Page No.
PART I.	Financial Information
		ITEM 1.	Financial Statements
			Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014		2
			Condensed Consolidated Balance Sheets as of June 30, 2015 (Unaudited) and December 31, 2014		3
			Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014		4
			Notes to Unaudited Condensed Consolidated Financial Statements		5
		ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
		ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		37
		ITEM 4.	Controls and Procedures		37
PART II.	Other Information
		ITEM 1.	Legal Proceedings		40
		ITEM 1A.	Risk Factors		40
		ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		41
		ITEM 3.	Defaults Upon Senior Securities		41
		ITEM 4.	Mine Safety Disclosures		41
		ITEM 5.	Other Information		41
		ITEM 6.	Exhibits		41
SIGNATURES					43

 

 

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PART I.   FINANCIAL INFORMATION

 

ITEM 1.       FINANCIAL STATEMENTS

STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
		(Dollars in thousands, except per share amounts)
		(Unaudited)
Homebuilding:
Home sale revenues		$	694,678			$	591,706			$	1,163,057			$	1,038,624
Land sale revenues			4,954				780				6,853				14,061
Total revenues			699,632				592,486				1,169,910				1,052,685
Cost of home sales			(523,933	)			(434,196	)			(878,750	)			(762,441	)
Cost of land sales			(3,758	)			(350	)			(5,114	)			(13,354	)
Total cost of sales			(527,691	)			(434,546	)			(883,864	)			(775,795	)
Gross margin			171,941				157,940				286,046				276,890
Selling, general and administrative expenses			(79,910	)			(67,835	)			(145,980	)			(126,425	)
Income (loss) from unconsolidated joint ventures			(51	)			(462	)			(502	)			(899	)
Other income (expense)			(5,276	)			(363	)			(5,572	)			(376	)
Homebuilding pretax income			86,704				89,280				133,992				149,190
Financial Services:
Revenues			6,716				6,112				11,635				11,096
Expenses			(4,446	)			(3,760	)			(8,547	)			(7,200	)
Other income			548				214				938				375
Financial services pretax income			2,818				2,566				4,026				4,271
Income before taxes			89,522				91,846				138,018				153,461
Provision for income taxes			(32,324	)			(35,383	)			(49,215	)			(58,839	)
Net income			57,198				56,463				88,803				94,622
Less: Net income allocated to preferred shareholder			(13,798	)			(13,496	)			(21,475	)			(22,650	)
Less: Net income allocated to unvested restricted stock			(112	)			(77	)			(181	)			(134	)
Net income available to common stockholders		$	43,288			$	42,890			$	67,147			$	71,838
Income Per Common Share:
Basic		$	0.16			$	0.15			$	0.24			$	0.26
Diluted		$	0.14			$	0.14			$	0.22			$	0.23
Weighted Average Common Shares Outstanding:
Basic			275,498,449				279,075,416				274,572,173				278,514,992
Diluted			310,553,895				316,727,592				310,407,657				316,451,929
Weighted average additional common shares outstanding
if preferred shares converted to common shares			87,812,786				87,812,786				87,812,786				87,812,786
Total weighted average diluted common shares outstanding
if preferred shares converted to common shares			398,366,681				404,540,378				398,220,443				404,264,715

 

The accompanying notes are an integral part of these condensed consolidated statements.

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STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		June 30, 2015				December 31, 2014
		(Dollars in thousands)
		(Unaudited)
ASSETS
Homebuilding:
Cash and equivalents		$	77,088			$	180,428
Restricted cash			39,714				38,222
Inventories:
Owned			3,624,498				3,255,204
Not owned			45,771				85,153
Investments in unconsolidated joint ventures			60,835				50,111
Deferred income taxes, net of valuation allowance of $1,115 and $2,561 at
June 30, 2015 and December 31, 2014, respectively			266,091				276,402
Other assets			54,424				61,597
Total Homebuilding Assets			4,168,421				3,947,117
Financial Services:
Cash and equivalents			11,225				31,965
Restricted cash			1,045				1,295
Mortgage loans held for sale, net			109,239				174,420
Mortgage loans held for investment, net			23,366				14,380
Other assets			6,596				5,243
Total Financial Services Assets			151,471				227,303
Total Assets		$	4,319,892			$	4,174,420
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable		$	79,719			$	45,085
Accrued liabilities			225,622				223,783
Revolving credit facility			30,000				―
Secured project debt and other notes payable			5,927				4,689
Senior notes payable			2,133,111				2,131,393
Total Homebuilding Liabilities			2,474,379				2,404,950
Financial Services:
Accounts payable and other liabilities			2,629				3,369
Mortgage credit facilities			90,341				89,413
Total Financial Services Liabilities			92,970				92,782
Total Liabilities			2,567,349				2,497,732
Equity:
Stockholders' Equity:
Preferred stock, $0.01 par value; 10,000,000 shares authorized; 267,829 shares
issued and outstanding at June 30, 2015 and December 31, 2014			3				3
Common stock, $0.01 par value; 600,000,000 shares authorized; 276,042,503
and 275,141,189 shares issued and outstanding at June 30, 2015 and
December 31, 2014, respectively			2,760				2,751
Additional paid-in capital			1,333,745				1,346,702
Accumulated earnings			416,035				327,232
Total Equity			1,752,543				1,676,688
Total Liabilities and Equity		$	4,319,892			$	4,174,420

The accompanying notes are an integral part of these condensed consolidated balance sheets.

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STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Six Months Ended June 30,
		2015				2014
		(Dollars in thousands)
		(Unaudited)
Cash Flows From Operating Activities:
Net income		$	88,803			$	94,622
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
(Income) loss from unconsolidated joint ventures			502				899
Cash distribution of income from unconsolidated joint ventures			592				1,875
Depreciation and amortization			14,982				12,024
Loss on disposal of property and equipment			34				1
Amortization of stock-based compensation			5,084				5,231
Excess tax benefits from share-based payment arrangements			(6,363	)			―
Deferred income tax provision			49,198				59,005
Changes in cash and equivalents due to:
Mortgage loans held for sale			65,182				42,574
Inventories - owned			(341,894	)			(325,611	)
Inventories - not owned			(12,061	)			(14,794	)
Other assets			5,877				(13,108	)
Accounts payable			34,634				6,149
Accrued liabilities			(15,767	)			(12,379	)
Net cash provided by (used in) operating activities			(111,197	)			(143,512	)
Cash Flows From Investing Activities:
Investments in unconsolidated homebuilding joint ventures			(20,778	)			(5,677	)
Distributions of capital from unconsolidated joint ventures			8,760				14,808
Net cash paid for acquisitions			―				(33,408	)
Other investing activities			(12,022	)			(1,487	)
Net cash provided by (used in) investing activities			(24,040	)			(25,764	)
Cash Flows From Financing Activities:
Change in restricted cash			(1,242	)			(9,925	)
Borrowings from revolving credit facility			158,900				―
Principal payments on revolving credit facility			(128,900	)			―
Principal payments on secured project debt and other notes payable			(497	)			(1,061	)
Principal payments on senior notes payable			―				(4,971	)
Net proceeds from (payments on) mortgage credit facilities			928				(34,288	)
Repurchases of common stock			(22,073	)			―
Issuance of common stock under employee stock plans, net of tax withholdings			(2,322	)			3,769
Excess tax benefits from share-based payment arrangements			6,363				―
Net cash provided by (used in) financing activities			11,157				(46,476	)
Net increase (decrease) in cash and equivalents			(124,080	)			(215,752	)
Cash and equivalents at beginning of period			212,393				363,291
Cash and equivalents at end of period		$	88,313			$	147,539
Cash and equivalents at end of period		$	88,313			$	147,539
Homebuilding restricted cash at end of period			39,714				31,385
Financial services restricted cash at end of period			1,045				1,295
Cash and equivalents and restricted cash at end of period		$	129,072			$	180,219

