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Delaware	58-2086934
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

Title of Securities	Exchanges on which Registered
Common Stock, $.01 par value per share	New York Stock Exchange
Preferred Share Purchase Rights	New York Stock Exchange

	Part of 10-K where incorporated
Portions of the registrant’s Proxy Statement for the 2005 Annual Meeting of Stockholders	III

 

 

 

 

 

		Page Number
PART I.
Item 1.	Business	2
Item 2.	Properties	10
Item 3.	Legal Proceedings	10
Item 4.	Submission of Matters to a Vote of Security Holders	11
PART II.
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	13
Item 6.	Selected Financial Data	14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 8.	Financial Statements and Supplementary Data	33
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	63
Item 9A.	Controls and Procedures	63
PART III.
Item 10.	Directors and Executive Officers of the Registrant	63
Item 11.	Executive Compensation	63
Item 12.	Security Ownership of Certain Beneficial Owners and Management	63
Item 13.	Certain Relationships and Related Transactions	63
Item 14.	Principal Accounting Fees and Services	63
PART IV.
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	64
SIGNATURES

 

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Region/State	Market(s) / Year Entered
Southeast Region:
Florida	Jacksonville (1993), Fort Myers/Naples (1996), Tampa/St. Petersburg (1996), Orlando (1997)
Georgia	Atlanta (1985)
North Carolina	Charlotte (1987), Raleigh/Durham (1992), Greensboro (1999)
South Carolina	Charleston (1987), Columbia (1993), Myrtle Beach (2002)
Tennessee/Mississippi	Nashville (1987), Memphis (2002), Northern Mississippi (2002)
West Region:
Arizona	Phoenix (1993)
California	Los Angeles County (1993), Orange County (1993), Riverside & San Bernadino Counties (1993), San Diego County (1992), Ventura County (1993), Sacramento (1993)
Colorado	Denver (2001), Colorado Springs (2003)
Nevada	Las Vegas (1993)
Central Region:
Texas	Dallas/Ft. Worth (1995), Houston (1995)
Mid-Atlantic Region:
Maryland/Delaware	Baltimore (1998), Metro-Washington DC (1998), Delaware (2003)
New Jersey/ Pennsylvania	Central and Southern New Jersey (1998), Bucks County, PA (1998)
Virginia/West Virginia	Fairfax County (1998), Loudoun County (1998), Prince William County (1998), West Virginia (2004)
Midwest Region:
Indiana	Indianapolis (2002), Lafayette (2002), Ft. Wayne (2002)
Kentucky	Lexington (2002)
Ohio	Columbus (2002), Cincinnati/Dayton (2002)

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§

leveraging our size to create economies of scale in purchasing and construction;

§

standardizing best practices and product designs;

§

using branding and increased market penetration to maximize efficiency of land use; and

§

leveraging our fixed cost infrastructure by increasing depth and breadth in markets where we have an established presence.

 

 

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·

the historical and projected growth of the population;

·

the number of new jobs created or projected to be created;

·

the number of housing starts in previous periods;

·

building lot availability and price;

·

housing inventory;

·

level of competition; and

·

home sale absorption rates.

State		Number of Active Subdivisions			Number of Homes Closed			Average Closing Price			Units in Backlog at Year End			Dollar Value of Backlog at Year End
Arizona			32			1,403		$	209.1			1,068		$	253,193
California			31			2,457			362.1			1,020			432,293
Colorado			15			420			370.3			133			46,951
Florida			41			1,616			241.6			1,200			301,021
Georgia			19			670			208.7			168			40,901
Indiana			86			1,591			144.6			875			123,532
Kentucky			8			209			135.5			42			6,237
Maryland/Delaware			21			333			348.8			371			125,758
Nevada			12			1,600			222.8			919			271,620
New Jersey/Pennsylvania			13			381			342.8			236			87,980
North & South Carolina			89			2,564			149.0			1,016			165,475
Ohio			35			592			170.6			294			54,556
Tennessee/Mississippi			28			726			179.4			245			44,606
Texas			43			1,020			160.4			429			68,105
Virginia/West Virginia			23			869			360.0			440			213,689
Total Company			496			16,451		$	232.2			8,456		$	2,235,917

 

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·

evaluate and select geographic markets;

·

allocate capital resources to particular markets, including with respect to land acquisitions;

·

maintain and develop our relationships with lenders and capital markets constituencies to regulate the flow of financial resources;

·

maintain centralized information systems; and

·

monitor the decentralized operations of our subsidiaries and divisions.

Land Acquisition and Development

·

internal and external demographic and marketing studies;

·

suitability for development during the time period of one to five years from the beginning of the development process to the last closing;

·

financial review as to the feasibility of the proposed project, including projected Value Created, profit margins and returns on capital employed;

·

the ability to secure governmental approvals and entitlements;

·

environmental and legal due diligence;

·

competition in the area;

·

proximity to local traffic corridors and amenities; and

·

management's judgment as to the real estate market and economic trends and our experience in a particular market.

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For homes sold through March 31, 2004 (and in certain markets, through July 31, 2004), we self-insure our structural warranty obligations through our wholly owned risk retention group, United Home Insurance Company, A Risk Retention Group, or UHIC. Beginning with homes sold April 1, 2004 (August 1, 2004 in certain markets), our warranties are issued and administered by Professional Warranty Corporation and insured by Steadfast Insurance Company, a Zurich American Company, subject to a $5 million per occurrence deductible.    

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·

our experience within our geographic markets and breadth of product line, which allows us to vary our regional product offerings to reflect changing market conditions;

·

our responsiveness to market conditions, enabling us to capitalize on the opportunities for advantageous land acquisitions in desirable locations; and

·

our reputation for quality design, construction and service.

 

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Name	Age	Position
Executive Officers
Ian J. McCarthy	51	President, Chief Executive Officer and Director
Michael H. Furlow	54	Executive Vice President, Chief Operating Officer
James O’Leary	41	Executive Vice President, Chief Financial Officer
John Skelton	55	Senior Vice President, Forward Planning
C. Lowell Ball	47	Senior Vice President, General Counsel
Michael T. Rand	42	Senior Vice President, Chief Accounting Officer
Jonathan P. Smoke	35	Senior Vice President, Chief Information Officer
Cory J. Bodyston	45	Senior Vice President, Treasurer
Fred Fratto	50	Senior Vice President, Human Resources

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Quarter ended:		September 30			June 30			March 31			December 31
2004 Period:
High		$	109.85		$	107.10		$	112.99		$	109.60
Low		$	86.43		$	89.15		$	88.26		$	83.39
2003 Period:
High		$	87.94		$	94.90		$	63.93		$	70.40
Low		$	75.57		$	58.18		$	52.49		$	51.40

Plan Category		Number of Common Shares to be Issued Upon Exercise of Outstanding Options		Weighted-Average Exercise Price of Outstanding Options		Number of Common Shares Remaining Available for Future Issuance Under Equity Compensation Plans (excluding Common Shares Reflected in Column (a))
		(a)		(b)		(c)
Equity compensation plans approved by stockholders		607,268		$58.78		1,007,348

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		Year Ended September 30,
		2004			2003			2002			2001			2000
Net cash provided/(used) by operating activities		$	(73,719	)	$	(41,049	)	$	59,464		$	(25,578	)	$	(18,726	)
Increase in inventory			410,525			328,893			152,990			153,668			97,104
Provision for income taxes			150,764			112,784			79,425			47,872			27,879
Deferred income tax benefit (provision)			22,740			(87	)		6,613			7,906			3,792
Interest amortized to cost of sales			66,199			55,451			43,001			33,235			27,704
Increase in accounts payable and other liabilities			(120,976	)		(96,224	)		(71,781	)		(38,721	)		(39,654	)
Change in book overdraft			-			-			-			(20,095	)		11,219
Increase (decrease) in accounts receivable and other assets			21,399			14,702			(2,010	)		16,837			1,671
Loss on early extinguishment of debt			-			(7,570	)		-			(1,202	)		-
Tax benefit from stock transactions			(8,127	)		(11,502	)		(12,235	)		(3,837	)		-
Other			(276	)		(1,198	)		(954	)		(4,849	)		(4,948	)
EBITDA			468,529			354,200			254,513			165,236			106,041
Less depreciation and amortization			15,755			13,220			9,453			9,253			6,852
EBIT		$	452,774		$	340,980		$	245,060		$	155,983		$	99,189

 

 

 

 

 

 

Southeast	West	Central	Mid-Atlantic	Midwest
Florida	Arizona	Texas	Delaware	Indiana
Georgia	California		Maryland	Kentucky
Mississippi	Colorado		New Jersey	Ohio
North Carolina	Nevada		Pennsylvania
South Carolina			Virginia
Tennessee			West Virginia

 

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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, including costs to complete the development, 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.

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The following tables present certain operating and financial data for the years discussed:

 

		2004						2003						2002
		Amount			% Change			Amount			% Change			Amount
Number of new orders,
net of cancellations(1) :
Southeast Region:
Florida			2,061			33.1	%		1,549			22.5	%		1,265
Georgia			650			25.2			519			3.4			502
North and South Carolina			2,461			(13.6	)		2,850			30.9			2,177
Tennessee/Mississippi			712			2.3			696			2.5			679
Total Southeast			5,884			4.8			5,614			21.4			4,623
West Region:
Arizona			1,764			22.2			1,443			11.5			1,294
California			2,776			38.2			2,009			(10.3	)		2,239
Colorado			410			13.9			360			53.2			235
Nevada			1,783			34.1			1,330			47.6			901
Total West			6,733			30.9			5,142			10.1			4,669
Central Region:
Texas			1,053			(6.6	)		1,128			(9.3	)		1,244
Mid-Atlantic Region:
Maryland/Delaware			430			15.9			371			15.2			322
New Jersey/Pennsylvania			404			15.4			350			25.0			280
Virginia/West Virginia			679			(27.3	)		934			22.4			763
Total Mid-Atlantic			1,513			(8.6	)		1,655			21.2			1,365
Midwest Region:
Indiana			1,558			(23.1	)		2,026			67.3			1,211
Kentucky			132			(42.4	)		229			100.9			114
Ohio			608			16.5			522			35.9			384
Total Midwest			2,298			(17.2	)		2,777			62.5			1,709
Total			17,481			7.1	%		16,316			19.9	%		13,610
Backlog at end of year:
Southeast Region:
Florida			1,200			58.9	%		755			12.7	%		670
Georgia			168			(10.6	)		188			26.2			149
North and South Carolina			1,016			(9.2	)		1,119			36.0			823
Tennessee/Mississippi			245			(5.4	)		259			15.1			225
Total Southeast			2,629			13.3			2,321			24.3			1,867
West Region:
Arizona			1,068			51.1			707			15.0			615
California			1,020			45.5			701			(4.4	)		733
Colorado			133			(7.0	)		143			164.8			54
Nevada			919			24.9			736			70.8			431
Total West			3,140			37.3			2,287			24.8			1,833
Central Region:
Texas			429			8.3			396			(21.9	)		507
Mid-Atlantic Region:
Maryland/Delaware			371			35.4			274			83.9			149
New Jersey/Pennsylvania			236			10.8			213			53.2			139
Virginia/West Virginia			440			(30.2	)		630			52.9			412
Total Mid-Atlantic			1,047			(6.3	)		1,117			59.6			700
Midwest Region:
Indiana			875			(3.6	)		908			(15.8	)		1,079
Kentucky			42			(64.7	)		119			54.5			77
Ohio			294			5.8			278			(39.0	)		456
Total Midwest			1,211			(7.2	)		1,305			(19.0	)		1,612
Total			8,456			13.9	%		7,426			13.9	%		6,519
(1) New orders for 2002 do not include 2,535 homes in backlog from acquired operations.

