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SPF > SEC Filings for SPF > Form 10-Q on 1-Aug-2014All Recent SEC Filings

Show all filings for STANDARD PACIFIC CORP /DE/

Form 10-Q for STANDARD PACIFIC CORP /DE/


1-Aug-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 June 30,           Six Months Ended June 30,
                                                2014              2013              2014              2013
                                                     (Dollars in thousands, except per share amounts)
Homebuilding:
Home sale revenues                         $      591,706     $     434,308     $   1,038,624     $     789,434
Land sale revenues                                    780             4,373            14,061             6,968
Total revenues                                    592,486           438,681         1,052,685           796,402
Cost of home sales                               (434,196 )        (331,503 )        (762,441 )        (612,115 )
Cost of land sales                                   (350 )          (4,416 )         (13,354 )          (6,999 )
Total cost of sales                              (434,546 )        (335,919 )        (775,795 )        (619,114 )
Gross margin                                      157,940           102,762           276,890           177,288
Gross margin percentage                              26.7 %            23.4 %            26.3 %            22.3 %
Selling, general and administrative
expenses                                          (67,835 )         (54,598 )        (126,425 )        (100,892 )
Income (loss) from unconsolidated joint
ventures                                             (462 )             147              (899 )           1,281
Other income (expense)                               (363 )          (1,247 )            (376 )           2,323
Homebuilding pretax income                         89,280            47,064           149,190            80,000

Financial Services:
Revenues                                            6,112             7,411            11,096            13,088
Expenses                                           (3,760 )          (3,482 )          (7,200 )          (6,804 )
Other income                                          214               151               375               253
Financial services pretax income                    2,566             4,080             4,271             6,537

Income before taxes                                91,846            51,144           153,461            86,537
Provision for income taxes                        (35,383 )          (8,008 )         (58,839 )         (21,577 )
Net income                                         56,463            43,136            94,622            64,960
  Less: Net income allocated to
preferred shareholder                             (13,496 )         (14,293 )         (22,650 )         (23,991 )
  Less: Net income allocated to unvested
restricted stock                                      (77 )             (66 )            (134 )             (82 )
Net income available to common
stockholders                               $       42,890     $      28,777     $      71,838     $      40,887

Income Per Common Share:
Basic                                      $         0.15     $        0.12     $        0.26     $        0.18
Diluted                                    $         0.14     $        0.11     $        0.23     $        0.16

Weighted Average Common Shares
Outstanding:
Basic                                         279,075,416       243,171,726       278,514,992       228,749,443
Diluted                                       316,727,592       281,708,696       316,451,929       267,274,060

Weighted average additional common
shares outstanding
if preferred shares converted to common
shares                                         87,812,786       120,779,819        87,812,786       134,221,626

Total weighted average diluted common
shares outstanding
if preferred shares converted to common
shares                                        404,540,378       402,488,515       404,264,715       401,495,686

Net cash provided by (used in) operating
activities                                 $      (25,949 )   $     (90,743 )   $    (143,512 )   $    (149,204 )
Net cash provided by (used in) investing
activities                                 $      (36,050 )   $    (125,253 )   $     (25,764 )   $    (126,854 )
Net cash provided by (used in) financing
activities                                 $        4,426     $      10,319     $     (46,476 )   $      10,139

Adjusted Homebuilding EBITDA (1)           $      125,730     $      82,376     $     214,738     $     146,199


__________________


(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 June 30,           Six Months Ended June 30,           LTM Ended June 30,
                              2014                 2013              2014               2013           2014           2013
                                                                (Dollars in thousands)

Net cash provided by
(used in) operating
activities               $      (25,949 )     $      (90,743 )   $    (143,512 )     $ (149,204 )   $ (148,524 )   $ (333,602 )
Add:
Provision (benefit)
for income taxes, net
of
   deferred component                 -                  199              (166 )            394        (15,791 )          784
Homebuilding interest
amortized to cost of
   sales and interest
expense                          29,816               30,662            54,799           58,547        118,030        121,658
Less:
Income from financial
services subsidiary               2,352                3,929             3,896            6,284          8,363         12,666
Depreciation and
amortization from
financial
   services subsidiary               34                   28                67               56            132            120
Loss on disposal of
property and equipment                -                    1                 1               16              2             50
Net changes in
operating assets and
liabilities:
Trade and other
receivables                      (6,416 )             10,732            11,133           19,648         (5,271 )       11,385
Mortgage loans held
for sale                          9,364              (11,818 )         (42,574 )        (11,958 )      (28,073 )       38,484
Inventories-owned               127,264              156,993           316,023          230,023        501,312        430,475
Inventories-not owned             6,629                4,770            14,794            9,710         48,403         37,762
Other assets                      1,142                3,083             1,975            1,254           (244 )       (1,441 )
Accounts payable                 (4,773 )             (1,198 )          (6,149 )            380        (19,854 )       (5,690 )
Accrued liabilities              (8,961 )            (16,346 )          12,379           (6,239 )       10,669        (20,455 )
Adjusted Homebuilding
EBITDA                   $      125,730       $       82,376     $     214,738       $  146,199     $  452,160     $  266,524

