William Lyon Homes had a busy fourth quarter. The company renegotiated with its lender, sold a sizeable chunk of land, and decided to change its company structure to take advantage of a tax refund in future years. As a result, the company is expecting to be cash-flow positive in 2008 despite the market.

In the meantime, William Lyon reported a net loss of $349 million in 2007 compared to income of almost $75 million in '06. New home orders were down 16% to 1,855 and deliveries were down 24% to 2,182. Operating revenue from home sales for the year fell 32%, to just over $1 billion.

Margins also fell, from 21.5% in '06 to 12.9% in '07, as average home prices fell 10% to $459,500. The company attributed the price drop to price depreciation in certain markets related to competitive pressures as well as a change in product mix.

"While 2007 was a difficult year for the Company and the entire home building industry, we made some significant decisions to align our operations to a level consistent with our current and expected future lower levels of volume and to enter into certain land sales transactions to improve our liquidity and to reduce our overall debt," said General William Lyon, the company's chairman and CEO in its earnings release.

To raise cash, Lyon, which owns 13,624 lots, representing 94% of its land, sold 604 lots and five models in 10 communities in bulk for $90.6 million. It closed on 404 lots and five models in December and the rest in January, taking a total loss of $120 million in the transaction. It claimed $80 million of the loss in '07 and the rest will be accrued this year.

In December, Lyon was out of compliance with its loan covenants and renegotiated with its lenders. The result was a decrease in its loan commitments from $560 million to $395 million. The new requirements call for the company to keep a tangible net worth of $175 million, a debt to tangible net worth ratio of no more than 5-to-1 for this year and at least $20 million in liquidity on hand.

The company, which has been registered as an "S" corporation for tax purposes under federal and state regulations, with the income flowing to and being reported as revenue to its shareholders, has decided to change itself back to a "C" corporation before March 15 for 2008, which will allow it to be able to carry back its estimated 2008 tax losses back to the profitable 2006 and realize a refund next year.