Current report Shea Homes Limited Partnership

8-K - Current report

Published: 2014-02-21 13:01:53
Submitted: 2014-02-21
Period Ending In: 2014-02-21
d678059d8k.htm 8-K


ENT> 8-K 1 d678059d8k.htm 8-K

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 21, 2014

 

 

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 21, 2014, Shea Homes Limited Partnership issued a press release announcing its results of operations for the year ended December 31, 2013. 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 21, 2014


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 21, 2014


Exhibit Index

 

Exhibit
Number

  

Description

99.1
  
Press Release dated February 21, 2014
d678059dex991.htm EX-99.1


ENT> EX-99.1 2 d678059dex991.htm EX-99.1

EX-99.1

Exhibit 99.1

 

LOGO

Shea Homes Reports Fourth Quarter and Full Year 2013 Results

Walnut, California, February 21, 2014

Shea Homes, one of America’s largest private homebuilders, today reported results for the fourth quarter and year ended December 31, 2013.

Three Months Ended 12/31/13 Highlights and Comparisons to Three Months Ended 12/31/12

 

 
 

Net income attributable to Shea Homes was $73.8 million compared to $33.2 million, a 122% increase

 

 
 

Home sales orders were 361 compared to 407, an 11% decrease

 

 
 

Active selling communities averaged 60 compared to 63

 

 
 

Home sales per community were 6.0, or 2.0 per month, compared to 6.5, or 2.2 per month, an 8% decrease

 

 
 

Cancellation rate was 21% compared to 20%

 

 
 

Backlog units were 849 compared to 911, a 7% decrease

 

 
 

Backlog sales value was $466.6 million compared to $413.2 million, a 13% increase

 

 
 

The average selling price in backlog was $550,000 compared to $454,000, a 21% increase

 

 
 

Total revenues were $340.0 million compared to $295.7 million, a 15% increase

 

 
 

House revenues were $315.5 million* compared to $284.8 million*, an 11% increase

 

 
 

Homes closed were 636 compared to 700, a 9% decrease

 

 
 

Average selling price of homes closed was $496,000 compared to $407,000, a 22% increase

 

 
 

Gross margin was 25.1% compared to 22.1%

 

 
 

House gross margin was 23.4%* compared to 20.9%*

 

 
 

SG&A expenses were $27.0 million (7.9% of revenues) compared to $23.9 million (8.1% of revenues)

 

 
 

Income tax benefit was $15.8 million compared to $0.3 million which, for the fourth quarter 2013, included $15.6 million attributable to the reversal of the deferred tax valuation allowance

 

 
 

Adjusted EBITDA was $83.8 million* compared to $72.9 million*

 

 
 

Cash and restricted cash at December 31, 2013 were $207.4 million compared to $292.8 million at December 31, 2012

Year Ended 12/31/13 Highlights and Comparisons to Year Ended 12/31/12

 

 
 

Net income attributable to Shea Homes was $125.9 million compared to $29.0 million, a 334% increase

 

 
 

Home sales orders were 1,828 compared to 2,023, a 10% decrease

 

 
 

Active selling communities averaged 58 compared to 65

 

 
 

Home sales per community were 31.5, or 2.6 per month, compared to 31.1, or 2.6 per month

 

 
 

Cancellation rate remained at 15%

 

 
 

Total revenues were $930.6 million compared to $680.1 million, a 37% increase

 

 
 

House revenues were $894.3 million* compared to $645.0 million*, a 39% increase

 

 
 

Homes closed were 1,890 compared to 1,573, a 20% increase

 

 
 

Average selling price of homes closed was $473,000 compared to $410,000, a 15% increase

 

 
 

Gross margin was 23.8% compared to 20.8%

 

 
 

House gross margin was 23.2%* compared to 20.2%*

 

 
 

SG&A expenses were $104.4 million (11.2% of revenues) compared to $89.5 million (13.2% of revenues)

 

 
 

Income tax benefit (provision) was $14.1 million compared to $(0.6) million which, for 2013, included $15.6 million attributable to the reversal of the deferred tax valuation allowance

 

 
 

Adjusted EBITDA was $184.2 million* compared to $131.2 million*

 

*
See “Reconciliation of Non-GAAP Financial Measures” beginning on page 9

 

Page 1


“We are very pleased with our performance in 2013. Revenues, gross margins and, most importantly, net income, were up significantly year over year for the fourth quarter and year. In addition to the strong housing market in the first half of 2013, we continued to focus on maximizing housing margins and minimizing overhead expenses,” said Bert Selva, President and CEO of Shea Homes.