Three and Six Months Ended June 30, 2014 Compared to Three and Six Months Ended June 30, 2013

Overview

Our 2014 second quarter reflected a continuation of the positive operating performance we have achieved over the last several years, resulting from the continued execution of our strategy and the housing market recovery. Net income for the 2014 second quarter was $56.5 million, or $0.14 per diluted share, as compared to $43.1 million, or $0.11 per diluted share, for the 2013 second quarter, and pretax income was $91.8 million, compared to $51.1 million. The effective tax rate for the 2014 second quarter was 38.5%, compared to 15.7% for the prior year period. The 2013 second quarter effective tax rate included a $12.2 million income tax benefit related to the reversal of the deferred tax asset valuation allowance attributable to the expiration of certain Section 382 limitations. Our gross margin from home sales rose to 26.6% for the quarter, a 290 basis point increase from the 2013 second quarter, and our operating margin from home sales, which includes SG&A expenses, was 15.2% for the quarter, a 410 basis point increase compared to the prior year period. For the six months ended June 30, 2014, we reported net income of $94.6 million, or $0.23 per diluted share, as compared to $65.0 million, or $0.16 per diluted share, in the prior year period. Pretax income for the six months ended June 30, 2014 was $153.5 million, compared to $86.5 million in the prior year period. In addition, the dollar value of homes in backlog was $1.1 billion, a 20% increase from the prior year period.

During the first half of 2014, we spent $435 million on land purchases and development costs and acquired approximately 3,500 homesites as we continue to invest in opportunities that meet our underwriting standards. 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 the strength of our land and product portfolio leaves us well positioned to take advantage of the long-term housing recovery.

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Homebuilding

                             Three Months Ended June 30,            Six Months Ended June 30,
                            2014          2013      % Change       2014          2013      % Change
                                                   (Dollars in thousands)
Homebuilding revenues:
  California             $   290,899   $  229,008        27%   $    510,378   $  428,198        19%
  Southwest                  131,590       93,017        41%        238,797      172,421        38%
  Southeast                  169,997      116,656        46%        303,510      195,783        55%
      Total homebuilding
      revenues           $   592,486   $  438,681        35%   $  1,052,685   $  796,402        32%

Homebuilding pretax
income:
  California             $    57,566   $   30,002        92%   $     96,119   $   52,410        83%
  Southwest                   14,274        8,542        67%         24,332       15,053        62%
  Southeast                   17,440        8,520       105%         28,739       12,537       129%
      Total homebuilding
      pretax income      $    89,280   $   47,064        90%   $    149,190   $   80,000        86%

Homebuilding pretax income for the 2014 second quarter was $89.3 million compared to $47.1 million in the year earlier period. The improvement in our financial performance resulted primarily from a 36% increase in home sale revenues and a 290 basis point improvement in gross margin from home sales. The improvement in our financial performance for the 2014 second quarter compared to the prior year period was realized across all three of our reportable segments. Homebuilding pretax income as a percentage of homebuilding revenues for the 2014 second quarter in California, the Southwest and the Southeast was 19.8%, 10.8% and 10.3%, respectively, an improvement of 670 basis points, 160 basis points and 300 basis points, respectively, compared to the prior year period.

For the six months ended June 30, 2014, we reported homebuilding pretax income of $149.2 million compared to $80.0 million in the year earlier period. The improvement in our financial performance resulted primarily from a 32% increase in home sale revenues and a 410 basis point improvement in gross margin from home sales. The improvement in our financial performance for the six months ended June 30, 2014 compared to the prior year period was realized across all three of our reportable segments. Homebuilding pretax income as a percentage of homebuilding revenues in California, the Southwest and the Southeast was 18.8%, 10.2% and 9.5%, respectively, an improvement of 660 basis points, 150 basis points and 310 basis points, respectively, compared to the prior year period.

