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Executives

Kenneth Campbell III – Chairman, President and Chief Executive Officer

Andrew H. Parnes – Chief Financial Officer and Executive Vice President, Finance

Scott Stowell – Chief Operating Officer

Analysts

Ivy Zelman – Zelman & Associates

Michael Rehaut – JP Morgan

Dave Goldberg – UBS

Larry Taylor – Credit Suisse

Susan Berliner – JP Morgan

Joel Locker – FTN Securities

Alex Barron – Agency Trading Group

Buck Horne – Raymond James

[Cheryl VanWinkle] – [Independence United]

[Keith Limey] – Goldman Sachs

Standard Pacific Corp. (SPF) Q4 2008 Earnings Call February 17, 2009 11:00 AM ET

Operator

Good afternoon and welcome to the Standard Pacific Homes fourth quarter conference call. This conference is being recorded. At this time I'd like to turn the conference over to Mr. Andy Parnes, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Andrew H. Parnes

Thank you and good morning. Our formal presentation will be followed by a question-and-answer period. Now I'm going to read a notice regarding forward-looking statements. This conference call and the accompanied slide presentation contain forward-looking statements. Such forward-looking statements may include but are not limited to statements about our outlook, markets, tax refunds, cost reductions, expected absorption rates and pricing, borrowing capacity, liquidity for our joint venture needs, expected joint venture loan pay downs, and potential re-margin obligations and unwinds, number of spec homes and orders in backlog.

In general any statements contained in these materials that are not statements of historical fact should be considered forward-looking statements. We assume no obligation to update these or any other forward-looking statements.

We caution you that forward-looking statements involve risks and uncertainties and there are a number of factors that could cause our actual results to differ materially from those that are contained in or implied by these statements. These factors include but are not limited to local and general economic and market conditions, including consumer confidence, employment rates, interest rates the availability of mortgage financing and the supply of homes for sale in the market.

These and other risks are discussed in our press release on February 13, 2009. We refer you to this press release and our most recent annual report on 10-K and quarterly report on 10-Q for further information.

The recorded presentation will be available for replay today an hour after this call ends and will continue to be available until March 20, 2009. The audio portion may also be replayed by dialing 888-203-1112 and entering pass code number 7018740.

Joining me on the call this morning are Ken Campbell, our CEO and Scott Stowell, our COO. I will now turn the call over to Ken.

Kenneth Campbell III

Good morning everybody. This is my first go at this with Standard Pacific so hopefully I'll get the standards set low enough and I can improve on it going forward. I'm going to skip the industry update part of this thing. Most of you have listened to other home building people do their earnings announcements. It turns out we're operating in the same market as they are and have – pretty much running into the same issues. So if you need an industry update we can forward the replay numbers for the other guys for you; same kind of story.

One of the things, I guess I have to excuse myself for in the beginning, if there's a little bit too much, sounds a little loose or I crack the occasional joke, if you're in the business of home building in the United States you need to find humor and things to laugh about wherever you can.

So I'm just going to move forward. The only thing I'll say about the sort of the state of the industry is I think maybe there'll be a slight lift, positive lift now that the government's decided that they're not going to provide much help to homeowners. Nobody's going to sort of wait until it comes.

So there might be a little improvement because they told everybody they're not going to do much, but I think it's going to be a blip in any event and not something to go long on. I'll go through some of the highlights I think that people have the slides.

So I think the cash balance is an important asset for us. At the end of the year we had something like $625 million. We also have a tax refund coming in the not too distant future something north of 100. I think it's closer to 114. That's obviously better than starting without a lot of cash requirements.

We have a couple hundred million dollars of debt to pay off this year. Similar amounts later, we'll get into that in more detail, but so we have plenty of time and some assets to use to get through the winter here. We also have as we'll talk later maybe a couple 100 too many spec homes, which will further help our cash situation, but as I say we'll get into that later.

The cash thing plays right into sort of a big comment I'd like to make on strategy. When the initial investment came into Standard Pacific from Matlin Patterson, I'm pretty sure the thought was that there would be enough cash to take advantage of the asset buying opportunities that we expected to show up this year.

I think the market has gotten worse since June of last year. We expected it to get worse than Matlin Patterson; it's gotten worse than we expected. The good news is that we put enough money in so that after adjusting the cost structure I think we could use the money to increase our runway.

The bad news is it means we have now less money available to take advantage of acquisition opportunities. We still think there's acquisition opportunities out there in particularly maybe the second half of this year and the first half of next, but it's not clear at this point how much money Standard Pacific has available to spend on those.

I think the next six months will be helpful in figuring out whether we have too much cash or not enough and we'll get through the spring selling season, if there is one, and we will have finished adjusting our cost structure or we will have taken the next step and we'll talk about that more later. So we'll have an idea of what our costs are and what our revenues are and then we can reassess where we are, whether or not we need to get some more capital to take advantage of the opportunities or not. Obviously, I think given where the market is today we probably need to conserve our cash. We just may need to get a financial partner of some sort, we'll see.

As I think everybody knows or a lot of people know that at this point we had spent a lot of time looking at acquiring the assets of Technical Olympic. When we finished our due diligence and sort of revised what we thought our view of value of that business was they basically rejected our offer. And so the talks with TOUSA have stopped for the most part.

I don’t expect that they will come back but I'm not too concerned. Although we spent some money looking at it, just because we lost a few million dollars, spent a few million dollars, doesn’t mean we ought to move ahead and acquire it at the wrong price and I think that there will be plenty of good opportunities to buy land in the future. So I'm not concerned about missing the chance of a lifetime.

In terms of our cash flow going forward, this is one that's really hard to predict as you guys have noticed as you try to do it for us. It's hard enough if you're us. I think that the big – the problem is that the market keeps sliding down. So even as we finally get caught up with reducing the infrastructure or reducing our costs or whatever, by the time we get done doing that the market's further deteriorated, which gives rise to the need to do it again.

I think that it's a fairly safe assumption that we'll generate some cash from operations going forward, enough to contribute to debt reductions. How much I think is the $64,000 question or whatever. That's unclear because even if we further reduce our cost structure, which we are going to do I don’t really know where we're going to end up on sales. I just know it's going to be less.

Just to be clear '09 is going to see a significant drop in sales and I think or we think a continued reduction in price. The thing that drove our fourth quarter numbers of course is the pre-tax loss or the impairment number. A lot of people have already commented that it's a big number.

