<PAGE>
FILED PURSUANT TO RULE 424(B)(2)
REGISTRATION NO. 33-45271
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 12, 1997) [LOGO
$100,000,000 OF STANDARD PACIFIC CORP.]
STANDARD PACIFIC CORP.
8 1/2% SENIOR NOTES DUE 2007
The 8 1/2% Senior Notes Due 2007 (the "Notes") are being offered (the
"Offering") by Standard Pacific Corp. (the "Company"). The Notes will mature
on June 15, 2007. Interest on the Notes will be payable semiannually on June
15 and December 15 of each year, commencing December 15, 1997. The Notes are
redeemable at the option of the Company, in whole or in part, at any time on
or after June 15, 2002 at the redemption prices set forth herein plus accrued
and unpaid interest, if any, to the date of redemption.
In the event of a Change of Control (as defined), the Company is required to
offer to repurchase all of the Notes at a price equal to 101 percent of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any,
to the date of repurchase. In addition, the Company will, under certain
circumstances, be obligated to make an offer to purchase a portion of the
Notes, and pay accrued interest to the date of purchase, in the event of the
Company's failure to maintain a minimum Consolidated Net Worth (as defined) or
in the event of certain asset sales. See "Description of Notes--Certain
Covenants."
The Notes are senior unsecured obligations of the Company and will rank pari
passu with the Company's other existing and future senior unsecured
indebtedness. As of March 31, 1997, the aggregate amount of senior
indebtedness of the Company, after giving effect to the application of net
proceeds from the sale of the Notes offered hereby, would have been
approximately $80.0 million (excluding indebtedness relating to discontinued
operations, secured indebtedness, trade payables and the Notes offered
hereby). The Notes are effectively subordinated to all existing and future
indebtedness, including trade payables, of the Company's subsidiaries, which
indebtedness totaled approximately $12.6 million at March 31, 1997 (excluding
indebtedness relating to discontinued operations). Although the Indenture
contains limitations on the incurrence of Indebtedness (as defined), the
Company and its subsidiaries could incur significant additional Indebtedness,
including pari passu senior indebtedness. See "Capitalization" and
"Description of Notes--Certain Covenants."
The Company has made application to list the Notes on the New York Stock
Exchange. The Company's Common Stock is traded on the New York Stock Exchange
and on the Pacific Stock Exchange under the symbol "SPF."
The Notes will be represented by a Global Security (as defined) registered in
the name of the nominee of The Depository Trust Company, which will act as the
depositary (the "Depositary"). Beneficial interests in the Global Security
will be shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants. Except as described herein,
Notes in definitive form will not be issued. See "Description of Notes--Book-
Entry System."
SEE "RISK FACTORS" BEGINNING ON PAGE S-9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(1)(2)
<S> <C> <C> <C>
Per Note................. 99.306% 2.125% 97.181%
Total.................... $99,306,000 $2,125,000 $97,181,000
- -------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from June 17, 1997.
(2) Before deducting expenses payable by the Company, estimated to be
approximately $250,000.
The Notes are offered subject to receipt and acceptance by the Underwriters,
to prior sale and to the Underwriters' right to reject any order in whole or
in part and to withdraw, cancel or modify the offer without notice. It is
expected that delivery of the Notes will be made through the facilities of the
Depository Trust Company on or about June 17, 1997.
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANCAMERICA SECURITIES, INC.
The date of this Prospectus Supplement is June 12, 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
PURCHASES OF THE NOTES TO STABILIZE THEIR MARKET PRICE AND PURCHASES OF THE
NOTES TO COVER ANY SHORT POSITION IN THE NOTES MAINTAINED BY THE UNDERWRITERS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
This summary is qualified in its entirety by the detailed information and
financial statements appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus or incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus. Certain capitalized terms used
herein are defined in the Prospectus or elsewhere in this Prospectus
Supplement.
THE COMPANY
Standard Pacific Corp. (the "Company") designs, constructs and sells high
quality, single-family homes targeted primarily to the move-up buyer. The
Company is a leading builder in California where it has operated for over 30
years and also has established operations in Texas. The Company is
geographically diversified in these markets with operations in Orange,
Riverside, San Bernardino, San Diego and Ventura Counties in southern
California, in the San Francisco Bay area of northern California and in
Houston, Dallas and Austin, Texas. For the 12 months ended March 31, 1997, the
Company had revenues and EBITDA of $470.3 million and $49.0 million,
respectively.
The Company believes it is well-positioned to benefit from the recovery in
the California housing market as a result of its strong land position and local
market knowledge. California is the third largest housing market in the United
States and is the largest, and one of the most diversified, states in terms of
economic activity. Employment growth historically has been an indicator for the
economy and housing demand. In 1996, California non-farm employment increased
2.8 percent, the largest increase in the state in the 1990's, compared to a 2.1
percent increase in the United States during the same period. This growth has
continued into 1997, with total non-farm employment for the 12 months ended
March 31, 1997 increasing 3.0 percent. Single-family building permits issued in
California in the first quarter of 1997 totaled approximately 16,900, an 8.3
percent increase from the approximately 15,600 permits issued in the same
period in 1996.
The improving California economy has resulted in increased demand for the
Company's homes. During 1996, the Company's deliveries of homes increased 13
percent to 1,623 units and its homebuilding revenues increased 15 percent to
$399.9 million. During the first quarter of 1997, the Company's deliveries
increased 36 percent to 393 units and its homebuilding revenues increased 81
percent to $111.3 million, as compared to the same period in 1996. In addition,
at March 31, 1997, the Company's backlog was 753 units, or $240.6 million,
compared to 571 units, or $147.5 million, at March 31, 1996.
The Company believes that its long history of building high quality homes in
California and Texas and its conservative operating strategy have enabled the
Company to successfully weather cyclical downturns and position the Company to
capitalize on the improving California market. The main elements of the
Company's strategy include:
Focus on Broad Move-Up Market. The Company concentrates on the construction
of single-family homes for use as primary residences by move-up buyers. The
Company believes that the market for primary residences is more resistant to
economic downturns than the market for second or vacation homes. The average
selling price of the Company's homes over the 12 months ended March 31, 1997
was approximately $275,000. Currently, the Company expects to concentrate its
efforts on acquiring land that is suitable for the construction and sale of
homes generally in the price range of $150,000 to $400,000, which represents a
broad market segment in the Company's market areas. The Company also constructs
and sells homes in the $400,000 to $800,000 price range in certain of its
California markets.
S-3
<PAGE>
Reputation for High Quality, Single-Family Homes. The Company believes that
it has an established reputation for providing high quality homes. The Company
prides itself on its ability to design unique and attractive homes and provide
its customer with a wide selection of options. The Company believes that its
long history of providing high quality homes has resulted in many repeat buyers
and word-of-mouth sales. The Company also uses extensive marketing to sell its
homes, and its homes are generally sold by its own staff of sales personnel
through the use of model homes which are usually maintained at each project
site. The Company also makes extensive use of advertisements in local
newspapers, illustrated brochures, billboards and on-site displays.
Conservative Operating Strategy. The Company customarily acquires unimproved
land zoned for residential use which appears suitable for the construction of
50 to 300 homes in increments of 10 to 30 homes. The Company generally
purchases land only when it projects commencement of construction within a
relatively short time period. The number of homes built in the first increment
of a project is based upon internal market studies. The timing and size of
subsequent increments depend to a large extent upon sales rates experienced in
the earlier increments. By developing projects in increments, the Company has
been able to respond to local market conditions and control the number of its
completed and unsold homes. Additionally, an increasing percentage of the
Company's lots are controlled through joint ventures. The Company uses joint
ventures for certain land development projects that have long lead times or are
of significant size requiring substantial capital investments.
Strong Land Position. The Company has been operating in California for over
30 years and has established an excellent reputation with land owners. The
Company believes that its long standing relationships with land owners and
developers in California give the Company a competitive edge in securing
quality land positions at competitive prices. In order to ensure an adequate
supply of land for future homebuilding activities, the Company generally
attempts to maintain an inventory of building sites sufficient for construction
of homes over a period of approximately three to five years. The Company
believes that its 6,752 owned or controlled building sites at March 31, 1997,
in addition to any land sites for which the Company may enter into
negotiations, will be sufficient for its operations over this period.
Geographic Diversification. The Company has focused its California
homebuilding activities in Orange, Riverside, San Bernardino, San Diego and
Ventura Counties in southern California, and in the San Francisco Bay area of
northern California. Additionally, the Company has projects in the Houston,
Dallas and Austin markets in Texas. The Company's policy of diversifying among
different geographic areas has enabled it to reduce the impact of adverse local
economic conditions. Additionally, the Company believes that it has significant
opportunities to expand in its existing markets and to enter new geographic
markets.
Control of Overhead and Operating Expenses. Throughout its history, the
Company has sought to minimize overhead expenses in an effort to control costs
and to be more flexible in responding to the cyclical nature of its business.
The Company strives to control its overhead costs by centralizing certain of
its administrative functions and by limiting the number of middle level
management positions.
Experienced Management and Decentralized Operations. The Company's senior
corporate and division operating managers average over 20 years of experience
in the homebuilding business. Each homebuilding division is run by a local
manager. One of the essential criteria in the selection of a divisional manager
is the individual's in-depth familiarity with the geographic areas within which
the division operates. The decisions regarding selection of parcels of land for
purchase and development are made in conjunction with the officers of the
Company, and thereafter, each manager conducts the operations of the division
relatively autonomously as a separate profit center.
The Company also manufactures and markets high quality office furniture
systems through its subsidiary, Panel Concepts, Inc. ("Panel Concepts").
S-4
<PAGE>
RECENT DEVELOPMENTS
Talega Joint Venture. The Company recently entered into a joint venture with
affiliates of Catellus Development Corporation and Starwood Capital Group
L.L.C. to acquire and develop a 3,470-acre masterplanned community located in
south Orange County (the "Talega Joint Venture"). The Talega Joint Venture
plans to develop and deliver in phases finished lots for up to approximately
4,900 attached and detached homes, as well as two championship golf courses,
certain community amenities and commercial and industrial components. As a one-
third participant in this long-term project, the Company is obligated to invest
up to $20.0 million in the project and will receive certain rights of first
offer entitling the Company to purchase up to approximately 1,000 finished lots
from the joint venture for construction and sale of homes by the Company.
Disposition of Standard Pacific Savings. The Company's Board of Directors
recently adopted a plan of disposition for the Company's savings and loan
subsidiary, Standard Pacific Savings, F.A. ("Savings"). 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 ("OTS"). As a result of
the adoption of the plan of disposition, Savings has been accounted for as a
discontinued operation and the results of its operations have been segregated
in the Company's Consolidated Financial Statements included in the accompanying
Prospectus. Savings has not offered mortgage financing to the Company's home
buyers since July 1994, and the sale of Savings is not expected to have any
impact on sales of the Company's homes. 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.
S-5
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Securities Offered.................. $100,000,000 principal amount of 8 1/2%
Senior Notes Due 2007 (the "Notes").
Maturity............................ June 15, 2007.
Interest Payment Dates.............. June 15 and December 15, commencing
December 15, 1997.
Optional Redemption................. The Notes are redeemable at the option of
the Company, in whole or in part, at any
time on or after June 15, 2002 at the
redemption prices set forth herein plus
accrued and unpaid interest, if any, to
the date of redemption. See "Description
of Notes--Optional Redemption."
