Current report Shea Homes Limited Partnership

8-K - Current report

Published: 2013-02-15 08:01:03
Submitted: 2013-02-15
Period Ending In: 2013-02-15
d486984d8k.htm FORM 8-K


> ENT> 8-K 1 d486984d8k.htm FORM 8-K

Form 8-K

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 


FORM 8-K

 

 


Current Report

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 15, 2013 

 

 


SHEA HOMES LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)

 

 


 

CALIFORNIA   333-177328   95-4240219

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

655 Brea Canyon Road, Walnut, California 91789

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (909) 594-9500

Not Applicable

(Former name or former address, if changed since last report):

 

 


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 2.02 Results of Operations and Financial Condition

On February 15, 2013, Shea Homes Limited Partnership issued a press release announcing its results of operations for the three months and year ended December 31, 2012. A copy of the press release is furnished as Exhibit 99.1 to this report and is incorporated herein.

The information contained in this Item 2.02 and in the accompanying Exhibit 99.1 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Shea Homes Limited Partnership under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act.

 

Item 9.01. Financial Statements and Exhibits

The information contained in this Item 9.01 and in the accompanying Exhibit 99.1 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of Shea Homes Limited Partnership under the Securities Act or the Exchange Act.

(d) Exhibits

 

Exhibit
Number

  

Description

99.1    Press Release dated February 15, 2013


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

SHEA HOMES LIMITED PARTNERSHIP
By:  

/s/ Andrew H. Parnes

Name:   Andrew H. Parnes
Title:   Chief Financial Officer

Date: February 15, 2013


Exhibit Index

 

Exhibit

Number

  

Description

99.1    Press Release dated February 15, 2013
d486984dex991.htm EX-99.1


ENT> EX-99.1 2 d486984dex991.htm EX-99.1

EX-99.1

Exhibit 99.1

 

LOGO

Shea Homes Reports Fourth Quarter and Full Year 2012 Results

Walnut, Calif., February 15, 2013

Shea Homes, one of America’s largest private homebuilders, today reported results for the fourth quarter and year ended December 31, 2012.

Three Months Ended 12/31/12 Highlights and Comparisons to Three Months Ended 12/31/11

 

 

Net income (loss) attributable to Shea Homes was $33.2 million for the 2012 fourth quarter compared to $(7.1) million in the prior year

 

 

Home sales orders were 407 compared to 321, a 27% increase

 

 

Active selling communities averaged 63 and 71 in the fourth quarter of 2012 and 2011, respectively

 

 
 

Home sales per community for the quarter were 6.5 homes, or 2.2 per month, in 2012 compared to 4.5 homes, or 1.5 per month, in 2011, a 44% increase

 

 
 

Cancellation rate was 20% compared to 21%

 

 

Backlog units at December 31, 2012 were 911 compared to 461 at December 31, 2011, a 98% increase

 

 
 

Backlog sales value was $413.2 million at December 31, 2012 compared to $184.7 million at December 31, 2011, a 124% increase

 

 
 

The average selling price in backlog was $454,000 at December 31, 2012 compared to $401,000 at December 31, 2011, a 13% increase

 

 

Total revenues were $295.7 million compared to $241.5 million, a 22% increase

 

 

House revenues were $284.8 million* compared to $235.3 million*, a 21% increase

 

 
 

Homes closed were 700 compared to 542, a 29% increase

 

 
 

Average selling price of homes closed was $407,000 compared to $434,000, a 6% decrease

 

 

House gross margin was 20.9%* compared to 18.8%*

 

 

SG&A expense was $23.9 million (8.1% of revenues) compared to $26.5 million (11.0% of revenues)

 

 

Adjusted EBITDA was $75.3 million* versus $40.4 million* last year

 

 

Cash, restricted cash and investments at December 31, 2012 were $304.9 million compared to $314.5 million at December 31, 2011

Year Ended 12/31/12 Highlights and Comparisons to Year Ended 12/31/11

 

 

Net income (loss) attributable to Shea Homes was $29.0 million compared to ($114.4) million

 

 

Home sales orders were 2,023 compared to 1,365, a 48% increase

 

 

Active selling communities averaged 65 and 76 in 2012 and 2011, respectively

 

 
 

Home sales per community for the year were 31.1 homes, or 2.6 per month, in 2012 compared to 18.0 homes, or 1.5 per month, in 2011, a 73% increase

 

 
 

Cancellation rate was 15% compared to 21%

 

 

Total revenues were $680.1 million compared to $587.8 million, a 16% increase

 

 

House revenues were $645.0 million* compared to $570.3 million*, a 13% increase

 

 
 

Homes closed were 1,573 compared to 1,348, a 17% increase

 

 
 

Average selling price of homes closed was $410,000 compared to $423,000, a 3% decrease

 

 

House gross margin was 20.2%* compared to 18.1%*

 

 

SG&A expense was $89.5 million (13.2% of revenues) compared to $82.6 million (14.1% of revenues)

 

 

Adjusted EBITDA was $131.2 million* versus $77.1 million*

 

*
See “Reconciliation of Non-GAAP Financial Measures” beginning on page 10.

