UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2008
OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from N/A to
Commission
file number 1-10959
STANDARD
PACIFIC CORP.
(Exact
name of registrant as specified in its charter)
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Delaware
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33-0475989
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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26
Technology Drive, Irvine, California, 92618
(Address
of principal executive offices)
(949)
789-1600
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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Common
Stock, $0.01 par value
(and
accompanying Preferred Share Purchase Rights)
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New
York Stock Exchange
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6¼%
Senior Notes due 2014
(and
related guarantees)
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer ¨
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Accelerated
filer x
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Non-accelerated
filer ¨ (Do not check if
a smaller reporting company)
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Smaller
reporting company ¨
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes ¨ No x
The
aggregate market value of the common equity held by non-affiliates computed by
reference to the price at which the common equity was last sold as of the last
business day of the registrant’s most recently completed second fiscal quarter
was $242,811,723.
As of
March 9, 2009, there were 100,624,350 shares of the registrant’s common
stock outstanding.
Documents
incorporated by reference:
Portions of
the registrant’s Definitive Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the registrant’s 2009 Annual Meeting of
Stockholders are incorporated by reference into Part III hereof.
Table of
Contents
STANDARD
PACIFIC CORP.
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Page No.
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PART
I
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Item 1.
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1
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Item 1A.
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5
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Item 1B.
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12
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Item 2.
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12
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Item 3.
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12
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Item 4.
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12
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PART
II
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Item 5.
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14
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Item 6.
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16
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Item 7.
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17
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Item 7A.
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48
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Item 8.
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51
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Item 9.
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95
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Item 9A.
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95
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Item 9B.
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97
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PART
III
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Item 10.
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97
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Item 11.
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97
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Item 12.
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97
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Item 13.
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97
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Item 14.
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98
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PART
IV
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Item 15.
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98
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i
STANDARD
PACIFIC CORP.
PART
I
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ITEM 1.
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We are a
leading geographically diversified builder of single-family attached and
detached homes. We construct homes within a wide range of price and
size targeting a broad range of homebuyers. We have operations in
major metropolitan markets in California, Florida, Arizona, Texas, the
Carolinas, Colorado and Nevada and have built homes for more than 106,000
families during our 43-year history.
In 2008,
the percentages of our home deliveries by state (including deliveries by
unconsolidated joint ventures) were as follows:
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State
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Percentage of
Deliveries
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California
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38%
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Florida
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18
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Arizona
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11
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Texas
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13
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Carolinas
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11
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Colorado
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5
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Nevada
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1
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Discontinued
operations
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3
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Total
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100%
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In
addition to our core homebuilding operations, we also provide mortgage financing
and title services to our homebuyers. For business segment financial
data, including revenue, total assets, pretax income (loss), income (loss) from
investments in unconsolidated joint ventures and impairments, please see
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” beginning on page 17, as well as Note 3 to our consolidated
financial statements beginning on page 64.
Standard
Pacific Corp. was incorporated in the State of Delaware in
1991. Through our predecessors, we commenced our homebuilding
operations in 1966. Our principal executive offices are located at 26 Technology
Drive, Irvine, California 92618. Unless the context otherwise requires, the
terms “we,” “us,” “our” and “the Company” refer to Standard Pacific Corp. and
its predecessors and subsidiaries.
This
annual report on Form 10-K and each of our other quarterly reports on Form 10-Q
and current reports on Form 8-K, including any amendments, are available free of
charge on our website, www.standardpacifichomes.com,
as soon as reasonably practicable after such material is electronically filed
with, or furnished to, the Securities and Exchange Commission or SEC. The
information contained on our website is not incorporated by reference into this
report and should not be considered part of this report. The public
may read and copy any materials we file with the SEC at the SEC’s Public
Reference Room at 100 F Street, NE, Washington D.C. 20549. The public
may obtain information on the operation of the SEC’s Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the Securities and
Exchange Commission website contains reports, proxy and information statements,
and other information about us at www.sec.gov.
Strategy
Our strategy
for creating long-term shareholder value includes the following
elements:
Overhead,
Costs and Operations
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·
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Align
overhead structure with current delivery
levels;
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·
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Manage
speculative starts and new community openings to align production with
sales;
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·
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Be
among the leaders in each of our markets allowing better access to land
opportunities and the potential for a lower cost
structure;
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1
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·
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Centralize
key administrative functions, such as finance and treasury, information
technology, legal and risk management, and human resources, in our
corporate headquarters;
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·
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Reduce
the number of our operating divisions, eliminating overlapping management,
customer service, purchasing, accounting and other functions, while
utilizing a leaner satellite structure to maintain a local presence in
markets where we operate at lower volume
levels;
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·
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Use
the downturn in the economy as an opportunity to improve our operating
model to be positioned to offer better value to our customers as industry
conditions improve;
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·
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Value
engineer our homes with a sharpened focus on preferred customer
features;
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·
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Accelerate
our national and regional purchasing, re-bidding and other purchasing
initiatives; and
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·
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Focus
on our historical strength, single family detached and attached homes
(including condominiums) configured in three or fewer stories and which
are offered at multiple price points to appeal to a broad range of
homebuyers.
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Land
and Footprint
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·
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Take
advantage of the distressed land market to acquire low cost land positions
in markets that are expected to be high growth in the
future;
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·
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Enhance
our land position while prices are depressed and then return to a more
typical 2 to 3 year land supply when the industry gets into an extended
up-cycle; and
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·
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Focus
on our existing geographic footprint (we currently operate in 12 of the
top 25 markets in the country based on building permits) and exceptional
opportunities that become available in additional high growth
markets.
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Financial
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·
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Preserve
sufficient cash resources to meet debt repayment obligations until market
conditions improve and re-financing alternatives become
available;
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·
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Continue
to wind-down our joint venture positions and use joint ventures on a more
limited, selective basis going forward;
and
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·
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Pursue
land acquisition opportunities through use of excess cash, equity or
potential partnerships with external financial
partners.
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Homebuilding
Operations
We
currently build homes in 16 markets through a total of 11 operating divisions.
At December 31, 2008, we had 264 projects from continuing operations, of which
169 were actively selling (excluding unconsolidated joint ventures and
discontinued operations).
For the
year ended December 31, 2008, approximately 84% of our deliveries were
single-family detached dwellings. The remainder of our deliveries
were single family attached homes, generally townhomes and condominiums
configured with eight or fewer units per building. We completed a
small number of podium projects during the year, with higher densities and
configured units up to four stories over a garage. We do not
currently intend to continue building this product type.
2
Our homes are
designed to suit the particular area of the country in which they are located
and are available in a variety of models, exterior styles and materials
depending upon local preferences. While we have built homes from
1,100 to over 6,000 square feet, our homes typically range in size from
approximately 1,500 to 3,500 square feet. The sales prices of our homes
generally range from approximately $100,000 to over $1 million (including a
small number of homes priced in excess of $2 million). Set forth below are our
average selling prices by state of homes delivered during 2008:
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State
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Average
Selling
Price
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California
(excluding joint ventures)
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$475,000
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Texas
(1)
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$280,000
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Florida
(excluding joint venture)
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$209,000
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Arizona
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$228,000
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Carolinas
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$246,000
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Colorado
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$348,000
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Nevada
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$285,000
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(1)
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Texas
excludes the San Antonio division, which was classified as discontinued
operations.
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Development
and Construction
We
customarily acquire unimproved or improved land zoned for residential
use. To control larger land parcels, we sometimes form land
development joint ventures with third parties which provide us the right to
acquire a portion of the lots from the joint venture when
developed. If we purchase raw land or partially developed land, we
will perform development work on a project in addition to constructing
homes. This development work may include negotiating with
governmental agencies and local communities to obtain any necessary zoning,
environmental and other regulatory approvals, and constructing, as necessary,
roads, water, sewer and drainage systems, recreational facilities, and other
improvements.
We act as
a general contractor with our supervisory employees coordinating all development
and construction work on a project. The services of independent
architectural design, engineering and other consulting firms are generally
engaged on a project-by-project basis to assist in project planning and home
design, and subcontractors are employed to perform all of the physical
development and construction work. Although the construction time for
our homes varies from project to project depending on the time of year, the size
and complexity of the homes, local labor situations, the governmental approval
processes, availability of materials and supplies, and other factors, we can
typically complete the construction of a home, depending on geographic region,
in approximately three to eight months.
Marketing
and Sales
Our homes are
generally marketed by our divisional sales teams through furnished and
landscaped model homes, which are typically maintained at each project site. We
host a website, www.standardpacifichomes.com,
with project listings, floor plans, pricing and other project information, which
we intend to use as an increasingly important means of marketing in the
future.
Our
homes are sold using sales contracts that are usually accompanied by a cash
deposit. Under current market conditions, an increasing number of
homebuyers are seeking to buy a completed or close to complete
home. For those homes sold prior to construction, homebuyers are
afforded the opportunity to contract to purchase various optional amenities and
upgrades such as prewiring and electrical options, upgraded flooring, cabinets,
finished carpentry and countertops, varied interior and exterior color schemes,
additional and upgraded appliances, and some room configurations. Purchasers are
typically permitted for a limited time to cancel their contracts if they fail to
qualify for financing. In some cases, purchasers are also permitted to cancel
these contracts if they are unable to sell their existing homes or if certain
other conditions are not met. A buyer’s liability for wrongfully terminating a
sales contract is typically limited to the forfeiture of the buyer’s cash
deposit.
3
Financing
We
typically use both our equity (including internally generated funds and proceeds
from public and private equity offerings and proceeds from the exercise of stock
options) and debt financing in the form of bank debt, proceeds from our public
note offerings and other debt, to fund land acquisition and development and
construction of our properties. To a lesser extent, we use purchase money trust
deeds to finance the acquisition of land and, in some markets, community
facility district or other similar assessment district bond financing is used to
fund community infrastructure such as roads, sewers and schools.
We also
utilize joint ventures and option structures with land sellers, other builders,
developers and financial entities from time to time as a means of accessing lot
positions, expanding our market opportunities, establishing strategic alliances,
leveraging our capital base and managing the financial and market risk
associated with land holdings. In addition to equity contributions
made by us and our partners, our joint ventures typically will obtain secured
project specific financing to fund the acquisition of land and development and
construction costs. We are currently reducing our investments in
joint ventures and intend to utilize these types of arrangements on a more
limited basis in the future. For more detailed discussion of our
current joint venture arrangements please see “Off-Balance Sheet Arrangements”
beginning on page 36.
Seasonality
Our
homebuilding operations have historically experienced seasonal
fluctuations. We typically experience the highest new home order
activity in the spring and summer months, although new order activity is highly
dependent on the number of active selling communities and the timing of new
community openings as well as other market factors. Because it
typically takes three to eight months to construct a new home, we typically
deliver a greater number of homes in the second half of the calendar year as the
prior orders are converted to home deliveries. As a result, our
revenues from homebuilding operations are generally higher in the second half of
the calendar year, particularly in the fourth quarter.
Sources
and Availability of Raw Materials
For a
discussion of raw materials, please see the risk factor titled “Labor and
material shortages could delay or increase the cost of home construction and
reduce our sales and earnings” on page 10.
Dollar
Value of Backlog
For a
discussion of the dollar value of our backlog, please see the discussion of
backlog in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” beginning on page 17.
Competitive
Conditions in the Business
For a
discussion of competition in our business, please see the risk factor titled
“The homebuilding industry is highly competitive and, with more limited
resources than some of our competitors, we may not be able to compete
effectively” on page 9.
Government
Regulation
For a
discussion of the impact of government regulations on our business, please see
the risk factor titled “We are subject to extensive government regulation, which
can increase costs and reduce profitability” on page 10.
Financial
Services
Customer
Financing
We offer
mortgage financing to our homebuyers in substantially all of the markets in
which we operate. The principal sources of revenues for these mortgage
operations are fees generated from loan originations, net gains on the sale of
loans and net interest income earned on loans during the period they are held
prior to sale. In addition to being a source of revenues, these
mortgage operations benefit our homebuyers and complement our homebuilding
operations by offering a dependable source of competitively priced financing,
staffed by a team of professionals experienced in the new home purchase process
and our sales and escrow procedures.
4
Standard
Pacific Mortgage, our wholly-owned mortgage banking subsidiary, sells
substantially all of the loans it originates in the secondary mortgage market,
with servicing rights released on a non-recourse basis. These sales are
generally subject to Standard Pacific Mortgage’s obligation to repay its gain on
sale if the loan is prepaid by the borrower within a certain time period
following such sale, or to repurchase the loan if, among other things, the
borrower defaults on the loan within a specified period following the sale, the
loan purchaser’s underwriting guidelines are not met, or there is fraud in
connection with the loan. As of December 31, 2008, Standard Pacific Mortgage had
been required to repurchase 0.05% and 0.04% of the total dollar value of the
loans it originated in 2008 and 2007, respectively. Standard Pacific Mortgage
typically finances its loans held for sale through its mortgage credit
facilities.
Our
mortgage joint venture, SPH Home Mortgage, which began winding down operations
on January 1, 2009, sells the loans it originates, on a non-recourse basis and
with servicing rights released, to our financial institution partner and other
investors. Because the underwriting of these loans is contracted to our
financial institution partner, these loans are only subject to repurchase if
there is fraud committed by the employees of SPH Home Mortgage in connection
with the transaction. As of December 31, 2008, SPH Home Mortgage has not been
required to repurchase any loans since its inception. SPH Home Mortgage loans
held for sale are financed through its own separate credit facility with an
affiliate of our joint venture partner. In connection with the wind
down of SPH Home Mortgage, Standard Pacific Mortgage began originating loans in
the markets that were previously covered by SPH Home Mortgage.
Title
Services
In Texas, we act as a title insurance
agent performing title examination services for our Texas homebuyers through our
title service subsidiary, SPH Title, Inc.
Employees
At
December 31, 2008, we had approximately 1,300 employees, a reduction of
approximately 600 employees from the prior year end. Of our employees
at the end of 2008, approximately 400 were executive, administrative and
clerical personnel, 350 were sales and marketing personnel, 300 were involved in
construction and project management, 150 were involved in new home warranty, and
100 worked in the mortgage operations. None of our employees are covered by
collective bargaining agreements, although employees of some of the
subcontractors that we use are represented by labor unions and may be subject to
collective bargaining agreements.
We believe
that our relations with our employees and subcontractors are good.
|
ITEM 1A.
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RISK FACTORS
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Discussion
of our business and operations included in this annual report on Form 10-K
should be read together with the risk factors set forth below. They
describe various risks and uncertainties to which we are or may become
subject. These risks and uncertainties have the potential to affect
our business, financial condition, results of operations, cash flows, strategies
or prospects in a material and adverse manner.
Adverse
changes in general and local economic conditions have affected and may continue
to affect the demand for homes and reduce our earnings.
The
residential homebuilding industry is sensitive to changes in economic conditions
such as the level of employment, consumer confidence, consumer income,
availability of financing and interest rate levels. The recent declines in the
value of homes, disruption in the credit markets, increase in unemployment
levels, absence of home price stability, announcement of a national recession,
decreased availability of financing and higher interest rates on certain
mortgage products have, among other factors, resulted in falling consumer
confidence, and adversely impacted the homebuilding industry and our operations
and financial condition. These conditions may continue or worsen. We
can provide no assurance that our strategies to address these challenges will be
successful.
Customers
may be unwilling or unable to purchase our homes at times when
mortgage-financing costs are high or when credit is difficult to
obtain.
The
majority of our homebuyers finance their purchases through our financial
services operations or third-party lenders. In general, housing demand is
adversely affected by increases in interest rates and by decreases in the
availability of mortgage financing as a result of declining customer credit
quality, tightening of mortgage loan underwriting standards, or
5
other
issues. Many lenders have significantly tightened their underwriting standards,
are requiring substantial down payments, and have eliminated or significantly
limited many subprime and other alternative mortgage products, including “jumbo”
loan products, which are important to sales in many of our California
markets. In addition, the use of seller funded down payment
assistance programs was prohibited in late 2008. As a result of these trends,
the ability and willingness of prospective buyers to finance home purchases or
to sell their existing homes has been adversely affected, which has adversely
affected our operating results. These conditions may continue or
worsen.
We
are experiencing a significant and substantial downturn in homebuyer demand.
Continuation of this downturn may result in a continuing reduction in our
revenues and deterioration of our margins.
We are
experiencing a significant and substantial downturn in homebuyer demand. Prior
to this downturn, we experienced strong price appreciation in many of our
markets. This price appreciation has resulted in the decreased affordability of
new homes in many of our markets. If buyers are unable to afford new homes in
these markets, prices will continue to decline, which will continue to harm both
our revenues and margins.
In
addition, many of our competitors are aggressively liquidating land and new home
inventories by selling homes at significantly reduced prices. At the same time
we are also competing with the resale of existing homes, rental homes, and
“almost new” homes owned by speculators seeking to exit the market. An increase
in the number of mortgage loan defaults has also increased the supply of homes
available for sale at reduced prices. All of these actions have resulted in a
meaningful increase in the supply of homes available for sale, which may
continue or increase, making it more difficult for us to sell our homes and to
maintain our profit margins.
We
may be unable to obtain suitable bonding for the development of our
communities.
We
provide bonds to governmental authorities and others to ensure the completion of
our projects. If we are unable to provide required surety bonds for our
projects, our business operations and revenues could be adversely affected. As a
result of the recent deterioration in market conditions, surety providers have
become increasingly reluctant to issue new bonds and some providers are
requesting credit enhancements in order to maintain existing bonds or to issue
new bonds. If we are unable to obtain required bonds in the future, or are
required to provide credit enhancements with respect to our current or future
bonds, our liquidity could be negatively impacted.
We
may be unable to repay, renew or extend our outstanding debt instruments when
they are due.
We have a
significant amount of debt. Our revolving credit facility which, as of December
31, 2008, had borrowings outstanding of $47.5 million, matures in May 2011. In
addition, we have an aggregate of approximately $1,354.0 million in senior
notes, senior subordinated notes and term loans that mature between 2009 and
2015. There can be no assurance that we will be able to repay these debt
arrangements or extend or renew them on terms acceptable to us, or at all. If we
are unable to repay, renew or extend these debt arrangements, it could adversely
affect our liquidity and capital resources and financial condition.
We
may be unable to maintain compliance with the covenants or meet certain
financial ratios that must be satisfied as conditions to incurring additional
indebtedness or making restricted payments contained in our debt
instruments.
Our
revolving credit facility, term loans and the indentures for our outstanding
notes impose restrictions on our operations, financing, investments and other
activities, as well as limiting dividends and distributions on our stock. The
indentures for our outstanding notes provide that the Company must either stay
below a maximum leverage ratio or maintain a minimum interest coverage ratio in
order to be permitted to incur additional indebtedness beyond limited categories
of indebtedness specified in the indentures. The indentures also provide that,
in order to make restricted payments (including dividends and distributions on
stock or investments beyond limited categories of investments specified in the
indentures), the Company must satisfy the ratio requirements for incurrence of
additional debt and generate (by a formula based on 50% of consolidated net
income) a basket for such additional restricted payments. As of
December 31, 2008, we did not satisfy the leverage condition or the interest
coverage condition to enable us to make restricted payments. As a
result, we were unable to make restricted payments, other than through funds
available from our unrestricted subsidiaries, which was $513.2 million as of
December 31, 2008. Our amended revolving credit facility contains a
cash flow coverage covenant requiring the Company to maintain either a minimum
ratio of cash flow from operations to consolidated homebuilding interest
incurred or a minimum interest reserve and also prohibits, subject to various
exceptions, the repurchase of capital stock, payment of dividends, the making of
investments and the incurrence and early repayment of debt. As of
December 31, 2008, we did not
6
meet the
minimum cash flow coverage ratio and, as a result, we were required to establish
a minimum interest reserve. In March 2009 one of our unrestricted
subsidiaries deposited approximately $120.8 million of cash in a deposit account
with our agent bank for this purpose. In addition, future borrowings
under our amended revolving credit facility will be required to be secured by
available collateral.
There can
be no assurance that we will meet the covenants or financial ratios, as
applicable, in our revolving credit facility, term loans and the indentures for
our outstanding notes if slowing market conditions continue or worsen. If we are
unable to comply with or meet any one or more of these covenants or financial
ratios, as applicable, we could be precluded from incurring additional
borrowings, subject to certain limitations, and, in the event of default, our
obligation to repay indebtedness outstanding under the facility, our term loans,
and our outstanding note indentures could be accelerated in full. We can give no
assurance that in such an event, we would have, or be able to obtain, sufficient
funds to pay all debt we are required to repay.
The
market value and availability of land may fluctuate significantly, which could
decrease the value of our developed and undeveloped land holdings and limit our
ability to develop new communities.
The risk
of owning developed and undeveloped land can be substantial for homebuilders.
The market value of undeveloped land, buildable lots and housing inventories can
fluctuate significantly as a result of changing economic and market conditions,
such as the
conditions we are currently experiencing, which have resulted in impairments of
a number of our land positions and write-offs of certain of our land option
deposits and pre-acquisition costs. If current market conditions continue to
deteriorate, our competition adjust their pricing strategy or if other
significant adverse changes in economic or market conditions occur, we may have
to impair additional land holdings and works in progress, write down our
investments in unconsolidated joint ventures, write off option deposits and
pre-acquisition costs, sell homes or land at a loss, and/or hold land or homes
in inventory longer than planned. In addition, inventory carrying costs can be
significant, particularly if inventory must be held for longer than planned,
which can trigger asset impairments in a poorly performing project or
market.
While not
a significant issue under current market conditions, our long-term success also
depends in part upon the continued availability of suitable land at acceptable
prices. The availability of land for purchase at favorable prices depends on a
number of factors outside of our control, including the risk of competitive
over-bidding of land prices and restrictive governmental regulation. Should
suitable land opportunities become less available, it could limit our ability to
develop new communities, increase land costs and negatively impact our sales and
earnings.
We
may need additional funds, and if we are unable to obtain these funds, we may
not be able to operate our business as planned.
Our
operations, including our joint venture operations, require significant amounts
of cash. We may be required to seek additional capital, whether from sales of
equity or by borrowing more money, to fund our operations and inventory or repay
our indebtedness, particularly in the event of a continued market downturn.
Although we currently have availability under our revolving credit facility,
this facility, our term loans and our indentures contain provisions that limit
the amount we can borrow under the revolving credit facility or from other
sources.
Our
requirements for additional capital, whether to finance activities or refinance
existing obligations, fluctuate as market conditions and our financial
performance and operations change. The availability of additional capital,
whether from private capital sources (including banks) or the public capital
markets, fluctuates as our financial condition and market conditions in general
change. There may be times when the private capital markets and the public debt
or equity markets lack sufficient liquidity or when our securities cannot be
sold at attractive prices, in which case we would not be able to access capital
from these sources. In addition, a weakening of our financial condition or
deterioration in our credit ratings could adversely affect our ability to obtain
necessary funds.
Even if
available, additional financing could be costly or have adverse consequences. If
additional funds are raised through the issuance of stock, dilution to
stockholders will result, particularly in light of recent decreases in our stock
price. In addition, our certificate of incorporation also authorizes our board
of directors to issue new series of common stock and preferred stock without
stockholder approval. If any such series were created, depending on the rights
and terms of any new series created, and the reaction of the market to the
series, the rights or the value of our common stock could be negatively
affected. If additional funds are raised through the incurrence of debt, we will
incur increased debt servicing costs and may become subject to additional
restrictive financial and other covenants. We can give no assurance as to the
terms or
7
availability
of additional capital. If we are not successful in obtaining or refinancing
capital when needed, it could adversely impact our ability to operate our
business effectively, which could reduce our sales and earnings, and adversely
impact our financial position.
We
currently have significant amounts invested in unconsolidated joint ventures
with independent third parties in which we have less than a controlling
interest. These investments are highly illiquid and have significant
risks.
We
participate in numerous unconsolidated homebuilding and land development joint
ventures with independent third parties in which we have less than a controlling
interest. At December 31, 2008, we had invested an aggregate of $50.5
million in these joint ventures, which had borrowings outstanding of
approximately $421.8 million, as compared to $294.0 million and $771.0 million,
respectively, at December 31, 2007.
While
these joint ventures provide us with a means of accessing larger land parcels
and lot positions, they are subject to a number of risks, including the
following:
|
·
|
Restricted Payment Risk.
Our public note indentures prohibit us from making restricted
payments, including investments in joint ventures, when we are unable to
meet either of a leverage condition or an interest coverage condition and
when making such a payment will cause us to exceed a basket limitation. As
of December 31, 2008, we did not satisfy the leverage condition or the
interest coverage condition. As a result, we are unable to make payments
to satisfy our joint venture obligations, other than through funds
available from our unrestricted subsidiaries. If we become unable to fund
our joint venture obligations this could result in, among other things,
defaults under our joint venture operating agreements, loan agreements,
and credit enhancements.
|
|
·
|
Entitlement Risk.
Certain of our joint ventures acquire parcels of unentitled raw
land. If we are unable to timely obtain entitlements at a reasonable cost,
project delay or even project termination may occur resulting in an
impairment of the value of our
investment.
|
|
·
|
Development Risk. The
projects we build through joint ventures are often larger and have a
longer time horizon than the typical project developed by our wholly-owned
homebuilding operations. Time delays associated with obtaining
entitlements, unforeseen development issues, unanticipated labor and
material cost increases, and general market deterioration and other
changes are more likely to impact larger, long-term projects, all of which
may negatively impact the profitability of these ventures and our
proportionate share of income.
|
|
·
|
Financing Risk. There
are a limited number of sources willing to provide acquisition,
development and construction financing to land development and
homebuilding joint ventures. As market conditions become more challenging,
it may be difficult or impossible to obtain financing for our joint
ventures on commercially reasonable terms, or to refinance existing
borrowings as such borrowings mature. As a result, we may be required to
finance acquisition and development and/or construction costs following
termination or step-down of joint venture financing that the joint venture
is unable to restructure, extend, or refinance with another third party
lender.
|
|
·
|
Contribution Risk.
Under credit enhancements that we typically provide with respect to joint
venture borrowings, we and our partners could be required to make
additional unanticipated investments in these joint ventures, either in
the form of capital contributions or loan repayments, to reduce such
outstanding borrowings. We may have to make additional
contributions that exceed our proportional share of capital if our
partners fail to contribute any or all of their share. While in
most instances we would be able to exercise remedies available under the
applicable joint venture documentation if a partner fails to contribute
its proportional share of capital, our partner’s financial condition may
preclude any meaningful cash recovery on the
obligation.
|
|
·
|
Completion Risk. We
often sign a completion agreement in connection with obtaining financing
for our joint ventures. Under such agreements, we may be compelled to
complete a project even if we no longer have an economic interest in the
property.
|
|
·
|
Illiquid Investment
Risk. We lack a controlling interest in our joint ventures and
therefore are generally unable to compel our joint ventures to sell
assets, return invested capital, require additional capital contributions
or take any other action without the vote of at least one or more of our
venture partners. This means that, absent partner agreement, we will be
unable to liquidate our joint venture investments to generate
cash.
|
|
·
|
Partner Dispute. If we
have a dispute with one of our joint venture partners and are unable to
resolve it, the buy-sell provision in the applicable joint venture
agreement could be triggered or we may otherwise pursue a negotiated
settlement involving the unwinding of the venture. In either case, we may
sell our interest to our partner or purchase our partner’s interest. If we
sell our interest, we will forgo the profit we would have otherwise earned
with respect to the joint venture project and may be required to forfeit
our invested capital and/or pay our partner to release us from our joint
venture obligations. If we are required to purchase our partner’s
interest, we will be required to fund this purchase, as well as the
completion of the project, with corporate level capital and to consolidate
the joint venture project onto our balance sheet, which could, among other
things, adversely impact our liquidity, our leverage and other financial
conditions or covenants.
|
|
·
|
Consolidation Risk. The
accounting rules for joint ventures are complex and the decision as to
whether it is proper to consolidate a joint venture onto our balance sheet
is fact intensive. If the facts concerning an unconsolidated joint venture
were to change and a triggering event under applicable accounting rules
were to occur, we might be required to consolidate previously
unconsolidated joint ventures onto our balance sheet which could adversely
impact our leverage and other financial conditions or
covenants.
|
We
may not be able to successfully identify, complete and integrate acquisitions,
which could harm our profitability and divert management resources.
We may
from time to time acquire other homebuilders. Successful acquisitions require us
to correctly identify appropriate acquisition candidates and to integrate
acquired operations and management with our own. Should we make an error in
judgment when identifying an acquisition candidate, should the acquired
operations not perform as anticipated, or should we fail to successfully
integrate acquired operations and management, we will likely fail to realize the
benefits we intended to derive from the acquisition and may suffer other adverse
consequences. Acquisitions involve a number of other risks, including the
diversion of the attention of our management and corporate staff from operating
our existing business and potential charges to earnings in the event of any
write-down or write-off of goodwill and other assets recorded in connection with
acquisitions. We can give no assurance that we will be able to successfully
identify, complete and integrate acquisitions.
We
depend on the California market and, to a lesser extent, the Arizona and Florida
markets. An adverse change in any or all of these markets could harm our sales
and earnings.
We
generate a significant amount of our revenues and profits in California. In
addition, a significant portion of our business, revenues and profits outside of
California are concentrated in Arizona and Florida. While demand for new homes,
and in many instances home prices, have been declining in substantially all of
our markets, demand and home prices have generally been declining more rapidly
in California, Arizona and Florida, negatively impacting our earnings and
financial position. There can be no assurance that our earnings and financial
position will not be further impacted if the challenging conditions in these
markets continue or worsen.
States,
cities and counties in which we operate may adopt slow growth initiatives
reducing our ability or increasing our costs to build in these areas, which
could harm our future sales and earnings.
Several
states, cities and counties in which we operate have in the past approved, or
approved for inclusion on their ballot, various “slow growth” or “no growth”
initiatives and other ballot measures that could negatively impact the
availability of land and building opportunities within those localities.
Approval of slow or no growth measures would reduce our ability to open new home
communities and to build and sell homes in the affected markets, including with
respect to land we may already own, and would create additional costs and
administration requirements, which in turn could harm our future sales and
earnings.
The
homebuilding industry is highly competitive and, with more limited resources
than some of our competitors, we may not be able to compete
effectively.
The
homebuilding industry is highly competitive. We compete with numerous other
residential construction firms, including large national and regional firms, for
customers, land, financing, raw materials, skilled labor and employees. We
compete for customers primarily on the basis of the location, design, quality
and price of our homes and the availability of mortgage financing. Some of our
competitors have substantially larger operations and greater financial resources
than we do and as a result may have lower costs of capital, labor and materials
than us, and may be able to compete more effectively for land acquisition
opportunities.
9
Under
current market conditions, we have experienced intense price competition as many
builders seek to aggressively reduce their inventory levels and land holdings.
Many of our competitors are better capitalized and have lower leverage than we
do, which may position them to compete more effectively on price (which can
trigger impairments for us), better enable them to ride out the current
industry-wide downturn and allow them to compete more effectively for land when
conditions improve.
The
design and construction of high density urban homebuilding projects present
unique challenges, and we have less experience in this business.
In recent
years we have expanded our homebuilding business to include high-density urban
infill projects. Such projects present challenges in development, construction,
and marketing that are different than our traditional operations and we have
less experience designing, constructing and selling these types of projects. Our
inexperience could harm us, causing our overall results of operations to be
adversely affected.
Labor
and material shortages could delay or increase the cost of home construction and
reduce our sales and earnings.
The
residential construction industry experiences serious labor and material
shortages from time to time, including shortages in qualified tradespeople, and
supplies of insulation, drywall, cement, steel and lumber. These labor and
material shortages can be more severe during periods of strong demand for
housing or during periods where the regions in which we operate experience
natural disasters that have a significant impact on existing residential and
commercial structures. From time to time, we have experienced volatile price
swings in the cost of labor and materials, including in particular the cost of
lumber, cement, steel and drywall. Shortages and price increases could cause
delays in and increase our costs of home construction, which in turn could harm
our operating results.
Severe
weather and other natural conditions or disasters may disrupt or delay
construction.
Severe
weather and other natural conditions or disasters, such as earthquakes,
landslides, hurricanes, tornadoes, droughts, floods, heavy or prolonged rain or
snow, and wildfires can negatively affect our operations by requiring us to
delay or halt construction or to perform potentially costly repairs to our
projects under construction and to unsold homes.
We
are subject to extensive government regulation, which can increase costs and
reduce profitability.
Our
homebuilding operations are subject to extensive federal, state and local
regulation, including environmental, building, worker health and safety, zoning
and land use regulation. This regulation affects all aspects of the homebuilding
process and can substantially delay or increase the costs of homebuilding
activities, even on land for which we already have approvals. During the
development process, we must obtain the approval of numerous governmental
authorities that regulate matters such as:
|
·
|
permitted
land uses, levels of density and architectural
designs;
|
|
·
|
the
installation of utility services, such as water and waste
disposal;
|
|
·
|
the
dedication of acreage for open space, parks, schools and other community
services; and
|
|
·
|
the
preservation of habitat for endangered species and
wetlands.
|
The
approval process can be lengthy, can be opposed by consumer or environmental
groups, and can cause significant delays or permanently halt the development
process. Delays or a permanent halt in the development process can cause
substantial increases to development costs or cause us to abandon the project
and to sell the affected land at a potential loss, which in turn could harm our
operating results.
In
addition, new housing developments, including in California where a significant
portion of our business is conducted, are often subject to various assessments
for schools, parks, streets, highways and other public improvements. The costs
of these assessments can be substantial and can cause increases in the effective
prices of our homes, which in turn could reduce our sales and/or
profitability.
10
Our
mortgage operations are also subject to federal, state, and local regulation,
including eligibility requirements for participation in federal loan programs
and various consumer protection laws. Our title insurance agency operations are
subject to applicable insurance laws and regulations. Failure to comply with
these requirements can lead to administrative enforcement actions, the loss of
required licenses and other required approvals, claims for monetary damages or
demands for loan repurchase from investors, and rescission or voiding of the
loan by the consumer.
Our
mortgage subsidiary may become obligated to repurchase loans it has sold in the
secondary mortgage market or may become subject to borrower
lawsuits.
While our
mortgage subsidiary generally sells the loans it originates within a short
period of time in the secondary mortgage market on a non-recourse basis, this
sale is subject to an obligation to repurchase the loan if, among other things,
the borrower defaults on the loan within a specified period following the sale,
the purchaser’s underwriting guidelines are not met, or there is fraud in
connection with the loan. While, as of December 31, 2008, our mortgage
subsidiary had been required to repurchase only 0.05% and 0.04% of the total
dollar value of the loans it originated in 2008 and 2007, respectively, as loan
defaults in general increase it is possible that our mortgage subsidiary will be
required to make a materially higher level of repurchases in the future. In
addition, a number of homebuyers have initiated lawsuits against builders and
lenders claiming, among other things, that builders pressured the homebuyers to
make inaccurate statements on loan applications and/or that the lenders failed
to correctly explain the terms of adjustable rate and interest-only loans. A
number of regulatory authorities have also indicated that they are investigating
similar allegations. While we and our mortgage subsidiary have not experienced
such lawsuits and are not, to our knowledge, the subject of any such
investigations, as loan defaults increase the possibility of becoming subject to
such a lawsuit or investigation becomes more likely. If our mortgage subsidiary
experiences a higher level of repurchase obligations or we or our mortgage
subsidiary become the subject of borrower lawsuits or regulatory authority
action our financial results may be negatively impacted.
We
are subject to product liability and warranty claims arising in the ordinary
course of business, which can be costly.
As a
homebuilder, we are subject to construction defect and home warranty claims
arising in the ordinary course of business. These claims are common in the
homebuilding industry and can be costly. While we maintain product liability
insurance and generally seek to require our subcontractors and design
professionals to indemnify us for liabilities arising from their work, there can
be no assurance that these insurance rights and indemnities will be adequate to
cover any or all construction defect and warranty claims for which we may be
liable. For example, contractual indemnities can be difficult to enforce, we are
often responsible for applicable self-insured retentions (particularly in
markets where we include our subcontractors on our general liability insurance),
certain claims may not be covered by insurance or may exceed applicable coverage
limits, and one or more of our insurance carriers could become insolvent.
Additionally, the coverage offered by and availability of product liability
insurance for construction defects is limited and costly. There can be no
assurance that coverage will not be further restricted or become more
costly.
We
are dependent on the services of key employees and the loss of any substantial
number of these individuals or an inability to hire additional personnel could
adversely affect us.
Our
success is dependent upon our ability to attract and retain skilled employees,
including personnel with significant management and leadership skills.
Competition for the services of these individuals in many of our operating
markets can be intense. If we are unable to attract and retain skilled
employees, we may be unable to accomplish the objectives set forth in our
business plan.
Our principal stockholder has the
ability to exercise significant influence over the composition of our Board of
Directors and matters requiring stockholder approval.
As of
December 31, 2008, MP CA Homes LLC held 49% of the voting power of our voting
stock. Pursuant to the stockholders' agreement that we entered into
with MP CA Homes LLC on June 27, 2008, MP CA Homes LLC is entitled to designate
a number of directors to serve on our Board of Directors as is proportionate to
the total voting power of its voting stock (up to one less than a majority), and
at least one MP CA Homes LLC designated director shall be a member of each
committee of the board (subject to limited exceptions), giving MP CA Homes LLC
the ability to exercise significant influence on the composition and actions of
our board and its committees. In addition, this large voting block
may have a significant or decisive effect on the approval or disapproval of
matters requiring approval of our stockholders, including any amendment to our
certificate of incorporation, any proposed merger, consolidation or sale of all
or substantially all of our assets and other corporate transactions. The
interests of MP CA Homes LLC in these other matters may not always coincide with
the interests of our other stockholders. In addition, the ownership of
such a large block of our voting power and the
11
right to
designate directors by MP CA Homes LLC may discourage someone from making a
significant equity investment in us, even if we needed the investment to operate
our business, or could be a significant factor in delaying or preventing a
change of control transaction that other stockholders may deem to be in their
best interests, such as a transaction in which the other stockholders would
receive a premium for their shares over their current trading
prices.
|
ITEM 1B.
|
UNRESOLVED STAFF
COMMENTS
|
None.
|
ITEM 2.
|
We lease
office facilities for our homebuilding and mortgage operations. We lease our
corporate headquarters, which is located in Irvine, California. The lease on
this facility, which also includes space for our Orange County division consists
of approximately 26,000 square feet and expires in 2012. We lease approximately
48 other properties for our other division offices and design centers. For
information about land owned or controlled by us for use in our homebuilding
activities, please refer to Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Selected Operating
Data.”
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
Scarborough
v. Standard Pacific Corp.
On
September 9, 2008, former Standard Pacific Chief Executive Officer, President
and Chairman Stephen J. Scarborough initiated an arbitration proceeding before
JAMS in Orange County, California alleging that by not paying him benefits of
approximately $23 million in connection with the termination of his employment
in March 2008 the Company violated the terms of his Change in Control Agreement
with the Company. Mr. Scarborough further alleges that the termination of his
employment was wrongful and that his claims are not barred by the separation
agreement he signed in March 2008 inasmuch as he asserts that he was
fraudulently induced to sign that agreement. The Company believes these claims
are without merit and has filed a response to the complaint, denying all of the
material allegations and setting forth a number of affirmative defenses. The
arbitration is currently set for May 4-8, 2009.
Kartozian v. Standard Pacific
Corp.
On
October 2, 2008, former Standard Pacific Senior Vice President Jari Kartozian
initiated an arbitration proceeding before JAMS in Orange County, California
alleging that by not paying her approximately $1.2 million in connection with
the termination of her employment in May 2008 the Company violated the terms of
her Change in Control Agreement with the Company. Ms. Kartozian
further alleges that she was the victim of age discrimination and that her
termination of employment amounted to a wrongful termination in violation of
public policy. Ms. Kartozian asserts that her claims are not barred
by the separation agreement she signed in May 2008 inasmuch as she was
fraudulently induced to sign that agreement. The Company believes these claims
are without merit and has filed a response to the complaint, denying all of the
material allegations and setting forth a number of affirmative
defenses. No date has been set for a hearing on this
claim.
In
addition, various other claims and actions that we consider normal to our
business have been asserted and are pending against us. We do not believe that
any of such claims and actions will have a material adverse effect upon our
results of operations or financial position.
|
ITEM 4.
|
SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
|
None.
12
Executive Officers of the Registrant
Our
executive officers’ ages, positions and brief accounts of their business
experience as of March 9, 2009, are set forth below.
|
Name
|
Age
|
Position
|
|
Kenneth
L. Campbell
|
52
|
Chief
Executive Officer, President, and Director
|
|
Scott
D. Stowell
|
51
|
Chief
Operating Officer
|
|
John
M. Stephens
|
40
|
Senior
Vice President and Chief Financial Officer
|
|
John
P. Babel
|
38
|
Senior
Vice President, General Counsel and Secretary
|
|
Todd
J. Palmaer
|
50
|
President,
California Region
|
|
Kathleen
R. Wade
|
55
|
President,
Southwest Region
|
|
Bruce
F. Dickson
|
55
|
President,
Southeast Region
|
Kenneth
L. Campbell has served as Chief
Executive Officer and President since December 2008 and as a Director of
the Company since July 2008. Mr. Campbell has been a partner of
MatlinPatterson Global Advisers, LLC, a private equity firm and an affiliate of
our largest shareholder, since 2007. From May 2006 to May 2007, Mr.
Campbell served as Chief Executive Officer and Director of Ormet Corporation, a
U.S. producer of aluminum. Prior to that, Mr. Campbell served as
Chief Financial Officer of RailWorks Corporation, a provider of track and
transit systems construction and maintenance services, from December 2003 to May
2006. Before joining MatlinPatterson, Mr. Campbell spent a period of over twenty
years serving in various restructuring roles at companies with significant
operational and/or financial difficulties.
Scott D. Stowell has served
as Chief Operating Officer since May 2007. From September 2002 to May 2007, Mr.
Stowell served as President of our Southern California Region. From April 1996
until September 2002, Mr. Stowell served as President of our Orange County
division. Mr. Stowell joined the Company in 1986 as a project
manager.
John M. Stephens has served
as Senior Vice President since May 2007 and as our Chief Financial Officer since
February 2009. From November 1996 until February 2009, Mr. Stephens
served as our Corporate Controller and as Vice President from October 2002
through May 2007. In addition, Mr. Stephens served as Treasurer from
May 2001 until October 2002 and as Assistant Treasurer from December 1997 until
May 2001. Prior to joining the Company, Mr. Stephens was an audit
manager with an international accounting firm.
John P. Babel has served as
Senior Vice President, General Counsel and Secretary since February
2009. From October 2002 until February 2009, Mr. Babel served as our
Associate General Counsel, as Senior Vice President from October 2008
to February 2009, and as Vice President from February 2005 through October
2008. Prior to joining the Company, Mr. Babel was an associate with
the international law firm of Gibson, Dunn & Crutcher LLP.
Todd J. Palmaer has served as
President of our California Region since July 2008. From May 2007 to July 2008,
Mr. Palmaer served as President of our Southern California
Region. From September 2002 until May 2007, Mr. Palmaer served as
President of our Orange County division. Mr. Palmaer joined the Company in 1999
as President of our San Diego division.
Kathleen R. Wade has served
as President of our Southwest Region since November 2002. From December 2000
until October 2002, Ms. Wade served as Chief Executive Officer of our Arizona
division and as President of this division from September 1998 to December 2000.
Prior to joining Standard Pacific in 1998, Ms. Wade served as President of the
Arizona division of UDC Homes and, prior to that, as Co-CEO of Continental
Homes, a publicly traded homebuilder.
Bruce F. Dickson has served
as President of our Southeast Region since August 2004 and prior to that served
as the President for our Austin division since November 2002. Prior to joining
Standard Pacific in 2002, Mr. Dickson held various positions in homebuilding and
financial services, including a Regional President position with D.R.
Horton.
13
PART
II
|
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
Our
shares of common stock are listed on the New York Stock Exchange under the
symbol “SPF.” The following table sets forth, for the fiscal quarters indicated,
the reported high and low intra-day sales prices per share of our common stock
as reported on the New York Stock Exchange Composite Tape and the common
dividends paid per share.
|
Year
Ended December 31,
|
|||||||||||||||||||
|
2008
|
2007
|
||||||||||||||||||
|
High
|
Low
|
Dividend
|
High
|
Low
|
Dividend
|
||||||||||||||
|
Quarter
Ended
|
|||||||||||||||||||
|
March
31
|
$
|
5.55
|
$
|
1.47
|
$
|
―
|
$
|
30.52
|
$
|
20.44
|
$
|
0.04
|
|||||||
|
June
30
|
6.50
|
2.17
|
―
|
23.74
|
17.41
|
0.04
|
|||||||||||||
|
September
30
|
6.85
|
2.87
|
―
|
18.69
|
5.45
|
0.04
|
|||||||||||||
|
December
31
|
5.25
|
1.22
|
―
|
6.78
|
2.09
|
―
|
|||||||||||||
For
further information on our dividend policy, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources.”
We did
not repurchase any shares under our stock repurchase program during the three
months ended December 31, 2008.
As of
March 9, 2009, the number of record holders of our common stock was
633.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table provides information as of December 31, 2008 with respect to the
shares of common stock that may be issued under our equity compensation
plans.
|
Plan
Category
|
Number of securities
to be
issued upon
exercise
of
outstanding
options,
warrants
and rights
(a)
|
Weighted-average
exercise price of
outstanding options,
warrants
and rights
(b)
|
Number of securities
remaining available for
future issuance under
equity
compensation
plans
(excluding
securities
listed in
column
(a))
(c)
|
||
|
Equity
compensation plans approved by stockholders(1)(3)
|
14,107,231
|
$ 7.72
|
14,939,387
|
||
|
Equity
compensation plans not approved by stockholders(2)(3)
|
290,470
|
$ 25.04
|
―
|
||
|
Total
|
14,397,701
|
$ 8.07
|
14,939,387
|
||
|
(1)
|
Consists
of the 1991, 1997, 2000, and 2005 Employee Stock Incentive Plans and the
2008 Equity Incentive Plan. No additional awards will be made under any
plan other than the 2008 Equity Incentive Plan. Under the 2008 Plan each
stock award that is other than a stock option or stock appreciation right
consumes 1.5 available shares for every 1 awarded
share.
|
|
(2)
|
Consists
of awards under our 2001 Non-Executive Officer Stock Incentive Plan,
approved by our Board of Directors on April 24, 2001. No additional
awards will be made under this
plan.
|
|
(3)
|
Each
plan is administered by the Compensation Committee of the Board of
Directors. The 2008 Plan, which is the only plan pursuant to
which future awards may be made, provides the committee discretion to
award options, incentive bonuses or incentive stock to employees,
directors, and executive officers of the Company and its subsidiaries. The
committee is also authorized to amend, alter or discontinue each plan,
except to the extent that it would impair the rights of a participant.
Generally, each option granted under each plan will be exercisable no
earlier than one year and no later than seven years from the date of
grant, at an exercise price per share equal to or greater than the fair
market value of common stock on the date of grant. In addition, options
may not be repriced without the prior approval of the Company’s
stockholders. Incentive bonus and incentive stock awards granted under
each plan may be subject to performance criteria or other conditions
designated by the committee at the time of
grant.
|
14
The following
graph shows a five-year comparison of cumulative total returns to stockholders
for the Company, as compared with the Standard & Poor’s 500 Composite Stock
Index and the Dow Jones Industry Group-U.S. Home Construction Index. The graph
assumes reinvestment of all dividends.
Comparison
of Five-Year Cumulative Total Stockholders’ Return
Among
Standard Pacific Corp., The Standard & Poor’s 500 Composite Stock Index
and
the
Dow Jones Industry Group-U.S. Home Construction Index
The above
graph is based upon common stock and index prices calculated as of year-end for
each of the last five calendar years. The Company’s common stock closing price
on December 31, 2008 was $1.78 per share. On March 9, 2009 the Company’s common
stock closed at $0.67 per share. The stock price performance of the Company’s
common stock depicted in the graph above represents past performance only and is
not necessarily indicative of future performance.
