547 in the 2000 period.
Total operating income decreased from $29.4 million in the 2000 period to
$26.8 million in the 2001 period. The excess of revenue from sales of homes over
the related cost of sales increased by $1.7 million to $46.3 million in the 2001
period from $44.6 million in the 2000 period primarily due to an increase in the
number of wholly-owned units closed to 1,212 units in the 2001 period from 1,102
units in the 2000 period, and an increase in the average sales prices of
wholly-owned units to $229,600 in the 2001 period from $224,500 in the 2000
period, offset by a decline in gross margins of 1.4 percent to 16.6 percent in
the 2001 period from 18.0 percent in the 2000 period primarily due to a change
in the mix of product. The Company's revenues and total operating income are
affected by the proportion of units sold by the Company and those sold by
unconsolidated joint ventures. While the average sales price of homes sold by
joint ventures has been higher than the average sales price of wholly-owned
units, the Company generally receives, after priority returns and capital
distributions, approximately 50% of the profits and losses and cash flows from
joint ventures. Sales and marketing expenses increased by $1.9 million to $13.0
million in the 2001 period from $11.1 million in the 2000 period primarily due
to the increased sales volume. General and administrative expenses increased by
$1.5 million to $25.3 million in the 2001 period from $23.8 million in the 2000
period, primarily as a result of increases in salaries and benefits related to
the Company's increased operations, offset by a reduction in outside
consultants' expense and legal expense. Equity in income of unconsolidated joint
ventures amounting to $12.1 million was recognized in the 2001 period, down from
$14.3 million in the comparable period for 2000 primarily as a result of a
decrease in the number of units closed to 384 in the 2001 period from 547 in the
2000 period.
Total interest incurred decreased $2.6 million (13.4%) from $19.4 million
in the 2000 period to $16.8 million in the 2001 period primarily as a result of
(1) the replacement of the Company's prior $100.0 million working capital
facility with revolving credit facilities (see description below) with lower
effective borrowing costs, (2) reduction of the outstanding principal balance of
12 1/2% Senior Notes through the secured working capital facilities with lower
effective borrowing costs and (3) decreases in interest rates. Net interest
expense decreased to $0.2 million in the 2001 period from $4.7 million in the
2000 period as a result of a decrease in total interest incurred and an increase
in interest capitalized to real estate inventories.
Other income (expense), net increased to $4.1 million in the 2001 period
from $3.7 million in the 2000 period primarily as a result of an increase in
income from the Company's design center and mortgage company operations, offset
by a gain from the sale of an office building in the 2000 period.
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 by joint venture financing with venture partners that provide a
substantial portion of the capital required for certain projects. The Company
currently maintains the
25
following major credit facilities: 12 1/2% Senior Notes (the "Senior Notes"),
secured revolving credit facilities ("Revolving Credit Facilities") and an
unsecured revolving line of credit with a commercial bank ("Unsecured Revolving
Line"). The Company also finances certain projects with construction loans
secured by real estate inventories and finances certain land acquisitions with
seller-provided financing.
The ability of the Company to meet its obligations on its 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, mortgage and other interest rates, 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,
availability of labor and homebuilding materials, changes in governmental laws
and regulations, and the availability and cost of land for future development.
SENIOR NOTES
As of September 30, 2001, the Company's outstanding balance under its
12 1/2% Senior Notes was $70,279,000. On May 1, 2001, the Company completed a
consent solicitation with respect to the 12 1/2% Senior Notes and received
consents from holders of $39,279,000 of the then outstanding notes to extend the
maturity date from July 1, 2001 to July 1, 2003 and to make certain amendments
to the note covenants. Although the Company initially intended to accept
consents from no more than 50% of holders, the Company elected to accept
additional consents, as contemplated by the consent solicitation documents. The
consenting holders received a consent fee of 4% of the principal balance.
Subsequently, during May and June 2001, the Company had also repurchased
$31,444,000 of the Senior Notes from non-consenting holders.
In June 2001, General William Lyon, Chairman and Chief Executive Officer of
the Company, and a trust for which his son William Harwell Lyon is a
beneficiary, purchased at par $30,000,000 of the 12 1/2% Senior Notes. William
Harwell Lyon is also an employee and a Director of the Company. Effective in
July 2001, William H. McFarland, another member of the Company's Board of
Directors, purchased at par $1,000,000 of the 12 1/2% Senior Notes. In parity
with holders consenting during the consent solicitation, these Directors
received a consent fee of 4% of the principal balance and consented to the
amendments effected by the Company's consent solicitation statement dated
February 28, 2001.
In July 2001, the Company repaid all of the remaining 12 1/2% Senior Notes
which matured on July 1, 2001 amounting to $5,893,000.
In April and May 2000, the Company purchased $21,775,000 principal amount
of its outstanding Senior Notes at a cost of $21,125,000. The net gain resulting
from the purchase was $496,000 after giving effect to income taxes of $26,000
and amortization of related loan costs of $128,000. Such gain is reflected as an
extraordinary item in the Company's results of operations for the nine months
ended September 30, 2000.
