FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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)
Delaware 33-0475989
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15326 Alton Parkway, Irvine, CA 92618-2338
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (949) 789-1600
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 ____.
-----
APPLICABLE ONLY TO CORPORATE ISSUERS
Registrant's shares of common stock outstanding at August 1, 2001: 30,088,332
STANDARD PACIFIC CORP. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
The consolidated financial statements included herein have been prepared by
Standard Pacific Corp., without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information normally included in
the financial statements prepared in accordance with generally accepted
accounting principles has been omitted pursuant to such rules and regulations,
although we believe that the disclosures are adequate to make the information
presented not misleading. The financial statements should be read in conjunction
with the financial statements and notes thereto included in our Annual Report on
Form 10-K for the year ended December 31, 2000. Unless the context otherwise
requires, the terms "we," "us" and "ours" refer to Standard Pacific Corp. and
its predecessors and subsidiaries.
-1-
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended June 30,
-----------------------------------------------
2001 2000
------------------ -------------------
Homebuilding:
Revenues $ 323,916 $ 283,689
Cost of sales 252,442 232,163
------------------ -------------------
Gross margin 71,474 51,526
------------------ -------------------
Selling, general and administrative expenses 28,988 24,150
Income from unconsolidated joint ventures 2,139 7,052
Interest expense 1,253 825
Amortization of goodwill 586 495
Other income 117 55
------------------ -------------------
Homebuilding pretax income 42,903 33,163
------------------ -------------------
Financial Services:
Revenues 1,852 588
Expenses 1,473 992
Income from unconsolidated joint ventures 338 195
Other income 122 71
------------------ -------------------
Financial services pretax income (loss) 839 (138)
------------------ -------------------
Income before taxes 43,742 33,025
Provision for income taxes (17,424) (13,002)
------------------ -------------------
Net Income $ 26,318 $ 20,023
================== ===================
Basic Net Income Per Share:
Net Income Per Share $ 0.87 $ 0.70
================== ===================
Weighted average common shares outstanding 30,205,134 28,716,633
================== ===================
Diluted Net Income Per Share:
Net Income Per Share $ 0.85 $ 0.69
================== ===================
Weighted average common and diluted shares outstanding 30,834,068 28,842,493
================== ===================
The accompanying notes are an integral part of these consolidated
statements.
-2-
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Six Months Ended June 30,
-----------------------------------------------
2001 2000
------------------ -------------------
Homebuilding:
Revenues $ 610,667 $ 515,808
Cost of sales 471,911 422,368
------------------ -------------------
Gross margin 138,756 93,440
------------------ -------------------
Selling, general and administrative expenses 55,798 42,600
Income from unconsolidated joint ventures 7,905 7,958
Interest expense 2,424 1,253
Amortization of goodwill 1,171 989
Other income 124 89
------------------ -------------------
Homebuilding pretax income 87,392 56,645
------------------ -------------------
Financial Services:
Revenues 3,484 1,018
Expenses 2,837 1,809
Income from unconsolidated joint ventures 641 343
Other income 195 121
------------------ -------------------
Financial services pretax income (loss) 1,483 (327)
------------------ -------------------
Income before taxes 88,875 56,318
Provision for income taxes (35,392) (22,399)
------------------ -------------------
Net Income $ 53,483 $ 33,919
================== ===================
Basic Net Income Per Share:
Net Income Per Share $ 1.77 $ 1.17
================== ===================
Weighted average common shares outstanding 30,193,750 28,882,521
================== ===================
Diluted Net Income Per Share:
Net Income Per Share $ 1.73 $ 1.17
================== ===================
Weighted average common and diluted shares outstanding 30,890,992 29,004,124
================== ===================
The accompanying notes are an integral part of these consolidated
statements.