“Looking ahead to 2014, we believe the fundamentals that drive housing demand appear favorable and we are excited about the new year as we enter the spring selling season. For the year, we plan to open 32 new communities compared to 21 last year. In addition, we remain focused on acquiring new land positions in our core markets.”

For the 2013 fourth quarter, new home sales orders were 361 compared to 407 in 2012, an 11% decrease, primarily due to the impact of higher mortgage interest rates in the second half of 2013 and the temporary federal government shutdown early in the fourth quarter, combined with slightly lower active selling communities in our East segment. Home sales per community for the 2013 fourth quarter were 2.0 per month compared to 2.2 per month in the 2012 fourth quarter, an 8% decrease. For the year ended December 31, 2013, the Company opened 21 new communities compared to 15 in 2012. At December 31, 2013, backlog was 849 compared to 911 at December 31, 2012, a 7% decrease.

For the 2013 fourth quarter, net income attributable to Shea Homes was $73.8 million compared to $33.2 million in 2012, primarily due to a $19.9 million increase in gross margin (from higher revenues, including land sales, and higher gross margins), a $3.0 million decrease in interest expense, a $5.3 million improvement in our reinsurance transaction results, and a $15.5 million increase in income tax benefit, primarily attributable to the reversal of the deferred tax valuation allowance. These increases were partially offset by a $3.1 million increase in selling, general and administrative expenses.

For the 2013 fourth quarter, total revenues were $340.0 million compared to $295.7 million in 2012, a 15% increase, and house revenues were $315.5 million* compared to $284.8 million* in 2012, an 11% increase. The increase in house revenues was primarily due to a 22% increase in average selling price to $496,000, a result of general home price increases in all of our regions, and the delivery of more expensive homes, primarily in Southern California.

For the 2013 fourth quarter, total gross margin was 25.1% compared to 22.1% in 2012, a 300 basis point (bp) increase, and house gross margin was 23.4%* compared to 20.9%* in 2012, a 250 bp increase, which reflected general home price increases in all of our regions, partially offset by higher labor and material costs. For the 2013 fourth quarter, house gross margin excluding interest was 29.6%* compared to 28.5%* in 2012.

For the 2013 fourth quarter, SG&A expenses were $27.0 million (7.9% of revenues) compared to $23.9 million (8.1% of revenues) in 2012. The $3.1 million increase was primarily due to higher volume related costs and higher compensation expense.

For the 2013 and 2012 fourth quarter, interest incurred was $16.7 million, while interest expense for the 2013 fourth quarter was $0.1 million versus $3.1 million in 2012, a 97% decrease which was due to higher qualified inventory used for interest capitalization.

For the 2013 fourth quarter, net operating cash flows were $78.6 million compared to $80.6 million in 2012. This decrease was primarily due to increased land acquisition, land development and house construction costs, partially offset by increased cash receipts from home closings. For the 2013 fourth quarter, land acquisition and land development costs were $92.6 million compared to $57.8 million in 2012; house construction costs were $111.8 million compared to $109.2 million in 2012; and cash receipts from home closings were $315.5 million compared to $284.8 million in 2012.

 

Page 2


For the year ended December 31, 2013, net income attributable to Shea Homes was $125.9 million compared to $29.0 million in 2012, primarily due to a 37% increase in revenues and a 300 bp higher gross margin percentage. In addition to a $14.8 million decrease in interest expense (due to higher qualified inventory), there was a $14.0 million improvement in our reinsurance transaction results, and a $15.6 million reversal of the deferred tax valuation allowance. These increases were partially offset by a $14.9 million increase in SG&A, primarily due to higher volume related costs and compensation expenses. For 2013, as a percentage of revenue, SG&A was 11.2% compared to 13.2% for 2012. The decrease as a percentage of revenue was the result of leveraging our fixed G&A expenses over higher revenues.

