WCI Communities (NYSE:WCI) posted a net loss of $100.2 million for the second quarter as revenue dropped 4.6 percent to $230.1 million and the company took impairments and write-downs of $33.2 million.

More ominously, the company reported that its net debt-to-capital ratio rose to 86.4 percent from 80.5 percent at year-end 2007 and that it is in violation of covenants on its revolver, term loan, and tower construction loan agreements and has thus been denied access to cash it desperately needs. The company also announced that it would suspend the customary conference call with investors and analysts.

The survival of the company as it now exists depends on 90 percent acceptance of an offer to exchange senior subordinated notes due in 2023 but callable as of Aug. 5, 2008 for cash for new notes paying an astounding 17.5 percent due in 2012 plus warrants to purchase WCI stock. In its earnings release, WCI stated, "The company can give no assurance that it will be able to successfully consummate the exchange offer."

Against that backdrop, the earnings—or lack thereof—were worse than expected. The three analysts on Wall Street who cover WCI, who along with the rest of the street have given up on WCI stock, were expecting a loss of $1.07 per share. The loss was more than double that, at -$2.38 per share.

For the six month period ended June 30, the net loss totaled $184.3 million compared to -$49.0 million during the first half of 2007. Diluted EPS from continuing operations was -$4.37 versus -$1.51 for the same period a year ago. Revenues decreased 36.6 percent to $367.1 million from $579.4 million in the year earlier period. Gross margin as a percent of revenue was -10.2 percent for the six months ended June 30, 2008 compared to -5.6 percent for the first six months of 2007. Total backlog value at the end of the quarter was $120 million.

Revenues from the traditional home building segment, including lot sales, fell 45.4 percent to $97.7 million from $178.9 million for the second quarter of 2007. The company closed 186 homes compared with 217 for the same period a year ago. Florida revenues totaled $74.8 million or 76.6 percent of total traditional home building revenues versus $130.2 million or 72.8 percent for the second quarter of 2007.

Gross orders decreased 22.4 percent to 159, with their value declining 46.1 percent to $77.1 million. In total, 143 gross spec homes were sold during the quarter, with an average projected gross margin as a percent of revenues of 0 percent, compared to a 20 percent average gross margin projected for the 16 gross to-be-built orders for the quarter.

Average prices fell 30.5 percent to $485,000 compared with $698,000 for the second quarter of 2007 due to a combination of price reductions and mix changes. Discounts during the quarter were approximately 18.1 percent of sales office list pricing, compared to approximately 16.8 percent on orders in the same period a year ago.

The cancellation rate for the second quarter of 2008 was 61.6 percent, up from 39.1 percent in the first quarter of the year. Cancellations during the quarter totaled 98, which was equal to the cancellations during the same period a year ago.

Revenues in WCI's tower home building division were $11.3 million, up from $2.1 million for the same period a year ago. There was one tower completing construction during the quarter compared with 7 under construction and recognizing revenue during the second quarter 2007. Tower home building gross margin dollars were a negative $27.5 million as 71 finished spec units closed and generated $56.9 million of revenue and a 20.9 percent gross margin. "The normal relationship between tower home building revenue and gross margin was not evident once again this quarter as the reversal of $28.0 million of revenue because of 28 tower defaults and other charges resulted in variances that obscured typical trends," the company stated.

Tower home building gross new orders increased from 11 units to 84 units, but cancellations, rescissions, and defaults recorded were 174 units, resulting in net new orders of negative 90. The company blamed the numbers on its Oceanside tower project in Florida, saying that with Oceanside excepted, it would have posted net new orders of 10.

The average gross order price for tower units sold in the quarter was $819,000 compared with $1.1 million in the period a year ago. Tower backlog value on June 30 totaled $23.5 million, compared with $36.9 million on March 31.