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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from N/A to
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Commission file number 1-10959
STANDARD PACIFIC CORP.
(Exact name of registrant as specified in its charter)
Delaware 33-0475989
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1565 W. MacArthur Blvd., Costa Mesa, California, 92626
(Address of principal executive offices)
(714) 668-4300
(Registrant's telephone number, including area code)
----------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value New York Stock Exchange and
(and accompanying Preferred Share Purchase Rights) Pacific Stock Exchange
8 1/2% Senior Notes Due 2007 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [_]
As of March 1, 2000, the aggregate market value of voting stock held by
non-affiliates of the registrant was $256,730,582.
Documents incorporated by reference:
Portions of the Company's Proxy Statement to be filed with the Securities
and Exchange Commission in connection with the Company's 2000 Annual Meeting
of Stockholders are incorporated by reference into Part III hereof.
As of March 1, 2000, there were 28,969,580 shares of common stock
outstanding.
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STANDARD PACIFIC CORP.
PART I
ITEM 1. BUSINESS
We operate primarily as a geographically diversified builder of single-
family homes for use as primary residences. We have operations throughout the
major metropolitan markets in California, Texas and Arizona. For the year
ended December 31, 1999, approximately 64%, 13% and 23% of our home deliveries
(including unconsolidated joint ventures) were in California, Texas and
Arizona, respectively.
We also offer mortgage loans to our homebuyers and others through a
mortgage banking subsidiary and a joint venture with a leading financial
institution. For business segment financial data, see our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K.
Standard Pacific Corp. was incorporated in the State of Delaware in 1991.
Through our predecessors, we commenced our homebuilding operations in 1966
with a single tract of land in Orange County, California. Unless the context
otherwise requires, the terms "we," "us" and "our" refer to Standard Pacific
Corp. and its predecessors and subsidiaries.
Strategy
Through our well-established reputation for building high quality homes,
proven operating strategies and an experienced management team, we seek to
grow in our existing markets and expand into selected new markets that show
strong promise for future growth. The main elements of our strategy include:
Geographic Diversification and Growth. We continue to focus on growing our
California homebuilding operations. We currently have substantial operations
throughout the major metropolitan areas in the state, including Orange, Los
Angeles, Riverside, San Bernardino, San Diego and Ventura Counties in Southern
California, and in the San Francisco Bay area of Northern California. Over the
last several years we have laid the foundation for future growth in our Texas
division, which has projects in the Dallas, Houston and Austin markets. In the
third quarter of 1998, we expanded into the Phoenix, Arizona market with the
acquisition of a portion of the homebuilding operations of an established
builder. We believe that we continue to have additional opportunities to
expand in our existing markets and enter new geographic markets.
Focus on Broad Move-Up Market and Diverse Product Offerings. We concentrate
on the construction of single-family homes for use as primary residences by
move-up buyers throughout a broad range of products and price points. We
expect to concentrate our efforts on acquiring land that is suitable for the
construction and sale of homes generally in the price range of $150,000 to
$700,000, which represents a broad market segment in our market areas. We also
construct and sell homes in the $700,000 to $1,500,000 price range in certain
of our California markets. This diverse product platform enables us to take
advantage of additional market opportunities and positions us strategically
with product offerings that appeal to a wide range of customers.
Experienced Management and Decentralized Operations. Our senior corporate
and division operating managers average over 20 years of experience in the
homebuilding business. Each division is run by a local manager with an 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 our corporate officers, and
thereafter, each manager conducts the operations of the division relatively
autonomously. The experience and depth of our management team gives us the
ability to evaluate and explore potential new market opportunities and our
decentralized operations have proven to be attractive to selected potential
acquisition candidates.
Reputation for High Quality, Single-Family Homes. We believe that we have
an established reputation for providing high quality homes. We pride ourselves
on our ability to design unique and attractive homes and provide our customers
with a wide selection of options. We believe that our long history of
providing high quality homes has resulted in many repeat buyers and word-of-
mouth sales.
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Conservative Operating Strategy. We customarily acquire unimproved or
improved land zoned for residential use which appears suitable for the
construction of 50 to 300 homes in increments of 10 to 30 homes. We generally
purchase entitled land when we project commencement of development or
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, we have been able to respond to local market conditions and
control the number of our completed and unsold homes. Additionally, an
increasing percentage of our lots are controlled through joint ventures. We
use joint ventures for certain land development projects that have long lead
times or are of significant size requiring substantial capital investments.
Strong Land Position. We have been operating in California for over 30
years and have an established reputation with land owners. We believe that our
long standing relationships with land owners and developers give us a
competitive edge in securing quality land positions at competitive prices in
California. We are also continuing to build our reputation and relationships
in Texas and Arizona. In order to ensure an adequate supply of land for future
homebuilding activities, we generally attempt to maintain an inventory of
building sites sufficient for construction of homes over a period of
approximately three to four years. We believe that our 14,743 owned or
controlled building sites at December 31, 1999, in addition to any land sites
for which we may enter into negotiations, will be sufficient for our
operations over this period.
Control of Overhead and Operating Expenses. Throughout our history, we have
sought to minimize overhead expenses in order to be more flexible in
responding to the cyclical nature of our business. We strive to control our
overhead costs by centralizing certain of our administrative functions and by
limiting the number of middle level management positions.
Operations
We currently build homes in California, Texas and Arizona through a total
of eight operating divisions, with 173 projects under development or held for
future development at December 31, 1999.
The table below sets forth selected information for each region in which we
operate and for our homebuilding operations as a whole for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended
December 31, 1999 As of December 31, 1999
------------------ --------------------------------------------------
Total Number
Number of of Building Homes
Average Projects Projects Sites Under
Home Held for in Sales Owned or Construc- Presold
Homes Selling Development Stage Controlled tion Homes
Delivered Price (1) (2) (3) (4) (5)
--------- -------- ----------- -------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Southern California(6).. 1,173 $474,501 52 20 4,435 480 342
Northern California..... 1,020 392,337 36 13 2,299 354 173
Dallas/Austin........... 341 264,869 26 17 2,111 174 122
Houston................. 118 167,861 9 5 316 31 4
Phoenix................. 802 159,958 34 10 3,956 319 327
----- -------- --- --- ------ ----- -----
Total Consolidated...... 3,454 $346,030 157 65 13,117 1,358 968
Unconsolidated Joint
Ventures-- Southern
California............. 18 $484,650 16 3 1,626 97 46
----- -------- --- --- ------ ----- -----
Totals for and as of the
year ended December 31,
1999................... 3,472 $346,749 173 68 14,743(7) 1,455 1,014
===== ======== === === ====== ===== =====
Totals for and as of the
year ended December 31,
1998................... 2,328 $329,972 152 55 13,869(7) 1,491 1,111
===== ======== === === ====== ===== =====
</TABLE>
Footnotes appear on next page
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(1) 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.
(2) The number of projects in the sales stage includes projects where the
sales office has opened and/or we have begun to enter into sales contracts
for the sale of homes.
(3) Includes sites for homes reflected in Homes Under Construction and Presold
Homes.
(4) Includes certain homes reflected in Presold Homes.
(5) For information concerning cancellation rates and contractual arrangements
under which homes are presold, see the section "--Marketing and Sales."
(6) Includes our Orange County, San Diego County, Ventura County and Inland
Empire divisions.
(7) Includes as of December 31, 1999, 210 model homes and 167 completed and
unsold homes, and as of December 31, 1998, 183 model homes and 136
completed and unsold homes.
Substantially all of our homes are single-family detached dwellings,
although during the past few years up to 10 percent have been townhouses or
condominiums generally attached in varying configurations of two, three, four
and six dwelling units.
Our homes are designed to suit the particular area of the country in which
they are located and are available in a variety of models, exterior styles and
materials depending upon local preferences. While they typically range in size
from approximately 2,000 to 3,500 square feet and typically include four to
five bedrooms, three or four baths, a living room, kitchen, dining room,
family room and a two or three-car garage, we also have built single-family
attached and detached homes ranging from 1,100 to 5,500 square feet. For the
years ended December 31, 1999, 1998 and 1997, the average selling prices of
our homes, including sales of the unconsolidated joint ventures, were
$346,749, $329,972 and $309,239, respectively.
Land Acquisition, Development and Construction
In considering the purchase of land for the development of a project, we
review 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 rates for new housing;
. environmental condition of the land;
. transportation conditions and availability; and
. the estimated costs of development.
Generally, if all requisite governmental agency approvals are not in place,
we enter into a conditional agreement to purchase a parcel of land, making
only a nominal deposit on the property. Our general policy is to complete a
purchase of land only when we 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 our being able to obtain all
requisite approvals from governmental agencies within a certain period of
time. We customarily acquire unimproved or improved land zoned for residential
use which appears suitable for the construction of 50 to 300 homes.
Construction is then accomplished in smaller sized increments. The number of
homes built in the first increment of a project is based upon our internal
market studies. The timing and size of subsequent increments depends on the
sales rates of
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earlier increments. Our development work on a 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.
We typically use both our equity (internally generated funds) and unsecured
financing in the form of bank debt and other unsecured debt to fund land
acquisitions. To a lesser extent, we also use purchase money trust deeds to
finance the acquisition of land. We also enter into land development joint
ventures from time to time, typically for projects that have long lead times
or require substantial capital investments. Generally, with the exception of
joint ventures, project specific financing is not used.
We essentially function as a general contractor with our 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. We do not have
long-term contractual commitments with any of our subcontractors, consultants
or suppliers of materials. However, because of our market presence and long-
term relationships, we have 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 a phase-by-
phase or project-by-project basis at a fixed price after competitive bidding.
We believe that the low fixed labor expense resulting from conducting our
operations in this manner has been instrumental in enabling us to retain the
necessary flexibility to react to increases or decreases in demand for
housing.
Although the construction time for our homes varies from project to project
depending on the time of year, the size of the house, local labor situations,
certain governmental approval processes, availability of materials and
supplies and other factors, we can typically complete the home construction of
a phase within one of our projects in approximately four to six months.
Joint Ventures
We enter into land development and homebuilding joint ventures from time to
time as a means of managing our risk profile and expanding our market
opportunities. Land development joint ventures are typically entered into with
other homebuilders and developers as a method of spreading the financial risks
associated with developing larger projects. Homebuilding joint ventures may
involve partnering with existing landowners as a means of acquiring desirable
properties. For the years ended December 31, 1999, 1998 and 1997, we delivered
18, 40 and 67 homes, respectively, through unconsolidated joint ventures. Our
more significant land development and homebuilding joint ventures are
described below.
In 1996, our Orange County division entered into a joint venture to develop
and deliver up to approximately 800 homes in Fullerton and Brea, California.
During 1999, 1998 and 1997, we delivered 18, 40 and 52 new homes,
respectively, from this unconsolidated joint venture. As of December 31, 1999,
we had made investments of approximately $8.4 million in this joint venture.
In the first half of 1997, our Northern California division entered into
two joint ventures to develop approximately 700 lots and a championship golf
course in Gilroy, California. Fifty percent of these lots will be sold to us
at cost for the construction and sale of homes. As of December 31, 1999, we
had made investments of approximately $19.0 million in these joint ventures.
During 1997, we 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 master-planned 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 4,500 attached and
detached homes, develop and operate a championship golf course, and develop
certain community amenities and commercial and industrial components. As a
one-third participant in this long-term project, we may be required to invest
up to $20 million in the project and will receive certain rights of first
offer entitling us to purchase at fair market value up to 1,000 finished lots
from the
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joint venture for construction and sale of homes by us. As of December 31,
1999, our net investment in this joint venture was less than $1 million.
Additionally, through December 31, 1999 we had purchased 155 lots from the
joint venture on which we intend to build and sell homes.
In July 1999, we entered into a joint venture with Catellus Residential
Group, Inc. to acquire and develop an age-qualified community within the
Talega master-planned community in San Clemente, California (the "Talega
Village Joint Venture"). The Talega Village Joint Venture plans to develop and
deliver up to approximately 300 homes. This guard-gated community will feature
four separate product types with its own resident recreation center that will
contain various recreational amenities. Additionally, this project is adjacent
to a portion of the championship golf course within the Talega Joint Venture.
As of December 31, 1999, we had an investment of approximately $1.4 million in
this joint venture.
Our Orange County division is a participant in a homebuilding joint venture
located in the San Gabriel Valley area of Southern California. This joint
venture is scheduled to construct and deliver in excess of 300 homes, with
development scheduled to commence in mid to late 2000, and first home
deliveries planned for 2001. As of December 31, 1999, our investment in this
joint venture totaled approximately $2.5 million.
In 1998, we entered into a joint venture with Centex Homes to develop
approximately 700 lots in Riverside County, California. Currently, our
Southern California Inland Empire division is scheduled to purchase
approximately half of these lots at cost for the construction and sale of
homes and sales of lots to other builders. As of December 31, 1999, we had
made an investment of approximately $7.2 million in this joint venture.
Marketing and Sales
Our homes are generally sold by our own sales personnel. Furnished and
landscaped model homes are typically maintained at each project site.
Homebuyers are afforded the opportunity to select, at additional costs,
various optional amenities and upgrades such as prewiring and electrical
options, upgraded flooring, cabinets, finished carpentry and countertops,
varied interior and exterior color schemes, additional appliances and some
room configurations. We make extensive use of advertisements in local
newspapers, illustrated brochures, billboards and on-site displays.
Our homes are typically sold during or prior to construction using sales
contracts which are usually accompanied by a cash deposit, although some of
our homes are sold after completion of construction. For a limited time,
purchasers are typically permitted to cancel these contracts if they fail to
qualify for financing. In some cases, purchasers are also permitted to cancel
these contracts if they are unable to sell their existing homes or if certain
other conditions are not met.
During each of the years ended December 31, 1999, 1998 and 1997, we
experienced cancellation rates of 24 percent, 25 percent and 22 percent,
respectively. Although cancellations can delay the delivery of homes, they
have not, during the last few years, had a material negative impact on sales,
operations or liquidity. In order to minimize the negative impact of
cancellations, it is our policy to closely monitor the progress of prospective
buyers in obtaining financing and to monitor and adjust our start plan to
continuously match the level of demand for our homes. Sales are recorded after
construction is completed, required down payments are received and title
passes. At December 31, 1999, 1998 and 1997, we had an inventory of completed
and unsold homes of 167, 136 and 116, respectively.
Financial Services
Customer Financing
In 1998, we began offering conventional, FHA-insured, VA-guaranteed and
other types of mortgage loans to our California homebuyers and others through
our mortgage banking subsidiary, Family Lending Services, Inc. ("Family
Lending").
5
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In 1998, we also began offering conventional, FHA-insured, VA-guaranteed
and other types of mortgage loans to our Arizona homebuyers through SPH
Mortgage, a joint venture with Wells Fargo Bank. During 1999, we expanded this
venture into our Texas operating divisions.
Family Lending sells the loans it originates in the secondary mortgage
market, generally on a non-recourse basis with servicing rights released. It
typically finances its loans held for sale with borrowings under its
warehousing line of credit (secured by the loans and certain servicing rights)
with a third party lender. SPH Mortgage generally sells the loans it
originates, on a non-recourse basis and with servicing rights released, to
Wells Fargo Bank.
