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SPF > SEC Filings for SPF > Form 10-Q on 2-May-2014All Recent SEC Filings

Show all filings for STANDARD PACIFIC CORP /DE/

Form 10-Q for STANDARD PACIFIC CORP /DE/


2-May-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

                         Selected Financial Information
                                  (Unaudited)

                                                       Three Months Ended March 31,
                                                        2014                    2013
                                                 (Dollars in thousands, except per share
                                                                 amounts)
Homebuilding:
Home sale revenues                                    $      446,918       $      355,126
Land sale revenues                                            13,281                2,595
Total revenues                                               460,199              357,721
Cost of home sales                                          (328,245 )           (280,612 )
Cost of land sales                                           (13,004 )             (2,583 )
Total cost of sales                                         (341,249 )           (283,195 )
Gross margin                                                 118,950               74,526
Gross margin percentage                                         25.8 %               20.8 %
Selling, general and administrative expenses                 (58,590 )            (46,294 )
Income (loss) from unconsolidated joint ventures                (437 )              1,134
Other income (expense)                                           (13 )              3,570
Homebuilding pretax income                                    59,910               32,936

Financial Services:
Revenues                                                       4,984                5,677
Expenses                                                      (3,440 )             (3,322 )
Other income                                                     161                  102
Financial services pretax income                               1,705                2,457

Income before taxes                                           61,615               35,393
Provision for income taxes                                   (23,456 )            (13,569 )
Net income                                                    38,159               21,824
  Less: Net income allocated to preferred
shareholder                                                   (9,147 )             (8,903 )
  Less: Net income allocated to unvested
restricted stock                                                 (59 )                (22 )
Net income available to common stockholders           $       28,953       $       12,899

Income Per Common Share:
Basic                                                 $         0.10       $         0.06
Diluted                                               $         0.09       $         0.05

Weighted Average Common Shares Outstanding:
Basic                                                    277,948,342          214,166,912
Diluted                                                  315,894,969          252,947,416

Weighted average additional common shares
outstanding
if preferred shares converted to common shares            87,812,786          147,812,786

Total weighted average diluted common shares
outstanding
if preferred shares converted to common shares           403,707,755          400,760,202

Net cash provided by (used in) operating
activities                                            $     (117,563 )     $      (58,461 )
Net cash provided by (used in) investing
activities                                            $       10,286       $       (1,601 )
Net cash provided by (used in) financing
activities                                            $      (50,902 )     $         (180 )
Adjusted Homebuilding EBITDA (1)                      $       89,008       $       63,823


__________________


(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 and deposit write-offs, (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 management and 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.

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(1) continued

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 March 31,            LTM Ended March 31,
                                                2014                  2013             2014           2013
                                                                 (Dollars in thousands)

Net cash provided by (used in) operating
activities                                 $      (117,563 )     $      (58,461 )   $ (213,318 )   $ (299,459 )
Add:
Provision (benefit) for income taxes                23,456               13,569         78,870       (439,852 )
Deferred income tax benefit (provision)            (23,622 )            (13,374 )      (94,462 )      440,626
Homebuilding interest amortized to cost
of sales and interest expense                       24,983               27,885        118,876        117,078
Less:
Income from financial services
subsidiary                                           1,544                2,355          9,940         11,227
Depreciation and amortization from
financial services subsidiary                           33                   28            126            120
Loss on disposal of property and
equipment                                                1                   15              3             52
Net changes in operating assets and
liabilities:
Trade and other receivables                         17,549                8,916         11,877          1,124
Mortgage loans held for sale                       (51,938 )               (140 )      (49,255 )       54,732
Inventories-owned                                  188,759               73,030        531,041        344,468
Inventories-not owned                                8,165                4,940         46,544         33,864
Other assets                                           833               (1,829 )        1,697         (3,419 )
Accounts payable                                    (1,376 )              1,578        (16,279 )       (1,124 )
Accrued liabilities                                 21,340               10,107          3,284        (10,681 )
Adjusted Homebuilding EBITDA               $        89,008       $       63,823     $  408,806     $  225,958

Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013

Overview

The strong operating performance we achieved during the last two years continued into the first quarter of 2014, with pretax income and home sale revenues up 74% and 26%, respectively, from the prior year period. Net income for the 2014 first quarter was $38.2 million, or $0.09 per diluted share, as compared to $21.8 million, or $0.05 per diluted share, for the 2013 first quarter, and pretax income was $61.6 million, compared to $35.4 million. Our gross margin from home sales rose to 26.6% for the quarter, a 560 basis point increase from the 2013 first quarter, and our operating margin from home sales for the quarter was 13.4%, a 550 basis point increase compared to the prior year period. In addition, the dollar value of homes in backlog was $1.0 billion, a 39% increase from the prior year period.