15
|
ITEM 6.
|
SELECTED FINANCIAL DATA
|
The following
should be read in conjunction with our consolidated financial statements and
related notes included elsewhere in this Form 10-K. On August 29, 2005, we
completed a two-for-one stock split effected in the form of a stock dividend and
on September 3, 2008, we completed a common stock rights offering. All prior
period share and per share amounts have been restated to reflect such stock
split and the rights offering bonus element.
|
Year
Ended December 31,
|
||||||||||||||||||
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||||
|
Revenues:
|
||||||||||||||||||
|
Homebuilding
(1)
|
$
|
1,535,616
|
$
|
2,888,833
|
$
|
3,740,470
|
$
|
3,893,019
|
$
|
3,330,305
|
||||||||
|
Financial
Services
|
13,587
|
16,677
|
24,866
|
17,359
|
11,597
|
|||||||||||||
|
Total
revenues from continuing operations
|
$
|
1,549,203
|
$
|
2,905,510
|
$
|
3,765,336
|
$
|
3,910,378
|
$
|
3,341,902
|
||||||||
|
Pretax
Income (Loss):
|
||||||||||||||||||
|
Homebuilding
(1)(2)
|
$
|
(1,234,306)
|
$
|
(846,479)
|
$
|
220,812
|
$
|
703,164
|
$
|
509,932
|
||||||||
|
Financial
Services
|
1,016
|
2,293
|
8,211
|
6,314
|
3,470
|
|||||||||||||
|
Pretax
income (loss) from continuing operations
|
$
|
(1,233,290)
|
$
|
(844,186)
|
$
|
229,023
|
$
|
709,478
|
$
|
513,402
|
||||||||
|
Net Income
(Loss):
|
||||||||||||||||||
|
Income
(loss) from continuing operations
|
$
|
(1,227,795)
|
$
|
(695,183)
|
$
|
146,093
|
$
|
439,950
|
$
|
316,319
|
||||||||
|
Income
(loss) from discontinued operations
|
(2,286)
|
(72,090)
|
(22,400)
|
1,034
|
(502)
|
|||||||||||||
|
Net
income (loss)
|
$
|
(1,230,081)
|
$
|
(767,273)
|
$
|
123,693
|
$
|
440,984
|
$
|
315,817
|
||||||||
|
Basic
Earnings (Loss) Per Share:
|
||||||||||||||||||
|
Continuing
operations
|
$
|
(9.10)
|
$
|
(9.63)
|
$
|
2.01
|
$
|
5.84
|
$
|
4.21
|
||||||||
|
Discontinued
operations
|
(0.01)
|
(1.00)
|
(0.31)
|
0.01
|
―
|
|||||||||||||
|
Basic
earnings (loss) per share
|
$
|
(9.11)
|
$
|
(10.63)
|
$
|
1.70
|
$
|
5.85
|
$
|
4.21
|
||||||||
|
Diluted
Earnings (Loss) Per Share:
|
||||||||||||||||||
|
Continuing
operations
|
$
|
(9.10)
|
$
|
(9.63)
|
$
|
1.97
|
$
|
5.67
|
$
|
4.09
|
||||||||
|
Discontinued
operations
|
(0.01)
|
(1.00)
|
(0.30)
|
0.01
|
―
|
|||||||||||||
|
Diluted
earnings (loss) per share
|
$
|
(9.11)
|
$
|
(10.63)
|
$
|
1.67
|
$
|
5.68
|
$
|
4.09
|
||||||||
|
Weighted
Average Common Shares Outstanding:
|
||||||||||||||||||
|
Basic
|
81,439,248
|
72,157,394
|
72,644,368
|
75,357,074
|
75,081,502
|
|||||||||||||
|
Diluted
(3)
|
134,963,077
|
72,157,394
|
74,213,185
|
77,704,823
|
77,279,276
|
|||||||||||||
|
Balance
Sheet and Other Financial Data:
|
||||||||||||||||||
|
Total
assets
|
$
|
2,249,854
|
$
|
3,400,726
|
$
|
4,502,941
|
$
|
4,280,842
|
$
|
3,013,233
|
||||||||
|
Homebuilding
debt (4)
|
$
|
1,511,924
|
$
|
1,785,840
|
$
|
1,953,880
|
$
|
1,571,554
|
$
|
1,079,061
|
||||||||
|
Financial
services debt
|
$
|
63,655
|
$
|
164,172
|
$
|
250,907
|
$
|
123,426
|
$
|
81,892
|
||||||||
|
Stockholders'
equity
|
$
|
379,820
|
$
|
994,991
|
$
|
1,764,370
|
$
|
1,739,159
|
$
|
1,321,995
|
||||||||
|
Stockholders'
equity per common share (5)
|
$
|
4.09
|
$
|
15.34
|
$
|
27.39
|
$
|
25.91
|
$
|
19.66
|
||||||||
|
Cash
dividends declared per share
|
$
|
―
|
$
|
0.12
|
$
|
0.16
|
$
|
0.16
|
$
|
0.16
|
||||||||
|
(1)
|
Excludes
our Tucson and San Antonio divisions, which are classified as discontinued
operations.
|
|
(2)
|
The
2008, 2007 and 2006 homebuilding pretax income (loss) includes pretax
impairment charges totaling $1,153.5 million, $984.6 million and $334.9
million, respectively. (Please see Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Results of
Operations” and Notes 2, 4 and 15 of the accompanying Consolidated
Financial Statements for further
discussion).
|
|
(3)
|
In
June 2008 and September 2008, we issued 125.0 million and 22.8 million,
respectively, equivalent shares of common stock (in the form of preferred
stock) in connection with the Investment Agreement with MP CA Homes LLC,
an affiliate of MatlinPatterson Global Advisers
LLC.
|
|
(4)
|
Homebuilding
debt includes the indebtedness related to liabilities from inventories not
owned from continuing operations of $11.4 million, $13.4 million, $43.2
million and $29.6 million, as of December 31, 2007, 2006, 2005 and 2004,
respectively.
|
|
(5)
|
At
December 31, 2008 and 2007, shares outstanding exclude 7.8
million shares issued under a share lending facility related to our
6% convertible senior subordinated notes issued September 28, 2007 and
147.8 million common equivalent shares issued during the year ended
December 31, 2008 in the form of preferred stock to MP CA Homes LLC, an
affiliate of MatlinPatterson Global Advisers
LLC.
|
16
|
ITEM 7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The
following discussion and analysis should be read in conjunction with the section
“Selected Financial Data” and our consolidated financial statements and the
related notes included elsewhere in this Form 10-K.
Results
of Operations
Selected
Financial Information
|
Year
Ended December 31,
|
|||||||||||||||||||
|
2008
|
%
Change
|
2007
|
%
Change
|
2006
|
|||||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||||||||
|
Homebuilding:
|
|||||||||||||||||||
|
Home
sale revenues
|
$
|
1,521,640
|
(42%)
|
$
|
2,607,824
|
(30%)
|
$
|
3,710,059
|
|||||||||||
|
Land
sale revenues
|
13,976
|
(95%)
|
281,009
|
824%
|
30,411
|
||||||||||||||
|
Total
revenues
|
1,535,616
|
(47%)
|
2,888,833
|
(23%)
|
3,740,470
|
||||||||||||||
|
Cost
of home sales
|
(2,104,224)
|
(17%)
|
(2,520,157)
|
(15%)
|
(2,950,922)
|
||||||||||||||
|
Cost
of land sales
|
(124,786)
|
(78%)
|
(568,539)
|
646%
|
(76,179)
|
||||||||||||||
|
Total
cost of sales
|
(2,229,010)
|
(28%)
|
(3,088,696)
|
2%
|
(3,027,101)
|
||||||||||||||
|
Gross
margin
|
(693,394)
|
247%
|
(199,863)
|
(128%)
|
713,369
|
||||||||||||||
|
Gross
margin percentage
|
(45.2%)
|
(6.9%)
|
|
19.1%
|
|||||||||||||||
|
Selling,
general and administrative expenses
|
(305,480)
|
(21%)
|
(387,981)
|
(12%)
|
(441,960)
|
||||||||||||||
|
Loss
from unconsolidated joint ventures
|
(151,729)
|
(20%)
|
(190,025)
|
4,810%
|
(3,870)
|
||||||||||||||
|
Interest
expense
|
(14,274)
|
―
|
―
|
―
|
―
|
||||||||||||||
|
Other
income (expense)
|
(69,429)
|
1%
|
(68,610)
|
47%
|
(46,727)
|
||||||||||||||
|
Homebuilding
pretax income (loss)
|
(1,234,306)
|
46%
|
(846,479)
|
(483%)
|
220,812
|
||||||||||||||
|
Financial
Services:
|
|||||||||||||||||||
|
Revenues
|
13,587
|
(19%)
|
16,677
|
(33%)
|
24,866
|
||||||||||||||
|
Expenses
|
(13,659)
|
(15%)
|
(16,045)
|
(17%)
|
(19,438)
|
||||||||||||||
|
Income
from unconsolidated joint ventures
|
854
|
(19%)
|
1,050
|
(45%)
|
1,911
|
||||||||||||||
|
Other
income
|
234
|
(62%)
|
611
|
(30%)
|
872
|
||||||||||||||
|
Financial
services pretax income
|
1,016
|
(56%)
|
2,293
|
(72%)
|
8,211
|
||||||||||||||
|
Income
(loss) from continuing operations before income taxes
|
(1,233,290)
|
46%
|
(844,186)
|
(469%)
|
229,023
|
||||||||||||||
|
(Provision)
benefit for income taxes
|
5,495
|
(96%)
|
149,003
|
(280%)
|
(82,930)
|
||||||||||||||
|
Income
(loss) from continuing operations
|
(1,227,795)
|
77%
|
(695,183)
|
(576%)
|
146,093
|
||||||||||||||
|
Loss
from discontinued operations, net of income taxes
|
(2,286)
|
(96%)
|
(52,540)
|
135%
|
(22,400)
|
||||||||||||||
|
Loss
from disposal of discontinued operations, net of income
taxes
|
―
|
(100%)
|
(19,550)
|
―
|
―
|
||||||||||||||
|
Net
income (loss)
|
(1,230,081)
|
60%
|
(767,273)
|
(720%)
|
123,693
|
||||||||||||||
|
Less:
Net loss allocated to preferred shareholders
|
487,827
|
―
|
―
|
―
|
―
|
||||||||||||||
|
Net
income (loss) available to common stockholders
|
$
|
(742,254)
|
(3%)
|
$
|
(767,273)
|
(720%)
|
$
|
123,693
|
|||||||||||
|
Basic
Earnings (Loss) Per Share:
|
|||||||||||||||||||
|
Continuing
operations
|
$
|
(9.10)
|
(6%)
|
$
|
(9.63)
|
(579%)
|
$
|
2.01
|
|||||||||||
|
Discontinued
operations
|
(0.01)
|
(99%)
|
(1.00)
|
223%
|
(0.31)
|
||||||||||||||
|
Basic
earnings (loss) per share
|
$
|
(9.11)
|
(14%)
|
$
|
(10.63)
|
(725%)
|
$
|
1.70
|
|||||||||||
|
Diluted
Earnings (Loss) Per Share:
|
|||||||||||||||||||
|
Continuing
operations
|
$
|
(9.10)
|
(6%)
|
$
|
(9.63)
|
(589%)
|
$
|
1.97
|
|||||||||||
|
Discontinued
operations
|
(0.01)
|
(99%)
|
(1.00)
|
233%
|
(0.30)
|
||||||||||||||
|
Diluted
earnings (loss) per share
|
$
|
(9.11)
|
(14%)
|
$
|
(10.63)
|
(737%)
|
$
|
1.67
|
|||||||||||
|
Weighted
Average Common Shares Outstanding:
|
|||||||||||||||||||
|
Basic
|
81,439,248
|
13%
|
72,157,394
|
(1%)
|
72,644,368
|
||||||||||||||
|
Diluted
(1)
|
134,963,077
|
87%
|
72,157,394
|
(3%)
|
74,213,185
|
||||||||||||||
|
Net
cash provided by (used in) operating activities
|
$
|
263,151
|
$
|
655,558
|
$
|
(290,580)
|
|||||||||||||
|
Net
cash provided by (used in) investing activities
|
$
|
(11,579)
|
$
|
(197,815)
|
$
|
(133,528)
|
|||||||||||||
|
Net
cash provided by (used in) financing activities
|
$
|
151,229
|
$
|
(258,285)
|
$
|
427,588
|
|||||||||||||
|
Adjusted
Homebuilding EBITDA (2)
|
$
|
32,084
|
$
|
298,456
|
$
|
706,274
|
|||||||||||||
|
(1)
|
In
June 2008 and September 2008, we issued 125.0 million and 22.8 million,
respectively, equivalent shares of common stock (in the form of preferred
stock) in connection with the Investment Agreement with MP CA Homes LLC,
an affiliate of MatlinPatterson Global Advisers
LLC.
|
|
(2)
|
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)
homebuilding depreciation and amortization, (f) amortization of
stock-based compensation, (g) income (loss) from unconsolidated joint
ventures and (h) 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.
|
17
|
|
Selected Financial Information
(continued)
|
|
(2)
|
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.
|
Year
Ended December 31,
|
|||||||||||||||
|
2008
|
2007
|
2006
|
|||||||||||||
|
(Dollars
in thousands)
|
|||||||||||||||
|
Net
cash provided by (used in) operating activities
|
$
|
263,151
|
$
|
655,558
|
$
|
(290,580)
|
|||||||||
|
Add:
|
|||||||||||||||
|
Provision
for (benefit from) income taxes
|
(6,795)
|
(188,954)
|
70,040
|
||||||||||||
|
Deferred
tax valuation allowance
|
(473,627)
|
(180,480)
|
―
|
||||||||||||
|
Homebuilding
interest expense
|
14,274
|
―
|
―
|
||||||||||||
|
Expensing
of previously capitalized interest included in cost of
sales
|
80,538
|
131,182
|
88,933
|
||||||||||||
|
Excess
tax benefits from share-based payment arrangements
|
―
|
1,498
|
2,697
|
||||||||||||
|
Gain
(loss) on early extinguishment of debt
|
(8,019)
|
2,765
|
―
|
||||||||||||
|
Less:
|
|||||||||||||||
|
Income
(loss) from financial services subsidiary
|
(72)
|
632
|
5,428
|
||||||||||||
|
Depreciation
and amortization from financial services subsidiary
|
783
|
703
|
582
|
||||||||||||
|
Loss
on disposal of property and equipment
|
2,792
|
1,439
|
―
|
||||||||||||
|
Net
changes in operating assets and liabilities:
|
|||||||||||||||
|
Trade
and other receivables
|
(6,408)
|
(45,083)
|
2,739
|
||||||||||||
|
Mortgage
loans held for sale
|
(91,380)
|
(99,618)
|
125,123
|
||||||||||||
|
Inventories-owned
|
(31,033)
|
(399,325)
|
610,944
|
||||||||||||
|
Inventories-not
owned
|
(1,049)
|
(10,449)
|
(89,929)
|
||||||||||||
|
Deferred
income taxes
|
343,754
|
135,741
|
126,587
|
||||||||||||
|
Other
assets
|
(146,729)
|
245,723
|
(189)
|
||||||||||||
|
Accounts
payable
|
57,949
|
13,105
|
5,638
|
||||||||||||
|
Accrued
liabilities
|
40,961
|
39,567
|
60,281
|
||||||||||||
|
Adjusted
Homebuilding EBITDA
|
$
|
32,084
|
$
|
298,456
|
$
|
706,274
|
|||||||||
Overview
Our
operations continue to be impacted by weak housing demand in substantially all
of the major housing markets across the country. The decline in
demand has led to significant home price reductions and incentives to move
inventory which has continued to erode our margins and trigger asset impairments
and land deposit write-offs. These conditions were brought
about as
a result of more limited availability of mortgage credit, growing levels of
existing housing inventory and foreclosure activity, combined with
worsening economic conditions, stressed financial markets and lower consumer
confidence. These conditions have created a much more competitive
market for new homes which has contributed to slower sales rates, high levels of
cancellations and a further reduction in home prices.
On June
27, 2008, we closed the first phase of our $530 million equity commitment from
MP CA Homes LLC (“MatlinPatterson”), an affiliate of MatlinPatterson Global
Advisers LLC, exchanged $128.5 million of senior and senior subordinated notes
for a warrant that was issued to MatlinPatterson to purchase shares of preferred
stock (the “Warrant”) and amended our revolving credit facility and term loans
(“Credit Facilities”). On September 3, 2008, we closed the second
phase of the MatlinPatterson transaction and raised approximately $152.5 million
(before expenses) from a 50 million common stock rights offering (“Rights
Offering”) of which 27.2 million shares of common stock were issued to our
existing common stockholders for a total subscription price of $82.9 million and
the remaining 22.8 million shares of common stock were purchased by
MatlinPatterson (in the form of preferred stock) for a total subscription price
of $69.6 million.
As a
result of repaying our 6½% Senior Notes, which matured on October 1, 2008,
paying down a portion of our Credit Facilities and extinguishing debt previously
owned by MatlinPatterson, we were able to reduce our level of consolidated
homebuilding debt during the year ended December 31, 2008 by approximately
$262.5 million, after the assumption of approximately $121.3 million of project
specific joint venture and other debt. For the year ended December
31, 2008, we generated cash flows from operations of $263.2
million. As a result of the equity infusion from MatlinPatterson, the
proceeds from the Rights Offering and the positive cash flow generated from
operations during the year ended December 31, 2008, our homebuilding cash
balance increased by $407.2 million since December 31, 2007 to $626.4 million as
of December 31, 2008. In addition, our unconsolidated joint ventures
reduced their borrowings by approximately $349.1 million during 2008 and as of
December 31, 2008, had borrowings outstanding of approximately $421.8 million,
of which
18
$247.9
million was non-recourse debt (two joint ventures) and $173.9 million of which
was recourse debt (seven joint ventures).
For the
year ended December 31, 2008, we incurred a net loss of $1,230.1 million, or
$9.11 per diluted share, compared to a net loss of $767.3 million, or $10.63 per
diluted share, in 2007 and net income of $123.7 million, or $1.67 per diluted
share, in 2006. The net losses in 2008 and 2007 were driven by an
increase in homebuilding asset impairment charges, noncash net deferred tax
valuation allowances of $473.6 million and $180.5 million during 2008 and 2007,
respectively, a reduction in homebuilding revenues, and further erosion in our
homebuilding gross margins. Our results for the years ended December
31, 2008, 2007, and 2006 included pretax impairment charges (excluding
discontinued operations) totaling $1,153.5 million, $984.6 million and $334.9
million, respectively.
Homebuilding
|
Year
Ended December 31,
|
|||||||||||||||||
|
2008
|
%
Change
|
2007
|
%
Change
|
2006
|
|||||||||||||
| (Dollars in thousands) | |||||||||||||||||
|
Homebuilding
revenues:
|
|||||||||||||||||
|
California
|
$
|
796,737
|
(46%)
|
$
|
1,484,047
|
(23%)
|
$
|
1,931,164
|
|||||||||
|
Southwest
(1)
|
416,749
|
(47%)
|
793,455
|
(7%)
|
853,653
|
||||||||||||
|
Southeast
|
322,130
|
(47%)
|
611,331
|
(36%)
|
955,653
|
||||||||||||
|
Total
homebuilding revenues
|
$
|
1,535,616
|
(47%)
|
$
|
2,888,833
|
(23%)
|
$
|
3,740,470
|
|||||||||
|
Homebuilding
pretax income (loss):
|
|||||||||||||||||
|
California
|
$
|
(722,096)
|
38%
|
$
|
(524,856)
|
(1,243%)
|
$
|
45,914
|
|||||||||
|
Southwest
(1)
|
(256,162)
|
55%
|
(165,685)
|
(502%)
|
41,195
|
||||||||||||
|
Southeast
|
(221,872)
|
47%
|
(150,808)
|
(216%)
|
130,267
|
||||||||||||
|
Corporate
|
(34,176)
|
566%
|
(5,130)
|
(249%)
|
3,436
|
||||||||||||
|
Total
homebuilding pretax income (loss)
|
$
|
(1,234,306)
|
46%
|
$
|
(846,479)
|
(483%)
|
$
|
220,812
|
|||||||||
|
Homebuilding
pretax impairment charges:
|
|||||||||||||||||
|
California
|
$
|
690,890
|
20%
|
$
|
577,990
|
119%
|
$
|
264,030
|
|||||||||
|
Southwest
(1)
|
252,877
|
20%
|
211,075
|
345%
|
47,473
|
||||||||||||
|
Southeast
|
209,763
|
7%
|
195,527
|
734%
|
23,433
|
||||||||||||
|
Total
homebuilding pretax impairment charges
|
$
|
1,153,530
|
17%
|
$
|
984,592
|
194%
|
$
|
334,936
|
|||||||||
|
Homebuilding
pretax impairment charges by type:
|
|||||||||||||||||
|
Deposit
write-offs
|
$
|
25,649
|
14%
|
$
|
22,539
|
(56%)
|
$
|
51,550
|
|||||||||
|
Inventory
impairments
|
943,094
|
34%
|
705,420
|
201%
|
234,622
|
||||||||||||
|
Joint
venture impairments
|
149,265
|
(26%)
|
202,309
|
376%
|
42,521
|
||||||||||||
|
Goodwill
impairments
|
35,522
|
(35%)
|
54,324
|
770%
|
6,243
|
||||||||||||
|
Total
homebuilding pretax impairment charges
|
$
|
1,153,530
|
17%
|
$
|
984,592
|
194%
|
$
|
334,936
|
|||||||||
|
As
of December 31,
|
||||||||||||||||
|
2008
|
%
Change
|
2007
|
%
Change
|
2006
|
||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Total
Assets:
|
||||||||||||||||
|
California
|
$
|
809,078
|
(41%)
|
$
|
1,375,363
|
(30%)
|
$
|
1,970,077
|
||||||||
|
Southwest
(1)
|
298,470
|
(52%)
|
622,584
|
(36%)
|
975,984
|
|||||||||||
|
Southeast
|
275,369
|
(49%)
|
543,910
|
(35%)
|
842,659
|
|||||||||||
|
Corporate
|
777,256
|
20%
|
648,569
|
174%
|
237,101
|
|||||||||||
|
Total
homebuilding
|
2,160,173
|
(32%)
|
3,190,426
|
(21%)
|
4,025,821
|
|||||||||||
|
Financial
services
|
88,464
|
(54%)
|
190,573
|
(31%)
|
278,045
|
|||||||||||
|
Discontinued
operations
|
1,217
|
(94%)
|
19,727
|
(90%)
|
199,075
|
|||||||||||
|
Total
Assets
|
$
|
2,249,854
|
(34%)
|
$
|
3,400,726
|
(24%)
|
$
|
4,502,941
|
||||||||
|
(1)
|
Excludes
our Tucson and San Antonio divisions, which are classified as discontinued
operations.
|
19
For 2008,
we generated a homebuilding pretax loss from continuing operations of $1,234.3
million compared to a pretax loss of $846.5 million in 2007. The
increase in pretax loss was primarily the result of a $168.9 million, or 17%,
increase in impairment charges, a 47% decrease in homebuilding revenues to
$1,535.6 million and an increase in interest expense of approximately $14.3
million. These changes were partially offset by a $38.3 million
decrease in our joint venture loss (to a loss of $151.7 million), and an $82.5
million decrease in our selling, general and administrative (“SG&A”)
expenses, which included approximately $19.2 million in restructuring charges
related to division consolidations and related headcount and facilities
reductions. Our homebuilding operations for the year ended December
31, 2008 included $1,153.5 million of pretax impairment charges, which are
detailed in the table above. The inventory impairment charges were
included in cost of sales, the joint venture charges were included in loss from
unconsolidated joint ventures and land deposit and capitalized preacquisition
cost write-offs and the goodwill impairment charges were included in other
income (expense).
Homebuilding
pretax loss from continuing operations was $846.5 million in 2007 compared to
pretax income of $220.8 million in 2006. The decrease in pretax results was
driven primarily by a $649.7 million increase in impairment charges and a 23%
decrease in homebuilding revenues to $2.9 billion, which was offset in part by a
$54.0 million decrease in our SG&A expenses due to lower sales volumes and a
reduction in our overhead structure.
Homebuilding
revenues from continuing operations for 2008 decreased 47% from 2007 as a result
of a 33% decrease in new home deliveries (exclusive of joint ventures and
discontinued operations), a 12% decrease in our consolidated average home price
to $330,000 and a $267.0 million year-over-year decrease in land sale
revenues.
Homebuilding
revenues from continuing operations for 2007 decreased 23% from 2006 as a result
of a 26% drop in new home deliveries (exclusive of joint ventures) and a 5%
decline in our consolidated average home price to $377,000. These decreases were
partially offset by a $250.6 million year-over-year increase in land sale
revenues. Land sales from continuing operations totaled $281.0
million for the year ended December 31, 2007, and represented the sale of
approximately 6,400 lots, which were located primarily in Phoenix, Northern
California, Tampa, South and Southwest Florida, and Las Vegas. Including our
Tucson and San Antonio divisions, which were included in discontinued
operations, our 2007 total land sale revenues totaled approximately $338.9
million related to the disposal of approximately 10,400 lots that had a net book
value of approximately $600.7 million.
|
Year
Ended December 31,
|
||||||||||||||
|
2008
|
%
Change
|
2007
|
%
Change
|
2006
|
||||||||||
|
New
homes delivered:
|
||||||||||||||
|
Southern
California
|
1,020
|
(31%)
|
1,476
|
(28%)
|
2,060
|
|||||||||
|
Northern
California
|
648
|
(9%)
|
713
|
11%
|
643
|
|||||||||
|
Total
California
|
1,668
|
(24%)
|
2,189
|
(19%)
|
2,703
|
|||||||||
|
Arizona
(1)
|
540
|
(48%)
|
1,029
|
(27%)
|
1,400
|
|||||||||
|
Texas
(1)
|
677
|
(31%)
|
984
|
(11%)
|
1,100
|
|||||||||
|
Colorado
|
229
|
(41%)
|
388
|
(17%)
|
466
|
|||||||||
|
Nevada
|
62
|
(9%)
|
68
|
―
|
―
|
|||||||||
|
Total
Southwest
|
1,508
|
(39%)
|
2,469
|
(17%)
|
2,966
|
|||||||||
|
Florida
|
883
|
(33%)
|
1,314
|
(52%)
|
2,710
|
|||||||||
|
Carolinas
|
548
|
(42%)
|
946
|
(6%)
|
1,008
|
|||||||||
|
Total
Southeast
|
1,431
|
(37%)
|
2,260
|
(39%)
|
3,718
|
|||||||||
|
Consolidated
total
|
4,607
|
(33%)
|
6,918
|
(26%)
|
9,387
|
|||||||||
|
Unconsolidated
joint ventures (2):
|
||||||||||||||
|
Southern
California
|
164
|
(53%)
|
348
|
274%
|
93
|
|||||||||
|
Northern
California
|
102
|
(17%)
|
123
|
4%
|
118
|
|||||||||
|
Florida
|
2
|
―
|
―
|
―
|
―
|
|||||||||
|
Illinois
|
2
|
(93%)
|
28
|
(32%)
|
41
|
|||||||||
|
Total
unconsolidated joint ventures
|
270
|
(46%)
|
499
|
98%
|
252
|
|||||||||
|
Discontinued
operations (including joint ventures) (2)
|
148
|
(77%)
|
634
|
(44%)
|
1,124
|
|||||||||
|
Total
(including joint ventures) (2)
|
5,025
|
(38%)
|
8,051
|
(25%)
|
10,763
|
|||||||||
|
(1)
|
Arizona
and Texas exclude our Tucson and San Antonio divisions, which are
classified as discontinued
operations.
|
|
(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
33% in 2008 as compared to 2007 and decreased 26% in 2007 as compared to
2006. The decline in deliveries reflected the significant slowdown in
our order activity, a decrease in our backlog levels and weaker housing demand
in all of the markets in which we operate. We
20
continue
to experience challenging housing market conditions as evidenced by the need to
provide substantial sales incentives and price reductions in order to sell
homes.
|
Year
Ended December 31,
|
||||||||||||||||
|
2008
|
%
Change
|
2007
|
%
Change
|
2006
|
||||||||||||
|
Average
selling prices of homes delivered:
|
||||||||||||||||
|
Southern
California
|
$
|
521,000
|
(20%)
|
$
|
651,000
|
(9%)
|
$
|
718,000
|
||||||||
|
Northern
California
|
402,000
|
(19%)
|
498,000
|
(29%)
|
701,000
|
|||||||||||
|
Total
California
|
475,000
|
(21%)
|
601,000
|
(16%)
|
714,000
|
|||||||||||
|
Arizona
(1)
|
228,000
|
(25%)
|
304,000
|
2%
|
299,000
|
|||||||||||
|
Texas
(1)
|
280,000
|
11%
|
253,000
|
5%
|
242,000
|
|||||||||||
|
Colorado
|
348,000
|
(2%)
|
355,000
|
14%
|
312,000
|
|||||||||||
|
Nevada
|
285,000
|
(10%)
|
316,000
|
―
|
―
|
|||||||||||
|
Total
Southwest
|
272,000
|
(7%)
|
292,000
|
4%
|
280,000
|
|||||||||||
|
Florida
|
209,000
|
(22%)
|
267,000
|
(4%)
|
279,000
|
|||||||||||
|
Carolinas
|
246,000
|
6%
|
232,000
|
20%
|
193,000
|
|||||||||||
|
Total
Southeast
|
223,000
|
(12%)
|
253,000
|
(1%)
|
255,000
|
|||||||||||
|
Consolidated
(excluding joint ventures)
|
330,000
|
(12%)
|
377,000
|
(5%)
|
395,000
|
|||||||||||
|
Unconsolidated
joint ventures (2)
|
525,000
|
(7%)
|
565,000
|
(18%)
|
689,000
|
|||||||||||
|
Total
(including joint ventures) (2)
|
$
|
341,000
|
(13%)
|
$
|
390,000
|
(3%)
|
$
|
403,000
|
||||||||
|
Discontinued
operations (including joint ventures) (2)
|
$
|
175,000
|
(13%)
|
$
|
200,000
|
9%
|
$
|
183,000
|
||||||||
|
(1)
|
Arizona
and Texas exclude the Tucson and San Antonio divisions, which are
classified as discontinued
operations.
|
|
(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
2008, our consolidated average home price (excluding joint ventures and
discontinued operations) decreased 12% to $330,000 as compared to $377,000 and
$395,000 for 2007 and 2006, respectively. The continued decline in
our consolidated average price was due primarily to the significant level of
incentives, discounts and price reductions required to sell homes in most of our
markets, partially offset by changes in our geographic delivery
mix.
Our
average home price in California (exclusive of joint ventures) decreased 21% to
$475,000 in 2008 from $601,000 in 2007 primarily driven by the following
regional changes. In Southern California, our average home price was
off 20% in 2008 primarily due to increased incentives and discounts required to
generate sales combined with a product mix shift within the region, including a
greater distribution of deliveries generated from our more affordable Inland
Empire, Ventura, and Bakersfield operations. In Northern California,
the average home price for 2008 was down 19% from 2007 to $402,000 as a result
of the meaningful level of incentives and price reductions required to sell
homes combined with the delivery of a greater percentage of homes from our less
expensive Central Valley market in 2008.
For 2007,
our average home price in California (exclusive of joint ventures) decreased 16%
from 2006. The decrease was primarily due to the increased level of incentives
and price cuts required to generate sales and the delivery of a greater
percentage of homes from our more affordable Sacramento and Central Valley
markets in 2007 as compared to 2006. These factors were offset in
part by a slightly higher proportion of deliveries generated in 2007 compared to
2006 from our Southern
California Orange County division, which generally delivers more expensive homes
(including the delivery of 9 homes during 2007 from a high-end coastal project
where sales prices were in the $6 million to $8 million range).
In the
Southwest, our average home price for 2008 was down 7% to $272,000 compared to
$292,000 in 2007. Our average price in Arizona for 2008 decreased 25%
year-over-year to $228,000 reflecting the extremely competitive new and existing
home market in Phoenix and the increased use of incentives and discounts
required to generate sales. This market has been particularly
impacted by the meaningful rise in foreclosures. In Texas, our
average home price increased 11% in 2008 as compared to 2007 reflecting a shift
in product mix to larger, higher priced homes, which was offset in part by
downward price pressure experienced in both our Dallas and Austin
markets. Our average price in Colorado fell slightly in 2008 due to
the increased use of incentives and discounts as a result of weak demand
experienced in this market. In Nevada, the average home price was
down 10% in 2008 as compared to 2007 reflective of the weak housing market
conditions in the Las Vegas area.
For 2007,
our average home price in the Southwest increased 4% over 2006. Our average
price in Arizona increased 2% in 2007 reflecting a change in product mix towards
larger more expensive homes, partially offset by an increase in
incentives. In Texas, our average home price increased 5% in 2007
primarily due to an increase in our average home price in
21
our
Dallas division due to a shift in product mix and, to a lesser extent, a modest
increase in prices from our Austin division. The 14% increase in average price
in Colorado in 2007 reflected a shift in product mix to higher priced
product.
Our
average home price in the Southeast (exclusive of joint ventures) for 2008
declined 12% from 2007. In Florida, the 22% decrease in the average
sales price to $209,000 primarily reflected the substantial level of incentives
and price reductions required to sell homes across all of our Florida
markets. In the Carolinas, our average price increased 6% in 2008 as
compared to 2007 as a result of a shift in product mix towards larger, more
expensive homes in both of our markets in the state.
For 2007,
our average home price in the Southeast (exclusive of joint ventures) decreased
1% from 2006. In Florida, our average sales price in 2007 was down 4% from 2006
due to weaker housing market conditions across all of our Florida markets,
offset in part by a geographic and product mix shift within the state. Our
average price in the Carolinas for 2007 was up 20% from 2006 and primarily
reflected a change in product mix towards larger, higher priced
product.
Gross
Margin
Our 2008
homebuilding gross margin percentage from continuing operations (including land
sales) was down year-over-year to a negative 45.2% from a negative 6.9% in
2007. The 2008 gross margin reflected $943.1 million of pretax
inventory impairment charges related to 184 projects, of which $827.6 million
related to current and future projects and $115.5 million related to land or
lots that have been or are intended to be sold (please see Note 4.a. of the
accompanying consolidated financial statements for further
discussion). These impairments related primarily to projects located
in California, Florida, Nevada, and Arizona, and to a lesser degree, in
Colorado, the Carolinas and Texas. The operating margins (defined as
gross margin less direct selling and marketing costs) used to calculate land
residual values and related fair values for the majority of our projects during
the year ended December 31, 2008 were generally in the 7% to 12% range and
discount rates were generally in the 15% to 25% range, with a small portion of
the projects in the low to mid 30% range, reflecting the continuing
deteriorating housing market conditions. Excluding the housing inventory
impairment charges from continuing operations and land sales, our 2008 gross
margin percentage from home sales would have been 16.1% versus 19.2% in 2007
(please see the table set forth below reconciling this non-GAAP measure to our
gross margin from home sales). The 310 basis point decrease in the
year-over-year as adjusted gross margin percentage was driven primarily by lower
gross margins in California, Arizona and Florida, and to a lesser extent, Texas,
Colorado and the Carolinas. The lower gross margins in these markets
were driven by increased incentives and discounts resulting from weaker demand,
more limited availability of mortgage credit, and an increased level of existing
homes available for sale in the marketplace. These factors were
partially offset by a lower land basis in inventories due to the significant
impairments taken in prior periods. Until market conditions
stabilize, we may continue to incur additional inventory impairment
charges.
Our 2007 homebuilding gross margin percentage from continuing operations was down year-over-year to a negative 6.9% from a positive 19.1% in 2006. The 2007 gross margin reflected $705.4 million of pretax impairment charges related to 132 projects, of which $414.2 million related to current and future projects and $291.2 million related to land or lots sold or were intended to be sold. These impairments related primarily to projects located in California, Florida and Arizona and to a lesser degree Nevada, Texas and Colorado. The operating margins used to calculate land residual values and related fair values for the majority of our projects during the year ended December 31, 2007 were generally in the 10% to 12% range with discount rates generally in the 15% to 20% range. Excluding the housing inventory impairment charges from continuing operations and land sales, our gross margin percentage from home sales would have been 19.2% for 2007 versus 25.5% in 2006 (please see the table set forth below reconciling this non-GAAP measure to our gross margin from home sales). The 630 basis point decrease in the year-over-year as adjusted gross margin percentage was driven primarily by lower gross margins in California, Arizona and Florida. The lower gross margins in these markets reflected high levels of incentives and discounts required to sell homes as a result of weaker demand during the latter half of 2006 and throughout 2007 related to decreased affordability, more limited availability of mortgage credit, and an increased supply of new and existing homes available for sale in the marketplace.
22
The table
set forth below reconciles our homebuilding gross margin and gross margin
percentage for the years ended December 31, 2008, 2007 and 2006 to gross margin
and gross margin percentage from home sales, excluding housing inventory
impairment charges and land sales:
|
Year
Ended December 31,
|
|||||||||||||||
|
2008
|
Gross
Margin
%
|
2007
|
Gross
Margin
%
|
2006
|
Gross
Margin
%
|
||||||||||
|
(Dollars
in thousands)
|
|||||||||||||||
|
Homebuilding
gross margin
|
$
|
(693,394)
|
(45.2%)
|
$
|
(199,863)
|
(6.9%)
|
$
|
713,369
|
19.1%
|
||||||
|
Less:
Land sale revenues
|
13,976
|
281,009
|
30,411
|
||||||||||||
|
Add:
Cost of land sales
|
124,786
|
568,539
|
76,179
|
||||||||||||
|
Gross
margin from home sales
|
(582,584)
|
(38.3%)
|
87,667
|
3.4%
|
759,137
|
20.5%
|
|||||||||
|
Add:
Housing inventory impairment charges
|
827,611
|
414,244
|
188,602
|
||||||||||||
|
Gross
margin from home sales, as adjusted
|
$
|
245,027
|
16.1%
|
$
|
501,911
|
19.2%
|
$
|
947,739
|
25.5%
|
||||||
We
believe that the measures described above, which exclude the effect of housing
inventory impairment charges, are useful to investors as they provide investors
with a perspective on the underlying operating performance of the business by
isolating the impact of charges related to housing inventory
impairments. However, it should be noted that such measures are not
GAAP financial measures. Due to the significance of the GAAP
components excluded, such measures should not be considered in isolation or as
an alternative to operating performance measures prescribed by
GAAP.
SG&A Expenses
Our
SG&A expense rate from continuing operations (including corporate G&A)
for 2008 increased 650 basis points to 19.9% of homebuilding revenues compared
to 13.4% for 2007. The higher level of SG&A expenses as a
percentage of homebuilding revenues was due primarily to: (i) a lower level of
revenues to spread costs over, (ii) a higher level of sales and marketing costs
as a percentage of revenues as a result of our focus on generating sales in
these challenging market conditions, (iii) $19.2 million in restructuring
charges related to division closures and consolidations, and (iv) an increase in
professional fees incurred in connection with pursuing strategic and financial
alternatives prior to completing the MatlinPatterson transaction and costs
related to potential acquisition related activities. These increases
as a percentage of homebuilding revenues were offset in part by a reduction in
personnel costs as a result of reductions in headcount made to better align our
overhead with the weaker housing market, a reduction in the level of
profit-based incentive compensation expense and combined with the general effort
to reduce other general and administrative expenses due to the downsizing of our
operations.
Our
SG&A expense rate from continuing operations (including corporate G&A)
for 2007 increased 160 basis points to 13.4% of homebuilding revenues compared
to 11.8% for 2006. The higher level of SG&A expenses as a percentage of
homebuilding revenues was due primarily to a lower level of revenues to spread
these costs over as well as a higher level of sales and marketing costs as a
percentage of revenues as a result of our focus on generating sales in
challenging market conditions and an increase in stock-based compensation
expense. These increases were offset in part by a reduction in personnel costs
to better align our overhead with the weaker housing market as well as due to a
reduction in the level of profit-based incentive compensation expense in 2007 as
compared to 2006.
Unconsolidated
Joint Ventures
We recognized a $151.7 million loss
from unconsolidated joint ventures during 2008 as compared to losses of $190.0
million and $3.9 million in 2007 and 2006, respectively. The 2008
loss reflected a $149.3 million pretax charge related to our share of joint
venture impairments related to 20 projects located primarily in California and
our master planned community development in North Las Vegas. The loss
in 2007 reflected a $202.3 million pretax charge related to our share of joint
venture inventory impairments related to 30 projects located predominantly in
California and to a much smaller degree, in Arizona, Texas and
Illinois.
Interest
Expense
For 2008, we
expensed $14.3 million of interest costs related to the portion of real estate
inventories which we were not actively preparing for their intended use, and as
a result were deemed unqualified assets in accordance with Statement of
Financial Accounting Standards No. 34, “Capitalization of Interest Cost” (“SFAS
34”). All interest costs incurred during the first half of 2008 and
all of 2007 were capitalized to inventories. To the extent our debt
exceeds our qualified inventory in the future, we will expense a portion of the
interest related to such debt.
23
Other Income
(Expense)
Included
in other income (expense) for 2008 and 2007 were pretax charges of approximately
$25.6 million and $22.5 million, respectively, related to the write-off of
option deposits and capitalized preacquisition costs for abandoned
projects. While the level of lot option deposits still outstanding at
the end of 2008 has dropped meaningfully from prior years, we continue to
carefully evaluate each land purchase in our acquisition pipeline in light of
weakened market conditions and any decision to abandon additional land purchase
or lot option transactions could lead to further deposit and capitalized
preacquisition cost write-offs. Also included in other income
(expense) from continuing operations for 2008 and 2007 were goodwill impairment
charges of approximately $35.5 million and $54.3 million, respectively. The
goodwill impairment charges for 2008 related to our Northern California Bay
Area, Phoenix, Orlando, Tampa and Charlotte divisions. For 2007, the
goodwill impairment charges from continuing operations related to our
Jacksonville, Orlando, Tampa, South Florida and Raleigh divisions. For 2008,
other income (expense) also included a $9.1 million noncash charge related to
the exchange of $128.5 million of our senior and senior subordinated notes for
the Warrant and a $1.1 million gain related to the early extinguishment of $22.5
million of our 6½% Senior Notes due 2008 through open market
purchases. For 2007, other income (expense) included a $2.8 million
gain related to the early extinguishment of $24.0 million of our 6½% Senior
Notes due 2008 that were purchased in the open market.
|
Year
Ended December 31,
|
|||||||||||||
|
2008
|
%
Change
|
2007
|
%
Change
|
2006
|
|||||||||
|
Net
new orders (1):
|
|||||||||||||
|
Southern
California
|
909
|
(34%)
|
1,377
|
11%
|
1,246
|
||||||||
|
Northern
California
|
586
|
(20%)
|
735
|
66%
|
444
|
||||||||
|
Total
California
|
1,495
|
(29%)
|
2,112
|
25%
|
1,690
|
||||||||
|
Arizona
(2)
|
422
|
(29%)
|
593
|
(18%)
|
720
|
||||||||
|
Texas
(2)
|
506
|
(40%)
|
844
|
(19%)
|
1,038
|
||||||||
|
Colorado
|
184
|
(49%)
|
363
|
(10%)
|
404
|
||||||||
|
Nevada
|
37
|
(57%)
|
86
|
682%
|
11
|
||||||||
|
Total
Southwest
|
1,149
|
(39%)
|
1,886
|
(13%)
|
2,173
|
||||||||
|
Florida
|
810
|
(3%)
|
837
|
(26%)
|
1,131
|
||||||||
|
Carolinas
|
492
|
(43%)
|
862
|
(13%)
|
994
|
||||||||
|
Total
Southeast
|
1,302
|
(23%)
|
1,699
|
(20%)
|
2,125
|
||||||||
|
Consolidated
total
|
3,946
|
(31%)
|
5,697
|
(5%)
|
5,988
|
||||||||
|
Unconsolidated
joint ventures (3):
|
|||||||||||||
|
Southern
California
|
113
|
(71%)
|
392
|
216%
|
124
|
||||||||
|
Northern
California
|
83
|
(25%)
|
110
|
(7%)
|
118
|
||||||||
|
Florida
|
4
|
―
|
―
|
―
|
―
|
||||||||
|
Illinois
|
(3)
|
(119%)
|
16
|
(41%)
|
27
|
||||||||
|
Total
unconsolidated joint ventures
|
197
|
(62%)
|
518
|
93%
|
269
|
||||||||
|
Discontinued
operations
|
105
|
(80%)
|
522
|
(39%)
|
860
|
||||||||
|
Total
(including joint ventures) (3)
|
4,248
|
(37%)
|
6,737
|
(5%)
|
7,117
|
||||||||
|
(1)
|
Net
new orders are new orders for the purchase of homes during the period,
less cancellations during such period of existing contracts for the
purchase of homes.
|
|
(2)
|
Arizona
and Texas exclude the Tucson and San Antonio divisions, which are
classified as discontinued
operations.
|
|
(3)
|
Numbers
presented regarding unconsolidated joint ventures reflect total net new
orders of such joint ventures. Our ownership interests in these
joint ventures vary but are generally less than or equal to
50%.
|
24
|
Year
Ended December 31,
|
|||||||||||||
|
2008
|
%
Change
|
2007
|
%
Change
|
2006
|
|||||||||
|
Average
number of selling communities during the year:
|
|||||||||||||
|
Southern
California
|
38
|
(3%)
|
39
|
8%
|
36
|
||||||||
|
Northern
California
|
25
|
0%
|
25
|
39%
|
18
|
||||||||
|
Total
California
|
63
|
(2%)
|
64
|
19%
|
54
|
||||||||
|
Arizona
(1)
|
15
|
(17%)
|
18
|
(18%)
|
22
|
||||||||
|
Texas
(1)
|
29
|
16%
|
25
|
19%
|
21
|
||||||||
|
Colorado
|
8
|
(27%)
|
11
|
(21%)
|
14
|
||||||||
|
Nevada
|
3
|
(25%)
|
4
|
300%
|
1
|
||||||||
|
Total
Southwest
|
55
|
(5%)
|
58
|
0%
|
58
|
||||||||
|
Florida
|
45
|
(4%)
|
47
|
(2%)
|
48
|
||||||||
|
Carolinas
|
29
|
7%
|
27
|
35%
|
20
|
||||||||
|
Total
Southeast
|
74
|
0%
|
74
|
9%
|
68
|
||||||||
|
Consolidated
total
|
192
|
(2%)
|
196
|
9%
|
180
|
||||||||
|
Unconsolidated
joint ventures (2):
|
|||||||||||||
|
Southern
California
|
6
|
(57%)
|
14
|
367%
|
3
|
||||||||
|
Northern
California
|
5
|
(29%)
|
7
|
40%
|
5
|
||||||||
|
Illinois
|
1
|
(50%)
|
2
|
100%
|
1
|
||||||||
|
Total
unconsolidated joint ventures
|
12
|
(48%)
|
23
|
156%
|
9
|
||||||||
|
Discontinued
operations
|
2
|
(92%)
|
25
|
9%
|
23
|
||||||||
|
Total
(including joint ventures) (2)
|
206
|
(16%)
|
244
|
15%
|
212
|
||||||||
|
(1)
|
Arizona
and Texas exclude the Tucson and San Antonio divisions, which are
classified as discontinued
operations.
|
|
(2)
|
Numbers
presented regarding unconsolidated joint ventures reflect total average
selling communities of such joint ventures. Our ownership
interests in these joint ventures vary but are generally less than or
equal to 50%.
|
Net new
orders (excluding joint ventures and discontinued operations) for 2008 decreased
31% to 3,946 new homes. Our consolidated cancellation rate for 2008
was 26% compared to 30% in 2007. During the 2008 fourth quarter, our
net new orders were down 46% from the prior year period and our cancellation
rate increased to 33% from 26% in the 2008 third quarter. Our
absolute sales absorption rates continued to reflect difficult housing
conditions in most of our markets, resulting from reduced housing affordability,
the higher level of homes available for sale in the marketplace, including
elevated levels of foreclosure properties and weaker economic conditions,
including rising unemployment rates and falling consumer
confidence. These conditions have been magnified by the tightening of
available mortgage credit for homebuyers, including increased pricing, decreased
availability of jumbo loans and the virtual elimination of “Alt-A” mortgage
products. These and other conditions have resulted in a declining
home price environment which has contributed to an erosion of homebuyer
confidence, a decrease in the pool of qualified buyers and a resulting decrease
in our new home sales volume. These slower sales trends have
continued in January and February 2009.
For 2007,
net new orders from continuing operations companywide (exclusive of joint
ventures) totaled 5,697 homes, a 5% decrease from 2006. The decrease in net new
orders resulted primarily from weaker housing market conditions experienced in
all of the markets in which we operate. This overall decrease was offset in part
by an increase in orders from our California operations and a nominal increase
in net new orders generated from our Las Vegas division. Our consolidated sales
cancellation rate from continuing operations for 2007 was 30% of gross orders
compared to 36% in 2006.
Net new
orders in California (excluding joint ventures) for 2008 decreased 29% from 2007
on a 2% lower average community count. Net new home orders in
Southern California were down 34% in 2008 as compared to 2007 due to a slightly
lower average community count, and weaker overall housing demand despite a flat
cancellation rate of 31% in 2008 and
2007. In Northern California, net new orders were down 20% in 2008
while our cancellation rate decreased to 21% for 2008 as compared to 26% in
2007.
For 2007,
net new orders in California (exclusive of joint ventures) increased 25% from
2006 on a 19% higher community count. Net new home orders were up 11% in 2007 in
Southern California on an 8% higher average community count. The increase in
orders was due to a higher community count, additional incentives and more
aggressive marketing strategies employed in 2007, as well as a decrease in the
region’s 2007 cancellation rate, from 41% in 2006 to 31% in 2007. In
Northern California, net new orders were up 66% in 2007 on a 39% higher
community count as compared to 2006.