The accompanying notes are an integral part of these condensed consolidated statements.

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STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2015

 

The accompanying condensed consolidated financial statements include the accounts of Standard Pacific Corp. and its wholly owned subsidiaries and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for Form 10-Q.  Certain information normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") has been omitted pursuant to applicable rules and regulations.  In the opinion of management, the unaudited condensed consolidated financial statements included herein reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position as of June 30, 2015 and the results of operations and cash flows for the periods presented.

Certain items in the prior period condensed consolidated financial statements have been reclassified to conform with the current period presentation.

The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10‑K for the year ended December 31, 2014.  Unless the context otherwise requires, the terms "we," "us," "our" and "the Company" refer to Standard Pacific Corp. and its subsidiaries.  The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

2.       Recent Accounting Pronouncements

 

    In January 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-04, Receivables - Troubled Debt Restructurings by Creditors ("ASU 2014-04"), which clarifies when an in-substance repossession or foreclosure of residential real estate property collateralizing a consumer mortgage loan has occurred.  By doing so, this guidance helps determine when the creditor should derecognize the loan receivable and recognize the real estate property.  For public companies, ASU 2014-04 is effective prospectively for interim and annual periods beginning after December 15, 2014.  Our adoption of ASU 2014-04 on January 1, 2015 did not have an effect on our condensed consolidated financial statements.

 

    In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-08").  The amendments in ASU 2014-08 change the criteria for reporting discontinued operations while enhancing disclosures in this area.  The new guidance requires expanded disclosures about discontinued operations, including more information about the assets, liabilities, income, and expenses of discontinued operations.  The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting.  For public companies, the amendments in ASU 2014-08 are effective prospectively for interim and annual periods beginning after December 15, 2014.  Our adoption of ASU 2014-08 on January 1, 2015 did not have an effect on our condensed consolidated financial statements.

 

    In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which supersedes existing accounting literature relating to how and when a company recognizes revenue.  Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services.  On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year.  As a result, for public companies, ASU 2014-09 will be effective for interim and annual reporting periods beginning after December 15, 2017, and is to be applied either with a full retrospective or modified retrospective approach, with early application permitted.  We are

 

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currently evaluating the impact the adoption will have on our condensed consolidated financial statements and related disclosures.

 

    In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ("ASU 2014-12"), which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  A reporting entity should apply existing guidance in ASC Topic 718, Compensation — Stock Compensation ("ASC 718"), as it relates to awards with performance conditions that affect vesting to account for such awards.  The amendments in ASU 2014-12 are effective for interim and annual periods beginning after December 15, 2015.  Early adoption is permitted.  Our adoption of ASU 2014-12 is not expected to have a material effect on our condensed consolidated financial statements and related disclosures.

 

    In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern, ("ASU 2014-15"), which requires management to perform interim and annual assessments on whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year of the date the financial statements are issued and to provide related disclosures, if required.  The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter.  Early adoption is permitted.  Our adoption of ASU 2014-15 is not expected to have a material effect on our condensed consolidated financial statements and related disclosures.

In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis, ("ASU 2015-02"), which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in ASU 2015-02 are effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted. Our adoption of ASU 2015-02 is not expected to have a material effect on our condensed consolidated financial statements and related disclosures.

 

    In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, ("ASU 2015-03"), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The amendments in ASU 2015-03 are effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted. Our adoption of ASU 2015-03 is not expected to have a material effect on our condensed consolidated financial statements.

 

    We operate two principal businesses: homebuilding and financial services.

 

    Our homebuilding operations acquire and develop land and construct and sell single-family attached and detached homes.  In accordance with the aggregation criteria defined in ASC Topic 280, Segment Reporting, our homebuilding operating segments have been grouped into three reportable segments: California; Southwest, consisting of our operating divisions in Arizona, Texas, Colorado and Nevada; and Southeast, consisting of our operating divisions in Florida and the Carolinas.

 

    Our mortgage financing operation provides mortgage financing to many of our homebuyers in substantially all of the markets in which we operate, and sells substantially all of the loans it originates in the secondary mortgage market.  Our title services operation provides title examinations for our homebuyers in Texas, Florida and the Carolinas.  Our mortgage financing and title services operations are included in our financial services reportable segment, which is separately reported in our condensed consolidated financial statements under "Financial Services."

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    Corporate is a non-operating segment that develops and implements strategic initiatives and supports our operating segments by centralizing key administrative functions such as accounting, finance and treasury, information technology, insurance and risk management, litigation, marketing and human resources.  Corporate also provides the necessary administrative functions to support us as a publicly traded company.  All of the expenses incurred by Corporate are allocated to each of our operating segments based on their respective percentage of revenues.

 

    Segment financial information relating to the Company's homebuilding operations was as follows:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
		(Dollars in thousands)
Homebuilding revenues:
California		$	298,972			$	290,899			$	484,593			$	510,378
Southwest			202,538				131,590				340,746				238,797
Southeast			198,122				169,997				344,571				303,510
Total homebuilding revenues		$	699,632			$	592,486			$	1,169,910			$	1,052,685
Homebuilding pretax income:
California		$	49,377			$	57,566			$	74,475			$	96,119
Southwest			22,190				14,274				33,987				24,332
Southeast			15,137				17,440				25,530				28,739
Total homebuilding pretax income		$	86,704			$	89,280			$	133,992			$	149,190

Segment financial information relating to the Company's homebuilding assets was as follows:

 

		June 30,				December 31,
		2015				2014
		(Dollars in thousands)
Homebuilding assets:
California		$	1,683,306			$	1,542,584
Southwest			881,554				826,489
Southeast			1,222,505				1,060,343
Corporate			381,056				517,701
Total homebuilding assets		$	4,168,421			$	3,947,117

 

We compute earnings per share in accordance with ASC Topic 260, Earnings per Share ("ASC 260"), which requires earnings per share for each class of stock (common stock and participating preferred stock) to be calculated using the two-class method.  The two-class method is an allocation of earnings between the holders of common stock and a company's participating security holders.  Under the two-class method, earnings for the reporting period are allocated between common shareholders and other security holders based on their respective participation rights in undistributed earnings.  Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method.

