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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

ý  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2002

or

 

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number           001-12822

 

BEAZER HOMES USA, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE

 

58-2086934

(State or other jurisdiction of

 

(I.R.S. employer

incorporation or organization)

 

Identification no.)

 

 

 

5775 Peachtree Dunwoody Road, Suite B-200, Atlanta, Georgia 30342

 

(Address of principal executive offices)

(Zip Code)

 

 

 

(404) 250-3420

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.

 

YES         ý            NO          o

 

 

Class

 

Outstanding at August 14, 2002

 

 

 

 

 

Common Stock, $0.01 par value

 

12,827,088 shares

 

 

Page 1 of 27 Pages

 

 



 

BEAZER HOMES USA, INC.

FORM 10-Q

 

INDEX

 

PART I

 

 

FINANCIAL INFORMATION

 

 

 

 

 

Item 1

 

Financial Statements

 

 

 

 

 

 

Consolidated Balance Sheets, June 30, 2002 (unaudited) and September 30, 2001

 

 

 

 

 

 

 

 

 

 

Unaudited Consolidated Statements of Operations, Three and Nine Months Ended June 30, 2002 and 2001

 

 

 

 

 

 

 

 

 

 

Unaudited Consolidated Statements of Cash Flows, Nine Months Ended June 30, 2002 and 2001

 

 

 

 

 

 

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Income, Three and Nine Months Ended June 30, 2002 and 2001

 

 

 

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

Item 2

 

Management’s Discussion and Analysis of  Financial Condition and Results of Operations

 

 

 

 

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

 

 

 

 

PART II

 

 

OTHER INFORMATION

 

 

 

 

 

Item 4

 

Submission of Matters to a Vote of Security Holders

 

 

 

 

 

Item 6

 

Exhibits and Reports on Form 8-K

 

 

 

 

SIGNATURES

 

2



 

Part I. Financial Information

 

BEAZER HOMES USA, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

June 30,
2002

 

September 30,
2001

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

5,682

 

$

41,678

 

Accounts receivable

 

45,668

 

38,921

 

Inventory

 

1,343,660

 

844,737

 

Deferred tax asset

 

19,527

 

19,640

 

Property, plant and equipment, net

 

17,767

 

12,586

 

Goodwill

 

250,201

 

14,094

 

Other assets

 

54,333

 

23,633

 

Total assets

 

$

1,736,838

 

$

995,289

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Trade accounts payable

 

$

82,468

 

$

70,893

 

Other payables and accrued liabilities

 

169,774

 

177,963

 

Term loan

 

100,000

 

100,000

 

Senior notes (net of discount of $11,218 and $4,762, respectively)

 

638,782

 

295,238

 

Total liabilities

 

$

991,024

 

$

644,094

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock (par value $.01 per share, 5,000,000 shares authorized, no shares issued)

 

 

 

Common stock (par value $.01 per share, 30,000,000 shares authorized, 16,653,459 and 12,422,935 issued and 12,823,383 and 8,623,931 outstanding, respectively)

 

167

 

124

 

Paid-in capital

 

521,548

 

202,121

 

Retained earnings

 

297,946

 

215,970

 

Treasury stock (3,830,076 and 3,799,004 shares)

 

(63,679

)

(61,510

)

Unearned restricted stock

 

(6,859

)

(2,027

)

Accumulated other comprehensive loss

 

(3,309

)

(3,483

)

Total stockholders’ equity

 

745,814

 

351,195

 

Total liabilities and stockholders’ equity

 

$

1,736,838

 

$

995,289

 

 

See Notes to Consolidated Financial Statements

 

3



 

BEAZER HOMES USA, INC.

UNAUDITED CONSOLIATED STATEMENTS OF OPERATIONS

(in thousands, except share amounts)

 

 

 

Three Months
Ended June 30,

 

Nine Months
Ended June 30,

 

 

 

2002

 

2001

 

2002

 

2001

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

743,813

 

$

448,825

 

$

1,736,842

 

$

1,188,172

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Home construction and land sales

 

597,706

 

357,071

 

1,391,753

 

948,764

 

Interest

 

12,887

 

8,651

 

28,825

 

22,715

 

Selling, general and administrative

 

79,499

 

51,218

 

187,190

 

132,742

 

Operating income

 

53,721

 

31,885

 

129,074

 

83,951

 

Other income/(expense), net

 

3,550

 

780

 

5,782

 

909

 

Income before income taxes and extraordinary item

 

57,271

 

32,665

 

134,856

 

84,860

 

Provision for income taxes

 

22,622

 

12,740

 

52,880

 

33,096

 

Net income before extraordinary item

 

34,649

 

19,925

 

81,976

 

51,764

 

Extraordinary item-loss on early extinguishment of debt (net of taxes of $469)

 

 

(733

)

 

(733

)

Net income

 

$

34,649

 

$

19,192

 

$

81,976

 

$

51,031

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

Basic

 

12,545

 

8,195

 

9,823

 

8,149

 

Diluted

 

13,388

 

9,250

 

10,742

 

9,124

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

Net income per share before extraordinary item

 

$

2.76

 

$

2.43

 

$

8.35

 

$

6.35

 

Extraordinary item

 

 

(0.09

)

 

(0.09

)

Net income per share

 

$

2.76

 

$

2.34

 

$

8.35

 

$

6.26

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

Net income per share before extraordinary item

 

$

2.59

 

$

2.15

 

$

7.63

 

$

5.67

 

Extraordinary item

 

 

(0.08

)

 

(0.08

)

Net income per share

 

$

2.59

 

$

2.07

 

$

7.63

 

$

5.59

 

 

See Notes to Consolidated Financial Statements

 

4



 

BEAZER HOMES USA, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

Nine Months Ended
June 30,

 

 

 

2002

 

2001

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

81,976

 

$

51,031

 

Adjustments to reconcile net income to net cash used by operating activities:

 

 

 

 

 

Depreciation and amortization

 

6,322

 

6,171

 

Loss on early extinguishment of debt

 

 

1,202

 

Changes in operating assets and liabilities net of effects from acquisition:

 

 

 

 

 

Increase in accounts receivable

 

(4,940

)

(1,059

)

Increase in inventory

 

(132,429

)

(155,571

)

Decrease/(increase) in other assets

 

12,844

 

(6,998

)

Decrease/(increase) in trade accounts payable

 

(2,605

)

4,805

 

Decrease/(increase) in other liabilities

 

(25,177

)

4,531

 

Changes in book overdraft

 

 