Net new
orders in the Southwest (excluding joint ventures and discontinued operations)
decreased 39% during 2008 as compared to 2007, and decreased 13% during 2007
from 2006. Net new orders in Arizona were down 29% and 18%
in 2008 and 2007, respectively, on lower average community counts,
and weaker demand for new and existing homes in the
25
Phoenix
market. The cancellation rate in Arizona was 24% in 2008, an
improvement from 37% in 2007 and 54% in 2006. Order activity
continued to slide in Texas as evidenced by the decline in net orders during
2008 and 2007 on higher average community counts which reflect the weaker demand
experienced in both the Dallas and Austin markets during the latter half of 2007
and through 2008. In Colorado, net new orders for 2008 and 2007 were
down on lower community counts, in what has been a challenging market for some
time. Orders in our Las Vegas division in Nevada were down during
2008, which continues to be one of the weakest housing markets in the
country.
In the
Southeast, net new orders (excluding joint ventures) decreased 23% during 2008
from 2007 and decreased 20% in 2007 from 2006. Net new orders in
Florida decreased 3% in 2008 and 26% in 2007. Our 2008 cancellation rate in
Florida decreased meaningfully to 24% as compared to the 2007 and 2006
cancellation rate of 41%. All of the Florida markets in which we operate
continued to experience erosion in buyer demand and an increased level of
available homes on the market, with South Florida experiencing some of the worst
housing market conditions in the country. Net new orders in the
Carolinas during 2008 were down on a higher community count as a result of
continued slowing in housing demand in these markets. Our
cancellation rates in these markets remained relatively consistent at 19% for
2008 as compared to 18% in 2007.
|
Year
Ended December 31,
|
||||||||||||||||
|
2008
|
%
Change
|
2007
|
%
Change
|
2006
|
||||||||||||
|
Backlog
(in homes):
|
||||||||||||||||
|
Southern
California
|
89
|
(49%)
|
176
|
(21%)
|
224
|
|||||||||||
|
Northern
California
|
65
|
(49%)
|
127
|
28%
|
99
|
|||||||||||
|
Total
California
|
154
|
(49%)
|
303
|
(6%)
|
323
|
|||||||||||
|
Arizona
(1)
|
76
|
(61%)
|
194
|
(69%)
|
630
|
|||||||||||
|
Texas
(1)
|
130
|
(57%)
|
301
|
(32%)
|
441
|
|||||||||||
|
Colorado
|
78
|
(37%)
|
123
|
(17%)
|
148
|
|||||||||||
|
Nevada
|
4
|
(86%)
|
29
|
164%
|
11
|
|||||||||||
|
Total
Southwest
|
288
|
(55%)
|
647
|
(47%)
|
1,230
|
|||||||||||
|
Florida
|
147
|
(33%)
|
220
|
(68%)
|
697
|
|||||||||||
|
Carolinas
|
53
|
(51%)
|
109
|
(44%)
|
193
|
|||||||||||
|
Total
Southeast
|
200
|
(39%)
|
329
|
(63%)
|
890
|
|||||||||||
|
Consolidated
total
|
642
|
(50%)
|
1,279
|
(48%)
|
2,443
|
|||||||||||
|
Unconsolidated
joint ventures (2):
|
||||||||||||||||
|
Southern
California
|
19
|
(80%)
|
94
|
(27%)
|
128
|
|||||||||||
|
Northern
California
|
5
|
(79%)
|
24
|
(44%)
|
43
|
|||||||||||
|
Florida
|
2
|
―
|
―
|
―
|
―
|
|||||||||||
|
Illinois
|
―
|
(100%)
|
5
|
(72%)
|
18
|
|||||||||||
|
Total
unconsolidated joint ventures
|
26
|
(79%)
|
123
|
(35%)
|
189
|
|||||||||||
|
Discontinued
operations
|
1
|
(98%)
|
44
|
(78%)
|
201
|
|||||||||||
|
Total
(including joint ventures) (2)
|
669
|
(54%)
|
1,446
|
(49%)
|
2,833
|
|||||||||||
|
Backlog
(estimated dollar value in thousands):
|
||||||||||||||||
|
Southern
California
|
$
|
46,350
|
(57%)
|
$
|
106,648
|
(43%)
|
$
|
187,062
|
||||||||
|
Northern
California
|
23,172
|
(59%)
|
57,165
|
(4%)
|
59,392
|
|||||||||||
|
Total
California
|
69,522
|
(58%)
|
163,813
|
(34%)
|
246,454
|
|||||||||||
|
Arizona
(1)
|
17,083
|
(66%)
|
50,091
|
(77%)
|
215,653
|
|||||||||||
|
Texas
(1)
|
38,782
|
(58%)
|
92,030
|
(17%)
|
111,425
|
|||||||||||
|
Colorado
|
24,017
|
(46%)
|
44,311
|
(23%)
|
57,867
|
|||||||||||
|
Nevada
|
893
|
(89%)
|
8,160
|
100%
|
4,086
|
|||||||||||
|
Total
Southwest
|
80,775
|
(58%)
|
194,592
|
(50%)
|
389,031
|
|||||||||||
|
Florida
|
30,408
|
(42%)
|
52,787
|
(74%)
|
206,313
|
|||||||||||
|
Carolinas
|
12,735
|
(60%)
|
31,476
|
(27%)
|
43,042
|
|||||||||||
|
Total
Southeast
|
43,143
|
(49%)
|
84,263
|
(66%)
|
249,355
|
|||||||||||
|
Consolidated
total
|
193,440
|
(56%)
|
442,668
|
(50%)
|
884,840
|
|||||||||||
|
Unconsolidated
joint ventures (2):
|
||||||||||||||||
|
Southern
California
|
8,123
|
(87%)
|
60,255
|
(5%)
|
63,503
|
|||||||||||
|
Northern
California
|
3,266
|
(79%)
|
15,773
|
(50%)
|
31,517
|
|||||||||||
|
Florida
|
540
|
―
|
―
|
―
|
―
|
|||||||||||
|
Illinois
|
―
|
(100%)
|
5,978
|
(44%)
|
10,700
|
|||||||||||
|
Total
unconsolidated joint ventures
|
11,929
|
(85%)
|
82,006
|
(22%)
|
105,720
|
|||||||||||
|
Discontinued
operations
|
208
|
(97%)
|
8,099
|
(80%)
|
40,095
|
|||||||||||
|
Total
(including joint ventures) (2)
|
$
|
205,577
|
(61%)
|
$
|
532,773
|
(48%)
|
$
|
1,030,655
|
||||||||
__________________________
|
(1)
|
Arizona
and Texas exclude the Tucson and San Antonio divisions, which are
classified as discontinued
operations.
|
|
(2)
|
Numbers
presented regarding unconsolidated joint ventures reflect total backlog of
such joint ventures. Our ownership interests in these joint
ventures vary but are generally less than or equal to
50%.
|
26
The
dollar value of our backlog (excluding joint ventures and discontinued
operations) decreased 56% from December 31, 2007 to approximately $193.4 million
at December 31, 2008. This was on top of the 50% drop in the dollar value of
backlog from December 31, 2006. The significant decrease in backlog
during 2008 reflects the slowdown in order activity experienced during 2008 as a
result of weaker housing market conditions combined with a shorter average
escrow period from sales contract date to delivery date. We expect to
deliver all of the homes in backlog as of December 31, 2008 during fiscal 2009,
although all orders are subject to potential cancellation by the
customer.
|
At
December 31,
|
|||||||||||||
|
2008
|
%
Change
|
2007
|
%
Change
|
2006
|
|||||||||
|
Building
sites owned or controlled:
|
|||||||||||||
|
Southern
California
|
5,676
|
(22%)
|
7,235
|
(45%)
|
13,096
|
||||||||
|
Northern
California
|
2,815
|
(39%)
|
4,579
|
(34%)
|
6,976
|
||||||||
|
Total
California
|
8,491
|
(28%)
|
11,814
|
(41%)
|
20,072
|
||||||||
|
Arizona
(1)
|
2,303
|
(23%)
|
2,997
|
(64%)
|
8,269
|
||||||||
|
Texas
(1)
|
1,881
|
(44%)
|
3,370
|
(29%)
|
4,718
|
||||||||
|
Colorado
|
374
|
(51%)
|
771
|
(28%)
|
1,078
|
||||||||
|
Nevada
|
1,994
|
(17%)
|
2,390
|
(21%)
|
3,037
|
||||||||
|
Total
Southwest
|
6,552
|
(31%)
|
9,528
|
(44%)
|
17,102
|
||||||||
|
Florida
|
6,986
|
(17%)
|
8,462
|
(31%)
|
12,226
|
||||||||
|
Carolinas
|
2,042
|
(47%)
|
3,885
|
(7%)
|
4,177
|
||||||||
|
Illinois
|
60
|
(3%)
|
62
|
(65%)
|
179
|
||||||||
|
Total
Southeast
|
9,088
|
(27%)
|
12,409
|
(25%)
|
16,582
|
||||||||
|
Discontinued
operations
|
5
|
(100%)
|
1,007
|
(85%)
|
6,935
|
||||||||
|
Total
(including joint ventures)
|
24,136
|
(31%)
|
34,758
|
(43%)
|
60,691
|
||||||||
|
Building
sites owned
|
19,306
|
(10%)
|
21,371
|
(32%)
|
31,275
|
||||||||
|
Building
sites optioned or subject to contract
|
2,519
|
(55%)
|
5,619
|
(39%)
|
9,282
|
||||||||
|
Joint
venture lots (2)
|
2,306
|
(66%)
|
6,761
|
(49%)
|
13,199
|
||||||||
|
Total
continuing operations
|
24,131
|
(29%)
|
33,751
|
(37%)
|
53,756
|
||||||||
|
Discontinued
operations
|
5
|
(100%)
|
1,007
|
(85%)
|
6,935
|
||||||||
|
Total
(including joint ventures)
|
24,136
|
(31%)
|
34,758
|
(43%)
|
60,691
|
||||||||
_________________________
|
(1)
|
Arizona
and Texas exclude the Tucson and San Antonio divisions, which are
classified as discontinued
operations.
|
|
(2)
|
Joint
venture lots represent our expected share of land development joint
venture lots and all of the lots of our homebuilding joint
ventures.
|
Total
building sites owned and controlled as of December 31, 2008 decreased 31% from
the year earlier period, which reflects our efforts in 2008 to generate cash,
reduce our real estate inventories, and to better align our land supply with the
current level of new housing demand. These efforts were furthered by
the sale of approximately 10,400 lots in 2007 with the sale of substantially all
of our Tucson and San Antonio assets during the fourth quarter of
2007.
|
At
December 31,
|
||||||||||||||||
|
2008
|
%
Change
|
2007
|
%
Change
|
2006
|
||||||||||||
|
Completed
and unsold homes:
|
||||||||||||||||
|
Consolidated
(1)
|
589
|
(15%)
|
695
|
(1%)
|
699
|
|||||||||||
|
Joint
ventures (1)
|
26
|
(42%)
|
45
|
400%
|
9
|
|||||||||||
|
Total
continuing operations
|
615
|
(17%)
|
740
|
5%
|
708
|
|||||||||||
|
Discontinued
operations
|
1
|
(98%)
|
54
|
(47%)
|
101
|
|||||||||||
|
Total
|
616
|
(22%)
|
794
|
(2%)
|
809
|
|||||||||||
|
Spec
homes under construction:
|
||||||||||||||||
|
Consolidated
(1)
|
865
|
(21%)
|
1,089
|
(21%)
|
1,380
|
|||||||||||
|
Joint
ventures (1)
|
154
|
(58%)
|
368
|
(25%)
|
490
|
|||||||||||
|
Total
continuing operations
|
1,019
|
(30%)
|
1,457
|
(22%)
|
1,870
|
|||||||||||
|
Discontinued
operations
|
―
|
(100%)
|
31
|
(83%)
|
179
|
|||||||||||
|
Total
|
1,019
|
(32%)
|
1,488
|
(27%)
|
2,049
|
|||||||||||
|
Homes
under construction (including specs):
|
||||||||||||||||
|
Consolidated
(1)
|
1,326
|
(36%)
|
2,085
|
(37%)
|
3,335
|
|||||||||||
|
Joint
ventures (1)
|
183
|
(58%)
|
440
|
(35%)
|
675
|
|||||||||||
|
Total
continuing operations
|
1,509
|
(40%)
|
2,525
|
(37%)
|
4,010
|
|||||||||||
|
Discontinued
operations
|
―
|
(100%)
|
64
|
(81%)
|
331
|
|||||||||||
|
Total
|
1,509
|
(42%)
|
2,589
|
(40%)
|
4,341
|
|||||||||||
__________________________
|
(1)
|
Arizona
and Texas exclude the Tucson and San Antonio divisions, which are
classified as discontinued
operations.
|
27
The
number of completed and unsold homes from continuing operations (excluding joint
ventures) as of December 31, 2008 decreased 15% compared to December 31, 2007
and increased 57% compared to September 30, 2008. During 2008, our
level of completed and unsold homes decreased steadily each quarter through
September 30, 2008 as a result of our efforts to move completed spec homes,
however, during the 2008 fourth quarter, the number of completed and unsold
homes increased due to the decrease in our net new orders, combined with an
increase in our cancellation rate. The number of homes under
construction from continuing operations (exclusive of joint ventures) as of
December 31, 2008 and 2007 decreased
36% and 37%, respectively, from the year earlier periods in response to our
increased focus on managing the level of our speculative inventory and our
desire to better match new construction starts with lower sales volume and
demand.
|
|
Financial
Services
|
For the
year ended December 31, 2008, our financial services subsidiary generated a
pretax loss of approximately $72,000 compared to a pretax income of $632,000 in
2007. The decrease in 2008 was driven primarily by a 42%
year-over-year decrease in the volume of loans sold during 2008 and a $1.7
million increase in the loan loss reserve, primarily related to loans held for
investment. These decreases and charges were partially offset by an
increase in margins on loans sold during 2008 and a decrease in fixed and
variable personnel expenses due to a reduction in headcount to better align our
fixed overhead with lower production levels. The decrease in loan
sales was primarily the result of a decrease in new home deliveries in the
markets in which our financial services subsidiary operates.
For 2007,
our financial services subsidiary generated pretax income of approximately
$632,000 compared to pretax income of $5.4 million in 2006. The decrease in
profitability was driven primarily by a decrease in margins (in basis points) on
loans sold and a $1.8 million charge taken in 2007 to increase the loan loss
reserve for loans held for investment and loans held for sale. To a
lesser degree, profitability of our financial services subsidiary was impacted
by a 4% lower level of loan sales in 2007 driven by a decrease in new home
deliveries in the markets in which it operates. The 33% decrease in
revenues was partially offset by a decrease in the level of operating expenses
incurred by our financial services subsidiary as a result of our efforts to
decrease overhead to better align our fixed operating costs with the decline in
our loan originations volume.
The
following table details information regarding loan originations and related
credit statistics for our mortgage banking operations (exclusive of our mortgage
financing joint ventures):
|
Year
Ended December 31,
|
|||||||||
|
2008
|
2007
|
2006
|
|||||||
|
Mortgage
Loan Origination Product Mix:
|
|||||||||
|
Conforming
loans
|
46%
|
61%
|
44%
|
||||||
|
Jumbo
loans
|
9%
|
26%
|
42%
|
||||||
|
Government
loans
|
44%
|
7%
|
5%
|
||||||
|
Other
loans
|
1%
|
6%
|
9%
|
||||||
|
100%
|
100%
|
100%
|
|||||||
|
Loan
Type:
|
|||||||||
|
Fixed
|
93%
|
80%
|
56%
|
||||||
|
ARM
|
7%
|
20%
|
44%
|
||||||
|
ARM
loans ≥ 5 year
initial adjustment period
|
94%
|
86%
|
67%
|
||||||
|
Interest
only (ARM's)
|
97%
|
83%
|
74%
|
||||||
|
Credit
Quality:
|
|||||||||
|
FICO
score ≥
700
|
93%
|
81%
|
75%
|
||||||
|
FICO
score between 699 - 620
|
7%
|
18%
|
23%
|
||||||
|
FICO
score < 620 (sub-prime loans)
|
0%
|
1%
|
2%
|
||||||
|
Avg.
FICO score
|
732
|
733
|
726
|
||||||
|
Other
Data:
|
|||||||||
|
Avg.
combined LTV ratio
|
87%
|
86%
|
87%
|
||||||
|
Full
documentation loans
|
96%
|
61%
|
37%
|
||||||
|
Non-Full
documentation loans
|
4%
|
39%
|
63%
|
||||||
|
Loan Capture
Rates
|
78%
|
76%
|
63%
|
||||||
28
Income Taxes
As a result of the continued downturn
in the housing market and the uncertainty as to its magnitude and length, during
2008 and 2007 we recorded noncash valuation allowances of $473.6 million and
$180.5 million, respectively, against our net deferred tax assets in accordance
with Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes,” resulting in a total valuation allowance of $654.1 million at December
31, 2008. Including these charges, our effective income tax benefit
rate for 2008 and 2007 was 0.5% and 19.8%, respectively, versus a tax provision
rate of 36.2% for 2006. To the extent that we generate eligible
taxable income in the future to utilize the tax benefits of the related deferred
tax assets, subject to certain limitations, we will be able to reduce our
effective tax rate by reducing the valuation allowance.
We
believe that an ownership change under Internal Revenue Code Section 382
(“Section 382”) occurred as a result of closing the first phase of the
MatlinPatterson transaction. Accordingly, we may be limited on the
use of certain tax attributes that relate to tax periods prior to the ownership
change. These potential carryback limitations did not have an
impact on our ability to carry back our 2008 net operating loss to 2006 for
refund purposes, however, the Section 382 ownership change will have the impact
of placing an annual limitation on our ability to carry forward certain tax
attributes in future periods.
Discontinued
Operations
During
the fourth quarter of 2007, we sold substantially all of our Tucson and San
Antonio assets. The results of operations of our Tucson and San
Antonio divisions have been classified as discontinued operations in accordance
with Statement of Financial Accounting Standards No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,” and prior periods have been
reclassified to conform with current year presentation.
Net loss
from discontinued operations for the years ended December 31, 2008 and 2007 was
approximately $2.3 million and $72.1 million, respectively, of which $19.6
million for 2007 related to the loss on the disposal.
Liquidity
and Capital Resources
Our
principal uses of cash over the last several years have been for:
|
· land
acquisitions
· operating
expenses
· joint
ventures (including capital contributions, remargin
payments, and
purchases
of assets and partner interests)
|
· construction
and development expenditures
· principal
and interest payments on debt (including market
repurchases)
· market
expansion (including acquisitions)
· share
repurchases
· dividends
to our stockholders
|
Cash
requirements over the last several years have been met by:
|
· internally
generated funds
· bank
revolving credit facility
· land
option contracts
· land
seller notes
· sales
of our equity through public and private offerings
· proceeds
received upon the exercise of employee stock options
|
· public
and private note offerings (including convertible notes)
· bank
term loans
· joint
venture financings
· assessment
district bond financings
· issuance
of common stock as acquisition consideration
· mortgage
credit facilities
· tax
refunds
|
For the
year ended December 31, 2008, we generated approximately $263.2 million and
$151.2 million in cash flows from operating and financing activities,
respectively, and used approximately $11.6 million in investing
activities. These cash flows resulted from, among other things, a
$256.4 million tax refund related to our 2007 federal tax return,
MatlinPatterson’s purchase of 381,250 shares of our Senior Preferred Stock for
$381.3 million (described below), the settlement of our rights offering for
$152.5 million (described below), our efforts to reduce our investment in
homebuilding inventories (through a combination of reducing expenditures related
to land acquisition and development, reducing speculative construction starts
and selling non-strategic assets) and a reduction in the level of mortgage loans
held for sale by us. These cash flows were partially offset by the
use of approximately $174.4 million in cash for exiting certain joint ventures
(through either paying our partner to assume our interest, purchasing and
unwinding joint ventures or accelerating our
proportionate share of lot purchases from certain joint ventures) and
approximately $330.7 million in cash used for the
29
net
repayment of homebuilding and mortgage credit facility debt. The
impact of these cash flow activities resulted in a net increase in our
homebuilding cash balance of approximately $407.2 million since December 31,
2007 resulting in a homebuilding cash balance of $626.4 million at December 31,
2008. Based on our substantial cash position as of December 31, 2008,
the extinguishment of debt in connection with the exchange for a warrant
(described below), the available borrowing capacity under our revolving credit
facility and our operating initiatives to generate cash, we believe our sources
of capital are sufficient to meet our liquidity needs for our current and
reasonably foreseeable future requirements.
MatlinPatterson
Investment
On May
26, 2008, we entered into an Investment Agreement (the “Investment Agreement”)
with MatlinPatterson. We consummated the following transactions
pursuant to the Investment Agreement:
|
·
|
On
June 27, 2008, we issued 381,250 shares of a new series of senior
convertible preferred stock (“Senior Preferred Stock”) to MatlinPatterson
for $381.3 million in cash. Upon obtaining stockholder approval
on August 18, 2008, the shares of Senior Preferred Stock automatically
converted into shares of Series B junior participating convertible
preferred stock (the “Series B Preferred Stock”), which are convertible
into 125 million shares of our common
stock;
|
|
·
|
On
June 27, 2008, MatlinPatterson exchanged $128.5 million of our senior and
senior subordinated notes for a warrant to purchase 272,670 shares of
Senior Preferred Stock at a common stock equivalent exercise price of
$4.10 per share (the “Warrant”), which became exercisable for Series B
Preferred Stock following the receipt of stockholder approval on August
18, 2008. The shares of Series B Preferred Stock issuable upon
exercise of the Warrant (assuming MatlinPatterson does not make a cashless
exercise) will initially be convertible into 89.4 million shares of our
common stock; and
|
|
·
|
We
commenced a rights offering (“Rights Offering”) pursuant to which each
holder of our common stock as of the record date of July 28, 2008 was
offered a right (“Right”) to purchase up to such holder’s pro rata share
of 50 million shares of our common stock at a per share price of $3.05
(equivalent to approximately 0.69 shares of common stock for each
Right). The offer expired August 22, 2008 and rights to
purchase approximately 27.2 million shares of common stock were exercised
for a total subscription price of $82.9 million. As
contemplated by the Investment Agreement, MatlinPatterson purchased from
us (in the form of Series B Preferred Stock), the 22.8 million equivalent
shares of common stock not purchased by our existing common stockholders
in the Rights Offering for a total subscription price of $69.6
million. In addition, we received approximately $562,000 for
Rights associated with borrowed shares related to our share lending
facility.
|
Series
B Preferred Stock
The
number of shares of common stock into which our Series B Preferred Stock is
convertible is determined by dividing $1,000 by the applicable conversion price
(currently $3.05), subject to customary anti-dilution adjustments, plus cash in
lieu of fractional shares. The Series B Preferred Stock ranks pari passu with our common
stock and our Series A Preferred Stock and junior to all of our other equity
securities and has no liquidation preference over our common stock. The Series B
Preferred Stock will be convertible at the holder’s option into shares of our
common stock provided that no holder, with its affiliates, may beneficially own
total voting power of our voting stock in excess of 49%. The Series B
Preferred Stock also mandatorily converts into our common stock upon its sale,
transfer or other disposition by MatlinPatterson or its affiliates to an
unaffiliated third party. The Series B Preferred Stock votes together with our
common stock on all matters upon which holders of our common stock are entitled
to vote. Each share of Series B Preferred Stock is entitled to such number of
votes as the number of shares of our common stock into which such share of
Series B Preferred Stock is convertible, provided that the aggregate votes
attributable to such shares with respect to any holder of Series B Preferred
Stock (including its affiliates) cannot exceed more than 49% of the total voting
power of the voting stock of the Company. Shares of Series B Preferred Stock are
entitled to receive only those dividends declared and paid on our common
stock. As of
December 31, 2008, the outstanding shares of Series B Preferred Stock owned by
MatlinPatterson represented approximately 60% (or 70%, assuming MatlinPatterson
had exercised the Warrant for cash on such date) of the total number of shares
of our common stock outstanding on an as-converted
basis.
30
Revolving
Credit Facility and Term Loans
On June
27, 2008, we amended our revolving credit facility, our Term Loan A and our Term
Loan B (collectively, the “Credit Facilities”) to, among other things, (i)
reduce the total commitment under the revolving credit facility from $500
million to $395 million, (ii) pay down the unsecured borrowings under the
revolver from $90 million to $55 million and the unsecured Term Loan A balance
from $100 million to $65 million, (iii) reduce the letter of credit sublimit
under the revolver from $450
million to $100 million, (iv) agree to make quarterly principal amortization
payments under the Term Loan A and the revolver, of $2.5 million each (which, as
contemplated by the amendment, was increased to $5.0 million during the fourth
quarter of 2008 as a result of the Company’s incurrence of secured debt in
connection with various joint venture unwinds), and (v) agree to secure future
revolver borrowings and letters of credit (other than certain existing
borrowings and letters of credit) with certain specified types of collateral
(including model homes and other real property assets to be determined) based on
specified loan-to-value ratios. In addition, the commitment under the
revolving credit facility will be reduced at the end of each calendar quarter by
the face amount of all unsecured letters of credit that mature and are not
renewed or are cancelled during such quarter. As of December 31,
2008, we had approximately $57.5 million and $225.0 million outstanding on our
Term Loan A and Term Loan B, respectively, and $47.5 million in borrowings
outstanding and $37.8 million in letters of credit outstanding (of which $33.6
million was unsecured) under our revolving credit facility which had a current
commitment amount of $390.9 million.
The new collateral pool provision limits the amount of borrowing available under our revolving credit facility. As of December 31, 2008, we had approximately $178.5 million of revolver borrowing capacity available based on collateral available as security for future revolver borrowings and letters of credit.
Prior to amending the Credit Facilities, we were not in compliance with our consolidated tangible net worth and leverage covenants contained in such facilities and were operating under a waiver extended by our bank group. In connection with the amendments to the Credit Facilities, the financial covenants contained in such facilities were modified to eliminate covenants relating to consolidated tangible net worth, leverage, unsold land and minimum interest coverage. The borrowing base covenant and limitations on joint venture investments were also eliminated. The amended Credit Facilities contain a new cash flow coverage covenant requiring us to maintain either a minimum ratio of cash flow from operations to consolidated homebuilding interest incurred or a minimum cash interest reserve equal to our last four fiscal quarter’s actual interest incurred. As of December 31, 2008, the amended Credit Facliites prohibited, subject to various exceptions, the repurchase of capital stock, payment of dividends, the early repayment of debt and the incurrence of debt. On February 13, 2009, we amended our Credit Facilities to enable us to voluntarily repurchase debt, provided that certain conditions are met (please refer to the discussion of the February 13, 2009 amendment below). The limitation on incurring new debt contains a number of exceptions including the ability to borrow up to $270 million or $500 million of debt for acquired, constructed or improved assets (“ACI Debt”), dependent on whether we have fully secured the revolving credit facility and Term Loan A borrowings, non-recourse indebtedness, subordinated debt, and up to $400 million of new senior unsecured debt having a maturity of at least 180 days after the maturity dates of the revolving credit facility and Term Loan A. As of December 31, 2008, we had approximately $63.6 million of ACI Debt outstanding which represented the remaining joint venture debt assumed by us in connection with two joint venture unwinds that occurred during the 2008 fourth quarter. The financial covenants, including elimination of the borrowing base, and certain other provisions of our $225 million Term Loan B were automatically amended to match those of the revolver and Term Loan A as of the effective time of the amendments of the Credit Facilities. Also, in connection with the amendments to the Credit Facilities, certain waivers previously granted under the facilities were permanently extended.
Our
covenant compliance for the Credit Facilities at December 31, 2008 is set forth
in the table below:
|
Covenant
|
Actual
at
December
31, 2008
|
Covenant
Requirement
at
December
31, 2008
|
||||
|
Cash
Flow Coverage Ratio:
|
||||||
|
Cash
Flow from Operations to Consolidated Homebuilding Interest Incurred
Ratio
|
1.49
|
≥
|
1.75
|
|||
As a result of us not meeting the minimum cash flow coverage ratio as of December 31, 2008, we were required to establish a minimum interest reserve. In March 2009, one of our unrestricted subsidiaries deposited approximately $120.8 million of cash in a deposit account with our agent bank for this purpose.
On
February 13, 2009, we amended our Credit Facilities to enable us to voluntarily
repurchase our 51/8% Senior Notes due 2009
(the “2009 Notes”), 6½% Senior Notes due 2010 (the “2010 Notes”) and 67/8% Senior Notes due 2011
(the “2011 Notes”) so long as (i) we have made prepayments and a corresponding
reduction of the revolving commitments under our
31
revolving
credit facility of at least $14.6 million prior to such repurchase, (ii) have
made prepayments under our Term Loan A of at least $10.4 million prior to such
repurchase, (iii) within one business day after any such repurchase of the 2009
Notes, we make an aggregate prepayment under the revolving credit facility and
the Term Loan A totaling an amount equal to 125% of the discount to par paid in
the repurchase of such 2009 Notes, (iv) within one business day after any such
repurchase of the 2010 Notes, we make an aggregate prepayment under the
revolving credit facility and the Term Loan A totaling an amount equal to 50% of
the amount of such repurchase and (v) within one business day after any such
repurchase of the 2011 Notes, we make
an aggregate prepayment under the revolving credit facility and the Term Loan A
totaling an amount equal to 100% of the amount of such
repurchase. The prepayments required under clauses (iii), (iv) and
(v) above shall be allocated approximately 58.5% to the revolving credit
facility and 41.5% to the Term Loan A. The $25.0 million of
prepayments required under clauses (i) and (ii) above, as well as other
proportional prepayments of the revolving credit facility (accompanied by a
corresponding reduction of the revolving commitments) and the Term Loan A made
after the effective date of this amendment shall be credited towards any
prepayments required under clauses (iii), (iv) and (v) above. In
February 2009 we made prepayments of $25.0 million required under clauses (i)
and (ii) above.
Senior
and Senior Subordinated Notes
In
addition to our Credit Facilities, as of December 31, 2008, we had $1,070.7
million of senior and senior subordinated notes outstanding (the
"Notes”). The Notes contain certain restrictive covenants, including
a limitation on additional indebtedness and a limitation on restricted
payments. Under the limitation on additional indebtedness, we are
permitted to incur specified categories of indebtedness but are prohibited,
aside from those exceptions, from incurring further indebtedness if we do not
satisfy either a leverage condition or an interest coverage
condition. As of December 31, 2008, we were unable to satisfy either
condition. As a result, our ability to incur further indebtedness is
limited. Exceptions to this limitation include new borrowings of up
to $550 million
under bank credit facilities (including our revolving credit facility),
non-recourse purchase money indebtedness ( subject to available borrowing
sources) and indebtedness incurred for the purpose of refinancing or repaying
existing indebtedness. We believe that these exceptions and our
homebuilding cash balance of $626.4 million at December 31, 2008, which includes
cash held in our unrestricted subsidiaries, provide us with substantial
resources and alternatives to fund our cash needs.
Under the
limitation on restricted payments, we are also prohibited from making restricted
payments, which include investments in and advances to our joint ventures and
other unrestricted subsidiaries, if we do not satisfy either the leverage
condition or interest coverage condition. Our ability to make
restricted payments is also subject to a basket limitation. When we
were in compliance with the limitation on restricted payments, we directly made
restricted payments to our joint ventures and other restricted
subsidiaries. Since September 30, 2008, we have made restricted
payments (including investments in joint ventures) from funds held in our
unrestricted subsidiaries which are not subject to this
prohibition. As of December 31, 2008, we had approximately $513.2
million of liquidity in our unrestricted subsidiaries available to fund our
joint venture capital requirements and other restricted payment
needs. In March 2009, approximately $120.8 million of these funds
were deposited as an interest reserve in a deposit account with our agent bank
in order to comply with our revolving credit facility cash flow coverage
covenant.
Our
leverage and interest coverage conditions contained in our 51/8% Senior Notes due 2009
(our most restrictive series of Notes based on the leverage ratio condition as
of December 31, 2008) are set forth in the table below:
|
Covenant
and Other Requirements
|
Actual
at
December
31, 2008
|
Covenant
Requirements
at
December
31, 2008
|
|||||
|
Total
Leverage Ratio:
|
|||||||
|
Indebtedness
to Consolidated Tangible Net Worth Ratio
|
4.17
|
≤
|
2.25
|
(1)
|
|||
|
Interest
Coverage Ratio:
|
|||||||
|
EBITDA
to Consolidated Interest Incurred
|
0.24
|
≥
|
2.00
|
||||
________________________________
|
(1)
|
The
leverage ratio condition under the indenture governing our 9 ¼% Senior
Subordinated Notes due 2012
is ≤ 2.50.
|
We
repurchased and simultaneously retired approximately $22.5 million and $24.0
million of our 6½% Senior Notes due 2008 through open market purchases during
2008 and 2007, respectively. In connection with these open market
purchases, we recognized a $1.1 million and $2.8 million gain in 2008 and 2007,
respectively, from the early extinguishment of debt as the notes were purchased
at a discount to their par value. The remaining balance of $103.5
million was repaid in full on October 1, 2008, the maturity date of these
notes. We expect to continue, from time to time, to undertake
negotiated and open market purchases of our notes prior to maturity when they
can be purchased at attractive discounts to their par value, which may utilize
our cash. Such repurchases, if any, will depend on market conditions,
our liquidity requirements, contractual restrictions and other
factors.
32
On May
22, 2008, we obtained the written consent of a majority of the holders of our
9¼% Senior Subordinated Notes due 2012 to modify certain provisions to be
consistent with the analogous, less restrictive provisions applicable to our 7¾%
Senior Notes due 2013. Among other things, the definitions of
consolidated tangible net worth and restricted investment, as well as the
limitation on restricted payments, were amended.
In
conjunction with the Investment Agreement, MatlinPatterson exchanged $128.5
million of senior and senior subordinated notes (consisting of $25.5 million of
51/8% Senior Notes due 2009,
$2.0 million of 6½% Senior Notes due 2010, $21.6 million of 6% Senior
Subordinated Convertible Notes due 2012 and $79.5 million of 9¼% Senior
Subordinated Notes due 2012) for the Warrant to purchase 272,670 shares of
Senior Preferred Stock, which was subsequently converted into a right to
purchase Series B Preferred Stock, at a common stock equivalent exercise price
of $4.10 per share. In connection with this exchange, we recognized a
loss of $9.1 million during 2008 related to the extinguishment of the debt,
which was included in other income (expense) in the accompanying consolidated
statements of operations.
Senior
Subordinated Convertible Notes
We have
$78.5 million of 6% Senior Subordinated Convertible Notes (the “Convertible
Notes”) due on October 1, 2012. In connection with these notes we entered into a
convertible note hedge transaction designed to reduce equity dilution associated
with the potential conversion of the Convertible Notes to our common
stock. In connection with the Rights Offering, the conversion rate
applicable to our 6% Convertible Senior Subordinated Notes due 2012 was adjusted
to 119.5312 shares (equivalent to a conversion price of $8.37) of our common
stock per $1,000 principal amount of the notes. The conversion rate
prior to such adjustment was 114.2857 shares (equivalent to an initial
conversion price of $8.75 per share), of the Company’s common stock per $1,000
principal amount of the notes. The new conversion rate is subject to further
adjustments as provided in the indenture governing the notes.
To
facilitate transactions by which investors in the Convertible Notes may hedge
their investments in such Convertible Notes, we entered into a share lending
facility with an affiliate of one of the underwriters in the Convertible Notes
offering, under which we agreed to loan to the share borrower 7,839,809 shares
of our common stock for a period beginning on the date we entered into the share
lending facility and ending on October 1, 2012, or, if earlier, the date as of
which we have notified the share borrower of our intention to terminate the
facility after the entire principal amount of the Convertible Notes ceases to be
outstanding as a result of conversion, repurchase or redemption, or earlier in
certain circumstances.
Joint
Venture Loans
As
described more particularly under the heading “Off-Balance Sheet Arrangements”
beginning on page 36, in connection with our land development and homebuilding
joint ventures we typically obtain secured acquisition, development and
construction financing, which reduces the use of funds from corporate financing
sources. However, as market conditions have deteriorated we have been
required to expend corporate funds for previously unanticipated obligations
associated with these joint ventures. From time to time, we may be
required to utilize corporate financing sources with respect to certain of these
joint ventures to:
|
·
|
satisfy
margin calls with respect to our loan-to-value maintenance
obligations;
|
|
·
|
satisfy
the margin calls of non-performing partners on their loan-to-value
maintenance obligations;
|
|
·
|
satisfy
indemnification obligations with respect to surety
bonds;
|
|
·
|
buy-out
non-performing partner's ownership interests and satisfy outstanding joint
venture debt;
|
|
·
|
fund
payments to joint venture partners and lenders to obtain releases from
joint ventures that we elect to
exit;
|
|
·
|
fund
cost overruns associated with completion obligations;
and
|
|
·
|
finance
acquisition and development and/or construction costs following
termination or step-down of joint venture financing that the joint venture
is unable to restructure, extend, or refinance with a third party
lender.
|
To the
extent we utilize corporate financing sources to satisfy these potential joint
venture obligations, such use reduces the amount of capital we otherwise have
available for planned corporate expenditures. In addition, if we are
unable to satisfy the conditions required to make restricted payments contained
in our senior and senior subordinated notes, we will be required to utilize
corporate funds held in our unrestricted subsidiaries to fund such obligations,
which will reduce our ability to utilize those funds to satisfy other
obligations that would otherwise be considered restricted payments.
33
At
December 31, 2008, our unconsolidated joint ventures had borrowings outstanding
that totaled approximately $421.8 million, of which approximately $247.9 million
was non-recourse debt (two joint ventures) and approximately $173.9 million of
which was subject to loan-to-value maintenance agreements (seven joint
ventures), and equity that totaled approximately $372.8 million.
Other
Financing Sources
Trust Deed and Other Notes
Payable. From time to time, we use purchase money mortgage
financing to finance land acquisitions. We also use community
development district (“CDD”), community facilities district or other similar
assessment district bond financings from time to time to finance land
development and infrastructure costs. Subject to certain exceptions,
we generally are not responsible for the repayment of these assessment district
bonds. At December 31, 2008, we had approximately $111.2 million
outstanding in trust deed and other notes payable, including $98.3 million in
secured debt that was assumed in connection with unwinding three joint ventures
during 2008 and $3.5 million related to CDD bonds.
Mortgage Credit
Facilities. During the year ended December 31, 2008, our mortgage
financing subsidiary utilized six mortgage credit facilities to fund its
operations. Two of these mortgage credit facilities matured during
the year, and as of December 31, 2008, the aggregate commitment of the four
remaining credit facilities was $148 million, with maturities of $8 million in
January 2009, $60 million in March 2009, and $80 million in June
2009. In January 2009, the maturity date of the $8 million mortgage
credit facility was extended to April 2009. In addition, two of the
mortgage credit facilities with an aggregate borrowing capacity totaling $80
million are uncommitted (meaning that the lender has discretion to refuse to
fund requests). The various credit facilities require that Standard
Pacific Mortgage maintain cash collateral accounts aggregating $4.3 million.
At December 31, 2008, we had approximately $63.7 million advanced under
the four mortgage credit facilities and as of and for the year ended December
31, 2008, we were in compliance with the financial and other covenants contained
in these facilities, except that we did not satisfy the profitability covenant
contained in the $60 million facility for the three month period ending
September 30, 2008. On October 7, 2008, we amended the $60 million
facility and obtained a permanent waiver for this noncompliance.
Surety
Bonds. Surety bonds serve as a source of liquidity for the
Company because they are used in lieu of cash deposits and letters of credit
that would otherwise be required by governmental entities and other third
parties to ensure our completion of the infrastructure of our
projects. At December 31, 2008, we had approximately $259.2 million
in surety bonds outstanding from continuing operations (exclusive of surety
bonds related to our joint ventures), with respect to which we had an estimated
$89.9 million remaining in cost to complete. As a result of the
continuing deterioration in market conditions, surety providers have become
increasingly reluctant to issue new bonds and some have asked for security with
respect to outstanding bonds. If we are unable to obtain required
bonds in the future, or are required to provide security for existing bonds, our
liquidity would be negatively impacted.
Tax Refunds. For
the taxable year ended December 31, 2007, we generated a tax refund of $256.4
million related to federal net operating loss (“NOL”) carrybacks which was
collected in 2008. For the taxable year ended December 31, 2008, we
generated a federal income tax receivable of approximately $114.5 million
related to NOL carrybacks, which was included in homebuilding other assets as of
December 31, 2008, and was collected in February 2009.
We
believe that an ownership change under Section 382 occurred during the 2008
second quarter as a result of closing the first phase of the MatlinPatterson
transaction. Accordingly, we may be limited in the use of certain tax
attributes that relate to tax periods prior to the ownership
change. These potential carryback limitations did not have an
impact on our ability to carry back our 2008 net operating loss to 2006 for
refund purposes, however, the Section 382 ownership change will have the impact
of placing an annual limitation on our ability to carry forward certain tax
attributes in future periods.
Availability
of Additional Liquidity
The
availability of additional capital, whether from private capital sources
(including banks) or the public capital markets, fluctuates as market conditions
change. There may be times when the private capital markets and the
public debt or equity markets lack sufficient liquidity or when our securities
cannot be sold at attractive prices, in which case we would not be able to
access capital from these sources. Based on current market conditions
and our financial condition (including our inability to satisfy the conditions
contained in our public note indentures that are required to be satisfied to
permit us to incur additional indebtedness), our ability to effectively access
these liquidity sources is significantly limited. In addition, a
further weakening of our financial condition or strength, including in
particular a material increase in our leverage or a further decrease in our
profitability or cash flows, could adversely affect our ability to obtain
necessary funds, result in a credit rating downgrade or change in outlook, or
otherwise increase our cost of borrowing.
34
Dividends
We paid
no dividends to our stockholders during the year ended December 31, 2008.
Subject to limited exceptions, we are prohibited by the terms of our revolving
credit facility, senior term loans and public note indentures from paying
dividends
(other than dividends paid in the form of capital stock or through an accretion
to the liquidation preference of any capital stock).
Stock
Repurchases
Subject
to limited exceptions, we are currently prohibited by the terms of our revolving
credit facility, senior term loans, and public note indentures from repurchasing
capital stock for cash. During 2008, in connection with the vesting
of restricted stock grants made under our equity incentive plans, and pursuant
to the grant documents, we repurchased an aggregate of approximately 215,531
shares from our executive officers to fund vesting-related tax obligations
totaling approximately $726,000.
Leverage
Our
homebuilding leverage ratio was 80% at December 31, 2008 and our adjusted net
homebuilding debt to adjusted total book capitalization was 70%. This
adjusted ratio reflects the offset of homebuilding cash in excess of $5 million
and excludes $63.7 million of indebtedness of our financial services
subsidiary. We believe that this adjusted ratio is useful to
investors as an additional measure of our ability to service
debt. Our leverage level has been negatively impacted over the last
several years due to the reduction in our equity base as a result of the
significant level of impairments incurred by us as well as by the debt we have
had to assume in connection with joint venture unwinds. The impact of
these impairments on our leverage has been offset in part by the equity raised
in the MatlinPatterson and Rights Offering transactions. Our leverage
and debt levels, including usage of our revolving credit facility, can be
impacted quarter-to-quarter by seasonal cash flow factors, as well as other
factors, such as the timing and magnitude of deliveries, land purchases, joint
venture funding requirements, acquisitions of other homebuilders, the
consolidation of joint ventures into our consolidated financial statements,
changes in demand for new homes (including an increase in our cancellation
rate), inventory and goodwill impairment charges, land deposit write-offs and
deferred tax valuation allowance charges. Excluding the impact and
timing of recording impairments, historically, our leverage increases during the
first three quarters of the year and tapers off at year end.
Contractual
Obligations
The
following table summarizes our future estimated cash payments under existing
contractual obligations as of December 31, 2008, including estimated cash
payments due by period. Our purchase obligations primarily represent
commitments for land purchases under land purchase and land option contracts
with non-refundable deposits, estimated future payments under price and profit
participation agreements with land sellers and commitments for subcontractor
labor and material to be utilized in the normal course of business.
|
Payments
Due by Period
|
||||||||||||||||
|
Total
|
Less
Than 1 Year
|
1-3
Years
|
4-5
Years
|
After
5
Years
|
||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Contractual Obligations
|
||||||||||||||||
|
Long-term
debt principal payments (1)
|
$ |
1,511,924
|
$ |
170,529
|
$ |
518,235
|
$ |
498,160
|
$ |
325,000
|
||||||
|
Long-term
debt interest payments
|
347,826
|
96,478
|
154,584
|
82,170
|
14,594
|
|||||||||||
|
Operating
leases (2)
|
28,775
|
11,085
|
12,970
|
4,720
|
―
|
|||||||||||
|
Purchase
obligations (3)
|
379,392
|
305,464
|
73,928
|
―
|
―
|
|||||||||||
|
Total
|
$ |
2,267,917
|
$ |
583,556
|
$ |
759,717
|
$ |
585,050
|
$ |
339,594
|
||||||
|
(1)
|
Long-term
debt represents the revolving credit facility, trust deed and other notes
payable, and senior and senior subordinated notes payable. For a more
detailed description of our long-term debt, please see Notes 7, 8, and 9
in our accompanying consolidated financial
statements.
|
|
(2)
|
For
a more detailed description of our operating leases, please see Note 15.e.
in our accompanying consolidated financial
statements.
|
|
(3)
|
Includes
approximately $127.4 million (net of deposits) in land purchase and option
contracts for which we have made non-refundable deposits and $248.1
million in commitments under development and construction contracts. For a
more detailed description of our land purchase and option contracts,
please see “—Off-Balance Sheet Arrangements” below and Note 15.a. in our
accompanying consolidated financial
statements.
|
35
Our
revolving credit facility and mortgage credit facilities commitments and
available capacity as of December 31, 2008 are summarized below:
|
Total
Amounts Committed
|
Available
Capacity
|
||||||
|
(Dollars
in thousands)
|
|||||||
|
Revolving
credit facility (1)
|
$ |
390,900
|
$ |
178,473
|
|||
|
Mortgage
credit facilities (2)
|
68,000
|
9,564
|
|||||
|
Total
|
$ |
458,900
|
$ |
188,037
|
|||
|
(1)
|
At
December 31, 2008, we had a total of $390.9 million committed under our
revolving credit facility, of which $47.5 million was consumed by
outstanding borrowings and $37.8 million by issued letters of
credit. Available borrowing capacity under the revolving credit
facility is limited based on eligible collateral pool
limits. For a more detailed description of our revolving credit
facility, please see Note 7.a. in our accompanying consolidated financial
statements.
|
|
(2)
|
At
December 31, 2008, we had a total of $68.0 million committed and $80.0
million uncommitted under our mortgage credit facilities of which $58.4
million and $3.2 million, respectively, was consumed by outstanding
borrowings. For a more detailed description of our mortgage
credit facilities, please see Note 13 in our accompanying consolidated
financial statements and the discussion above under “Liquidity and Capital
Resources.”
|
Off-Balance
Sheet Arrangements
Land
Purchase and Option Agreements
We are
subject to customary obligations associated with entering into contracts for the
purchase of land and improved homesites. These purchase contracts typically
require a cash deposit or delivery of a letter of credit, and the purchase of
properties under these contracts is generally contingent upon satisfaction of
certain requirements by the sellers, including obtaining applicable property and
development entitlements. We also utilize option contracts with land
sellers and third-party financial entities as a method of acquiring land in
staged takedowns, to help us manage the financial and market risk associated
with land holdings, and to reduce the use of funds from our corporate financing
sources. Option contracts generally require a non-refundable deposit
for the right to acquire lots over a specified period of time at predetermined
prices. We generally have the right at our discretion to terminate
our obligations under both purchase contracts and option contracts by forfeiting
our cash deposit or by repaying amounts drawn under our letter of credit with no
further financial responsibility to the land seller, although in certain
instances, the land seller has the right to compel us to purchase a specified
number of lots at predetermined prices. Also, in a few instances
where we have entered into option contracts with third party financial entities,
we have generally entered into construction agreements that do not terminate if
we elect not to exercise our option. In these instances, we are
generally obligated to complete land development improvements on the optioned
property at a predetermined cost (paid by the option provider) and are
responsible for all cost overruns. In some instances, we may also
expend funds for due diligence, development and construction activities with
respect to these contracts prior to purchase, which we would have to write off
should we not purchase the land. At December 31, 2008, we had both
non-refundable and refundable cash deposits and letters of credit outstanding of
approximately $15.9 million and capitalized preacquisition and other development
and construction costs of approximately $9.6 million relating to land purchase
and option contracts having a total remaining purchase price of approximately
$145.9 million. Approximately $32.8 million of the remaining purchase
price is included in inventories not owned in the accompanying consolidated
balance sheets.
Our
utilization of option contracts is dependent on, among other things, the
availability of land sellers willing to enter into option takedown arrangements,
the availability of capital to financial intermediaries, general housing market
conditions, and geographic preferences. Options may be more difficult to procure
from land sellers in strong housing markets and are more prevalent in certain
geographic regions.
