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Table of Contents

 

 

UNITED STATES

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 June 30, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-31625

 

 

WILLIAM LYON HOMES

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   33-0864902

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

4490 Von Karman Avenue

Newport Beach, California

  92660
(Address of principal executive offices)   (Zip Code)

(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  ¨    NO  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

Explanatory Note: Pursuant to Rule 405(a)(2) of Regulation S-T, the registrant is relying upon the applicable 30-day grace period for the initial filing of its first Interactive Data File required to contain detail-tagged footnotes or schedules. The registrant intends to file the required detail-tagged footnotes or schedules by the filing of an amendment to this Quarterly Report on Form 10-Q within the 30-day period.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class of Common Stock

 

Outstanding at August 3, 2012

Convertible preferred stock, par value $.01   64,831,831
Common stock, Class A, par value $.01   54,793,255
Common stock, Class B, par value $.01   31,464,548
Common stock, Class C, par value $.01   16,110,366
Common stock, Class D, par value $.01  

 

 

 


Table of Contents

WILLIAM LYON HOMES

INDEX

 

         Page
No.
 

PART I. FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements: as of June 30, 2012, for the Three Months Ended June 30, 2012, for the Period from January 1, 2012 through February 24, 2012, the Period from February 25, 2012 through June 30, 2012, the Three and Six Months Ended June 30, 2011 (unaudited), and as of December 31, 2011 (audited)

  
 

Condensed Consolidated Balance Sheets

     4   
 

Condensed Consolidated Statements of Operations

     5   
 

Condensed Consolidated Statements of Equity (Deficit)

     6   
 

Condensed Consolidated Statements of Cash Flows

     7   
 

Notes to Condensed Consolidated Financial Statements

     8   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     39   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     66   

Item 4.

 

Controls and Procedures

     66   

PART II. OTHER INFORMATION

     67   

Item 1.

 

Legal Proceedings

     67   

Item 1A.

 

Risk Factors

     67   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     85   

Item 3.

 

Defaults Upon Senior Securities

     85   

Item 4.

 

Mine Safety Disclosures

     85   

Item 5.

 

Other Information

     85   

Item 6.

 

Exhibits

     87   

SIGNATURES

     88   

EXHIBIT INDEX

     89   

 

-2-


Table of Contents

NOTE ABOUT 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 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, worsening in general economic conditions either nationally or in regions in which the Company operates, worsening in the markets for residential housing, further decline in real estate values resulting in further impairment of the Company’s real estate assets, volatility in the banking industry and credit markets, terrorism or other hostilities involving the United States, whether an ownership change occurred which could, under certain circumstances, have resulted in the limitation of the Company’s ability to offset prior years’ taxable income with net operating losses, changes in home mortgage interest rates, changes in generally accepted accounting principles or interpretations of those principles, 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, inability to comply with financial and other covenants under the Company’s debt instruments, whether the Company is able to refinance the outstanding balances of its debt obligations 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. While it is impossible to identify all such factors, factors which could cause actual results to differ materially from those estimated by the Company include, but are not limited to, those factors or conditions described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The Company’s past performance or past or present economic conditions in the Company’s housing markets are not indicative of future performance or conditions. Investors are urged not to place undue reliance on forward-looking statements. In addition, the Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to projections over time unless required by federal securities law.

 

- 3 -


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

WILLIAM LYON HOMES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

     Successor           Predecessor  
     June 30,
2012
          December 31,
2011
 
     (unaudited)              
ASSETS          

Cash and cash equivalents — Notes 1 and 11

   $ 69,917           $ 20,061   

Restricted cash — Note 1

     887             852   

Receivables

     12,613             13,732   

Real estate inventories — Note 7

         

Owned

     375,459             398,534   

Not owned

     44,908             47,408   

Deferred loan costs, net

     2,206             8,810   

Goodwill — Note 8

     14,209             —     

Intangibles, net of accumulated amortization of $3,394 as of June 30, 2012 — Note 9

     6,076             —     

Other assets, net

     7,179             7,554   
  

 

 

        

 

 

 
   $ 533,454           $ 496,951   
  

 

 

        

 

 

 
LIABILITIES AND EQUITY (DEFICIT)          

Liabilities not subject to compromise

         

Accounts payable

   $ 12,611           $ 1,436   

Accrued expenses

     34,118             2,082   

Liabilities from inventories not owned — Note 14

     44,908             47,408   

Notes payable — Note 10

     12,570             74,009   

Senior Secured Term Loan due 2015 — Note 10

     235,000             206,000   

Senior Subordinated Secured Notes due 2017 — Note 10

     75,916             —     
  

 

 

        

 

 

 
     415,123             330,935   
  

 

 

        

 

 

 

Liabilities subject to compromise

         

Accounts payable

     —               3,946   

Accrued expenses

     —               48,457   

7 5/8% Senior Notes due December 15, 2012 — Note 10

     —               66,704   

10 3/4% Senior Notes due April 1, 2013 — Note 10

     —               138,912   

7 1/2% Senior Notes due February 15, 2014 — Note 10

     —               77,867   
  

 

 

        

 

 

 
     —               335,886   
  

 

 

        

 

 

 

Commitments and contingencies — Note 14

         

Redeemable Convertible Preferred Stock:

         

Redeemable convertible preferred stock, par value $.01 per share; 80,000,000 shares authorized; 64,831,831 shares issued and outstanding at June 30, 2012

     56,817             —     

Equity (deficit):

         

Stockholders’ equity (deficit)

         

Common stock (Predecessor), par value $.01 per share; 3,000 shares authorized; 1,000 shares outstanding at December 31, 2011

     —               —     

Common stock, Class A, par value $.01 per share; 340,000,000 shares authorized; 54,793,255 shares issued and outstanding at June 30, 2012

     548             —     

Common stock, Class B, par value $.01 per share; 50,000,000 shares authorized; 31,464,548 shares issued and outstanding at June 30, 2012

     315             —     

Common stock, Class C, par value $.01 per share; 120,000,000 shares authorized; 16,110,366 shares issued and outstanding at June 30, 2012

     161             —     

Common stock, Class D, par value $.01 per share; 30,000,000 shares authorized; no shares outstanding at June 30, 2012

     —               —     

Additional paid-in capital

     53,591             48,867   

Accumulated deficit

     (7,902          (228,383
  

 

 

        

 

 

 
     46,713             (179,516

Noncontrolling interest — Note 5

     14,801             9,646   
  

 

 

        

 

 

 
     61,514             (169,870
  

 

 

        

 

 

 
   $ 533,454           $ 496,951   
  

 

 

        

 

 

 

See accompanying notes to condensed consolidated financial statements

 

- 4 -


Table of Contents

WILLIAM LYON HOMES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except number of shares and per share data)

(unaudited)

 

    Successor          Predecessor     Successor          Predecessor  
    Three Months
Ended

June 30,
2012
         Three Months
Ended

June 30,
2011
    Period from
February 25
through

June 30,
2012
         Period from
January 1
through
February 24,
2012
    Six Months
Ended

June 30,
2011
 

Operating revenue

                 

Home sales

  $ 54,251          $ 57,795      $ 69,360          $ 16,687      $ 94,369   

Lots, land and other sales

    90,800            —          90,800            —          —     

Construction services — Note 1

    6,233            5,326        9,428            8,883        7,552   
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 
    151,284            63,121        169,588            25,570        101,921   
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Operating costs

                 

Cost of sales — homes

    (46,085         (51,121     (59,143         (14,598     (83,006

Cost of sales — lots, land and other

    (85,187         —          (85,192         —          —     

Construction services — Note 1

    (5,755         (4,990     (8,651         (8,223     (6,827

Sales and marketing

    (3,570         (5,007     (4,663         (1,944     (9,096

General and administrative

    (8,264         (5,645     (11,879         (3,302     (11,922

Other

    (858         (639     (1,457         (187     (1,201
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 
    (149,719         (67,402     (170,985         (28,254     (112,052
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Equity in income of unconsolidated joint ventures

    —              3,469        —              —          3,676   
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Operating income (loss)

    1,565            (812     (1,397         (2,684     (6,455

Interest expense, net of amounts capitalized — Note 1

    (3,122         (5,197     (4,836         (2,507     (9,975

Other income, net — Note 12

    1,329            77        1,376            230        244   
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Loss before reorganization items and provision for income taxes

    (228         (5,932     (4,857         (4,961     (16,186
                 

Reorganization items, net — Note 4

    (829         (5,153     (1,182         233,458        (6,076
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

(Loss) income before provision for income taxes

    (1,057         (11,085     (6,039         228,497        (22,262

Provision for income taxes — Note 13

    —              (10     —              —          (10
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Net (loss) income

    (1,057         (11,095     (6,039         228,497        (22,272

Less: Net income attributable to noncontrolling interest

    (743         (76     (820         (114     (124
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Net (loss) income attributable to William Lyon Homes

    (1,800         (11,171     (6,859         228,383        (22,396
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Preferred stock dividends

    (751         —          (1,043         —          —     
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Net (loss) income available to common stockholders

  $ (2,551       $ (11,171   $ (7,902       $ 228,383      $ (22,396
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Income (loss) per common share:

                 

Basic

  $ (0.03       $ (11,171   $ (0.09       $ 228,383      $ (22,396

Diluted

  $ (0.03       $ (11,171   $ (0.09       $ 228,383      $ (22,396

Weighted average common shares outstanding:

                 

Basic

    92,697,839            1,000        92,604,389            1,000        1,000   

Diluted

    92,697,839            1,000        92,604,389            1,000        1,000   

Weighted average additional common shares outstanding if preferred shares converted to common shares