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		Year Ended September 30,
		2004						2003						2002
		Amount			% Change			Amount			% Change			Amount
Number of closings:
Southeast Region:
Florida			1,616			10.4	%		1,464			29.3	%		1,132
Georgia			670			39.6			480			1.5			473
North and South Carolina			2,564			0.4			2,554			21.4			2,103
Tennessee/Mississippi			726			9.7			662			(23.6	)		867
Total Southeast			5,576			8.1			5,160			12.8			4,575
West Region:
Arizona			1,403			3.8			1,351			11.6			1,211
California			2,457			20.4			2,041			(0.9	)		2,059
Colorado			420			55.0			271			(27.9	)		376
Nevada			1,600			56.1			1,025			28.8			796
Total West			5,880			25.4			4,688			5.5			4,442
Central Region:
Texas			1,020			(17.7	)		1,239			10.5			1,121
Mid-Atlantic Region:
Maryland/Delaware			333			35.4			246			(29.3	)		348
New Jersey/Pennsylvania			381			38.0			276			(0.4	)		277
Virginia			869			21.4			716			(9.0	)		787
Total Mid-Atlantic			1,583			27.9			1,238			(12.3	)		1,412
Midwest Region:
Indiana			1,591			(27.6	)		2,197			51.7			1,448
Kentucky			209			11.8			187			81.6			103
Ohio			592			(15.4	)		700			39.4			502
Total Midwest			2,392			(22.4	)		3,084			50.2			2,053
Total			16,451			6.8	%		15,409			13.3	%		13,603
Homebuilding Revenues(in thousands):
Southeast Region		$	1,042,589			15.7	%	$	900,901			18.6	%	$	759,646
West Region			1,694,954			45.9			1,161,983			16.9			994,120
Central Region			163,569			(15.2	)		192,841			10.3			174,816
Mid-Atlantic Region			559,596			37.6			406,708			6.9			380,296
Midwest Region			359,320			(18.1	)		438,831			53.4			286,032
Total		$	3,820,028			23.2	%	$	3,101,264			19.5	%	$	2,594,910
Average sales price per home closed(in thousands):
Southeast Region		$	187.0			7.1	%	$	174.6			5.2	%	$	166.0
West Region			288.3			16.3			247.9			10.8			223.8
Central Region			160.4			3.1			155.6			(0.2	)		155.9
Mid-Atlantic Region			353.5			7.6			328.5			22.0			269.3
Midwest Region			150.2			5.6			142.3			2.2			139.3
Company Average			232.2			15.4			201.3			5.5			190.8
Number of active subdivisions at year end:
Southeast Region			177			(0.6	)%		178			(5.3	)%		188
West Region			90			(7.2	)		97			32.9			73
Central Region			43			10.3			39			14.7			34
Mid-Atlantic Region			57			42.5			40			14.3			35
Midwest Region			129			(7.9	)		140			1.4			138
Total			496			0.4	%		494			5.6	%		468

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New Orders:  

New orders increased in each of the last two fiscal years compared to the prior year.

The increases in new orders during fiscal 2004 compared to fiscal 2003 were driven by our Southeast and West regions. Order increases in our Southeast region reflect strength in Georgia and Florida, which was somewhat offset by weakness in parts of the Carolinas. Orders increased in all markets in our West region, where demand continues to be strong. Orders were down in our Mid-Atlantic region compared to a strong 2003, including orders during 2003 for affordable housing units built through governmental programs. The decreases in orders in our Midwest region reflect continued weakness in our Indiana and Kentucky markets driven primarily by the soft economy in those markets. Management continues to focus efforts on improving performance in the Mid west. We have initiated specific actions including completing a three-year financial plan, organizational alignment including management changes where appropriate, consolidating some office facilities, eliminating redundant costs, introducing new product into the region, and enhancing realtor programs and other marketing initiatives, including a coordinated media campaign centered on the Beazer Homes brand. Management continues to believe that these markets hold long-term strategic advantages for the Company. Orders were also down in our Central Region, reflecting continued weakness in our Dallas market.

The increases in new orders in fiscal 2003 reflected strong overall demand in most of our markets, with the strongest growth in the Southeast, Mid-Atlantic and West regions. Low interest rates and favorable demographic trends, including population growth, fueled demand, particularly in the first-time buyer segment. The increase in new orders in the Midwest during fiscal 2003 reflects the inclusion of results from that region for a full year compared to six months of fiscal 2002.

The fundamentals that drive sales activity are numerous and varied. On a macro level, low unemployment and low mortgage interest rates each contribute to a positive general homebuilding market environment. Our ability to stay ahead of changing customer preferences and local demographic trends with our product mix and to maintain adequate product supply (as measured by the number of active subdivisions) contributes locally to new order trends.

Backlog: The increases in unit backlog in each of the past two fiscal years reflect the favorable homebuilding environment driving new order activity, and our ability to gain market share. The average sales price of homes in backlog increased at September 30, 2004 to $264,400 from $221,500 at September 30, 2003 and $198,400 at September 30, 2002. The increase in the overall average price in backlog is due to our ability to raise prices in most markets, especially in our West and Mid-Atlantic regions, an increased percentage of homes in backlog from the higher priced West region, and our efforts in price point diversification where in some markets we are expanding our product offering to include higher priced homes.

 

Aggregate Sales Value of Homes in Backlog
(in thousands)
2004		$	2,235,917
2003			1,644,814
2002			1,293,290

 

 

Average Sales Price of Homes in Backlog
(in thousands)
2004		$	264.4
2003			221.5
2002			198.4

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Seasonality and Quarterly Variability:

Our homebuilding operating cycle generally reflects escalating new order activity in our second and third fiscal quarters and increased closings in our third and fourth fiscal quarters. Fiscal 2002 results include new orders and closings for Crossmann from April 1, 2002, resulting in an increase in new orders and in closings for the third and fourth fiscal quarters. We believe that the typical seasonality reflects the preference of homebuyers to shop for a new home in the spring, as well as the scheduling of construction to accommodate seasonal weather conditions.

The following chart presents certain quarterly operating data for our last twelve fiscal quarters and is indicative of this seasonality.

New Orders
	4thQ	3rdQ	2ndQ	1stQ
2004	4,276	4,869	5,032	3,304
2003	3,862	4,734	4,579	3,141
2002	3,731	4,227	3,142	2,510

Closings
	4thQ	3rdQ	2ndQ	1stQ
2004	5,098	4,061	3,684	3,608
2003	5,014	3,616	3,297	3,482
2002	4,839	3,960	2,439	2,365

 

Financial Results:

The following table provides additional details of revenues and certain expenses included in our consolidated statements of operations (in thousands).

		Year Ended September 30,
		2004			2003			2002
Revenues:
Homebuilding (1)		$	3,824,142		$	3,097,021		$	2,594,910
Land and lot sales			44,702			39,069			18,051
Mortgage origination			51,140			57,152			41,006
Intercompany elimination - mortgage			(12,875	)		(15,834	)		(12,794	)
Total revenue		$	3,907,109		$	3,177,408		$	2,641,173
Cost of home construction and land sales:
Homebuilding(1)		$	3,069,976		$	2,515,015		$	2,152,757
Land and lot sales			42,631			34,854			15,452
Intercompany elimination - mortgage			(12,875	)		(15,834	)		(12,794	)
Total cost of home construction and land sales		$	3,099,732		$	2,534,035		$	2,155,415
Selling, general and administrative:
Homebuilding operations		$	397,601		$	325,657		$	269,655
Mortgage origination operations			31,841			30,991			22,929
Total selling, general and administrative		$	429,442		$	356,648		$	292,584

(1)

Homebuilding revenues for fiscal 2004 reflect the recognition on a consolidated basis of $4.1 million of revenues related to closings that occurred in fiscal 2003, but for which funding was not received until fiscal 2004. During fiscal 2003, revenues and related cost of sales were not recognized on those closings where the buyers' initial investments were not sufficient to recognize profit at the time of closing. We received funding on such closings pursuant to commitments from bond authority programs in early fiscal 2004, at which time we recognized the revenues and related cost of sales.

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Revenues:

The increase in homebuilding revenues for fiscal 2004 compared to fiscal 2003 is the result of an increase in the number of homes closed and increased average sales prices in most of our markets. The increases in both closings and average sales price were driven primarily by continued strong demand in most of our markets.

The increase in homebuilding revenues for fiscal 2003 compared to fiscal 2002 is the result of an increase in the number of homes closed and increased average sales prices in most of our markets, as well as the inclusion for a full year of the Midwest region, which we entered with the acquisition of Crossmann in April 2002.

Cost of Home Construction and Land Sales:

Cost of Home Construction and Land Sales
(in thousands)
		2004			2003			2002
Revenues		$	3,907,109		$	3,177,408		$	2,641,173
Cost of home construction and land sales		$	3,099,732		$	2,534,035		$	2,155,415
Gross Margin			20.7	%		20.2	%		18.4	%

Gross margin increased in fiscal 2004 as compared to fiscal 2003 as a result of a strong pricing environment driven by robust demand and constraints on supply in many of our markets, combined with the realization of cost savings arising from the execution of our profit improvement initiatives. Fiscal 2004 gross margins also benefited from a higher percentage of revenues from our West and Mid-Atlantic regions, where margins are high relative to other markets. The fiscal 2004 margin improvement was achieved despite $43.9 million in warranty expenses associated with construction defect claims from water intrusion at one of our Midwest divisions.

Gross margin increased in fiscal 2003 as compared to fiscal 2002 as a result of our ability to raise prices in most markets combined with greater emphasis on focused profit improvement initiatives, including cost reductions resulting from improved efficiency and the negotiation of national and regional supply agreements. Fiscal 2003 gross margins also benefited from a higher percentage of revenues from California, where margins are high relative to other markets, while fiscal 2002 margins were negatively impacted by purchase accounting adjustments related to the Crossmann acquisition. The fiscal 2003 margin improvement was achieved despite higher warranty expenses associated with construction defect claims from water intrusion in the Midwest and inventory write-downs in the Southeast.

We executed several land sales during the past three fiscal years. We realized gross profits of $2.1 million, $4.2 million, and $2.6 million on these land sales in fiscal 2004, 2003 and 2002, respectively.

Selling, General and Administrative Expense:

Selling, General and Administrative Expense as a Percentage of Total Revenue
2004	11.0%
2003	11.2%
2002	11.1%

During fiscal 2004, SG&A expense decreased as a percentage of revenue despite the inclusion of $12.3 million of marketing costs associated with our national branding initiative. The decrease is due primarily to benefits from scale as we leverage our overhead infrastructure through organic revenue growth.

During fiscal 2003, SG&A expense increased slightly as a percentage of revenue due primarily to higher management bonuses for fiscal 2003, the amount of which is related to the increase in our profits rather than our increase in revenue. In addition to increased management bonuses, fiscal 2003 SG&A included marketing costs incurred in preparation for the roll out of our national branding initiative launched in early fiscal 2004.

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Mortgage Origination Operations

Number of Mortgages Originated
		2004			2003			2002
Beazer Mortgage originations			9,633			10,139			8,882
Total closings			16,151			15,409			13,603
Capture rate			59	%		66	%		65	%

 

Our capture rate (Beazer Mortgage originations as a percentage of total home closings) during fiscal 2004 decreased from 2003 due primarily to increased competition for new purchase mortgages driven by a slowdown in the refinance market.

During fiscal 2003, our capture rate increased over 2002 due primarily to an improved capture rate in our Midwest region.

Our capture rate is based on total closings. Our capture rate excluding non-financed closings was approximately 63% for fiscal 2004.

Income Taxes:

Income taxes for fiscal 2004 were provided at the effective rate of 39.0%. Income taxes for fiscal 2003 were provided at the effective rate of 39.5%. Income taxes for fiscal 2002 were provided at the effective rate of 39.3% (39% for the period prior to the Crossmann acquisition and 39.5% post acquisition). The principal difference between our effective rate and the U.S. Federal statutory rate is state income taxes.

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. During the year ended September 30, 2001 we entered into interest rate swap agreements (the “Swap Agreements”) to effectively fix the variable interest rate on $100 million of floating rate debt. The Swap Agreements mature in December 2004.

The Swap Agreements have been designated as cash flow hedges and accordingly, are recorded at fair value in our consolidated balance sheets and the related gains or losses are deferred in stockholders’ equity, net of taxes, as a component of other comprehensive income. Amounts to be received or paid as a result of the Swap Agreements are accrued and recognized as adjustments to interest related to the designated debt. The net effect of this accounting on our operating results is that interest on the variable-rate debt is generally recorded based on fixed interest rates. No portion of these hedges was considered ineffective for the year ended September 30, 2004. We expect to reclassify $610,000, net of taxes of $354,000, from other comprehensive loss to interest expense over the next twelve months.

As a result of the Swap Agreements, we have recorded a cumulative after-tax other comprehensive loss of $610,000 as of September 30, 2004. The estimated fair value of the Swap Agreements, based on current market rates, approximated $1 million at September 30, 2004 and is included in other liabilities.

Financial Condition And Liquidity:

At September 30, 2004, we had cash of $320.9 million, compared to $73.4 million at September 30, 2003. The increase in cash was primarily due to the issuance of $200 million of 6 1/2 % Senior Notes due 2013 and $180 million of 4 5/8 % Senior Notes due 2024. Our net cash used in operating activities for the year ended September 30, 2004 was $73.7 million, as increased net income and increases in accounts payable and other liabilities were offset by increased levels of inventory driven by higher year end backlog and anticipated future growth. Net cash used in investing activities was $30.5 million for fiscal 2004 as we invested $25.8 million in unconsolidated joint ventures to support our land acquisition strategy. Net cash provided by financing activities was $351.7 million in fiscal 2004, as proceeds from the Senior Notes issuances discussed above were somewhat offset by common share repurchases and dividend payments of $17.5 million and $5.5 million, respectively.