For the
years ended December 31, 2008, 2007 and 2006, we incurred pretax charges (net of
recoveries) of approximately $25.6 million, $22.5 million and $51.6 million,
respectively, related to the write-offs of option deposits and capitalized
preacquisition costs for abandoned projects. These charges were
included in other income (expense) in the accompanying consolidated statements
of operations. We continue to evaluate the terms of open land option
and purchase contracts in light of slower housing market conditions and may
write-off additional option deposits and capitalized preacquisition costs in the
future, particularly in those instances where land sellers or third party
financial entities are unwilling to renegotiate significant contract
terms.
36
Land
Development and Homebuilding Joint Ventures
Historically,
we have entered into land development and homebuilding joint ventures from time
to time as a means of:
|
· accessing
lot positions
· establishing
strategic alliances
· leveraging
our capital base
|
· expanding
our market opportunities
· managing
the financial and market risk associated with land
holdings
|
These
joint ventures typically obtain secured acquisition, development and
construction financing, which reduce the use of funds from our corporate
financing sources. We are currently reducing our investments in joint
ventures and intend to minimize the use of these types of arrangements in the
future. At December 31, 2008, our unconsolidated joint ventures had
borrowings outstanding that totaled approximately $421.8 million and equity that
totaled $372.8 million, compared to $771.0 million in joint venture indebtedness
and $784.3 million in equity as of December 31, 2007.
While we
are generally not required to record our unconsolidated joint venture borrowings
on our consolidated balance sheets in accordance with U.S. generally accepted
accounting principles, our potential future obligations to our joint venture
partners and joint venture lenders include:
|
· capital
calls related to credit enhancements
· planned
and unplanned capital contributions
· capital
calls related to surety indemnities
· buy-sell
obligations
|
· land
development and construction completion obligations
· land
takedown obligations
· capital
calls related to environmental indemnities
· joint
venture exit costs, including loan
payoffs
|
Credit
Enhancements. We and our joint venture partners generally
provide credit enhancements in connection with joint venture borrowings in the
form of loan-to-value maintenance agreements, which require us to repay the
venture’s borrowings to the extent such borrowings plus, in certain
circumstances, construction completion costs, exceed a specified percentage of
the value of the property securing the loan. Typically, we share
these obligations, either directly or indirectly, with our other
partners. At December 31, 2008, a total of $173.9 million in credit
enhancements related to seven joint ventures had been provided with respect to
our unconsolidated joint venture borrowings, of which $19.8 million were joint
and several obligations of us and our partners and $154.1 million of which were
our sole obligation. Assuming we had been required to fund all of the
$173.9 million in total credit enhancements at December 31, 2008, we would have
been entitled to seek reimbursement from our partners, either directly pursuant
to the credit enhancement documents or through the contribution provisions
contained in the applicable joint venture documents for up to approximately
$76.0 million.
Additional Capital Contributions and
Consolidation. Many of our joint venture agreements require
that we and our joint venture partners make additional capital contributions,
including contributions for planned development and construction costs, cost
overruns, joint venture loan remargin obligations and scheduled principal
reduction payments. If our joint venture partners fail to make their
required capital contributions, in addition to making our own required capital
contribution, we may find it necessary to make an additional capital
contribution equal to the amount the partner was required to
contribute. While making capital contributions on behalf of our
partners may allow us to exercise various remedies under our joint venture
operating agreements (including diluting our partner’s equity interest and/or
profit distribution percentage), making these contributions could also result in
our being required to consolidate the operations of the applicable joint venture
into our consolidated financial statements which may negatively impact our
leverage. Also, if we have a dispute with one of our joint venture
partners and are unable to resolve it, the buy-sell provision in the applicable
joint venture agreement may be triggered or we may enter into a negotiated
settlement. In such an instance, we may be required to either sell our interest
to our partner or purchase our partner’s interest. If we are required
to purchase our partner’s interest, we will be required to fund this purchase
(including satisfying any joint venture indebtedness either through repayments
or the assumption of such indebtedness), as well as to complete the joint
venture project, utilizing corporate financing sources. If we sell
our interest to our partner, we may be required to make a payment to induce our
partner to release us from our venture obligations. Based on current
market conditions, it is likely that we and our joint venture partners will be
required to make additional capital contributions to certain of our joint
ventures. The need for additional capital contributions, whether from
us or our joint venture partners, could also result in disagreements that lead
to buy-sell provisions being triggered in the future. If we are
required to fund these contributions on behalf of our partners, such action
would also potentially require the consolidation of the impacted ventures into
our consolidated financial statements.
37
Land Development and Construction
Completion Agreements. We and our joint venture partners are
generally obligated to the project lenders to complete land development
improvements and the construction of planned homes if the joint venture does not
perform the required development and construction. Provided that we
and the other joint venture partners are in compliance with these completion
obligations, the project lenders would be obligated to fund these improvements
through any financing commitments available under the applicable joint venture
development and construction loans, with any completion costs in excess of the
funding commitments being borne directly by us and our joint venture
partners.
Land Takedown
Obligations. Our land development joint ventures in some cases
require us to purchase lots from the venture at pre-agreed to times and
prices. As market conditions deteriorate, the required purchase terms
of these lots may become uneconomic. As of December 31, 2008, we had
obligations totaling approximately $21.9 million related to one joint venture
that were subject to such purchase requirements.
Environmental
Indemnities. We and our joint venture partners have from time
to time provided unsecured environmental indemnities to joint venture project
lenders. In each case, we have performed due diligence on potential
environmental risks. These indemnities obligate us and, in certain
instances, our joint venture partners, to reimburse the project lenders for
claims related to environmental matters for which they are held
responsible.
Surety
Indemnities. We and our joint venture partners have also
agreed to indemnify third party surety providers with respect to performance
bonds issued on behalf of certain of our joint ventures. If a joint
venture does not perform its obligations, the surety bond could be
called. If these surety bonds are called and the joint venture fails
to reimburse the surety, we and our joint venture partners would be obligated to
indemnify the surety. These surety indemnity arrangements are
generally joint and several obligations with our joint venture
partners. At December 31, 2008, our joint ventures had approximately
$19.4 million of surety bonds outstanding subject to these indemnity
arrangements by us and our partners.
38
Recent Developments Related to our
Joint Ventures. As of December 31, 2008, we held membership
interests in 29 homebuilding and land development joint ventures, of which 15
were active and 14 were inactive or winding down. Of the 15 active
homebuilding and land development joint ventures, nine had project specific
financing as of December 31, 2008. The following table reflects
certain financial and other information related to select homebuilding and land
development joint ventures, including our 10 largest joint ventures based on
total assets as of December 31, 2008, representing over 90% of the assets and
debt of our unconsolidated joint ventures.
|
As
of December 31, 2008
|
|||||||||||||||||||||
|
Loan-to-
|
|||||||||||||||||||||
|
Year
|
Total
Joint Venture
|
Debt-to-Total
|
Value
Maintenance
|
Construction
Completion
|
|||||||||||||||||
|
Joint
Venture Name
|
Formed
|
Location
|
Assets
|
Debt
(1)
|
Equity
|
Capitalization
|
Agreement
|
Guaranty
|
|||||||||||||
|
(Dollars
in thousands)
|
|||||||||||||||||||||
|
Homebuilding:
|
|||||||||||||||||||||
|
LB/L
- Duc II Scally Ranch
|
2002
|
American
Canyon,
CA
|
|
$ |
29,103
|
$
|
22,941
|
$
|
1,250
|
94.8%
|
Yes
|
Yes
|
|||||||||
|
SP
4S Townhomes
|
2004
|
San
Diego, CA
|
9,009
|
―
|
7,835
|
0.0%
|
N/A
|
N/A
|
|||||||||||||
|
Chatelaine
II Ventures
|
2004
|
Los
Angeles, CA
|
19,440
|
23,924
|
(4,994)
|
126.4%
|
Yes
|
Yes
|
|||||||||||||
|
Sanctuary
Club
|
2006
|
Chicago,
IL
|
23,418
|
19,760
|
2,079
|
90.5%
|
Yes
|
Yes
|
|||||||||||||
|
Talega
Associates (2)
|
1997
|
San
Clemente, CA
|
73,309
|
45,889
|
24,834
|
64.9%
|
Yes
|
Yes
|
|||||||||||||
|
Foundry
Lofts
|
2006
|
Torrance,
CA
|
14,126
|
21,830
|
(8,305)
|
161.4%
|
Yes
|
Yes
|
|||||||||||||
|
Subtotal
Select Homebuilding Joint Ventures
|
168,405
|
|
134,344
|
|
22,699
|
85.5%
|
|
||||||||||||||
|
Land
Development:
|
|||||||||||||||||||||
|
Black
Mountain Ranch
|
2003
|
San
Diego, CA
|
115,944
|
37,653
|
49,850
|
43.0%
|
Yes
|
Yes
|
|||||||||||||
|
November
2005 Land Investors
|
2005
|
Las
Vegas, NV
|
473,585
|
224,136
|
195,349
|
53.4%
|
No
(3)
|
No
|
|||||||||||||
|
Riverpark
Legacy
|
2004
|
Oxnard,
CA
|
44,753
|
―
|
45,405
|
0.0%
|
N/A
|
N/A
|
|||||||||||||
|
Centenial
Founders
|
2000
|
Valencia,
CA
|
45,003
|
―
|
44,874
|
0.0%
|
N/A
|
N/A
|
|||||||||||||
| Subtotal Select Land Development Joint Ventures |
679,285
|
261,789
|
335,478
|
43.8% | |||||||||||||||||
| Subtotal of Select Joint Ventures |
847,690
|
396,133
|
358,177
|
52.5% | |||||||||||||||||
|
Other
Homebuilding and Land Development Joint Ventures
(4)
|
24,211
|
|
1,897
|
|
15,745
|
10.8%
|
|
||||||||||||||
|
Discontinued
operations (5)
|
24,958
|
|
23,818
|
|
(1,129)
|
105.0%
|
|
||||||||||||||
|
Total
Homebuilding and Land Development Joint Ventures
|
$ |
896,859
|
$ |
421,848
|
$ |
372,793
|
53.1% | ||||||||||||||
____________________________
|
(1)
|
Scheduled
maturities of the joint venture debt is as follows: $203.2 million matures
in 2009 (of which $43.0 million represents non-recourse debt); $37.4
million matures in 2010 (of which $23.8 million represents non-recourse
debt); $101.2 million matures in 2011, all of which is non-recourse debt;
and $80.0 million matures in 2012, all of which is non-recourse
debt. We are actively engaged with the joint venture lenders to
extend maturing loans.
|
|
(2)
|
This
joint venture was originally a land development venture consisting of
approximately 3,800 lots, and now consists of two homebuilding projects
with an aggregate of approximately 150
lots.
|
|
(3)
|
As
of December 31, 2008, we had $7.6 million invested in this joint venture
and are obligated to purchase $21.9 million of lots from this joint
venture pursuant to a lot take-down schedule beginning in the 2009 first
quarter.
|
|
(4)
|
Represents
approximately 18 unconsolidated homebuilding and land development joint
ventures, of which 4 have ongoing homebuilding or land development
activities and 14 are either inactive or winding
down.
|
|
(5)
|
Reflects
discontinued operations related to our Tucson
operation.
|
The
ability of certain of these joint ventures to comply with the covenants
contained in their joint venture loan documents (such as loan-to-value
requirements, takedown schedules, sales hurdles, and construction and completion
deadlines) have been impacted by the recent market downturn. The following lists
a number of recent developments regarding our joint ventures.
|
·
|
Loan-to-Value Maintenance
Related Payments. During 2008, we made aggregate
additional capital contributions for remargin payments of approximately
$29.3 million related to two of our Southern California and one of our
Arizona joint ventures. In addition, we anticipate being
required to make a $5.0 million remargin payment with respect to one of
our joint ventures during the first quarter of 2009, which is included in
accrued liabilities in our accompanying consolidated balance sheet as of
December 31, 2008.
|
|
·
|
Renegotiation/Loan
Extension. At any point in time we are generally in the
process of financing, refinancing, renegotiating or extending one or more
of our joint venture loans. This action may be required, for
example, in the case of an expired maturity date or a failure to comply
with the loan’s covenants. Three of our joint ventures have
loans totaling $46.3 million of debt outstanding that are scheduled to
mature during the 2009 first quarter. There can be
no assurance that we will be able to successfully finance, refinance,
renegotiate or extend, on terms we deem acceptable,
all of the joint venture loans that we are currently in the process of
negotiating. If we were unsuccessful in these efforts, we could
be required to repay one or more of these loans from corporate liquidity
sources.
|
|
·
|
Purchases and
Consolidation. Purchasing a joint venture’s assets and
paying off its debt increases our leverage and absolute consolidated debt
levels. During the year ended December 31, 2008, we purchased
and unwound four Southern California joint ventures for approximately
$53.0 million and assumed $115.3 million of joint venture indebtedness
related to three of these joint ventures. The equity of these
joint ventures totaled approximately $63.7 million at the date of
purchase. In connection with the purchase and unwind of these joint
ventures we assumed approximately 1,800
lots.
|
|
·
|
Joint Ventures Exited and
Acceleration of Joint Venture Lot Purchases. During the
year ended December 31, 2008, we and our joint venture partner unwound one
Southern California joint venture, whereby each partner purchased their
proportionate share of the lots from the joint venture. In
addition, we accelerated the takedown of substantially all of the lots
from another Southern California joint venture, one Northern California
joint venture and one Arizona joint venture. In connection with
these lot purchases, we accelerated the take-down of approximately 1,300
lots from these joint ventures for approximately $118.1 million. During
the year ended December 31, 2008, we exited two Northern California joint
ventures for a combined payment of approximately $3.3
million.
|
Critical Accounting
Policies
The
preparation of our 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
We
operate two principal businesses: homebuilding and financial services
(consisting of our mortgage financing and title operations). In
accordance with Statement of Financial Accounting Standards No. 131,
“Disclosures about Segments of an Enterprise and Related Information” (“SFAS
131”), we have determined that each of our homebuilding operating divisions and
our financial services operations are our operating
segments. Corporate is a non-operating segment.
Our
homebuilding operations construct and sell single-family attached and detached
homes. In accordance with the aggregation criteria defined in SFAS
131, our homebuilding operating segments have been grouped into three reportable
segments: California; Southwest, consisting of our operating divisions in
Arizona, Texas, Colorado and Nevada; and Southeast, consisting of our operating
divisions in Florida, the Carolinas and Illinois. In particular, we
have determined that the homebuilding operating divisions within their
respective reportable segments have similar economic characteristics, including
similar historical and expected future long-term gross margin
percentages. In addition, the operating divisions also share all
other relevant aggregation characteristics prescribed in SFAS 131, such as
similar product types, production processes and methods of
distribution.
Our
mortgage financing operations provide mortgage financing to our homebuyers in
substantially all of the markets in which we operate. Our title
service operation provides title examinations for our homebuyers in
Texas. Our mortgage financing and title services operations are
included in our financial services reportable segment, which is separately
reported in our consolidated financial statements under “Financial
Services.”
Corporate
is a non-operating segment that develops and implements strategic initiatives
and supports our operating divisions by centralizing key administrative
functions such as finance and treasury, information technology, risk management
and litigation, and human resources. Corporate also provides the
necessary administrative functions to support us as a publicly traded
company. A substantial portion of the expenses incurred by Corporate
are allocated to each of the homebuilding operating divisions based on their
respective percentage of revenues.
40
Inventories
and Impairments
Inventories
consist of land, land under development, homes under construction, completed
homes and model homes and are stated at cost, net of impairment losses. We
capitalize direct carrying costs, including interest, property taxes and related
development costs to inventories. Field construction supervision and related
direct overhead are also included in the capitalized cost of inventories. Direct
construction costs are specifically identified and allocated to homes while
other common costs, such as land, land improvements and carrying costs, are
allocated to homes within a community based upon their anticipated relative
sales or fair value.
We assess
the recoverability of real estate inventories in accordance with the provisions
of Statement of Financial Accounting Standards No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 requires
long-lived assets, including inventories, that are expected to be held and used
in operations to be carried at the lower of cost or, if impaired, the fair value
of the asset. SFAS 144 requires that companies evaluate long-lived assets for
impairment based on undiscounted future cash flows of the assets at the lowest
level for which there is identifiable cash flows. Long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value less cost
to sell.
We
evaluate real estate projects (including unconsolidated joint venture real
estate projects) for inventory impairments when indicators of potential
impairment are present. Indicators of impairment include, but are not limited
to: significant decreases in local housing market values; significant decreases
in gross margins and sales absorption rates; accumulation of costs in excess of
budget; actual or projected operating or cash flow losses; current expectations
that a real estate asset will more likely than not be sold before its previously
estimated useful life.
We
perform a detailed budget and cash flow review of all of our real estate
projects (including projects actively selling as well as projects under
development and on hold) on a quarterly basis to, among other things, determine
whether the estimated remaining undiscounted future cash flows of the project
are more or less than the carrying value of the asset. If the undiscounted cash
flows are more than the carrying value of the real estate project, then no
impairment adjustment is required. However, if the undiscounted cash flows are
less than the carrying amount, then the asset is deemed impaired and is
written-down to its fair value. We evaluate the identifiable cash flows at the
project level. When estimating undiscounted future cash flows of a project, we
are required to make various assumptions, including the following: (i) the
expected sales prices and sales incentives to be offered, including the number
of homes available and pricing and incentives being offered in other communities
by us or by other builders; (ii) the expected sales pace and cancellation rates
based on local housing market conditions and competition; (iii) costs expended
to date and expected to be incurred in the future, including, but not limited
to, land and land development costs, home construction costs, interest costs,
indirect construction and overhead costs, and selling and marketing costs; (iv)
alternative product offerings that may be offered that could have an impact on
sales pace, sales price and/or building costs; and (v) alternative uses for the
property such as the possibility of a sale of lots to a third party versus the
sale of individual homes. Many of these assumptions are interdependent and
changing one assumption generally requires a corresponding change to one or more
of the other assumptions. For example, increasing or decreasing the sales
absorption rate has a direct impact on the estimated per unit sales price of a
home, the level of time sensitive costs (such as indirect construction, overhead
and carrying costs), and selling and marketing costs (such as model maintenance
costs and promotional and advertising campaign costs). Depending on what
objective we are trying to accomplish with a community, it could have a
significant impact on the project cash flow analysis. For example, if our
business objective is to drive delivery levels our project cash flow analysis
will be different than if the business objective is to preserve operating
margins. These objectives may vary significantly from project to project, from
division to division, and over time with respect to the same
project.
Once we
have determined a real estate project is impaired, we calculate the fair value
of the project under a land residual value analysis and in certain cases in
conjunction with a discounted cash flow analysis. Under the land residual value
analysis, we estimate what a willing buyer (including us) would pay and what a
willing seller would sell a parcel of land for (other than in a forced
liquidation) in order to generate a market rate operating margin based on
projected revenues, costs to develop land, and costs to construct and sell homes
within a community. Under the discounted cash flow method, all estimated future
cash inflows and outflows directly associated with the real estate project are
discounted to calculate fair value. The net present value of these project cash
flows are then compared to the carrying value of the asset to determine the
amount of the impairment that is required. The land residual value analysis is
the primary method that we use to calculate impairments as it is the principal
method used by us and land sellers for determining the fair value of a
residential parcel of land. In many cases, we also supplement our land residual
value analysis with a discounted cash flow analysis in evaluating the fair
value. In addition, for projects that require a longer time frame to develop and
sell assets, in some instances we incorporate a certain level of inflation or
deflation into our projected revenue and cost assumptions. This evaluation and
the assumptions used by management to determine future estimated cash flows and
fair value require a substantial degree of judgment, especially with respect to
real estate projects that have a substantial amount of development to be
completed, have
41
not
started selling or are in the early stages of sales, or are longer-term in
duration. Due to the inherent uncertainty in the estimation process, significant
volatility in the demand for new housing, and the availability of mortgage
financing for potential homebuyers, actual results could differ significantly
from our estimates.
From time
to time, we write-off deposits and preacquisition costs related to land options
that we decide not to exercise. The decision not to exercise a land option takes
into consideration changes in market conditions, the timing of required land
takedowns, the willingness of land sellers to modify terms of the land option
contract (including the timing of land takedowns), the availability and best use
of our capital, and other factors. The write-off is charged to other income
(expense) in our consolidated statement of operations in the period that it is
deemed probable that the optioned property will not be acquired. If we recover
deposits and/or preacquisition costs which were previously written off, the
recoveries are recorded to homebuilding other income (expense) in the period
received.
Homebuilding
Revenue and Cost of Sales
Homebuilding
revenue and cost of sales are recognized after construction is completed, a
sufficient down payment has been received, title has transferred to the
homebuyer, collection of the purchase price is reasonably assured and we have no
continuing involvement. Cost of sales is recorded based upon total estimated
costs to be allocated to each home within a community. Any changes to the
estimated costs are allocated to the remaining undelivered lots and homes within
their respective community. The estimation and allocation of these costs
requires a substantial degree of judgment by management.
The
estimation process involved in determining relative sales or fair values is
inherently uncertain because it involves estimating future sales values of homes
before delivery. Additionally, in determining the allocation of costs to a
particular land parcel or individual home, we rely on project budgets that are
based on a variety of assumptions, including assumptions about construction
schedules and future costs to be incurred. It is common that actual results
differ from budgeted amounts for various reasons, including construction delays,
increases in costs that have not been committed or unforeseen issues encountered
during construction that fall outside the scope of existing contracts, or costs
that come in less than originally anticipated. While the actual results for a
particular construction project are accurately reported over time, a variance
between the budget and actual costs could result in the understatement or
overstatement of costs and have a related impact on gross margins between
reporting periods. To reduce the potential for such variances, we have
procedures that have been applied on a consistent basis, including assessing and
revising project budgets on a periodic basis, obtaining commitments from
subcontractors and vendors for future costs to be incurred, and utilizing the
most recent information available to estimate costs. We believe that these
policies and procedures provide for reasonably dependable estimates for purposes
of calculating amounts to be relieved from inventories and expensed to cost of
sales in connection with the sale of homes.
Variable Interest
Entities
We
account for variable interest entities under Financial Accounting Standards
Board (“FASB”) Interpretation No. 46 (revised December 2003), “Consolidation of
Variable Interest Entities,” an interpretation of ARB No. 51 (“FIN 46R”). Under
FIN 46R, a variable interest entity (“VIE”) is created when (i) the equity
investment at risk in the entity is not sufficient to permit the entity to
finance its activities without additional subordinated financial support
provided by other parties, including the equity holders, (ii) the entity’s
equity holders as a group either (a) lack the direct or indirect ability to make
decisions about the entity, (b) are not obligated to absorb expected losses of
the entity or (c) do not have the right to receive expected residual returns of
the entity or (iii) the entity’s equity holders have voting rights that are not
proportionate to their economic interests, and the activities of the entity
involve or are conducted on behalf of the equity holder with disproportionately
few voting rights. If an entity is deemed to be a VIE pursuant to FIN 46R, the
enterprise that is deemed to absorb a majority of the entity’s expected losses,
receive a majority of the entity’s expected residual returns, or both, is
considered the primary beneficiary and must consolidate the VIE. Expected losses
and residual returns for VIEs are calculated based on the probability of
estimated future cash flows as defined in FIN 46R.
Limited
Partnerships and Limited Liability Companies
We
analyze our homebuilding and land development joint ventures under FIN 46R (as
discussed above) and Emerging Issues Task Force No. 04-5, “Determining Whether a
General Partner, or General Partners as a Group, Controls a Limited Partnership
or Similar Entity When the Limited Partners Have Certain Rights” (“EITF 04-5”)
when determining whether the entity should be consolidated. Limited partnerships
or similar entities, such as limited liability companies, that do not meet the
definition of a variable interest entity under FIN 46R must be evaluated under
EITF 04-5. Under EITF 04-5, the presumption is that the general partner, or the
managing member in the case of a limited liability company, is deemed to have a
controlling interest and therefore must consolidate the entity unless the
limited partners or non-managing members have:
42
(1) the
ability, either by a single limited partner or through a simple majority vote,
to dissolve or liquidate the entity, or kick-out the managing member/general
partner without cause, or (2) substantive participatory rights that are
exercised in the ordinary course of business. Examples of these participatory
rights include, but are not limited to:
|
·
|
selecting,
terminating or setting compensation levels for management that sets
policies and procedures for the
entity;
|
|
·
|
establishing
and approving operating and capital decisions of the entity, including
budgets, in the ordinary course of
business;
|
|
·
|
setting
and approving sales price releases;
and
|
|
·
|
approving
material contracts.
|
Evaluating
whether the limited partners or non-managing members have substantive
participatory rights is subjective and requires substantial judgment including
the evaluation of various qualitative and quantitative factors. Some of these
factors include:
|
·
|
determining
whether there are significant barriers that would prevent the limited
partners or non-managing members from exercising their
rights;
|
|
·
|
analyzing
the level of participatory rights possessed by the limited partners or
non-managing members relative to the rights retained by the general
partner or managing member;
|
|
·
|
evaluating
whether the limited partners or non-managing members exercise their rights
in the ordinary course of business;
and
|
|
·
|
evaluating
the ownership and economic interests of the general partner or managing
member relative to the limited partners’ or non-managing members’
ownership interests.
|
If we are
the general partner or managing member and it is determined that the limited
partners or non-managing member have either kick-out rights or substantive
participatory rights as described above, then we account for the joint venture
under the equity method of accounting. If the limited partners or non-managing
members do not have either of these rights, then we would consolidate the
related joint venture under EITF 04-5. As of December 31, 2008 and 2007, we did
not have any joint ventures consolidated in our balance sheets as a result of
EITF 04-5.
Unconsolidated Homebuilding and Land
Development Joint Ventures
Investments
in our unconsolidated homebuilding and land development joint ventures are
accounted for under the equity method of accounting. Under the equity method, we
recognize our proportionate share of earnings and losses earned by the joint
venture upon the delivery of lots or homes to third parties. All joint venture
profits generated from land sales to us are deferred and recorded as a reduction
to our cost basis in the lots purchased until the homes are ultimately sold by
us to third parties. Our share of joint venture losses from land sales to us are
recorded in the current period. Our ownership interests in our unconsolidated
joint ventures vary but are generally less than or equal to 50%. In certain
instances, our ownership interest in these unconsolidated joint ventures may be
greater than 50%; however, we account for these investments under the equity
method because the entities are not VIEs in accordance with FIN 46R, we are not
considered the primary beneficiary of the entities determined to be VIEs, we do
not have voting control, and/or the limited partners (or non-managing members)
have substantive participatory rights.
We review
inventory projects within our unconsolidated joint ventures for impairments
consistent with the critical accounting policy described above under
“Inventories and Impairments.” To the extent that we deem any portion
of our investment in unconsolidated joint ventures not recoverable, we impair
our investment accordingly.
In
addition, we accrue for guarantees provided to unconsolidated joint ventures
when it is determined that there is an obligation that is due from
us. These obligations consist of various items, including but not
limited to, surety indemnities credit enhancements provided in connection with
joint venture borrowings such as loan-to-value maintenance agreements,
construction completion agreements, and environmental indemnities. In
many cases we share these obligations with our joint venture partners, and in
some cases, we are solely responsible for such obligations. For
further discussion regarding these guarantees, please see “Management’s
Discussion and Analysis of Financial Condition – Off-Balance Sheet Arrangements”
and Note 15 of the accompanying consolidated financial statements.
43
Business
Combinations and Goodwill
We
account for acquisitions of other businesses under the purchase method of
accounting in accordance with Statement of Financial Accounting Standards No.
141, “Business Combinations” (“SFAS 141”). Under the purchase method of
accounting, the assets acquired and liabilities assumed are recorded at their
estimated fair values. Any purchase price paid in excess of the net fair values
of tangible and identified intangible assets less liabilities assumed is
recorded as goodwill. The estimation of fair values of assets and liabilities
and the allocation of purchase price requires a substantial degree of judgment
by management, especially with respect to valuations of real estate inventories,
which at the time of acquisition, are generally in various stages of
development. Actual revenues, costs and time to complete and sell a community
could vary from estimates used to determine the allocation of purchase price
between tangible and intangible assets. The allocation of purchase price between
asset groups, including inventories and goodwill, could have an impact on the
timing and ultimate recognition of expenses and therefore impact our current and
future operating results. Our reported income (loss) from an acquired company
includes the operations of the acquired company from the date of
acquisition.
The
excess amount paid for business acquisitions over the net fair value of assets
acquired and liabilities assumed is capitalized as goodwill in accordance with
SFAS 141. Statement of Financial Accounting Standards No. 142, “Goodwill and
Other Intangible Assets” (“SFAS 142”) addresses financial accounting and
reporting for acquired goodwill and other intangible assets. SFAS 142 requires
that goodwill not be amortized but instead assessed at least annually for
impairment and expensed against earnings as a noncash charge if the estimated
fair value of a reporting unit is less than its carrying value, including
goodwill. We test goodwill for impairment annually as of October 1 or more
frequently if an event occurs or circumstances change that more likely than not
reduce the value of a reporting unit below its carrying value. For purposes of
goodwill impairment testing, we compare the fair value of each reporting unit
with its carrying amount, including goodwill. For this purpose, each of our
homebuilding operating divisions is considered a reporting unit. The fair value
of each reporting unit is determined based on expected discounted cash flows.
Each division’s discounted cash flows consist of a 10-year projection and a
terminal value calculation. The discount rates used to calculate the net present
value of future cash flows approximated our estimated pretax cost of capital.
The terminal value is based on the present value of a stabilized cash flow
estimate (including an expected growth rate) that we expect the operating
division to generate beyond the tenth year of the projected cash flows. Other
assumptions and factors that are evaluated in connection with analyzing the
discounted cash flows of a division, include but are not limited
to:
|
·
|
historical
and projected revenue and volume
levels;
|
|
·
|
historical
and projected gross margins and pretax income
levels;
|
|
·
|
historical
and projected inventory turn ratio;
and
|
|
·
|
estimated
capital requirements.
|
If the
carrying amount of a reporting unit exceeds its fair value, goodwill is
considered impaired. If goodwill is considered impaired, the impairment loss to
be recognized is measured by the amount by which the carrying amount of the
goodwill exceeds the implied fair value of that goodwill.
Inherent
in our fair value determinations are certain judgments and estimates. A change
in these underlying assumptions would cause a change in the results of the
tests, which could cause the fair value of one or more reporting units to be
less than their respective carrying amounts. In addition, to the extent that
there are significant changes in market conditions or overall economic
conditions or our strategic plans change, it is possible that our conclusion
regarding goodwill impairment could change, which could have a material adverse
effect on our financial position and results of operations.
Warranty
Accruals
In the
normal course of business, we incur warranty-related costs associated with homes
that have been delivered to homebuyers. Estimated future direct warranty costs
are accrued and charged to cost of sales in the period when the related
homebuilding revenues are recognized while indirect warranty overhead salaries
and related costs are charged to cost of sales in the period incurred. Amounts
accrued are based upon historical experience rates. We review the adequacy of
the warranty accruals each reporting period by evaluating the historical
warranty experience in each market in which we operate, and the warranty
accruals are adjusted as appropriate for current quantitative and qualitative
factors. Factors that affect the warranty accruals include the number of homes
delivered, historical and anticipated rates of warranty claims, and cost per
claim. Although we consider the warranty accruals reflected in our consolidated
balance sheet to be adequate, actual future costs could differ from our
currently estimated amounts.
44
Insurance
and Litigation Accruals
Insurance
and litigation accruals are established with respect to estimated future claims
cost. We maintain general liability insurance designed to protect us against a
portion of our risk of loss from construction-related claims. We also generally
require our subcontractors and design professionals to indemnify us for
liabilities arising from their work, subject to various limitations. We record
reserves to cover our estimated costs of self-insured retentions and deductible
amounts under these policies and estimated costs for claims that may not be
covered by applicable insurance or indemnities. Estimation of these accruals
include consideration of our claims history, including current claims, estimates
of claims incurred but not yet reported, and potential for recovery of costs
from insurance and other sources. We utilize the services of an independent
third party actuary to assist us with evaluating the level of our insurance and
litigation accruals. Because of the high degree of judgment required
in determining these estimated accrual amounts, actual future claim costs could
differ significantly from our currently estimated amounts.
Income
Taxes
We
account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). This
statement requires an asset and a liability approach for measuring deferred
taxes based on temporary differences between the financial statement and tax
bases of assets and liabilities existing at each balance sheet date using
enacted tax rates for years in which taxes are expected to be paid or
recovered.
We
evaluate our deferred tax assets on a quarterly basis to determine whether a
valuation allowance is required. In accordance with SFAS 109, we
assess whether a valuation allowance should be established based on our
determination of whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets depends primarily on: (i) our ability to
carry back net operating losses to tax years where we have previously paid
income taxes based on applicable federal law; and (ii) our ability to generate
future taxable income during the periods in which the related temporary
differences become deductible. The assessment of a valuation
allowance includes giving appropriate consideration to all positive and negative
evidence related to the realization of the deferred tax asset. This
assessment considers, among other things, the nature, frequency and severity of
current and cumulative losses, forecasts of future profitability, the duration
of statutory carryforward periods, our experience with operating loss and tax
credit
carryforwards not expiring unused, and tax planning
alternatives. Significant judgment is required in determining the
future tax consequences of events that have been recognized in our consolidated
financial statements and/or tax returns. Differences between
anticipated and actual outcomes of these future tax consequences could have a
material impact on our consolidated financial position or results of
operations.
We
generated significant deferred tax assets in 2006, 2007 and 2008 largely due to
inventory, joint venture and goodwill impairments incurred during those
periods. As a result of the continued downturn in the housing market
and the uncertainty as to its magnitude and length and the fact that we were in
a cumulative loss position as described in SFAS 109 as of December 31, 2008 and
2007, we recorded noncash valuation allowances of $473.6 million and $180.5
million, respectively, against the net deferred tax assets resulting in a total
valuation allowance of $654.1 million and $180.5 million at December 31, 2008
and 2007, respectively. To the extent that we generate taxable income
in the future to utilize the tax benefits of the related deferred tax assets,
subject to certain limitations, we will be able to reduce our effective tax rate
by reducing the valuation allowance. Conversely, any future operating losses
generated by us in the near term would increase the deferred tax asset valuation
allowance and adversely impact our income tax provision (benefit) to the extent
we are in a cumulative loss position as described in SFAS 109.
Recent
Accounting Pronouncements
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS 159”), which includes amendments to FASB Statement No. 115, “Accounting
for Certain Investments in Debt and Equity Securities.” SFAS 159
permits entities to measure financial instruments and certain related items at
their fair value at specified election dates. SFAS 159 is effective
for financial statements issued for fiscal years beginning after November 15,
2007. We elected to implement SFAS 159 for mortgage loans held for
sale as of November 1, 2008, and the impact of adoption did not have a material
impact on our financial condition or results of operations.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141R”). SFAS 141R broadens the guidance of SFAS
141, extending its applicability to all transactions and other events in which
one entity
45
obtains
control over one or more other businesses. It broadens the fair value
measurement and recognition of assets acquired, liabilities assumed, and
interests transferred as a result of business combinations. SFAS 141R
expands on required disclosures to improve the statement users’ abilities to
evaluate the nature and financial effects of business
combinations. Adoption is prospective, and early adoption is not
permitted. SFAS 141R is effective for us for any business
combinations entered into subsequent to January 1, 2009.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS
160”). SFAS 160 requires that a noncontrolling interest in a
subsidiary be reported as equity and the amount of consolidated net income
specifically attributable to the noncontrolling interest be identified in the
consolidated financial statements. It also calls for consistency in
the manner of reporting changes in the parent’s ownership interest and requires
fair value measurement of any noncontrolling equity investment retained in a
deconsolidation. SFAS 160 is effective for our fiscal year beginning January 1,
2009. Upon adoption on January 1, 2009, the amount remaining in
minority interests will be classified as a separate component in stockholders’
equity. We do not believe adopting SFAS 160 will have a material
impact on our financial condition or results of operations.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS 161”). SFAS 161 changes the disclosure
requirements for derivative instruments and hedging activities accounted for
under FASB issued SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities” (“SFAS 133”). Under SFAS 161, entities will be
required to provide enhanced disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under Statement 133 and its related interpretations, and (c)
how derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. SFAS 161 is
effective for our fiscal year beginning January 1, 2009.
In May
2008, the FASB issued APB No. 14-1, “Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)”
(“FSP 14-1”). This FSP will require bifurcation of a component of
convertible debt instruments, classification of that component in stockholder’s
equity, and then accretion of the resulting discount on the debt to result in
interest expense equal to the issuer’s nonconvertible debt borrowing
rate. Early adoption is not permitted and retroactive application is
required for all periods presented. FSP 14-1 is effective for our
fiscal year beginning January 1, 2009. Upon adoption on January 1,
2009, approximately $25 million of our Senior Subordinated Convertible Notes due
in 2012 will be reclassified to stockholders’ equity leaving a balance of $53.0
million remaining classified
as indebtedness, and the remaining principal amount of the notes will be
accreted to its redemption value, approximately $78.5 million, through interest
expense over the remaining term of these notes.
In June
2008, the FASB issued FASB Staff Position Emerging Issues Task Force 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities” (“FSP-EITF 03-6-1”). Under FSP-EITF 03-6-1,
unvested share-based payment awards that contain non-forfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of earnings per
share. FSP-EITF 03-6-1 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those years, and requires retrospective application. We currently are
evaluating the impact of adopting FSP-EITF 03-6-1 on our earnings per
share.
On August
27, 2008, the SEC announced that it will issue for comment a proposed roadmap
regarding the potential use of International Financial Reporting Standards
(“IFRS”) for the preparation of financial statements by U.S. registrants. IFRS
are standards and interpretations adopted by the International Accounting
Standards Board. Under the proposed roadmap, we anticipate that we would be
required to prepare financial statements in accordance with IFRS in fiscal year
2014, including comparative information also prepared under IFRS for fiscal
years 2012 and 2013. We are currently assessing the potential impact of IFRS on
our financial statements and will continue to follow the proposed roadmap for
future developments.
46
FORWARD-LOOKING
STATEMENTS
This
report contains “forward-looking statements” within the meaning of Section 21E
of the Securities Exchange Act of 1934. In addition, other statements
we may make from time to time, such as press releases, oral statements made by
Company officials and other reports we file with the Securities and Exchange
Commission, may also contain such forward-looking statements. These
statements, which represent our expectations or beliefs regarding future events,
may include, but are not limited to, statements regarding:
|
·
|
the
alignment of our overhead structure with current delivery levels and our
speculative starts and new community openings with
sales;
|
|
·
|
our
ability to be among the leaders in each of our markets and the resulting
impact on our cost structure;
|
|
·
|
the
creation of a leaner operating structure and an improved operating model
and the resulting impact on the value we will be able to provide our
customers in the future;
|
|
·
|
the
re-engineering of our homes to provide better value to our
customers;
|
|
·
|
the
acceleration or our national and regional purchasing
initiatives;
|
|
·
|
our
ability to acquire land at depressed
prices;
|
|
·
|
our
ability to preserve sufficient cash resources to meet debt repayment
obligations until market conditions improve and refinancing alternatives
become available and our ability to use excess cash to pursue land
opportunities;
|
|
·
|
our
ability to continue to reduce our investments in joint ventures and our
use of joint ventures in the
future;
|
|
·
|
the
typical cycle time for the construction of our
homes;
|
|
·
|
the
use of the internet as a means of marketing and the resulting impact on
our sales;
|
|
·
|
the
potential need to further reduce home prices or adjust discounts and the
potential for additional impairments and further deposit and capitalized
preacquisition cost write-offs;
|
|
·
|
a
slowdown in demand and a decline in new home
orders;
|
|
·
|
housing
market conditions in the geographic markets in which we
operate;
|
|
·
|
sales
orders, sales cancellation rates, our backlog of homes, the estimated
sales value of our backlog and our expectations as to the delivery of our
backlog;
|
|
·
|
the
amount of future remargin payments with respect to joint venture
borrowings (including on behalf of our partners) and their potential
effect on our liquidity and
leverage;
|
|
·
|
the
likelihood that we will be required to complete lot takedowns on
uneconomic terms;
|
|
·
|
the
potential need for additional capital contributions to joint ventures or
that buy-sell provisions may be triggered and the potential effect on our
liquidity and leverage;
|
|
·
|
the
sufficiency of our capital resources and ability to access additional
capital, including the sufficiency of unrestricted funds available to
satisfy joint venture obligations and make other restricted
payments;
|
|
·
|
our
historical leverage trends and the seasonal nature of
borrowings;
|
|
·
|
our
exposure to loss with respect to land under purchase contract and optioned
property;
|
|
·
|
the
extent of our liability for VIE obligations and the estimates we utilize
in making VIE determinations;
|
|
·
|
estimated
remaining cost to complete the infrastructure of our
projects;
|
|
·
|
future
warranty costs;
|
|
·
|
litigation
related costs;
|
|
·
|
our
ability to comply with the covenants contained in our revolving credit
facility and other debt instruments and our ability to obtain a waiver of
any non-compliance;
|
|
·
|
our
ability to renegotiate, restructure or extend joint venture loans on
acceptable terms;
|
|
·
|
the
estimated fair value of our swap
agreements;
|
|
·
|
the
market risk associated with loans originated by Standard Pacific Mortgage,
Inc. on a pre-sold basis;
|
|
·
|
the
effectiveness and adequacy of our disclosure and internal
controls;
|
|
·
|
our
inability to obtain surety bonds, the need to provide security to obtain
surety bonds, and the impact on our
liquidity;
|
|
·
|
our
accounting treatment of stock-based compensation and the potential value
of and expense related to stock option
grants;
|
|
·
|
our
ability to use our cash to purchase our notes prior to maturity at
attractive discounts to par;
|
|
·
|
our
ability to realize the value of our deferred tax assets;
and
|
|
·
|
the
impact of recent accounting
pronouncements.
|
47
Forward-looking
statements are based on our current expectations or beliefs regarding future
events or circumstances, and you should not place undue reliance on these
statements. Such statements involve known and unknown risks,
uncertainties, assumptions and other factors—many of which are out of our
control and difficult to forecast—that may cause actual results to differ
materially from those that may be described or implied. Such factors
include, but are not limited to, the following:
|
·
|
local
and general economic and market conditions, including consumer confidence,
employment rates, interest rates, housing affordability, the cost and
availability of mortgage financing, and stock market, home and land
valuations;
|
|
·
|
the
supply and pricing of homes available for sale in the new and resale
markets;
|
|
·
|
the
impact on economic conditions of terrorist attacks or the outbreak or
escalation of armed conflict;
|
|
·
|
the
cost and availability of suitable undeveloped land, building materials and
labor;
|
|
·
|
the
cost and availability of construction financing and corporate debt and
equity capital;
|
|
·
|
our
significant amount of debt and the impact of restrictive covenants in our
credit agreements, public notes and private term loans and our ability to
comply with these covenants;
|
|
·
|
potential
adverse market and lender reaction to our financial condition and results
of operations;
|
|
·
|
a
negative change in our credit rating or
outlook;
|
|
·
|
the
demand for single-family homes;
|
|
·
|
cancellations
of purchase contracts by
homebuyers;
|
|
·
|
the
cyclical and competitive nature of our
business;
|
|
·
|
governmental
regulation, including the impact of “slow growth,” “no growth,” or similar
initiatives;
|
|
·
|
delays
in the land entitlement and other approval processes, development,
construction, or the opening of new home
communities;
|
|
·
|
adverse
weather conditions and natural
disasters;
|
|
·
|
environmental
matters;
|
|
·
|
risks
relating to our mortgage financing operations, including hedging
activities;
|
|
·
|
future
business decisions and our ability to successfully implement our
operational, growth and other
strategies;
|
|
·
|
risks
relating to our unconsolidated joint ventures, including restricted
payment, entitlement, development, contribution, completion, financing
(including remargining), investment, partner dispute and consolidation
risk;
|
|
·
|
risks
relating to acquisitions;
|
|
·
|
litigation
and warranty claims; and
|
|
·
|
other
risks discussed in this Form 10-K.
|
Except as
required by law, we assume no, and hereby disclaim any, obligation to update any
of the foregoing or any other forward-looking statements. We
nonetheless reserve the right to make such updates from time to time by press
release, periodic report or other method of public disclosure without the need
for specific reference to this report. No such update shall be deemed
to indicate that other statements not addressed by such update remain correct or
create an obligation to provide any other updates.
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
|
We are
exposed to market risks related to fluctuations in interest rates on our
rate-locked loan commitments, mortgage loans held for sale and outstanding
variable rate debt. Other than interest rate swaps used to manage our
exposure to changes in interest rates on our variable rate-based term loans and
forward sale commitments of mortgage-backed securities entered into by our
financial services subsidiary for the purpose of hedging interest rate risk as
described below, we did not utilize swaps, forward or option contracts on
interest rates, foreign currencies or commodities, or other types of derivative
financial instruments as of or during the year ended December 31,
2008. We do not enter into or hold derivatives for trading or
speculative purposes. You should be aware that many of the statements
contained in this section are forward looking and should be read in conjunction
with our disclosures under the heading “Forward-Looking
Statements.”
We have
interest rate swap agreements that effectively fixed our 3-month LIBOR rates for
our bank term loans through their scheduled maturity dates. The swap
agreements have been designated as cash flow hedges and as of December 31, 2008
and 2007 the estimated fair value of the swaps represented liabilities of $38.0
million and $21.8 million, respectively, which were included in accrued
liabilities in the accompanying consolidated financial statements. For the years
ended December 31, 2008, 2007 and 2006, we recorded after-tax other
comprehensive losses of approximately $10.0 million, $7.3 million and $5.4
million, respectively, related to the swap agreements.
As part
of our ongoing operations, we provide mortgage loans to our homebuyers through
our financial services subsidiary, Standard Pacific Mortgage. For a
portion of its loan originations, Standard Pacific Mortgage, manages the
interest rate risk associated with making loan commitments and holding loans for
sale by preselling loans. Preselling loans
48
consists
of obtaining commitments (subject to certain conditions) from third party
investors to purchase the mortgage loans while concurrently extending interest
rate locks to loan applicants. Before completing the sale to these
investors, Standard Pacific Mortgage finances these loans under its mortgage
credit facilities for a short period of time (typically for 15 to 30 days),
while the investors complete their administrative review of the applicable loan
documents. Due to the frequency of these loan sales and the
commitments from third party investors, we have decided not to hedge the
interest rate risk associated with these presold loans. However,
these commitments may not fully protect Standard Pacific Mortgage from losses
relating to changes in interest rates or loan programs or purchaser
non-performance, particularly during periods of significant market
turmoil. As of December 31, 2008, Standard Pacific Mortgage held
approximately $2.4 million in closed mortgage loans held for sale and mortgage
loans in process that were presold to third party investors subject to
completion of the investors’ administrative review of the applicable loan
documents.
Standard
Pacific Mortgage also originates a significant portion of its mortgage loans on
a non-presold basis. The loans originated on a non-presold basis are
substantially "conforming" or "government" loans, which are loans eligible for
sale to, or guarantee by, a government sponsored enterprise, such as Fannie Mae,
Freddie Mac, the Federal Housing Administration or the Veterans
Administration. When originating on a non-presold basis, Standard
Pacific Mortgage locks interest rates with its customers and funds loans prior
to obtaining purchase commitments from third party investors, thereby creating
interest rate risk. To hedge this interest rate risk, Standard
Pacific Mortgage enters into forward sale commitments of mortgage-backed
securities. Loans originated in this manner are typically held by
Standard Pacific Mortgage and financed under its mortgage credit facilities for
15 to 45 days before the loans are sold to third party
investors. Standard Pacific Mortgage utilizes the services of a third
party advisory firm to assist with the execution of its hedging strategy for
loans originated on a non-presold basis. While this hedging strategy
is designed to assist Standard Pacific Mortgage in mitigating risk associated
with originating loans on a non-presold basis, these instruments involve
elements of market risk that could result in losses on loans originated in this
manner. In addition, volatility in mortgage interest rates can also
increase the costs associated with this hedging program and therefore, adversely
impact margins on loan sales. As of December 31 2008, Standard
Pacific Mortgage had approximately $72.4 million of closed mortgage loans held
for sale and loans in process that were or are expected to be originated on a
non-presold basis, all of which were hedged by forward sale commitments of
mortgage-backed securities prior to entering into sale transactions with third
party investors.
We
utilize debt financing primarily for acquiring and developing land, constructing
and selling homes, funding market expansion through acquisitions, and for other
operating purposes. Historically, we have made short-term borrowings under our
revolving credit facility to fund these expenditures, and when market conditions
were appropriate, based on our judgment, we would issue stock or fixed rate debt
to provide longer-term financing. In addition, as discussed above, our financial
services subsidiary utilizes short-term borrowings under its mortgage credit
facilities to finance mortgage loan originations for our homebuyers. Borrowings
under these revolving credit facilities are at variable rates.
