Beazer Homes USA, Inc. (NYSE:BZH) (www.beazer.com) today announced financial results for the third fiscal quarter ended June 30, 2007. Summary results of the quarter are as follows:
Quarter Ended June 30, 2007
"Operating conditions in the housing industry deteriorated further in the fiscal third quarter and remain very challenging," said President and Chief Executive Officer, Ian J. McCarthy. "Most housing markets across the country continue to be characterized by an oversupply of both new and resale home inventory, reduced levels of consumer demand for new homes and aggressive price competition among home builders. These factors, together with a pronounced credit tightening in the mortgage markets, particularly for credit challenged home buyers, are likely to lead to continued difficult market conditions for Beazer Homes and other home builders. Although we cannot predict when market conditions will improve, we continue to believe that longer-term industry fundamentals remain compelling due to demographic changes, employment trends and new home supply constraints."
Total home closings of 2,666 during the third quarter of fiscal 2007 were 36% below the same period a year ago. Net new home orders totaled 3,055 homes for the quarter, a decline of 30% from the third quarter of the prior fiscal year. The cancellation rate for the third quarter was 36%, compared to 34% in the prior year's third quarter, and 29% in the second quarter of this fiscal year.
"We have remained disciplined in our operating approach and continue to focus on initiatives aimed at positioning us well for what we believe will continue to be a challenging environment. These initiatives include reductions in our direct construction costs, overhead expenses and land and land development spending. At the same time, we are intensely focused on enhancing our sales and marketing efforts, including the use of integrated, national promotion efforts to reduce unsold home inventories," McCarthy continued.
During the third quarter, margins continued to be negatively impacted by both higher levels of discounting and reduced revenue volume as compared to the same period a year ago. In addition, the Company incurred pre-tax charges to abandon land option contracts, and to recognize inventory impairments and goodwill impairments of $44.8 million, $113.9 million, and $29.8 million, respectively. The charges for goodwill impairment relate to goodwill allocated to operations in Northern California, Nevada and Florida. The results for the third fiscal quarter also included a $6.0 million reduction of the warranty accrual for the remediation of homes in connection with the Trinity Homes class action settlement in October 2004, based on a reduction in the estimated remaining remediation costs.
The Company has proactively reduced its controlled lot count by 31% compared to June of the prior year and by 10% compared to the March quarter of this fiscal year. The Company remains committed to aligning its land supply and inventory levels to current expectations for home closings, and continues to exercise caution and discipline with regard to land and land development spending.
Revolving Credit Facility
The Company also announced that it has entered into a new, four year $500 million revolving credit facility. The new agreement, which matures in July 2011, replaces the company's existing $1 billion revolving credit facility which was scheduled to mature in August 2009. The new facility contains an accordion feature which permits the aggregate commitment to increase up to $1 billion, subject to the availability of additional commitments.
"We are focused on maintaining a strong balance sheet and significant liquidity during this challenging business environment," said Allan P. Merrill, Executive Vice President and Chief Financial Officer. "While we have no near-term plans for borrowing under the new credit agreement, its terms provide us with increased flexibility to manage successfully through the current downturn and at the same time to take a long-term view of the business."
As of June 30, 2007, the Company had no borrowings on its revolving credit facility and a cash balance of $128.8 million.
United States Attorney and SEC Inquiries and Outstanding Litigation
As previously disclosed on March 29, 2007, Beazer Homes received a subpoena from the United States Attorney's office in the Western District of North Carolina, seeking the production of documents focusing on the Company's mortgage origination services. On May 1, 2007 the Company received notice that the Securities and Exchange Commission had commenced an informal inquiry to determine whether any person or entity related to Beazer Homes had violated federal securities laws. On July 20, 2007, the Company received a formal order of private investigation issued by the SEC in this matter. The Company intends to continue to fully cooperate with all related inquiries.
Together with certain of its subsidiaries and current and former officers and directors, the Company has also been named as a defendant in several purported class action lawsuits.
In response to these matters, the Audit Committee of the Beazer Homes Board of Directors and its independent legal counsel and financial consultant launched an internal review of Beazer Homes' mortgage origination business and related matters. The results of the ongoing review by the Audit Committee, the governmental investigations, or the pending lawsuits could result in the payment of criminal or civil fines, the imposition of an injunction on future conduct, the imposition of other penalties, or other consequences, including the Company adjusting the conduct of certain of its business operations and the timing and content of its existing and future public disclosures, any of which could have a material adverse effect on the business, financial condition or results of operations of the Company.
The Company will hold a conference call today, July 26, 2007, at 11:00 AM ET to discuss the results and take questions. Interested parties may listen to the conference call and view the Company's slide presentation over the internet by going to the "Investor Relations" section of the Company's website atwww.beazer.com. A replay of the webcast will be available atwww.beazer.comfor approximately 90 days.
Beazer Homes USA, Inc., headquartered in Atlanta, is one of the country's ten largest single-family homebuilders with operations in Arizona, California, Colorado, Delaware, Florida, Georgia, Indiana, Kentucky, Maryland, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and West Virginia and also provides mortgage origination and title services to its homebuyers. Beazer Homes, a Fortune 500 Company, is listed on the New York Stock Exchange under the ticker symbol "BZH."
Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Such risks, uncertainties and other factors include, but are not limited to, changes in general economic conditions, changes in levels of customer demand, fluctuations in interest rates, increases in raw materials and labor costs, levels of competition, implementation of overhead realignments and associated costs, potential liability as a result of construction defect, product liability and warranty claims, the outcome of the U.S. Attorney inquiry and related internal review, the SEC investigation, the class action lawsuits, derivative claims and similar proceedings and other factors described in the Company's Annual Report on Form 10-K for the year ended September 30, 2006 filed with the Securities and Exchange Commission on December 8, 2006 and other reports filed from time to time with the Securities and Exchange Commission.