My observation here is impairments are not supposed to be a quarterly event. Obviously, we've impaired a lot already. This impairment was done with a little more structure than prior ones, although I'm not sure how much that affected the number, but our expectation or the expectation built into this impairment number is that the market will continue to decline this year, sort of in the neighborhood of price declines in the sort of 8 to 10% category, that 2010 the market will not get much worse but will not get any better either.

In other words prices will remain flat, and then over a couple of years 2011, 2012 the prices will recover to a level consistent with incomes in more normal times, so the sort of driving force of where the general equilibrium point is on home prices built into our impairments is that eventually people will spend about the same percentage of their income on houses as they have historically.

I’m not so much saying that this isn’t necessarily right, but you have to have a view in order to come up with an impairment number, so that’s generally what we used as the guideline and so if you want to have, incorporate a different view of what you think is going to happen to prices, better or worse, then you can sort of guess at whether or not we’re going to have more impairments.

Let me see. I don’t really know how other people do it, what assumptions they use, so I’m not sure how you would compare our number to others. The one thing that may sort of make these impairment numbers a little larger than necessary is that if we choose to raise our standard of profitability for continuing to build at certain communities.

In other words do we preserve the assets for three or four years so that we can make more money on the land after the market recovers? Those are sort of ongoing discussions that we have at a company. We’re trying to figure out how to do that and to the extent that we mothball more communities or put more of the land to sleep sort of waiting for the market.

We may in fact have the impairments may come out to a different number, so, but we haven’t made those decisions yet so I think that the impairment number is where it is. I think it’s where it ought to be given that view of the world.

Our focus for the company going forward for now is going to be primarily on the operating structure or the business model as opposed to acquiring other assets or merging or anything else. We have been the company sort of a little behind the eight ball on getting our SG&A down, although we’ve cut it a lot.

I don’t think we’ve cut it enough, and I think Andy has a slide later in terms of like I don’t know headcount I think we cut 62% already. I don’t think unfortunately we’re done with that. I think we will be in the next couple of months but we, you know, given that sort of where the sales are coming in in January and the first part of February all indications are for a fairly significant decline in sales and so I think we’re going to have to further reduce the size of our business and in some ways deal with maybe even some more structural issues.

Other things that we would do which we’re sort of active on that we’ll benefit from when we come out the other end is spending a lot of time like all the other home builders. We’re not unique in terms of value engineering the product, making sure that the cost of the houses that’s in the features of the homes are features that people want and we do this sort of very actively with outside help.

Going into each community and evaluating, doing testing and all this other stuff. I think other people are doing the same and it does affect the cost of building the house, and then we’re looking at other business model adjustments.

Some of them outside of the box and some of them just pushing the edges of the box. One of the, I don’t know advantages that I have at the company, although a disadvantage I have is I’m not from the home building business, an advantage is maybe that I’m not from the home building business. In terms of thinking outside the box it’s a little easier for me since I don’t know where the box is.

If I find the box then I’ll get back to you, but obviously I have Scott sitting next to me literally, and figuratively, and so he’ll do his best to keep us from going totally out of control but a lot of attention being paid to the fundamental business model.

Like how many models do you need at sites? Do you need models at every site? How do you staff the sites? Can you go to a lock box at some stage of development which is short of putting it to sleep; a number of things that we’re looking into. I think the silver lining of these really tough times for a company like ours is that you take a hard look at your business practices and when you come out the other end you’re a more efficient builder.

I think that will definitely happen, and unfortunately I think we’re going to have a while to figure it out. But we’re trying to be aggressive at pushing ourselves to do some of those things. We don’t have a lot to talk about and I’d rather talk about it after we start to see results, but we are working on those things.

As I said our primary focus here is to preserve the assets as opposed to acquiring new ones. We want to have as long a runway as possible, given the $700 whatever million that we have in the bank. We do believe that we are going to generate some cash to help pay off that $200 plus or minus a million a year that we have to pay off.

And I think that we have a sufficient asset base. We have around 20,000 lots at various stages of development and given that our sales at the current sales rates we’re not going to be short of lots to participate in the sort of initial recovery, and of course when the recovery starts there are going to be a lot less competitors out there, so I think for a year or two it may play out pretty well and then we’ll get into a more normal world later on.

So that’s my little opening pitch, speech, whatever, and I’ll come back after Andy talks about most of the results and then you can ask questions, see if one of the three of us can answer. So thanks. So Andy back to you.

Andrew H. Parnes

Yes if we could move to slide four, we put this slide in here to provide you with a summary of our fourth quarter and full year operating results and we’ll drill down on the fourth quarter numbers in each of these areas during the balance of the presentation but we thought it would be nice to just have a take away with most of the information, the important information in one location.

Moving to slide number five, the year-over-year decline in the company’s fourth quarter net loss was driven by the following factors from continuing operations. First a $77 million favorable change in our tax provision to a benefit of $47 million due to reversing a portion of our deferred tax asset reserve as a result of generating a larger 2008 tax refund than previously anticipated.

And two, a $39 million decrease in our SG&A expenses, all of which were partially offset by a $10 million increase in our impairment charges, a $60 million decrease in our home building revenues and a $10 million increase in our interest expense.

Excluding the impairment in tax reserve charges we would have generated a net loss of approximately $148,000 or essentially $0.00 per share during the fourth quarter. Please refer to the exhibit at the end of the presentation for a reconciliation between the net loss before and after the impairment and other charges.

Slide number six provides more detail on the $444 million of impairment charges recorded during the fourth quarter. And Ken had touched upon a number of these areas. But our expectations for the next several quarters include slower absorption rates and continued price erosion. Accordingly we reflected these expectations in our impairment calculations and as Ken mentioned we’re generally assuming that price declines or prices decrease another 5% to 10 % in most of our markets during 2009, generally flat pricing in 2010 and then some level of appreciation in 2011 and 2012.

Now there are some markets where they don’t quite fit into that general rule but for the most part a number of them did. And we expect that absorption rates will be kept, that they will be kept below normal levels for the next two to three years and that's what we embedded in our impairment calculations. The impairment charges during the quarter related to current and future projects and covered approximately 9,400 lots representing 97 projects while the joint venture impairments related to approximately 130 lots representing five projects. The bulk of the impairment charges were in California, Florida and Nevada.

The continued review our project portfolio in light of current and anticipated market conditions and as Ken mentioned, we have decided to put a number of projects on hold in several of our markets. And while we believe that better business decision is to mothball these projects and many have nonetheless still been impaired.

Turning to slide seven the 60% decrease in fourth quarter homebuilding revenues to $376 million was primarily attributable to a 47% decrease in new home deliveries combined with a 15% decrease in our consolidated average home price. In addition land sale revenues declined from $108 million last year to $367,000 this year.