For our
fixed rate debt, changes in interest rates generally affect the fair market
value of each debt instrument but not our earnings or cash flows. Conversely,
for our variable rate debt, changes in interest rates generally do not impact
the fair market value of the debt instrument but do affect our earnings and cash
flows. However, our credit and risk profile does affect the fair value of both
our fixed and variable rate debt. We do not have any obligations that
currently require us to prepay fixed rate debt prior to maturity, and as a
result, interest rate risk and changes in fair market value should not have a
significant impact on the fixed rate debt until we would be required to
refinance such debt. Holding our variable rate debt balance constant as of
December 31, 2008, each one percentage point increase in interest rates would
result in an increase in variable rate interest incurred for the coming year of
approximately $3.9 million. A one percentage point increase in interest rates on
our average variable rate debt outstanding during 2008 would have resulted in an
increase in variable rate interest costs of approximately $4.2 million. In
addition, holding our combined homebuilding joint venture variable rate debt
balance constant as of December 31, 2008, each one percentage point increase in
interest rates would result in an approximately $4.2 million increase in the
interest costs of the unconsolidated joint ventures.
49
The table below details
the principal amount and the average interest rates for the mortgage loans held
for sale and outstanding debt for each category based upon the expected maturity
or disposition dates. Certain mortgage loans held for sale require periodic
principal payments prior to the expected maturity date. The fair value estimates
for these mortgage loans held for sale are based upon future discounted cash
flows of similar type notes or quoted market prices for similar loans. The fair
value of our variable rate debt, which consists of our revolving credit
facility, our Senior Term Loan A and Senior Term Loan B, and our mortgage credit
facilities, is based on quoted market prices as of December 31, 2008. Our fixed
rate debt consists of trust deed and other notes payable, senior notes payable
and senior subordinated notes payable. The interest rates on our trust deed and
other notes payable approximate the current rates available for secured real
estate financing with similar terms and maturities and, as a result, their
carrying amounts approximate fair value. Our senior notes payable and senior
subordinated notes payable are publicly traded debt instruments and their fair
values are based on their quoted market prices as of December 31,
2008.
|
Expected
Maturity Date
|
||||||||||||||||||||||||||||
|
Estimated
|
||||||||||||||||||||||||||||
|
December
31,
|
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
Total
|
Fair
Value
|
||||||||||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||||||||||||||||
|
Assets:
|
||||||||||||||||||||||||||||
|
Mortgage
loans held for sale (1)
|
$
|
63,960
|
$
|
―
|
$
|
―
|
$
|
―
|
$
|
―
|
$
|
―
|
$
|
63,960
|
$
|
63,960
|
||||||||||||
|
Average
interest rate
|
5.8%
|
―
|
―
|
―
|
―
|
―
|
5.8%
|
|||||||||||||||||||||
| Mortgage loans held for investment |
$
|
156
|
$
|
168
|
$
|
181
|
$
|
195
|
$
|
209
|
$
|
10,827
|
$
|
11,736
|
$
|
11,736
|
||||||||||||
|
Average
interest rate
|
7.3%
|
7.4%
|
7.4%
|
7.4%
|
7.4%
|
7.9%
|
7.8%
|
|||||||||||||||||||||
|
Liabilities:
|
||||||||||||||||||||||||||||
|
Fixed
rate debt
|
$
|
170,529
|
$
|
228,170
|
$
|
185,065
|
$
|
148,709
|
$
|
124,451
|
$
|
325,000
|
$
|
1,181,924
|
$
|
790,474
|
||||||||||||
|
Average
interest rate
|
5.0%
|
6.1%
|
6.8%
|
7.5%
|
7.8%
|
6.7%
|
6.3%
|
|||||||||||||||||||||
|
Variable
rate debt
|
$
|
63,655
|
$
|
―
|
$
|
105,000
|
$
|
―
|
$
|
225,000
|
$
|
―
|
$
|
393,655
|
$
|
257,943
|
||||||||||||
|
Average
interest rate
|
4.4%
|
―
|
7.0%
|
―
|
7.3%
|
―
|
6.7%
|
|||||||||||||||||||||
|
Off-Balance
Sheet Financial Instruments:
|
||||||||||||||||||||||||||||
|
Forward
sale commitments of mortgage backed securities:
|
||||||||||||||||||||||||||||
|
Notional
amount
|
$
|
15,000
|
$
|
―
|
$
|
―
|
$
|
―
|
$
|
―
|
$
|
―
|
$
|
15,000
|
$
|
14,762
|
||||||||||||
|
Average
interest rate
|
4.9%
|
―
|
―
|
―
|
―
|
―
|
4.9%
|
|||||||||||||||||||||
|
Commitments
to originate mortgage loans:
|
||||||||||||||||||||||||||||
|
Notional
amount
|
$
|
12,032
|
$
|
―
|
$
|
―
|
$
|
―
|
$
|
―
|
$
|
―
|
$
|
12,032
|
$
|
12,272
|
||||||||||||
|
Average
interest rate
|
5.2%
|
―
|
―
|
―
|
―
|
―
|
5.2%
|
|||||||||||||||||||||
_____________
|
(1)
|
Substantially
all of the amounts presented in this line item for 2009 reflect the
expected date of disposition of certain loans rather than the actual
scheduled maturity dates of these
mortgages.
|
Based on
the current interest rate management policies we have in place with respect to
most of our mortgage loans held for sale, commitments to originate rate-locked
mortgage loans and outstanding debt, we do not believe that the future market
rate risks related to the above securities will have a material adverse impact
on our financial position, results of operations or liquidity.
50
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Report of Independent Registered Public Accounting
Firm
To the
Board of Directors and Stockholders of Standard Pacific Corp.:
We have
audited the accompanying consolidated balance sheets of Standard Pacific Corp.
and subsidiaries as of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders’ equity and cash flows for each of the
three years in the period ended December 31, 2008. These financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Standard Pacific Corp.
and subsidiaries at December 31, 2008 and 2007, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2008, in conformity with U.S. generally accepted accounting
principles.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Standard Pacific Corp.’s internal control over
financial reporting as of December 31, 2008, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 23, 2009
expressed an unqualified opinion thereon.
|
|
/s/
ERNST &
YOUNG LLP
|
|
|
Irvine,
California
|
|
|
February
23, 2009
|
51
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
(Dollars
in thousands, except per share amounts)
|
||||||||||||
|
Homebuilding:
|
||||||||||||
|
Home
sale revenues
|
$
|
1,521,640
|
$
|
2,607,824
|
$
|
3,710,059
|
||||||
|
Land
sale revenues
|
13,976
|
281,009
|
30,411
|
|||||||||
|
Total
revenues
|
1,535,616
|
2,888,833
|
3,740,470
|
|||||||||
|
Cost
of home sales
|
(2,104,224)
|
(2,520,157)
|
(2,950,922)
|
|||||||||
|
Cost
of land sales
|
(124,786)
|
(568,539)
|
(76,179)
|
|||||||||
|
Total
cost of sales
|
(2,229,010)
|
(3,088,696)
|
(3,027,101)
|
|||||||||
|
Gross
margin
|
(693,394)
|
(199,863)
|
713,369
|
|||||||||
|
Selling,
general and administrative expenses
|
(305,480)
|
(387,981)
|
(441,960)
|
|||||||||
|
Loss
from unconsolidated joint ventures
|
(151,729)
|
(190,025)
|
(3,870)
|
|||||||||
|
Interest
expense
|
(14,274)
|
―
|
―
|
|||||||||
|
Other
income (expense)
|
(69,429)
|
(68,610)
|
(46,727)
|
|||||||||
|
Homebuilding
pretax income (loss)
|
(1,234,306)
|
(846,479)
|
220,812
|
|||||||||
|
Financial
Services:
|
||||||||||||
|
Revenues
|
13,587
|
16,677
|
24,866
|
|||||||||
|
Expenses
|
(13,659)
|
(16,045)
|
(19,438)
|
|||||||||
|
Income
from unconsolidated joint ventures
|
854
|
1,050
|
1,911
|
|||||||||
|
Other
income
|
234
|
611
|
872
|
|||||||||
|
Financial
services pretax income
|
1,016
|
2,293
|
8,211
|
|||||||||
|
Income
(loss) from continuing operations before income taxes
|
(1,233,290)
|
(844,186)
|
229,023
|
|||||||||
|
(Provision)
benefit for income taxes
|
5,495
|
149,003
|
(82,930)
|
|||||||||
|
Income
(loss) from continuing operations
|
(1,227,795)
|
(695,183)
|
146,093
|
|||||||||
|
Loss
from discontinued operations, net of income taxes
|
(2,286)
|
(52,540)
|
(22,400)
|
|||||||||
|
Loss
from disposal of discontinued operations, net of income
taxes
|
―
|
(19,550)
|
―
|
|||||||||
|
Net
income (loss)
|
(1,230,081)
|
(767,273)
|
123,693
|
|||||||||
|
Less:
Net loss allocated to preferred shareholders
|
487,827
|
―
|
―
|
|||||||||
|
Net
income (loss) available to common stockholders
|
$
|
(742,254)
|
$
|
(767,273)
|
$
|
123,693
|
||||||
|
Basic
Earnings (Loss) Per Share:
|
||||||||||||
|
Continuing
operations
|
$
|
(9.10)
|
$
|
(9.63)
|
$
|
2.01
|
||||||
|
Discontinued
operations
|
(0.01)
|
(1.00)
|
(0.31)
|
|||||||||
|
Basic
earnings (loss) per share
|
$
|
(9.11)
|
$
|
(10.63)
|
$
|
1.70
|
||||||
|
Diluted
Earnings (Loss) Per Share:
|
||||||||||||
|
Continuing
operations
|
$
|
(9.10)
|
$
|
(9.63)
|
$
|
1.97
|
||||||
|
Discontinued
operations
|
(0.01)
|
(1.00)
|
(0.30)
|
|||||||||
|
Diluted
earnings (loss) per share
|
$
|
(9.11)
|
$
|
(10.63)
|
$
|
1.67
|
||||||
|
Weighted
Average Common Shares Outstanding:
|
||||||||||||
|
Basic
|
81,439,248
|
72,157,394
|
72,644,368
|
|||||||||
|
Diluted
|
134,963,077
|
72,157,394
|
74,213,185
|
|||||||||
|
Cash dividends per
share
|
$
|
―
|
$
|
0.12
|
$
|
0.16
|
||||||
The
accompanying notes are an integral part of these consolidated
statements.
52
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
December
31,
|
|||||||||
|
|
2008
|
2007
|
|||||||
| (Dollars in thousands) | |||||||||
|
ASSETS
|
|||||||||
|
Homebuilding:
|
|||||||||
|
Cash
and equivalents
|
$
|
626,379
|
$
|
219,141
|
|||||
|
Trade
and other receivables
|
21,008
|
28,599
|
|||||||
|
Inventories:
|
|||||||||
|
Owned
|
1,259,887
|
2,059,235
|
|||||||
|
Not
owned
|
42,742
|
109,757
|
|||||||
|
Investments
in unconsolidated joint ventures
|
50,468
|
293,967
|
|||||||
|
Deferred
income taxes
|
14,122
|
143,995
|
|||||||
|
Goodwill
and other intangibles
|
―
|
35,597
|
|||||||
|
Other
assets
|
145,567
|
300,135
|
|||||||
|
2,160,173
|
3,190,426
|
||||||||
|
Financial
Services:
|
|||||||||
|
Cash
and equivalents
|
7,976
|
12,413
|
|||||||
|
Mortgage
loans held for sale
|
63,960
|
155,340
|
|||||||
|
Mortgage
loans held for investment
|
11,736
|
10,973
|
|||||||
|
Other
assets
|
4,792
|
11,847
|
|||||||
|
88,464
|
190,573
|
||||||||
|
Assets
of discontinued operations
|
1,217
|
19,727
|
|||||||
|
Total
Assets
|
$
|
2,249,854
|
$
|
3,400,726
|
|||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||||
|
Homebuilding:
|
|||||||||
|
Accounts
payable
|
$
|
40,225
|
$
|
95,190
|
|||||
|
Accrued
liabilities
|
216,418
|
280,513
|
|||||||
|
Liabilities
from inventories not owned
|
24,929
|
43,007
|
|||||||
|
Revolving
credit facility
|
47,500
|
90,000
|
|||||||
|
Trust
deed and other notes payable
|
111,214
|
34,714
|
|||||||
|
Senior
notes payable
|
1,204,501
|
1,400,344
|
|||||||
|
Senior
subordinated notes payable
|
148,709
|
249,350
|
|||||||
|
1,793,496
|
2,193,118
|
||||||||
|
Financial
Services:
|
|||||||||
|
Accounts
payable and other liabilities
|
3,657
|
5,023
|
|||||||
|
Mortgage
credit facilities
|
63,655
|
164,172
|
|||||||
|
67,312
|
169,195
|
||||||||
|
Liabilities
of discontinued operations
|
1,331
|
5,221
|
|||||||
|
Total
Liabilities
|
1,862,139
|
2,367,534
|
|||||||
|
Minority
Interests
|
7,895
|
38,201
|
|||||||
|
Stockholders'
Equity:
|
|||||||||
|
Preferred
stock, $0.01 par value; 10,000,000 shares authorized; 450,829 and
0
|
|||||||||
|
issued
and outstanding at December 31, 2008 and 2007,
respectively
|
5
|
―
|
|||||||
|
Common
stock, $0.01 par value; 600,000,000 shares authorized; 100,624,350
and
|
|||||||||
|
72,689,595
shares issued and outstanding at December 31, 2008 and 2007,
respectively
|
1,006
|
727
|
|||||||
|
Additional
paid-in capital
|
964,730
|
340,067
|
|||||||
|
Retained
earnings (deficit)
|
(563,201)
|
666,880
|
|||||||
|
Accumulated
other comprehensive loss, net of tax
|
(22,720)
|
(12,683)
|
|||||||
|
Total
Stockholders' Equity
|
379,820
|
994,991
|
|||||||
|
Total
Liabilities and Stockholders' Equity
|
$
|
2,249,854
|
$
|
3,400,726
|
|||||
The
accompanying notes are an integral part of these consolidated balance
sheets.
53
STANDARD PACIFIC
CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’
EQUITY
|
Years
Ended December 31, 2006, 2007 and 2008
|
Number
of Preferred
Shares
|
Preferred
Stock
|
Number
of Common
Shares
|
Common
Stock
|
Additional
Paid in Capital
|
Retained
Earnings (Deficit)
|
Acculuated
Other Comprehensive Loss
|
Preferred
Stock
|
|||||||||||||||||
|
(Dollars
in thousands, except per share amounts)
|
|||||||||||||||||||||||||
|
Balance, December 31,
2005
|
―
|
$
|
―
|
67,129,010
|
$
|
671
|
$
|
405,638
|
$
|
1,332,850
|
$
|
―
|
$
|
1,739,159
|
|||||||||||
|
Net
income
|
―
|
―
|
―
|
―
|
―
|
123,693
|
―
|
123,693
|
|||||||||||||||||
|
Accumulated
other comprehensive loss,
|
|||||||||||||||||||||||||
|
net
of tax
|
―
|
―
|
―
|
―
|
―
|
―
|
(5,416)
|
(5,416)
|
|||||||||||||||||
|
Comprehensive
income
|
118,277
|
||||||||||||||||||||||||
|
Stock
issuances under employee plans,
|
|||||||||||||||||||||||||
|
including
income tax benefits
|
―
|
―
|
592,392
|
6
|
5,594
|
―
|
―
|
5,600
|
|||||||||||||||||
|
Repurchase
of and retirement of common
|
|||||||||||||||||||||||||
|
stock,
net of expenses
|
―
|
―
|
(3,298,854)
|
(33)
|
(104,672)
|
―
|
―
|
(104,705)
|
|||||||||||||||||
|
Cash
dividends declared ($0.16 per share)
|
―
|
―
|
―
|
―
|
―
|
(10,500)
|
―
|
(10,500)
|
|||||||||||||||||
|
Amortization
of stock-based compensation
|
―
|
―
|
―
|
―
|
16,539
|
―
|
―
|
16,539
|
|||||||||||||||||
|
Balance, December 31,
2006
|
―
|
―
|
64,422,548
|
644
|
323,099
|
1,446,043
|
(5,416)
|
1,764,370
|
|||||||||||||||||
|
FIN
48 adoption
|
―
|
―
|
―
|
―
|
―
|
(4,112)
|
―
|
(4,112)
|
|||||||||||||||||
|
Net
loss
|
―
|
―
|
―
|
―
|
―
|
(767,273)
|
―
|
(767,273)
|
|||||||||||||||||
|
Accumulated
other comprehensive loss,
|
|||||||||||||||||||||||||
|
net
of tax
|
―
|
―
|
―
|
―
|
―
|
―
|
(7,267)
|
(7,267)
|
|||||||||||||||||
|
Comprehensive
loss
|
|
(774,540)
|
|||||||||||||||||||||||
|
Stock
issuances under employee plans,
|
|||||||||||||||||||||||||
|
including
income tax benefits
|
―
|
―
|
533,231
|
5
|
5,373
|
―
|
―
|
5,378
|
|||||||||||||||||
|
Issuance
of common stock under share
|
|||||||||||||||||||||||||
|
lending
facility
|
―
|
―
|
7,839,809
|
79
|
―
|
―
|
―
|
79
|
|||||||||||||||||
|
Repurchase
of and retirement of common
|
|||||||||||||||||||||||||
|
stock,
net of expenses
|
―
|
―
|
(105,993)
|
(1)
|
(2,900)
|
―
|
―
|
(2,901)
|
|||||||||||||||||
|
Cash
dividends declared ($0.12 per share)
|
―
|
―
|
―
|
―
|
―
|
(7,778)
|
―
|
(7,778)
|
|||||||||||||||||
|
Senior
subordinated convertible notes
|
|||||||||||||||||||||||||
|
hedge
payments, net of taxes
|
―
|
―
|
―
|
―
|
(5,655)
|
―
|
―
|
(5,655)
|
|||||||||||||||||
|
Amortization
of stock-based compensation
|
―
|
―
|
―
|
―
|
20,150
|
―
|
―
|
20,150
|
|||||||||||||||||
|
Balance, December 31,
2007
|
―
|
―
|
72,689,595
|
727
|
340,067
|
666,880
|
(12,683)
|
994,991
|
|||||||||||||||||
|
Net
loss
|
―
|
―
|
―
|
―
|
―
|
(1,230,081)
|
―
|
(1,230,081)
|
|||||||||||||||||
|
Accumulated
other comprehensive loss,
|
|||||||||||||||||||||||||
|
net
of tax
|
―
|
―
|
―
|
―
|
―
|
―
|
(10,037)
|
(10,037)
|
|||||||||||||||||
|
Comprehensive
loss
|
―
|
―
|
―
|
―
|
―
|
―
|
(1,240,118)
|
||||||||||||||||||
|
Issuance
of Preferred Stock, net of
|
|||||||||||||||||||||||||
|
issuance
costs
|
450,829
|
5
|
―
|
―
|
410,844
|
―
|
―
|
410,849
|
|||||||||||||||||
|
Issuance
of Warrant, net of issuance costs
|
―
|
―
|
―
|
―
|
131,759
|
―
|
―
|
131,759
|
|||||||||||||||||
|
Issuance
of common shares in connection
|
|||||||||||||||||||||||||
|
with
rights offering, net of issuance costs
|
―
|
―
|
27,187,137
|
272
|
78,160
|
―
|
―
|
78,432
|
|||||||||||||||||
|
Stock
issuances under employee plans,
|
|||||||||||||||||||||||||
|
including
income tax benefits
|
―
|
―
|
963,149
|
9
|
(6,486)
|
―
|
―
|
(6,477)
|
|||||||||||||||||
|
Repurchase
of and retirement of common
|
|||||||||||||||||||||||||
|
stock,
net of expenses
|
―
|
―
|
(215,531)
|
(2)
|
(724)
|
―
|
―
|
(726)
|
|||||||||||||||||
|
Amortization
of stock-based compensation
|
―
|
―
|
―
|
―
|
11,110
|
―
|
―
|
11,110
|
|||||||||||||||||
|
Balance, December 31,
2008
|
450,829
|
$
|
5
|
100,624,350
|
$
|
1,006
|
$
|
964,730
|
$
|
(563,201)
|
$
|
(22,720)
|
$
|
379,820
|
|||||||||||
The
accompanying notes are an integral part of these consolidated
statements.
54
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Year
Ended December 31,
|
|||||||||||||
|
2008
|
2007
|
2006
|
|||||||||||
| (Dollars in thousands) | |||||||||||||
|
Cash
Flows From Operating Activities:
|
|||||||||||||
|
Income
(loss) from continuing operations
|
$
|
(1,227,795)
|
$
|
(695,183)
|
$
|
146,093
|
|||||||
|
Income
(loss) from discontinued operations, net of income taxes
|
(2,286)
|
(52,540)
|
(22,400)
|
||||||||||
|
Loss
from disposal of discontinued operations, net of income
taxes
|
―
|
(19,550)
|
―
|
||||||||||
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
|||||||||||||
|
Loss
from unconsolidated joint ventures
|
150,875
|
198,674
|
1,880
|
||||||||||
|
Cash
distributions of income from unconsolidated joint ventures
|
1,975
|
16,717
|
75,422
|
||||||||||
|
Depreciation
and amortization
|
6,634
|
8,396
|
7,745
|
||||||||||
|
Loss
on disposal of property and equipment
|
2,792
|
1,439
|
―
|
||||||||||
|
(Gain)
loss on early extinguishment of debt
|
8,019
|
(2,765)
|
―
|
||||||||||
|
Amortization
of stock-based compensation
|
11,110
|
20,150
|
16,539
|
||||||||||
|
Excess
tax benefits from share-based payment arrangements
|
―
|
(1,498)
|
(2,697)
|
||||||||||
|
Deferred
income taxes
|
(343,754)
|
(135,741)
|
(126,587)
|
||||||||||
|
Deferred
tax asset valuation allowance
|
473,627
|
180,480
|
―
|
||||||||||
|
Inventory
impairment charges and write-offs of deposits and
capitalized
|
|||||||||||||
|
preacquisition
costs
|
968,743
|
815,145
|
308,472
|
||||||||||
|
Goodwill
impairment charges
|
35,522
|
65,754
|
19,560
|
||||||||||
|
Changes
in cash and equivalents due to:
|
|||||||||||||
|
Trade
and other receivables
|
6,408
|
45,083
|
(2,739)
|
||||||||||
|
Mortgage
loans held for sale
|
91,380
|
99,618
|
(125,123)
|
||||||||||
|
Inventories
- owned
|
31,033
|
399,325
|
(610,944)
|
||||||||||
|
Inventories
- not owned
|
1,049
|
10,449
|
89,929
|
||||||||||
|
Other
assets
|
146,729
|
(245,723)
|
189
|
||||||||||
|
Accounts
payable
|
(57,949)
|
(13,105)
|
(5,638)
|
||||||||||
|
Accrued
liabilities
|
(40,961)
|
(39,567)
|
(60,281)
|
||||||||||
|
Net
cash provided by (used in) operating activities
|
263,151
|
655,558
|
(290,580)
|
||||||||||
|
Cash
Flows From Investing Activities:
|
|||||||||||||
|
Proceeds
from disposition of discontinued operations
|
―
|
40,850
|
―
|
||||||||||
|
Investments
in unconsolidated homebuilding joint ventures
|
(113,493)
|
(329,258)
|
(225,832)
|
||||||||||
|
Distributions
from unconsolidated homebuilding joint ventures
|
104,164
|
115,412
|
111,041
|
||||||||||
|
Other
investing activities
|
(2,250)
|
(24,819)
|
(18,737)
|
||||||||||
|
Net
cash provided by (used in) investing activities
|
(11,579)
|
(197,815)
|
(133,528)
|
||||||||||
|
Cash
Flows From Financing Activities:
|
|||||||||||||
|
Net
proceeds from (payments on) revolving credit facility
|
(42,500)
|
(199,500)
|
106,400
|
||||||||||
|
Principal
payments on trust deed and other notes payable
|
(20,318)
|
(8,512)
|
(46,837)
|
||||||||||
|
Redemption
of senior notes payable
|
(167,375)
|
(46,235)
|
―
|
||||||||||
|
Net
proceeds from the issuance of senior subordinated convertible
notes
|
―
|
97,000
|
―
|
||||||||||
|
Proceeds
from the issuance of senior notes payable
|
―
|
―
|
350,000
|
||||||||||
|
Purchase
of senior subordinated convertible note hedge
|
―
|
(9,120)
|
―
|
||||||||||
|
Net
proceeds from (payments on) mortgage credit facilities
|
(100,517)
|
(86,735)
|
127,481
|
||||||||||
|
Excess
tax benefits from share-based payment arrangements
|
―
|
1,555
|
2,805
|
||||||||||
|
Dividends
paid
|
―
|
(7,778)
|
(10,500)
|
||||||||||
|
Repurchases
of common stock
|
(726)
|
(2,901)
|
(104,705)
|
||||||||||
|
Net
proceeds from the issuance of preferred stock and the issuance of
warrant
|
404,233
|
―
|
―
|
||||||||||
|
Net
proceeds from the issuance of common stock
|
78,432
|
79
|
―
|
||||||||||
|
Proceeds
from the exercise of stock options
|
―
|
3,862
|
2,944
|
||||||||||
|
Net
cash provided (used in) by financing activities
|
151,229
|
(258,285)
|
427,588
|
||||||||||
|
Net
increase (decrease) in cash and equivalents
|
402,801
|
199,458
|
3,480
|
||||||||||
|
Cash
and equivalents at beginning of year
|
231,561
|
32,103
|
28,623
|
||||||||||
|
Cash
and equivalents at end of year
|
$
|
634,362
|
$
|
231,561
|
$
|
32,103
|
|||||||
The
accompanying notes are an integral part of these consolidated
statements.
55
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1.
Company Organization and Operations
We
operate as a geographically diversified builder of single-family attached and
detached homes for use as primary residences with operations in the major
metropolitan markets in California, Florida, Arizona, Texas, the Carolinas,
Colorado and Nevada. We also provide mortgage financing and title services to
our homebuyers through our subsidiaries and joint ventures. Unless the context
otherwise requires, the terms “we,” “us,” “our” and “the Company” refer to
Standard Pacific Corp. and its subsidiaries.
Our
percentage of home deliveries by state (including deliveries by unconsolidated
joint ventures) for the years ended December 31, 2008, 2007 and 2006 were as
follows:
|
Year Ended December 31,
|
|||||
|
State
|
2008
|
2007
|
2006
|
||
|
California
|
38%
|
33%
|
27%
|
||
|
Florida
|
18
|
16
|
25
|
||
|
Arizona
|
11
|
13
|
13
|
||
|
Texas
|
13
|
12
|
11
|
||
|
Carolinas
|
11
|
12
|
10
|
||
|
Colorado
|
5
|
5
|
4
|
||
|
Nevada
|
1
|
1
|
―
|
||
|
Discontinued
operations
|
3
|
8
|
10
|
||
|
Total
|
100%
|
100%
|
100%
|
||
Although
we have increased our geographic diversification in recent years, we still
generate a significant amount of our revenues and profits and losses in
California. In addition, a significant portion of our business,
revenues and profits and losses outside of California are concentrated in
Arizona and Florida.
2.
Summary of Significant Accounting Policies
a.
Basis of Presentation
The
consolidated financial statements include the accounts of Standard Pacific
Corp., its wholly owned subsidiaries and accounts of consolidated variable
interest entities. All significant intercompany accounts and transactions have
been eliminated.
b.
Use of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
c.
Segment Reporting
Statement
of Financial Accounting Standards No. 131, “Disclosures about Segments of an
Enterprise and Related Information” (“SFAS 131”) established standards for the
manner in which public enterprises report information about operating
segments. In accordance with SFAS 131, we have determined that each
of our homebuilding operating divisions and our financial services operations
(consisting of our mortgage financing and title operations) are our operating
segments. Corporate is a non-operating segment. In
accordance with the aggregation criteria defined in SFAS 131, we have grouped
our homebuilding operations into three reportable segments: California;
Southwest, consisting of our operating divisions in Arizona, Texas, Colorado and
Nevada; and Southeast, consisting of our operating divisions in Florida, the
Carolinas and Illinois. In particular, we have determined that the
homebuilding operating divisions within their respective reportable segments
have similar economic characteristics, including similar historical and expected
future long-term gross margin percentages. In addition, our
homebuilding operating divisions also share all other relevant aggregation
characteristics prescribed in SFAS 131, such as similar product types,
production processes and methods of distribution.
56
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
d.
Business Combinations
Acquisitions
of businesses were accounted for under the purchase method of accounting in
accordance with Statement of Financial Accounting Standards No. 141, “Business
Combinations” (“SFAS 141”). Under the purchase method of accounting, the assets
acquired and liabilities assumed are recorded at their estimated fair values.
Any purchase price paid in excess of the net fair values of tangible and
identified intangible assets less liabilities assumed was recorded as goodwill.
Our reported income from an acquired company includes the operations of the
acquired company from the effective date of acquisition.
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R
broadens the guidance of SFAS 141, extending its applicability to all
transactions and other events in which one entity obtains control over one or
more other businesses. It broadens the fair value measurement and
recognition of assets acquired, liabilities assumed, and interests transferred
as a result of business combinations. SFAS 141R expands on required
disclosures to improve the statement users’ abilities to evaluate the nature and
financial effects of business combinations. Adoption is prospective,
and early adoption is not permitted. SFAS 141R is effective for us
for any business combinations entered into subsequent to January 1,
2009.
e.
Variable Interest Entities
We
account for variable interest entities under FASB Interpretation No. 46 (revised
December 2003), “Consolidation of Variable Interest Entities,” an interpretation
of ARB No. 51 (“FIN 46R”). Under FIN 46R, a variable interest entity (“VIE”) is
created when (i) the equity investment at risk in the entity is not sufficient
to permit the entity to finance its activities without additional subordinated
financial support provided by other parties, including the equity holders, (ii)
the entity’s equity holders as a group either (a) lack the direct or indirect
ability to make decisions about the entity, (b) are not obligated to absorb
expected losses of the entity or (c) do not have the right to receive expected
residual returns of the entity or (iii) the entity’s equity holders have voting
rights that are not proportionate to their economic interests, and the
activities of the entity involve or are conducted on behalf of the equity holder
with disproportionately few voting rights. If an entity is deemed to be a VIE
pursuant to FIN 46R, the enterprise that is deemed to absorb a majority of the
entity’s expected losses, receive a majority of the entity’s expected residual
returns, or both, is considered the primary beneficiary and must consolidate the
VIE. Expected losses and residual returns for VIEs are calculated based on the
probability of estimated future cash flows as described in FIN 46R.
f.
Limited Partnerships and Limited Liability Companies
We
account for limited partnerships and limited liability companies under Emerging
Issues Task Force (“EITF”) No. 04-5, “Determining whether a General Partner, or
General Partners as a Group, Controls a Limited Partnership or Similar Entity
When the Limited Partners Have Certain Rights” (“EITF 04-5”). The scope of EITF
04-5 is limited to limited partnerships or similar entities (such as limited
liability companies that have governing provisions that are the functional
equivalent of a limited partnership) that are not variable interest entities
under FIN 46R and provides a framework for addressing when a general partner in
a limited partnership, or a managing member in the case of a limited liability
company, controls the entity. Under EITF 04-5, we may be required to consolidate
certain investments in which we hold a general partner or managing member
interest. As of December 31, 2008 and 2007, we did not have any joint ventures
consolidated in our balance sheets as a result of EITF 04-5.
g.
Revenue Recognition
In
accordance with Statement of Financial Accounting Standards No. 66, “Accounting
for Sales of Real Estate” (“SFAS 66”), homebuilding revenues are recorded after
construction is completed, a sufficient down payment has been received, title
has passed to the homebuyer, collection of the purchase price is reasonably
assured and we have no other continuing involvement. In instances where the
homebuyer’s financing is originated by our mortgage banking subsidiary and the
buyer has not made an adequate initial or continuing investment as prescribed by
SFAS 66, the profit on such home sales is deferred until the sale of the related
mortgage loan to a third-party investor has been completed and the contractual
terms of the applicable early payment default provisions have lapsed. Total
profits that were deferred on such home sales for the years ended December 31,
2008, 2007 and 2006 were approximately $3.6 million, $18.8 million and $20.4
million, respectively.
57
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
For home
sales financed under Federal Housing Administration-insured and Veterans
Administration-guaranteed loans, we evaluate the initial investment in
accordance with EITF No. 87-9, “Profit Recognition on Sales of Real Estate with
Insured Mortgages or Surety Bonds,” and for all other home purchase financing in
accordance with SFAS 66 and EITF No. 88-24, “Effect of Various Forms of
Financing Under FASB Statement No. 66.”
For the
years ended December 31, 2006 and 2007 and for the ten months ended October 31,
2008, we recognized loan origination fees and expenses and gains and losses on
loans when the related mortgage loans were sold. Generally our policy is to sell
all mortgage loans originated. These sales generally occur within 60 days of
origination. Mortgage loan interest is accrued only so long as it is deemed
collectible. Effective November 1, 2008, we implemented the
requirements of Statement of Financial Accounting Standards No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities” (“SFAS
159”). Under SFAS 159, we recognize loan origination fees and
expenses upon origination of the loans by us. The adoption of SFAS
159 did not have a material impact on our financial condition or results of
operations.
h.
Cost of Sales
Homebuilding
cost of sales is recognized after construction is completed, a sufficient down
payment has been received, title has transferred to the homebuyer, collection of
the purchase price is reasonably assured and we have no continuing
involvement. Cost of sales is recorded based upon total estimated
costs to be allocated to each home within a community. Certain direct
construction costs are specifically identified and allocated to homes while
other common costs, such as land, land improvements and carrying costs, are
allocated to homes within a community based upon their anticipated relative
sales or fair value. Any changes to the estimated costs are allocated to the
remaining undelivered lots and homes within their respective community. The
estimation of these costs requires a substantial degree of judgment by
management.
i.
Warranty Costs
Estimated
future direct warranty costs are accrued and charged to cost of sales in the
period when the related homebuilding revenues are recognized. Amounts
accrued are based upon historical experience rates. Indirect warranty
overhead salaries and related costs are charged to cost of sales in the period
incurred. We assess the adequacy of our warranty accrual on a
quarterly basis and adjust the amounts recorded if necessary. During
the year ended December 31, 2008, we recorded $12.1 million in reductions to our
warranty accrual due to a decrease in our warranty expenditure
trends. Our warranty accrual is included in accrued liabilities in
the accompanying consolidated balance sheets. Changes in our warranty
accrual from continuing operations are detailed in the table set forth
below:
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
| (Dollars in thousands) | ||||||||||||
|
Warranty
accrual, beginning of the year
|
$ | 30,790 | $ | 32,384 | $ | 29,386 | ||||||
|
Warranty
costs accrued during the year
|
10,512 | 14,195 | 16,178 | |||||||||
|
Warranty
costs paid during the year
|
(9,215 | ) | (12,427 | ) | (15,608 |
)
|
||||||
|
Adjustments
to warranty accrual during the year
|
(12,089 | ) | (3,362 | ) | 2,428 | |||||||
|
Warranty
accrual, end of the year
|
$ | 19,998 | $ | 30,790 | $ | 32,384 | ||||||
j.
Earnings (Loss) Per Share
We
compute earnings (loss) per share in accordance with Statement of Financial
Accounting Standards No. 128, “Earnings per Share” (“SFAS 128”) and the
Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force Issue
No. 03-6, “Participating Securities and the Two-Class Method under FASB
Statement No. 128, Earnings per Share” (“EITF No. 03-6”). SFAS 128
requires the presentation of both basic and diluted earnings (loss) per share
for financial statement purposes. Basic earnings (loss) per share is
computed by dividing income or loss available to common stockholders by the
weighted average number of common shares outstanding. Our Series B
Preferred Stock, which is convertible into common stock at the holder’s option
(subject to a limitation based upon voting interest), is classified as a
convertible participating security in accordance with SFAS 128 and EITF No.
03-6, which requires that both net income and loss per share for each class of
stock (common stock and participating preferred stock) be calculated for basic
earnings per share purposes based on the contractual rights and obligations of
this participating security. Net loss allocated to our Series B Preferred
shareholders is calculated based on the preferred shareholders proportionate
share of weighted average common shares outstanding on an if-converted
basis.
58
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
For
purposes of determining diluted earnings per share, basic earnings per share is
further adjusted to include the effect of the potential dilutive shares
outstanding, including convertible participating securities using the
if-converted method. During the year ended December 31, 2006, stock
options, nonvested performance share awards, nonvested restricted stock and
deferred stock units were included in the computation of diluted earnings
per share using the treasury stock method.
k.
Stock-Based Compensation
We
account for share-based awards in accordance with Statement of Financial
Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS
123R”). SFAS 123R requires that the cost resulting from all
share-based payment transactions be recognized in the financial statements. SFAS
123R requires all entities to apply a fair-value-based measurement method in
accounting for share-based payment transactions with employees except for equity
instruments held by employee share ownership plans.
l.
Cash and Equivalents
For
purposes of the consolidated statements of cash flows, cash and equivalents
include cash on hand, demand deposits and all highly liquid short-term
investments, including interest-bearing securities purchased with a maturity of
three months or less from the date of purchase. At December 31, 2008,
cash and cash equivalents included $8.5 million of cash held in cash collateral
accounts related to certain letters of credit that have been issued and a
portion related to one of our financial services subsidiary mortgage credit
facilities ($4.2 million of homebuilding cash and $4.3 million of financial
services cash). Additionally, since we were not in compliance with
the cash flow coverage ratio covenant contained in our revolving credit facility
and bank term loans as of December 31, 2008, one of our unrestricted
subsidiaries deposited approximately $120.8 million of cash as an interest
reserve in a deposit account with our agent bank in March 2009.
m.
Mortgage Loans Held for Sale
Prior to
November 1, 2008, mortgage loans held for sale were reported at the lower of
cost or market on an aggregate basis. For loans that were effectively hedged as
fair value hedges, the loans were recorded at fair value in accordance with
Statement of Financial Accounting Standards No. 133, “Accounting for Derivative
Instruments and Hedging Activities” as amended by Statement of Financial
Accounting Standards No. 138, “Accounting for Certain Derivative Instruments and
Certain Hedging Activities,” and Statement of Financial Accounting Standards No.
149, “Amendment of Statement 133 on Derivative Instruments and Hedging
Activities” (“SFAS 133”). In connection with the adoption of SFAS 159
as discussed further in Note 2.g., mortgage loans held for sale are recorded at
fair value. We estimate the fair value of our loans held for sale
based on quoted market prices for similar loans. As of December 31, 2007, loan
origination fees, net of the related direct origination costs, and loan discount
points were deferred as an adjustment to the carrying value of the related
mortgage loans held for sale and were recognized as income upon the sale of
mortgage loans, which generally occurs within 60 days of origination. In
connection with the adoption of SFAS 159, loan origination and related costs are
no longer deferred and are recognized upon the loan closing. In
addition, we recognize net interest income on loans held for sale from the date
of origination through the date of disposition.
n. Mortgage Loans Held for
Investment
Mortgage
loans are classified as held for investment based on our intent and ability to
hold the loans for the foreseeable future or to maturity. Mortgage loans held
for investment are recorded at their unpaid principal balance, net of discounts
and premiums, unamortized net deferred loan origination costs and fees and
allowance for loan losses. Discounts, premiums, and net deferred loan
origination costs and fees are amortized into income over the contractual life
of the loan. Mortgage loans held for investment are continually evaluated for
collectability and, if appropriate, specific reserves are established based on
estimates of collateral value. Loans are placed on non-accrual status
for first trust deeds when the loan is 90 days past due and for second trust
deeds when the loan is 30 days past due, and previously accrued interest is
reversed from income if deemed uncollectible.
o.
Inventories
Inventories
consist of land, land under development, homes under construction, completed
homes and model homes and are stated at cost, net of impairment charges. We
capitalize direct carrying costs, including interest, property taxes and related
development costs to inventories. Field construction supervision and related
direct overhead are also included in the
59
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
capitalized
cost of inventories. Direct construction costs are specifically identified and
allocated to homes while other common costs, such as land, land improvements and
carrying costs, are allocated to homes within a community based upon their
anticipated relative sales or fair value.
We assess
the recoverability of real estate inventories in accordance with the provisions
of Statement of Financial Accounting Standards No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 requires
long-lived assets, including inventories, that are expected to be held and used
in operations to be carried at the lower of cost or, if impaired, the fair value
of the asset. SFAS 144 requires that companies evaluate long-lived assets for
impairment based on undiscounted future cash flows of the assets at the lowest
level for which there is identifiable cash flows. Long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value less cost
to sell.
Inventory
not owned represents the fair value of land under option agreements consolidated
pursuant to FIN 46R. FIN 46R requires us to consolidate the financial
results of a variable interest entity (“VIE”) if the Company is the primary
beneficiary of the VIE (please see Notes 2.e. and 4.b. for further
discussion).
p.
Capitalization of Interest
We follow
the practice of capitalizing interest to inventories owned during the period of
development in accordance with Statement of Financial Accounting Standards No.
34, “Capitalization of Interest Cost” (“SFAS 34”) and to investments in
unconsolidated homebuilding and land development joint ventures in accordance
with Statement of Financial Accounting Standards No. 58, “Capitalization of
Interest Cost in Financial Statements that Include Investments Accounted for by
the Equity Method (an amendment of FASB Statement
No. 34)”. Homebuilding interest capitalized as a cost of
inventories owned is included in cost of sales as related units are
sold. Interest capitalized to investments in unconsolidated
homebuilding and land development joint ventures is included as reduction of
income from unconsolidated joint ventures as the related homes or lots are sold
to third parties. Interest capitalized to investments in
unconsolidated land development joint ventures is transferred to inventories
owned if the underlying lots are purchased by us. To the extent our
debt exceeds our qualified inventory as defined in SFAS 34, we expense a portion
of the interest incurred by us. For the year ended December 31, 2008,
we expensed $14.3 million of interest costs related primarily to the portion of
real estate inventories held for development that were deemed unqualified assets
in accordance with SFAS 34. All interest costs incurred during the
first six months of 2008 and all of 2007 and 2006 were capitalized to
inventories and to investments in unconsolidated joint ventures.
The
following is a summary of homebuilding interest capitalized to inventories owned
and investments in unconsolidated joint ventures, amortized to cost of sales and
loss from unconsolidated joint ventures and expensed as interest expense
(including discontinued operations), for the years ended December 31, 2008, 2007
and 2006:
|
Year
Ended December 31,
|
||||||||||
|
2008
|
2007
|
2006
|
||||||||
|
(Dollars
in thousands)
|
||||||||||
|
Total
homebuilding interest incurred
|
$
|
134,597
|
$
|
137,268
|
$
|
148,335
|
||||
|
Less:
Homebuilding interest capitalized to inventories owned
|
(110,117)
|
(122,974)
|
(137,679)
|
|||||||
|
Less:
Homebuilding interest capitalized to investments in unconsolidated joint
ventures
|
(10,206)
|
(14,294)
|
(10,656)
|
|||||||
|
Homebuilding
interest expense
|
$
|
14,274
|
$
|
―
|
$
|
―
|
||||
|
Homebuilding
interest previously capitalized to inventories owned, included in cost of
sales
|
$
|
80,538
|
$
|
131,182
|
$
|
88,933
|
||||
|
Homebuilding
interest previously capitalized to investments in unconsolidated
joint
|
||||||||||
|
ventures,
included in loss from unconsolidated joint ventures
|
$
|
4,438
|
$
|
8,138
|
$
|
920
|
||||
|
Homebuilding
interest capitalized in ending inventories owned (1)
|
$
|
166,797
|
$
|
126,157
|
$
|
129,734
|
||||
|
Homebuilding
interest capitalized in ending investments in unconsolidated joint
ventures (1)
|
$
|
5,968
|
$
|
11,261
|
$
|
9,736
|
||||
|
(1)
|
During
the years ended December 31, 2008, 2007 and 2006, in connection with lot
purchases from our unconsolidated joint ventures and joint venture
purchases and unwinds, $11.1 million, $4.6 million and $0,
respectively, of capitalized interest was transferred from investments in
unconsolidated joint ventures to inventories
owned.
|
60
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
q.
Investments in Unconsolidated Land Development and Homebuilding Joint
Ventures
Investments
in our unconsolidated land development and homebuilding joint ventures are
accounted for under the equity method of accounting. Under the equity method, we
recognize our proportionate share of earnings and losses generated by the joint
venture upon the delivery of lots or homes to third parties. All joint venture
profits generated from land sales to us are deferred and recorded as a reduction
to our cost basis in the lots purchased until the homes are ultimately sold by
us to third parties. Our ownership interests in our unconsolidated joint
ventures vary, but are generally less than or equal to 50 percent. In certain
instances, our ownership interest in these unconsolidated joint ventures may be
greater than 50 percent; however, we account for these investments under the
equity method because the entities are not VIEs in accordance with FIN 46R, we
are not considered the primary beneficiary of the entities determined to be
VIEs, we do not have voting control, and/or, in the case of joint ventures where
we are the general partner or managing member, the limited partners (or
non-managing members) have either sufficient kick-out rights or substantive
participatory rights in accordance with
EITF
04-5.
We review
inventory projects within our unconsolidated joint ventures for impairments
consistent with our real estate inventories described in Note 2.o. To
the extent we deem any portion of our investment in unconsolidated joint
ventures as not recoverable, we impair our investment accordingly.
r.
Income Taxes
We
account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). This
statement requires an asset and a liability approach for measuring deferred
taxes based on temporary differences between the financial statement and tax
bases of assets and liabilities existing at each balance sheet date using
enacted tax rates for years in which taxes are expected to be paid or
recovered.
We
evaluate our deferred tax assets on a quarterly basis to determine whether a
valuation allowance is required. In accordance with SFAS 109, we
assess whether a valuation allowance should be established based on our
determination of whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets depends primarily on: (i) our ability to
carry back net operating losses to tax years where we have previously paid
income taxes based on applicable federal law; and (ii) our ability to generate
future taxable income during the periods in which the related temporary
differences become deductible. The assessment of a valuation
allowance includes giving appropriate consideration to all positive and negative
evidence related to the realization of the deferred tax asset. This
assessment considers, among other things, the nature, frequency and severity of
current and cumulative losses, forecasts of future profitability, the duration
of statutory carryforward periods, our experience with operating loss and tax
credit
carryforwards not expiring unused, and tax planning
alternatives. Significant judgment is required in determining the
future tax consequences of events that have been recognized in our consolidated
financial statements and/or tax returns. Differences between
anticipated and actual outcomes of these future tax consequences could have a
material impact on our consolidated financial position or results of
operations.
Effective
January 1, 2007, we adopted Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” an
interpretation of FASB Statement No. 109, “Accounting for Income Taxes” (“FIN
48”). FIN 48 defines the methodology for recognizing the benefits of
tax return positions as well as guidance regarding the measurement of the
resulting tax benefits. FIN 48 requires an enterprise to recognize
the financial statement effects of a tax position when it is more likely than
not (defined as a likelihood of more than 50%), based on the technical merits,
that the position will be sustained upon examination. In addition,
FIN 48 provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and
transition. The evaluation of whether a tax position meets the
more-likely-than-not recognition threshold requires a substantial degree of
judgment by management based on the individual facts and
circumstances. Actual results could differ from
estimates.
s.
Goodwill
The
excess amount paid for business acquisitions over the net fair value of assets
acquired and liabilities assumed was capitalized as goodwill in the accompanying
consolidated balance sheets. Statement of Financial Accounting Standards No.
142, “Goodwill and Other Intangible Assets” (“SFAS 142”), addresses financial
accounting and reporting for acquired goodwill and other intangible assets. SFAS
142 requires that goodwill not be amortized but instead be assessed for
impairment at least annually or more frequently if certain impairment indicators
are present. For purposes of this test, each of
61
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
our
homebuilding operating divisions has been treated as a reporting unit. As a
result of the deteriorating housing market conditions in most of the markets in
which we operate and due to changes in our near-term and long-term forecasts and
expected returns, we recorded pretax goodwill impairment charges for the years
ended December 31, 2008, 2007 and 2006 of $35.5 million, $54.3 million and $6.2
million, respectively. These impairments related to our Florida,
North Carolina, Arizona, Colorado and Northern California
operations. These charges were included in other expense in the
accompanying consolidated statements of operations. In addition, we
recorded goodwill impairment charges of $11.4 million in 2007 related to our San
Antonio division and $13.3 million in 2006 related to our Tucson and San Antonio
divisions, both of which were included in loss from discontinued
operations. After recording these charges, we do not have any
goodwill remaining as of December 31, 2008.
t. Insurance and Litigation
Accruals
Insurance
and litigation accruals are established for estimated future claims costs. We
maintain general liability insurance designed to protect us against a portion of
our risk of loss from construction-related claims. We also generally require our
subcontractors and design professionals to indemnify us for liabilities arising
from their work, subject to various limitations. We record reserves to cover our
estimated costs of self-insured retentions and deductible amounts under these
policies and estimated costs for claims that may not be covered by applicable
insurance or indemnities. Estimation of these accruals includes consideration of
our claims history, including current claims, estimates of claims incurred but
not yet reported, and potential for recovery of costs from insurance and other
sources. We utilize the services of an independent third party
actuary to assist us with evaluating the level of our insurance and litigation
accruals.
u.