Offer to Purchase................... In the event of a Change of Control (as
defined), the Company is required to
offer to repurchase all of the Notes at a
price equal to 101 percent of the
aggregate principal amount thereof, plus
accrued and unpaid interest, if any, to
the date of repurchase. See "Description
of Notes--Change of Control." In
addition, the Company will, under certain
circumstances, 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
or in the event of certain asset sales.
See "Description of Notes--Certain
Covenants--Maintenance of Consolidated
Net Worth" and
""--Limitation on Asset Sales."
Ranking............................. The Notes are senior unsecured
obligations of the Company and will rank
pari passu with the Company's other
existing and future senior unsecured
indebtedness. As of March 31, 1997, the
aggregate amount of senior indebtedness
of the Company, after giving effect to
the application of the net proceeds from
the sale of the Notes offered hereby,
would have been approximately
$80.0 million (excluding indebtedness
relating to discontinued operations,
secured indebtedness, trade payables and
the Notes offered hereby). The Notes are
effectively subordinated to all existing
and future indebtedness, including trade
payables, of the Company's subsidiaries,
which indebtedness totaled approximately
$12.6 million at March 31, 1997
(excluding indebtedness relating to
discontinued operations). See
"Capitalization" and "Description of
Notes."
Certain Covenants................... The Indenture pursuant to which the Notes
will be issued imposes certain
limitations on the ability of the Company
and its Restricted Subsidiaries (as
defined) to, among other things, (i)
incur additional indebtedness, (ii)
create liens, (iii) make Restricted
Payments (as defined), (iv) sell assets,
(v) engage in transactions with
Affiliates (as defined) and (vi) permit
certain restrictions on distributions
from Restricted Subsidiaries. See
"Description of Notes--Certain
Covenants."
Market.............................. The Company has made application to list
the Notes on the New York Stock Exchange.
No assurances can be given as to the
liquidity of the trading market for the
Notes or that an active public market for
the Notes will develop.
Use of Proceeds..................... The net proceeds to be received by the
Company from the sale of the Notes
offered hereby will be used to pay
outstanding indebtedness under the
Company's unsecured revolving credit
facility (the "Revolving Credit
Facility") and for general corporate
purposes. See "Use of Proceeds."
</TABLE>
S-6
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA
The Summary Financial and Other Data set forth below have been derived from
the Company's Consolidated Financial Statements and Notes thereto contained in
the accompanying Prospectus. The financial data for the years ended December
31, 1996, 1995, and 1994 were derived from the audited consolidated financial
statements of the Company. The financial data for the quarters ended March 31,
1997 and 1996 were derived from the unaudited consolidated financial statements
of the Company. The Summary Financial and Other Data are qualified in their
entirety by, and should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Company's Consolidated Financial Statements and Notes thereto included in the
accompanying Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ----------------------------
1997 1996 1996 1995 1994
-------- -------- -------- --------- --------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE SELLING
PRICES)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
HOMEBUILDING AND CORPORATE
Revenues...................... $111,303 $ 61,584 $399,863 $ 346,263 $374,783
Cost of sales(1).............. 95,645 54,391 348,066 307,794 331,558
Non-cash charge for impairment
of long-lived assets(2)...... -- -- -- 46,491 --
-------- -------- -------- --------- --------
Gross margin.................. 15,658 7,193 51,797 (8,022) 43,225
-------- -------- -------- --------- --------
Selling, general and adminis-
trative expenses(1).......... 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(3)
Sales......................... $ 5,352 $ 3,997 $ 19,311 $ 15,177 $ 17,225
Pretax income (loss)(4)....... 455 238 2,087 (42) 969
CONSOLIDATED RESULTS
Income (loss) from continuing
operations before income
taxes(5)..................... $ 5,601 $ 953 $ 15,035 $ (37,289) $ 12,169
Income (loss) from continuing
operations................... 3,301 571 9,001 (22,383) 7,176
Net income (loss)............. 3,517 573 8,393 (27,363) 5,887
SELECTED OPERATING DATA
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 (homes).. 753 571 485 312 272
Backlog at period end (dol-
lars)......................... $240,611 $147,518 $168,674 $ 77,945 $ 83,469
</TABLE>
<TABLE>
<CAPTION>
FOUR FISCAL QUARTERS ENDED
-----------------------------------
DECEMBER 31,
MARCH 31, -------------------------
1997 1996 1995 1994
OTHER DATA --------- ------- ------- -------
<S> <C> <C> <C> <C>
Homebuilding gross margin percentage(6)... 13.4% 13.0% 11.1% 11.5%
EBITDA (7)................................ $48,988 $43,104 $38,144 $41,584
EBITDA margin percentage.................. 10.4% 10.3% 10.6% 10.6%
Interest Incurred(8)...................... $15,861 $16,687 $19,200 $19,600
ADJUSTED RATIOS(9)
Ratio of EBITDA to interest incurred...... 2.45x
Ratio of total debt to EBITDA............. 3.73x
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997 AT DECEMBER 31,
-------------------- --------------------------
AS
ADJUSTED(9) ACTUAL 1996 1995 1994
BALANCE SHEET DATA ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Real estate inventories........ $377,648 $377,648 $372,645 $367,676 $456,655
Total assets(5)................ 471,006 456,875 451,108 445,747 524,318
Total debt(5).................. 182,944 165,744 161,767 163,354 204,545
Stockholders' equity........... 261,067 261,067 260,350 257,846 291,127
</TABLE>
(1) 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.
(2) Reflects the adoption by the Company, effective December 31, 1995, of the
provisions of Financial Accounting Standards No. 121 ("FAS 121"). Prior to
December 31, 1995, each real estate project was carried at the lower of its
costs or its estimated net realizable value. 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 net realizable value.
(3) Represents operations of Panel Concepts.
(4) Excludes intercompany interest 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.
(5) In May 1997, the Company's Board of Directors adopted a plan for the
disposition of the Company's savings and loan subsidiary and, accordingly,
the Company has accounted for the savings and loan subsidiary as a
discontinued operation. See Note 12 to the Company's Consolidated Financial
Statements included in the accompanying Prospectus and "--Recent
Developments" above.
(6) The 1995 homebuilding gross margin percentage excludes the $46.5 million
non-cash charge for the adoption of FAS 121.
(7) EBITDA means earnings (loss) before taxes and discontinued operations and
before (i) interest expensed, (ii) amortization of capitalized interest
included in cost of sales, (iii) income from unconsolidated joint ventures,
(iv) depreciation and amortization and (v) impairment charges of $46.5
million for 1995 related to real estate inventories and includes income
distributions from unconsolidated joint ventures. EBITDA is a widely
accepted financial indicator of a company's availability to service debt.
However, EBITDA should not be considered as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of the Company's operating performance or as a
measure of liquidity.
(8) Interest incurred represents interest expensed and interest capitalized for
the applicable periods and excludes interest attributable to discontinued
operations.
(9) Adjusted to give effect to the Offering and the use of proceeds therefrom,
as described under "Use of Proceeds," as if the foregoing occurred at the
beginning of the period, or at March 31, 1997, as applicable.
S-8
<PAGE>
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
This Prospectus Supplement and the accompanying Prospectus (including the
documents incorporated by reference therein) contain "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), which represent the Company's expectations or beliefs
concerning future events, including, but not limited to, the following:
statements regarding the price range of future homes constructed by the
Company; statements regarding the margins on newer projects; statements
regarding the future home deliveries and income from the Company's
unconsolidated joint ventures; statements regarding a favorable mortgage
interest rate environment and an improving California economic climate;
statements regarding the homebuilding segment's backlog of homes; statements
regarding the adequacy of the Company's inventory of building sites;
statements regarding the availability of building sites for purchase from
joint ventures; statements regarding the time typically required to complete
the construction phase of an increment of a project; statements regarding the
sufficiency of the Company's cash provided by internally generated funds and
outside borrowings; statements regarding future net new orders and statements
regarding the gain or loss to be recognized by the Company from the planned
disposition of Savings and the operating results of Savings for the period
through disposition. The Company cautions that these statements are further
qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements, including, without
limitation, the following: change in the demand for new homes attributable to
the cyclical and competitive nature of the homebuilding business; changes in
general economic conditions; uncertainty in or changes in the continued
availability of suitable undeveloped land at reasonable prices; adverse local
market conditions; existing and changing governmental regulations, including
regulations concerning environmental matters, the permitting process for home
construction and savings and loan institutions; increases in prevailing
interest rates; the level of real estate taxes and energy costs; the cost of
materials and labor; the availability of construction financing and home
mortgage financing attractive to the purchasers of homes; and inclement
weather and other natural disasters. Results actually achieved thus may differ
materially from expected results included in these and any other forward
looking statements contained herein.
RISK FACTORS
Prospective investors should carefully consider the specific factors set
forth below as well as the other information included or incorporated by
reference in this Prospectus Supplement or the accompanying Prospectus before
deciding to invest in the Notes offered hereby.
LAND ACQUISITION AND INVENTORY RISKS
The development, construction and sale of homes are subject to various risks
including, among others, the continued availability of suitable undeveloped
land at reasonable prices and adverse local market conditions resulting from
changes in economic conditions or competitive over-building. As a result of
the national and California recessions which began in 1990, the Company
recorded in the fourth quarter of 1991 aggregate writedowns of approximately
$3.2 million on several of the Company's California projects to value the
remaining homes in these projects at estimated net realizable value.
Additionally, during the third quarter of 1992 and the fourth quarter of 1993,
adjustments totaling approximately $2.5 million and $3.1 million,
respectively, were recorded to reduce the carrying value of certain California
projects to the lower of cost or market and to provide for reserves to cover
potential price concessions. At December 31, 1995, and as a result of
continued adverse trends experienced in some of the Company's markets,
particularly in San Diego, coupled with the adoption of FAS 121, the Company
recorded a $46.5 million noncash pretax charge against operations. FAS 121
required a change in the method of valuing long-lived assets, including in
particular assets such as the Company's real estate holdings. See Note 2 of
the Notes to the Company's Consolidated Financial Statements included in the
accompanying Prospectus.
S-9
<PAGE>
ECONOMIC CONDITIONS AND INTEREST RATES
The Company's business is highly cyclical and 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.
DEPENDENCE ON CALIFORNIA MARKET
The Company presently conducts most of its business in California. 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.
In past years, several cities and counties in California in which the
Company has delivered a significant number of homes have approved the
inclusion of "slow growth" initiatives and other election ballot measures
which could impact the affordability and availability of homes and land within
those localities. Although some of these initiatives have been defeated, the
Company believes that if, in the future, similar initiatives are introduced
and approved, future residential construction by the Company could be
negatively impacted.
LEVERAGE; POTENTIAL ADVERSE EFFECT OF INDEBTEDNESS ON FUTURE OPERATIONS
As of March 31, 1997, after giving effect to the Offering and the
application of the proceeds therefrom, the outstanding consolidated
indebtedness of the Company would have been $182.9 million (excluding
discontinued operations) and the Company would have had stockholders' equity
of $261.1 million. In addition, subject to the restrictions in the Indenture,
the Company may incur additional indebtedness in the future, some of which may
be secured. The Notes are effectively subordinated to all existing and future
indebtedness, including trade payables, of the Company's subsidiaries, which
indebtedness totaled approximately $12.6 million at March 31, 1997, without
regard to approximately $102.1 million of indebtedness (exclusive of Savings
deposit liabilities) relating to discontinued operations. The Company's
ability to make required debt service payments in the future will be dependent
upon the Company's operating results, which are subject to financial, economic
and other factors affecting the Company that are beyond its control. No
assurance can be given that the Company will be able to make required debt
service payments. If the Company is at any time unable to generate sufficient
cash flow from operations to service its debt, it may be required to seek
refinancing for all or a portion of that debt or to obtain additional
financing. There can be no assurance that any such refinancing would be
possible or that any additional financing could be obtained on terms that are
favorable or acceptable to the Company.