Both Family Lending and SPH Mortgage seek to manage interest rate risk with
respect to loan commitments and loans held for sale by preselling loans on a
best efforts basis. To enhance potential returns on the sale of mortgage
loans, Family Lending also plans to begin selling a portion of its mortgage
loans on a non-presold mandatory delivery basis. To hedge its interest rate
risk associated with extending interest rate commitments to customers prior to
selling closed loans to investors, Family Lending anticipates entering into
forward sale commitments of mortgage-backed securities. (See "Management's
Discussion and Analysis--Quantitative and Qualitative Disclosures About Market
Risk" for further discussion of selling mortgage loans on a mandatory delivery
basis).
The principal sources of revenues for these mortgage banking operations
are:
. fees generated from loan originations;
. net gains on the sale of loans; and
. interest income earned on loans during the period they are held prior to
sale.
Title Services
During 1999, we began serving as a title insurance agent in Texas by
offering title examination services to our Texas homebuyers through a new
subsidiary, SPH Title, Inc. We assume no underwriting risk associated with
these title policies.
Certain Factors Affecting our Operations
Set forth below are certain matters that may affect us.
Economic Conditions and Interest Rates Affect Our Industry. The
homebuilding industry is highly cyclical. Changes in world, national and local
economic conditions affect our business and our markets. In particular,
declines in consumer confidence or employment levels in our markets, as well
as a drop in stock market valuations, may adversely affect the demand for
homes and could in turn harm our operating results.
Our customers typically finance their home purchase through lenders
providing mortgage financing. Increases in interest rates or decreases in the
availability of mortgage financing could depress the market for new homes
because of the increased monthly mortgage costs, or the decreased availability
of financing, to potential homebuyers. Even if some of our potential customers
do not need financing, changes in interest rates and mortgage availability
could make it harder for them to sell their existing homes to potential buyers
who need financing. This could adversely affect our operating results.
Additional Capital May Not Be Available to Fund Future Growth. Our
operations require significant amounts of cash, and we will be required to
seek additional capital, whether from sales of equity or borrowing more money,
for the future growth and development of our business. We can give no
assurance as to the terms or availability of such additional capital.
Moreover, the indentures for our outstanding debt and our revolving credit
facility contain provisions that may restrict the debt we may incur in the
future. If we are not successful in obtaining sufficient capital, it could
reduce our sales and may adversely affect our future growth and operating
results.
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We Depend on the California Market. We presently conduct a significant
portion of our business in California. Home prices in California, including
some of the markets in which we operate, have declined from time to time,
particularly as a result of weak economic conditions. We cannot be certain
that the current economic climate in California will continue. If home prices
decline in one or more of the markets in which we operate, our results of
operations may be adversely affected.
Risk of Slow Growth Initiatives. Several California cities and counties,
including some in which we have sold a significant number of homes, have in
the past approved, or approved for inclusion on their ballot, various "slow
growth" initiatives and other ballot measures which could impact the
availability of land and building opportunities within those localities. In
addition, in Arizona a state-wide initiative is on the November 2000 ballot
which would restrict the ability of homebuilders to build outside of
designated, pre-existing urban areas and could create additional costs and
administrative requirements to build homes. Introduction and voter approval of
this or similar measures could harm our ability to build and sell homes in the
affected markets. This in turn could adversely affect our operating results.
Possible Shortage of Land for Purchase and Development; Inventory
Risks. Our success in developing, building and selling homes depends in part
upon the continued availability of suitable undeveloped land at acceptable
prices. The availability of undeveloped land for purchase at favorable prices
depends on a number of factors outside of our control, including the risk of
competitive over-bidding of land prices and restrictive governmental
regulation. Should suitable land opportunities become less available, our
operating results could be adversely affected.
Land inventory risk can be substantial for homebuilders. The market value
of undeveloped land, buildable lots and housing inventories can fluctuate
significantly as a result of changing economic and market conditions. In the
event of significant changes in economic or market conditions, we may have to
writedown land holdings, sell homes at a loss and/or hold land in inventory
longer than planned. Inventory carrying costs can be significant and can
result in losses in a poorly performing project or market.
Our Industry is Highly Competitive. The homebuilding industry is highly
competitive and fragmented. We compete with numerous other residential
construction firms, including large national and regional firms, for
customers, undeveloped land, financing, raw materials and skilled labor. We
compete for customers on the basis of the location, design, quality and price
of, as well as available mortgage financing for, our homes. Some of these
firms have substantially greater financial resources than we do. We also
compete with the resale of existing homes and, in some cases, with rental
homes. An oversupply of attractively priced resale or rental homes in our
markets could adversely affect our ability to sell homes profitably. Our
mortgage lending operations are subject to intense competition from other
mortgage lenders, many of which are substantially larger and may have a lower
cost of funds.
Risk of Material and Labor Shortages. The residential construction industry
has from time to time experienced serious material and labor shortages,
including shortages in insulation, drywall, cement and lumber. These labor and
material shortages can be more severe during periods of strong demand for
housing. Certain of these materials, including lumber and cement in
particular, have experienced volatile price swings. Similar shortages and
price increases in the future could cause delays in and increase the costs of
our home construction which in turn would adversely affect our operating
results.
We Are Subject to Extensive Government Regulation. Our homebuilding
operations are subject to environmental, building, worker health and safety,
zoning and real estate regulations by various federal, state and local
authorities. These regulations, which affect all aspects of the homebuilding
process, including development, design, construction and sales, can
substantially delay or increase the costs of homebuilding activities. In
addition, regulations governing environmental and health matters may prohibit
or severely restrict homebuilding activity in environmentally sensitive
regions.
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New housing developments, particularly in California, may be subject to
various assessments for schools, parks, streets, highways and other public
improvements. The costs of these assessments can be substantial and can cause
increases in the effective prices of our homes, which in turn could adversely
affect our operating results.
During the development process, we must obtain the approval of numerous
governmental authorities which regulate matters such 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 services.
The approval process can be lengthy and cause significant delays in the
development process. In addition, changes in local circumstances or laws may
require additional approvals or modifications to approvals previously
obtained, which can result in further delays. Such delays in the development
process can cause substantial increases to development costs, which in turn
could adversely affect our operating results.
Our mortgage banking operations are subject to numerous federal, state and
local laws and regulations, including eligibility requirements for
participation in federal loan programs. Our title insurance agency subsidiary
is subject to applicable insurance laws and regulations. Many of these
regulatory requirements are designed to protect the interests of consumers.
Failure to comply with these requirements can lead to ineligibility for
participation in governmental programs, administrative enforcement actions,
the loss of required licenses and claims for monetary damages.
Risk of Natural Disasters. We are subject to the risks associated with
adverse weather conditions and natural disasters which occur in our key
markets, including:
. unusually heavy or prolonged rain;
. earthquakes;
. fires; and
. floods.
Such conditions can negatively affect our operations in the markets in
which they occur. In addition, California has periodically experienced drought
conditions which result in water conservation measures and sometimes rationing
by municipalities in which we do business. Restrictions by governmental
agencies on construction activity as a result of limited water supplies could
adversely affect our operating results.
Risk Relating to the "Year 2000 Issue." To date we have not experienced any
disruptions in our ability to process data or any other problems relating to
the Year 2000 issue. Until the further passage of time, however, there can be
no assurance that the Year 2000 issue will not adversely affect us. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Issue.")
Employees
At December 31, 1999, we had approximately 741 employees.
During the past five years, we have not directly experienced a work
stoppage in our operations caused by labor disputes. Construction of homes in
our projects has, from time to time, been delayed due to strikes by certain
construction unions against subcontractors retained by us or strikes against
suppliers of materials used in the construction of our homes. Such delays have
not had a significant adverse effect on our operations. We believe that our
relations with our employees and subcontractors are satisfactory.
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ITEM 2. PROPERTIES
In addition to real estate held for development and sale, we lease office
facilities for our corporate, real estate and financing operations. The
following table summarizes our principal leased facilities at March 1, 2000:
<TABLE>
<CAPTION>
Square Feet of Lease
Location Floor Space Expiration
-------- -------------- ----------
<S> <C> <C>
Costa Mesa, CA (1) (2)............................ 52,181 2002
Costa Mesa, CA (2)................................ 24,000 2002
Irvine, CA (3).................................... 32,621 2010
Newport Beach, CA (4)............................. 9,312 2005
Pleasanton, CA.................................... 8,488 2002
Los Gatos, CA..................................... 4,725 2001
Westlake Village, CA.............................. 5,439 2001
San Diego, CA..................................... 9,262 2000-2002
Temecula, CA...................................... 4,711 2002
Scottsdale, AZ (5)................................ 12,731 2006
Irving, TX........................................ 6,835 2002
Austin, TX........................................ 1,931 2001
Houston, TX....................................... 8,585 2004
</TABLE>
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(1) We have subleased 40,000 square feet of this facility to an unrelated
third party through 2002.
(2) To the extent not subleased to a third party, this facility is used for
our corporate and Orange County divisional offices. We intend to move
these offices to a new facility in March 2000. We are actively seeking to
sublease this space in anticipation of it becoming vacant.
(3) This facility will serve as our corporate and Orange County divisional
offices upon occupancy which is presently scheduled for March 2000.
(4) This facility is used for Family Lending's offices.
(5) 1,600 square feet of this space is subleased to an unrelated third party
through 2006.
We believe that all of our properties are currently satisfactory for the
purposes for which they are used.
ITEM 3. LEGAL PROCEEDINGS
Various claims and actions, considered normal to our business, have been
asserted and are pending against us. We believe that such claims and actions
should not have a material adverse effect upon our results of operations,
financial position or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
Our executive officers' ages, positions, and brief accounts of their
business experience, are set forth below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Arthur E. Svendsen.................. 76 Chairman of the Board; Director
Stephen J. Scarborough.............. 51 Chief Executive Officer and
President; Director
Michael C. Cortney.................. 52 Executive Vice President
Andrew H. Parnes.................... 41 Vice President--Finance, Treasurer
and Chief Financial Officer
Clay A. Halvorsen................... 40 Vice President, General Counsel and
Secretary
Jari L. Kartozian................... 41 Vice President
</TABLE>
Arthur E. Svendsen has served as the Chairman of the Board and Chief
Executive Officer from 1961 through December 1999. Effective January 1, 2000,
Mr. Svendsen assigned his Chief Executive Officer responsibilities to Mr.
Scarborough.
Stephen J. Scarborough has served as a Director since May 1996 and as
President since October 1996. Effective January 1, 2000, Mr. Scarborough
assumed the position of Chief Executive Officer. Mr. Scarborough served as
Executive Vice President from January 1996 until October 1996. Prior to this
and since 1981, Mr. Scarborough was President of our Orange County, California
homebuilding division.
Michael C. Cortney has served as Executive Vice President since January
2000. Mr. Cortney served as Senior Vice President from January 1998 until
December 1999. Mr. Cortney also continues to serve as the President of our
Northern California homebuilding division, a position he has held since 1985.
Mr. Cortney joined Standard Pacific in 1982.
Andrew H. Parnes was appointed to the position of Vice President--Finance
in January 1997. In addition, he has served as our Chief Financial Officer
since July 1996 and as our Treasurer since January 1991. From December 1989
until July 1996, Mr. Parnes served as our Controller.
Clay A. Halvorsen joined us as Vice President, General Counsel and
Secretary in January 1998. Previously, from 1985 through December 1997, Mr.
Halvorsen practiced with the law firm of Gibson, Dunn & Crutcher LLP, where he
became a partner in January 1995.
Jari L. Kartozian has served as Vice President since January 2000. Ms.
Kartozian served as Senior Vice President Sales and Marketing of our Orange
County, California homebuilding division from September 1998 to December 1999
and as Vice President Sales and Marketing of this division prior to this and
since August 1991. Ms. Kartozian joined Standard Pacific in 1981.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our shares of common stock are listed on the New York Stock Exchange and
Pacific Stock Exchange. The following table sets forth, for the fiscal
quarters indicated, the reported high and low closing prices of the common
shares as reported on the New York Stock Exchange Composite Tape and the
amount of common dividends paid.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1999 1998
---------------------------- --------------------------
Quarter Ended High Low Dividend High Low Dividend
------------- ---- ---- -------- ----- ---- --------
<S> <C> <C> <C> <C> <C> <C>
March 31............ $15 1/8 $11 11/16 $.05 $18 7/8 $14 5/8 $.04
June 30............. 15 12 1/8 .05 21 14 3/4 .04
September 30........ 14 1/8 10 .05 21 11 9/16 .04
December 31......... 12 15/16 8 7/8 .05 14 7/8 7 7/8 .05
</TABLE>
As of March 1, 2000, the approximate number of record holders of common
stock was 1,343.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995(1)
----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues............... $ 1,198,831 $ 759,612 $ 584,571 $ 399,863 $ 346,263
=========== =========== =========== =========== ===========
Income (loss) from
continuing operations
before income taxes
and extraordinary
charge................ $ 114,063 $ 80,894 $ 41,046 $ 12,948 $ (37,247)
(Provision) benefit for
income taxes.......... (46,492) (33,490) (17,070) (5,197) 14,890
----------- ----------- ----------- ----------- -----------
Income (loss) from
continuing operations
before extraordinary
charge................ 67,571 47,404 23,976 7,751 (22,357)
Income (loss) from
discontinued
operations, net of
income taxes.......... (159) (199) 48 642 (5,006)
Gain on disposal of
discontinued
operations, net of
income taxes.......... 618 -- 3,302 -- --
Extraordinary charge
from early
extinguishment of
debt, net of income
taxes................. -- (1,328) -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ 68,030 $ 45,877 $ 27,326 $ 8,393 $ (27,363)
=========== =========== =========== =========== ===========
Basic Net Income (Loss)
Per Share:
Income (loss) per
share from
continuing
operations.......... $ 2.28 $ 1.59 $ 0.82 $ 0.26 $ (0.73)
Income (loss) per
share from
discontinued
operations.......... (0.01) (0.01) 0.00 0.02 (0.17)
Gain on disposal of
discontinued
operations.......... 0.02 -- 0.11 -- --
Extraordinary charge
from early
extinguishment of
debt................ -- (0.04) -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) per
share............... $ 2.29 $ 1.54 $ 0.93 $ 0.28 $ (0.90)
=========== =========== =========== =========== ===========
Diluted Net Income
(Loss) Per Share:
Income (loss) per
share from
continuing
operations.......... $ 2.27 $ 1.58 $ 0.81 $ 0.26 $ (0.73)
Income (loss) per
share from
discontinued
operations.......... (0.01) (0.01) 0.00 0.02 (0.17)
Gain on disposal of
discontinued
operations.......... 0.02 -- 0.11 -- --
Extraordinary charge
from early
extinguishment of
debt................ -- (0.04) -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) per
share............... $ 2.28 $ 1.53 $ 0.92 $ 0.28 $ (0.90)
=========== =========== =========== =========== ===========
Stockholders' equity
per share............. $ 13.07 $ 10.96 $ 9.58 $ 8.79 $ 8.58
Cash dividends declared
per share............. $ 0.20 $ 0.17 $ 0.14 $ 0.12 $ 0.12
Weighted average common
shares outstanding.... 29,597,669 29,714,431 29,504,477 30,000,492 30,488,676
Weighted average common
and diluted shares
outstanding........... 29,795,263 30,050,078 29,807,702 30,011,595 30,488,676
Total assets........... $ 829,968 $ 866,362 $ 547,665 $ 449,114 $ 444,603
Long-term debt--
continuing
operations............ $ 321,847 $ 404,806 $ 194,305 $ 80,000 $ 129,062
Stockholders' equity... $ 381,885 $ 324,679 $ 283,778 $ 260,389 $ 257,926
</TABLE>
- -------
(1) The 1995 loss from continuing operations before income taxes and
extraordinary charge of $37.2 million reflects the adoption of Financial
Accounting Standards No. 121 ("FAS 121") which resulted in a $46.5 million
noncash pretax charge to operations.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
section "Selected Financial Data" and our consolidated financial statements and
the related notes included elsewhere in this Form 10-K.