Basic earnings per common share is computed by dividing income or loss available to common stockholders by the weighted average number of shares of basic common stock outstanding.  Our Series B junior participating convertible preferred stock ("Series B Preferred Stock"), which is convertible into shares of our common stock at the holder's option (subject to a limitation based upon voting interest), and our unvested restricted stock, are classified as participating securities in accordance with ASC 260.  Net income allocated to the holders of our Series B Preferred Stock and unvested restricted stock is calculated based on the shareholders' proportionate share of weighted average shares of common stock outstanding on an if-converted basis.

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For purposes of determining diluted earnings per common share, basic earnings per common share is further adjusted to include the effect of potential dilutive common shares outstanding, including stock options, stock appreciation rights, performance share awards and unvested restricted stock using the more dilutive of either the two-class method or the treasury stock method, and Series B Preferred Stock and convertible debt using the if-converted method.  Under the two-class method of calculating diluted earnings per share, net income is reallocated to common stock, the Series B Preferred stock and all dilutive securities based on the contractual participating rights of the security to share in the current earnings as if all of the earnings for the period had been distributed.  In the computation of diluted earnings per share, the two-class method and if-converted method for the Series B Preferred Stock resulted in the same earnings per share amounts as the holder of the Series B Preferred Stock has the same economic rights as the holders of the common stock.

The following table sets forth the components used in the computation of basic and diluted earnings per common share.

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
		(Dollars in thousands, except per share amounts)
Numerator:
Net income		$	57,198			$	56,463			$	88,803			$	94,622
Less: Net income allocated to preferred shareholder			(13,798	)			(13,496	)			(21,475	)			(22,650	)
Less: Net income allocated to unvested restricted stock			(112	)			(77	)			(181	)			(134	)
Net income available to common stockholders for basic
earnings per common share			43,288				42,890				67,147				71,838
Effect of dilutive securities:
Net income allocated to preferred shareholder			13,798				13,496				21,475				22,650
Interest on 1¼% convertible senior notes due 2032,
capitalized and amortized in cost of sales			41				41				204				204
Net income available to common and preferred stock for diluted
earnings per share		$	57,127			$	56,427			$	88,826			$	94,692
Denominator:
Weighted average basic common shares outstanding			275,498,449				279,075,416				274,572,173				278,514,992
Weighted average additional common shares outstanding if preferred shares
converted to common shares (if dilutive)			87,812,786				87,812,786				87,812,786				87,812,786
Total weighted average common shares outstanding if preferred shares
converted to common shares			363,311,235				366,888,202				362,384,959				366,327,778
Effect of dilutive securities:
Share-based awards			3,742,596				6,339,326				4,522,634				6,624,087
1¼% convertible senior notes due 2032			31,312,850				31,312,850				31,312,850				31,312,850
Weighted average diluted shares outstanding			398,366,681				404,540,378				398,220,443				404,264,715
Income per common share:
Basic		$	0.16			$	0.15			$	0.24			$	0.26
Diluted		$	0.14			$	0.14			$	0.22			$	0.23

We account for share-based awards in accordance with ASC 718 which requires that the cost resulting from all share-based payment transactions be recognized in the financial statements.  ASC 718 requires all entities to apply a fair value-based measurement method in accounting for share-based payment transactions with employees except for equity instruments held by employee share ownership plans.

Total compensation expense recognized related to stock-based compensation was $2.4 million and $2.8 million for the three months ended June 30, 2015 and 2014, respectively.  For the six months ended June 30, 2015 and 2014, we recognized stock-based compensation expense of $5.1 million and $5.2 million, respectively.  As of June 30, 2015, total unrecognized stock-based compensation expense was $16.2 million, with a weighted average period over which the remaining unrecognized compensation expense is expected to be recorded of approximately 2.1 years.

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Cash and equivalents include cash on hand, demand deposits and all highly liquid short-term investments, including interest-bearing securities purchased with a maturity of three months or less from the date of purchase.  At June 30, 2015, cash and equivalents included $34.6 million of cash from home closings held in escrow for our benefit, typically for less than five days, which are considered deposits in-transit.

At June 30, 2015, restricted cash consisted of $40.8 million of cash held in cash collateral accounts primarily related to certain letters of credit that have been issued and a portion related to our financial services subsidiary mortgage credit facilities ($39.7 million of homebuilding restricted cash and $1.1 million of financial services restricted cash).

 

    a. Inventories Owned

 

    Inventories owned consisted of the following at:

 

		June 30, 2015
		California				Southwest				Southeast				Total
		(Dollars in thousands)
Land and land under development		$	980,718			$	491,820			$	797,460			$	2,269,998
Homes completed and under construction			493,539				306,345				329,834				1,129,718
Model homes			107,770				50,574				66,438				224,782
Total inventories owned		$	1,582,027			$	848,739			$	1,193,732			$	3,624,498
		December 31, 2014
		California				Southwest				Southeast				Total
		(Dollars in thousands)
Land and land under development		$	1,021,585			$	504,538			$	722,166			$	2,248,289
Homes completed and under construction			318,982				250,498				258,132				827,612
Model homes			81,763				44,437				53,103				179,303
Total inventories owned		$	1,422,330			$	799,473			$	1,033,401			$	3,255,204

 

In accordance with ASC Topic 360, Property, Plant, and Equipment ("ASC 360"), we record impairment losses on inventories when events and circumstances indicate that they may be impaired, and the future undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts.  Inventories that are determined to be impaired are written down to their estimated fair value.  We calculate the fair value of a project under a land residual value analysis and in certain cases in conjunction with a discounted cash flow analysis.  As of June 30, 2015 and 2014, the total active and future projects that we owned were 381 and 360, respectively.  During the six months ended June 30, 2015 and 2014, we reviewed all projects for indicators of impairment and based on our review we did not record any inventory impairments during these periods.

b. Inventories Not Owned

Inventories not owned consisted of the following at:

 

		June 30,				December 31,
		2015				2014
		(Dollars in thousands)
Land purchase and lot option deposits		$	41,238			$	47,472
Other lot option contracts, net of deposits			4,533				37,681
Total inventories not owned		$	45,771			$	85,153

 

Under ASC Topic 810, Consolidation ("ASC 810"), a non-refundable deposit paid to an entity is deemed to be a variable interest that will absorb some or all of the entity's expected losses if they occur. 