The Company's Revolving Credit Facility and senior debt instruments contain
financial covenants with which the Company currently is in compliance.
Significant losses in the Company's homebuilding segment could result in the
violation of one or more of these covenants which could result in the
unavailability of the liquidity provided by the Revolving Credit Facility.
CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to offer to
repurchase all of the outstanding Notes at 101 percent of the principal amount
thereof, plus accrued and unpaid interest to the date of repurchase. There can
be no assurance that the Company will have sufficient funds available or will
be permited by its other debt agreements to repurchase the Notes upon the
occurrence of a Change of Control. In addition, a Change of Control may
require the Company to offer to repurchase other outstanding indebtedness and
may cause a default under the Company's
S-10
<PAGE>
Revolving Credit Facility. The inability to repurchase all of the tendered
Notes would constitute an Event of Default (as defined herein) under the
Indenture. The Change in Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company and,
thus, the removal of incumbent management. See "Description of the Notes--
Change of Control."
COMPETITION
The homebuilding industry is highly competitive, with homebuilders competing
for customers, desirable properties, financing, raw materials and skilled
labor. In each of the areas in which it operates, the Company competes in
terms of location, design, quality, price and available mortgage financing
with numerous other residential construction firms, including large national
and regional firms, some of which have greater financial resources than the
Company. In addition, the Company competes with resales of existing
residential housing by individuals, financial institutions and others.
Competition is particularly intense when the Company enters a new market area
until its reputation becomes firmly established in that area.
REGULATORY AND ENVIRONMENTAL MATTERS
The housing industry is subject to environmental, building, worker health
and safety, zoning and real estate regulations by various Federal, state and
local authorities. The environmental laws that apply to a given homebuilding
site depend upon the site's location, its environmental condition and the
present and former uses of the site, as well as adjoining properties.
Environmental laws and conditions may result in delays, may cause the Company
to incur substantial compliance and other costs, and can prohibit or severely
restrict homebuilding activity in certain environmentally sensitive regions or
areas. In addition, certain new developments, particularly in Southern
California, are subject to various assessments for schools, parks, streets and
highways and other public improvements, the costs of which can be substantial.
By raising the cost of the Company's homes to its customers, an increase in
such assessments could have a negative impact on the Company's sales.
In developing a project, the Company must obtain the approval of numerous
governmental authorities regulating such matters as permitted land uses and
levels of density, the installation of utility services, such as water and
waste disposal, and the dedication of acreage for open space, parks, schools
and other community purposes. Furthermore, changes in prevailing local
circumstances or applicable law may require additional approvals or
modifications of approvals previously obtained, including environmental,
zoning and other entitlement issues. Prior to acquiring a parcel of land, the
Company may utilize deposit arrangements which allow the Company ample time to
perform proper diligence and investigate and resolve necessary issues.
Although the Company believes that it has acquired a sufficient number of lots
to provide for its home construction activities for the near term, no
assurances can be given that the Company will be able to sell the homes it
produces on a profitable basis.
RISK OF MATERIAL AND LABOR SHORTAGES
The Company is not presently experiencing any serious material or labor
shortages; however, the residential construction industry in the past has,
from time to time, experienced serious material and labor shortages, including
shortages in insulation, drywall, certain carpentry work and cement and
fluctuating lumber prices and supply. Delays in construction of homes due to
these shortages could have an adverse effect upon the Company's homebuilding
operations.
NATURAL RISKS
Unexpected climatic conditions, such as unusually heavy or prolonged rain or
other natural disasters such as earthquakes or fires, may affect operations in
certain areas. Periodically, the state
S-11
<PAGE>
of California has experienced drought conditions resulting in water
conservation measures and in some cases rationing by local municipalities in
which the Company does business. Restrictions by governmental agencies on
future construction activity as a result of limited water supplies could have
an adverse effect upon the Company's operations.
MARKET FOR THE NOTES
Although the Company has made application to list the Notes on the New York
Stock Exchange, the Notes are a new issue of securities, have no established
trading market and may not be widely distributed. Accordingly, no assurance
can be given as to the liquidity of, or trading market for, the Notes. No
assurance can be given that the Notes will not trade below their face amount.
USE OF PROCEEDS
The net proceeds from the sale of the Notes are estimated to be
approximately $96.9 million. The Company expects to apply such net proceeds
initially to repay the indebtedness outstanding under the Company's unsecured
Revolving Credit Facility which had an outstanding balance of $97.7 million as
of May 31, 1997. The Company's Revolving Credit Facility currently bears
interest at a Eurodollar based rate plus 150 basis points (the weighted
average interest rate at May 31, 1997 was approximately 7.38%), permits
borrowing, subject to a borrowing base and certain financial covenants, of up
to $200 million and matures in July 1999. The Company may reborrow amounts
repaid under the Revolving Credit Facility for general corporate purposes. The
Company is currently in discussions with the agent bank for its Revolving
Credit Facility concerning the amendment of the facility to increase the
commitment and incorporate more favorable terms. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition--Financial
Condition and Liquidity."
The balance of the net proceeds of the Offering, if any, will be used by the
Company for general corporate purposes. Pending use of the balance of the net
proceeds, the Company may make temporary investments in interest-bearing
savings accounts, certificates of deposit, United States Government
obligations, money market accounts, interest-bearing securities or other
short-term, interest-bearing investments.
S-12
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 1997 and as adjusted to give effect to the issuance of
the Notes offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------
AS
ACTUAL ADJUSTED
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash--Homebuilding, corporate and manufacturing............ $ 4,692 $ 18,823
======== ========
Homebuilding, corporate and manufacturing debt:
Unsecured notes payable(1)............................... $ 82,800 $ --
Trust deed notes payable................................. 2,944 2,944
10 1/2% senior notes due 2000............................ 80,000 80,000
8 1/2% senior notes due 2007............................. -- 100,000
-------- --------
Total debt............................................. 165,744 182,944
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued................................. -- --
Common stock, $.01 par value; 100,000,000 shares autho-
rized; 29,389,181 shares issued and outstanding(2)...... 294 294
Paid-in capital.......................................... 281,513 281,513
Investment securities valuation adjustment............... (133) (133)
Accumulated deficit...................................... (20,607) (20,607)
-------- --------
Total stockholders' equity............................. 261,067 261,067
-------- --------
Total capitalization................................. $426,811 $444,011
======== ========
</TABLE>
- --------
(1) Represents amounts due under the Revolving Credit Facility. At May 31,
1997, such amounts were $97.7 million.
(2) Excludes 909,590 shares of Common Stock reserved at March 31, 1997 for
issuance upon exercise of outstanding options under the Company's 1991
Employee Stock Option Plan.
S-13
<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 percent 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>
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 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.
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
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<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>
BUSINESS
The Company operates primarily as a geographically diversified builder of
single-family homes for use as primary residences with operations throughout
the major metropolitan markets in California and Texas. For the year ended
December 31, 1996, approximately 79 percent and 21 percent of the Company's
home deliveries (including unconsolidated joint ventures) were in California
and Texas, respectively. Approximately 95 percent, 96 percent and 96 percent
of the total sales and revenues from continuing operations for the years ended
December 31, 1996, 1995 and 1994, respectively, were derived from homebuilding
activities. The Company also manufactures and markets high quality office
furniture systems through its subsidiary, Panel Concepts.
Standard Pacific Corp. was incorporated in the State of Delaware in 1991.
Through its predecessors, Standard Pacific Corp. commenced its homebuilding
operations in 1966 with a single tract of land in Orange County, California.
STRATEGY
The Company believes that its long history of building high quality homes in
California and Texas and its conservative operating strategy have enabled the
Company to successfully weather cyclical downturns and position the Company to
capitalize on the improving California market. The main elements of the
Company's strategy include:
Focus on Broad Move-Up Market. The Company concentrates on the construction
of single-family homes for use as primary residences by move-up buyers. The
Company believes that the market for primary residences is more resistant to
economic downturns than the market for second or vacation homes. The average
selling price of the Company's homes over the 12 months ended March 31, 1997
was approximately $275,000. Currently, the Company expects to concentrate its
efforts on acquiring land that is suitable for the construction and sale of
homes generally in the price range of $150,000 to $400,000, which represents a
broad market segment in the Company's market areas. The Company also
constructs and sells homes in the $400,000 to $800,000 price range in certain
of its California markets.
Reputation for High Quality, Single-Family Homes. The Company believes that
it has an established reputation for providing high quality homes. The Company
prides itself on its ability to design unique and attractive homes and provide
its customer with a wide selection of options. The Company believes that its
long history of providing high quality homes has resulted in many repeat
buyers and word-of-mouth sales. The Company also uses extensive marketing to
sell its homes, and its homes are generally sold by its own staff of sales
personnel through the use of model homes which are usually maintained at each
project site. The Company also makes extensive use of advertisements in local
newspapers, illustrated brochures, billboards and on-site displays.
Conservative Operating Strategy. The Company customarily acquires unimproved
land zoned for residential use which appears suitable for the construction of
50 to 300 homes in increments of 10 to 30 homes. The Company generally
purchases land only when it projects commencement of construction within a
relatively short time period. The number of homes built in the first increment
of a project is based upon internal market studies. The timing and size of
subsequent increments depend to a large extent upon sales rates experienced in
the earlier increments. By developing projects in increments, the Company has
been able to respond to local market conditions and control the number of its
completed and unsold homes. Additionally, an increasing percentage of the
Company's lots are controlled through joint ventures. The Company uses joint
ventures for certain land development projects that have long lead times or
are of significant size requiring substantial capital investments.
S-23
<PAGE>
Strong Land Position. The Company has been operating in California for over
30 years and has established an excellent reputation with land owners. The
Company believes that its long standing relationships with land owners and
developers in California give the Company a competitive edge in securing
quality land positions at competitive prices. In order to ensure an adequate
supply of land for future homebuilding activities, the Company generally
attempts to maintain an inventory of building sites sufficient for
construction of homes over a period of approximately three to five years. The
Company believes that its 6,752 owned or controlled building sites at March
31, 1997, in addition to any land sites for which the Company may enter into
negotiations, will be sufficient for its operations over this period.
Geographic Diversification. The Company has focused its California
homebuilding activities in Orange, Riverside, San Bernardino, San Diego and
Ventura Counties in southern California, and in the San Francisco Bay area of
northern California. Additionally, the Company has projects in the Houston,
Dallas and Austin markets in Texas. The Company's policy of diversifying among
different geographic areas has enabled it to reduce the impact of adverse
local economic conditions. Additionally, the Company believes that it has
significant opportunities to expand in its existing markets and to enter new
geographic markets.
Control of Overhead and Operating Expenses. Throughout its history, the
Company has sought to minimize overhead expenses in an effort to control costs
and to be more flexible in responding to the cyclical nature of its business.
