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| SPF > SEC Filings for SPF > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
Critical Accounting Policies
The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those that impact our most critical accounting policies. We base our estimates and judgments on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies related to the following accounts or activities are those that are most critical to the portrayal of our financial condition and results of operations and require the more significant judgments and estimates:
• Segment reporting;
• Inventories and impairments;
• Homebuilding revenue and cost of sales;
• Variable interest entities;
• Limited partnerships and limited liability companies;
• Unconsolidated homebuilding and land development joint ventures;
• Business combinations and goodwill;
• Warranty accruals;
• Insurance and litigation accruals; and
• Income taxes.
For a more detailed description of these critical accounting policies, refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2008.
Results of Operations
Selected Financial Information
(Unaudited)
(2008 as Adjusted)
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
(Dollars in thousands, except per share amounts)
Homebuilding:
Home sale revenues $ 269,873 $ 394,942 $ 760,312 $ 1,145,608
Land sale revenues 57,538 5,398 66,306 13,609
Total revenues 327,411 400,340 826,618 1,159,217
Cost of home sales (219,641 ) (548,622 ) (661,211 ) (1,462,654 )
Cost of land sales (65,147 ) (59,375 ) (75,578 ) (97,704 )
Total cost of sales (284,788 ) (607,997 ) (736,789 ) (1,560,358 )
Gross margin 42,623 (207,657 ) 89,829 (401,141 )
Gross margin percentage 13.0% (51.9% ) 10.9% (34.6% )
Selling, general and
administrative expenses (43,695 ) (76,894 ) (142,100 ) (235,473 )
Loss from unconsolidated joint
ventures (1,960 ) (91,937 ) (4,449 ) (130,322 )
Interest expense (12,633 ) (3,938 ) (35,409 ) (3,938 )
Gain (loss) on early
extinguishment of debt (8,824 ) (1,841 ) (3,457 ) (11,339 )
Other income (expense) (305 ) (7,100 ) (1,309 ) (10,145 )
Homebuilding pretax loss (24,794 ) (389,367 ) (96,895 ) (792,358 )
Financial Services:
Revenues 3,762 2,492 10,095 10,897
Expenses (2,753 ) (3,106 ) (9,009 ) (11,063 )
Income from unconsolidated joint
ventures - 284 119 659
Other income 19 17 108 128
Financial services pretax income
(loss) 1,028 (313 ) 1,313 621
Loss from continuing operations
before income taxes (23,766 ) (389,680 ) (95,582 ) (791,737 )
(Provision) benefit for income
taxes (33 ) 19,840 (298 ) (42,030 )
Loss from continuing operations (23,799 ) (369,840 ) (95,880 ) (833,767 )
Loss from discontinued
operations, net of income taxes (45 ) (69 ) (569 ) (2,005 )
Net loss (23,844 ) (369,909 ) (96,449 ) (835,772 )
Less: Net loss allocated to
preferred shareholders 14,500 165,213 59,022 188,354
Net loss available to common
stockholders $ (9,344 ) $ (204,696 ) $ (37,427 ) $ (647,418 )
Basic Loss Per Share:
Continuing operations $ (0.10 ) $ (2.54 ) $ (0.40 ) $ (8.59 )
Discontinued operations - - - (0.02 )
Basic loss per share $ (0.10 ) $ (2.54 ) $ (0.40 ) $ (8.61 )
Diluted Loss Per Share:
Continuing operations $ (0.10 ) $ (2.54 ) $ (0.40 ) $ (8.59 )
Discontinued operations - - - (0.02 )
Diluted loss per share $ (0.10 ) $ (2.54 ) $ (0.40 ) $ (8.61 )
Weighted Average Common Shares
Outstanding:
Basic 95,250,351 80,681,394 93,731,253 75,155,044
Diluted 243,063,137 145,800,364 241,544,039 97,019,962
Net cash provided by (used in)
operating activities $ 112,572 $ 31,933 $ 310,165 $ 197,963
Net cash provided by (used in)
investing activities $ (9,241 ) $ (11,111 ) $ (20,869 ) $ 16,420
Net cash provided by (used in)
financing activities $ (147,732 ) $ 116,719 $ (385,136 ) $ 266,697
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(1) Adjusted Homebuilding EBITDA means net income (loss) (plus cash distributions
of income from unconsolidated joint ventures) before (a) income taxes,
(b) homebuilding interest expense, (c) expensing of previously capitalized
interest included in cost of sales, (d) impairment charges, (e) gain (loss)
on early extinguishment of debt, (f) homebuilding depreciation and
amortization, (g) amortization of stock-based compensation, (h) income (loss)
from unconsolidated joint ventures and (i) income (loss) from financial
services subsidiary. Other companies may calculate Adjusted Homebuilding
EBITDA (or similarly titled measures) differently. We believe Adjusted
Homebuilding EBITDA information is useful to investors as one measure of our
ability to service debt and obtain financing. However, it should be noted
that Adjusted Homebuilding EBITDA is not a U.S. generally accepted accounting
principles ("GAAP") financial measure. Due to the significance of the GAAP
components excluded, Adjusted Homebuilding EBITDA should not be considered in
isolation or as an alternative to cash flows from operations or any other
liquidity performance measure prescribed by GAAP.
