<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 11, 1997
Delaware 1-9353 33-0475989
(State or Other Jurisdiction of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
1565 West MacArthur Boulevard 92626
Costa Mesa, California (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (714) 668-4300
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
================================================================================
<PAGE>
ITEM 5. OTHER EVENTS.
(1) Standard Pacific Corp. (the "Company") intends to offer up to
$100,000,000 principal amount of Senior Notes due 2007 (the "Notes") in an
underwritten public offering pursuant to the Company's effective shelf
registration statement (File No. 33-45271) previously filed with the
Securities and Exchange Commission. In this connection, the Company is
filing certain exhibits as part of this Form 8-K. See "Item 7. Financial
Statements and Exhibits."
(2) The Company's Board of Directors adopted a plan of disposition for
the Company's savings and loan subsidiary, Standard Pacific Savings, F.A.
("Savings"), in May 1997. Pursuant to the plan, the Company has entered into a
definitive agreement to sell substantially all of Savings' mortgage loan
portfolio and has entered into a non-binding letter of intent to sell the
remainder of Savings' business, including Savings' charter. The letter of intent
is subject to the completion of due diligence on behalf of the purchaser,
completion of a definitive sale agreement and approval of the transaction by the
Office of Thrift Supervision. The proceeds from the sale of the mortgages will
be used first to pay off the outstanding balance of Federal Home Loan Bank
advances with the remaining amount to be temporarily invested until the savings
deposits are sold along with Savings' remaining assets. Management currently
estimates that both the disposition of Savings under the plan and the operating
results of Savings for the period through the disposition will not result in a
significant gain or loss to the Company.
In the sections from the Preliminary Prospectus Supplement dated June
11, 1997 and accompanying Prospectus dated June 11, 1997 attached hereto as
Exhibit No. 99.1, Savings has been accounted for as a discontinued operation and
the results of its operations have seen segregated in the consolidated
statements of operations included therein.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits.
The following exhibits are filed with this report on Form 8-K:
Exhibit No. Description
----------- -----------
12.1 Statement re Computation of Ratio of Earnings to Fixed
Charges
23.2 Consent of Arthur Andersen LLP.
99.1 The following sections from the Company's Preliminary
Prospectus Supplement dated June 11, 1997 and accompanying
Prospectus dated June 11, 1997: "Management's Discussion
and Analysis of Financial Condition and Results of
Operations," "Description of Notes," "Ratio of Earnings to
Fixed Charges" and "Consolidated Financial Statements."
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
STANDARD PACIFIC CORP.
Dated: June 11, 1997 By: /s/ ANDREW H. PARNES
------------------------------------------
Andrew H. Parnes
Vice President of Finance and Treasurer
Principal Financial and Accounting Officer
4
<PAGE>
Standard Pacific Corp.
Ratio of Earnings to Fixed Charges from
Continuing Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
---------------------- --------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- ----------- ------------ ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED CHARGES:
Total interest incurred $ 4,013 $ 4,839 $ 16,687 $ 19,200 $ 19,600 $ 21,146 $ 24,475
Interest factor in lease rentals 100 100 400 400 400 400 400
--------- ----------- ------------ ---------- ----------- ---------- ---------
$ 4,113 $ 4,939 $ 17,087 $ 19,600 $ 20,000 $ 21,546 $ 24,875
========= =========== ============ ========== =========== ========== =========
EARNINGS AND ADJUSTMENTS:
Income from continuing operations
before taxes $ 5,601 $ 953 $ 15,035 $ (37,289) $ 12,169 $ (1,009) $ 1,561
Add (Deduct):
Depreciation and amortization (1) 220 140 765 397 580 505 630
Noncash charges - - - 46,491 - 3,100 2,500
Income from unconsolidated joint
ventures (530) (1,713) (4,708) (6,953) (4,234) - (26)
Cash distributions from joint ventures - 1,250 7,950 6,000 - - 44
Fixed charges, above 4,113 4,939 17,087 19,600 20,000 21,546 24,875
Capitalized interest (2,540) (3,183) (9,545) (17,340) (19,600) (21,146) (24,475)
Interest expensed 1,473 1,656 7,142 1,860 - - -
Amortization of previously capitalized
interest 4,484 3,078 16,920 27,638 33,069 20,069 20,566
--------- ----------- ------------ ---------- ----------- ---------- ---------
$ 12,821 $ 7,120 $ 50,646 $ 40,404 $ 41,984 $ 23,065 $ 25,675
========= =========== ============ ========== =========== ========== =========
Ratio of Earnings to Fixed Charges 3.12 1.44 2.96 2.06 2.10 1.07 1.03
========= =========== ============ ========== =========== ========== =========
</TABLE>
(1) Excludes depreciation from discontinued operations.
<PAGE>
EXHIBIT 23.2
CONSENT
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of the
Preliminary Prospectus Supplement dated June 11, 1997 and accompanying
Prospectus dated June 11, 1997 filed as an exhibit to the Company's Current
Report on Form 8-K and incorporated by reference into the Company's effective
Registration Statements on Form S-3 (No. 33-45271) and Form S-8.
Arthur Andersen LLP
Orange County, California
June 10, 1997
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS BY SEGMENT
Set forth below is a discussion of the Company's operations by segment. The
Company's principal business segments are Residential Housing, including the
Corporate segment, and Manufacturing.
RESIDENTIAL HOUSING AND CORPORATE SEGMENT
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -------------------------------
1997 1996 1996 1995 1994
-------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................... $111,303 $61,584 $399,863 $346,263 $374,783
Cost of sales.............. 95,645 54,391 348,066 307,794 331,558
Noncash charge for
impairment of long-lived
assets.................... -- -- -- 46,491 --
-------- ------- -------- -------- --------
Gross margin............. 15,658 7,193 51,797 (8,022) 43,225
-------- ------- -------- -------- --------
Gross margin percentage.. 14.1% 11.7% 13.0% 11.1%(1) 11.5%
-------- ------- -------- -------- --------
Selling, general and
administrative expenses... 9,775 6,693 37,351 34,873 36,855
Income from unconsolidated
joint ventures............ 530 1,713 4,708 6,953 4,234
Interest expense........... 1,473 1,656 7,142 1,860 --
Other income............... 206 158 936 555 596
-------- ------- -------- -------- --------
Pretax income (loss)... $ 5,146 $ 715 $ 12,948 $(37,247) $ 11,200
======== ======= ======== ======== ========
</TABLE>
- --------
(1) The 1995 homebuilding gross margin percentage excludes the $46.5 million
non-cash charge for the adoption of FAS 121.
The Residential Housing and Corporate segment information shown above is
after the elimination of intercompany transactions.
OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- --------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
New homes delivered:
California...................... 297 158 1,131 942 949
Texas........................... 80 72 338 299 311
Joint ventures (California)..... 16 59 154 195 108
-------- -------- -------- -------- --------
Total........................... 393 289 1,623 1,436 1,368
======== ======== ======== ======== ========
Average selling price:
California deliveries (excluding
joint ventures)................ $322,993 $297,043 $292,007 $308,383 $333,797
Texas deliveries................ $185,108 $181,783 $185,622 $180,058 $184,194
Combined (excluding joint ven-
tures)......................... $293,734 $260,962 $267,529 $277,465 $296,871
Combined (including joint ven-
tures)......................... $291,921 $248,072 $261,681 $271,936 $295,772
Net new orders.................... 661 536 1,798 1,480 1,341
Backlog at period end............. 753 571 485 312 272
</TABLE>
S-14
<PAGE>
SELECTED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, --------------------------
1997 1996 1995 1994
------------ -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Identifiable assets, total............. $399,723 $391,580 $384,373 $470,789
Real estate inventories.............. 377,648 372,645 367,676 456,655
Other................................ 22,075 18,935 16,697 14,134
</TABLE>
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,
1996
During the quarter ended March 31, 1997, the Company delivered 393 new homes
(including 16 homes delivered by the Company's unconsolidated joint ventures)
at an average selling price of $291,921 compared to 289 new homes (including
59 homes delivered by the Company's unconsolidated joint venture) at an
average selling price of $248,072 for the 1996 first quarter.
Homebuilding revenues for the quarter ended March 31, 1997 increased by
approximately 80.7 percent from the comparable prior year period, while cost
of sales attributed to residential housing increased by approximately 75.8
percent over the same period. The jump in homebuilding revenues of
approximately $49.7 million over the 1996 first quarter resulted primarily
from an increase of $38.4 million due to a 64 percent increase in unit
deliveries and an increase of $12.3 million due to a 12.6 percent rise in the
average selling price of homes delivered, which was partially offset by a $1
million reduction in revenues from improved lot sales. The Company's Northern
California and Ventura County operations continue to experience strong growth
in unit deliveries increasing 155 and 127 percent, respectively, over the year
earlier period. The increase in the average selling price resulted from a
greater distribution of homes delivered in the $400,000 to $800,000 price
range in California. The Company expects its average selling price in the next
few quarters to remain near the $300,000 level.
Residential housing cost of sales for the quarter ended March 31, 1997
increased by approximately $41.3 million over the 1996 first quarter primarily
as a result of an increase of $33.9 million due to a greater number of homes
delivered and an increase of $8.3 million attributable to a higher average
cost of new homes delivered, which was partially offset by a decrease of
$900,000 related to a reduction in the cost of improved lots sold.
The homebuilding gross margin percentage increased from 11.7 percent in the
first quarter of 1996 to 14.1 percent in the first quarter of 1997. The
improved operating results reflect the strengthening housing market,
particularly in the Northern California and Orange and Ventura County markets
and a greater percentage of deliveries from newer projects which generally
carry higher margins.
Selling, general and administrative expenses for the homebuilding and
corporate segment decreased as a percentage of revenues from 10.9 percent in
the first quarter of 1996 to 8.8 percent for the quarter ended March 31, 1997.
This decrease is attributable to the fixed level of certain general and
administrative expenses, as well as a reduction in selling costs as a percent
of revenues due to the improving housing market in California.
Income from the unconsolidated joint ventures decreased from $1.7 million in
the first quarter of 1996 to $530,000 in the first quarter of 1997 primarily
as a result of the reduction in joint venture deliveries between periods.
S-15
<PAGE>
The following selected operating information has been adjusted on a pro
forma basis to include the operating results of the Company's unconsolidated
joint ventures (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
----------------------- -----------------------
AS REPORTED AS ADJUSTED AS REPORTED AS ADJUSTED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues........................ $111,303 $115,290 $61,584 $73,259
Cost of sales................... 95,645 98,804 54,391 63,841
-------- -------- ------- -------
Gross margin.................. $ 15,658 $ 16,486 $ 7,193 $ 9,418
======== ======== ======= =======
Gross margin percentage......... 14.1% 14.3% 11.7% 12.9%
</TABLE>
Interest incurred for the quarter ended March 31, 1997 was $4.0 million of
which $2.5 million was capitalized to real estate inventories and $1.5 million
was expensed compared to $4.8 million incurred for the quarter ended March 31,
1996 of which $3.2 million was capitalized and $1.6 million expensed.
The Company generated a record first quarter net new order total of 661
homes, up 23 percent over the year earlier period. The increase can be
attributed primarily to the Northern California division which generated 238
net new orders for the quarter, a 92 percent increase from the previous year
period, and the Ventura County division which generated 129 net new orders, up
108 percent from the 1996 first quarter. Coupled with a strong backlog at year
end, the increase in orders resulted in a backlog of 753 homes at March 31,
1997, the highest first quarter level since 1988.
As a result of higher than expected orders in the fourth quarter of 1996 and
first quarter of 1997 which had the effect of reducing the Company's inventory
of homes available for sale, the Company expects that net new orders for the
second quarter of 1997 will be less than net new orders for the comparable
quarter in 1996.
Fiscal Year 1996 Compared to Fiscal Year 1995
During the year ended December 31, 1996, the Company delivered 1,623 new
homes (including 154 homes delivered by the Company's unconsolidated joint
ventures) at an average selling price of $261,681 compared to 1,436 new homes
(including 195 homes delivered by the Company's unconsolidated joint venture)
at an average selling price of $271,936 during 1995.
Excluding the Company's unconsolidated joint ventures, residential housing
revenues increased by 15.5 percent from the prior year, while cost of sales
(before the impairment charge in 1995) increased by 13.1 percent. The increase
in residential housing revenues from the prior year of approximately $53.6
million resulted primarily from an increase of $63.3 million attributable to
228 more homes delivered and a $4.9 million increase in revenues attributable
to land sales, which were partially offset by a decrease of $14.6 million due
to a 3.6 percent lower average selling price of new homes delivered. The
increase in unit deliveries was primarily attributable to a 46 percent
increase in deliveries from the Northern California division to 366 homes, a
19 percent increase in deliveries from the Ventura division to 184 homes and a
13 percent increase in Texas deliveries to 338 homes. The increase in
deliveries can be attributed to, among other things, improved market
conditions in the geographic markets the Company serves, particularly in
California, as well as lower mortgage interest rates during most of 1996 as
compared to fiscal 1995.
The average selling price of the Company's homes is impacted by product mix,
geographic mix and changing prices on homes sold. The decrease in the average
selling price from 1995 to 1996 was due primarily to a reduction in deliveries
of higher priced homes from the Company's Orange County division.
The $40.3 million increase in residential housing cost of sales (before the
impairment charge in 1995) included $56.2 million attributable to an increased
number of new home deliveries and a
S-16
<PAGE>
$5.8 million increase in cost of sales attributable to undeveloped lots sold,
which were partially offset by a decrease of $21.7 million due to a decrease
in the average cost of new homes delivered. The decrease in the average cost
of new homes delivered was primarily due to the changing product mix discussed
above.
Excluding the Company's unconsolidated joint ventures, the gross margin
percentage for 1996 was 13.0 percent compared to 11.1 percent (before the
impairment charge) in 1995. The increase in the gross margin percentage was
primarily due to improved market conditions in the California markets, higher
absorption rates, as well as proportionately more deliveries from newer
projects in 1996 as compared to 1995. The newer projects generally carry
higher margins than older projects, which include land acquired in prior years
at higher prices.
Selling, general and administrative expenses for the residential housing and
corporate segment decreased as a percentage of revenues from 10.1 percent in
1995 to 9.3 percent in 1996. This decline can be attributed to increased
revenues of 15.5 percent from the prior year period.
Income from the unconsolidated joint ventures decreased from approximately
$7.0 million in 1995 to $4.7 million in 1996 as a result of fewer unit
deliveries as well as more deliveries of lower priced product from one of the
joint ventures. This joint venture delivered 151 new homes in 1996 compared to
195 new homes in 1995 and will deliver the remaining 15 homes during 1997. The
Company delivered three homes from a new joint venture during the fourth
quarter. This new joint venture could deliver up to several hundred homes over
the next five to seven years.