 

Page 1


Bert Selva, President and CEO, stated: “Our strong fourth quarter operating results reflect the improved housing market conditions we began experiencing earlier in 2012. Our improved sales pace for the year, lower cancellation rate and higher gross margins all contributed to the year over year increase in fourth quarter and full year earnings from our homebuilding operations. In addition, during the fourth quarter, we saw new home sales orders continue to meaningfully exceed the prior year levels and we were able to continue to raise home prices across most of our markets. As a result of these positive trends, we will begin 2013 with a healthy backlog of presold homes, which is up 98% year over year, and includes strong gross margins.

As we look ahead, we believe we are operating in some of the best housing markets in the country which continue to exhibit signs of improvement. In addition, we believe many of the important drivers that have historically contributed to a healthy housing market appear positive as we begin the new year, including low mortgage interest rates, lower resale and new home inventory levels than in recent years, favorable own versus rent dynamics and attractive affordability ratios. As a result of the improved housing environment, in 2013 we are targeting to exceed the 2012 total land acquisition and development spend of $240.0 million, and open approximately 28 communities compared to 15 in 2012.”

New home sales orders increased 27% year over year for the 2012 fourth quarter. Orders were up in all of our segments except the South West, despite an 11% decline in our average community count during the fourth quarter of 2012 compared to the year earlier period. The decrease in orders in the South West segment, specifically in the Arizona market, was primarily due to a lower community count and a reduced number of houses available for sale resulting from project close outs. The overall demand environment in Arizona appears healthy and we anticipate orders to pick up in the Arizona market as new communities are brought on line. The improved order trends for both the 2012 fourth quarter and full year resulted in a 98% year over year increase in the number of homes in our backlog at December 31, 2012.

For the 2012 fourth quarter, net income (loss) attributable to Shea Homes was $33.2 million compared to $(7.1) million for 2011, due primarily to a $37.6 million improvement in gross margin (driven by higher revenues and gross margin percentages), a $3.8 million reduction in general and administrative expenses, a $1.1 million decrease in interest expense, a $4.4 million decrease in equity in losses from joint ventures and a $6.4 million decrease in income attributable to non-controlling interests. These improvements were offset, in part, by a $1.2 million increase in selling expense due to an increase in homes closed and a $4.8 million charge related to our completed operations policies that were reinsured in 2009.

For the 2012 fourth quarter, total revenues were $295.7 million compared to $241.5 million for 2011, a 22% increase, and house revenues for the 2012 fourth quarter were $284.8 million* compared to $235.3 million* for 2011, a 21% increase. This increase was mostly due to a 29% increase in new house deliveries to 700, partially offset by a 6% decrease in average selling price to $407,000. Deliveries were up year over year in all of our segments except Southern California, which decline was due to a 33% lower number of active selling communities for the year versus 2011. The decrease in average selling price of homes closed was primarily attributable to a shift towards lower-priced homes, particularly in our Northern California and San Diego segments, partially offset by price increases in most of our markets.

Total gross margin for the 2012 fourth quarter was 22.1% compared to 11.5% for 2011, a 1,060 basis point (bp) increase, and house gross margin for the 2012 fourth quarter was 20.9%* compared to 18.8%* for 2011, a 210 bp increase. There were no inventory impairments in 2012 compared to $20.3 million of impairments in 2011. Increases in house gross margin were primarily attributable to price increases in most of our markets.

 

Page 2


SG&A expense for the 2012 fourth quarter was $23.9 million (8.1% of revenues) compared to $26.5 million (11.0% of revenues) for 2011. The decrease was primarily attributable to the Company leveraging its G&A base over a higher level of revenues and lower legal expenses associated with our completed contract method tax court case. The majority of these legal expenses were incurred prior to, and shortly after, the July 2012 trial. We await a decision from the Tax Court on this matter.

Interest incurred for the 2012 fourth quarter was $16.8 million compared to $16.1 million in 2011, while interest expense for the 2012 fourth quarter was $3.1 million versus $4.2 million for 2011. The 26% decrease in interest expense for the 2012 fourth quarter resulted from a higher level of qualified inventory.

Other income (expense) for the 2012 fourth quarter was $(5.6) million compared to $2.9 million in 2011. In 2012, other expense included a $4.8 million charge related to actuarial adjustments to our loss reserves on completed operations policies that were reinsured in 2009 (the “PIC Transaction”). In 2011, we recognized a $2.9 million gain due to the actuarial adjustments.

Net operating cash flows for the 2012 fourth quarter were $80.6 million compared to $68.3 million for 2011. The increase in cash flows provided by operating activities for the 2012 fourth quarter included increased cash receipts from deliveries of homes and sales of land, partially offset by increased land acquisitions, land development and construction costs. Total land acquisitions and development costs for the 2012 fourth quarter were $62.2 million compared to $42.9 million in the 2011 fourth quarter. For the year ended 2012, net operating cash flows were $(6.2) million compared to $38.9 million for 2011, the decrease primarily due to increased land acquisitions, land development and construction costs, partially offset by increased cash receipts from deliveries of homes and sales of land. Total land acquisitions and development costs for the year ended 2012 were $240.0 million compared to $138.0 million in 2011.