The 12 1/2% Senior Notes (the "Senior Notes") are obligations of William
Lyon Homes, a Delaware corporation ("Delaware Lyon"), and are unconditionally
guaranteed on a senior basis by William Lyon Homes, Inc., a California
corporation and a wholly-owned subsidiary of Delaware Lyon. However, William
Lyon Homes, Inc. has granted liens on substantially all of its assets as
security for its obligations under the Revolving Credit Facilities and other
loans. Because the William Lyon Homes, Inc. guarantee is not secured, holders of
the Senior Notes are effectively junior to borrowings under the Revolving Credit
Facilities with respect to such assets. Interest on the Senior Notes is payable
on January 1 and July 1 of each year.
The Senior Notes are senior obligations of Delaware Lyon and rank pari
passu in right of payment to all existing and future unsecured indebtedness of
Delaware Lyon, and senior in right of payment to all future indebtedness of the
Company which by its terms is subordinated to the Senior Notes.
Delaware Lyon 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 Lyon's Consolidated Tangible Net Worth is
less than $60.0 million on the last day of each of any two consecutive fiscal
quarters, as well as from the proceeds of certain asset sales.
26
Upon certain changes of control as described in the Indenture, Delaware
Lyon 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 Delaware Lyon and
certain of its subsidiaries with respect to, among other things: (1) the payment
of dividends on and redemptions of capital stock, (2) the incurrence of
indebtedness or the issuance of preferred stock, (3) the creation of certain
liens, (4) consolidation or mergers with or transfers of all or substantially
all of its assets and (5) transactions with affiliates. These restrictions are
subject to a number of important qualifications and exceptions.
REVOLVING CREDIT FACILITIES
The Revolving Credit Facilities have an aggregate maximum loan commitment
of $180.0 million and mature at various dates beginning in 2002 through
September 2004. The collateral for the loans provided by the Revolving Credit
Facilities includes substantially all real estate of the Company (excluding
assets which are pledged as collateral for construction notes payable described
below and excluding assets of partnerships and limited liability companies).
Although the aggregate maximum loan commitment for these loans is $180.0
million, the credit facilities have limitations on the amounts which can be
borrowed at any time based on assets which are included in the credit facilities
and the specified borrowings permitted under borrowing base calculations. The
undrawn availability at September 30, 2001 was $36.3 million and the principal
outstanding under the Revolving Credit Facilities at September 30, 2001 was
$127.3 million. Pursuant to the terms of the Revolving Credit Facilities,
outstanding advances bear interest at various rates which approximate the prime
rate. The Revolving Credit Facilities include financial covenants which may
limit the amount which may be borrowed thereunder.
UNSECURED REVOLVING LINE
Effective March 8, 2001 the Company obtained an unsecured revolving line of
credit with a commercial bank in the amount of $10.0 million. The Unsecured
Revolving Line bears interest at prime plus 1% and matures on March 12, 2002.
The Unsecured Revolving Line includes financial covenants which may limit the
amount which may be borrowed thereunder. As of September 30, 2001 $8.0 million
was outstanding under the Unsecured Revolving Line.
CONSTRUCTION NOTES PAYABLE
At September 30, 2001, the Company had construction notes payable amounting
to $15.1 million related to various real estate projects. The notes are due as
units close or at various dates on or before December 31, 2002 and bear interest
at rates of prime plus 0.25% to prime plus 0.50%.
SELLER FINANCING
Another source of financing available to the Company is seller-provided
financing for land acquired by the Company. At September 30, 2001, the Company
had $20.3 million of notes payable outstanding related to land acquisitions for
which seller financing was provided.
REVOLVING MORTGAGE WAREHOUSE CREDIT FACILITY
The Company has a $15.0 million revolving mortgage warehouse credit
facility with a bank to fund its mortgage origination operations. Mortgage loans
are generally held for a short period of time and are typically sold to
investors within 7 to 15 days following funding. Borrowings are secured by the
related mortgage loans held for sale. At September 30, 2001 the outstanding
balance was $5.6 million. The facility, which has a current maturity date of May
31, 2002, also contains a financial covenant requiring the Company to maintain
cash and/or marketable securities on the books of account of its subsidiary,
Duxford Financial, Inc., a California corporation ("Duxford") in an amount equal
to no less than $1.0 million and a financial covenant requiring the Company to
maintain total assets net of total liabilities and net of amounts receivable
from the Company and/or affiliates on the books of account of Duxford in an
amount equal to no less than $1.0 million.
27
JOINT VENTURE FINANCING
As of September 30, 2001, the Company and certain of its subsidiaries are
general partners or members in joint ventures involved in the development and
sale of residential projects. Such joint ventures are 50% or less owned and,
accordingly, the financial statements of such joint ventures are not
consolidated with the Company's financial statements. The Company's investments
in unconsolidated joint ventures are accounted for using the equity method. See
Note 2 of "Notes to Consolidated Financial Statements" for condensed combined
financial information for these joint ventures. Based upon current estimates,
substantially all future development and construction costs will be funded by
the Company's venture partners or from the proceeds of construction financing
obtained by the joint ventures.
