Altruistica

"Altruistica": Seeking a return to full financial disclosure and regulatory oversight. A financial market analysis blog for "entertainment purposes" only by an experienced CFA seeking new hedge fund engagements for investment writing and analysis. The author has experience investing internationally, running a hedge fund, making angel investments, and helping launch five startup companies. Investors should do their own due diligence.

15 December 2006

Homebuilders Planning Writedowns- Book Cooking?




From an AP story today: Homies Consider Cooking the Books

The homebuilders might see this as the right time for large writedowns. While market conditions are tough, they still have profits to show this year. Their earnings are likely to deteriorate more in 2007. "Some companies see it as good for them to take a 'big bath' by taking a bigger writeoff sooner," said Robert Dyson, managing director at the accounting firm RSM McGladrey. "Then they get to show a profit improvement in the next year."

But, as Dyson notes, writing down an asset now for recognizing more profit in a later period also could be construed as fraud. "Companies doing so need to be careful to avoid allegations of 'cooked books.' In the end, whether the homebuilders write off more now or later won't have any impact on earnings in the long run. But investors may prefer it done sooner, rather than later.

The key, as noted by Credit Suisse analyst Ivy Zelman, is whether those taking the big charges then can generate higher margins going forward. If they can't, investors could turn on a dime.

Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck(at)ap.org



Moody's may cut KB Home's debt on report delays
Fri Dec 15, 2006 2:03pm ET147
Market View KBH (KB Home )

Legg Mason's Miller sticks with picks, 2007 better???
KB Home to take impairment charge, restate results

NEW YORK, Dec 15 (Reuters) - Moody's Investors Service on Friday said it may cut its ratings on KB Home (KBH.N: Quote, Profile , Research), citing the homebuilder's announcement that it will restate results from 2005 and 2006 because of options expensing errors. KB Home said on Dec. 8 that it expects to take noncash charges in its fiscal fourth quarter ended Nov. 30 that range from $235 million to $285 million due to oversupply of inventory and $90 million for land option contract abandonments.

The company also expects to restate financial reports for 2003 through 2005 and two quarters of 2006 and to adjust results for prior fiscal periods because of options grant measurement errors from 1999 to 2005. It expects a noncash expense of about $41 million spread over several years. "Due to the recent investigation surrounding option backdating, Moody's believes that a material weakness existed pertaining to the company's option granting practices," Moody's said in a statement. "We expect this internal control weakness to be disclosed in the restated 2005 10-K," Moody's said.

KB Home has received consent from its senior note holders and its banking group to amend the indentures and waive default until February 23, 2007 for failure to file its fiscal third-quarter 2006 10-Q in a timely fashion, Moody's said. In reviewing KB Home for downgrade, Moody's will focus on the company's ability to build and maintain liquidity in the face both of a weak housing environment and the worst case scenario of having to fund substantial repayment of its public senior and senior sub notes, Moody's said.

Moody's rates KB Home's senior subordinated debt "Ba2," two levels below investment grade. KB Home's 6.25 percent bond due 2015 last traded at 93.4 cents on the dollar, according to MarketAxess.

© Reuters 2006. All Rights Reserved.

Homie Bond Ratings are ALREADY Bad

BEAZER HOMES USA BB
CAP PAC HOLDINGS B-
CENTEX CORP BBB
COMSTOCK HOMEB-A B+
DR HORTON INC BBB-
HOMEPLEX MTG INV BB-
HOVNANIAN ENT-A BB
KAUFMAN & BRD-SP BB+
KB HOME BB+
LENNAR CORP BBB
M/I HOMES INC BB
MDC HOLDINGS INC BBB-
MERITAGE HOME-WI BB-
NEWMARK HOMES B+NVR INC BBB-
PETERS (JM) CO B-
PULTE HOMES INC BBB
RYLAND GROUP INC BBB-
SAUL (B.F.) REAL BB-
STANDARD-PACIFIC BB
TECHNICAL OLYMPI B+
TOLL BROTHERS BBB-
US HOME CORP BBB-
WCI COMMUNITIES BB
WILLIAM LYON HOM B+

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