Land sales were a nominal part of our revenue equation this year due to a general lack of demand combined with our tax position whereby we were able to fully realize our 2008 NOL carry back potential without additional land sales. Our backlog conversion rate for the quarter was 92% and reflects the preference for shorter escrow periods by buyers who purchased completed or nearly completed spec homes.

Moving to slide eight the company's negative homebuilding segment gross margin of 78% was driven by the $377 million of inventory impairment charges. Excluding the impact of land sales and the inventory impairment charges the home sales gross margin would have been 21.9% versus 14.1% last year.

The higher year-over-year margin reflects the closeout of certain projects in California and the resulting decrease in cost of sales and a $9.4 million reduction in the company's warranty accrual due to a decrease in warranty expenditure trends. Please refer to the exhibit at the end of the presentation which reconciles the gross margin percent for the homebuilding segment to that excluding land sales and impairment charges.

The company's higher SG&A rate for the quarter was driven primarily by the company's lower revenue base combined with $13.8 million of costs related to staff reductions, office closures and consolidations and other restructuring-related charges and $3 million of costs related to the potential TOUSA acquisition.

Excluding these charges our fourth quarter SG&A rate would have been 14.2%. Please refer to the exhibit at the end of the presentation which reconciles the SG&A rate for the homebuilding segment to that excluding restructuring and potential acquisition charges. The absolute level of SG&A expense for the quarter was down 36% from last year reflecting our headcount and overhead reductions to date.

And as Ken mentioned while we have made much progress thus far in our cost reduction efforts, we are vigorously pursuing additional cost cutting initiatives based on our expectations that '09 will be an extremely challenging year for our company and the industry. And in fact the company retained an outside consulting firm during the fourth quarter to assist in these efforts and to ensure we explored all possible areas. Again, Ken mentioned the reduction in the headcount from our peak and on slide nine you can see how the 62% reduction lays out by region.

Moving to slide 10 I'd like to direct you attention to the left-hand side of the slide. And you'll see that we generated $65 million of cash from operating activities during the fourth quarter. We used approximately $28 million of cash during the quarter for investing activities which primarily represented contributions to joint ventures.

Cash flows used in financing activities represent the payoff of the remaining principal balance of the October 1 maturing notes totaling $104 million and additional principal payments made on our bank revolver and term loan. EBITDA was $38 million for the fourth quarter while we generated $32 million of EBITDA for all of 2008 compared with $298 million in 2007. Please refer to the next slide for a definition of EBITDA and a reconciliation of EBITDA to GAAP operating cash flows.

As you can see on slide 12 our quarter end adjusted net homebuilding debt-to-capital ratio stood at 70%, up from 53% at the end of the third quarter. Our total debt-to-capital ratio was 81% compared to 68% last quarter. The higher leverage levels reflect the impact of the current quarter losses and the consolidation of two joint ventures and their related debt. Please refer to the exhibit at the end of the presentation for a reconciliation of total debt to adjusted net homebuilding debt.

At December 31, 2008 we had utilized $85 million of capacity under our revolving credit facility including $38 million for letters of credit. Based upon estimated collateral value at year end we had additional borrowing capacity of approximately $175 million. And just to provide an update on our revolving credit facility many of you know that the revolving credit facility in term loan A structure as was negotiated last year precluded us from buying our public bonds up for cash.

And we're on the verge of completing an amendment that should be done shortly that will allow us to make cash purchases of our '09, '10, and '11 bonds. In exchange for those purchases the company has agreed to make an immediate reduction of $25 million in the unsecured revolver and term loan A borrowings in then additional principal reductions over time as we make additional bond repurchases. So, very shortly we should be in a position where we should be able to buy these bonds in the open market. Our bank credit facilities –

Kenneth Campbell III

Hey, Andy, just one sec.

Andrew H. Parnes

I'm sorry.

Kenneth Campbell III

The original deposit, the $25 million, is it sort of an advance against purchases though?

Andrew H. Parnes

That's correct. Yes that's correct. Yes, once this closes we'll be filing an 8-K that will contain the details of the amendment and we'll lay that out more specifically, but Ken's correct. The $25 million is kind of an advance payment for those concurrent reductions that we'll have to make as we do the open market purchases.

Moving on to the cash flow coverage ratio under the bank credit facility we're required to maintain a minimum ratio of cash flow from operating activities to interest incurred. Or if we're unable to do that maintain a minimum liquidity reserve. You can see from the slide that we are unable to meet the minimum cash flow coverage ratio and accordingly we'll be setting aside approximately $120 million in an interest reserve account during the first quarter.

The cash flow coverage ratio was adversely impacted over the past four quarters by the number and magnitude of JV unwinds. And if you exclude the unwinds we would have been in compliance with the ratio on an LTM basis. In addition as we move ahead we expect that our interest expense will generally decrease as we continue to reduce our debt levels.

We've also included on the slide for your reference the maximum and actual debt-to-equity ratios calculated pursuant to the most restrictive public note indenture. And as you can see we exceeded the public note leverage limit. As a result we'll be limited in our ability to incur additional indebtedness subject to carve outs for additional borrowings of up to $550 million under bank facilities and an unlimited amount for purchase money nonrecourse indebtedness.

In addition we will be prohibited from making restricted payments from funds other than those residing in unrestricted subsidiaries. And at year end we had an excess of $500 million of liquidity in those unrestricted subsidiaries to cover our joint venture capital and other restricted payment needs.

Moving to slide 14 the purpose of this slide is to provide you with an updated schedule of our JV portfolio. This along with additional information will be included in our forthcoming 2008 10-K. These 10 joint ventures listed here represent over 90% of the total combined JV assets and debt. And the total leverage for all of our JVs as you can see is 53%. At year end we had a total of seven joint ventures with debt totaling $174 million which is subject to re-margin agreements and two joint ventures with nonrecourse debt totaling $248 million.

Moving to the next slide additional joint venture developments and activity during the fourth quarter included the following. One, we made JV re-margin payments of nearly $9 million for one southern California venture. We unwound two southern California JVs whereby we assumed debt totaling $67 million. In connection with the two unwinds we acquired 1,400 lots and a 111-unit condo building. We’ll likely have to make additional principal payments to extend the maturity of one of the loans.

And also, there are a few other JVs that we are carefully watching that are likely to require additional re-margin payments as well as others that may need to be unwound, including buyouts or walk aways by our partners. These situations could consume a portion of the company’s cash resources and result in the assumption of project debt.