As of September 30, 2001, the Company's investment in and advances to such
joint ventures was approximately $58.0 million and the Company's venture
partners' investment in such joint ventures was approximately $159.6 million. In
addition, certain joint ventures have obtained financing from land sellers or
construction lenders which amounted to approximately $75.9 million at September
30, 2001.
ASSESSMENT DISTRICT BONDS
In some jurisdictions in which the Company develops and constructs
property, 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 the Company'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 NINE MONTHS ENDED SEPTEMBER 30, 2001 TO NINE
MONTHS ENDED SEPTEMBER 30, 2000
Net cash used in operating activities increased to $64.7 million in the
2001 period from $29.5 million in the 2000 period. The change was primarily as a
result of an increase in real estate inventories in the 2001 period.
Net cash used in investing activities was $3.8 million in the 2001 period
and net cash provided by investing activities was $7.5 million in the 2000
period. The change was primarily as a result of decreased net cash received from
unconsolidated joint ventures in the 2001 period.
Net cash provided by financing activities increased to $59.6 million in the
2001 period from $35.8 million in the 2000 period primarily as a result of
increased net borrowings on notes payable.
28
DESCRIPTION OF PROJECTS
The Company's homebuilding projects usually take two to five years to
develop. The following table presents project information relating to each of
the Company's homebuilding divisions.
<Table>
<Caption>
HOMES CLOSED
FOR THE NINE
ESTIMATED UNITS CLOSED LOTS OWNED MONTH PERIOD
YEAR OF NUMBER OF AS OF AS OF ENDED BACKLOG AT
FIRST HOMES AT SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
PROJECT (COUNTY) PRODUCT DELIVERY COMPLETION(1) 2001 2001 2001 2001(2)(4)
------------------------ -------- ------------- ------------- ------------- ------------- -------------
SOUTHERN CALIFORNIA
WHOLLY-OWNED:
Oak Park II -- Irvine
(Orange County)......... 1998 102 102 0 30 0
------ ----- ----- ----- -----
Solana at Talega (Orange
County)................. 1999 120 120 0 29 0
------ ----- ----- ----- -----
Lyon Vineyard (San
Bernardino County)...... 2000 100 100 0 11 0
------ ----- ----- ----- -----
Lyon Orchard (San
Bernardino County)...... 2000 81 81 0 2 0
------ ----- ----- ----- -----
Archibald Ranch (San
Bernardino County)...... 2000 113 99 14 78 12
------ ----- ----- ----- -----
Crown Ridge -- Palmdale
(Los Angeles County).... 2000 71 71 0 45 0
------ ----- ----- ----- -----
Andover -- West Irvine
(Orange County)......... 2001 138 21 95 21 50
------ ----- ----- ----- -----
Terraza at Vista del Verde
-- Yorba Linda (Orange
County)................. 2001 106 0 106 0 19
------ ----- ----- ----- -----
Providence Ranch
(Riverside County)...... 2001 97 50 47 50 25
------ ----- ----- ----- -----
Cantada -- Oxnard (Ventura
County)................. 2002 113 0 113 0 17
------ ----- ----- ----- -----
Monticello -- North Park
Square (Orange County).. 2002 112 0 56 0 8
------ ----- ----- ----- -----
Montellano at Talega
(Orange County)......... 2002 63 0 63 0 0
------ ----- ----- ----- -----
Sterling Glen at Ladera
Ranch (Orange County)... 2002 102 0 102 0 0
------ ----- ----- ----- -----
Total wholly-owned.... 1,318 644 596 266 131
------ ----- ----- ----- -----
UNCONSOLIDATED JOINT
VENTURES:
White Cloud Estates
(Ventura County)........ 1999 78 78 0 1 0
------ ----- ----- ----- -----
Lyon Monterrey
(Orange County)......... 1999 99 99 0 24 0
------ ----- ----- ----- -----
Reston at Ladera Ranch
(Orange County)......... 2000 117 56 61 40 56
------ ----- ----- ----- -----
Hampton Road at Ladera
Ranch (Orange County)... 2000 82 32 50 32 27
------ ----- ----- ----- -----
Compass Pointe at Forster
Ranch (Orange County)... 2000 92 64 28 43 17
------ ----- ----- ----- -----
Avalon at Summerlane
(Orange County)......... 2000 113 76 37 48 37
------ ----- ----- ----- -----
Beachside - Huntington
Beach (Orange County)... 2001 86 0 86 0 32
------ ----- ----- ----- -----
Quintana (Ventura
County)................. 2001 90 0 90 0 7
------ ----- ----- ----- -----
Moorpark (Ventura
County)................. 2002 70 0 70 0 0