(20,095

)

Other changes

 

1,132

 

5,469

 

Net cash used by operating activities

 

(62,877

)

(110,514

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from sale of fixed asset

 

4,800

 

 

Capital expenditures

 

(5,189

)

(4,059

)

Investments in unconsolidated joint ventures

 

2,242

 

(4,217

)

Acquisition, net of cash acquired

 

(320,810

)

 

Net cash used by investing activities

 

(318,957

)

(8,276

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from 8 3/8% Senior Notes

 

343,000

 

 

Change in revolving credit facility

 

 

(40,000

)

Proceeds from Term Loan

 

 

90,000

 

Proceeds from 8 5/8% Senior Notes

 

 

196,536

 

Redemption of 9% Senior Notes

 

 

(115,000

)

Proceeds from stock option exercises

 

5,140

 

1,743

 

Common share repurchases

 

(2,169

)

(306

)

Debt issuance costs

 

(133

)

(2,272

)

Net cash provided by financing activities

 

345,838

 

130,701

 

 

 

 

 

 

 

(Decrease)/increase in cash and cash equivalents

 

(35,996

)

11,911

 

Cash and cash equivalents at beginning of period

 

41,678

 

 

Cash and cash equivalents at end of period

 

$

5,682

 

$

11,911

 

 

 

 

 

 

 

Supplemental disclosure of noncash activity:

 

 

 

 

 

Issuance of common stock related to acquisition

 

$

308,573

 

$

 

 

See Notes to Consolidated Financial Statements

 

5



 

BEAZER HOMES USA, INC.

UNAUDITED CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

(in thousands)

 

 

 

Three Months
Ended June 30,

 

Nine Months
Ended June 30,

 

 

 

2002

 

2001

 

2002

 

2001

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

34,649

 

$

19,192

 

$

81,976

 

$

51,031

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income/(loss):

 

 

 

 

 

 

 

 

 

Gain/(loss) on cash flow hedges, net of related taxes

 

(1,284

)

411

 

174

 

(886

)

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

33,365

 

$

19,603

 

$

82,150

 

$

50,145

 

 

See Notes to Consolidated Financial Statements

 

6



 

BEAZER HOMES USA, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

(1) Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Beazer Homes USA, Inc. (“Beazer”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Such financial statements do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.  In our opinion, all adjustments (consisting solely of normal recurring accruals) necessary for a fair presentation have been included in the accompanying financial statements.  Certain items in prior period financial statements have been reclassified to conform to the current presentation.  For further information, refer to our audited consolidated financial statements appearing in our Annual Report on Form 10-K for the year ended September 30, 2001.

 

(2) Inventory

 

A summary of inventory is as follows (in thousands):

 

 

 

June 30,
2002

 

September 30,
2001

 

Homes under construction

 

$

639,760

 

$

435,856

 

Development projects in progress

 

596,549

 

338,401

 

Unimproved land held for future development

 

39,987

 

22,417

 

Model homes

 

67,364

 

48,063

 

 

 

$

1,343,660

 

$

844,737

 

 

Homes under construction includes homes finished and ready for delivery and homes in various stages of construction.  Excluding model homes, we had 388 completed homes (valued at $51.7 million) and 264 completed homes (valued at $45.9 million) at June 30, 2002 and September 30, 2001, respectively, that were not subject to a sales contract.

 

Development projects in progress consist principally of land and land improvement costs. Certain of the fully developed lots in this category are reserved by a deposit or sales contract.

 

We acquire certain lots by means of option contracts. Option contracts generally require the payment of cash for the right to acquire lots during a specified period of time at a certain price. Under option contracts without specific performance obligations, our liability is generally limited to forfeiture of the non-refundable deposits; these deposits aggregated approximately $28.9 million and $15.1 million at June 30, 2002 and September 30, 2001, respectively, and are included in development projects in process. Under option contracts, both with and without specific performance requirements, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers.

 

7



 

Below is a summary of amounts (in thousands) committed under all options at June 30, 2002:

 

 

 

Aggregate
Purchase
Price Under
Options

 

Options with specific performance

 

$

20,202

 

Options without specific performance

 

973,687

 

Total options

 

$

993,889

 

 

(3) Interest

 

The following table sets forth certain information regarding interest:

 

 

 

Three Months Ended
June 30,

 

Nine Months Ended
June 30,

 

 

 

2002

 

2001

 

2002

 

2001

 

Capitalized interest in inventory, beginning of period

 

$

18,122

 

$

15,889

 

$

16,271

 

$

13,681

 

Interest incurred and capitalized

 

16,729

 

10,306

 

34,518

 

26,578

 

Capitalized interest amortized to cost of sales

 

(12,887

)

(8,651

)

(28,825

)

(22,715

)

 

 

 

 

 

 

 

 

 

 

Capitalized interest in inventory, end of period

 

$

21,964

 

$

17,544

 

$

21,964

 

$

17,544

 

 

8



(4) Earnings Per Share

 

Basic and diluted earnings per share were calculated as follows (in thousands, except per share amounts):

 

 

 

Three Months Ended
June 30,

 

Nine Months Ended
June 30,

 

 

 

2002

 

2001

 

2002

 

2001

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

Net income before extraordinary item

 

$

34,649

 

$

19,925

 

$

81,976

 

$

51,764

 

Extraordinary loss on early extinguishment of debt

 

 

(733

)

 

(733

)

Net income per share

 

$

34,649

 

$

19,192

 

$

81,976

 

$

51,031

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

12,545

 

8,195

 

9,823

 

8,149

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share before extraordinary item

 

$

2.76

 

$

2.43

 

$

8.35

 

$

6.35

 

Extraordinary item

 

 

(0.09

)

 

(0.09

)

Net earnings per share

 

$

2.76

 

$

2.34

 

$

8.35

 

$

6.26

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

Net income

 

$

34,649

 

$

19,925

 

$

81,976

 

$

51,764

 

Extraordinary loss on early extinguishment of debt

 

 

(733

)

 

(733

)

Net income per share

 

$

34,649

 

$

19,192

 

$

81,976

 

$

51,031

 

Weighted average number of common shares outstanding

 

12,545

 

8,195

 

9,823

 

8,149

 

Effect of dilutive securities-

 

 

 

 

 

 

 

 

 

Restricted stock

 

503

 

504

 

546

 

486

 

Options to acquire common stock

 

340

 

551

 

373

 

489

 

Diluted weighted common shares outstanding

 

13,388

 

9,250

 

10,742

 

9,124

 

 

 

 

 

 

 

 

 

 

 

Dilued earnings per share before extraordinary item

 

$

2.59

 

$

2.15

 

$

7.63

 

$

5.67

 

Extraordinary item

 

 

(0.08

)

 

(0.08

)

Diluted earnings per share

 

$

2.59

 

$

2.07

 

$

7.63

 

$

5.59

 

 

9



 

5) Crossmann Acquisition

 

Effective April 17, 2002, Beazer acquired Crossmann Communities, Inc. (“Crossmann”).  Crossmann builds single-family homes in Indiana, Ohio, Kentucky, Tennessee, North Carolina, South Carolina and Mississippi.