The following selected operating information has been adjusted on a pro
forma basis to include the operating results of the Company's unconsolidated
joint ventures (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues.............................................. $ 432,031 $ 392,429
Cost of sales......................................... 374,306 344,853
----------- -----------
Gross margin........................................ $ 57,725 $ 47,576
----------- -----------
Gross margin percentage............................... 13.4% 12.1%
=========== ===========
</TABLE>
Interest incurred for 1996 was $16.7 million of which $9.5 million was
capitalized to real estate inventories and $7.1 million was expensed compared
to $19.2 million incurred in 1995 of which $17.3 million was capitalized and
$1.9 million expensed.
Net new home orders for the year totaled 1,798, a 21 percent increase from
1995 and the second highest level in Company history. During the year, the
Company's Orange County division recorded 686 net new orders (including the
joint ventures), up 10 percent from 1995, and the Northern California division
generated 474 net new home orders, a 67 percent increase over the 1995 total.
Net new home orders for the 1996 fourth quarter totaled a record 343 homes, an
11 percent increase from the 1995 fourth quarter. The improving order trend
resulted in a backlog of presold homes of 485 at December 31, 1996, a 55
percent increase over the prior year and the highest fourth quarter backlog
since 1989. These positive trends can be attributed, in part, to a favorable
mortgage interest rate environment during 1996, an improving economy in many
parts of California in which the Company operates and the opening of 13 new
projects in California.
Fiscal Year 1995 Compared to Fiscal Year 1994
During the year ended December 31, 1995, the Company delivered 1,436 new
homes (including 195 homes delivered by the Company's unconsolidated joint
venture) at an average selling price of
S-17
<PAGE>
$271,936 compared to 1,368 new homes (including 108 homes delivered by the
Company's unconsolidated joint venture) at an average selling price of
$295,772 during 1994.
Excluding the Company's unconsolidated joint venture, residential housing
revenues for 1995 decreased by 7.6 percent from 1994, while cost of sales for
1995 (before the impairment charge) decreased by 7.2 percent. The decrease in
residential housing revenues from the prior year of approximately $28.5
million resulted primarily from a decrease of $5.6 million attributable to 19
fewer homes delivered and a decrease of $24.1 million due to a 6.5 percent
lower average selling price of new homes delivered. The slight decline in unit
deliveries was a result of reduced deliveries by all of the Company's
homebuilding divisions except for the San Diego and Houston divisions. The
decrease in deliveries was attributed to, among other things, extremely
competitive market conditions in the geographic markets the Company serves as
well as rising interest rates during most of 1995 which resulted in higher
mortgage rates for the Company's products. The decrease in the average selling
price from 1994 to 1995 was primarily due to increased deliveries of homes in
the $150,000 to $300,000 price range. During 1994, proportionately more homes
were delivered which sold in excess of $600,000.
The $23.8 million decrease in residential housing cost of sales (before the
impairment charge) in 1995 included $5.0 million attributable to a reduced
number of new home deliveries and $19.9 million from a decrease in the average
cost of new homes delivered. The decrease in the average cost of new homes
delivered was primarily due to the changing product mix discussed above
whereby more homes were sold in the general price range of $150,000 to
$300,000 during 1995.
During the fourth quarter of 1995, the Company adopted FAS 121. The new rule
changed the method of valuing long-lived assets, including the Company's real
estate holdings. The fourth quarter charge, which approximated $46.5 million,
affected various assets held by the Company's residential homebuilding
divisions, however, a substantial portion of the charge related to certain
assets held in the San Diego area.
Excluding the Company's unconsolidated joint venture, the gross margin
percentage for 1995 was 11.1 percent (before the impairment charge) compared
to 11.5 percent in 1994. The decline in the gross margin percentage was
primarily due to increased competition in many of the Company's homebuilding
markets resulting in increased use of sales and marketing incentives and price
concessions. Additionally, the Company expensed through cost of sales certain
costs due to lower sales absorption rates that would have otherwise been
capitalized into real estate inventories.
Selling, general and administrative expenses for the residential housing and
corporate segment increased as a percentage of revenues from 9.8 percent in
1994 to 10.1 percent in 1995. This increase can primarily be attributed to a
decrease in revenues by 7.6 from 1994.
Income from the unconsolidated joint venture increased from $4.2 million in
1994 to $7.0 million in 1995 as a result of increased deliveries. The joint
venture delivered 195 new homes in 1995 compared to 108 new homes in 1994. The
joint venture delivered its first home in June 1994.
S-18
<PAGE>
CARRYING COSTS, REAL ESTATE INVENTORIES AND COST OF SALES
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------
1996 1995 1994
--------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Carrying costs in inventory and the per-
centage of total real estate inventory:
Interest................................. $25.1 6.7% $32.5 8.8% $54.4 11.9%
Taxes.................................... 8.0 2.1 8.8 2.4 15.2 3.3
----- --- ----- ---- ----- ----
$33.1 8.8% $41.3 11.2% $69.6 15.2%
----- --- ----- ---- ----- ----
Total real estate inventories.............. $373 $368 $457
Cost of sales for the year then ended (be-
fore FAS 121 adjustment).................. 348 308 332
Ratio of cost of sales to ending inventory
(Inventory turn ratio).................... .93 .84 .73
</TABLE>
The increase in the inventory turn ratio is due to a 13 percent increase in
cost of sales while real estate inventories only increased slightly more than
one percent. This positive trend is primarily due to an 18 percent increase in
unit deliveries resulting from improved market conditions in California. The
increase in unit deliveries is principally a result of higher sales absorption
rates at many of the Company's California locations. Additionally, the Company
continues to deliver homes from certain of its older projects which have been
in the Company's inventory balances for several years and which generally have
higher land and interest costs than more recent acquisitions. This in turn
creates a more favorable mix of newer projects to the total inventory balance.
The newer projects generally develop and deliver more quickly than the older
projects.
Capitalized interest in real estate inventory at December 31, 1996 decreased
approximately $7.4 million from December 31, 1995, a decrease of approximately
23 percent. This decrease can be attributed to (1) the sale of homes from
older projects which generally include higher carry costs than new projects
and (2) improving market conditions which have resulted in shorter holding
periods and a higher inventory turnover rate.
UTILIZATION OF DEBT AND EQUITY IN FUNDING REAL ESTATE INVENTORIES
Sources of financing for the Company's real estate inventories were as
follows for the periods ended:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------
1997 1996 1995 1994
--------- ---- ---- ----
<S> <C> <C> <C> <C>
Purchase money deeds of trust....................... 1% 1% 4% 4%
Unsecured debt...................................... 43 42 40 41
Equity.............................................. 56 57 56 55
---- --- --- ---
100% 100% 100% 100%
==== === === ===
</TABLE>
The "Corporate Office" provides management services to the operating
entities. The Corporate Office generally provides the source of funds to all
segments, with the exception of Savings. Funds are provided primarily through
bank lines of credit or notes and debentures. Interest incurred in financing
real estate inventories is passed through to the operating divisions and
expensed or capitalized as a cost of real estate inventories, as appropriate,
in accordance with Statement of Financial Accounting Standards ("FAS") No. 34.
S-19
<PAGE>
MANUFACTURING SEGMENT
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- -------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net product sales................. $ 5,352 $ 3,997 $19,311 $15,177 $17,225
Cost of sales..................... 3,372 2,601 12,011 9,856 10,896
------- ------- ------- ------- -------
Gross margin.................... 1,980 1,396 7,300 5,321 6,329
------- ------- ------- ------- -------
Gross margin percentage......... 37.0% 34.9% 37.8% 35.1% 36.7%
------- ------- ------- ------- -------
Selling, general and administra-
tive expenses.................... 1,626 1,208 5,304 5,527 5,481
Other income (1).................. 178 115 365 406 391
------- ------- ------- ------- -------
Pretax income..................... $ 532 $ 303 $ 2,361 $ 200 $ 1,239
======= ======= ======= ======= =======
Identifiable assets............... $13,200 $10,247 $12,508 $ 9,485 $ 9,892
======= ======= ======= ======= =======
</TABLE>
- --------
(1) Includes intersegment income of $77,000 and $65,000 for the three months
ended March 31, 1997 and 1996, respectively, and $274,000, $241,000 and
$270,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. These intersegment transactions are eliminated in
consolidation with no effect on consolidated earnings.
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,
1996
Sales for the quarter ended March 31, 1997 increased 33.9 percent to $5.4
million from $4.0 million in the prior year first quarter. The increase in
sales can be attributed to a stronger office furniture market and the
favorable reception of new products that were introduced during 1996. The
higher gross margin percentage is a result of higher sales volumes and
changing product mix.
Fiscal Year 1996 Compared to Fiscal 1995
Net product sales for 1996 increased 27 percent to $19.3 million from $15.2
million in 1995. The increase in sales can be attributed to improvements in
the national economy and the resultant impact on the office furniture industry
and the introduction of new products during 1996 which have been positively
accepted in the market. The gross margin percentage increased in 1996 due to
product mix as well as favorable economies of scale and absorption of factory
overhead as a result of increased sales volume.
Although net sales volume increased during 1996, selling, general and
administrative expenses for 1996 decreased compared to 1995 amounts and as a
percent of sales from 36.4 percent in 1995 to 27.5 percent in 1996. This
reduction is primarily attributable to management's implementation of
aggressive cost cutting measures.
S-20
<PAGE>
Fiscal Year 1995 Compared to Fiscal 1994
Net product sales for 1995 decreased almost 12 percent to $15.2 million from
$17.2 million in 1994. Sales in 1994 included a greater amount of foreign
orders, particularly from Mexico. The gross margin percentage was below 1994
levels due to product mix and lower sales volumes.
Selling, general and administrative expenses for 1995 were up slightly over
the 1994 amounts and increased as a percent of sales from 31.8 percent in 1994
to 36.4 percent in 1995 primarily as a result of additional selling and
marketing costs incurred in connection with the introduction of new products
during 1995 plus the somewhat fixed nature of the general and administrative
expenses overall.
DISCONTINUED OPERATIONS
The Company's Board of Directors adopted a plan of disposition for the
Company's savings and loan subsidiary in May 1997. Pursuant to the plan, the
Company has entered into a definitive agreement to sell substantially all of
Savings' mortgage loan portfolio and has entered into a non-binding letter of
intent to sell the remainder of Savings' business, including Savings' charter.
The letter of intent is subject to the completion of due diligence on behalf
of the purchaser, completion of a definitive sale agreement and approval of
the transaction by the OTS. The proceeds from the sale of the mortgages will
be used first to pay off the outstanding balance of Federal Home Loan Bank
advances with the remaining amount to be temporarily invested until the
savings deposits are sold along with Savings' remaining assets. Savings has
been accounted for as a discontinued operation and the results of its
operations have been segregated in the accompanying consolidated statements of
operations. Management currently estimates that both the disposition of
Savings under the plan and the operating results of Savings for the period
through the disposition will not result in a significant gain or loss to the
Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal use of cash has been for operating expenses, land
acquisitions and construction expenditures, principal and interest payments on
debt and dividends to shareholders. Cash requirements were provided from
internally generated funds and outside borrowings, including bank revolving
credit facilities and term loans. Management believes that these sources of
cash are sufficient to finance its current working capital requirements and
other needs.
In December 1996, the Company completed a syndication of its Revolving
Credit Facility whereby the total unsecured commitment was increased to $200
million and additional lenders were added to the facility. In connection with
the syndication the Company combined its separate bank credit facilities into
a single larger facility which created additional borrowing capacity of
approximately $50 million. The facility has a current maturity date of July
31, 1999. This agreement contains covenants, including certain financial
covenants. This agreement also contains provisions which may, in certain
circumstances, limit the amount the Company may borrow under the credit
facility. At March 31, 1997, the Company had borrowings of $82.8 million
outstanding under this facility and had approximately $115.1 million of
additional borrowing capacity available under the provisions of the agreement.
In conjunction with the syndication, the Company repaid in full the principal
balances on
S-21
<PAGE>
two separate term loans during the fourth quarter of 1996. The Company is
currently in discussions with the agent bank for its Revolving Credit Facility
concerning the amendment of the facility to increase the committment and
incorporate more favorable terms. There can be no assurance that the parties
will enter into such an amendment to the Revolving Credit Facility.
The Company made its first $20 million sinking fund payment on the 10 1/2%
Senior Notes on March 1, 1997, leaving $80 million of the 10 1/2% Senior Notes
outstanding. The next sinking fund payment is due March 1, 1998.
To finance land purchases, the Company may utilize, among its other sources,
purchase money mortgage financing of which approximately $4.0 million was
outstanding for this purpose at December 31, 1996, a decrease of $10.1 million
from December 31, 1995. At March 31, 1997, purchase money mortgage obligations
totaled $2.5 million.
Additionally, the Company has utilized joint ventures over the past few
years whereby these joint ventures have obtained secured construction
financing. This type of structure minimizes the use of funds from the
Company's Revolving Credit Facility. The Company plans to continue using this
type of arrangement to finance the development of properties as opportunities
arise.
The Company paid approximately $886,000 and $3.6 million in dividends to its
stockholders for the three months ended March 31, 1997 and the year ended
December 31, 1996, respectively. Payments of dividends on the Company's common
stock is within the discretion of the Company's Board of Directors and is
dependent upon various factors, including the earnings, cash flow, capital
requirements and operating and financial condition of the Company. Certain of
the Company's senior credit and debt agreements impose restrictions on the
amount of dividends the Company may pay. On April 29, 1997, the Board of
Directors declared a quarterly dividend of $.03 per share of common stock. The
cash dividend was paid on May 28, 1997 to shareholders of record on May 14,
1997.
Pursuant to the previously announced common stock repurchase program, the
Company repurchased 259,800 shares of its common stock for approximately $1.9
million during the first quarter of 1997. As of March 31, 1997, the Company
had repurchased an aggregate of 1,260,750 shares of its common stock for
approximately $8.1 million, leaving a balance of approximately $11.9 million
available to be repurchased. During 1996, the Company repurchased 430,300
shares of its common stock for approximately $2.3 million.
In January 1992, the Company filed a shelf registration statement with the
Securities and Exchange Commission which was declared effective in March 1992.
In March 1993 the Company issued $100 million of 10 1/2% Senior Notes due in
2000 pursuant to the shelf registration statement. The sale of the Notes in
this Offering will be made pursuant to the shelf registration statement and
will result in the sale of the remainder of the securities registered
thereunder.