For the year ended December 31, 2013, net operating cash flows were $(45.9) million compared to $(6.2) million in 2012. The larger deficit was primarily due to increased land acquisition, land development and house construction costs, partially offset by increased cash receipts from home closings. For the year ended December 31, 2013, land acquisition ($204.6 million) and land development costs were $341.3 million compared to $215.9 million in 2012; house construction costs were $467.4 million compared to $348.3 million in 2012; and cash receipts from home closings were $894.3 million compared to $645.0 million in 2012.

In connection with our November 2013 receipt of the consent to amend the Indenture to allow us to replace our $75.0 million letter of credit facility with a future $125.0 million revolving credit facility, in January 2014, J.F. Shea Co., Inc. (“JFSCI”), a related party, made an $8.4 million payment, including accrued interest, on its note payable to the Company. As a result of applying this payment to future installments, JFSCI is not required to make its next installment payment until November 2016.

About Shea Homes Limited Partnership

Shea Homes is one of the largest private homebuilders in the nation. Since its founding in 1968, Shea Homes has closed over 91,000 homes. Shea Homes builds homes with quality craftsmanship and designs that 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.

This news release contains forward-looking statements and information relating to Shea Homes Limited Partnership and its subsidiaries, such as the fundamentals that drive housing market demand appear favorable and new community openings for 2014, which 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 Annual Report on Form 10-K and 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 @ 909-594-0954 or andy.parnes@sheahomes.com

 

Page 3


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,
 
 
 
2013
 
 
2012
 
 
Change
 
 
2013
 
 
2012
 
 
Change
 
 
 
(unaudited)
 
 
(unaudited)
 
 
 
 
 
(unaudited)
 
 
(unaudited)
 
 
 
 

Operating Data:

 
 
 
 
 
 

Revenues

 
$
340,031
  
 
$
295,655
  
 
 
15
 
$
930,610
  
 
$
680,147
  
 
 
37

Gross margin %

 
 
25.1
 
 
22.1
 
 
300
 bp’s 
 
 
23.8
 
 
20.8
 
 
300
 bp’s 

Homebuilding revenues
(a) 
*

 
$
339,806
  
 
$
295,408
  
 
 
15
 
$
929,697
  
 
$
679,162
  
 
 
37

Homebuilding gross margin %
(a) 
*

 
 
25.1
 
 
22.1
 
 
300
 bp’s 
 
 
23.7
 
 
20.7
 
 
300
 bp’s 

House revenues *

 
$
315,488
  
 
$
284,766
  
 
 
11
 
$
894,305
  
 
$
645,000
  
 
 
39

House gross margin*

 
$
73,765
  
 
$
59,579
  
 
 
24
 
$
207,828
  
 
$
130,093
  
 
 
60

House gross margin % *

 
 
23.4
 
 
20.9
 
 
250
 bp’s 
 
 
23.2
 
 
20.2
 
 
300
 bp’s 

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

 
 
29.6
 
 
28.5
 
 
110
 bp’s 
 
 
29.9
 
 
27.6
 
 
230
 bp’s 

SG&A expenses

 
$
26,993
  
 
$
23,863
  
 
 
13
 
$
104,418
  
 
$
89,535
  
 
 
17

SG&A % of total revenues

 
 
7.9
 
 
8.1
 
 
(20
) bp’s 
 
 
11.2
 
 
13.2
 
 
(200
) bp’s 

Net income attributable to Shea Homes

 
$
73,751
  
 
$
33,220
  
 
 
122
 
$
125,947
  
 
$
29,038
  
 
 
334

Adjusted EBITDA
(b) 
*

 
$
83,828
  
 
$
72,935
  
 
 