------ ----- ----- ----- -----
Total unconsolidated
joint ventures...... 827 405 422 188 176
------ ----- ----- ----- -----
SOUTHERN CALIFORNIA
REGION TOTAL............ 2,145 1,049 1,018 454 307
====== ===== ===== ===== =====
<Caption>
SALES PRICE
PROJECT (COUNTY) PRODUCT RANGE(3)
------------------------ --------------------
SOUTHERN CALIFORNIA
WHOLLY-OWNED:
Oak Park II -- Irvine
(Orange County)......... $ 165,000 - 251,000
Solana at Talega (Orange
County)................. $ 285,000 - 355,000
Lyon Vineyard (San
Bernardino County)...... $ 218,000 - 253,000
Lyon Orchard (San
Bernardino County)...... $ 171,000 - 200,000
Archibald Ranch (San
Bernardino County)...... $ 208,000 - 252,000
Crown Ridge -- Palmdale
(Los Angeles County).... $ 160,000 - 185,000
Andover -- West Irvine
(Orange County)......... $ 247,000 - 297,000
Terraza at Vista del Verde
-- Yorba Linda (Orange
County)................. $ 500,000 - 550,000
Providence Ranch
(Riverside County)...... $ 210,000 - 245,000
Cantada -- Oxnard (Ventura
County)................. $ 285,000 - 312,000
Monticello -- North Park
Square (Orange County).. $ 260,000 - 315,000
Montellano at Talega
(Orange County)......... $ 645,000 - 725,000
Sterling Glen at Ladera
Ranch (Orange County)... $ 410,000 - 445,000
Total wholly-owned....
UNCONSOLIDATED JOINT
VENTURES:
White Cloud Estates
(Ventura County)........ $ 302,000 - 350,000
Lyon Monterrey
(Orange County)......... $ 360,000 - 428,000
Reston at Ladera Ranch
(Orange County)......... $ 350,000 - 425,000
Hampton Road at Ladera
Ranch (Orange County)... $ 435,000 - 477,000
Compass Pointe at Forster
Ranch (Orange County)... $ 540,000 - 575,000
Avalon at Summerlane
(Orange County)......... $ 435,000 - 490,000
Beachside - Huntington
Beach (Orange County)... $ 520,000 - 570,000
Quintana (Ventura
County)................. $ 495,000 - 610,000
Moorpark (Ventura
County)................. $ 425,000 - 460,000
Total unconsolidated
joint ventures......
SOUTHERN CALIFORNIA
REGION TOTAL............
</Table>
29
<Table>
<Caption>
HOMES CLOSED
FOR THE NINE
ESTIMATED UNITS CLOSED LOTS OWNED MONTH PERIOD
YEAR OF NUMBER OF AS OF AS OF ENDED BACKLOG AT
FIRST HOMES AT SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
PROJECT (COUNTY) PRODUCT DELIVERY COMPLETION(1) 2001 2001 2001 2001(2)(4)
------------------------ -------- ------------- ------------- ------------- ------------- -------------
NORTHERN CALIFORNIA
WHOLLY-OWNED:
St. Helena Westminster
Estates (Napa County)... 1999 23 23 0 1 0
------ ----- ----- ----- -----
Lyon Villas (San Joaquin
County)................. 1999 135 81 54 9 0
------ ----- ----- ----- -----
Lyon Estates (San Joaquin
County)................. 1997 120 79 41 12 1
------ ----- ----- ----- -----
Lyon Ironwood (San Joaquin
County)................. 2000 116 49 55 49 26
------ ----- ----- ----- -----
Lyon Edgewood (San Joaquin
County)................. 2000 87 87 0 10 0
------ ----- ----- ----- -----
Lyon Edgewood 2
(San Joaquin County).... 2000 65 65 0 44 0
------ ----- ----- ----- -----
Lyon Rhapsody
(Contra Costa County)... 2001 81 7 74 7 37
------ ----- ----- ----- -----
Lyon Estates at
Stonebridge
(San Joaquin County).... 2001 103 0 44 0 17
------ ----- ----- ----- -----
Lyon Palazzo (Sacramento
County)................. 2001 100 8 92 8 31
------ ----- ----- ----- -----
Lyon Seasons (Stanislaus
County)................. 2002 71 0 71 0 0
------ ----- ----- ----- -----
Total wholly-owned.... 901 399 431 140 112
------ ----- ----- ----- -----
UNCONSOLIDATED JOINT
VENTURES:
The Ranch at Silver Creek
(Santa Clara County).... 2002 538 0 538 0 0
------ ----- ----- ----- -----
Lyon Groves (Contra Costa
County)................. 1999 103 103 0 20 0
------ ----- ----- ----- -----
Lyon Ridge (Contra Costa
County)................. 1999 127 106 21 52 15
------ ----- ----- ----- -----
Manor at Thomas Ranch
(Contra Costa County)... 1999 63 63 0 1 0
------ ----- ----- ----- -----
Plantation at Thomas Ranch
(Contra Costa County)... 1999 77 77 0 22 0
------ ----- ----- ----- -----
Henry Ranch (Contra Costa
County)
Lyon Tierra............. 2001 46 10 36 10 14
Lyon Dorado............. 2001 54 4 50 4 14
------ ----- ----- ----- -----
100 14 86 14 28
------ ----- ----- ----- -----
Woodlake Estates
(Solano County)