For the year ended 2012, net income (loss) attributable to Shea Homes was $29.0 million compared to ($114.4) million for 2011. The improvement was primarily due to the 16% increase in full year revenues, the 210 bp higher house gross margin percentage, and the $88.4 million loss on debt extinguishment recorded in May 2011. In addition, in 2012, we recognized an $8.8 million gain on sale of investments and a $7.0 million decrease in income attributable to non-controlling interests, offset by a $12.0 million charge in 2012 related to actuarial adjustments to our loss reserves on completed operations policies that were reinsured in 2009 compared to a $3.1 million gain in 2011, a $3.1 million increase in interest expense, a $6.9 million increase in SG&A expense and a $3.7 million increase in income tax expense.

At December 31, 2012, total equity was $319.2 million compared to $328.0 million at December 31, 2011. The decrease in equity was primarily the result of the Shea Colorado LLC transaction previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012. As a result of this transaction, which resulted in us receiving a distribution of homebuilding assets, total equity decreased $39.8 million, of which $11.6 million was attributable to SHLP and $28.2 million to non-controlling interests. Full year net income of $29.2 million partially offset the impact of this transaction.

About Shea Homes

Shea Homes is one of the largest private homebuilders in the nation. Since its founding in 1968, Shea Homes has delivered more than 88,000 homes. Shea Homes builds homes with quality craftsmanship and designs that best fit varied lifestyles and budgets. Over the past several years, Shea Homes has been recognized as a leader in customer satisfaction with a reputation for design, quality and service. For more about Shea Homes and its communities, visit www.sheahomes.com.

The preceding summary of the financial results of Shea Homes Limited Partnership and its subsidiaries does not purport to be complete and is qualified in its entirety by reference to the consolidated financial statements of Shea Homes Limited Partnership and its subsidiaries, available on our website at: http://www.sheahomes.com/investor.

 

Page 3


This news release contains forward-looking statements and information relating to Shea Homes Limited Partnership and its subsidiaries, such as improving housing market conditions, the strength of our housing markets, the number of new community openings, the strength of our gross margins in our backlog and the expected improvement in orders for the South West region in 2013, that are based on the beliefs of, as well as assumptions made by, and information currently available to, our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “anticipate,” “appear” and “project” and similar expressions, as they relate to Shea Homes Limited Partnership and its subsidiaries are intended to identify forward-looking statements. These statements reflect our management’s current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions of future events that may not prove to be accurate. Such statements involve known and unknown risks, uncertainties, assumptions and other factors many of which are out of Shea Homes Limited Partnership’s and its subsidiaries’ control and difficult to forecast that may cause actual results to differ materially from those that may be described or implied. Such factors include but are not limited to: changes in employment levels; changes in the availability of financing for homebuyers; changes in interest rates; changes in consumer confidence; changes in levels of new and existing homes for sale; changes in demographic trends; changes in housing demands; changes in home prices; elimination or reduction of the tax benefits associated with owning a home; litigation risks associated with home warranty and construction defect and other claims; and various other factors, both referenced and not referenced above, and included in the Company’s filings with the Securities and Exchange Commission, including the Company’s Quarterly Reports on Form 10-Q. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from those described as anticipated, believed, estimated, expected, intended, planned or projected. Except as required by law, Shea Homes Limited Partnership and its subsidiaries neither intend nor assume any obligation to revise or update these forward-looking statements, which speak only as of their dates. Shea Homes Limited Partnership and its subsidiaries nonetheless reserve the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this press release. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

Contact: Andrew Parnes, CFO @ 909-594-9500 or andy.parnes@sheahomes.com

 

Page 4


KEY OPERATIONAL AND FINANCIAL DATA

(dollars in thousands)

 

 
  
At or For the Three Months Ended December 31,
 
 
At or For the Year Ended December 31,
 
 
  
2012
 
 
2011
 
 
Change
 
 
2012
 
 
2011
 
 
Change
 
 
  
(unaudited)
 
 
(unaudited)
 
 
 
 
 
(unaudited)
 
 
(unaudited)
 
 
 
 

Operating Data:

  
 
 
 
 
 

Revenues

  
$
295,655
  
 
$
241,477
  
 
 
22
 
$
680,147
  
 
$
587,770
  
 
 
16

Gross margin %

  
 
22.1
 
 
11.5
 
 
1,060 bp’s
  
 
 
20.8
 
 
12.3
 
 
850 bp’s
  

Homebuilding revenues
(a)
*

  
$
295,408
  
 
$
240,944
  
 
 
23
 
$
679,162
  
 
$
586,385
  
 
 
16

Homebuilding gross margin %
(a)
*

  
 
22.1
 
 
11.3
 
 
1,080 bp’s
  
 
 
