(Registrant’s telephone number, including area code)
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No ____
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes No X .
Registrant's shares of common stock outstanding at July 26, 2012: 200,078,947
The condensed 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 (“SEC”) for Form 10-Q. Certain information normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) has been omitted pursuant to applicable rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements included herein reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position as of June 30, 2012 and the results of operations and cash flows for the periods presented. Pursuant to ASC Topic 855, Subsequent Events, we have evaluated
subsequent events through the date that the accompanying condensed consolidated financial statements were issued for the period ended June 30, 2012.
Certain items in the prior period condensed consolidated financial statements have been reclassified to conform with the current period presentation.
The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011. Unless the context otherwise requires, the terms “we,”“us,”“our” and “the Company” refer to Standard Pacific Corp. and its subsidiaries. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.
2. Recent Accounting Pronouncements
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 amends ASC 820, Fair Value Measurements (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. Our adoption of these new provisions of ASU 2011-04 on January 1, 2012 did not have an impact on our consolidated
financial statements.
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires the presentation of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. We adopted the provisions of ASU 2011-05 on January 1, 2012 and have elected to present two separate consecutive statements in our consolidated financial statements.
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 ASC Topic 280, Segment Reporting, 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 and the Carolinas.
Our mortgage financing operation provides mortgage financing to our homebuyers in substantially all of the markets in which we operate, and sells substantially all of the loans it originates in the secondary mortgage market. 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, insurance and risk management, litigation, marketing 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.
Segment financial information relating to the Company’s homebuilding operations was as follows:
Homebuilding investments in unconsolidated joint ventures:
California
$
81,128
$
76,999
Southwest
2,758
2,770
Southeast
1,579
2,038
Total homebuilding investments in unconsolidated joint ventures
$
85,465
$
81,807
4. Earnings (Loss) Per Common Share
We compute earnings (loss) per share in accordance with ASC Topic 260, Earnings per Share (“ASC 260”), which requires earnings (loss) per share for each class of stock (common stock and participating preferred stock) to be calculated using the two-class method. The two-class method is an allocation of earnings (loss) between the holders of common stock and a company's participating security holders. Under the two-class method, earnings (loss) for the reporting period are allocated between common shareholders and other security holders based on their respective participation rights in undistributed earnings. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method.
Basic earnings (loss) per common share is computed by dividing income or loss available to common stockholders by the weighted average number of shares of common stock outstanding. Our Series B junior participating convertible preferred stock (“Series B Preferred Stock”), which is convertible into shares of our common stock at the holder’s option (subject to a limitation based upon voting interest), and our unvested restricted stock, are classified as participating securities in accordance with ASC 260. Net income (loss) allocated to the holders of our Series B Preferred Stock and unvested restricted stock is calculated based on the shareholders’ proportionate share of weighted average shares of common stock outstanding on an if-converted basis.
For purposes of determining diluted earnings (loss) per common share, basic earnings (loss) per common share is further adjusted to include the effect of potential dilutive common shares outstanding, including stock options, stock appreciation rights, performance share awards and unvested restricted stock using the more dilutive of either the two-class method or the treasury stock method, and convertible debt using the if-converted method. For the three and six months ended June 30, 2011, all dilutive securities were excluded from the calculation as they were anti-dilutive as a result of the net loss for these respective periods. Shares outstanding under the share lending facility are not treated as outstanding for earnings per share purposes in accordance with ASC 260, 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. The following table sets forth the components used in the computation of basic and diluted earnings (loss) per common share.
Less: Net (income) loss allocated to preferred shareholder
(6,130
)
4,554
(9,807
)
10,968
Less: Net (income) loss allocated to unvested restricted stock
(15
)
―
(12
)
―
Net income (loss) available to common stockholders
$
8,118
$
(5,965
)
$
12,967
$
(14,348
)
Denominator:
Weighted average basic common shares outstanding
195,746,733
193,577,324
195,427,992
193,369,182
Stock options
5,593,889
―
5,136,047
―
Weighted average diluted common shares outstanding
201,340,622
193,577,324
200,564,039
193,369,182
Income (loss) per common share:
Basic
$
0.04
$
(0.03
)
$
0.07
$
(0.07
)
Diluted
$
0.04
$
(0.03
)
$
0.06
$
(0.07
)
As of June 30, 2012 and 2011, we had 450,829 shares of Series B Preferred Stock outstanding, which are convertible into 147.8 million shares of our common stock. In accordance with ASC 260, assuming that all of the outstanding Series B Preferred Stock was converted to common stock, all net income (loss) would be allocated to common stock and unvested restricted stock in the computation of earnings (loss) per share.
5. Stock-Based Compensation
We account for share-based awards in accordance with ASC Topic 718, Compensation-Stock Compensation, which requires the fair value of stock-based compensation awards to be amortized as an expense over the vesting period. Stock-based compensation awards are valued at the fair value on the date of grant.
During the six months ended June 30, 2012, we issued 462,119 shares of common stock to our officers and key employees, 49,552 shares of common stock to our independent directors (excluding directors appointed by MP CA Homes LLC (“MatlinPatterson”) who did not receive any stock awards) and 7,610 shares to all employees in connection with a companywide stock grant. Additionally, in connection with the Company’s 2012 incentive compensation program, on April 2, 2012 (“issuance date”) the Compensation Committee of our Board of Directors granted long-term equity awards to executive officers and certain key employees of the Company. The
grant consisted of the following awards:
•
Restricted Stock – 356,725 shares of restricted common stock vesting in three equal installments on each of the first three anniversaries of the issuance date;
•
Capped Stock Appreciation Rights (“SAR”) – 3,374,779 capped common stock appreciation rights with a grant price equal to the closing price of the Company’s common stock ($4.29) on the issuance date (the “grant price”), vesting in three equal installments on each of the first three anniversaries of the issuance date, and with the value per share of the award capped at the difference between twelve dollars ($12) and the grant price; and
•
Performance Share Awards – 405,012 target performance share awards with payouts at 1-4 times the target number of shares of common stock based on the Company’s actual earnings per share for the year ended December 31, 2014.
On April 2, 2012 the Compensation Committee of our Board of Directors also provided a one-time grant of 2,700,000 market based capped stock appreciation rights ("Market Based SAR") to 12 senior executives. These market based grants have a five year term and vest in three equal tranches only if the Company’s common stock closing price reaches eight ($8), nine ($9) and ten ($10) dollars, respectively, for twenty consecutive trading days. The value per share of the award is capped at the difference between twelve dollars ($12) and the grant price.
Total compensation expense recognized related to stock-based compensation was $1.9 million and $3.5 million for the three months ended June 30, 2012 and 2011, respectively. For the six months ended June 30, 2012 and 2011, we recognized stock-based compensation expense of $3.0 million and $5.5 million, respectively. As of June 30, 2012, total unrecognized stock-based compensation expense was $9.4 million, with a weighted average period over which the remaining unrecognized compensation expense is expected to be recorded of approximately 2.2 years.
6. Restricted Cash
At June 30, 2012, restricted cash included $26.4 million of cash held in cash collateral accounts primarily related to certain letters of credit that have been issued and a portion related to our financial services subsidiary mortgage credit facilities ($25.1 million of homebuilding restricted cash and $1.3 million of financial services restricted cash).
In accordance with ASC Topic 360, Property, Plant, and Equipment (“ASC 360”), we record impairment losses on inventories when events and circumstances indicate that they may be impaired, and the future 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. During the six months ended June 30, 2012 and 2011, the total number of projects included in inventories-owned and reviewed for impairment were 264 and 251, respectively. Based
on the impairment review, we did not record any inventory impairments during the three and six months ended June 30, 2012, and recorded $6.0 million of inventory impairments during the three and six months ended June 30, 2011.
