Beazer Homes Files Fiscal Year 2007 Financial Statements
ATLANTA--(BUSINESS WIRE)--May 12, 2008--Beazer Homes USA, Inc. (NYSE: BZH) (www.beazer.com) today filed its annual report on Form 10-K for the year ended September 30, 2007, quarterly report on Form 10-Q for the quarter ended June 30, 2007 and amended quarterly reports on Forms 10-Q/A for the quarters ended December 31, 2006 and March 31, 2007. These reports reflect the completed restatement of certain prior periods' financial statements resulting from the findings of the previously announced independent investigation by the Audit Committee of the Board of Directors.
In conjunction with these filings, the Company today announced its financial results for the quarter and year ended September 30, 2007. The Company currently expects to report financial results and file quarterly reports on Forms 10-Q for the quarters ended December 31, 2007 and March 31, 2008 on, or prior to, May 15, 2008. At that time, the Company also expects to schedule a conference call to discuss its financial results for the first half of fiscal 2008.
Restatement
As previously announced, during the course of its independent investigation, the Audit Committee determined that the Company's mortgage origination practices related to certain loans in prior periods violated certain applicable federal and/or state origination requirements. The Audit Committee also discovered accounting errors and/or irregularities that required restatement resulting primarily from (1) inappropriate accumulation of reserves and/or accrued liabilities associated with land development and house costs ("inventory reserves") and the subsequent improper release of such reserves and accrued liabilities and (2) inaccurate revenue recognition with respect to certain model home sale lease-back transactions. During the course of the investigation, a continuing interest in the potential appreciation of model homes sold in these model home sale lease-back transactions was identified. Due to this continuing interest, these transactions did not qualify for sale-leaseback accounting and, instead should have been accounted for as financing transactions. The restatement of these transactions will relate primarily to timing differences that have had and will have the effect of shifting revenue and income from the date of the original transaction to the future period in which the 'leases' are terminated.
In conjunction with the restatement of the items above, corresponding capitalized interest, capitalized indirect costs, and income tax adjustments were made to the consolidated financial statements as these balances were impacted by the aforementioned adjustments. Other adjustments were made to the consolidated financial statements and condensed consolidated financial statements relating to corrections of errors, some previously identified but historically not considered to be material to require correction and some discovered as part of the restatement process. Further detail on these other adjustments is available in the reports filed today.
As a result of these errors and irregularities, the fiscal 2007 Form 10-K includes restated consolidated financial statements for fiscal 2005 and 2006 and restated Selected Financial Data for fiscal years 2003 and 2004. In addition, the cumulative effect of errors and irregularities attributed to periods prior to October 1, 2002 has been reflected in Selected Financial Data as an increase to retained earnings at September 30, 2002 of $24.8 million for fiscal years 1998-2002.
The following table reconciles net income "as previously reported" to net income "as restated" for fiscal years 2003 - 2006 (in thousands):
Net Income, As
Fiscal Year Previously Adjustments Net Income, As
Reported Restated
-------------- ------------------ ------------- ----------------------
2003 $172,745 $ (971) $ 171,774
2004 235,811 10,365 246,176
2005 262,524 13,375 275,899
2006 388,761 (19,925) 368,836
Taking into account the entire restatement period through fiscal year 2006, the cumulative effect of the matters arising from the restatement is a $27.6 million increase in retained earnings, shown below (in thousands):
Fiscal Cumulative
Year(s) Restatement
Impacts Impact
----------------------
Retained Earnings at September 30, 2006, as
reported $ 1,362,958
------------
Restatement adjustments:
Inventory Reserves 1998-2006 40,183
Model Home Sale-Leaseback 2001-2006 (21,950)
Other 1998-2006 7,895
Benefit From Income Taxes 1998-2006 1,466
------------
Cumulative Impact of Restatement Adjustments 27,594
------------
Retained Earnings at September 30, 2006, as
restated $ 1,390,552
============
