William Lyon Homes built on a trend set by other home builders when it reported a profit of $20.7 million for the last quarter of 2009 but a loss of $20.5 million for the entire year's results Thursday.
Like other builders, Lyon's increased earnings were boosted by tax refunds generated by land sales and other losses rather than profits from building homes. But, also like other builders, Lyon's sales orders show some year-end improvement that could be a mere blip or signal a market that has bottomed and shows signs of improvement.
Lyon's new-home orders were up 2% for the year ended Dec. 31, to 172 from 168 the year before. New orders for the full year fell 29% to 869. But a better picture of how well the builder is doing is painted by looking at the number of homes it is selling per community.
Even as the number of communities the company had fell 43% for the year, from 44 to 25, the average number of sales in each community climbed 71% to 8.2.
Company executives said in the conference call that it is working to buy new land and considering opening some of its mothballed developments with the hope that increasing community count will increase sales. In the meantime, it has been selling off some of its land at a loss, triggering tax refunds.
Lyon made $13.63 million from land sales in the fourth quarter at a loss of $70.57 million. For the full year, it raised $21.22 million total from land sales, losing $71.7 million from the sales.
"During 2009, the company entered into certain land sales transactions to generate cash flow, to reduce overall debt, and to reinvest the cash by purchasing land in certain of its improving markets," the company's earnings release said. "The best economic value to the company of these lots was to sell them in their current condition as opposed to holding the lots and eventually building and selling homes. The company continues to evaluate land values to determine whether to hold for development or to sell at current prices."
With the help of the land sale losses, Lyon is taking advantage of the extended net operating loss tax law change that allows the company to reach further back to recapture taxes paid in profitable years to make up for losses now. It is expecting a $101.9 million tax refund check as a result.
The company did report some progress in increasing its gross margins. It reported a 17.2% margin for the last quarter of 2009 compared with 9.9% for the same quarter in 2008. For 2009, the company's gross margin increased to 13.5% from 6.2% in 2008.
The company said margins were boosted because it's selling houses on land that it had impaired.
Other big news for Lyon during the year included a restructuring of its debt. In a public tender offer, it bought back $53.2 million of its senior notes for $14.9 million, netting itself $37 million after costs.
It also was able to privately negotiate to buy back $103.7 million of its notes for $62.1 million, gaining another $41.1 million after expenses.