20.7
 
 
12.1
 
 
860 bp’s
  

House revenues *

  
$
284,766
  
 
$
235,292
  
 
 
21
 
$
645,000
  
 
$
570,267
  
 
 
13

House gross margin

  
$
59,579
  
 
$
44,297
  
 
 
34
 
$
130,093
  
 
$
102,952
  
 
 
26

House gross margin % *

  
 
20.9
 
 
18.8
 
 
210 bp’s
  
 
 
20.2
 
 
18.1
 
 
210 bp’s
  

Adjusted house gross margin % excluding interest in cost of sales *

  
 
29.5
 
 
26.9
 
 
260 bp’s
  
 
 
28.7
 
 
26.1
 
 
260 bp’s
  

Inventory impairments

  
$
—  
  
 
$
20,298
  
 
 
-100
 
$
—  
  
 
$
30,600
  
 
 
-100

SG&A expense

  
$
23,863
  
 
$
26,472
  
 
 
-10
 
$
89,535
  
 
$
82,625
  
 
 
8

SG&A % of total revenue

  
 
8.1
 
 
11.0
 
 
(290) bp’s
  
 
 
13.2
 
 
14.1
 
 
(90) bp’s
  

Net income (loss) attributable to Shea Homes

  
$
33,220
  
 
$
(7,089
 
 
—  
  
 
$
29,038
  
 
$
(114,385
 
 
—  
  

Adjusted EBITDA
(b)
*

  
$
75,286
  
 
$
40,445
  
 
 
86
 
$
131,201
  
 
$
77,130
  
 
 
70

Interest incurred

  
$
16,769
  
 
$
16,055
  
 
 
4
 
$
66,857
  
 
$
69,961
  
 
 
-4

Interest capitalized to inventory

  
$
13,440
  
 
$
11,676
  
 
 
15
 
$
46,146
  
 
$
51,840
  
 
 
-11

Interest capitalized to investments in joint ventures

  
$
245
  
 
$
210
  
 
 
17
 
$
849
  
 
$
1,315
  
 
 
-35

Interest expense

  
$
3,084
  
 
$
4,170
  
 
 
-26
 
$
19,862
  
 
$
16,806
  
 
 
18

Interest in cost of sales
(c)

  
$
24,418
  
 
$
18,930
  
 
 
29
 
$
54,733
  
 
$
45,944
  
 
 
19

Other Data
(d)
:

  
 
 
 
 
 

Home sales orders (units)

  
 
407
 
 
 
321
 
 
 
27
 
 
2,023
 
 
 
1,365
 
 
 
48

Homes closed (units)

  
 
700
 
 
 
542
 
 
 
29
 
 
1,573
 
 
 
1,348
 
 
 
17

Average selling price

  
$
407
  
 
$
434
  
 
 
-6
 
$
410
  
 
$
423
  
 
 
-3

Average active selling communities

  
 
63
 
 
 
71
 
 
 
-11
 
 
65
 
 
 
76
 
 
 
-14

Home sales orders per community

  
 
6.5
 
 
 
4.5
 
 
 
44
 
 
31.1
 
 
 
18.0
 
 
 
73

Cancellation rate

  
 
20
 
 
21
 
 
 
15
 
 
21
 

Backlog at end of period (units)

  
 
911
 
 
 
461
 
 
 
98
 
 
 

Backlog at end of period (estimated sales value)

  
$
413,196
  
 
$
184,730
  
 
 
124
 
 
 

Lots owned or controlled (units)

  
 
17,910
 
 
 
17,762
 
 
 
1
 
 
 

Homes under construction (units)
(e)

  
 
826
 
 
 
456
  
 
 
81
 
 
 

 

(a)
Homebuilding revenue and gross margin include house, land and other homebuilding activities.
(b)
See page 11 for a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income (loss).
(c)
As previously capitalized to house and land.
(d)
Represents consolidated activity only; excludes unconsolidated joint ventures.
(e)
Homes under construction includes completed homes.
*
See “Reconciliation of Non-GAAP Financial Measures” beginning on page 10.

 

Page 5


CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 
  
December 31,
 
  
December 31,
 
 
  
2012
 
  
2011
 
 
  
(unaudited)
 
  
 
 

Assets

  
  

Cash and cash equivalents

  
$
279,756
  
  
$
268,366
  

Restricted cash

  
 
13,031
 
  
 
13,718
 

Investments

  
 
12,078
 
  
 
32,428
 

Accounts and other receivables, net

  
 
141,289
 
  
 
120,689
 

Receivables from related parties, net

  
 
34,028
 
  
 
60,223
 

Inventory

  
 
837,653
 
  
 
783,810
 

Investments in joint ventures

  
 
28,653
 
  
 
17,870
 

Other assets, net

  
 
27,049
 
  
 
31,012
 
  

 

 

    

 

 

 

Total assets

  
$
1,373,537
  
  
$
1,328,116
  
  

 

 

    

 

 

 

Liabilities and equity

  
  