  Revenues

  Home sale revenues increased 36%, from $434.3 million for the 2013 second
quarter to $591.7 million for the 2014 second quarter, resulting from a 21%
increase in our average home price to $479 thousand and a 13% increase in new
home deliveries.  Home sale revenues increased 32%, from $789.4 million for the
six months ended June 30, 2013 to $1,038.6 million for the six months ended June
30, 2014, resulting from a 20% increase in our average home price to $466
thousand and a 9% increase in new home deliveries.

                                                  Three Months Ended June 30,         Six Months Ended June 30,
                                                   2014       2013     % Change     2014          2013     % Change
New homes delivered:
     California                                        439       419         5%        778           819       (5%)
     Arizona                                            60        57         5%        123           120         3%
     Texas                                             179       155        15%        328           288        14%
     Colorado                                           58        38        53%        111            81        37%
          Total Southwest                              297       250        19%        562           489        15%
     Florida                                           265       239        11%        500           422        18%
     Carolinas                                         235       187        26%        391           312        25%
          Total Southeast                              500       426        17%        891           734        21%
                Total                                1,236     1,095        13%      2,231         2,042         9%

New home deliveries continued to increase year over year, from 5% for the 2014 first quarter to 13% for the 2014 second quarter, resulting in a 9% increase in deliveries for the six months ended June 30, 2014 compared to the prior year. The increase in new home deliveries for the 2014 second quarter was driven primarily by a 6% increase in the number of homes in beginning backlog expected to close during the

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quarter as compared to the year earlier period and an increase in speculative homes sold and closed in the quarter. During the 2014 second quarter, we sold and closed 293 speculative homes, a 30% increase from the prior year period, and the highest number of speculative homes sold and closed since the 2010 second quarter.

                                               Three Months Ended June 30,          Six Months Ended June 30,
                                               2014        2013      % Change      2014        2013      % Change
                                                                   (Dollars in thousands)
Average selling prices of homes
delivered:
      California                            $      662   $     538        23%   $      645   $     515        25%
      Arizona                                      309         249        24%          307         249        23%
      Texas                                        466         399        17%          443         375        18%
      Colorado                                     510         441        16%          498         419        19%
            Total Southwest                        443         371        19%          424         352        20%
      Florida                                      368         261        41%          360         260        38%
      Carolinas                                    306         289         6%          303         275        10%
            Total Southeast                        339         273        24%          335         266        26%
                 Total                      $      479   $     397        21%   $      466   $     387        20%

Our 2014 second quarter consolidated average selling price of $479 thousand was the highest quarterly average selling price of homes delivered in the Company's nearly 50-year history. The year over year increases in our consolidated average home price reflects general price increases within the majority of our markets, a shift to more move-up product, and the continued reduction in the use of sales incentives.

Gross Margin

Our 2014 second quarter gross margin percentage from home sales increased to 26.6% compared to 23.7% in the 2013 second quarter. For the six months ended June 30, 2014, our gross margin percentage from home sales was also 26.6%, an increase from 22.5% compared to the prior year period. The year over year increases in our gross margin percentage from home sales were primarily attributable to price increases, a decrease in the use of sales incentives, and a higher proportion of deliveries from our more profitable new communities.

SG&A Expenses

Our 2014 second quarter SG&A expenses (including Corporate G&A) were $67.8 million compared to $54.6 million for the prior year period, down 110 basis points as a percentage of home sale revenues to 11.5%, compared to 12.6% for the 2013 second quarter. For the six months ended June 30, 2014, our SG&A expenses (including Corporate G&A) were $126.4 million compared to $100.9 million for the prior year period, down 60 basis points as a percentage of home sale revenues to 12.2%, compared to 12.8% for the prior year period. The improvement in our SG&A rate was primarily the result of the increase in home sale revenues and the operating leverage inherent in our business.

  Operating Data

                                            Three Months Ended June 30,                  Six Months Ended June 30,
                                                                        %                                           %
                                                                    Absorption                                  Absorption
                                      2014      2013     % Change   Change (1)    2014      2013     % Change   Change (1)
Net new orders (2):
      California                         498       513       (3%)         (7%)       971       995       (2%)         (4%)
      Arizona                             75        78       (4%)        (13%)       142       153       (7%)        (26%)
      Texas                              359       216        66%          31%       594       458        30%           5%
      Colorado                            75        65        15%        (16%)       128       127         1%        (36%)
            Total Southwest              509       359        42%          13%       864       738        17%         (9%)
      Florida                            258       443      (42%)        (47%)       541       736      (26%)        (33%)
      Carolinas                          259       201        29%          25%       459       441         4%           4%
            Total Southeast              517       644      (20%)        (25%)     1,000     1,177      (15%)        (20%)
            Total                      1,524     1,516         1%        (10%)     2,835     2,910       (3%)        (12%)


__________________


(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.