The Company has no material commitments or off balance sheet financing
arrangements that would tend to affect future liquidity.
S-22
<PAGE>
DESCRIPTION OF NOTES
The Notes offered hereby are to be issued under an Indenture, dated as of
April 1, 1992 (the "Indenture"), between the Company and United States Trust
Company of New York, as trustee (the "Trustee"), filed as an exhibit to the
Company's Current Report on Form 8-K, dated February 24, 1993. The following
summary of the material provisions of the Indenture does not purport to be
complete, and where reference is made to particular provisions of the
Indenture, such provisions are incorporated by reference as part of such
summary, which is qualified in its entirety by such reference. The information
herein concerning the Notes should be read in conjunction with the statements
under "Description of the Debt Securities" in the accompanying Prospectus, to
which reference is hereby made. Certain terms used herein are defined under
"Certain Definitions" below.
GENERAL
The Notes will mature on , 2007, are senior unsecured obligations of the
Company and will rank pari passu with the Company's other existing and future
senior unsecured indebtedness. The Notes will be limited to $100,000,000 in
aggregate principal amount. The Notes are effectively subordinated to all
existing and future indebtedness of the Company's subsidiaries. See
"Description of the Debt Securities--General" in the accompanying Prospectus.
Each Note will bear interest at the rate per annum shown on the cover page of
this Prospectus Supplement from the date of original issuance. Interest on the
Notes will be payable on each and (each an "Interest Payment Date"),
commencing , 199 , to holders of record at the close of business on the
and immediately preceding such interest payment date. Interest on
the Notes will be computed on the basis of a 360-day year consisting of twelve
30-day months.
Principal and interest will be payable, and the Notes will be exchangeable
and transferable, at the office of the Trustee maintained for that purpose in
New York, New York, or at such other place or places as may be designated
pursuant to the Indenture, provided that the Company, at its option, may pay
interest, other than interest due at maturity or upon redemption, by check
mailed to the address of the person entitled thereto as shown on the
Registrar's books. The Notes will be issued only in fully registered form
without coupons, in denominations of $1,000 and integral multiples thereof. No
service charge will be made for any registration, transfer, exchange or
redemption of Notes, except in certain circumstances for any tax or other
governmental charge that may be imposed in connection therewith.
The Notes are not savings accounts or deposits and are not insured by the
Federal Deposit Insurance Corporation.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to , 2002. Thereafter, the
Notes will be redeemable, at the Company's option, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of principal amount),
plus accrued and unpaid interest to the redemption date (subject to the right
of Holders of record on the relevant record date to receive interest due on
the relevant interest payment date), if redeemed during the 12-month period
commencing on of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002...........................................................
2003...........................................................
2004...........................................................
2005 and thereafter............................................
</TABLE>
S-31
<PAGE>
If less than all of the Notes are to be redeemed, the Trustee will select
the Notes to be redeemed on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the right
to require that the Company repurchase all or a portion of such Holder's Notes
at a purchase price in cash equal to 101 percent of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), in accordance
with the provisions of the next paragraph.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (i) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101
percent of the principal amount outstanding at the repurchase date plus
accrued and unpaid interest, if any, to the date of repurchase (subject to the
right of Holders of record on the relevant record date to receive interest on
the relevant interest payment date); (ii) the circumstances and relevant facts
and relevant financial information regarding such Change in Control; (iii) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (iv) the instructions determined by
the Company, consistent with the covenant described hereunder, that a Holder
must follow in order to have its Notes repurchased.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
Future Indebtedness of the Company may contain prohibitions of certain
events which would constitute a Change of Control or require such Indebtedness
to be repurchased upon a Change of Control. Moreover, the exercise by the
Holders of their right to require the Company to repurchase the Notes could
cause a default under such Indebtedness, even if the Change of Control itself
does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to the Holders upon a repurchase
may be limited by the Company's then existing financial resources. There can
be no assurance that sufficient funds will be available when necessary to make
any repurchases required in connection with a Change of Control. The Company's
failure to purchase the Notes in connection with a Change in Control would
result in a default under the Indenture which could, in turn, constitute a
default under other Indebtedness.
BOOK-ENTRY SYSTEM
The Notes will initially be issued in the form of one or more securities in
global form (the "Global Securities") held in book-entry form. Accordingly,
The Depository Trust Company ("DTC") or its nominee will initially be the sole
registered holder of the Notes for all purposes under the Indenture.
Upon the issuance of a Global Security, DTC or its nominee will credit the
accounts of persons holding through it with the respective principal amounts
of the Notes represented by such Global
S-32
<PAGE>
Security purchased by such persons in the Offering. Such accounts shall be
designated by the Underwriters with respect to Notes placed by the
Underwriters for the Company. Ownership of beneficial interests in a Global
Security will be limited to persons that have accounts with DTC
("participants") or persons that may hold interests through participants.
Ownership of beneficial interests by participants in a Global Security will be
shown on, and the transfer of that ownership interest will be effected only
through, records maintained by DTC for such Global Security. Ownership of
beneficial interests in such Global Security by persons that hold through
participants will be shown on, and the transfer of that ownership interest
within such participant will be effected only through, records maintained by
such participant. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
Payment of principal and interest on Notes represented by any such Global
Security will be made to DTC or its nominee, as the case may be, as the sole
registered owner and the sole holder of the Notes represented thereby for all
purposes under the Indenture. None of the Company, the Trustee, any agent of
the Company, or the Underwriters will have any responsibility or liability for
any aspect of DTC's records relating to or payments made on account of
beneficial ownership interests in a Global Security representing any Notes or
for maintaining, supervising, or reviewing any of DTC's records relating to
such beneficial ownership interests.
The Company has been advised by DTC that upon receipt of any payment of
principal of, or interests on, any Global Security, DTC will immediately
credit, on its book-entry registration and transfer system, the accounts of
participants with payments in amounts proportionate to their respective
beneficial interests in the principal or face amount of such Global Security
as shown on the records of DTC. Payments by participants to owners of
beneficial interests in a Global Security held through such participants will
be governed by standing instructions and customary practices as is now the
case with securities held for customer accounts registered in "street name"
and will be the sole responsibility of such participants.
A Global Security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC. A Global Security is
exchangeable for certificated Notes only if (i) DTC notifies the Company that
it is unwilling or unable to continue as a Depositary for such Global Security
or if at any time DTC ceases to be a clearing agency registered under the
Exchange Act, (ii) the Company executes and delivers to the Trustee a notice
that such Global Security shall be so transferable, registrable, and
exchangeable, and such transfers shall be registrable, or (iii) there shall
have occurred and be continuing an Event of Default or an event which, with
the giving of notice or lapse of time or both, would constitute an Event of
Default with respect to the Notes represented by such Global Security. Any
Global Security that is exchangeable for certificated Notes pursuant to the
preceding sentence will be transferred to, and registered and exchanged for,
certificated Notes in authorized denominations and registered in such names as
the Depositary holding such Global Security may direct. Subject to the
foregoing, a Global Security is not exchangeable, except for a Global Security
of like denomination to be registered in the name of the Depositary or its
nominee. In the event that a Global Security becomes exchangeable for
certificated Notes, (i) certificated Notes will be issued only in fully
registered form in denomination of $1,000 or integral multiples thereof,
(ii) payment of principal, any repurchase price, and interest on the
certificated Notes will be payable, and the transfer of the certificated Notes
will be registerable, at the office or agency of the Company maintained for
such purposes, and (iii) no service charge will be made for any registration
of transfer or exchange of the certificated Notes, although the Company may
require payment of a sum sufficient to cover any tax or governmental charge
imposed in connection therewith.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole
S-33
<PAGE>
owner or holder of the Notes represented by such Global Security for the
purposes of receiving payment on the Notes, receiving notices, and for all
other purposes under the Indenture and the Notes. Beneficial interests in
Notes will be evidenced only by, and transfers thereof will be effected only
through, records maintained by the Depositary and its participants. Cede & Co.
has been appointed as the nominee of DTC. Except as provided above, owners of
beneficial interests in a Global Security will not be entitled to and will not
be considered the holders thereof for any purposes under the Indenture.
Accordingly, each person owning a beneficial interest in a Global Security
must rely on the procedures of the Depositary, and, if such person is not a
participant, on the procedures of the participant through which such person
owns its interest, to exercise any rights of a Holder under the Indenture. The
Company understands that under existing industry practices, in the event that
the Company requests any action of Holders or that an owner of a beneficial
interest in a Global Security desires to give or take any action which a
Holder is entitled to give or take under the Indenture, the Depositary would
authorize the participants holding the relevant beneficial interest to give or
take such action and such participants would authorize beneficial owners
owning through such participants to give or take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
DTC has advised the Company that DTC is a limited-purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered under the
Exchange Act. DTC was created to hold the securities of its participants and
to facilitate the clearance and settlement of securities transactions among
its participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. DTC's participants include securities
brokers and dealers (including the Underwriters), banks, trust companies,
clearing corporations, and certain other organizations some of whom (and/or
their representatives) own DTC. Access to DTC's book-entry system is also
available to others, such as banks, brokers, dealers, and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
CERTAIN COVENANTS
Maintenance of Consolidated Net Worth
The Indenture provides that if the Consolidated Net Worth of the Company and
its Restricted Subsidiaries at the end of any two consecutive fiscal quarters
is less than $200 million, then the Company will offer to acquire (the
"Offer") on the last day of the fiscal quarter next following such second
fiscal quarter or, if such second fiscal quarter ends on the last day of the
Company's fiscal year, 135 days after the end of such second fiscal quarter
(the "Purchase Date"), 10 percent of the aggregate principal amount of the
Notes originally issued (or, if less than 10 percent of the principal amount
of the Notes originally issued are then outstanding, then all of the Notes
outstanding at that time) at a purchase price equal to 100 percent of the
aggregate principal amount thereof together with accrued and unpaid interest
to the Purchase Date. In no event shall the failure to meet the minimum
Consolidated Net Worth stated above at the end of any fiscal quarter be
counted toward more than one Offer.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the covenant described
above. To the extent that the provisions of any securities laws or regulations
conflict with the provisions of the covenant described above, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under the covenant described above
by virtue thereof. If an Offer to acquire Notes is oversubscribed, the Company
shall acquire Notes on a pro rata basis or by lot or in such other manner as
the Trustee shall deem fair and appropriate.
S-34
<PAGE>
Limitation on Additional Indebtedness
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, Incur any Indebtedness unless, after giving effect
thereto, either (i) the ratio of Indebtedness of the Company and the
Restricted Subsidiaries (excluding, for purposes of this calculation only, (A)
purchase money mortgages that are Non-Recourse Indebtedness, and (B)
Indebtedness Incurred under letters of credit, escrow agreements and surety
bonds obtained in the ordinary course of business), to Consolidated Tangible
Net Worth of the Company is less than 2.25 to 1; or (ii) the Consolidated
Coverage Ratio exceeds 2.0 to 1.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may Incur: (i) Indebtedness under one or more Bank Credit Facilities in an
amount not in excess of $275 million; (ii) purchase money mortgages that are
Non-Recourse Indebtedness; (iii) obligations Incurred under letters of credit,
escrow agreements and surety bonds in the ordinary course of business;
(iv) Indebtedness Incurred under a Warehouse Facility, provided that the
amount of such Indebtedness (excluding funding drafts issued thereunder)
outstanding at any time pursuant to this clause (iv) may not exceed 98 percent
of the value of the Mortgages pledged to secure Indebtedness thereunder; and
(v) Indebtedness Incurred solely for the purpose of refinancing or repaying
any existing Indebtedness so long as (A) the principal amount of such new
Indebtedness does not exceed the principal amount of the existing Indebtedness
refinanced or repaid (plus the premiums or other payments required to be paid
in connection with such refinancing or repayment and the expenses incurred in
connection therewith), (B) the maturity of such new Indebtedness is not
earlier than that of the existing Indebtedness to be refinanced or repaid, (C)
such new Indebtedness, determined as of the date of Incurrence, has an Average
Life at least equal to the remaining Average Life of the Indebtedness to be
refinanced or repaid, (D) the new Indebtedness is pari passu with or
subordinate to the Indebtedness being refinanced or repaid, and (E) the
existing and new Indebtedness are obligations of the same entity.
The Company and its Subsidiaries will retain the ability to incur
significant additional borrowings irrespective of the limitations set forth
above.
Limitations on Liens
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, issue, assume, guarantee or suffer to exist any
Indebtedness secured by any mortgage, pledge, lien or other encumbrance of any
nature (herein collectively referred to as a "lien" or "liens") upon any
property of the Company or any Restricted Subsidiary, or on any shares of
stock of any Restricted Subsidiary, without in any such case effectively
providing that the Notes (together with, if the Company shall so determine,
any other Indebtedness of the Company or such Restricted Subsidiary ranking
pari passu with the Notes) shall be secured equally and ratably with such
Indebtedness, except that the foregoing restrictions shall not apply to: (i)
liens existing on March 31, 1997; (ii) pledges, guarantees and deposits under
workers' compensation laws, unemployment insurance laws or similar
legislation, good faith deposits under bids, tenders or contracts, deposits to
secure public or statutory obligations or appeal or similar bonds, and liens
created by special assessment districts used to finance infrastructure
improvements; (iii) liens existing on property or assets of any entity on the
date on which it becomes a Restricted Subsidiary, which secured Indebtedness
is not Incurred in contemplation of such entity becoming a Restricted
Subsidiary; (iv) liens on or leases of model home units; (v) liens on
property, inventory and receivables of Panel Concepts to provide working
capital (exclusive of cash and cash equivalents) for Panel Concepts in the
ordinary course of business; (vi) Capitalized Lease Obligations entered into
in the ordinary course of business in amounts not in excess of $10 million in
S-35
<PAGE>
the aggregate; (vii) the replacement of any of the items set forth in clauses
(i) through (vi) above, provided that (A) the principal amount of the
Indebtedness secured by liens shall not be increased, (B) such Indebtedness,
determined as of the date of Incurrence, has an Average Life at least equal to
the remaining Average Life of the Indebtedness to be refinanced, (C) the
maturity of such Indebtedness is not earlier than that of the Indebtedness to
be refinanced, and (D) the liens shall be limited to the property or part
thereof which secured the lien so replaced or property substituted therefor as
a result of the destruction, condemnation or damage of such property; (viii)
liens on property acquired, constructed or improved by the Company or any
Restricted Subsidiary, which liens are either existing at the time of such
acquisition or at the time of completion of construction or improvement or
created within 120 days after such acquisition, completion or improvement, to
secure Indebtedness Incurred or assumed to finance all or part of such
property, including any increase in the principal amount of such Indebtedness
and any extension of the repayment schedule and maturity of such Indebtedness
Incurred or entered into in the ordinary course of business; (ix) liens or
priorities incurred in the ordinary course of business, such as laborers',
employees', carriers', mechanics', vendors' and landlords' liens or
priorities; (x) liens for certain taxes and certain survey and title
exceptions; (xi) liens arising out of judgments or awards against the Company
or any Restricted Subsidiary with respect to which the Company or such
Restricted Subsidiary is in good faith prosecuting an appeal or proceeding for
review and with respect to which it has secured a stay of execution pending
such appeal or proceeding for review; (xii) liens on property owned by any
Homebuilding Joint Venture; (xiii) liens securing a Warehouse Facility,
provided that such liens shall not extend to any assets other than the
mortgages, promissory notes and other collateral that secures mortgage loans
made by the Company or any of its Restricted Subsidiaries; and (xiv) liens
which would otherwise be subject to the foregoing restrictions which, when the
Indebtedness relating to those liens is added to all other then outstanding
Indebtedness of the Company and the Restricted Subsidiaries secured by liens
and not listed in clauses (i) through (xiii) above, does not exceed
$50 million.