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Our net cash used in operating activities for the year ended September 30, 2003 was $41.0 million, as increased net income and increases in accounts payable and other liabilities were offset by increased levels of inventory driven by higher year end backlog and anticipated future growth. Net cash used in investing activities was $6.6 million for fiscal 2003. Net cash used in financing activities was $4.0 million in fiscal 2003 as proceeds from our term loan were used to pay off our existing term loan and 8 7/8% Senior Notes due 2008 (as discussed below), and proceeds from stock option exercises offset cash used for share repurchases.

In April 2002, we acquired Crossmann Communities for approximately $500.2 million, of which $308.6 million was paid through the issuance of 3.9 million shares of our common stock and $191.6 million was paid in cash. In connection with the merger, we also repaid approximately $125.4 million of Crossmann debt, resulting in total consideration paid of $625.6 million. The acquisition has been accounted for as a purchase and, accordingly, the purchase price has been allocated to reflect the fair value of assets and liabilities acquired. The cash portion of the acquisition and repayment of Crossmann debt was funded with the proceeds from a Senior Note offering.

At September 30, 2004 we had the following long-term debt (in thousands):

Debt		Due			Amount
4 5/8% Convertible Senior Notes			June 2024		$	180,000
6 1/2% Senior Notes			November 2013			200,000
8 3/8% Senior Notes			April 2012			350,000
8 5/8% Senior Notes			May 2011			200,000
Term Loan			June 2008			200,000
Other Notes Payable			Various Dates			22,067
Unamortized discount						(14,663	)
Total					$	1,137,404

 

In May 2004, we amended and restated our existing bank credit facility (the “Credit Facility”) to increase the banks’ commitments and extend the maturity date for one year. The amended Credit Facility includes a $550 million four-year revolving credit facility (the “Revolving Credit Facility”) and a $200 million four-year term loan (the “Term Loan”). The Revolving Credit Facility and Term Loan now mature in June 2008. The Revolving Credit Facility and the Term Loan bear interest at a fluctuating rate (3.3% at September 30, 2004) based upon LIBOR or the alternate base rate of interest announced by our lead bank. The Credit Facility contains various operating and financial covenants. Each of our significant subsidiaries is a guarantor under the Credit Facility.

We fulfill our short-term cash requirements with cash generated from our operations and funds available from our unsecured Revolving Credit Facility. Available borrowings under the Revolving Credit Facility are limited to certain percentages of homes under contract, unsold homes, substantially improved lots and accounts receivable. At September 30, 2004, we had no borrowings outstanding and available borrowings of $259.4 million under the Revolving Credit Facility.

We entered into Swap Agreements to manage interest costs and hedge against risks associated with fluctuating interest rates related to $100 million of floating rate debt. As of September 30, 2004, we had entered into interest rate swaps to effectively fix the interest rate (before spread) on $100 million in floating rate debt as follows: $75 million is fixed at 5.925% per annum; $10 million is fixed at 5.17% per annum; $5 million is fixed at 5.50% per annum; and $10 million is fixed at 5.055% per annum. The Swap Agreements expire in December 2004.

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In June 2004, we issued $180 million aggregate principal amount of 4 5/8% Convertible Senior Notes due 2024 (the ”Convertible Senior Notes”) in a private placement pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended. In August 2004, we filed a registration statement on Form S-3 with the SEC covering resales of the Convertible Senior Notes and the common stock issuable upon conversion. The Convertible Senior Notes were issued at a price of 100% of their face amount (before underwriting discount and other issuance costs). Interest on the Convertible Senior Notes is payable semiannually beginning December 2004. Beginning with the six-month interest period commencing on June 15, 2009, we will pay contingent interest during a six-month interest period if the average trading pric e of the notes for a five trading day reference period equals or exceeds 120% of the principal amount of the notes. The notes are convertible by holders into shares of our common stock at an initial conversion rate of 6.48 shares of Beazer Homes common stock per $1,000 principal amount (subject to adjustment for customary reasons), representing an initial conversion price of $154.32 per share of common stock, under the following circumstances: a) during any calendar quarter, if the last reported sale price of our common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the previous calendar quarter is greater than or equal to 120% of the conversion price on such last trading day; b) subject to certain limitations, during the five consecutive trading days after any five consecutive trading days in which the trading price per $1,000 principal amount of notes for each day of that period is less than 98% of the product of the last reported sale price of our common stock and the conversion rate of the notes on each such day, provided that if the price of our common stock issuable upon conversion is between 100% and 120% of the conversion price, holders will be entitled to receive upon conversion only the value of the principal amount of the notes converted plus accrued and unpaid interest, including contingent interest and additional amounts owed, if any, c) if the notes have been called for redemption, d) upon the occurrence of specified corporate transactions, e) during any period in which the credit rating assigned to the notes by either Moody’s or S&P is lower than B1 or B+, respectively, or the notes are no longer rated by at least one of these rating services or their successors.

We may, at our option, redeem for cash the Convertible Senior Notes in whole or in part at any time on or after June 15, 2009, initially at 101.321% of the principal amount, declining to 100% of the principal amount after June 15, 2011. Holders have the right to require us to purchase all or any portion of the Convertible Senior Notes for cash on June 15, 2011, June 15, 2014 and June 15, 2019, or if we undergo a fundamental change, as defined. In each case, we will pay a purchase price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest, including contingent interest, if any, and any additional amounts owed, if any, to such purchase date.

In November 2003, we issued $200 million 6 1/2 % Senior Notes due November 2013 (the “Original Notes”) in a private placement pursuant to Rule 144A and Regulation S promulgated under the Securities Act of 1933, as amended. The Original Notes were issued at a price of 100% of their face amount (before underwriting discount and other issuance costs). In May 2004 we completed an offer to exchange all of the outstanding Original Notes for an equal amount of 6 1/2 % Senior Notes due November 2013 (the “6 ½% Senior Notes”), which were registered under the Securities Act of 1933. Interest on the 6 1/2 % Senior Notes is payable semiannually. We may, at our option, redeem the 6 1/2 % Senior Notes in whole or in part at any time after November 2008, initially at 103.250% of the principal amount, decl ining to 100% of the principal amount after November 2011. We may redeem the 6 1/2 % Senior Notes, in whole or in part, at any time before November 2008 at a redemption price equal to the principal amount thereof plus a “make-whole” premium, plus accrued and unpaid interest. A portion of such notes may also be redeemed prior to November 2006 under certain conditions.

In April 2002, we issued $350 million 8 3/8% Senior Notes due April 2012 (the “Original Notes”) in a private placement pursuant to Rule 144A and Regulation S promulgated under the Securities Act of 1933, as amended. In September 2002, we completed an offer to exchange all of the outstanding Original Notes for an equal amount of 8 3/8 Senior Notes due 2012 (the “8 3/8% Senior Notes”), which were registered under the Securities Act of 1933. The terms of the 8 3/8% Senior Notes were substantially identical to the terms of the Original Notes. The Original Notes were issued at a price of 100% of their face amount (before underwriting discount and other issuance costs). Interest on the 8 3/8% Senior Notes is payable semiannually. We may, at our option, redeem the 8 3/8% Senior Notes in whole or in pa rt at any time after April 2007, initially at 104.188% of the principal amount, declining to 100% of the principal amount after April 2010. A portion of such notes may also be redeemed prior to April 2005 under certain conditions. We used the proceeds from the issuance of the 8 3/8 % Senior Notes to fund the cash portion of the Crossmann acquisition, to repay Crossmann’s outstanding net indebtedness, to reduce borrowings under our revolving credit facility at the time, and to pay related fees, commissions and other expenses.

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In May 2001, we issued $200 million 8 5/8% Senior Notes due May 2011 (the “8 5/8% Senior Notes”) at a price of 99.178% of their face amount (before underwriting discount and other issuance costs). Interest on the 8 5/8% Senior Notes is payable semiannually. We may, at our option, redeem the 8 5/8% Senior Notes in whole or in part at any time after May 2006, initially at 104.3125% of the principal amount, declining to 100% of the principal amount after May 2009.

During fiscal 2003, we retired our $100 million 8 7/8% Senior Notes due in 2008 (the “8 7/8% Senior Notes”). The 8 7/8% Senior Notes were redeemed at 104.438% of the principal amount, plus accrued interest. As a result of the redemption of the 8 7/8% Senior Notes, we recorded a pre-tax charge of $7.6 million, which includes the write off of previously capitalized fees.

The Convertible Senior Notes, the 6 ½ % Senior Notes, the 8 3/8% Senior Notes and the 8 5/8% Senior Notes (collectively the “Senior Notes”) are unsecured obligations ranking pari passu with all other existing and future senior indebtedness. All of our significant subsidiaries are full and unconditional guarantors of the Senior Notes and our obligations under the Credit Facility, and are jointly and severally liable for obligations under the Senior Notes and the Credit Facility. Each guarantor subsidiary is a 100% owned subsidiary of Beazer Homes. Neither the Credit Facility nor the Senior Notes restrict distributions to Beazer Homes by its subsidiaries. At September 30, 2004, we were in compliance with all covenants related to the Credit Facility and Senior Notes. At September 30, 2004, under the mos t restrictive covenants of each indenture, approximately $289.7 million of our retained earnings were available for cash dividends and for share repurchases.

In February 2003, our Board of Directors approved a stock repurchase plan authorizing the purchase of up to one million shares of our outstanding common stock. During fiscal 2004, we repurchased 179,800 shares for an aggregate purchase price of $17.5 million or approximately $98 per share pursuant to the plan. During fiscal 2003, we repurchased 128,000 shares for an aggregate purchase price of $6.9 million or approximately $54 per share pursuant to the plan. At September 30, 2004, we were authorized to purchase up to 692,200 additional shares pursuant to the plan. During fiscal 2002, certain officers and employees transferred to us 31,072 shares of our common stock, valued at prevailing market prices. The transfers, made to satisfy such officers’ and employees’ tax obligations under certain stock incentiv e plans, were accounted for as a stock repurchase by the Company. The Company has since discontinued the practice of allowing officers and employees to settle tax obligations through the transfer of stock to the Company.

During fiscal 2004, the Company paid quarterly cash dividends of $0.10 per common share, or a total of approximately $5.5 million. No dividends were paid during fiscal years 2003 or 2002.

We attempt to control half or more of our land supply through options. At September 30, 2004, we controlled 90,571 lots (a 5.5 year supply based on fiscal 2004 closings), with 42,145 lots owned and 48,426 lots under option. We expect to exercise all of our option contracts with specific performance obligations and, subject to market conditions, substantially all of our option contracts without specific performance obligations. As a result of the flexibility that these options provide us, upon a change in market conditions, we may renegotiate the terms of the options prior to their ultimate exercise.

Land Bank
		Lots			Percentage
Owned			42,145			47	%
Optioned			48,426			53	%
Total			90,571			100	%

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 or equity securities. This shelf registration allows us to expediently access capital markets periodically. 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 cash on hand and current borrowing capacity at September 30, 2004 and anticipated cash flows from operations are sufficient to meet our liquidity needs for the foreseeable future.

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Off-Balance Sheet Arrangements and Aggregate Contractual Commitments:

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, both with and without specific performance provisions, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers. Our obligation with respect to options with specific performance provisions is included on our consolidated balance sheets in other liabilities. Under option contracts without specific performance obligations, our liability is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts incurred, which aggregated approximately $180.7 million at September 30, 2004. This amount includes letter s of credit of approximately $57.8 million. Below is a summary of amounts, net of cash deposits, committed under all options at September 30, 2004 (in thousands):

		Aggregate Exercise Price of Options
Options with specific performance		$	28,184
Options without specific performance			1,763,158
Total options		$	1,791,342

We expect to exercise all of our option contracts with specific performance obligations and, subject to market conditions, substantially all of our option contracts without specific performance obligations. Various factors, some of which are beyond our control, such as market conditions, weather conditions and the timing of the completion of development activities, can have a significant impact on the timing of option exercises. Under their current terms, and assuming no significant changes in market conditions or other factors, we expect to exercise our land options as follows (in thousands):

Year Ending September 30,
2005		$	397,314
2006			583,068
Thereafter			810,960
Total		$	1,791,342

We have historically funded the exercise of land options though a combination of operating cash flows and borrowings under our Revolving Credit Facility. We expect these sources to continue to be adequate to fund anticipated future option exercises. Therefore, we do not anticipate that the exercise of our land options will have a material adverse effect on our liquidity.