Results of Operations
Selected Financial Information
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Homebuilding:
Revenues.................................... $1,198,831 $759,612 $584,571
Cost of sales............................... 986,793 618,448 490,876
---------- -------- --------
Gross margin.............................. 212,038 141,164 93,695
---------- -------- --------
Gross margin percentage................... 17.7% 18.6% 16.0%
---------- -------- --------
Selling, general and administrative
expenses................................... 99,971 61,691 52,141
Income from unconsolidated joint ventures... 6,201 4,158 3,787
Interest expense............................ 1,519 1,168 4,981
Amortization of excess of cost over net
assets acquired............................ 1,979 1,312 245
Other income (expense)...................... (712) 168 822
---------- -------- --------
Homebuilding pretax income................ 114,058 81,319 40,937
---------- -------- --------
Financial Services:
Revenues.................................... 2,257 1,403 171
Income from unconsolidated joint venture.... 783 -- --
Other income................................ 105 -- --
Expenses.................................... 3,140 1,828 62
---------- -------- --------
Financial services pretax income (loss)... 5 (425) 109
---------- -------- --------
Income from continuing operations before
income taxes and extraordinary charge........ $114,063 $ 80,894 $ 41,046
========== ======== ========
Operating Data
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
New homes delivered:
Southern California......................... 1,173 1,119 849
Northern California......................... 1,020 516 628
---------- -------- --------
Total California.......................... 2,193 1,635 1,477
---------- -------- --------
Dallas/Austin............................... 341 288 234
Houston..................................... 118 177 168
---------- -------- --------
Total Texas............................... 459 465 402
---------- -------- --------
Arizona..................................... 802 188 --
---------- -------- --------
Consolidated total.......................... 3,454 2,288 1,879
Unconsolidated joint ventures (Southern
California)................................ 18 40 67
---------- -------- --------
Total..................................... 3,472 2,328 1,946
========== ======== ========
Average selling price:
California deliveries (excluding joint
ventures).................................. $ 436,285 $381,534 $337,649
Texas deliveries............................ $ 239,930 $215,458 $195,631
Arizona deliveries.......................... $ 159,958 $161,649 $ --
Combined (excluding joint ventures)......... $ 346,030 $329,714 $307,265
Combined (including joint ventures)......... $ 346,749 $329,972 $309,239
</TABLE>
12
<PAGE>
Operating Data--(continued)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net New Orders:
Southern California.............................. 1,138 1,226 922
Northern California.............................. 946 612 607
-------- -------- --------
Total California............................... 2,084 1,838 1,529
-------- -------- --------
Dallas/Austin.................................... 375 310 238
Houston.......................................... 91 156 190
-------- -------- --------
Total Texas.................................... 466 466 428
-------- -------- --------
Arizona.......................................... 761 165 --
-------- -------- --------
Consolidated total............................... 3,311 2,469 1,957
Unconsolidated joint ventures (Southern
California)..................................... 64 13 70
-------- -------- --------
Total.......................................... 3,375 2,482 2,027
======== ======== ========
<CAPTION>
At December 31,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Backlog (in units):
Southern California.............................. 342 377 270
Northern California.............................. 173 247 151
-------- -------- --------
Total California............................... 515 624 421
-------- -------- --------
Dallas/Austin.................................... 122 88 66
Houston.......................................... 4 31 52
-------- -------- --------
Total Texas.................................... 126 119 118
-------- -------- --------
Arizona.......................................... 327 368 --
-------- -------- --------
Consolidated total............................... 968 1,111 539
Unconsolidated joint ventures (Southern
California)..................................... 46 -- 27
-------- -------- --------
Total.......................................... 1,014 1,111 566
======== ======== ========
Backlog at year end (estimated dollar value in
thousands)........................................ $326,101 $359,959 $191,682
======== ======== ========
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Average selling communities during the year:
Southern California.............................. 21 17 19
Northern California.............................. 15 11 9
Texas............................................ 18 18 17
Arizona.......................................... 11 9 --
Unconsolidated joint ventures (Southern
California)..................................... 1 2 2
-------- -------- --------
Total.......................................... 66 57 47
======== ======== ========
<CAPTION>
At December 31,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Building sites owned or controlled:
California....................................... 8,360 8,587 7,246
Texas............................................ 2,427 2,298 1,770
Arizona.......................................... 3,956 2,984 --
-------- -------- --------
Total.......................................... 14,743 13,869 9,016
======== ======== ========
</TABLE>
13
<PAGE>
Fiscal Year 1999 Compared to Fiscal Year 1998
Income from continuing operations before an extraordinary charge increased
43 percent to $67.6 million, or $2.27 per diluted share, for the year ended
December 31, 1999, compared to $47.4 million, or $1.58 per diluted share, in
1998. The improved operating performance primarily reflects our position in
the strong California housing market as well as the full year contribution
from our Arizona operations, which were acquired in late 1998, and our
improved operating results in the Dallas market.
Net income including the discontinued operation and the extraordinary
charge increased 48 percent to $68.0 million, or $2.28 per diluted share, for
the year ended December 31, 1999, compared to $45.9 million, or $1.53 per
diluted share, in 1998. The discontinued operation reflects our former savings
and loan subsidiary, which was sold in May 1999 for an after tax gain of
$618,000, or $0.02 per diluted share. The 1998 extraordinary charge reflects
an after tax loss of $1.3 million, or $0.04 per diluted share, recognized in
connection with the early extinguishment of approximately $39 million of our
10 1/2% Senior Notes due in 2000. (See "-- Discontinued Operations" for
further discussion of the discontinued operating segments.)
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
for 1999 increased 33 percent to $147.0 million compared to $110.8 million in
1998.
Homebuilding
Homebuilding revenues for the year ended December 31, 1999 surpassed the $1
billion level for the first time, increasing 58 percent to a record $1,198.8
million from $759.6 million in 1998. The higher revenue total was due to a 51
percent increase in new home deliveries (exclusive of joint ventures) to 3,454
homes, coupled with a 5 percent increase in the average home selling price to
$346,000. In California we delivered 2,211 new homes, up 32 percent over the
prior year, with our Northern and Southern California operations both topping
1,000 deliveries for the first time. Northern California deliveries were up 98
percent over the prior year due, in part, to a 36 percent increase in new
communities, many of which were acquired in connection with our 1997
acquisition of Duc Development Company. In Southern California, deliveries
were up 5 percent on a 16 percent higher community count. Revenues rose 34
percent over the prior year, due to the increase in deliveries and a
28 percent higher average home selling price of $475,000. Our Arizona division
delivered 802 new homes in its first full year of operations compared to 188
homes delivered in the last four months of 1998. Overall, Texas deliveries
were in line with the prior year level; however, deliveries were up 18 percent
in our Dallas division which was substantially offset by a decline in
deliveries from our Houston operation.
The average home price in California increased 14 percent to $436,000. The
higher home price reflects both the delivery of larger, more expensive homes,
particularly in Southern California, and general price appreciation from the
strong housing demand in the state. In Texas, the average home price was up 11
percent to $240,000 reflecting a greater distribution of deliveries from our
Dallas and Austin operations. The average home price of $160,000 in Arizona
remained relatively consistent with the prior year amount.
The gross margin percentage for the year was down 90 basis points to 17.7
percent compared to 18.6 percent in 1998. The decline in the gross margin
percentage was primarily attributable to higher land and labor costs in
California which was a result of the state's strong housing market and, to a
lesser degree, increased deliveries in Arizona and Texas where margins are
typically lower than in California. The lower margins in Arizona and Texas,
however, were partially offset by faster inventory turnover rates.
Selling, general and administrative expenses as a percentage of revenues
were up slightly in 1999 to 8.3 percent from 8.1 percent in 1998. The increase
in these expenses as a percentage of revenues is primarily due to the timing
of certain sales and marketing costs incurred in connection with the opening
of new communities. During 1999 we opened 43 new communities compared to 27
new openings in 1998.
Income generated from unconsolidated joint ventures in 1999 totaled $6.2
million compared to $4.2 million in 1998. The 1999 income primarily reflects
lot sales from our Talega land development joint venture in south Orange
County with Catellus and Starwood Capital. In addition, during the fourth
quarter we began delivery of
14
<PAGE>
homes from our joint venture in Fullerton and Brea, California. The venture
delivered 18 of a planned 390 new homes from three different projects.
Amortization of excess of cost over net assets acquired for 1999 reflects
both the 1997 Northern California acquisition, as well as the 1998 Arizona
acquisition. The amortization for 1998 reflects only four months of
amortization for the Arizona acquisition.
Net new orders for 1999 were up 36 percent over the prior year to a record
3,375 new homes on a 16 percent increase in average community count. Orders
were up 55 percent in Northern California on a 36 percent increase in
community count, while orders declined 3 percent in Southern California on a
16 percent increase in community count. The decline in Southern California
orders was attributable, in large part, to a shift to higher priced homes
which generally sell at a lower sales rate than less expensive homes. However,
net new orders in Southern California were up 69 percent in the fourth quarter
on a 56 percent increase in active selling communities. In Texas, orders were
in line with the prior year total on an unchanged community count. Orders in
Dallas were up 22 percent on a 27 percent higher community count, while orders
in Houston were down 42 percent on a 29 percent lower community count. Arizona
generated 761 orders in its first full year of operations versus 165 net new
orders for the last four months of 1998.
Our backlog of presold homes at December 31, 1999 stood at 1,014 homes with
an estimated sales value of $326 million, a 9 percent decline from the 1998
year end backlog value. The higher backlog value in 1998 was due in large part
to severe weather conditions in California in early 1998 which impacted our
ability to deliver homes later in that year.
During 2000 we are planning on opening approximately 55 to 60 new
communities, 30 to 35 of which will be located in California, 10 in Texas and
15 in Arizona. Assuming there are no significant changes in general economic
conditions, consumer confidence or interest rates, we expect to be in a
position to increase unit deliveries in 2000.
Financial Services
Revenues from our financial services subsidiary increased 61 percent over
the prior year due to an increase in the number of mortgage loans closed. The
higher level of loan closings is attributable to the expansion of the loan
origination operations during 1999 to most of the regions in California in
which we operate. The rise in operating expenses reflects the increase in
overhead from expanding our mortgage banking operations in California.
The financial services joint venture income reflects the operating results
of our mortgage banking venture with Wells Fargo Bank in Arizona and Texas.
Other financial services income represents earnings from our new title
insurance operation in Texas, which began serving as a title insurance agent
and offering title examination services in September 1999.
Fiscal Year 1998 Compared to Fiscal Year 1997
Income from continuing operations and before an extraordinary charge for
the year ended December 31, 1998 increased 98 percent to $47.4 million, or
$1.58 per diluted share, compared with $24.0 million, or $0.81 per diluted
share in 1997. The significant increase in earnings was fueled by a jump in
new home deliveries, an increase in the average selling price of new homes
delivered and a higher homebuilding gross margin.
Net income including discontinued operations and an extraordinary charge
increased 68 percent to $45.9 million, or $1.53 per diluted share, for the
year ended December 31, 1998 compared to $27.3 million, or $0.92 per diluted
share, in 1997. The discontinued operations in 1997 and 1998 include our
former savings and loan subsidiary which was sold in May of 1999. The
discontinued operations in 1997 also include our former office furniture
manufacturing subsidiary which was sold in December 1997. The extraordinary
charge reflects an after tax loss of $1.3 million, or $0.04 per diluted share,
recognized in connection with the early
15
<PAGE>
extinguishment of approximately $39 million of our 10 1/2% Senior Notes due
2000. (See "--Discontinued Operations" for further discussion of the
discontinued operating segments.)
In the third quarter of 1998, we expanded into the Phoenix, Arizona market
with the acquisition of a portion of the Arizona single-family homebuilding
operations of Shea Homes, Inc., which had been recently acquired from UDC
Homes, Inc. In connection with this acquisition, we purchased, or assumed the
rights to acquire, over 2,000 single-family lots located in 13 communities in
the Phoenix metropolitan area, of which seven were active subdivisions at the
close of the transaction, and acquired a backlog of 400 presold homes. Arizona
is the second fastest growing state in the nation (based on percentage growth
in jobs, gross state product and population) and Phoenix is one of the
nation's largest metropolitan housing markets (based on dollar value of
single-family building permits). As part of the acquisition, the experienced
management team and selected operating personnel joined Standard Pacific. We
paid a total of approximately $59 million for these assets with borrowings
under our revolving credit facility.
Homebuilding
Homebuilding revenues for the year ended December 31, 1998 increased 30
percent to a then record $759.6 million, from $584.6 million in 1997. The
increase was fueled by a 20 percent increase in deliveries to 2,328 new homes
and a 7 percent increase in the average home price. The increase in the
average price reflects both the strong housing market and the delivery of
larger, more expensive homes in California where the average home price was up
13 percent to $381,534. New home deliveries were up 32 percent in Southern
California due to the addition of new communities and improved market
conditions, while deliveries were off 16 percent in Northern California due to
the timing of new project openings and the effects of the severe weather
conditions in early 1998. Texas deliveries were up 16 percent due to increased
deliveries from our Dallas operations resulting from the addition of new,
well-located communities. Additionally, 1998 included 188 deliveries from the
recently acquired Arizona operation.
Our 1998 homebuilding gross margin improved 260 basis points to 18.6
percent which was primarily the result of rising home prices in the strong
California housing market and the delivery of larger, more expensive homes
which typically generate higher margins.
Selling, general and administrative expenses as a percentage of revenues
decreased from 8.9 percent in 1997 to 8.1 percent in 1998. This favorable
decline was primarily attributable to the increased volume in revenues
relative to the generally fixed nature of certain general and administrative
expenses. Additionally, we experienced a reduction in selling costs as a
percentage of revenues principally due to the healthy California housing
market and a higher sales absorption rate resulting in lower costs per home
delivered.
Income from our unconsolidated joint ventures increased 10 percent during
1998 as compared to 1997 despite a 40 percent decline in new home deliveries
from our unconsolidated joint ventures. The reduction in deliveries was more
than offset by the income generated in the fourth quarter from the initial
sale of lots from our Talega land development joint venture in south Orange
County.
Interest expense for the year ended 1998 declined approximately $3.8
million from 1997 to $1.2 million. This decrease was primarily the result of
capitalizing more interest to real estate inventories in 1998 compared to
1997.
Amortization of excess of cost over net assets acquired for 1998 reflects a
full year of amortization for the 1997 Northern California acquisition, as
well as amortization related to the third quarter 1998 Arizona acquisition.