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                                               Three Months Ended June 30,     Six Months Ended June 30,
                                                2014      2013     % Change    2014      2013     % Change
Average number of selling communities during
the period:
    California                                      48        46         4%        47        46         2%
    Arizona                                         10         9        11%        10         8        25%
    Texas                                           38        30        27%        37        30        23%
    Colorado                                        11         8        38%        11         7        57%
         Total Southwest                            59        47        26%        58        45        29%
    Florida                                         45        41        10%        43        39        10%
    Carolinas                                       31        30         3%        31        31          -
         Total Southeast                            76        71         7%        74        70         6%
         Total                                     183       164        12%       179       161        11%

Our monthly sales absorption rate for the 2014 second quarter was 2.8 per community, compared to 3.1 per community for the 2013 second quarter and 2.5 per community for the 2014 first quarter. Net new orders for the 2014 second quarter include 99 homes in backlog we acquired in connection with our June 2014 acquisition of an Austin, Texas homebuilder. Net new orders for the 2013 second quarter include 119 homes in backlog we acquired in connection with our June 2013 acquisition of select assets from a Southeastern homebuilder. Excluding the impact of these acquisitions, our monthly sales absorption rate for the 2014 second quarter was 2.6 per community and 2.8 per community for the 2013 second quarter. The decrease in sales absorption rate from the 2013 second quarter reflects our continued emphasis on margin over sales pace, and the increase in sales absorption rate from the 2014 first quarter to the 2014 second quarter was consistent with the seasonality we typically experience in our business. Our cancellation rate for the three months ended June 30, 2014 was 14%, compared to 11% for the 2013 second quarter and 14% for the 2014 first quarter. Our 2014 second quarter cancellation rate increased from the historically low levels we experienced in the first half of 2013, but was still below the average historical cancellation rate of approximately 21% we have experienced over the last 10 years. Our cancellation rate (excluding cancellations from current quarter sales) for homes in beginning backlog was 7.6% for the 2014 second quarter, a 240 basis point increase from the prior year period.

                                                                                        At June 30,
                                                               2014                         2013                      % Change
                                                       Homes     Dollar Value      Homes      Dollar Value      Homes     Dollar Value
Backlog ($ in thousands):
            California                                     589   $     378,962         616   $      366,617        (4%)              3%
            Arizona                                        124          43,678         110           36,330         13%             20%
            Texas                                          556         261,384         374          156,036         49%             68%
            Colorado                                       125          67,005         121           57,425          3%             17%
                 Total Southwest                           805         372,067         605          249,791         33%             49%
            Florida                                        545         262,827         680          220,621       (20%)             19%
            Carolinas                                      365         125,030         371          110,555        (2%)             13%
                 Total Southeast                           910         387,857       1,051          331,176       (13%)             17%
                 Total                                   2,304   $   1,138,886       2,272   $      947,584          1%             20%

The dollar value of our backlog as of June 30, 2014 increased 20% from the year earlier period to $1.1 billion, or 2,304 homes. This increase in dollar value is primarily attributable to an 18% increase in our average home price in backlog, to $494 thousand as of June 30, 2014, as compared to $417 thousand at June 30, 2013. This increase in average home price reflects the continued execution of our move-up homebuyer focused strategy and pricing opportunities in select markets.

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                                                              At June 30,
                                                        2014     2013    % Change
Homesites owned and controlled:
         California                                      9,603   10,150      (5%)
         Arizona                                         2,242    1,975       14%
         Texas                                           5,204    5,220      (0%)
         Colorado                                        1,196    1,268      (6%)
         Nevada                                          1,124    1,124         -
                   Total Southwest                       9,766    9,587        2%
         Florida                                        12,138   10,481       16%
         Carolinas                                       4,441    4,908     (10%)
                   Total Southeast                      16,579   15,389        8%
                   Total (including joint ventures)     35,948   35,126        2%

         Homesites owned                                28,774   27,497        5%
         Homesites optioned or subject to contract       6,909    7,039      (2%)
         Joint venture homesites (1)                       265      590     (55%)
                   Total (including joint ventures)     35,948   35,126        2%


Homesites owned:
         Raw lots                                        6,747    7,300      (8%)
. . .
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