"Challenging," the word most favored by CEOs to describe the current home market, fell so far short of explaining WCI Community's 2006 performance that CEO Jerry Starkey had to add "extremely" in front of it during Tuesday's fourth-quarter and year-end conference call.

He could have added a few more adverbs and still not fully conveyed the story the company's numbers tell:

  • $9 million in net income for 2006 versus $185.2-million in 2005.
  • A default rate for its towers that has climbed to 8% to 10% versus the historic 5%.
  • An unexpected spike in single-family home cancellations, which climbed to 40% in the fourth quarter from a historic 20% rate.
  • In some markets the numbers of cancelled contracts exceeded sales in the fourth quarter.
  • Delays in three South Florida towers that cost the company more than $50 million in additional costs, including insurance and interest charges.
  • $139.5 million in impairments and write-offs, $91.4 million tied to a single Southwest Florida community originally planned as ultra-high end that came so short of sales expectations that the product has had to be repackaged at a significantly lower price point.
  • As yet unknown costs if the company may fall short of meeting the terms of two of its key debt covenants, triggering renegotiation of the agreement terms.

Add to those facts the presence of Carl Icahn, who has bought 14 percent of WCI's shares. Icahn is pressing for spots on the company's board of directors and agitating for "recognizing shareholder value," code for, perhaps, selling the company for its parts.
Icahn's name wasn't uttered during the conference call, nevertheless his influence was acknowledged when Starkey referenced the company's recent hiring of Goldman Sachs to take a good look at WCI to determine the best course of action to "increase shareholder value," which could include selling the company, among other options, Starkey says.

In the meantime, company officials are putting their heads down and concentrating on cash-specifically the $1-billion pot of gold they expect to pop into the company's coffers by year's end as it closes out already-sold towers. They plan to use that money to pay off debt and lever down its capitalization from 66% range to 50%.

Questions about how likely that $1-billion is to materialize were met with assurances that, even with a 10% cancellation rate in the towers, the company could realize that sum. Plus, Starkey said the cash will represent profit since construction of those towers is mostly paid for.

Starkey and Co. had two other bright spots to report. They said they managed to shave $16,000 off the cost to build a house and that they expect to cut costs by $39,000 by year's end. And, despite everything, they were able to hold up margins, which were 14.4 percent in the fourth quarter, versus 22.9 percent in the fourth quarter of '05. But, when you include the significant fourth-quarter write-offs, margins as a percentage of revenue were negative.

The company's future earnings picture is so cloudy that it offered no guidance for 2007 earnings, backing off of its $1- to $2-a-share 2007 profit predictions offered last quarter.