-3-
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
June 30, December 31,
2001 2000
--------------- --------------
(Unaudited)
ASSETS
Homebuilding:
Cash and equivalents $ 4,126 $ 38,270
Mortgage notes receivable and accrued interest 1,589 1,744
Other notes and receivables, net 27,957 37,640
Inventories 1,056,929 843,103
Investments in and advances to unconsolidated joint ventures 94,640 90,166
Property and equipment, net 6,395 5,150
Deferred income taxes 20,303 17,289
Other assets 8,301 12,650
Goodwill, net 15,679 16,850
---------- ----------
1,235,919 1,062,862
---------- ----------
Financial Services:
Cash and equivalents 69 173
Mortgage loans held for sale 46,489 54,070
Other assets 1,232 1,681
---------- ----------
47,790 55,924
---------- ----------
Total Assets $1,283,709 $1,118,786
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable $ 63,447 $ 70,372
Accrued liabilities 76,557 91,408
Revolving credit facility 97,500 --
Trust deed notes payable 491 393
Senior notes payable 473,151 423,958
---------- ----------
711,146 586,131
---------- ----------
Financial Services:
Accounts payable and other liabilities 704 1,095
Mortgage warehouse line of credit 36,197 45,330
---------- ----------
36,901 46,425
---------- ----------
Stockholders' Equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
none issued -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
30,142,457 and 30,076,494 shares outstanding, respectively 301 301
Paid-in capital 292,999 292,223
Retained earnings 242,362 193,706
---------- ----------
Total stockholders' equity 535,662 486,230
---------- ----------
Total Liabilities and Stockholders' Equity $1,283,709 $1,118,786
========== ==========
The accompanying notes are an integral part of these
consolidated balance sheets.
- 4 -
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30,
-----------------------------------
2001 2000
--------------- --------------
Cash Flows From Operating Activities:
Net income $ 53,483 $ 33,919
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Income from unconsolidated joint ventures (7,905) (7,958)
Depreciation and amortization 949 722
Amortization of goodwill 1,171 989
Changes in cash and equivalents due to:
Receivables and accrued interest 17,419 614
Inventories (201,400) (58,279)
Deferred income taxes (3,014) (1,724)
Other assets 5,297 2,300
Accounts payable (6,925) 8,399
Accrued liabilities (14,225) (3,015)
--------- ---------
Net cash provided by (used in) operating activities (155,150) (24,033)
--------- ---------
Cash Flows From Investing Activities:
Investments in and advances to unconsolidated joint ventures (35,970) (54,198)
Distributions and repayments from unconsolidated joint ventures 27,325 33,163
Net additions to property and equipment (2,178) (2,404)
--------- ---------
Net cash provided by (used in) investing activities (10,823) (23,439)
--------- ---------
Cash Flows From Financing Activities:
Net proceeds from (payments on) revolving credit facility 97,500 54,900
Net proceeds from (payments on) mortgage warehouse line of credit (9,133) 1,086
Proceeds from the issuance of senior notes 48,615 --
Principal payments on senior notes and trust deed notes payable (189) (32)
Dividends paid (4,827) (4,634)
Repurchase of common shares (2,616) (5,386)
Proceeds from the exercise of stock options 2,375 37
--------- ---------
Net cash provided by (used in) financing activities 131,725 45,971
--------- ---------
Net increase (decrease) in cash and equivalents (34,248) (1,501)
Cash and equivalents at beginning of period 38,443 3,178
--------- ---------
Cash and equivalents at end of period $ 4,195 $ 1,677
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 21,301 $ 15,859
Income taxes 58,738 25,280
Supplemental Disclosure of Noncash Activities:
Inventory received as distributions from unconsolidated joint ventures $ 12,076 $ 5,517
Income tax benefit credited in connection with stock option exercises 1,017 --
The accompanying notes are an integral part of
these consolidated statements.
- 5 -
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
1. Basis of Presentation
---------------------
In the opinion of management, the financial statements reflect all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position as of June 30, 2001 and December 31, 2000,
and the results of operations and cash flows for the periods presented.
2. Inventories
-----------
Inventories consisted of the following:
June 30, December 31,
2001 2000
---------- ---------
(Dollars in thousands)
Housing completed and under construction $ 423,404 $ 344,237
Land and land under development 564,426 443,325
Model homes 69,099 55,541
---------- ---------
$1,056,929 $ 843,103
========== =========
3. Capitalization of Interest
--------------------------
The following is a summary of interest capitalized and expensed
related to inventories for the three month and six month periods ended June 30,
2001 and 2000.
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
2001 2000 2001 2000
--------- ----------- -------- --------
(Dollars in thousands)
Total interest incurred during the period $ 12,324 $ 8,827 $23,051 $16,854
Less: Interest capitalized as a cost of
real estate under development 11,071 8,002 20,627 15,600
--------- ------- ------- -------
Interest expense $ 1,253 $ 825 $ 2,424 $ 1,254
========= ======= ======= =======
Interest previously capitalized as a
cost of real estate under development,
included in cost of sales $ 8,088 $ 5,913 $16,854 $10,915
========= ======= ======= =======
Capitalized interest in ending inventories $27,334 $26,071
======= =======
4. Comprehensive Income
--------------------
We adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), during 1998. SFAS 130 requires
that an enterprise (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of its balance sheet. We had no items of other
comprehensive income in any period presented in the accompanying consolidated
financial statements.