    64,831,831            —          64,831,831            —          —     

See accompanying notes to condensed consolidated financial statements

 

-5-


Table of Contents

WILLIAM LYON HOMES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)

(in thousands)

(unaudited)

 

     Common Stock      Additional
Paid-In
Capital
    Retained
Earnings
(Accumulated
Deficit)
    Non-
Controlling
Interest
    Total  
     Shares     Amount           

Balance — December 31, 2011 (Predecessor)

     1      $ —         $ 48,867      $ (228,383   $ 9,646      $ (169,870

Net (loss) income

     —          —           —          (7,201     114        (7,087

Cash distributions to members of consolidated entities, net

     —          —           —          —          (72     (72
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance — February 24, 2012 (Predecessor)

     1        —           48,867        (235,584     9,688        (177,029

Cancellation of predecessor common stock

     (1     —           —          —          —          —     

Plan of reorganization and fresh start valuation adjustments

     —          —           —          186,717        (1,588     185,129   

Elimination of predecessor accumulated deficit

     —          —           (48,867     48,867        —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance — February 24, 2012 (Predecessor)

     —          —           —          —          8,100        8,100   

Issuance of new common stock in connection with emergence from Chapter 11

     92,368        924         43,191        —          —          44,115   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

 

Balance — February 24, 2012 (Successor)

     92,368        924         43,191        —          8,100        52,215   

Net (loss) income

            (6,859     820        (6,039

Cash contributions from members of consolidated entities, net

     —          —           —          —          5,881        5,881   

Issuance of common stock

     10,000        100         10,400        —          —          10,500   

Preferred stock dividends

     —          —           —          (1,043     —          (1,043
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance — June 30, 2012 (Successor)

     102,368      $ 1,024       $ 53,591      $ (7,902   $ 14,801      $ 61,514   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

- 6 -


Table of Contents

WILLIAM LYON HOMES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

    Successor          Predecessor  
    Period from
February 25
through
June 30,
2012
         Period from
January 1
through
February 24,
2012
    Six Months
Ended
June 30,
2011
 

Operating activities

         

Net (loss) income

  $ (6,039       $ 228,497      $ (22,272

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

         

Depreciation and amortization

    3,739            586        144   

Equity in income of unconsolidated joint ventures

    —              —          (3,676

Reorganization Items:

         

Cancellation of debt

    —              (298,831     —     

Plan implementation and fresh start adjustments

    —              49,302        —     

Write off of deferred loan costs

    —              8,258        —     

Gain on extinguishment of debt

    (975         —          —     

Net changes in operating assets and liabilities:

         

Restricted cash

    (35         —          139   

Receivables

    (818         941        678   

Real estate inventories — owned

    43,504            (7,047     (3,690

Real estate inventories — not owned

    1,250            1,250        —     

Other assets

    (322         206        (3,107

Accounts payable

    2,611            4,618        5,040   

Accrued expenses

    3,349            (3,851     (5,490

Liability from real estate inventories not owned

    (1,250         (1,250     —     
 

 

 

       

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    45,014            (17,321     (32,234
 

 

 

       

 

 

   

 

 

 

Investing activities

         

Distributions from unconsolidated joint ventures

    —              —          1,165   

Purchases of property and equipment

    (22         —          (3
 

 

 

       

 

 

   

 

 

 

Net cash (used in) provided by investing activities

    (22         —          1,162   
 

 

 

       

 

 

   

 

 

 

Financing activities

         

Payment of preferred stock dividends

    (540         —          —     

Principal payments on notes payable

    (60,948         (616     (5,200

Proceeds from reorganization

    —              30,971        —     

Proceeds from issuance of preferred stock

    —              50,000        —     

Proceeds from debtor in possession financing

    —              5,000        —     

Principal payment of debtor in possession financing

    —              (5,000     —     

Payments for deferred loan costs

    —              (2,491     1,785   

Noncontrolling interest (distributions) contributions, net

    5,881            (72     (2,209
 

 

 

       

 

 

   

 

 

 

Net cash (used in) provided by financing activities

    (55,607         77,792        (5,624
 

 

 

       

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

    (10,615         60,471        (36,696

Cash and cash equivalents —beginning of period

    80,532            20,061        71,286   
 

 

 

       

 

 

   

 

 

 

Cash and cash equivalents — end of period

  $ 69,917          $ 80,532      $ 34,590   
 

 

 

       

 

 

   

 

 

 

Supplemental disclosures of non-cash investing and financing activities:

         

Issuance of common stock related to land acquisition

  $ 10,500          $ —        $ —     
 

 

 

       

 

 

   

 

 

 

Land contributed in lieu of cash for common stock

  $ —            $ 4,029      $ —     
 

 

 

       

 

 

   

 

 

 

Distributions of real estate from unconsolidated joint ventures

  $ —            $ —        $ 800   
 

 

 

       

 

 

   

 

 

 

Preferred stock dividends, accrued

  $ 503          $ —        $ —     
 

 

 

       

 

 

   

 

 

 

Accretion of Senior Subordinated Secured Notes for payable in kind interest

  $ 916          $ —        $ —     
 

 

 

   

 

 

 

 

   

 

 

 

Net change in real estate inventories — not owned and liabilities from inventories not owned

  $ —            $ —        $ 7,862   
 

 

 

   

 

 

 

 

   

 

 

 

Note Payable issued in conjunction with land acquisition

  $ —            $ —        $ 55,000   
 

 

 

       

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

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WILLIAM LYON HOMES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 — Basis of Presentation and Significant Accounting Policies

Operations

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.

Basis of Presentation

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles 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 U.S. generally accepted accounting principles for complete financial statements. We applied the accounting under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 852 (“ASC 852”), “Reorganizations,” as of February 24, 2012 (see Note 3). Therefore, our condensed consolidated balance sheet as of June 30, 2012, which is referred to as that of the “Successor”, includes adjustments resulting from the reorganization and application of ASC 852 and is not comparable to our balance sheet as of December 31, 2011, which is referred to as that of the “Predecessor”. References to the “Successor” in the unaudited condensed consolidated financial statements and the notes thereto refer to the Company after giving effect to the reorganization and application of ASC 852. References to the “Predecessor” refer to the Company prior to the reorganization and application of ASC 852.

The interim condensed consolidated financial statements have been prepared in accordance with the Company’s accounting practices. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for presentation in accordance with U.S. generally accepted accounting principles have been included. Operating results for the three months ended June 30, 2012, the period from January 1, 2012 through February 24, 2012, and the period from February 25, 2012 through June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

The preparation of the Company’s financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities as of June 30, 2012 and December 31, 2011 and revenues and expenses for the three months ended June 30, 2012 and 2011, period from January 1, 2012 through February 24, 2012, and period from February 25, 2012 through June 30, 2012. Accordingly, actual results could differ from those estimates. The significant accounting policies using estimates include real estate inventories and cost of sales, impairment of real estate inventories, warranty reserves, loss contingencies, sales and profit recognition, accounting for variable interest entities, and fresh start accounting. The current economic environment increases the uncertainty inherent in these estimates and assumptions.

The condensed consolidated financial statements include the accounts of the Company and all majority-owned and controlled subsidiaries and joint ventures, and certain joint ventures and other entities which have been determined to be variable interest entities in which the Company is considered the primary beneficiary (see Note 5). Investments in joint ventures which have not been determined to be variable interest entities in which the Company is considered the primary beneficiary are accounted for using the equity method because the Company has a 50% or less voting and economic interest (and thus such joint ventures are not controlled by the Company). 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.

 

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Real Estate Inventories

Real estate inventories are carried at cost net of impairment losses, if any. Real estate inventories consist primarily of land deposits, raw land, lots under development, finished lots, homes under construction, completed homes and model homes of real estate projects. All direct and indirect land costs, offsite and onsite improvements and applicable interest and other carrying charges are capitalized to real estate projects during periods when the project is under development. Land, offsite costs and all other common costs are allocated to land parcels benefited based upon relative fair values before construction. Onsite construction costs and related carrying charges (principally interest and property taxes) are allocated to the individual homes within a phase based upon the relative sales value of the homes. The Company relieves its accumulated real estate inventories through cost of sales for the estimated cost of homes sold. Selling expenses and other marketing costs are expensed in the period incurred. A provision for warranty costs relating to the Company’s limited warranty plans is included in cost of sales and accrued expenses at the time the sale of a home is recorded. The Company generally reserves approximately one to one and one quarter percent of the sales price of its homes against the possibility of future charges relating to its one-year limited warranty and similar potential claims. Factors that affect the Company’s warranty liability include the number of homes under warranty, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. Changes in the Company’s warranty liability for the period from February 25, 2012 through June 30, 2012, January 1, 2012 through February 24, 2012, and the three months ended June 30, 2011 are as follows (in thousands):

 

     Successor           Predecessor  
     Period from
February 25
through

June 30,
2012
          Period from
January 1
through
February 24,
2012
    Six
Months
Ended
June 30,
2011
 

Warranty liability, beginning of period

   $ 14,000             14,314      $ 16,341   

Warranty provision during period

     770             187        1,112   

Warranty payments during period

     (1,121          (845     (2,721

Warranty charges related to pre-existing warranties during period

     253             199        535   

Fresh start adjustment

     —               145        —     
  

 

 

        

 

 

   

 

 

 

Warranty liability, end of period

   $ 13,902           $ 14,000      $ 15,267   
  

 

 

        

 

 

   

 

 

 

Interest incurred under the Term Loan, the Senior Subordinated Notes, and other notes payable, as more fully discussed in Note 10, is capitalized to qualifying real estate projects under development. Any additional interest charges related to real estate projects not under development are expensed in the period incurred. During the three months ended June 30, 2012, the period from February 25, 2012 through June 30, 2012, and the period from January 1, 2012 through February 24, 2012, the Company incurred interest of $9.4 million, $13.6 million, and $7.1 million, respectively. During the three months ended June 30, 2012, the period from February 25, 2012 through June 30, 2012, and the period from January 1, 2012 through February 24, 2012, the Company capitalized interest of $6.3 million, $8.8 million, and $4.6 million, respectively. During the three months ended June 30, 2012, the period from February 25, 2012 through June 30, 2012, and the period from January 1, 2012 through February 24, 2012, the Company recorded $3.1 million, $4.8 million, and $2.5million, respectively, of interest expense. During the three and six months ended June 30, 2011, the Company incurred $15.2 million and $29.9 million, capitalized $10.0 million and $19.9 million and recorded $5.2 million and $10.0 million of interest expense, respectively. During the three months ended June 30, 2012, the period from February 25, 2012 through June 30, 2012, and the period from January 1, 2012 through February 24, 2012, cash paid for interest was $10.3 million, $11.7 million, and $8.9 million, respectively. During the three and six months ended June 30, 2011, cash paid for interest was $17.8 million and $28.9 million, respectively.

