BZH Beazer Homes USA Inc New

Beazer Homes USA, Inc. (NYSE: BZH) (www.beazer.com) today announced results for the quarter ended June 30, 2006. Highlights of the quarter are as follows: Quarter Ended June 30, 2006 -- Net income of $102.6 million, or $2.37 per diluted share, compared to net income of $112.7 million, or $2.50 per diluted share in the prior year's third quarter. -- Home closings: 4,156, compared to 4,631 in the prior year. -- Total revenues: $1.20 billion, compared to $1.29 billion in the prior year. -- Operating income margin: 13.0%, compared to 13.8% in the prior year. -- New orders: 4,378 homes, compared to 5,202 in the prior year. -- Backlog at 6/30/06: 9,449 homes with a sales value of $2.85 billion, compared to 10,635 homes with a sales value of $3.12 billion at 6/30/05. -- Repurchased 1.07 million shares for approximately $50.1 million; year-to-date share repurchases totaled 3.09 million for $183.3 million. "Beazer Homes delivered solid fiscal third quarter financial results in an increasingly difficult housing market," said President and Chief Executive Officer, Ian J. McCarthy. "Across the country, the housing markets that had experienced rapid price appreciation have seen significant increases in cancellation rates and resale home inventories. While it is difficult to predict the duration of these current market trends, our broad geographic and product diversity, coupled with our commitment to profitability and prudent capital allocation, should position us well for the future. We continue to believe that the long-term industry fundamentals, based on demographic driven demand and employment trends, together with further supply constraints, remain compelling." Total home closings declined 10.3% from the prior year as decreases in closings in the West and Florida homebuilding segments were offset partially by increases in the Mid-Atlantic, Southeast and Other homebuilding segments. Net new home orders totaled 4,378 homes for the quarter, a decline of 15.8% from the third quarter of the prior year. Increases in several markets in the Southeast homebuilding segment and Texas in the Other homebuilding segment were offset primarily by significantly decreased new home orders in the West and Florida homebuilding segments. Conditions in each of the company's major markets have become considerably more challenging as the seasonal strengthening of sales trends did not materialize to the extent previously anticipated and historically experienced. The company achieved an operating income margin of 13.0% in the third quarter, a decline of 80 basis points from the prior year, as a result of a higher percentage of closings from lower margin markets, higher market driven sales incentives and costs associated with exiting markets and land option contracts no longer meeting the company's return criteria. These costs were offset by both a reduction in warranty accruals and insurance recoveries related to progress made in resolving the Trinity Homes warranty issue. Capital Allocation Initiatives, Liquidity and Share Repurchases "While the current market environment is more challenging than anticipated earlier in the year, we remain focused on the value drivers which we believe will benefit us in the long term," said James O'Leary, Executive Vice President and Chief Financial Officer. "During the quarter, we exited less profitable markets and positions while raising the liquidity required to take advantage of the opportunities that will generate meaningfully higher returns in the future. The increase in our revolving credit facility and the two debt offerings completed this quarter meaningfully strengthened our financial position and liquidity, positioning us for the eventual upturn. We will continue to focus on opportunistically growing our business while prudently returning capital to our shareholders during this more challenging period." The results for the quarter included approximately $11 million in pre-tax charges to write off land options and exit positions that were no longer providing sufficient returns. The company also incurred approximately $1 million of additional pre-tax charges during the quarter to exit land positions and close its operations in Ft. Wayne and Lafayette, Indiana while significantly downsizing its operations in Memphis, Tenn. Collectively, these actions will focus the company's spending on its highest value opportunities. During the third quarter of fiscal 2006, the company repurchased 1,069,100 shares of its common stock under its 10 million share repurchase authorization for approximately $50.1 million or $46.88 per share. Year to date, the company has repurchased 3,090,900 shares, for a total of $183.3 million. At June 30, net debt to total capitalization stood at 52%. The company expects its net debt to capitalization ratio to be in its year-end target range of under 50% at September 30 after it completes what is its historically strongest quarter for closings and cash flow generation. Trinity Homes Update The company regularly reviews its estimate of the costs required to resolve the claims associated with the Trinity Homes class action lawsuit which was settled in October 2004. During the recent