On slide 16 you can see the further deterioration and order trends across all the company’s markets that we experienced in the fourth quarter. Our fourth quarter monthly absorption rate was around one sale per month per project versus 1.6 in the fourth quarter of 2007 and 1.6 also in the third quarter of 2008, so a noticeable drop off year-over-year and quarter-over-quarter.

The company’s consolidated cancelation rate for the fourth quarter was 33% compared to 37% in the 2007 fourth quarter and 26% in the 2008 third quarter. The company’s cancelation rate as a percentage of beginning backlog for the fourth quarter was 21% compared to 25% the year earlier period.

Orders to date in 2009 are off 53% from the year earlier period and 35% on a same store basis. The order levels, like in the fourth quarter were off across the board. Our (CAN) rate to date is 28% while traffic thus far is off over 60% year-over-year.

Moving to slide 17, our level of spec homes peaked at 12.9 homes per community at the end of June 2006 and had been steadily decreasing each quarter through the end of September. However, due to the noticeable drop off in absorption rates during the fourth quarter and a jump in our cancelation rate from the third, our level of completed specs increased from the end of September.

We’ll carefully monitor our level of spec starts against current order trends with the goal of reducing the number of completed spec homes company-wide in the near term. We feel that a level of around two completed specs per community is a desirable target in an environment where many buyers prefer to close escrow quickly. At this point I’ll turn the presentation back over to Ken for our closing commentary. Thank you.

Kenneth Campbell III

All right, I’m not going to say much more since I’ve already had my shot, but you know, 2009 definitely going to be worse than 2008, both in terms of volume and price. I think it’s going to take at least another year to get this stuff flushed out.

Our focus in the short run here is going to be on getting the infrastructure in line with sort of the size of the business. It’s not an easy fix. It’s not totally just a cut here and cut there; I think it’ll involve sort of fundamental changes in how we attack our business. But we haven’t figured out exactly what they are yet so we can’t really talk about them a lot. I don’t think it’s going to take a long time to get implemented.

Whether it will get completed by the end of March or not, I don’t know; I think a lot will, some of it may leak into the following month. And then it’s making sure that we get the new, sort of much smaller business operating efficiently during the second half of the year and continuing to push on the value engineering and trying to figure out whether the new ways we’re doing things are actually working.

One comment I have to make, which is not a positive one, is we’re going to lose a lot of very good people when we do this. You know we’ve already cut 62% or something of the company. We’re down to a pretty solid group of people. Not only are they hard working but they’re the best 35% that we had. I don’t think we’re going to – well, I know we’re not going to be able to keep them all.

It’s a shame but it’s one of the reasons that we need to figure out how to get our business practices set at the level of our activity so that we can quick get out of this mode of losing good people and start providing an opportunity for people to grow. I think one of the most important reasons for hoping for growth again is to provide opportunities for good, smart people to work, and that’s a big concern of mine over the next couple of years. How you make this an interesting place to work for your best people?

I think that we have plenty of cash. We have a long time to figure this out and to get it right and the better job we do of readjusting our business model the more profitable we will be coming out the other end. I think it’s just a matter of how much better we will be not whether or not we’ll be better. I don’t think that there’s – in my personal opinion I think that Standard Pacific is going to be there when the market turns around, whether it takes until 2011 or 2012 or 2013.

The good news and the bad news about the home building business is that it’s a variable cost business and so you should be able to, or you can adjust your business model to be inline with the size of your business and you’re not competing against people building houses at a loss. In the short run we’re competing against foreclosures and other kinds of sales like that, but that’s a temporary phenomena. I think we’ll get through that in the next year or so and then we’ll get back to normal.

So I think we’re going to be there, the only question is when the rebound comes what will our asset position be and how quickly can we take advantage of the uptick. I think that we’ll be in better shape than a lot of people and I think that the market, the number of competitors out there will be substantially reduced due to the fact that a lot of people don’t have $700 and whatever million in the bank to start this with.

I think that our focus as we kind of adjust the business model will be to try to be a significant player in the markets that we’re in so that we can take advantage of negotiating with trade creditors and what not but we’re not going to go into many new markets I don’t think. I think we’re going to concentrate on the markets that when the economy does recover these will be markets where the recovery will be the strongest.

It may be the markets where the decline was the largest, but I think that we’re going to get through that in the next year so, and then the recovery. People are still going to want to move to southern California and the places where you don’t have to shovel snow. I know because I’m from Ohio and I’m really tired of shoveling snow. So anyway that’s it, I think for us. I think at this point maybe we turn it over to questions, is that right Andy?

Andrew H. Parnes

Yes.

Question-and-Answer Session

Operator

(Operator Instructions). We’ll go first with Ivy Zelman – Zelman & Associates.

Ivy Zelman – Zelman & Associates

Well, first I just want to say good morning or good afternoon and thank you for entertaining us, Ken. It’s quite a pleasure compared to our other conference calls, but it is a lot more fun. If you could talk about strategy, you had about 20,000 lots you talked about and curious if you could break out – you said they’re all in different stages of development.

How much would be undeveloped and maybe just you know maybe a little bit about land spend expectations and do you want to actually develop lots, or would you better shrinking and taking a hit in terms of exiting markets and getting smaller because the market environment is so onerous and maybe that’s a better strategy than some of the other builders which are continuing to go vertical and put more money in the ground?

Kenneth Campbell III

Right, in terms of the specific answer to whether the stage of these lots, and maybe I’ll let Andy answer it more specifically, a lot of these lots are pretty developed. In fact we have more than 19,000 – Andy do you have the stats right with you there?

Andrew H. Parnes

Yes. Of the 19,000 lots that we own, about 25% are raw, 14% are under development and over 60% are finished lots, so we've got more than enough finished lots to take care of our near term needs.

Kenneth Campbell III

But on the longer term thing I think what happens and like for instance in this year we have practically no land spent, I don't know, planned. It's sort of in the – and all the land spending we have in our plan for this year is related to joint venture takedowns that we expect to do. In other words we don't have any new sort of land buying activity going on.

I think that over time there will be some land buying and some exiting of some markets. As we're in the process of re-evaluating, I think I sort of alluded to it a little bit, what kind of return requirements do we have before we continue to build on a lot?

So there's two – if we can make a little bit of money doing it and we plan to exit the market then fine, go ahead and build it. If we think that three years from now it's going to be a more normal world then we'll be able to build a $350,000 house on the lot and get a normal amount for it, maybe it makes sense to put to sleep.