We remain focused on acquiring and developing strategically located and appropriately priced land and on designing and building highly desirable, amenity-rich communities and homes that appeal to the move-up and luxury home buying segments we target. We believe we are well positioned to benefit from our strong land position and the improved housing market. The low level of single family housing construction over the past several years, combined with the relatively low level of available resale and new home inventory in many of our markets, suggest that demand should continue to outpace supply in these markets in the near term. We believe we continue to be well positioned to take advantage of the long-term housing recovery.

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Homebuilding

                                      Three Months Ended March 31,
                                        2014                 2013
                                         (Dollars in thousands)
Homebuilding revenues:
California                         $      219,479       $      199,190
Southwest                                 107,207               79,404
Southeast                                 133,513               79,127
Total homebuilding revenues        $      460,199       $      357,721

Homebuilding pretax income:
California                         $       38,553       $       22,408
Southwest                                  10,058                6,511
Southeast                                  11,299                4,017
Total homebuilding pretax income   $       59,910       $       32,936

Homebuilding pretax income for the 2014 first quarter was $59.9 million compared to $32.9 million in the year earlier period. The improvement in our financial performance was primarily the result of a 26% increase in home sale revenues and a 560 basis point improvement in gross margin from home sales.

Revenues

Home sale revenues increased 26%, from $355.1 million for the 2013 first quarter
to $446.9 million for the 2014 first quarter, resulting from a 20% increase in
our consolidated average home price to $449 thousand and a 5% increase in new
home deliveries.

                               Three Months Ended March 31,
                             2014       2013        % Change
New homes delivered:
    California                  339        400            (15%)
    Arizona                      63         63               -
    Texas                       149        133              12%
    Colorado                     53         43              23%
        Total Southwest         265        239              11%
    Florida                     235        183              28%
    Carolinas                   156        125              25%
        Total Southeast         391        308              27%
            Total               995        947               5%

The increase in new home deliveries for the 2014 first quarter was driven primarily by a 10% increase in the number of homes in beginning backlog expected to close during the quarter as compared to the year earlier period, partially offset by a 6% decrease in net new orders.

                                                      Three Months Ended March 31,
                                                     2014         2013       % Change
                                                         (Dollars in thousands)
 Average selling prices of homes delivered:
       California                                  $     624    $     492         27%
       Arizona                                           305          249         22%
       Texas                                             415          348         19%
       Colorado                                          484          400         21%
              Total Southwest                            403          331         22%
       Florida                                           350          259         35%
       Carolinas                                         298          254         17%
              Total Southeast                            329          257         28%
                     Total                         $     449    $     375         20%

Our consolidated average home price for the 2014 first quarter was up 20%, to $449 thousand, compared to the year earlier period. This reflects general price increases within the majority of our markets, a shift to more move-up product, and a decrease in the use of sales incentives.

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Gross Margin

Our 2014 first quarter gross margin percentage from home sales increased to 26.6% compared to 21.0% in the 2013 first quarter. The year over year increase in our gross margin percentage from home sales was primarily attributable to price increases, a decrease in the use of sales incentives, a higher proportion of deliveries from our more profitable new communities, and improved margins from speculative homes sold and delivered during the quarter.

SG&A Expenses

Our 2014 first quarter SG&A expenses (including Corporate G&A) were $58.6
million compared to $46.3 million for the prior year period, up 10 basis points
as a percentage of home sale revenues to 13.1%, compared to 13.0% for the 2013
first quarter. The increase in our SG&A rate was primarily the result of higher
sales and marketing costs associated with new community openings.