 

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Our land purchase and lot option deposits generally represent our maximum exposure to the land seller if we elect not to purchase the optioned property.  In some instances, we may also expend funds for due diligence, development and construction activities with respect to optioned land prior to takedown.  Such costs are classified as inventories owned, which we would have to absorb should we not exercise the option.  Therefore, whenever we enter into a land option or purchase contract with an entity and make a non-refundable deposit, a variable interest entity ("VIE") may have been created.  In accordance with ASC 810, we perform ongoing reassessments of whether we are the primary beneficiary of a VIE.  As of June 30, 2015 and December 31, 2014, we had consolidated $1.4 million and $7.6 million, respectively, within other lot option contracts (with a corresponding increase in accrued liabilities) related to land option and purchase contracts where we were deemed to be the primary beneficiary of a VIE.

Other lot option contracts also included $3.1 million, as of June 30, 2015 and December 31, 2014, of purchase price allocated in connection with a business acquisition during the 2013 second quarter, and $27.0 million as of December 31, 2014 related to a land purchase contract where we made a significant deposit and as a result we were deemed to be economically compelled to purchase the land.

We follow the practice of capitalizing interest to inventories owned during the period of development and to investments in unconsolidated homebuilding and land development joint ventures in accordance with ASC Topic 835, Interest ("ASC 835").  Homebuilding interest capitalized as a cost of inventories owned is included in cost of sales as related units or lots are sold.  Interest capitalized to investments in unconsolidated homebuilding and land development joint ventures is included as a reduction of income from unconsolidated joint ventures when the related homes or lots are sold to third parties.  Interest capitalized to investments in unconsolidated land development joint ventures is transferred to inventories owned if the underlying lots are purchased by us.  To the extent our debt exceeds our qualified assets as defined in ASC 835, we expense a portion of the interest incurred by us.  Qualified assets represent projects that are actively selling or under development as well as investments in unconsolidated joint ventures.  During the six months ended June 30, 2015 and 2014, our qualified assets exceeded our debt, and as a result, all of our homebuilding interest incurred during the six months ended June 30, 2015 and 2014 was capitalized in accordance with ASC 835.

The following is a summary of homebuilding interest capitalized to inventories owned and investments in unconsolidated joint ventures, amortized to cost of sales and income (loss) from unconsolidated joint ventures and expensed as interest expense, for the three and six months ended June 30, 2015 and 2014:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
		(Dollars in thousands)
Total interest incurred		$	41,857			$	37,641			$	83,660			$	76,427
Less: Interest capitalized to inventories owned			(41,508	)			(37,228	)			(82,909	)			(75,441	)
Less: Interest capitalized to investments in unconsolidated joint ventures			(349	)			(413	)			(751	)			(986	)
Interest expense		$	―			$	―			$	―			$	―
Interest previously capitalized to inventories owned, included in cost of home sales		$	35,051			$	29,812			$	57,446			$	54,180
Interest previously capitalized to inventories owned, included in cost of land sales		$	1,512			$	4			$	1,755			$	619
Interest previously capitalized to investments in unconsolidated joint ventures,
included in income (loss) from unconsolidated joint ventures		$	―			$	―			$	―			$	30
Interest capitalized in ending inventories owned (1)		$	299,315			$	265,393			$	299,315			$	265,393
Interest capitalized as a percentage of inventories owned			8.3	%			9.1	%			8.3	%			9.1	%
Interest capitalized in ending investments in unconsolidated joint ventures (1)		$	1,416			$	1,924			$	1,416			$	1,924
Interest capitalized as a percentage of investments in unconsolidated joint ventures			2.3	%			3.8	%			2.3	%			3.8	%

__________________            

(1)	During the six months ended June 30, 2014, in connection with lot purchases from our joint ventures, $4.0 million of capitalized interest was transferred from investments in unconsolidated joint ventures to inventories owned.

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The table set forth below summarizes the condensed combined statements of operations for our unconsolidated land development and homebuilding joint ventures that we account for under the equity method:

 

	Six Months Ended June 30,
	2015				2014
	(Dollars in thousands)
	(Unaudited)
Revenues		$	18,350			$	31,225
Cost of sales and expenses			(21,556	)			(36,251	)
Income (loss) of unconsolidated joint ventures		$	(3,206	)		$	(5,026	)
Income (loss) from unconsolidated joint ventures reflected in the
accompanying condensed consolidated statements of operations		$	(502	)		$	(899	)

Income (loss) from unconsolidated joint ventures reflected in the accompanying condensed consolidated statements of operations represents our share of the income (loss) of our unconsolidated land development and homebuilding joint ventures, which is allocated based on the provisions of the underlying joint venture operating agreements less any additional impairments recorded against our investments in joint ventures which we do not deem recoverable.  In addition, we defer recognition of our share of income that relates to lots purchased by us from land development joint ventures until we ultimately sell the homes to be constructed to third parties, at which time we account for these earnings as a reduction of the cost basis of the lots purchased from these joint ventures.  For the six months ended June 30, 2015 and 2014, income (loss) from unconsolidated joint ventures was primarily attributable to our share of income (loss) related to our California joint ventures, which was allocated based on the provisions of the underlying joint venture operating agreements.

During each of the six months ended June 30, 2015 and 2014, all of our investments in unconsolidated joint ventures were reviewed for impairment.  Based on the impairment review, no joint venture projects were determined to be impaired for the six months ended June 30, 2015 or 2014.

The table set forth below summarizes the condensed combined balance sheets for our unconsolidated land development and homebuilding joint ventures that we accounted for under the equity method:

 

		June 30,				December 31,
		2015				2014
		(Dollars in thousands)
		(Unaudited)
Assets:
Cash		$	24,765			$	29,472
Inventories			200,620				197,727
Other assets			38,783				10,372
Total assets		$	264,168			$	237,571
Liabilities and Equity:
Accounts payable and accrued liabilities		$	10,732			$	16,173
Non-recourse debt			30,000				30,000
Standard Pacific equity			64,576				54,347
Other members' equity			158,860				137,051
Total liabilities and equity		$	264,168			$	237,571
Investments in unconsolidated joint ventures reflected in
the accompanying condensed consolidated balance sheets		$	60,835			$	50,111

 

In some cases our net investment in these unconsolidated joint ventures is not equal to our proportionate share of equity reflected in the table above primarily because of differences between asset

 

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impairments that we recorded in prior periods against our joint venture investments and the impairments recorded by the applicable joint venture.  As of June 30, 2015 and December 31, 2014, substantially all of our investments in unconsolidated joint ventures were in California.  Our investments in unconsolidated joint ventures also included approximately $1.4 million and $0.7 million of homebuilding interest capitalized to investments in unconsolidated joint ventures as of June 30, 2015 and December 31, 2014, respectively, which capitalized interest is not included in the condensed combined balance sheets above.