Limitation on Restricted Payments
The Indenture provides that the Company will not, nor will it permit any
Restricted Subsidiary to, directly or indirectly, (i) declare or pay any
dividend on, or make any distribution in respect of, or purchase, redeem or
otherwise acquire or retire for value, any Capital Stock of the Company other
than through the issuance solely of the Company's own Capital Stock (other
than Disqualified Stock), or rights thereto; (ii) make any principal payment
on, or redeem, repurchase, defease or otherwise acquire or retire for value
prior to scheduled principal payments or maturity, Indebtedness of the Company
or any Restricted Subsidiary which is expressly subordinated in right of
payment to the Notes (other than Indebtedness Incurred after the issuance of
the Notes provided that such repayment, redemption, repurchase, defeasance or
other retirement is made substantially concurrent with the receipt of proceeds
from the Incurrence of Indebtedness that by its terms is both subordinated in
right of payment to the Notes and matures, by sinking fund or otherwise, after
, 2007); or (iii) make any Restricted Investment (such payments or
any other actions described in (i), (ii) and (iii), being referred to herein
collectively as, "Restricted Payments") unless (A) at the time of, and after
giving effect to, the proposed Restricted Payment, no Event of Default (and no
event that, after notice or lapse of time, or both, would become an Event of
Default) shall have occurred and be continuing, (B) the Company is able to
Incur an additional $1.00 of Indebtedness pursuant to the first paragraph of
the covenant described under "--Limitation on Additional Indebtedness" and (C)
at the time of, and after giving effect thereto, the sum of the aggregate
amount expended (or with respect to guaranties or similar arrangements the
amount then guaranteed) for all such Restricted Payments (the amount expended
for such purposes, if other than in cash, to be determined by the Board of
Directors of the Company, whose determination shall be conclusive and
evidenced by a resolution of such Board of Directors filed with the Trustee)
subsequent to June 30, 1997 shall not exceed the sum of (1) 50 percent of the
aggregate Consolidated Net Income (or, in case such aggregate Consolidated
S-36
<PAGE>
Net Income shall be a deficit, minus 100 percent of such deficit) of the
Company accrued on a cumulative basis subsequent to June 30, 1997; (2) the
aggregate net proceeds, including the fair market value of property other than
cash (as determined by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a resolution of such Board
of Directors filed with the Trustee), received by the Company from the
issuance or sale, after the date of issuance of the Notes, of Capital Stock
(other than Disqualified Stock) of the Company, including Capital Stock (other
than Disqualified Stock) of the Company issued subsequent to the date of
issuance of the Notes upon the conversion of Indebtedness of the Company
initially issued for cash; (3) 100 percent of dividends or distributions (the
fair value of which, if other than cash, to be determined by the Board of
Directors, in good faith) paid to the Company (or any Restricted Subsidiary)
by an Unrestricted Subsidiary, Homebuilding Joint Venture or any other person
in which the Company (or any Restricted Subsidiary), directly or indirectly,
has an ownership interest but less than a 100 percent ownership interest to
the extent that such dividends or distributions do not exceed the amount of
loans, advances or capital contributions made to any such entity or person
subsequent to the date of issuance of the Notes and included in the
calculation or Restricted Payments; and (4) $40 million.
The foregoing shall not prevent (i) the payment of any dividend within 60
days after the date of declaration thereof, if at said date of declaration the
making of such payment would have complied with the provisions of this
limitation on dividends; provided, however, that such dividend shall be
included in future calculations of Restricted Payments; (ii) the retirement of
any shares of the Company's Capital Stock by exchange for, or out of proceeds
of the substantially concurrent sale of, other shares of its Capital Stock
(other than Disqualified Stock); provided, however, that the aggregate net
proceeds from such sale shall be excluded from the calculation of the amounts
under clause (C)(2) of the immediately preceding paragraph; (iii) the
redemption, repayment, repurchase, defeasance or other retirement of
Indebtedness with proceeds received from the substantially concurrent sale of
shares of the Company's Capital Stock (other than Disqualified Stock);
provided, however, that the aggregate net proceeds from such sale shall be
excluded from the calculation of the amounts under clause (C)(2) of the
immediately preceding paragraph; or (iv) any investment or investments in
Savings by the Company or any of its Restricted Subsidiaries for the purpose
of causing Savings to comply with any regulatory agreements existing on the
date of issuance of the Notes or with any applicable law, rule, regulation,
official interpretation of law, rule or regulation or official directive which
governs the capital maintenance, net worth or similar regulatory requirements
applicable to Savings.
Limitation on Asset Sales
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, make an Asset Disposition, other than for fair
market value and in the ordinary course of business, with an aggregate net
book value as of the end of the immediately preceding fiscal quarter greater
than 10 percent of the Company's total consolidated assets as of that date
unless (i) the consideration received by the Company (or a Restricted
Subsidiary, as the case may be) for such disposition consists of at least 70
percent cash; provided, however, that for purposes of this provision (i), the
amount of any liabilities assumed by the transferee and any notes or other
obligations received by the Company or a Restricted Subsidiary which are
immediately converted into cash shall be deemed to be cash; and (ii) the
Company shall within one year after the date of such sale or sales, apply the
net proceeds from such sale or sales in excess of an amount equal to 10
percent of the Company's total consolidated assets to (A) a purchase of or an
Investment in Additional Assets (other than cash or cash equivalents), (B)
repayment of indebtedness of the Company which is pari passu with the Notes,
and/or (C) make an offer to acquire all or part of the Notes at a purchase
price equal to the principal amount thereof plus accrued and unpaid interest
thereon to the purchase date.
Any such offer to acquire Notes will be mailed not less than 30 days nor
more than 60 days prior to the proposed date of purchase to each Holder at its
last registered address. The Company shall comply, to the extent applicable,
with the requirements of Section 14(e) of the Exchange Act and any
S-37
<PAGE>
other securities laws or regulations in connection with the repurchase of
Notes pursuant to the covenant described above. To the extent that the
provisions of any securities laws or regulations conflict with the provisions
of the covenant described above, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the covenant described above by virtue thereof. If an offer
hereunder is oversubscribed, the Company shall acquire Notes on a pro rata
basis or by lot or in such other manner as the Trustee shall deem fair and
appropriate.
Transactions with Affiliates
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, enter into or permit to exist any transaction or series of related
transactions (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(i) are no less favorable to the Company or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a person who is not such an Affiliate; and (ii) if such
Affiliate Transaction (or series of related Affiliate Transactions) involve
aggregate payments in an amount in excess of $10 million in any one year, (A)
are set forth in writing, (B) comply with clause (i) above and (C) have been
approved by a majority of the disinterested members of the Board of Directors.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described
under "--Limitation on Restricted Payments" above; (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or
otherwise, pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans in the ordinary course of business and
approved by the Board of Directors or a committee thereof; (iii) the grant of
stock options or similar rights to employees and directors of the Company in
the ordinary course of business and pursuant to plans approved by the Board of
Directors or a committee thereof; (iv) loans or advances to employees in the
ordinary course of business of the Company or its Restricted Subsidiaries; (v)
fees, compensation or employee benefit arrangements paid to and indemnity
provided for the benefit of directors, officers or employees of the Company or
any Subsidiary in the ordinary course of business; or (vi) any Affiliate
Transaction between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries.
Limitation on Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any
consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary (i) to pay dividends or make any other distributions on
its Capital Stock to the Company or a Restricted Subsidiary or pay any
Indebtedness owed to the Company, (ii) to make any loans or advances to the
Company or (iii) transfer any of its property or assets to the Company,
except: (A) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the date of issuance of the Notes; (B) any encumbrance
or restriction with respect to a Restricted Subsidiary pursuant to an
agreement relating to any Indebtedness Incurred by such Restricted Subsidiary
which was entered into on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than as consideration in, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted Subsidiary or was
acquired by the Company) and outstanding on such date; (C) any encumbrance or
restriction pursuant to an agreement effecting a Refinancing of Indebtedness
Incurred pursuant to an agreement referred to in clause (A) or (B) of this
covenant (or effecting a Refinancing of such Refinancing Indebtedness pursuant
to this clause (C)) or contained in any amendment to an agreement referred to
in clause (A) or (B) of this covenant or this clause (C); provided, however,
that the encumbrances and restrictions
S-38
<PAGE>
with respect to such Restricted Subsidiary contained in any such refinancing
agreement or amendment are no more restrictive in any material respect than
the encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such agreements; (D) any such encumbrance or restriction
consisting of customary contractual non-assignment provisions to the extent
such provisions restrict the transfer of rights, duties or obligations under
such contract; (E) in the case of clause (iii) above, restrictions contained
in security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages; (F) any restriction
with respect to a Restricted Subsidiary imposed pursuant to an agreement
entered into for the sale or disposition of all or substantially all the
Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition; and (G) any restriction imposed by applicable law.
Restricted and Unrestricted Subsidiaries
The Company will not permit any Restricted Subsidiary to be designated as an
Unrestricted Subsidiary unless the Company and its Restricted Subsidiaries
would thereafter be permitted to (i) Incur at least $1.00 of Indebtedness
pursuant to the first paragraph of the covenant described under "--Limitation
on Additional Indebtedness" above and (ii) make a Restricted Payment of at
least $1.00 pursuant to the first paragraph of the covenant described under
"--Limitation on Restricted Payments" above.
The Company will not permit any Unrestricted Subsidiary to be designated as
a Restricted Subsidiary unless such Subsidiary has outstanding no Indebtedness
except such Indebtedness as the Company could permit it to become liable for
immediately after becoming a Restricted Subsidiary under the provisions of the
covenant described under "--Limitation on Additional Indebtedness" above.
The Company will not permit Standard Pacific of Texas, Inc. to be designated
as an Unrestricted Subsidiary or permit the assets of the Company or any
Subsidiary employed in homebuilding operations to be transferred to an
Unrestricted Subsidiary, except in amounts permitted under the limitation on
Restricted Payments.
SUCCESSOR CORPORATION
The Indenture provides that the Company may not consolidate with, merge into
or transfer all or substantially all of its assets to another person unless
(i) such person (if other than the Company) is a corporation organized under
the laws of the United States or any state thereof or the District of Columbia
and expressly assumes all the obligations of the Company under the Indenture
and the Notes; (ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; (iii) the
Consolidated Net Worth of the obligor of the Notes immediately after such
transaction (exclusive of any adjustments to Consolidated Net Worth relating
to transaction costs and accounting adjustments resulting from such
transaction) is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction; and (iv) the surviving corporation
would be able to Incur at least an additional $1.00 of Indebtedness pursuant
to the first paragraph of the covenant described under "--Certain Covenants--
Limitation on Additional Indebtedness" above.
ADDITIONAL EVENTS OF DEFAULT
In addition to the Events of Default described under "Description of the
Debt Securities--Events of Default" in the accompanying Prospectus, the
following shall constitute Events of Default with respect to the Notes: (i)
default under any mortgage, indenture (including the Indenture) or instrument
under which is issued or which secures or evidences Indebtedness of the
Company or any Restricted Subsidiary (other than Non-Recourse Indebtedness)
which default constitutes a failure to pay principal
S-39
<PAGE>
of such Indebtedness in an amount of $20,000,000 or more when due and payable
(other than as a result of acceleration) or results in Indebtedness (other
than Non-Recourse Indebtedness) in the aggregate of $20,000,000 or more
becoming or being declared due and payable before it would otherwise become
due and payable; and (ii) entry of a final judgment for the payment of money
against the Company or any Restricted Subsidiary in an amount of $5,000,000 or
more which remains undischarged or unstayed for a period of 60 days after the
date on which the right to appeal such judgment has expired or becomes subject
to an enforcement proceeding.
REPORTS TO HOLDERS OF THE NOTES
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the Securities and Exchange Commission (the "Commission"). The Indenture
provides that even if the Company is entitled under the Exchange Act not to
furnish such information to the Commission or to the holders of the Notes, it
will nonetheless continue to furnish information under Section 13 or 15(d) of
the Exchange Act to the Commission and the Trustee as if it were subject to
such periodic reporting requirements.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the Indenture.
Reference is made to the Indenture for the full definition of all such terms,
as well as any other capitalized terms used herein for which no definition is
provided.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; or (ii) the Capital
Stock of a person that becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by the Company or another Restricted
Subsidiary; provided, however, that any such Restricted Subsidiary is
primarily engaged in a Related Business. For purposes of this definition,
"Related Business" means any business related, ancillary or complimentary (as
defined in good faith by the Board of Directors) to the business of the
Company and the Restricted Subsidiaries on the date of issuance of the Notes.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power to
direct or cause the direction of the management and policies of such person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of
this definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares and, to the
extent required by local ownership laws in foreign countries, shares owned by
foreign shareholders); (ii) all or substantially all the assets of any
division, business segment or comparable line of business of the Company or
any Restricted Subsidiary; or (iii) any other assets of the Company or any
Restricted Subsidiary having a fair market value (as determined in good faith
by the Board of Directors) in excess of $250,000 disposed of in a single
transaction or series of related transactions outside of the ordinary course
of business of the Company or such Restricted Subsidiary (other than, in the
case of (i), (ii) and (iii) above, a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Subsidiary).