-6-
5. Recent Accounting Pronouncements
--------------------------------
We adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133")
effective January 1, 2001. Under the provisions of SFAS 133, we are required to
recognize all derivatives as either assets or liabilities in the consolidated
balance sheets and measure these instruments at fair value. The adoption of SFAS
133 did not have a material effect on our consolidated financial statements.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141"). This Statement addresses financial accounting and reporting for
business combinations and supersedes APB Opinion No. 16, "Business
Combinations," and FASB Statement No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises." All business combinations in the scope
of this Statement are to be accounted for using one method, the purchase method.
We will adopt SFAS 141 for all business combinations initiated after June 30,
2001.
Also in June 2001, the FASB issued Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142
addresses financial accounting and reporting for acquired goodwill and other
intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." This
pronouncement addresses, among other things, how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. Goodwill would no longer be amortized but would be
assessed at least annually for impairment using a fair value methodology. We
will adopt this statement for all goodwill and other intangible assets acquired
after June 30, 2001 and for all existing goodwill and other intangible assets
beginning January 1, 2002. Upon adoption of this standard on January 1, 2002 we
will cease recording amortization of goodwill which would increase net income in
2002 by approximately $1.9 million, net of income taxes, or approximately $0.06
per diluted share. Other than ceasing the amortization of goodwill, we do not
anticipate that the adoption of SFAS 142 will have a significant effect on our
financial position or the results of our operations as we do not currently
anticipate any impairment charges for existing goodwill.
-7-
6. Net Income Per Share
--------------------
We compute net income per share in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS 128"). This
statement requires the presentation of both basic and diluted net income per
share for financial statement purposes. Basic net income per share is computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding. Diluted net income per share includes the
effect of the potential shares outstanding, including dilutive stock options
using the treasury stock method. The table set forth below reconciles the
components of the basic net income per share calculation to diluted net income
per share.
For the Three Months Ended June 30,
-------------------------------------------------------------------------------------------
2001 2000
----------------------------------------- ---------------------------------------------
Income Shares EPS Income Shares EPS
------------ --------- ------- ----------- ------------ -------
(Dollars in thousands, except per share amounts)
Basic Net Income Per Share:
Income available to common
stockholders $26,318 30,205,134 $0.87 $20,023 28,716,633 $0.70
Effect of dilutive stock options - 628,934 - 125,860
------- ---------- ------- ----------
Diluted net income per share $26,318 30,834,068 $0.85 $20,023 28,842,493 $0.69
======= ========== ===== ======= ========== =====
For the Six Months Ended June 30,
-------------------------------------------------------------------------------------------
2001 2000
------------------------------------------- ---------------------------------------------
Income Shares EPS Income Shares EPS
------------ --------- ------- ----------- ------------ -------
(Dollars in thousands, except per share amounts)
Basic Net Income Per Share:
Income available to common
stockholders $53,483 30,193,750 $1.77 $33,919 28,882,521 $1.17
Effect of dilutive stock options - 697,242 - 121,603
------- ---------- ------- ----------
Diluted net income per share $53,483 30,890,992 $1.73 $33,919 29,004,124 $1.17
======= ========== ===== ======= ========== =====
7. 8 1/2% Senior Notes due 2009
----------------------------
In June 2001, we issued $50 million of 8 1/2% Senior Notes which mature on
April 1, 2009. This note offering was an add-on to our previously issued 8 1/2%
Senior Notes due 2009. The add-on notes were issued at a discount to yield
approximately 8.8 percent. These notes are unsecured obligations and rank
equally with our other existing senior unsecured indebtedness. Interest is 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, commencing April 1, 2004 at
104.25 percent of par, with the call price reducing ratably to par on April 1,
2007. Net proceeds after underwriting expenses were approximately $48.6 million
and were used to repay a portion of the balance outstanding under our revolving
credit facility. We will, under certain circumstances, be obligated to make an
offer to purchase a portion of these notes in the event of certain asset sales.
In addition, these notes contain other restrictive covenants which, among other
things, impose certain limitations on our ability to (1) incur additional
indebtedness, (2) create liens, (3) make restricted payments, and (4) sell
assets. Also, upon a change in control we are required to make an offer to
purchase these notes.