The table set forth below reconciles net cash provided by (used in) operating activities, calculated and presented in accordance with GAAP, to Adjusted Homebuilding EBITDA:
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
(Dollars in thousands)
Net cash provided by operating activities $ 112,572 $ 31,933 $ 310,165 $ 197,963
Add:
Provision (benefit) for income taxes - (19,886 ) - 40,883
Deferred tax valuation allowance (9,278 ) (134,088 ) (37,358 ) (348,705 )
Homebuilding interest amortized to cost
of sales and interest expense 35,681 25,867 94,989 59,915
Less:
Income (loss) from financial services
subsidiary 1,009 (614 ) 1,086 (166 )
Depreciation and amortization from
financial services subsidiary 169 188 515 598
Loss on disposal of property and
equipment 1 901 1,339 901
Net changes in operating assets and
liabilities:
Trade and other receivables (2,191 ) 1,442 (3,464 ) 5,415
Mortgage loans held for sale (16,071 ) 14,446 (23,016 ) (94,357 )
Inventories-owned (103,969 ) (58,537 ) (241,525 ) 27,489
Inventories-not owned 324 6,154 1,462 6,128
Deferred income taxes 9,278 124,936 37,358 211,893
Other assets 1,997 18,669 (116,678 ) (168,412 )
Accounts payable (540 ) 1,264 17,589 32,661
Accrued liabilities 5,125 1,401 30,199 35,738
Adjusted Homebuilding EBITDA $ 31,749 $ 13,126 $ 66,781 $ 5,278
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Three and Nine Month Periods Ended September 30, 2009 Compared to Three and Nine Month Periods Ended September 30, 2008
Overview
Our operations continue to be impacted by weak housing demand in substantially all of our markets driven by a housing supply/demand imbalance (including as a result of record foreclosures), declining home prices, low consumer confidence and high unemployment. Despite these factors, our net loss for the three and nine months ended September 30, 2009 decreased considerably from the year earlier periods. In addition, we were successful in generating positive cash flows from operating activities during these periods. These results reflect our efforts to (1) adjust our overhead structure to better align our operations with the decline in demand for new homes; (2) reduce our supply of completed and unsold homes; and (3) reduce our construction costs. While our absolute net new orders were lower than the year earlier periods and are still weak relative to normal market conditions, our orders on a same store basis increased compared to 2008 levels for both the three and nine month periods.
We generated a net loss of $23.8 million, or $0.10 per diluted share, during the 2009 third quarter, compared to a net loss of $369.9 million, or $2.54 per diluted share, in the third quarter of 2008. Our results for the three months ended September 30, 2009 and 2008 included pretax impairment charges totaling $7.8 million and $368.4 million, respectively. For the nine months ended September 30, 2009, we generated a net loss of $96.4 million, or $0.40 per diluted share, compared to a net loss of $835.8 million, or $8.61 per diluted share, for the year earlier period. Our results for the nine months ended September 30, 2009 and 2008 included pretax impairment charges totaling $59.9 million and $709.9 million, respectively.
We generated cash flows from operations of $310.2 million during the nine months ended September 30, 2009, driven primarily by a $241.5 million decrease in inventories (largely due to a 72% reduction in the number of completed and unsold homes and the bulk sale of a podium building) and the receipt of our $114.5 million 2008 federal income tax refund. These cash flows were offset in part by other changes in working capital. During the nine months ended September 30, 2009, we reduced our consolidated homebuilding debt by approximately $35.1 million after the assumption of $77.3 million of secured project debt in connection with three joint venture unwinds and the issuance of $280 million ($257.6 million net of original issue discount) of 10 3/4% senior notes due 2016 (the "2016 Notes"). The proceeds from the issuance of the 2016 Notes and cash on hand were used to repay $258.8 million of earlier maturity senior notes in October 2009. Taking into account the impact of this repayment, we have reduced our consolidated homebuilding debt by approximately $293.9 million since December 31, 2008.