Net new orders for the year ended December 31, 1998 increased 22 percent
over 1997 to 2,482 new homes. Excluding the 165 net new orders generated from
our Arizona operation, orders increased 14 percent. Our Southern California
operations experienced the strongest gains during 1998 with net new orders
increasing 25 percent over 1997, while the 1998 order level in Northern
California remained in line with the strong order levels achieved in 1997.
Texas orders were up 9 percent as a result of new community openings in our
Dallas division.
16
<PAGE>
Financial Services
In 1998, we began offering mortgage products to some of our Southern
California homebuyers through our new mortgage banking operation, Family
Lending Services, Inc. The results of operations for 1998 reflect a loss of
approximately $425,000 which was the result of the start-up nature of this
business.
Additionally, in connection with the Arizona acquisition, we assumed a 50
percent interest in a joint venture with Wells Fargo Bank that offers mortgage
loans to our Arizona homebuyers. For the year ended December 31, 1998, there
was no income or loss recorded from this unconsolidated joint venture.
Carrying Costs, Real Estate Inventories and Cost of Sales
<TABLE>
<CAPTION>
At December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Capitalized interest in inventory and the
percentage of total
real estate inventories..................... $21.4 3.1% $15.2 2.1% $13.7 3.0%
Average real estate inventory balance........ $706 $583 $412
Cost of sales for the year then ended........ $987 $618 $491
Ratio of cost of sales to average inventory
balance (Inventory turn ratio).............. 1.40x 1.06x 1.19x
</TABLE>
The 1999 inventory turn ratio increased to 1.40 from 1.06 in 1998. This
improvement was primarily attributable to a 51 percent increase in new home
deliveries in 1999 while the average inventory balance was up only 21 percent
over the prior year. This favorable trend is a result of greater deliveries in
Texas and Arizona, which generally turn their inventory levels faster than
projects in California, and the result of a strong housing market in
California which is having a positive impact on our ability to turn our
inventory quicker.
The 1998 inventory turn ratio decreased from 1997 principally due to a 42
percent increase in the average real estate inventory balance, while cost of
sales increased only 26 percent. The inventory growth outpaced the increase in
cost of sales as we purchased land in our existing markets in response to the
strong demand for housing, particularly in California, and as a result of our
expansion into Arizona in the third quarter of 1998.
While still at favorable levels, capitalized interest in real estate
inventories at December 31, 1999 was up $6.2 million, or at 3.1 percent of
ending inventory, compared to 2.1 percent of ending inventory at the end of
1998. This increase in capitalized interest can be attributed, in part, to the
rise in the number of active communities under development during the year,
combined with a greater proportion of fixed-rate debt versus variable rate
debt in 1999. Generally, fixed-rate debt, which is longer-term in duration,
bears a higher interest rate than shorter-term variable rate debt.
Discontinued Operations
Disposition of Standard Pacific Savings. In May 1997, our Board of
Directors adopted a plan of disposition (the "Plan") for our savings and loan
subsidiary ("Savings"). Pursuant to the Plan, we sold substantially all of
Savings' mortgage loan portfolio in June 1997. The proceeds from the sale of
the mortgages were used to pay off substantially all of the outstanding
balances of Federal Home Loan Bank advances with the remaining amount
temporarily invested until the savings deposits were sold along with Savings'
remaining assets. The gain generated from the sale of this mortgage loan
portfolio, net of related expenses, was not material. In August 1998, we
entered into a definitive agreement to sell the remainder of Savings'
business, including Savings' charter, which closed in May 1999, and resulted
in an after tax gain of $618,000 which is reflected in the accompanying
consolidated statements of income. Proceeds from the sale of Savings were
approximately $8.8 million before transaction and other related costs. Savings
has been accounted for as a discontinued operation and the results of its
operations and net assets have been segregated in the accompanying
consolidated financial statements included elsewhere in this Form 10-K.
Savings had not offered mortgage financing to our homebuyers since July 1994,
and as a result, the sale of Savings has had no impact on sales of our homes.
17
<PAGE>
Disposition of Panel Concepts. In December 1997, we completed the sale of
Panel Concepts, Inc. ("Panel Concepts") to HON Industries, Inc., a national
furniture manufacturer, for a cash sales price of approximately $9.5 million,
after distribution of certain non-operating assets to Standard Pacific
totaling approximately $9 million. Panel Concepts has been accounted for as a
discontinued operation and the results of its operations have also been
segregated in our consolidated financial statements included elsewhere in this
Form 10-K.
Recent Development
We recently entered into a letter of intent to acquire The Writer
Corporation, a publicly-traded Denver-based homebuilder ("Writer"), for a
proposed consideration of $3.42 per share of Writer common stock, or a total
of approximately $27.4 million plus the assumption of approximately $27
million of indebtedness. The acquisition consideration will be payable in a
combination of cash and Standard Pacific common stock, with Writer's public
shareholders being entitled to elect to receive up to the entire purchase
price in cash. Not more than 60 percent and not less than 50 percent of the
aggregate consideration will be paid in Standard Pacific common stock. Writer
is a longtime homebuilder in the Denver metropolitan area, and more recently
has expanded its operations into the emerging Fort Collins/Northern Colorado
market. For the year ended December 31, 1999, Writer had revenues of $82
million and delivered 383 homes.
Consummation of the transaction under the non-binding letter of intent is
subject to customary conditions, including execution of a definitive
acquisition agreement, satisfactory completion of our due diligence
examination and approval of Writer stockholders. No assurances can be given
that the transaction will be consummated.
Liquidity and Capital Resources
Our homebuilding operations' principal uses of cash have been for operating
expenses, land acquisitions, construction expenditures, market expansion
(including through acquisitions), principal and interest payments on debt,
share repurchases and dividends to our shareholders. Cash requirements have
been provided from internally generated funds and outside borrowings,
including a bank revolving credit facility and public note offerings. Our
mortgage banking subsidiary uses cash from internal funds and a mortgage
warehouse credit facility to fund its mortgage lending operations. Based on
our current business plan and our desire to carefully manage our leverage, we
believe that these sources of cash are sufficient to finance our current
working capital requirements and other needs.
In August 1999, we amended our unsecured revolving credit facility with our
bank group to, among other things, increase the commitment to $450 million,
extend the maturity date one year to July 31, 2003 and revise certain
financial and other covenants. This agreement contains a borrowing base
provision and financial covenants which may limit the amount we may borrow
under the revolving credit facility. At December 31, 1999, we had borrowings
of $23 million outstanding under this facility.
To fund mortgage loans through our financial services subsidiary, we have
in place a revolving mortgage warehouse credit facility with a bank. To
facilitate the anticipated growth within our financial services subsidiary,
the commitment was increased from $15 million to $40 million in May 1999.
Mortgage loans are generally held for a short period of time and are typically
sold to investors within 15 days following funding. Borrowings, which are
LIBOR based, are secured by the related mortgage loans held for sale. The
facility, which has a current maturity date of May 31, 2000, also contains
certain financial covenants.
In May 1998, we repurchased, and simultaneously retired, approximately $7.7
million of our 10 1/2% Senior Notes through open market purchases. On
September 30, 1998, we repurchased and retired approximately $31.5 million of
our 10 1/2% Senior Notes in connection with a tender offer and consent
solicitation, leaving a balance of approximately $19.6 million outstanding. On
March 1, 1999, the balance of these notes was repaid through the annual
sinking fund payment provision of the indenture.
18
<PAGE>
In October 1998, the Securities and Exchange Commission declared effective
our $300 million universal shelf registration statement on Form S-3. The
universal shelf registration statement permits the issuance of common stock,
preferred stock, debt securities and warrants. We currently have $200 million
available under the universal shelf.
In April 1999, a portion of the universal shelf was used to issue $100
million of 8 1/2% Senior Notes which mature April 1, 2009 (the "8 1/2% Senior
Notes"). The 8 1/2% Senior Notes, which were issued at par, are unsecured
obligations and rank equally with our other existing senior unsecured
indebtedness. The 8 1/2% Senior Notes contain restrictive covenants which,
among other things, impose certain limitations on our ability to (1) incur
additional indebtedness, (2) create liens, (3) make restricted payments and
(4) sell assets. In addition, upon a change in control we are required to make
an offer to purchase these senior notes. The 8 1/2% Senior Notes are
redeemable at our option, in whole or in part, at any time after April 1, 2004
at 104.25 percent of par, with the call price reducing ratably to par on April
1, 2007. Net proceeds after underwriting expenses were approximately
$98.3 million and were used to repay a portion of the balance outstanding
under our revolving credit facility.
From time to time, purchase money mortgage financing is used to finance
land acquisitions. At December 31, 1999, we had approximately $3.5 million
outstanding under trust deed notes payable, a decrease of $17.7 million from
December 31, 1998.
Additionally, as a form of off balance sheet financing and for other
strategic purposes, joint venture structures are used on selected projects.
This type of structure, which typically obtains secured construction and
development financing, minimizes the use of funds from our revolving credit
facility and other corporate financing sources. We plan to continue using
these types of arrangements to finance the development of properties as
opportunities arise.
We paid approximately $5.9 million in dividends to our stockholders during
the year ended December 31, 1999. Common stock dividends are paid at the
discretion of our Board of Directors and are dependent upon various factors,
including earnings, cash flows, capital requirements and operating and
financial conditions, including our overall level of leverage. Additionally,
our revolving credit facility and public notes impose restrictions on the
amount of dividends we may be able to pay. On January 25, 2000, our Board of
Directors declared a quarterly cash dividend of $.08 per share of common
stock, a 60 percent increase from the previous quarterly dividend of $.05 per
common share. This dividend was paid on February 25, 2000 to shareholders of
record on February 11, 2000.
During the year ended December 31, 1999, 33,000 shares of common stock were
issued pursuant to the exercise of stock options for aggregate consideration
of approximately $245,000.
In October 1999, our Board of Directors increased the aggregate stock
repurchase limit of our previously announced stock buyback plan from $20
million to $25 million. During the year ended December 31, 1999, we
repurchased 453,800 shares of common stock for approximately $5.2 million
pursuant to this plan. From the inception of the plan through February 29,
2000, we repurchased an aggregate of approximately 2.1 million shares of
common stock for approximately $17.5 million, leaving a balance of
approximately $7.5 million available for future share repurchases.
We have no other material commitments or off balance sheet financing
arrangements that under current market conditions are expected to materially
affect our future liquidity.
Year 2000 Issue
The "Year 2000 issue" is a general term used to describe the problems which
were expected to arise from the inability of computer systems to properly
recognize a year that begins with "20" instead of the familiar "19." If not
corrected, many computer applications could fail or miscalculate the data
being processed.
19
<PAGE>
We utilize a number of computer information systems in conjunction with our
homebuilding and mortgage banking operations. All of our homebuilding
operations are on computer software applications that we believe are year 2000
compliant. Our mortgage banking subsidiary, Family Lending Services, Inc.,
utilizes a service bureau for its application systems. This service bureau has
advised us that its systems are year 2000 compliant. The financial institution
partner in our mortgage banking joint venture has advised us that both its and
the joint venture's computer information systems are year 2000 compliant.
During 1998, we upgraded our computer hardware, including but not limited
to, procuring a new AS400 mid-range computer, installing a Company-wide
computer area network, and making numerous upgrades to various personal
computer operating systems. As a result, we believe that all of our computer
hardware, including personal computer operating systems and peripheral
equipment, is year 2000 compliant in all material respects.
We have evaluated all other non-information technology internal office
systems, and believe that they are also year 2000 compliant.
We surveyed our significant vendors, subcontractors, suppliers and
financial institutions to assess their state of readiness for the year 2000.
Third parties significant to our operations include our bank group, escrow and
title companies, subcontractors and suppliers, and a third-party payroll
service. While the results of the survey have been evaluated, survey responses
are inherently insufficient to enable us to fully determine the extent to
which the Year 2000 issue could still affect these or other third parties,
such as governmental agencies on which we are dependent for zoning, building
permits and related matters. To date we have not been impacted by third party
Year 2000 issues.
We completed certain systems conversions and network upgrades as part of
our normal course of business as there was a need to upgrade the existing
information systems irrespective of the Year 2000 issue. Including the cost of
these conversions and upgrades, we estimate that we have expended
approximately $1.4 million on addressing Year 2000 issues to date and we do
not anticipate incurring any additional costs related to this issue.
To date, we have not experienced any disruptions in our ability to process
data or any other problems relating to the Year 2000 issue. Until the further
passage of time, however, there can be no assurance that the Year 2000 issue
will not adversely affect us.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). Under the provisions of FAS 133, companies
are required to recognize all derivatives as either assets or liabilities in
the statements of financial position and measure those instruments at fair
value. We are required to adopt FAS 133 effective January 1, 2001. We have not
yet quantified the impact of adopting FAS 133.
20
<PAGE>
FORWARD-LOOKING STATEMENTS
This Form 10-K contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, which represent our expectations or beliefs concerning
future events, including, but not limited to, statements regarding:
. the expected price range of our future homes;
. the adequacy of our inventory of building sites;
. our opportunities to expand in our existing markets and enter new
geographic markets;
. the availability of building sites for purchase and expected deliveries
from joint ventures;
. the time typically required to complete the home construction of a phase
of a project;
. the expected impact of outstanding claims and actions on our results of
operations, financial position and liquidity;
. the strength of the California housing market;
. our backlog of homes and their estimated sales value;
. planned new home community openings;
. our ability to increase unit deliveries in 2000;
. the sufficiency of our cash provided by internally generated funds and
outside borrowings;
. anticipated growth of our financial services subsidiary;
. our planned continued use of joint ventures as a financing structure;
. our Year 2000 compliance and the expected impact of the Year 2000 issue
on our business operations and financial performance;
. the expected impact of various accounting statements on our financial
position, results of operations and liquidity;
. our exposure to market risks, including fluctuations in interest rates;
. the expected impact of certain land development joint ventures on our
results of operations;
. the likelihood of realization of a net deferred tax asset; and
. the potential value of and expense related to stock option grants.
We caution 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 factors set
forth under "Business--Certain Factors Affecting our Operations" and the
following:
. changes in local and general economic and market conditions, including
consumer confidence;
. changes in interest rates and the availability of construction and
mortgage financing;
. changes in costs and availability of materials, supplies and labor;
. the cyclical and competitive nature of homebuilding;
. the availability of debt and equity capital;
. changes in the availability of suitable undeveloped land at reasonable
prices;
. governmental regulation;
. adverse weather conditions and natural disasters; and
. adverse consequences of the Year 2000 issue.
Results actually achieved thus may differ materially from expected results
included in these and any other forward-looking statements contained herein.
21
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks related to fluctuations in interest rates on
our mortgage loans receivable and debt. As of December 31, 1999, we did not
utilize swaps, forward or option contracts on interest rates, foreign
currencies or commodities, or other types of derivative financial instruments.
The purpose of the following analysis is to provide a framework to understand
our sensitivity to hypothetical changes in interest rates as of December 31,
1999. You should be aware that many of the statements contained in this
section are forward looking and should be read in conjunction with our
disclosures under the heading "Forward-Looking Statements."