15
 
$
184,169
  
 
$
131,201
  
 
 
40

Interest incurred

 
$
16,725
  
 
$
16,769
  
 
 
0
 
$
67,048
  
 
$
66,857
  
 
 
0

Interest capitalized to inventory

 
$
15,825
  
 
$
13,440
  
 
 
18
 
$
59,699
  
 
$
46,146
  
 
 
29

Interest capitalized to investments in joint ventures

 
$
805
  
 
$
245
  
 
 
229
 
$
2,278
  
 
$
849
  
 
 
168

Interest expense

 
$
96
  
 
$
3,084
  
 
 
-97
 
$
5,071
  
 
$
19,862
  
 
 
-74

Interest in cost of sales
(c)

 
$
20,434
  
 
$
24,418
  
 
 
-16
 
$
60,448
  
 
$
54,733
  
 
 
10

Other Data
(d)
:

 
 
 
 
 
 

Home sales orders (units)

 
 
361
  
 
 
407
  
 
 
-11
 
 
1,828
  
 
 
2,023
  
 
 
-10

Homes closed (units)

 
 
636
  
 
 
700
  
 
 
-9
 
 
1,890
  
 
 
1,573
  
 
 
20

Average selling price

 
$
496
  
 
$
407
  
 
 
22
 
$
473
  
 
$
410
  
 
 
15

Average active selling communities

 
 
60
  
 
 
63
  
 
 
-5
 
 
58
  
 
 
65
  
 
 
-11

Home sales orders per community

 
 
6.0
  
 
 
6.5
  
 
 
-8
 
 
31.5
  
 
 
31.1
  
 
 
1

Cancellation rate

 
 
21
 
 
20
 
 
 
15
 
 
15
 

Backlog at end of period (units)

 
 
849
  
 
 
911
  
 
 
-7
 
 
 

Backlog at end of period (estimated sales value)

 
$
466,638
  
 
$
413,196
  
 
 
13
 
 
 

Lots owned or controlled (units)

 
 
18,930
  
 
 
17,910
  
 
 
6
 
 
 

Homes under construction (units)
(e)

 
 
843
  
 
 
826
  
 
 
2
 
 
 

 

(a)
Homebuilding revenue and gross margin include house, land and other homebuilding activities.
(b)
See page 10 for a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income.
(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 9.

 

Page 4


CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 
  
December 31,
2013
 
  
December 31,
2012
 
 
  
(unaudited)
 
  
 
 

Assets

  
  

Cash and cash equivalents

  
$
206,205
  
  
$
279,756
  

Restricted cash

  
 
1,189
  
  
 
13,031
  

Accounts and other receivables, net

  
 
147,499
  
  
 
141,289
  

Receivables from related parties, net

  
 
32,350
  
  
 
34,028
  

Inventory

  
 
1,013,272
  
  
 
837,653
  

Investments in joint ventures

  
 
47,748
  
  
 
28,653
  

Other assets, net

  
 
57,070
  
  
 
39,127
  
  

 

 

    

 

 

 

Total assets

  
$
1,505,333
  
  
$
1,373,537
  
  

 

 

    

 

 

 

Liabilities and equity

  
  

Liabilities:

  
  

Notes payable

  
$
751,708
  
  
$
758,209
  

Other liabilities

  
 
308,168
  
  
 
296,081
  
  

 

 

    

 

 

 

Total liabilities

  
 
1,059,876
  
  
 
1,054,290
  

Total equity

  
 
445,457
  
  
 
319,247
  
  

 

 

    

 

 

 

Total liabilities and equity

  
$
1,505,333
  
  
$
1,373,537
  
  

 

 

    

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

 

 
  
Three Months Ended
 
 
Year Ended
 
 
  
December 31,
 
 
December 31,
 
 
  
2013
 
 
2012
 
 
2013
 
 
2012
 
 
  
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 

Revenues

  
$
340,031
  
 
$
295,655
  
 
$
930,610
  
 
$
680,147
  

Cost of sales

  
 
(254,643
 
 
(230,196
 
 
(709,412
 
 
(538,434
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

  
 