Derivative Instruments and Hedging Activities
We
account for derivatives and certain hedging activities in accordance with SFAS
133. SFAS 133 establishes the accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded as either assets or
liabilities in the consolidated balance sheets and to measure these instruments
at fair market value. Gains or losses resulting from changes in the
fair market value of derivatives are recognized in the consolidated statement of
operations or recorded in other comprehensive income (loss), net of tax, and
recognized in the consolidated statement of operations when the hedged item
affects earnings, depending on the purpose of the derivatives and whether the
derivatives qualify for hedge accounting treatment.
Our
policy is to designate at a derivative’s inception the specific assets,
liabilities or future commitments being hedged and monitor the derivative to
determine if the derivative remains an effective hedge. The effectiveness of a
derivative as a hedge is based on the high correlation between changes in the
derivative’s value and changes in the value of the underlying hedged
item. We recognize gains or losses for amounts received or paid when the
underlying transaction settles. We do not enter into or hold derivatives for
trading or speculative purposes.
In May
2006, we entered into interest rate swap agreements that effectively fixed our
3-month LIBOR rates for our term loans through their scheduled maturity
dates. The swap agreements have been designated as cash flow hedges
and, accordingly, are reflected at their fair market value in accrued
liabilities in our consolidated balance sheets. To the extent the
swaps are deemed effective and qualify for hedge accounting treatment, the
related gain or loss is deferred, net of tax, in stockholders’ equity as
accumulated other comprehensive income or loss. During 2007, we
repaid $25 million of our Term Loan B which resulted in a portion of the
interest rate swap being ineffective, and as a result, we recorded approximately
$225,000 and $1.7 million of expense related to the Term Loan B during the years
ended December 31, 2008 and 2007, respectively, to other income
(expense). During 2008, we repaid $42.5 million of our Term Loan A
which resulted in the related interest rate swap being ineffective, and as a
result, we recorded $3.6 million of expense related to the Term Loan A during
the year ended December 31, 2008, which had previously been included in other
comprehensive income or loss. On September 8, 2008, we reduced $35
million and $25 million notional amounts of the Term Loan A and Term Loan B
interest rate swaps for payments of approximately $2.5 million and $1.9 million,
respectively. In addition, the notional amount of the Term Loan A
swap will reduce by $2.5 million per quarter in tandem with the previously
scheduled amortization of the Term Loan A notes payable. The
reduction in the notional amount of our Term Loan A swap agreement resulted in
re-designating the original cash flow hedge and, accordingly, prospective gains
or losses are recorded, net of tax, in stockholders’ equity as accumulated other
comprehensive income or loss. In December 2008, we incurred debt for
acquired, constructed or improved assets (“ACI Debt”) as defined under our Term
Loan A agreement which requires us to increase the quarterly amortization
payment from $2.5 million per quarter to $5 million per quarter. As a
result of this accelerated debt amortization schedule, the Term Loan A Swap is
no longer deemed effective as of December 31, 2008.
62
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The
estimated fair value of the swaps at December 31, 2008 and December 31, 2007
represented liabilities of $38.0 million and $21.8 million, respectively, which
were included in accrued liabilities in the accompanying consolidated financial
statements. For the years ended December 31, 2008 and 2007, we
recorded after-tax other comprehensive losses of $10.0 million and $7.3 million,
respectively, related to the swap agreements.
v.
Accounting for Guarantees
We
account for guarantees in accordance with FASB Interpretation No. 45,
“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others” (“FIN 45”). Under FIN 45,
recognition of a liability is recorded at its estimated fair value based on the
present value of the expected contingent payments under the guarantee
arrangement. The types of guarantees that we generally provide that are subject
to FIN 45 generally are made to third parties on behalf of our unconsolidated
homebuilding and land development joint ventures. As of December 31, 2008, these
guarantees included, but were not limited to, loan-to-value maintenance
agreements, construction completion guarantees, environmental indemnities and
surety bond indemnities (please see Note 15 for further
discussion).
w.
Recent Accounting Pronouncements
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS 159”), which includes amendments to FASB Statement No. 115, “Accounting
for Certain Investments in Debt and Equity Securities.” SFAS 159
permits entities to measure financial instruments and certain related items at
their fair value at specified election dates. SFAS 159 is effective
for financial statements issued for fiscal years beginning after November 15,
2007. We elected to implement SFAS 159 for mortgage loans held for
sale as of November 1, 2008, and the impact of adoption did not have a material
impact on our financial condition or results of operations.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS
160”). SFAS 160 requires that a noncontrolling interest in a
subsidiary be reported as equity and the amount of consolidated net income
specifically attributable to the noncontrolling interest be identified in the
consolidated financial statements. It also calls for consistency in
the manner of reporting changes in the parent’s ownership interest and requires
fair value measurement of any noncontrolling equity investment retained in a
deconsolidation. SFAS 160 is effective for our fiscal year beginning January 1,
2009. Upon adoption on January 1, 2009, the amount remaining in
minority interests will be classified as a separate component in stockholders’
equity. We do not believe adopting SFAS 160 will have a material
impact on our financial condition or results of operations.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS 161”). SFAS 161 changes the disclosure
requirements for derivative instruments and hedging activities accounted for
under FASB issued SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities” (“SFAS 133”). Under SFAS 161, entities will be
required to provide enhanced disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under Statement 133 and its related interpretations, and (c)
how derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. SFAS 161 is
effective for our fiscal year beginning January 1, 2009.
In May
2008, the FASB issued APB No. 14-1, “Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)”
(“FSP 14-1”). This FSP will require bifurcation of a component of
convertible debt instruments, classification of that component in stockholder’s
equity, and then accretion of the resulting discount on the debt to result in
interest expense equal to the issuer’s nonconvertible debt borrowing
rate. Early adoption is not permitted and retroactive application is
required for all periods presented. FSP 14-1 is effective for our
fiscal year beginning January 1, 2009. Upon adoption on January 1,
2009, approximately $25 million of our Senior Subordinated Convertible Notes due
in 2012 will be reclassified to stockholders’ equity leaving a balance of $53.0
million remaining classified as indebtedness, and the remaining principal amount
of the notes will be accreted to its redemption value, approximately $78.5
million, through interest expense over the remaining term of these
notes.
In June
2008, the FASB issued FASB Staff Position Emerging Issues Task Force 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities” (“FSP-EITF 03-6-1”). Under FSP-EITF 03-6-1,
unvested share-based payment awards that contain non-forfeitable rights to
dividends or dividend equivalents
63
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(whether
paid or unpaid) are participating securities and shall be included in the
computation of earnings per share. FSP-EITF 03-6-1 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those years, and requires retrospective
application. We currently are evaluating the impact of adopting
FSP-EITF 03-6-1 on our earnings per share.
On August
27, 2008, the SEC announced that it will issue for comment a proposed roadmap
regarding the potential use of International Financial Reporting Standards
(“IFRS”) for the preparation of financial statements by U.S. registrants. IFRS
are standards and interpretations adopted by the International Accounting
Standards Board. Under the proposed roadmap, we anticipate that we would be
required to prepare financial statements in accordance with IFRS in fiscal year
2014, including comparative information also prepared under IFRS for fiscal
years 2012 and 2013. We are currently assessing the potential impact of IFRS on
our financial statements and will continue to follow the proposed roadmap for
future developments.
x.
Reclassifications
Certain
items in prior year financial statements have been reclassified to conform with
current year presentation.
3.
Segment Reporting
We
operate two principal businesses: homebuilding and financial
services.
Our
homebuilding operations construct and sell single-family attached and detached
homes. In accordance with the aggregation criteria defined in SFAS
131, our homebuilding operating segments have been grouped into three reportable
segments: California; Southwest, consisting of our operating divisions in
Arizona, Texas, Colorado and Nevada; and Southeast, consisting of our operating
divisions in Florida, the Carolinas and Illinois.
Our
mortgage financing operations provide mortgage financing to our homebuyers in
substantially all of the markets in which we operate. Our title
service operation provides title examinations for our homebuyers in
Texas. Our mortgage financing and title services operations are
included in our financial services reportable segment, which is separately
reported in our consolidated financial statements under “Financial
Services.”
Corporate
is a non-operating segment that develops and implements strategic initiatives
and supports our operating divisions by centralizing key administrative
functions such as finance and treasury, information technology, risk management
and litigation, and human resources. Corporate also provides the
necessary administrative functions to support us as a publicly
traded company. A substantial portion of the expenses incurred by
Corporate are allocated to the homebuilding operating divisions based on their
respective percentage of revenues.
Segment
financial information relating to the Company’s homebuilding operations was as
follows:
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
(Dollars
in thousands)
|
||||||||||||
|
Homebuilding
revenues:
|
||||||||||||
|
California
|
$ | 796,737 | $ | 1,484,047 | $ | 1,931,164 | ||||||
|
Southwest
(1)
|
416,749 | 793,455 | 853,653 | |||||||||
|
Southeast
|
322,130 | 611,331 | 955,653 | |||||||||
|
Total
homebuilding revenues
|
$ | 1,535,616 | $ | 2,888,833 | $ | 3,740,470 | ||||||
|
Homebuilding
pretax income (loss):
|
||||||||||||
|
California
|
$ | (722,096 | ) | $ | (524,856 | ) | $ | 45,914 | ||||
|
Southwest
(1)
|
(256,162 | ) | (165,685 | ) | 41,195 | |||||||
|
Southeast
|
(221,872 | ) | (150,808 | ) | 130,267 | |||||||
|
Corporate
|
(34,176 | ) | (5,130 | ) | 3,436 | |||||||
|
Total
homebuilding pretax income (loss)
|
$ | (1,234,306 | ) | $ | (846,479 | ) | $ | 220,812 | ||||
|
Homebuilding
income (loss) from unconsolidated joint ventures:
|
||||||||||||
|
California
|
$ | (96,005 | ) | $ | (150,057 | ) | $ | (4,712 |
)
|
|||
|
Southwest
(1)
|
(46,116 | ) | (35,271 | ) | 310 | |||||||
|
Southeast
|
(9,608 | ) | (4,697 | ) | 532 | |||||||
|
Total
homebuilding income (loss) from unconsolidated joint
ventures
|
$ | (151,729 | ) | $ | (190,025 | ) | $ | (3,870 |
)
|
|||
|
(1)
|
Excludes
our Tucson and San Antonio divisions, which are classified as discontinued
operations.
|
64
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Homebuilding
pretax income (loss) includes the following pretax inventory, joint venture and
goodwill impairment charges and land deposit write-offs recorded in the
following segments:
|
Year
Ended December 31, 2008
|
||||||||||||
|
California
|
Southwest
(1)
|
Southeast
|
Total
|
|||||||||
|
(Dollars
in thousands)
|
||||||||||||
|
Deposit
write-offs
|
$
|
14,950
|
$
|
5,463
|
$
|
5,236
|
$
|
25,649
|
||||
|
Inventory
impairments
|
578,057
|
192,929
|
172,108
|
943,094
|
||||||||
|
Joint
venture impairments
|
95,192
|
45,818
|
8,255
|
149,265
|
||||||||
|
Goodwill
impairments
|
2,691
|
8,667
|
24,164
|
35,522
|
||||||||
|
Total
impairments and write-offs
|
$
|
690,890
|
$
|
252,877
|
$
|
209,763
|
$
|
1,153,530
|
||||
|
Year
Ended December 31, 2007
|
||||||||||||
|
California
|
Southwest
(1)
|
Southeast
|
Total
|
|||||||||
|
(Dollars
in thousands)
|
||||||||||||
|
Deposit
write-offs
|
$
|
8,674
|
$
|
6,919
|
$
|
6,946
|
$
|
22,539
|
||||
|
Inventory
impairments
|
406,318
|
168,491
|
130,611
|
705,420
|
||||||||
|
Joint
venture impairments
|
162,998
|
35,665
|
3,646
|
202,309
|
||||||||
|
Goodwill
impairments
|
―
|
―
|
54,324
|
54,324
|
||||||||
|
Total
impairments and write-offs
|
$
|
577,990
|
$
|
211,075
|
$
|
195,527
|
$
|
984,592
|
||||
|
Year
Ended December 31, 2006
|
||||||||||||
|
California
|
Southwest
(1)
|
Southeast
|
Total
|
|||||||||
|
(Dollars
in thousands)
|
||||||||||||
|
Deposit
write-offs
|
$
|
41,564
|
$
|
2,994
|
$
|
6,992
|
$
|
51,550
|
||||
|
Inventory
impairments
|
179,945
|
41,359
|
13,318
|
234,622
|
||||||||
|
Joint
venture impairments
|
42,521
|
―
|
―
|
42,521
|
||||||||
|
Goodwill
impairments
|
―
|
3,120
|
3,123
|
6,243
|
||||||||
|
Total
impairments and write-offs
|
$
|
264,030
|
$
|
47,473
|
$
|
23,433
|
$
|
334,936
|
||||
Segment
financial information relating to the Company’s homebuilding assets and
investments in unconsolidated joint ventures was as follows:
|
December
31,
|
|||||||
|
2008
|
2007
|
||||||
|
(Dollars
in thousands)
|
|||||||
|
Homebuilding
assets:
|
|||||||
|
California
|
$ | 809,078 | $ | 1,375,363 | |||
|
Southwest
(1)
|
298,470 | 622,584 | |||||
|
Southeast
|
275,369 | 543,910 | |||||
|
Corporate
|
777,256 | 648,569 | |||||
|
Total
homebuilding assets
|
$ | 2,160,173 | $ | 3,190,426 | |||
|
Homebuilding
investments in unconsolidated joint ventures:
|
|||||||
|
California
|
$ | 39,879 | $ | 220,608 | |||
|
Southwest
(1)
|
10,073 | 69,462 | |||||
|
Southeast
|
516 | 3,897 | |||||
|
Total
homebuilding investments in unconsolidated joint ventures
|
$ | 50,468 | $ | 293,967 | |||
|
(1)
|
Excludes
our Tucson and San Antonio divisions, which are classified as discontinued
operations.
|
65
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
4.
Inventories
a.
Inventories Owned
Inventories
owned consisted of the following at:
|
December
31, 2008
|
|||||||||||||||
|
California
|
Southwest
(1)
|
Southeast
|
Total
|
||||||||||||
|
(Dollars
in thousands)
|
|||||||||||||||
|
Land
and land under development
|
$ | 356,118 | $ | 135,360 | $ | 136,305 | $ | 627,783 | |||||||
|
Homes
completed and under construction
|
309,962 | 96,482 | 93,990 | 500,434 | |||||||||||
|
Model
homes
|
79,220 | 23,811 | 28,639 | 131,670 | |||||||||||
|
Total
inventories owned
|
$ | 745,300 | $ | 255,653 | $ | 258,934 | $ | 1,259,887 | |||||||
|
December
31, 2007
|
|||||||||||||||
|
California
|
Southwest
(1)
|
Southeast
|
Total
|
||||||||||||
|
(Dollars
in thousands)
|
|||||||||||||||
|
Land
and land under development
|
$ | 581,101 | $ | 293,130 | $ | 288,420 | $ | 1,162,651 | |||||||
|
Homes
completed and under construction
|
402,446 | 170,563 | 138,839 | 711,848 | |||||||||||
|
Model
homes
|
118,020 | 33,897 | 32,819 | 184,736 | |||||||||||
|
Total
inventories owned
|
$ | 1,101,567 | $ | 497,590 | $ | 460,078 | $ | 2,059,235 | |||||||
|
(1)
|
Excludes
our Tucson and San Antonio divisions, which are classified as discontinued
operations.
|
In
accordance with SFAS 144, we record impairment losses on inventories when events
and circumstances indicate that they may be impaired, and the undiscounted cash
flows estimated to be generated by those assets are less than their carrying
amounts. Inventories that are determined to be impaired are written
down to their estimated fair value. We calculate the fair value of a
project under a land residual value analysis and in certain cases in conjunction
with a discounted cash flow analysis. The operating margins (defined
as gross margin less direct selling and marketing costs) used to calculate land
residual values and related fair values for the majority of our projects during
the years ended 2008, 2007 and 2006, were generally in the 7% to 12% range and
discount rates were generally in the 15% to 25% range, with a small portion of
projects in the low to mid 30% range. The following table summarizes
inventory impairments recorded during the years ended December 31, 2008, 2007
and 2006:
|
Year
Ended December 31,
|
|||||||||||
|
2008
|
2007
|
2006
|
|||||||||
|
(Dollars
in thousands)
|
|||||||||||
|
Inventory
impairments related to:
|
|||||||||||
|
Land
under development and homes completed and under
construction
|
$ | 827,611 | $ | 414,244 | $ | 188,602 | |||||
|
Land
held for sale or sold
|
115,483 | 291,176 | 46,020 | ||||||||
|
Total
inventory impairments
|
$ | 943,094 | $ | 705,420 | $ | 234,622 | |||||
|
Remaining
carrying value of inventory impaired at year end
|
$ | 847,655 | $ | 736,663 | $ | 687,492 | |||||
|
Number
of projects impaired during the year
|
184 | 132 | 59 | ||||||||
|
Total
number of projects included in inventories-owned and reviewed for
impairment during the year (1)
|
326 | 390 | 416 | ||||||||
|
(1)
|
Represents
the peak number of real estate projects that we had outstanding during
each respective year. The number of projects outstanding at the
end of each year is less than the number of projects listed
herein.
|
The
inventory impairments related to land under development and homes completed and
under construction were included in cost of home sales and the impairments
related to land held for sale or sold were included in cost of land sales in the
accompanying consolidated statements of operations (please see Note 3 for a
breakout of impairment charges by segment). The impairment charges
recorded during the periods noted above resulted from lower home prices, which
were driven by increased incentives, discounts and price reductions to address
weaker demand and homebuyer confidence, resulting from decreased affordability,
more limited availability of mortgage credit, and an increased number of
communities and completed and existing homes available for sale in the
marketplace. These factors have created a much more competitive
market for new homes, which has continued to put downward pressure on home
prices.
66
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
b.
Inventories Not Owned
Inventories
not owned consisted of the following at:
|
December
31,
|
|||||||
|
2008
|
2007
|
||||||
|
(Dollars
in thousands)
|
|||||||
|
Land
purchase and lot option deposits
|
$ | 9,910 | $ | 28,542 | |||
|
Variable
interest entities, net of deposits
|
7,903 | 49,640 | |||||
|
Other
lot option contracts, net of deposits
|
24,929 | 31,575 | |||||
|
Total
inventories not owned
|
$ | 42,742 | $ | 109,757 | |||
Under FIN
46R, a non-refundable deposit paid to an entity is deemed to be a variable
interest that will absorb some or all of the entity’s expected losses if they
occur. Therefore, whenever we enter into a land option or purchase
contract with an entity and make a non-refundable deposit, a VIE may have been
created. If a VIE exists and we have a variable interest in that entity, FIN 46R
requires us to calculate expected losses and residual returns for the VIE based
on the probability of estimated future cash flows as described in FIN
46R. If we are deemed to be the primary beneficiary of a VIE based on
such calculations, we are required to consolidate the VIE on our balance
sheet.
At
December 31, 2008 and 2007, we consolidated 2 and 7 VIEs, respectively, as a
result of our options to purchase land or lots from the selling
entities. We made cash deposits or issued letters of credit to these
VIEs totaling approximately $1.5 million
and $8.1 million as of December 31, 2008 and 2007, respectively, of which the
cash deposits are included in land purchase and lot option deposits in the table
above. Our option deposits generally represent our maximum exposure
to the land seller if we elect not to purchase the optioned
property. In some instances, we may also expend funds for due
diligence, development and construction activities with respect to optioned land
prior to takedown, which we would have to write off should we not exercise the
option. We consolidated these VIEs because we were considered the
primary beneficiary in accordance with FIN 46R. As a result, included
in our consolidated balance sheets at December 31, 2008 and 2007 were
inventories not owned related to these VIEs of approximately $8.9 million and
$56.8 million (which includes $1.0 million and $7.1 million in deposits,
exclusive of outstanding letters of credit), liabilities from inventories not
owned of approximately $0 and $11.4 million, and minority interests of
approximately $7.9 million and $38.2 million, respectively. These
amounts were recorded based on each VIE’s estimated fair value upon
consolidation. Creditors of these VIEs, if any, have no recourse against
us.
Other lot
option contracts represent specific performance obligations to purchase lots
that we have with various land sellers. In certain instances, the
land option contract contains a binding obligation requiring us to complete the
lot purchases. In other instances, the land option contract does not
obligate us to complete the lot purchases but, due to the magnitude of our
capitalized preacquisition costs, development and construction expenditures, we
are considered economically compelled to complete the lot
purchases.
5.
Homebuilding Other Assets
Homebuilding
other assets consisted of the following at:
|
December
31,
|
|||||||
|
2008
|
2007
|
||||||
|
(Dollars
in thousands)
|
|||||||
|
Income
tax receivables
|
$
|
115,650
|
$
|
240,719
|
|||
|
Deferred
compensation assets
|
―
|
17,693
|
|||||
|
Property
and equipment, net
|
8,939
|
15,379
|
|||||
|
Deferred
debt issuance costs
|
12,175
|
16,149
|
|||||
|
Prepaid
insurance
|
4,575
|
5,390
|
|||||
|
Other
assets
|
4,228
|
4,805
|
|||||
|
Total
homebuilding other assets
|
$
|
145,567
|
$
|
300,135
|
|||
In
February 2009, we received approximately $114.5 million in cash related to the
receipt of our 2008 federal income tax refund.
67
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
6.
Investments in Unconsolidated Land Development and Homebuilding Joint
Ventures
We enter
into land development and homebuilding joint ventures from time to time as a
means of accessing lot positions, expanding our market opportunities,
establishing strategic alliances, managing our risk profile and leveraging our
capital base. These joint ventures are typically entered into with
developers, other homebuilders, land sellers and financial
partners. The tables set forth below summarize the combined financial
information related to our unconsolidated land development and homebuilding
joint ventures, including discontinued operations, accounted for under the
equity method:
|
December
31,
|
|||||||
|
2008
|
2007
|
||||||
|
(Dollars
in thousands)
|
|||||||
|
Assets:
|
|||||||
|
Cash
|
$
|
48,566
|
$
|
60,771
|
|||
|
Inventories
|
843,419
|
1,640,601
|
|||||
|
Other
assets
|
4,874
|
30,507
|
|||||
|
Total
assets
|
$
|
896,859
|
$
|
1,731,879
|
|||
|
Liabilities
and Equity:
|
|||||||
|
Accounts
payable and accrued liabilities
|
$
|
102,218
|
$
|
176,634
|
|||
|
Construction
loans and trust deed notes payable
|
421,848
|
770,969
|
|||||
|
Equity
|
372,793
|
784,276
|
|||||
|
Total
liabilities and equity
|
$
|
896,859
|
$
|
1,731,879
|
|||
Our share
of equity in the unconsolidated joint ventures included in the table above was
approximately $106.9 million and $269.5 million at December 31, 2008 and 2007,
respectively. Our net investment in these joint ventures totaled
approximately $50.5 million and $294.0 million, respectively, as of December 31,
2008 and 2007. These investment amounts included approximately $6.0
million and $11.3 million, respectively, of homebuilding interest capitalized to
investments in unconsolidated joint ventures as of December 31, 2008 and
2007. In some cases our net investment in these unconsolidated joint
ventures is less than our proportionate share of the equity reflected in the
table above because of differences between asset impairments recorded against
our joint venture investments and impairments recorded by the applicable joint
venture.
|
Year
December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
(Dollars
in thousands)
|
||||||||||||
|
Revenues
|
$ | 153,664 | $ | 412,630 | $ | 397,597 | ||||||
|
Cost
of sales and expenses
|
(293,205 | ) | (630,169 | ) | (341,952 |
)
|
||||||
|
Net
income (loss)
|
$ | (139,541 | ) | $ | (217,539 | ) | $ | 55,645 | ||||
68
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Loss from
unconsolidated joint ventures as presented in the accompanying consolidated
statements of operations reflects our proportionate share of the loss of these
unconsolidated land development and homebuilding joint ventures plus any
additional impairments recorded against our investments in joint ventures which
we do not deem recoverable. Our ownership interests in the joint
ventures vary but are generally less than or equal to 50%. The
following table summarizes joint venture inventory impairments from continuing
operations recorded during the years ended December 31, 2008 and
2007:
|
Year
Ended December 31,
|
|||||||
|
2008
|
2007
|
||||||
|
(Dollars
in thousands)
|
|||||||
|
Joint
venture impairments related to:
|
|||||||
|
Homebuilding
joint ventures
|
$ | 64,379 | $ | 103,518 | |||
|
Land
development joint ventures
|
84,886 | 98,791 | |||||
|
Total
joint venture impairments
|
$ | 149,265 | $ | 202,309 | |||
|
Number
of projects impaired during the year
|
20 | 30 | |||||
|
Total
number of projects included in unconsolidated joint
|
|||||||
|
ventures
and reviewed for impairment during the year (1)
|
39 | 74 | |||||
|
(1)
|
Represents
the peak number of real estate projects that we had outstanding during
each respective year. The number of projects outstanding at the
end of each year is less than the number of projects listed
herein. In addition, certain unconsolidated joint ventures have
multiple real estate projects.
|
These
charges were included in loss from unconsolidated joint ventures in the
accompanying consolidated statements of operations.
For
certain joint ventures for which we are the managing member, we receive
management fees, which represent overhead and other reimbursements for costs
associated with managing the related real estate
projects. During the years ended December 31, 2008, 2007 and
2006, we recognized management fees of approximately $564,000, $5.7 million and
$10.5
million, respectively. Management fees were recorded as a reduction
of our general and administrative and construction overhead costs. As
of December 31, 2008 and 2007, we had approximately $283,000 and $754,000,
respectively, in management fees receivable from various joint ventures, which
were included in trade and other receivables in the accompanying consolidated
balance sheets.
During
the year ended December 31, 2008, we purchased and unwound four Southern
California joint ventures, accelerated the takedown of substantially all of the
lots from two Southern California joint ventures, one Northern California joint
venture and one Arizona joint venture and exited two other Northern California
joint ventures. In connection with these transactions, we made
payments totaling approximately $174.4 million, assumed $115.3 million of joint
venture indebtedness and accelerated the purchase or assumed approximately 3,100
lots.
7.
Revolving Credit Facility and Other Indebtedness
a.
Revolving Credit Facility and Term Loans
On June
27, 2008, we amended our revolving credit facility, our Term Loan A and our Term
Loan B (collectively, the “Credit Facilities”) to, among other things, (i)
reduce the total commitment under the revolving credit facility from $500
million to $395 million, (ii) pay down the unsecured borrowings under the
revolver from $90 million to $55 million and the unsecured Term Loan A balance
from $100 million to $65 million, (iii) reduce the letter of credit sublimit
under the revolver from $450 million to $100 million, (iv) agree to make
quarterly principal amortization payments under the Term Loan A and the
revolver, of $2.5 million each (subject to an increase to $5.0 million upon any
future entry by the Company or its subsidiaries into certain types of credit
facilities), and (v) agree to secure future revolver borrowings and letters of
credit (other than certain existing borrowings and letters of credit) with
certain specified types of collateral (including model homes and other real
property assets to be determined) based on specified loan-to-value
ratios. In addition, the commitment under the revolving credit
facility will be reduced at the end of each calendar quarter by the face amount
of all unsecured letters of credit that mature and are not renewed or are
cancelled during such quarter. As of December 31, 2008, we had
approximately $57.5 million and $225.0 million outstanding on our Term Loan A
and Term Loan B, respectively, and $47.5 million in unsecured borrowings
outstanding and $37.8 million in letters of credit outstanding (of which $33.6
million is unsecured) under our revolving credit facility which had a current
commitment amount of $390.9 million.
69
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The new
collateral pool provision limits the amount of borrowing available under our
revolving credit facility. As of December 31, 2008, we had
approximately $178.5 million of revolver borrowing capacity available based on
collateral available as security for future revolver borrowings and letters of
credit.
Prior to
amending the Credit Facilities, we were not in compliance with our consolidated
tangible net worth and leverage covenants contained in such facilities and were
operating under a waiver extended by our bank group. In connection
with the amendments to the Credit Facilities, the financial covenants contained
in such facilities were modified to eliminate covenants relating to consolidated
tangible net worth, leverage, unsold land and minimum interest
coverage. The borrowing base covenant and limitations on joint
venture investments were also eliminated. The amended Credit Facilities contain
a new liquidity covenant requiring us to maintain either a minimum ratio of cash
flow from operations to consolidated homebuilding interest incurred or a minimum
cash interest reserve equal to our last four fiscal quarter’s actual interest
incurred. As of December 31, 2008, the amended Credit Facilities
prohibited, subject to various exceptions, the repurchase of capital stock,
payment of dividends, the early repayment of debt and the incurrence of
debt. On
February 13, 2009, we amended our Credit Facilities to enable us to voluntarily
repurchase debt, provided that certain conditions are met (please refer to the
discussion of the February 13, 2009 amendment below). The
limitation on incurring new debt contains a number of exceptions including the
ability to borrow up to $270 million or $500 million of ACI Debt, dependent on
whether we have fully secured the revolving credit facility and Term Loan A
borrowings, non-recourse indebtedness, subordinated debt, and up to $400 million
of new senior unsecured debt having a maturity of at least 180 days after the
maturity dates of the revolving credit facility and Term Loan A. As of December
31, 2008, we had approximately $63.6 million of ACI Debt outstanding, which
represented the remaining joint venture debt assumed by us in connection with
two joint venture unwinds that occurred during the 2008 fourth
quarter. The financial covenants, including elimination of the
borrowing base, and certain other provisions of our $225 million Term Loan B
were automatically amended to match those of the revolver and Term Loan A as of
the effective time of the amendments of the Credit Facilities. Also,
in connection with the amendments to the Credit Facilities, certain waivers
previously granted under the facilities were permanently extended.
As of
December 31, 2008 we did not meet the minimum cash flow coverage ratio, and as a
result, we were required to establish a minimum interest reserve. In
March 2009, one of our unrestricted subsidiaries deposited approximately $120.8
million of cash in a deposit account with our agent bank for this
purpose.
On February
13, 2009, we amended our Credit Facilities to enable us to voluntarily
repurchase our 51/8% Senior Notes due 2009
(the “2009 Notes”), 6½% Senior Notes due 2010 (the “2010 Notes”) and 67/8% Senior Notes due 2011
(the “2011 Notes”) so long as (i) we have made prepayments and a corresponding
reduction of the revolving commitments under our revolving credit facility of at
least $14.6 million prior to such repurchase, (ii) have made prepayments under
our Term Loan A of at least $10.4 million prior to such repurchase, (iii) within
one business day after any such repurchase of the 2009 Notes, we make an
aggregate prepayment under the revolving credit facility and the Term Loan A
totaling an amount equal to 125% of the discount to par paid in the repurchase
of such 2009 Notes, (iv) within one business day after any such repurchase of
the 2010 Notes, we make an aggregate prepayment under the revolving credit
facility and the Term Loan A totaling an amount equal to 50% of the amount of
such repurchase and (v) within one business day after any such repurchase of the
2011 Notes, we make an aggregate prepayment under the revolving credit facility
and the Term Loan A totaling an amount equal to 100% of the amount of such
repurchase. The prepayments required under clauses (iii), (iv) and
(v) above shall be allocated approximately 58.5% to the revolving credit
facility and 41.5% to the Term Loan A. The $25.0 million of
prepayments required under clauses (i) and (ii) above, as well as other
proportional prepayments of the revolving credit facility (accompanied by a
corresponding reduction of the revolving commitments) and the Term Loan A made
after the effective date of this amendment shall be credited towards any
prepayments required under clauses (iii), (iv) and (v) above. In
February 2009 we made prepayments of $25.0 million required under clauses (i)
and (ii) above.
70
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
b.
Trust Deed and Other Notes Payable
From time
to time, we use purchase money mortgage financing to finance land
acquisitions. We also use community development district (“CDD”),
community facilities district or other similar assessment district bond
financings from time to time to finance land development and infrastructure
costs. Subject to certain exceptions, we generally are not
responsible for the repayment of these assessment district
bonds. At December 31, 2008, we had approximately $111.2
million outstanding in trust deed and other notes payable, including $98.3
million in secured debt that was assumed in connection with unwinding three
joint ventures during 2008 and $3.5 million related to CDD
bonds.
c.
Borrowings and Maturities
The
following summarizes the borrowings outstanding under our revolving credit
facility, bank term loans, and trust deed and other notes payable (excluding
indebtedness included in liabilities from inventories not owned) during the
three years ended December 31:
|
2008
|
2007
|
2006
|
|||
|
(Dollars
in thousands)
|
|||||
|
Maximum
month end borrowings outstanding during the
year
|
$ 495,013
|
$ 857,147
|
$ 1,017,238
|
||
|
Average
outstanding balance during the year
|
$ 437,338
|
$ 688,878
|
$ 817,034
|
||
|
Weighted
average interest rate for the year
|
6.7%
|
6.6%
|
6.4%
|
||
|
Weighted
average interest rate on borrowings outstanding at year
end
|
7.0%
|
6.7%
|
6.9%
|
||
Maturities of the
revolving credit facility, bank term loans, trust deed and other notes payable,
and senior and senior subordinated notes payable are as follows:
|
Year
Ended
December
31,
|
|||||
|
(Dollars
in thousands)
|
|||||
| 2009 | $ | 170,529 | |||
| 2010 | 228,170 | ||||
| 2011 | 290,065 | ||||
| 2012 | 148,709 | ||||
| 2013 | 349,451 | ||||
|
Thereafter
|
325,000 | ||||
| $ | 1,511,924 | ||||
8.
Senior Notes Payable
Senior
notes payable consist of the following:
|
December 31,
|
|||||||
|
2008
|
2007
|
||||||
|
(Dollars
in thousands)
|
|||||||
|
6½% Senior Notes due
2008
|
$ | ― | $ | 126,000 | |||
|
51/8% Senior Notes due
2009
|
124,550 | 150,000 | |||||
|
6½% Senior Notes due
2010
|
173,000 | 175,000 | |||||
|
67/8% Senior Notes due
2011
|
175,000 | 175,000 | |||||
|
7¾% Senior Notes due 2013,
net
|
124,451 | 124,344 | |||||
|
6¼% Senior Notes due
2014
|
150,000 | 150,000 | |||||
|
7%
Senior Notes due 2015
|
175,000 | 175,000 | |||||
|
Term
Loan A
|
57,500 | 100,000 | |||||
|
Term
Loan B
|
225,000 | 225,000 | |||||
| $ | 1,204,501 | $ | 1,400,344 | ||||
In March
2003, we issued $125 million of 7¾% Senior Notes due March 15, 2013. These
notes were issued at a discount to yield approximately 7.88% under the effective
interest method and have been reflected net of the unamortized discount in the
accompanying consolidated balance sheets. Interest on these notes is payable on
March 15 and September 15
71
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
of each
year until maturity. The notes are redeemable at our option, in whole or in
part, commencing March 15, 2008 at 103.875% of par, with the call price
reducing ratably to par on March 15, 2011. Prior to March 15, 2008,
the notes were redeemable pursuant to a “make whole” formula.
In May
2003, we issued $175 million of 67/8% Senior Notes due
May 15, 2011. Interest on these notes is due and payable on May 15 and
November 15 of each year until maturity. The notes are redeemable at our
option, in whole or in part, pursuant to a “make whole” formula.
In
September 2003, we issued $150 million of 6½% Senior Notes due October 1,
2008. These notes were issued at par with interest due and payable on
April 1 and October 1 of each year until maturity. During the years
ended December 31, 2008 and 2007, we repurchased and simultaneously retired
approximately $22.5 million and $24.0 million, respectively, of our 6½% Senior
Notes due 2008 through open market purchases. In connection with the
early retirement of these notes, during 2008 and 2007 we recognized a $1.1
million and $2.8 million gain, respectively, from the early extinguishment of
debt as the notes were purchased at a discount to their par
value. The remaining balance of $103.5 million was repaid in full on
October 1, 2008.
In March
2004, we issued $150 million of 51/8% Senior Notes due
April 1, 2009 and $150 million of 6¼% Senior Notes due April 1, 2014.
These notes were issued at par with interest due and payable on April 1 and
October 1 of each year until maturity. The notes are redeemable at our
option, in whole or in part, pursuant to a “make whole” formula.
In August
2005, we issued $175 million of 6½% Senior Notes due August 15, 2010 and
$175 million of 7% Senior Notes due August 15, 2015. These notes were
issued at par with interest due and payable on February 15 and
August 15 of each year until maturity. The notes are redeemable at our
option, in whole or in part, pursuant to a “make whole” formula.
On June
27, 2008, MatlinPatterson exchanged $128.5 million of senior and senior
subordinated notes (consisting of $25.5 million of 51/8% Senior Notes due 2009,
$2.0 million of 6½% Senior Notes due 2010, $21.6 million of 6% Senior
Subordinated Convertible Notes due 2012 and $79.5 million of 9¼% Senior
Subordinated Notes due 2012) for a warrant to purchase 272,670 shares of Series
B Preferred Stock at a common stock equivalent exercise price of $4.10 per
share. In connection with this exchange, we recognized a loss of $9.1 million
during 2008 related to the extinguishment of the debt, which was included in
other income (expense) in the accompanying consolidated statements of
operations. Please see Note 12.b. for further discussion of the
warrant.
The
senior notes payable described above are all senior obligations and rank equally
with our other existing senior indebtedness, including borrowings under our
revolving credit facility and Term Loan A and B. These senior notes described
above and our 9¼% Senior Subordinated Notes further described in Note 9, contain
covenants which, among other things, impose certain limitations on our ability
to (1) incur additional indebtedness, (2) create liens, (3) make
restricted payments (including payments of dividends, other distributions, share
repurchases, and investments in unrestricted subsidiaries and unconsolidated
joint ventures) and (4) sell assets. Under the limitation on
restricted payments, we are also prohibited from making restricted payments,
which include investments in and advances to our joint ventures and other
unrestricted subsidiaries, if we do not satisfy either the leverage condition or
interest coverage condition. Our ability to make restricted payments
is also subject to a basket limitation. When we were in compliance
with the limitation on restricted payments, we directly made restricted payments
to our joint ventures and other restricted subsidiaries. Since September
30, 2008, we have made restricted payments (including investments in joint
ventures) from funds held in our unrestricted subsidiaries which are not subject
to this prohibition. As of December 31, 2008, we had approximately $513.2
million of liquidity in our unrestricted subsidiaries available to fund joint
venture capital requirements and other restricted payment needs. In
March 2009, approximately $120.8 million of these funds were deposited as an
interest reserve in a deposit account with our agent bank in order to comply
with our revolving credit facility cash flow coverage covenant.
The vast
majority of our wholly owned direct and indirect subsidiaries (collectively, the
“Guarantor Subsidiaries”), other than our financial services subsidiary, title
services subsidiary and certain other subsidiaries, guaranteed our outstanding
senior notes and our senior subordinated notes. The guarantees are full and
unconditional, and joint and several.
72
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
9.
Senior Subordinated Notes Payable
Senior
subordinated notes payable consisted of the following at:
|
December 31,
|
|||||||
|
2008
|
2007
|
||||||
|
(Dollars
in thousands)
|
|||||||
|
6 %
Convertible Senior Subordinated Notes due 2012
|
$ | 78,450 | $ | 100,000 | |||
|
9¼% Senior Subordinated Notes due
2012, net
|
70,259 | 149,350 | |||||
| $ | 148,709 | $ | 249,350 | ||||
On
April 15, 2002, we issued $150 million of 9¼% Senior Subordinated Notes
that mature on April 15, 2012. These notes were issued at a discount to
yield approximately 9.38% under the effective interest method and have been
reflected net of the unamortized discount in the accompanying consolidated
balance sheets and are unsecured obligations that are junior to our senior
indebtedness. Interest on these notes is payable on April 15 and
October 15 of each year until maturity. We will, under certain
circumstances, be obligated to make an offer to purchase all or a portion of
these notes in the event of certain asset sales. On May 22,
2008, we obtained the written consent of a majority of the holders of our 9¼%
Senior Subordinated Notes due 2012 to modify certain provisions of the indenture
governing our 9¼% Senior Subordinated Notes to be consistent with the analogous,
less restrictive provisions applicable to the Company’s 7¾% Senior Notes due
2013. Among other things, the definitions of consolidated tangible net worth and
restricted investment, as well as the limitation on restricted payments, were
amended.
On
September 28, 2007, we issued $100 million of 6% senior subordinated convertible
notes (the “Convertible Notes”) due on October 1, 2012. In connection
with this offering we also entered into a convertible note hedge transaction
designed to reduce equity dilution associated with the potential conversion of
the Convertible Notes to our common stock. Net proceeds from the
offering were approximately $97.0 million after deducting underwriting fees,
$9.1 million of which was used to fund the hedging transaction and the remainder
of which was used to repay a portion of indebtedness outstanding under our
revolving credit facility. In connection with our rights offering
discussed further in Note 12.c., the conversion rate applicable to our
Convertible Notes due 2012 was adjusted to 119.5312 shares of our common stock
per $1,000 principal amount of the Convertible Notes (equivalent to a conversion
price of $8.37). The conversion rate prior to such adjustment was
114.2857 shares of common stock per $1,000 principal amount of Convertible Notes
(equivalent to an initial conversion price of $8.75 per share). The
new conversion rate is subject to further adjustments as provided in the
indenture governing the Convertible Notes.
To
facilitate transactions by which investors in the Convertible Notes may hedge
their investments in such Convertible Notes, we entered into a share lending
facility, dated September 24, 2007, with an affiliate of one of the underwriters
in the Convertible Notes offering, under which we agreed to loan to the share
borrower up to 7,839,809 shares of our common stock for a period beginning on
the date we entered into the share lending facility and ending on October 1,
2012, or, if earlier, the date as of which we have notified the share borrower
of our intention to terminate the facility after the entire principal amount of
the Convertible Notes ceases to be outstanding as a result of conversion,
repurchase or redemption, or earlier in certain circumstances. As of
December 31, 2008, 7,839,809 of these shares were outstanding under the share
lending facility.
10.
Comprehensive Income (Loss)
The
components of comprehensive income (loss) were as follows:
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
(Dollars
in thousands)
|
||||||||||||
|
Net
income (loss)
|
$ | (1,230,081 | ) | $ | (767,273 | ) | $ | 123,693 | ||||
|
Unrealized
loss on interest rate swaps, net of related income tax
effects
|
(10,037 | ) | (7,267 | ) | (5,416 |
)
|
||||||
|
Comprehensive
income (loss)
|
$ | (1,240,118 | ) | $ | (774,540 | ) | $ | 118,277 | ||||
73
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
11.
Earnings (Loss) Per Share
The
following table sets forth the numerators and denominators used in the
computation of basic and diluted earnings (loss) per share. For the
years ended December 31, 2008 and 2007, all dilutive securities were excluded
from the calculation as they were anti-dilutive as a result of the net loss for
these respective periods. For the year ended December 31, 2006,
diluted earnings per share includes the effect of the potential shares
outstanding, including dilutive stock options, nonvested performance share
awards, nonvested restricted stock and deferred stock units using the treasury
stock method. Shares outstanding under the share lending facility are not
treated as outstanding for earnings per share purposes because the share
borrower must return to us all borrowed shares (or identical shares) on or about
October 1, 2012, or earlier in certain circumstances.
|
Year
Ended December 31,
|
|||||||||||||||||||||||||
|
2008
|
2007
|
2006 | |||||||||||||||||||||||
|
Net
Income
|
|||||||||||||||||||||||||
|
Net
Loss
|
Shares
|
EPS
|
Net
Loss
|
Shares
|
EPS
|
(Loss)
|
Shares
|
EPS
|
|||||||||||||||||
|
(Dollars
in thousands, except per share amounts)
|
|||||||||||||||||||||||||
|
Basic
earnings (loss) per share from continuing operations
|
$
|
(740,875)
|
81,439,248
|
$
|
(9.10)
|
$
|
(695,183)
|
72,157,394
|
$
|
(9.63)
|
$
|
146,093
|
72,644,368
|
$
|
2.01
|
||||||||||
|
Effect
of dilutive securities:
|
|||||||||||||||||||||||||
|
Stock
options
|
―
|
―
|
―
|
―
|
―
|
1,393,275
|
|||||||||||||||||||
|
Nonvested
performance share awards
|
―
|
―
|
―
|
―
|
―
|
59,399
|
|||||||||||||||||||
|
Nonvested
restricted stock
|
―
|
―
|
―
|
―
|
―
|
9,640
|
|||||||||||||||||||
|
Deferred
stock units
|
―
|
―
|
―
|
―
|
―
|
106,503
|
|||||||||||||||||||
|
Loss
allocated to preferred shareholders
|
(486,920)
|
53,523,829
|
―
|
―
|
―
|
―
|
|||||||||||||||||||
| Diluted earnings (loss) per share from continuing operations |
$
|
(1,227,795)
|
134,963,077
|
$
|
(9.10)
|
$
|
(695,183)
|
72,157,394
|
$
|
(9.63)
|
$
|
146,093
|
74,213,185
|
$
|
1.97
|
||||||||||
|
Basic
earnings (loss) per share from discontinued operstions
|
$
|
(1,379)
|
81,439,248
|
$
|
(0.01)
|
$
|
(72,090)
|
72,157,394
|
$
|
(1.00)
|
$
|
(22,400)
|
72,644,368
|
$
|
(0.31)
|
||||||||||
|
Effect
of dilutive securities:
|
|||||||||||||||||||||||||
|
Stock
options
|
―
|
―
|
―
|
―
|
―
|
1,393,275
|
|||||||||||||||||||
|
Nonvested
performance share awards
|
―
|
―
|
―
|
―
|
―
|
59,399
|
|||||||||||||||||||
|
Nonvested
restricted stock
|
―
|
―
|
―
|
―
|
―
|
9,640
|
|||||||||||||||||||
|
Deferred
stock units
|
―
|
―
|
―
|
―
|
―
|
106,503
|
|||||||||||||||||||
|
Loss
allocated to preferred shareholders
|
(907)
|
53,523,829
|
―
|
―
|
|
―
|
―
|
||||||||||||||||||
|
Diluted
loss per share from discontinued operations
|
$
|
(2,286)
|
134,963,077
|
$
|
(0.01)
|
$
|
(72,090)
|
72,157,394
|
$
|
(1.00)
|
$
|
(22,400)
|
74,213,185
|
$
|
(0.30)
|
||||||||||
|
Basic
earnings (loss) per share
|
$
|
(742,254)
|
81,439,248
|
$
|
(9.11)
|
$
|
(767,273)
|
72,157,394
|
$
|
(10.63)
|
$
|
123,693
|
72,644,368
|
$
|
1.70
|
||||||||||
|
Diluted
earnings (loss) per share
|
$
|
(1,230,081)
|
134,963,077
|
$
|
(9.11)
|
$
|
(767,273)
|
72,157,394
|
$
|
(10.63)
|
$
|
123,693
|
74,213,185
|
$
|
1.67
|
||||||||||
On
September 3, 2008, we completed our Rights Offering for which each holder of our
common stock as of the record date was issued a transferable right to purchase
up to such holder’s pro rata share of 50 million shares of our common stock at a
per share price of $3.05. Record date stockholders received one right
for every share of common stock on the record date. Each right
entitled the holder to purchase 0.68523554 of a share of common
stock. The market price of our common stock was $4.08 per share on
July 23, 2008, which was the last day that our common stock and the rights
traded together. Since the $3.05 per share subscription price of
common stock issued under the rights offering was lower than the $4.08 per share
market price on July 23, 2008, the rights offering contained a bonus element as
defined under SFAS 128. As a result, we retroactively increased the
weighted average common shares outstanding used to compute basic earnings (loss)
per share by an adjustment factor of approximately 1.1144 for all periods prior
to the rights issue. Please see Note 12.c. for further discussion of
the Rights Offering.
74
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
12.
Stockholders’ Equity
On May
26, 2008, we entered into an Investment Agreement (the “Investment Agreement”)
with MP CA Homes LLC (“MatlinPatterson”), an affiliate of MatlinPatterson Global
Advisers LLC, whereby MatlinPatterson committed to, among other things, invest
in the aggregate over $530 million in our equity. We consummated the
following transactions pursuant to the Investment Agreement:
|
a.
|
Series
B Preferred Stock
|
On June
27, 2008, we issued 381,250 shares of a new series of senior convertible
preferred stock (“Senior Preferred Stock”) to MatlinPatterson for $381.3 million
in cash. Upon obtaining stockholder approval on August 18, 2008, the
shares of Senior Preferred Stock automatically converted into shares of Series B
junior participating convertible preferred stock (the “Series B Preferred
Stock”), which are initially convertible into 125 million shares of our common
stock. The number of shares of common stock into which our Series B
Preferred Stock is convertible is determined by dividing $1,000 by the
applicable conversion price ($3.05, subject to customary anti-dilution
adjustments) plus cash in lieu of fractional shares. The Series B Preferred
Stock will be convertible at the holder’s option into shares of our common stock
provided that no holder, with its affiliates, may beneficially own total voting
power of our voting stock in excess of 49%. The Series B Preferred
Stock also mandatorily converts into our common stock upon its sale, transfer or
other disposition by MatlinPatterson or its affiliates to an unaffiliated third
party. The Series B Preferred Stock votes together with our common stock on all
matters upon which holders of our common stock are entitled to vote. Each share
of Series B Preferred Stock is entitled to such number of votes as the number of
shares of our common stock into which such share of Series B Preferred Stock is
convertible, provided that the aggregate votes attributable to such shares with
respect to any holder of Series B Preferred Stock (including its affiliates),
taking into consideration any other voting securities of the Company held by
such stockholder, cannot exceed more than 49% of the total voting power of the
voting stock of the Company. Shares of Series B Preferred Stock are entitled to
receive only those dividends declared and paid on the common stock.