Paradise Valley......... 2003 9 0 9 0 0
Brook................... 2001 121 0 121 0 20
Falls................... 2001 102 4 98 4 31
------ ----- ----- ----- -----
232 4 228 4 51
------ ----- ----- ----- -----
Stonebriar (El Dorado
County)
Lyon Casina............. 2001 123 0 123 0 9
Lyon Prima.............. 2001 137 0 137 0 7
------ ----- ----- ----- -----
260 0 260 0 16
------ ----- ----- ----- -----
Total unconsolidated
joint ventures...... 1,500 367 1,133 113 110
------ ----- ----- ----- -----
NORTHERN CALIFORNIA REGION
TOTAL................... 2,401 766 1,564 253 222
====== ===== ===== ===== =====
<Caption>
SALES PRICE
PROJECT (COUNTY) PRODUCT RANGE(3)
------------------------ --------------------
NORTHERN CALIFORNIA
WHOLLY-OWNED:
St. Helena Westminster
Estates (Napa County)... $ 495,000 - 565,000
Lyon Villas (San Joaquin
County)................. $ 203,000 - 279,000
Lyon Estates (San Joaquin
County)................. $ 290,000 - 327,000
Lyon Ironwood (San Joaquin
County)................. $ 228,000 - 297,000
Lyon Edgewood (San Joaquin
County)................. $ 198,000 - 287,000
Lyon Edgewood 2
(San Joaquin County).... $ 233,000 - 279,000
Lyon Rhapsody
(Contra Costa County)... $ 228,000 - 298,000
Lyon Estates at
Stonebridge
(San Joaquin County).... $ 291,000 - 329,000
Lyon Palazzo (Sacramento
County)................. $ 248,000 - 301,000
Lyon Seasons (Stanislaus
County)................. $ 268,000 - 323,000
Total wholly-owned....
UNCONSOLIDATED JOINT
VENTURES:
The Ranch at Silver Creek
(Santa Clara County)....
Lyon Groves (Contra Costa
County)................. $ 269,000 - 353,000
Lyon Ridge (Contra Costa
County)................. $ 331,000 - 407,000
Manor at Thomas Ranch
(Contra Costa County)... $ 544,000 - 657,000
Plantation at Thomas Ranch
(Contra Costa County)... $ 643,000 - 799,000
Henry Ranch (Contra Costa
County)
Lyon Tierra............. $ 531,000 - 569,000
Lyon Dorado............. $883,000 - 1,003,000
Woodlake Estates
(Solano County)
Paradise Valley......... $ 353,000 - 378,000
Brook................... $ 296,000 - 341,000
Falls................... $ 323,000 - 386,000
Stonebriar (El Dorado
County)
Lyon Casina............. $ 311,000 - 376,000
Lyon Prima.............. $ 376,000 - 416,000
Total unconsolidated
joint ventures......
NORTHERN CALIFORNIA REGION
TOTAL...................
</Table>
30
<Table>
<Caption>
HOMES CLOSED
FOR THE NINE
ESTIMATED UNITS CLOSED LOTS OWNED MONTH PERIOD
YEAR OF NUMBER OF AS OF AS OF ENDED BACKLOG AT
FIRST HOMES AT SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
PROJECT (COUNTY) PRODUCT DELIVERY COMPLETION(1) 2001 2001 2001 2001(2)(4)
------------------------ -------- ------------- ------------- ------------- ------------- -------------
SAN DIEGO
WHOLLY-OWNED:
Horsethief Canyon Ranch
(Riverside County)
Previously Closed
Products.............. 1989 963 963 0 0 0
Series "400"............ 1995 554 409 141 58 33
Series "500"............ 1995 445 386 63 54 30
------ ----- ----- ----- -----
1,962 1,758 204 112 63
------ ----- ----- ----- -----
Sycamore Ranch
(Riverside County)...... 1997 195 103 92 1 16
------ ----- ----- ----- -----
Vail Ranch
(San Diego County)...... 2000 152 130 22 63 13
------ ----- ----- ----- -----
East Grove (San Diego
County)
Village C............... 2002 75 0 75 0 0
Village D............... 2002 42 0 42 0 0
------ ----- ----- ----- -----
117 0 117 0 0
------ ----- ----- ----- -----
Rancho Dorado
(San Diego County)
La Fuente............... 2000 56 56 0 20 0
Loma Real............... 2000 89 53 25 34 15
Los Reyes............... 2000 66 20 39 20 16
------ ----- ----- ----- -----
211 129 64 74 31
------ ----- ----- ----- -----
Total wholly-owned.... 2,637 2,120 499 250 123
------ ----- ----- ----- -----
UNCONSOLIDATED JOINT
VENTURES:
Otay Ranch -- Saratogo
Trails (San Diego
County)................. 1999 74 74 0 7 0
------ ----- ----- ----- -----
Otay Ranch -- Mendocino
(San Diego County)...... 1999 139 139 0 33 0
------ ----- ----- ----- -----
Otay Ranch -- (R-29)
(San Diego County)...... 2001 83 0 83 0 39
------ ----- ----- ----- -----
Rancho Dorado
(San Diego County)
Monte Verde............. 2000 65 63 2 43 2
------ ----- ----- ----- -----
East Grove (San Diego
County)
The Groves (Village
A).................... 2001 96 0 96 0 2
The Orchards (Village