 

The acquisition has been accounted for as a purchase; accordingly, the purchase price has been tentatively allocated to reflect the fair value of assets and liabilities acquired.  This acquisition resulted in approximately $236.1 million of goodwill.  In accordance with SFAS No. 142, as discussed in Note 7, this goodwill will not be amortized

 

The aggregate merger consideration we paid consisted of approximately 3.9 million shares of Beazer common stock (approximately $308.6 million) and $191.6 million in cash.  In connection with the merger, we also repaid approximately $125.4 million of Crossmann debt.  The cash portion of the merger consideration and the repayment of Crossmann debt upon the merger were funded from net proceeds of our issuance of $350 million 8 3/8% Senior Notes due 2012 in a private placement on April 17, 2002.

 

A preliminary estimate of the excess of purchase price over identifiable tangible and intangible net assets of Crossmann is summarized as follows:

 

Purchase price:

 

 

 

Cash

 

$

191,559

 

Beazer Common Stock

 

308,573

 

Purchase price of acquisition

 

500,132

 

Estimated merger expenses

 

11,774

 

Total cost of acquisition

 

511,906

 

Less: Net book value of Crossmann

 

(274,013

)

Plus: Crossmann historical goodwill

 

18,814

 

Less: Initial inventory write-up to fair value

 

(27,000

)

Plus: Write down of fixed asset to fair value

 

1,100

 

Plus: Make-whole premium on Crossmann debt

 

5,300

 

Excess purchase price to be assigned in acquisition, tentatively allocated to goodwill

 

$

236,107

 

 

The valuations and other studies required to determine the fair value of the Crossmann assets acquired and liabilities assumed are currently being finalized.  Accordingly, the preliminary estimate of the excess of purchase price over identifiable tangible and intangible net assets of Crossmann is preliminary and subject to adjustments, which could be material, as further fair value information is obtained.

 

10



 

A reconciliation of the purchase price included in the table above to the acquisition cost net of cash acquired as included in the unaudited consolidated statement of cash flows for the nine months ended June 30, 2002 is as follows:

 

Cash paid to Crossmann shareholders

 

$

191,559

 

Crossmann debt repaid on April 17, 2002

 

125,425

 

Merger expenses

 

11,774

 

Less: cash acquired

 

(7,948

)

Net cash paid for acquisition

 

$

320,810

 

 

Crossmann’s operating results have been included in our results since April 1, 2002.  The following unaudited pro forma financial data (in thousands, except per share amounts) gives effect to our acquisition of Crossmann as if it had occurred on the first day of each period presented.  The pro forma financial data is provided for comparative purposes only and is not necessarily indicative of the results which would have been obtained if the Crossmann acquisition had been effected at that date.

 

 

 

Nine Months
Ended
June 30, 2002

 

Nine Months
Ended
June 30, 2001

 

Total revenues

 

$

2,142,530

 

$

1,707,126

 

Net income

 

101,095

 

70,257

 

Net income per share:

 

 

 

 

 

Basic

 

$

8.06

 

$

5.85

 

Diluted

 

7.55

 

5.41

 

 

11



 

 

6) Long Term Debt and Associated Derivatives

 

At June 30, 2002, our long term debt consisted of $100 million 8 7/8% Senior Notes due in April 2008, $200 million 8 5/8% Senior Notes due in May 2011 and $350 million 8 3/8% Senior Notes due in April 2012 (collectively, the “Senior Notes”) and a $100 million four-year term loan due December 2004 (the “Term Loan”) which bears interest at a fluctuating rate based upon the corporate base rate of interest announced by our lead bank, the federal funds rate or LIBOR (3.5% at June 30, 2002).

 

We are exposed to fluctuations in interest rates.  We enter into derivative agreements to manage interest costs and hedge against risks associated with fluctuating interest rates.  We do not enter into or hold derivatives for trading or speculative purposes.  At June 30, 2002 and 2001, we had swap agreements (the “Swap Agreements”) to effectively fix the variable interest on our Term Loan.  The Swap Agreements mature in December 2004, on the same day as our Term Loan.  No portion of these hedges was considered ineffective for the period ended June 30, 2002.  Our Swap Agreements effectively fix the interest rate (before spread) on our Term Loan at a weighted average rate of 5.74% per annum.

 

The effect of the Swap Agreements as of June 30, 2002 and September 30, 2001 was to record an after-tax accumulated other comprehensive loss of $3.3 million and $3.5 million, respectively.  The estimated fair value of the Swap Agreements, based on current market rates, approximated $5.4 million and $5.7 million at June 30, 2002 and September 30, 2001, respectively, and is included in other liabilities.

 

All of our significant subsidiaries are full and unconditional guarantors of our Senior Notes and our obligations under our $250 million unsecured revolving credit facility (the “Revolving Credit Facility”) and Term Loan, and are jointly and severally liable for obligations under the Senior Notes, our Revolving Credit Facility and Term Loan.  Each significant subsidiary is a wholly-owned subsidiary of Beazer and Beazer has no independent assets or operations.  Any subsidiaries of Beazer that are not guarantors are minor subsidiaries.

 

(7) Recent Accounting Pronouncements

 

In July 2001 the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS’) No. 141 “Business Combinations” and SFAS No. 142 “Goodwill and Other Intangible Assets.”  SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and broadens the criteria for recording intangible assets separate from goodwill.  SFAS No. 141 also prohibits the use of the pooling-of-interest method for all business combinations initiated after June 30, 2001.

 

SFAS No. 142 requires the use of a nonamortization approach to account for purchased goodwill and certain intangibles.  Under a nonamortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead would be reviewed for impairment at least annually and written down and charged to results of operations only in periods in which the recorded value of goodwill and certain intangibles are determined to be greater than their fair value.