S-40
<PAGE>
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment (assuming the exercise by the obligor
of such Indebtedness of all unconditional (other than as to the giving of
notice) extension options of each such scheduled payment date) of such
Indebtedness multiplied by the amount of such principal payment by (ii) the
sum of all such principal payments.
"Bank Credit Facility" means the Revolving Credit Facility and any bank
credit agreement or credit facility entered into in the future by the Company
or any Restricted Subsidiary, as any of the same may be amended, waived,
modified, refinanced or replaced from time to time.
"Capitalized Lease Obligations" means any obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
generally accepted accounting principles.
"Capital Stock" of any person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Change of Control" means the occurrence of any of the following events:
(i)any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), is or becomes the beneficial owner (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes
of this clause such person or group shall be deemed to have "beneficial
ownership" of all shares that any such person or group has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50 percent of the
total voting power of the Voting Stock of the Company;
(ii)during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a majority vote of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office; or
(iii) the merger or consolidation of the Company with or into another
person or the merger of another person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
person, other than any such sale to one or more Restricted Subsidiaries,
and in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction and
which represent 100 percent of the aggregate voting power of the Voting
Stock of the Company are changed into or exchanged for cash, securities or
property, unless pursuant to such transaction such securities are changed
into or exchanged for, in addition to any other consideration, securities
of the surviving corporation, or a parent corporation that owns all of the
Capital Stock of such surviving corporation, that represent immediately
after such transaction, at least a majority of the aggregate voting power
of the Voting Stock of the surviving corporation or such parent
corporation, as the case may be.
"Consolidated Coverage Ratio" with respect to the Company as of any date of
determination means the ratio of the Company's EBITDA to its Consolidated
Interest Incurred for the four fiscal quarters ending immediately prior to the
date of determination. Notwithstanding clause (ii) of the definition of
Consolidated Net Income, if the Indebtedness which is being Incurred is
Incurred in connecting with an acquisition by the Company or a Restricted
Subsidiary, the Consolidated Coverage Ratio shall be determined after giving
effect to both the Consolidated Interest Incurred related to the Incurrence of
such Indebtedness and the EBITDA as if the acquisition had occurred at the
beginning of the four fiscal quarter period (x) of the person becoming a
Restricted Subsidiary or (y) in the case of an acquisition of assets that
constitute substantially all of an operating unit or business, relating to the
assets being acquired by the Company or a Restricted Subsidiary.
S-41
<PAGE>
"Consolidated Interest Expense" of the Company means, for any period, the
aggregate amount of interest which, in accordance with generally accepted
accounting principles as in effect on the date of the issuance of the Notes,
would be included on an income statement for the Company and its Restricted
Subsidiaries on a consolidated basis, whether expensed directly, or included
as a component of cost of goods sold, or allocated to joint ventures or
otherwise (including, but not limited to, imputed interest included on
Capitalized Lease Obligations, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs associated with Hedging Obligations, amortization of
other financing fees and expenses, the interest portion of any deferred
payment obligation, amortization of discount or premium, if any, and all other
non-cash interest expense), excluding interest expense related to mortgage
banking operations, plus the product of (i) cash dividends paid on any
Preferred Stock of the Company, times (ii) a fraction, the numerator of which
is one and the denominator of which is one minus the then current effective
aggregate federal, state and local tax rate of the Company, expressed as a
decimal.
"Consolidated Interest Incurred" of the Company means, for any period, (i)
the aggregate amount of interest which, in accordance with generally accepted
accounting principles as in effect on the date of the issuance of the Notes,
would be included on an income statement for the Company and its Restricted
Subsidiaries on a consolidated basis, whether expensed directly, or included
as a component of cost of goods sold, or allocated to joint ventures or
otherwise (including, but not limited to, imputed interest included on
Capitalized Lease Obligations, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs associated with Hedging Obligations, amortization of
discount or premium, if any, and all other non-cash interest expense),
excluding interest expense related to mortgage banking operations, plus or
minus, without duplication; (ii) the difference between capitalized interest
for such period and the interest component of cost of goods sold for such
period; plus (iii) the product of (A) cash dividends paid on any Preferred
Stock of the Company, times (B) a fraction, the numerator of which is one and
the denominator of which is one minus the then current effective aggregate
federal, state and local tax rate of the Company, expressed as a decimal.
"Consolidated Net Income" for any period, means the aggregate of the Net
Income of the Company and its Restricted Subsidiaries for such period, on a
consolidated basis, determined in accordance with generally accepted
accounting principles as in effect on the date of the issuance of the Notes,
provided that (i) the Net Income of any person in which the Company or any
Restricted Subsidiary has, a joint interest with a third party (other than an
Unrestricted Subsidiary) shall be included only to the extent of the lesser of
(A) the amount of dividends or distributions actually paid to the Company or a
Restricted Subsidiary or (B) the Company's direct or indirect proportionate
interest in the Net Income of such person, provided that, so long as the
Company or a Restricted Subsidiary has an unqualified legal right to require
the payment of a dividend or distribution, Net Income shall be determined
solely pursuant to clause (B); (ii) the Net Income of any person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded; and (iii) the Net Income of any Unrestricted
Subsidiary shall be included only to the extent of the amount of dividends or
distributions (the fair value of which, if other than in cash, to be
determined by the Board of Directors, in good faith) by such Subsidiary to the
Company or to any of its consolidated Restricted Subsidiaries; and (iv) the
Net Income of any Unrestricted Subsidiary, any Homebuilding Joint Venture or
any other person in which the Company or any Restricted Subsidiary has a joint
interest with a third party that is not existing on March 31, 1997 shall be
included only to the extent that the aggregate amount of dividends or
distributions (the fair value of which, if other than cash, to be determined
by the Board of Directors, in good faith) by such Subsidiary or Homebuilding
Joint Venture to the Company or to any of its consolidated Restricted
Subsidiaries exceeds the aggregate amount of unpaid loans or advances and
unreturned capital contributions made by the Company or any Restricted
Subsidiary in or to such Subsidiary or Homebuilding Joint Venture.
S-42
<PAGE>
"Consolidated Net Worth" of the Company means consolidated stockholders'
equity less any increase in stockholders' equity of each of the Unrestricted
Subsidiaries subsequent to June 30, 1997 attributable to the Company or any of
its Restricted Subsidiaries, as determined in accordance with generally
accepted accounting principles as in effect on the date of the issuance of the
Notes.
"Consolidated Tangible Net Worth" with respect to the Company means the
consolidated stockholders' equity of the Company, as determined in accordance
with generally accepted accounting principles as in effect on the date of the
issuance of the Notes, less (i) that portion of any increase of each of the
Unrestricted Subsidiaries' stockholders' equity subsequent to June 30, 1997
any of its Restricted Subsidiaries, as determined in accordance with generally
accepted accounting principles as in effect on the date of the issuance of the
Notes; and (ii) the Intangible Assets of the Company and the Restricted
Subsidiaries. "Intangible Assets" means the amount (to the extent reflected in
determining consolidated stockholders' equity) of (A) all write-ups (other
than write-ups of tangible assets of a going concern business made within
twelve months after the acquisition of such business) in the book value of any
asset owned by the Company or any Restricted Subsidiary, and (B) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense and
other like intangibles.
"Disqualified Stock" means, with respect to any person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise; (ii) is convertible or exchangeable, at the option of
the holder thereof, for Indebtedness or Disqualified Stock; or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to , 2008. Notwithstanding the foregoing, "Disqualified
Stock" shall not include Capital Stock which is redeemable solely pursuant to
a change in control provision that does not (A) cause such Capital Stock to
become redeemable in circumstances which would not constitute a Change of
Control and (B) require the Company to pay the redemption price therefor prior
to the repurchase date specified under "--Change of Control" above.
"EBITDA" of the Company for any period means the sum of Consolidated Net
Income plus Consolidated Interest Expense plus, without duplication, the
following to the extent deducted in calculating such Consolidated Net Income:
(i) income tax expense, (ii) depreciation expense, (iii) amortization expense
and (iv) all other non-cash items reducing Consolidated Net Income (other than
items that will require cash payments in the future and for which an accrual
or reserve is, or is required by generally accepted accounting principals as
in effect on the date of issuance of the Notes to be, made), less all non-cash
items increasing Consolidated Net Income, in each case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization of, a Subsidiary of the
Company shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Subsidiary
was included in calculating Consolidated Net Income.
"Hedging Obligations" of any person means the net obligations of such person
pursuant to any Interest Rate Agreement or any foreign exchange contract,
currency swap agreement or other similar agreement to which such person is a
party or a beneficiary.
"Homebuilding Joint Venture" means (i) any Unrestricted Subsidiary and (ii)
any person in which the Company or any of its Subsidiaries has an ownership
interest but less than a 100 percent ownership interest that, in each case,
was formed for and is engaged in homebuilding operations.
S-43
<PAGE>
"Incur" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a person
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by
such Subsidiary at the time it becomes a Subsidiary; provided further,
however, that in the case of a discount security, neither the accrual of
interest nor the accretion of original issue discount shall be considered an
Incurrence of Indebtedness. The term "Incurrence" when used as a noun shall
have a correlative meaning.
"Indebtedness" means on any date of determination (without duplication), (i)
the principal of and premium (if any) in respect of (A) indebtedness of such
person for money borrowed and (B) indebtedness evidenced by notes, debentures,
bonds or other similar instruments for the payment of which such person is
responsible or liable; (ii) all Capitalized Lease Obligations of such person;
(iii) all obligations of such person issued or assumed as the deferred
purchase price of property or services, all conditional sale obligations of
such person and all obligations of such person under any title retention
agreement (but excluding accounts payable and accrued expenses arising in the
ordinary course of business and which are not more than 90 days past due and
not in dispute) which would appear as a liability on a balance sheet of a
person prepared on a consolidated basis in accordance with generally accepted
accounting principles, which purchase price or obligation is due more than six
months after the date of placing such property in service or taking delivery
and title thereto or the completion of such services (provided that, in the
case of obligations of an acquired person assumed in connection with an
acquisition of such person, such obligations would constitute Indebtedness of
such person); (iv) all obligations of such person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in (i) through (iii) above)
entered into in the ordinary course of business of such person to the extent
such letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the tenth Business Day following
receipt by such person of a demand for reimbursement following payment on the
letter of credit); (v) the amount of all obligations of such person with
respect to the redemption, repayment or other repurchase of any Disqualified
Stock or, with respect to any Subsidiary of such person, any Preferred Stock
(but excluding, in each case, any accrued dividends); (vi) all obligations of
the type referred to in clauses (i) through (v) of other persons and all
dividends of other persons for the payment of which, in either case, such
person is responsible or liable, directly or indirectly, as obligor, guarantor
or otherwise, including by means of any guarantee; (vii) all obligations of
the type referred to in clauses (i) through (vi) of other persons secured by
any lien on any property or asset of such person (whether or not such
obligation is assumed by such person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount
of the obligation so secured; and (viii) to the extent not otherwise included
in this definition, Hedging Obligations of such Person. The amount of
Indebtedness of any person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency, other than a contingency
solely within the control of such person, giving rise to the obligation, of
any contingent obligations as described above at such date; provided, however,
that the amount outstanding at any time of any Indebtedness issued with
original issue discount shall be deemed to be the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such indebtedness at such time as determined in conformity with
generally accepted accounting principles.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such person) or other
extensions of credit (including by way of guarantee or similar
S-44
<PAGE>
arrangement) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such person.
"Mortgage" means a first priority mortgage or first priority deed of trust
on improved real property.
"Net Income" of any person means the net income (loss) of such person,
determined in accordance with generally accepted accounting principles as in
effect on the date of issuance of the Notes; excluding, however, from the
determination of Net Income all gains (to the extent that they exceed all
losses) realized upon the sale or other disposition (including, without
limitation, dispositions pursuant to sale leaseback transactions) of any real
property or equipment of such person, which is not sold or otherwise disposed
of in the ordinary course of business, or of any capital stock of such person
or its subsidiaries owned by such person.
"Non-Recourse Indebtedness" means Indebtedness or other obligations secured
by a lien on property to the extent that the liability for such Indebtedness
or other obligations is limited to the security of the property without
liability on the part of the Company or any Subsidiary (other than the
Subsidiary which holds title to such property) for any deficiency.
"Person" means an individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
partnership, trust, unincorporated organization, or government or any agency
or political subdivision thereof.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Refinance" means, in respect of Indebtedness, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinancing"
shall have a correlative meaning.
"Restricted Investment" means any loan, advance, capital contribution or
transfer (including by way of guaranty or other similar arrangement) in or to
any Unrestricted Subsidiary, Homebuilding Joint Venture or any person in which
the Company, directly or indirectly, has an ownership interest but less than
100 percent ownership interest; provided, however, that loans, advances,
capital contributions or transfers (including by way of guaranty or other
similar arrangement) to a Homebuilding Joint Venture shall be counted as a
Restricted Investment only to the extent that the aggregate at any one time
outstanding of all such amounts expended (or with respect to guaranties or
similar arrangements the amounts then guaranteed) exceed, subsequent to
December 31, 1996, $20 million for any one Homebuilding Joint Venture or $60
million in the aggregate for all Homebuilding Joint Ventures. Restricted
Investment shall include the fair market value of the net assets of any
Restricted Subsidiary that at any time is designated an Unrestricted
Subsidiary. Any property transferred to an Unrestricted Subsidiary, and the
net assets of a Restricted Subsidiary that is designated an Unrestricted
Subsidiary, shall be valued at fair market value at the time of such transfer,
in each case as determined by the Board of Directors of the Company in good
faith. The net assets of Panel Concepts shall not be counted as a Restricted
Investment if (i) a sale of all or a portion of the Capital Stock of Panel
Concepts causes Panel Concepts to become an Unrestricted Subsidiary; (ii) at
the time of such sale, the net book value of the assets of Panel Concepts
represent less than 10 percent of the consolidated assets of the Company and
its Restricted Subsidiaries; and (iii) the net proceeds of any such sale and
any subsequent sale of the Capital Stock of Panel Concepts to any person other
than the Company or any Restricted Subsidiary are paid or distributed to the
Company or any Restricted Subsidiary.
"Restricted Subsidiary" means any Wholly Owned Subsidiary that has not been
designated an Unrestricted Subsidiary.
S-45
<PAGE>
"Subsidiary" means a corporation, a majority of the capital stock with
voting power to elect directors of which is directly or indirectly owned by
the Company and its Subsidiaries, or any person in which the Company and its
Subsidiaries has at least a majority ownership interest.
