Beazer Homes USA on Wednesday said it closed 2,010 houses during the fiscal first quarter ended Dec. 31, a 24% decline from the same quarter of '06, converting 67% of its backlog into cash. There were 1,260 net new-home orders, a 29% decline from the previous year. The results, released in advance of an investor conference, were unaudited and subject to change.
The company said its cancellation rate during the fiscal first quarter was 46%, slightly higher than the 43% reported in '06 but far better than the 68% rate the company experienced in its fourth quarter, which ended Sept. 30, 2007. That unusually high cancellation rate was fueled by rumors over the summer that the company was on the verge of bankruptcy.
The company's cash balance on Dec. 31 was more than $325 million, compared to $155 million at the end of '06, but down from the $459.5 million the company had on hand at the end of September '07. The decline can be accounted for in several ways, the company said. First, the last quarter of the calendar year is the first quarter for Beazer's fiscal year, and the company typically uses more cash in its first fiscal quarter.
Also, the company used $75 million in cash to repay secured debt. It also had to pay off some of the holders of its senior and senior convertible notes to buy itself some time. The creditors had claimed that Beazer was violating its agreements by not making quarterly financial reports. In return for the cash, they agreed to give the company a reporting reprieve until March '08. Those payouts, plus the expenses related to the dispute, cost $21 million.
A portion of the company's cash on hand, $92 million, is also encumbered because it is being used to collateralize outstanding letters of credit, a requirement creditors imposed after disclosure of the company's financial troubles.
Despite the cash outlays, the "company continues to expect that, for the whole of fiscal 2008, it will generate cash from operations," it said.
Michael Rehaut, the lead home building analyst at J.P. Morgan Securities, said in a research note, "While BZH's orders and can rate improved from 4Q07, we note that last quarter featured an extremely negative can rate; in addition, we still anticipate material 1Q08 land impairment or FAS 109 charges, which were not disclosed."
On a more positive note, Rehaut continued, "BZH ended the quarter with a cash balance in excess of $325 million, which, while down from 4Q's $459.5 million due to seasonality, we believe remains solid. Moreover, the company noted it continues to expect to remain cash flow positive in FY08."
Beazer's financial reporting problems stem from an investigation by independent auditors hired in the wake of charges that the company violated federal mortgage lending laws. In addition to finding that Beazer's mortgage entity probably did violate some rules, the audit committee found that it had improperly stated reserves, which will require a restatement of the company's financials going back several years. While the company is not expecting the results to show less earnings overall, the accounting process is long and tedious.
More than six months ago, during the investigation, the company's chief accounting officer Michael T. Rand was fired for attempting to destroy documents related to its mortgage origination business. Robert L. Salomon, who is CFO and treasurer at Ashton Woods, was recently hired to replace Rand. Salomon's appointment will become effective in February.
Beazer stock (NYSE:BZH) was up 10.5% on heavy volume to $6.30 in late-morning trading on the New York Stock Exchange.