 

12



 

We early adopted SFAS No. 142 on October 1, 2001, the first day of our 2002 fiscal year.  The adoption of SFAS No. 142 has resulted in the discontinuation of amortization of goodwill previously recorded at $0.8 million annually (excluding the Crossmann acquisition in 2002).  No impairment charges were recognized from the adoption of this statement.

 

Net income for the three and nine month periods ended June 30, 2001 would have been $19.3 million and $51.5 million, respectively, after adding back goodwill amortization of $0.2 million and $0.5 million, respectively, expensed during the period.

 

SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets,” issued in August 2001 addresses accounting for and reporting of the impairment or disposal of long-lived assets.  We must adopt SFAS No. 144 on October 1, 2002, the beginning of fiscal 2003.  We expect that the adoption of SFAS No. 144 will not have a significant impact on our financial position or results of operations.  However, SFAS No. 144 may modify the presentation of the operating results from abandoned or disposed markets in our statement of operations in the future.

 

In April 2002, SFAS No. 145 “Rescission of SFAS No. 4, 44, 64 and Amendment of SFAS No. 13 and Technical Corrections” was issued.  SFAS No. 145 prevents treatment as extraordinary, gains or losses on extinguishment of debt not meeting the criteria of Accounting Principles Board Opinion No. 30.  SFAS No. 145 is effective for fiscal years beginning after May 15, 2002.  The adoption of SFAS No. 145 will affect the classification of such amounts in the financial statements of subsequent periods and comparative prior periods.  We have not elected to early adopt the provisions of SFAS No. 145 for this reporting period.

 

In June 2002, SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, was issued.  SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain costs incurred in a restructuring)”.  SFAS No.146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred as opposed to when the entity commits to an exit plan under EITF No. 94-3.  SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002.  We believe the adoption of SFAS No. 146 will not have a significant impact on our financial position or results of operations.

 

13



BEAZER HOMES USA, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

OVERVIEW:

 

Homebuilding:  We design, sell and build single-family homes in the following regions and states:

 

Southeast

 

West

 

Central

 

Mid-Atlantic

 

Midwest

Florida

 

Arizona

 

Texas

 

Maryland

 

Indiana

Georgia

 

California

 

 

 

New Jersey

 

Kentucky

Mississippi

 

Colorado

 

 

 

Pennsylvania

 

Ohio

North Carolina

 

Nevada

 

 

 

Virginia

 

 

South Carolina

 

 

 

 

 

 

 

 

Tennessee

 

 

 

 

 

 

 

 

 

We intend, subject to market conditions, to expand in our current markets and to consider entering new markets either through expansion from existing markets or through acquisitions of established regional homebuilders.  We seek to be one of the five largest builders in each of the markets that we serve.

 

Most of our homes are designed to appeal to entry-level and first time move-up homebuyers, and are generally offered for sale in advance of their construction.  Once a sales contract has been signed, we classify the transaction as a “new order” and include the home in “backlog.”  Such sales contracts are usually subject to certain contingencies such as the buyer’s ability to qualify for financing.  We do not recognize revenue on homes in backlog until the sales are closed and the risk of ownership has been transferred to the buyer.

 

Crossmann Acquisition: On April 16, 2002, the stockholders of Beazer and Crossmann Communities, Inc. approved the merger of Crossmann into a wholly-owned subsidiary of Beazer, and the merger became effective on April 17, 2002.  Crossmann builds single-family homes in Indiana, Ohio, Kentucky, Tennessee, North Carolina, South Carolina and Mississippi and was a leading regional builder in these markets prior to the merger.  We have included Crossmann’s operating results in our consolidated financial statements since April 1, 2002.

 

The aggregate merger consideration we paid consisted of approximately 3.9 million shares of Beazer common stock (approximately $308.6 million) and $191.6 million in cash.  In connection with the merger, we also repaid approximately $125.4 million of Crossmann debt.  The cash portion of the merger consideration and the repayment of Crossmann debt upon the merger were funded from proceeds of our issuance of $350 million 8 3/8% Senior Notes due 2012 in a private placement on April 17, 2002.

 

14



 

A preliminary estimate of the excess of purchase price over identifiable tangible and intangible net assets of Crossmann is summarized as follows:

 

Purchase price:

 

 

 

Cash

 

$

191,559

 

Beazer Common Stock

 

308,573

 

Purchase price of acquisition

 

500,132

 

Estimated merger expenses

 

11,774

 

Total cost of acquisition

 

511,906

 

Less: Net book value of Crossmann

 

(274,013

)

Plus: Crossmann historical goodwill

 

18,814

 

Less: Initial inventory write-up to fair value

 

(27,000

)

Plus: Write down of fixed asset to fair value

 

1,100

 

Plus: Make-whole premium on Crossmann debt

 

5,300

 

Excess purchase price to be assigned in acquisition, tentatively allocated to goodwill

 

$

236,107

 

 

The valuations and other studies required to determine the fair value of the Crossmann assets acquired and liabilities assumed are currently being finalized. Accordingly, the preliminary estimate of the excess of purchase price over identifiable tangible and intangible net assets of Crossmann is preliminary and subject to adjustments, which could be material, as further fair value information is obtained.

 

A reconciliation of the purchase price included in the table above to the acquisition cost net of cash acquired as included in the unaudited consolidated statement of cash flows for the nine months ended June 30, 2002 is as follows:

 

Cash paid to Crossmann shareholders

 

$

191,559

 

Crossmann debt repaid on April 17, 2002

 

125,425

 

Merger expenses

 

11,774

 

Less: cash acquired

 

(7,948

)

Net cash paid for acquisition

 

$

320,810

 

 

15



 

Ancillary Businesses:  We have established several businesses to support our core homebuilding operations.  We operate design centers in the majority of our markets.  Through these design centers, homebuyers can choose non-structural upgrades and options for their new home.  We also provide mortgage origination services for our homebuyers through Beazer Mortgage Corp (“BMC”) and Crossmann Mortgage Corp. (“CMC”) (subsequent to April 17, 2002).  BMC and CMC originate, process and broker mortgages to third party investors.  BMC and CMC do not retain or service the mortgages that they broker.  We also provide title services to our homebuyers in many of our markets.  We will continue to evaluate opportunities to provide other ancillary services to our homebuyers.

 

Critical Accounting Policies:  Revenue from the sale of a home is recognized when the closing has occurred and the risk of ownership is transferred to the buyer.  All associated homebuilding costs are charged to cost of sales in the period when the revenues from home closings are recognized.  Homebuilding costs include land and land development costs (based upon an allocation of such costs or specific lot costs), home construction costs (including an estimate of costs, if any, to complete home construction), previously capitalized indirect costs (principally for construction supervision), capitalized interest and estimated warranty costs.  Sales commissions are included in selling, general and administrative expense when the closing has occurred.  All other costs are expensed as incurred.