"Unrestricted Subsidiary" means (i) any Subsidiary in which the Company,
directly or indirectly, has less than a 100 percent ownership interest, (ii)
any Wholly Owned Subsidiary which, in accordance with the provisions of the
Indenture, has been designated in a resolution adopted by the Board of
Directors of the Company as an Unrestricted Subsidiary, in each case unless
and until such Subsidiary shall, in accordance with the provisions of the
Indenture, be designated by a resolution of the Company as a Restricted
Subsidiary; and (iii) any Wholly Owned Subsidiary a majority of the voting
stock of which shall at the time be owned directly or indirectly by one or
more Unrestricted Subsidiaries. At the date of issuance of the Notes, the
Company will have designated Savings, Standard Pacific Financing Inc. and
Standard Pacific Financing L.P. as Unrestricted Subsidiaries.
"Voting Stock", with respect to any person, means securities of any class of
Capital Stock of such person entitling the holders thereof (whether at all
times or only so long as no senior class of stock has voting power by reason
of any contingency) to vote in the election of members of the board of
directors of such person.
"Warehouse Facility" means a Bank Credit Facility to finance the making of
Mortgage loans originated by the Company or any of its Subsidiaries.
"Wholly Owned Subsidiary" means a Subsidiary, all of the capital stock
(whether or not voting, but exclusive of directors' qualifying shares) of
which is owned by the Company or a Wholly Owned Subsidiary.
S-46
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following are the consolidated ratios of earnings to fixed charges for
the Company's continuing operations for each of the following periods:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------- -----------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
(1)............................... 3.12x 1.44x 2.96x 2.06x 2.10x 1.07x 1.03x
</TABLE>
- --------
(1) For purposes of calculating this ratio, fixed charges consist of interest
cost (interest expense plus capitalized interest), one-third of estimated
rent expenses as representative of the interest portion of rentals and
amortization of debt expense, and earnings consist of net earnings before
income taxes, fixed charges and nonrecurring non-cash charges of
approximately $46.5 million, $3.1 million and $2.5 million in 1995, 1993
and 1992, respectively.
5
<PAGE>
INDEX TO FINANCIAL STATEMENTS
STANDARD PACIFIC CORP.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Statements of Operations for the three months ended March
31, 1997 and 1996 (Unaudited) and for the years ended December 31, 1996,
1995 and 1994........................................................... F-3
Consolidated Balance Sheets at March 31, 1997 (Unaudited) and at December
31, 1996 and 1995....................................................... F-4
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1996 and for the three months
ended March 31, 1997 (Unaudited)........................................ F-5
Consolidated Statements of Cash Flows for the three months ended March
31, 1997 and 1996 (Unaudited) and for the years ended December 31, 1996,
1995 and 1994........................................................... F-6
Notes to Consolidated Financial Statements for the three months ended
March 31, 1997 and 1996 (Unaudited) and for the years ended December 31,
1996, 1995 and 1994 .................................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Standard Pacific Corp.:
We have audited the accompanying consolidated balance sheets of STANDARD
PACIFIC CORP. (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Standard Pacific Corp. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
As explained in Note 2 of the financial statements, effective December 31,
1995, the Company changed its method of accounting for the impairment of long-
lived assets and for long-lived assets to be disposed of.
ARTHUR ANDERSEN LLP
Orange County, California
January 27, 1997 (except
with respect to the
matter discussed in
Note 12, as to which
the date is June 10, 1997)
F-2
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ----------------------------
1997 1996 1996 1995 1994
-------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
HOMEBUILDING AND CORPORATE:
Revenues.................... $111,303 $61,584 $399,863 $346,263 $374,783
Cost of sales............... 95,645 54,391 348,066 307,794 331,558
Noncash charge for
impairment of long-lived
assets..................... -- -- -- 46,491 --
-------- ------- -------- -------- --------
Gross margin............ 15,658 7,193 51,797 (8,022) 43,225
-------- ------- -------- -------- --------
Selling, general and admin-
istrative expenses......... 9,775 6,693 37,351 34,873 36,855
Income from unconsolidated
joint ventures............. 530 1,713 4,708 6,953 4,234
Interest expense............ 1,473 1,656 7,142 1,860 --
Other income................ 206 158 936 555 596
-------- ------- -------- -------- --------
Homebuilding and corporate
pretax income (loss)....... 5,146 715 12,948 (37,247) 11,200
-------- ------- -------- -------- --------
MANUFACTURING:
Sales....................... 5,352 3,997 19,311 15,177 17,225
Cost of sales............... 3,372 2,601 12,011 9,856 10,896
-------- ------- -------- -------- --------
Gross margin............ 1,980 1,396 7,300 5,321 6,329
-------- ------- -------- -------- --------
Selling, general and admin-
istrative expenses......... 1,626 1,208 5,304 5,527 5,481
Other income................ 101 50 91 164 121
-------- ------- -------- -------- --------
Manufacturing pretax income
(loss)..................... 455 238 2,087 (42) 969
-------- ------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes........ 5,601 953 15,035 (37,289) 12,169
(Provision) benefit for in-
come taxes................. (2,300) (382) (6,034) 14,906 (4,993)
-------- ------- -------- -------- --------
Income (loss) from continu-
ing operations............. 3,301 571 9,001 (22,383) 7,176
Income (loss) from discon-
tinued operations, net of
income taxes of $(151) and
$(2) for the three months
ended March 31, 1997 and
1996 and $429, $3,620 and
$890 for the three years
ended December 31, 1996,
respectively............... 216 2 (608) (4,980) (1,289)
-------- ------- -------- -------- --------
NET INCOME (LOSS)............. $ 3,517 $ 573 $ 8,393 $(27,363) $ 5,887
======== ======= ======== ======== ========
Net Income (Loss) Per Share:
Income (loss) per share from
continuing operations...... $ 0.11 $ 0.02 $ 0.30 $ (0.73) $ 0.23
Income (loss) per share from
discontinued operations,
net of the benefit of
income taxes............... 0.01 -- (0.02) (0.17) (0.04)
-------- ------- -------- -------- --------
NET INCOME (LOSS) PER SHARE... $ 0.12 $ 0.02 $ 0.28 $ (0.90) $ 0.19
======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ------------------
1997 1996 1995
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and equivalents........................ $ 4,692 $ 5,975 $ 895
Investment securities held to maturity...... 6,119 5,329 5,410
Mortgage notes receivable and accrued inter-
est........................................ 3,647 3,741 3,203
Other notes and accounts receivable, net.... 11,056 11,073 8,821
Inventories:
Real estate in process of development and
completed model homes.................... 368,538 363,718 354,290
Real estate held for sale................. 9,110 8,927 13,386
Manufacturing............................. 1,469 1,432 1,332
Property and equipment, at cost, net of
accumulated depreciation and amortization
of $6,850, $6,640 and $5,875, respectively. 5,922 6,041 6,263
Investments in and advances to
unconsolidated joint ventures.............. 2,415 885 4,460
Deferred income taxes....................... 16,481 16,481 17,605
Deferred charges and other assets........... 6,302 6,504 6,859
-------- -------- --------
Total assets.............................. 435,751 430,106 422,524
-------- -------- --------
Net assets of discontinued operations....... 21,124 21,002 23,223
-------- -------- --------
Total Assets............................ $456,875 $451,108 $445,747
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unsecured notes payable..................... $ 82,800 $ 57,300 $ 48,500
Trust deed notes payable.................... 2,944 4,467 14,854
Accounts payable and accrued expenses....... 30,064 28,991 24,547
10 1/2% senior notes due 2000............... 80,000 100,000 100,000
-------- -------- --------
Total liabilities......................... 195,808 190,758 187,901
-------- -------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000
shares authorized; none issued............. -- -- --
Common stock, $.01 par value; 100,000,000
shares authorized; 29,389,181, 29,629,981
and 30,060,281 shares outstanding at March
31, 1997 and December 31, 1996 and 1995,
respectively............................... 294 296 301
Paid-in capital............................. 281,513 283,331 285,655
Investment securities valuation adjustment.. (133) (39) (80)
Accumulated deficit......................... (20,607) (23,238) (28,030)
-------- -------- --------
Total stockholders' equity.................. 261,067 260,350 257,846
-------- -------- --------
Total Liabilities and Stockholders' Eq-
uity................................... $456,875 $451,108 $445,747
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR EACH OF THE THREE
YEARS IN THE PERIOD ENDED
DECEMBER 31, 1996 AND FOR COMMON INVESTMENT RETAINED
THE NUMBER OF STOCK SECURITIES EARNINGS
THREE MONTHS ENDED MARCH COMMON PAR PAID-IN VALUATION (ACCUMULATED
31, 1997 SHARES VALUE CAPITAL ADJUSTMENT DEFICIT)
- ------------------------- ---------- ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1993.................... 30,605,921 $306 $289,311 $ -- $ 778
Exercise of stock options
and related income tax
benefit................. 16,010 -- 136 -- --
Cash dividends declared
($.12 per share)........ -- -- -- -- (3,675)
Change in investment
securities valuation
adjustment.............. -- -- -- (1,616) --
Net income............... -- -- -- -- 5,887
---------- ---- -------- ------ --------
BALANCE, DECEMBER 31,
1994.................... 30,621,931 306 289,447 (1,616) 2,990
Exercise of stock options
and related income tax
benefit................. 9,000 -- 64 -- --
Repurchase of common
shares.................. (570,650) (5) (3,856) -- --
Cash dividends declared
($.12 per share)........ -- -- -- -- (3,657)
Change in investment
securities valuation
adjustment -- -- -- 1,536 --
Net (loss)............... -- -- -- -- (27,363)
---------- ---- -------- ------ --------
BALANCE, DECEMBER 31,
1995.................... 30,060,281 301 285,655 (80) (28,030)
Repurchase of common
shares.................. (430,300) (5) (2,324) -- --
Cash dividends declared
($.12 per share)........ -- -- -- -- (3,601)
Change in investment
securities valuation
adjustment.............. -- -- -- 41 --
Net income............... -- -- -- -- 8,393
---------- ---- -------- ------ --------
BALANCE, DECEMBER 31,
1996.................... 29,629,981 296 283,331 (39) (23,238)
Exercise of stock options
and related income tax
benefits................ 19,000 -- 126 -- --
Repurchase of common
shares.................. (259,800) (2) (1,944) -- --
Cash dividends declared
($.03 per share)........ -- -- -- -- (886)
Change in investment
securities valuation
adjustment.............. -- -- -- (94) --
Net income............... -- -- -- -- 3,517
---------- ---- -------- ------ --------
BALANCE, MARCH 31, 1997
(Unaudited)............. 29,389,181 $294 $281,513 $ (133) $(20,607)
========== ==== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -----------------------------
1997 1996 1996 1995 1994
------- -------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)........... $ 3,517 $ 573 $ 8,393 $(27,363) $ 5,887
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Noncash charge for
impairment of long-lived
assets................... -- -- -- 46,491 --
Depreciation and amortiza-
tion..................... 238 161 891 550 782
Amortization of deferred
income and discounts..... 39 17 16 424 580
Net (gain) loss on sale of
investments, loans and
REO...................... (356) (91) (697) 1,738 508
Provision for loan losses. 15 -- 465 3,354 2,475
Changes in cash and equiv-
alents due to:
Inventories............. (5,040) (5,851) (5,476) 52,984 21,648
Receivables and accrued
interest............... 2 (1,538) (1,600) 6,763 (6,135)
Investment in and
advances to
unconsolidated joint
ventures .............. (1,530) (1,262) 3,576 (3,015) 717
Accounts payable and
accrued expenses....... 585 (5,493) 4,260 (4,378) 8,279
Deferred income taxes... 86 1,675 3,368 (17,876) (1,823)
Other, net.............. 508 (230) (2,355) (1,060) 433
------- -------- -------- -------- ---------
Net cash provided by (used
in) operating activities... $(1,936) $(12,039) $ 10,841 $ 58,612 $ 33,351
------- -------- -------- -------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from the sale of
investments and principal
repayments................. $12,537 $ 6,147 $ 33,047 $ 69,134 $ 38,066
Net sales from real estate
owned...................... 1,981 993 5,088 3,358 1,630
Net (additions to) retire-
ments from property and
equipment.................. (85) (36) (622) (227) (402)
Purchases of investment se-
curities................... (14,748) (11,622) (46,653) (11,254) (54,967)
Sales (purchases) of FHLB
stock...................... -- -- -- 1,975 (1,776)
New loan fundings and loan
purchases.................. -- -- (2,436) (17,875) (186,080)
Loan sales and principal re-
payments from loans........ 12,860 14,500 68,268 48,140 136,514
------- -------- -------- -------- ---------
Net cash provided by (used
in) investing activities... $12,545 $ 9,982 $ 56,692 $ 93,251 $ (67,015)
------- -------- -------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ------------------------------
1997 1996 1996 1995 1994
------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from (payments
on) bank lines of credit
and term loans............. $25,500 $ 18,000 $ 8,800 $ (37,750) $ (21,500)
Proceeds from deposits to
savings accounts........... 65,634 74,651 274,382 305,466 566,688
Payments on savings account
withdrawals................ (68,266) (83,090) (303,508) (340,144) (584,521)
Interest credited to savings
accounts................... 987 1,661 4,397 4,056 3,765
Proceeds from FHLB advances. -- -- 18,000 111,000 365,000
Repayment of FHLB advances.. (14,000) (14,000) (59,000) (121,300) (305,750)
Principal payments on bonds,
debentures and trust deed
notes payable.............. (21,523) (2,227) (11,021) (12,885) (12,964)
Dividends................... (886) (902) (3,601) (3,657) (3,675)
Net change in securities
sold subject to agreements
to repurchase.............. 5,085 (15,016) (15,016) (31,759) 26,737
Repurchase of common shares. (1,946) -- (2,329) (3,861) --
Proceeds from exercise of
stock options.............. 126 -- -- 64 136
------- -------- -------- --------- ---------
Net cash provided by (used
in) financing activities... $(9,289) $(20,923) $(88,896) $(130,770) $ 33,916
------- -------- -------- --------- ---------
Net increase (decrease) in
cash and equivalents....... $ 1,320 $(22,980) $(21,363) $ 21,093 $ 252
Cash and equivalents at be-
ginning of period.......... 16,234 37,597 37,597 16,504 16,252
------- -------- -------- --------- ---------
Cash and equivalents at end
of period.................. $17,554 $ 14,617 $ 16,234 $ 37,597 $ 16,504
======= ======== ======== ========= =========
SUMMARY OF CASH BALANCES:
Homebuilding, corporate and
manufacturing.............. $ 4,692 $ 3,557 $ 5,975 $ 895 $ 1,838
Savings and loan............ 12,862 11,060 10,259 36,702 14,666
------- -------- -------- --------- ---------
$17,554 $ 14,617 $ 16,234 $ 37,597 $ 16,504
======= ======== ======== ========= =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year
for:
Interest................ $ 7,877 $ 9,793 $ 36,081 $ 42,554 $ 39,904
Income taxes............ 36 94 1,477 530 5,792
SUPPLEMENTAL DISCLOSURES OF
NONCASH INVESTING AND
FINANCING ACTIVITIES :
Land acquisitions financed
by purchase money trust
deeds.................... $ -- $ -- $ 635 $ 9,444 $ 12,064
Change in unrealized
losses on investment
securities available for
sale, net of deferred
taxes 94 51 41 1,537 (1,616)
Loans receivable fore-
closed on, net........... 10 1,239 3,778 4,106 3,990
Reclass of mortgage backed
securities held to matu-
rity to investment secu-
rities available for
sale..................... -- -- -- 48,880 --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. COMPANY ORGANIZATION AND OPERATIONS
Standard Pacific Corp., a Delaware corporation (hereinafter referred to as
the "Company"), is a regional builder of single-family homes with operations
throughout the major metropolitan areas of California and Texas. Approximately
79 percent of the Company's home deliveries (including the unconsolidated
joint ventures) were in California for the year ended December 31, 1996. There
have been periods of time in California where economic growth has slowed and
the average sales price of homes in certain areas in California in which the
Company does business have declined. There can be no assurance that home sales
prices will not decline further in the future.