Under ASC Topic 810, Consolidation (“ASC 810”), 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. Our land purchase and lot 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. Such costs are classified as inventories owned, which we would have to write off should we not exercise the option. Therefore, whenever we enter into a land option or purchase contract with an entity and make a non-refundable deposit,
a variable interest entity (“VIE”) may have been created. As of June 30, 2012, we were not required to consolidate any VIEs. In accordance with ASC 810, we perform ongoing reassessments of whether we are the primary beneficiary of a VIE. Other lot option contracts noted in the table above represent specific performance obligations where the land option contract contains a binding obligation requiring us to complete the lot purchases.
We incurred pretax charges of $0.1 million related to deposit write-offs for the six months ended June 30, 2012. These charges related to our Southeast reportable segment and were included in other income (expense) in the accompanying condensed consolidated statements of operations. We did not record any deposit write-offs during the six months ended June 30, 2011.We continue to evaluate the terms of open land option and purchase contracts and may write-off option deposits in the future, particularly in those instances where land sellers are unwilling to renegotiate significant contract
terms.
8. Capitalization of Interest
We follow the practice of capitalizing interest to inventories owned during the period of development and to investments in unconsolidated homebuilding and land development joint ventures in accordance with ASC Topic 835, Interest (“ASC 835”). Homebuilding interest capitalized as a cost of inventories owned is included in cost of sales as related units or lots are sold. Interest capitalized to investments in unconsolidated homebuilding and land development joint ventures is included as a reduction of income from unconsolidated joint ventures when 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 assets as defined in ASC 835, we expense a portion of the interest incurred
by us. Qualified assets represent projects that are actively selling or under development as well as investments in unconsolidated joint ventures accounted for under the equity method. For the three months ended June 30, 2012 and 2011, we expensed $1.6 million and $7.4 million, respectively, of interest costs related to the portion of our debt in excess of our qualified assets in accordance with ASC 835. For the six months ended June 30, 2012 and 2011, we expensed $4.1 million and $18.0 million, respectively, of interest costs in accordance with ASC 835.
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, for the three and six months ended June 30, 2012 and 2011:
Less: Interest capitalized to investments in unconsolidated joint ventures
(1,812
)
(1,723
)
(3,605
)
(3,352
)
Interest expense
$
1,617
$
7,444
$
4,147
$
17,959
Interest previously capitalized to inventories owned, included in cost of home sales
$
24,465
$
16,108
$
43,021
$
27,088
Interest previously capitalized to inventories owned, included in cost of land sales
$
―
$
38
$
19
$
38
Interest previously capitalized to investments in unconsolidated joint ventures,
included in loss from unconsolidated joint ventures
$
231
$
121
$
435
$
258
Interest capitalized in ending inventories owned
$
208,354
$
169,705
$
208,354
$
169,705
Interest capitalized as a percentage of inventories owned
13.0
%
12.3
%
13.0
%
12.3
%
Interest capitalized in ending investments in unconsolidated joint ventures
$
12,281
$
7,571
$
12,281
$
7,571
Interest capitalized as a percentage of investments in unconsolidated joint ventures
14.4
%
9.2
%
14.4
%
9.2
%
____________________
(1)
For the three and six months ended June 30, 2012, interest incurred included the noncash amortization of $2.6 million and $5.2 million, respectively, of interest related to the Term Loan B swap that was unwound in the 2010 fourth quarter (please see Note 15 “Derivative Instruments and Hedging Activities”). For the three and six months ended June 30, 2011, interest incurred included the noncash amortization of $2.6 million and $5.1 million, respectively, of interest related to the Term Loan B swap.
9. Investments in Unconsolidated Land Development and Homebuilding Joint Ventures
The table set forth below summarizes the combined statements of operations for our unconsolidated land development and homebuilding joint ventures that we accounted for under the equity method:
Loss from unconsolidated joint ventures reflected in the
accompanying condensed consolidated statements of operations
$
(1,146
)
$
(379
)
$
(2,668
)
$
(636
)
Loss from unconsolidated joint ventures reflected in the accompanying condensed consolidated statements of operations represents our share of the income (loss) of these unconsolidated land development and homebuilding joint ventures. For the three and six months ended June 30, 2012 and 2011, loss from unconsolidated joint ventures was primarily attributable to our share of losses related to one Southern California land development joint venture, which were allocated based on the provisions of the underlying joint venture operating agreement.
During each of the six months ended June 30, 2012 and 2011, a total of six unconsolidated joint venture projects were reviewed for impairment, with certain joint ventures having multiple real estate projects. Based on the impairment review, no joint venture projects were determined to be impaired for the six months ended June 30, 2012 and 2011.
The table set forth below summarizes the combined balance sheets for our unconsolidated land development and homebuilding joint ventures that we accounted for under the equity method:
Investments in unconsolidated joint ventures reflected in
the accompanying condensed consolidated balance sheets
$
85,465
$
81,807
In some cases our net investment in these unconsolidated joint ventures is not equal to our proportionate share of equity reflected in the table above primarily because of differences between asset impairments that we recorded against our joint venture investments and the impairments recorded by the applicable joint venture. Our investments in unconsolidated joint ventures also included approximately $12.3 million and $9.1 million of homebuilding interest capitalized to investments in unconsolidated joint ventures as of June 30, 2012 and December 31, 2011, respectively, which capitalized interest is not included in the combined balance sheets above.
Our investments in these unconsolidated joint ventures may represent a variable interest in a VIE depending on, among other things, the economic interests of the members of the entity and the contractual terms of the arrangement. We analyze all of our unconsolidated joint ventures under the provisions of ASC 810 to determine whether these entities are deemed to be VIEs, and if so, whether we are the primary beneficiary. As of June 30, 2012, with the exception of one homebuilding joint venture, all of our homebuilding and land development joint ventures with unrelated parties were determined under the provisions of ASC 810 to be unconsolidated joint ventures because they were not deemed to be VIEs. As of June 30, 2012, we held an interest in one homebuilding joint venture in Northern California that was deemed
to be a VIE. Our investment in this joint venture was approximately $5.8 million, which represents our maximum exposure to loss if we elect to forfeit our membership interest in this entity. As of June 30, 2012, this joint venture owns approximately $8.4 million of assets, primarily representing real estate inventories, and has no debt outstanding. We have determined that based on the voting rights with respect to major decisions, as defined in the underlying joint venture operating agreement, both members of this joint venture share equally in the power to direct the activities that most significantly impact the entity’s economic performance. As a result, we are not required to consolidate this joint venture as neither member is deemed to be the primary beneficiary.
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. Our warranty accrual is included in accrued liabilities in the accompanying condensed consolidated balance sheets. Changes in our warranty accrual are detailed in the table set forth below:
11. Revolving Credit Facility and Letter of Credit Facilities
As of June 30, 2012, we were party to a $210 million unsecured revolving credit facility with a bank group (the “Revolving Facility”). The Revolving Facility matures in February 2014 and has an accordion feature under which the aggregate commitment may be increased up to $400 million, subject to the availability of additional bank commitments and certain other conditions. The Revolving Facility contains financial covenants, including, but not limited to, (i) a minimum consolidated tangible net worth covenant; (ii) a covenant to maintain either (a) a minimum liquidity level or (b) a minimum interest coverage ratio; (iii) a maximum net homebuilding leverage ratio and (iv) a maximum land not under development to tangible net worth ratio. This facility also contains a borrowing base provision, which limits the amount we may borrow or keep outstanding under
the facility, and also contains a limitation on our investments in joint ventures. Interest rates charged under the Revolving Facility include LIBOR and prime rate pricing options. As of the date hereof, we satisfied the conditions that would allow us to borrow up to $203.5 million under the facility and had no amounts outstanding.