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Selected Financial Information
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
----------- ---------- ---------- ----------
(Dollars in thousands)
Homebuilding:
Revenues $ 323,916 $ 283,689 $ 610,667 $ 515,808
Cost of sales 252,442 232,163 471,911 422,368
----------- ---------- ---------- ----------
Gross margin 71,474 51,526 138,756 93,440
----------- ---------- ---------- ----------
Gross margin percentage 22.1% 18.2% 22.7% 18.1%
----------- ---------- ---------- ----------
Selling, general and administrative expenses 28,988 24,150 55,798 42,600
Income from unconsolidated joint ventures 2,139 7,052 7,905 7,958
Interest expense 1,253 825 2,424 1,253
Amortization of goodwill 586 495 1,171 989
Other income 117 55 124 89
----------- ---------- ---------- ----------
Homebuilding pretax income 42,903 33,163 87,392 56,645
----------- ---------- ---------- ----------
Financial Services:
Revenues 1,852 588 3,484 1,018
Expenses 1,473 992 2,837 1,809
Income from unconsolidated joint ventures 338 195 641 343
Other income 122 71 195 121
----------- ---------- ---------- ----------
Financial services pretax income (loss) 839 (138) 1,483 (327)
----------- ---------- ---------- ----------
Income before taxes $ 43,742 $ 33,025 $ 88,875 $ 56,318
=========== ========== ========== ==========
Operating Data
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
----------- ---------- ---------- ----------
New homes delivered:
Southern California 271 272 451 507
Northern California 163 194 352 368
----------- ---------- ---------- ----------
Total California 434 466 803 875
----------- ---------- ---------- ----------
Texas 193 127 321 231
Arizona 302 236 504 419
Colorado 106 - 190 -
----------- ---------- ---------- ----------
Consolidated total 1,035 829 1,818 1,525
Unconsolidated joint ventures (California) 29 31 61 48
----------- ---------- ---------- ----------
Total 1,064 860 1,879 1,573
=========== ========== ========== ==========
Average selling price:
California deliveries (excluding joint ventures) $ 420,239 $ 443,907 $ 465,475 $ 436,923
Texas deliveries $ 295,664 $ 284,827 $ 293,050 $ 271,257
Arizona deliveries $ 173,335 $ 168,649 $ 168,572 $ 166,387
Colorado deliveries $ 299,127 $ - $ 299,778 $ -
Consolidated deliveries (excluding joint ventures) $ 312,562 $ 341,176 $ 335,403 $ 337,498
Unconsolidated joint venture deliveries (California) $ 540,773 $ 566,055 $ 549,518 $ 543,102
-9-
Operating Data - (continued)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
---------- ---------- --------- ---------
Net New Orders:
Southern California 432 433 799 774
Northern California 67 280 215 608
---------- ---------- --------- ---------
Total California 499 713 1,014 1,382
---------- ---------- --------- ---------
Texas 162 168 329 325
Arizona 281 225 624 468
Colorado 80 - 190 -
---------- ---------- --------- ---------
Consolidated total 1,022 1,106 2,157 2,175
Unconsolidated joint ventures (California) 157 40 206 84
---------- ---------- --------- ---------
Total 1,179 1,146 2,363 2,259
========== ========== ========= =========
Average selling communities during the quarter:
Southern California 20 23
Northern California 13 14
Texas 28 25
Arizona 17 15
Colorado 9 -
Unconsolidated joint ventures (California) 7 3
---------- ----------
Total 94 80
========== ==========
At June 30,
---------------------------
2001 2000
---------- ----------
Backlog (in units):
Southern California 762 609
Northern California 138 413
---------- ----------
Total California 900 1,022
---------- ----------
Texas 249 220
Arizona 537 376
Colorado 148 -
---------- ----------
Consolidated total 1,834 1,618
Unconsolidated joint ventures (California) 192 82
---------- ----------
Total 2,026 1,700
========== ==========
Backlog at quarter end (estimated dollar
value in thousands) $ 709,763 $ 606,295
========== ==========
Building sites owned or controlled:
California 9,320 9,445
Texas 2,764 2,567
Arizona 4,033 3,597
Colorado 2,081 -
---------- ----------
Total 18,198 15,609
========== ==========
Completed and unsold homes 161 94
========== ==========
Homes under construction 2,616 2,044
========== ==========
-10-
Net income for the 2001 second quarter increased 31 percent to a record
$26.3 million, or $0.85 per diluted share, compared to $20.0 million, or $0.69
per diluted share, for the year earlier period. For the six months ended June
30, 2001 net income increased 58 percent to $53.5 million, or $1.73 per diluted
share, compared to $33.9 million, or $1.17 per diluted share, for the year
earlier period.