The fiscal 2007 quarterly reports include restated condensed consolidated financial statements for the comparative periods of fiscal 2007 and 2006. Fiscal 2007 is not included in the table above because the Company has not previously filed audited financial statements for fiscal 2007 and therefore fiscal 2007 is not included as an annual restatement period. The restatement process did, however, lead to the restatement of the financial results previously reported for the quarters ended December 31, 2006 and March 31, 2007. These changes resulted in part from the inventory reserves, model home sale-leaseback transactions and other adjustments discussed above. More significantly, however, there were increases in pre-tax inventory impairment charges of $20.4 million and $25.4 million for the quarters ended December 31, 2006 and March 31, 2007, respectively. These increases to inventory impairment charges resulted from both the impact on inventory balances as a result of the aforementioned inventory adjustments and the correction of certain capitalized interest and indirect cost inputs into the cash flow models used to assess and calculate inventory impairments. Total adjustments to net income for the first two quarters of fiscal 2007 are shown below (in thousands):
Net Loss,
As
Quarter Net Loss, As Previously Reported Adjustments Restated
--------------- -------------------------------- ----------- ---------
Q1 2007 $ (59,006) $(20,897) $(79,903)
Q2 2007 $ (43,089) $(14,102) $(57,191)
Identification of Control Deficiencies and Remediation Steps
The Company's management performed an assessment of the effectiveness of the Company's internal control over financial reporting as of September 30, 2007. Management concluded that, as of September 30, 2007, the Company did not maintain effective internal control over financial reporting because of the identification of material weaknesses in its internal control over financial reporting. Further details including control deficiencies which constituted material weaknesses as of September 30, 2007, are available in Item 9A. Controls and Procedures of the 2007 Form 10-K filed today.
The Company's management is committed to achieving and maintaining a strong control environment and an overall tone within the organization that empowers all employees to act with the highest standards of ethical conduct. In addition, management remains committed to the process of developing and implementing improved corporate governance and compliance initiatives. Our current management team has been actively working on remediation efforts to address the material weaknesses, as well as other identified areas of risk. Key elements of the remediation efforts include, but are not limited to:
-- Appointment of a Compliance Officer in November 2007
responsible for implementing and overseeing the Company's
enhanced Compliance Program.
-- Revision, adoption, disclosure and distribution of an amended
Code of Business Conduct and Ethics in March 2008; launching
of comprehensive training program in April 2008 that
emphasizes adherence to and the vital importance of the Code
of Business Conduct and Ethics in which all employees are
required to participate.
-- Transfer of administration of Ethics Hotline from officers of
the Company to an independent third party company in March
2008.
-- Withdrawal from the mortgage business in February 2008.
-- Termination of the former Chief Accounting Officer and
appropriate action, including termination of employment,
against other business unit employees who violated the Code of
Business Conduct and Ethics, the hiring of a new, experienced
Chief Accounting Officer in February 2008, creation of
Regional CFO positions, and changes in role of business unit
financial controllers.
-- Reorganization of field operations to concentrate certain
financial functions into Regional Accounting Centers in order
to allow a greater degree of control and consistency in
financial reporting practices.
-- Taking or planning to take in the near term the following
actions by the new Chief Accounting Officer and Regional CFOs:
conducting reviews of accounting processes to incorporate
technology improvements; formalizing the process, analytics,
and documentation around the monthly analysis of actual
results against budgets and forecasts; improving quality
control reviews within the accounting function; and
formalizing and expanding the documentation of the Company's
procedures for review and oversight of financial reporting.
-- Development and/or clarification of existing accounting
policies related to estimates involving significant management
judgments, as well as other financial reporting areas.
-- Allocation of additional resources within the Audit and
Controls department to the review of financial reporting
policies, process, controls, and risks.
Ongoing External Investigations
As previously disclosed, the Company and its subsidiary, Beazer Mortgage Corporation are under investigations by the United States Attorney's Office in the Western District of North Carolina, as well as and other state and federal agencies, concerning the matters that have been the subject of the Audit Committee's independent investigation. In addition, the Company received from the Securities and Exchange Commission a formal order of private investigation to determine whether Beazer Homes and/or other persons or entities involved with Beazer Homes have violated federal securities laws, including, among others, the anti-fraud, books and records, internal accounting controls, periodic reporting and certification provisions thereof. The Company is fully cooperating with these investigations which are ongoing. The Company cannot predict or determine the timing or final outcome of the investigations or the effect that any adverse findings in the investigations may have on it.