quarter's review, the company concluded that, based on the numbers of homes remediated and estimates of costs to resolve the remaining claims, approximately $15 million of accruals associated with this matter were no longer required. Since the commencement of the remediation program, the company's cost per home has continued to decrease as homes requiring more extensive repairs were addressed first, coupled with improvement in the internal processes and procedures as the company gained experience in addressing these issues. These improvements, which include enhanced bidding and inspection processes, have yielded meaningful benefits on a per home basis. Also during the quarter the company realized approximately $4 million in insurance and subcontractor recoveries related to reimbursement for defense, investigative and remediation costs. The company continues to aggressively pursue recovery of defense, investigative and remediation costs from both its insurance carriers and subcontractors to obtain maximum restitution. Fiscal 2006 EPS Outlook McCarthy concluded, "We expect continued execution of our Profitable Growth Strategy, including our share repurchase program, to result in continued profitability and enhanced shareholder value in the near and long term. Looking ahead, we do not see conditions in the housing markets improving significantly in the remainder of the fiscal year. As such, we have adjusted our expectation for our fiscal 2006 diluted earnings per share to be in a range of $9.25- $9.75. This compares to adjusted earnings per share of $8.72 in fiscal 2005." Conference Call The company will hold a conference call today, July 27, 2006, at 11:00 AM ET to discuss the results and take questions. You 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 at www.beazer.com. To access the conference call by telephone, listeners should dial 800-369-1904. To be admitted to the call, verbally supply the passcode "BZH". A replay of the call will be available shortly after the conclusion of the live call. To directly access the replay, dial 888-568-0121 (available through August 3, 2006), or visit www.beazer.com. 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, Mississippi, 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." Forward-Looking Statements 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, potential liability as a result of construction defect, product liability and warranty claims, the possibility that the company's strategies to broaden target price points and lessen dependence on the entry-level product offering in certain markets will not achieve desired results, and other factors described in the company's Annual Report on Form 10-K/A for the year ended September 30, 2005 filed with the Securities and Exchange Commission on May 25, 2006. Use of Non-GAAP Financial Information In addition to the results in this press release reported in accordance with generally accepted accounting principles in the United States ("GAAP"), the company has provided information regarding adjusted fiscal 2005 earnings per share which excludes the effects of the non-cash goodwill impairment charge recorded during the second quarter of fiscal 2005. Management believes that this adjusted financial result is useful to both management and investors in the analysis of the company's financial performance when comparing it to prior periods and that it provides investors with an important perspective on the current underlying operating performance of the business by isolating the impact of a non-cash adjustment related to a previous acquisition. Below is a reconciliation of this non-GAAP financial measure, adjusted fiscal 2005 earnings per share, as well as adjusted fiscal 2005 net income used to derive adjusted fiscal 2005 earnings per share, to the most directly comparable financial measures calculated and presented in accordance with GAAP: -0- *T Twelve Months Ended September 30, 2005 ------------------- (in thousands, except per share data) Reported net income $ 262,524 Reported net income per common share $ 5.87 Adjusted Net Income and Earnings Per Share: Reported net income $ 262,524 Goodwill impairment loss 130,235 -------------- Net income, excluding goodwill impairment loss $ 392,759 ============== After-tax interest add-back to pro-forma net income for 'if converted' treatment of convertible notes in calculation of diluted net income per common share $ 5,325 Diluted net income per common share, excluding $ 8.72 goodwill impairment loss Diluted weighted average shares outstanding 45,634 *T -Tables Follow- -0- *T BEAZER HOMES USA, INC. CONSOLIDATED OPERATING AND FINANCIAL DATA (Dollars in thousands, except per share amounts) FINANCIAL DATA -------------- Quarter Ended Nine Months Ended June 30, June 30, --------------------- --------------------- 2006 2005 2006 2005 ---------- ---------- ---------- ---------- INCOME STATEMENT Total revenue $1,203,538 $1,293,227 $3,578,245 $3,181,302 Home construction and land sales expenses 894,231 963,699 2,681,613 2,456,111 ---------- ---------- ---------- ---------- Gross profit 309,307 329,528 896,632 725,191 Selling, general and administrative expenses 153,412 150,891 436,283 363,555 