It's hard to imagine finding positive news in a quarter when a company logs a net loss of nearly $441 million, or $6.80 per share, but Standard Pacific Homes' executives did just that and were quick to talk about it during the builder's Tuesday, Feb. 5 conference call.
As is the case with most home builders these days, the majority of that loss ($433.5 million) was related to impairment charges taken on land that had devalued losses on land it is abandoning, and in sagging goodwill. Without those pre-tax charges, Standard Pacific would have posted a $0.07 per share profit.
Despite the sagging market, the builder was able to end the last quarter of 2007 with $219 million in cash on hand compared to $5 million on Sept. 30, and that's after paying down debt. The company said it hopes to continue to raise cash by cutting new-home starts, community openings, land spending, and site development costs.
On the negative side, as a result of having to take a $180.5 million FAS109 deferred tax valuation allowance charge, the company is now out of compliance with its tangible net worth requirements for several of its loans. It has received a temporary waiver of any default breaking the covenants would trigger until March 30 and is negotiating with its lenders to amend the covenant requirements.
"Based on our current view of market conditions, we expect to generate positive cash flow during the year even after paying off the remaining balance of the 2008 senior notes," CEO Stephen J. Scarborough said in a prepared statement.
The company has a series of big debts coming due in the next few years that has had analysts speculating about whether it could generate enough revenue to pay it off in current market conditions.
The Irvine, Calif.-based builder reduced the balance on its revolving line of credit by more than $163 million to $90 million and began to retire one of its major debts on $150 million in notes due Oct. 1 by making a $24 million payment. It also paid down its trust deed notes by nearly $66 million. Plus, it expects a $235 million tax refund on operating losses sometime this quarter.
Standard Pacific has shed more than half the lots it held at its peak at the end of 2005 and has reduced lot inventory by 43% from a year ago, down to 35,000. It also left two markets, San Antonio, Texas, and Tucson, Ariz.
Company executives said they have reviewed all its joint venture exposure, another sore spot with analysts who have complained that public builders with joint venture debt are riskier investments because the risk of those off-balance-sheet arrangements is not clear. Standard Pacific left six joint ventures during the fourth quarter at a cost of approximately $3 million. All in all, it has reduced its joint venture debt by 39% to $771 million from 2006 and its lot count within the ventures by 45%
Taking a look at the company's backlog, however, there's no doubt that at least the first half of '08 will be much slower than '07. The company's backlog at the end of December at 1,279 houses valued at $443 million was about half the 2,443 homes valued at $885 million from a year ago.
"We believe we are in a stronger position to respond to current market realities as we start the new year," Scarborough said during the conference call.
Standard Pacific (NYSE:SPF) stock was trading at $4.96 per share, up 7.8%, at 3 p.m. after having been up as much as 14% earlier in the day.