As
of December 31, 2008, the outstanding shares of Series B Preferred Stock owned
by MatlinPatterson represented approximately 60% (or 70%, assuming
MatlinPatterson had exercised the Warrant for cash on such date) of the total
number of shares of our common stock outstanding on an as-converted
basis.
|
b.
|
Warrant
|
On June
27, 2008, MatlinPatterson exchanged $128.5 million of our senior and senior
subordinated notes for a warrant to purchase 272,670 shares of Senior Preferred
Stock at a common stock equivalent exercise price of $4.10 per share (the
“Warrant”), which became exercisable for Series B Preferred Stock following the
receipt of stockholder approval on August 18, 2008. The shares of Series B
Preferred Stock issuable upon exercise of the Warrant (assuming MatlinPatterson
does not make a cashless exercise) will initially be convertible into 89.4
million shares of our common stock. The Warrant issued in connection
with the Investment Agreement contains a mandatory exercise provision requiring
exercise of 25%, 25% and 50% of the shares subject to the Warrant if the
following price hurdles for a share of our common stock are exceeded for twenty
out of thirty consecutive trading days: $7.50, $9.00, and $10.50,
respectively. We established the fair value of the Warrant using a
Monte Carlo simulation resulting in an aggregate fair value of $138.7
million.
|
c.
|
Rights
Offering
|
We
commenced a rights offering (“Rights Offering”) pursuant to which each holder of
our common stock as of the record date of July 28, 2008 was offered a right
(“Right”) to purchase up to such holder’s pro rata share of approximately 50
million shares of our common stock at a per share price of $3.05 (equivalent to
0.68523554 shares of common stock for each Right). The offer expired
August 22, 2008 and rights to purchase approximately 27.2 million shares of
common stock were exercised for a total subscription price of $82.9
million. As contemplated by the Investment Agreement, MatlinPatterson
purchased 69,579 shares of Series B Preferred Stock (equivalent to 22.8 million
shares of common stock), which represented the common stock not purchased by our
existing common stockholders in the Rights Offering, for a total subscription
price of $69.6 million. In addition, we received approximately
$562,000 for Rights associated with borrowed shares related to our share lending
facility.
75
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
13.
Mortgage Credit Facilities
During
the year ended December 31, 2008, our mortgage financing subsidiary utilized six
mortgage credit facilities to fund its operations. Two of these
mortgage credit facilities matured during the year, and as of December 31, 2008,
the aggregate commitment of the four remaining credit facilities was $148
million, with maturities of $8 million in January 2009, $60
million in March 2009, and $80 million in June 2009. In January 2009,
the maturity date of the $8 million mortgage credit facility was extended to
April 2009. In addition, two of the mortgage credit facilities with
an aggregate borrowing capacity totaling $80 million are uncommitted (meaning
that the lender has discretion to refuse to fund requests). The
various credit facilities require that Standard Pacific Mortgage maintain cash
collateral accounts aggregating $4.3 million. At December 31, 2008, we had
approximately $63.7 million advanced under the four mortgage credit facilities
and as of and for the year ended December 31, 2008, we were in compliance with
the financial and other covenants contained in these facilities, except that we
did not satisfy the profitability covenant contained in the $60 million facility
for the three month period ending September 30, 2008. On October 7, 2008,
we amended the $60 million facility under which we obtained a permanent waiver
for this noncompliance.
14.
Disclosures about Fair Value of Financial Instruments
The
following methods and assumptions were used to estimate the fair value of each
class of financial instrument for which it is practicable to
estimate:
Cash and Equivalents—The
carrying amount is a reasonable estimate of fair value as these assets primarily
consist of short-term investments and demand deposits.
Mortgage Loans Held for
Investment—Fair value of these loans is based on the estimated market
value of the underlying collateral based on market data and other factors for
similar type properties as further adjusted to reflect their estimated net
realizable value of carrying the loans through disposition.
Revolving Credit Facility—The
fair value of this credit facility was based on quoted market prices at year
end.
Mortgage Credit
Facilities—The carrying amounts of these credit obligations approximate
market value because of the frequency of repricing the borrowings.
Trust Deed and Other Notes
Payable—These notes are for purchase money deeds of trust on land
acquired and certain other real estate inventory construction, including secured
bank acquisition, development and construction loans and community development
district bonds. The notes were discounted at an interest rate that is
commensurate with market rates of similar secured real estate
financing.
Senior and Senior Subordinated Notes
Payable—The public senior and senior subordinated notes and Term Loan B
notes are publicly traded over the counter and their fair values were based upon
the values of their last trade at year end. The Term Loan A notes were based on
quoted market prices at year end.
Forward Sale Commitments of
Mortgage-Backed Securities—These instruments consist of the forward sale
of publicly traded mortgage-backed securities. Fair values of these instruments
are based on quoted market prices for similar instruments.
Commitments to Originate Mortgage
Loans—These instruments consist of extending interest rate locks to loan
applicants. Fair values of these instruments are based on market rates of
similar interest rate locks.
76
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
December
31,
|
||||||||||||||||
|
2008
|
2007
|
|||||||||||||||
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
|||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Financial
assets:
|
||||||||||||||||
|
Homebuilding:
|
||||||||||||||||
|
Cash
and equivalents
|
$ | 626,379 | $ | 626,379 | $ | 219,141 | $ | 219,141 | ||||||||
|
Financial
services:
|
||||||||||||||||
|
Cash
and equivalents
|
$ | 7,976 | $ | 7,976 | $ | 12,413 | $ | 12,413 | ||||||||
|
Mortgage
loans held for investment
|
$ | 11,736 | $ | 11,736 | $ | 10,973 | $ | 10,973 | ||||||||
|
Financial
liabilities:
|
||||||||||||||||
|
Homebuilding:
|
||||||||||||||||
|
Revolving
credit facility
|
$ | 47,500 | $ | 35,625 | $ | 90,000 | $ | 75,600 | ||||||||
|
Trust
deed and other notes payable
|
$ | 111,214 | $ | 111,214 | $ | 34,714 | $ | 34,714 | ||||||||
|
Senior
notes payable, net
|
$ | 1,204,501 | $ | 769,298 | $ | 1,400,344 | $ | 1,015,673 | ||||||||
|
Senior
subordinated notes payable, net
|
$ | 148,709 | $ | 68,625 | $ | 249,350 | $ | 130,624 | ||||||||
|
Financial
services:
|
||||||||||||||||
|
Mortgage
credit facilities
|
$ | 63,655 | $ | 63,655 | $ | 164,172 | $ | 164,172 | ||||||||
|
Off-balance
sheet financial instruments:
|
||||||||||||||||
|
Forward
sale commitments of mortgage-backed securities
|
$ | 15,000 | $ | 14,762 | $ | 81,000 | $ | 80,325 | ||||||||
|
Commitments
to originate mortgage loans
|
$ | 12,032 | $ | 12,272 | $ | 13,863 | $ | 13,820 | ||||||||
Effective
January 1, 2008, we implemented the requirements of Statement of Accounting
Standards No. 157, “Fair Value Measurements” (“SFAS 157”) for our financial
assets and liabilities. In February 2008, the FASB issued Staff
Position 157-2 (“FSP 157-2”). FSP 157-2 permits delayed adoption of SFAS 157 for
certain non-financial assets and liabilities, which are not recognized at fair
value on a recurring basis, until fiscal years and interim periods beginning
after November 15, 2008. As permitted by FSP 157-2, the Company has elected
to delay the adoption of SFAS 157 for qualifying non-financial assets and
liabilities. SFAS 157 establishes a framework for measuring fair
value, expands disclosures regarding fair value measurements and defines fair
value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. Further, SFAS 157 requires the Company to maximize
the use of observable market inputs, minimize the use of unobservable market
inputs and disclose in the form of an outlined hierarchy the details of such
fair value measurements. SFAS 157 specifies a hierarchy of
valuation techniques based on whether the inputs to a fair value measurement are
considered to be observable or unobservable in a marketplace. The three levels
of the hierarchy are as follows:
|
·
|
Level
1 – quoted prices for identical assets or
liabilities in active
markets;
|
|
·
|
Level
2 – quoted prices for similar assets or
liabilities in active markets; quoted prices for identical or similar
assets or liabilities in markets that are not active; and model-derived
valuations in which significant inputs and significant value drivers are
observable in active markets; and
|
|
·
|
Level
3 – valuations derived from valuation techniques in which one or more
significant inputs or significant value drivers are unobservable.
|
77
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The
following assets and liabilities have been measured at fair value in accordance
with SFAS 157 for the year ended December 31, 2008:
|
Fair
Value Measurements at Reporting Date Using
|
||||||||||||
|
Quoted
Prices in
|
Significant
Other
|
Significant
|
||||||||||
|
Active
Markets for
|
Observable
|
Unobservable
|
||||||||||
|
As
of
|
Identical
Assets
|
Inputs
|
Inputs
|
|||||||||
|
Description
|
December
31, 2008
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
||||||||
|
(Dollars
in thousands)
|
||||||||||||
|
Assets:
|
||||||||||||
|
Mortgage
loans held for sale
|
$
|
63,960
|
$
|
―
|
$
|
63,960
|
$
|
―
|
||||
|
Liabilities:
|
||||||||||||
|
Interest
rate swaps
|
$
|
37,984
|
$
|
―
|
$
|
37,984
|
$
|
―
|
||||
Mortgage Loans Held for
Sale—These consist of first mortgages on single-family residences which
are eligible for sale to Fannie Mae, Freddie Mac, FHA or VA. Fair values of
these loans are based on quoted market prices for similar loans.
Interest Rate Swaps—The fair
value of interest rate swap agreements is the estimated amount that we would
receive or pay to terminate the swap agreements at the reporting date, based on
quoted mid-market prices or pricing models using current mid-market
rates.
We
adopted SFAS 159, on a prospective basis for mortgage loans held for sale,
effective November 1, 2008. In accordance with the provisions of SFAS
159, mortgage loans held for sale originated on or subsequent to November 1,
2008 are measured at fair value. The adoption of SFAS 159 for
mortgage loans held for sale improves consistency of mortgage loan valuation
between the date the borrower locks the interest rate on the pending loan and
the date of the mortgage loan sale. Prior to the adoption of SFAS 159, mortgage
loans held for sale were reported at the lower of cost or market on an aggregate
basis. For loans that were effectively hedged as fair value hedges,
the loans were recorded at fair value in accordance with SFAS 133.
15.
Commitments and Contingencies
|
a.
|
Land
Purchase and Option Agreement
|
We are
subject to customary obligations associated with entering into land purchase or
lot option contracts for the purchase of land and improved homesites. These lot
option and purchase contracts generally require a non-refundable cash deposit or
delivery of a letter of credit, and the purchase of properties under these
contracts is generally contingent upon satisfaction of certain requirements by
the sellers, including obtaining applicable property and development
entitlements. We generally have the right at our discretion to
terminate our obligations under both purchase contracts and option contracts by
forfeiting our cash deposit or by repaying amounts drawn under our letter of
credit with no further financial responsibility to the land
seller. Also, in a few instances where we have entered into option
contracts with third party financial entities, we have generally entered into
construction agreements that do not terminate if we elect not to exercise our
option. In these instances, we are generally obligated to complete
land development improvements on the optioned property at a predetermined cost
(paid by the option provider) and are responsible for all cost
overruns. In some instances, we may also expend funds for due
diligence, development and construction activities with respect to these
contracts prior to purchase, which we would have to write off should we not
purchase the land. At December 31, 2008, we had cash deposits and
letters of credit outstanding of approximately $15.9 million and capitalized
preacquisition and other development and construction costs of approximately
$9.6 million relating to land purchase and option contracts having a total
remaining purchase price of approximately $145.9
million. Approximately $32.8 million of the remaining purchase price
is included in inventories not owned in the accompanying consolidated balance
sheets.
For the
years ended December 31, 2008, 2007 and 2006, we incurred pretax charges (net of
recoveries) of approximately $25.6 million, $22.5 million and $51.6 million,
respectively, related to the write-offs of option deposits and capitalized
preacquisition costs for abandoned projects. These charges were
included in other income (expense) in the accompanying consolidated statements
of operations. We continue to evaluate the terms of open land option
and purchase contracts
in light of slower housing market conditions and may write-off additional option
deposits and capitalized preacquisition costs in the future, particularly in
those instances where land sellers or third party financial entities are
unwilling to renegotiate significant contract terms.
78
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
b.
|
Land
Development and Homebuilding Joint
Ventures
|
We enter
into land development and homebuilding joint ventures from time to
time.
These
joint ventures typically obtain secured acquisition, development and
construction financing, which reduce the use of funds from our revolving credit
facility and other corporate financing sources.
Our
potential future obligations to our joint venture partners and joint venture
lenders include:
|
· capital
calls related to credit enhancements
· planned
and unplanned capital contributions
· capital
calls related to surety indemnities
· buy-sell
obligations
· land
development and construction completion obligations
|
· land
takedown obligations
· capital
calls related to environmental indemnities
· joint
venture exit costs, including loan
payoffs
|
Credit Enhancements. We and
our joint venture partners generally provide credit enhancements in connection
with joint venture borrowings in the form of loan-to-value maintenance
agreements, which require us to repay the venture’s borrowings to the extent
such borrowings plus, in certain circumstances, construction completion costs,
exceed a specified percentage of the value of the property securing the
loan. Typically, we share these obligations, either directly or
indirectly, with our other partners. At December 31, 2008, a total of
$173.9 million in credit enhancements related to seven joint ventures had been
provided with respect to our unconsolidated joint venture borrowings, of which
$19.8 million were joint and several obligations of us and our partners and
$154.1 million of which were our sole obligation. Assuming we had
been required to fund all of the $173.9 million in total credit enhancements at
December 31, 2008, we would have been entitled to seek reimbursement from our
partners, either directly pursuant to the credit enhancement documents or
through the contribution provisions contained in the applicable joint venture
documents, for up to approximately $76.0 million.
During
the year ended December 31, 2008, we made $29.3 million of loan remargin
payments related to two of our Southern California joint ventures and one
Arizona joint venture. During the year ended December 31, 2007, we
made aggregate remargin payments of approximately $79.3 million related to seven
of our Southern and Northern California joint ventures. In addition,
we anticipate being required to make a $5.0 million remargin payment with
respect to one of our joint ventures during the first quarter of 2009, which is
included in accrued liabilities in our accompanying consolidated balance sheet
as of December 31, 2008.
Land Development and Construction
Completion Agreements. We and our joint venture partners are
generally obligated to the project lenders to complete land development
improvements and the construction of planned homes if the joint venture does not
perform the required development and construction. Provided that we
and the other joint venture partners are in compliance with these completion
obligations, the project lenders would be obligated to fund these improvements
through any financing commitments available under the applicable joint venture
development and construction loans, with any completion costs in excess of the
funding commitments being borne directly by us and our joint venture
partners.
Environmental
Indemnities. We and our joint venture partners have from time
to time provided unsecured environmental indemnities to joint venture project
lenders. In each case, we have performed due diligence on potential
environmental risks. These indemnities obligate us and, in certain
instances, our joint venture partners, to reimburse the project lenders for
claims related to environmental matters for which they are held
responsible.
Surety
Indemnities. We and our joint venture partners have also
agreed to indemnify third party surety providers with respect to performance
bonds issued on behalf of certain of our joint ventures. If a joint
venture does not perform its obligations, the surety bond could be
called. If these surety bonds are called and the joint venture fails
to reimburse the surety, we and our joint venture partners would be obligated to
indemnify the surety. These surety indemnity arrangements
are
generally joint and several obligations with our joint venture
partners. At December 31, 2008, our joint ventures had approximately
$19.4 million of surety bonds outstanding subject to these indemnity
arrangements by us and our partners.
79
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
c.
Surety Bonds
We issue
surety bonds to third parties in the normal course of business to ensure
completion of the infrastructure of our projects. At December 31,
2008, we had approximately $259.2 million in surety bonds outstanding from
continuing operations (exclusive of surety bonds related to our joint ventures)
of which $89.9 million represents our estimated cost to complete.
d.
Mortgage Loans and Commitments
We commit
to making mortgage loans to our homebuyers through our mortgage financing
subsidiary, Standard Pacific Mortgage, Inc. Mortgage loans in process
for which interest rates were committed to borrowers totaled approximately $12.0
million at December 31, 2008 and carried a weighted average interest rate of
approximately 5.2%. Interest rate risks related to these obligations
are generally mitigated by Standard Pacific Mortgage preselling the loans to
third party investors or through its interest rate hedging
program. As of December 31, 2008, Standard Pacific Mortgage had
approximately $72.4 million of closed mortgage loans held for sale and mortgage
loans in process which were or are expected to be originated on a non-presold
basis, all of which were hedged by forward sale commitments of mortgage-backed
securities. In addition, as of December 31, 2008, Standard Pacific
Mortgage held approximately $2.4 million in closed mortgage loans held for sale
and mortgage loans in process which were presold to third party investors
subject to completion of the investors’ administrative review of the applicable
loan documents.
Standard
Pacific Mortgage sells substantially all of the loans it originates in the
secondary mortgage market, with servicing rights released on a non-recourse
basis. This sale is subject to Standard Pacific Mortgage’s obligation
to repay its gain on sale if the loan is prepaid by the borrower within a
certain time period following such sale, or to repurchase the loan if, among
other things, the borrower defaults on the loan within a specified period
following the sale, the purchaser’s underwriting guidelines are not met, or
there is fraud in connection with the loan.
e.
Operating Leases
We lease
office facilities, model homes and certain equipment under noncancelable
operating leases. Future minimum rental payments under these leases, net of
related subleases, having an initial term in excess of one year as of December
31, 2008 are as follows:
|
Year
Ended
December
31,
|
||||
|
(Dollars
in thousands)
|
||||
|
2009
|
$
|
11,085
|
||
|
2010
|
7,747
|
|||
|
2011
|
5,223
|
|||
|
2012
|
3,600
|
|||
|
2013
|
1,120
|
|||
|
Thereafter
|
―
|
|||
|
Subtotal
|
28,775
|
|||
|
Less
- Sublease income
|
(1,110)
|
|||
|
Net
rental obligations
|
$
|
27,665
|
||
Future
minimum model home rental payments included in the table above represented $1.1
million of the total future liability. Rent expense under
noncancelable operating leases, net of sublease income, for each of the years
ended December 31, 2008, 2007 and 2006 was approximately $11.0 million, $13.0
million and $11.4 million, respectively.
80
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
f.
Restructuring Costs
During
the year ended December 31, 2008, we initiated a restructuring plan designed to
reduce ongoing overhead costs and improve operating efficiencies through the
consolidation of selected divisional offices, the disposal of related property
and equipment, and a reduction in our workforce. Below is a summary
of restructuring charges incurred:
|
Year
Ended
|
|||
|
December
31, 2008
|
|||
|
(Dollars
in thousands)
|
|||
|
Employee
severance costs
|
$ | 13,991 | |
|
Property
and equipment disposals
|
2,290 | ||
|
Lease
termination and other exit costs
|
7,886 | ||
| $ | 24,167 | ||
Employee
severance costs of $11.3 million and $2.7 million are included in selling,
general and administrative expenses and cost of sales, respectively, property
and equipment disposals are included in other income (expense), and lease
termination and other exit costs are included in selling, general and
administrative expenses in the accompanying consolidated statements of
operations.
16.
Income Taxes
The
(provision) benefit for income taxes includes the following
components:
|
Year
Ended December 31,
|
||||||||||
|
2008
|
2007
|
2006
|
||||||||
|
(Dollars
in thousands)
|
||||||||||
|
Current:
|
||||||||||
|
Federal
|
$
|
(128,453)
|
$
|
235,631
|
$
|
(160,891)
|
||||
|
State
|
―
|
(985)
|
(32,185)
|
|||||||
|
(128,453)
|
234,646
|
(193,076)
|
||||||||
|
Deferred:
|
||||||||||
|
Federal
|
135,248
|
(39,956)
|
102,865
|
|||||||
|
State
|
―
|
(5,736)
|
20,171
|
|||||||
|
135,248
|
(45,692)
|
123,036
|
||||||||
|
(Provision)
benefit for income taxes
|
$
|
6,795
|
$
|
188,954
|
$
|
(70,040)
|
||||
|
(Provision)
benefit for income taxes - continuing operations
|
$
|
5,495
|
$
|
149,003
|
$
|
(82,930)
|
||||
|
(Provision)
benefit for income taxes - discontinued operations
|
1,300
|
39,951
|
12,890
|
|||||||
|
(Provision)
benefit for income taxes
|
$
|
6,795
|
$
|
188,954
|
$
|
(70,040)
|
||||
81
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The
components of our net deferred income tax asset are as follows:
|
December
31,
|
|||||||
|
2008
|
2007
|
||||||
|
(Dollars
in thousands)
|
|||||||
|
Inventory
adjustments
|
$ | 534,074 | $ | 253,074 | |||
|
Financial
accruals
|
38,952 | 45,187 | |||||
|
Net
operating loss carryforwards
|
108,305 | 37,136 | |||||
|
State
income taxes
|
182 | 345 | |||||
|
Amortization
of goodwill
|
(22,047 |
)
|
(19,516 |
)
|
|||
|
Interest
rate swap
|
14,122 | 7,393 | |||||
|
Other
|
(5,359 |
)
|
856 | ||||
|
Subtotal
|
668,229 | 324,475 | |||||
|
Less:
Valuation allowance
|
(654,107 |
)
|
(180,480 |
)
|
|||
|
Deferred
income taxes
|
$ | 14,122 | $ | 143,995 | |||
The effective
tax rate differs from the federal statutory rate of 35% due to the following
items:
|
Year
Ended December 31,
|
||||||||||
|
2008
|
2007
|
2006
|
||||||||
|
(Dollars
in thousands)
|
||||||||||
|
Income
(loss) before taxes
|
$
|
(1,236,875)
|
$
|
(956,227)
|
$
|
193,733
|
||||
|
(Provision)
benefit for income taxes at federal statutory rate
|
$
|
432,906
|
$
|
334,680
|
$
|
(67,807)
|
||||
|
(Increases)
decreases in tax resulting from:
|
||||||||||
|
State
income taxes, net of federal benefit
|
48,168
|
34,583
|
(7,932)
|
|||||||
|
Section
199 tax benefit
|
―
|
―
|
4,910
|
|||||||
|
Valuation
allowance
|
(473,627)
|
(180,480)
|
―
|
|||||||
|
Other,
net
|
(652)
|
171
|
789
|
|||||||
|
(Provision)
benefit for income taxes
|
$
|
6,795
|
$
|
188,954
|
$
|
(70,040)
|
||||
|
Effective
tax rate
|
0.5%
|
19.8%
|
(36.2%)
|
|||||||
We generated
significant deferred tax assets in 2006, 2007 and 2008 largely due to inventory,
joint venture and goodwill impairments incurred during those
periods. As a result of the continued downturn in the housing market
and the uncertainty as to its magnitude and length and the fact that we were in
a cumulative loss position as described in SFAS 109 as of December 31, 2008 and
2007, we recorded noncash valuation allowances of $473.6 million, and $180.5
million, respectively against the net deferred tax assets resulting in a total
valuation allowance of $654.1 million at December 31, 2008. To the
extent that we generate taxable income in the future to utilize the tax benefits
of the related deferred tax assets, subject to certain potential limitations, we
will be able to reduce our effective tax rate by reducing the valuation
allowance.
We
believe that an ownership change under Internal Revenue Code Section 382
(“Section 382”) occurred as a result of closing the first phase of the
MatlinPatterson transaction. Accordingly, we may be limited in the use of
certain tax attributes that relate to tax periods prior to the ownership
change. These potential carryback limitations did not have an impact
on our ability to carry back our 2008 net operating loss to 2006 for refund
purposes, however, the Section 382 ownership change will have an impact of
placing an annual limitation on our ability to carry forward certain tax
attributes generated in future periods.
82
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As a
result of the implementation of FIN 48, we recognized a $4.1 million liability
(net of the federal income tax benefit and including potential interest and
penalties) as of January 1, 2007 related to unrecognized tax benefits, that if
recognized, would lower our effective tax rate. The charge was reflected as a
reduction of beginning retained earnings as of January 1, 2007. We classify
estimated interest and penalties related to unrecognized tax benefits in our
provision for income taxes. A reconciliation of the beginning and ending amount
of gross unrecognized tax benefits is as follows:
|
Year
Ended December 31,
|
||||||
|
2008
|
2007
|
|||||
| (Dollars in thousands) | ||||||
|
Balance,
beginning of the year
|
$
|
5,511
|
$
|
5,879
|
||
|
Changes
based on tax positions related to the current year
|
―
|
(32)
|
||||
|
Changes
for tax position in prior years
|
50
|
332
|
||||
|
Reductions
for tax positions of prior years
|
(948)
|
(668)
|
||||
|
Settlements
|
―
|
―
|
||||
|
Balance,
end of the year
|
$
|
4,613
|
$
|
5,511
|
||
As of
December 31, 2008, we remain subject to examination by certain tax jurisdictions
for the tax years ended December 31, 2004 through 2008. There were no
significant changes in the accrued liability related to uncertain tax positions
during the year ended December 31, 2008, nor do we anticipate significant
changes during the next 12-month period.
17. Stock Incentive, Employee Benefit
and Deferred Compensation Plans
|
a.
|
Stock
Incentive Plans
|
The
Company has share-based awards outstanding under six different plans, pursuant
to which we have granted stock options, performance share awards, and restricted
stock grants to key officers, employees, and directors. The exercise price of
our stock options may not be less than the market value of our common stock on
the date of grant. Stock options vest based on either time (generally over a one
to four year period) or market performance (based on stock price appreciation)
and generally expire between five and ten years after the date of grant. The
fair value for options is established at the date of grant using the
Black-Scholes model for options that vest based on time and the Lattice model
for options that vest based on market performance. Restricted stock typically
vests over a one to three year period and is valued at the closing price on the
date of grant.
The
following is a summary of stock option transactions relating to the six plans on
a combined basis for the years ended December 31, 2008, 2007 and
2006:
|
2008
|
2007
|
2006
|
||||||||||||||||
|
Options
|
Weighted
Average
Exercise
Price
|
Options
|
Weighted
Average
Exercise
Price
|
Options
|
Weighted
Average
Exercise
Price
|
|||||||||||||
|
Options
outstanding, beginning of year
|
6,086,780
|
$
|
19.63
|
5,006,874
|
$
|
20.07
|
4,984,685
|
$
|
17.45
|
|||||||||
|
Granted
|
12,765,000
|
3.16
|
2,437,500
|
18.07
|
567,500
|
37.02
|
||||||||||||
|
Exercised
|
―
|
―
|
(286,764)
|
8.12
|
(425,890)
|
6.82
|
||||||||||||
|
Canceled
|
(4,454,079)
|
9.79
|
(1,070,830)
|
21.23
|
(119,421)
|
38.39
|
||||||||||||
|
Options
outstanding, end of year
|
14,397,701
|
$
|
8.07
|
6,086,780
|
$
|
19.63
|
5,006,874
|
$
|
20.07
|
|||||||||
|
Options
exercisable at end of year
|
5,342,701
|
$
|
16.50
|
3,268,419
|
$
|
17.97
|
3,820,373
|
$
|
14.67
|
|||||||||
|
Options
available for future grant
|
14,939,387
|
1,702,047
|
3,303,896
|
|||||||||||||||
83
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The
following table summarizes information about stock options outstanding and
exercisable at December 31, 2008:
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||
|
Exercise
Prices
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual Life
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
|||||||
|
Low
|
High
|
|||||||||||
|
$
3.10
|
$
8.25
|
11,416,638
|
$
3.53
|
6.27
|
2,361,638
|
$
5.19
|
||||||
|
$ 11.00
|
$ 11.69
|
740,536
|
$
11.39
|
3.06
|
740,536
|
$
11.39
|
||||||
|
$ 14.82
|
$ 27.59
|
854,477
|
$
22.78
|
4.99
|
854,477
|
$
22.78
|
||||||
|
$ 29.84
|
$ 43.53
|
1,386,050
|
$ 34.63
|
4.18
|
1,386,050
|
$
34.63
|
||||||
The fair
value of each stock option granted during each of the three years ended December
31, 2008, 2007 and 2006 was estimated using the following weighted average
assumptions:
|
2008
|
2007
|
2006
|
|||
|
Dividend
yield
|
0.00%
|
0.29%
|
0.43%
|
||
|
Expected
volatility
|
66.64%
|
43.23%
|
40.89%
|
||
|
Risk-free
interest rate
|
3.12%
|
4.43%
|
4.51%
|
||
|
Expected
life
|
4.5 years
|
2.6 years
|
1.1 years
|
Based on
the above assumptions, the weighted average per share fair value of options
granted during the years ended December 31, 2008, 2007 and 2006 was $1.76, $4.37
and $11.32, respectively.
On May 14, 2008, our
stockholders approved our 2008 Stock Incentive Plan (the “2008
Plan”). Under the 2008 Plan, as amended and approved by the
stockholders on August 18, 2008, the maximum number of shares of common stock
that may be issued is 21,940,000 plus awards forfeited under our prior
plans. During the year ended December 31, 2008, we granted 12,765,000
stock options, issued 221,739 shares of stock, and granted performance share
awards, net of cancellations, pursuant to which 170,000 shares were
issued.
We have
determined that the change–in-control provisions under our stock option,
performance share and restricted stock agreements were triggered by obtaining
stockholder approval on August 18, 2008 to convert the outstanding Senior
Preferred Stock to Series B Preferred Stock, which accelerated the vesting of
all unvested stock options, performance share awards and restricted
stock. As a result, we adjusted the requisite service periods in
accordance with SFAS 123R and accelerated compensation expense of approximately
$4.8 million during 2008 related to stock options, performance share awards, and
restricted stock grants that were outstanding as of August 18,
2008.
Total
compensation expense recognized related to stock-based compensation was as
follows:
|
Year
Ended December 31,
|
|||||||||||
|
2008
|
2007
|
2006
|
|||||||||
|
(Dollars
in thousands)
|
|||||||||||
|
Stock
options
|
$ | 6,454 | $ | 13,691 | $ | 7,658 | |||||
|
Performance
share awards
|
3,297 | 4,926 | 7,324 | ||||||||
|
Restricted
and unrestricted stock grants
|
1,359 | 1,533 | 1,557 | ||||||||
|
Total
|
$ | 11,110 | $ | 20,150 | $ | 16,539 | |||||
84
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Total
unrecognized compensation expense related to stock-based compensation was as
follows:
|
As
of December 31,
|
||||||||||||||||||
|
2008
|
2007
|
2006
|
||||||||||||||||
|
Unrecognized
Expense
|
Weighted
Average
Period
|
Unrecognized
Expense
|
Weighted
Average
Period
|
Unrecognized
Expense
|
Weighted
Average
Period
|
|||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||||||
|
Unvested
stock options
|
$ | 11,169 |
3.5
years
|
$ | 3,855 |
1.8
years
|
$ | 8,015 |
2.2
years
|
|||||||||
|
Nonvested
performance share awards
|
― | ― | 3,384 |
1.8
years
|
5,727 |
1.2
years
|
||||||||||||
|
Nonvested
restricted stock grants
|
― | ― | 842 |
0.9
years
|
1,589 |
1.7
years
|
||||||||||||
|
Total
unrecognized compensation expense
|
$ | 11,169 |
3.5
years
|
$ | 8,081 |
1.7
years
|
$ | 15,331 |
1.8
years
|
|||||||||
|
|
b. Employee Benefit
Plan
|
We have a
defined contribution plan pursuant to Section 401(k) of the Internal Revenue
Code. Each employee may elect to make before-tax contributions up to the current
tax limits. The Company matches employee contributions up to $5,000 per employee
per year. The Company provides this plan to help its employees save a portion of
their cash compensation for retirement in a tax efficient environment. Except
for the deferred compensation plans described below, the Company has not
maintained separate or supplemental retirement plans for executives or key
employees. Our contributions to the plan for the years ended December
31, 2008, 2007 and 2006 were $5.3 million, $7.1 million and $8.0 million,
respectively.
|
c.
|
Deferred
Compensation Plan
|
Through
October 27, 2008, the Company maintained a deferred compensation program which,
until December 12, 2007, provided executives, directors, and other eligible
key employees the opportunity to defer compensation which would otherwise be
paid to such individuals on a current basis. On December 12,
2007, the Company modified the program to prohibit future deferrals and to make
accelerated distributions in 2008 to certain plan participants. These amendments
were designed to eliminate any incentive the program may have created for
employees to terminate their employment in order to receive accelerated plan
distributions. Other than for directors, former employees, and certain officers
who qualified for retirement under the program for whom payments were not
accelerated, distributions of participant cash balances were made in January and
July 2008.
On August
18, 2008, in connection with the Company’s receipt of stockholder approval to
convert the Senior Preferred Stock held by MatlinPatterson to Series B Preferred
Stock, a change-in-control occurred for purposes of the deferred compensation
program. In accordance with the program’s terms, the Company was obligated
to distribute all remaining cash and stock held in participant accounts
following the change-in-control. Following this distribution, because
there were no remaining assets in participant accounts and because future
deferrals were prohibited under the program, the Compensation Committee formally
terminated the program effective October 27, 2008.
As of
December 31, 2007, we had $17.7 million in assets relating to the plans which
was included in other assets in our consolidated balance sheets, and we had
accrued $18.1 million for our obligations under the plans, which was included in
accrued liabilities in our consolidated balance sheet. As of December 31, 2008,
there were no assets or liabilities in our consolidated balance sheet relating
to these plans.
18. Discontinued
Operations
During
the fourth quarter of 2007, we sold substantially all of the assets of our
Tucson and San Antonio homebuilding divisions. The results of
operations of our Tucson and San Antonio divisions have been classified as
discontinued operations in accordance with SFAS No. 144. In addition,
assets and liabilities related to these discontinued operations are presented
separately on the consolidated balance sheets, and all prior periods have been
reclassified to conform with current year presentation.
85
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The
following amounts related to the Tucson and San Antonio homebuilding divisions
were derived from historical financial information and have been segregated from
continuing operations and reported as discontinued operations:
|
Year
Ended December 31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
(Dollars
in thousands)
|
||||||||||||
|
Home
sale revenues
|
$ | 25,958 | $ | 124,177 | $ | 198,651 | ||||||
|
Land
sale revenues
|
694 | 57,935 | ― | |||||||||
|
Total
revenues
|
26,652 | 182,112 | 198,651 | |||||||||
|
Cost
of home sales
|
(21,127 | ) | (144,921 | ) | (181,336 |
)
|
||||||
|
Cost
of land sales
|
(751 | ) | (96,354 | ) | (8,985 |
)
|
||||||
|
Total
cost of sales
|
(21,878 | ) | (241,275 | ) | (190,321 |
)
|
||||||
|
Gross
margin
|
4,774 | (59,163 | ) | 8,330 | ||||||||
|
Selling,
general and administrative expenses
|
(8,180 | ) | (25,619 | ) | (30,169 |
)
|
||||||
|
Income
(loss) from unconsolidated joint ventures
|
― | (9,699 | ) | 78 | ||||||||
|
Other
income (expense
|
(180 | ) | (17,560 | ) | (13,529 |
)
|
||||||
|
Pretax
loss
|
(3,586 | ) | (112,041 | ) | (35,290 |
)
|
||||||
|
Benefit
for income taxes
|
1,300 | 39,951 | 12,890 | |||||||||
|
Net
loss from discontinued operations
|
$ | (2,286 | ) | $ | (72,090 | ) | $ | (22,400 |
)
|
|||
During
the year ended December 31, 2007 and 2006 we recorded the following pretax
inventory impairment charges, land deposit write-offs and goodwill impairment
charges related to our discontinued operations:
|
Year
Ended December 31,
|
|||||||
|
2007
|
2006
|
||||||
|
(Dollars
in thousands)
|
|||||||
|
Write-off
of deposits and capitalized preacquisition costs
|
$ | 524 | $ | 1,074 | |||
|
Inventory
impairments
|
86,661 | 21,226 | |||||
|
Joint
venture impairments
|
9,524 | ― | |||||
|
Goodwill
impairments
|
11,430 | 13,317 | |||||
|
Total
impairments
|
$ | 108,139 | $ | 35,617 | |||
We did
not record any impairments related to our discontinued operations during the
year ended December 31, 2008.
The
following is a summary of the assets and liabilities of the Tucson and San
Antonio divisions discontinued operations. The amounts presented
below were derived from historical financial information and adjusted to exclude
intercompany receivables between the divisions, discontinued operations and the
Company:
|
December
31,
|
|||||||
|
2008
|
2007
|
||||||
|
(Dollars
in thousands)
|
|||||||
|
Assets
|
|||||||
|
Cash
and equivalents
|
$ | 7 | $ | 7 | |||
|
Trade
and other receivables
|
160 | 1,959 | |||||
|
Inventories
|
930 | 16,542 | |||||
|
Other
assets
|
120 | 1,219 | |||||
|
Total
Assets
|
$ | 1,217 | $ | 19,727 | |||
|
Liabilities
|
|||||||
|
Accounts
payable
|
$ | 320 | $ | 3,305 | |||
|
Accrued
liabilities
|
1,011 | 1,916 | |||||
|
Total
Liabilities
|
$ | 1,331 | $ | 5,221 | |||
19.
Stockholder Rights Plan and Common Stock Repurchase Plan
Effective
December 31, 2001, Standard Pacific’s Board of Directors approved the adoption
of a stockholder rights agreement (the “Rights Agreement”). Under the Rights
Agreement, one preferred stock purchase right was granted for each
86
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
share of
outstanding common stock payable to holders of record on December 31, 2001. The
rights issued under the Rights Agreement replace rights previously issued by
Standard Pacific in 1991 under the prior rights plan, which rights expired on
December 31, 2001. Each right entitles the holder, in certain takeover
situations, as described in the Rights Agreement, and upon paying the exercise
price (currently $57.50), to purchase common stock or other securities having a
market value equal to two times the exercise price. Also, in such takeover
situations, if we merge into another corporation, or if 50% or more of our
assets are sold, the rights holders may be entitled, upon payment of the
exercise price, to buy common shares of the acquiring corporation at a 50%
discount from the then-current market value. In either situation, these rights
are not exercisable by the acquiring party. Until the occurrence of certain
events, the rights may be terminated at any time or redeemed by Standard
Pacific’s Board of Directors including if it believes a proposed transaction to
be in the best interests of our stockholders, at the rate of $.001 per right.
The rights will expire on December 31, 2011, unless earlier terminated, redeemed
or exchanged. If the rights are separated from the common shares, the rights
expire ten years from the date they were separated.
On
February 1, 2006, our Board of Directors authorized a $100 million stock
repurchase plan (the “February 2006 Plan”), which was subsequently replaced with
a new $50 million plan on July 26, 2006 (the “July 2006 Plan”). From January 1,
2008 through March 9, 2009, no shares have been repurchased under the stock
repurchase plan and we have suspended further repurchases under the plan until
we reach our leverage and liquidity goals and the outlook for the housing market
improves. In connection with the vesting of restricted stock grants
made under our equity incentive plans, pursuant to the grant documents, we
repurchased an aggregate of approximately 215,531 shares from our executive
officers to fund vesting-related tax obligations totaling approximately
$726,000. We are currently prohibited by the terms of our revolving
credit facility, senior term loans, and public note indentures from repurchasing
capital stock for cash.
20.
Results of Quarterly Operations (Unaudited)
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
Total
(1)
|
||||||||||||||||
|
(Dollars
in thousands, except per share amounts)
|
||||||||||||||||||||
|
2008:
|
||||||||||||||||||||
|
Revenues
|
$ | 354,484 | $ | 412,798 | $ | 402,832 | $ | 379,089 | $ | 1,549,203 | ||||||||||
|
Homebuilding
gross margin
|
$ | (117,166 | ) | $ | (75,131 | ) | $ | (206,572 | ) | $ | (294,525 | ) | $ | (693,394 |
)
|
|||||
|
Loss
from continuing operations net of income taxes
|
$ | (215,248 | ) | $ | (247,492 | ) | $ | (368,755 | ) | $ | (396,300 | ) | $ | (1,227,795 |
)
|
|||||
|
Loss
from discontinued operations, net of income taxes
|
(1,191 | ) | (745 | ) | (69 | ) | (281 | ) | (2,286 |
)
|
||||||||||
|
Net
loss
|
$ | (216,439 | ) | $ | (248,237 | ) | $ | (368,824 | ) | $ | (396,581 | ) | $ | (1,230,081 |
)
|
|||||
|
Basic
loss per share:
|
||||||||||||||||||||
|
Continuing
operations
|
$ | (2.98 | ) | $ | (3.42 | ) | $ | (2.53 | ) | $ | (1.65 | ) | $ | (9.10 |
)
|
|||||
|
Discontinued
operations
|
(0.01 | ) | (0.01 | ) | ― | ― | (0.01 |
)
|
||||||||||||
|
Basic
loss per share
|
$ | (2.99 | ) | $ | (3.43 | ) | $ | (2.53 | ) | $ | (1.65 | ) | $ | (9.11 |
)
|
|||||
|
Diluted
loss per share:
|
||||||||||||||||||||
|
Continuing
operations
|
$ | (2.98 | ) | $ | (3.42 | ) | $ | (2.53 | ) | $ | (1.65 | ) | $ | (9.10 |
)
|
|||||
|
Discontinued
operations
|
(0.01 | ) | (0.01 | ) | ― | ― | (0.01 |
)
|
||||||||||||
|
Diluted
loss per share
|
$ | (2.99 | ) | $ | (3.43 | ) | $ | (2.53 | ) | $ | (1.65 | ) | $ | (9.11 |
)
|
|||||
|
2007:
|
||||||||||||||||||||
|
Revenues
|
$ | 656,667 | $ | 665,018 | $ | 645,555 | $ | 938,270 | $ | 2,905,510 | ||||||||||
|
Homebuilding
gross margin
|
$ | 97,432 | $ | (89,915 | ) | $ | (48,520 | ) | $ | (158,860 | ) | $ | (199,863 |
)
|
||||||
|
Loss
from continuing operations net of income taxes
|
$ | (18,247 | ) | $ | (148,813 | ) | $ | (113,742 | ) | $ | (414,381 | ) | $ | (695,183 |
)
|
|||||
|
Loss
from discontinued operations, net of income taxes
|
(22,544 | ) | (17,106 | ) | (5,924 | ) | (26,516 | ) | (72,090 |
)
|
||||||||||
|
Net
loss
|
$ | (40,791 | ) | $ | (165,919 | ) | $ | (119,666 | ) | $ | (440,897 | ) | $ | (767,273 |
)
|
|||||
|
Basic
loss per share:
|
||||||||||||||||||||
|
Continuing
operations
|
$ | (0.26 | ) | $ | (2.06 | ) | $ | (1.58 | ) | $ | (5.73 | ) | $ | (9.63 |
)
|
|||||
|
Discontinued
operations
|
(0.31 | ) | (0.24 | ) | (0.08 | ) | (0.37 | ) | (1.00 |
)
|
||||||||||
|
Basic
loss per share
|
$ | (0.57 | ) | $ | (2.30 | ) | $ | (1.66 | ) | $ | (6.10 | ) | $ | (10.63 |
)
|
|||||
|
Diluted
loss per share:
|
||||||||||||||||||||
|
Continuing
operations
|
$ | (0.26 | ) | $ | (2.06 | ) | $ | (1.58 | ) | $ | (5.73 | ) | $ | (9.63 |
)
|
|||||
|
Discontinued
operations
|
(0.31 | ) | (0.24 | ) | (0.08 | ) | (0.37 | ) | (1.00 |
)
|
||||||||||
|
Diluted
loss per share
|
$ | (0.57 | ) | $ | (2.30 | ) | $ | (1.66 | ) | $ | (6.10 | ) | $ | (10.63 |
)
|
|||||
|
(1)
|
Some
amounts do not add across due to rounding differences in quarterly amounts
and due to the impact of differences between the quarterly and annual
weighted average share
calculations.
|
87
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
21. Supplemental Disclosure to
Consolidated Statements of Cash Flows
The following are supplemental
disclosures to the consolidated statements of cash flows:
|
Year
Ended December 31,
|
|||||||||||
|
2008
|
2007
|
2006
|
|||||||||
|
(Dollars in
thousands)
|
|||||||||||
|
Supplemental
Disclosures of Cash Flow Information:
|
|||||||||||
|
Cash
paid during the period for:
|
|||||||||||
|
Interest
|
$
|
132,525
|
$
|
144,733
|
$
|
139,877
|
|||||
|
Income
taxes
|
$
|
415
|
$
|
14,179
|
$
|
236,171
|
|||||
|
Supplemental
Disclosure of Noncash Activities:
|
|||||||||||
|
Inventory
financed by trust deed and other notes payable, including joint venture
purchases
|
|||||||||||
|
and
unwinds
|
$
|
134,659
|
$
|
21,679
|
$
|
2,304
|
|||||
|
Inventory
received as distributions from unconsolidated homebuilding joint
ventures
|
$
|
42,663
|
$
|
45,711
|
$
|
17,637
|
|||||
|
Senior
and senior subordinated notes exchanged for the issuance of the
Warrant
|
$
|
128,496
|
$
|
―
|
$
|
―
|
|||||
|
Increase
in investments in unconsolidated joint ventures related to accrued joint
venture
|
|||||||||||
|
loan-to-value
remargin obligations
|
$
|
5,000
|
$
|
45,000
|
$
|
―
|
|||||
|
Deferred
purchase price recorded in connection with acquisitions
|
$
|
―
|
$
|
―
|
$
|
2,712
|
|||||
|
Reduction
in seller trust deed note payable in connection with modification of
purchase agreement
|
$
|
25,807
|
$
|
14,079
|
$
|
―
|
|||||
|
Underwriting
discount and expenses capitalized in connection with the issuance of
senior and
|
|||||||||||
|
senior
subordinated convertible notes payable
|
$
|
―
|
$
|
3,000
|
$
|
―
|
|||||
|
Changes
in inventories not owned
|
$
|
48,384
|
$
|
71,228
|
$
|
274,791
|
|||||
|
Changes
in liabilities from inventories not owned
|
$
|
18,078
|
$
|
40,142
|
$
|
34,412
|
|||||
|
Changes
in minority interests
|
$
|
30,306
|
$
|
31,086
|
$
|
309,203
|
|||||
88
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
22.
Supplemental Guarantor Information
On
February 22, 2006, our 100% owned direct and indirect subsidiaries
(“Guarantor Subsidiaries”), other than our financial services subsidiary, title
services subsidiary, and certain other subsidiaries (collectively,
“Non-Guarantor Subsidiaries”), guaranteed our outstanding senior indebtedness
and senior subordinated notes payable. The guarantees are full and unconditional
and joint and several. Presented below are the consolidated financial statements
for our Guarantor Subsidiaries and Non-Guarantor Subsidiaries.