Homebuilding
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
(Dollars in thousands)
Homebuilding revenues:
California $ 199,390 $ 209,813 $ 452,515 $ 583,304
Southwest (1) 49,882 108,268 180,925 333,759
Southeast 78,139 82,259 193,178 242,154
Total homebuilding revenues $ 327,411 $ 400,340 $ 826,618 $ 1,159,217
Homebuilding pretax loss:
California $ (2,405 ) $ (227,082 ) $ (20,916 ) $ (490,377 )
Southwest (1) (3,966 ) (109,663 ) (26,393 ) (173,062 )
Southeast (7,004 ) (45,533 ) (26,807 ) (98,270 )
Corporate (11,419 ) (7,089 ) (22,779 ) (30,649 )
Total homebuilding pretax loss $ (24,794 ) $ (389,367 ) $ (96,895 ) $ (792,358 )
Homebuilding pretax impairment charges:
California $ 5,984 $ 216,686 $ 33,817 $ 450,629
Southwest (1) 80 109,659 16,141 171,103
Southeast 1,750 42,009 9,931 88,152
Total homebuilding pretax impairment
charges $ 7,814 $ 368,354 $ 59,889 $ 709,884
Homebuilding pretax impairment charges
by type:
Deposit write-offs $ 150 $ 8,889 $ 2,205 $ 17,099
Inventory impairments 7,664 267,216 49,543 566,180
Joint venture impairments - 92,249 8,141 126,605
Total homebuilding pretax impairment
charges $ 7,814 $ 368,354 $ 59,889 $ 709,884
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September 30, December 31,
2009 2008
(Dollars in thousands)
Total Assets:
California $ 751,006 $ 810,619
Southwest (1) 232,480 299,039
Southeast 202,440 275,893
Corporate 816,253 777,256
Total homebuilding 2,002,179 2,162,807
Financial services 66,551 88,464
Discontinued operations 159 1,217
Total Assets $ 2,068,889 $ 2,252,488
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(1) Excludes our Tucson and San Antonio divisions, which are classified as discontinued operations.
We generated a homebuilding pretax loss for the 2009 third quarter of $24.8 million compared to a pretax loss of $389.4 million in the year earlier period. Our homebuilding pretax loss for the 2009 third quarter included $7.8 million of asset impairment charges, which are detailed in the table above, and $10.1 million of debt extinguishment and other restructuring charges. The decrease in pretax loss was primarily the result of a $360.5 million decrease in impairment charges and a $33.2 million decrease in our SG&A expenses (which included approximately $1.5 million in restructuring charges related to severance and facilities reductions). These decreases were partially offset by a $9.3 million reduction in gross margin (exclusive of impairments), an $8.7 million increase in non-capitalized interest expense and a $7.0 million increase in loss on early extinguishment of debt. The inventory impairment charges were included in cost of sales and the deposit write-offs were included in other income (expense).
For the nine months ended September 30, 2009, homebuilding pretax loss decreased 88% to a $96.9 million pretax loss compared to a pretax loss of $792.4 million in the year earlier period. The decrease in pretax loss was primarily the result of a $650.0 million decrease in impairment charges, a $93.4 million decrease in our SG&A expenses (which included approximately $18.1 million in restructuring charges related to severance and facilities reductions) and a $7.9 million decrease in loss on early extinguishment of debt. These decreases were partially offset by a $25.7 million reduction in gross margin (exclusive of impairments) and a $31.5 million increase in non-capitalized interest expense.
Homebuilding revenues for the 2009 third quarter decreased 18% from the year earlier period as a result of a 25% decrease in new home deliveries and an 9% decrease in our consolidated average home price to $302,000. These decreases were partially offset by a $52.1 million year-over-year increase in land sale revenues, representing the sale of a podium building in Southern California and a land sale in Florida during the 2009 third quarter. Homebuilding revenues for the nine months ended September 30, 2009 decreased 29%, driven primarily by a 27% decrease in new home deliveries and a 9% decrease in our consolidated average home price to $301,000. These decreases were offset in part by a $52.7 million increase in revenues from land sales.