As of June 30, 2012, we were party to two committed letter of credit facilities totaling $11 million, of which $7.2 million was outstanding. In addition, as of such date, we also had a $30 million uncommitted letter of credit facility, of which $17.4 million was outstanding. These facilities require cash collateralization and have maturity dates ranging from October 2012 to November 2013. As of June 30, 2012 these facilities were secured by cash collateral deposits of $25.0 million. Upon maturity, we may renew or enter into new letter of credit facilities with the same or other financial institutions.
12. Secured Project Debt and Other Notes Payable
Our secured project debt and other notes payable consist of community development district and similar assessment district bond financings used to finance land development and infrastructure costs for which we are responsible. At June 30, 2012, we had approximately $4.9 million outstanding in secured project debt and other notes payable.
6% Convertible Senior Subordinated Notes due October 2012, net of discount
$
38,490
$
36,339
9¼% Senior Subordinated Notes due April 2012, net of discount
―
9,985
$
38,490
$
46,324
The senior notes payable described above are all senior obligations and rank equally with our other existing senior indebtedness and are redeemable at our option, in whole or in part, pursuant to a “make whole” formula. These senior notes contain various restrictive covenants, including, with respect to the 10¾% Senior Notes due 2016, 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 maximum leverage condition or a minimum interest coverage condition. Under the limitation on restricted payments, we are also prohibited from making restricted payments (which include dividends, and investments in and advances
to our joint ventures and other unrestricted subsidiaries), if we do not satisfy either condition. Our ability to make restricted payments is also subject to a basket limitation. As of June 30, 2012, we were able to satisfy the conditions necessary to incur additional indebtedness and to make restricted payments. In addition, if we were unable to satisfy either the leverage condition or interest coverage condition, restricted payments could be made from our unrestricted subsidiaries. As of June 30, 2012, we had approximately $274.5 million of cash available in our unrestricted subsidiaries. Many
of our wholly owned direct and indirect subsidiaries (collectively, the “Guarantor Subsidiaries”) guaranty our outstanding senior notes and our senior subordinated notes. The guarantees are full and unconditional, and joint and several. Please see Note 21 for supplemental financial statement information about our guarantor subsidiaries group and non-guarantor subsidiaries group.
Certain provisions of ASC Topic 470, Debt, require bifurcation of a component of convertible debt instruments, classification of that component in stockholders’ 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. Our Convertible Senior Subordinated Notes due 2012 (the “Convertible Notes”) are being accreted to their redemption value, approximately $39.6 million, over the remaining term of these notes. The unamortized discount of the Convertible Notes, which was included in additional paid-in capital, was $1.1 million and $3.3 million at June 30, 2012 and December 31, 2011, respectively. Interest capitalized to inventories owned is included in cost of sales as related homebuilding
revenues are recognized (please see Note 8 “Capitalization of Interest”).
We repaid the remaining $10.0 million principal balance of our 9¼% Senior Subordinated Notes upon maturity in April 2012.
At June 30, 2012, we had 450,829 shares of Series B junior participating convertible preferred stock (“Series B Preferred Stock”) outstanding, which are convertible into 147.8 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 June
30, 2012, the outstanding shares of common stock (89.4 million shares) and Series B Preferred Stock owned by MatlinPatterson represented approximately 68% of the total number of shares of our common stock outstanding on an if-converted basis.
15. Derivative Instruments and Hedging Activities
We account for derivatives and certain hedging activities in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”). ASC 815 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 and losses resulting from changes in the fair market value of derivatives are recognized in the consolidated statement of operations or recorded in accumulated 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 derivative and whether
the derivative qualifies 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 a 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 two interest rate swap agreements related to our Term Loan B with an aggregate notional amount of $250 million that effectively fixed our 3-month LIBOR rates for our then outstanding term loan through its maturity date of May 2013. The swap agreements were designated as cash flow hedges and, accordingly, were reflected at their fair market value in accrued liabilities in our consolidated balance sheets. To the extent the swaps were deemed effective and qualified for hedge accounting treatment, the related gain or loss was deferred, net of tax, in stockholders’ equity as accumulated other comprehensive income (loss).
In December 2010, we repaid in full the remaining $225 million balance of our Term Loan B and made a $24.5 million payment to terminate the related interest rate swap agreements. As a result, we have no payment obligation remaining related to interest rate swap agreements. The $24.5 million cost associated with the early unwind of the interest rate swap agreements is being amortized over a period of approximately 2.3 years (or May 2013), the original maturity date of the terminated instruments. As of June 30, 2012, the remaining unamortized balance of $5.5 million is included in accumulated other
comprehensive loss, net of tax, and $3.4 million is included in deferred income taxes in the accompanying condensed consolidated balance sheets. For each of the three months ended June 30, 2012 and 2011, we recorded after-tax other comprehensive income of $1.6 million related to the swap agreements.
16. Mortgage Credit Facility
At June 30, 2012, we had $44.4 million outstanding under our mortgage financing subsidiary’s mortgage credit facility, a $50 million repurchase facility. This facility requires Standard Pacific Mortgage to maintain a cash collateral account, which totaled $1.3 million as of June 30, 2012, and also contains financial covenants which require Standard Pacific Mortgage to, among other things, maintain a minimum level of tangible net worth, not to exceed a debt to tangible net worth ratio, maintain a minimum liquidity amount based on a measure of total assets (inclusive of the cash collateral requirement), and satisfy pretax income (loss) requirements. As of June 30, 2012, Standard Pacific Mortgage was in compliance with the financial and other covenants contained
in this facility.
In July 2012, Standard Pacific Mortgage renewed the $50 million repurchase facility, increasing the overall facility commitment amount to $75 million, and extended its maturity date to July 3, 2013.
17. Disclosures about Fair Value
ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), 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, ASC 820 requires us 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. ASC 820 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.
Mortgage loans held for sale have been measured at fair value in accordance with ASC 820 for the three months ended June 30, 2012:
Mortgage loans held for sale consist of FHA, VA, USDA and agency first mortgages on single-family residences which are eligible for sale to FNMA/FHLMC, GNMA or other investors, as applicable. Fair values of these loans are based on quoted prices from third party investors when preselling loans.
The following table presents the carrying values and estimated fair values of our other financial instruments for which we have not elected the fair value option in accordance with ASC Topic 825, Financial Instruments:
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.
Senior and Senior Subordinated Notes Payable – The senior and senior subordinated notes are traded over the counter and their fair values were estimated based upon the values of their last trade at the end of the period.
The fair value of our cash and equivalents, restricted cash, accounts receivable, trade accounts payable, secured project debt and other notes payable, mortgage credit facilities and other liabilities approximate their carrying amounts due to the short-term nature of these assets and liabilities.