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
|
Year
Ended December 31, 2008
|
|||||||||||||||||
|
Standard
Pacific
Corp.
|
Guarantor
Subsidiaries
|
Non-
Guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Standard
Pacific
Corp.
|
|||||||||||||
|
(Dollars
in thousands)
|
|||||||||||||||||
|
Homebuilding:
|
|||||||||||||||||
|
Revenues
|
$
|
720,106
|
$
|
801,443
|
$
|
14,067
|
$
|
―
|
$
|
1,535,616
|
|||||||
|
Cost
of sales
|
(1,011,970)
|
(1,157,682)
|
(59,358)
|
―
|
(2,229,010)
|
||||||||||||
|
Gross
margin
|
(291,864)
|
(356,239)
|
(45,291)
|
―
|
(693,394)
|
||||||||||||
|
Selling,
general and administrative expenses
|
(174,532)
|
(130,095)
|
(853)
|
―
|
(305,480)
|
||||||||||||
|
Loss
from unconsolidated joint ventures
|
(76,769)
|
(56,357)
|
(18,603)
|
―
|
(151,729)
|
||||||||||||
|
Equity
income (loss) of subsidiaries
|
(491,148)
|
―
|
―
|
491,148
|
―
|
||||||||||||
|
Interest
expense
|
3,144
|
(16,773)
|
(645)
|
―
|
(14,274)
|
||||||||||||
|
Other
income (expense
|
(31,240)
|
(40,751)
|
2,562
|
―
|
(69,429)
|
||||||||||||
|
Homebuilding
pretax income (loss)
|
(1,062,409)
|
(600,215)
|
(62,830)
|
491,148
|
(1,234,306)
|
||||||||||||
|
Financial
Services:
|
|||||||||||||||||
|
Financial
services pretax income (loss)
|
(274)
|
1,088
|
202
|
―
|
1,016
|
||||||||||||
|
Income
(loss) from continuing operations before income taxes
|
(1,062,683)
|
(599,127)
|
(62,628)
|
491,148
|
(1,233,290)
|
||||||||||||
|
(Provision)
benefit for income taxes
|
(167,398)
|
167,582
|
5,311
|
―
|
5,495
|
||||||||||||
|
Income
(loss) from continuing operations
|
(1,230,081)
|
(431,545)
|
(57,317)
|
491,148
|
(1,227,795)
|
||||||||||||
|
Loss
from discontinued operations, net of income taxes
|
―
|
(2,286)
|
―
|
―
|
(2,286)
|
||||||||||||
|
Net
income (loss)
|
$
|
(1,230,081)
|
$
|
(433,831)
|
$
|
(57,317)
|
$
|
491,148
|
$
|
(1,230,081)
|
|||||||
|
Year
Ended December 31, 2007
|
|||||||||||||||||
|
Standard
Pacific
Corp.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Standard
Pacific
Corp.
|
|||||||||||||
|
(Dollars
in thousands)
|
|||||||||||||||||
|
Homebuilding:
|
|||||||||||||||||
|
Revenues
|
$
|
1,405,749
|
$
|
1,435,770
|
$
|
47,314
|
$
|
―
|
$
|
2,888,833
|
|||||||
|
Cost
of sales
|
(1,466,838)
|
(1,546,028)
|
(75,830)
|
―
|
(3,088,696)
|
||||||||||||
|
Gross
margin
|
(61,089)
|
(110,258)
|
(28,516)
|
―
|
(199,863)
|
||||||||||||
|
Selling,
general and administrative expenses
|
(195,826)
|
(189,660)
|
(2,495)
|
―
|
(387,981)
|
||||||||||||
|
Income
(loss) from unconsolidated joint ventures
|
(159,610)
|
(29,283)
|
(1,132)
|
―
|
(190,025)
|
||||||||||||
|
Equity
income (loss) of subsidiaries
|
(384,606)
|
―
|
―
|
384,606
|
―
|
||||||||||||
|
Other
income (expense)
|
(9,085)
|
(59,525)
|
―
|
―
|
(68,610)
|
||||||||||||
|
Homebuilding
pretax income
|
(810,216)
|
(388,726)
|
(32,143)
|
384,606
|
(846,479)
|
||||||||||||
|
Financial
Services:
|
|||||||||||||||||
|
Revenues
|
―
|
―
|
16,677
|
―
|
16,677
|
||||||||||||
|
Expenses
|
―
|
―
|
(16,045)
|
―
|
(16,045)
|
||||||||||||
|
Income
from unconsolidated joint ventures
|
―
|
1,050
|
―
|
―
|
1,050
|
||||||||||||
|
Other
income (expense)
|
(747)
|
611
|
747
|
―
|
611
|
||||||||||||
|
Financial
services pretax income (loss)
|
(747)
|
1,661
|
1,379
|
―
|
2,293
|
||||||||||||
|
Income
(loss) from continuing operations before income taxes
|
(810,963)
|
(387,065)
|
(30,764)
|
384,606
|
(844,186)
|
||||||||||||
|
(Provision)
benefit for income taxes
|
43,690
|
106,305
|
(992)
|
―
|
149,003
|
||||||||||||
|
Income
(loss) from continuing operations
|
(767,273)
|
(280,760)
|
(31,756)
|
384,606
|
(695,183)
|
||||||||||||
|
Loss
from discontinued operations, net of income taxes
|
―
|
(52,540)
|
―
|
―
|
(52,540)
|
||||||||||||
|
Loss
from disposal of discontinued operations,
|
|||||||||||||||||
|
net
of income taxes
|
―
|
(19,550)
|
―
|
―
|
(19,550)
|
||||||||||||
|
Net
income (loss)
|
$
|
(767,273)
|
$
|
(352,850)
|
$
|
(31,756)
|
$
|
384,606
|
$
|
(767,273)
|
|||||||
89
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
22.
Supplemental Guarantor Information (continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
|
Year
Ended December 31, 2006
|
|||||||||||||||||
|
Standard
Pacific
Corp.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Standard
Pacific
Corp.
|
|||||||||||||
|
(Dollars
in thousands)
|
|||||||||||||||||
|
Homebuilding:
|
|||||||||||||||||
|
Revenues
|
$
|
1,930,455
|
$
|
1,810,015
|
$
|
―
|
$
|
―
|
$
|
3,740,470
|
|||||||
|
Cost
of sales
|
(1,636,305)
|
(1,390,796)
|
―
|
―
|
(3,027,101)
|
||||||||||||
|
Gross
margin
|
294,150
|
419,219
|
―
|
―
|
713,369
|
||||||||||||
|
Selling,
general and administrative expenses
|
(214,446)
|
(227,514)
|
―
|
―
|
(441,960)
|
||||||||||||
|
Income
(loss) from unconsolidated joint ventures
|
(27,868)
|
23,998
|
―
|
―
|
(3,870)
|
||||||||||||
|
Equity
income (loss) of subsidiaries
|
123,081
|
―
|
―
|
(123,081)
|
―
|
||||||||||||
|
Other
income (expense)
|
(38,788)
|
(7,925)
|
(14)
|
―
|
(46,727)
|
||||||||||||
|
Homebuilding
pretax income (loss)
|
136,129
|
207,778
|
(14)
|
(123,081)
|
220,812
|
||||||||||||
|
Financial
Services:
|
|||||||||||||||||
|
Revenues
|
―
|
―
|
24,866
|
―
|
24,866
|
||||||||||||
|
Expenses
|
―
|
―
|
(19,438)
|
―
|
(19,438)
|
||||||||||||
|
Income
from unconsolidated joint ventures
|
―
|
1,911
|
―
|
―
|
1,911
|
||||||||||||
|
Other
income (expense)
|
(1,157)
|
872
|
1,157
|
―
|
872
|
||||||||||||
|
Financial
services pretax income (loss)
|
(1,157)
|
2,783
|
6,585
|
―
|
8,211
|
||||||||||||
|
Income
(loss) from continuing operations before income taxes
|
134,972
|
210,561
|
6,571
|
(123,081)
|
229,023
|
||||||||||||
|
(Provision)
benefit for income taxes
|
(11,279)
|
(69,495)
|
(2,156)
|
―
|
(82,930)
|
||||||||||||
|
Net
income (loss) from continuing operations
|
123,693
|
141,066
|
4,415
|
(123,081)
|
146,093
|
||||||||||||
|
Loss
from discontinued operations, net of income taxes
|
―
|
(22,400)
|
―
|
―
|
(22,400)
|
||||||||||||
|
Net
income (loss)
|
$
|
123,693
|
$
|
118,666
|
$
|
4,415
|
$
|
(123,081)
|
$
|
123,693
|
|||||||
90
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
22.
Supplemental Guarantor Information (continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
|
December
31, 2008
|
||||||||||||||||||
|
Standard
Pacific
Corp.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Standard
Pacific
Corp.
|
||||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||||||
|
ASSETS
|
||||||||||||||||||
|
Homebuilding:
|
||||||||||||||||||
|
Cash
and equivalents
|
$
|
115,924
|
$
|
433
|
$
|
510,022
|
$
|
―
|
$
|
626,379
|
||||||||
|
Trade
and other receivables
|
340,471
|
5,095
|
17,055
|
(341,613)
|
21,008
|
|||||||||||||
|
Inventories:
|
||||||||||||||||||
|
Owned
|
394,425
|
725,679
|
139,783
|
―
|
1,259,887
|
|||||||||||||
|
Not
owned
|
5,455
|
37,287
|
―
|
―
|
42,742
|
|||||||||||||
|
Investments
in unconsolidated joint ventures
|
24,895
|
19,830
|
5,743
|
―
|
50,468
|
|||||||||||||
|
Investments
in subsidiaries
|
964,757
|
―
|
―
|
(964,757)
|
―
|
|||||||||||||
|
Deferred
income taxes
|
13,975
|
―
|
―
|
147
|
14,122
|
|||||||||||||
|
Goodwill
and other intangibles
|
―
|
―
|
―
|
―
|
―
|
|||||||||||||
|
Other
assets
|
140,174
|
5,849
|
3
|
(459)
|
145,567
|
|||||||||||||
|
2,000,076
|
794,173
|
672,606
|
(1,306,682)
|
2,160,173
|
||||||||||||||
|
Financial
Services:
|
||||||||||||||||||
|
Cash
and equivalents
|
―
|
―
|
7,976
|
―
|
7,976
|
|||||||||||||
|
Mortgage
loans held for sale
|
―
|
―
|
63,960
|
―
|
63,960
|
|||||||||||||
|
Mortgage
loans held for investment
|
―
|
―
|
11,736
|
―
|
11,736
|
|||||||||||||
|
Other
assets
|
―
|
―
|
4,939
|
(147)
|
4,792
|
|||||||||||||
|
―
|
―
|
|
88,611
|
|
(147)
|
|
88,464
|
|||||||||||
|
Assets
of discontinued operations
|
―
|
1,217
|
―
|
―
|
1,217
|
|||||||||||||
| Total Assests |
$
|
2,000,076
|
$
|
795,390
|
$
|
761,217
|
$
|
(1,306,829)
|
$
|
2,249,854
|
||||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||||||||||
|
Homebuilding:
|
||||||||||||||||||
|
Accounts
payable
|
$
|
20,318
|
$
|
17,556
|
$
|
2,351
|
$
|
―
|
$
|
40,225
|
||||||||
|
Accrued
liabilities
|
187,927
|
368,983
|
1,121
|
(341,613)
|
216,418
|
|||||||||||||
|
Liabilities
from inventories not owned
|
1,873
|
23,056
|
―
|
―
|
24,929
|
|||||||||||||
|
Revolving
credit facility
|
47,500
|
―
|
―
|
―
|
47,500
|
|||||||||||||
|
Trust
deed and other notes payable
|
9,428
|
38,214
|
63,572
|
―
|
111,214
|
|||||||||||||
|
Senior
notes payable
|
1,204,501
|
―
|
―
|
―
|
1,204,501
|
|||||||||||||
|
Senior
subordinated notes payable
|
148,709
|
―
|
―
|
―
|
148,709
|
|||||||||||||
|
1,620,256
|
447,809
|
67,044
|
(341,613)
|
1,793,496
|
||||||||||||||
|
Financial
Services:
|
||||||||||||||||||
|
Accounts
payable and other liabilities
|
―
|
―
|
4,116
|
(459)
|
3,657
|
|||||||||||||
|
Mortgage
credit facilities
|
―
|
―
|
63,655
|
―
|
63,655
|
|||||||||||||
|
―
|
―
|
67,771
|
(459)
|
67,312
|
||||||||||||||
|
Liabilities
of discontinued operations
|
―
|
1,331
|
―
|
―
|
1,331
|
|||||||||||||
| Total Liabilities |
1,620,256
|
449,140
|
134,815
|
(342,072)
|
1,862,139
|
|||||||||||||
|
Minority
Interests
|
―
|
7,895
|
―
|
―
|
7,895
|
|||||||||||||
|
Stockholders'
Equity:
|
||||||||||||||||||
|
Total
Stockholders' Equity
|
379,820
|
338,355
|
626,402
|
(964,757)
|
379,820
|
|||||||||||||
|
Total
Liabilities and Stockholders' Equity
|
$
|
2,000,076
|
$
|
795,390
|
$
|
761,217
|
$
|
(1,306,829)
|
$
|
2,249,854
|
||||||||
91
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
22.
Supplemental Guarantor Information (continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
|
December
31, 2007
|
||||||||||||||||||
|
Standard
Pacific
Corp.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Standard
Pacific
Corp.
|
||||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||||||
|
ASSETS
|
||||||||||||||||||
|
Homebuilding:
|
||||||||||||||||||
|
Cash
and equivalents
|
$
|
218,129
|
$
|
756
|
$
|
256
|
$
|
―
|
$
|
219,141
|
||||||||
|
Trade
and other receivables
|
430,716
|
7,164
|
5,835
|
(415,116)
|
28,599
|
|||||||||||||
|
Inventories:
|
||||||||||||||||||
|
Owned
|
935,401
|
992,526
|
131,308
|
―
|
2,059,235
|
|||||||||||||
|
Not
owned
|
23,972
|
85,785
|
―
|
―
|
109,757
|
|||||||||||||
|
Investments
in unconsolidated joint ventures
|
171,340
|
122,627
|
―
|
―
|
293,967
|
|||||||||||||
|
Investments
in subsidiaries
|
863,383
|
―
|
―
|
(863,383)
|
―
|
|||||||||||||
|
Deferred
income taxes
|
142,721
|
―
|
―
|
1,274
|
143,995
|
|||||||||||||
|
Goodwill
and other intangibles
|
2,691
|
32,906
|
―
|
―
|
35,597
|
|||||||||||||
|
Other
assets
|
292,893
|
8,988
|
13
|
(1,759)
|
300,135
|
|||||||||||||
|
3,081,246
|
1,250,752
|
137,412
|
(1,278,984)
|
3,190,426
|
||||||||||||||
|
Financial
Services:
|
||||||||||||||||||
|
Cash
and equivalents
|
―
|
―
|
12,413
|
―
|
12,413
|
|||||||||||||
|
Mortgage
loans held for sale
|
―
|
―
|
155,340
|
―
|
155,340
|
|||||||||||||
|
Mortgage
loans held for investment
|
―
|
―
|
10,973
|
―
|
10,973
|
|||||||||||||
|
Other
assets
|
―
|
―
|
13,121
|
(1,274)
|
11,847
|
|||||||||||||
|
―
|
―
|
|
191,847
|
|
(1,274)
|
|
190,573
|
|||||||||||
|
Assets
of discontinued operations
|
―
|
19,727
|
―
|
―
|
19,727
|
|||||||||||||
|
Total
Assets
|
$
|
3,081,246
|
$
|
1,270,479
|
$
|
329,259
|
$
|
(1,280,258)
|
$
|
3,400,726
|
||||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||||||||||
|
Homebuilding:
|
||||||||||||||||||
|
Accounts
payable
|
$
|
60,445
|
$
|
33,711
|
$
|
1,034
|
$
|
―
|
$
|
95,190
|
||||||||
|
Accrued
liabilities
|
242,696
|
451,969
|
964
|
(415,116)
|
280,513
|
|||||||||||||
|
Liabilities
from inventories not owned
|
12,253
|
30,754
|
―
|
―
|
43,007
|
|||||||||||||
|
Revolving
credit facility
|
90,000
|
―
|
―
|
―
|
90,000
|
|||||||||||||
|
Trust
deed and other notes payable
|
29,867
|
4,847
|
―
|
―
|
34,714
|
|||||||||||||
|
Senior
notes payable
|
1,400,344
|
―
|
―
|
―
|
1,400,344
|
|||||||||||||
|
Senior
subordinated notes payable
|
249,350
|
―
|
―
|
―
|
249,350
|
|||||||||||||
|
2,084,955
|
521,281
|
1,998
|
(415,116)
|
2,193,118
|
||||||||||||||
|
Financial
Services:
|
||||||||||||||||||
|
Accounts
payable and other liabilities
|
―
|
―
|
6,445
|
(1,422)
|
5,023
|
|||||||||||||
|
Mortgage
credit facilities
|
―
|
―
|
164,509
|
(337)
|
164,172
|
|||||||||||||
|
―
|
―
|
170,954
|
(1,759)
|
169,195
|
||||||||||||||
|
Liabilities
of discontinued operations
|
―
|
5,221
|
―
|
―
|
5,221
|
|||||||||||||
|
Total
Liabilities
|
2,084,955
|
526,502
|
172,952
|
(416,875)
|
2,367,534
|
|||||||||||||
|
Minority
Interests
|
1,300
|
36,901
|
―
|
―
|
38,201
|
|||||||||||||
|
Stockholders'
Equity:
|
||||||||||||||||||
|
Total
Stockholders' Equity
|
994,991
|
707,076
|
156,307
|
(863,383)
|
994,991
|
|||||||||||||
|
Total
Liabilities and Stockholders' Equity
|
$
|
3,081,246
|
$
|
1,270,479
|
$
|
329,259
|
$
|
(1,280,258)
|
$
|
3,400,726
|
||||||||
92
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
22.
Supplemental Guarantor Information (continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
|
Year
Ended December 31, 2008
|
||||||||||||||||||
|
Standard
Pacific
Corp.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Standard
Pacific
Corp.
|
||||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||||||
|
Cash
Flows From Operating Activities:
|
||||||||||||||||||
|
Net
cash provided by (used in) operating activities
|
$
|
124,560
|
$
|
(18,735)
|
$
|
157,663
|
$
|
(337)
|
$
|
263,151
|
||||||||
|
Cash
Flows From Investing Activities:
|
||||||||||||||||||
|
Investments
in unconsolidated homebuilding joint ventures
|
(20,344)
|
(36,998)
|
(56,151)
|
―
|
(113,493)
|
|||||||||||||
|
Distributions
from unconsolidated homebuilding joint ventures
|
55,804
|
16,659
|
31,701
|
―
|
104,164
|
|||||||||||||
|
Net
additions to property and equipment
|
(1,380)
|
(66)
|
(804)
|
―
|
(2,250)
|
|||||||||||||
|
Net
cash provided by (used in) investing activities
|
34,080
|
(20,405)
|
(25,254)
|
―
|
(11,579)
|
|||||||||||||
|
Cash
Flows From Financing Activities:
|
||||||||||||||||||
|
Net
proceeds from (payments on) revolving credit facility
|
(42,500)
|
―
|
―
|
―
|
(42,500)
|
|||||||||||||
|
Principal
payments on trust deed and other notes payable
|
(2,001)
|
33,367
|
(51,684)
|
―
|
(20,318)
|
|||||||||||||
|
Principal
payments on senior notes payable
|
(167,375)
|
―
|
―
|
―
|
(167,375)
|
|||||||||||||
|
Net
proceeds from (payments on) mortgage credit facilities
|
―
|
―
|
(100,854)
|
337
|
(100,517)
|
|||||||||||||
|
Repurchases
of common stock
|
(726)
|
―
|
―
|
―
|
(726)
|
|||||||||||||
|
(Contributions
to) distributions from Corporate and subsidiaries
|
(530,908)
|
5,450
|
525,458
|
―
|
―
|
|||||||||||||
|
Proceeds
from the issuance of senior preferred stock and the
issuance
|
||||||||||||||||||
|
of
the warrant
|
404,233
|
―
|
―
|
―
|
404,233
|
|||||||||||||
|
Proceeds
from the issuance of common stock
|
78,432
|
―
|
―
|
―
|
78,432
|
|||||||||||||
|
Net
cash provided by (used in) financing activities
|
(260,845)
|
38,817
|
372,920
|
337
|
151,229
|
|||||||||||||
|
Net
decrease in cash and equivalents
|
(102,205)
|
(323)
|
505,329
|
―
|
402,801
|
|||||||||||||
|
Cash
and equivalents at beginning of year
|
218,129
|
763
|
12,669
|
―
|
231,561
|
|||||||||||||
|
Cash
and equivalents at end of year
|
$
|
115,924
|
$
|
440
|
$
|
517,998
|
$
|
―
|
$
|
634,362
|
||||||||
|
Year
Ended December 31, 2007
|
||||||||||||||||||
|
Standard
Pacific
Corp.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Standard
Pacific
Corp.
|
||||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||||||
|
Cash
Flows From Operating Activities:
|
||||||||||||||||||
|
Net
cash provided by (used in) operating activities
|
$
|
553,950
|
$
|
(17,386)
|
$
|
118,657
|
$
|
337
|
$
|
655,558
|
||||||||
|
Cash
Flows From Investing Activities:
|
||||||||||||||||||
|
Proceeds
from disposition of discontinued operations
|
―
|
40,850
|
―
|
―
|
40,850
|
|||||||||||||
|
Net
cash paid for acquisitions
|
(8,369)
|
―
|
―
|
―
|
(8,369)
|
|||||||||||||
|
Investments
in unconsolidated homebuilding joint ventures
|
(265,602)
|
(63,656)
|
―
|
―
|
(329,258)
|
|||||||||||||
|
Mortgage
loans held for investment
|
―
|
―
|
(10,973)
|
―
|
(10,973)
|
|||||||||||||
|
Distributions
from unconsolidated homebuilding joint ventures
|
91,890
|
44,330
|
(20,808)
|
―
|
115,412
|
|||||||||||||
|
Net
additions to property and equipment
|
(1,425)
|
(1,509)
|
(2,543)
|
―
|
(5,477)
|
|||||||||||||
|
Net
cash provided by (used in) investing actiivities
|
(183,506)
|
20,015
|
(34,324)
|
―
|
(197,815)
|
|||||||||||||
|
Cash
Flows From Financing Activities:
|
||||||||||||||||||
|
Net
proceeds from (payments on) revolving credit facility
|
(199,500)
|
―
|
―
|
―
|
(199,500)
|
|||||||||||||
|
Principal
payments on trust deed and other notes payable
|
(5,625)
|
(2,886)
|
―
|
―
|
(8,511)
|
|||||||||||||
|
Principal
payments on senior notes payable
|
(46,235)
|
―
|
―
|
―
|
(46,235)
|
|||||||||||||
|
Proceeds
from issuance of senior subordinated convertible notes
|
97,000
|
―
|
―
|
―
|
97,000
|
|||||||||||||
|
Purchase
of senior subordinated convertible note hedge
|
(9,120)
|
―
|
―
|
―
|
(9,120)
|
|||||||||||||
|
Net
proceeds from (payments on) mortgage credit facilities
|
―
|
―
|
(86,398)
|
(337)
|
(86,735)
|
|||||||||||||
|
Excess
tax benefits from share-based payment arrangements
|
1,555
|
―
|
―
|
―
|
1,555
|
|||||||||||||
|
Dividends
paid
|
(7,778)
|
―
|
―
|
―
|
(7,778)
|
|||||||||||||
|
Repurchases
of common stock
|
(2,901)
|
―
|
―
|
―
|
(2,901)
|
|||||||||||||
|
Proceeds
from the issuance of common stock under share lending
facility
|
78
|
―
|
―
|
―
|
78
|
|||||||||||||
|
Proceeds
from the exercise of stock options
|
3,862
|
―
|
―
|
―
|
3,862
|
|||||||||||||
|
Net
cash provided by (used in) financing activities
|
(168,664)
|
(2,886)
|
(86,398)
|
(337)
|
(258,285)
|
|||||||||||||
|
Net
decrease in cash and equivalents
|
201,780
|
(257)
|
(2,065)
|
―
|
199,458
|
|||||||||||||
|
Cash
and equivalents at beginning of year
|
16,349
|
1,020
|
14,734
|
―
|
32,103
|
|||||||||||||
|
Cash
and equivalents at end of year
|
$
|
218,129
|
$
|
763
|
$
|
12,669
|
$
|
―
|
$
|
231,561
|
||||||||
93
STANDARD
PACIFIC CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
22.
Supplemental Guarantor Information (continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
|
Year
Ended December 31, 2006
|
||||||||||||||||||
|
Standard
Pacific
Corp.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Standard
Pacific
Corp.
|
||||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||||||
|
Cash
Flows From Operating Activities:
|
||||||||||||||||||
|
Net
cash provided by (used in) operating activities
|
$
|
(268,280)
|
$
|
99,693
|
$
|
(121,993)
|
$
|
―
|
$
|
(290,580)
|
||||||||
|
Cash
Flows From Investing Activities:
|
||||||||||||||||||
|
Net
cash paid for acquisitions
|
(7,530)
|
―
|
―
|
―
|
(7,530)
|
|||||||||||||
|
Investments
in unconsolidated homebuilding joint ventures
|
(173,694)
|
(52,138)
|
―
|
―
|
(225,832)
|
|||||||||||||
|
Distributions
from unconsolidated homebuilding joint ventures
|
108,691
|
2,350
|
―
|
―
|
111,041
|
|||||||||||||
|
Net
additions to property and equipment
|
(5,143)
|
(5,505)
|
(559)
|
―
|
(11,207)
|
|||||||||||||
|
Net
cash provided by (used in) investing activities
|
(77,676)
|
(55,293)
|
(559)
|
―
|
(133,528)
|
|||||||||||||
|
Cash
Flows From Financing Activities:
|
||||||||||||||||||
|
Net
proceeds from revolving credit facility
|
106,400
|
―
|
―
|
―
|
106,400
|
|||||||||||||
|
Principal
payments on trust deed and other notes payable
|
(1,550)
|
(45,287)
|
―
|
―
|
(46,837)
|
|||||||||||||
|
Proceeds
from issuance of senior notes payable
|
350,000
|
―
|
―
|
―
|
350,000
|
|||||||||||||
|
Net
proceeds from (payments on) mortgage credit facilities
|
―
|
―
|
127,481
|
―
|
127,481
|
|||||||||||||
|
Excess
tax benefits from share-based payment arrangements
|
2,805
|
―
|
―
|
―
|
2,805
|
|||||||||||||
|
Dividends
paid
|
(10,500)
|
―
|
―
|
―
|
(10,500)
|
|||||||||||||
|
Repurchases
of common stock
|
(104,705)
|
―
|
―
|
―
|
(104,705)
|
|||||||||||||
|
Proceeds
from the exercise of stock.options
|
2,944
|
―
|
―
|
―
|
2,944
|
|||||||||||||
|
Net
cash provided by (used in) financing activities
|
345,394
|
(45,287)
|
127,481
|
―
|
427,588
|
|||||||||||||
|
Net
decrease in cash and equivalents
|
(562)
|
(887)
|
4,929
|
―
|
3,480
|
|||||||||||||
|
Cash
and equivalents at beginning of year
|
16,911
|
1,907
|
9,805
|
―
|
28,623
|
|||||||||||||
|
Cash
and equivalents at end of year
|
$
|
16,349
|
$
|
1,020
|
$
|
14,734
|
$
|
―
|
$
|
32,103
|
||||||||
94
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
Not
applicable.
|
ITEM 9A.
|
CONTROLS AND
PROCEDURES
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
As of the
end of the period covered by this annual report on Form 10-K, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as such term is defined in Exchange Act Rules 13a-15(e) and
15d-15(e), including controls and procedures to timely alert management to
material information relating to Standard Pacific Corp. and subsidiaries
required to be included in our periodic SEC filings. Based on that evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that
these disclosure controls and procedures are effective.
Management’s
Annual Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Our internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of our financial statements for external
purposes in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on our evaluation under the framework in Internal Control—Integrated
Framework, our management concluded that our internal control over
financial reporting was effective as of December 31, 2008.
The
effectiveness of our internal control over financial reporting as of December
31, 2008 has been audited by Ernst & Young LLP, an independent registered
public accounting firm, as stated in their report which is included
herein.
Changes
in Internal Control Over Financial Reporting
Our
management, including our Chief Executive Officer and Chief Financial Officer,
has evaluated our internal control over financial reporting to determine whether
any changes occurred during the fourth quarter of the year ended December 31,
2008 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. Based on that evaluation,
there have been no such changes during the fourth quarter of the period covered
by this report.
95
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders of Standard Pacific Corp.:
We have
audited Standard Pacific Corp.’s internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Standard Pacific Corp.’s management is
responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Annual Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Standard Pacific Corp. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on the
COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the accompanying consolidated balance sheets of
Standard Pacific Corp. and subsidiaries as of December 31, 2008 and 2007, and
the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2008 of
Standard Pacific Corp. and our report dated February 23, 2009 expressed an
unqualified opinion thereon.
|
|
/S/
ERNST & YOUNG LLP
|
Irvine,
California
February
23, 2009
96
|
ITEM 9B.
|
OTHER
INFORMATION
|
Not
applicable.
PART
III
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
The
remaining information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and
(d)(5) of Regulation S-K that is not set forth in this Item 10 or in Part I of
this Form 10-K under the heading “Executive Officers of the Registrant”, will be
set forth in the Company’s 2009 Annual Meeting Proxy Statement, which will be
filed with the Securities and Exchange Commission not later than 120 days after
December 31, 2008 (the “2009 Proxy Statement”). For the limited purpose of
providing the information necessary to comply with this Item 10, the 2009 Proxy
Statement is incorporated herein by this reference. All references to the 2009
Proxy Statement in this Part III are exclusive of the information set forth
under the captions “Report of the Compensation Committee” and “Report of the
Audit Committee.”
Code
of Business Conduct and Ethics and Corporate Governance Guidelines
We have
adopted a Code of Business Conduct and Ethics that applies to all of our
employees, including our senior financial and executive officers, as well as our
directors. We will disclose any waivers of, or amendments to, any provision of
the Code of Business Conduct and Ethics that applies to our directors and senior
financial and executive officers on our website, www.standardpacifichomes.com,
through the “Investor Relations” link under the heading “Corporate
Governance”.
In
addition, we have adopted Corporate Governance Guidelines and charters for each
of the Board of Director’s standing committees, which include the Audit,
Compensation, Nominating and Corporate Governance, and Executive committees. Our
Code of Business Conduct and Ethics and the charters for each of the
aforementioned committees are accessible via our website at
www.standardpacifichomes.com, through the “Investor Relations” link under the
heading “Corporate Governance.” In addition, stockholders may also request a
copy of any of the foregoing documents, which will be provided at no cost, by
writing or calling us at the following address or telephone number
Corporate
Secretary
Standard
Pacific Corp.
26
Technology Drive
Irvine,
California 92618
Telephone:
(949) 789-1600
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The
information required by Items 402 and 407 (e)(4) and (e)(5) of Regulation S-K
will be set forth in the 2009 Proxy Statement. For the limited
purpose of providing the information necessary to comply with this Item 11, the
2009 Proxy Statement is incorporated herein by this reference.
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
The
information set forth in Part I, Item 5 of this Form 10-K under the heading
“Equity Compensation Plan Information” is incorporated herein by this
reference. The information required by Item 403 of
Regulation S-K will be set forth in the 2009 Proxy Statement for the limited
purpose of providing the information necessary to comply with this Item 12, the
2009 Proxy Statement is incorporated herein by this reference.
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
|
The
information required by Items 404 and 407(a) of Regulation S-K will be set forth
in the 2009 Proxy Statement. For the limited purpose of providing the
information necessary to comply with this Item 13, the 2009 Proxy Statement is
incorporated herein by this reference.
|
ITEM 14.
|
PRINCIPAL ACCOUNTING FEES AND
SERVICES
|
This
information required by Item 9(e) of Schedule 14A will be set forth in the 2009
Proxy Statement. For the limited purpose of providing the information
necessary to comply with this Item 14, the 2009 Proxy Statement is incorporated
herein by this reference.
PART
IV
|
ITEM 15.
|
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
|
|
Page
Reference
|
||
|
(a)(1)
|
Financial
Statements, included in Part II of this report:
|
|
|
51
|
||
|
52
|
||
|
53
|
||
|
54
|
||
|
55
|
||
|
56
|
||
|
(2)
|
Financial
Statement Schedules:
|
|
|
Financial
Statement Schedules are omitted since the required information is not
present or is not present in the amounts sufficient to require submission
of a schedule, or because the information required is included in the
consolidated financial statements, including the notes
thereto.
|
||
|
(3)
|
Index
to Exhibits
|
|
|
See
Index to Exhibits on pages 100-104 below.
|
||
|
(b)
|
Index
to Exhibits. See Index to Exhibits on pages 100-104 below.
|
|
|
(c)
|
Financial
Statements required by Regulation S-X excluded from the annual report to
shareholders by Rule 14a-3(b). Not applicable.
|
98
SIGNATURES
Pursuant to
the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irvine, California, on
the 10th day of March
2009.
|
STANDARD
PACIFIC CORP.
(Registrant)
|
|
|
By:
|
/s/ Kenneth
L. Campbell
|
|
Kenneth
L. Campbell
|
|
|
Chief
Executive Officer and President
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|
/S/ Kenneth L.
Campbell
|
Chief
Executive Officer and President
|
March 10,
2009
|
|
(Kenneth
L. Campbell)
|
||
|
/S/ Ronald R.
Foell
|
Chairman
of the Board
|
March 10,
2009
|
|
(Ronald
R. Foell)
|
||
|
/S/ John M.
Stephens
|
Senior
Vice President and Chief Financial Officer
|
March 10,
2009
|
|
(John
M. Stephens)
|
(Principal Financial and Accounting Officer) | |
|
/S/ Bruce A.
Choate
|
Director
|
March 10,
2009
|
|
(Bruce
A. Choate)
|
||
|
/S/ James L.
Doti
|
Director
|
March 10,
2009
|
|
(James
L. Doti)
|
||
|
/S/ Douglas C.
Jacobs
|
Director
|
March 10,
2009
|
|
(Douglas
C. Jacobs)
|
||
|
/S/ David J.
Matlin
|
Director
|
March 10,
2009
|
|
(David J. Matlin
)
|
||
|
/S/ Larry D.
McNabb
|
Director
|
March 10,
2009
|
|
(Larry D.
McNabb)
|
||
|
/S/ J. Wayne
Merck
|
Director
|
March 10,
2009
|
|
(J. Wayne
Merck)
|
||
|
/S/ Jeffrey V.
Peterson
|
Director
|
March 10,
2009
|
|
(Jeffrey
V. Peterson)
|
||
|
/S/ F. Patt
Schiewitz
|
Director
|
March 10,
2009
|
|
(F.
Patt Schiewitz)
|
99
INDEX
TO EXHIBITS
|
*3.1
|
Amended
and Restated Certificate of Incorporation of the Registrant, incorporated
by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on August 19,
2008.
|
|
|
*3.2
|
Certificate
of Designations of Series A Junior Participating Cumulative Preferred
Stock of the Registrant, incorporated by reference to Exhibit 3.2 to the
Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 19, 2008..
|
|
|
*3.3
|
Certificate
of Designations of Series B Junior Participating Convertible Preferred
Stock of the Registrant, incorporated by reference to Exhibit 3.3 to the
Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 19, 2008.
|
|
|
*3.4
|
Amended
and Restated Bylaws of the Registrant, incorporated by reference to
Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on August 19, 2008.
|
|
|
*4.1
|
Form
of Specimen Stock Certificate, incorporated by reference to Exhibit 28.3
of the Registrant’s Registration Statement on Form S-4 (file no.
33-42293), as filed with the Securities and Exchange Commission on August
16, 1991.
|
|
|
*4.2
|
Amended
and Restated Rights Agreement, dated as of July 24, 2003, between the
Registrant and Mellon Investor Services LLC, as Rights Agent, incorporated
by reference to Exhibit 4.1 of the Registrant’s Quarterly Report on Form
10-Q for the quarter ended June 30, 2003.
|
|
|
*4.3
|
Amendment
No. 1 to Amended and Restated Rights Agreement, dated as of June 27, 2008,
between the Registrant and Mellon Investor Services LLC, as Rights Agent,
incorporated by reference to Exhibit 4.1 of the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
July 1, 2008.
|
|
|
*4.4
|
Senior
Debt Securities Indenture, dated as of April 1, 1999, by and between the
Registrant and The First National Bank of Chicago, as Trustee,
incorporated by reference to Exhibit 4.1 of the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
April 16, 1999.
|
|
|
*4.5
|
Fourth
Supplemental Indenture relating to the Registrant’s 7 3/4% Senior Notes
due 2013, dated as of March 7, 2003, by and between the Registrant and
Bank One Trust Company, N.A., as Trustee, incorporated by reference to
Exhibit 4.1 of the Registrant’s Form 8-K filed with the Securities and
Exchange Commission on March 7, 2003.
|
|
|
*4.6
|
Fifth
Supplemental Indenture relating to the Registrant’s 6 7/8% Senior Notes
due 2011, dated as of May 12, 2003, by and between the Registrant and Bank
One Trust Company, N.A., as Trustee, incorporated by reference to Exhibit
4.2 of the Registrant’s quarterly report on Form 10-Q for the quarter
ended June 30, 2003.
|
|
|
*4.7
|
Seventh
Supplemental Indenture relating to the Registrant’s 5 1/8% Senior Notes
due 2009, dated as of March 11, 2004, by and between the Registrant and
J.P. Morgan Trust Company, National Association, as trustee, incorporated
by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed with the
Securities and Exchange Commission on March 16, 2004.
|
|
|
*4.8
|
Eighth
Supplemental Indenture relating to the Registrant’s 6 1/4% Senior Notes
due 2014, dated as of March 11, 2004, by and between the Registrant and
J.P. Morgan Trust Company, National Association, as trustee, incorporated
by reference to Exhibit 4.2 to the Registrant’s Form 8-K filed with the
Securities and Exchange Commission on March 16, 2004.
|
|
|
*4.9
|
Ninth
Supplemental Indenture relating to the Registrant’s 6 1/2% Senior Notes
due 2010, dated as of August 1, 2005, by and between the Registrant and
J.P. Morgan Trust Company, National Association, as trustee, incorporated
by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the
Securities and Exchange Commission on August 5, 2005.
|
|
|
*4.10
|
Tenth
Supplemental Indenture relating to the Registrant’s 7% Senior Notes due
2015, dated as of August 1, 2005, by and between the Registrant and J.P.
Morgan Trust Company, National Association, as trustee, incorporated by
reference to Exhibit 4.2 to the Company’s Form 8-K filed with the
Securities and Exchange Commission on August 5,
2005.
|
|
*4.11
|
Eleventh
Supplemental Indenture relating to the addition of certain of the
Registrant’s wholly owned subsidiaries as guarantors of all of the
Registrant’s outstanding Senior Notes (including the form of guaranty),
dated as of February 22, 2006, by and between the Registrant and J.P.
Morgan Trust Company, National Association, as trustee incorporated by
reference to Exhibit 4.11 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2005.
|
|
|
*4.12
|
Twelfth
Supplemental Indenture, dated as of May 5, 2006, by and between the
Registrant and J.P. Morgan Trust Company, National Association, as
trustee, incorporated by reference to Exhibit 4.1 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31,
2006.
|
|
|
*4.13
|
Senior
Subordinated Debt Securities Indenture, dated as of April 10, 2002, by and
between the Registrant and Bank One Trust Company, N.A., as Trustee,
incorporated by reference to Exhibit 4.1 of the Registrant’s Current
Report on Form 8-K (No. 001-10959), filed with the Securities and Exchange
Commission on April 15, 2002.
|
|
|
*4.14
|
First
Supplemental Indenture relating to the Registrant’s 9 1/4% Senior
Subordinated Notes due 2012, dated as of April 10, 2002, by and between
the Registrant and Bank One Trust Company, N.A., as trustee, with Form of
Note attached, incorporated by reference to Exhibit 4.2 to the
Registrant’s Form 8-K filed with the Securities and Exchange Commission on
April 15, 2002.
|
|
|
*4.15
|
Second
Supplemental Indenture relating to the addition of certain of the
Registrant’s wholly owned subsidiaries as guarantors of all of the
Registrant’s outstanding Senior Subordinated Notes (including the form of
guaranty), dated as of February 22, 2006, by and between the Registrant
and J.P. Morgan Trust Company, National Association, as trustee
incorporated by reference to Exhibit 4.14 to the Company’s Annual Report
on Form 10-K for the year ended December 31, 2005.
|
|
|
*4.16
|
Third
Supplemental Indenture relating to the Registrant’s 6% Convertible
Subordinated Notes due 2012, dated as of September 24, 2007, by and among
the Registrant, the Guarantors, and the Bank of New York Trust Company
N.A., as Trustee, incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on September 24, 2007.
|
|
|
*4.17
|
Fourth
Supplemental Indenture relating to the Registrant’s 9 1/4% Senior
Subordinated Notes due 2012, dated as of June 26, 2008, by and among the
Registrant, the guarantors named therein and the Bank of New York Trust
Company N.A., as Trustee, incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on June 27, 2008.
|
|
|
*10.1
|
Warrant
to Purchase Shares of Series B Junior Participating Convertible Preferred
Stock, dated June 27, 2008, incorporated by reference to
Exhibit 10.1 to the Registrant’s Form 8-K filed with the Securities and
Exchange Commission on July 1, 2008.
|
|
|
*10.2
|
Investment
Agreement, dated May 26, 2008, between the Registrant and MP CA Homes LLC,
incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K
filed with the Securities and Exchange Commission on May 27,
2008.
|
|
|
*10.3
|
Amendment
No. 1 to Investment Agreement, dated June 27, 2008, between the Registrant
and MP CA Homes LLC, incorporated by reference to Exhibit 10.2 to the
Registrant’s Form 8-K filed with the Securities and Exchange Commission on
July 1, 2008.
|
|
|
*10.4
|
Stockholders
Agreement, dated June 27, 2008, between the Registrant and MP CA Homes,
LLC, incorporated by reference to Exhibit 10.3 to the Registrant’s Form
8-K filed with the Securities and Exchange Commission on July 1,
2008.
|
|
|
*10.5
|
Revolving
Credit Agreement, dated as of August 31, 2005, by and among the
Registrant, Bank of America, N.A., and the several lenders named therein,
incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K
filed with the Securities and Exchange Commission on September 1,
2005.
|
|
|
*10.6
|
Amendment
to Revolving Credit Agreement, dated as of May 5, 2006, by and among the
Registrant, Bank of America, N.A., and the several lenders named therein,
incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended March 31,
2006.
|
|
*10.7
|
Term
Loan A Credit Agreement, dated as of May 5, 2006, by and among the
Registrant, Bank of America, N.A., and the several lenders named therein,
incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended March 31,
2006.
|
|
|
*10.8
|
Term
Loan B Credit Agreement, dated as of May 5, 2006, by and among the
Registrant, Bank of America, N.A., and the several lenders named therein,
incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended March 31,
2006.
|
|
|
*10.9
|
Collateral
Agent and Intercreditor Agreement dated as of May 5, 2006, between the
Company, certain of the Company’s subsidiaries, Bank of America, N.A., as
Collateral Agent, and the various creditors party thereto, incorporated by
reference to Exhibit 10.7 to the Registrant’s Report on Form 10-Q for the
quarterly period ended September 30, 2007.
|
|
|
*10.10
|
Pledge
Agreement, dated as of May 5, 2006, between the Company, certain of the
Company’s subsidiaries and Bank of America, N.A., as Collateral Agent,
incorporated by reference to Exhibit 10.8 to the Registrant’s Report on
Form 10-Q for the quarterly period ended September 30,
2007.
|
|
|
*10.11
|
Second
Amendment of Revolving Credit Agreement and First Amendment of Term Loan A
Credit Agreement, dated as of April 25, 2007, by and among the Registrant,
Bank of America, N.A., and the several lenders named therein, incorporated
by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
8-K filed with the Securities and Exchange Commission on April 25,
2007.
|
|
|
*10.12
|
Notice
of Auto-Amendment to Term Loan B Credit Agreement, dated as of April 25,
2007, by and between the Registrant and Bank of America, N.A.,
incorporated by reference to Exhibit 99.2 to the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
April 25, 2007.
|
|
|
*10.13
|
Third
Amendment of Revolving Credit Agreement and Second Amendment of Term Loan
A Credit Agreement, dated as of September 14, 2007, by and among the
Registrant, Bank of America, N.A., and the several lenders named therein,
incorporated by reference to Exhibit 99.1 to the Registrant’s Current
Report on Form 8-K, filed with the Securities and Exchange Commission on
September 14, 2007.
|
|
|
*10.14
|
Notice
of Revolver and Term Loan A Amendment and Second Amendment to Term B
Credit Agreement, dated as of September 14, 2007, by and between the
Registrant and Bank of America, N.A., incorporated by reference to Exhibit
99.2 to the Registrant’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on September 14,
2007.
|
|
|
*10.15
|
Fifth
Amendment of Revolving Credit Agreement and Fourth Amendment of Term Loan
A Credit Agreement, dated as of June 27, 2008, by and among the
Registrant, Bank of America, N.A., and the several lenders named therein,
incorporated by reference to Exhibit 10.4 to the Registrant’s Current
Report on Form 8-K, filed with the Securities and Exchange Commission on
July 1, 2008.
|
|
|
*10.16
|
Notice
of Revolver and Term Loan A Amendment and Fourth Amendment to Term B
Credit Agreement, dated as of June 30, 2008, by and between the Registrant
and Bank of America, N.A., incorporated by reference to Exhibit 10.5 to
the Registrant’s Current Report on Form 8-K, filed with the Securities and
Exchange Commission on July 1, 2008.
|
|
|
*10.17
|
Seventh
Amendment of Revolving Credit Agreement and Sixth Amendment of Term Loan A
Credit Agreement, dated as of February 13, 2009, by and among the
Registrant, Bank of America, N.A., and the several lenders named therein,
incorporated by reference to Exhibit 10.1 to the Registrants Current
Report on Form 8-K, filed with the Securities and Exchange Commission on
February 18, 2009.
|
|
|
*10.18
|
Confirmation,
dated September 25, 2007, by and between the Registrant and Banc of
America, N.A., incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed with the Securities and
Exchange Commission on September 28, 2007.
|
|
|
*10.19
|
Confirmation,
dated September 25, 2007, by and between the Registrant and JPMorgan Chase
Bank, National Association, London Branch, incorporated by reference to
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 28,
2007.
|
|
*10.20
|
Share
Lending Agreement, dated September 25, 2007, by and between the Registrant
and Credit Suisse International, as Borrower, and Credit Suisse, New York
Branch, as agent, incorporated by reference to Exhibit 10.3 to the
Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on September 28, 2007.
|
||
|
+*10.21
|
Change
of Control Agreement, dated December 1, 2006, between the Registrant and
Stephen J. Scarborough, incorporated by reference to Exhibit 10.1 of the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September
30, 2006.
|
||
|
+*10.22
|
Form
of Change of Control Agreement, between the Registrant and each of the
Registrant’s Executive Officers (other than Mr. Scarborough, Mr. Peterson,
Mr. Campbell, Mr. Babel and Mr. Stephens) incorporated by reference to
Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2006.
|
||
|
+*10.23
|
Standard
Pacific Corp. 1991 Employee Stock Incentive Plan, incorporated by
reference to Annex B of the Registrant’s prospectus dated October 11,
1991, filed with the Securities and Exchange Commission pursuant to Rule
424(b).
|
||
|
+*10.24
|
Standard
Pacific Corp. 1997 Stock Incentive Plan, incorporated by reference to
Exhibit 99.1 of the Registrant’s Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on August 21,
1997.
|
||
|
+*10.25
|
2000
Stock Incentive Plan of Standard Pacific Corp., as amended and restated,
effective May 12, 2004, incorporated by reference to Appendix A to the
Registrant’s Definitive Proxy Statement filed with the Securities and
Exchange Commission on April 2, 2004.
|
||
|
+*10.26
|
Standard
Pacific Corp. 2005 Stock Incentive Plan, incorporated by reference to
Exhibit 10.1 to the Registrant’s Form 8-K filed with the Securities and
Exchange Commission on May 11, 2005.
|
||
|
+*10.27
|
Standard
Pacific Corp. 2008 Equity Incentive Plan, incorporated by reference to
Exhibit 10.1 to the Registrant’s Form 8-K filed with the Securities and
Exchange Commission on August 19, 2008.
|
||
|
+10.28
|
Standard
Terms and Conditions (CIC) for Non-Qualified Stock Options to be used in
connection with the Company’s 2008 Stock Incentive
Plan.
|
||
|
+10.29
|
Standard
Terms and Conditions for Non-Qualified Stock Options to be used in
connection with the Company’s 2008 Stock Incentive
Plan.
|
||
|
+*10.30
|
2008
Executive Officer Compensation, incorporated by reference to the
Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on March 5, 2008.
|
||
|
+*10.31
|
Retirement
Agreement, dated as of March 20, 2008, by and between the Registrant and
Stephen J. Scarborough, incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed with the Securities and
Exchange Commission on March 25, 2008.
|
||
|
+*10.32
|
Douglas
C. Krah Separation Agreement, dated July 15, 2008, incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on July 29,
2008.
|
||
|
+*10.33
|
Severance
Agreement, dated September 2, 2008, between the Registrant and Jeffrey V.
Peterson, incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 3, 2008.
|
||
|
+*10.34
|
Bonus
Agreement, dated December 2, 2008, between the Registrant and Jeffrey V.
Peterson, incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 23, 2008.
|
||
|
+*10.35
|
Restated
Settlement Agreement and Mutual Release of Claims, dated as of February
27, 2009, between the Registrant and Andrew H. Parnes, incorporated by
reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on March 9,
2009.
|
||
|
+*10.36
|
Restated
Settlement Agreement and Mutual Release of Claims, dated as of February
26, 2009, between the Registrant and Clay A. Halvorsen, incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on March 9,
2009.
|
|
|
+*10.37
|
Form
of Executive Officers Indemnification Agreement incorporated by reference
to the Registrant’s Report on Form 10-K filed with the Securities and
Exchange Commission on February 25, 2008.
|
|
|
21.1
|
Subsidiaries
of the Registrant.
|
|
|
23.1
|
Consent
of Ernst & Young LLP, Independent Registered Public Accounting
Firm.
|
|
|
31.1
|
Certification
of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
31.2
|
Certification
of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.1
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the
Sarbanes–Oxley
Act of 2002.
|
|
(*)
|
Previously
filed.
|
|
(+)
|
Management
contract, compensation plan or
arrangement.
|
104