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 % Change 2009 2008 % Change
New homes delivered:
California 347 435 (20% ) 948 1,208 (22% )
Arizona 75 132 (43% ) 209 436 (52% )
Texas (1) 82 165 (50% ) 328 520 (37% )
Colorado 37 62 (40% ) 113 180 (37% )
Nevada 5 22 (77% ) 13 55 (76% )
Total Southwest 199 381 (48% ) 663 1,191 (44% )
Florida 235 220 7% 603 646 (7% )
Carolinas 112 152 (26% ) 308 416 (26% )
Total Southeast 347 372 (7% ) 911 1,062 (14% )
Consolidated total 893 1,188 (25% ) 2,522 3,461 (27% )
Unconsolidated joint ventures (2) 15 66 (77% ) 92 222 (59% )
Discontinued operations (including
joint ventures) (2) 1 14 (93% ) 4 147 (97% )
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Total (including joint ventures) (2) 909 1,268 (28% ) 2,618 3,830 (32% )
(1) Texas excludes our San Antonio division, which is classified as a discontinued operation.
(2) Numbers presented regarding unconsolidated joint ventures reflect total deliveries of such joint ventures. Our ownership interests in these joint ventures vary but are generally less than or equal to 50%.
New home deliveries (exclusive of joint ventures and discontinued operations) decreased 25% during the 2009 third quarter as compared to the prior year period. The decline in deliveries reflected a 35% decrease in our beginning backlog level as compared to the prior year period and a 28% decrease in the number of average active selling communities. These decreases were partially offset by the increased number of speculative homes that we sold and delivered during the 2009 third quarter.
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 % Change 2009 2008 % Change
Average selling prices of homes
delivered:
California $ 442,000 $ 482,000 (8% ) $ 429,000 $ 479,000 (10% )
Arizona 202,000 215,000 (6% ) 210,000 233,000 (10% )
Texas (1) 269,000 291,000 (8% ) 279,000 279,000 -
Colorado 312,000 358,000 (13% ) 305,000 358,000 (15% )
Nevada 226,000 278,000 (19% ) 226,000 289,000 (22% )
Total Southwest 251,000 275,000 (9% ) 261,000 275,000 (5% )
Florida 181,000 206,000 (12% ) 189,000 211,000 (10% )
Carolinas 216,000 233,000 (7% ) 218,000 249,000 (12% )
Total Southeast 192,000 217,000 (12% ) 199,000 226,000 (12% )
Consolidated (excluding joint
ventures) 302,000 332,000 (9% ) 301,000 331,000 (9% )
Unconsolidated joint ventures (2) 548,000 578,000 (5% ) 524,000 507,000 3%
Total (including joint ventures)
(2) $ 306,000 $ 345,000 (11% ) $ 309,000 $ 342,000 (10% )
Discontinued operations
(including joint ventures) (2) $ 130,000 $ 176,000 (26% ) $ 201,000 $ 175,000 15%
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(1) Texas excludes our San Antonio division, which is classified as a discontinued operation.
(2) Numbers presented regarding unconsolidated joint ventures reflect total average selling prices of such joint ventures. Our ownership interests in these joint ventures vary but are generally less than or equal to 50%.
During the 2009 third quarter, our consolidated average home price (excluding joint ventures and discontinued operations) decreased 9% to $302,000 versus $332,000 for the year earlier period. The decline in our consolidated average home price was due primarily to the higher level of incentives and price reductions required to sell homes as compared to the year earlier period and, to a lesser degree, geographic delivery mix changes.
Our average home price in California (exclusive of joint ventures) decreased 8% to $442,000 in the 2009 third quarter from $482,000 in the year earlier period due to downward pricing pressure from weaker demand and a product mix shift, including an increase in 2009 third quarter deliveries from our lower priced podium projects in Southern California.
During the 2009 third quarter, our average home price in Arizona decreased 6% year-over-year to $202,000 largely reflective of price declines due to the extremely competitive new and existing home market in Phoenix, and to a lesser degree, due to a product mix shift. In Texas, our average home price for the 2009 third quarter decreased 8% as compared to the year earlier period reflecting a product mix shift to more affordable homes within the Austin market. The Las Vegas, Nevada market continues to be one of the weakest housing markets in the country and has been adversely impacted by record high foreclosure activity. Our average price in Colorado for the 2009 third quarter decreased 13% year-over-year largely due to a shift in product mix to more affordable attached homes.
In Florida, our average sales price decreased 12% to $181,000 in the 2009 third quarter compared to the year earlier period, primarily due to downward pricing pressure experienced across all of our Florida markets. In the Carolinas, our average home price decreased 7% in the 2009 third quarter as compared to the year earlier period which reflected downward pricing pressure combined with a change in product mix towards more affordable attached townhome deliveries in . . .
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