Operating Data

                                            Three Months Ended March 31,
                                 2014     2013    % Change   % Absorption Change (1)
Net new orders (2):
      California                   473      482       (2%)                      (6%)
      Arizona                       67       75      (11%)                     (35%)
      Texas                        235      242       (3%)                     (20%)
      Colorado                      53       62      (15%)                     (40%)
            Total Southwest        355      379       (6%)                     (26%)
      Florida                      283      293       (3%)                     (13%)
      Carolinas                    200      240      (17%)                     (11%)
            Total Southeast        483      533       (9%)                     (12%)
            Total                1,311    1,394       (6%)                     (15%)


__________________


(1) Represents the percentage change of net new orders per average number of selling communities during the period.

(2) Net new orders are new orders for the purchase of homes during the period, less cancellations of existing contracts during such period.

                                                    Three Months Ended March 31,
                                                                            %
                                                     2014       2013      Change
Average number of selling communities during the
period:
    California                                           46         44        5%
    Arizona                                              11          8       38%
    Texas                                                35         29       21%
    Colorado                                             10          7       43%
         Total Southwest                                 56         44       27%
    Florida                                              41         37       11%
    Carolinas                                            31         33      (6%)
         Total Southeast                                 72         70        3%
         Total                                          174        158       10%

Net new orders for the 2014 first quarter decreased 6%, to 1,311 homes, from the prior year period on a 10% increase in average active selling communities. Our monthly sales absorption rate for the 2014 first quarter was 2.5 per community, compared to 2.9 per community for the 2013 first quarter and 1.7 per community for the 2013 fourth quarter. The decrease in sales absorption rate from the 2013 first quarter reflects our continued emphasis on margin over sales pace, and the increase in sales absorption rate from the 2013 fourth quarter to the 2014 first quarter was above the seasonality we typically experience in our business. Our cancellation rate for the three months ended March 31, 2014 was 14%, compared to 10% for the 2013 first quarter and 21% for the 2013 fourth quarter. Our 2014 first quarter cancellation rate increased from the historically low levels we experienced in the first half of 2013, but was still below our average historical cancellation rate of approximately 21% over the last 10 years. Our cancellation rate

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(excluding cancellations from current quarter sales) for homes in beginning backlog was 7.7% for the 2014 first quarter, a 230 basis point increase from the prior year period.

                                                                                         At March 31,
                                                                  2014                       2013                      % Change
                                                         Homes     Dollar Value     Homes      Dollar Value     Homes     Dollar Value
Backlog ($ in thousands):
        California                                           530   $     360,371        522   $      284,033         2%             27%
        Arizona                                              109          38,032         89           24,886        22%             53%
        Texas                                                376         184,452        313          126,276        20%             46%
        Colorado                                             108          55,930         94           42,374        15%             32%
                Total Southwest                              593         278,414        496          193,536        20%             44%
        Florida                                              552         248,543        476          134,880        16%             84%
        Carolinas                                            341         114,057        357          107,202       (4%)              6%
                Total Southeast                              893         362,600        833          242,082         7%             50%
                Total                                      2,016   $   1,001,385      1,851   $      719,651         9%             39%

The dollar value of our backlog as of March 31, 2014 increased 39% from the year earlier period to $1.0 billion, or 2,016 homes. Our consolidated average home price in backlog of $497 thousand as of March 31, 2014 increased 28% compared to March 31, 2013, reflecting the continued execution of our move-up homebuyer focused strategy and pricing opportunities in select markets.

                                                        At March 31,
                                                 2014      2013     % Change
Homesites owned and controlled:
  California                                      9,545    10,407       (8%)
  Arizona                                         2,302     1,902        21%
  Texas                                           4,555     5,165      (12%)
  Colorado                                        1,254     1,174         7%
  Nevada                                          1,124     1,124          -
     Total Southwest                              9,235     9,365       (1%)
  Florida                                        12,257     8,445        45%
  Carolinas                                       4,678     3,906        20%
     Total Southeast                             16,935    12,351        37%
     Total (including joint ventures)            35,715    32,123        11%

  Homesites owned                                28,743    25,689        12%
  Homesites optioned or subject to contract       6,707     5,837        15%
  Joint venture homesites (1)                       265       597      (56%)
     Total (including joint ventures)            35,715    32,123        11%


Homesites owned:
  Raw lots                                        6,892     5,722        20%
  Homesites under development                     9,811     8,371        17%
  Finished homesites                              6,341     5,616        13%
  Under construction or completed homes           3,198     2,583        24%
  Held for sale                                   2,501     3,397      (26%)
     Total                                       28,743    25,689        12%


__________________


(1) Joint venture homesites represent our expected share of land development joint venture homesites and all of the homesites of our homebuilding joint ventures.