Our investments in these unconsolidated joint ventures may represent a variable interest in a VIE depending on, among other things, the economic interests of the members of the entity and the contractual terms of the arrangement.  We analyze all of our unconsolidated joint ventures under the provisions of ASC 810 to determine whether these entities are deemed to be VIEs, and if so, whether we are the primary beneficiary.  As of June 30, 2015, all of our homebuilding and land development joint ventures with unrelated parties were determined under the provisions of ASC 810 to be unconsolidated joint ventures either because they were not deemed to be VIEs and we did not have a controlling interest, or, if they were a VIE, we were not deemed to be the primary beneficiary.

 

    Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related homebuilding revenues are recognized.  Amounts accrued are based upon historical experience.  Indirect warranty overhead salaries and related costs are charged to cost of sales in the period incurred.  We assess the adequacy of our warranty accrual on a quarterly basis and adjust the amounts recorded if necessary.  Our warranty accrual is included in accrued liabilities in the accompanying condensed consolidated balance sheets.

 

    Changes in our warranty accrual are detailed in the table set forth below:

 

	Six Months Ended June 30,
	2015					2014
	(Dollars in thousands)
Warranty accrual, beginning of the period		$	13,584			$	13,811
Warranty costs accrued during the period			4,359				2,812
Warranty costs paid during the period			(4,397	)			(3,277	)
Warranty accrual, end of the period		$	13,546			$	13,346

 

  

As of June 30, 2015, we were party to a $450 million unsecured revolving credit facility (the "Revolving Facility") which matures in July 2018.  The Revolving Facility has an accordion feature under which the aggregate commitment may be increased to a maximum amount of $750 million, subject to the availability of additional bank commitments and certain other conditions.  As of June 30, 2015, the Revolving Facility contained financial covenants, including, but not limited to, (i) a minimum consolidated tangible net worth covenant; (ii) a covenant to maintain either (a) a minimum liquidity level or (b) a minimum interest coverage ratio; (iii) a maximum net homebuilding leverage ratio and (iv) a maximum land not under development to tangible net worth ratio.  This facility also contains a limitation on our investments in joint ventures.  Interest rates charged under the Revolving Facility include LIBOR and prime rate pricing options.  As of June 30, 2015, we satisfied the conditions that would allow us to borrow up to $450 million under the facility, of which $30 million in borrowings was outstanding, with $420 million of remaining availability.

As of June 30, 2015, we were party to four committed letter of credit facilities totaling $48 million, of which $38.0 million was outstanding.  These facilities require cash collateralization and have maturity dates ranging from October 2015 to October 2017.  In addition, as of such date, we also had $0.2 million outstanding under an uncommitted letter of credit facility.  As of June 30, 2015, these facilities were

 

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secured by cash collateral deposits of $38.8 million.  Upon maturity, we may renew or enter into new letter of credit facilities with the same or other financial institutions.

12.  Secured Project Debt and Other Notes Payable

 

    Our secured project debt and other notes payable consist of seller non-recourse financing and community development district and similar assessment district bond financings used to finance land acquisition, development and infrastructure costs for which we are responsible.  At June 30, 2015, we had approximately $5.9 million outstanding in secured project debt and other notes payable.  

13.  Senior Notes Payable

Senior notes payable consisted of the following at:

 

		June 30,				December 31,
		2015				2014
		(Dollars in thousands)
7% Senior Notes due August 2015		$	29,789			$	29,789
10¾% Senior Notes due September 2016, net of discount			274,676				272,684
8⅜% Senior Notes due May 2018, net of premium			577,850				578,278
8⅜% Senior Notes due January 2021, net of discount			397,796				397,642
6¼% Senior Notes due December 2021			300,000				300,000
5⅞% Senior Notes due November 2024			300,000				300,000
1¼% Convertible Senior Notes due August 2032			253,000				253,000
		$	2,133,111			$	2,131,393

 

The senior notes payable described above are all senior obligations and rank equally with our other existing senior indebtedness and, with the exception of our 1¼% Convertible Senior Notes, are redeemable at our option, in whole or in part, pursuant to a "make whole" formula.  These notes contain various restrictive covenants.  Our 10¾% Senior Notes due 2016 contain our most restrictive covenants, including a limitation on additional indebtedness and a limitation on restricted payments.  Outside of the specified categories of indebtedness that are carved out of the additional indebtedness limitation (including a carve-out for up to $1.1 billion in credit facility indebtedness), the Company must satisfy at least one of two conditions (either a maximum leverage condition or a minimum interest coverage condition) to incur additional indebtedness.  The Company must also satisfy at least one of these two conditions to make restricted payments.  Restricted payments include dividends, stock repurchases and investments in and advances to our joint ventures and other unrestricted subsidiaries.  Our ability to make restricted payments is also subject to a basket limitation (as defined in the indentures).  As of June 30, 2015, we were able to incur additional indebtedness and make restricted payments because we satisfied both conditions.  Many of our 100% owned direct and indirect subsidiaries (collectively, the "Guarantor Subsidiaries") guaranty our outstanding senior notes.  The guarantees are full and unconditional, and joint and several.  The indentures further provide that a Guarantor Subsidiary will be released and relieved of any obligations under its note guarantee in the event (i) of a sale or other disposition (whether by merger, stock purchase, asset sale or otherwise) of a Guarantor Subsidiary to an entity which is not Standard Pacific Corp. or a Guarantor Subsidiary; (ii) the requirements for legal defeasance or covenant defeasance have been satisfied; (iii) a Guarantor Subsidiary ceases to be a restricted subsidiary as the result of the Company owning less than 80% of such Guarantor Subsidiary; (iv) a Guarantor Subsidiary ceases to guarantee all other public notes of the Company; or (v) a Guarantor Subsidiary is designated as an Unrestricted Subsidiary under the indentures for covenant purposes.  Please see Note 21 for supplemental financial statement information about our guarantor subsidiaries group and non-guarantor subsidiaries group.

The 1¼% Convertible Senior Notes due 2032 (the "Convertible Notes") will mature on August 1, 2032, unless earlier converted, redeemed or repurchased.  The holders may at any time convert their Convertible Notes into shares of the Company's common stock at an initial conversion rate of 123.7662 shares of common stock per $1,000 principal amount of Convertible Notes (which is equal to an initial conversion price of approximately $8.08 per share), subject to adjustment.  On or after August 5, 2017, the

 

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Company may redeem for cash all or part of the Convertible Notes at a redemption price equal to 100% of the principal amount of the Convertible Notes being redeemed.  On each of August 1, 2017, August 1, 2022 and August 1, 2027, holders of the Convertible Notes may require the Company to purchase all or any portion of their Convertible Notes for cash at a price equal to 100% of the principal amount of the Convertible Notes to be repurchased.