18. Commitments and Contingencies
a. Land Purchase and Option Agreements
We are subject to 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. At June 30, 2012, we had no option contracts outstanding with third party financial entities. In some instances, we may also expend funds for due diligence, development and construction activities with respect to our land purchase and option contracts
prior to purchase, which we would have to write off should we not purchase the land. At June 30, 2012, we had non-refundable cash deposits outstanding of approximately $23.1 million and capitalized preacquisition and other development and construction costs of approximately $11.0 million relating to land purchase and option contracts having a total remaining purchase price of approximately $218.2 million. Approximately $60.9 million of the remaining purchase price is included in inventories not owned in the accompanying condensed 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.
b. Land Development and Homebuilding Joint Ventures
Our joint ventures have historically obtained secured acquisition, development and construction financing designed to reduce the use of funds from corporate financing sources. As of June 30, 2012, we held membership interests in 19 homebuilding and land development joint ventures, of which eight were active and 11 were inactive or winding down. As of such date, our joint ventures had no project specific financing outstanding. In addition, as of June 30, 2012, our joint ventures had $3.4 million of surety bonds outstanding subject to indemnity arrangements by us and had an estimated $0.8 million remaining in cost to complete.
c. Surey Bonds
We obtain surety bonds in the normal course of business to ensure completion of the infrastructure of our projects. At June 30, 2012, we had approximately $192.0 million in surety bonds outstanding (exclusive of surety bonds related to our joint ventures), with respect to which we had an estimated $84.2 million remaining in 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. Standard Pacific Mortgage sells substantially all of the loans it originates in the secondary mortgage market and finances these loans under its mortgage credit facility for a short period of time (typically for 30 to 45 days), as investors complete their administrative review of applicable loan documents. Mortgage loans in process for which interest rates were committed to borrowers totaled approximately $53.9 million at June 30, 2012 and carried a weighted average interest rate of approximately 3.7%. Interest rate risks related to these obligations are mitigated through the preselling of loans to investors. As of June 30, 2012, Standard Pacific Mortgage had approximately $70.6 million
in closed mortgage loans held for sale and $55.7 million of mortgage loans that we were committed to sell to investors subject to our funding of the loans and 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 purchaser’s underwriting guidelines are not met, or there is fraud in connection with the loan. As of June 30, 2012, we had incurred an aggregate of $9.1 million in losses related to loan repurchases and make-whole payments we had been required to make on the $6.8 billion total dollar value of the loans we originated from the beginning of 2004 through the second quarter of 2012. During the three months ended June 30, 2012
and 2011, Standard Pacific Mortgage recorded loan loss reserves related to loans sold of $0.3 million and $1.4 million, respectively, and during the six months ended June 30, 2012 and 2011, Standard Pacific Mortgage recorded loan loss reserves related to loans sold of $0.6 million and $2.6 million, respectively. As of June 30, 2012, Standard Pacific Mortgage had repurchase reserves related to loans sold of approximately $3.0 million. In addition, during the six months ended June 30, 2012 and 2011, Standard Pacific Mortgage made make-whole payments totaling approximately $0.6 million related to four loans and $1.0 million related to seven loans, respectively.
Mortgage loans held for investment are continually evaluated for collectability and, if appropriate, specific reserves are established based on estimates of collateral value. As of June 30, 2012, Standard Pacific Mortgage had $13.8 million of loans held for investment that had a loan loss reserve of approximately $4.3 million. During the six months ended June 30, 2012 and 2011, Standard Pacific Mortgage recorded loan loss reserves related to loans held for investment of $0.4 million and $0.1 million, respectively.
e. 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. However, such indemnity is significantly limited with respect to subcontractors added to our general liability insurance policy. 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. Our total insurance and litigation accruals as of June 30, 2012 and December 31, 2011
were $53.6 million and $55.8 million, respectively, which are included in accrued liabilities in the accompanying condensed consolidated balance sheets. 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 from our currently estimated amounts.
f. Restructuring Costs
During 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 as a result of our operations having been impacted by weak housing demand in substantially all of our markets. During the six months ended June 30, 2011, we recorded $0.6 million of homebuilding restructuring charges, which are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations, related to employee severance costs incurred in connection with further adjusting our workforce to align with lower sales volume. We did not incur any restructuring charges in the six months ended June 30, 2012. The
total amount of restructuring charges incurred from January 1, 2008 through June 30, 2012 was $48.7 million, of which $30.7 million related to employee severance costs, $13.7 million related to lease termination and other exit costs and $4.3 million related to property and equipment disposals. We believe that our restructuring activities are substantially complete as of June 30, 2012.
We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”). ASC 740 requires an asset and 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.
The components of our net deferred income tax asset are as follows:
Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740. We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable. Our assessment considers, among other things, the nature, frequency and severity of our current and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods, our utilization experience with operating loss and tax credit carryforwards, and tax planning alternatives.
As of June 30, 2012, we had a deferred tax asset of $499.7 million (excluding the $3.4 million deferred tax asset related to our terminated interest rate swap). During the three and six months ended June 30, 2012, we utilized $5.7 million and $9.2 million, respectively, of our deferred tax asset valuation allowance to fully offset the income tax provision related to our pretax income for the periods. As of June 30, 2012, due primarily to our current and cumulative losses, the uncertainty as to the strength of the housing market's recent improvement and its impact on our ability to predict future taxable income, we have determined that an aggregate valuation allowance of $499.7 million against our deferred tax asset is required. If we
generate taxable income in the future, subject to the potential limitations discussed below, we expect to be able to reduce our effective tax rate through a reduction in this valuation allowance.
We underwent a change in ownership for purposes of Internal Revenue Code Section 382 (“Section 382”) on June 27, 2008. As a result, a portion of our deferred tax asset became subject to the various limitations on its use that are imposed by Section 382. At June 30, 2012, $254 million of this asset was subject to limitations, of which $107 million was subject to the unrealized built-in loss limitations and $147 million was subject to federal and state net operating loss carryforward limitations.
The limitations ultimately placed on the $107 million subject to the unrealized built-in loss limitations depends on, among other things, when, and at what price, we dispose of assets with built-in losses. Assets with built-in losses sold prior to June 27, 2013, are subject to a $15.6 million gross annual deduction limitation for federal and state purposes. Assets with built-in losses sold after June 27, 2013 are not subject to these limitations. In general, to the extent that realized tax losses from these built-in loss assets exceed $15.6 million in any tax year prior to June 27, 2013, the built-in losses in excess of this amount will be permanently lost, such permanent loss reflected by identical reductions of our deferred tax asset
and deferred tax asset valuation allowance for the tax effected amount of the difference. During the six months ended June 30, 2012 and 2011, we recorded such reductions in the amounts of $1.8 million and $2.9 million, respectively, reflecting permanent losses of our deferred tax asset in such periods related to built-in losses realized during these periods that were in excess of the Section 382 annual limitation.
As of June 30, 2012, $147 million (or approximately $359 million and $373 million, respectively, of federal and state net operating loss carryforwards on a gross basis) of our deferred tax asset related to net operating loss carryforwards is subject to the $15.6 million gross annual deduction limitation for both federal and state purposes. The remaining $121 million (or approximately $264 million and $459 million, respectively, of federal and state net operating loss carryforwards on a gross basis) is not currently limited by Section 382.
As of June 30, 2012, our liability for gross unrecognized tax benefits was $13.5 million, all of which, if recognized, would reduce our effective tax rate. There were no significant changes in the accrued liability related to uncertain tax positions during the three months ended June 30, 2012, nor do we anticipate significant changes during the next 12-month period. As of June 30, 2012, we remained subject to examination by various tax jurisdictions for the tax years ended December 31, 2007 through 2011.
20. Supplemental Disclosures to Condensed Consolidated Statements of Cash Flows
The following are supplemental disclosures to the condensed consolidated statements of cash flows:
Certain of our 100% owned direct and indirect subsidiaries guarantee our outstanding senior and senior subordinated notes payable. The guarantees are full and unconditional and joint and several. Presented below are the condensed consolidated financial statements for our guarantor subsidiaries and non-guarantor subsidiaries.