I think what's going to happen as we go through that exercise is some places will fall out of the long-term plan and some places will require some land spend. But unfortunately we're just sort of in the process of figuring out, playing that out, and then figuring out what to close and what to keep open, and do we need more money or when do we do that? I'm not too concerned about the acquiring asset opportunity in the very short run because I think at the second half of this year or the first half of next year there'll be lots of land buying opportunities in all of the markets that we want to be in.

So I think that what will be more interesting three months from now, the next time we talk we'll be okay, what kind of a market exit thing is going on here and since we haven't finished thinking through that I can't really, I don't think it's safe. I get in trouble with the lawyers or something.

Ivy Zelman – Zelman & Associates

No, that was very helpful though I think it helped me. Just a real housekeeping item, you mentioned that you're now using about 5% to 10% of deflation in the impairment expectations for '09. If I'm correct Scott, Andy, you guys prior to Ken's arrival had already been incorporating deflation into your impairment expectations so is it more of the same or should we note that that's materially different from prior impairment charges?

Andrew H. Parnes

I would say there's more deflation incorporated into the analysis this quarter than we have in the past. I think we had some but here I would say it's pretty much across the board.

Operator

Your next question comes from Michael Rehaut – JP Morgan.

Michael Rehaut – JP Morgan

First question, just in one of your first slides and I don't know if you remember you kind of talked through this but talking about how the trends have been weak throughout the quarter and continued into January. Other builders have referred to somewhat of a little bit of a pickup in traffic in January and many of those have in the same breath kind of said it's likely seasonal.

I was wondering if you could just put a little more color around that if that is indeed the case that absorptions maybe on a year-over-year basis are sequentially still remain pretty weak and any additional commentary in terms of how February appears to be shaping up?

Kenneth Campbell III

I'll try to answer a little bit and then Scott or Andy can correct me. But to say that there was an uptick is probably is true but to read anything into it I think you're pushing your luck. In other words I mean I think that December was a pretty bad month and the first week or so of January was like, wasn't anything to get excited about. So an uptick from those levels isn't all that interesting.

We're still talking about levels that are substantially below last year and given the government sort of not being totally clear on what's going on and this, that and the other thing, I think that it would be, to try to project a significant improvement in the market based on the last three or four weeks of statistics is risky business.

But I mean there has been a slight uptick but we're still at volumes well below last year. Scott is that accurate or?

Scott Stowell

Yes, so the additional color would be that our January sales followed essentially the same absorption rates during the fourth quarter. Our traffic was up about 33% from January, from December to January. But year-over-year our traffic is down 50% and our conversion rates are holding about the same. So, and our community count's falling so that's probably the context you should view our outlook.

Michael Rehaut – JP Morgan

Great, I appreciate that. Second question more has to do with cash flow generation and Ken, certainly recognize as you've been saying throughout the call, still a lot of things to work out and work through in terms of cost structure and sell through and how you're going to approach different communities. But with all that said I still have to ask the question I guess in terms of any type of guidance you might be willing to offer in terms of level of cash flow generation in '09?

And when you say that if you're, would be bold enough to put out if it's positive or negative or how much positive, if those thoughts or comments also include or exclude the cash tax refund?

Kenneth Campbell III

I'm really surprised anybody asked that question. We weren't prepared for that, and I'm going to give you a lousy answer, a very wishy-washy answer. I think that what our expectation is is that we'll generate some cash to pay down some, to contribute to the pay down of debt. We have $165 million of debt we have to pay off in 2009.

My guess is that we're going to pay off some portion of it from operations as opposed to our cash balance. Whether it's – so it's not going to be less than zero and it's not going to be 165.

How's that for some guidance? I think the biggest problem we have and that's with the $114 million, but since you don't know where between zero and 165 is it's sort of hard to get much out of that. The reason I'm really sort of reticent to give you any indication at all is first of all we're trying to figure out whether we're going to sell 3,500 homes or 2,500 homes. It makes a big difference.

And we're going to do this sort of last stage of restructuring of the business which could be fairly significant, and where we're going to be revisiting some of these things that I was just alluding to with Ivy. So I can't even tell you what our cost basis is going to be so it's really hard for me to answer that question.

So I think three months from now I should be held to, well you may already try to hold me to higher standards, but three months from now I might like raise my quality of that answer a little bit. I'm generally nervous about forecasting cash flow in a market like this. But I'll be better in the future.

Michael Rehaut – JP Morgan

Even that level of guidance is more than some other builders have dared to do. So I appreciate it and understand that you're still feeling your way through it.

Operator

(Operator Instructions). Your next question is from David Goldberg – UBS

David Goldberg – UBS

The first question, I'm just trying to get a little bit of clarity around what's going on from a capital perspective. Ken, in the opening remarks you talked about potentially the capital markets being closed to look at maybe acquiring new lots or something like that in the future and then, Andy, you were talking about changing some of the covenant agreements I think on the term loans to allow you to be able to buy back debt in the open market.

And I'm just, I understand maybe buying back the '09 debt because obviously it's due and you have to pay it back. But I'm trying to understand kind of the thought processes you look forward on the capital structure and how you're thinking about the future debt maturities and potentially spending cash today to retire some of that debt. And obviously it's not a big discount but do you need that capital today or in the next couple of years and how could you potentially replace it?

Kenneth Campbell III

I think we wouldn't buy any debt back that we thought we might have to replace during that period. So where the line gets drawn is when it stops being what I would call a no-brainer. So like the simple one is 2009, right?

David Goldberg – UBS

And that's obvious.

Kenneth Campbell III

I might argue that simple goes to the next year as well. In other words we're not going to go out and start to spend money on buying land with this capital. But like if you get to let's say just 2010, so we've got – if you think that we're going to generate some of the 2009 165 out of operations, just pick a number. I don't really care what it is. Okay, the guy that's sitting on $725 million, so they're going to pay off the 2010 stuff barring some major disaster that I can't see.

So we're earning 1% on the, whatever it is, plus minus $700 million. And we're paying a lot more than that. So if you know you're going to pay off the 2010s when they come due and you don't have any other use for the money and you don't really think that affects your bankruptcy risk or your risk you're going to run out of money and you need the markets to recover, then you ought to buy them back.

So I don't know how many would be available at what kind of discount rates. I think we're, you guys and us guys, whether there'll be a difference of opinion maybe, is when you get well when did it start affecting sort of the risk associated with the business? And how much are they buying back? So you start getting into like if we were buying 2,000 – let me exaggerate a little bit, if we were buying back 2013 notes then you'd be like whoa.