As part of our normal operations, we provide mortgage loans to our
homebuyers through our financial services subsidiary and a joint venture. Our
financial services subsidiary, Family Lending, currently presells these loans
to investors on a best efforts basis as a means of managing the interest rate
risk associated with mortgage lending. Preselling loans on a best efforts
basis consists of Family Lending obtaining commitments from investors to
purchase certain mortgage loans concurrently with extending interest rate
locks to loan applicants. These loans are typically presold the same day we
commit the interest rate lock to our customers. Should the loan applicant fail
to close their loan, there is no pair-out fee charged to Family Lending. In
general, these loans are warehoused by Family Lending for a short period of
time (usually 15 days or less) while the investor completes its administrative
review of the loan documents. Due to the frequency of these loan sales and
commitments from our investors, the market rate risk associated with these
mortgage loans is minimal. There are also certain loans in Family Lending's
mortgage loan portfolio which were contributed to Family Lending in connection
with its initial capitalization. These mortgage loans are held for sale and
include both fixed and variable rate loans. With respect to our mortgage
banking joint venture, there is substantially no interest rate risk related to
this operation as loans to our homebuyers are presold, generally to Wells
Fargo Bank, typically the same day we commit the interest rate lock to our
customers. To a much lesser extent, our homebuilding operation has provided
first and second mortgage loans to homebuyers and on occasion trust deed
mortgage financing on land sales. These loans are held to maturity and
generally are at fixed interest rates.
To enhance potential returns on the sale of mortgage loans, Family Lending
plans to begin selling a portion of its mortgage loans on a non-presold
mandatory delivery basis versus a presold best efforts basis. When selling on
a non-presold basis, Family Lending is required to lock interest rates with
its customers prior to obtaining purchase commitments from secondary market
investors, thereby creating interest rate risk. Family Lending anticipates
entering into forward sale commitments of mortgage-backed securities to hedge
its interest rate risk associated with extending interest rate commitments to
loan applicants prior to selling closed loans to investors. In addition, to
the extent it elects to presell on a mandatory delivery basis, Family Lending
will incur a pair-out fee for loans that it is committed to deliver but do not
close. While our hedging strategy of buying and selling mortgage-backed
securities should assist us in mitigating risk associated with selling loans
on a mandatory delivery basis, these instruments involve elements of market
risk which could result in losses on loans sold in this manner if not hedged
properly. In January 2000, Family Lending retained a third party advisory firm
to assist with selling loans on a mandatory delivery basis and entering into
forward sale commitments of mortgage-backed securities.
We utilize debt financing primarily for the purpose of acquiring and
developing land and constructing and selling homes. Historically, we have made
short-term borrowings under our revolving credit facility to fund these
expenditures and when market conditions were appropriate, based on our
judgment, we would issue stock or fixed rate debt to provide longer-term
financing. In addition, our financial services subsidiary utilizes short-term
borrowings under a mortgage warehouse credit facility to finance mortgage loan
originations for our homebuyers. Borrowings under both of these revolving
credit facilities are at variable rates.
For fixed rate debt, changes in interest rates generally affect the fair
market value of the debt instrument, but not our earnings or cash flows.
Conversely, for variable rate debt, changes in interest rates generally do not
impact fair market value of the debt instrument, but do affect our future
earnings and cash flows. We do not have an obligation to prepay fixed rate
debt prior to maturity, and as a result, interest rate risk and changes in
22
<PAGE>
fair market value should not have a significant impact on the fixed rate debt
until we would be required to refinance such debt. Holding our variable rate
debt balance constant as of December 31, 1999, each one percentage point
increase in interest rates would result in an increase in variable rate
interest incurred for the coming year of approximately $333,000. A one point
percentage increase in interest rates on our average variable rate debt
outstanding during 1999 would have resulted in an increase in variable rate
interest costs of approximately $1.3 million.
The table below details the principal amount and the average interest rates
for the mortgage notes receivable, mortgage loans held for sale and debt for
each category based upon the expected maturity dates. Certain mortgage notes
receivable and mortgage loans held for sale, require periodic principal
payments prior to the expected maturity date. The fair value estimates for
these mortgage notes receivable and mortgage loans held for sale are based
upon future discounted cash flows of similar type notes or quoted market
prices for similar loans. The carrying value of our variable rate debt
approximates fair value due to the frequency of repricing of this debt. Our
fixed rate debt consists of trust deed notes payable and senior notes payable.
The interest rates on our trust deed notes payable approximate the current
rates available for secured real estate financing with similar terms and
maturities, and as a result, their carrying amounts approximate fair value.
Senior notes payable are publicly traded debt instruments and their fair
values are based on their quoted market prices as of December 31, 1999.
<TABLE>
<CAPTION>
Expected Maturity Date
-------------------------------------------------- Fair
2000 2001 2002 2003 2004 Thereafter Total Value
December 31, ------- ----- ------ ------- ----- ---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Mortgage notes receivable........ $ 109 $ 88 $2,996 $ 103 $ 108 $ 1,126 $ 4,530 $ 3,969
Average interest rate........... 8.2% 7.9% 5.8% 7.6% 8.1% 7.2% 6.4%
Mortgage loans held for sale(1).. $15,330 $ 642 $ 298 $ 96 $ 69 $ 1,119 $ 17,554 $ 18,192
Average interest rate........... 7.7% 8.1% 7.6% 7.9% 8.1% 9.7% 7.8%
Liabilities:
Fixed rate debt.................. $ 3,531 $ -- $ -- $ -- $ -- $298,847 $302,378 $279,031
Average interest rate........... 6.2% -- -- -- -- 8.4% 8.4%
Variable rate debt............... $10,304 $ -- $ -- $23,000 $ -- $ -- $ 33,304 $ 33,304
Average interest rate........... 6.6% -- -- 7.4% -- -- 7.2%
</TABLE>
- --------
(1) Certain amounts presented in this line item reflect the expected date of
disposition of certain loans rather than the actual scheduled maturity
dates of these mortgages.
Based on the current interest rate management policies we have in place
with respect to certain mortgage loans held for sale, we do not believe that
the future market rate risks related to the above securities will have a
material adverse impact on our financial position, results of operations or
liquidity.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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,
1999 and 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Standard Pacific Corp. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/Arthur Andersen LLP
Orange County, California
January 21, 2000
24
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Homebuilding:
Revenues................................ $1,198,831 $ 759,612 $ 584,571
Cost of sales........................... 986,793 618,448 490,876
---------- ---------- ----------
Gross margin.......................... 212,038 141,164 93,695
---------- ---------- ----------
Selling, general and administrative
expenses............................... 99,971 61,691 52,141
Income from unconsolidated joint
ventures............................... 6,201 4,158 3,787
Interest expense........................ 1,519 1,168 4,981
Amortization of excess of cost over net
assets acquired........................ 1,979 1,312 245
Other income (expense).................. (712) 168 822
---------- ---------- ----------
Homebuilding pretax income............ 114,058 81,319 40,937
---------- ---------- ----------
Financial Services:
Revenues................................ 2,257 1,403 171
Income from unconsolidated joint
venture................................ 783 -- --
Other income............................ 105 -- --
Expenses................................ 3,140 1,828 62
---------- ---------- ----------
Financial services pretax income
(loss)............................... 5 (425) 109
---------- ---------- ----------
Income from continuing operations before
income taxes and extraordinary charge.... 114,063 80,894 41,046
Provision for income taxes................ (46,492) (33,490) (17,070)
---------- ---------- ----------
Income from continuing operations before
extraordinary charge..................... 67,571 47,404 23,976
Income (loss) from discontinued
operations, net of income taxes of $114,
$111 and $(1,034), respectively.......... (159) (199) 48
Gain on disposal of discontinued
operations, net of income taxes of $(425)
in 1999 and $(51) in 1997................ 618 -- 3,302
Extraordinary charge from early
extinguishment of debt, net of income
taxes of $904 in 1998.................... -- (1,328) --
---------- ---------- ----------
Net Income................................ $ 68,030 $ 45,877 $ 27,326
========== ========== ==========
Basic Net Income Per Share:
Income per share from continuing
operations............................. $ 2.28 $ 1.59 $ 0.82
Income (loss) per share from
discontinued operations................ (0.01) (0.01) 0.00
Gain on disposal of discontinued
operations............................. 0.02 -- 0.11
Extraordinary charge from early
extinguishment of debt................. -- (0.04) --
---------- ---------- ----------
Net Income Per Share.................... $ 2.29 $ 1.54 $ 0.93
========== ========== ==========
Weighted average common shares
outstanding............................ 29,597,669 29,714,431 29,504,477
========== ========== ==========
Diluted Net Income Per Share:
Income per share from continuing
operations............................. $ 2.27 $ 1.58 $ 0.81
Income (loss) per share from
discontinued operations................ (0.01) (0.01) 0.00
Gain on disposal of discontinued
operations............................. 0.02 -- 0.11
Extraordinary charge from early
extinguishment of debt................. -- (0.04) --
---------- ---------- ----------
Net Income Per Share.................... $ 2.28 $ 1.53 $ 0.92
========== ========== ==========
Weighted average common and diluted
shares outstanding..................... 29,795,263 30,050,078 29,807,702
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
25
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
At December 31,
-----------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Homebuilding:
Cash and equivalents............................... $ 2,865 $ 13,413
Other notes and accounts receivable, net........... 10,489 25,279
Mortgage notes receivable and accrued interest..... 4,530 5,061
Inventories........................................ 699,489 713,446
Investments in and advances to unconsolidated joint
ventures.......................................... 49,116 38,405
Property and equipment, net........................ 2,656 3,512
Deferred income taxes.............................. 12,738 10,784
Other assets....................................... 13,350 8,210
Excess of cost over net assets acquired, net....... 15,315 17,293
-------- --------
810,548 835,403
-------- --------
Financial Services:
Cash and equivalents............................... 313 1,651
Mortgage loans held for sale....................... 17,554 19,341
Other assets....................................... 1,553 1,920
-------- --------
19,420 22,912
-------- --------
Net assets of discontinued operations................ -- 8,047
-------- --------
Total Assets..................................... $829,968 $866,362
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable................................... $ 42,344 $ 22,015
Accrued liabilities................................ 69,437 63,777
Revolving credit facility.......................... 23,000 204,900
Trust deed notes payable........................... 3,531 21,187
Senior notes payable............................... 298,847 218,382
-------- --------
437,159 530,261
-------- --------
Financial Services:
Accounts payable and other liabilities............. 620 596
Mortgage warehouse line of credit.................. 10,304 10,826
-------- --------
10,924 11,422
-------- --------
Stockholders' Equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued........................... -- --
Common stock, $.01 par value; 100,000,000 shares
authorized; 29,208,680 and 29,629,480 shares
outstanding at December 31, 1999 and 1998,
respectively...................................... 292 296
Paid-in capital.................................... 278,701 283,598
Retained earnings.................................. 102,892 40,785
-------- --------
Total stockholders' equity......................... 381,885 324,679
======== ========
Total Liabilities and Stockholders' Equity....... $829,968 $866,362
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
26
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Common
Number of Stock Retained
Years Ended December 31, 1997, 1998 and Common Par Paid-In Earnings
1999 Shares Value Capital (Deficit)
- --------------------------------------- ---------- ------ -------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1996............. 29,629,981 $296 $283,331 $(23,238)
Exercise of stock options and related
income tax benefit.................... 292,100 3 2,315 --
Repurchase of common shares............ (284,800) (3) (2,121) --
Cash dividends declared ($0.14 per
share)................................ -- -- -- (4,131)
Net income............................. -- -- -- 27,326
---------- ---- -------- --------
Balance, December 31, 1997............. 29,637,281 296 283,525 (43)
Exercise of stock options and related
income tax benefit.................... 131,500 1 1,383 --
Repurchase of common shares............ (139,301) (1) (1,310) --
Cash dividends declared ($0.17 per
share)................................ -- -- -- (5,049)
Net income............................. -- -- -- 45,877
---------- ---- -------- --------
Balance, December 31, 1998............. 29,629,480 296 283,598 40,785
Exercise of stock options and related
income tax benefit.................... 33,000 1 321 --
Repurchase of common shares............ (453,800) (5) (5,218) --
Cash dividends declared ($0.20 per
share)................................ -- -- -- (5,923)
Net income............................. -- -- -- 68,030
---------- ---- -------- --------
Balance, December 31, 1999............. 29,208,680 $292 $278,701 $102,892
========== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
27
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998 1997
--------- ---------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.................................. $ 68,030 $ 45,877 $ 27,326
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities of continuing operations:
Discontinued operations................... 159 199 (48)
Gain on disposal of discontinued
operations............................... (618) -- (3,302)
Extraordinary charge from early
extinguishment of debt................... -- 1,328 --
Income from unconsolidated joint
ventures................................. (6,201) (4,158) (3,787)
Loss on disposal of property and
equipment................................ 620 -- --
Depreciation and amortization............. 1,238 918 586
Amortization of excess of cost over net
assets acquired.......................... 1,979 1,312 245
Changes in cash and equivalents due to:
Receivables and accrued interest........ 17,108 (26,087) (1,804)
Inventories............................. 14,059 (193,242) (615)
Deferred income taxes................... (1,954) 1,833 4,345
Other assets............................ (3,023) (703) 4,555
Accounts payable........................ 20,329 2,883 6,796
Accrued liabilities..................... 5,468 30,624 14,287
--------- ---------- --------
Net cash provided by (used in) operating
activities of continuing operations........ 117,194 (139,216) 48,584
--------- ---------- --------
Cash Flows from Investing Activities:
Cash paid for acquisitions.................. -- (59,279) (65,842)
Investments in and advances to
unconsolidated joint ventures.............. (44,095) (16,651) (22,598)
Distributions and reimbursements from
unconsolidated joint ventures.............. 39,585 8,621 1,053
Net additions to property and equipment..... (1,002) (1,439) (1,264)
Sales of investment securities.............. -- -- 5,329
Proceeds from the sale of discontinued
operations................................. 8,798 1,087 8,379
--------- ---------- --------
Net cash provided by (used in) investing
activities................................. 3,286 (67,661) (74,943)
--------- ---------- --------
Cash Flows from Financing Activities:
Net proceeds from (payments on) revolving
credit facility............................ (181,900) 185,900 (38,300)
Net proceeds from (payments on) mortgage
warehouse line of credit................... (522) 10,826 --
Proceeds from the issuance of senior notes
payable.................................... 98,250 97,571 96,931
Principal payments on senior notes and trust
deed notes payable......................... (37,293) (75,148) (27,707)
Dividends paid.............................. (5,923) (5,049) (4,131)
Repurchase of common shares................. (5,223) (1,311) (2,124)
Proceeds from exercise of stock options..... 245 771 1,705
--------- ---------- --------
Net cash provided by (used in) financing
activities................................. (132,366) 213,560 26,374
--------- ---------- --------
Net change in cash from discontinued
operations................................. (38,130) (6,826) 37,088
--------- ---------- --------
Net increase (decrease) in cash and
equivalents................................ (50,016) (143) 37,103
Cash and equivalents at beginning of year... 53,194 53,337 16,234
--------- ---------- --------
Cash and equivalents at end of year......... $ 3,178 $ 53,194 $ 53,337
========= ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
28
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Summary of Cash Balances:
Continuing operations................................ $ 3,178 $15,064 $ 8,381
Discontinued operations.............................. -- 38,130 44,956
------- ------- -------
$ 3,178 $53,194 $53,337
======= ======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest--continuing operations.................... $32,248 $24,995 $17,698
Income taxes....................................... 54,699 19,890 15,500
Supplemental Disclosures of Noncash Activities:
Land acquisitions financed by purchase money trust
deeds............................................... $ -- $18,670 $19,214
Expenses capitalized in connection with the issuance
of 8 1/2% senior notes due 2007..................... -- -- 2,377
Expenses capitalized in connection with the issuance
of 8% senior notes due 2008......................... -- 1,750 --
Expenses capitalized in connection with the issuance
of 8 1/2% senior notes due 2009..................... 1,750 -- --
Income tax benefit credited in connection with shares
of common stock issued pursuant to stock options
exercised........................................... 77 613 613
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
29
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Company Organization and Operations
Standard Pacific Corp., a Delaware corporation, 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, Texas and Arizona. Unless the context otherwise requires, the
terms "we", "us" and "our" refer to Standard Pacific Corp. and its
subsidiaries.