 

We continually evaluate the carrying value of our inventory for recoverability based on forecasted selling prices.  We also evaluate our goodwill for impairment; goodwill increased significantly as a result of the Crossmann acquisition.

 

Value Created: We evaluate our financial performance and the financial performance of our operations using Value Created, a variation of economic profit or economic value added.  Value Created measures the extent to which we exceed our cost of capital.  Most of our employees receive incentive compensation based upon a combination of Value Created and the change in Value Created.  We believe that our Value Created system encourages managers to act like owners, rewards profitable growth and focuses attention on long-term loyalty and performance.

 

16



 

 

RESULTS OF OPERATIONS:

 

The following presents certain operating and financial data for Beazer (dollars in thousands):

 

 

 

Three Months Ended
June 30,

 

Nine Months Ended
June 30,

 

 

 

2002

 

2001

 

2002

 

2001

 

 

 

Amount

 

%
Change

 

Amount

 

Amount

 

%
Change

 

Amount

 

Number of new orders, net of cancellations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Southeast region

 

1,387

 

37.9

%

1,006

 

3,438

 

18.0

%

2,914

 

West region

 

1,248

 

3.7

 

1,204

 

3,494

 

18.7

 

2,943

 

Central region

 

327

 

13.5

 

288

 

917

 

24.4

 

737

 

Mid-Atlantic region

 

337

 

(10.1

)

375

 

1,102

 

(0.3

)

1,105

 

Midwest region

 

928

 

n/a

 

0

 

928

 

n/a

 

0

 

Total

 

4,227

 

47.1

 

2,873

 

9,879

 

28.3

 

7,699

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of closings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Southeast region

 

1,350

 

42.0

%

951

 

2,856

 

28.0

%

2,231

 

West region

 

1,105

 

37.1

 

806

 

3,170

 

36.5

 

2,323

 

Central region

 

298

 

17.8

 

253

 

790

 

40.8

 

561

 

Mid-Atlantic region

 

347

 

30.5

 

266

 

1,088

 

24.1

 

877

 

Midwest region

 

860

 

n/a

 

0

 

860

 

n/a

 

0

 

Total

 

3,960

 

74.0

 

2,276

 

8,764

 

46.3

 

5,992

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total homebuilding revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Southeast region

 

$

218,255

 

29.2

%

$

168,967

 

$

477,287

 

21.0

%

$

394,564

 

West region

 

249,252

 

47.5

 

168,964

 

711,004

 

50.2

 

473,238

 

Central region

 

43,854

 

14.0

 

38,467

 

122,874

 

43.6

 

85,549

 

Mid-Atlantic region

 

100,944

 

56.6

 

64,468

 

278,233

 

34.0

 

207,691

 

Midwest region

 

119,964

 

n/a

 

0

 

119,964

 

n/a

 

0

 

Total

 

$

732,269

 

66.1

 

$

440,866

 

$

1,709,362

 

47.2

 

$

1,161,042

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average sales price per home closed:

 

 

 

 

 

 

 

 

 

 

 

 

 

Southeast region

 

$

161.7

 

(9.0

)%

$

177.7

 

$

167.1

 

(5.5

)%

$

176.9

 

West region

 

225.6

 

7.6

 

209.6

 

224.3

 

10.1

 

203.7

 

Central region

 

147.2

 

(3.2

)

152.0

 

155.5

 

2.0

 

152.5

 

Mid-Atlantic region

 

290.9

 

20.0

 

242.4

 

255.7

 

8.0

 

236.8

 

Midwest region

 

139.5

 

n/a

 

n/a

 

139.5

 

n/a

 

n/a

 

Company average

 

184.9

 

(4.5

)

193.7

 

195.0

 

0.6

 

193.8

 

 

 

17



 

 

 

June 30,

 

 

 

2002

 

2001

 

 

 

Amount

 

%
Change

 

Amount

 

Backlog units at end of period:

 

 

 

 

 

 

 

Southeast region

 

2,401

 

54.1

%

1,558

 

West region

 

1,930

 

9.1

 

1,769

 

Central region

 

511

 

17.5

 

435

 

Mid-Atlantic region

 

761

 

(12.9

)

874

 

Midwest region

 

2,024

 

n/a

 

0

 

Total

 

7,627

 

64.5

 

4,636

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate sales value of homes in backlog at end of period:

 

$

1,447,144

 

62.3

%

$

891,898

 

 

 

 

 

 

 

 

 

Number of active subdivisions at end of period:

 

 

 

 

 

 

 

Southeast region

 

181

 

39.2

%

130

 

West region

 

73

 

0.0

 

73

 

Central region

 

32

 

0.0

 

32

 

Mid-Atlantic region

 

39

 

(4.9

)

41

 

Midwest region

 

133

 

n/a

 

0

 

Total

 

458

 

65.9

 

276

 

 

New Orders and Backlog: New orders increased by 47% during the three month period ended June 30, 2002, compared to the same period in the prior year due to the inclusion of Crossmann orders, following its acquisition in April 2002.  Excluding Crossmann, new orders were up 2% during the three month period ended June 30, 2002 as compared to the quarter ended June 30, 2001, which was a very strong quarter as new orders were up 31% over the quarter ended June 30, 2000.  New orders were up 14% in our Central region, 4% in the West region, and down 10% in our Mid-Atlantic region. The decrease in orders in our Mid-Atlantic region reflects the decrease in the number of active subdivisions as compared to the same period in the prior year. Orders in our Southeast region, excluding Crossmann, were flat for the three months ended June 30, 2002 compared to the same period in the prior year.  We believe that activity in this region has temporarily leveled off after an extended period of extremely strong growth.  The Midwest region consists entirely of operations acquired as part of Crossmann.

 

New orders increased by 28% during the nine month period ended June 30, 2002, compared to the same period in the prior year.  Excluding Crossmann, new orders were up 11% for the nine months ended June 30, 2002, compared to the same period in the prior year.  We believe that the increase in new orders in our markets reflects a fundamentally high level of demand driven by strong demographic trends, especially in the first-time homebuyer segment of the market, combined with an extremely low level of housing inventory available in nearly all markets.  Demand was especially strong in our West and Central regions, where we have increased

 

18



 

our presence in the first-time buyer segment and where demographic trends are very positive, fueled by immigration and a constrained housing supply.