Certain of our option contracts are with sellers who are deemed to be Variable Interest Entities (“VIE”s) under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 defines a VIE as an entity with insufficient equity investment to finance its planned activities without additional financial support or an entity in which the equity investors lack certain characteristics of a controlling financial interest. Pursuant to FIN 46, an enterprise that absorbs a majority of the expected losses or receives a majority of the expected residual returns of a VIE is deemed to be the primary beneficiary of the VIE and must consolidate the VIE.

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We have determined that we are the primary beneficiary of certain of these option contracts. Our risk is generally limited to the option deposits that we pay, and creditors of the sellers generally have no recourse to the general credit of the Company. Although we do not have legal title to the optioned land, for those option contracts for which we are the primary beneficiary, we are required to consolidate the land under option at fair value. We believe that the exercise prices of our option contracts approximate their fair value. Our consolidated balance sheets at September 30, 2004 and 2003 reflect consolidated inventory not owned of $254.8 million and $35.7 million, respectively. Obligations related to consolidated inventory not owned totaled $219.0 million at September 30, 2004 and $30.5 million at September 3 0, 2003. The difference between the balances of consolidated inventory not owned and obligations related to consolidated inventory not owned represents cash deposits paid under the option agreements. The increase in consolidated inventory not owned and the related obligations is due primarily to the transition provisions of FIN 46, which applied immediately to VIEs created after January 31, 2003 and with respect to variable interests held before February 1, 2003 applied beginning with our quarter ended March 31, 2004. The above disclosures of amounts committed under options include our obligations related to consolidated inventory not owned.

We participate in a number of land development joint ventures in which we have less than a controlling interest. We enter into joint ventures in order to acquire attractive land positions, to manage our risk profile and to leverage our capital base. Our joint ventures are typically entered into with developers and other homebuilders to develop finished lots for sale to the joint venture’s members and other third parties. We account for our interest in these joint ventures under the equity method. Our consolidated balance sheets include investments in joint ventures totaling $44.7 million and $26.6 million at September 30, 2004 and 2003 respectively.

Our joint ventures typically obtain secured acquisition, development and construction financing. At September 30, 2004, our unconsolidated joint ventures had borrowings outstanding totaling $128.1 million. In some instances, we and our joint venture partners have provided varying levels of guarantees of debt of our unconsolidated joint ventures. At September 30, 2004, we had repayment guarantees of $10 million and loan-to-value maintenance guarantees of $56.8 million of debt of unconsolidated joint ventures. Repayment guarantees require us to repay our share of debt of unconsolidated joint ventures in the event the joint venture defaults on its obligations under the borrowings. Loan-to-value maintenance guarantees require us to repay our share of the venture’s borrowings to the extent such borrowings exceed a specified percentage of the value of the property securing the loan.

The following summarizes our aggregate contractual commitments at September 30, 2004:

		Payments Due by Period (in Thousands)
Contractual Obligations		Total			Less than 1 year			1-3 years			3-5 years			More than 5 years
Long-Term Debt (1)		$	1,782,457		$	92,479		$	153,281		$	340,744		$	1,195,953
Capital Lease Obligations			-			-			-			-			-
Operating Leases			41,133			10,462			16,145			10,020			4,506
Purchase Obligations(2)			28,184			8,809			17,698			1,677			-
Other Long-Term Liabilities			-			-			-			-			-
Total		$	1,851,774		$	111,750		$	187,124		$	352,441		$	1,200,459
(1) Represents our Senior Notes, Term Loan and Other Notes Payable, and related interest payments. Interest on variable rate obligations is based on rates effective as of September 30, 2004.
(2) Represents obligations under option contracts with specific performance provisions, net of cash deposits.

 

We had outstanding letters of credit and performance bonds of approximately $45.9 million and $351.3 million, respectively, at September 30, 2004 related principally to our obligations to local governments to construct roads and other improvements in various developments in addition to the letters of credit of approximately $57.8 million relating to our land option contracts discussed above. We do not believe that any such letters of credit or bonds are likely to be drawn upon.

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Recent Accounting Pronouncements:

 

In September 2004, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) reached a consensus on EITF Issue No. 04-8: “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share” (“EITF 04-8”). The consensus was ratified by the FASB in October 2004. EITF 04-8 requires that shares issuable upon conversion of contingently convertible debt instruments (“Co-Cos”) be included in diluted earnings per share computations using the “if-converted method” regardless of whether the issuer’s stock price exceeds the contingent conversion price. Prior to EITF 04-8, shares issuable upon conversion of CoCos were generally excluded from diluted earnings per share computations until the issuer’s stock price excee ded the contingent conversion price. EITF 04-8, which applies to our 4 5/8 % Convertible Senior Notes issued in June 2004, is expected to be effective for reporting periods ending on or after December 15, 2004, the first quarter of our fiscal 2005. Restatement of prior period earnings per share amounts presented for comparative purposes will be required. If we had reported fiscal 2004 diluted earnings per share under EITF 04-8, we would have reported earnings of $16.77 per diluted share, as compared to reported earnings of $17.09 per diluted share.

Outlook:

 Absent any unanticipated adverse changes, our outlook for fiscal 2005 diluted earnings per share is in the range of $20.00 - $21.00 per share. This outlook reflects inclusion of 1,166,400 shares issuable upon conversion of the Company’s convertible Senior Notes in the calculation of diluted earnings per share for fiscal 2005, in accordance with the EITF 04-8 “The Effect of Contingently Convertible Debt on Diluted Earnings per Share,” which is currently expected to be effective for reporting periods ending after December 15, 2004.

Disclosure Regarding Forward-Looking Statements:

This annual report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our expectations or beliefs concerning future events, and it is possible that the results described in this annual report will not be achieved. These forward-looking statements can generally be identified by the use of statements that include words such as “estimate,” “project,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “goal,” “target” or other similar words or phrases. All forward-looking statements are based upon information available to us on the date of this annual repo rt. Except as may be required under applicable law, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, among other things, the matters discussed in this annual report in the sections captioned “Outlook” and “Financial Condition and Liquidity.” Additional information about factors that could lead to material changes in performance is contained in our filings with the Securities and Exchange Commission. Such factors may include:

·

economic changes nationally or in our local markets;

·

volatility of mortgage interest rates and inflation;

·

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;

·

the cost and availability of insurance, including the availability of insurance for the presence of mold;

·

the impact of construction defect and home warranty claims;

·

any delays in reacting to changing consumer preference in home design;

·

terrorist acts and other acts of war;

·

changes in consumer confidence;

·

delays or difficulties in implementing 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, or complying with, laws, regulations, or governmental policies;

·

changes in accounting policies, standards, guidelines or principles, as may be adopted by regulatory agencies as well as the Financial Accounting Standards Board;

·

the failure of our improvement plan for the Midwest to achieve desired results; or

·

other factors over which we have little or no control.

Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all such factors.

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Item 7(a). 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 relates to fluctuations in interest rates. We do not believe that our exposure in this area is material to cash flows or earnings. During fiscal 2001, we entered into interest rate Swap Agreements with an aggregate notional amount of $100 million to manage our exposure to fluctuations in interest rates on $100 million of variable rate debt. These swaps effectively fix the rate on this debt at 5.74%. We do not enter into or hold derivatives for trading or speculative purposes.

We have formally designated these agreements as cash flow hedges as discussed in Note 3 of the consolidated financial statements. The estimated fair value of the Swap Agreements, based on current market rates, was approximately $1million at September 30, 2004 and is included in other liabilities.

The estimated fair value of our fixed rate debt at September 30, 2004 was $1,010.2 million, compared to a carrying value of $915.3 million. In addition, the effect of a hypothetical one percentage point decrease in interest rates would increase the estimated fair value of the fixed rate debt instruments from $1,010.2 million to $1,079.5 million at September 30, 2004.

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Item 8. Financial Statements and Supplementary Data

Beazer Homes USA, Inc.
Consolidated Statements of Income
(in thousands, except per share amounts)
		Year Ended
		September 30,
		2004			2003			2002
Total revenue		$	3,907,109		$	3,177,408		$	2,641,173
Costs and expenses:
Home construction and land sales			3,099,732			2,534,035			2,155,415
Selling, general and administrative			429,442			356,648			292,584
Expenses related to retirement of debt			-			7,570			-
Operating income			377,935			279,155			193,174
Equity in earnings of unconsolidated joint ventures			1,561			1,597			2,338
Other income, net			7,079			4,777			6,547
Income before income taxes			386,575			285,529			202,059
Provision for income taxes			150,764			112,784			79,425
Net income		$	235,811		$	172,745		$	122,634
Weighted average number of shares:
Basic			13,293			12,886			10,535
Diluted			13,801			13,514			11,415
Earnings per share:
Basic		$	17.74		$	13.41		$	11.64
Diluted		$	17.09		$	12.78		$	10.74
Cash dividends per share:		$	0.40		$	-		$	-
See Notes to Consolidated Financial Statements

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Beazer Homes USA, Inc.
Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
		September 30,
		2004			2003
ASSETS
Cash and cash equivalents		$	320,880		$	73,372
Accounts receivable			70,574			66,003
Inventory
Owned inventory			2,089,330			1,687,809
Consolidated inventory not owned			254,765			35,674
Total inventory			2,344,095			1,723,483
Investments in and advances to unconsolidated joint ventures			44,748			26,569
Deferred tax asset			47,052			26,160
Property, plant and equipment, net			24,671			19,185
Goodwill			251,603			251,603
Other assets			45,839			25,659
Total Assets		$	3,149,462		$	2,212,034
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable		$	123,287		$	125,521
Other liabilities			437,608			320,996
Obligations related to consolidated inventory not owned			219,042			30,457
Term Loan			200,000			200,000
Senior Notes (net of discount of $14,663 and $8,635 respectively)			915,337			541,365
Other Notes Payable			22,067			-
Total Liabilities			1,917,341			1,218,339
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, 17,868,349 and 17,501,052 issued,
13,730,473 and 13,542,976 outstanding)			179			175
Paid in capital			593,749			572,070
Retained earnings			741,701			511,349
Treasury stock, at cost (4,137,876 and 3,958,076 shares)			(88,150	)		(70,604	)
Unearned restricted stock			(14,748	)		(15,852	)
Accumulated other comprehensive loss			(610	)		(3,443	)
Total Stockholders' Equity			1,232,121			993,695
Total Liabilities and Stockholders' Equity		$	3,149,462		$	2,212,034
See Notes to Consolidated Financial Statements

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Beazer Homes USA, Inc.
Consolidated Statement of Stockholders' Equity
(dollars in thousands)
																				Accumulated
																	Unearned			Other
		Preferred			Common			Paid in			Retained			Treasury			Restricted			Comprehensive
		Stock			Stock			Capital			Earnings			Stock			Stock			Loss			Total
Balance, September 30, 2001		$	-		$	124		$	202,121		$	215,970		$	(61,510	)	$	(2,027	)	$	(3,483	)	$	351,195
Comprehensive income:
Net income												122,634												122,634
Unrealized loss on interest rate swaps,
net of tax of $845																					(1,294	)		(1,294	)
Total comprehensive income																								121,340
Amortization of unearned restricted stock																		2,365						2,365
Exercises of stock options (298,907 shares)						3			5,159															5,162
Issuance of Bonus Stock (53,328 shares)						1			813															814
Tax benefit from stock transactions									12,235															12,235
Issuance of restricted stock (79,337 shares)									6,281									(6,281	)					-
Stock issued for Crossmann acquisition
(3,8571,166 shares)						39			308,534															308,573
Purchase of treasury stock (31,072 shares)															(2,169	)								(2,169	)
Other									317									(317	)					-
Balance, September 30, 2002		$	-			167			535,460			338,604			(63,679	)		(6,260	)		(4,777	)		799,515
Comprehensive income:
Net income												172,745												172,745
Unrealized gain on interest rate swaps,
net of tax of $871																					1,334			1,334
Total comprehensive income																								174,079
Amortization of unearned restricted stock																		3,984						3,984
Exercises of stock options (462,506 shares)						6			9,799															9,805
Issuance of Bonus Stock  (97,231 shares)									1,735															1,735
Tax benefit from stock transactions									11,502															11,502
Issuance of restricted stock (215,642 shares)						2			13,280									(13,282	)					-
Purchase of treasury stock (128,000)															(6,925	)								(6,925	)
Other									294									(294	)					-
Balance, September 30, 2003			-			175			572,070			511,349			(70,604	)		(15,852	)		(3,443	)		993,695
Comprehensive income:
Net income												235,811												235,811
Unrealized gain on interest rate swaps,
net of tax of $1,849																					2,833			2,833
Total comprehensive income																								238,644
Dividends Paid												(5,459	)											(5,459	)
Amortization of unearned restricted stock																		7,381						7,381
Change in fair value of unearned compensation									753									(753	)					-
Exercises of stock options (259,467 shares)						3			5,359															5,362
Tax benefit from stock transactions									8,127															8,127
Issuance of Bonus Stock  (68,137 shares)						1			1,916															1,917
Issuance of restricted stock (39,693 shares)									4,736									(4,736	)					-
Purchase of treasury stock (179,800 shares)															(17,546	)								(17,546	)
Other									788									(788	)					-
Balance, September 30, 2004		$	-		$	179		$	593,749		$	741,701		$	(88,150	)	$	(14,748	)	$	(610	)	$	1,232,121
See Notes to Consolidated Financial Statements