The Company intends to attempt to negotiate a settlement with prosecutors and regulatory authorities with respect to the mortgage origination issues that would allow us to quantify our exposure associated with reimbursement of losses and payment of regulatory and/or criminal fines, if they are imposed. However, no settlement has been reached with any regulatory authority and the Company believes that although it is probable that a liability exists related to this exposure, it is not reasonably estimable at this time.
Fiscal Fourth Quarter and Full Year 2007 Financial Results
The Company today also announced its financial results for the quarter and year ended September 30, 2007. These results reflect the aforementioned restatement for applicable periods. Summary results of the quarter and year, some of which had been previously disclosed on a preliminary basis, are as follows:
Quarter Ended September 30, 2007
-- Reported net loss of $(155.2) million, or $(4.03) per share,
including pre-tax charges related to inventory impairments and
abandonment of land option contracts of $212.0 million,
goodwill impairments of $23.0 million, and impairments in
joint ventures of $25.5 million. For the fourth quarter of the
prior fiscal year, net income totaled $83.7 million, or $1.99
per diluted share.
-- Home closings: 3,949 homes, compared to 6,268 in the fourth
quarter of the prior year.
-- Total revenues: $1.10 billion, compared to $1.83 billion in
the fourth quarter of the prior year.
-- New orders: 982 homes, compared to 1,921 in the fourth quarter
of the prior year.
-- Net cash provided by operating activities: $387.3 million,
compared to $237.7 million in the fourth quarter of the prior
year.
Year Ended September 30, 2007
-- Reported net loss of $(411.1) million, or $(10.70) per share,
including pre-tax charges related to inventory impairments and
abandonment of land option contracts of $611.9 million,
goodwill impairments of $52.8 million and impairments in joint
ventures of $28.6 million. For the prior fiscal year, net
income totaled $368.8 million, or $8.44 per diluted share.
-- Home closings: 12,020 homes, compared to 18,361 in the prior
year.
-- Total revenues: $3.49 billion, compared to $5.36 billion in
the prior year.
-- New orders: 9,903 homes, compared to 14,191 in the prior year.
-- Net cash provided by operating activities: $509.4 million,
compared to net cash used in operating activities of $378.0
million in the prior year.
As of September 30, 2007
-- Cash and cash equivalents: $459.5 million (including $5.2
million of restricted cash)
-- Net debt to capitalization: 51.4%
-- Backlog: 2,985 homes with a sales value of $838.8 million
compared to 5,102 homes with a sales value of $1.56 billion as
of September 30, 2006.
Subsequent to September 30, 2007, the Company has repaid approximately $95 million in secured notes, pledged $107.0 million to collateralize its outstanding letters of credit and paid a consent fee to holders of its Senior Notes and Senior Convertible Notes and related expenses totaling $21.0 million. As of February 2008, cash pledged to collateralize letters of credit was released and replaced with real estate assets.
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. Beazer Homes is listed on the New York Stock Exchange under the ticker symbol "BZH."
Forward Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our expectations or beliefs concerning future events, and it is possible that the results described in this press release will not be achieved. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, among other things, (i) the timing and final outcome of the United States Attorney investigation, the Securities and Exchange Commission's ("SEC") investigation and other state and federal agency investigations, the putative class action lawsuits, the derivative claims, multi-party suits and similar proceedings as well as the results of any other litigation or government proceedings; (ii) material weaknesses in our internal control over financial reporting; (iii) additional asset impairment charges or writedowns; (iv) economic changes nationally or in local markets, including changes in consumer confidence, volatility of mortgage interest rates and inflation; (v) continued or increased downturn in the homebuilding industry; (vi) estimates related to homes to be delivered in the future (backlog) are imprecise as they are subject to various cancellation risks which cannot be fully controlled, (vii) continued or increased disruption in the availability of mortgage financing; (viii) our cost of and ability to access capital and otherwise meet our ongoing liquidity needs including the impact of any further downgrades of our credit ratings; (ix) potential inability to comply with covenants in our debt agreements; (x) continued negative publicity; (xi) increased competition or delays in reacting to changing consumer preference in home design; (xii) shortages of or increased prices for labor, land or raw materials used in housing production; (xiii) factors affecting margins such as decreased land values underlying land option agreements, increased land development costs on projects under development or delays or difficulties in implementing initiatives to reduce production and overhead cost structure; (xiv) the performance of our joint ventures and our joint venture partners; (xv) the impact of construction defect and home warranty claims and the cost and availability of insurance, including the availability of insurance for the presence of moisture intrusion; (xvi) a material failure on the part of our subsidiary Trinity Homes LLC to satisfy the conditions of the class action settlement agreement, including assessment and remediation with respect to moisture intrusion related issues; (xvii) delays in land development or home construction resulting from adverse weather conditions; (xviii) potential delays or increased costs in obtaining necessary permits as a result of changes to, or complying with, laws, regulations, or governmental policies and possible penalties for failure to comply with such laws, regulations and governmental policies; (xix) effects of changes in accounting policies, standards, guidelines or principles; or (xx) terrorist acts, acts of war and other factors over which the Company has little or no control.
Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time and it is not possible for management to predict all such factors.
-Tables Follow-
BEAZER HOMES USA, INC.
CONSOLIDATED OPERATING AND FINANCIAL DATA
(Dollars in thousands, except per share amounts)
FINANCIAL DATA
-----------------------
Quarter Ended Year Ended
September 30, September 30,
----------------------- ----------------------
2007 2006 2007 2006
----------------------- ----------- ----------
INCOME STATEMENT As Restated As
Restated
Total revenue $1,100,805 $1,827,869 $3,490,819 $5,356,504
Home construction and
land sales expenses 932,235 1,459,109 2,944,385 4,061,118
Inventory impairments
and option contract
abandonments 212,008 23,823 611,864 44,175
----------- ----------- ----------- ----------
Gross (loss) profit (43,438) 344,937 (65,430) 1,251,211
Selling, general and
administrative
expenses 128,607 199,557 454,122 629,322
Depreciation &
Amortization 10,425 13,387 33,594 42,425
Goodwill impairment 23,003 - 52,755 -
----------- ----------- ----------- ----------
Operating (loss) income (205,473) 131,993 (605,901) 579,464
Equity in (loss) income
of unconsolidated
joint ventures (28,142) (466) (35,154) 1,343
Other income (280) (8) 7,775 2,450
----------- ----------- ----------- ----------
(Loss) income before
income taxes (233,895) 131,519 (633,280) 583,257
Income tax (benefit)
provision (78,663) 47,812 (222,207) 214,421
----------------------- ----------------------
Net (loss) income $ (155,232) $ 83,707 $ (411,073) $ 368,836
======================= ======================
Net (loss) income per
common share:
Basic $ (4.03) $ 2.18 $ (10.70) $ 9.26
======================= =========== ==========
Diluted $ (4.03) $ 1.99 $ (10.70) $ 8.44
======================= =========== ==========
Weighted average shares
outstanding, in
thousands:
Basic 38,475 38,420 38,410 39,812
Diluted 38,475 42,627 38,410 44,345
SELECTED BALANCE SHEET September September
DATA 30, 30,
2007 2006
-----------------------
As Restated
Cash and cash
equivalents (including
restricted cash) $ 459,508 $ 172,443
Inventory 2,775,173 3,608,462
Total assets 3,930,021 4,714,671
Total debt (net of
discount of $3,033 and
$3,578) 1,857,249 1,955,739
Shareholders' equity 1,323,722 1,730,467
Inventory Breakdown
Homes under
construction $ 787,102 $1,144,750
Development projects in
progress 1,546,389 1,813,720
Unimproved land held
for future development 11,101 12,213
Land held for sale 49,473 30,074
Model homes 143,726 136,264
Consolidated inventory
not owned 237,382 471,441
----------- -----------
$2,775,173 $3,608,462
=========== ===========
BEAZER HOMES USA, INC.