 

The aggregate dollar value of homes in backlog at June 30, 2002 increased 62% from June 30, 2001, reflecting a 65% increase in the number of homes in backlog and a 1% decrease in the average price of homes in backlog, from $192,400 at June 30, 2001 to $189,700 at June 30, 2002.  The average price of homes in backlog at June 30, 2002 for Crossmann was $140,100.  Excluding Crossmann, the aggregate dollar value of homes in backlog at June 30, 2002 increased 21% from June 30, 2001, reflecting an 8% increase in the number of homes in backlog and a 12% increase in the average price of homes in backlog, from $192,400 at June 30, 2001 to $215,900 at June 30, 2002.

 

The following table provides additional details of revenues and certain expenses and shows certain items expressed as a percentage of certain components of revenues (in thousands):

 

 

 

Three Months Ended
June 30,

 

Nine Months Ended
June 30,

 

 

 

2002

 

2001

 

2002

 

2001

 

Details of revenues and certain expenses:

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Home sales

 

$

732,269

 

$

440,866

 

$

1,709,362

 

$

1,161,042

 

Land and lot sales

 

4,105

 

3,528

 

9,629

 

15,476

 

Mortgage origination revenue

 

10,957

 

6,522

 

26,317

 

17,300

 

Intercompany elimination - mortgage

 

(3,518

)

(2,091

)

(8,466

)

(5,646

)

Total revenue

 

$

743,813

 

$

448,825

 

$

1,736,842

 

$

1,188,172

 

 

 

 

 

 

 

 

 

 

 

Cost of home construction and land sales:

 

 

 

 

 

 

 

 

 

Home sales

 

$

597,422

 

$

355,861

 

$

1,392,409

 

$

942,320

 

Land and lot sales

 

3,802

 

3,301

 

7,810

 

12,090

 

Intercompany elimination - mortgage

 

(3,518

)

(2,091

)

(8,466

)

(5,646

)

Total cost of home construction and land sales

 

$

597,706

 

$

357,071

 

$

1,391,753

 

$

948,764

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative:

 

 

 

 

 

 

 

 

 

Homebuilding operations

 

$

73,161

 

$

47,636

 

$

172,339

 

$

123,082

 

Mortgage origination operations

 

6,338

 

3,582

 

14,851

 

9,660

 

Total selling, general and administrative

 

$

79,499

 

$

51,218

 

$

187,190

 

$

132,742

 

 

 

 

 

 

 

 

 

 

 

Certain items as a percentage of revenues:

 

 

 

 

 

 

 

 

 

As a percentage of total revenue:

 

 

 

 

 

 

 

 

 

Costs of home construction and land sales

 

80.4

%

79.6

%

80.1

%

79.9

%

Amortization of previously capitalized interest

 

1.7

%

1.9

%

1.7

%

1.9

%

Selling, general and administrative:

 

 

 

 

 

 

 

 

 

Homebuilding operations

 

9.8

%

10.6

%

9.9

%

10.4

%

Mortgage operations

 

0.9

%

0.8

%

0.9

%

0.8

%

 

 

 

 

 

 

 

 

 

 

As a percentage of home sales revenue:

 

 

 

 

 

 

 

 

 

Costs of home construction

 

81.6

%

80.7

%

81.5

%

81.2

%

 

19



 

Revenues: Revenues increased by 66% for the three months ended June 30, 2002 compared to the same period in the prior year.  Excluding Crossmann, revenues increased 29%, reflecting a 7% increase in the average sales price of homes closed and a 21% increase in the number of homes closed. Revenues increased 46% for the nine months ended June 30, 2002 compared to the same period in the prior year.  Excluding Crossmann, revenues increased 32%, reflecting a 5% increase in the average sales price of homes closed and a 26% increase in the number of homes closed.  We also experienced increases of 68% and 53% in mortgage origination revenue for the three and nine month periods ended June 30, 2002, compared to the same periods of the prior year due to increased closings.

 

Cost of Home Construction: The cost of home construction as a percentage of home sales increased by 90 basis points for the three month period ended June 30, 2002, compared to the same period of the prior year primarily as a result of the negative impact of purchase accounting adjustments related to the Crossmann acquisition, totaling approximately $10.8 million ($0.49 per diluted share).  The purchase accounting adjustments are included as a reduction to gross margin during the June 2002 quarter and reflect principally the write-up of homes under construction to fair value.  Additionally, our results of operations for the quarter ended June 30, 2002 include a $2.6 million ($0.12 per diluted share) charge to cost of sales to adjust for misallocations made by our division based in Fort Myers, Florida. Such misallocations resulted principally from land and home costs allocated from closed homes and communities to inventory during the period from March 1999 to March 2002.  These errors did not have a material effect on our reported operating results in any previously reported interim or annual period.  The cost of home construction as a percentage of home sales increased slightly for the nine month period ended June 30, 2002, compared to the same period of the prior year due to the reasons discussed above.

 

Selling, General and Administrative Expense: Our selling, general and administrative (“SG&A”) expense decreased as a percentage of total revenues for the three and nine months ended June 30, 2002, compared to the same periods of the prior year as a result of revenues from Crossmann and improved efficiency in our business resulting from profit improvement initiatives and technology investments made over the past few years.  This increased efficiency allows us to generate a higher level of revenues without a commensurate increase in our SG&A expense.

 

Other Income: Other income for the three and nine months ended June 30, 2002 increased from the same periods of the prior year due to two non-recurring items during the June 2002 quarter.  Other income for the three and nine months ended June 30, 2002 includes a $3.3 million gain from the sale of a portion of our equity interest in Homebuilders Financial Network, Inc., the entity providing management services to BMC.  Offsetting this gain, other income includes approximately $1.8 million of imputed interest expense for the two weeks of the quarter that we did not own Crossmann.  Other income also increased due to additional income from title operations in fiscal 2002.

 

Income Taxes:  Our effective income tax rate was 39.5% and 39.0% for the three month periods ended June 30, 2002 and June 30, 2001, respectively and 39.2% and 39.0% for the nine month periods ended June 30, 2002 and June 30, 2001, respectively.