Our Series B Preferred Stock is convertible at the holder's option into shares of our common stock provided that no holder, with its affiliates, may beneficially own total voting power of our voting stock in excess of 49%.  The number of shares of common stock into which our Series B Preferred Stock is convertible is determined by dividing $1,000 by the applicable conversion price ($3.05, subject to customary anti-dilution adjustments) plus cash in lieu of fractional shares.  The Series B Preferred Stock also mandatorily converts into our common stock upon its sale, transfer or other disposition by MP CA Homes LLC ("MatlinPatterson") or its affiliates to an unaffiliated third party.  The Series B Preferred Stock votes together with our common stock on all matters upon which holders of our common stock are entitled to vote.  Each share of Series B Preferred Stock is entitled to such number of votes as the number of shares of our common stock into which such share of Series B Preferred Stock is convertible, provided that the aggregate votes attributable to such shares with respect to any holder of Series B Preferred Stock (including its affiliates), taking into consideration any other voting securities of the Company held by such stockholder, cannot exceed more than 49% of the total voting power of the voting stock of the Company.  Shares of Series B Preferred Stock are entitled to receive only those dividends declared and paid on the common stock.

At June 30, 2015, MatlinPatterson owned 267,829 shares of Series B Preferred Stock, which are convertible into 87.8 million shares of our common stock.  MatlinPatterson also owned 126.4 million shares of our common stock.  As of June 30, 2015, the outstanding shares of Series B Preferred Stock on an as converted basis plus the common stock owned by MatlinPatterson represented approximately 59% of the total number of shares of our common stock outstanding on an if-converted basis.

 

    At June 30, 2015, we had $90.3 million outstanding under our mortgage financing subsidiary's mortgage credit facilities.  These mortgage credit facilities consist of a $100 million repurchase facility ($25 million committed and $75 million uncommitted) with one lender, maturing in June 2016, and a $75 million repurchase facility with another lender, maturing in October 2015.  These facilities require Standard Pacific Mortgage to maintain cash collateral accounts, which totaled $1.1 million as of June 30, 2015, and also contain financial covenants which require Standard Pacific Mortgage to, among other things, maintain a minimum level of tangible net worth, not to exceed a debt to tangible net worth ratio, maintain a minimum liquidity amount based on a measure of total assets (inclusive of the cash collateral requirement), and satisfy pretax income (loss) requirements.  As of June 30, 2015, Standard Pacific Mortgage was in compliance with the financial and other covenants contained in these facilities.

 

    ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), establishes a framework for measuring fair value, expands disclosures regarding fair value measurements and defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Further, ASC 820 requires us to maximize the use of observable market inputs, minimize the use of unobservable market inputs and disclose in the form of an outlined hierarchy the details of such fair value measurements. ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. The three levels of the hierarchy are as follows:

 

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The following table presents the Company's financial instruments measured at fair value on a recurring basis:

 

					Fair Value at
Description			Fair Value Hierarchy		June 30, 2015			December 31, 2014
					(Dollars in thousands)
Mortgage loans held for sale			Level 2		$	111,654		$	176,511

 

    Mortgage loans held for sale consist of FHA, VA, USDA and agency first mortgages on single-family residences which are eligible for sale to FNMA/FHLMC, GNMA or other investors, as applicable.  Fair values of these loans are based on quoted prices from third party investors when preselling loans.

 

    The following table presents the carrying values and estimated fair values of our other financial instruments for which we have not elected the fair value option in accordance with ASC Topic 825, Financial Instruments:

 

					June 30, 2015						December 31, 2014
Description			Fair Value Hierarchy			Carrying Amount			Fair Value			Carrying Amount			Fair Value
					(Dollars in thousands)
Financial services assets:
	Mortgage loans held for investment, net		Level 2		$	23,366		$	23,366		$	14,380		$	14,380
Homebuilding liabilities:
	Senior notes payable, net		Level 2		$	2,133,111		$	2,401,780		$	2,131,393		$	2,337,839

 

Mortgage Loans Held for Investment – Fair value of these loans is based on the estimated market value of the underlying collateral based on market data and other factors for similar type properties as further adjusted to reflect the estimated net realizable value of carrying the loans through disposition.

Senior Notes Payable – The senior notes are traded over the counter and their fair values were estimated based upon the values of their last trade at the end of the period.

The fair value of our cash and equivalents, restricted cash, trade and other receivables, accounts payable, revolving credit facility borrowings, secured project debt and other notes payable, mortgage credit facilities and other liabilities approximate their carrying amounts due to the short-term nature of these assets and liabilities.

 

    a. Land Purchase and Option Agreements

 

    We are subject to obligations associated with entering into contracts for the purchase of land and improved homesites. These purchase contracts typically require us to provide a cash deposit or deliver a letter of credit in favor of the seller, and our purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements.  We also utilize option contracts with land sellers as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the near-term use of funds from our corporate financing sources.  Option contracts generally require a non-refundable deposit for the right to acquire lots over a specified period of time at predetermined prices.  We generally have the right at our discretion to terminate our obligations under both

 

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purchase contracts and option contracts by forfeiting our cash deposit or by repaying amounts drawn under our letter of credit with no further financial responsibility to the land seller, although in certain instances, the land seller has the right to compel us to purchase a specified number of lots at predetermined prices.

In some instances, we may also expend funds for due diligence, development and construction activities with respect to our land purchase and option contracts prior to purchase, which we would have to write off should we not purchase the land.  At June 30, 2015, we had non-refundable cash deposits outstanding of approximately $39.1 million and capitalized pre-acquisition and other development and construction costs of approximately $6.8 million relating to land purchase and option contracts having a total remaining purchase price of approximately $389.3 million.

Our utilization of option contracts is dependent on, among other things, the availability of land sellers willing to enter into option takedown arrangements, the availability of capital to financial intermediaries, general housing market conditions, and geographic preferences.  Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.

 

    b. Land Development and Homebuilding Joint Ventures

 

Our joint ventures have historically obtained secured acquisition, development and construction financing designed to reduce the use of funds from corporate financing sources.  As of June 30, 2015, we held membership interests in 19 homebuilding and land development joint ventures, of which eight were active and 11 were inactive or winding down.  As of such date, only one joint venture had project specific debt outstanding, which totaled $30 million.  This joint venture bank debt is non-recourse to us and is scheduled to mature in June 2016.  At June 30, 2015, we had no joint venture surety bonds outstanding.

 

c. Surety Bonds

 

We obtain surety bonds in the normal course of business to ensure completion of the infrastructure of our projects.  At June 30, 2015, we had approximately $526.9 million in surety bonds outstanding, with respect to which we had an estimated $297.8 million remaining in cost to complete.