The Company's business is affected by national, world and local economic
conditions and events and the effect such conditions and events have on the
markets it serves in California and Texas and in particular by the level of
mortgage interest rates and consumer confidence in those regions. The Company
cannot predict whether interest rates will be at levels attractive to
prospective homebuyers. If interest rates increase, and in particular mortgage
interest rates, the Company's operating results could be adversely impacted.
The Company also has an office furniture manufacturing subsidiary, Panel
Concepts, Inc. which is a wholly-owned subsidiary. The consolidated financial
statements also include Standard Pacific Savings, F.A. ("Savings"), a
federally chartered savings and loan institution which has been treated as a
discontinued operation (See Note 12).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--HOMEBUILDING, CORPORATE AND
MANUFACTURING
a. Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Investments in unconsolidated joint
ventures in which the Company has less than a controlling interest are
accounted for using the equity method.
In the opinion of management, the consolidated financial statements reflect
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position of the Company as of March 31, 1997, and
its results of operations and cash flows for the three month periods ended
March 31, 1997 and 1996.
b. Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
c. Cash and Equivalents
For purposes of the consolidated statements of cash flows, cash and
equivalents include cash on hand, demand deposits, and for Savings, amounts
due from banks, federal funds sold and overnight deposits and all highly
liquid short-term investments, including interest bearing securities purchased
with a remaining maturity of three months or less.
d. Investment Securities
Financial Accounting Standards Board Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" requires the Company to
carry the portion of their investments in debt and equity securities they do
not intend to hold to maturity at their market values. Securities classified
as available-for-sale will be carried at their market values with changes in
the market values recorded as a separate component of stockholders' equity,
net of the income tax effect; securities classified as trading securities will
be carried at their market values with changes in the market values recorded
as a component of income, and; securities classified as held-to-maturity will
be recorded at amortized cost.
e. Real Estate and Manufacturing Inventories
For real estate under development the Company capitalizes direct carrying
costs, including interest, property taxes and related development costs. Field
construction supervision and related direct overhead and certain selling costs
are also included in the capitalized cost of real estate inventories. General
and administrative costs are expensed as incurred.
Prior to December 31, 1995, each real estate project was carried at the
lower of its cost or its estimated net realizable value. Estimated net
realizable value was deemed to be the undiscounted estimated future cash flows
from the project, including relevant carrying costs such as interest.
Effective December 31, 1995, the Company adopted the provisions of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of" (FAS 121). FAS 121 changed
the method of valuing long-lived assets, including real estate inventories,
whereby long-lived assets that are expected to be held and used in operations
are to be carried at the lower of cost or, if impaired, the fair value of the
asset, rather than the net realizable value. Long-lived assets to be disposed
of should be reported at the lower of carrying amount or fair value less cost
to sell. In evaluating long-lived assets held for use, an impairment loss is
recognized if the sum of the expected future cash flows (undiscounted and
without interest charge) is less than the carrying amount of the asset. Once a
determination has been made that an impairment loss should be recognized for
real estate inventories expected to be held and used, various assumptions and
estimates are used to determine fair value including, among others, estimated
costs of construction, development and marketing, sales absorption rates,
anticipated sales prices and carrying costs. The calculation of the impairment
loss is based on estimated future cash flows which are calculated to include
an appropriate return and interest. The estimates used to determine the
impairment adjustment could change in the near term as the economy in the
Company's key areas change.
The effect of the adoption of FAS 121, plus the effects of continued adverse
trends experienced during 1995 in certain of the geographic markets in which
the Company operates, on the values of certain of the Company's land holdings,
particularly in San Diego county, resulted in a pretax noncash charge of $46.5
million for the year ended December 31, 1995. These adverse developments
included, among other things, record high foreclosure rates, declines in
median home prices and continued anemic economic recovery.
F-9
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Manufacturing inventories are stated at the lower of cost (first-in, first-
out) or market. Cost includes materials, labor and manufacturing overhead.
f. Capitalization of Interest
The Company follows the practice of capitalizing interest on real estate
inventories during the period of development. Interest capitalized as a cost
of real estate under development is included in cost of sales as related units
are sold. The following is a summary of interest capitalized and expensed for
the following periods:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- --------------------------
CORPORATE AND HOMEBUILDING
OPERATIONS 1997 1996 1996 1995 1994
-------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total interest incurred during the
period............................. $ 4,013 $ 4,839 $16,687 $19,200 $19,600
Less: Interest capitalized as a cost
of real estate under development... 2,540 3,183 9,545 17,340 19,600
------- ------- ------- ------- -------
Interest expense.................... $ 1,473 $ 1,656 $ 7,142 $ 1,860 $ --
======= ======= ======= ======= =======
Interest previously capitalized as a
cost of real estate under
development, included in
homebuilding cost of sales......... $ 4,484 $ 3,078 $16,920 $27,638(1) $33,069
======= ======= ======= ======= =======
Capitalized interest in ending in-
ventories.......................... $23,198 $32,622 $25,142 $32,517 $54,373
======= ======= ======= ======= =======
</TABLE>
- --------
(1) Excludes $11.6 million of interest included in the FAS 121 adjustment.
g. Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization is
recorded using the straight-line method over the estimated useful lives of the
assets.
h. Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
statement requires a liability approach for measuring deferred taxes based on
temporary differences between the financial statement and tax bases of assets
and liabilities existing at each balance sheet date using enacted tax rates
for years in which taxes are expected to be paid or recovered.
i. Warranty Costs
Estimated future warranty costs are charged to cost of sales in the period
when the revenues from home closings are recognized.
j. Revenue Recognition
Sales of residential housing are recorded after construction is completed,
required down payments are received and title passes. Manufacturing sales are
recorded as of the date shipments are made to customers.
F-10
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
k. Earnings Per Share
Earnings per share, representing primary and fully diluted amounts (which
are not materially different), are based on the weighted average number of
common and equivalent shares outstanding during the year. Equivalent shares
were determined by using the treasury stock method, which assumes that all
dilutive securities were exercised and that the proceeds received were applied
to repurchase outstanding shares at the average market prices during each
year. The weighted average number of common and equivalent shares amounted to
29,705,032 and 30,064,232 for the three month periods ended March 31, 1997 and
1996, respectively, and 30,011,595, 30,488,676 and 30,674,349 for the three
years ended December 31, 1996, respectively. Equivalents were anti-dilutive
for the year ended December 31, 1995.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted by the Company
on December 31, 1997. At that time, the Company will be required to change the
method used to compute earnings per share and to restate all prior periods
presented. Under the new requirements, primary earnings per share will be
replaced with basic earnings per share. Basic earnings per share excludes the
dilutive effect of common stock equivalents, including stock options. Had
earnings per share been calculated under the provisions of the new standard,
both basic and diluted earnings per share would be the same as net income
(loss) per share as reflected in the accompanying consolidated statements of
operations for all periods presented.
l. Stock-Based Compensation
The Company accounts for its stock-based compensation plan using the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25).
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). Under the provisions of FAS 123, companies can elect
to account for stock-based compensation plans using a fair-value-based method
or continue measuring compensation expense for those plans using the intrinsic
value method prescribed in APB 25. FAS 123 requires that companies electing to
continue using the intrinsic value method must make pro forma disclosures of
net income and earnings per share as if the fair-value-based method of
accounting had been applied.
Effective December 31, 1996, the Company adopted FAS 123 for financial
statement disclosure purposes only and accordingly, the adoption had no impact
on the Company's results of operations or financial position for the year then
ended.
m. Reclassifications
Effective January 1, 1997, the Company changed its presentation of selling
costs in its consolidated statements of operations whereby selling costs are
now combined with general and administrative expenses. This presentation is
consistent with industry practice. Previously, the Company included these
costs as a component of cost of sales. The Company reclassified the prior
period amounts to conform with the 1997 presentation.
Additionally, certain other items in prior period financial statements have
been reclassified to conform with current year presentation.
F-11
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
Summarized financial information related to the Company's two joint ventures
accounted for by the equity method are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1996 1995
------- -------
<S> <C> <C>
Assets:
Cash...................................................... $ 545 $ 1,583
Real estate in process of development and completed model
homes.................................................... 9,809 12,692
Other assets.............................................. 3,355 401
------- -------
$13,709 $14,676
======= =======
Liabilities and Equity:
Accounts payable and accrued expenses..................... $ 3,409 $ 941
Construction loans payable................................ 7,153 --
Equity.................................................... 3,147 13,735
------- -------
$13,709 $14,676
======= =======
</TABLE>
The Company's share of equity shown above is $843,000 and $4.6 million at
December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues............................................ $32,168 $46,166 $30,558
Cost of revenues.................................... 23,817 32,881 22,608
------- ------- -------
Net earnings of joint ventures...................... $ 8,351 $13,285 $ 7,950
======= ======= =======
</TABLE>
Generally, the Company's share of earnings in the two joint ventures
detailed above is 50 percent.
Additionally, the Company is party to a joint venture whose sole purpose is
to develop finished lots whereby the Company will purchase the lots from the
joint venture to construct homes thereon. The Company does not anticipate
recording any income or loss from this joint venture and accordingly, the
tables above do not reflect the results of operations or financial condition
of this particular joint venture.
4. UNSECURED NOTES PAYABLE AND TRUST DEED NOTES PAYABLE
a. Notes Payable to Banks
In December 1996, the Company completed a syndication of its principal
revolving credit facility whereby the total unsecured commitment was increased
to $200 million and additional lenders were added to the facility. In
connection with the syndication the Company combined its separate bank
revolver and term loan facilities into a single larger facility. The facility
has a current maturity date of July 31, 1999. The facility includes covenants
which require, among other things, the maintenance of certain amounts of
tangible stockholders' equity, as defined, and the maintenance of debt-to-
equity ratios, as defined. The facility also contains provisions which may, in
certain circumstances, limit the amount the Company may borrow under the
credit facility. At December 31, 1996, the Company had
F-12
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
borrowings of $57.3 million outstanding under this revolving credit
arrangement and had approximately $140 million of additional borrowing
capacity available under the provisions of the agreement. Interest rates
charged under this facility primarily include IBOR and prime rate pricing
options. In addition to fees charged on the commitment and unused portion of
the facility, this line of credit facility also requires the Company to
maintain a compensating balance of one percent of a portion of the commitment
amount or pay certain fees in lieu of the compensating balance.
In conjunction with the syndication discussed above, the Company repaid in
full the principal balances on two separate bank term loans in the fourth
quarter of 1996.
As of December 31, 1996, and throughout the year, the Company was in
compliance with the covenants of its lending agreements.
b. Trust Deed Notes Payable
At December 31, 1996 and 1995, trust deed notes payable primarily consist of
trust deeds on land purchases.
c. Borrowings and Maturities
The following summarizes the borrowings during the three years ended
December 31, 1996 for the unsecured notes payable and trust deed notes
payable:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Maximum borrowings outstanding during year at
month end..................................... $91,299 $101,947 $137,730
Average outstanding balance during the year.... $78,552 $ 86,377 $119,988
Weighted average interest rate for the year.... 6.8% 7.5% 6.6%
Weighted average interest rate on borrowings
outstanding at year end....................... 7.1% 6.8% 7.7%
</TABLE>
Maturities of the trust deed notes payable and the 10 1/2% Senior Notes (see
Note 5 below) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1997............................................................. $ 24,467
1998............................................................. 20,000
1999............................................................. 20,000
2000............................................................. 40,000
--------
$104,467
========
</TABLE>
5. 10 1/2% SENIOR NOTES DUE 2000
In 1993, the Company issued $100 million principal amount of its 10 1/2%
Senior Notes due March 1, 2000 (the "Notes"). Interest is due and payable on
March 1 and September 1 of each year. The Notes are not redeemable at the
option of the Company prior to maturity. The Company is required to make
annual mandatory sinking fund payments sufficient to retire 20 percent of the
original aggregate principal amount of the Notes ($20 million per year)
commencing on March 1, 1997, at a redemption price of 100 percent of the
principal amount, with the balance of the Notes ($40 million) retired on March
1, 2000.
F-13
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Notes are senior unsecured obligations of the Company. The Company will
be obligated to make an offer to purchase a portion of the Notes in the event
of the Company's failure to maintain a minimum consolidated net worth, as
defined, and under certain other circumstances. In addition, the Notes contain
other restrictive covenants which, among other things, impose certain
limitations on the ability of the Company to (i) incur additional
indebtedness, (ii) create liens, (iii) make restricted payments, as defined,
and (iv) sell assets. As of December 31, 1996, the Company was in compliance
with the covenants.
6. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate:
Cash and Equivalents--The carrying amount is a reasonable estimate of
fair value. These assets primarily consist of short term investments and
demand deposits.
Investment Securities Held to Maturity--These investments consist
primarily of U.S. government and corporate debt securities which are
publicly traded. The fair value of these issues is based on their quoted
market prices at year end.
Revolving Credit Facilities--The carrying amounts of the revolving credit
obligations approximate market value because of the frequency of repricing
the borrowings (usually at 14 to 90 day maturities).
