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Beazer Probe Finds Accounting Errors

The builder will restate results higher.

Beazer Homes

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rose 6% early Thursday after the homebuilder said its profit from previous years will be restated higher as a result of an audit committee investigation.

Beazer has not released financial reports since the spring, when accounting worries and allegations of improper mortgage lending began to surface at the company.

The Atlanta-based builder said its internal investigation found its reserves for land and home costs were too high in previous years. The cumulative effect of correcting these matters will increase pre-tax income by more than $25 million, Beazer said. The restatement will, however, reduce 2006 pre-tax income by $20 million.

Beazer also found issues with its accounting for the sales of model homes. This will reduce 2007 income by $20 million, with a corresponding increase in future years.

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Beazer said the restatement will not change its current cash on hand of around $400 million, nor will it result in a default under the company's credit facility.

Additionally, the investigation found that employees of its mortgage origination subsidiary violated certain U.S. Department of Housing and Urban Development regulations, particularly relating to down payment assistant programs for FHA insured loans, dating back to 2000.

Beazer said it could not estimate its ultimate liabilities from these violations. The potential future liability relates in part to losses arising from defaults on such mortgages.

While the company's internal probe is over for now, Beazer is still being investigated by the Department of Justice and the Securities and Exchange Commission for its mortgage lending and accounting practices.

Beazer also said its fourth-quarter home closings tumbled 39% from a year earlier to 3,940 homes. Preliminary net hew home orders for the quarter ended Sept. 30 slid 52% to 990 homes. The company's cancellation rate reached 68%.

Beazer shares were up 61 cents, or 6.1%, to $10.54 in early trading.