Note 18 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies Disclosure [Text Block]

18.       Commitments and Contingencies

a.     Land Purchase and Option Agreements

We are subject to obligations associated with entering into contracts for the purchase of land and improved homesites. These purchase contracts typically require a cash deposit or delivery of a letter of credit, and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements.  We also utilize option contracts with land sellers and third-party financial entities as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources.  Option contracts generally require a non-refundable deposit for the right to acquire lots over a specified period of time at predetermined prices.  We generally have the right at our discretion to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit or by repaying amounts drawn under our letter of credit with no further financial responsibility to the land seller, although in certain instances, the land seller has the right to compel us to purchase a specified number of lots at predetermined prices.  Also, in a few instances where we have entered into option contracts with third party financial entities, we have generally entered into construction agreements that do not terminate if we elect not to exercise our option.  In these instances, we are generally obligated to complete land development improvements on the optioned property at a predetermined cost (paid by the option provider) and are responsible for all cost overruns.  At June 30, 2012, we had no option contracts outstanding with third party financial entities.  In some instances, we may also expend funds for due diligence, development and construction activities with respect to our land purchase and option contracts prior to purchase, which we would have to write off should we not purchase the land.  At June 30, 2012, we had non-refundable cash deposits outstanding of approximately $23.1 million and capitalized preacquisition and other development and construction costs of approximately $11.0 million relating to land purchase and option contracts having a total remaining purchase price of approximately $218.2 million.  Approximately $60.9 million of the remaining purchase price is included in inventories not owned in the accompanying condensed consolidated balance sheets.

Our utilization of option contracts is dependent on, among other things, the availability of land sellers willing to enter into option takedown arrangements, the availability of capital to financial intermediaries, general housing market conditions, and geographic preferences.  Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.

b.    Land Development and Homebuilding Joint Ventures

Our joint ventures have historically obtained secured acquisition, development and construction financing designed to reduce the use of funds from corporate financing sources.  As of June 30, 2012, we held membership interests in 19 homebuilding and land development joint ventures, of which eight were active and 11 were inactive or winding down.  As of such date, our joint ventures had no project specific financing outstanding.  In addition, as of June 30, 2012, our joint ventures had $3.4 million of surety bonds outstanding subject to indemnity arrangements by us and had an estimated $0.8 million remaining in cost to complete.

c.    Surety Bonds

We obtain surety bonds in the normal course of business to ensure completion of the infrastructure of our projects.  At June 30, 2012, we had approximately $192.0 million in surety bonds outstanding (exclusive of surety bonds related to our joint ventures), with respect to which we had an estimated $84.2 million remaining in cost to complete.

d.     Mortgage Loans and Commitments

We commit to making mortgage loans to our homebuyers through our mortgage financing subsidiary, Standard Pacific Mortgage.  Standard Pacific Mortgage sells substantially all of the loans it originates in the secondary mortgage market and finances these loans under its mortgage credit facility for a short period of time (typically for 30 to 45 days), as investors complete their administrative review of applicable loan documents.  Mortgage loans in process for which interest rates were committed to borrowers totaled approximately $53.9 million at June 30, 2012 and carried a weighted average interest rate of approximately 3.7%.  Interest rate risks related to these obligations are mitigated through the preselling of loans to investors.  As of June 30, 2012, Standard Pacific Mortgage had approximately $70.6 million in closed mortgage loans held for sale and $55.7 million of mortgage loans that we were committed to sell to investors subject to our funding of the loans and completion of the investors’ administrative review of the applicable loan documents.

Standard Pacific Mortgage sells substantially all of the loans it originates in the secondary mortgage market, with servicing rights released on a non-recourse basis.  This sale is subject to Standard Pacific Mortgage’s obligation to repay its gain on sale if the loan is prepaid by the borrower within a certain time period following such sale, or to repurchase the loan if, among other things, the purchaser’s underwriting guidelines are not met, or there is fraud in connection with the loan.  As of June 30, 2012, we had incurred an aggregate of $9.1 million in losses related to loan repurchases and make-whole payments we had been required to make on the $6.8 billion total dollar value of the loans we originated from the beginning of 2004 through the second quarter of 2012.  During the three months ended June 30, 2012 and 2011, Standard Pacific Mortgage recorded loan loss reserves related to loans sold of $0.3 million and $1.4 million, respectively, and during the six months ended June 30, 2012 and 2011, Standard Pacific Mortgage recorded loan loss reserves related to loans sold of $0.6 million and $2.6 million, respectively.  As of June 30, 2012, Standard Pacific Mortgage had repurchase reserves related to loans sold of approximately $3.0 million.  In addition, during the six months ended June 30, 2012 and 2011, Standard Pacific Mortgage made make-whole payments totaling approximately $0.6 million related to four loans and $1.0 million related to seven loans, respectively.

Mortgage loans held for investment are continually evaluated for collectability and, if appropriate, specific reserves are established based on estimates of collateral value.  As of June 30, 2012, Standard Pacific Mortgage had $13.8 million of loans held for investment that had a loan loss reserve of approximately $4.3 million.  During the six months ended June 30, 2012 and 2011, Standard Pacific Mortgage recorded loan loss reserves related to loans held for investment of $0.4 million and $0.1 million, respectively.

e.     Insurance and Litigation Accruals

Insurance and litigation accruals are established with respect to estimated future claims cost.  We maintain general liability insurance designed to protect us against a portion of our risk of loss from construction-related claims.  We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work, subject to various limitations.  However, such indemnity is significantly limited with respect to subcontractors added to our general liability insurance policy.  We record reserves to cover our estimated costs of self-insured retentions and deductible amounts under these policies and estimated costs for claims that may not be covered by applicable insurance or indemnities.  Our total insurance and litigation accruals as of June 30, 2012 and December 31, 2011 were $53.6 million and $55.8 million, respectively, which are included in accrued liabilities in the accompanying condensed consolidated balance sheets.  Estimation of these accruals include consideration of our claims history, including current claims, estimates of claims incurred but not yet reported, and potential for recovery of costs from insurance and other sources.  We utilize the services of an independent third party actuary to assist us with evaluating the level of our insurance and litigation accruals.  Because of the high degree of judgment required in determining these estimated accrual amounts, actual future claim costs could differ from our currently estimated amounts.

f.     Restructuring Costs

During 2008 we initiated a restructuring plan designed to reduce ongoing overhead costs and improve operating efficiencies through the consolidation of selected divisional offices, the disposal of related property and equipment, and a reduction in our workforce as a result of our operations having been impacted by weak housing demand in substantially all of our markets.  During the six months ended June 30, 2011, we recorded $0.6 million of homebuilding restructuring charges, which are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations, related to employee severance costs incurred in connection with further adjusting our workforce to align with lower sales volume. We did not incur any restructuring charges in the six months ended June 30, 2012.  The total amount of restructuring charges incurred from January 1, 2008 through June 30, 2012 was $48.7 million, of which $30.7 million related to employee severance costs, $13.7 million related to lease termination and other exit costs and $4.3 million related to property and equipment disposals.  We believe that our restructuring activities are substantially complete as of June 30, 2012.