Goodwill impairment charge - - - 130,235 ---------- ---------- ---------- ---------- Operating income 155,895 178,637 460,349 231,401 Equity in income of unconsolidated joint ventures 127 2,951 809 3,150 Other income 1,480 987 7,165 4,987 ---------- ---------- ---------- ---------- Income before income taxes 157,502 182,575 468,323 239,538 Income taxes 54,878 69,835 171,435 141,438 ---------- ---------- ---------- ---------- Net income $ 102,624 $ 112,740 $ 296,888 $ 98,100 ========== ========== ========== ========== Net income per common share: Basic $ 2.60 $ 2.78 $ 7.37 $ 2.43 ========== ========== ========== ========== Diluted $ 2.37 $ 2.50 $ 6.70 $ 2.24 ========== ========== ========== ========== Weighted average shares outstanding, in thousands: Basic 39,435 40,497 40,281 40,400 Diluted 43,929 45,666 44,909 45,510 Interest incurred $ 31,759 $ 22,798 $ 85,195 $ 64,269 Interest amortized to cost of sales $ 22,071 $ 21,568 $ 60,788 $ 54,880 EPS interest add back - Convertible debt $ 1,347 $ 1,331 $ 4,038 $ 3,993 Depreciation and amortization $ 8,055 $ 5,676 $ 19,097 $ 15,311 SELECTED BALANCE SHEET DATA June 30, Sept. 30, June 30, 2006 2005 2005 ---------- ---------- ---------- Cash $ 24,366 $ 297,098 $ 8,098 Inventory 3,752,862 2,901,165 2,986,994 Total assets 4,383,609 3,770,516 3,483,091 Total debt (net of discount of $3,766, $4,118 and $3,535) 1,791,903 1,321,936 1,265,924 Shareholders' equity 1,631,064 1,504,688 1,333,879 BEAZER HOMES USA, INC. CONSOLIDATED OPERATING AND FINANCIAL DATA (Dollars in thousands) OPERATING DATA -------------- Quarter Ended Nine Months Ended June 30, June 30, --------------------- --------------------- SELECTED OPERATING DATA 2006 2005 2006 2005 ---------- ---------- ---------- ---------- Closings: West region 1,037 1,630 3,294 3,972 Mid-Atlantic region 477 439 1,432 1,175 Florida region 362 528 1,375 1,234 Southeast region 1,033 933 2,818 2,613 Other homebuilding 1,247 1,101 3,339 2,813 ---------- ---------- ---------- ---------- Total closings 4,156 4,631 12,258 11,807 ========== ========== ========== ========== New orders, net of cancellations: West region 861 1,464 2,799 4,473 Mid-Atlantic region 461 514 1,261 1,582 Florida region 380 591 1,453 1,599 Southeast region 1,295 1,242 3,315 3,059 Other homebuilding 1,381 1,391 3,646 3,273 ---------- ---------- ---------- ---------- Total new orders 4,378 5,202 12,474 13,986 ========== ========== ========== ========== Backlog units at end of period: West region 2,499 3,508 Mid-Atlantic region 1,022 1,454 Florida region 1,337 1,565 Southeast region 2,251 1,823 Other homebuilding 2,340 2,285 ---------- ---------- Total backlog units 9,449 10,635 ========== ========== Dollar value of backlog at end of period $2,852,052 $3,121,702 ========== ========== BEAZER HOMES USA, INC. CONSOLIDATED OPERATING AND FINANCIAL DATA (Continued) (Dollars in thousands) Quarter Ended Nine Months Ended June 30, June 30, --------------------- -------------------- SUPPLEMENTAL FINANCIAL DATA: 2006 2005 2006 2005 ---------- ---------- ---------- ---------- Revenues Homebuilding operations $1,178,360 $1,262,890 $3,491,646 $3,126,302 Land and lot sales 18,568 20,789 64,119 29,767 Financial services 12,392 13,708 36,505 35,872 Intercompany elimination (5,782) (4,160) (14,025) (10,639) ---------- ---------- ---------- ---------- Total revenues $1,203,538 $1,293,227 $3,578,245 $3,181,302 ========== ========== ========== ========== Gross profit Homebuilding operations $ 300,058 $ 312,877 $ 861,434 $ 683,535 Land and lot sales (3,143) 2,943 (1,307) 5,784 Financial services 12,392 13,708 36,505 35,872 ---------- ---------- ---------- ---------- Total gross profit $ 309,307 $ 329,528 $ 896,632 $ 725,191 ========== ========== ========== ========== Selling, general and administrative Homebuilding operations $ 143,250 $ 141,315 $ 405,250 $ 337,564 Financial services 10,162 9,576 31,033 25,991 ---------- ---------- ---------- ---------- Total selling, general and administrative $ 153,412 $ 150,891 $ 436,283 $ 363,555 ========== ========== ========== ========== SELECTED SEGMENT INFORMATION Revenue: West region $ 389,934 $ 533,667 $1,230,380 $1,334,306 Mid-Atlantic region 232,373 211,279 664,987 500,884 Florida region 108,551 139,181 421,901 317,241 Southeast region 215,708 197,333 581,610 488,732 Other homebuilding 250,362 202,219 656,887 514,906 Financial services 12,392 13,708 36,505 35,872 Intercompany elimination (5,782) (4,160) (14,025) (10,639) ---------- ---------- ---------- ---------- Total revenue $1,203,538 $1,293,227 $3,578,245 $3,181,302 ========== ========== ========== ========== Operating income West region $ 60,340 $ 117,716 $ 211,321 $ 298,198 Mid-Atlantic region 53,336 50,706 155,952 111,263 Florida region 17,797 18,594 86,684 41,567 Southeast region 25,350 18,298 52,026 31,092 Other homebuilding 1,895 3,411 (4,516) 8,516 Financial services 2,230 4,132 5,472 9,881 ---------- ---------- ---------- ---------- Segment operating income 160,948 212,857 506,939 500,517 Corporate and unallocated (5,053) (34,220) (46,590) (269,116) ---------- ---------- ---------- ---------- Total operating income $ 155,895 $ 178,637 $ 460,349 $ 231,401 ========== ========== ========== ========== *T