The Company strives to control its overhead costs by centralizing certain of
its administrative functions and by limiting the number of middle level
management positions.
Experienced Management and Decentralized Operations. The Company's senior
corporate and division operating managers average over 20 years of experience
in the homebuilding business. Each homebuilding division is run by a local
manager. One of the essential criteria in the selection of a divisional
manager is the individual's in-depth familiarity with the geographic areas
within which the division operates. The decisions regarding selection of
parcels of land for purchase and development are made in conjunction with the
officers of the Company, and thereafter, each manager conducts the operations
of the division relatively autonomously as a separate profit center.
S-24
<PAGE>
The table below sets forth certain information for each homebuilding
division and for the Company as a whole for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED AS OF
DECEMBER 31, 1996 DECEMBER 31, 1996(1)
------------------ -------------------------------------------------
TOTAL NUMBER
NUMBER OF BUILDING HOMES
AVERAGE OF PROJECTS PROJECTS SITES UNDER
HOME HELD FOR IN SALES OWNED OR CONSTRUC- PRESOLD
HOMES SELLING DEVELOPMENT STAGE CONTROLLED TION HOMES
DELIVERED PRICE (2) (3) (4) (5) (6)
--------- -------- ----------- -------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Orange County........... 472 $303,679 17 14 679 195 145
San Diego County........ 109 336,293 9 3 723 21 21
Ventura County.......... 184 248,165 6 6 433 49 31
San Francisco Bay Re-
gion................... 366 285,808 19 11 1,558 185 172
Houston................. 127 144,536 7 6 679 52 30
Dallas/Austin........... 211 210,351 12 10 1,133 70 62
----- -------- --- --- ----- --- ---
Total Consolidated...... 1,469 267,529 70 50 5,205 572 461
Unconsolidated Joint
Ventures
California............. 154 208,882 7 3 1,322 27 24
----- -------- --- --- ----- --- ---
Totals for and as of the
year ended December 31,
1996................... 1,623 $261,681 77 53 6,527 599 485
===== ======== === === ===== === ===
Totals for and as of the
year ended December 31,
1995................... 1,436 $271,936 69 49 6,091 486 312
===== ======== === === ===== === ===
</TABLE>
- -------
(1) Does not include: as of December 31, 1996, 135 model homes and 206
completed and unsold homes, and as of December 31, 1995, 112 model homes
and 239 completed and unsold homes.
(2) The total number of projects held for development as of the end of each
period shown includes projects with homes in the sales stage, under
construction and projects in various stages of planning.
(3) The number of projects in the sales stage includes projects where the
sales office has opened and/or the Company has begun to enter into sales
contracts for the sale of its homes.
(4) Includes homes reflected in Homes Under Construction and Presold Homes.
(5) Includes certain homes reflected in Presold Homes.
(6) See "--Marketing and Sales" for information concerning cancellation rates
and contractual arrangements under which homes are presold.
OPERATIONS
The Company currently conducts homebuilding activities in California and
Texas through a total of six geographic divisions, which held 79 projects for
development at March 31, 1997.
Each homebuilding division is run by a local manager. One of the essential
criteria in the selection of a divisional manager is the person's in-depth
familiarity with the geographic areas within which the division operates. The
decisions regarding selection of parcels of land for purchase and development
are made in conjunction with the officers of the Company, and thereafter, each
manager conducts the operations of the division relatively autonomously as a
separate profit center.
Substantially all of the Company's homes sold are single-family detached
dwellings, although during the past few years approximately 5 percent to 10
percent have been townhouses or condominiums generally attached in varying
configurations of two, three, four and six dwelling units.
The Company's homes are designed to suit the particular area of the country
in which they are located and are available in a variety of models, exterior
styles and materials depending upon local preferences. Homes built by the
Company are targeted for occupancy as primary residences. While the homes
built by the Company
S-25
<PAGE>
typically range in size from approximately 1,800 to 2,800 square feet and
typically include three or four bedrooms, two or three baths, a living room,
kitchen, dining room, family room and a two or three-car garage, the Company
also has built single-family attached and detached homes ranging from 1,100 to
5,500 square feet. Gas fireplaces and built-in appliances are usually
included. For the years ended December 31, 1996, 1995 and 1994, the average
selling prices of the Company's homes, including sales of the unconsolidated
joint ventures, were $261,681, $271,936, and $295,772, respectively.
LAND ACQUISITION, DEVELOPMENT AND CONSTRUCTION
In considering the purchase of land for the development of a homebuilding
project, the Company reviews such factors as proximity to existing developed
areas; population growth patterns; availability of existing community services
such as water, gas, electricity and sewers; school districts; employment
growth rates; the expected absorption rate for new housing; environmental
condition of the land; transportation availability and the estimated costs of
development. Generally, if all requisite governmental agency approvals are not
in place, the Company enters into a conditional agreement to purchase a parcel
of land, making only a nominal deposit on the property. The general policy of
the Company is to complete a purchase of land only when it can reasonably
project commencement of construction within a relatively short period of time.
Closing of the land purchase is, therefore, generally made contingent upon
satisfaction of conditions relating to the property and to the Company's being
able to obtain all requisite approvals from governmental agencies within a
certain period of time. The Company customarily acquires unimproved or
improved land zoned for residential use which appears suitable for the
construction of 50 to 300 homes, which construction is accomplished in smaller
sized increments. The number of homes built in the first increment of a
project is based upon the Company's market studies. The timing and size of
subsequent increments depends on the sales rates of earlier increments. The
Company's development work on a homebuilding project includes obtaining any
necessary zoning, environmental and other regulatory approvals, and
constructing, as necessary, roads, sewer and drainage systems, recreational
facilities and other improvements.
The Company typically uses both its equity (internally generated funds) and
unsecured financing in the form of bank debt and other unsecured debt to fund
land acquisitions. The Company occasionally uses purchase money trust deeds to
finance the acquisition of land. Generally, with the exception of joint
ventures, specific project financing is not used.
The Company has entered into joint venture arrangements to develop certain
parcels of land. During 1993, the Company's Orange County division entered
into a joint venture agreement to develop and deliver 469 homes. For the years
ended December 31, 1996, 1995 and 1994, the Company delivered 151, 195 and 108
homes, respectively, through this unconsolidated joint venture. In 1995, the
Company's Orange County division entered into a new joint venture arrangement
to develop 209 lots in the city of Orange, California. Additionally, in 1996
the Company's Orange County division entered into another joint venture to
develop and deliver approximately 800 homes in Fullerton and Brea, California.
During 1996, the Company delivered three new homes in this unconsolidated
joint venture. In the first half of 1997, the Company's northern California
division entered into a joint venture to develop approximately 700 lots in
Gilroy, California. The Company has made an initial investment of
approximately $9 million in the joint venture.
The Company recently entered into the Talega Joint Venture with affiliates
of Catellus Development Corporation and Starwood Capital Group L.L.C. to
acquire and develop a 3,470-acre masterplanned community located in south
Orange County. The Talega Joint Venture plans to develop and deliver in phases
finished lots for up to approximately 4,900 attached and detached homes, as
well as two championship golf courses, certain community amenities and
commercial and industrial components. As a one-third participant in this long-
term project, the Company is obligated to invest up to $20.0 million in the
project and will receive certain rights of first offer entitling the Company
to purchase up to approximately 1,000 finished lots from the joint venture for
construction and sale of homes by the Company.
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<PAGE>
The Company essentially functions as a general contractor with its
supervisory employees coordinating all work on the project. The services of
independent architectural, design, engineering and other consulting firms are
engaged to assist in project planning, and subcontractors are employed to
perform all of the physical development and construction work on the project.
The Company does not have long-term contractual commitments with any of its
subcontractors, consultants or suppliers of materials. However, because of its
market presence and long-term relationships, the Company has generally been
able to obtain sufficient materials and commitments from subcontractors and
consultants during times of market shortages. These types of agreements are
generally entered into on an increment-by-increment basis at a fixed price
after competitive bidding. The Company believes that the low fixed labor
expense resulting from conducting its homebuilding operations in this manner
has been instrumental in enabling it to retain the necessary flexibility to
react to increases or decreases in demand for housing.
Although the construction time for the Company's homes varies from project
to project depending on the time of year, local labor situations, certain
governmental approval processes, availability of materials and supplies and
other factors, the Company can typically complete the construction phase of an
increment within one of its projects in approximately four to six months.
MARKETING AND SALES
The Company's homes are generally sold by its own staff of sales personnel.
Furnished and landscaped model homes are usually maintained at each project
site. Changes in house design are generally not permitted, but homebuyers are
afforded the opportunity to select, at additional costs, various optional
amenities such as air conditioning, prewiring options, upgraded carpet
quality, varied interior and exterior color schemes, additional appliances and
occasionally some room configurations. The Company makes extensive use of
advertisements in local newspapers, illustrated brochures, billboards and on-
site displays.
The Company's homes are typically sold during construction using sales
contracts which are usually accompanied by a small cash deposit, although some
of the Company's homes are sold after completion of construction. In some
cases, purchasers are permitted to cancel these contracts if they are unable
to sell their existing homes or fail to qualify for financing and under
certain other circumstances. During each of the years ended December 31, 1996,
1995 and 1994, the Company experienced cancellation rates of 24 percent, 25
percent and 29 percent, respectively. Although cancellations can delay the
delivery of the Company's homes, they have not, during the last few years, had
a material negative impact on sales, operations or liquidity because of the
Company's policy of closely monitoring the progress of prospective buyers in
obtaining financing and monitoring and adjusting its start plan to better
match the level of demand for its homes. Sales are recorded after construction
is completed, required down payments are received and title passes. At
December 31, 1996, 1995 and 1994, the Company had an inventory of completed
and unsold homes of 206, 239 and 260, respectively.
FINANCING
Home purchase financing from local lending institutions generally averages
80 percent or more of the purchase price of the homes. During periods of high
mortgage rates or difficult economic times, the Company may assist its
homebuyers by "buying-down" the interest rates on mortgage loans or
subsidizing all or a part of the homebuyers' up front financing fees. The
amounts of such "buy-downs" or subsidies is dependent upon prevailing market
conditions and interest rate levels.
COMPETITION
The homebuilding industry is highly competitive, with homebuilders competing
for customers, desirable properties, financing, raw materials and skilled
labor. In each of the areas in which it
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<PAGE>
operates, the Company competes in terms of location, design, quality, price
and available mortgage financing with numerous other residential construction
firms, including large national and regional firms, some of which have greater
financial resources than the Company. In addition, the Company competes with
resales of existing residential housing by individuals, financial institutions
and others. Competition is particularly intense when the Company enters a new
market area until its reputation becomes firmly established in that area.
PANEL CONCEPTS
Panel Concepts manufactures and sells moveable and acoustical office
furniture systems, office partitions and seating. Panel Concepts' acoustical
panels are made of lightweight, sound absorbing material designed to be
utilized as an interconnecting office panel system. The panels are covered
with fabric in numerous colors and sizes which are used to create readily
moveable office work station systems and partitions. To a lesser extent, Panel
Concepts also manufactures or supplies furniture components, such as shelves,
work surfaces and drawer pedestals, which can be attached to the panels as
part of an overall office system. Panel Concepts' products are sold on a
nationwide basis to a broad variety of customers primarily through independent
sales representatives and office furniture dealers. In addition, Panel
Concepts' products are sold to the government on General Services
Administration contract.