B).................... 2002 78 0 78 0 0
------ ----- ----- ----- -----
174 0 174 0 2
------ ----- ----- ----- -----
4S Ranch -- Providence
(San Diego County)...... 2001 123 0 123 0 4
------ ----- ----- ----- -----
Total unconsolidated
joint ventures...... 658 276 382 83 47
------ ----- ----- ----- -----
SAN DIEGO REGION TOTAL.... 3,295 2,396 881 333 170
====== ===== ===== ===== =====
<Caption>
SALES PRICE
PROJECT (COUNTY) PRODUCT RANGE(3)
------------------------ --------------------
SAN DIEGO
WHOLLY-OWNED:
Horsethief Canyon Ranch
(Riverside County)
Previously Closed
Products..............
Series "400"............ $ 194,000 - 221,000
Series "500"............ $ 226,000 - 250,000
Sycamore Ranch
(Riverside County)...... $ 368,000 - 441,000
Vail Ranch
(San Diego County)...... $ 193,000 - 213,000
East Grove (San Diego
County)
Village C............... $ 376,000 - 416,000
Village D............... $ 378,000 - 428,000
Rancho Dorado
(San Diego County)
La Fuente............... $ 293,000 - 322,000
Loma Real............... $ 395,000 - 444,000
Los Reyes............... $ 442,000 - 466,000
Total wholly-owned....
UNCONSOLIDATED JOINT
VENTURES:
Otay Ranch -- Saratogo
Trails (San Diego
County)................. $ 258,000 - 276,000
Otay Ranch -- Mendocino
(San Diego County)...... $ 214,000 - 242,000
Otay Ranch -- (R-29)
(San Diego County)...... $ 251,000 - 268,000
Rancho Dorado
(San Diego County)
Monte Verde............. $ 354,000 - 404,000
East Grove (San Diego
County)
The Groves (Village
A).................... $ 295,000 - 318,000
The Orchards (Village
B).................... $ 322,000 - 362,000
4S Ranch -- Providence
(San Diego County)...... $ 528,000 - 567,000
Total unconsolidated
joint ventures......
SAN DIEGO REGION TOTAL....
</Table>
31
<Table>
<Caption>
HOMES CLOSED
FOR THE NINE
ESTIMATED UNITS CLOSED LOTS OWNED MONTH PERIOD
YEAR OF NUMBER OF AS OF AS OF ENDED BACKLOG AT
FIRST HOMES AT SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
PROJECT (COUNTY) PRODUCT DELIVERY COMPLETION(1) 2001 2001 2001 2001(2)(4)
------------------------ -------- ------------- ------------- ------------- ------------- -------------
ARIZONA
WHOLLY-OWNED:
Crystal Gardens
(Maricopa County)....... 1997 157 157 0 14 0
------ ----- ----- ----- -----
Sage Creek -- Encanto
(Maricopa County)....... 2000 176 136 33 83 33
------ ----- ----- ----- -----
Sage Creek -- Arcadia
(Maricopa County)....... 2000 167 70 51 37 44
------ ----- ----- ----- -----
Sage Creek -- Solano
(Maricopa County)....... 2000 82 39 31 24 22
------ ----- ----- ----- -----
Mesquite Grove -- Small
(Maricopa County)....... 2001 110 0 110 0 15
------ ----- ----- ----- -----
Mesquite Grove -- Large
(Maricopa County)....... 2001 95 0 95 0 16
------ ----- ----- ----- -----
Rio Del Verde
(Maricopa County)....... 2000 84 78 6 43 4
------ ----- ----- ----- -----
Power Ranch
(Maricopa County)....... 2001 103 0 103 0 23
------ ----- ----- ----- -----
Tramonto (Maricopa
County)................. 2002 76 0 76 0 4
------ ----- ----- ----- -----
Country Place
(Maricopa County)....... 2002 115 0 14 0 0
------ ----- ----- ----- -----
Total
wholly-owned.... 1,165 480 519 201 161
------ ----- ----- ----- -----
UNCONSOLIDATED JOINT
VENTURES:
Mountaingate
(Maricopa County)....... 2002 341 0 171 0 0
------ ----- ----- ----- -----
Total unconsolidated
joint ventures...... 341 0 171 0 0
------ ----- ----- ----- -----
ARIZONA REGION TOTAL...... 1,506 480 690 201 161
====== ===== ===== ===== =====
<Caption>
SALES PRICE
PROJECT (COUNTY) PRODUCT RANGE(3)
------------------------ --------------------
ARIZONA
WHOLLY-OWNED:
Crystal Gardens
(Maricopa County)....... $ 100,000 - 130,000
Sage Creek -- Encanto
(Maricopa County)....... $ 109,000 - 123,000
Sage Creek -- Arcadia
(Maricopa County)....... $ 136,000 - 160,000
Sage Creek -- Solano
(Maricopa County)....... $ 169,000 - 191,000
Mesquite Grove -- Small
(Maricopa County)....... $ 181,000 - 223,000
Mesquite Grove -- Large
(Maricopa County)....... $ 281,000 - 317,000
Rio Del Verde
(Maricopa County)....... $ 164,000 - 201,000
Power Ranch
(Maricopa County)....... $ 174,000 - 232,000
Tramonto (Maricopa
County)................. $ 185,000 - 247,000
Country Place
(Maricopa County)....... $ 109,000 - 131,000
Total
wholly-owned....
