Beazer Homes USA - Residential

Beazer Homes USA, the Atlanta-based homebuilder, has encountered a number of problems as the housing bubble has burst. From investigations by the SEC to late filing and nearly going into default on their bonds, Beazer has not had an easy road. Below is a round-up of news on Beazer's woes, newest to oldest:

2008-02-01: Beazer Homes announced on February 1 that they "will pull out of five markets: Charlotte, N.C.; Cincinnati and Columbus in Ohio; Columbia, S.C.; and Lexington, Ken.". Further to the article, Beazer is teaming up with the mortgage industry's favorite whipping boy, Bank of America-Bride-to-Be, Countrywide Financial. Per the release:

The company will establish a new marketing services arrangement with Countrywide Financial Corporation. "We believe the strategic actions we are announcing today will position us well to take advantage of opportunities that will arise when our markets begin to recover," said Ian J. McCarthy, president and chief executive officer, in a prepared statement.

2008-01-23: Beazer presented at a JPMorgan investment conference. According to their presentation, their year over year closings were down some 24 percent with new home orders dropping by 29 percent according to this article from the AJC. The AJC quoted Beazer CFO Allan Merrill regarding 2008; he said, "Our expectation is that this year is going to be very tough."

The AJC article further updates on expectations regarding financials from Beazer as well as the ongoing investigations:

"We are working extraordinarily hard on getting these things completed," Merrill said.

New financial statements should be available well in advance of the May 15 deadline Beazer negotiated with its creditors, who were demanding payment of $1.5 billion in loans to Beazer because of the company's failure to file quarterly financial disclosures.

Merrill cited company layoffs -- 650 last fall -- and its decision to suspend quarterly dividends as evidence of Beazer's commitment to surviving the anticipated economic downturn in 2008.

"The wild card this year is whether or not there's a national recession," Merrill said.

In addition to the staff reductions -- which have cut the company's workforce in half, Merrill said -- Beazer has also reduced its land holdings, pared down the range of options it offers buyers in everything from floor plans to plumbing fixtures and even reduced prices on its homes in some locations as much as 30 percent to stimulate cash flow, according to Merrill.

U.S. recession a "wild card"? That was remotely believable three months ago, but today? Not a chance.

2008-01-12: Mike Drummond of th Charlotte Observer does a nice recap of Beazer Homes. One gem on Beazer's prior denial of any housing "bubble":

"The so-called housing `bubble' is, in fact, a myth," it said in its fiscal 2002 annual report. "While many continue to wait for this bubble to burst, we agree with most respected economists that there has never been a national housing bubble in the U.S."

Drummond further notes how the Observer found 77 out of 406 home buyers in a Beazer subdivision lost their homes to foreclosure in 2007. Drummond's entire write-up is well worth a read.

2007-11-06: This Bloomberg article details how Beazer would soon be engaging in settlement talks with the Department of Housing regarding investigations by HUD into Beazer mortgage employees violating rules related to HUD's downpayment assistance program. The article further notes that Beazer cut 650 jobs (25% of the workforce) during the month of October and would be suspending the dividend.

2007-11-06: Another Forbes article writes about calls by CTW Investment Group, a shareholder activist group, for Beazer's CEO to be replaced. From the article:

The Washington-based CTW Investment Group said McCarthy allowed Beazer to violate federal law, improperly account for land development costs and sale-leaseback transactions, and provide undisclosed loans to executives, all while pocketing $57 million in total compensation over the last five years - among the highest pay packages for a CEO of a company of Beazer's size.

It must be tough being a CEO: when your company does well, you make millions. When your company takes a turn for the worst, well, you make millions then, too!

2007-10-29: Forbes writes on Beazer finally striking a deal with its bondholders to amend the terms of $1.5 billion in debt in order for Beazer to avoid default. Bond agreements contain certain debt covenants that require companies to provide financial reports within so many days after a period end. Beazer had failed to comply with regard to these covenants.

In order to avoid default, Beazer offered a $5 fee per $1,000 bond to all who would agree to new terms, allowing for Beazer to delay financial reporting. Apparently, $5 was not enough -- Beazer ended up having to pay $12.50 per $1,000 in order to get the amendment passed.

The amendment will allow Beazer to delay financial reporting on their 2007 results until May 15, 2008.