85,388
  
 
 
65,459
  
 
 
221,198
  
 
 
141,713
  

Selling, general and administrative expenses

  
 
(26,993
 
 
(23,863
 
 
(104,418
 
 
(89,535

Interest expense

  
 
(96
 
 
(3,084
 
 
(5,071
 
 
(19,862

Other income (expense), net

  
 
(357
 
 
(5,597
 
 
129
  
 
 
(2,516
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

  
 
57,942
  
 
 
32,915
  
 
 
111,838
  
 
 
29,800
  

Income tax benefit (expense)

  
 
15,802
  
 
 
287
  
 
 
14,101
  
 
 
(616
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  
 
73,744
  
 
 
33,202
  
 
 
125,939
  
 
 
29,184
  

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

  
 
7
  
 
 
18
  
 
 
8
  
 
 
(146
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Shea Homes

  
$
73,751
  
 
$
33,220
  
 
$
125,947
  
 
$
29,038
  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 5


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 
  
Three Months Ended
 
 
Year Ended
 
 
  
December 31,
 
 
December 31,
 
 
  
2013
 
 
2012
 
 
2013
 
 
2012
 
 
  
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 

Operating activities

  
 
 
 

Net income

  
$
73,744
  
 
$
33,202
  
 
$
125,939
  
 
$
29,184
  

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

  
 
 
 

(Gain) loss on reinsurance transaction

  
 
(412
 
 
4,845
  
 
 
(2,011
 
 
12,013
  

Depreciation and amortization expense

  
 
3,296
  
 
 
3,383
  
 
 
10,608
  
 
 
8,638
  

Distribution of earnings from joint venture

  
 
1,100
  
 
 
—  
  
 
 
7,100
  
 
 
1,400
  

Gain on sale of available-for-sale investments

  
 
—  
  
 
 
(4
 
 
(15
 
 
(8,806

Other operating activities, net

  
 
(471
 
 
(289
 
 
(1,174
 
 
(1,227

Changes in operating assets and liabilities:

  
 
 
 

Inventory

  
 
27,027
  
 
 
46,127
  
 
 
(185,596
 
 
(68,733

Payables and other liabilities

  
 
(3,495
 
 
2,567
  
 
 
14,231
  
 
 
38,323
  

Other operating assets

  
 
(22,238
 
 
(9,185
 
 
(14,980
 
 
(16,983
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

  
 
78,551
  
 
 
80,646
  
 
 
(45,898
 
 
(6,191

Investing activities

  
 
 
 

Proceeds from sale of investments

  
 
2
  
 
 
2,593
  
 
 
3,165
  
 
 
26,547
  

Net proceeds from promissory notes from related parties

  
 
298
  
 
 
56
  
 
 
3,335
  
 
 
1,987
  

Investments in unconsolidated joint ventures, net

  
 
(4,988
 
 
(10,179
 
 
(21,304
 
 
(11,646

Other investing activities, net

  
 
(1,969
 
 
(464
 
 
(1,969
 
 
(464
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

  
 
(6,657
 
 
(7,994
 
 
(16,773
 
 
16,424
  

Financing activities

  
 
 
 

Net decrease in notes payable

  
 
(8,887
 
 
(888
 
 
(10,880
 
 
(2,429

Contributions from owners

  
 
—  
  
 
 
—  
  
 
 
—  
  
 
 
1,746
  

Other financing activities, net

  
 
—  
  
 
 
2,352
  
 
 
—  
  
 
 
1,840
  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

  
 
(8,887
 
 
1,464
  
 
 
(10,880
 
 
1,157
  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

  
 
63,007
  
 
 
74,116
  
 
 
(73,551
 
 
11,390
  

Cash and cash equivalents at beginning of period

  
 
143,198
  
 
 
205,640
  
 
 
279,756
  
 
 
268,366
  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  
$
206,205
  
 
$
279,756
  
 
$
206,205
  
 
$
279,756
  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 6


SEGMENT OPERATING DATA

(dollars in thousands)