UNCONSOLIDATED JOINT
VENTURES:
Mountaingate
(Maricopa County).......
Total unconsolidated
joint ventures......
ARIZONA REGION TOTAL......
</Table>
32
<Table>
<Caption>
HOMES CLOSED
FOR THE NINE
ESTIMATED UNITS CLOSED LOTS OWNED MONTH PERIOD
YEAR OF NUMBER OF AS OF AS OF ENDED BACKLOG AT
FIRST HOMES AT SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
PROJECT (COUNTY) PRODUCT DELIVERY COMPLETION(1) 2001 2001 2001 2001(2)(4)
- ------------------------ -------- ------------- ------------- ------------- ------------- -------------
NEVADA
WHOLLY-OWNED:
Bella Veranda (Clark
County).............. 2000 79 79 0 39 0
------ ----- ----- ----- -----
Montecito Tesoro
(Clark County)....... 2000 121 87 34 65 34
------ ----- ----- ----- -----
Montecito Classico
(Clark County)....... 2000 100 61 21 48 31
------ ----- ----- ----- -----
Kingsway Ridge I
(Clark County)....... 2000 90 90 0 52 0
------ ----- ----- ----- -----
Kingsway Ridge II
(Clark County)....... 2000 67 66 1 49 1
------ ----- ----- ----- -----
Glenleigh Gardens at
Summerlin (Clark
County).............. 2000 96 62 34 53 19
------ ----- ----- ----- -----
Springfield at Summerlin
(Clark County)....... 2001 85 20 65 20 33
------ ----- ----- ----- -----
Topaz Ridge at Summerlin
(Clark County)....... 2002 89 0 3 0 0
------ ----- ----- ----- -----
Stallion Mountain
(Clark County)....... 2001 116 29 87 29 30
------ ----- ----- ----- -----
Fairfield at Summerlin
(Clark County)....... 2001 89 0 15 0 21
------ ----- ----- ----- -----
Annendale (Clark
County).............. 2001 194 0 194 0 0
------ ----- ----- ----- -----
NEVADA REGION TOTAL.... 1,126 494 454 355 169
====== ===== ===== ===== =====
GRAND TOTALS:
Wholly-owned......... 7,147 4,137 2,499 1,212 696
Unconsolidated joint
ventures........... 3,326 1,048 2,108 384 333
------ ----- ----- ----- -----
10,473 5,185 4,607 1,596 1,029
====== ===== ===== ===== =====
<Caption>
SALES PRICE
PROJECT (COUNTY) PRODUCT RANGE(3)
- ------------------------ --------------------
NEVADA
WHOLLY-OWNED:
Bella Veranda (Clark
County).............. $ 252,000 - 278,000
Montecito Tesoro
(Clark County)....... $ 153,000 - 181,000
Montecito Classico
(Clark County)....... $ 188,000 - 224,000
Kingsway Ridge I
(Clark County)....... $ 166,000 - 185,000
Kingsway Ridge II
(Clark County)....... $ 184,000 - 217,000
Glenleigh Gardens at
Summerlin (Clark
County).............. $ 242,000 - 276,000
Springfield at Summerlin
(Clark County)....... $ 206,000 - 227,000
Topaz Ridge at Summerlin
(Clark County)....... $ 458,000 - 531,000
Stallion Mountain
(Clark County)....... $ 152,000 - 172,000
Fairfield at Summerlin
(Clark County)....... $ 261,000 - 286,000
Annendale (Clark
County).............. $ 142,000 - 164,000
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 September 30,
2001, 926 represent homes completed or under construction and 103 represent
homes not yet under construction.