CONSOLIDATED OPERATING AND FINANCIAL DATA
(Dollars in thousands)
OPERATING DATA
---------------------------------
Quarter Ended Year Ended
September 30, September 30,
------------------- ----------------
SELECTED OPERATING DATA 2007 2006 2007 2006
------------------- ------ ---------
Closings: As As
Restated Restated
West region 911 1,675 3,036 4,942
Mid-Atlantic region 481 641 1,157 2,043
Florida region 400 875 1,261 2,241
Southeast region 1,107 1,457 3,125 4,228
Other homebuilding 1,050 1,620 3,441 4,907
------------------- ------ ---------
Total closings 3,949 6,268 12,020 18,361
=================== ====== =========
New orders, net of cancellations:
West region 128 351 2,352 3,084
Mid-Atlantic region 95 196 1,223 1,427
Florida region 100 46 991 1,490
Southeast region 180 527 2,308 3,795
Other homebuilding 479 801 3,029 4,395
------------------- ------ ---------
Total new orders 982 1,921 9,903 14,191
=================== ====== =========
Backlog units at end of period:
West region 491 1,175
Mid-Atlantic region 643 577
Florida region 238 508
Southeast region 504 1,321
Other homebuilding 1,109 1,521
-------------------
Total backlog units 2,985 5,102
===================
Dollar value of backlog at end of
period $838,806 $1,555,456
===================
BEAZER HOMES USA, INC.
CONSOLIDATED OPERATING AND FINANCIAL DATA (Continued)
(Dollars in thousands)
Quarter Ended Year Ended
September 30, September 30,
----------------------- -----------------------
SUPPLEMENTAL FINANCIAL
DATA 2007 2006 2007 2006
----------- ----------- ----------- -----------
As Restated As Restated
Revenues
Homebuilding
operations $1,065,408 $1,783,932 $3,359,594 $5,220,021
Land and lot sales 25,670 26,098 99,063 90,217
Financial Services 14,465 22,218 47,437 65,947
Intercompany
elimination (4,738) (4,379) (15,275) (19,681)
----------------------- ----------- -----------
Total revenues $1,100,805 $1,827,869 $3,490,819 $5,356,504
======================= =========== ===========
Gross (loss) profit
Homebuilding
operations $ (59,881) $ 322,526 $ (116,290) $1,186,378
Land and lot sales 1,978 193 3,423 (1,114)
Financial Services 14,465 22,218 47,437 65,947
----------------------- ----------- -----------
Total gross (loss)
profit $ (43,438) $ 344,937 $ (65,430) $1,251,211
======================= =========== ===========
Selling, general and
administrative
Homebuilding
operations $ 110,410 $ 184,504 $ 410,432 $ 581,202
Financial Services 18,197 15,053 43,690 48,120
----------------------- ----------- -----------
Total selling, general
and administrative $ 128,607 $ 199,557 $ 454,122 $ 629,322
======================= =========== ===========
SELECTED SEGMENT
INFORMATION
Revenue:
West region $ 294,259 $ 616,558 $1,109,051 $1,828,731
Mid-Atlantic region 211,092 295,260 520,268 946,663
Florida region 119,690 265,913 389,814 684,563
Southeast region 250,766 314,898 742,125 885,037
Other homebuilding 215,271 317,401 697,399 965,244
Financial services 14,465 22,218 47,437 65,947
Intercompany
elimination (4,738) (4,379) (15,275) (19,681)
----------------------- ----------- -----------
Total revenue $1,100,805 $1,827,869 $3,490,819 $5,356,504
======================= =========== ===========
- -
Operating (loss)
income
West region $ (131,103) $ 57,109 $ (253,685) $ 252,389
Mid-Atlantic region (7,733) 53,484 (44,938) 203,550
Florida region (4,670) 55,421 (47,230) 139,194
Southeast region 16,495 33,676 34,283 78,288
Other homebuilding (6,879) (1,166) (59,308) (5,420)
Financial services (3,825) 7,035 3,299 17,366
----------------------- -----------------------
Segment operating
(loss) income (137,715) 205,559 (367,579) 685,367
Corporate and
unallocated (67,758) (73,566) (238,322) (105,903)
----------------------- ----------- -----------
Total operating (loss)
income $ (205,473) $ 131,993 $ (605,901) $ 579,464
======================= =========== ===========
CONTACT: Beazer Homes USA, Inc.
Leslie H. Kratcoski
Vice President
Investor Relations & Corporate Communications
770-829-3764
lkratcos@beazer.com
SOURCE: Beazer Homes USA, Inc.