In 1998, Family Lending Services, Inc. ("Family Lending"), our wholly-owned
mortgage banking subsidiary, began offering financing primarily to our
California homebuyers. Additionally, we offer mortgage loans to our Arizona
and Texas homebuyers through SPH Mortgage, a mortgage banking joint venture
with Wells Fargo Bank (formerly Norwest Mortgage). In 1999, through a newly-
formed subsidiary, SPH Title, Inc., we began serving as a title insurance
agent in Texas offering title examination services to our Texas homebuyers.
For the year ended December 31, 1999, approximately 64 percent, 13 percent
and 23 percent of home deliveries (including the unconsolidated joint
ventures) were from California, Texas and Arizona, respectively. 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 we do
business have declined. There can be no assurance that home sales prices will
not decline in the future.
2. Summary of Significant Accounting Policies
a. Basis of Presentation
The consolidated financial statements include the accounts of Standard
Pacific Corp. and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Investments in unconsolidated
joint ventures in which we have less than a controlling interest are accounted
for using the equity method.
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.
c. Segment Reporting
Effective December 31, 1998, we adopted Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and Related
Information" (FAS 131). Under the provisions of FAS 131, our operating
segments consist of homebuilding and mortgage banking. These two segments are
segregated in the accompanying consolidated financial statements under
"Homebuilding" and "Financial Services," respectively.
d. Cash and Equivalents
For purposes of the consolidated statements of cash flows, cash and
equivalents include cash on hand, demand deposits, and all highly liquid
short-term investments, including interest bearing securities purchased with a
remaining maturity of three months or less.
30
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
e. Mortgage Loans Held for Sale
Mortgage loans held for sale are reported at the lower of cost or market on
an aggregate basis. We estimate the market value of our loans held for sale
based on quoted market prices for similar loans. Loan origination fees, net of
the related direct origination costs, and loan discount points are deferred as
an adjustment to the carrying value of the related mortgage loans held for
sale and are recognized into income upon the sale of mortgage loans.
f. Real Estate Inventories
We capitalize direct carrying costs, including interest, property taxes and
related development costs to real estate under development. Field construction
supervision and related direct overhead are also included in the capitalized
cost of real estate inventories. General and administrative costs are expensed
as incurred.
We assess the recoverability of real estate inventories in accordance with
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 requires long-lived assets, including real estate
inventories, that are expected to be held and used in operations to be carried
at the lower of cost or, if impaired, the fair value of the asset, rather than
its 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.
g. Capitalization of Interest
We follow the practice of capitalizing interest to real estate inventories
during the period of development in accordance with Financial Accounting
Standards No. 34, "Capitalization of Interest Cost." 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 from continuing operations for the following periods:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Total interest incurred during the year................ $35,151 $29,010 $17,026
Less: Interest capitalized as a cost of real estate
under development..................................... 33,632 27,842 12,045
------- ------- -------
Interest expense....................................... $ 1,519 $ 1,168 $ 4,981
======= ======= =======
Interest previously capitalized as a cost of real
estate under development, included in cost of sales... $27,401 $26,399 $23,475
======= ======= =======
Capitalized interest in ending inventories............. $21,386 $15,155 $13,712
======= ======= =======
</TABLE>
h. Property and Equipment
Property and equipment is recorded at cost, net of accumulated depreciation
and amortization of $5,477,000 and $4,204,000 as of December 31, 1999 and
1998, respectively. Depreciation and amortization is recorded using the
straight-line method over the estimated useful lives of the assets which
typically ranges between 3 and 10 years.
31
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
i. Income Taxes
We account 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.
j. Excess of Cost Over Net Assets Acquired
The excess amount paid for business acquisitions over the net fair value of
assets acquired and liabilities assumed has been capitalized in the
accompanying consolidated balance sheets and is being amortized on a straight-
line basis over periods ranging from 7 to 12 years. Accumulated amortization
was $3,535,000 and $1,557,000 as of December 31, 1999 and 1998, respectively.
(See Note 4)
k. Revenue Recognition
Revenues of residential housing are recorded after construction is
completed, required down payments are received and title passes.
We recognize loan origination fees and expenses, and gains and losses on
loans when the related mortgage loans are sold. Our current policy is to sell
all mortgage loans originated. Mortgage loan interest is accrued only so long
as it is deemed collectible.
l. Warranty Costs
Estimated future warranty costs are charged to cost of sales in the period
when the revenues from home closings are recognized.
m. Net Income Per Share
We compute net income per share in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings per Share" (FAS 128). This statement
requires the presentation of both basic and diluted net income per share for
financial statement purposes. Basic net income per share is computed by
dividing income available to common stockholders by the weighted average
number of common shares outstanding. Diluted net income per share includes the
effect of the potential shares outstanding, including dilutive stock options
using the treasury stock method. The table set forth below reconciles the
components of the basic net income per share calculation to diluted net income
per share.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ ------------------------
Income Shares EPS Income Shares EPS Income Shares EPS
------- ---------- ----- ------- ---------- ----- ------- ---------- -----
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Net Income Per
Share:
Income available to
common stockholders
from continuing
operations before
extraordinary charge.. $67,571 29,597,669 $2.28 $47,404 29,714,431 $1.59 $23,976 29,504,477 $0.82
Effect of dilutive stock
options................ -- 197,594 -- 335,647 -- 303,225
------- ---------- ------- ---------- ------- ----------
Diluted income per share
from
continuing operations
before extraordinary
charge................. $67,571 29,795,263 $2.27 $47,404 30,050,078 $1.58 $23,976 29,807,702 $0.81
======= ========== ===== ======= ========== ===== ======= ========== =====
</TABLE>
32
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
n. Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). Under the provisions of FAS 133, we will be
required to recognize all derivatives as either assets or liabilities in the
consolidated balance sheets and measure these instruments at fair value. We
are required to adopt FAS 133 effective January 1, 2001. We have not yet
quantified the impact of adopting FAS 133.
o. Reclassifications
Certain items in prior period financial statements have been reclassified
to conform with current year presentation.
3. Investments in Unconsolidated Joint Ventures
Summarized financial information related to our joint ventures accounted
for under the equity method are as follows:
<TABLE>
<CAPTION>
At December 31,
-----------------
1999 1998
-------- --------
(Dollars in
thousands)
<S> <C> <C>
Assets:
Cash................................................... $ 7,478 $ 8,450
Trust deed notes receivable............................ -- 37,856
Real estate in process of development and completed
model homes........................................... 278,068 175,830
Other assets........................................... 22,950 596
-------- --------
$308,496 $222,732
======== ========
Liabilities and Equity:
Accounts payable and accrued expenses.................. $ 39,704 $ 33,007
Construction loans and trust deed notes payable........ 144,370 78,747
General obligation assessment bonds.................... 44,928 31,539
Equity................................................. 79,494 79,439
-------- --------
$308,496 $222,732
======== ========
</TABLE>
Our share of equity shown above was approximately $36.1 million and $36.9
million at December 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Revenues............................................ $43,642 $54,219 $24,427
Cost of revenues.................................... 33,101 41,588 17,591
------- ------- -------
Net earnings of joint ventures...................... $10,541 $12,631 $ 6,836
======= ======= =======
</TABLE>
Our share of earnings in the joint ventures detailed above varies, but in
no case is our share of earnings greater than 50 percent.
In addition, there are some joint ventures to which we are a party whose
sole purpose is to develop finished lots for sale to the joint venture's
partners. We and our partners then purchase the lots from the joint venture to
construct homes thereon. We do not anticipate recording any income or loss
from these joint ventures as the related lots will be sold to us and other
partners at cost.
33
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Acquisitions
On August 31, 1998, we acquired a portion of the assets of Shea Homes'
Phoenix, Arizona single-family homebuilding operation (which had recently been
acquired from UDC Homes, Inc.) for approximately $59 million in cash. The
acquisition was financed under our unsecured revolving credit facility. At
closing, we purchased or assumed the rights to acquire over 2,000 single-
family lots located in 13 communities in the Phoenix Metropolitan area, of
which seven communities were active subdivisions, and acquired a backlog of
400 presold homes. In addition, we retained UDC's Arizona senior management
team and many of the existing staff.
On September 30, 1997, we acquired all of the outstanding common stock of
Duc Development Company ("Duc"), a privately held Northern California
homebuilding company, for approximately $16 million. In connection with this
acquisition, we acquired certain other real estate assets related to Duc's
operations for approximately $55 million in cash and the assumption of
approximately $8 million of debt.
Both acquisitions have been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the net
assets acquired based upon their estimated fair market values as of the date
of acquisition. The excess of the purchase price over the estimated fair value
of net assets acquired totaled approximately $12 million and $6.85 million for
the Arizona and Northern California acquisitions, respectively. The excess
purchase price has been recorded as excess of cost over net assets acquired in
the accompanying consolidated balance sheets and is being amortized on a
straight-line basis over periods ranging from 7 to 12 years.
5. Revolving Credit Facility and Trust Deed Notes Payable
a. Revolving Credit Facility
In August 1999, we amended our unsecured revolving credit facility (the
"Facility") with our bank group to, among other things, increase the
commitment to $450 million, extend the maturity date to July 31, 2003 and
revise certain financial and other covenants. The Facility contains covenants
which require, among other things, the maintenance of certain amounts of
tangible stockholders' equity, limitations on leverage, and minimum interest
coverage, as defined. The Facility also contains a borrowing base provision
which may limit the amount we may borrow under the credit facility. At
December 31, 1999, we had borrowings of $23 million outstanding under this
Facility. Additionally, we had approximately $12 million in letters of credit
outstanding at December 31, 1999. Interest rates charged under this Facility
include LIBOR and prime rate pricing options. In addition, there are fees
charged on the commitment and unused portion of the Facility, as defined.
As of December 31, 1999, and throughout the year, we were in compliance
with the covenants of the Facility.
b. Trust Deed Notes Payable
At December 31, 1999 and 1998, trust deed notes payable primarily consisted
of trust deeds on land purchases. At December 31, 1999, the weighted average
interest rate on these trust deeds was approximately 6.2 percent.
34
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
c. Borrowings and Maturities
The following summarizes the borrowings outstanding under the unsecured
revolving credit facility (excluding senior notes--see Note 6) and trust deed
notes payable during the three years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Maximum borrowings outstanding during the year
at month end................................. $237,022 $244,808 $98,295
Average outstanding balance during the year... $131,850 $ 97,349 $45,395
Weighted average interest rate for the year... 6.5% 6.9% 7.3%
Weighted average interest rate on borrowings
outstanding at year end...................... 7.2% 7.0% 7.9%
</TABLE>
Maturities of the revolving credit facility, trust deed notes payable and
senior notes payable (see Note 6 below) are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
(Dollars in
thousands)
<S> <C>
2000............................................................ $ 3,531
2001............................................................ --
2002............................................................ --
2003............................................................ 23,000
2004............................................................ --
Thereafter...................................................... 298,847
--------
$325,378
========
</TABLE>
6. Senior Notes Payable
Senior notes payable consist of the following:
<TABLE>
<CAPTION>
At December 31,
-----------------
1999 1998
-------- --------
(Dollars in
thousands)
<S> <C> <C>
10 1/2% Senior Notes due 2000............................. $ -- $ 19,637
8 1/2% Senior Notes due 2007, net......................... 99,432 99,379
8% Senior Notes due 2008, net............................. 99,415 99,366
8 1/2% Senior Notes due 2009.............................. 100,000 --
-------- --------
$298,847 $218,382
======== ========
</TABLE>
In 1993, we issued $100 million principal amount of 10 1/2% Senior Notes
due March 1, 2000 (the "10 1/2% Senior Notes"). Under the original terms of
the 10 1/2% Senior Notes, we did not have the option to redeem these notes
prior to their scheduled maturities. However, we were required to make annual
mandatory sinking fund payments sufficient to retire 20 percent of the
original aggregate principal amount of these 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 to be retired on March 1,
2000. We made two $20 million sinking fund payments on the 10 1/2% Senior
Notes in March 1997 and 1998. In May 1998, we repurchased and retired
approximately $7.7 million of our 10 1/2% Senior Notes due 2000 through a
series of open market purchases. In addition, on September 30, 1998, we
completed a tender offer and consent solicitation for a portion of our 10 1/2%
Senior
35
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Notes due 2000. In connection with this tender offer, we repurchased and
retired approximately $31.5 million of our 10 1/2% Senior Notes. With the
successful completion of the consent solicitation, certain restrictive
financial covenants were modified or eliminated under the indenture. In
aggregate, we incurred an after tax extraordinary charge for the early
extinguishment of debt, including transaction costs, of approximately $1.3
million for the year ended December 31, 1998. On March 1, 1999, we repaid the
balance of the 10 1/2% Senior Notes outstanding ($19.6 million) under the
annual sinking fund payment provision of the indenture.
In June 1997, we issued $100 million of 8 1/2% Senior Notes due June 15,
2007 (the "8 1/2% Senior Notes"). The 8 1/2% Senior Notes were issued at a
discount to yield approximately 8.6 percent and have been reflected net of the
unamortized discount in the accompanying consolidated balance sheets. Interest
is due and payable on June 15 and December 15 of each year until maturity.
These notes are redeemable at our option, in whole or in part, commencing June
15, 2002 at a price of 104.25 percent of par value, with the call price
reducing ratably to par on June 15, 2005. Net proceeds after offering expenses
were approximately $96.9 million.
In February 1998, we issued $100 million of 8% Senior Notes due February
15, 2008 (the "8% Senior Notes"). The 8% Senior Notes were issued at a
discount to yield approximately 8.1 percent. Interest is due and payable on
February 15 and August 15 of each year until maturity. These notes are
redeemable at our option, in whole or in part, commencing February 15, 2003 at
104.00 percent of par, with the call price reducing ratably to par on February
15, 2006. Net proceeds after offering expenses were approximately $97.3
million.
In April 1999, we issued $100 million of 8 1/2% Senior Notes which mature
April 1, 2009 (the "8 1/2% Senior Notes due 2009"). The 8 1/2% Senior Notes
due 2009 were issued at par with interest due and payable on April 1 and
October 1 of each year until maturity. The 8 1/2% Senior Notes due 2009 are
redeemable at our option, in whole or in part, commencing April 1, 2004 at
104.25 percent of par, with the call price reducing ratably to par on April 1,
2007. Net proceeds after underwriting expenses were approximately $98.3
million and were used to repay a portion of the balance outstanding under our
revolving credit facility.