Term Loans Payable--For 1995, these notes payable were set to mature at
various dates, however, borrowings typically reprice every three months or
less. Consequently, the carrying value approximated market value for 1995.
These term loans were paid off during 1996, therefore, no balance is
reflected as of the year ended December 31, 1996.
Trust Deed Notes Payable--These notes are primarily for purchase money
deeds of trust on land acquired. These notes generally have maturities
ranging from one to two years. The rates of interest paid on these notes
approximate the current rates available for secured real estate financing
with similar terms and maturities.
10 1/2 Percent Senior Notes Due 2000--This issue is publicly traded on
the New York Stock Exchange. Consequently, the fair value of this issue is
based on its quoted market price at year end.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------
1996 1995
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and equivalents.................. $ 5,975 $ 5,975 $ 895 $ 895
Investment securities held to maturi-
ty................................... 5,329 5,379 5,410 5,457
Financial Liabilities:
Revolving credit facilities........... $ 57,300 $ 57,300 $ 7,500 $ 7,500
Term loans payable.................... -- -- 41,000 41,000
Trust deed notes payable.............. 4,467 4,467 14,854 14,854
10 1/2 percent senior notes due 2000.. 100,000 103,375 100,000 103,125
</TABLE>
F-14
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under noncancelable operating leases.
Generally, the Company is required to pay taxes and insurance and maintain the
assets under such operating leases. Future minimum rental payments on
operating leases having an initial term in excess of one year as of December
31, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $1,452
1998.............................................................. 1,312
1999.............................................................. 887
2000.............................................................. 473
2001.............................................................. 354
Thereafter........................................................ 78
------
Subtotal........................................................ 4,556
Less--Sublease income............................................. (481)
------
Net rental obligations.......................................... $4,075
======
</TABLE>
Rent expense under noncancelable operating leases for the three years ended
December 31, 1996 was approximately $1.4 million, $1.4 million and $1.3
million, respectively.
The Company and certain of its subsidiaries are parties to claims and
litigation proceedings arising in the normal course of business. Although the
legal responsibility and financial impact with respect to such claims and
litigation cannot presently be ascertained, the Company does not believe that
these matters will result in the payment by the Company of monetary damages,
net of any applicable insurance proceeds, that, in the aggregate, would be
material in relation to the consolidated financial position of the Company. It
is reasonably possible that the reserves provided for by the Company with
respect to such claims and litigation could change in the near term.
8. INCOME TAXES
The Company's provision (benefit) for income taxes includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------ -------- -------
<S> <C> <C> <C>
Current:
Federal.......................................... $1,394 $ 3,285 $ 5,988
State............................................ 418 991 1,787
------ -------- -------
1,812 4,276 7,775
------ -------- -------
Deferred:
Federal.......................................... 3,254 (14,731) (2,138)
State............................................ 968 (4,451) (644)
------ -------- -------
4,222 (19,182) (2,782)
------ -------- -------
Total Provision (Benefit).......................... $6,034 $(14,906) $ 4,993
====== ======== =======
</TABLE>
F-15
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The deferred income tax provision resulted from the following temporary
differences in the recognition of revenues and expenses for income tax and
financial reporting purposes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------ -------- -------
<S> <C> <C> <C>
Inventory adjustments............................ $4,792 $(18,966) $(2,024)
Financial accruals............................... (720) (638) (1,040)
Decrease in operating loss carry forward......... -- -- 754
Other............................................ 150 422 (472)
------ -------- -------
$4,222 $(19,182) $(2,782)
====== ======== =======
</TABLE>
The components of the Company's deferred income tax asset (liability) as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Inventory adjustments........................................ $12,093 $13,968
Financial accruals........................................... 4,144 3,478
Other........................................................ 244 159
------- -------
$16,481 $17,605
======= =======
</TABLE>
At December 31, 1996, the Company has recorded a consolidated deferred tax
asset of approximately $18.1 million reflecting the benefit created primarily
as a result of the $46.5 million noncash charge taken during 1995 related to
the impairment of long-lived assets. A significant portion of this asset's
realization is dependent upon the Company's ability to generate sufficient
taxable income in future years. Although realization is not assured,
management believes it is more likely than not that the net deferred tax asset
will be realized. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable
income are reduced or if tax rates are lowered.
The effective tax rate differs from the Federal statutory rate of 34 percent
due to the following items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Financial income (loss) before income taxes.... $15,035 $(37,289) $12,169
======= ======== =======
Provision (benefit) for income taxes at statu-
tory rate..................................... $ 5,112 $(12,678) $ 4,137
Increases (decreases) in tax resulting from:
State income taxes, net...................... 923 (2,288) 747
Other........................................ (1) 60 109
------- -------- -------
Provision (benefit) for income taxes........... $ 6,034 $(14,906) $ 4,993
======= ======== =======
Effective tax (benefit) rate................... 40.1% (40.0)% 41.0%
======= ======== =======
</TABLE>
F-16
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. STOCK OPTION PLAN
In 1991, the Company adopted the 1991 Employee Stock Incentive Plan (the
"Plan") pursuant to which officers, directors and employees of the Company are
eligible to receive options to purchase common stock of the Company. Under the
Plan the maximum number of shares of Company stock that may be issued pursuant
to awards granted is one million. On May 13, 1997, the shareholders of the
Company approved the 1997 Stock Incentive Plan (the "1997 Plan"). Under the
1997 Plan, the maximum number of shares of Company stock that may be issued is
two million.
Options are typically granted to purchase shares at prices equal to the fair
market value of the shares at the date of grant. The options typically vest
over a one to five year period and are generally exercisable at various dates
over one to 10 year periods. When the options are exercised, the proceeds are
credited to equity along with the related income tax benefits, if any.
The following is a summary of the transactions relating to the Plan for the
years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Options, beginning of
year................... 721,590 $9.73 771,990 $9.80 835,250 $ 9.73
Granted................. 365,000 6.35 20,000 5.75 50,000 11.38
Exercised............... -- -- (9,000) 6.88 (16,010) 7.65
Canceled................ (158,000) 9.48 (61,400) 9.76 (97,250) 10.44
-------- ----- ------- ----- ------- ------
Outstanding, end of
year................... 928,590 $6.30 721,590 $9.73 771,990 $ 9.80
======== ===== ======= ===== ======= ======
Options exercisable at
end of year............ 588,590 671,590 517,840
======== ======= =======
Options available for
future grant........... 7,775 214,775 173,375
======== ======= =======
</TABLE>
During the fourth quarter of 1996 the Company repriced 326,100 options which
were previously granted to nonexecutive employees. The new price represents
the fair market value of the shares at the date of repricing. Additionally,
the weighted average exercise price for all options outstanding as of December
31, 1996 reflects the repriced options at their new exercise price.
The following information is provided pursuant to the requirements of FAS
123.
The fair value of each option granted during 1996 is estimated using the
Black--Scholes option-pricing model on the date of grant using the following
weighted average assumptions:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Dividend yield............................................. 2.0% 2.1%
Expected volatility........................................ 46.30% 53.46%
Risk-free interest rate.................................... 6.12% 6.70%
Expected life.............................................. 5 years 5 years
</TABLE>
F-17
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The 928,590 options outstanding as of December 31, 1996 have exercise prices
between $5.38 and $13.75, with a weighted average exercise price of $6.30 and
a weighted average remaining contractual life of 6.85 years. As of December
31, 1996, 588,590 of these options are exercisable with a weighted average
exercise price of $6.27.
During the years ended December 31, 1996 and 1995, no compensation expense
was recognized related to the stock options granted, however, had compensation
cost been determined consistent with FAS 123 for the Company's 1996 and 1995
grants for its stock-based compensation plan, the Company's net income (loss),
and net income (loss) per common and equivalent share for the years ended
December 31, 1996 and 1995 would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995
--------------------- ---------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net income (loss)............... $8,393 $7,619 $(27,363) $(27,394)
Net income (loss) per common
share.......................... $ .28 $ .25 $ (.90) $ (.90)
</TABLE>
The effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts.
10. STOCKHOLDER RIGHTS PLAN AND COMMON STOCK REPURCHASE PLAN
In connection with the Merger, the Company adopted a stockholder rights
agreement (the "Agreement"). Under the Agreement, one right will be granted
for each share of the Company's outstanding common stock. Each right entitles
the holder, in certain takeover situations, as defined, and after paying the
exercise price (currently $40), to purchase Company common stock having a
market value equal to two times the exercise price. Also, if the Company is
merged into another corporation, or if 50 percent or more of the Company's
assets are sold, the rightholders may be entitled, upon payment of the
exercise price, to buy common shares of the acquiring corporation at a 50
percent discount from the then current market value. In either situation,
these rights are not available to the acquiring party. However, these exercise
features will not be activated if the acquiring party makes an offer to
acquire all of the Company's outstanding shares at a price which is judged by
the Board of Directors to be fair to all Company stockholders. The rights may
be redeemed by the Company under certain circumstances at the rate of $.01 per
right. The rights will expire on December 31, 2001, unless earlier redeemed or
exchanged.
In July 1995, the Board of Directors of the Company authorized the
repurchase of up to $10 million of the Company's common stock. In January 1997
the Board increased the repurchase limit to $20 million. For the year ended
December 31, 1996, the Company repurchased 430,300 shares of its common stock
for an aggregate price of $2.3 million. In connection with the common stock
repurchase plan, the Company has repurchased an aggregate amount of
approximately $6.2 million through the year ended December 31, 1996.
11. INDUSTRY SEGMENT INFORMATION
Included as an integral part of these Consolidated Financial Statements is
the Selected Financial Information and the Selected Balance Sheet Information
tables contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations in the accompanying Prospectus Supplement
for the Company's significant operating segments: residential housing and
corporate and manufacturing. Capital expenditures and depreciation and
amortization expenses during 1996, 1995 and 1994 were not material.
F-18
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. DISCONTINUED OPERATIONS
The Company's Board of Directors adopted a plan of disposition for the
Company's savings and loan subsidiary in May 1997. Pursuant to the plan, the
Company has entered into a definitive agreement to sell substantially all of
Savings' mortgage loan portfolio and has entered into a non-binding letter of
intent to sell the remainder of Savings' business, including Savings' charter.
The letter of intent is subject to the completion of the due diligence on
behalf of the purchaser, completion of a definitive sale agreement and
approval of the transaction by the Office of Thrift Supervision. The proceeds
from the sale of the mortgages will be used first to pay off substantially all
of the outstanding balance of Federal Home Loan Bank advances with the
remaining amount to be temporarily invested until the savings deposits are
sold along with Savings' remaining assets. Savings has been accounted for as a
discontinued operation and the results of its operations have been segregated
in the accompanying consolidated statements of operations. Management
currently estimates that both the disposition of Savings under the plan and
the operating results of Savings for the period through the disposition will
not result in a significant gain or loss to the Company.
As a consequence of the decision to dispose of Savings the assets and
liabilities of this discontinued operation have been classified in the
consolidated balance sheets as "Net assets of discontinued operations."
Discontinued operations have not been segregated in the consolidated
statements of cash flows. The notes to consolidated financial statements have
been revised, as necessary, to reflect the change in reporting due to
discontinued operations.
Interest income from these discontinued operations were $20,072,000,
$25,805,000 and $25,863,000 for the years ended December 31, 1996, 1995 and
1994, respectively, and $4,514,000 and $5,312,000 for the three month periods
ended March 31, 1997 and 1996, respectively.
The components of net assets of discontinued operations included in the
consolidated balance sheets at December 31, 1996 and 1995, and March 31, 1997,
are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, -----------------
1997 1996 1995
------------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and equivalents............................ $ 12,862 $ 10,259 $ 36,702
Investment securities available for sale........ 43,686 42,401 28,635
Mortgage notes receivable and accrued interest,
net............................................ 186,384 199,135 269,128
Property and equipment, at cost, net of
accumulated depreciation of $869 and $976,
respectively................................... 191 227 266
Real estate acquired in settlement of loans,
net............................................ 376 2,079 2,704
Deferred income taxes........................... 1,495 1,581 3,825
Investment in FHLB stock........................ 8,087 7,958 7,500
Other assets.................................... 1,266 1,633 1,894
-------- -------- --------
Total assets--savings and loan................ $254,347 $265,273 $350,654
-------- -------- --------
LIABILITIES
Savings accounts................................ $131,168 $132,813 $157,542
FHLB advances................................... 95,000 109,000 150,000
Securities sold subject to agreements to
purchase....................................... 5,085 -- 15,016
Accounts payable and accrued expenses........... 1,970 2,458 4,873
-------- -------- --------
Total liabilities--savings and loan........... 233,223 244,271 327,431
-------- -------- --------
Net assets of discontinued operations........... $ 21,124 $ 21,002 $ 22,223
======== ======== ========
</TABLE>
F-19
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS PRESENTED IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. RESULTS OF QUARTERLY OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
1996:
Sales and revenues......... $65,581 $107,156 $109,828 $136,609 $ 419,174
Income from continuing
operations before taxes... 953 3,682 4,566 5,834 15,035
Income (loss) from
discontinued operations,
net of income taxes....... 2 13 (728) 105 (608)
Net income................. $ 573 $ 2,211 $ 2,025 $ 3,584 $ 8,393
======= ======== ======== ======== =========
Income (loss) per share
from continuing
operations................ $ 0.02 $ 0.07 $ 0.09 $ 0.12 $ 0.30
Income (loss) per share
from discontinued
operations, net of the
effect of income taxes.... -- -- (0.02) -- (0.02)
------- -------- -------- -------- ---------
Net income per share....... $ 0.02 $ 0.07 $ 0.07 $ 0.12 $ 0.28
======= ======== ======== ======== =========
1995:
Sales and revenues......... $70,498 $ 83,310 $103,206 $104,426 $ 361,440
Income from continuing
operations before taxes... 2,287 2,692 2,389 (44,657) (37,289)
(Loss) from discontinued
operations, net of income
taxes..................... (235) (370) (1,906) (2,469) (4,980)
Net income................. $ 1,101 $ 1,212 $ (476) $(29,200) $( 27,363)
======= ======== ======== ======== =========
Income (loss) per share
from continuing
operations................ $ 0.05 $ 0.05 $ 0.05 $ (0.88) $ (0.73)
(Loss) per share from
discontinued operations,
net of the effect of
income taxes.............. (0.01) (0.01) (0.07) (0.08) (0.17)
------- -------- -------- -------- ---------
Net income (loss) per
share..................... $ 0.04 $ 0.04 $ (0.02) $ (0.96) $ (0.90)
======= ======== ======== ======== =========
</TABLE>
F-20