You're going to need that money. And 2009 is like okay, I get that. And then there's this whole grey area in between and if we get really comfortable that we can generate some cash, even if we reduce sales to 2,500 or something, we'd need to convince you guys of that before you like priced our bonds down into the cellar. But we're not going to do any purchases of debt that we think we would have to replace. So we may be wrong about our judgment but that would be a decision – that would be the decision rule.

David Goldberg – UBS

Thank you. Very thorough answer and I appreciate the detail. I guess the follow-up question I would have would be on the TOA acquisition and trying to get some more color on what you're thinking about with the acquisition, as much detail as you can provide. And I realize it's still early enough and kind of set in stone and maybe it's difficult, but just would like to think about how you're thinking about the land there. You have a pretty big land position and all the things just went through from a capital perspective, how you reconcile that with talking with TOA?

Kenneth Campbell III

Yes, well the TOUSA thing is kind of dead. If we were going to have done it, it did not involve any cash on the part of Standard Pacific. It did involve some debt but the debt was nonrecourse to Standard Pacific. So it was either going to – in other words there was some dilution involved but it didn't – it was a separate thing. So what it was an opportunity to do was basically to use our infrastructure. Their assets were pretty much in the same places as our assets so it's sort of an operating leverage opportunity if you're buying the assets at a reasonable price.

I think what they decided in the end, the company, was – or the company/it's senior debtors, but they think they can do better off selling the assets in a liquidation. And I think maybe they're wrong but whatever. As I said earlier in the call there'll be other opportunities to buy assets and we didn't like all of the assets. I mean we weren't even buying all of them but some of them we might have rather left behind anyway.

So we weren't going to use any cash and it wasn't going to sort of leak through to the rest of the company. So it would have been just you would have had to evaluate the dilution that might have come with it but as it is now you don’t even have to do the math because that deal's really off the table.

David Goldberg – UBS

Less math is better for us, right?

Kenneth Campbell III

Yes, well it gives you time to go skiing or whatever.

Operator

Your next question comes from Larry Taylor – Credit Suisse.

Larry Taylor – Credit Suisse

A couple of things here. First, I wonder if you could give us a little more color on the JVs where you feel you may have to have some intervention this year in terms of – I know that you probably can't put exact figures on it, but some relative idea of the scope there?

Kenneth Campbell III

Scott, you could give it a shot at that or Andy?

Andrew H. Parnes

Well Larry, as I mentioned in our prepared comments we only have nine JVs left that have debt; two have nonrecourse debt so there's only seven that have recourse debt left or the re-margin debt so there's really not a large pool left. And it's probably a handful of those deals that could potentially have some issues.

And it's really hard to comment on that because we – things happen pretty quickly with our partners or with our lenders that trigger these types of unwinds. So there's nothing that we're involved in right now which is in the process of being unwound but I, as I mentioned, there's a few that are kind of on our watch list.

Larry Taylor – Credit Suisse

And, just in terms of some sense of the cash usage, if the group that was on your watch list did unwind, as you think about it as far as contingency planning?

Andrew H. Parnes

Well, I think the one thing that we’ve done, and I want to give credit to Lloyd and his team is that we’ve been able to keep the debt in place. I think for all the JV’s that we’ve unwound, I know the two that we unwound in the fourth quarter we did keep the debt in place. There were some principal reductions we had to make in connection with the unwind, so the amount of cash that we used is not the full amount of the JV debt. It was some re-margin/principal reduction and then we assumed the debt. And then again, Lloyd’s done a great job working in conjunction with the banks to push those, to extend those debt maturities when they’ve taken place.

We had one of the loans that we assumed that is in the process of getting extended if it hasn’t already been extended, so again, what we’ve been able to do while unwinding isn’t something that we originally envisioned. I think we’ve been able to do them in a manner that doesn’t consume significant amounts of cash.

Larry Taylor – Credit Suisse

Thanks, and then just very quickly for either Ken or Scott, in terms of your price points and product profiles, as far as where the markets are today whereby as you are able to get financing, are you doing anything to change or adapt your product in this environment?

Kenneth Campbell III

Not as much as some others. We are not trying to build a little home or come out with a mini version. A lot of our homes are not starter homes anyway. I think what we’re doing along those lines, the closest that we’re doing to that, is we’re trying to avoid putting features in homes that people don’t want to pay for and we’re doing quite a bit of work on that. But that just sort of reduces the cost of our existing home. We are looking at occasionally maybe a slightly smaller model that doesn’t have a library or something like that. Or we have an option that doesn’t include it.

We’re not really being as active as some others though at changing our product. I’d almost rather wait until people want to buy our product again than try to chase sales in 2009. We’re not sort of trying to sell as many houses as we can in 2009; we’re trying to become as efficient a builder as we can in 2009. So, the focus is more on doing a better job of building the home we have with an appropriate level of overhead, rather than trying to figure out how to build a different house. And, I know that it would be better maybe if I told you the other answer, but that’s not what we’re doing right now.

Operator

We’ll take our next question from Susan Berliner – JP Morgan.

Susan Berliner – JP Morgan

Hi, good morning. I just had a follow-up on Ivy’s question. I guess I was just looking for a land spend number amount and I was wondering if using under a $100 million would be fair.

Kenneth Campbell III

That would be fair.

Operator

Your next question comes from Joel Locker – FTN Securities.

Joel Locker – FTN Securities

Hey guys, on the gross margins, those were relatively higher than I expected, and I think most on the street. And I was just wondering if your gross margins and backlog are comparable to the fourth quarter number, I mean the 19.4 % number, excluding all the one-times.

Andrew H. Parnes

Yes, we did have some one time pickups in the fourth quarter. We chewed up our warranty reserve, and we had some pick ups in some of our other California projects, where projects that have been closed for a while and we didn’t need the reserves anymore. I think if you back all those our fourth quarter margin would have been somewhere in the probably mid 15% range. So, I think our margin over the last few quarters prior to that was right around 15% as well. So that’s probably a better benchmark to be looking at in conjunction with our go forward margins.

Joel Locker – FTN Securities

Yes, a better benchmark. Also, when your gross margin that you impair laying back up to, I know it's ranged based on absorption, what range would that be?

Andrew H. Parnes

I would say probably mid teens to 20.

Joel Locker – FTN Securities

Mid teens to 20. So, it’s a little more conservative than your peers. I mean obviously, I guess you can’t comment on your peers. But I’m just kind of talking out loud.

Andrew H. Parnes

Yes, and the rules require you to impair to what the market value of the asset would be so if you’re buying it, we kind of look at it as if we were going to buy that asset, what would be the margin that we would want if we had to underwrite it? The mid-teen margins are ones where they turn very quickly and the higher margins would be ones where there is a longer timeframe.