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Beazer Homes USA, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
		Year Ended
		September 30,
		2004			2003			2002
Cash flows from operating activities:
Net income		$	235,811		$	172,745		$	122,634
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Depreciation and amortization			15,755			13,220			9,453
Loss on extinguishment of debt			-			7,570			-
Deferred income tax provision (benefit)			(22,740	)		87			(6,613	)
Tax benefit from stock transactions			8,127			11,502			12,235
Equity in earnings of unconsolidated joint ventures			(1,561	)		(1,597	)		(2,338	)
Changes in operating assets and liabilities,
net of effects from acquisitions:
Increase in accounts receivable			(4,571	)		(11,674	)		(13,601	)
Increase in inventory			(410,525	)		(328,893	)		(152,990	)
Decrease/(increase) in other assets			(16,828	)		(1,431	)		17,949
Increase/(decrease) in trade accounts payable			(2,234	)		16,967			23,481
Increase in other liabilities			123,210			79,257			48,300
Other changes			1,837			1,198			954
Net cash provided/(used) by operating activities			(73,719	)		(41,049	)		59,464
Cash flows from investing activities:
Capital expenditures			(10,271	)		(9,325	)		(8,213	)
Proceeds from sale of fixed assets			-			-			4,800
Investments in unconsolidated joint ventures			(25,844	)		(4,941	)		(3,146	)
Distributions from and proceeds from sale
of unconsolidated joint ventures			5,639			7,714			12,736
Acquisitions, net of cash acquired			-			-			(320,810	)
Net cash used by investing activities			(30,476	)		(6,552	)		(314,633	)
Cash flows from financing activities:
Proceeds from Term Loan			200,000			200,000			-
Repayment of Term Loan			(200,000	)		(100,000	)		-
Redemption of 8 7/8% Senior Notes			-			(104,438	)		-
Proceeds from issuance of 8 3/8% Senior Notes			-			-			343,000
Proceeds from issuance of 6 1/2% Senior Notes			198,100			-			-
Proceeds from issuance of 4 5/8% Convertible Senior Notes			174,600			-			-
Debt issuance costs			(3,354	)		(2,458	)		(7,513	)
Proceeds from stock option exercises			5,362			9,805			5,162
Common share repurchases			(17,546	)		(6,925	)		(2,169	)
Dividends paid			(5,459	)		-			-
Net cash provided/(used) by financing activities			351,703			(4,016	)		338,480
Increase/(decrease) in cash and cash equivalents			247,508			(51,617	)		83,311
Cash and cash equivalents at beginning of year			73,372			124,989			41,678
Cash and cash equivalents at end of year		$	320,880		$	73,372		$	124,989
Supplemental cash flow information:
Interest paid		$	65,237		$	67,580		$	37,178
Income taxes paid		$	170,475		$	77,904		$	81,534
Supplemental disclosure of non-cash activity:
Issuance of common stock related to acquisition		$	-		$	-		$	308,573
Consolidated inventory not owned		$	188,585		$	30,457		$	-
Land acquired through issuance of notes payable		$	21,502		$	-		$	-
See Notes to Consolidated Financial Statements

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(1) Summary of Significant Accounting Policies

Organization- Beazer Homes USA, Inc. is one of the ten largest homebuilders in the United States based on number of homes closed. We design, sell and build primarily single-family homes in over 35 markets located in Arizona, California, Colorado, Delaware, Florida, Georgia, Indiana, Kentucky, Maryland, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and West Virginia. We also provide mortgage origination services for our homebuyers through Beazer Mortgage Corporation, or Beazer Mortgage. In addition, we provide title services to our homebuyers in many of our markets.

Presentation -  Our homebuilding operations conducted across several geographic regions of the United States have similar characteristics; therefore, they have been aggregated into one reportable segment-the homebuilding segment.

The accompanying consolidated financial statements include the accounts of Beazer Homes USA, Inc., and our wholly owned subsidiaries. Intercompany balances have been eliminated in consolidation.

Cash and Cash Equivalents --  We consider investments with maturities of three months or less when purchased to be cash equivalents.

Inventory - Owned inventory consists solely of residential real estate developments. Interest, real estate taxes and development costs are capitalized in inventory during the development and construction period. Sold units are expensed on a specific identification basis or on a relative sales value basis as cost of sales.

Consolidated inventory not owned represents the fair value of land under option agreements consolidated pursuant to Financial Accounting Standards Board (“FASB”) Interpretation No. 46.

Investments in and Advances to Unconsolidated Joint Ventures -  We participate in a number of land development joint ventures in which we have less than a controlling interest. Our joint ventures are typically entered into with developers and other homebuilders to develop finished lots for sale to the joint venture’s members and other third parties. We account for our interest in these joint ventures under the equity method. We recognize our share of profits from the sale of lots to other buyers. Our share of profits from lots we purchase from the joint ventures are deferred and treated as a reduction of the cost of the land purchased from the joint venture. Such profits are subsequently recognized at the time the home closes and title passes to the homebuyer.

Our joint ventures typically obtain secured acquisition, development and construction financing. At September 30, 2004, our unconsolidated joint ventures had borrowings outstanding totaling $128.1 million. In some instances, we and our joint venture partners have provided varying levels of guarantees of debt of our unconsolidated joint ventures. At September 30, 2004, we had repayment guarantees of $10 million and loan-to-value maintenance guarantees of $56.8 million of debt of unconsolidated joint ventures. Repayment guarantees require us to repay our share of debt of unconsolidated joint ventures in the event the joint venture defaults on its obligations under the borrowings. Loan-to-value maintenance guarantees require us to repay our share of the venture’s borrowings to the extent such borrowings exceed a specified percentage of the value of the property securing the loan.

Property, Plant and Equipment - Property, plant and equipment are recorded at cost. Depreciation is computed on a straight line basis at rates based on estimated useful lives as follows:

Buildings	15 years
Machinery and equipment	3 - 12 years
Information systems	3 - 5 years
Furniture and fixtures	3 - 5 years

 

Impairment of Long Lived Assets - Housing projects and unimproved land held for future development (components of inventory) and property, plant and equipment are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset.  If these assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

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Goodwill - Goodwill represents the excess of the purchase price over the fair value of assets acquired. We test goodwill for impairment annually, or more frequently if an event occurs or circumstances change that more likely than not reduce the value of a reporting unit below its carrying value. For purposes of goodwill impairment testing, we compare the fair value of each reporting unit with its carrying amount, including goodwill. Each of our operating divisions is considered a reporting unit. The fair value of each reporting unit is determined based on expected discounted future cash flows. If the carrying amount of a repo rting unit exceeds its fair value, goodwill is considered impaired. If goodwill is considered impaired, the impairment loss to be recognized is measured by the amount by which the carrying amount of the goodwill exceeds implied fair value of that goodwill. We performed our annual impairment test of goodwill as of April 30, 2004. For purposes of our annual goodwill impairment test, we obtained independent valuations of our reporting units. Based on comparison of those independent valuations to the carrying values of our reporting units at April 30, 2004, we determined that goodwill was not impaired.

 

Other Assets -  Other assets include prepaid expenses, debt issuance costs and deferred compensation plan assets.

Income Taxes -  Deferred tax assets and liabilities are determined based on differences between financial reporting carrying values and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

Other Liabilities - Other liabilities include homebuyer deposits, land purchase obligations, accrued compensation, accrued warranty costs and various other accrued expenses.

Income Recognition and Classification of Costs - Income from the sale of residential units or land parcels is recognized when closings have occurred and the risk of ownership is transferred to the buyer. Sales commissions are included in selling, general and administrative expense.

Fees paid to Beazer Mortgage from third party lenders are recognized as revenue concurrent with the closing on the sale of the residential unit. All expenses of operating Beazer Mortgage are included in selling, general and administrative expense in the period incurred and are included in selling, general and administrative expense.

Estimated future warranty costs are charged to cost of sales in the period when the revenues from home closings are recognized. Such estimated warranty costs generally range from 0.5% to 1.0% of total revenue. Additional warranty costs are charged to cost of sales as necessary based on management's estimate of the costs to remediate existing claims. See Note 14 for a more detailed discussion of warranty costs and related reserves.

Advertising costs of $44,696,000, $34,775,000, and $28,237,000 for fiscal years 2004, 2003 and 2002, respectively, are expensed as incurred.

Earnings Per Share - The computation of basic earnings per common share is determined by dividing net income applicable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share additionally gives effect (when dilutive) to stock options and other stock based awards and other potentially dilutive securities.

Fair Value of Financial Instruments - The historical carrying amount of cash and cash equivalents and our Term Loan are reasonable estimates of their fair value. The fair value of our publicly held Senior Notes (Note 8) is estimated based on the quoted bid prices for these debt instruments and was approximately $1,010.2 million at September 30, 2004 and $593.0 million at September 30, 2003. The fair values of our interest rate swaps, based on current rates, approximated $1.0 million at September 30, 2004 and $5.6 million at September 30, 2003, and is included in other liabilities.

 

Stock-based Compensation - We account for stock awards granted to employees under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No compensation expense is recognized for stock options granted to employees because all stock options granted have exercise prices not less than the market value of our stock on the date of the grant. Restricted stock granted to employees is valued based on the market price of the common stock on the date of the grant.

We account for stock awards issued to non-employees under the recognition and measurement principles of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” and emerging Issues Task Force Issue No. 96-18:  “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” Stock options issued to non-employees are valued using the Black-Scholes option pricing model. Restricted stock granted to non-employees is initially valued based on the market price of the common stock on the date of the grant.

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Unearned compensation arising from the restricted stock granted to employees and from non-employee stock awards is amortized to expense using the straight-line method over the period of the restrictions. The balance of unearned compensation related to non-employee awards is adjusted on a quarterly basis to reflect changes in the market value of Beazer Homes’ common stock. Unearned compensation is shown as a reduction of stockholders’ equity in the consolidated balance sheets.

 

The following table illustrates the effect (in thousands, except per share amounts) on net earnings and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148 “Accounting for Stock-Based Compensation - Transition and Disclosure,” to stock-based employee compensation:

		Year Ended
		September 30,
		2004			2003			2002
Net income, as reported		$	235,811		$	172,745		$	122,634
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects			4,503			2,410			1,443
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(7,521	)		(5,409	)		(3,057	)
Pro forma net income		$	232,793		$	169,746		$	121,020
Earnings per share:
Basic - as reported		$	17.74		$	13.41		$	11.64
Basic - pro forma		$	17.51		$	13.17		$	11.49
Diluted - as reported		$	17.09		$	12.78		$	10.74
Diluted - pro forma		$	16.97		$	12.65		$	10.66

 

The weighted average fair value of each option granted during the years ended September 30, 2004, 2003, and 2002 was $40.81, $32.89 and $38.30, respectively. The fair values of options granted were estimated on the date of their grant using the Black-Scholes option pricing model based on the following weighted average assumptions:

 

	2004		2003		2002
Expected volatility	44.14%		46.70%		40.70%
Expected dividend yield	0.40%		none		none
Risk-free interest rate	3.13%		3.60%		4.90%
Expected life (in years)	5.0		7.0		7.0

 

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications -- Certain items in prior-period financial statements have been reclassified to conform to the current presentation.

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Recent Accounting Pronouncements - In September 2004, the Emerging Issues Task Force (“EITF”) of the FASB reached a consensus on EITF Issue No. 04-8: “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share” (“EITF 04-8”). The consensus was ratified by the FASB in October 2004. EITF 04-8 requires that shares issuable upon conversion of contingently convertible debt instruments (“Co-Cos”) be included in diluted earnings per share computations using the “if-converted method” regardless of whether the issuer’s stock price exceeds the contingent conversion price. Prior to EITF 04-8, shares issuable upon c onversion of CoCos were generally excluded from diluted earnings per share computations until the issuer’s stock price exceeded the contingent conversion price. EITF 04-8, which applies to our 4 5/8 % Convertible Senior Notes issued in June 2004, is expected to be effective for reporting periods ending on or after December 15, 2004, the first quarter of our fiscal 2005. Restatement of prior period earnings per share amounts presented for comparative purposes will be required. If we had reported fiscal 2004 diluted earnings per share under EITF 04-8, we would have reported earnings of $16.77 per diluted share, as compared to reported earnings of $17.09 per diluted share.