 

20



 

Derivative Instruments and Hedging Activities: We are exposed to fluctuations in interest rates.  We enter into derivative agreements to manage interest costs and hedge against risks associated with fluctuating interest rates.  We do not enter into or hold derivatives for trading or speculative purposes.  At June 30, 2002 and 2001, we had swap agreements (the “Swap Agreements”) to effectively fix the variable interest on our $100 million four-year Term Loan ($90 million at June 30, 2001).  The Swap Agreements mature in December 2004, on the same day as our $100 million four-year Term Loan. No portion of these hedges was considered ineffective for the period ended June 30, 2002.

 

The effect of the Swap Agreements as of June 30, 2002 and September 30, 2001 was to record an after-tax accumulated other comprehensive loss of $3.3 million and $3.5 million, respectively.  The estimated fair value of the Swap Agreements, based on current market rates, approximated $5.4 million and $5.7 million at June 30, 2002 and September 30, 2001, respectively, and is included in other liabilities.

 

Recent Accounting Pronouncements: In July 2001 the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS’) No. 141 “Business Combinations” and SFAS No. 142 “Goodwill and Other Intangible Assets.”  SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and broadens the criteria for recording intangible assets separate from goodwill.  SFAS No. 141 also prohibits the use of the pooling-of-interest method for all business combinations initiated after June 30, 2001.

 

SFAS No. 142 requires the use of a nonamortization approach to account for purchased goodwill and certain intangibles.  Under a nonamortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead would be reviewed for impairment at least annually and written down and charged to results of operations only in periods in which the recorded value of goodwill and certain intangibles are determined to be greater than their fair value.

 

We early adopted SFAS No. 142 on October 1, 2001, the first day of our 2002 fiscal year.     The adoption of SFAS No. 142 has resulted in the discontinuation of amortization of goodwill previously recorded at $0.8 million annually (excluding the Crossmann acquisition in 2002).  No impairment charges were recognized from the adoption of this statement.

 

Net income for the three and nine month periods ended June 30, 2001 would have been $19.3 million and $51.5 million, respectively, after adding back goodwill amortization of $0.2 million and $0.5 million, respectively, expensed during the period.

 

SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets,” issued in August 2001 addresses accounting for and reporting of the impairment or disposal of long-lived assets.  We must adopt SFAS No. 144 on October 1, 2002, the beginning of fiscal 2003.  We expect that the adoption of SFAS No. 144 will not have a significant impact on our financial position or results of operations.  However, SFAS No. 144 may modify the presentation of the operating results from abandoned or disposed markets in our statement of operations in the future.

 

In April 2002, SFAS No. 145 “Rescission of SFAS No. 4, 44, 64 and Amendment of SFAS No. 13 and Technical Corrections” was issued.  SFAS No. 145 prevents treatment as extraordinary, gains or losses on

 

21



 

extinguishment of debt not meeting the criteria of Accounting Principles Board Opinion No. 30.  SFAS No. 145 is effective for fiscal years beginning after May 15, 2002.  The adoption of SFAS No. 145 will affect the classification of such amounts in the financial statements of subsequent periods and comparative prior periods.  We have not elected to early adopt the provisions of FAS No. 145 for this reporting period.

 

In June 2002, SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, was issued.  SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain costs incurred in a restructuring)”.  SFAS No.146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred as opposed to when the entity commits to an exit plan under EITF No. 94-3.  SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002.  We believe the adoption of SFAS No. 146 will not have a significant impact on our financial position or results of operations.

 

FINANCIAL CONDITION AND LIQUIDITY:

 

We fulfill our short-term cash requirements with cash generated from operations and unused funds available from our $250 million unsecured revolving credit facility (the “Credit Facility”) with a group of banks.  Available borrowings under the Credit Facility are limited to certain percentages of homes under contract, unsold homes, substantially improved lots, raw land and accounts receivable.  Each of our significant subsidiaries is a guarantor under the Credit Facility.  At June 30, 2002, we had no outstanding borrowings and available borrowings of $179.2 million under the Credit Facility.

 

In December 2000 we entered into a $75 million four-year term loan with a group of banks (the “Term Loan”).  The Term Loan was subsequently increased to $100 million during fiscal 2001.  The Term Loan matures in December 2004 and bears interest at a fluctuating rate (3.5% at June 30, 2002) based on LIBOR.  Each of our significant subsidiaries is a guarantor under the Term Loan.  All proceeds from the Term Loan were used to pay down then outstanding borrowings under our Credit Facility.  Our Swap Agreements effectively fix the interest rate (before spread) on our Term Loan at a weighted average rate of 5.74% per annum.

 

At June 30, 2002, we had $650 million of outstanding senior debt ($638.8 million, net of discount), comprised of $100 million of 8 7/8% Senior Notes due in April 2008, $200 million of 8 5/8% Senior Notes due in May 2011 and $350 million of  8 3/8% Senior Notes due in April 2012 (collectively, the “Senior Notes”).  Each of our significant subsidiaries is a guarantor under the Senior Notes.

 

As previously discussed, on April 17, 2002, we completed our acquisition of Crossmann.  The cash portion of the merger consideration ($191.6 million) and our repayment of $125 million of Crossmann debt were funded from proceeds of our 8 3/8% Senior Notes due 2012 issued in a private placement on April 17, 2002.

 

The Credit Facility, Term Loan and Senior Notes all contain various operating and financial covenants, and non-compliance with such covenants would accelerate the repayment terms of each.  At June 30, 2002, we were in compliance with each of these covenants and we expect to remain in compliance

 

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with each of these covenants.  Neither the Credit Facility, Term Loan nor Senior Notes restrict distributions to Beazer Homes USA, Inc. by its subsidiaries.

 

We have utilized, and will continue to utilize, land options as a method of controlling and subsequently acquiring land.  At June 30, 2002, we had 39,655 lots under option.  At June 30, 2002, we had commitments with respect to option contracts with and without specific performance obligations for approximately $20.2 and $973.7 million, respectively.  We expect to exercise all of our option contracts with specific performance obligations and, subject to market conditions, substantially all of our options contracts without specific performance obligations.

 

Our long term debt and other contractual obligations (principally operating leases) are further described in notes 7, 8, 9 and 11 to our financial statements which appear in our Annual Report on Form 10-K for the year ended September 30, 2001.

 

In January 2000, we filed a $300 million universal shelf registration statement on Form S-3 with the Securities and Exchange Commission.  Pursuant to the filing, we may, from time to time over an extended period, offer new debt and/or equity securities.  Our $200 million 8 5/8% Senior Notes were sold pursuant to this registration statement.  The timing and amount of future offerings, if any, will depend on market and general business conditions.