NET OPERATING LOSS CARRYFORWARDS
At December 31, 2000, the Company had net operating loss carryforwards for
Federal tax purposes of approximately $56.0 million, of which $1.3 million
expires in 2008, $10.5 million expires in 2009, $14.1 million expires in 2010,
$13.7 million expires in 2011, $16.4 million expires in 2012 and $28,000 expires
in 2018. In addition, unused recognized built-in losses in the amount of $23.9
million are available to offset future income and expire between 2009 and 2011.
The Company's ability to utilize the foregoing tax benefits will depend upon the
amount of its otherwise taxable income and may be limited in the event of an
"ownership change" under federal tax laws and regulations. In addition, the
Company's federal income tax returns for 1997, 1998 and 1999 are currently under
examination by the Internal Revenue Service and there can be no assurance that
the Service will not challenge the amount of tax benefits calculated by the
Company.
33
INFLATION
The Company's revenues and profitability may be affected by increased
inflation rates and other general economic conditions. In periods of high
inflation, demand for the Company's homes may be reduced by increases in
mortgage interest rates. Further, the Company's profits will be affected by its
ability to recover through higher sales prices increases in the costs of land,
construction, labor and administrative expenses. The Company's ability to raise
prices at such times will depend upon demand and other competitive factors.
FORWARD LOOKING STATEMENTS
Investors are cautioned that certain statements contained in this Quarterly
Report on Form 10-Q, as well as some statements by the Company in periodic press
releases and some oral statements by Company officials to securities analysts
and stockholders during presentations about the Company are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Act"). Statements which are predictive in nature, which depend
upon or refer to future events or conditions, or which include words such as
"expects", "anticipates", "intends", "plans", "believes", "estimates", "hopes",
and similar expressions constitute forward-looking statements. In addition, any
statements concerning future financial performance (including future revenues,
earnings or growth rates), ongoing business strategies or prospects, and
possible future Company actions, which may be provided by management are also
forward-looking statements as defined in the Act. Forward-looking statements are
based upon expectations and projections about future events and are subject to
assumptions, risks and uncertainties about, among other things, the Company,
economic and market factors and the homebuilding industry.
Actual events and results may differ materially from those expressed or
forecasted in the forward-looking statements due to a number of factors. The
principal factors that could cause the Company's actual performance and future
events and actions to differ materially from such forward-looking statements
include, but are not limited to, changes in general economic conditions either
nationally or in regions in which the Company operates (including, but not
limited to changes directly or indirectly related to the tragic events of
September 11, 2001 and thereafter), whether an ownership change occurs which
results in the limitation of the Company's ability to utilize the tax benefits
associated with its net operating loss carryforward, changes in home mortgage
interest rates, changes in prices of homebuilding materials, labor shortages,
adverse 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, changes in governmental
laws and regulations, whether the Company is able to refinance the outstanding
balances of Senior Notes at their maturity, the timing of receipt of regulatory
approvals and the opening of projects and the availability and cost of land for
future growth.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, and its
amendments Statements No. 137 and 138, in June 1999 and June 2000, respectively,
(collectively, the "Statements"). The Statements are effective for fiscal years
beginning after June 15, 2000 (January 1, 2001 for the Company). The Company
adopted the new Statements on January 1, 2001; however, because the Company
currently has no derivatives, there is currently no impact on the financial
position or the results of operations of the Company.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
("Statement No. 142"), effective for fiscal years beginning after December 15,
2001. Under the new rule, goodwill will no longer be amortized but will be
subject to annual impairment tests in accordance with Statement No. 142. The
Company will apply the new rule on accounting for goodwill beginning in the
first quarter of 2002. Application of the nonamortization provisions of
Statement No. 142 is expected to result in an increase in net income of
$1,110,000 ($0.10 per share) per year. During 2002, the Company will perform the
first of the required impairment tests of goodwill as of January 1, 2002 and has
not yet determined what the effect of these tests will be on the earnings and
financial position of the Company.
34
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("Statement No. 144"), effective for fiscal years
beginning after December 15, 2001. Statement No. 144 supersedes Statement of
Financial Accounting Standards No. 121. The Company does not believe Statement
No. 144 will have a significant impact on the earnings or financial position of
the Company upon adoption.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000 for detailed disclosure about quantitative and qualitative
disclosures about market risk. Quantitative and qualitative disclosures about
market risk have not materially changed since December 31, 2000.
35
WILLIAM LYON HOMES
PART II. OTHER INFORMATION
ITEMS 1, 2, 3, 4, 5, AND 6.
Not applicable.
36
WILLIAM LYON HOMES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 7, 2001 By: /s/ MICHAEL D. GRUBBS
------------------------------------
MICHAEL D. GRUBBS
Senior Vice President,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
Date: November 7, 2001 By: /s/ W. DOUGLASS HARRIS
------------------------------------
W. DOUGLASS HARRIS
Vice President, Corporate Controller
(Principal Accounting Officer)
37