Less: Net (income) loss allocated to preferred shareholder
(6,130
)
4,554
(9,807
)
10,968
Less: Net (income) loss allocated to unvested restricted stock
(15
)
―
(12
)
―
Net income (loss) available to common stockholders
$
8,118
$
(5,965
)
$
12,967
$
(14,348
)
Income (Loss) Per Common Share:
Basic
$
0.04
$
(0.03
)
$
0.07
$
(0.07
)
Diluted
$
0.04
$
(0.03
)
$
0.06
$
(0.07
)
Weighted Average Common Shares Outstanding:
Basic
195,746,733
193,577,324
195,427,992
193,369,182
Diluted
201,340,622
193,577,324
200,564,039
193,369,182
Weighted average additional common shares outstanding
if preferred shares converted to common shares
147,812,786
147,812,786
147,812,786
147,812,786
Total weighted average diluted common shares outstanding
if preferred shares converted to common shares
349,153,408
341,390,110
348,376,825
341,181,968
Net cash provided by (used in) operating activities
$
(56,600
)
$
(121,963
)
$
(98,718
)
$
(232,113
)
Net cash provided by (used in) investing activities
$
(5,545
)
$
(5,475
)
$
(7,891
)
$
(9,524
)
Net cash provided by (used in) financing activities
$
(11,638
)
$
12,938
$
(5,031
)
$
(6,059
)
Adjusted Homebuilding EBITDA (1)
$
41,810
$
23,678
$
73,578
$
34,696
____________________
(1)
Adjusted Homebuilding EBITDA means net income (loss) (plus cash distributions of income from unconsolidated joint ventures) before (a) income taxes, (b) homebuilding interest expense, (c) expensing of previously capitalized interest included in cost of sales, (d) impairment charges and deposit write-offs, (e) gain (loss) on early extinguishment of debt, (f) homebuilding depreciation and amortization, (g) amortization of stock-based compensation, (h) income (loss) from unconsolidated joint ventures and (i) income (loss) from financial services subsidiary. Other companies may calculate Adjusted Homebuilding EBITDA (or similarly titled measures) differently. We believe Adjusted Homebuilding EBITDA information is useful to management and investors as one measure of our ability to service debt and obtain financing. However, it should be noted that Adjusted Homebuilding EBITDA is not a U.S. generally accepted accounting principles (“GAAP”)
financial measure. Due to the significance of the GAAP components excluded, Adjusted Homebuilding EBITDA should not be considered in isolation or as an alternative to cash flows from operations or any other liquidity performance measure prescribed by GAAP.
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:
Our 2012 second quarter reflected a continuation of the positive momentum we experienced during the first quarter, with new home deliveries up 34%, revenues up 35%, net new orders up 45%, and homes in backlog up 62% as compared to the year earlier period. Net income for the quarter was $14.3 million, or $0.04 per diluted share, compared to a net loss of $10.5 million, or $0.03 per diluted share, in the second quarter of 2011. The $24.8 million year over year improvement in net income is attributable to several factors, including the continued execution of our strategy of constructing well built, innovatively designed, and energy efficient homes targeted at the discriminating “move-up” homebuyer; our focus on increasing base prices, reducing sales incentives and controlling costs; and the operating leverage inherent in our business. With over $292 million of unrestricted homebuilding cash and the additional
amounts that remain available under our revolving credit facility, we believe we have ample liquidity to continue the progress we have made against our strategy.
Homebuilding pretax income for the 2012 second quarter was $11.9 million compared to a pretax loss of $10.5 million in the year earlier period. The improvement in our financial performance was primarily the result of a 35% increase in home sale revenues, a $6.0 million decrease in inventory impairment charges and a $5.8 million decrease in interest expense.
For the six months ended June 30, 2012, we reported homebuilding pretax income of $19.2 million compared to a pretax loss of $23.8 million in the year earlier period. The improvement in our financial performance was primarily the result of a 42% increase in home sale revenues, a $13.8 million decrease in interest expense and a $6.0 million decrease in inventory impairment charges.
Revenues
Home sale revenues increased 35%, from $204.2 million for the 2011 second quarter to $274.9 million for the 2012 second quarter, as a result of a 34% increase in new home deliveries and a 1% increase in our consolidated average home price to $337 thousand. Home sale revenues increased 42%, from $347.9 million for the six months ended June 30, 2011 to $495.2 million for the six months ended June 30, 2012, as a result of a 39% increase in new home deliveries and a 2% increase in our consolidated average home price to $340 thousand.
Numbers presented regarding unconsolidated joint ventures reflect total deliveries of such joint ventures.
The increase in new home deliveries (exclusive of joint ventures) was driven primarily by a 55% increase in the number of homes in backlog at the beginning of the quarter as compared to the year earlier period and a 13% increase in speculative homes sold and delivered during the quarter to 285 homes, compared to 253 homes.
Our consolidated average home price (excluding joint ventures) for the 2012 second quarter was essentially flat when compared to the year earlier period. This reflects a product mix shift to more move-up homes within our Florida and Colorado markets and general price increases in the Carolinas, offset by a decrease in average home prices in California, primarily as a result of a higher percentage of deliveries from our more affordable Inland Empire and Sacramento communities.
Gross Margin
Our 2012 second quarter gross margin percentage from home sales increased to 20.5% compared to 17.0% in the 2011 second quarter which included $6.0 million of housing inventory impairment charges. Excluding inventory impairment charges, our 2011 second quarter adjusted gross margin percentage from home sales was 20.0%. The increase in our gross margin percentage from home sales, excluding inventory impairment charges, was primarily attributable to the improvement in gross margins from speculative homes sold and delivered during the quarter, partially offset by an increase in previously capitalized interest included in cost of home sales. For the first six months of 2012, our gross margin percentage from home sales was 20.4% versus 18.4% (20.2% excluding inventory impairment charges) for the prior year period. Please see the table set forth below reconciling
this non-GAAP measure to our gross margin from home sales.
The table set forth below reconciles our homebuilding gross margin and gross margin percentage for the three and six months ended June 30, 2011 to gross margin and gross margin percentage from home sales, excluding housing inventory impairment charges:
We believe that the measure described above, which excludes inventory impairment charges, is useful to our management and investors as it provides a perspective on the underlying operating performance of the business by isolating our results from home sales and excluding impairment charges and provides comparability with information presented by the Company’s peer group. However, it should be noted that such measure is not a GAAP financial measure and other companies in the homebuilding industry may calculate this measure differently. Due to the significance of the GAAP components excluded, such measure should not be considered in isolation or as an alternative to operating performance measures prescribed by GAAP
SG&A Expenses
Our 2012 second quarter SG&A expenses (including Corporate G&A) were $42.0 million compared to $38.4 million for the prior year period which included approximately $2.2 million of severance and other charges incurred in connection with the change in our Chief Financial Officer position. Excluding these charges, our 2011 second quarter adjusted SG&A rate from home sales was 17.8% (please see the table set forth below reconciling this non-GAAP measure to our SG&A rate from home sales) versus a SG&A rate from home sales of 15.3% in the 2012 second quarter. The 250 basis point improvement in our adjusted SG&A rate was primarily the result of a 35% increase in home sale revenues and the operating leverage inherent in our business. Our SG&A expenses for the six months ended June 30,
2011 also included $0.6 million of severance charges recorded during the 2011 first quarter in connection with restructuring efforts to adjust our workforce to align with lower sales volume.