Construction Services

The Company accounts for construction management agreements using the Percentage of Completion Method in accordance with FASB ASC Topic 605 Revenue Recognition (“ASC 605”). Under ASC 605, the Company records revenues and expenses as a contracted project progresses, and based on the percentage of costs incurred to date compared to the total estimated costs of the contract. Based on the provisions of ASC 605, the Company has recorded construction services revenues and expenses of $6.2 million and $5.8 million respectively for the three months ended June 30, 2012 and $5.3 million and $5.0 million respectively, for the three months ended June 30, 2011, in the accompanying consolidated statement of operations. In addition, the Company has recorded construction services revenues and expenses of $9.4 million and $8.7 million respectively, for the period from February 25, 2012 through June 30, 2012, $8.9 million and $8.2 million respectively, for the period from January 1, 2012 through February 24, and $7.6 million and $6.8 million respectively, for the six months ended June 30, 2011, in the accompanying consolidated statement of operations.

The Company entered into construction management agreements to build, sell and market homes in certain communities. For such services, the Company will receive fees (generally 3 to 5 percent of the sales price, as defined) and may, under certain circumstances, receive additional compensation if certain financial thresholds are achieved.

 

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Cash and Cash Equivalents

Short-term investments with a maturity of three months or less when purchased are considered cash equivalents. The Company’s cash and cash equivalents balance exceeds federally insurable limits as of June 30, 2012. The Company monitors the cash balances in its operating accounts and adjusts the cash balances as appropriate; however, these cash balances could be negatively impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts.

Restricted Cash

Restricted cash consists of deposits made by the Company to a bank account as collateral for the use of letters of credit to guarantee the Company’s financial obligations under certain other contractual arrangements in the normal course of business. Under the terms of the Amended Term Loan disclosed in Note 10, all of the Company’s standby letters of credit are secured by cash and cash equivalents.

Impact of New Accounting Pronouncements

In 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value measurement and results in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” Our adoption of these new provisions of ASU 2011-04 on January 1, 2012 did not have an impact on our condensed consolidated financial statements.

Reclassifications

Certain balances have been reclassified in order to conform to current year presentation.

Note 2 — Emergence from Chapter 11

On December 19, 2011, William Lyon Homes (the “Company”) and certain of its direct and indirect wholly-owned subsidiaries filed voluntary petitions, under chapter 11 of Title 11 of the United States Code, as amended (the “Chapter 11 Petitions”), in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) to seek approval of the Prepackaged Joint Plan of Reorganization (the “Plan”) of the Company and certain of its subsidiaries. The Chapter 11 Petitions are jointly administered under the caption In re William Lyon Homes, et al., Case No. 11-14019 (the “Chapter 11 Cases”). The sole purpose of the Chapter 11 Cases was to restructure the Company’s debt obligations and strengthen its balance sheet.

On February 10, 2012, the Bankruptcy Court confirmed the Plan. On February 24, 2012, the Company and its subsidiaries consummated the principal transactions contemplated by the Plan, including:

 

   

the issuance of 44,793,255 shares of the Company’s new Class A Common Stock, $0.01 par value per share (“Class A Common Stock”) and $75 million aggregate principal amount of 12% Senior Subordinated Secured Notes due 2017 (“Second Lien Notes”) issued by the Company’s wholly-owned subsidiary, William Lyon Homes, Inc. (“Borrower”) in exchange for the claims held by the holders of the formerly outstanding notes of Borrower;

 

   

the amendment of the Borrower’s loan agreement with ColFin WLH Funding, LLC and certain other lenders which resulted, among other things, in the increase in the principal amount outstanding under the loan agreement, the reduction in the interest rate payable under the loan agreement, and the elimination of any prepayment penalty under the loan agreement;

 

   

the issuance, in exchange for aggregate cash and real estate consideration of $25 million, of 31,464,548 shares of the Company’s new Class B Common Stock, $0.01 par value per share (“Class B Common Stock”) and warrants to purchase 15,737,294 shares of Class B Common Stock;

 

   

the issuance of 64,831,831 shares of Parent’s new Convertible Preferred Stock, $0.01 par value per share, or Convertible Preferred Stock, and 12,966,366 shares of Parents’s new Class C Common Stock, $0.01 par value per share or Class C Common Stock, in exchange for aggregate cash consideration of $60 million; and

 

   

the issuance of an additional 3,144,000 shares of Class C Common Stock pursuant to an agreement with certain selling securityholders to backstop the offering of shares of Class C Common Stock and Convertible Preferred Stock in connection with the Plan.

 

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Note 3 — Fresh Start Accounting and Effects of the Plan

As required by U.S. GAAP, effective as of February 24, 2012, we adopted fresh start accounting following the guidance of FASB ASC 852. Fresh start accounting results in the Company becoming a new entity for financial reporting purposes. Accordingly, our consolidated financial statements for periods prior to February 25, 2012 are not comparable to consolidated financial statements presented on or after February 25, 2012. Fresh start accounting was required upon emergence from Chapter 11 because holders of voting shares immediately before confirmation of the Plan received less than 50% of the emerging entity and the reorganization value of our assets immediately before confirmation of our Plan was less than our post-petition liabilities and allowed claims. Fresh start accounting results in a new basis of accounting and reflects the allocation of our estimated fair value to underlying assets and liabilities. Our estimates of fair value are inherently subject to significant uncertainties and contingencies beyond our reasonable control. Accordingly, there can be no assurance that the estimates, assumptions, valuations, appraisals and financial projections will be realized, and actual results could vary materially. Moreover, the market value of our common stock may differ materially from the equity valuation for accounting purposes under ASC 852. In addition, the cancellation of debt income and the allocation of the attribute reduction for tax purposes is an estimate and will not be finalized until the 2012 tax return is filed. Any change resulting from this estimate could impact deferred taxes.

Under ASC 852, the Successor Company must determine a value to be assigned to the equity of the emerging company as of the date of adoption of fresh-start accounting, which for us is February 24, 2012, the date the Debtors emerged from Chapter 11. To facilitate the adoption of fresh start accounting, the Company engaged a third-party valuation firm to assist with assessing enterprise value, and the allocation of value to the assets and liabilities of the Company. To calculate enterprise value, the Company used the discounted cash flow analysis, considering a weighted average cost of capital of 16.5%, and utilized a Gordon Growth model with a 3.0% growth rate to calculate terminal value. The analysis resulted in an enterprise value of $485.0 million, which was used as the enterprise value for fresh start accounting. The Company’s total debt was valued at $384.5 million, the preferred stock was valued at $56.4 million, and the common stock and warrants at $44.1 million, in accordance with ASC 852.

The estimated enterprise value and the equity value are highly dependent on the achievement of the future financial results contemplated in the projections that were set forth in the disclosure statement to the Plan. The estimates and assumptions made in the valuation are inherently subject to significant uncertainties. The primary assumptions for which there is a reasonable possibility of the occurrence of a variation that would have significantly affected the reorganization value include the assumptions regarding the number of homes sold, average sales prices, operating expenses, the amount and timing of construction costs and the discount rate utilized.

Fresh-start accounting reflects the value of the Successor as determined in the confirmed Plan. Under fresh-start accounting, asset values are remeasured and allocated based on their respective fair values in conformity with the purchase method of accounting for business combinations in FASB ASC Topic 805, “Business Combinations” (“FASB ASC 805”). Liabilities existing as of February 24, 2012, the Effective Date, other than deferred taxes, were recorded at the present value of amounts expected to be paid using appropriate risk adjusted interest rates. Deferred taxes were determined in conformity with applicable accounting standards. Predecessor accumulated depreciation, accumulated amortization and retained deficit were eliminated.

In conjunction with the adoption of fresh start accounting, certain intangible assets including, the value of the Company’s homes in backlog, construction services contracts and management fee contracts related to the joint venture projects were recorded at their estimated fair values as of February 24, 2012 in the amount of $9.5 million. The Company’s backlog was valued using the With/Without Method of the Income Approach to estimate the fair value of the backlog. This asset is amortized on a straight line basis, as homes in backlog as of February 24, 2012, are closed or the contract is cancelled.