(2) Acquisitions

Effective April 17, 2002, Beazer Homes acquired Crossmann Communities, Inc. (“Crossmann”). Crossmann built single-family homes in Indiana - its home base - with operations in Kentucky, Mississippi, North Carolina, Ohio, South Carolina and Tennessee. This acquisition represented our entry into the Midwest region and strengthened our focus on the first-time homebuyer segment. We have included Crossmann’s operating results in our consolidated financial statements since April 1, 2002.

The aggregate merger consideration we paid totaled approximately $500.2 million and consisted of approximately 3.9 million shares of Beazer Homes common stock (approximately $308.6 million) and approximately $191.6 million in cash. In connection with the merger, we also repaid approximately $125.4 million of Crossmann debt, resulting in total consideration paid of $625.6 million. 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.

 

The acquisition was accounted for as a purchase; accordingly, the purchase price was allocated to reflect the fair value of assets and liabilities acquired. Under this method, Crossmann assets acquired and liabilities assumed were recorded on our balance sheet at their fair market value as of April 1, 2002. This resulted in an inventory write-up to fair value of $26.9 million and a write-down of fixed assets to fair value of $1.1 million. This acquisition resulted in approximately $239.9 million of goodwill, none of which is deductible for income tax purposes.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Inventory		$	357,801
Property, plant and equipment, net			9,085
Goodwill			239,919
Other assets			61,722
Total assets acquired		$	668,527
Accounts payable and accrued liabilities		$	31,455
Revolving credit facility			59,600
Other debt			63,641
Total liabilities assumed			154,696
Net assets acquired		$	513,831

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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 fiscal 2002 (the year of acquisition). The pro forma financial data is provided for comparative purposes only and is not necessarily indicative of the results that would have been obtained if the acquisition had been effected at that date.

		Year Ended
		September 30, 2002
Total revenues		$	3,046,841
Net income		$	141,753
Net income per share:
Basic		$	11.37
Diluted		$	10.62

(3) 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. During the year ended September 30, 2001, we entered into interest rate swap agreements (the “Swap Agreements”) to effectively fix the variable interest rate on $100 million of floating rate debt. The Swap Agreements mature in December 2004.

The Swap Agreements have been designated as cash flow hedges and accordingly, are recorded at fair value in our consolidated balance sheets and the related gains or losses are deferred in stockholders’ equity, net of taxes, as a component of other comprehensive income. Amounts to be received or paid as a result of the Swap Agreements are accrued and recognized as adjustments to interest related to the designated debt. The net effect of this accounting on our operating results is that interest on the variable-rate debt is generally recorded based on fixed interest rates. No portion of these hedges was considered ineffective for the year ended September 30, 2004. We expect to reclassify approximately $610,000, net of taxes of $354,000, from other comprehensive loss to interest expense over the next twelve months .

As a result of the Swap Agreements, we have recorded a cumulative after-tax other comprehensive loss of $610,000 as of September 30, 2004. The estimated fair value of the Swap Agreements, based on current market rates, approximated $1 million at September 30, 2004 and is included in other liabilities.

(4) Inventory

Inventory consists of (in thousands):

		September 30,
		2004			2003
Homes under construction.		$	847,517		$	658,909
Development projects in progress			1,105,933			919,257
Unimproved land held for future development			57,563			33,583
Model homes			78,317			76,060
Consolidated inventory not owned			254,765			35,674
		$	2,344,095		$	1,723,483

Homes under construction include homes finished and ready for delivery and homes in various stages of construction. We had 345 ($69.1 million) and 362 ($58.3 million) completed homes that were not subject to a sales contract, not including model homes, at September 30, 2004, and 2003, respectively.

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.

Inventory located in California, the state with our largest concentration of inventory, was $400.6 million and $323.8 million at September 30, 2004, and 2003, respectively.

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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, both with and without specific performance provisions, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers. Our obligation with respect to options with specific performance provisions is included on our consolidated balance sheets in other liabilities. Under option contracts without specific performance obligations, our liability is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts incurred, which aggregated approximately $180.7 million at September 30, 2004. This amount includes letter s of credit of approximately $57.8 million. Below is a summary of amounts, net of cash deposits, committed under all options at September 30, 2004 (in thousands):

		Aggregate Exercise
		Price of
		Options
Options with specific performance		$	28,184
Options without specific performance			1,763,158
Total options		$	1,791,342

We expect to exercise all of our option contracts with specific performance obligations and, subject to market conditions, substantially all of our option contracts without specific performance obligations. Various factors, some of which are beyond our control, such as market conditions, weather conditions and the timing of the completion of development activities, can have a significant impact on the timing of option exercises. Under their current terms, and assuming no significant changes in market conditions or other factors, we expect to exercise our land options as follows (in thousands):

Year Ending September 30,
2005		$	397,314
2006			583,068
Thereafter			810,960
Total		$	1,791,342

Certain of our option contracts are with sellers who are deemed to be Variable Interest Entities (“VIEs”) under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 defines a VIE as an entity with insufficient equity investment to finance its planned activities without additional financial support or an entity in which the equity investors lack certain characteristics of a controlling financial interest. Pursuant to FIN 46, an enterprise that absorbs a majority of the expected losses or receives a majority of the expected residual returns of a VIE is deemed to be the primary beneficiary of the VIE and must consolidate the VIE.

We have determined that we are the primary beneficiary of certain of these option contracts. Our risk is generally limited to the option deposits that we pay, and creditors of the sellers generally have no recourse to the general credit of the Company. Although we do not have legal title to the optioned land, for those option contracts for which we are the primary beneficiary, we are required to consolidate the land under option at fair value. We believe that the exercise prices of our option contracts approximate their fair value. Our consolidated balance sheets at September 30, 2004 and 2003 reflect consolidated inventory not owned of $254.8 million and $35.7 million, respectively. Obligations related to consolidated inventory not owned totaled $219.0 million at September 30, 2004 and $30.5 million at September 3 0, 2003. The difference between the balances of consolidated inventory not owned and obligations related to consolidated inventory not owned represents cash deposits paid under the option agreements. The increase in consolidated inventory not owned and the related obligations is due primarily to the transition provisions of FIN 46, which applied immediately to VIEs created after January 31, 2003 and with respect to variable interests held before February 1, 2003 applied beginning with our quarter ended March 31, 2004. The above disclosures of amounts committed under options include our obligations related to consolidated inventory not owned.

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(5) Interest

Information regarding interest (in thousands) is as follows:

		Year Ended September 30,
		2004			2003			2002
Capitalized interest in inventory,
beginning of year		$	34,285		$	24,441		$	16,271
Interest incurred and capitalized			76,035			65,295			51,171
Capitalized interest amortized
to cost of sales			(66,199	)		(55,451	)		(43,001	)
Capitalized interest in inventory,
End of the year		$	44,121		$	34,285		$	24,441

(6) Property, Plant and Equipment

Property, plant and equipment consists of (in thousands):

		September 30,
		2004			2003
Land and buildings		$	5,464		$	1,011
Leasehold improvements			7,100			5,429
Machinery and equipment			20,459			18,954
Information systems			17,226			14,608
Furniture and fixtures			13,307			13,960
			63,556			53,962
Less: Accumulated depreciation			(38,885	)		(34,777	)
Property, plant and equipment, net		$	24,671		$	19,185

(7) Credit Facility

In May 2004 we amended and restated our existing bank credit facility (the “Credit Facility”) to increase the banks’ commitments and extend the maturity date for one year. The amended Credit Facility includes a $550 million four-year revolving credit facility (the “Revolving Credit Facility”) and a $200 million four-year term loan (the “Term Loan”). The Revolving Credit Facility and Term Loan now mature in June 2008. The Revolving Credit Facility and the Term Loan bear interest at a fluctuating rate (3.3% at September 30, 2004) based upon LIBOR or the alternate base rate of interest announced by our lead bank. The Credit Facility contains various operating and financial covenants. Each of our significant subsidiaries is a guarantor under the Credit Facility.

Available borrowings under the Revolving Credit Facility are limited to certain percentages of homes under contract, unsold homes, substantially improved lots and accounts receivable. At September 30, 2004 we had no borrowings outstanding, and had available borrowings of $259.4 million under the Revolving Credit Facility.

 

As discussed in Note 3, we entered into Swap Agreements to manage interest costs and hedge against risks associated with fluctuating interest rates related to $100 million of floating rate debt. As of September 30, 2004, we had entered into interest rate swaps to effectively fix the interest rate (before spread) on $100 million in floating rate debt as follows: $75 million is fixed at 5.925% per annum; $10 million is fixed at 5.17% per annum; $5 million is fixed at 5.50% per annum; and $10 million is fixed at 5.055% per annum. The Swap Agreements expire in December 2004.

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(8) Senior Notes

In June 2004, we issued $180 million aggregate principal amount of 4 5/8% Convertible Senior Notes due 2024 (the ”Convertible Senior Notes”) in a private placement pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended. In August 2004 we filed a registration statement on Form S-3 with the SEC covering resales of the Convertible Senior Notes and the common stock issuable upon conversion. The Convertible Senior Notes were issued at a price of 100% of their face amount (before underwriting discount and other issuance costs). Interest on the Convertible Senior Notes is payable semiannually beginning December 2004. Beginning with the six-month interest period commencing on June 15, 2009, we will pay contingent interest during a six-month interest period if the average trading price of the notes for a five trading day reference period equals or exceeds 120% of the principal amount of the notes. The notes are convertible by holders into shares of our common stock at an initial conversion rate of 6.48 shares of Beazer Homes common stock per $1,000 principal amount (subject to adjustment for customary reasons), representing an initial conversion price of $154.32 per share of common stock, under the following circumstances: a) during any calendar quarter, if the last reported sale price of our common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the previous calendar quarter is greater than or equal to 120% of the conversion price on such last trading day; b) subject to certain limitations, during the five consecutive trading days after any five consecutive trading days in which the trading price per $1,000 principal amount of notes for each day of that period is less than 98% of the product of the last reported sale p rice of our common stock and the conversion rate of the notes on each such day, provided that if the price of our common stock issuable upon conversion is between 100% and 120% of the conversion price, holders will be entitled to receive upon conversion only the value of the principal amount of the notes converted plus accrued and unpaid interest, including contingent interest and additional amounts owed, if any, c) if the notes have been called for redemption, d) upon the occurrence of specified corporate transactions, e) during any period in which the credit rating assigned to the notes by either Moody’s or S&P is lower than B1 or B+, respectively, or the notes are no longer rated by at least one of these rating services or their successors.

We may, at our option, redeem for cash the Convertible Senior Notes in whole or in part at any time on or after June 15, 2009, initially at 101.321% of the principal amount, declining to 100% of the principal amount after June 15, 2011. Holders have the right to require us to purchase all or any portion of the Convertible Senior Notes for cash on June 15, 2011, June 15, 2014 and June 15, 2019 or if we undergo a fundamental change, as defined. In each case, we will pay a purchase price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest, including contingent interest, if any, and any additional amounts owed, if any, to such purchase date.

In November 2003, we issued $200 million 6 1/2 % Senior Notes due November 2013 (the “Original Notes”) in a private placement pursuant to Rule 144A and Regulation S promulgated under the Securities Act of 1933, as amended. In May 2004 we completed an offer to exchange all of the outstanding Original Notes for an equal amount of 6 1/2 % Senior Notes due November 2013 (the “6 1/2 % Senior Notes”), which were registered under the Securities Act of 1933. The 6 1/2 % Senior Notes were issued at a price of 100% of their face amount (before underwriting discount and other issuance costs). Interest on the 6 1/2 % Senior Notes is payable semiannually. We may, at our option, redeem the 6 1/2 % Senior Notes in whole or in part at any time after November 2008, initially at 103.250% of the principal amount, declining to 100% of the principal amount after November 2011. We may redeem the 6 1/2 % Senior Notes, in whole or in part, at any time before November 2008 at a redemption price equal to the principal amount thereof plus a “make-whole” premium, plus accrued and unpaid interest. A portion of such notes may also be redeemed prior to November 2006 under certain conditions.

In April 2002, we issued $350 million 8 3/8% Senior Notes due April 2012 (the “Original Notes”) in a private placement pursuant to Rule 144A and Regulation S promulgated under the Securities Act of 1933, as amended. In September 2002 we completed an offer to exchange all of the outstanding Original Notes for an equal amount of 8 3/8 Senior Notes due 2012 (the “8 3/8% Senior Notes”), which were registered under the Securities Act of 1933. The terms of the 8 3/8% Senior Notes were substantially identical to the terms of the Original Notes. The Original Notes were issued at a price of 100% of their face amount (before underwriting discount and other issuance costs). Interest on the 8 3/8% Senior Notes is payable semiannually. We may, at our option, redeem the 8 3/8% Senior Notes in whole or in part at any time after April 2007, initially at 104.188% of the principal amount, declining to 100% of the principal amount after April 2010. A portion of such notes may also be redeemed prior to April 2005 under certain conditions. We used the proceeds from the issuance of the 8 3/8 % Senior Notes to fund the cash portion of the Crossmann acquisition, to repay Crossmann’s outstanding net indebtedness, to reduce borrowings under our revolving credit facility at the time, and to pay related fees, commissions and other expenses.

