Standard Pacific Homes, one of the industry's more financially fragile major builders, ended 2007 on a mixed note. The Irvine, Calif.-based company generated more than $219 million in homebuilding cash, and reduced its revolving credit by more than $163 million, to $90 million.

But StanPac also lost $767.3 million, versus a gain of $123.7 million in 2006, on sales of homes and land (excluding its joint ventures) that slipped by 23 percent to $2.89 billion. For the year, deliveries (again, excluding JVs) were off 26 percent to 6,918 units, and new orders fell 5 percent to 5,697. The value of the builder's 1,279 units in backlog plummeted 50 percent to $442.7 million. For the year, StanPac's average selling price softened by 6 percent to $377,000, and the availability of mortgages resulted in some "softening" in the sales of higher-priced homes, particularly in California.

In the fourth quarter alone, StanPac lost $440.9 million, compared to a $98.4 million loss in fourth quarter 2006. That loss is attributable to $276 million in impairment charges on 62 projects, a $36 million increase in joint-venture related losses, and the set-aside of a $180.5 million deferred tax-asset reserve. Including discontinued operations in San Antonio and Tucson, Ariz., where StanPac exited last year, the company's total pretax impairment charges for 2007 were $1.09 billion.

Steve Scarborough, the company's chairman and CEO, told analysts during StanPac's webcast this morning that profit would continue to be a "challenge" over "the next year or two," especially given the lower absorption rates that StanPac is projecting for 2008 (1.5 to 2 homes per month per community, versus an average of 2.3 homes during 2007). Both he and Andrew Parnes, the builder's CFO, said that investing in lower-priced land would be the "foundation" of Standard Pacific's profitability going forward. (Zelman & Associates, an investment and research firm, estimates that the $281 million StanPac generated from land sales last year may have represented a 70 percent discount from what the company had originally paid for that land.)

Meanwhile, the builder continues to scale back its operations and production. It reduced headcount by 27 percent in 2007, saving $40 million in payroll expenses. The number of homes it had under construction as of Dec. 31, 2007 was down 37 percent to 2,085 units from the same day a year earlier. Of that total, spec homes under construction fell by 21 percent to 1,089 units. (Scarborough pointed out that a certain number of standing inventory is needed to accommodate buyers who are asking for shorter escrows.) StanPac also reduced its land position by lowering the number of lots it owns by 32 percent (excluding JVs) to 21,371, and land controlled under options by 39 percent to 5,619 lots.

Throughout 2007, and especially in the second half of last year, investors and analysts voiced concern about Standard Pacific's joint-venture exposure. In the fourth quarter, the company got out of six joint ventures and reduced JV-related debt by 39 percent to a still-high $771 million. Scarborough says he's confident that the company would continue to reduce JV debt through 2008.

In the fourth quarter, the company's gross margins from its home building operations were negative 17 percent. During that quarter, the company was not in compliance with tangible net worth covenants for its $900 million revolving credit, and two term loans totaling $325 million. It has received a waiver of those covenants from its banks that extends through March 31.

Looking ahead, the company expects to receive a $235 million tax refund in February, which would further bolster its cash position. Deliveries will be off in 2008 (by how much neither official would speculate), and StanPac expects to reduce its community count to below 200 this year, from 226 at the end of 2007. Parnes estimates that land investment would be around one-third what it was in 2007. (About 80 percent of the builder's lots under development are already finished.) Scarborough and Parnes also expect the company to generate sufficient cash flow to pay off the $150 million that comes due on a senior note on October 1.


Standard Pacific Homes, one of the industry's more financially fragile major builders, ended 2007 on a mixed note. The Irvine, Calif.-based company generated more than $219 million in homebuilding cash, and reduced its revolving credit by more than $163 million, to $90 million.

But StanPac also lost $767.3 million, versus a gain of $123.7 million in 2006, on sales of homes and land (excluding its joint ventures) that slipped by 23 percent to $2.89 billion. For the year, deliveries (again, excluding JVs) were off 26 percent to 6,918 units, and new orders fell 5 percent to 5,697. The value of the builder's 1,279 units in backlog plummeted 50 percent to $442.7 million. For the year, StanPac's average selling price softened by 6 percent to $377,000, and the availability of mortgages resulted in some "softening" in the sales of higher-priced homes, particularly in California.

In the fourth quarter alone, StanPac lost $440.9 million, compared to a $98.4 million loss in fourth quarter 2006. That loss is attributable to $276 million in impairment charges on 62 projects, a $36 million increase in joint-venture related losses, and the set-aside of a $180.5 million deferred tax-asset reserve. Including discontinued operations in San Antonio and Tucson, Ariz., where StanPac exited last year, the company's total pretax impairment charges for 2007 were $1.09 billion.

Steve Scarborough, the company's chairman and CEO, told analysts during StanPac's webcast this morning that profit would continue to be a "challenge" over "the next year or two," especially given the lower absorption rates that StanPac is projecting for 2008 (1.5 to 2 homes per month per community, versus an average of 2.3 homes during 2007). Both he and Andrew Parnes, the builder's CFO, said that investing in lower-priced land would be the "foundation" of Standard Pacific's profitability going forward. (Zelman & Associates, an investment and research firm, estimates that the $281 million StanPac generated from land sales last year may have represented a 70 percent discount from what the company had originally paid for that land.)

Meanwhile, the builder continues to scale back its operations and production. It reduced headcount by 27 percent in 2007, saving $40 million in payroll expenses. The number of homes it had under construction as of Dec. 31, 2007 was down 37 percent to 2,085 units from the same day a year earlier. Of that total, spec homes under construction fell by 21 percent to 1,089 units. (Scarborough pointed out that a certain number of standing inventory is needed to accommodate buyers who are asking for shorter escrows.) StanPac also reduced its land position by lowering the number of lots it owns by 32 percent (excluding JVs) to 21,371, and land controlled under options by 39 percent to 5,619 lots.

Throughout 2007, and especially in the second half of last year, investors and analysts voiced concern about Standard Pacific's joint-venture exposure. In the fourth quarter, the company got out of six joint ventures and reduced JV-related debt by 39 percent to a still-high $771 million. Scarborough says he's confident that the company would continue to reduce JV debt through 2008.

In the fourth quarter, the company's gross margins from its home building operations were negative 17 percent. During that quarter, the company was not in compliance with tangible net worth covenants for its $900 million revolving credit, and two term loans totaling $325 million. It has received a waiver of those covenants from its banks that extends through March 31.

Looking ahead, the company expects to receive a $235 million tax refund in February, which would further bolster its cash position. Deliveries will be off in 2008 (by how much neither official would speculate), and StanPac expects to reduce its community count to below 200 this year, from 226 at the end of 2007. Parnes estimates that land investment would be around one-third what it was in 2007. (About 80 percent of the builder's lots under development are already finished.) Scarborough and Parnes also expect the company to generate sufficient cash flow to pay off the $150 million that comes due on a senior note on October 1.


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