The table set forth below reconciles our SG&A expenses and SG&A rate from home sales for the three and six months ended June 30, 2011 to our SG&A expenses and SG&A rate from home sales, excluding severance and other charges related to the change in our Chief Financial Officer:
We believe that the measure described above, which excludes severance and other charges related to the change in our Chief Financial Officer position, is useful to our management and investors as it provides a perspective on the underlying operating performance of the business excluding these charges and provides comparability with the Company’s peer group. However, it should be noted that such measure is not a GAAP financial measure and other companies in the homebuilding industry may calculate this measure differently. Due to the significance of the GAAP components excluded, such measure should not be considered in isolation or as an alternative to operating performance measures prescribed by GAAP.
Unconsolidated Joint Ventures
We recognized a $1.1 million loss from unconsolidated joint ventures during the 2012 second quarter compared to a $0.4 million loss in the year earlier period. The 2012 second quarter loss from unconsolidated joint ventures was primarily attributable to our share of loss related to a Southern California land development joint venture. Please see Note 9 to our accompanying condensed consolidated financial statements for further discussion.
Interest Expense
For the three and six months ended June 30, 2012, we expensed $1.6 million and $4.1 million, respectively, of interest costs related to the portion of our debt in excess of our qualified assets. For the three and six months ended June 30, 2011, we expensed $7.4 million and $18.0 million, respectively, of interest costs. The decline in our year-over-year interest expense was primarily the result of an increase in the level of qualified assets during the 2012 periods compared to the prior year periods. To the extent our debt exceeds our qualified assets in the future, we will continue to be required to expense a portion of the interest related to such debt.
Average number of selling communities during the period:
California
53
53
―
52
49
6%
Arizona
7
8
(13%)
8
9
(11%)
Texas
20
21
(5%)
20
21
(5%)
Colorado
6
5
20%
6
5
20%
Nevada
―
1
(100%)
―
1
(100%)
Total Southwest
33
35
(6%)
34
36
(6%)
Florida
36
35
3%
36
34
6%
Carolinas
35
30
17%
35
27
30%
Total Southeast
71
65
9%
71
61
16%
Consolidated total
157
153
3%
157
146
8%
Unconsolidated joint ventures (1)
2
3
(33%)
3
3
―
Total (including joint ventures)
159
156
2%
160
149
7%
____________________
(1)
Numbers presented regarding unconsolidated joint ventures reflect total average selling communities of such joint ventures.
Net new orders (excluding joint ventures) for the 2012 second quarter increased 45%, to 1,108 new homes, from the prior year period on a 3% increase in the number of our average active selling communities. Our cancellation rate for the three months ended June 30, 2012 was 11%, compared to 14% for the 2011 second quarter and 13% for the 2012 first quarter. Our cancellation rate (excluding cancellations from current quarter sales) for homes in beginning backlog was 7% and 10%, respectively, for the 2012 and 2011 second quarter. Our monthly sales absorption rate for the 2012 second quarter was 2.4 per community, up from 1.7 per community for the 2011 second quarter and 2.0 per community for the 2012 first quarter. Although sales absorption rates improved during the 2012 second quarter as compared to the prior year periods, they still remained
low relative to historical rates, driven by a housing supply/demand imbalance, low consumer confidence and high unemployment. These conditions have been magnified by the tightening of available mortgage credit for homebuyers and negative home equity for many perspective homebuyers who are looking to sell their existing homes.
Numbers presented regarding unconsolidated joint ventures reflect total backlog of such joint ventures.
The dollar value of our backlog (excluding joint ventures) as of June 30, 2012 increased 50% from the year earlier period to $439.7 million, or 1,266 homes. The increase in backlog value was driven primarily by a 45% increase in net new orders during the 2012 second quarter as compared to the prior year period. Our consolidated average home price in backlog decreased to $347 thousand as of June 30, 2012, compared to $376 thousand as of June 30, 2011, primarily due to a lower proportion of California homes in backlog and a 17% reduction of the average selling price in backlog of California homes due to a 63% drop in the number of high-end luxury homes (with average selling prices in excess of
$1 million) in backlog in that market.
Joint venture homesites represent our expected share of land development joint venture homesites and all of the homesites of our homebuilding joint ventures.
Total homesites owned and controlled as of June 30, 2012 increased 5% from the year earlier period and was up 5% from the 26,444 homesites owned and controlled as of December 31, 2011.
Homes under construction (including speculative homes):
Consolidated
1,317
1,000
32%
Joint ventures
12
19
(37%)
Total
1,329
1,019
30%
Speculative homes under construction:
Consolidated
556
549
1%
Joint ventures
8
13
(38%)
Total
564
562
0%
Completed and unsold homes:
Consolidated
239
330
(28%)
Joint ventures
―
10
―
Total
239
340
(30%)
We continue to closely monitor new home starts based on sales volume and the number of completed and unsold homes. As of June 30, 2012, the number of completed unsold homes (excluding joint ventures) decreased 28% from the year earlier period. Total homes under construction (excluding joint ventures) as of June 30, 2012 increased 32% compared to the year earlier period as a result of a 45% increase in the number of homes sold in the second quarter of 2012 compared to 2011.
Financial Services
In the 2012 second quarter our financial services subsidiary reported pretax income of approximately $2.5 million compared to $0.1 million in the year earlier period. The improvement was driven primarily by a 49% increase in the dollar volume of loans closed and sold, an increase in margins, and a $1.1 million decrease in loan loss reserve expense related to indemnification and repurchase reserves, from $1.4 million for the 2011 second quarter to $0.3 million for the 2012 second quarter.
During the three and six months ended June 30, 2012 we utilized $5.7 million and $9.2 million, respectively, of our deferred tax asset valuation to fully offset the income tax provision related to the pretax income for the periods. During the prior year period we generated a $4.2 million and $9.8 million deferred tax asset related to the pretax losses for the three and six months ended June 30, 2011, which was fully reserved against through a noncash valuation allowance. As of June 30, 2012, we had a $499.7 million deferred tax asset (excluding the $3.4 million deferred tax asset relating to our terminated interest rate swap) which has been fully reserved against by a corresponding deferred tax asset valuation allowance of the same amount. Approximately $107
million of our deferred tax asset represents unrealized built-in losses related primarily to inventory impairment charges which may be limited under Internal Revenue Code Section 382 depending on, among other things, when, and at what price, we dispose of the underlying assets. Assets with built-in losses sold prior to June 27, 2013, are subject to a $15.6 million gross annual deduction limitation for federal and state purposes. Assets with built-in losses sold after June 27, 2013 are not subject to these limitations. In general, to the extent that realized tax losses from these built-in loss assets exceed $15.6 million in any tax year prior to June 27, 2013, the built-in losses in excess of this amount will be permanently lost, such permanent loss reflected by identical reductions of our deferred
tax asset and deferred tax asset valuation allowance for the tax effected amount of the difference. During the six months ended June 30, 2012 and 2011, we recorded such reductions in the amounts of $1.8 million and $2.9 million, respectively, reflecting permanent losses of our deferred tax asset in such periods related to built-in losses realized during these periods that were in excess of the Section 382 annual limitation. We have recovered over 40% of the built-in losses contained in assets that we have sold since the beginning of 2010. Please see Note 19 to our accompanying condensed consolidated financial statements for further discussion.
For the six months ended June 30, 2012, we used $98.7 million of cash in operating activities versus $232.1 million in the year earlier period. The decrease in cash used in operating activities as compared to the prior year was driven primarily by a 42% increase in homes sale revenues and a $47.5 million decrease in cash land purchase and development costs, partially offset by a $17 million increase in interest payments. As of June 30, 2012, our homebuilding cash balance was $317.2 million (including $25.1 million of restricted cash).