The construction services contracts and management fees on the joint ventures were valued using the Multi-period Excess Earnings method of the Income Approach to estimate the fair value. Since these assets are valued based on expected cash flows related to home closings, the asset is amortized on a straight line basis, as homes under the contracts close.

The following fresh start condensed consolidated balance sheet presents the implementation of the Plan and the adoption of fresh start accounting as of the Effective Date. Reorganization adjustments have been recorded within the condensed consolidated balance sheet to reflect the effects of the Plan, including discharge of liabilities subject to compromise and the adoption of fresh start accounting in accordance with FASB ASC 852.

 

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WILLIAM LYON HOMES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(unaudited)

 

     February 24,2012  
     Predecessor     Plan of
Reorganization
Adjustments
    Fresh Start
Accounting
Adjustments
    Successor  
ASSETS         

Cash and cash equivalents

   $ 12,787      $ 67,746  (a)    $ —        $ 80,533   

Restricted cash

     852        —          —          852   

Receivables

     12,790        —          (996 ) (m)      11,794   

Real estate inventories

        

Owned

     405,632        4,029  (b)      (1,198 ) (m)      408,463   

Not owned

     46,158        —          —          46,158   

Property & equipment, net

     962        —          (421 ) (m)      541   

Deferred loan costs

     8,258        (5,767 ) (c)      —          2,491   

Goodwill

     —          —          14,209  (m)      14,209   

Intangibles

     —          —          9,470  (m)      9,470   

Other assets

     6,307        47  (d)      —          6,354   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 493,746      $ 66,055      $ 21,064      $ 580,865   
  

 

 

   

 

 

   

 

 

   

 

 

 
LIABILITIES AND EQUITY (DEFICIT)         

Liabilities not subject to compromise

        

Accounts payable

   $ 10,000      $ —        $ —        $ 10,000   

Accrued expenses

     31,391        —          221  (m)      31,612   

Liabilities from inventories not owned

     46,158        —          —          46,158   

Notes payable

     78,394        (5,000 ) (f)      1,100  (m)      74,494   

Senior Secured Term Loan due January 31, 2015

     206,000        29,000  (g)      —          235,000   

Senior Subordinated Secured Notes due 2017

     —          75,000  (h)      —          75,000   
  

 

 

   

 

 

   

 

 

   

 

 

 
     371,943        99,000        1,321        472,264   
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities subject to compromise

        

Accrued expenses

     15,297        (15,297 ) (e)      —          —     

7  5/8% Senior Notes due December 15, 2012

     66,704        (66,704 ) (e)      —          —     

10  3/4% Senior Notes due April 1, 2013

     138,964        (138,964 ) (e)      —          —     

7  1/2% Senior Notes due February 15, 2014

     77,867        (77,867 ) (e)      —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 298,832      $ (298,832   $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and contingencies

        

Redeemable convertible preferred stock

     —          56,386  (i)      —          56,386   

Equity (deficit):

        

Stockholders’ equity (deficit)

        

Common stock, Class A

     —          448  (j)      —          448   

Common stock, Class B

     —          315  (j)      —          315   

Common stock, Class C

     —          161  (j)      —          161   

Common stock, Class D

     —          —          —          —     

Additional paid-in capital

     48,867        (21,177 ) (k)      15,501  (n)      43,191   

Accumulated deficit

     (235,584     229,754  (l)      5,830  (n)      —     
  

 

 

   

 

 

   

 

 

   

 

 

 
     (186,717     209,501        21,331        44,115   

Noncontrolling interest

     9,688        —          (1,588 ) (m)      8,100   
  

 

 

   

 

 

   

 

 

   

 

 

 
     (177,029     209,501        19,743        52,215   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 493,746      $ 66,055      $ 21,064      $ 580,865   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Notes to Plan of Reorganization and Fresh Start Accounting Adjustments:

 

a Reflects net cash received from the issuance of new equity, reduced by the repayment of DIP financing, payment of fees and other costs.

 

b Reflects contribution of land option deposit in lieu of cash for Class B Common Stock.

 

c Reflects the write-off of the remaining deferred loan costs of the Old Notes net of capitalization of deferred loan costs related to the Amended Term Loan.

 

d Reflects prepaid property taxes to obtain title on the second lien notes. Deferred tax assets are not reflected on the balance sheet as they have been fully reserved.

 

e Reflects the extinguishment of liabilities subject to compromise (“LSTC”) at emergence. LSTC was comprised of $283.5 million of Old Notes and $15.3 million of related accrued interest. The holders of the Old Notes received Class A common stock of the successor entity.

 

f Reflects repayment of amounts outstanding under the DIP Credit Agreement pursuant to the Plan.

 

g Reflects the additional principal added to the Amended Term Loan, in accordance with the Plan.

 

h Reflects the issuance of Senior Subordinated Secured Notes, in accordance with the Plan.

 

i Reflects the fair value of the Convertible Preferred Stock issued pursuant to the Plan.

 

j Reflects the issuance of 92.4 million shares in new common stock at $0.01 par value and the extinguishment of 1,000 shares ($0.01 par) of Old Common Stock.

 

k Reflects an adjustment of $48.9 million to additional paid-in capital (“APIC”) relating to old common stock and $27.7 million relating to the issuance of new common stock.

 

l Reflects the net impact of Plan adjustments on retained earnings due to the gain on extinguishment of debt and other reorganization items.

 

m Reflects fair value adjustments resulting from fresh-start accounting.

 

n Reflects the net impact of the gain on revaluation of assets resulting from fresh-start accounting and the elimination of the Predecessor’s historical accumulated deficit, resulting in Successor’s preferred stock and equity value of $100.5 million.

Reconciliation of enterprise value to the reorganized value of the Company’s assets and determination of goodwill:

 

Total enterprise value

   $ 485,000   

Add: liabilities (excluding debt and equity)

     87,765   

Add: noncontrolling interest

     8,100   
  

 

 

 

Reorganization value of assets

     580,865   

Fair value of assets (excluding goodwill)

     566,656   
  

 

 

 

Reorganization value in excess of fair value (goodwill)

   $ 14,209   
  

 

 

 

Note 4 — Reorganization Items

In accordance with authoritative accounting guidance issued by the FASB, separate disclosure is required for reorganization items, such as certain expenses, provisions for losses and other charges directly associated with or resulting from the reorganization and restructuring of the business, which have been realized or incurred during the Chapter 11 Cases. Reorganization items were comprised of the following (in thousands):

 

     Successor           Predecessor  
     Period from
February 25
through
June 30,
2012
          Period from
January 1
through
February 24,
2012
 

Cancellation of debt

   $ —             $ 298,831   

Plan implementation and fresh start valuation adjustments

     —               (49,302

Professional fees

     (1,182          (7,813

Write-off of Old Notes deferred loan costs

     —               (8,258
  

 

 

        

 

 

 

Total reorganization items, net

   $ (1,182        $ 233,458   
  

 

 

        

 

 

 

In addition to the amounts reflected in reorganization items in the above table, prior to the Petition Date, the Company incurred professional fees related to the reorganization of approximately $21.2 million that are included in reorganization items for the year ended December 31, 2011.

Note 5 — Variable Interest Entities and Noncontrolling Interests

The FASB issued guidance now codified as ASC 810, Consolidation, which addresses the consolidation of variable interest entities (“VIEs”). Under this guidance, arrangements that are not controlled through voting or similar rights are accounted for as VIEs. An enterprise is required to consolidate a VIE if it is the primary beneficiary of the VIE. The primary beneficiary is an enterprise that has the power to direct the activities of the VIE that most significantly impact its economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could be potentially significant to the VIE.

 

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A VIE is created when (i) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or (ii) equity holders either (a) lack direct or indirect ability to make decisions about the entity through voting or similar rights, (b) are not obligated to absorb expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity if they occur.

Based on the provisions of this guidance, the Company has concluded that under certain circumstances when the Company (i) enters into option agreements for the purchase of land or lots from an entity and pays a non-refundable deposit, (ii) enters into land banking arrangements or (iii) enters into arrangements with a financial partner for the formation of joint ventures which engage in homebuilding and land development activities, a VIE may be created under condition (ii) (b) or (c) of the previous paragraph. The Company may be deemed to have provided subordinated financial support, which refers to variable interests that will absorb some or all of an entity’s expected losses if they occur. For each VIE created, in order to determine if the Company is the primary beneficiary, the Company considers various factors including, but not limited to, voting rights, risks, involvement in the operations of the VIE, ability to make major decisions, contractual obligations including distributions of income and loss, and computations of expected losses and residual returns based on the probability of future cash flow. If the Company has been determined to be the primary beneficiary of the VIE, the assets, liabilities and operations of the VIE are consolidated with the Company’s financial statements.

Joint Ventures

Certain joint ventures have been determined to be VIEs under ASC 810 in which the Company is considered the primary beneficiary. Accordingly, the assets, liabilities and operations of these VIEs have been consolidated with the Company’s financial statements. The Company did not recognize any gain or loss on initial consolidation of the VIE since the joint ventures were previously accounted for on an unconsolidated basis using the equity method of accounting.

The joint ventures which have been determined to be VIEs are each engaged in homebuilding and land development activities. Certain of these joint ventures have not obtained construction financing from outside lenders, but are financing their activities through equity contributions from each of the joint venture partners. Creditors of these VIEs have no recourse against the general credit of the Company. The liabilities of each VIE are restricted to the assets of each VIE. Additionally, the creditors of the Company have no access to the assets of the VIEs. Income allocations and cash distributions to the Company are based on predetermined formulas between the Company and their joint venture partners as specified in the applicable partnership or operating agreements. The Company generally receives, after partners’ priority returns and return of partners’ capital, approximately 50% of the profits and cash flows from the joint ventures.