Liabilities:

  
  

Notes payable

  
$
758,209
  
  
$
752,056
  

Other liabilities

  
 
296,081
 
  
 
248,057
 
  

 

 

    

 

 

 

Total liabilities

  
 
1,054,290
 
  
 
1,000,113
 

Total equity

  
 
319,247
 
  
 
328,003
 
  

 

 

    

 

 

 

Total liabilities and equity

  
$
1,373,537
  
  
$
1,328,116
  
  

 

 

    

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

 

 
  
Three Months  Ended

December 31,
 
 
Year Ended

December  31,
 
 
  
2012
 
 
2011
 
 
2012
 
 
2011
 
 
  
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 

Revenues

  
$
295,655
  
 
$
241,477
  
 
$
680,147
  
 
$
587,770
  

Cost of sales

  
 
(230,196
 
 
(213,631
 
 
(538,434
 
 
(515,578
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

  
 
65,459
 
 
 
27,846
 
 
 
141,713
 
 
 
72,192
 

Selling, general and administrative expenses

  
 
(23,863
 
 
(26,472
 
 
(89,535
 
 
(82,625

Loss on debt extinguishment

  
 
—  
  
 
 
—  
  
 
 
—  
  
 
 
(88,384

Interest expense

  
 
(3,084
 
 
(4,170
 
 
(19,862
 
 
(16,806

Other income (expense), net

  
 
(5,597
 
 
2,947
 
 
 
(2,516
 
 
5,312
 
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

  
 
32,915
 
 
 
151
 
 
 
29,800
 
 
 
(110,311

Income tax benefit (expense)

  
 
287
 
 
 
(799
 
 
(616
 
 
3,069
 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  
 
33,202
 
 
 
(648
 
 
29,184
 
 
 
(107,242

Less: Net loss (income) attributable to non-controlling interests

  
 
18
 
 
 
(6,441
 
 
(146
 
 
(7,143
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Shea Homes

  
$
33,220
  
 
$
(7,089
 
$
29,038
  
 
$
(114,385
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 6


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 
  
Three Months Ended
 
 
Year Ended
 
 
  
December 31,
 
 
December 31,
 
 
  
2012
 
 
2011
 
 
2012
 
 
2011
 
 
  
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 

Operating activities

  
 
 
 

Net income (loss)

  
$
33,202
  
 
$
(648
 
$
29,184
  
 
$
(107,242

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

  
 
 
 

Loss on debt extinguishment

  
 
—  
  
 
 
—  
  
 
 
—  
  
 
 
88,384
 

Depreciation and amortization expense

  
 
3,383
 
 
 
4,083
 
 
 
8,638
 
 
 
11,296
 

Inventory impairment

  
 
—  
  
 
 
20,298
 
 
 
—  
  
 
 
30,600
 

Gain on sale of available-for-sale investments

  
 
(4
 
 
(26
 
 
(8,806
 
 
(565

Other operating activities, net

  
 
(289
 
 
(1,703
 
 
173
 
 
 
(822

Changes in operating assets and liabilities:

  
 
 
 

Inventory

  
 
46,127
 
 
 
67,674
 
 
 
(68,733
 
 
31,521
 

Payables and other liabilities

  
 
7,412
 
 
 
(34,914
 
 
50,336
 
 
 
(6,110

Other operating assets

  
 
(9,213
 
 
13,530
 
 
 
(16,983
 
 
(8,184
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

  
 
80,618
 
 
 
68,294
 
 
 
(6,191
 
 
38,878
 

Investing activities

  
 
 
 

Purchase of available-for-sale investments

  
 
—  
  
 
 
(20,205
 
 
—  
  
 
 
(20,205

Proceeds from sale of investments

  
 
2,593
 
 
 
544
 
 
 
26,547
 
 
 
1,724
 

Net proceeds from promissory notes from related parties

  
 
56
 
 
 
(176
 
 
1,987
 
 
 
107,680
 

Other investing activities, net

  
 
(10,615
 
 
14,010
 
 
 
(12,110
 
 
15,778
 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

  
 
(7,966
 
 
(5,827
 
 
16,424
 
 
 
104,977
 

Financing activities

  
 
 
 

Net decrease in debt

  
 
(888
 
 
(595
 
 
(2,429
 
 
(52,401

Amortization of notes payable discount

  
 
—  
  
 
 
—  
  
 
 
—  
  
 
 
7,366
 

Contributions from owners

  
 
2,352
 
 
 
2,033
 
 
 
2,352
 
 
 
2,033
 

Other financing activities, net

  
 
—  
  
 
 
(4,575
 
 
1,234
 
 
 
639
 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

  
 
1,464
 
 
 
(3,137
 
 
1,157
 
 
 
(42,363
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

  
 
74,116
 
 
 
59,330
 
 
 
11,390
 
 
 
101,492
 

Cash and cash equivalents at beginning of period

  
 
205,640
 
 
 
209,036
 
 
 
268,366
 
 
 