Both 8 1/2% Senior Note issuances and the 8% Senior Notes (the "Notes") are
senior unsecured obligations and rank equally with our other existing senior
unsecured indebtedness. We will, under certain circumstances, be obligated to
make an offer to purchase a portion of the Notes in the event of our failure
to maintain a minimum consolidated net worth (other than with respect to the 8
1/2% Senior Notes due 2009) and in the event of certain asset sales. In
addition, the Notes contain other restrictive covenants which, among other
things, impose certain limitations on our ability to (1) incur additional
indebtedness, (2) create liens, (3) make restricted payments, and (4) sell
assets. In addition, upon a change in control we are required to make an offer
to purchase these Notes. As of December 31, 1999, we were in compliance with
the covenants under the Notes.
7. Mortgage Warehouse Line of Credit
Our financial services subsidiary maintains a revolving mortgage warehouse
credit facility (the "Mortgage Warehouse Facility") with a bank to finance its
mortgage loans held for sale. In May 1999, the commitment under this facility
was increased from $15 million to $40 million. Borrowings under the Mortgage
Warehouse Facility, which are LIBOR based and have a maturity date of May 31,
2000, are secured by the related mortgage loans held for sale. Maximum
borrowings outstanding under this facility during 1999 and 1998 were
$10,304,000 and $10,826,000, respectively. Average borrowings outstanding
during the years ended December 31, 1999 and 1998 were $4,299,000 and
$1,870,000, respectively. The weighted average interest rate of the Mortgage
Warehouse Facility during the years ended December 31, 1999 and 1998 was 6.2
percent. In addition, the Mortgage Warehouse Facility requires our financial
services subsidiary to comply with certain financial covenants, including, but
not limited to, a minimum net worth requirement, a total liabilities to
tangible net worth ratio and a minimum cash flow requirement. Family Lending
was in compliance with the net worth covenant
36
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and the leverage covenant of the Mortgage Warehouse Facility as of and
throughout the year ended December 31, 1999. Family Lending received a waiver
from the bank for the minimum cash flow requirement through its current
maturity date.
8. 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.
Mortgage Notes Receivable--Mortgage notes receivable consist of first
and second mortgages on single-family residences and trust deed notes
receivable originated from land sales. Fair values are determined based
upon discounted cash flows of the applicable instruments.
Mortgage Loans Held for Sale--These consist primarily of first mortgages
on single-family residences. Fair value of these loans is based on quoted
market prices for similar loans.
Revolving Credit Facility and Mortgage Warehouse Line of Credit--The
carrying amounts of these credit obligations approximate market value
because of the frequency of repricing the borrowings (generally every 7 to
90 days).
Trust Deed Notes Payable--These notes are primarily for purchase money
deeds of trust on land acquired. As of December 31, 1999, these notes have
remaining maturity dates of less than one year. The rates of interest paid
on these notes approximate the current rates available for secured real
estate financing with similar terms and maturities, therefore, carrying
amounts approximate fair value.
10 1/2% Senior Notes due 2000--This issue was publicly traded on the New
York Stock Exchange. Consequently, the fair value of this issue was based
on its quoted market price at year end.
8 1/2% Senior Notes due 2007--This issue is publicly traded on the New
York Stock Exchange. As a result, the fair value of this issue was based on
its quoted market price at year end.
8% Senior Notes due 2008--This issue is publicly traded over the counter
and its fair value was based upon the value of its last trade at year end.
8 1/2% Senior Notes due 2009--This issue is also publicly traded over
the counter and its fair value was based upon the value of its last trade
at year end.
37
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The estimated fair values of financial instruments from continuing
operations are as follows:
<TABLE>
<CAPTION>
At December 31,
----------------------------------
1999 1998
---------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Homebuilding:
Cash and equivalents................. $ 2,865 $ 2,865 $ 13,413 $ 13,413
Mortgage notes receivable............ 4,530 3,969 5,061 4,827
Financial services:
Cash and equivalents................. 313 313 1,651 1,651
Mortgage loans held for sale......... 17,554 18,192 19,341 20,314
Financial liabilities:
Homebuilding:
Revolving credit facility............ $ 23,000 $23,000 $204,900 $204,900
Trust deed notes payable............. 3,531 3,531 21,187 21,187
10 1/2% Senior Notes due 2000........ -- -- 19,637 20,054
8 1/2% Senior Notes due 2007......... 99,432 92,500 99,379 100,375
8% Senior Notes due 2008............. 99,415 90,250 99,366 97,890
8 1/2% Senior Notes due 2009......... 100,000 92,750 -- --
Financial services:
Mortgage warehouse line of credit.... 10,304 10,304 10,826 10,826
</TABLE>
9. Commitments and Contingencies
We lease office facilities under noncancelable operating leases. Future
minimum rental payments on operating leases, net of related subleases, having
an initial term in excess of one year as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ended December
31,
-------------------
(Dollars in
thousands)
<S> <C>
2000..................................................... $ 2,251
2001..................................................... 2,257
2002..................................................... 1,676
2003..................................................... 1,433
2004..................................................... 1,299
Thereafter............................................... 4,646
-------
Subtotal............................................... 13,562
Less--Sublease income.................................... (833)
-------
Net rental obligations................................. $12,729
=======
</TABLE>
Rent expense from continuing operations under noncancelable operating
leases, net of sublease income, for the three years ended December 31, 1999
was approximately $1,065,000, $838,000 and $397,000, respectively.
We are subject to the usual obligations associated with entering into
contracts for the purchase of land and improved homesites. Land purchase and
option contracts for the purchase of land typically allow us the ability to
acquire portions of properties when we are ready to build homes thereon.
Purchase of properties under these contracts is generally contingent upon
satisfaction of certain requirements by us and the sellers.
38
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Mortgage loans in process for which interest rates were committed to
borrowers totaled approximately $1.3 million at December 31, 1999 and carried
a weighted average interest rate of approximately 7.6 percent. Interest rate
risks related to these obligations are generally mitigated by Family Lending
preselling the loans to its investors.
We are party to claims and litigation proceedings arising in the normal
course of business. Although the legal responsibility and financial impact
with respect to certain claims and litigation cannot presently be ascertained,
we do not believe that these matters will result in us making a payment of
monetary damages that, in the aggregate, would have a material impact on our
financial position, results of operations or liquidity. It is possible that
the reserves provided for by us with respect to such claims and litigation
could change in the near term.
10. Income Taxes
The provision for income taxes for continuing operations includes the
following components:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1999 1998 1997
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Current:
Federal......................................... $40,891 $24,940 $12,909
State........................................... 9,136 4,160 3,471
------- ------- -------
50,027 29,100 16,380
------- ------- -------
Deferred:
Federal......................................... (3,272) 3,931 535
State........................................... (263) 459 155
------- ------- -------
(3,535) 4,390 690
------- ------- -------
Provision for income taxes for continuing
operations and before extraordinary charge....... $46,492 $33,490 $17,070
======= ======= =======
</TABLE>
The components of our deferred income tax asset (liability) from continuing
operations is as follows:
<TABLE>
<CAPTION>
At December 31,
----------------
1999 1998
------- -------
(Dollars
in
thousands)
<S> <C> <C>
Inventory adjustments..................................... $ 1,391 $ 2,663
Financial accruals........................................ 10,756 8,628
State income taxes........................................ 2,855 2,115
Nondeductible purchase price.............................. (2,568) (2,747)
Amortization of excess of cost over net assets acquired... 165 27
Other..................................................... 139 98
------- -------
$12,738 $10,784
======= =======
</TABLE>
At December 31, 1999, we had a consolidated net deferred tax asset of
approximately $12.7 million. A significant portion of this asset's realization
is dependent upon our 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.
39
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The effective tax rate differs from the Federal statutory rate of 35
percent due to the following items:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Financial income from continuing operations
before income taxes and extraordinary
charge....................................... $114,063 $80,894 $41,046
======== ======= =======
Provision for income taxes at statutory rate.. $ 39,922 $28,313 $14,366
Increases (decreases) in tax resulting from:
State income taxes.......................... 5,976 4,648 2,481
Nondeductible amortization of excess of cost
over net assets acquired................... 394 399 100
Other....................................... 200 130 123
-------- ------- -------
Provision for income taxes for continuing
operations and before extraordinary charge... $ 46,492 $33,490 $17,070
======== ======= =======
Effective tax rate for continuing operations.. 40.8% 41.4% 41.6%
======== ======= =======
</TABLE>
11. Stock Option Plan
In 1991, we adopted the 1991 Employee Stock Incentive Plan (the "Plan")
pursuant to which officers, directors and employees are eligible to receive
options to purchase shares of common stock. Under the Plan the maximum number
of shares of stock that may be issued is one million. On May 13, 1997, our
shareholders approved the 1997 Stock Incentive Plan (the "1997 Plan"). Under
the 1997 Plan, the maximum number of shares of 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 four year period and are generally exercisable for a 10
year period. 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 two
respective Plans for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year...... 2,188,990 $11.55 958,990 $ 7.99 928,590 $6.30
Granted................. 358,000 11.46 1,382,500 13.50 343,000 10.70
Exercised............... (33,000) 7.42 (131,500) 5.86 (292,100) 5.81
Canceled................ (87,000) 13.29 (21,000) 12.57 (20,500) 7.83
--------- ------ --------- ------ --------- -----
Options outstanding, end
of year................ 2,426,990 $11.53 2,188,990 $11.55 958,990 $7.99
========= ====== ========= ====== ========= =====
Options exercisable at
end of year............ 770,991 450,490 360,990
========= ========= =========
Options available for
future grant........... 53,275 323,775 1,685,275
========= ========= =========
</TABLE>
The following information is provided pursuant to the requirements of
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" (FAS 123).
40
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of each option granted during the three years in the period
ended December 31, 1999 is estimated using the Black--Scholes option-pricing
model on the date of grant using the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Dividend yield.................................... 1.75% 1.52% 1.31%
Expected volatility............................... 44.65% 40.99% 43.80%
Risk-free interest rate........................... 5.95% 5.18% 6.17%
Expected life..................................... 5 years 5 years 5 years
</TABLE>
The 2,426,990 options outstanding as of December 31, 1999 have exercise
prices between $5.38 and $17.63, with a weighted average exercise price of
$11.53 and a weighted average remaining contractual life of 8.02 years. As of
December 31, 1999, 770,991 of these options are exercisable with a weighted
average exercise price of $10.57. The weighted average fair value of options
granted during the years ended December 31, 1999, 1998 and 1997 was $4.68,
$5.35 and $6.55, respectively.
During the years ended December 31, 1999, 1998 and 1997, no compensation
expense was recognized related to the stock options granted, however, had
compensation expense been determined consistent with FAS 123 for 1999, 1998
and 1997 grants under the stock-based compensation plan, net income and
diluted net income per share for the years ended December 31, 1999, 1998 and
1997 would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ------- -------- ------- -------- -------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Net income.............. $68,030 $65,614 $45,877 $44,210 $27,326 $27,100
Diluted net income per
common share........... $ 2.28 $ 2.20 $ 1.53 $ 1.47 $ 0.92 $ 0.91
</TABLE>
The effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts.
12. Stockholder Rights Plan and Common Stock Repurchase Plan
Standard Pacific has a stockholder rights agreement (the "Agreement") in
place. Under the Agreement, one right is granted for each share of outstanding
common stock. Each right entitles the holder, in certain takeover situations,
as defined, and after paying the exercise price (currently $40), to purchase
common stock having a market value equal to two times the exercise price.
Also, if we merge into another corporation, or if 50 percent or more of our
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 our outstanding shares at a price which is judged by the Board
of Directors to be fair to all of our stockholders. The rights may be redeemed
by Standard Pacific's Board of Directors 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 authorized the repurchase of up to $10
million of our common stock. In January 1997, the Board increased the
repurchase limit to $20 million, which was subsequently increased to $25
million in October 1999. For the year ended December 31, 1999, Standard
Pacific repurchased 453,800 shares of common stock for an aggregate price of
approximately $5.2 million. Since the inception of the stock repurchase
program and through the year ended December 31, 1999, Standard Pacific has
repurchased approximately 1.9 million shares of common stock for approximately
$14.9 million, leaving a balance of approximately $10.1 million available for
future repurchases.
41
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Discontinued Operations
In May 1997, the Board of Directors adopted a plan of disposition (the
"Plan") for our savings and loan subsidiary ("Savings"). Pursuant to the Plan,
we sold substantially all of Savings' mortgage loan portfolio in June 1997.
The proceeds from the sale of the mortgages were used to pay off substantially
all of the outstanding balances of Federal Home Loan Bank advances with the
remaining amount temporarily invested until the savings deposits were sold
along with Savings' remaining assets. The gain generated from the sale of this
mortgage loan portfolio, net of related expenses, was not material. In August
1998, we entered into a definitive agreement to sell the remainder of Savings'
business, including Savings' charter, which closed in May 1999. An after tax
net gain of $618,000, or $0.02 per diluted share, has been reflected in the
accompanying consolidated statements of income. Proceeds from the sale of
Savings were approximately $8.8 million before transaction and other related
costs. Savings has been accounted for as a discontinued operation and the
results of its operations and net assets have been segregated in the
accompanying consolidated financial statements.
Interest income from Savings aggregated $1,256,000, $3,451,000 and
$12,395,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
In December 1997, we sold all of the outstanding stock of Panel Concepts,
Inc. ("Panel") to a third party. A net gain of approximately $3.3 million, or
$.11 per diluted share, has been reflected in the accompanying consolidated
statements of income. Proceeds from the sale of Panel were approximately $9.5
million before transaction and other related costs. In addition, certain non-
operating assets of Panel totaling approximately $9 million were distributed
to us prior to the closing. Panel has also been accounted for as a
discontinued operation and, accordingly, the results of its operations have
been segregated in the accompanying consolidated statements of income. In
addition, since the sale of Panel was completed before the end of 1997, there
are no assets or liabilities included in the accompanying consolidated balance
sheets.
Product sales from Panel totaled $19,689,000 for the year ended December
31, 1997.