Second quarter earnings before interest, taxes, depreciation and
amortization ("EBITDA") was up 42 percent to $52.0 million compared to $36.7
million for the 2000 second quarter. Our EBITDA margin was 16.1 percent for the
2001 second quarter, up 320 basis points over the 2000 second quarter. EBITDA
for the first six months of 2001 was $103.6 million compared to $66.5 million
for the year earlier period, up 56 percent.
Homebuilding
Homebuilding pretax income was up 29 percent to $42.9 million for the three
months ended June 30, 2001 compared to $33.2 million in the previous year
period. The higher level of operating income was attributable to a 390 basis
point improvement in the homebuilding gross margin percentage and a 14 percent
increase in homebuilding revenues, which was partially offset by a $4.9 million
decrease in joint venture income.
Homebuilding revenues for the 2001 second quarter were $323.9 million
compared to $283.7 million in the 2000 second quarter. The higher revenue total
was due to a 25 percent increase in deliveries to 1,035 new homes (exclusive of
joint ventures) net of an 8 percent decline in the average home price to
$313,000. During the 2001 second quarter we delivered 463 new homes in
California compared to 497 homes in the prior year period. Deliveries in
Southern California were in line with the prior year level while deliveries in
Northern California were down 16 percent due to the slowing economy in that
region. Deliveries were up 52 percent in Texas to 193 homes and up 28 percent
in Arizona to 302 homes. Our new Colorado division delivered 106 new homes
during the 2001 second quarter.
Homebuilding revenues for the six months ended June 30, 2001 were $610.7
million compared to $515.8 million for the year earlier period. The higher
revenue total was attributable to a 19 percent increase in deliveries to 1,818
homes (exclusive of joint ventures) which was offset, in part, by a modest
decline in the average home selling price to $335,000.
During the 2001 second quarter the average home price in California was
down 5 percent to $420,000, reflecting our efforts to expand our product mix to
lower priced homes in certain geographic areas. The average home price in Texas
was up 4 percent to $296,000 reflecting the delivery of larger, more expensive
homes in Austin, and to a lesser extent, general price appreciation experienced
in the Austin market. The average home price in Arizona was up 3 percent to
$173,000 due to changes in product mix, and the average home price in Colorado
was $299,000 for the quarter. The consolidated average home price for the 2001
third quarter is expected to be approximately $320,000 to $325,000 compared to
$333,000 in the 2000 third quarter and is projected to be approximately $340,000
to $345,000 for the full year 2001 compared to $354,000 in 2000 due primarily to
the delivery of more homes in Texas, Arizona and Colorado.
The homebuilding gross margin percentage for the 2001 second quarter was up
390 basis points to 22.1 percent versus 18.2 percent in the year earlier
quarter. The significant increase in the gross margin percentage was driven
principally by a jump in California gross margins, including significant volume
and margin contributions in Southern California. The higher margins in
California were driven by rising home prices during 2000, when orders were
typically placed, while labor and material costs have remained relatively
stable. The margins generated in Texas and Arizona were generally in line with
the levels achieved last year, while margins generated in Colorado were above
our consolidated average.
-11-
For the first six months of 2001, the homebuilding gross margin percentage was
up 460 basis points to 22.7 percent compared to 18.1 percent in the year earlier
period.
Selling, general and administrative ("SG&A") expenses for the 2001 second
quarter were 8.9 percent of revenues compared to 8.5 percent last year. SG&A
expenses for the six months ended June 30, 2001 were 9.1 percent of revenues
versus 8.3 percent in the previous year period. The higher level of SG&A
expenses as a percentage of revenues was due primarily to increases in profit-
based compensation and insurance expense. We expect the SG&A rate for the full
year 2001 to decrease modestly compared to the SG&A rate for the first six
months of 2001 as fixed expenses are spread over a higher expected revenue base.