166,874
 
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  
$
279,756
  
 
$
268,366
  
 
$
279,756
  
 
$
268,366
  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 7


SEGMENT OPERATING DATA

(dollars in thousands)

(unaudited)

 

 
  
Three Months Ended December 31,
 
  
Year Ended December 31,
 
 
  
2012
 
  
2011
 
  
2012
 
  
2011
 
 
  
Homes
Closed
 
  
Avg. Selling
Price
 
  
Homes
Closed
 
  
Avg. Selling
Price
 
  
Homes
Closed
 
  
Avg. Selling
Price
 
  
Homes
Closed
 
  
Avg. Selling
Price
 

Homes closed:

  
  
  
  
  
  
  
  

Southern California

  
 
81
 
  
$
566
  
  
 
122
 
  
$
545
  
  
 
249
  
  
$
523
  
  
 
313
  
  
$
534
  

San Diego

  
 
123
  
  
 
410
 
  
 
103
  
  
 
477
  
  
 
194
 
  
 
441
 
  
 
172
 
  
 
505
 

Northern California

  
 
153
 
  
 
472
 
  
 
76
 
  
 
529
 
  
 
323
 
  
 
487
 
  
 
215
 
  
 
501
 

Mountain West

  
 
124
  
  
 
447
 
  
 
86
 
  
 
416
 
  
 
284
 
  
 
446
 
  
 
215
 
  
 
419
 

South West

  
 
207
 
  
 
279
  
  
 
143
  
  
 
288
 
  
 
492
  
  
 
280
 
  
 
406
 
  
 
276
 

Other

  
 
12
 
  
 
253
 
  
 
12
 
  
 
210
 
  
 
31
  
  
 
231
 
  
 
27
 
  
 
224
 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consolidated

  
 
700
 
  
$
407
  
  
 
542
 
  
$
434
  
  
 
1,573
 
  
$
410
  
  
 
1,348
 
  
$
423
  

Unconsolidated joint ventures

  
 
57
 
  
 
297
 
  
 
27
 
  
 
301
 
  
 
149
 
  
 
305
 
  
 
107
 
  
 
307
 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  
 
757
 
  
$
399
  
  
 
569
 
  
$
428
  
  
 
1,722
 
  
$
401
  
  
 
1,455
 
  
$
414
  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
 
  
Three Months Ended December 31,
 
  
Year Ended December 31,
 
 
  
2012
 
  
2011
 
  
2012
 
  
2011
 
 
  
Home
Sales
Orders
 
  
Avg. Active
Selling
Communities
 
  
Home
Sales
Orders
 
  
Avg. Active
Selling
Communities
 
  
Home
Sales
Orders
 
  
Avg. Active
Selling
Communities
 
  
Home
Sales
Orders
 
  
Avg. Active
Selling
Communities
 

Home sales orders:

  
  
  
  
  
  
  
  

Southern California

  
 
66
 
  
 
7
 
  
 
62
 
  
 
11
 
  
 
313
 
  
 
8
 
  
 
281
 
  
 
12
 

San Diego

  
 
81
 
  
 
8
 
  
 
32
 
  
 
11
 
  
 
262
 
  
 
9
 
  
 
169
 
  
 
10
 

Northern California

  
 
83
 
  
 
14
 
  
 
62
 
  
 
15
 
  
 
459
 
  
 
14
 
  
 
221
 
  
 
15
 

Mountain West

  
 
85
 
  
 
14
 
  
 
63
 
  
 
13
 
  
 
401
 
  
 
14
 
  
 
251
 
  
 
13
 

South West

  
 
85
 
  
 
17
 
  
 
95
 
  
 
18
 
  
 
552
 
  
 
17
 
  
 
411
 
  
 
23
 

Other

  
 
7
 
  
 
3
 
  
 
7
 
  
 
3
 
  
 
36
 
  
 
3
 
  
 
32
 
  
 
3
 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consolidated

  
 
407
 
  
 
63
 
  
 
321
 
  
 
71
 
  
 
2,023
 
  
 
65
 
  
 
1,365
 
  
 
76
 

Unconsolidated joint ventures

  
 
48
 
  
 
10
 
  
 
32
 
  
 
13
 
  
 
199
 
  
 
11
 
  
 
119
 
  
 
13
 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  
 
455
 
  
 
73
 
  
 
353
 
  
 
84
 
  
 
2,222
 
  
 
76
 
  
 
1,484
 
  
 
89
 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 
  
At December 31,
 
 
  
2012
 
  
2011
 
 
  
Backlog
Units
 
  
Backlog
Sales
Value
 
  
Backlog
Units
 
  
Backlog
Sales
Value
 

Backlog:

  
  
  
  

Southern California

  
 
123
 
  
$
87,675
  
  
 
59
 
  
$
26,715
  

San Diego

  
 
107
 
  
 
47,580
 
  
 
39
 
  
 
18,837
 

Northern California

  
 
241
 
  
 
107,497
 
  
 
105
 
  
 
51,269
 

Mountain West

  
 
212
 
  
 