Panel Concepts' competitors in the office systems market include large
national and regional firms, many of which are better established and have
greater resources than Panel Concepts. The manufacture and sale of office
furniture is subject to various risks including, among others, changes in
overall economic conditions, the cost of materials and labor, environmental
regulations affecting manufacturing operations, foreign competition and the
ability to successfully market Panel Concepts' products in the face of strong
competition.
The Company's long-term strategy is to focus on its core homebuilding
business. As a result, the Company is evaluating its options with respect to
Panel Concepts.
EMPLOYEES
At March 31, 1997, the Company had approximately 429 employees (excluding
employees of Savings).
During the past five years, the Company has not directly experienced a work
stoppage in its operations caused by labor disputes. Construction of homes in
projects developed by the Company has, from time to time, been delayed due to
strikes by certain construction unions against subcontractors retained by the
Company or strikes against suppliers of materials used in the construction of
homes. Such delays have not had a significant adverse effect on the Company's
homebuilding operations. The Company believes that its relations with its
homebuilding employees and subcontractors are satisfactory.
PROPERTIES
In addition to real estate held for development and sale, which is either
owned or under option to be purchased by the Company, the Company leases
approximately 4.8 acres of land in Costa Mesa, California under leases
expiring in 2002 on which the Company's executive office, the offices of the
Orange County housing division and a manufacturing facility (which is leased
to an unrelated party) are located. The Company's other real estate housing
divisions occupy various facilities under leases which expire from 1998
through 2000. The offices and manufacturing facilities of Panel Concepts are
located in Santa Ana, California in an 80,000 square foot building leased
through 1999. Panel Concepts owns a plant and land in Greensboro, North
Carolina which was previously used for furniture
S-28
<PAGE>
manufacturing and is currently held for sale. Additionally, Panel Concepts
leases showrooms in New York and Chicago whose facilities are each in excess
of 6,000 square feet with the leases expiring in 1999 and 2000, respectively.
The administrative office and branch location for Savings is located in
Newport Beach, California. A total of 5,072 square feet is leased under a
lease which expires in 2003.
As of March 31, 1997, the Company was subleasing approximately 54,000 square
feet of manufacturing facilities to unrelated parties under leases expiring
through 1998.
The Company believes that all of its properties are well suited for the
purposes for which they are used and they can generally support additional
capacity.
LEGAL PROCEEDINGS
Various claims and actions, considered normal to the Company's business,
have been asserted and are pending against the Company and its subsidiaries.
The Company believes that such claims and actions should not have a material
adverse effect upon the financial position of the Company.
MANAGEMENT
The directors and executive officers of the Company, their ages and
positions with the Company, and brief accounts of their business experience,
are set forth below. In addition, with respect to each director, the table
below sets forth the class to which such director belongs and the date that
such director's term will expire. The board of directors of the Company is
divided into three classes. Each of the classes has three directors and only
one class is elected each year, for a three year term.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Arthur E. Svendsen 73 Chairman of the Board and Chief Executive Officer;
Director (Class I, 1998)
Stephen J. Scarborough 48 President; Director (Class II, 1999)
Michael C. Cortney 49 Senior Vice President, President of the Company's
Northern California Division
Brian V. Norkaitis 54 Senior Vice President
Andrew H. Parnes 38 Vice President--Finance, Treasurer and Chief
Financial Officer
Dr. James L. Doti 50 Director (Class I, 1998)
Ronald R. Foell 68 Director (Class III, 2000)
Keith D. Koeller 40 Director (Class I, 1998)
William H. Langenberg 68 Director (Class II, 1999)
Donald H. Spengler 70 Director (Class III, 2000)
Robert J. St. Lawrence 70 Director (Class III, 2000)
</TABLE>
Arthur E. Svendsen has served as the Chairman of the Board and Chief
Executive Officer of the Company since 1961.
Stephen J. Scarborough has served as a Director since May 1996 and as
President of the Company since October 1, 1996. Mr. Scarborough served as
Executive Vice President of the Company from January 1996 to September 30,
1996. Prior to this and since 1981, Mr. Scarborough was President of the
Company's Orange County, California residential homebuilding division.
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<PAGE>
Michael C. Cortney has served as President of the Company's Northern
California Division since 1985. In March 1997, Mr. Cortney was also appointed
as a Senior Vice President of the Company.
Brian V. Norkaitis joined the Company as a Senior Vice President in March
1997. Previously, Mr. Norkaitis spent over twenty years with the William Lyon
Company. Mr. Norkaitis served in various executive positions at Lyon and its
affiliates, including as Executive Vice President of Lyon from January 1994
until joining the Company in March 1997.
Andrew H. Parnes was appointed to the position of Vice President--Finance in
January 1997. In addition, he has served as the Company's Chief Financial
Officer since July 1996 and as the Company's Treasurer since January 1991.
From December 1989 until July 1996, Mr. Parnes served as the Company's
Controller.
Dr. James L. Doti has served as a Director since May 1995. Dr. Doti has been
President of Chapman University since 1991 and professor of economics since
1974. Dr. Doti founded Chapman University's center for Economic Research in
1978. He is also a director of First American Financial Corporation, Fleetwood
Enterprises, Inc. and Remedy Temp., Inc.
Ronald R. Foell has served as a Director since 1967. Mr. Foell served as
President of the Company from 1969 until his retirement in September 1996.
Keith D. Koeller has served as a Director since May 1995. Since 1986, Mr.
Koeller has served as partner of the law firm of Mower, Koeller, Nebeker,
Carlson & Haluck.
William H. Langenberg has served as a Director of the Company since 1972.
Mr. Langenberg served as President of Standard Pacific-Northern California, a
homebuilding subsidiary of the Company, from 1971 to 1985. Mr. Langenberg has
been President of Langen Corp. since 1978.
Donald H. Spengler has served as a Director of the Company since 1962. Since
January 1981, Mr. Spengler has been a private investor managing his own
properties and investments.
Robert J. St. Lawrence has served as a Director of the Company since 1961.
Mr. St. Lawrence previously served as Vice President-Finance and Treasurer of
the Company from 1961 through December 1987 and Secretary from 1976 through
December 1987. Mr. St. Lawrence retired from the Company in December 1987 and
is currently a private investor.
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<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 June 15, 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 June 15 and
December 15 (each an "Interest Payment Date"), commencing December 15, 1997,
to holders of record at the close of business on the June 1 and December 1
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 June 15, 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 June 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002........................................................... 104.250%
2003........................................................... 102.833%
2004........................................................... 101.417%
2005 and thereafter............................................ 100.000%
</TABLE>
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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
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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, and not of DTC, the
Trustee, or the Company (subject to any statutory or regulatory requirements
as may be in effect from time to time).
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 or (ii) the Company executes and delivers to the Trustee a notice
that such Global Security shall be so transferable, registrable, and
exchangeable. 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
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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. The rules applicable to DTC and its participants are
on file with the Securities and Exchange Commission.
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
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<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
June 15, 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
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<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
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<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
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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
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of such Indebtedness in an amount of $20 million 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 million 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 million 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).
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"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 connection 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.
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"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.
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<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 June 15, 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.
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"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
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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.
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"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.
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UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, with the Company, to purchase from
the Company the aggregate principal amount of Notes set forth opposite their
respective names. The Underwriters are committed to purchase all of the Notes
if any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITERS NOTES
------------ ------------
<S> <C>
Salomon Brothers Inc............................................... $ 55,000,000
Dillon, Read & Co. Inc. ........................................... 20,000,000
Donaldson, Lufkin & Jenrette Securities Corporation................ 20,000,000
BancAmerica Securities, Inc........................................ 5,000,000
------------
Total............................................................ $100,000,000
============
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus Supplement and to certain dealers at such price
less a concession not in excess of .50% of the principal amount of the Notes.
The Underwriters may allow, and such dealers may reallow, a discount not in
excess of .25% of the principal amount of the Notes on sales to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments the Underwriters
may be required to make in respect thereof.
The Notes are a new issue of securities with no established trading market.
The Company has made application to list the Notes on the New York Stock
Exchange. No assurance can be given about the development or liquidity of any
trading market for the Notes.
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Notes. Such
transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Notes for the purpose of stabilizing the market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Notes in connection with the Offering than they
are committed to purchase from the Company, and in such case may purchase
Notes in the open market following completion of the Offering to cover all or
a portion of such short position. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Notes at a level
above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
Under the Conduct Rules of the National Association of Securities Dealers,
Inc. (the "NASD"), when 10 percent or more of the net proceeds of a public
offering of debt securities, not including underwriting compensation, are to
be paid to a member of the NASD participating in such public offering of debt
securities or an affiliate of such member, the yield at which the debt
securities are distributed to the public must be no lower than that
recommended by a "qualified independent underwriter" as defined in Rule 2720
of the Conduct Rules of the NASD. BancAmerica Securities, Inc. is a member of
the NASD and is an affiliate of Bank of America National Trust and Savings
Association ("Bank of America"), the lender under the Company's Revolving
Credit Facility. Bank of America will receive more than 10 percent of the net
proceeds from the Offering as a result of the use of such proceeds to reduce
the Company's indebtedness under the Revolving Credit Facility. See "Use of
S-47
<PAGE>
Proceeds." As a result, the Offering is being made in compliance with Rule
2710(c)(8) of the Conduct Rules of the NASD which relates to offerings where
proceeds are directed to a member of the NASD. Salomon Brothers Inc will act
as a qualified independent underwriter in connection with the Offering and
assume the customary responsibilities of acting as a qualified independent
underwriter in pricing and conducting due diligence for the Offering. The
yield on the Notes sold to the public will be no lower than that recommended
by Salomon Brothers Inc acting as a qualified independent underwriter in
connection with the Offering.
LEGAL MATTERS
The legality of the Notes will be passed upon for the Company by Gibson,
Dunn & Crutcher LLP, Los Angeles, California. Robert K. Montgomery, a partner
of Gibson, Dunn & Crutcher LLP, and certain members of his immediately family
own approximately 50,000 shares of Common Stock of the Company. Certain legal
matters relating to the offering of the Notes will be passed upon for the
Underwriter by O'Melveny & Myers LLP, Los Angeles, California.
S-48
<PAGE>
PROSPECTUS
STANDARD PACIFIC CORP.
SENIOR DEBT SECURITIES
Standard Pacific Corp. (the "Company") may offer from time to time its
senior debt securities consisting of debentures or other unsecured evidences
of indebtedness (the "Debt Securities"), at an aggregate initial offering
price of not more than $200,000,000. The Debt Securities may be offered as a
single series or as two or more separate series in amounts, at prices and on
terms to be determined in light of market conditions at the time of sale and
to be set forth in an accompanying Prospectus Supplement.
The terms of each series of Debt Securities, including, where applicable,
the specific designation, aggregate principal amount, authorized
denominations, maturity, rate or rates and time or times of payment of any
interest, any terms for optional or mandatory redemption or payment of
additional amounts or any sinking fund provisions, any initial public offering
price, the proceeds to the Company and any other specific terms in connection
with the offering and sale of such series will be set forth in a Prospectus
Supplement or Prospectus Supplements. The Debt Securities will rank pari passu
with the Company's other existing or future senior indebtedness. The terms of
certain series of the Debt Securities may not restrict the incurrence of
additional pari passu senior indebtedness. The Debt Securities are effectively
subordinated to all existing or future indebtedness, including trade payables,
of the Company's subsidiaries. The terms of certain series of the Debt
Securities may not restrict the incurrence of additional subsidiary
indebtedness.