Revolving Credit Facility. As of June 30, 2012, we were party to a $210 million unsecured revolving credit facility with a bank group (the “Revolving Facility”). The Revolving Facility matures in February 2014 and has an accordion feature under which the aggregate commitment may be increased up to $400 million, subject to the availability of additional bank commitments and certain other conditions. Substantially all of our 100% owned homebuilding subsidiaries are guarantors of the Revolving Facility. As of June 30, 2012, we had no amounts outstanding under the Revolving Facility. Our covenant compliance for the Revolving
Facility is set forth in the table below:
Net Homebuilding Debt to Adjusted Consolidated Tangible Net Worth Ratio (2)
1.69
≤
2.75
Land Not Under Development Ratio:
Land Not Under Development to Consolidated Tangible Net Worth Ratio (3)
0.18
≤
1.00
Liquidity or Interest Coverage Ratio (4):
Liquidity
$279.5
≥
$130.9
EBITDA (as defined in the Revolving Facility) to Consolidated Interest Incurred (5)
1.21
≥
1.25
Investments in Homebuilding Joint Ventures or Consolidated Homebuilding Non-Guarantor Entities (6)
$85.5
≤
$309.8
Actual/Permitted Borrowings under the Revolving Facility (7)
$0
≤
$203.5
____________________
(1)
The minimum covenant requirement amount is subject to increase over time based on subsequent earnings (without deductions for losses) and proceeds from equity offerings.
(2)
This ratio decreases to 2.50 to 1.00 for the period ending September 30, 2013 and thereafter. Net Homebuilding Debt represents Consolidated Homebuilding Debt reduced for certain cash balances in excess of a required reserve amount.
(3)
Land not under development is land that has not yet undergone physical site improvement and has not been sold to a homebuyer or other third party.
(4)
Under the liquidity and interest coverage covenant, we are required to either (i) maintain an unrestricted cash balance in excess of our consolidated interest expense for the previous four fiscal quarters or (ii) satisfy a minimum interest coverage ratio. As of June 30, 2012, we satisfied the liquidity requirement and as such, we were in compliance with the liquidity and interest coverage covenant.
(5)
The ratio increases to 1.50 to 1.00 beginning with the quarter ending March 31, 2013. Consolidated Interest Incurred excludes noncash interest expense.
(6)
Net investments in unconsolidated homebuilding joint ventures or consolidated homebuilding non-guarantor entities must not exceed 35% of consolidated tangible net worth plus $80 million.
(7)
As of June 30, 2012 our borrowing base plus our overadvance amount exceeded our borrowing base debt by approximately $273.2 million. However, our borrowing base availability is limited by our total commitment, which was $210 million as of June 30, 2012. In addition, the amount we can borrow under the Revolving Facility is limited by a mandatory prepayment requirement that further limits
our permitted borrowings to $203.5 million as of June 30, 2012, which represents $100 million plus 90% of the book value of our completed model home inventory. As of June 30, 2012, our ability to utilize amounts borrowed under the Revolving Facility would be subject to the liquidity requirement that requires us to maintain an unrestricted cash balance in excess of our consolidated interest expense for the previous four fiscal quarters.
Letter of Credit Facilities. As of June 30, 2012, we were party to two committed letter of credit facilities totaling $11 million, of which $7.2 million was outstanding. In addition, as of such date, we also had a $30 million uncommitted letter of credit facility, of which $17.4 million was outstanding. These facilities require cash collateralization and have maturity dates ranging from October 2012 to November 2013. As of June 30, 2012 these facilities were secured by cash collateral deposits of $25.0 million. Upon maturity, we may renew or enter into new letter of credit facilities with the same or other financial institutions.
Senior and Senior Subordinated Notes. The principal amount outstanding of our senior and senior subordinated notes payable consisted of the following as of June 30, 2012:
6% Convertible Senior Subordinated Notes due October 2012
$
39,613
6¼% Senior Notes due April 2014
4,971
7% Senior Notes due August 2015
29,789
10¾% Senior Notes due September 2016
280,000
8⅜% Senior Notes due May 2018
575,000
8⅜% Senior Notes due January 2021
400,000
$
1,329,373
These notes (excluding our convertible senior subordinated notes) contain various restrictive covenants. Our 10¾% Senior Notes due 2016 contain our most 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 maximum leverage condition or a minimum interest coverage condition. Under the limitation on restricted payments, we are also prohibited from making restricted payments (which include dividends, investments in and advances to our joint ventures and other unrestricted subsidiaries),
if we do not satisfy either condition. Our ability to make restricted payments is also subject to a basket limitation. As of June 30, 2012, we were able to satisfy the conditions necessary to incur additional indebtedness and to make restricted payments.
The leverage and interest coverage conditions contained in our 10¾% Senior Notes due 2016 (our most restrictive series of notes) are set forth in the table below:
Indebtedness to Consolidated Tangible Net Worth Ratio (1)
2.06
≤ 2.25
Interest Coverage Ratio:
EBITDA (as defined in the indenture) to Consolidated Interest Incurred
1.02
≥ 2.00
____________________
(1)
Indebtedness represents consolidated homebuilding debt reduced by cash held by Standard Pacific Corp. and its restricted subsidiaries in excess of $5 million. As of June 30, 2012, our unrestricted subsidiaries had approximately $274.5 million of unrestricted cash. As of June 30, 2012, we retained the ability, at our option, to distribute substantially all of this cash to Standard Pacific Corp. If such a distribution were to occur, the Leverage Ratio would be positively impacted.
As of June 30, 2012, we had $39.6 million in aggregate principal amount of Convertible Senior Subordinated Notes due 2012 outstanding (the “Convertible Notes”). In accordance with ASC Topic 470, Debt, a portion of our Convertible Notes has been classified in stockholders’ equity ($1.1 million as of June 30, 2012) and the remaining principal amount will be accreted to its redemption value of $39.6 million over the remaining term of these notes.
We repaid the remaining $10.0 million principal balance of our 9¼% Senior Subordinated Notes upon maturity in April 2012.
Potential Future Transactions. In the future, we may, from time to time, undertake negotiated or open market purchases of, or tender offers for, our notes prior to maturity when they can be purchased at prices that we believe are attractive. We may also, from time to time, engage in exchange transactions (including debt for equity and debt for debt transactions) for all or part of our notes. Such transactions, if any, will depend on market conditions, our liquidity requirements, contractual restrictions and other factors.
Joint Venture Loans. As described more particularly under the heading “Off-Balance Sheet Arrangements” beginning on page 39, our land development and homebuilding joint ventures have historically obtained secured acquisition, development and/or construction financing. This financing is designed to reduce the use of funds from our corporate financing sources. As of June 30, 2012, we held interests in eight active joint ventures with no project specific financing outstanding.
Secured Project Debt and Other Notes Payable. At June 30, 2012, we had $4.9 million outstanding in secured project debt and other notes payable. Our secured project debt and other notes payable consist of community development district and similar assessment district bond financings used to finance land development and infrastructure costs for which we are responsible.
Mortgage Credit Facility. At June 30, 2012, we had $44.4 million outstanding under our mortgage financing subsidiary’s mortgage credit facility, a $50 million repurchase facility. This facility requires Standard Pacific Mortgage to maintain a cash collateral account, which totaled $1.3 million as of June 30, 2012, and also contains financial covenants which require Standard Pacific Mortgage to, among other things, maintain a minimum level of tangible net worth, not to exceed a debt to tangible net worth ratio, maintain a minimum liquidity amount based on a measure of total assets (inclusive of the cash collateral requirement), and satisfy pretax income (loss) requirements. As of June
30, 2012, Standard Pacific Mortgage was in compliance with the financial and other covenants contained in this facility.