98,733
 
  
 
95
 
  
 
44,489
 

South West

  
 
212
 
  
 
67,519
 
  
 
152
 
  
 
41,309
 

Other

  
 
16
 
  
 
4,192
 
  
 
11
 
  
 
2,111
 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consolidated

  
 
911
 
  
$
413,196
  
  
 
461
 
  
$
184,730
  

Unconsolidated joint ventures

  
 
84
 
  
 
25,724
 
  
 
34
 
  
 
11,933
 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  
 
995
 
  
$
438,920
  
  
 
495
 
  
$
196,663
  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 8


SEGMENT OPERATING DATA (continued)

(unaudited)

 

 
  
At December 31,
 
 
  
2012
 
  
2011
 

Lots owned or controlled:

  
  

Southern California

  
 
1,989
 
  
 
1,241
 

San Diego

  
 
764
 
  
 
774
 

Northern California

  
 
3,182
 
  
 
3,927
 

Mountain West

  
 
10,074
 
  
 
9,910
 

South West

  
 
1,876
 
  
 
1,854
 

Other

  
 
25
 
  
 
56
 
  

 

 

    

 

 

 

Total consolidated

  
 
17,910
 
  
 
17,762
 

Unconsolidated joint ventures

  
 
3,874
 
  
 
1,976
 
  

 

 

    

 

 

 

Total

  
 
21,784
 
  
 
19,738
 
  

 

 

    

 

 

 

Lots by ownership type:

  
  

Lots owned

  
 
9,830
 
  
 
9,722
 

Lots optioned or subject to contract

  
 
8,080
 
  
 
8,040
 

Joint venture lots

  
 
3,874
 
  
 
1,976
 
  

 

 

    

 

 

 

Total

  
 
21,784
 
  
 
19,738
 
  

 

 

    

 

 

 

 

Page 9


RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(in thousands)

(unaudited)

In this earnings release, we utilize certain financial measures that in each case are not recognized under GAAP. We present these measures because we believe they and similar measures are useful to investors in evaluating a company’s operating performance and financing structure and, in certain cases, because they could be used to determine compliance with contractual covenants or as one measure of the Company’s ability to service debt and obtain financing. We also believe these measures facilitate the comparison of our operating performance and financing structure with other companies in our industry. Because these measures are not calculated in accordance with GAAP, they may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

The following table reconciles revenues, cost of sales and gross margins, as reported and prepared in accordance with GAAP, to the non-GAAP measures house revenues, house cost of sales, house gross margin and house gross margin percentage, which exclude land sales, impairment charges and other transactions, and to adjusted house revenues, adjusted house cost of sales, adjusted house gross margin and adjusted house gross margin percentage, which add back interest in cost of sales.

 

 
  
Three Months Ended December 31, 2012
 
 
Three Months Ended December 31, 2011
 
 
  
 
 
 
Cost of
 
 
Gross
 
 
Gross
 
 
 
 
 
Cost of
 
 
Gross
 
 
Gross
 
 
  
Revenue
 
 
Sales
 
 
Margin $
 
 
Margin %
 
 
Revenue
 
 
Sales
 
 
Margin $
 
 
Margin %
 

Total

  
$
295,655
  
 
$
(230,196
 
$
65,459
  
 
 
22.1
 
$
241,477
  
 
$
(213,631
 
$
27,846
  
 
 
11.5

Less: Other

  
 
(247
 
 
 
(247
 
 
 
(533
 
 
 
(533
 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Homebuilding

  
 
295,408
 
 
 
(230,196
 
 
65,212
 
 
 
22.1
 
 
240,944
 
 
 
(213,631
 
 
27,313
 
 
 
11.3

Less: Land

  
 
(10,810
 
 
5,866
 
 
 
(4,944
 
 
45.7
 
 
(4,276
 
 
3,033
 
 
 
(1,243
 
 
29.1

Less: Impairment

  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
 
—  
 
 
 
20,298
 
 
 
20,298
 
 

Less: Other homebuilding

  
 
168
 
 
 
(857
 
 
(689
 
 
 
(1,376
 
 
(695
 
 
(2,071
 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

House

  
$
284,766
  
 
$
(225,187
 
$
59,579
  
 
 
20.9
 
$
235,292
  
 
$
(190,995
 
$
44,297
  
 
 
18.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Add: Interest in house cost of sales
(a)

  
 
 
24,418
 
 
 
24,418
 
 
 
 
 
18,930
 
 
 
18,930
 
 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted house excluding interest in cost of sales

  
$
284,766
  
 
$
(200,769
 
$
83,997
  
 
 
29.5
 
$
235,292
  
 
$
(172,065
 
$
63,227
  
 
 
26.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 
  
Year Ended December 31, 2012
 
 
Year Ended December 31, 2011
 
 
  
 
 
 
Cost of
 
 
Gross
 
 
Gross
 
 
 
 
 
Cost of
 
 
Gross
 
 
Gross
 
 
  