As of June 30, 2012, the assets and liabilities of the consolidated VIEs totaled $25.8 million and $1.6 million, respectively. In addition, the Company’s interest in the consolidated VIEs is $7.8 million and the members’ interest in the consolidated VIEs is $16.4 million. The Company’s recorded a $1.6 million valuation adjustment to the noncontrolling interest account on one VIE in accordance with the adoption of ASC 852. The member’s interest in the VIE of $14.8 million as of June 30, 2012, is reported as noncontrolling interest on the accompanying consolidated balance sheet.

As of December 31, 2011, the assets and liabilities of the consolidated VIEs totaled $14.0 million and $1.3 million, respectively. In addition, the Company’s interest in the consolidated VIEs was $3.1 million and the members’ interest in the consolidated VIEs was $9.6 million, which is reported as noncontrolling interest on the accompanying consolidated balance sheet.

Note 6 — Segment Information

The Company operates one principal homebuilding business. In accordance with FASB ASC Topic 280, Segment Reporting (“ASC 280”), the Company has determined that each of its operating divisions is an operating segment.

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company’s chief executive officer and chief operating officer have been identified as the chief operating decision makers. The Company’s chief operating decision makers direct the allocation of resources to operating segments based on the profitability and cash flows of each respective segment.

 

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The Company’s homebuilding operations design, construct and sell a wide range of homes designed to meet the specific needs in each of its markets. In accordance with the aggregation criteria defined by ASC 280, the Company’s homebuilding operating segments have been grouped into four reportable segments: Southern California, consisting of an operating division with operations in Orange, Los Angeles, San Bernardino and San Diego counties; Northern California, consisting of an operating division with operations in Contra Costa, Sacramento, San Joaquin, Santa Clara, Solano and Placer counties; Arizona, consisting of operations in the Phoenix, Arizona metropolitan area; and Nevada, consisting of operations in the Las Vegas, Nevada metropolitan area.

Corporate develops and implements strategic initiatives and supports the Company’s operating divisions by centralizing key administrative functions such as finance and treasury, information technology, risk management and litigation and human resources.

Segment financial information relating to the Company’s homebuilding operations was as follows:

 

     Successor
           Predecessor
     Successor            Predecessor  
   Three
Months
Ended
June 30,
2012
           Three
Months
Ended
June 30,
2011
     Period  from
February 25
through
June 30,
2012
           Period from
January 1
through
February 24,
2012
     Six
Months
Ended
June 30,
2011
 
                    
                    
                    
                    
                         (in thousands)                      

Homebuilding revenue:

                        

Southern California

   $ 19,212            $ 30,145       $ 24,713            $ 5,640       $ 50,286   

Northern California

     10,180              15,501         12,715              4,250         24,903   

Arizona

     17,689              4,382         21,477              4,316         7,835   

Nevada

     7,170              7,767         10,455              2,481         11,345   
  

 

 

         

 

 

    

 

 

         

 

 

    

 

 

 

Total homebuilding revenue

   $ 54,251            $ 57,795       $ 69,360            $ 16,687       $ 94,369   
  

 

 

         

 

 

    

 

 

         

 

 

    

 

 

 

 

     Successor           Predecessor     Successor           Predecessor  
   Three
Months
Ended
June 30,
2012
          Three
Months
Ended
June 30,
2011
    Period from
February 25
through
June 30,
2012
          Period from
January 1
through
February 24,
2012
    Six
Months
Ended
June 30,
2011
 
                
                
                
                
                       (in thousands)                    

(Loss) income before provision for income taxes:

                    

Southern California

   $ (1,744        $ 404      $ (2,729        $ (19,131   $ (2,128

Northern California

     7,833             (598     7,592             6,195        (1,822

Arizona

     179             (282     (289          9,928        (1,059

Nevada

     (1,165          (2,494     (1,638          (1,738     (4,888

Corporate

     (6,160          (8,115     (8,975          233,243        (12,365
  

 

 

        

 

 

   

 

 

        

 

 

   

 

 

 

(Loss) income before provision for income taxes

   $ (1,057        $ (11,085   $ (6,039        $ 228,497      $ (22,262
  

 

 

        

 

 

   

 

 

        

 

 

   

 

 

 

 

     Successor            Predecessor  
     June 30,
2012
           December 31,
2011
 
     (in thousands)  

Homebuilding assets:

          

Southern California

   $ 197,175            $ 182,781   

Northern California

     34,467              105,298   

Arizona

     161,489              129,920   

Nevada

     48,407              42,183   

Corporate (1)

     91,916              36,769   
  

 

 

         

 

 

 

Total homebuilding assets

   $ 533,454            $ 496,951   
  

 

 

         

 

 

 

 

(1) Comprised primarily of cash and cash equivilents, restricted cash, receivables, deferred loan costs, unallocated goodwill and other assets.

 

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Note 7 — Real Estate Inventories

Real estate inventories consist of the following (in thousands):

 

     Successor            Predecessor  
     June  30,
2012
           December  31,
2011
 

Inventories owned: (1)

          

Deposits

   $ 32,070            $ 26,939   

Land and land under development

     286,229              267,348   

Homes completed and under construction

     50,865              90,824   

Model homes

     6,295              13,423   
  

 

 

         

 

 

 

Total

   $ 375,459            $ 398,534   
  

 

 

         

 

 

 

Inventories not owned: (2)

          

Other land options contracts — land banking arrangement

   $ 44,908            $ 47,408   
  

 

 

         

 

 

 

 

(1) During the economic downturn, the Company temporarily suspended the development, sales and marketing activities at certain projects which were in various stages of development. The Company has incurred and capitalized to real estate inventories costs related to these certain projects of $50.4 million as of June 30, 2012, $20.9 million of which is included in Deposits and $29.5 million of which is included in Land and land under development. The Company may bring more of these projects to market in the latter half of 2012.
(2) Represents the consolidation of a land banking arrangement which does not obligate the Company to purchase the lots, however, based on certain factors, the Company has determined it is economically compelled to purchase the lots in the land banking arrangement and has been consolidated. Amounts are net of deposits.

The Company accounts for its real estate inventories (including land, construction in progress, completed inventory, including models, and inventories not owned) under FASB ASC 360 Property, Plant, & Equipment (“ASC 360”).

ASC 360 requires impairment losses to be recorded on real estate inventories when indicators of impairment are present and the undiscounted cash flows estimated to be generated by real estate inventories are less than the carrying amount of such assets. Indicators of impairment include a decrease in demand for housing due to softening market conditions, competitive pricing pressures which reduce the average sales prices of homes including an increase in sales incentives offered to buyers, slowing sales absorption rates, decreases in home values in the markets in which the Company operates, significant decreases in gross margins and a decrease in project cash flows for a particular project.

Management assesses land deposits for impairment when estimated land values are deemed to be less than the agreed upon contract price. The Company considers changes in market conditions, the timing of land purchases, the ability to renegotiate with land sellers the terms of the land option contracts in question, the availability and best use of capital, and other factors. The Company records abandoned land deposits and related pre-acquisition costs in cost of sales-lots, land and other in the consolidated statements of operations in the period that it is abandoned

As of February 24, 2012, the Company made fair value adjustments to inventory in accordance with fresh start accounting. During the period from February 25, 2012 through June 30, 2012 and the three and six months ended June 30, 2011, the Company did not record any impairments.

Note 8 — Goodwill

Goodwill represents the excess of our enterprise value upon emergence over the fair value of our net tangible and identifiable intangible assets acquired. We recorded goodwill of $14.2 million as of February 24, 2012 in connection with fresh start accounting (refer to Note 2, Note 3 and Note 4 for further details relating to fresh start accounting and valuation of Goodwill). In accordance with the provisions of ASC 350, Intangibles, Goodwill and Other, goodwill amounts are not amortized, but rather are analyzed for impairment at the reporting segment level. Goodwill is analyzed on an annual basis, or when indicators of impairment exist. We have determined that we have four reporting segments, as discussed in Note 6, and we will perform an annual goodwill impairment analysis during the fourth quarter of each fiscal year, with the first annual testing to be carried out in the fourth quarter of fiscal year 2012.

 

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Note 9 — Intangibles

The carrying value and accumulated amortization of intangible assets at June 30, 2012, by major intangible asset category, is as follows:

 

     Successor  
     June 30, 2012  
     Carrying Value      Accumulated
Amortization
    Net Carrying
Amount
 

Construction management contracts

   $ 4,640       $ (383   $ 4,257   

Homes in backlog

     4,030         (2,869     1,161   

Joint venture management fees

     800         (142     658   
  

 

 

    

 

 

   

 

 

 

Total

   $ 9,470       $ (3,394   $ 6,076   
  

 

 

    

 

 

   

 

 

 

Amortization expense related to intangible assets for the period from February 25, 2012 through June 30, 2012 was $3.4 million. There was no amortization expense related to intangible assets for the period from January 1, 2012 through February 24, 2012 or prior, since the intangible assets were recorded in conjunction with ASC 852. Amortization expense is included in general and administrative expense in the accompanying condensed consolidated statement of operations.