 

We believe that our current borrowing capacity, together with anticipated cash flows from operations, is sufficient to meet liquidity needs for the foreseeable future.  There can be no assurance, however, that amounts available in the future from our sources of liquidity will be sufficient to meet future capital needs.  The amount and types of indebtedness that we may incur may be limited by the terms of the Indentures governing our Senior Notes and our Term Loan and Credit Facility.  We continually evaluate expansion opportunities through acquisition of established regional homebuilders and such opportunities may require us to seek additional capital in the form of equity or debt financing from a variety of potential sources, including additional bank financing and/or securities offerings.

 

OUTLOOK:

 

We are confident about our prospects for fiscal 2002 and optimistic about our long-term prospects.  We understand the uncertainties surrounding the economy may reduce this optimism in the future.  At this time, our increased earnings for the nine months ended June 30, 2002 and our current higher level of backlog give us strong indications of increased earnings in fiscal 2002 compared to fiscal 2001.  We believe that earnings per share for fiscal 2002 are likely to be at least $10.25, an increase of at least 25% over fiscal 2001.  Recognizing both continuing growth in our current operations as well as accretion from our Crossmann acquisition, we are establishing a target of $12.00 for EPS in fiscal 2003, up 17% from our revised target for fiscal 2002.  This EPS target is based on achieving over $3 billion in revenue in fiscal 2003.  In addition, we believe that positive demographic trends, gains in market share by larger public homebuilders and the benefits of the internet will allow us to continue to report increased earnings in fiscal 2003 and beyond.

 

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Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995:

 

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the federal securities laws.  These forward-looking statements include, among others, statements concerning our outlook for future quarters including projected earnings per share for fiscal 2002 and fiscal 2003, overall and market specific volume trends, pricing trends and forces in the industry, cost reduction strategies and their results, our expectations as to funding our capital expenditures and operations during 2002, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts.  The forward-looking statements in this report are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements.  The most significant factors that could cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to, the following:

 

      Economic changes nationally or in one or more of our local markets,

      Volatility of mortgage interest rates,

      Increased competition,

      Shortages of skilled labor or raw materials used in the production of houses,

      Increased prices for labor, land and raw materials used in the production of houses,

      Increased land development costs on projects under development,

      Availability and cost of general liability and other insurance to manage risks,

      Any delays in reacting to changing consumer preference in home design,

      Terrorists acts or other acts of war,

      Changes in consumer confidence,

      Ability to effectively integrate acquired companies, including Crossmann,

      Delays or difficulties in implementing our initiatives to reduce our production and overhead cost structure,

      Delays in land development or home construction resulting from adverse weather conditions,

      Potential delays or increased costs in obtaining necessary permits as a result of changes to laws, regulations or governmental policies,

      Other factors over which we have little or no control.

 

Item 3: Quantitative and Qualitative Disclosures About Market Risk

 

We are exposed to a number of market risks in the ordinary course of business.  Our primary market risk exposure for financial instruments relates to fluctuations in interest rates.  We do not believe our exposure in this area is material to cash flows or earnings.  We have Swap Agreements to manage interest costs and hedge against risks associated with fluctuating interest rates with respect to our $100 million Term Loan maturing in December 2004.  We do not enter into or hold derivatives for trading or speculative purposes.

 

Pursuant to the Swap Agreements, we have exchanged floating interest rate obligations on an aggregate of $100 million in notional principal amount.  We have formally designated these agreements as cash flow hedges.

 

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PART IIOTHER INFORMATION

 

Item 4.            Submission of Matters to a Vote of Security Holders

 

On April 16, 2002, we held our annual meeting of shareholders, at which the following matters were voted upon with the results indicated below.  All numbers reported are shares of Beazer’s common stock.

 

1)     A proposal to approve the issuance of the common stock, par value $.01 of Beazer Homes USA, Inc. to stockholders of Crossmann Communities, Inc. pursuant to the Agreement and Plan of Merger dated as of January 29, 2002, among Beazer Homes USA, Inc., Beazer Homes Investment Corp. and Crossmann Communities, Inc. was approved as set forth below:

 

For

 

Against

 

Withheld

 

6,302,207

 

16,863

 

5,434

 

 

 

2)  The shareholders elected seven members to the Board of Directors to serve until the next annual meeting.  The results of voting were as follows (based on 8,689,359 outstanding shares entitled to vote):

 

 

 

Election of Directors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

 

For

 

Against

 

Authority

 

 

 

 

 

 

 

Withheld

 

Laurent Alpert

 

8,183,369

 

0

 

141,496

 

Brian C. Beazer

 

8,247,653

 

0

 

77,212

 

Thomas B. Howard, Jr.

 

8,260,732

 

0

 

64,133

 

Ian J. McCarthy

 

7,385,807

 

0

 

939,058

 

D. E. Mundell

 

8,260,527

 

0

 

64,338

 

Larry T. Solari

 

8,259,159

 

0

 

65,706

 

David S. Weiss

 

8,260,538

 

0

 

64,327

 

 

3)  A proposal to amend the Beazer Homes USA, Inc. Amended and Restated 1999 Stock Incentive Plan was approved as set forth below:

 

For

 

Against

 

Withheld

 

4,472,282

 

1,527,915

 

6,962

 

 

4)  A proposal to amend the Beazer Homes USA, Inc. Value Created Incentive Plan was approved as set forth below:

 

For

 

Against

 

Withheld

 

6,167,178

 

147,581

 

9,113

 

 

 

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Item 6.    Exhibits and Reports on Form 8-K

 

(a)                 Exhibits:

 

99.1  Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

99.2  Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

(b)                 Reports on Form 8-K:

 

On April 4, 2002, we filed a Form 8-K announcing our new home orders for the month and quarter ended March 31, 2002.

 

On April 4, 2002, we filed an additional Form 8-K announcing our $350 million Senior Note Offering

 

On April 10, 2002, we filed a Form 8-K announcing we received an upgrade from Standard & Poor’s and announcing we had scheduled a conference call to discuss results for the quarter ended March 31, 2002 on April 25, 2002.

 

On April 15, 2002, we filed a Form 8-K announcing the base merger consideration calculation for the merger with Crossmann Communities, Inc.

 

On May 2, 2002, we filed a Form 8-K announcing that the merger with Crossmann Communities, Inc. had been approved by shareholders and became effective on April 17, 2002.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Beazer Homes USA, Inc.

 

 

 

Date:

August 14, 2002

By:

/s/ David S. Weiss

 

 

 

Name:

David S. Weiss

 

 

 

Executive Vice President and

 

 

 

Chief Financial Officer

 

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