(unaudited)

 

 
  
Three Months Ended December 31,
 
  
Year Ended December 31,
 
 
  
2013
 
  
2012
 
  
2013
 
  
2012
 
 
  
Homes
Closed
 
  
Avg. Selling
Price
 
  
Homes
Closed
 
  
Avg. Selling
Price
 
  
Homes
Closed
 
  
Avg. Selling
Price
 
  
Homes
Closed
 
  
Avg. Selling
Price
 

Homes closed:

  
  
  
  
  
  
  
  

Southern California

  
 
92
  
  
$
775
  
  
 
81
  
  
$
566
  
  
 
271
  
  
$
757
  
  
 
249
  
  
$
523
  

San Diego

  
 
80
  
  
 
550
  
  
 
123
  
  
 
410
  
  
 
256
  
  
 
490
  
  
 
194
  
  
 
441
  

Northern California

  
 
141
  
  
 
575
  
  
 
153
  
  
 
472
  
  
 
456
  
  
 
510
  
  
 
323
  
  
 
487
  

Mountain West

  
 
143
  
  
 
448
  
  
 
124
  
  
 
447
  
  
 
372
  
  
 
444
  
  
 
284
  
  
 
446
  

South West

  
 
178
  
  
 
305
  
  
 
207
  
  
 
279
  
  
 
510
  
  
 
312
  
  
 
492
  
  
 
280
  

East

  
 
2
  
  
 
374
  
  
 
12
  
  
 
253
  
  
 
25
  
  
 
262
  
  
 
31
  
  
 
231
  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consolidated

  
 
636
  
  
$
496
  
  
 
700
  
  
$
407
  
  
 
1,890
  
  
$
473
  
  
 
1,573
  
  
$
410
  

Unconsolidated joint ventures

  
 
82
  
  
 
349
  
  
 
57
  
  
 
297
  
  
 
202
  
  
 
335
  
  
 
149
  
  
 
305
  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  
 
718
  
  
$
479
  
  
 
757
  
  
$
399
  
  
 
2,092
  
  
$
460
  
  
 
1,722
  
  
$
401
  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
 
  
Three Months Ended December 31,
 
  
Year Ended December 31,
 
 
  
2013
 
  
2012
 
  
2013
 
  
2012
 
 
  
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

  
 
97
  
  
 
8
  
  
 
66
  
  
 
7
  
  
 
308
  
  
 
6
  
  
 
313
  
  
 
8
  

San Diego

  
 
51
  
  
 
7
  
  
 
81
  
  
 
8
  
  
 
249
  
  
 
7
  
  
 
262
  
  
 
9
  

Northern California

  
 
54
  
  
 
14
  
  
 
83
  
  
 
14
  
  
 
359
  
  
 
13
  
  
 
459
  
  
 
14
  

Mountain West

  
 
61
  
  
 
14
  
  
 
85
  
  
 
14
  
  
 
367
  
  
 
15
  
  
 
401
  
  
 
14
  

South West

  
 
98
  
  
 
17
  
  
 
85
  
  
 
17
  
  
 
536
  
  
 
16
  
  
 
552
  
  
 
17
  

East

  
 
—  
  
  
 
—  
  
  
 
7
  
  
 
3
  
  
 
9
  
  
 
1
  
  
 
36
  
  
 
3
  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total consolidated

  
 
361
  
  
 
60
  
  
 
407
  
  
 
63
  
  
 
1,828
  
  
 
58
  
  
 
2,023
  
  
 
65
  

Unconsolidated joint ventures

  
 
52
  
  
 
14
  
  
 
48
  
  
 
10
  
  
 
240
  
  
 
13
  
  
 
199
  
  
 
11
  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  
 
413
  
  
 
74
  
  
 
455
  
  
 
73
  
  
 
2,068
  
  
 
71
  
  
 
2,222
  
  
 
76
  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 
  
December 31,
 
 
  
2013
 
  
2012
 
 
  
Backlog
Units
 
  
Backlog
Sales
Value
 
  
Backlog
Units
 
  
Backlog
Sales
Value
 

Backlog:

  
  
  
  

Southern California

  
 
160
  
  
$
139,059
  
  
 
123
  
  
$
87,675
  

San Diego

  
 
100
  
  
 
50,223
  
  
 
107
  
  
 
47,580
  

Northern California

  
 
144
  
  
 
94,605
  
  
 
241
  
  
 
107,497
  

Mountain West

  
 
207
  
  
 
100,186
  
  
 
212
  
  
 
98,733
  

South West

  
 
238
  
  
 
82,565
  
  
 
212
  
  
 
67,519
  

East

  
 
—  
  
  
 
—  
  
  
 
16
  
  
 
4,192
  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consolidated

  
 
849
  
  
$
466,638
  
  
 
911
  
  
$
413,196
  

Unconsolidated joint ventures

  
 
122
  
  
 
45,805
  
  
 
84
  
  
 
25,724
  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  
 
971
  
  
$
512,443
  
  
 
995
  
  
$
438,920
  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 7


SEGMENT OPERATING DATA (continued)

(unaudited)

 

 
  
December 31,
 
 
  
2013
 
  
2012
 

Lots owned or controlled:

  
  

Southern California

  
 
1,890
  
  
 
1,989
  

San Diego

  
 
640
  
  
 
764
  

Northern California

  
 
3,731
  
  
 
3,182
  

Mountain West

  
 
9,841
  
  
 
10,074
  

South West

  
 
2,063
  
  
 
1,876
  

East

  
 
765
  
  
 
25
  
  

 

 

    

 

 

 

Total consolidated

  
 
18,930
  
  
 
17,910
  

Unconsolidated joint ventures

  
 
4,455
  
  
 
3,874
  
  

 

 

    

 

 

 

Total

  
 
23,385
  
  
 
21,784
  
  

 

 

    

 

 

 

Lots by ownership type:

  
  

Owned for homebuilding

  
 
6,277
  
  
 
6,448
  

Owned and held for sale

  
 
3,313
  
  
 
3,382
  

Optioned or subject to contract for homebuilding

  
 
6,306
  
  
 
5,046
  

Optioned or subject to contract held for sale

  
 
3,034
  
  
 
3,034
  

Joint venture

  
 
4,455
  
  
 
3,874
  
  

 

 

    

 

 

 

Total

  
 
23,385
  
  
 
21,784
  
  

 

 

    

 

 

 

 

Page 8


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, 2013
 
 
Three Months Ended December 31, 2012
 
 
 
Revenue
 
 
Cost of
Sales
 
 
Gross
Margin $
 
 
Gross
Margin %
 
 
Revenue
 
 
Cost of
Sales
 
 
Gross
Margin $
 
 
Gross
Margin %
 

Total

 
$
340,031
  
 
$
(254,643
 
$
85,388
  
 
 
25.1
 
$
295,655
  
 
$
(230,196
 
$
65,459
  
 
 
22.1

Less: Other

 
 
(225
 
 
 
(225
 
 
 
(247
 
 
 
(247
 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Homebuilding

 
 
339,806
  
 
 
(254,643
 
 
85,163
  
 
 
25.1
 
 
295,408
  
 
 
(230,196
 
 
65,212
  
 
 
22.1

Less: Land

 
 
(21,572
 
 
12,201
  
 
 
(9,371
 
 
43.4
 
 
(10,810
 
 
5,866
  
 
 
(4,944
 
 
45.7

Less: Other homebuilding

 
 
(2,746
 
 
719
  
 
 
(2,027
 
 
 
168
  
 
 
(857
 
 
(689
 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

House

 
$
315,488
  
 
$
(241,723
 
$
73,765
  
 
 
23.4
 
$
284,766
  
 
$
(225,187
 
$
59,579
  
 
 
20.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Add: Interest in house cost of sales
(a)

 
 
 
19,695
  
 
 
19,695
  
 
 
 
 
21,515
  
 
 
21,515
  
 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted house excluding interest in cost of sales