Income from unconsolidated joint ventures for the 2001 second quarter was
generated from the delivery of 29 homes from our three-project joint venture in
Fullerton, California in Orange County. We expect to deliver an additional 135
to 145 homes from this venture in 2001. Additional joint venture deliveries are
expected to come from our first active adult project beginning in the 2001 third
quarter and could total 115 to 125 homes for the year. During the 2001 second
quarter we began selling homes in this new project and we generated 89 net new
home orders from this three-project development located in our Talega master-
planned community in Orange County. Additional land sales from our Talega land
development joint venture in South Orange County are also planned for the
balance of the year. Joint venture income for the 2000 second quarter included
a $5.1 million gain from a land sale at our Fullerton venture.
Amortization of goodwill for the 2001 second quarter and the six months
ended June 30, 2001 reflects a slight increase over the prior year periods as it
includes amortization related to the Colorado acquisition which closed in the
2000 third quarter.
Net new home orders for the 2001 second quarter were up 3 percent over the
year earlier period to a second quarter record 1,179 new homes on an 18 percent
increase in average community count. Orders were up 24 percent in Southern
California on a flat community count, down 75 percent in Northern California on
a flat community count, down 4 percent in Texas on a 12 percent increase in
active selling communities and up 25 percent in Arizona on a 13 percent higher
community count. Net new orders in Colorado totaled 80 homes for the 2001
second quarter from 9 active communities. Our sales activity continues to
remain healthy in Southern California, Arizona and Colorado, while order levels
in the San Francisco Bay area continue to lag the prior year levels due
primarily to a slowdown in the region's economy. Orders were down modestly in
Texas due to some slowing in Austin compared to the strong levels achieved last
year. The record company-wide order levels combined with a strong backlog of
presold homes resulted in a record second quarter end backlog of 2,026 presold
homes, a 19 percent increase over the prior year total.
For the quarter ended June 30, 2001, we opened 11 new communities, compared
to 22 openings last year. For the balance of the year, we anticipate opening
approximately 38 new communities of which approximately 21 are expected to be
located in California, 3 in Texas, 8 in Arizona and 6 in Colorado. Many of the
new communities that we are planning to open, particularly in California,
reflect our efforts to broaden the price points of our new homes to include more
lower priced homes in our markets. During the balance of 2001 we expect the
number of active selling communities to fluctuate between 95 and 115
subdivisions which represents, on average, a 15 to 25 percent increase over the
2000 average community count level.
-12-
Financial Services
Revenues from our financial services subsidiary for the three and six
months ended June 30, 2001 were up 215 and 242 percent, respectively, over the
prior year periods. The higher revenue totals were driven primarily by 137
percent and 160 percent increases in the dollar volume of loans sold during the
quarter and six months ended June 30, 2001 compared to the prior year periods,
coupled with larger margins recognized on the sale of loans and higher net
interest income generated on loans held for sale due to increased loan
originations. The increase in loan volume was due primarily to higher capture
rates in our California projects. The rise in operating expenses during the
three and six months ended June 30, 2001 compared to the year earlier periods
primarily reflects the higher origination and loan sale activity in California.
The financial services joint venture income reflects the operating results
of SPH Mortgage, our mortgage banking joint venture in Arizona and Texas with
Wells Fargo Home Mortgage, and, for 2001, WRT Financial, our mortgage banking
joint venture in Colorado.
Other financial services income represents earnings from our title
insurance operation in Texas, which serves as a title insurance agent that
offers title examination services.
Liquidity and Capital Resources
Our homebuilding operations' principal uses of cash have been for operating
expenses, land acquisitions, construction expenditures, market expansion
(including acquisitions), principal and interest payments on debt, share
repurchases and dividends to our shareholders. Cash requirements have been
provided from internally generated funds and outside borrowings, including our
bank revolving credit facility and public note offerings. Our mortgage banking
subsidiary uses cash from internal funds, a parent line of credit and a mortgage
warehouse credit facility to fund its mortgage lending operations. Based on our
current business plan and our desire to carefully manage our leverage, we
believe that these sources of cash, together with equity or equity-related
capital sources, are sufficient to finance our current working capital
requirements and other needs.
We have a $450 million unsecured revolving credit facility with our bank
group which matures July 31, 2004. The credit facility contains an option which
allows us to increase the total aggregate commitment up to $475 million subject
to the approval of the agent bank. This agreement also contains a borrowing
base provision and financial covenants which may limit the amount we may borrow
under the revolving credit facility. At June 30, 2001, we had borrowings of
$97.5 million outstanding and had issued approximately $35.2 million of letters
of credit under this facility.
To fund mortgage loans originated by our financial services subsidiary, we
have a $40 million revolving mortgage warehouse credit facility with a bank.