The Debt Securities may be sold directly by the Company, through agents
designated from time to time or to or through underwriters or dealers. See
"Plan of Distribution." If any agents of the Company or any underwriters are
involved in the sale of any Debt Securities in respect of which this
Prospectus is being delivered, the names of such agents or underwriters and
any applicable commissions or discounts will be set forth in a Prospectus
Supplement. The net proceeds to the Company from such sale also will be set
forth in a Prospectus Supplement.
For a discussion of certain United States Federal income tax consequences to
holders of Debt Securities, see "United States Taxation."
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is June 12, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files, reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade Center, New
York, New York 10048; and Citicorp Center, 500 W. Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Such reports and other information
concerning the Company can also be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York. The Commission maintains
a website that contains reports, proxy and information statements and other
information filed electronically with the Commission at HTTP:\\WWW.SEC.GOV.
The Company has filed with the Commission in Washington, D.C. a registration
statement on Form S-3 (including all amendments thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities offered hereby. As permitted by the
rules and regulations of the Commission, this Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information pertaining to the Company and
the securities offered hereby, reference is made to the Registration Statement
and the exhibits thereto, which may be examined without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of which may be obtained from the
Commission upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed heretofore by the Company with the Commission
(File No. 1-9353) pursuant to the Exchange Act are incorporated herein by
reference:
1. The Annual Report on Form 10-K of the Company for the fiscal year ended
December 31, 1996;
2. The Quarterly Report on Form 10-Q of the Company for the fiscal quarter
ended March 31, 1997; and
3. The Current Report on Form 8-K of the Company dated June 11, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Debt Securities shall be deemed to be
incorporated in this Prospectus by reference and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
that also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, on the written or oral request of such
person, a copy of any or all of the documents referred to above which have
been or may be incorporated in this Prospectus by reference other than
exhibits to such documents, unless such exhibits are also specifically
incorporated by reference herein. Requests for such copies should be directed
to the Company, 1565 West MacArthur Boulevard, Costa Mesa, California 92626,
Attention: Corporate Secretary, Telephone (714) 668-4300.
2
<PAGE>
USE OF PROCEEDS
Unless otherwise indicated in an accompanying Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Debt Securities
to repay bank indebtedness under the Company's revolving credit agreement and
for general corporate purposes.
3
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Consolidated Financial Data of the Company are
derived from information contained in the Company's Consolidated Financial
Statements. The financial data for each of the five years in the period ended
December 31, 1996 were derived from the audited consolidated financial
statements of the Company. The financial data for the quarters ended March 31,
1997 and 1996 were derived from the unaudited consolidated financial
statements of the Company, but in the opinion of Management include all
adjustments necessary for a fair presentation of the financial information.
The results of operations for the quarter ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the full year.
The selected consolidated financial data presented below are qualified in
their entirety by, and should be read in conjunction with, the Company's
Consolidated Financial Statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HOMEBUILDING OPERATIONS:
Revenues.............. $ 111,303 $ 61,584 $ 399,863 $ 346,263 $ 374,783 $ 249,884 $ 248,130
Pretax income (loss)
(1).................. 5,146 715 12,948 (37,247) 11,200 (1,617) 3,892
MANUFACTURING OPERA-
TIONS:
Sales................. $ 5,352 $ 3,997 $ 19,311 $ 15,177 $ 17,225 $ 13,722 $ 18,149
Pretax income (loss)
(2).................. 455 238 2,087 (42) 969 608 (2,331)
CONSOLIDATED RESULTS:
Revenues.............. $ 116,655 $ 65,581 $ 419,174 $ 361,440 $ 392,008 $ 263,606 $ 266,279
========== ========== ========== ========== ========== ========== ==========
Income (loss) from
continuing operations
before income taxes
and cumulative effect
of change in
accounting for income
taxes................ $ 5,601 $ 953 $ 15,035 $ (37,289) $ 12,169 $ (1,009) $ 1,561
(Provision) benefit
for income taxes..... (2,300) (382) (6,034) 14,906 (4,993) 443 (526)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations
before cumulative
effect of change in
accounting for income
taxes principle...... 3,301 571 9,001 (22,383) 7,176 (566) 1,035
Income (loss) from
discontinued opera-
tions, net of the ef-
fect of income taxes. 216 2 (608) (4,980) (1,289) 2,385 3,488
Cumulative effect of
change in accounting
for income taxes..... -- -- -- -- -- 858 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)..... $ 3,517 $ 573 $ 8,393 $ (27,363) $ 5,887 $ 2,677 $ 4,523
========== ========== ========== ========== ========== ========== ==========
Income (loss) per
share from continuing
operations........... $ 0.11 $ 0.02 $ 0.30 $ (0.73) $ 0.23 $ (0.02) $ 0.03
Income (loss) per
share from
discontinued
operations, net of
the effect of income
taxes................ 0.01 -- (0.02) (0.17) (0.04) 0.08 0.12
Cumulative effect of
change in accounting
for income taxes..... -- -- -- -- -- 0.03 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) per
share................ $ 0.12 $ 0.02 $ 0.28 $ (0.90) $ 0.19 $ 0.09 $ 0.15
========== ========== ========== ========== ========== ========== ==========
Stockholders' equity
per share............ $ 8.88 $ 8.57 $ 8.79 $ 8.58 $ 9.51 $ 9.49 $ 9.52
Cash dividends paid
per share............ $ 0.03 $ .03 $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.09
Weighted average com-
mon and equivalent
shares outstanding... 29,705,032 30,064,232 30,011,595 30,488,676 30,674,349 30,633,471 29,810,974
Total assets.......... $ 456,875 $ 457,479 $ 451,108 $ 445,747 $ 524,318 $ 530,405 $ 550,364
Long-term debt:
residential housing
and corporate........ $ 60,000 $ 80,000 $ 80,000 $ 129,062 $ 134,360 $ 147,273 $ 93,957
Stockholders' equity.. $ 261,067 $ 257,569 $ 260,350 $ 257,846 $ 291,127 $ 290,395 $ 291,182
</TABLE>
- -------
(1) The 1995 homebuilding operations' pretax loss of $37.2 million reflects
the adoption of Financial Accounting Standards No. 121 ("FAS 121") which
resulted in a $46.5 million non-cash pretax charge to operations. See Note
2 to the Company's Consolidated Financial Statements included elsewhere in
this Prospectus.
(2) Excludes intercompany interest income of $77,000 and $65,000 for the three
months ended March 31, 1997 and 1996, respectively, and $274,000,
$241,000, $270,000, $247,000 and $211,000, respectively, for the five
years in the period ended December 31, 1996.
4
<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>
DESCRIPTION OF THE DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement (the "Offered Securities") and the extent
to which such general provisions may apply to the Offered Securities will be
described in a Prospectus Supplement relating to such Offered Securities.
The Debt Securities are to be issued under an indenture (the "Indenture"),
dated as of April 1, 1992, entered into between the Company and United States
Trust Company of New York, as trustee (the "Trustee"). The terms of the Debt
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), and holders of the Debt Securities are referred to the
Indenture and the Trust Indenture Act for a statement thereof. A copy of the
Indenture is filed as an exhibit to the Company's Current Report on Form 8-K,
dated February 24, 1993. The following summaries of certain provisions of the
Debt Securities and the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Debt Securities and the Indenture, including the definitions
therein of certain terms which are not otherwise defined in this Prospectus.
Wherever particular provisions or defined terms of the Indenture are referred
to, such provisions or defined terms are incorporated herein by reference.
References herein are to sections in the Indenture. As used in this
"Description of the Debt Securities," the "Company" refers to Standard Pacific
Corp. and does not include its subsidiaries. The term "Securities," as used
under this caption, refers to all Securities issued or issuable from time to
time under the Indenture and includes the Debt Securities.
GENERAL
The Indenture does not limit the aggregate principal amount of Securities
which may be issued thereunder and Securities may be issued thereunder from
time to time as a single series or in two or more separate series up to the
aggregate principal amount from time to time authorized by the Company for
each series. As of the date of this Prospectus, the Company has authorized the
issuance under the Indenture of up to $200,000,000 aggregate principal amount
of the Debt Securities.
The Securities will be senior unsecured obligations exclusively of the
Company. Since the operations of the Company are currently conducted in part
through subsidiaries, the cash flow and the consequent ability to service debt
of the Company, including the Securities, are dependent, in part, upon the
earnings of its subsidiaries and the distribution of those earnings to the
Company, whether by dividends, loans or otherwise. The payment of dividends
and the making of loans and advances to the Company by its subsidiaries may be
subject to statutory or contractual restrictions, are contingent upon the
earnings of those subsidiaries and are subject to various business
considerations. Any right of the Company to receive assets of any of its
subsidiaries upon their liquidation or reorganization (and the consequent
right of the holders of the Securities to participate in those assets) will be
effectively subordinated to the claims of that subsidiary's creditors
(including trade creditors), except to the extent that the Company is itself
recognized as a creditor of such subsidiary, in which case the claims of the
Company would still be subordinate to any security interests in the assets of
such subsidiary and any indebtedness of such subsidiary senior to that held by
the Company.
The applicable Prospectus Supplement or Prospectus Supplements will
describe, among other things, the following terms of the Offered Securities:
(i) the title of the Offered Securities; (ii) any limit on the aggregate
principal amount of the Offered Securities; (iii) whether the Offered
Securities are to be issuable as Registered Securities or Bearer Securities or
both and whether the Offered Securities may be represented by a Security in
temporary or permanent global form, and if so, the initial Depositary with
respect to such temporary or permanent global Security and whether the
circumstances under which beneficial owners of interests in any such temporary
or permanent global
6
<PAGE>
Security may exchange such interests for Securities of such series and of like
tenor of any authorized form and denomination; (iv) the price or prices at
which the Offered Securities will be issued; (v) the date or dates on which
the principal of the Offered Securities is payable or the method of
determination thereof; (vi) the rate or rates at which the Offered Securities
will bear interest, if any, and the date or dates from which such interest, if
any, will accrue; (vii) the Interest Payment Dates, if any, on which any
interest on the Offered Securities will be payable, and the Regular Record
Date for any interest payable on any Offered Securities which are Registered
Securities; (viii) the right or obligation, if any, of the Company to redeem
or purchase Securities of the series, pursuant to any sinking fund or
analogous provisions or at the option of a holder thereof, the conditions, if
any, giving rise to such right or obligation, and the period or periods within
which, and the price or prices at which and the terms and conditions upon
which Securities of the series shall be redeemed or purchased, in whole or in
part, and any provisions for the remarketing of such Securities; (ix) whether
the Offered Securities may be satisfied and discharged other than as provided
in Article Eight of the Indenture; (x) if the amount of payments of principal
of and interest, if any, on the Offered Securities is to be determined by
reference to an index, formula or other method, the manner in which such
amounts are to be determined and the calculation agent, if any, with respect
thereof; (xi) if other than the principal amount thereof, the portion of the
principal amount of the Offered Securities which will be payable upon
declaration or acceleration of the Maturity thereof pursuant to an Event of
Default; and (xii) any other terms of the Offered Securities not inconsistent
with the provisions of the Indenture. (Section 2.03(a).) Any such Prospectus
Supplement will also describe any special provisions for the payment of
additional amounts with respect to the Offered Securities. (Sections 2.03(a)
and 4.06.)
