Beazer Homes USA today joined the growing chorus of home builders promising fat stashes of cash by year's end despite recent significant losses. Beazer's goal is $300 million, it announced during its July 26 conference call, more than double the $128 million it had on hand June 30.
"We are going to raise cash," said CEO Ian McCarthy. "And that will create a high-class problem for us if the market moves up; we would need to start using cash to build out our backlog."
Not buying much, if any, new land, and decreasing operating costs by lowering head count and making strides in reducing home building costs through operating efficiencies will help Beazer pad its savings account, the company said, reporting it has already reducing overhead by 60% toward that end.
"Next year we expect to benefit from more than $50 million in direct cost savings already achieved and we believe additional will come," said McCarthy.
But for now, McCarthy, like so many other CEO's, continued to call the market "extremely challenging" as he announced the $123 million, $3.20 a share loss for its third quarter which ended June 30.
The company also announced it had negotiated a new revolving line of credit of up to $500 million, replacing its $1 billion line. "We didn't really need a $1 billion line," McCarthy said, adding that the new revolver does have the capability of increasing up to $1 billion if needed. It also lowered the company's interest coverage requirements. Now earnings before interest, taxes, depreciation, and amortization must equal or exceed 1.1 times interest incurred in the next nine quarters, compared to 2 times interest incurred in the former credit facility. That 1.1 grows to up to 1.75 over time.
Beazer earlier in the day (July 26) reported a net loss of $123 million for its third fiscal quarter of 2007, (-$3.20 per share), including pre-tax charges related to inventory impairments, abandonment of land option contracts and goodwill impairments totaling$188.5 million. For the third quarter of the prior fiscal year, net income was $102.6 million, or $2.37 per diluted share.
Revenues were off 36.5% to $761.0 million, compared to $1.20 billion in the third quarter of the prior year. Total home closings fell 36% from last year's fiscal third quarter to 2,666; net new-home orders fell 30% to 3,055; the cancellation rate rose 36% from 34% in the year-ago quarter and 29% from the fiscal second quarter; lots under control totaled 71,801 at 6/30/07, a 31% and 10% decline from the third quarter of the prior fiscal year and the second quarter of fiscal 2007, respectively; unsold finished homes declined 38% compared to the second quarter of this fiscal year; net debt to capitalization was 52.6% as of 6/30/07; and backlog at 6/30/07 was 5,952 homes with a sales value of $1.69 billion compared to 9,449 homes with a sales value of $2.85 billion in the third quarter of the prior year and5,563 homes with a sales value of $1.67 billion in the second quarter of this fiscal year.
"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."
Beazer took 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.
Beazer 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. As of June 30, 2007, the Company had no borrowings on its revolving credit facility and a cash balance of $128.8 million.
Beazer also reiterated its previous statements that it is cooperating with federal investigations into its mortgage lending practices and warned that the results of those investigations, as well as several lawsuits filed by borrowers and investors, could result "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."