Estimated future amortization expense related to intangible assets is as follows:

 

     Total  
     Amortization  

2012 (from July 1 to December 31)

   $ 2,269   

2013

     912   

2014

     1,244   

2015

     1,651   

2016

     —     
  

 

 

 

Total

   $ 6,076   
  

 

 

 

Note 10 — Senior Subordinated Secured Notes and Secured Indebtedness

Notes payable consist of the following (in thousands):

 

     Successor      Predecessor  
     June 30,      December 31,  
     2012      2011  

Notes payable:

     

Notes payable

   $ 12,570       $ 74,009   
  

 

 

    

 

 

 

Senior Notes:

     

Senior Secured Term Loan due Janaury 31, 2015

     235,000         206,000   

Senior Subordinated Secured Notes due February 15, 2017

     75,916         —     

7 5/8% Senior Notes due December 15, 2012

     —           66,704   

10 3/4% Senior Notes due April 1, 2013

     —           138,912   

7 1/2% Senior Notes due February 15, 2014

     —           77,867   
  

 

 

    

 

 

 
     310,916         489,483   
  

 

 

    

 

 

 
   $ 323,486       $ 563,492   
  

 

 

    

 

 

 

Amended Senior Secured Term Loan

California Lyon, is a party to that certain Amended and Restated Senior Secured Term Loan Agreement, or the Amended Term Loan Agreement, dated February 25, 2012, with ColFin WLH Funding, LLC, as administrative agent and as a lender, and the other lenders party thereto. The Senior Secured Term Loan was renegotiated into the terms below in conjunction with the Plan of Reorganization as discussed in Note 2, Note 3, and Note 4.

 

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The Amended Term Loan Agreement provides for a first lien secured term loan of $235.0 million, secured by substantially all of the assets of California Lyon, Parent (excluding stock in California Lyon) and certain wholly-owned subsidiaries of Parent. The Amended Term Loan is guaranteed by Parent and certain wholly-owned subsidiaries of Parent.

The Amended Term Loan bears interest at a rate of 10.25% per annum. Based on the current outstanding balance of the Amended Term Loan, interest payments are $ 24.1 million annually. The Amended Term Loan is scheduled to mature on January 31, 2015. In addition, there is no pre-payment penalty associated with the Amended Term Loan.

The Amended Term Loan Agreement restricts the ability of California Lyon to permit the indebtedness outstanding under the Amended Term Loan Agreement to exceed the borrowing base, with “borrowing base” being calculated as 67.5% (which percentage will be adjusted down to (x) 65% from the first year anniversary of the Amended Term Loan Agreement to the second anniversary of the Amended Term Loan Agreement and (y) 60% from and after the second year anniversary of the Amended Term Loan Agreement) of the sum of (i) unrestricted cash, (ii) escrow receivables and (iii) eligible real property collateral valuation, each as defined in the Amended Term Loan Agreement. The Amended Term Loan Agreement also contains covenants that, subject to certain exceptions, limit the ability of California Lyon, Parent and their respective subsidiaries to, among other things: (i) incur liens; (ii) incur additional indebtedness; (iii) transfer or dispose of assets; (iv) merge, consolidate or alter their line of business; (v) guarantee obligations; (vi) engage in affiliated party transactions; (vii) declare or pay dividends or make other distributions or repurchase stock; (viii) make advances, loans or investments; (ix) repay debt (including under the indenture governing the Notes); and (x) make expenditures outside of the Company’s primary business.

The Amended Term Loan Agreement contains customary events of default, including, without limitation, and subject to certain grace periods as set forth therein, failure to pay when due amounts under the Amended Term Loan Agreement; failure to comply with certain agreements or covenants contained in the Amended Term Loan Agreement or other loan documents related to the Amended Term Loan Agreement; default in respect of other indebtedness with an aggregate principal amount of more than $10.0 million; certain insolvency and bankruptcy events; and the occurrence of certain change of control transactions.

The Company’s covenant compliance for the Amended Term Loan at June 30, 2012 is detailed in the table set forth below (dollars in millions):

 

     Actual at
June 30,
2012
    Covenant
Requirement at
June 30,

2012
 

Ratio of Term Loan to Borrowing Base

     52.2   £ 67.5

As of June 30, 2012, the Company is not in default with the covenants under the Amended Term Loan.

Senior Secured Term Loan

Prior to the Plan of Reorganization, as discussed in Note 2, Note 3, and Note 4, William Lyon Homes, Inc., a California corporation and wholly-owned subsidiary of the Company (“California Lyon”) was a party to a certain Senior Secured Term Loan Agreement (the “Term Loan Agreement”), dated October 20, 2009, with ColFin WLH Funding, LLC, as Administrative Agent (“Admin Agent”), ColFin WLH Funding, LLC, as Initial Lender and Lead Arranger (“ColFin”) and the other Lenders who may become assignees of ColFin (collectively, with ColFin, the “Lenders”). As of December 31, 2011, the Term Loan outstanding balance was $206.0 million.

The Term Loan had interest at a rate of 14.0% and was scheduled to mature on October 20, 2014. However, California Lyon had also agreed that, upon any repayment of any portion of the principal amount under the Term Loan (whether or not at maturity), California Lyon would also pay an exit fee equal to the difference (if positive) between (x) the interest that would have been accrued

 

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and been then payable on the repaid portion if the interest rate under the Term Loan Agreement were 15.625% and (y) the internal rate of return realized by the Lenders on such repaid portion, taking into account all cash amounts actually received by the Lenders with respect thereto, including the loan fee and interest payments, other than any make whole payments described below.

Upon any prepayment of any portion of the Term Loan prior to its scheduled maturity (other than any prepayment required in connection with a payment of all or any portion of the outstanding principal balance of any of the Indentures), the Term Loan Agreement provided that California Lyon make a “make whole payment” equal to an amount, if positive, of the present value of all future payments of interest which would become due with respect to such prepaid amount from the date of prepayment thereof through and including the maturity date, discounted at a rate of 14%.

The Term Loan Agreement contained customary events of default, including, without limitation, failure to pay when due amounts in respect of the loan or otherwise under the Term Loan Agreement; failure to comply with certain agreements or covenants contained in the Term Loan Agreement for a period of 10 days (or, in some cases, 30 days) after the administrative agent’s notice of such non-compliance; acceleration of more than $10.0 million of certain other indebtedness; and certain insolvency and bankruptcy events.

Under the Term Loan, the Company was required to comply with a number of covenants, the most restrictive of which required the Company to maintain:

 

   

A tangible net worth, as defined, of at least $75.0 million;

 

   

A minimum borrowing base such that the indebtedness under the Term Loan does not exceed 60% of the Borrowing Base, with the “Borrowing Base” being calculated as (1) the discounted cash flows of each project securing the loan (collateral value), plus (2) restricted cash and (3) escrow proceeds receivable, as defined;

 

   

Total secured indebtedness (including the indebtedness under the Term Loan and under all other Construction Notes payable) less than or equal to the Maximum Permitted Secured Indebtedness under the Term Loan Agreement.

 

   

Excluded Assets Test

As of December 31, 2010, the Company’s Tangible Net Worth was $13.0 million, after recording non-cash impairment charges of $111.9 million during the year ended December 31, 2010. In order to avoid breaching these covenants and obligations, and thereby causing defaults and cross-defaults, the Company completed a series of transactions to provide for financial covenant relief. The Company obtained Waiver No. 1 on April 20, 2011, from the lender of the Term Loan, which waived the Lender’s rights to enforce their remedies for breach of the tangible net worth covenant until July 19, 2011. On July 18, 2011, prior to Waiver No. 1 expiring, the Company then obtained a similar waiver by entering the Waiver No. 2, which terminated September 16, 2011. The Company then obtained a similar waiver, the Waiver No. 3 on September 15, 2011. Such waiver was extended pursuant to the Amendment to Waiver No. 3 on October 7, 2011 and finally terminated on October 27, 2011.

Based on the factors discussed above, the Company was in technical default of the term loan as of December 31, 2011, due to (a) expiration of the tangible net worth covenant waiver on October 27, 2011 and (b) a cross default under the senior notes indentures, as described below.

Senior Subordinated Secured Notes

The outstanding principal amount of the notes is $75.9 million as of June 30, 2012, and matures in February 2017. The Notes are senior subordinated secured obligations of California Lyon and are unconditionally guaranteed on a senior subordinated secured basis by Parent and by certain of Parent’s existing and future restricted subsidiaries. The Notes and the guarantees rank senior to all of California Lyon’s and the guarantors’ debt that is expressly subordinated to the Notes and the guarantees, but are subordinated to all of the Company’s and the guarantors’ indebtedness under the Amended Term Loan Agreement, and effectively subordinated to any future secured indebtedness of California Lyon and the guarantors that is secured on a first-lien basis, to the extent of the value of the assets securing that indebtedness.

 

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Cash interest of 8% on the outstanding principal amount of the Notes, or $6 million per year, is due in semi-annual installments in arrears on June 15 and December 15 of each year. The remaining interest of 4% on the outstanding principal amount of the Notes is payable in kind semi-annually in arrears by increasing the principal amount of the Notes. The Notes are redeemable at the option of California Lyon at any time, in whole or in part, at a redemption price equal to 100% of the principal amount redeemed, plus accrued and unpaid interest, if any. All guarantees of the Notes are full and unconditional and all guarantees are joint and several. There are no significant restrictions under the indenture governing the Notes, on the ability of the Company or any guarantor to obtain funds from subsidiaries by dividend or loan.

The Indenture contains covenants that limit the ability of the Company and its restricted subsidiaries to, among other things: (i) incur certain additional indebtedness; (ii) pay dividends or make other distributions or repurchase stock; (iii) make investments; (iv) sell assets; (v) incur liens; (vi) enter into agreements restricting the ability of the Company’s restricted subsidiaries (other than California Lyon) to pay dividends; (vii) enter into transactions with affiliates; and (viii) consolidate, merge or sell all or substantially all of the Company’s and California Lyon’s assets. These covenants are subject to a number of important exceptions and qualifications as described in the Indenture. In addition, there is no pre-payment penalty associated with the Notes.