Operator

Your next question comes from Alex Barron – Agency Trading Group.

Alex Barron – The Agency Trading Group

Hello, thanks. I guess my first question was I was trying to read through the disclosure you gave on the share count. Has the Matlin Patterson preferred shares been fully converted to common shares now, or are they still kind of spread entities.

Andrew H. Parnes

They’re junior preferred shares, but for purposes of the fully diluted calculation we are assuming conversion. But legally, they haven’t been converted.

Alex Barron – The Agency Trading Group

And what, I guess what’s holding that up, or when is that going to happen?

Kenneth Campbell III

I don’t think it ever happens.

Alex Barron – The Agency Trading Group

Okay, can you just go into a little bit why that’s the case?

Kenneth Campbell III

It has to do with the voting, I think. You can correct me if I’m wrong, Andy, but these shares look like common shares in every sort of aspect, except that as a class they can never hold more than 49% of the vote. So, those Matlin Patterson shares can never be used as a controlling interest.

Alex Barron – The Agency Trading Group

Okay, got it. All right, and, my second question was that you have obviously have taken pretty serious impairments and you operate in similar markets like you said, like other builders. I’m just curious if you can at least speculate on why you think the magnitude has been so different. I mean, do you think it has something more to do with the timing or the percentage of where the land was or the stage of development or do you think it is just more the assumptions your peers are making that maybe aren’t the same as yours?

Kenneth Campbell III

I think it’s a really hard question to answer. One of the reasons I gave you the sort of here's the assumptions we used to come up with those numbers, right?

Alex Barron – The Agency Trading Group

Right, because that actually I think was very helpful and they seemed very conservative and realistic assumptions.

Kenneth Campbell III

Whether they’re right or wrong, I mean I think that the best way to be to get an answer to your question would be to ask one of the others. Say if you apply these kinds of views, would you have more impairments or less impairments? You know part of the issue is I think that Standard Pacific, well they are concentrated in the markets that have had the biggest declines, right, as all you guys have pointed out. I think it is when we bought it and things like that.

When I try to figure out first at Matlin Patterson and since subsequent to then, at is what is the average age of the lots the builders have to sell? It’s been a long time since anybody really tried to figure that out and it’s been really hard to do. So it could be that our number is totally consistent with other people’s numbers because we bought more land in 2005 and '06 and '04 or whatever, and they bought all their land in 1997 or whatever, or it could be that they have more optimistic assumptions about sales, both rates and prices.

And you can’t answer the question unless you have both pieces. So, I don’t want to speculate about what the other guys are doing, but I think you could ask them. And I think what I’ve tried to do is provide a way for you to ask the questions that then you could get an answer. They may not answer it, but that’s why I gave you sort of the guiding principles of our impairment so that you could try to compare them with others, if they were willing to respond.

Now, they may not be willing to respond because due to their degrees of freedom or whatever and it’s a pretty large gray area in terms of management view to come up with impairment numbers. You have to be surprised with people that have come up with really little ones because I can’t think of how many people six months ago thought the world would be this bad even now, and that was six months ago when it was bad, other than those of you who have been predicting it.

But, most home builders were like things have gotten worse, not better, right? So, you’d expect impairments to show up.

Alex Barron – The Agency Trading Group

Right, now one of the things you did mention though was some assumptions regarding pricing. Can you also share what kind of assumptions you're making about sales pace?

Andrew H. Parnes

Go ahead, Ken.

Kenneth Campbell III

No, go ahead, Andy.

Andrew H. Parnes

No, I was just going to say I did say that we're using a slower absorption rate in '09 than we realized in '08 and looking out further into '10 and '11 we're still using some pretty low absorption rates. We're not anticipating getting back to normal absorption rates like of four a month for quite a while. I don't think we're reflecting anything like that in any of our impairment calculations.

Alex Barron – The Agency Trading Group

Yes, because if I have to take a guess my guess would be that that's probably the biggest difference is you guys are probably using more like I said realistic assumptions about sales pace where as my guess is that other people are probably assuming they're going to get back to like one per week or something.

Kenneth Campbell III

I don't know.

Operator

Your next question comes from Buck Horne – Raymond James.

Buck Horne – Raymond James

Just wondering if you guys have heard any update from the IRS on the ability to recover some of those reserve deferred tax assets, if there's any change there? And if I guess assuming nothing else changes from here would there be any percentage of those reserved deferred tax assets which might be recoverable?

Kenneth Campbell III

The way it comes out here, and Andy will correct me when I give the wrong answer, but it turns out we lost a lot of money so the $114 million that we're getting back or that we either just submitted or are about to submit, we don't – we're not relying on the private lender, we're not relying on a private letter ruling to get those losses or to get that tax return.

What happened was we were sort of in line behind another home builder who had sort of a similar private letter ruling request in to the IRS. The IRS chose not to address it and they said we're not going to answer the question but it turns out it doesn't affect the $114 million return. So if Congress decided that they wanted to give us a five-year look back after all I'm not even going to comment on the merits of that one way or the other, then it would be an issue. But given the current state of affairs I, A, don’t think they're going to do it and so it's moot because we don't rely on it at all to get the $114 million we're getting.

But we didn't get one but we don’t need one.

Buck Horne – Raymond James

One other one, hearing about some pretty creative new incentive plans being offered by builders and things like job loss payment protection plans and if a guy loses his job within two years of purchasing the house, what kind of incentives are you guys using right now? What are you thinking about and what seems to be working?

Kenneth Campbell III

Yes, you know it's just like how do you want to give money to people in a way that gets them over the hump? Whether it was giving them free granite countertops or whatever, the amount of the cost of that program that you're talking about I think the most that they would give it adds up to $15,000 or something so it's a similar cost as some other kinds of incentives.

The thing that [Bob Tole] and others are doing where they're putting down interest rates, you know, buying down interest rates to 4% or whatever percent it is, I mean we think about those things because plus or minus in the cost. But I'm a little less inclined, I mean look, we've thought about those things because it becomes a tradeoff. In other words you don't do both because at some point you might as well not build that house, right?

And so I'm leaning a little bit more towards, and maybe this is a bad answer, too, it's like I'm not trying to sell as many homes as I possibly can this year. I'm trying to reduce our cost structure to be inline with selling homes at reasonable prices. If we can't sell them – if you have to sell a $400,000, $300,000 house and you're going to only make $10,000 of profit on it I'd rather in many cases just not build the house. So let's not build it.