Total homesites owned and controlled as of March 31, 2014 increased 11% from the year earlier period and 2% from the 35,175 homesites owned and controlled as of December 31, 2013. We purchased $144.7 million of land (2,190 homesites) during the 2014 first quarter, of which 34% (based on homesites) was located in Florida, 20% in Arizona, 19% in the Carolinas, 14% in California and 12% in Texas. As of March 31, 2014, we owned or controlled 35,715 homesites, of which 23,783 are owned and actively selling or under development, 6,972 are controlled or under option, and the remaining 4,960 homesites are held for future development or for sale.

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                                                             At March 31,
                                                       2014     2013    % Change
Homes under construction and speculative homes:
   Homes under construction (excluding specs)          1,339    1,217        10%
   Speculative homes under construction                  906      690        31%
      Total homes under construction                   2,245    1,907        18%

   Completed and unsold homes (excluding models)         368      200        84%

Homes under construction (excluding specs) as of March 31, 2014 increased 10% compared to March 31, 2013, primarily the result of the 9% increase in homes in backlog. In addition, we have strategically increased our speculative homes compared to the prior year.

Financial Services

In the 2014 first quarter our mortgage financing subsidiary reported pretax income of approximately $1.5 million compared to $2.4 million in the year earlier period. The decrease was driven primarily by lower margins on loan originations and sales, partially offset by a 6% increase in the dollar volume of loans originated and sold and a $0.4 million decrease in loan loss reserve expense related to indemnification and repurchase reserves.

The following table details information regarding loan originations and related credit statistics for our mortgage financing operation:

                                              Three Months Ended March 31,
                                                 2014              2013
                                                 (Dollars in thousands)
Total Originations:
    Loans                                              587               669
    Principal                                     $184,961          $200,440
    Capture Rate                                       76%               82%

Loans Sold to Third Parties:
    Loans                                              746               669
    Principal                                     $236,229          $198,209

Mortgage Loan Origination Product Mix:
    FHA loans                                    10%               21%
    Other government loans (VA & USDA)            9%               18%
        Total government loans                   19%               39%
    Conforming loans                             76%               60%
    Jumbo loans                                   5%                1%
                                                 100%              100%
Loan Type:
    Fixed                                        93%               98%
    ARM                                           7%                2%
Credit Quality:
    Avg. FICO score                              751               742
Other Data:
    Avg. combined LTV ratio                      82%               86%
    Full documentation loans                     100%              100%

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Income Taxes

Our 2014 first quarter provision for income taxes of $23.5 million primarily related to our $61.6 million of pretax income. As of March 31, 2014, we had a $359.1 million deferred tax asset which was offset by a valuation allowance of $4.6 million related to state net operating loss carryforwards that are limited by shorter carryforward periods. As of such date, $119.1 million of our deferred tax asset related to net operating loss carryforwards that are subject to the
Section 382 gross annual limitation of $15.6 million for both federal and state purposes. The $240.0 million balance of the deferred tax asset is not subject to such limitations.

Liquidity and Capital Resources

Our principal uses of cash over the last several years have been for:

land acquisition principal and interest payments on debt
construction and development cash collateralization
operating expenses

Cash requirements over the last several years have been met by:

internally generated funds joint venture financings
bank revolving credit and term loans assessment district bond financings
land option contracts and seller notes letters of credit and surety bonds
public and private sales of our equity mortgage credit facilities
public and private note offerings

For the three months ended March 31, 2014, we used $117.6 million of cash in operating activities versus $58.5 million in the year earlier period. The increase in cash used in operating activities during 2014 as compared to the prior year period was driven primarily by a $99.4 million increase in cash land purchase and development costs and an 18% increase in total homes under construction, partially offset by a 29% increase in homebuilding revenues. As of March 31, 2014, our homebuilding cash balance was $221.4 million (including $26.7 million of restricted cash).

Revolving Credit Facility. As of March 31, 2014, we were party to a $440 million unsecured revolving credit facility (the "Revolving Facility") which matures in . . .

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