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In May 2001, we issued $200 million 8 5/8% Senior Notes due May 2011 (the “8 5/8% Senior Notes”) at a price of 99.178% of their face amount (before underwriting discount and other issuance costs). Interest on the 8 5/8% Senior Notes is payable semiannually. We may, at our option, redeem the 8 5/8% Senior Notes in whole or in part at any time after May 2006, initially at 104.3125% of the principal amount, declining to 100% of the principal amount after May 2009.

During fiscal 2003, we retired our $100 million 8 7/8% Senior Notes due in 2008 (the “8 7/8% Senior Notes.”) The 8 7/8% Senior Notes were redeemed at 104.438% of the principal amount, plus accrued interest. As a result of the redemption of the 8 7/8% Senior Notes, we recorded a pre-tax charge of $7.6 million, which includes the write off of previously capitalized fees.

The Convertible Senior Notes, the 6 ½ % Senior Notes, the 8 3/8% Senior Notes and the 8 5/8% Senior Notes (collectively the “Senior Notes”) are unsecured obligations ranking pari passu with all other existing and future senior indebtedness. All of our significant subsidiaries are full and unconditional guarantors of the Senior Notes and our obligations under the Credit Facility, and are jointly and severally liable for obligations under the Senior Notes, and the Credit Facility. Each guarantor subsidiary is a 100% owned subsidiary of Beazer Homes.

 

The indentures under which the Senior Notes were issued contain certain restrictive covenants, including limitations on payment of dividends. At September 30, 2004, under the most restrictive covenants of each indenture, approximately $289.7 million of our retained earnings was available for cash dividends and for share repurchases. Each indenture provides that, in the event of defined changes in control or if our consolidated tangible net worth falls below a specified level or in certain circumstances upon a sale of assets, we are required to offer to repurchase certain specified amounts of outstanding Senior Notes.

 

As of September 30, 2004, future maturities of long-term debt are as follows (in thousands):

 

Year Ending September 30,
2005		$	17,811
2006			4,256
2007			-
2008			200,000
2009			-
Thereafter			930,000
Total		$	1,152,067

 

(9) Income Taxes

The provision for income taxes consists of (in thousands):

		Year Ended September 30,
		2004			2003			2002
Current:
Federal		$	153,228		$	106,871		$	78,709
State			22,427			16,261			13,566
Deferred			(24,891	)		(10,348	)		(12,850	)
Total		$	150,764		$	112,784		$	79,425

The provision for income taxes differs from the amount computed by applying the federal income tax statutory rate as follows (in thousands):

		Year Ended September 30,
		2004			2003			2002
Income tax computed at statutory rate		$	135,298		$	99,935		$	70,721
State income taxes, net of federal
benefit			16,226			12,764			8,524
Other			(760	)		85			180
Total		$	150,764		$	112,784		$	79,425

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Deferred tax assets and liabilities are composed of the following (in thousands):

		September 30,
		2004			2003
Deferred Tax Assets:
Warranty and other reserves.		$	40,900		$	19,352
Incentive compensation			7,377			3,752
Property, equipment and other assets			2,275			3,604
Interest rate swaps			354			2,203
Other			1,562			767
Total Deferred Tax Assets			52,468			29,678
Deferred Tax Liabilities:
Inventory valuation			(5,416	)		(3,518	)
Net Deferred Tax Asset		$	47,052		$	26,160

 We believe that based upon our history of profitable operations, it is more likely than not that our net deferred tax asset will be realized.

 

(10) Leases

We are obligated under various non-cancelable operating leases for office facilities and equipment. Rental expense under these agreements amounted to approximately $14,116,000, $11,562,000 and $9,654,000 for the years ended September 30, 2004, 2003 and 2002, respectively. As of September 30, 2004, future minimum lease payments under non-cancelable operating lease agreements are as follows: (in thousands):

Year Ending September 30,
2005		$	10,462
2006			9,049
2007			7,096
2008			5,770
2009			4,250
Thereafter			4,506
Total		$	41,133

(11) Stockholders' Equity

Preferred Stock - We currently have no shares of preferred stock outstanding.

Common Stock Repurchase Plan- In February 2003, our Board of Directors approved a stock repurchase plan authorizing the purchase of up to one million shares of our outstanding common stock. During fiscal 2004, we repurchased 179,800 shares for an aggregate purchase price of $17.5 million or approximately $98 per share pursuant to the plan. During fiscal 2003, we repurchased 128,000 shares for an aggregate purchase price of $6.9 million or approximately $54 per share pursuant to the plan. At September 30, 2004, we are authorized to purchase up to 692,200 additional shares pursuant to the plan.

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Shareholder Rights Plan - In June 1996, our Board of Directors adopted a Shareholder Rights Plan and distributed a dividend of one preferred share purchase right (a “Right”) to purchase one one-hundredth of a share of Series B Junior Participating Preferred Stock, par value $0.01 per share (the “Junior Preferred Shares”), of Beazer Homes. The Rights become exercisable in certain limited circumstances involving principally the acquisition of over 20% of our outstanding common stock by any one individual or group. The Rights are initially exercisable at a price of $80 per one hundredth of a Junior Preferred Share subject to adjustment. Fo llowing certain other events after the Rights have become exercisable, each Right entitles its holder to purchase at the Right’s then-current exercise price, a number of shares of our common stock having a market value of twice such price, or, in certain circumstances, securities of the acquirer, having a then-current market value of two times the exercise price of the Right.

The Rights are redeemable and may be amended at our option before they become exercisable. Until a Right is exercised, the holder of a Right has no rights as a shareholder of Beazer Homes. The Rights expire in June 2006.

Dividends - During fiscal 2004, the Company paid quarterly cash dividends of $0.10 per common share, or a total of approximately $5.5 million. No dividends were paid during fiscal years 2003 or 2002.

(12) Earnings Per Share

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

		Year Ended September 30,
		2004			2003			2002
Basic:
Net income		$	235,811		$	172,745		$	122,634
Weighted average number of common shares outstanding			13,293			12,886			10,535
Basic earnings per share		$	17.74		$	13.41		$	11.64
Diluted:
Net income applicable to common stockholders		$	235,811		$	172,745		$	122,634
Weighted average number of common shares outstanding			13,293			12,886			10,535
Effect of dilutive securities:
Restricted stock units			243			252			364
Options to acquire common stock			265			376			516
Diluted weighted average number of common
shares outstanding			13,801			13,514			11,415
Diluted earnings per share		$	17.09		$	12.78		$	10.74

Options to purchase 137,326 and 143,898 shares of common stock were not included in the computation of diluted earnings per share for the years ended September 30, 2003 and 2002, respectively, because the options’ exercise price was greater than the average market price of the common shares during those years.

In September 2004 the Emerging Issues Task Force (“EITF”) of the FASB reached a consensus on EITF Issue No. 04-8: “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share” (“EITF 04-8”). The consensus was ratified by the FASB in October 2004. EITF 04-8 requires that shares issuable upon conversion of contingently convertible debt instruments (“Co-Cos”) be included in diluted earnings per share computations using the “if-converted method” regardless of whether the issuer’s stock price exceeds the contingent conversion price. Prior to EITF 04-8, shares issuable upon conversion of CoCos were generally excluded from diluted earnings per share computations until the issuer’s stock price exceeded the contingent conversion price. EITF 04-8, whic h applies to our 4 5/8 % Convertible Senior Notes issued in June 2004, is expected to be effective for reporting periods ending on or after December 15, 2004, the first quarter of our fiscal 2005. Restatement of prior period earnings per share amounts presented for comparative purposes will be required. If we had reported fiscal 2004 diluted earnings per share under EITF 04-8, we would have reported earnings of $16.77 per diluted share.

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(13) Retirement Plan and Incentive Awards

401(k) Retirement Plan - We sponsor a 401(k) Plan (the "Plan”). Substantially all employees are eligible for participation in the Plan after completing one month of service with us. Participants may defer and contribute to the Plan from 1% to 80% of their salary with certain limitations on highly compensated individuals. We match 50% of the first 6% of the participant's contributions. The participant's contributions vest 100% immediately, while our contributions vest over five years. Our total contributions for the years ended September 30, 2004, 2003 and 2002 were approximately $2,764,000, $2,022,000 and $1,851,000, respectively.

Deferred Compensation Plan- During fiscal 2002, we adopted the Beazer Homes USA, Inc. Deferred Compensation Plan (the “DCP Plan”). The DCP Plan is a non-qualified deferred compensation plan for a select group of executives and highly compensated employees. The Plan allows the executives to defer current compensation on a pre-tax basis to a future year, up until termination of employment. The objectives of the Plan are to assist executives with fi nancial planning and capital accumulation and to provide the Company with a method of attracting, rewarding, and retaining highly compensated executives. Participation in the plan is voluntary. Beazer Homes may voluntarily make a contribution to the participants’ DCP accounts. For the years ended September 30, 2004, 2003 and 2002, Beazer Homes contributed $2,814,000, $626,000 and $284,000, respectively, to the DCP Plan.

  

Stock Incentive Plans - During fiscal 2000, we adopted the 1999 Stock Incentive Plan (the “1999 Plan”) because the shares reserved under the 1994 Stock Incentive Plan (the “1994 Plan”) had been substantially depleted. We also have the Non-Employee Director Stock Option Plan (the “Non-Employee Director Plan”). At September 30, 2004, we had reserved 3,975,000 shares of common stock for issuance under our various stock incentive plans, of which 1,007,348 shares are available for future grants.

Stock Option Awards - We have issued various stock option awards to officers and key employees under both the 1999 Plan and the 1994 Plan and to non-employee directors pursuant to the Non-Employee Director Plan. Stock options are generally exercisable at the fair market value of the common stock on the grant date, vest three years after the date of grant and may be exercised thereafter until their expiration, subject to forfeiture upon termination of employment as provided in the applicable plan. Stock options granted prior to fiscal 2004, generally expire on the tenth anniversary from the date such options were granted. Stock options granted in fiscal 2004 expire on the s eventh anniversary from the date such options were granted.

Stock Option Awards - Information regarding activity under our stock option plans is summarized as follows:

		Year Ended September 30,
		2004						2003						2002
		Shares			Weighted Average Exercise Price			Shares			Weighted Average Exercise Price			Shares			Weighted Average Exercise Price
Options outstanding at beginning of year			792,715		$	41.48			1,070,880		$	28.37			1,230,540		$	19.62
Granted			103,388		$	98.72			214,577		$	62.21			166,245			75.1
Exercised			(259,467	)	$	20.66			(462,506	)	$	21.69			(298,907	)		18.46
Forfeited			(29,368	)	$	69.21			(30,236	)	$	47.40			(26,998	)		27.1
Options outstanding at end of year			607,268		$	58.78			792,715		$	41.48			1,070,880		$	28.37
Options exercisable at end of year			199,620		$	21.76			455,087		$	20.69			390,537		$	19.86

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The following table summarizes information about stock options outstanding and exercisable at September 30, 2004:

 

		Stock Options Outstanding			Stock Options Exercisable
Range of Exercise Prices		Number Outstanding	Weighted Average Contractual Remaining Life (Years)	Weighted Average Exercise Price	Number Excercisable	Weighted Average Escercise Price
$18-$24		199,620	5.41	$21.76	199,620	$21.76
$56-$63		177,228	8.10	62.15	-	-
$74-$87		130,562	7.57	80.30	-	-
$97-$99		99,858	6.32	98.72	-	-
		607,268			199,620

Other Stock Awards - We have made various restricted stock awards to officers and key employees under both the 1999 Plan and the 1994 Plan. All restricted stock is awarded in the name of the participant, who has all the rights of other common stockholders with respect to such stock, subject to restrictions and forfeiture provisions. Accordingly, such restricted stock awards are considered outstanding shares. Restricted stock awards vest from three to seven years after the date of grant. Certain restricted stock awards provide for accelerated vesting if certain performance goals are achieved. Co mpensation expense recognized for such awards totaled $5,581,000, $3,984,000 and $2,365,000 for the years ended September 30, 2004, 2003 and 2002 respectively.