So I don't think we're going to be any more aggressive than anybody else but spending $10,000 or $15,000 on a promotion of some sort to sell a house is sort of in the ballpark of what we do today. So I don't – I think that the one where you give the unemployment insurance thing is a little scary to me because if somebody loses their job in this economy I happen to think recession's going to last awhile. And it's a maximum for six months and $1,800, whatever.

I think you may end up with somebody in the house that you didn't want in the house. And then you're going to get tangled up and blah, blah, blah. You don't want salespeople to behave badly and encouraging people to move into a house even if they know they work for a company that's about to lay people off.

So, I think that the cost of that program, when I did the math, it sounded to me like it was going to cost like $15,000 when we looked into buying down interest rates to 3.99%, which are sort of similar cost at the time, so I think we'll do things where we might offer $15,000 of incentives. I think that – but it's just a change from offering like free upgrade of appliances and a countertop versus buying down the interest rate.

Operator

Your next question comes from [Cheryl VanWinkle] – [Independence United].

[Cheryl VanWinkle] – [Independence United]

Just wanted to get clarity on what was your bank line availability at the end of December?

Kenneth L. Campbell III

I think it was like in the $170 million range or something, is that right, Andy?

Andrew H. Parnes

Yes, $175 based upon the collateral pool we had at year end. That obviously will change quarter to quarter as the collateral pool varies and likely to decline, but at year end it was– we had $175 million of secured borrowing capacity.

[Cheryl VanWinkle] – [Independence United]

Okay, that was not drawn. And what were – how much did you have drawn on the bank line?

Andrew H. Parnes

We haven't drawn any – we haven't made any secure borrowings. The total we had used was like $83 million, $37 million, $38 million of which were LCs. So the rest like $47.5 million represents the remaining balance of the unsecured borrowings under the revolver.

[Cheryl VanWinkle] – [Independence United]

Okay. And then the other question was just about community count, and what your general thoughts are about where that might – I mean, it sounds like obviously down, but a sort of order of magnitude in decline we might see in '09?

Kenneth L. Campbell III

Yes, I think it's like – I don't know what, I think it's downward kind of like $175 or something like that. Is that right, Andy?

Andrew H. Parnes

About $180, today.

Kenneth L. Campbell III

Okay, I think the thing that I've alluded to a little bit where we're trying to figure out how much money do we want to make on a house before we build it, back to the very first question of the day. We're in the process of trying to figure out how we want to make that decision. What's that decision rule look like in terms of when do you build a house versus put a community to sleep?

And I think there is some potential for that community number to change a lot. But I don't think it's going to change in half or something, but it may go down more than it did otherwise. I think it's already down somewhat, but it's too early, I think, for us to really speculate. I think it will go down, I don't know how much and I don't think it's going to go down by 50%. I think a few months from now we'll have a clearer view of that.

Operator

Your next question comes from [Keith Limey] – Goldman Sachs

[Keith Limey] – Goldman Sachs

Yes, just two quick questions, please. The first one is, you had said something earlier along the lines of you hadn't decided if you wanted more capital or needed more and so I'm just wondering if you did decide that you wanted more capital, what would be the most likely source of that capital?

And then second, you said the price declines that you're forecasting for '09 are 5 to 10%. And I'm just wondering, is that from today's price in February, or is that more an '09 average versus the '08 average, and we might already be somewhat close to that today?

Kenneth L. Campbell III

Yes, I think the decline was based on, I think, December or January or something when we were doing the impairment. So, it's a further decline from existing price levels so not average 2008 of where we – I think we did it in early January or something. And it's not been across the – different markets are different, right. Florida, I think, still has a long ways to go. We did it on a market-by-market basis. What was the first part of your question? I forgot.

[Keith Limey] – Goldman Sachs

Early on the call I think you were talking about acquisitions, and you kind of said, well, we don't know if we want more capital or not, or whether we need it. And I'm just wondering if you decide you need it, where would you likely get it?

Kenneth L. Campbell III

Yes, right. So if we decided there's an interesting buying opportunity for assets or whatever else that's sort of up our alley and would strengthen our position in the markets that we're in blah, blah, blah, where would we go because we don't really have the capital, Matlin Patterson is still floating around out there. They still have an interest in the sector.

And to the extent that we could come up with opportunities that were financially interesting, I think that they would, well, they would obviously be the first place we would go. They have a substantial interest in Standard Pacific, as demonstrated by me being here, among other things, or do the math. It's a big investment. So, and as I say, they are still sort of asking me, are there things that would be interesting that require capital?

It has to meet the standards; it has to meet rates and return. We have to – it has to be done at an arms length because they're not 100% owners, so we'd have to work that out. It's got to be work for everybody. So I think the only – we have an advantage in that we have a very big shareholder that's still interested in investing more in the homebuilding space. But they're not going to do it unless it makes a lot of sense to them. They're not going to – they don't need to do it to protect their existing investment; it's just to take advantage of the opportunity.

And I think that we're going to try to figure that out at some point, because I think there are going to be big opportunities, particularly the second half of this year, maybe the first half of next year. And I'm sort of thinking I should figure out something clever to do here because I think that there will be an opportunity to make a lot of money out of acquiring homebuilding-like assets at the second half of 2009, the first half of 2010. But I haven't figured that out yet.

[Keith Limey] – Goldman Sachs

Is there anything in that 49% or tax-related why Matlin couldn't take a larger equity stake? Would it have any tax implications or no?

Kenneth L. Campbell III

No, we don't have that tax benefits, we had a change of control. It wasn't for the change of control for tax reasons; it was change of control for bond reasons. So, we've already figured the change of control for tax.

Operator

Your last question comes from Michael Rehaut – JP Morgan.

Michael Rehaut – JP Morgan

I just wanted to get, if I could and I apologize if you put this out before, the issue with the warranty reserves truing up at the end of the year, what impact that had on gross margins on a dollar basis, and also the benefit from prior impairments in the 4Q gross margins?

Andrew H. Parnes

Yes, I think it was about $9.5 million was the warranty adjustment, and then that was picked up in the 4th quarter. And then the amount of impairment that turned in the 4th quarter was $88 million.

Operator

There are no additional questions at this time. I'd like to turn the conference over to Mr. Ken Campbell for any closing remarks.

Kenneth L. Campbell III

Okay, well thanks a lot everybody. This is a work in process. We've got a lot of work to do and I think it will be – there will always be something to talk about. So I look forward to talking to you all a few months from now. Hopefully we'll have some major progress on some of these fronts to report on. So, see you all later.

Operator

This concludes today's conference. We think everyone for their participation.

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Source: Standard Pacific Corp. Q4 2008 Earnings Call Transcript
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