Senior Notes

On December 31, 2011, the Senior Notes had the following principal amounts outstanding (in thousands):

 

     December 31,
2011
 

7  5/8% Senior Notes due December 15, 2012

   $ 66,704   

10  3/4% Senior Notes due April 1, 2013

     138,912   

7  1/2% Senior Notes due February 15, 2014

     77,867   
  

 

 

 
   $ 283,483   
  

 

 

 

7 5/8% Senior Notes

On November 22, 2004, California Lyon issued $150.0 million principal amount of the 7 5/8% Senior Notes. Of the initial $150.0 million, $66.7 million in aggregate principal amount remained outstanding as of December 31, 2011.

10 3/4% Senior Notes

On March 17, 2003, California Lyon issued $250.0 million of the 10 3/4% Senior Notes at a price of 98.493% to the public, resulting in net proceeds to the Company of approximately $246.2 million. The redemption price reflected a discount to yield 11% under the effective interest method, and the notes have been reflected net of the unamortized discount in the consolidated balance sheet. Of the initial $250.0 million, $138.9 million aggregate principal amount remained outstanding as of December 31, 2011.

10 3/4% Senior Notes Indenture Interest Payment Default

On October 31, 2011, California Lyon did not make the scheduled interest payment on the 10 3/4% Senior Notes within the 30-day grace period specified in the 10 3/4% Senior Notes Indenture, resulting in an event of default under the 10 3/4% Senior Notes Indenture, and a cross-default under the Term Loan Agreement. In the event that Holders of the 10 3/4% Senior Notes exercised their right to accelerate the 10 3/4 % Senior Notes, a cross-default under the other Prepetition Indentures would have resulted. Since the Company was in negotiations with certain holders of the Senior Notes to reorganize and restructure the debt of the Company, the holders did not exercise their right to accelerate the 10 3/4% Senior Notes.

7 1/2% Senior Notes

On February 6, 2004, California Lyon issued $150.0 million principal amount of the 7 1/2% Senior Notes, resulting in net proceeds to the Company of approximately $147.6 million. Of the initial $150.0 million, $77.9 million aggregate principal amount remained outstanding as of December 31, 2011.

 

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General Terms of the Senior Notes

The Senior Notes were senior unsecured obligations of California Lyon and were unconditionally guaranteed on a senior unsecured basis by the Company, and by all of the Company’s existing and certain of its future restricted subsidiaries. The Senior Notes and the guarantees ranked senior to all of the Company’s and the guarantors’ debt that was expressly subordinated to the Senior Notes and the guarantees, but were effectively subordinated to all of the Company’s and the guarantors’ senior secured indebtedness to the extent of the value of the assets securing that indebtedness.

The Senior Notes Indentures contained covenants that limited the ability of the Company and its restricted subsidiaries to, among other things: (i) incur additional indebtedness; (ii) pay dividends or make other distributions or repurchase stock; (iii) make investments; (iv) sell assets; (v) incur liens; (vi) enter into agreements restricting the ability of the Company’s restricted subsidiaries (other than California Lyon) to pay dividends; (vii) enter into transactions with affiliates; and (viii) consolidate, merge or sell all or substantially all of the Company’s and California Lyon’s assets. These covenants were subject to a number of important exceptions and qualifications as described in the Senior Notes Indentures.

In conjunction with the Plan, the Company and certain of its subsidiaries consummated the principal transactions contemplated by the Plan, including the issuance of 44,793,255 shares of new Class A Common Stock, $0.01 par value per share, or Class A Common Stock, and $75 million aggregate principal amount of 12% Senior Subordinated Secured Notes due 2017, in exchange for the outstanding principal due on the outstanding 7 5/8% Senior Notes due 2012, 10  1/4% Senior Notes due 2013 and 7  1/2% Senior Notes due 2014.

Notes Payable

Construction Notes Payable

At December 31, 2011, the Company had two construction notes payable totaling $16.0 million. One of the notes totaling $9.0 million matured in January 2012, with interest at rates based on either LIBOR or prime with an interest rate floor of 6.5%. However, in conjunction with the Plan, the construction note payable was renegotiated to mature January 2013 with an option to extend for one year to December 2013. Interest on the note is paid monthly at a rate based on LIBOR or prime, with a floor of 5.5%, and the principal is repaid ratably in quarterly installments, beginning March 31, 2012 and continuing through maturity. As of June 30, 2012, the outstanding principal balance was $6.8 million.

The other construction note had a remaining balance at December 31, 2011 of $7.0 million, and was not renegotiated in conjunction with the Plan. The note will mature in May 2015. The loan requires monthly interest payments at a fixed rate of 10.0%, with quarterly principal payments of $500,000. During 2011, the Company paid $2.0 million in principal towards this loan. As of June 30, 2012, the outstanding principal balance was $5.8 million.

Land Acquisition Note Payable

In October 2011, the Company secured an acquisition note payable in conjunction with the acquisition of a parcel of land in Northern California. The acquisition price of the land was $56.0 million, and the loan was for $55.0 million. The note was scheduled to mature in October 2012, and carried an interest rate of 1.5% per month, which was paid monthly on the loan. As part of the Company’s adoption of ASC 852, Reorganizations, the loan was valued at $56.3 million as of February 24, 2012, the confirmation date of the plan. In May 2012, the Company sold the parcel of land and repaid the note in full recognizing a gain on extinguishment of debt of $1.0 million, net of amortization expense of $0.3 million. The gain on extinguishment of debt is included in other income, net in the condensed consolidated statements of operations for the period from February 25, 2012, through June 30, 2012 and the three months ended June 30, 2012.

Seller Financing

At December 31, 2011, the Company had $3.0 million of notes payable outstanding related to a land acquisition for which seller financing was provided. The note bore interest at 7% and matured in March 2012. In March 2012, the seller note was paid in full.

 

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GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS

The following condensed consolidating financial information includes:

(1) Condensed consolidating balance sheets as of June 30, 2012 and December 31, 2011; condensed consolidating statements of operations for the three months ended June 30, 2012 and 2011, the period from February 25, 2012 through June 30, 2012, the period from January 1, 2012 through February 24, 2012, and the six months ended June 30, 2011; and condensed consolidating statements of cash flows for the period from February 25, 2012 through June 30, 2012, the period from January 1, 2012 through February 24, 2012, and the six months ended June 30, 2011, of (a) William Lyon Homes, as the parent, or “Delaware Lyon”, (b) William Lyon Homes, Inc., as the subsidiary issuer, or “California Lyon”, (c) the guarantor subsidiaries, (d) the non-guarantor subsidiaries and (e) William Lyon Homes, Inc. on a consolidated basis; and

(2) Elimination entries necessary to consolidate William Lyon Homes., as the parent, with William Lyon Homes, Inc. and its guarantor and non-guarantor subsidiaries.

William Lyon Homes owns 100% of all of its guarantor subsidiaries. As a result, in accordance with Rule 3-10 (d) of Regulation S-X promulgated by the SEC, no separate financial statements are required for these subsidiaries as of June 30, 2012.

 

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Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEET

(Unaudited)

June 30, 2012

(in thousands)

 

     Unconsolidated              
     Delaware
Lyon
     California
Lyon
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminating
Entries
    Consolidated
Company
 
ASSETS   

Cash and cash equivalents

   $ —         $ 65,484      $ 74       $ 4,359      $ —        $ 69,917   

Restricted cash

     —           887        —           —          —          887   

Receivables

     —           9,095        300         3,218        —          12,613   

Real estate inventories

              

Owned

     —           302,534        —           72,925        —          375,459   

Not owned

     —           44,908        —           —          —          44,908   

Deferred loan costs

     —           2,206        —           —          —          2,206   

Goodwill

     —           14,209        —           —          —          14,209   

Intangibles

     —           6,076        —           —          —          6,076   

Other assets

     —           6,733        150         296        —          7,179   

Investments in subsidiaries

     46,713         (62,050     —           —          15,337        —     

Intercompany receivables

     —           —          205,143         19,391        (224,534     —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ 46,713       $ 390,082      $ 205,667       $ 100,189      $ (209,197   $ 533,454   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
LIABILITIES AND EQUITY (DEFICIT)   

Accounts payable

   $ —         $ 11,270      $ 30       $ 1,311      $ —        $ 12,611   

Accrued expenses

     —           32,165        199         1,754        —          34,118   

Liabilities from inventories not owned

     —           44,908        —           —          —          44,908   

Notes payable

     —           (179     —           12,749        —          12,570   

Senior Secured Term Loan

     —           235,000        —           —          —          235,000   

Senior Subordinated Secured Notes

     —           75,916        —           —          —          75,916   

Intercompany payables

     —           92,910        —           131,624        (224,534     —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities

     —           491,990        229         147,438        (224,534     415,123   

Redeemable convertible preferred stock

        56,817               56,817   

Equity (deficit)

              

Stockholders’ equity (deficit)

     46,713         (158,725     205,438         (62,050     15,337        46,713   

Noncontrolling interest

     —           —          —           14,801        —          14,801   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ 46,713       $ 390,082      $ 205,667       $ 100,189      $ (209,197   $ 533,454   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

- 23 -


Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEET

(DEBTOR-IN-POSSESSION)

December 31, 2011

(in thousands)

 

     Unconsolidated              
     Delaware
Lyon
    California
Lyon
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminating
Entries
    Consolidated
Company
 