Securities may be issued as Discount Securities, which may be sold at a
discount below their principal amount. Special United States Federal income
tax considerations applicable to Securities issued with original issue
discount, including Discount Securities, are generally described under "United
States Taxation--Original Issue Discount" and may be described in more detail
in any applicable Prospectus Supplement. In addition, special United States
Federal tax considerations or other restrictions or terms applicable to any
Offered Securities which are issuable in bearer form or offered exclusively to
United States Aliens will be set forth in a Prospectus Supplement relating
thereto.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
The Securities of a series may be issued solely as Registered Securities,
solely as Bearer Securities (with or without coupons attached) or as both
Registered Securities and Bearer Securities. (Section 2.03.) Securities of a
series may be issuable in whole or part in the form of one or more global
Securities, as described below under "Global Securities." (Sections 2.01, 2.02
and 2.03.) Unless otherwise indicated in an applicable Prospectus Supplement,
Registered Securities will be issuable in denominations of $1,000 and integral
multiples thereof, and Bearer Securities will be issuable in denominations of
$5,000 and $100,000. (Section 2.03(b).)
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series of any authorized denominations and
of a like aggregate principal amount and tenor. In addition, if Securities of
any series are issuable as both Registered Securities and as Bearer
Securities, at the option of the holder, subject to the terms of the
Indenture, Bearer Securities (accompanied by all unmatured coupons, except as
provided below, and all matured coupons in default) of such series will be
exchangeable for Registered Securities of the same series of any authorized
denominations and of a like aggregate principal amount and tenor. Unless
otherwise indicated in an applicable Prospectus Supplement, any Bearer
Security surrendered in exchange for a Registered Security between a Regular
Record Date or a Special Record Date and the relevant date for payment of
interest will be surrendered without the coupon relating to such date for
payment of interest and interest will not be payable in respect of the
Registered Security issued in exchange for
7
<PAGE>
such Bearer Security, but will be payable only to the holder of such coupon
when due in accordance with the terms of the Indenture. Bearer Securities may
not be issued in exchange for Registered Securities. (Section 2.08.)
Securities may be presented for exchange as provided above, and unless
otherwise indicated in an applicable Prospectus Supplement, Registered
Securities may be presented for registration of transfer, at the office or
agency of the Company designated as Registrar or co-registrar with respect to
any series of Securities and referred to in an applicable Prospectus
Supplement, without service charge and upon payment of any taxes, assessments
or other governmental charges as described in the Indenture. Such transfer or
exchange will be effected on the books of the Registrar or any other transfer
agent appointed by the company upon such Registrar or transfer agent, as the
case may be, being satisfied with the documents of title and identity of the
person making the request. The company intends to initially appoint the
Trustee as Registrar. (Section 2.05.) If a Prospectus Supplement refers to any
transfer agents (in addition to the Registrar) designated by the Company with
respect to any series of Securities, the Company may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that, if Securities of a
series are issuable only as Registered Securities, the Company will be
required to maintain a transfer agent in each Place of Payment for such series
and, if Securities of a series are issuable as Bearer Securities, the Company
will be required to maintain (in addition to the Registrar) a transfer agent
in a Place of Payment for such series located outside the United States. The
Company may at any time designate additional transfer agents with respect to
any series of Securities. (Section 4.05.)
In the event of any redemption of Securities of any series, the Company will
not be required to (i) issue, register the transfer of or exchange Securities
of that series during a period beginning at the opening of business 15 days
before any selection of Securities of that series to be redeemed and ending at
the close of business on (a) if Securities of the series are issuable only as
Registered Securities, the day of mailing of the relevant notice of
redemption, and (b) if Securities of the series are issuable as Bearer
Securities, the day of the first publication of the relevant notice of
redemption or, if Securities of the series are also issuable as Registered
Securities and there is no publication, the mailing of the relevant notice of
redemption; (ii) register the transfer of or exchange any Registered Security,
or portion thereof, called for redemption, except the unredeemed portion of
any Registered Security being redeemed in part; or (iii) exchange any Bearer
Security called for redemption, except to exchange such Bearer Security for a
Registered Security of that series and of like tenor and principal amount that
is immediately surrendered for redemption. (Section 2.08.)
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal and of interest, if any, on Registered Securities will be made at
the office of such Paying Agent or Paying Agents as the Company may designated
from time to time, except that at the option of the Company payment of
principal or interest may be made by check or by wire transfer to an account
maintained by the payee. (Section 4.01.) Unless otherwise indicated in an
applicable Prospectus Supplement, payment of any installment of interest on
Registered Securities will be made to the person in whose name such Registered
Security is registered at the close of business on the Regular Record Date for
such interest. (Section 2.13.)
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and interest, if any, on Bearer Securities will be payable,
subject to any applicable laws and regulations, at the offices of such Paying
Agents outside the United States as the Company may designated from time to
time, or by check or by transfer to an account maintained by the payee outside
the United States. (Section 4.05.) Unless otherwise indicated in an applicable
Prospectus Supplement, any payment of
8
<PAGE>
interest on any Bearer Securities will be made only against surrender of the
coupon relating to such interest installment. (Section 4.01.)
Unless otherwise indicated in an applicable Prospectus Supplement, the
Trustee will be designated as the Company's sole Paying Agent for payments
with respect to Securities which are issuable solely as Registered Securities
and as the Company's Paying Agent in the Borough of Manhattan, The City of New
York, for payments with respect to Securities (subject to any limitations
described in any applicable Prospectus Supplement) which are issuable as
Bearer Securities. Any Paying Agents outside the United States and an other
Paying Agents in the United States initially designated by the Company for the
Offered Securities will be named in an applicable Prospectus Supplement. The
Company may at an time designate additional Paying Agents or rescind the
designation of any Paying Agent or approve a change in the office through
which any Paying Agent acts, except that, if Securities of a series are
issuable only as Registered Securities, the Company will be required to
maintain a Paying Agent in each Place of Payment for such series and, if
Securities of a series are issuable as Bearer Securities, the Company will be
required to maintain (i) a Paying Agent in the Borough of Manhattan, The City
of New York, for payments with respect to any Registered Securities of the
series (and for payments with respect to Bearer Securities of the series in
the circumstances described in the Indenture, but not otherwise), and (ii) a
Paying Agent in a Place of Payment located outside the United States where
Securities of such series and any related coupons may be presented and
surrendered for payment. (Section 4.05.)
All moneys paid by the Company to a Paying Agent for the payment of
principal of or interest, if any, on any Security which remains unclaimed at
the end of two years after such principal or interest shall have become due
and payable will be repaid to the Company and the holder of such Security or
any coupon will thereafter look only to the Company for payment thereof.
(Section 8.02.)
GLOBAL SECURITIES
The Securities of a series may be issued in whole or in part in global form.
(Section 2.01.) A Security in global form will be deposited with, or on behalf
of, a Depositary, which will be identified in an applicable Prospectus
Supplement. A global Security may be issued in either registered or bearer
form and in either temporary or permanent form. (Section 2.03.) A Security in
global form may not be transferred except as a whole to the Depositary for
such Security or to a nominee or successor of such Depositary. (Section 2.08.)
If any Securities of a series are issuable in global form, the applicable
Prospectus Supplement will describe the circumstances, in any, under which
beneficial owners of interests in any such global Security may exchange such
interests for definitive Securities of such series and of like tenor and
principal amount in any authorized form and denomination, the manner of
payment of principal of an interest, if any, on any such global Security and
the specific terms of the depositary arrangement with respect to any such
global Security. (Section 2.03.)
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not consolidated with or merge into any other person or
convey, transfer or lease its properties and assets substantially as an
entirety to another person, unless, among other things, (i) the resulting,
surviving or transferee person (if other than the Company) is organized and
existing under the laws of the United States, any state thereof or the
District of Columbia and such person expressly assumes all obligations of the
Company under the Securities and the Indenture, and (ii) the Company or such
successor person shall not immediately thereafter be in Default under the
Indenture. Upon the assumption of the Company's obligations by such a person
in such circumstances, subject to certain exceptions, the Company shall be
discharged from all obligations under the Securities and the Indenture.
(Section 5.01.)
9
<PAGE>
EVENTS OF DEFAULT
The Indenture provides that, if an Event of Default specified therein shall
have occurred and be continuing, with respect to each series of the Securities
individually, the Trustee or the holders of not less than 25% in aggregate
principal amount of the Outstanding Securities of such series may declare the
principal amount (or, if any of the Securities of such series are Discount
Securities, such portion of the principal amount of such Securities as may be
specified by the terms thereof) of the Securities of such series to be
immediately due and payable. Under certain circumstances, the holders of a
majority in aggregate principal amount of the Outstanding Securities of such
series may rescind such a declaration. (Section 6.02.)
Under the Indenture, an Event of Default is defined as, with respect to each
series of Securities individually, any of the following: (i) default in
payment of the principal of any Security of such series; (ii) default in
payment of any interest on any Security of such series when due, continuing
for 30 days; (iii) failure by the Company to comply with its other agreements
in the Securities of such series or the Indenture for the benefit of the
holders of Securities of such series upon the receipt by the Company of notice
of such Default by the trustee or the holders of at least 25% in aggregate
principal amount of the Outstanding Securities of such series and the
Company's failure to cure such Default within 45 days after receipt by the
Company of such notice; (iv) certain events of bankruptcy or insolvency; and
(v) any other Event of Default set forth in an applicable Prospectus
Supplement. (Section 6.01.)
The Trustee shall give notice to holders of the Securities of any continuing
Default known to the Trustee within 90 days after the occurrence thereof;
provided, that the Trustee may withhold such notice, as to any Default other
than a payment Default, if it determines in good faith that withholding the
notice is in the interests of the holders. (Section 7.05.)
The holders of a majority in principal amount of the Outstanding Securities
of any series may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the Securities of such series,
provided that such directions shall not be in conflict with any law or the
Indenture and subject to certain other limitations. (Section 6.05.) Before
proceeding to exercise any right or power under the Indenture at the direction
of such holders, the Trustee shall be entitled to receive from such holders
reasonable security or indemnity satisfactory to it against the costs,
expenses and liabilities which might be incurred by it in complying with any
such direction. (Sections 6.06 and 7.01.) With respect to each series of
Securities, no holder will have any right to pursue any remedy with respect to
the Indenture or the Securities, unless (i) such holder shall have previously
given the Trustee written notice of a continuing Event of Default with respect
to the Securities of such series; (ii) the holders of at least 25% in
aggregate principal amount of the Outstanding Securities of such series shall
have made a written request to the Trustee to pursue such remedy; (iii) such
holder or holders have offered to the Trustee reasonable indemnity
satisfactory to the trustee; (iv) the holders of a majority in aggregate
principal amount of the Outstanding Securities of such series have not given
the Trustee a direction inconsistent with such request within 60 days after
receipt of such request; and (v) the Trustee shall have failed to comply with
the request within such 60-day period. (Section 6.06.)
Notwithstanding the foregoing, the right of any holder of any Security or
coupon to receive payment of the principal of and interest in respect of such
Security or payment of such coupon on the Stated Maturity or Maturities
expressed in such Security or coupon or to institute suit for the enforcement
of any such payments shall not be impaired or adversely affected without such
holder's consent. (Section 6.07.) The holders of at least a majority in
aggregate principal amount of the Outstanding Securities of any series of
Securities may waive an existing Default with respect to such series and its
consequences, other than (i) any Default in any payment of the principal of or
interest on any Security of such series or (ii) any Default in respect of
certain covenant or provisions in the Indenture which may not be modified
without the consent of the holder of each Outstanding Security of such series
affected as described in "Modification and Waiver," below. (Section 6.04.)