 
$
315,488
  
 
$
(222,028
 
$
93,460
  
 
 
29.6
 
$
284,766
  
 
$
(203,672
 
$
81,094
  
 
 
28.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
 
 
Year Ended December 31, 2013
 
 
Year Ended December 31, 2012
 
 
 
Revenue
 
 
Cost of
Sales
 
 
Gross
Margin $
 
 
Gross
Margin %
 
 
Revenue
 
 
Cost of
Sales
 
 
Gross
Margin $
 
 
Gross
Margin %
 

Total

 
$
930,610
  
 
$
(709,412
 
$
221,198
  
 
 
23.8
 
$
680,147
  
 
$
(538,434
 
$
141,713
  
 
 
20.8

Less: Other

 
 
(913
 
 
 
(913
 
 
 
(985
 
 
 
(985
 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Homebuilding

 
 
929,697
  
 
 
(709,412
 
 
220,285
  
 
 
23.7
 
 
679,162
  
 
 
(538,434
 
 
140,728
  
 
 
20.7

Less: Land

 
 
(31,462
 
 
17,726
  
 
 
(13,736
 
 
43.7
 
 
(32,583
 
 
18,797
  
 
 
(13,786
 
 
42.3

Less: Other homebuilding

 
 
(3,930
 
 
5,209
  
 
 
1,279
  
 
 
 
(1,579
 
 
4,730
  
 
 
3,151
  
 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

House

 
$
894,305
  
 
$
(686,477
 
$
207,828
  
 
 
23.2
 
$
645,000
  
 
$
(514,907
 
$
130,093
  
 
 
20.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Add: Interest in house cost of sales
(a)

 
 
 
59,142
  
 
 
59,142
  
 
 
 
 
47,770
  
 
 
47,770
  
 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted house excluding interest in cost of sales

 
$
894,305
  
 
$
(627,335
 
$
266,970
  
 
 
29.9
 
$
645,000
  
 
$
(467,137
 
$
177,863
  
 
 
27.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

Page 9


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 (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 amortization of deferred gain resulting from a series of novation and reinsurance transactions entered into by Partners Insurance Company, a wholly-owned subsidiary (“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,
 
 
  
2013
 
 
2012
 
 
2013
 
 
2012
 

Net income

  
$
73,744
  
 
$
33,202
  
 
$
125,939
  
 
$
29,184
  

Adjustments:

  
 
 
 

Income tax (benefit) expense

  
 
(15,802
 
 
(287
 
 
(14,101
 
 
616
  

Depreciation and amortization expense

  
 
3,296
  
 
 
3,383
  
 
 
10,608
  
 
 
8,638
  

Interest in cost of sales

  
 
20,434
  
 
 
24,418
  
 
 
60,448
  
 
 
54,733
  

Interest in equity in income (loss) from joint ventures

  
 
360
  
 
 
245
  
 
 
1,189
  
 
 
849
  

Interest expense

  
 
96
  
 
 
3,084
  
 
 
5,071
  
 
 
19,862
  
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  
 
82,128
  
 
 
64,045
  
 
 
189,154
  
 
 
113,882
  

Adjustments:

  
 
 
 

Project write-offs and abandonments

  
 
854
  
 
 
1,266
  
 
 
1,436
  
 
 
2,039
  

Realized gain on sale of investments

  
 
—  
  
 
 
(4
 
 
(15
 
 
(8,806

Deferred loss (gain) recognition from PIC Transaction

  
 
(412
 
 
4,845
  
 
 
(2,011
 
 
12,013
  

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

  
 
1,255
  
 
 
2,774
  
 
 
(4,766
 
 
11,366
  

Distributions of earnings from joint ventures and non-guarantor subsidiaries

  
 
—  
  
 
 
—  
  
 
 
366
  
 
 
678
  

Other

  
 
3
  
 
 
9
  
 
 
5
  
 
 
29
  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  
$
83,828
  
 
$
72,935
  
 
$
184,169
  
 
$
131,201
  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 10

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SEC CFR Title 17 of the Code of Federal Regulations.