Presold mortgage loans are warehoused for a short period of time (typically for
15 to 30 days) while the investor completes its administrative review of the
applicable loan documents. Loans originated on a non-presold basis are typically
warehoused for 15 to 60 days before sale to third party investors. Borrowings
under the warehouse facility, which are LIBOR based, are secured by the related
mortgage loans held for sale. The facility, which has a current maturity date of
August 27, 2001, also contains certain financial covenants. We are in
discussions with various lenders regarding a new facility, which we anticipate
to be completed before the existing facility expires. At June 30, 2001, we had
borrowings of $36.2 million outstanding under this facility.
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In January 2001, the Securities and Exchange Commission declared effective
our $425 million universal shelf registration statement on Form S-3. The
universal shelf registration statement permits the issuance from time to time of
common stock, preferred stock, debt securities and warrants. Currently,
$375 million of securities remain available for issuance under this
universal shelf (including approximately $32.7 million of common stock
registered on behalf of potential selling stockholders).
In June 2001, we utilized a portion of our universal shelf and issued $50
million of 8 1/2% Senior Notes which mature on April 1, 2009. This note
offering was an add-on to our previously issued 8 1/2% Senior Notes due 2009.
These notes, which were issued at a discount to yield approximately 8.8 percent,
are unsecured obligations and rank equally with our other existing senior
unsecured indebtedness. The notes are redeemable at our option, in whole or in
part, commencing April 1, 2004 at 104.25 percent of par, with the call price
reducing ratably to par on April 1, 2007. Net proceeds after underwriting
expenses were approximately $48.6 million and were used to repay a portion of
the balance outstanding under our revolving credit facility. We will, under
certain circumstances, be obligated to make an offer to purchase a portion of
these notes in the event of certain asset sales. In addition, these notes
contain other restrictive covenants which, among other things, impose certain
limitations on our ability to (1) incur additional indebtedness, (2) create
liens, (3) make restricted payments, and (4) sell assets. Also, upon a change
in control we are required to make an offer to purchase these notes.
From time to time, purchase money mortgage financing is used to finance
land acquisitions. At June 30, 2001, we had approximately $491,000 outstanding
in trust deed notes payable.
As a form of off balance sheet financing and for other strategic purposes,
joint venture structures are used on selected projects. This type of structure,
which typically includes obtaining secured construction and development
financing, minimizes the use of funds from our revolving credit facility and
other corporate financing sources. We plan to continue using these types of
arrangements to finance the development of properties as opportunities arise.
If the market value of the properties in certain of these joint ventures
declines, we may be required to make capital contributions to these ventures to
reduce amounts borrowed under secured construction loans.
We also utilize option contracts as a method of acquiring land. Option
contracts generally require the payment of a non-refundable cash deposit for the
right to acquire lots during a specified period of time at certain prices.
Under lot option contracts, the purchase of the properties is contingent upon
satisfaction of certain requirements by us and the land sellers.
We paid approximately $4.8 million, or $0.16 per common share ($0.08 per
common share per quarter), in dividends to our stockholders during the six
months ended June 30, 2001. Common stock dividends are paid at the discretion
of our Board of Directors and are dependent upon various factors, including
earnings, cash flows, capital requirements and operating and financial
conditions, including our overall level of leverage. Additionally, our
revolving credit facility and public notes impose restrictions on the amount of
dividends we may be able to pay. On July 20, 2001, our Board of Directors
declared a quarterly cash dividend of $0.08 per share of common stock. This
dividend is to be paid on August 28, 2001 to shareholders of record on August
14, 2001.
During the six months ended June 30, 2001, we issued 197,463 shares of
common stock pursuant to the exercise of stock options for total consideration
of approximately $2.4 million.
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In April 2001, our Board of Directors approved a new $35 million stock
repurchase plan which replaced our previously announced stock buyback plan.
Through August 1, 2001, we have repurchased 186,500 shares of common stock for
approximately $3.9 million under the new plan, leaving a balance of
approximately $31.1 million available for future share repurchases.
We have no other material commitments or off balance sheet financing
arrangements that under current market conditions are expected to materially
affect our future liquidity.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks related to fluctuations in interest rates on
our mortgage loans receivable, mortgage loans held for sale and outstanding
debt. SPH Mortgage, WRT Financial and, to a lesser extent, Family Lending
manage interest rate risk with respect to loan commitments and loans held for
sale by preselling loans. Preselling loans consist of obtaining commitments
(subject to certain conditions) from investors (in the case of SPH Mortgage and
WRT Financial, typically from their financial institution partners) to purchase
mortgage loans concurrently with extending interest rate locks to loan
applicants.