10
<PAGE>
MODIFICATION AND WAIVER
The Company and the Trustee may execute a supplemental indenture without the
consent of the holders of the Securities or any related coupons (i) to add to
the covenants, agreements and obligations of the Company for the benefit of
the holders of all the Securities of any series or to surrender any right or
power conferred in the Indenture upon the Company; (ii) to evidence the
succession of another corporation to the Company and the assumption by it of
the obligations of the Company under the Indenture and the Securities; (iii)
to provide that Bearer Securities may be registrable as to principal, to
change or eliminate any restrictions (including restrictions relating to
payment in the United States) on the payment of principal of or interest, if
any, on Bearer Securities, to permit Bearer Securities to be issued in
exchange for Registered Securities, to permit Bearer Securities to be issued
in exchange for Bearer Securities of other authorized denominations or to
permit the issuance of Securities in uncertificated form; (iv) to establish
the form or terms of Securities of any series and any related coupons as
permitted by Sections 2.01 and 2.03(a) of the Indenture; (v) to provide for
the acceptance of appointment under the Indenture of a successor Trustee with
respect to the Securities of one or more series and to add to or change any
provisions of the Indenture as shall be necessary to provide for or facilitate
the administration of the trusts by more than one Trustee; (vi) to cure any
ambiguity, defect or inconsistency; (vii) to add to, change, or eliminate any
provisions (which addition, change or elimination may apply to one or more
series of Securities), provided that any such addition, change or elimination
neither (a) applies to any Security of any series created prior to the
execution of such supplemental indenture and is entitled to the benefit of
such provision nor (b) modifies the rights of the holder of any such Security
with respect to such provision; (viii) to secure the Securities; or (ix) to
make any other change that does not adversely affect the rights of any
Securityholder. (Section 9.01.)
With the consent of the holders of not less than a majority in aggregate
principal amount of the Outstanding Securities of the series affected by such
supplemental indenture, the Company and the Trustee may also execute a
supplemental indenture to add provisions to, or change in any manner or
eliminate any provisions of, the Indenture with respect to such series of
Securities or modify in any manner the rights of the holders of the Securities
of such series and any related coupons under the Indenture, provided that no
such supplemental indenture will, without the consent of the holder of each
such Outstanding Security affected thereby (i) change the stated maturity of
the principal of, or any installment of principal or interest on, any such
Security or any premium payable upon redemption thereof, or reduce the amount
of principal of any Security that is a Discount Security and that would be due
and payable upon declaration of acceleration of maturity thereof; (ii) reduce
the principal amount of, or the rate of interest on, any such Security, (iii)
change the place or currency of payment of principal or interest, if any, on
any such Security; (iv) impair the right to institute suit for the enforcement
of any payment on or with respect to any such Security; (v) reduce the above-
stated percentage of holders of Securities of any series necessary to modify
or amend the Indenture; or (vi) modify the foregoing requirements or reduce
the percentage in principal amount of Outstanding Securities of any series
necessary to waive any covenant or past default. (Section 9.02.) Holders of
not less than a majority in principal amount of the Outstanding Securities of
any series may waive certain past Defaults and may waive compliance by the
Company with certain of the restrictive covenants described above with respect
to the Securities of such series. (Section 6.04.)
DISCHARGE
Unless otherwise indicated in an applicable Prospectus Supplement, the
Company may satisfy and discharge obligations under the Indenture with respect
to the Securities of any series by delivering to the Trustee for cancellation
all Outstanding Securities of such series or depositing with the Trustee,
after such Outstanding Securities have become due and payable, cash sufficient
to pay at Stated Maturity all of the Outstanding Securities of such series and
paying all other sums payable under the Indenture with respect to such series.
(Section 8.01.)
11
<PAGE>
THE TRUSTEE
The Trustee is a New York corporation. The Trustee will be permitted to
engage in certain transactions with the Company and its subsidiaries;
provided, however, if the trustee acquires any conflicting interest, it must
eliminate such conflict or resign. (Section 7.10.)
UNITED STATES TAXATION
GENERAL
Set forth below is a summary of certain United States Federal income tax
considerations of importance to the original purchasers of the Debt
Securities. The summary does not discuss all of the aspects of Federal income
taxation which may be relevant to particular investors in light of their
personal investment circumstances, nor does it discuss any foreign, state or
local income or other tax considerations. The summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), and on regulations,
rulings and decisions that are in effect as of the date of this Prospectus,
all of which are subject to change. Prospective investors are advised to
consult with their tax advisors regarding the Federal, state, local and
foreign income and other tax consequences of purchasing, holding and disposing
of the Debt Securities. Special Federal tax considerations or other
restrictions or terms applicable to any Debt Securities which are issuable in
bearer form, offered exclusively to United States Aliens (as defined below)
will be set forth in a Prospectus Supplement relating thereto. "United States
Alien" means any person who, for Federal income tax purposes, is a foreign
corporation, a non-resident alien individual, a non-resident alien fiduciary
of a foreign estate or trust, or a foreign partnership one or more of the
members of which is, for Federal income tax purposes, a foreign corporation, a
non-resident alien individual or a non-resident alien fiduciary of a foreign
estate or trust.
ORIGINAL ISSUE DISCOUNT
Debt Securities with a term greater than one year may be issued with
original issue discount for Federal income tax purposes. Original issue
discount will arise if the stated principal amount at maturity of a Debt
Security exceeds its issue price by more than a de minimis amount, or if a
Debt Security has certain interest payment characteristics (e.g., interest
holidays, interest payable in additional Debt Securities, stepped rates or
rates based on multiple indices). If a Debt Security is issued with original
issue discount, the holder of the Debt Security will be required to include
amounts in gross income for Federal income tax purposes in advance of the
receipt of the cash payment to which such income is attributable. The amount
of original issue discount to be included in income in any tax period will be
determined using a constant yield to maturity method. Any amounts included in
income as original issue discount will, however, increase a holder's tax basis
in the Debt Security.
Any Debt Security issued with original issue discount will bear a legend
setting forth the total amount of original issue discount with respect to such
Debt Security, and the Company will report annually to the Internal Revenue
Service (the "IRS") and to each holder of such Debt Security the original
issue discount accrued with respect to the Debt Security. Prospective holders
are advised to consult their tax advisors with respect to the particular
original issue discount characteristics of the Debt Security that is being
purchased.
DISPOSITION OF DEBT SECURITIES
In general, an original holder of a Debt Security will recognize gain or
loss on the sale, redemption, exchange or other disposition of the Debt
Security measured by the difference between the amount of cash received
(except to the extent attributable to accrued interest) and the holder's
adjusted tax basis in the Debt Security.
12
<PAGE>
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under Federal income tax law, a holder of Debt Securities may, under certain
circumstances, be subject to "backup withholding" at a 31 percent rate. This
withholding generally applies if the holder (i) fails to furnish his, her or
its social security number or other taxpayer identification number ("TIN"),
(ii) furnishes an incorrect TIN, (iii) fails properly to report interest or
dividends or (iv) under certain circumstances, fails to provide a certified
statement, signed under penalty of perjury, that the TIN provided is his, her
or its correct number and that he, she or it is not subject to backup
withholding. Therefore, a holder of Debt Securities should, when requested,
provide the Company or its paying agent with a Form W-9 to provide the
information and certification necessary to avoid backup withholding, unless an
exemption from backup withholding exists and can be demonstrated in a
satisfactory manner. Holders of Debt Securities should consult their tax
advisors as to their qualification for exemption from backup withholding and
the procedure for obtaining such an exemption.
The Company will, where required, report to the holders of the Debt
Securities and to the IRS the amount of any interest payments and any amounts
withheld during each calendar year with respect to the Notes.
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to one or more underwriters for public
offering and sale by them or may sell Debt Securities to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale
of the Offered Securities will be named in an applicable Prospectus
Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Company may also offer and sell the Offered Securities
in exchange for one or more of its outstanding issues of Debt Securities. The
Company also may, from time to time, authorize underwriters acting as the
Company's agents to offer and sell the Offered Securities upon the terms and
conditions set forth in any Prospectus Supplement. In connection with the sale
of Offered Securities, underwriters may be deemed to have received
compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of Offered
Securities for whom they may act as agent. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions (which may be changed from time to time) from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in an applicable Prospectus Supplement. Underwriters,
dealers and agents participating in the distribution of the Offered Securities
may be deemed to be underwriters under the Securities Act, and any discounts
and commissions received by them and any profit realized by them on resale of
the Offered Securities may be deemed to be underwriting discounts and
commissions under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements with the Company, to indemnification against, and
contribution toward, certain civil liabilities, including liabilities under
the Securities Act, and to reimbursement by the Company for certain expenses.
The Debt Securities may or may not be listed on a national securities
exchange or a foreign securities exchange. No assurances can be given that
there will be a market for the Debt Securities.
13
<PAGE>
EXPERTS
The financial statements and schedules included or incorporated by reference
in this Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and
are included herein in reliance upon the authority of said firms as experts in
accounting and auditing in giving said reports.
14
<PAGE>
INDEX TO FINANCIAL STATEMENTS
STANDARD PACIFIC CORP. AND SUBSIDIARIES
<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 income
taxes........................ (2,300) (382) (6,034) 14,906 (4,993)
-------- ------- -------- -------- --------
Income (loss) from continuing
operations................... 3,301 571 9,001 (22,383) 7,176
Income (loss) from discontin-
ued 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 Decem-
ber 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 of continuing operations..... 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
-------------------------- ------- ------- ------- ------- -------
(UNAUDITED)
<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 $705, $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 $ 23,223
======== ======== ========
</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 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 (loss) 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 (loss).......... $ 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
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE
HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS OF
WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS SUPPLEMENT. NEITHER THIS
PROSPECTUS SUPPLEMENT NOR THE PROSPECTUS CONSTITUTES AN OFFER OR SOLICITATION
BY ANYONE IN ANY JURISDICTION IN OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary......................................... S-3
Statement Regarding Forward Looking Disclosure........................ S-9
Risk Factors.......................................................... S-9
Use of Proceeds....................................................... S-12
Capitalization........................................................ S-13
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ S-14
Business.............................................................. S-23
Management............................................................ S-29
Description of Notes.................................................. S-31
Underwriting.......................................................... S-47
Legal Matters......................................................... S-48
PROSPECTUS
Available Information................................................. 2
Incorporation of Certain Documents by Reference....................... 2
Use of Proceeds....................................................... 3
Selected Consolidated Financial Data.................................. 4
Ratio of Earnings to Fixed Charges.................................... 5
Description of the Debt Securities.................................... 6
United States Taxation................................................ 12
Plan of Distribution.................................................. 13
Experts............................................................... 14
Index to Consolidated Financial
Statements........................................................... F-1
</TABLE>
$100,000,000
STANDARD PACIFIC CORP.
8 1/2% SENIOR NOTES DUE 2007
[LOGO
OF STANDARD PACIFIC CORP.]
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANCAMERICA SECURITIES, INC.
PROSPECTUS SUPPLEMENT
DATED JUNE 12, 1997
