Embattled builder Beazer Homes USA Inc., which is facing a series of investigations and lawsuits over business practices and plans to restate earnings dating back to the 2004 fiscal year, announced that it cut a quarter of its workforce, or 650 positions, in October.
Also, an investment group affiliated with a coalition of unions is calling for the removal of Beazer Homes CEO Ian McCarthy.
CtW Investment Group charges in a scathing letter to the chairman of Beazer’s nominating and corporate governance committee, “Taken together, the combination of improper practices, compliance failures and poor corporate governance … constitute a stinging indictment of Beazer’s leadership in general and of Mr. McCarthy in particular. By swiftly replacing Mr. McCarthy with a qualified CEO and naming an independent director to assume Mr. Beazer’s role as chairman, the board can begin to restore the credibility Beazer desperately needs.”
The letter also states, “Rather than create sustainable, long-term value for shareholders, Mr. McCarthy has garnered egregious compensation while allowing his management team to violate federal law, improperly account for land development costs and sale-leaseback transactions, and provide undisclosed loans to executives.”
A Beazer spokesperson was not immediately available for comment about this letter, issued today. CtW Investment group works with pension funds sponsored by affiliates of a coalition of unions that represents about 6 million members. CtW has also called for the resignation of Countrywide Chairman and CEO Angelo Mozilo.
Beazer in October announced plans to restate earnings, and said an internal investigation revealed that employees of the company’s mortgage corporation “violated certain U.S. Department of Housing and Urban Development regulations.”
The U.S. Securities and Exchange Commission and U.S. Attorney’s Office are investigating Beazer’s business practices, and several lawsuits have been filed by shareholders.
The company announced today that it is not able to report its earnings results for the fourth quarter of the fiscal year and the full year because of the pending restatements of past financial results.
The company expects results for the fourth quarter to include noncash pretax charges to abandon land option contracts, recognize inventory impairments, and to record impairments and land option abandonments in joint ventures of about $230 million.
“The company is working expeditiously to complete the restatements and report audited financial results for the quarter and year ended September 30, 2007 as soon as possible,” according to the announcement.
The company’s net new-home orders totaled 973 for the quarter ended Sept. 30, a 53 percent decline compared to the same quarter last year, “driven largely by an unusually high cancellation rate” of 68 percent, which he company attributes, in part, “to the pronounced tightening in the mortgage markets in August and September.”
“The housing industry continues to face the most difficult business conditions in over a decade,” McCarthy said in a statement.
“We must continue to adapt to the realities of the current market by remaining disciplined in our operating approach and continuing to focus on initiatives aimed at responding to what we believe will continue to be a challenging environment in the near term. These initiatives include reductions in direct costs, overhead expenses and land spending, and an intense focus on sales and marketing efforts to reduce unsold home inventories, all with the aim of generating cash.”
The company announced that its workforce reached a peak level in March 2006, and since then the overall company headcount has dropped by about 50 percent “through reductions in force and attrition.”
“The company expects these most recent headcount reductions to result in annualized cost savings of at least $30 million. In addition, the company has reorganized accounting and back-office functions and is centralizing a number of marketing initiatives to achieve additional efficiencies,” according to the announcement.
“With recent industry data suggesting that market conditions may deteriorate further before a recovery is under way, we need to adapt and further align our cost structure and investment levels to expected lower volumes. While these decisions are not taken lightly, they are necessary in order to maintain our sound financial position,” McCarthy said in a statement.
The company’s board of directors voted to suspend a quarterly dividend of 10 cents per share, concluding that the action would allow the company to conserve an estimated $16 million of cash on an annual basis and “is prudent in light of the continued deterioration in the housing market,” according to the announcement.
Beazer, headquartered in Atlanta, has 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, and also provides mortgage origination and title services to home buyers.