The components of net assets of discontinued operations, all of which
relates to Savings, included in the consolidated balance sheet at December 31,
1998 are as follows:
<TABLE>
<CAPTION>
At December 31,
1998
---------------
(Dollars in
thousands)
<S> <C>
Assets:
Cash and equivalents............................................ $38,130
Investment securities available for sale........................ 15,649
Accrued interest receivable..................................... 244
Property and equipment, net..................................... 62
Deferred income taxes........................................... 274
Investment in FHLB stock........................................ 8,971
Other assets.................................................... 73
-------
Total assets--discontinued operation........................... $63,403
-------
Liabilities:
Savings accounts................................................ $53,878
Accounts payable and accrued expenses........................... 1,478
-------
Total liabilities--discontinued operation...................... 55,356
-------
Net assets of discontinued operation............................. $ 8,047
=======
</TABLE>
42
<PAGE>
STANDARD PACIFIC CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Results of Quarterly Operations (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total(1)
-------- -------- -------- -------- ----------
(Dollars in thousands, except per share
amounts)
<S> <C> <C> <C> <C> <C>
1999:
Revenues................. $214,480 $309,179 $297,089 $378,083 $1,198,831
Income from continuing
operations before income
taxes and extraordinary
charge.................. 23,579 27,577 27,479 35,428 114,063
Income (loss) from
discontinued operation,
net of income taxes..... (77) (83) -- -- (159)
Gain on disposal of
discontinued operation,
net of income taxes..... -- 618 -- -- 618
Net income............... 13,794 16,775 16,181 21,280 68,030
Diluted Net Income Per
Share:
Income per share from
continuing operations.. $ 0.46 $ 0.54 $ 0.54 $ 0.72 $ 2.27
Income (loss) per share
from discontinued
operation.............. (0.00) (0.00) -- -- (0.01)
Gain on disposal of
discontinued
operation.............. -- 0.02 -- -- 0.02
-------- -------- -------- -------- ----------
Net income per share.... $ 0.46 $ 0.56 $ 0.54 $ 0.72 $ 2.28
======== ======== ======== ======== ==========
1998:
Revenues................. $ 96,911 $153,141 $194,130 $315,431 $ 759,612
Income from continuing
operations before income
taxes and extraordinary
charge.................. 8,325 17,340 19,649 35,579 80,894
Income (loss) from
discontinued operation,
net of income taxes..... (65) (42) (36) (56) (199)
Extraordinary charge from
early extinguishment of
debt, net of income
taxes................... -- (222) (1,106) -- (1,328)
Net income............... 4,768 9,915 10,370 20,823 45,877
Diluted Net Income Per
Share:
Income per share from
continuing operations.. $ 0.16 $ 0.34 $ 0.38 $ 0.70 $ 1.58
Income (loss) per share
from discontinued
operation ............. (0.00) (0.00) (0.00) (0.00) (0.01)
Extraordinary charge
from early
extinguishment of
debt................... -- (0.01) (0.04) -- (0.04)
-------- -------- -------- -------- ----------
Net income per share.... $ 0.16 $ 0.33 $ 0.34 $ 0.70 $ 1.53
======== ======== ======== ======== ==========
</TABLE>
- --------
(1) Some amounts do not add across due to rounding differences in quarterly
amounts.
43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain of the information required by this Item with respect to executive
officers is set forth under the caption "Executive Officers of the Company" in
Part I. The remaining information required by Items 401 and 405 of Regulation
S-K is set forth in the Company's 2000 Annual Meeting Proxy Statement which
will be filed with the Securities and Exchange Commission not later than 120
days after December 31, 1999. The Company's 2000 Annual Meeting Proxy
Statement, exclusive of the information set forth under the captions "Report
of the Compensation Committee" and "Company Performance," is incorporated
herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is set forth in the
Company's 2000 Annual Meeting Proxy Statement which will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1999. The Company's 2000 Annual Meeting Proxy Statement, exclusive of the
information set forth under the captions "Report of the Compensation
Committee" and "Company Performance," is incorporated herein by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is set forth in the
Company's 2000 Annual Meeting Proxy Statement which will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1999. The Company's 2000 Annual Meeting Proxy Statement, exclusive of the
information set forth under the captions "Report of the Compensation
Committee" and "Company Performance," is incorporated herein by this
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K is set forth in the
Company's 2000 Annual Meeting Proxy Statement which will be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1999. The Company's 2000 Annual Meeting Proxy Statement, exclusive of the
information set forth under the captions "Report of the Compensation
Committee" and "Company Performance," is incorporated herein by this
reference.
44
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C>
(a)(1) Financial Statements, included in Part II of this report:
Report of Independent Public Accountants......................... 24
Consolidated Statements of Income for each of the three years in
the period ended December 31, 1999.............................. 25
Consolidated Balance Sheets at December 31, 1999 and 1998........ 26
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended December 31, 1999............... 27
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1999........................... 28
Notes to Consolidated Financial Statements....................... 30
</TABLE>
(2) Financial Statement Schedules:
Financial Statement Schedules are omitted since the required
information is not present or is not present in the amounts sufficient
to require submission of the schedule, or because the information
required is included in the consolidated financial statements,
including the notes thereto.
(3) Index to Exhibits
See Index to Exhibits on pages 47-48 below.
(b) Reports on Form 8-K. None.
(c) Index to Exhibits. See Index to Exhibits on pages 47-48 below.
(d) Financial Statements required by Regulation S-X excluded from the annual
report to shareholders by Rule 14(a)-3(b)(1). Not applicable.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Costa Mesa, California, on the 21st day of March 2000.
STANDARD PACIFIC CORP. (Registrant)
/s/ Stephen J. Scarborough
By: _________________________________
Stephen J. Scarborough
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Arthur E. Svendsen Chairman of the Board of Directors March 21, 2000
____________________________________
(Arthur E. Svendsen)
/s/ Stephen J. Scarborough Chief Executive Officer, President March 21, 2000
____________________________________ and Director
(Stephen J. Scarborough)
/s/ Andrew H. Parnes Vice President--Finance, Treasurer March 21, 2000
____________________________________ and Chief Financial Officer
(Andrew H. Parnes)
/s/ James L. Doti Director March 21, 2000
____________________________________
(James L. Doti)
/s/ Ronald R. Foell Director March 21, 2000
____________________________________
(Ronald R. Foell)
/s/ Douglas C. Jacobs Director March 21, 2000
____________________________________
(Douglas C. Jacobs)
/s/ Keith D. Koeller Director March 21, 2000
____________________________________
(Keith D. Koeller)
/s/ Larry McNabb Director March 21, 2000
____________________________________
(Larry McNabb)
/s/ Robert J. St. Lawrence Director March 21, 2000
____________________________________
(Robert J. St. Lawrence)
/s/ Donald H. Spengler Director March 21, 2000
____________________________________
(Donald H. Spengler)
</TABLE>
46
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S>
*3.1 Certificate of Incorporation of the Registrant incorporated by reference
to Exhibit 3.1 of the Registrant's Registration Statement on Form S-4
(file no. 33-42293).
*3.2 Certificate of Correction of Certificate of Incorporation of the
Registrant incorporated by reference to Exhibit 3.2 of the Registrant's
Registration Statement on Form 8-B filed with the Securities and
Exchange Commission on December 17, 1991.
*3.3 Form of Certificate of Amendment to Certificate of Incorporation of the
Registrant incorporated by reference to Exhibit 3.3 of the Registrant's
Registration Statement on Form 8-B filed with the Securities and
Exchange Commission on December 17, 1991.
*3.4 Form of Certificate of Merger of the Registrant incorporated by
reference to Exhibit 3.4 of the Registrant's Registration Statement on
Form 8-B filed with the Securities and Exchange Commission on December
17, 1991.
*3.5 Bylaws of the Registrant incorporated by reference to Exhibit 3.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999.
*4.1 Rights Agreement, dated as of December 31, 1991, between the Registrant
and Manufacturers Hanover Trust Company of California, as Rights Agent,
incorporated by reference to Exhibit 4.1 of the Registration Statement
on Form S-4 (file no. 33-42293).
*4.2 Amendment No. 1 to Rights Agreement, effective as of May 12, 1999,
between the Registrant and First Chicago Trust Company of New York, as
rights agent, incorporated by reference to Exhibit 4.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999.
*4.3 Standard Pacific Corp. Officers' Certificate dated March 5, 1993 with
respect to the Registrant's 10 1/2% Senior Notes due 2000, incorporated
by reference to Exhibit 4 of the Registrant's Current Report on Form 8-K
dated March 5, 1993.
*4.4 Standard Pacific Corp. Officers' Certificate dated June 17, 1997 with
respect to the Registrant's 8 1/2% Senior Notes due 2007, incorporated
by reference to Exhibit 4.1 of the Registrant's Current Report on Form
8-K dated June 17, 1997.
*4.5 Standard Pacific Corp. Officers' Certificate dated February 5, 1998 with
respect to the Registrant's 8% Senior Notes due 2008.
*4.6 Registration Rights Agreement dated as of February 5, 1998 between the
Registrant and SBC Warburg Dillon Read Inc., BancAmerica Robertson
Stephens and Donaldson Lufkin & Jenrette Securities Corporation.
*4.7 Indenture, dated as of April 1, 1992, by and between the Registrant and
United States Trust Company of New York, Trustee, incorporated by
reference to Exhibit 4 to the Registrant's Current Report on Form 8-K
dated February 24, 1993.
*4.8 Indenture, dated as of April 1, 1999, by and between the Registrant and
The First National Bank of Chicago, as Trustee, incorporated by
reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K
dated April 16, 1999.
*4.9 First Supplemental Indenture, dated as of April 13, 1999, by and between
the Registrant and The First National Bank of Chicago, as Trustee, with
Form of Note attached, incorporated by reference to Exhibit 4.2 of the
Registrant's Current Report on Form 8-K dated April 16, 1999.
*10.1 Eighth Amended and Restated Revolving Credit Agreement dated as of
August 11, 1999, among the Registrant, Bank of America, National
Association, The First National Bank of Chicago, Guaranty Federal Bank,
F.S.B., Bank United, Fleet National Bank, PNC Bank, National
Association, Comerica Bank, Credit Lyonnais Los Angeles Branch, Sanwa
Bank California, Union Bank of California, NA, First American Bank
Texas, SSB and SunTrust Bank, incorporated by reference to Exhibit 10.1
of the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999.
</TABLE>
47
<PAGE>
<TABLE>
<C> <S>
*10.2 Standard Pacific Corp. 1991 Employee Stock Incentive Plan, incorporated
by reference to Annex B of the Registrant's prospectus dated October
11, 1991, filed with the Securities and Exchange Commission pursuant to
Rule 424(b).
*10.3 Form of Stock Option Agreement to be used in connection with the
Standard Pacific Corp. 1991 Employee Stock Incentive Plan, incorporated
by reference to Exhibit 28.2 of the Registrant's Registration Statement
on Form S-8 filed on January 3, 1992.
*10.4 Standard Pacific Corp. 1997 Stock Incentive Plan, incorporated by
reference to Exhibit 99.1 of the Registrant's Registration Statement on
Form S-8 filed on August 21, 1997.
*10.5 Form of Non-Qualified Stock Option Agreement to be used in Registrant's
1997 Stock Incentive Plan, incorporated by reference to Exhibit 99.2 of
the Registrant's Registration Statement on Form S-8 filed on August 21,
1997.
*10.6 Form of Non-Qualified Director's Stock Option Agreement to be used in
connection with the Registrant's 1997 Stock Incentive Plan,
incorporated by reference to Exhibit 99.3 of the Registrant's
Registration Statement on Form S-8 filed on August 21, 1997.
*10.7 Form of Incentive Stock Option Agreement to be used in connection with
the Registrant's 1997 Stock Incentive Plan, incorporated by reference
to Exhibit 99.4 of the Registrant's Registration Statement on Form S-8
filed on August 21, 1997.
*10.8 Stock Purchase Agreement, dated as of September 30, 1997, by and
between the Registrant, Duc Development Company and Daniel A. Duc,
incorporated by reference to Exhibit 10.9 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997.
*10.9 Asset Purchase Agreement, dated August 13, 1998, by and among UDC
Homes, Inc., UDC Homes Construction, Inc., Shea Homes Limited
Partnership, Standard Pacific of Arizona, Inc., Standard Pacific
Construction, Inc., and the Registrant, incorporated by reference to
Exhibit 2.1 of the Registrant's Form 8-K dated August 28, 1998.
*10.10 Stock Purchase Agreement, dated as of August 26, 1998, between the
Registrant and American General Finance, Inc., as amended on March 11,
1999, incorporated by reference to Exhibit 10.2 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
*10.11 Industrial Lease between The Irvine Company and the Registrant,
incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
27.1 Financial Data Schedule.
</TABLE>
- --------
(*) Previously filed.
48
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
1. Standard Pacific of Texas, Inc., a Delaware corporation.
2. Standard Pacific of Orange County, Inc., a Nevada corporation.
3. Standard Pacific of Fullerton, Inc., a Nevada corporation.
4. Standard Pacific of Arizona, Inc., a Delaware corporation.
5. Standard Pacific Construction, Inc., a Delaware corporation.
6. Family Lending Services, Inc., a Delaware corporation.
7. SPS Affiliates, Inc., a subsidiary of Family Lending Services, Inc. and a
California corporation.
8. Standard Pacific Financing, Inc., a California corporation.
9. Standard Pacific Financing, L.P., a Delaware limited partnership in which
the registrant owns a 99% interest in all profits, losses, credits and
distributions.
10. SPH Title, Inc., a Delaware corporation.
11. StanPac Corp., a Delaware corporation.
12. Parkridge Partners, a California general partnership in which the
registrant has a 50% ownership interest.
13. Pacific Ridge Partners, a California general partnership in which the
registrant has a 50% ownership interest.
14. StanPac Development Company, LLC, a Delaware limited liability company in
which the registrant has a 50% ownership interest.
15. Azusa Associates, LLC, a California limited liability company in which the
registrant has a 50% ownership interest.
16. SPH Mortgage, a joint venture in which Standard Pacific of Texas, Inc. and
Standard Pacific of Arizona, Inc. hold an aggregate 50% ownership interest.
Neither the subsidiaries nor the partnerships in which the registrant has an
interest have done business under names other than their own, with the exception
of the following:
1. Standard Pacific of Orange County, a division of Standard Pacific Corp.
2. Standard Pacific of San Diego, a division of Standard Pacific Corp.
3. Standard Pacific of Ventura, a division of Standard Pacific Corp.
4. Standard Pacific of Northern California, a division of Standard Pacific
Corp.
5. Standard Pacific of Dallas, a division of Standard Pacific of Texas, Inc.
6. Standard Pacific of Houston, a division of Standard Pacific of Texas, Inc.
7. Standard Pacific Homes.
8. Standard Pacific.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
To Standard Pacific Corp.:
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 21, 2000, included in this Form 10-K into
Standard Pacific Corp.'s previously filed Form S-8 Registration Statement File
No. 33-44954, Form S-8 Registration Statement File No. 333-34073 and Form S-3
Registration Statement File No. 333-64719.
/s/ARTHUR ANDERSEN LLP
Orange County, California
January 21, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 3,178 15,064
<SECURITIES> 0 0
<RECEIVABLES> 32,573 49,681
<ALLOWANCES> 0 0
<INVENTORY> 699,489 713,446
<CURRENT-ASSETS> 0<F1> 0<F1>
<PP&E> 8,133 7,716
<DEPRECIATION> 5,477 4,204
<TOTAL-ASSETS> 829,968 866,362
<CURRENT-LIABILITIES> 0<F1> 0<F1>
<BONDS> 298,847 218,382
0 0
0 0
<COMMON> 292 296
<OTHER-SE> 381,593 324,383
<TOTAL-LIABILITY-AND-EQUITY> 829,968 866,362
<SALES> 1,198,831 759,612
<TOTAL-REVENUES> 1,201,976 761,015
<CGS> 986,793 618,448
<TOTAL-COSTS> 98,889 60,673
<OTHER-EXPENSES> 712 (168)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,519 1,168
<INCOME-PRETAX> 114,063 80,894
<INCOME-TAX> 46,492 33,490
<INCOME-CONTINUING> 67,571 47,404
<DISCONTINUED> 459 (199)
<EXTRAORDINARY> 0 (1,328)
<CHANGES> 0 0
<NET-INCOME> 68,030 45,877
<EPS-BASIC> $2.29 $1.54
<EPS-DILUTED> $2.28 $1.53
<FN>
<F1>AMOUNTS FOR CURRENT ASSETS AND CURRENT LIABILITIES ARE NOT PRESENTED HERE
AS THE BALANCE SHEETS ARE UNCLASSIFIED.
</FN>
</TABLE>