 

d. Mortgage Loans and Commitments

 

We commit to making mortgage loans to our homebuyers through our mortgage financing subsidiary, Standard Pacific Mortgage.  Standard Pacific Mortgage sells substantially all of the loans it originates in the secondary mortgage market and finances these loans under its mortgage credit facilities for a short period of time (typically for 30 to 45 days), as investors complete their administrative review of applicable loan documents.  Mortgage loans in process for which interest rates were committed to borrowers totaled approximately $83.4 million at June 30, 2015 and carried a weighted average interest rate of approximately 3.8%.  Interest rate risks related to these obligations are mitigated through the preselling of loans to investors or through its interest rate hedging program.  As of June 30, 2015, Standard Pacific Mortgage had approximately $38.5 million in closed mortgage loans held for sale and $19.4 million of mortgage loans that we were committed to sell to investors subject to our funding of the loans and completion of the investors' administrative review of the applicable loan documents.  In addition, as of June 30, 2015, Standard Pacific Mortgage had approximately $71.1 million in closed mortgage loans held for sale and $64.0 million of mortgage loans in process that were or are expected to be originated on a non-presold basis, all of which were hedged by forward sale commitments of mortgage-backed securities prior to entering into loan sale transactions with third party investors.

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Substantially all of the loans originated by Standard Pacific Mortgage are sold with servicing rights released on a non-recourse basis.  These sales are generally subject to Standard Pacific Mortgage's obligation to repay its gain on sale if the loan is prepaid by the borrower within a certain time period following such sale, or to repurchase the loan if, among other things, the purchaser's underwriting guidelines are not met, or there is fraud in connection with the loan.  As of June 30, 2015, we had incurred an aggregate of $10.9 million in losses related to loan repurchases and make-whole payments we had been required to make on the $9.6 billion total dollar value of the loans we originated from the beginning of 2004 through the end of the second quarter of 2015.  During the six months ended June 30, 2015 and 2014, Standard Pacific Mortgage recorded loan loss expense related to indemnification and repurchase allowances of $0.1 million and $0.2 million, respectively.  As of June 30, 2015, Standard Pacific Mortgage had indemnity and repurchase allowances related to loans sold of approximately $2.2 million.  In addition, during the six months ended June 30, 2015 and 2014, Standard Pacific Mortgage made make-whole payments totaling approximately $0.1 million related to three loans and $0.2 million related to four loans, respectively.

 

e. Insurance and Litigation Accruals

 

Insurance and litigation accruals are established with respect to estimated future claims cost.  We maintain general liability insurance designed to protect us against a portion of our risk of loss from construction-related claims.  We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work, subject to various limitations.  However, such indemnity is significantly limited with respect to certain subcontractors that are added to our general liability insurance policy.  We record allowances to cover our estimated costs of self-insured retentions and deductible amounts under these policies and estimated costs for claims that may not be covered by applicable insurance or indemnities.  Our total insurance and litigation accruals as of June 30, 2015 and December 31, 2014 were $64.0 million and $62.8 million, respectively, which are included in accrued liabilities in the accompanying condensed consolidated balance sheets.  Estimation of these accruals include consideration of our claims history, including current claims, estimates of claims incurred but not yet reported, and potential for recovery of costs from insurance and other sources.  We utilize the services of an independent third party actuary to assist us with evaluating the level of our insurance and litigation accruals.  Because of the high degree of judgment required in determining these estimated accrual amounts, actual future claim costs could differ from our currently estimated amounts.

 

    We account for income taxes in accordance with ASC Topic 740, Income Taxes ("ASC 740").  ASC 740 requires an asset and 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.

 

    Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740.  We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable.  Our assessment considers, among other things, the nature, frequency and severity of our prior and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods, our utilization experience with operating loss and tax credit carryforwards, and tax planning alternatives.

 

    Our 2015 second quarter provision for income taxes of $32.3 million primarily related to our $89.5 million of pretax income.  As of June 30, 2015, we had a $267.2 million deferred tax asset which was offset by a valuation allowance of $1.1 million related to state net operating loss carryforwards that are limited by shorter carryforward periods.  As of such date, $127.7 million of our deferred tax asset related to net operating loss carryforwards ($112.6 million of federal and state net operating loss carryforwards that were subject to the Section 382 gross annual limitation of $15.6 million for both federal and state purposes, and $15.1 million of state net operating loss carryforwards that were not subject to such limitation).  The remaining deferred tax asset balance of $139.5 million represented deductible timing differences, primarily

 

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related to inventory impairments and financial accruals, which have no expiration date.   As of June 30, 2015 and December 31, 2014, our liability for unrecognized tax benefits was $3.8 million and $2.5 million, respectively, which is included in accrued liabilities in the accompanying condensed consolidated balance sheets. In addition, as of June 30, 2015, we remained subject to examination by various tax jurisdictions for the tax years ended December 31, 2010 through 2014.

On July 2, 2015, the Company filed a Registration Statement on Form S-4 in connection with the Agreement and Plan of Merger it entered into on June 14, 2015 (the "Merger Agreement") with The Ryland Group, Inc., a Maryland corporation ("Ryland").  Subject to the terms and conditions of the Merger Agreement, Standard Pacific and Ryland have agreed that Ryland will merge with and into Standard Pacific in a "merger of equals," with Standard Pacific continuing as the surviving corporation (the "Surviving Corporation"), and the separate corporate existence of Ryland will cease (the "Merger").  Subject to the terms and conditions of the Merger Agreement, which was unanimously approved by the boards of directors of Standard Pacific and Ryland, if the Merger is completed, each five shares of common stock issued and outstanding of Standard Pacific will be combined and converted into one issued and outstanding share of common stock of the Surviving Corporation and each share of common stock of Ryland issued and outstanding will be converted and exchangeable for 1.0191 issued and outstanding shares of common stock of the Surviving Corporation.  The proposed merger is subject to approval by the shareholders of the Company and Ryland and other customary closing conditions.

The following are supplemental disclosures to the condensed consolidated statements of cash flows:

 

		Six Months Ended June 30,
		2015				2014
		(Dollars in thousands)
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes		$	21,990			$	3,712
Supplemental Disclosures of Noncash Activities:
Liabilities assumed in connection with acquisitions		$	―			$	4,170

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Certain of our 100% owned direct and indirect subsidiaries guarantee our outstanding senior notes payable (please see Note 13 "Senior Notes Payable").  Presented below are the condensed consolidated financial statements for our guarantor subsidiaries and non-guarantor subsidiaries.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

 

		Three Months Ended June 30, 2015
		Standard Pacific Corp.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Standard Pacific Corp.
		(Dollars in thousands)
Homebuilding:
Revenues		$	191,188			$	324,365			$	184,079			$	―			$	699,632
Cost of sales			(144,796	)			(248,896	)			(133,999	)			―				(527,691	)
Gross margin			46,392				75,469				50,080				―				171,941
Selling, general and administrative expenses			(24,393	)			(40,524	)			(14,993	)			―				(79,910	)
Income (loss) from unconsolidated joint ventures			(4	)			―				(47	)			―				(51	)
Equity income of subsidiaries			50,169				―				―				(50,169	)			―
Interest income (expense), net			3,175				(2,465	)			(710	)			―				―
Other income (expense)			(6,440	)			(75	)			1,239				―				(5,276	)
Homebuilding pretax income			68,899				32,405				35,569				(50,169	)			86,704
Financial Services:
Financial services pretax income			―				―				2,818				―				2,818
Income before taxes			68,899				32,405				38,387				(50,169	)			89,522
Provision for income taxes			(11,701	)			(13,247	)			(7,376	)			―				(32,324	)
Net income		$	57,198			$	19,158			$	31,011			$	(50,169	)		$	57,198

