Standard Pacific Homes has joined the ranks of many other national builders whose third-quarter earnings were thrust down into the negative range by impairment charges.
The Irvine, Calif.-based company reported a net loss for the quarter ended Sept. 30 of $119.7 million or $1.85 a share. That compares to net income of $30.8 million or 47 cents per diluted share from the same quarter last year. Those earnings were heavily affected by $223.5 million, or $2.12 per share, after tax of impairments. Without the impairments, earnings would have been 27 cents per share.
Separately, Standard Pacific said it would ask shareholders to authorize a doubling of the number of common shares it can issue, from 100 million to 200 million. The company said it is running short of shares available for general corporate purposes and that it has no current plans for the new shares, should they be authorized by a Dec. 11 shareholder vote.
In the earnings release, CEO and president Stephen J. Scarborough turned back to discussing the company's most urgent business at hand--reducing inventory, generating cash, and paying down debt. Scarborough noted the company has made some progress in the latter, reducing Standard Pacific's unconsolidated, unsecured home-building debt by more than $265 million.
"It is our goal to pay off a substantial portion of our revolving credit facility and reduce our absolute home-building debt levels by the end of 2007," Scarborough said. "In addition, we expect to generate net cash next year even after retiring our $150 million in senior notes maturing in October 2008."
Earlier, Standard Pacific had hoped to pay off its entire revolver by year's end. Those efforts, no doubt, were and will be hampered by payments it had to make to its joint ventures of $7 million for the quarter and an additional expected $45 million to $60 million in the future. The company's joint ventures lost $38.7 million in the third quarter, compared to a $5.2 million profit last year, primarily because of impairments.
Additionally, the company has unwound two of its California JVs, buying out its partners and paying off the JVs' related debt. Another California JV is likely to be assumed by the company in the fourth quarter, with Standard Pacific assuming the interest of its partner and retiring $60 million in related debt.
"While over the course of this downturn we may find it necessary to unwind additional joint ventures, we are not currently in discussions with any of our other venture partners to acquire or assume their venture interests," Scarborough said.
Home building revenue for the third quarter was $675.5 million compared to $834.1 million in the same quarter last year, a 19% decrease. That decline was mostly due to a 25% decline in home deliveries from 2,254 in '06 to 1,474 in the third quarter of '07. A 1% decrease in the company's consolidated average home price had less of an effect.
Standard Pacific helped offset the revenue fall by realizing a $51.5 million year-over-year increase in land sale revenues. The company sold 1,500 lots, generating $57.3 million in the third quarter.
There was one bright spot in home sales among the company's markets. While the number of homes delivered, as a whole, in California decreased 8%, Northern California's deliveries were up 58% year-over-year. But those order numbers came at a cost to price. The average home price in the region fell 31% due to incentives and discounts and because it sold more homes from the company's more affordable Sacramento and Central Valley markets.
The company's backlog value decreased year-over-year by 39% to $1 billion from $1.6 billion in '06.
The company's SG&A expense rate increased in the third quarter to 14.7% of revenue, compared to 13.4%, as the company spent more on sales and marketing as a percentage of revenues for advertising expenses and co-broker commissions. Those costs were partially offset by reductions in staff and by a decrease in incentive-based compensation.
Regarding the stock plan, the company said that of the 100 million shares it currently is authorized to issue without shareholder approval, approximately 72.8 million are already issued and outstanding. Another 20.4 million shares are reserved to be issued as part of the company's equity incentive plans and in case the buyers of $100 million in recently issued convertible bonds convert them into stock. That leaves roughly 6.8 million shares available for future needs, according to the company.
"Our board believes that the number of shares of Standard Pacific common stock presently available for future issuance under our certificate is insufficient to provide the board with the flexibility in issuing shares for general corporate purposes," the company stated in its proposal, which was filed with the Securities and Exchange Commission on Oct. 25.
It said the extra shares might be needed for a number of corporate purposes including potential equity and convertible debt financings, acquisitions, equity incentives for employees, payments of stock dividends, or stock splits. But, "We do not have any current plans or intentions with respect to issuances of the additional authorized shares," the SEC document said.
In addition, some extra ready-to-issue shares might be come in handy to discourage a takeover attempt. They would be necessary in case the board should decide to enact a poison pill provision.
"However, our board does not intend or view the proposed increase in authorized common stock as an anti-takeover measure and is not proposing the increase in response to any attempt or plan to obtain control of the company," the proposal said.
Standard Pacific plans to mail out proxies soliciting the change in November and hold a special shareholder meeting on Dec. 11 to consider the proposal.