ASSETS   

Cash and cash equivalents

   $ —        $ 14,333      $ 47       $ 5,681      $ —        $ 20,061   

Restricted cash

     —          852        —           —          —          852   

Receivables

     —          9,897        310         3,525        —          13,732   

Real estate inventories

             

Owned

     —          278,939        —           119,595        —          398,534   

Not owned

     —          47,408        —           —          —          47,408   

Deferred loan costs

     —          8,810        —           —          —          8,810   

Other assets

     —          6,671        159         724        —          7,554   

Investments in subsidiaries

     (179,516     (85,714     —           —          265,230        —     

Intercompany receivables

     —          —          203,517         12        (203,529     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ (179,516   $ 281,196      $ 204,033       $ 129,537      $ 61,701      $ 496,951   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
LIABILITIES AND EQUITY (DEFICIT)   

Liabilities not subject to compromise

             

Accounts payable

   $ —        $ 1,436      $ —         $ —        $ —        $ 1,436   

Accrued expenses

     —          2,082        —           —          —          2,082   

Liabilities from inventories not owned

     —          47,408        —           —          —          47,408   

Notes payable

     —          3,010        —           70,999        —          74,009   

Senior Secured Term Loan

     —          206,000        —           —          —          206,000   

Intercompany payables

     —          71,459        —           132,070        (203,529     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     —          331,395        —           203,069        (203,529     330,935   

Liabilities subject to compromise

             

Accounts payable

       2,560      $ 38       $ 1,348          3,946   

Accrued expenses

       47,051        218         1,188          48,457   

7  5/8% Senior Notes

     —          66,704        —           —          —          66,704   

10  3/4% Senior Notes

     —          138,912        —           —          —          138,912   

7  1/2% Senior Notes

     —          77,867        —           —          —          77,867   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     —          333,094        256         2,536        —          335,886   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities

     —          664,489        256         205,605        (203,529     666,821   

Equity (deficit)

             

Stockholders’ equity (deficit)

     (179,516     (383,293     203,777         (85,714     265,230        (179,516

Noncontrolling interest

     —          —          —           9,646        —          9,646   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ (179,516   $ 281,196      $ 204,033       $ 129,537      $ 61,701      $ 496,951   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

Three Months Ended June 30, 2012 (Successor)

(in thousands)

 

     Unconsolidated              
   Delaware
Lyon
    California
Lyon
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminating
Entries
    Consolidated
Company
 

Operating revenue

            

Sales

   $ —        $ 33,240      $ 17,688      $ 94,123      $ —        $ 145,051   

Construction services

     —          6,233        —          —          —          6,233   

Management fees

     —          191        —          —          (191     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          39,664        17,688        94,123        (191     151,284   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —               

Operating costs

            

Cost of sales

     —          (28,449     (15,449     (87,565     191        (131,272

Construction services

     —          (5,755     —          —          —          (5,755

Sales and marketing

     —          (2,488     (826     (256     —          (3,570

General and administrative

     —          (8,179     (83     (2     —          (8,264

Other

     —          (622     (1     (235     —          (858
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          (45,493     (16,359     (88,058     191        (149,719
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from subsidiaries

     (1,800     7,466        —          —          (5,666     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1,800     1,637        1,329        6,065        (5,666     1,565   

Interest expense, net of amounts capitalized

     —          (2,970     —          (152       (3,122

Other income, net

     —          342        20        967        —          1,329   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before reorganization items and provision for income taxes

     (1,800     (991     1,349        6,880        (5,666     (228

Reorganization items

     —          (829     —          —          —          (829
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (1,800     (1,820     1,349        6,880        (5,666     (1,057

Provision for income taxes

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (1,800     (1,820     1,349        6,880        (5,666     (1,057

Less: Net income attributable to noncontrolling interest

     —          —          —          (743     —          (743
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to William Lyon Homes

     (1,800     (1,820     1,349        6,137        (5,666     (1,800
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Preferred stock dividends

     (751     —          —          —          —          (751
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income available to common stockholders

   $ (2,551   $ (1,820   $ 1,349      $ 6,137      $ (5,666   $ (2,551
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

Three Months Ended June 30, 2011 (Predecessor)

(in thousands)

 

     Unconsolidated              
   Delaware
Lyon
    California
Lyon
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminating
Entries
    Consolidated
Company
 

Operating revenue

            

Home sales

   $ —        $ 51,222      $ 4,382      $ 2,191      $ —        $ 57,795   

Construction services

     —          5,326        —          —          —          5,326   

Management fees

     —          100        —          —          (100     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          56,648        4,382        2,191        (100     63,121   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Costs

            

Cost of sales — homes

     —          (45,251     (4,078     (1,892     100        (51,121

Construction services

     —          (4,990     —          —          —          (4,990

Sales and marketing

     —          (4,435     (343     (229     —          (5,007

General and administrative

     —          (5,566     (79     —          —          (5,645

Other

     —          (426     —          (213     —          (639
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          (60,668     (4,500     (2,334     100        (67,402
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity in income of unconsolidated joint ventures

     —          3,469        —          —          —          3,469   

Loss from subsidiaries

     (11,171     (596     —          —          11,767        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (11,171     (1,147     (118     (143     11,767        (812

Interest expense, net of amounts capitalized

     —          (4,944     —          (253     —          (5,197

Other income (expense), net

     —          124        (41     (6     —          77   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before reorganization items and provision for income taxes

     (11,171     (5,967     (159     (402     11,767        (5,932

Reorganization items

     —          (5,153     —          —          —          (5,153
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (11,171     (11,120     (159     (402     11,767        (11,085

Provision for income taxes

     —          (10     —          —          —          (10
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (11,171     (11,130     (159     (402     11,767        (11,095

Less: Net income attributable to noncontrolling interest

     —          —          —          (76     —          (76
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to William Lyon Homes

   $ (11,171   $ (11,130   $ (159   $ (478   $ 11,767      $ (11,171
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

Period from February 25, 2012 through

June 30, 2012 (Successor)

(in thousands)

 

     Unconsolidated    

 

   

 

 
     Delaware
Lyon
    California
Lyon
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminating
Entries
    Consolidated
Company
 

Operating revenue

            

Sales

   $ —        $ 43,151      $ 21,476      $ 95,533      $ —        $ 160,160   

Construction services

     —          9,428        —          —          —          9,428   

Management fees

     —          256        —          —          (256     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          52,835        21,476        95,533        (256     169,588   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating costs

            

Cost of sales

     —          (36,957     (18,826     (88,808     256        (144,335

Construction services

     —          (8,651     —          —          —          (8,651

Sales and marketing

     —          (3,274     (1,036     (353     —          (4,663

General and administrative

     —          (11,761     (116     (2     —          (11,879

Other

     —          (1,125     (1     (331     —          (1,457
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          (61,768     (19,979     (89,494     256        (170,985
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from subsidiaries

     (6,859     7,468        —          —          (609     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (6,859     (1,465     1,497        6,039        (609     (1,397

Interest expense, net of amounts capitalized

     —          (4,620     —          (216     —          (4,836

Other income, net

     —          402        8        966        —          1,376   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before reorganization items and provision for income taxes

     (6,859     (5,683     1,505        6,789        (609     (4,857

Reorganization items

     —          (1,183     1        —          —          (1,182
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (6,859     (6,866     1,506        6,789        (609     (6,039

Provision for income taxes

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (6,859     (6,866     1,506        6,789        (609     (6,039

Less: Net income attributable to noncontrolling interest

     —          —          —          (820     —          (820
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to William Lyon Homes

     (6,859     (6,866     1,506        5,969        (609     (6,859
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Preferred stock dividends

     (1,043     —          —          —          —          (1,043
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income available to common stockholders

   $ (7,902   $ (6,866   $ 1,506      $ 5,969      $ (609   $ (7,902
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 27 -


Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

Period from January 1, 2012 through

February 24, 2012 (Predecessor)

(in thousands)

 

     Unconsolidated     Eliminating
Entries
    Consolidated
Company
 
     Delaware
Lyon
     California
Lyon
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     

Operating revenue

             

Home sales

   $ —         $ 10,024      $ 4,316      $ 2,347      $ —        $ 16,687   

Construction services

     —           8,883        —          —          —          8,883   

Management fees

     —           110        —          —          (110     —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —           19,017        4,316        2,347        (110     25,570   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating costs

             

Cost of sales — homes

     —           (8,819     (3,820     (2,069     110        (14,598

Construction services

     —           (8,223     —          —          —          (8,223

Sales and marketing

     —           (1,496     (260     (188     —          (1,944

General and administrative

     —           (3,246     (56     —          —          (3,302

Other

     —           (16     —          (171     —          (187
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —           (21,800     (4,136     (2,428     110        (28,254
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gain from subsidiaries

     228,383         11,536        —          —          (239,919     —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     228,383         8,753        180        (81     (239,919     (2,684

Interest expense, net of amounts capitalized

     —           (2,407     —          (100     —          (2,507

Other income (expense), net

     —           266        (25     (11     —          230   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before reorganization items and provision for income taxes

     228,383         6,612        155        (192     (239,919     (4,961

Reorganization items

     —           221,796        (1     11,663        —          233,458   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     228,383         228,408        154        11,471        (239,919     228,497   

Provision for income taxes

     —           —          —          —          —          —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     228,383         228,408        154        11,471        (239,919     228,497   

Less: Net income attributable to noncontrolling interest

     —           —          —          (114     —          (114
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to William Lyon Homes

   $ 228,383       $ 228,408      $ 154      $ 11,357