 

		Three Months Ended June 30, 2014
		Standard Pacific Corp.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Standard Pacific Corp.
		(Dollars in thousands)
Homebuilding:
Revenues		$	210,663			$	250,945			$	130,878			$	―			$	592,486
Cost of sales			(155,611	)			(187,801	)			(91,134	)			―				(434,546	)
Gross margin			55,052				63,144				39,744				―				157,940
Selling, general and administrative expenses			(25,637	)			(32,286	)			(9,912	)			―				(67,835	)
Income (loss) from unconsolidated joint ventures			4				(5	)			(461	)			―				(462	)
Equity income of subsidiaries			41,577				―				―				(41,577	)			―
Interest income (expense), net			3,270				(2,848	)			(422	)			―				―
Other income (expense)			(910	)			(223	)			770				―				(363	)
Homebuilding pretax income			73,356				27,782				29,719				(41,577	)			89,280
Financial Services:
Financial services pretax income			―				―				2,566				―				2,566
Income before taxes			73,356				27,782				32,285				(41,577	)			91,846
Provision for income taxes			(16,893	)			(10,289	)			(8,201	)			―				(35,383	)
Net income		$	56,463			$	17,493			$	24,084			$	(41,577	)		$	56,463

---

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

 

		Six Months Ended June 30, 2015
		Standard Pacific Corp.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Standard Pacific Corp.
		(Dollars in thousands)
Homebuilding:
Revenues		$	328,080			$	544,093			$	297,737			$	―			$	1,169,910
Cost of sales			(248,154	)			(419,853	)			(215,857	)			―				(883,864	)
Gross margin			79,926				124,240				81,880				―				286,046
Selling, general and administrative expenses			(47,539	)			(73,274	)			(25,167	)			―				(145,980	)
Income (loss) from unconsolidated joint ventures			22				―				(524	)			―				(502	)
Equity income of subsidiaries			73,536				―				―				(73,536	)			―
Interest income (expense), net			6,398				(5,209	)			(1,189	)			―				―
Other income (expense)			(7,441	)			(223	)			2,092				―				(5,572	)
Homebuilding pretax income			104,902				45,534				57,092				(73,536	)			133,992
Financial Services:
Financial services pretax income			―				―				4,026				―				4,026
Income before taxes			104,902				45,534				61,118				(73,536	)			138,018
Provision for income taxes			(16,099	)			(20,571	)			(12,545	)			―				(49,215	)
Net income		$	88,803			$	24,963			$	48,573			$	(73,536	)		$	88,803

 

		Six Months Ended June 30, 2014
		Standard Pacific Corp.				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Standard Pacific Corp.
		(Dollars in thousands)
Homebuilding:
Revenues		$	379,003			$	456,029			$	217,653			$	―			$	1,052,685
Cost of sales			(277,121	)			(342,623	)			(156,051	)			―				(775,795	)
Gross margin			101,882				113,406				61,602				―				276,890
Selling, general and administrative expenses			(49,442	)			(60,134	)			(16,849	)			―				(126,425	)
Income (loss) from unconsolidated joint ventures			(113	)			28				(814	)			―				(899	)
Equity income of subsidiaries			66,073				―				―				(66,073	)			―
Interest income (expense), net			6,959				(5,654	)			(1,305	)			―				―
Other income (expense)			(1,052	)			(253	)			929				―				(376	)
Homebuilding pretax income			124,307				47,393				43,563				(66,073	)			149,190
Financial Services:
Financial services pretax income			―				―				4,271				―				4,271
Income before taxes			124,307				47,393				47,834				(66,073	)			153,461
Provision for income taxes			(29,685	)			(17,544	)			(11,610	)			―				(58,839	)
Net income		$	94,622			$	29,849			$	36,224			$	(66,073	)		$	94,622

---

CONDENSED CONSOLIDATING BALANCE SHEET

 

		June 30, 2015
		Standard Pacific Corp.				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Consolidating Adjustments				Consolidated Standard Pacific Corp.
		(Dollars in thousands)
ASSETS
Homebuilding:
Cash and equivalents		$	28,782			$	20,626			$	27,680			$	―			$	77,088
Restricted cash			―				―				39,714				―				39,714
Intercompany receivables			1,795,110				―				181,691				(1,976,801	)			―
Inventories:
Owned			1,156,145				1,294,269				1,174,084				―				3,624,498
Not owned			16,691				20,478				8,602				―				45,771
Investments in unconsolidated joint ventures			(1,632	)			(69	)			62,536				―				60,835
Investments in subsidiaries			1,023,496				―				―				(1,023,496	)			―
Deferred income taxes, net			274,642				―				―				(8,551	)			266,091
Other assets			39,550				10,649				4,225				―				54,424
Total Homebuilding Assets			4,332,784				1,345,953				1,498,532				(3,008,848	)			4,168,421
Financial Services:
Cash and equivalents			―				―				11,225				―				11,225
Restricted cash			―				―				1,045				―				1,045
Mortgage loans held for sale, net			―				―				109,239				―				109,239
Mortgage loans held for investment, net			―				―				23,366				―				23,366
Other assets			―				―				8,246				(1,650	)			6,596
Total Financial Services Assets			―				―				153,121				(1,650	)			151,471
Total Assets		$	4,332,784			$	1,345,953			$	1,651,653			$	(3,010,498	)		$	4,319,892
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable		$	24,049			$	25,141			$	30,529			$	―			$	79,719
Accrued liabilities and intercompany payables			213,627				917,572				887,502				(1,793,079	)			225,622
Revolving credit facility			30,000				―				―				―				30,000
Secured project debt, other notes payable and
intercompany loans			179,454				―				4,203				(177,730	)			5,927
Senior notes payable			2,133,111				―				―				―				2,133,111
Total Homebuilding Liabilities			2,580,241				942,713				922,234				(1,970,809	)			2,474,379
Financial Services:
Accounts payable and other liabilities			―				―				18,822				(16,193	)			2,629
Mortgage credit facilities			―				―				90,341				―				90,341
Total Financial Services Liabilities			―				―				109,163				(16,193	)			92,970
Total Liabilities			2,580,241				942,713				1,031,397				(1,987,002	)			2,567,349
Equity:
Total Stockholders' Equity			1,752,543				403,240				620,256				(1,023,496	)			1,752,543
Total Liabilities and Equity		$	4,332,784			$	1,345,953			$	1,651,653			$	(3,010,498	)		$	4,319,892