It's been a year since Beazer Homes issued a press release to counter "scurrilous and unfounded rumors" it was close to bankruptcy.

The good news is the Atlanta-based national home builder is still around. The bad news? Well, take your pick.

Mike Fuentes/Bloomberg (ENLARGE)

The slumping housing market is only partly to blame for Beazer Homes' troubles. The federal government is investigating whether Beazer's lending practices in North Carolina were illegal. Beazer has pulled out of five markets.

Louie Favorite/lfavorite@ajc.com (ENLARGE)

An investment group representing union members has called for the ouster of Beazer Homes CEO Ian McCarthy. But he remains in charge, and he has his defenders.

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Slumping new-home sales and prices. Increased foreclosures. Tighter credit. Rising unemployment. Consumer pessimism.

The housing market is performing so poorly that President Bush recently signed a package of new laws to assist home buyers and Fannie Mae and Freddie Mac, the giant mortgage buyers.

With that gloomy backdrop, Beazer will hold its annual shareholder meeting Tuesday — its first in 18 months — and release third-quarter earnings Friday.

Slack demand and stingy lending are punishing big builders like Beazer, according to Michael Larson, an analyst with Weiss Research.

"Home builders are facing an overall economy that is decelerating," Larson said. "Lenders suffering from their past sins, so to speak, are committed to committing fewer sins in the future."

Argus Research rates Beazer stock (BZH) a hold, for now. "We would consider a downgrade if we do not see a near-term improvement in home building margins," analyst Rashid Dahod wrote in his latest report on the company. "Our financial strength rating for BZH is low, the bottom of our five-point scale."

Beazer's grim second-quarter numbers included a net loss of $228.7 million from continuing operations, or $5.93 a share. Compared with the same quarter last year, the company reported a 43 percent decline in home-sale closings, a 9 percent slide in average sales price and a 52 percent falloff in housing starts.

Beazer's share price closed Friday at $5.89. In early 2006, at the height of the housing boom, the stock cost as much as $79. Last month, the price slipped as low as $3.55.

The slumping housing market is only partly to blame for Beazer's woes.

The federal government is investigating whether Beazer's lending practices in North Carolina were illegal. Newspaper reports about high foreclosures rates in Beazer communities triggered the probe.

The company conducted a five-month investigation of its mortgage business and concluded employees violated down-payment assistance regulations. Beazer shut down its lending arm in February and entered into an agreement with Countrywide Financial to make loans.

During that probe, the audit committee also uncovered accounting irregularities, so the company restated earnings for several periods dating back to 1998.

Beazer fired its chief accounting officer in June 2007 for attempting to destroy documents. Shareholders and home buyers have sued the company, claiming they were deceived.

An investment group representing union members called for the ouster of Chief Executive Officer Ian McCarthy, who remains in charge.

Dahod said that's misguided. "I don't see how you can try to get rid of someone in a tough environment like this," he said. "I don't think he's made any missteps."

In response to the battering it has taken, Beazer has slashed its work force, pulled out of five markets and is selling off land and communities. At one time, Beazer was the country's sixth largest home builder.

The company has 11 communities in the Atlanta area — including townhouses and single-family homes at Atlantic Station in Midtown — and is selling homes in 19 states, according to its Web site.

Beazer management declined to comment before the shareholder meeting. In a call with analysts in May, McCarthy said the company's strategy in the near term is to generate cash and preserve liquidity. Longer term, Beazer is trying to determine what locales to focus on and how to make its product stand out, McCarthy said.

The current market is plagued by "elevated levels of inventory, significant competition in both new and resale markets, pricing and concession pressures, and consumer confidence levels hindered by economic uncertainty," he said.

If Beazer does bounce back, "it could take them a number of years," according to James Wilson, an analyst with JMP Securities.

Wilson ranks Beazer in the bottom-third compared to other big home builders because of its substantial land holdings and debt.

"They got started late in terms of entering the growth phase and buying land," he said. But bankruptcy, he said, is unlikely because Beazer can simply give troubled communities to the banks in order to keep going.

Loan defaults are a "major risk" for struggling home builders like Beazer, said Celia Chen, director of housing economics at Moody's Economy.com.

"We're in a housing downturn the likes of which we've not seen since the Great Depression, so it's pretty dire," Chen said. She said it might take more than a year to reduce the nation's housing surplus to a level where new construction can pick up. Home prices, she said, could continue to fall until mid-2009.

Vicki Bryan, an analyst with Gimme Credit, wonders if banks suffering losses will continue to provide credit to Beazer.

"Beazer has maintained for months that it has sufficient assets to satisfy the banks, but so far that hasn't happened," Bryan wrote in a July newsletter. "The banks are understandably wary as Beazer continues to burn more cash than it can generate. Six months into fiscal 2008, Beazer's cash is down by $181 million to $274 million as of March 31."

She wrote that continuing operating losses and impairment charges — write-offs of assets that have lost value — could wipe out Beazer's net worth.

Beazer has been building in the United States since 1985 and was listed on the New York Stock Exchange in 1994.

At Tuesday's meeting, six directors are expected to be re-elected, including McCarthy. A seventh director, Katie Bayne, a Coca-Cola executive, is not seeking re-election, so her seat is being eliminated.

McCarthy and board chairman Brian Beazer said, in their letter to shareholders for the fiscal year that ended Sept. 30, that Beazer's future is bright despite the current troubles.

"Baby boomers, the most affluent generation in history, continue to drive demand as they seek second homes and active lifestyle communities," they said. "Their offspring, the echo boomers, along with Generation X

and Generation Y, will continue to enter the housing market through the next decade.

"We have unwavering conviction in the long-term fundamentals of the housing industry and in Beazer Homes' ability to return to profitable operations."

THE DIRECTORS

• Laurent Alpert, partner in the international law firm Cleary, Gottlieb, Steen & Hamilton, a director since February 2002.
• Brian Beazer, the non-executive chairman, a director since 1994.
• Peter Leemputte, senior vice president and chief financial officer for Brunswick, the leisure products company, a director since August 2005.
• Ian McCarthy, president and chief executive officer of Beazer Homes, a director since 1994.
• Larry Solari, former chairman and chief executive officer of BSI Holdings in Carmel, Calif., a director since 1994.
• Stephen Zelnak, chairman and chief executive officer of Martin Marietta Materials, a director since February 2003.

NEW ORDERS

— Source: Beazer Homes