To enhance potential returns on the sale of mortgage loans, Family Lending
also originates a portion of its mortgage loans on a non-presold basis. To
hedge its interest rate risk associated with extending interest rate commitments
to customers prior to selling loans to investors and holding closed loans
following funding, Family Lending enters into forward sale commitments of
mortgage-backed securities. Loans originated in this fashion are typically held
by Family Lending and financed under its mortgage warehouse credit facility for
15 to 60 days before they are sold to third party investors. Family Lending
utilizes the services of a third party advisory firm to assist with the
implementation and execution of its hedging strategy for loans originated on a
non-presold basis. While this hedging strategy should assist Family Lending in
mitigating risk associated with originating loans on a non-presold basis, these
instruments involve elements of market risk which could result in losses on
loans originated in this manner if not hedged properly.
Please see our Annual Report on Form 10-K for the year ended December 31,
2000 for further discussion related to our market risk exposure.
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, which represent our expectations or
beliefs concerning future events, including, but not limited to, statements
regarding:
. the adoption and expected impact of recent accounting pronouncements;
. expected average home prices;
. our expected SG&A rate;
. expected joint venture deliveries and land sales;
. orders and our backlog of homes and their estimated sales value;
. planned new home community openings and the expected number of active selling
communities;
. the sufficiency of our cash provided by internally generated funds, outside
borrowings and the equity capital markets;
. expected completion of a new mortgage warehouse facility;
. our planned continued use of joint ventures as a financing structure;
. the likely effect on our future liquidity of our existing material
commitments and off balance sheet financing arrangements; and
. our exposure to market risks, including fluctuations in interest rates.
Forward-looking statements are based on 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:
. local and general economic and market conditions, including consumer
confidence, employment rates, interest rates, the cost and availability of
mortgage financing, and stock market, home and land valuations;
. 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;
. 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" or similar
initiatives;
. delays in the land entitlement process, development, construction, or the
opening of new home communities;
. adverse weather conditions and natural disasters;
. environmental matters;
. risks relating to our mortgage banking operations, including hedging
activities;
. future business decisions and our ability to successfully implement our
operational, growth and other strategies;
. litigation and warranty claims; and
. other risks discussed in our filings with the Securities and Exchange
Commission, including in our most recent Annual Report on Form 10-K.
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.
-16-
SIGNATURES
Pursuant to the requirements 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.
STANDARD PACIFIC CORP.
(Registrant)
Dated: August 10, 2001 By: /s/ Stephen J. Scarborough
--------------------------
Stephen J. Scarborough
Chief Executive Officer and
Chairman of the Board
Dated: August 10, 2001 By: /s/ Andrew H. Parnes
--------------------------
Andrew H. Parnes
Senior Vice President - Finance
and Chief Financial Officer
-17-
PART II OTHER INFORMATION
Item 1. Legal proceedings
None
Item 2. Change in Securities
None
Item 3. Default upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At our Annual Meeting held on May 16, 2001, Standard Pacific's
stockholders re-elected Dr. James L. Doti and Keith D. Koeller as
directors. Standard Pacific's stockholders also elected Andrew H. Parnes as
a Class I director. In addition, the term of office of the following
directors continued after the Annual Meeting: Stephen J. Scarborough,
Michael C. Cortney, Douglas C. Jacobs, Ronald R. Foell, Larry McNabb and
Jeffrey V. Peterson. Voting at the meeting was as follows:
Votes Votes Votes
Matter Cast For Cast Against Withheld
---------------------------------- --------------- ----------------- ---------------
Election of Dr. James L. Doti 26,876,759 - 494,630
Election of Keith D. Koeller 26,524,175 - 847,214
Election of Andrew H. Parnes 26,877,984 - 493,405
Approval of Amended Management
Incentive Bonus Plan 25,333,144 1,973,217 65,028
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Current Reports on Form 8-K
Form 8-K dated June 12, 2001 reporting that the Registrant
filed a Prospectus Supplement, dated June 6, 2001, and
accompanying Prospectus, dated January 5, 2001, relating
to the offering of $50,000,000 principal amount of the
Registrant's 8 1/2% Senior Notes due 2009. In connection
with this note offering, certain exhibits related to this
transaction were filed with the Form 8-K.
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