Revenue
 
 
Sales
 
 
Margin $
 
 
Margin %
 
 
Revenue
 
 
Sales
 
 
Margin $
 
 
Margin %
 

Total

  
$
680,147
  
 
$
(538,434
 
$
141,713
  
 
 
20.8
 
$
587,770
  
 
$
(515,578
 
$
72,192
  
 
 
12.3

Less: Other

  
 
(985
 
 
 
(985
 
 
 
(1,385
 
 
 
(1,385
 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Homebuilding

  
 
679,162
 
 
 
(538,434
 
 
140,728
 
 
 
20.7
 
 
586,385
 
 
 
(515,578
 
 
70,807
 
 
 
12.1

Less: Land

  
 
(32,583
 
 
18,797
 
 
 
(13,786
 
 
42.3
 
 
(11,261
 
 
8,861
 
 
 
(2,400
 
 
21.3

Less: Impairment

  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
 
—  
 
 
 
30,600
 
 
 
30,600
 
 

Less: Other homebuilding

  
 
(1,579
 
 
4,730
 
 
 
3,151
 
 
 
 
(4,857
 
 
8,802
 
 
 
3,945
 
 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

House

  
$
645,000
  
 
$
(514,907
 
$
130,093
  
 
 
20.2
 
$
570,267
  
 
$
(467,315
 
$
102,952
  
 
 
18.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Add: Interest in house cost of sales
(a)

  
 
 
54,733
 
 
 
54,733
 
 
 
 
 
45,944
 
 
 
45,944
 
 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted house excluding interest in cost of sales

  
$
645,000
  
 
$
(460,174
 
$
184,826
  
 
 
28.7
 
$
570,267
  
 
$
(421,371
 
$
148,896
  
 
 
26.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)
Interest incurred is generally capitalized to inventory, then expensed in cost of sales as  related units close.

 

Page 10


RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)

(in thousands)

(unaudited)

 

The following table calculates the non-GAAP measures of EBITDA and Adjusted EBITDA and reconciles those amounts to net income as reported and prepared in accordance with GAAP. Adjusted EBITDA means net income (loss) (plus cash distributions of income from consolidated and unconsolidated joint ventures and non-guarantor subsidiaries) before (a) income taxes, (b) interest expense, (c) expensing of previously capitalized interest included in costs of sales and in equity in income (loss) from joint ventures, (d) impairment charges and project write-offs and abandonments, (e) loss on debt extinguishment, (f) depreciation and amortization, (g) realized gain on sale of investments, (h) income (loss) from joint ventures and non-guarantor subsidiaries, (i) deferred (gain) loss recognition from the PIC Transaction, and (j) gain on sale of investment in joint ventures. Other companies may calculate Adjusted EBITDA (or similarly titled measures) differently.

 

 
  
Three Months Ended December 31,
 
 
Year Ended December 31,
 
 
  
2012
 
 
2011
 
 
2012
 
 
2011
 

Net income (loss)

  
$
33,202
  
 
$
(648
 
$
29,184
  
 
$
(107,242

Adjustments:

  
 
 
 

Income tax expense (benefit)

  
 
(287
 
 
799
 
 
 
616
 
 
 
(3,069

Depreciation and amortization expense

  
 
3,383
 
 
 
4,083
 
 
 
8,638
 
 
 
11,296
 

Interest in cost of sales

  
 
24,418
 
 
 
18,930
 
 
 
54,733
 
 
 
45,944
 

Interest in equity in income (loss) from joint ventures

  
 
245
 
 
 
950
 
 
 
849
 
 
 
1,619
 

Interest expense

  
 
3,084
 
 
 
4,170
 
 
 
19,862
 
 
 
16,806
 
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  
 
64,045
 
 
 
28,284
 
 
 
113,882
 
 
 
(34,646

Adjustments:

  
 
 
 

Loss on debt extinguishment

  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
88,384
 

Impairment charge

  
 
—  
  
 
 
22,673
  
 
 
—  
 
 
 
32,975
  

Project write-offs and abandonments

  
 
1,266
 
 
 
26
 
 
 
2,039
 
 
 
236
 

Realized gain on sale of investments

  
 
(4
 
 
(26
 
 
(8,806
 
 
(565

Deferred loss (gain) recognition from PIC Transaction

  
 
4,845
 
 
 
(2,939
 
 
12,013
 
 
 
(3,072

Gain on sale of investment in joint ventures

  
 
—  
 
 
 
(5,939
 
 
—  
 
 
 
(5,939

Loss (income) from joint ventures and non-guarantor subsidiaries

  
 
5,126
 
 
 
(2,223
 
 
11,366
 
 
 
(485

Distributions of earnings from joint ventures and non-guarantor subsidiaries

  
 
—  
 
 
 
544
 
 
 
678
 
 
 
544
 

Other

  
 
8
 
 
 
45
 
 
 
29
 
 
 
(302
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  
$
75,286
  
 
$
40,445
  
 
$
131,201
  
 
$
77,130
  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 11

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SEC CFR Title 17 of the Code of Federal Regulations.