In July 2012, Standard Pacific Mortgage renewed the $50 million repurchase facility, increasing the overall facility commitment amount to $75 million, and extended its maturity date to July 3, 2013.
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 and other performance. At June 30, 2012, we had approximately $192.0 million in surety bonds outstanding (exclusive of surety bonds related to our joint ventures), with respect to which we had an estimated $84.2 million remaining in cost to complete.
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. A weakening of our financial condition, including in particular a material increase in our leverage or a 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.
Dividends & Stock Repurchases. We did not pay dividends or repurchase capital stock during the six months ended June 30, 2012.
Leverage. Our homebuilding debt to total book capitalization was 66.8% at June 30, 2012 and our adjusted net homebuilding debt to adjusted total book capitalization was 60.4%. This adjusted ratio reflects the offset of homebuilding cash and excludes $44.4 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. Excluding the impact and timing of recording impairments and new land purchases, historically, our leverage increases during the first three quarters of the year and tapers off at year end, as we typically experience the highest new home order activity in the spring and summer months and deliver a greater number of homes in the second
half of the calendar year as the prior orders are converted to home deliveries.
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. At June 30, 2012, we had no option contracts outstanding with third party financial entities. In some instances, we may also expend funds for due diligence, development and construction activities with respect to our land purchase and option contracts
prior to purchase, which we would have to write off should we not purchase the land. At June 30, 2012, we had non-refundable cash deposits outstanding of approximately $23.1 million and capitalized preacquisition and other development and construction costs of approximately $11.0 million relating to land purchase and option contracts having a total remaining purchase price of approximately $218.2 million. Approximately $60.9 million of the remaining purchase price is included in inventories not owned in the accompanying condensed 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.
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 larger or highly desirable 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 have historically obtained secured acquisition, development and/or construction financing designed to reduce the use of funds from our corporate financing sources. As of June 30, 2012, we held membership interests in 19 homebuilding and land development joint ventures, of which eight were active and 11 were inactive or winding down. As of such date, our joint ventures had no project specific financing outstanding. As of June 30, 2012, we had $3.4 million of joint venture surety bonds outstanding subject to indemnity arrangements by us and had an estimated $0.8 million remaining in cost to complete.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those that impact our most critical accounting policies. We base our estimates and judgments on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies related to the following accounts or activities are those that are most critical to the portrayal of our financial condition and results of operations and require the more significant judgments and estimates:
·
Segment reporting;
·
Inventories and impairments;
·
Stock-based compensation;
·
Homebuilding revenue and cost of sales;
·
Variable interest entities;
·
Unconsolidated homebuilding and land development joint ventures;
·
Warranty accruals;
·
Insurance and litigation accruals; and
·
Income taxes.
There have been no significant changes to our critical accounting policies from those described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2011.
ITEM 3. 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. We did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial instruments as of or during the six months ended June 30, 2012. We have not entered into and currently do not hold derivatives for trading or speculative purposes. 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.”
As part of our ongoing operations, we provide mortgage loans to our homebuyers through our mortgage financing subsidiary, Standard Pacific Mortgage. Standard Pacific Mortgage manages the interest rate risk associated with making loan commitments to our customers and holding loans for sale by preselling loans. Preselling loans 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 facility for a short period of time (typically for 30 to 45 days), while the investors complete their administrative review of the applicable loan documents. While preselling these loans reduces our risk, we remain subject to risk relating to investor non-performance, particularly
during periods of significant market turmoil. As of June 30, 2012, Standard Pacific Mortgage had approximately $70.6
million in closed mortgage loans held for sale and $55.7 million of mortgage loans that we were committed to sell to investors subject to our funding of the loans and completion of the investors’ administrative review of the applicable loan documents.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness 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 were effective as of the end of the period covered by this report.
Change in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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:
·
our strategy;
·
the potential for additional impairments and further deposit write-offs;
·
the impact of future market rate risks on our financial assets and borrowings;
·
trends relating to the amount of make-whole payments and loan repurchases that we may have to make;
·
the sufficiency of our warranty and other reserves;
·
our expected equity award forfeiture rates;
·
our belief that our current restructuring activities are substantially complete;
·
housing market conditions and trends in new home deliveries, orders, backlog, home pricing, leverage and gross margins;
·
the sufficiency of our liquidity and our ability to access additional capital;
·
litigation outcomes and related costs;
·
plans to purchase our notes prior to maturity and to engage in debt exchange transactions;
·
changes to our unrecognized tax benefits and uncertain tax positions;
·
the timing of the amortization of equity award unrecognized compensation expense;
·
seasonal trends relating to our leverage levels;
·
plans with respect to letter of credit facilities;
·
remaining cost to complete under surety bond arrangements;
·
our ability to realize the value of our deferred tax assets and the timing relating thereto; and
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:
·
adverse developments in general and local economic conditions that affect the demand for homes;
·
the impact of downturns in homebuyer demand on revenues, margins and impairments;
·
the market value and availability of land;
·
our dependence on the California market and, to a lesser extent, the Florida market;
·
the willingness of customers to purchase homes at times when mortgage-financing costs are high or when credit is difficult to obtain;
·
competition with other homebuilders as well as competition from the sellers of existing homes, short-sale homes and foreclosed homes;
·
the risk of our longer term acquisition strategy;
·
our ability to obtain suitable bonding for development of our communities;
·
the cost and availability of labor and materials;
·
adverse weather conditions and natural disasters;
·
litigation and warranty claims;
·
our reliance on subcontractors and the adverse impact of their ability to properly construct our homes;
·
risks relating to our mortgage financing activities, including our obligation to repurchase loans we previously sold in the secondary market and exposure to regulatory investigations or lawsuits claiming improper lending practices;
·
our dependence on key employees;
·
risks relating to acquisitions, including integration risks;
·
our failure to maintain the security of our electronic and other confidential information;
·
government regulation, including environmental, building, climate change, worker health, safety, zoning and land use regulation;
·
the impact of “slow growth”, “no growth” or similar initiatives;
·
increased regulation of the mortgage industry;
·
changes to tax laws that make homeownership more expensive;
·
the amount of, and our ability to repay, renew or extend, our outstanding debt;
·
our ability to obtain additional capital when needed and at an acceptable cost;
·
the impact of restrictive covenants in our credit agreements, public notes and private term loans and our ability to comply with these covenants, including our ability to incur additional indebtedness;
·
risks relating to our unconsolidated joint ventures, including our ability and the ability of our partners to contribute funds to our joint ventures when needed or contractually agreed to, entitlement and development risks for the land owned by our joint ventures, the availability of financing to the joint venture, our completion obligations to the joint venture, the illiquidity of our joint venture investments, partner disputes, and risks relating to our determinations concerning the consolidation or non-consolidation of our joint venture investments;
·
the influence of our principal stockholder; and
·
our inability to realize the benefit of our net deferred tax asset and other risks discussed in this report and our other filings with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for the year ended December 31, 2011.
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.
Various 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 are material to our financial statements.
There has been no material change in our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011. For a detailed description of risk factors, refer to Item 1A, “Risk Factors”, of our Annual Report on Form 10-K for the year ended December 31, 2011.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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.
101
The following materials from Standard Pacific Corp.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
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.