Activity relating to restricted stock awards is summarized as follows:

		Year Ended September 30,
		2004			2003			2002
Restricted shares, beginning of year			292,953			88,337			134,625
Shares awarded			47,948			215,642			79,337
Shares forfeited			(6,229	)		(2,026	)		-
Shares vested			-			(9,000	)		(125,625	)
Restricted shares, end of year			334,672			292,953			88,337

We have an incentive compensation plan (called the Value Created Incentive Plan), modeled under the concepts of economic profit or economic value added. Participants may defer a portion of their earned annual incentive compensation under the plan The deferred amounts are represented by restricted stock units (“Bonus Stock”), each of which represent the right to recieve one share of Beazer Homes common stock upon vesting. Such shares are issued after a three-year vesting period, subject to an election for further deferral by the participant. The number of restricted stock units granted is based on a disvount to the market value of our common stock at the time the bonus is earned. Should the participant’s employment terminate during the vesting period, the deferred incentive compensation is se ttled in cash or cash and stock, depending on the cause of termination.

Activity relating to Bonus Stock is as follows:

		Year Ended September 30,
		2004			2003			2002
Bonus Stock issuable, beginning of year			128,404			209,158			237,362
Shares awarded			36,833			22,847			28,029
Shares forfeited			(712	)		(6,370	)		(2,905	)
Shares vested and issued			(68,137	)		(97,231	)		(53,328	)
Bonus Stock issuable, end of year			96,388			128,404			209,158

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Our former Chief Financial Officer resigned effective September 30, 2003. Effective October 1, 2003, Beazer Homes and our former CFO entered into a consulting and non-compete agreement pursuant to which our former CFO will retain and continue to vest in various stock awards during the two year life of the agreement which would have otherwise been forfeited upon termination, representing up to 46,409 shares of the Company’s common stock. Our consolidated balance sheets at September 30, 2004 and 2003 include $2,050,000 and $3,100,000, respectively, of unearned compensation cost reflecting the fair value of the stock awards as of each balance sheet date. Such unearned compensation cost, as adjusted by changes in the value of the Company’s common stock, is being recognized over the two year life of the consul ting and non-compete agreement. Compensation expense recognized for such awards totaled $1,800,000 for the year ended September 30, 2004.

 

(14) Contingencies

Trinity Claims - We and certain of our subsidiaries have been and continue to be named as defendants in various construction defect claims, complaints and other legal actions that include claims related to moisture intrusion and mold. We have experienced a significant number of such claims in our Midwestern region and particularly with respect to homes built by Trinity Homes LLC, a subsidiary we acquired in the Crossmann acquisition in 2002.

 

As of September 30, 2004, there were eleven pending lawsuits related to such complaints received by Trinity. Ten of these involve suits by individual homeowners, and the cost to resolve these matters is not expected to be material, either individually or in the aggregate. One of these suits is a class action suit that was filed in the State of Indiana in August 2003. The parties in the class action engaged in a series of mediation conferences which resulted in an agreement for a proposed settlement of the case. The parties submitted settlement documents to the court, which the court preliminarily approved on August 6, 2004.  A Fairness Hearing was held on October 18, 2004 and the court approved the settlement agreement on October 20, 2004.

The settlement class includes, with certain exclusions, the current owners of all Trinity homes that have brick veneer, where the closing of Trinity’s initial sale of the home took place between June 1, 1998 and October 31, 2002. The settlement agreement establishes an agreed protocol and process for assessment and remediation of any external water intrusion issues at the homes which includes, among other things, that the homes will be repaired at Trinity’s expense. The settlement agreement also provides for plaintiffs’ attorneys’ fees and for Trinity to pay an agreed amount per home for engineering inspection costs for each home for which a claim is filed under the settlement.

Under the settlement, subject to Trinity’s timely performance of the specified assessments and remediation activities for homeowners who file claims, each homeowner releases Trinity, Beazer Homes Investment Corp. and other affiliated companies, including Beazer Homes, from the claims asserted in the class action lawsuit, claims arising out of external water intrusion, and claims of improper brick installation, including property damage claims, loss or diminution of property value claims, and most personal injury claims, among others. There was a 30-day timeframe, which ended on November 19, 2004, to appeal the court’s order approving the settlement.  No appeals were received by the court within the timeframe established. The Company expects to send out the claims notices on or about December 20, 2004 , and the class members will have 60 days to file claims.

Our warranty reserves at September 30, 2004 and 2003 include accruals for our estimated costs to assess and remediate all homes for which Trinity had received complaints related to moisture intrusion and mold, including a provision for legal fees. Our warranty reserves at September 30, 2004 also include a provision for estimated plaintiffs’ attorneys’ fees and for engineering inspection costs related to the settlement discussed above. It is probable that we have incurred additional losses relating to the remediation of homes of class members from whom we have not yet received complaints. However, due to the uncertainty surrounding the number of claims that will ultimately be filed and the average cost to remediate such claims, we cannot estimate the possible loss or range of loss at this time. Therefore, we have not accrued any costs to remediate homes for which we have not yet received complaints. As we receive and evaluate claims pursuant to the settlement, we will accrue our estimated costs to resolve those claims. We expect to know substantially the number of claims that will ultimately be filed pursuant to the settlement during the second quarter of our fiscal 2005.

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The following is a roll-forward of total complaints received, on which our accruals were based:

		Year Ended September 30,
		2004			2003
Complaints outstanding at beginning of year			415			16
Complaints received during the year			564			399
Complaints resolved during the year			(92	)		-
Complaints outstanding at end of year			887			415

 

The cost to assess and remediate a home depends on the extent of moisture damage, if any, that the home has incurred. We classify homes for which we receive complaints into one of three categories: 1) homes with no moisture damage, 2) homes with isolated moisture damage or 3) homes with extensive moisture damage. For purposes of calculating our accrual we estimated the cost to assess and remediate homes to cover a range up to $63,500 per home, depending on the category to which it was assigned.

As of September 30, 2004 and 2003 we accrued for our estimated cost to remediate homes that we had assessed and assigned to one of the above categories, as well as our estimated cost to remediate those homes for which we had received complaints, but for which we had not yet performed assessments. For purposes of our accrual, we assigned homes not yet assessed to categories based on our expectations about the extent of damage and trends observed from the results of assessments performed to date.

During the quarter ended September 30, 2004, we increased our estimated costs to remediate homes within each category. We also changed our classifications of homes not yet assessed to reflect our expectations that a greater number of homes than previously estimated will have extensive moisture damage. We updated these assumptions based on the results of remediation work and assessments completed to date and cost estimates from subcontractors. As a result of these changes in estimate, we increased our reserves for existing claims by approximately $12,300,000. We also accrued $3,300,000 for new claims received during the quarter, for a total pre-tax charge of $15,600,000 for the quarter ended September 30, 2004.

During fiscal 2004, we initiated a program under which we offered to repurchase a limited number of homes from specific homeowners. As of September 30, 2004 we have repurchased 53 homes at an aggregate purchase price of $17,461,769. We have an agreement to repurchase one more home, which concludes this repurchase program. Our accrual at September 30, 2004 includes our estimated costs to sell homes that we have repurchased and which we have agreed to repurchase, and our estimated losses on the sale of those homes. As of September 30, 2004, we have not sold any of the homes that we have repurchased under this program.

Changes in our accrual for Trinity moisture intrusion and related mold issues during the period were as follows (in thousands):

		Year Ended September 30,
		2004			2003
Balance at beginning of period		$	9,200		$	730
Provisions			43,858			15,523
Payments			(10,885	)		(7,053	)
Balance at end of period		$	42,173		$	9,200

 

Our accruals at September 30, 2004 and 2003 represent our best estimates of the costs to resolve all asserted complaints. Actual costs to assess and remediate homes in each category, the extent of damage to homes not yet assessed, our estimates of costs to sell repurchased homes, and our losses on such sales could differ from our estimates. As a result, the costs to resolve existing complaints could differ from our recorded accruals and have a material adverse effect on our net income in the periods in which the matters are resolved. Additionally, it is reasonably possible that we will incur additional losses related to these matters, including additional losses related to homes for which we have not yet received complaints. However, the amount or range of such losses cannot be determined at this time.< /DIV>

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Warranty Reserves- We provide a limited warranty (ranging from one to two years) of workmanship and materials with each of our homes. Such warranty covers defects in plumbing, electrical, heating, cooling and ventilating systems and construction defects. In addition, we provide a warranty (ranging from a minimum of ten years up to the period covered by the applicable statute of repose) with each of our homes, covering construction defects only. Since we subcontract our homebuilding work to subcontractors who generally provide us with an indemnity and a certificate of insurance prior to receiving payments for their work, claims relating to workmanship and materials are generally the primary responsibility of our subcontractors.

As noted above, our warranty reserves at September 30, 2004 and 2003 include accruals for Trinity moisture intrusion and related mold issues. Warranty reserves are included in accrued expenses in the consolidated financial statements. We record reserves covering our anticipated warranty expense for each home closed. Management reviews the adequacy of warranty reserves each reporting period based on historical experience and management’s estimate of the costs to remediate the claims and adjusts these provisions accordingly. While we believe that our warranty reserves are adequate, there can be no assurances that historical data and trends will accurately predict our actual warranty costs or that future developments might not lead to a significant change in the reserve.

Changes in our warranty reserves, which include amounts related to the Trinity moisture intrusion and mold issues discussed above, during the period are as follows (in thousands):

		Year Ended September 30,
		2004			2003			2002
Balance at beginning of period		$	40,473		$	25,527		$	16,464
Provisions			80,291			39,244			24,883
Payments			(34,601	)		(24,298	)		(15,820	)
Balance at end of period		$	86,163		$	40,473		$	25,527

 

Other Contingencies - We had outstanding letters of credit and performance bonds of approximately $45.9 million and $351.3 million, respectively, at September 30, 2004 related principally to our obligations to local governments to construct roads and other improvements in various developments in addition to the letters of credit of approximately $57.8 million relating to our land option contracts discussed in Note 4. We do not believe that any such letters of credit or bonds are likely to be drawn upon.

 

We and certain of our subsidiaries have been named as defendants in various claims, complaints and other legal actions. In our opinion, except as discussed above, the ultimate resolution of these matters will not have a material adverse effect on our financial condition or results of operations.

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(15) Supplemental Guarantor Information

As discussed in Note 8, the Company’s obligations to pay principal, premium, if any, and interest under certain debt are guaranteed on a joint and several basis by substantially all of its subsidiaries. The guarantees are full and unconditional and the guarantor subsidiaries are 100% owned by Beazer Homes USA, Inc. The Company has determined that separate, full financial statements of the guarantors would not be material to investors and, accordingly, supplemental financial information for the guarantors is presented.

Beazer Homes USA, Inc.
Consolidating Balance Sheet
September 30, 2004
(in thousands)
														Consolidated
		Beazer												Beazer
		Homes			Guarantor			Non-Guarantor			Consolidating			Homes
ASSETS		USA, Inc.			Subsidiaries			Subsidiaries			Adjustments			USA, Inc.
Cash and cash equivalents		$	392,110		$	(71,569	)	$	339		$	-		$	320,880
Accounts receivable			-			70,237			337			-			70,574
Owned inventory			-			2,079,494			-			9,836			2,089,330
Consolidated inventory not owned						254,765			-			-			254,765
Investment in unconsoldited joint ventures			-			44,748			-			-			44,748
Deferred tax asset			47,052			-			-			-			47,052
Property, plant and equipment, net			-			24,671			-			-			24,671
Goodwill			-			251,603			-			-			251,603
Investments in subsidiaries			1,468,078			-			-			(1,468,078	)		-
Intercompany			566,216			(583,038	)		16,822			-			-
Other assets			19,432			17,881			8,526			-			45,839
Total Assets		$	2,492,888		$	2,088,792		$	26,024		$	(1,458,242	)	$	3,149,462
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable		$	-		$	123,174		$	113		$	-		$	123,287
Other liabilities			146,473			276,242			11,057			3,836			437,608
Intercompany			(1,043	)		-			1,043			-			-
Obligations related to consolidated inventory not owned			-			219,042			-			-			219,042
Revolving credit facility			-			-			-			-			-
Term Loan			200,000			-			-			-			200,000
Senior notes			915,337			-			-			-			915,337
Other notes payable			-			22,067			-			-			22,067
Total Liabilities			1,260,767			640,525			12,213			3,836			1,917,341
Stockholders' Equity			1,232,121			1,448,267			13,811			(1,462,078	)		1,232,121
Total Liabilities and Stockholders' Equity		$	2,492,888		$	2,088,792		$	26,024		$	(1,458,242	)	$	3,149,462

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Beazer Homes USA, Inc.
Consolidating Balance Sheet
September 30, 2003
(in thousands)
														Consolidated
		Beazer												Beazer
		Homes			Guarantor			Non-Guarantor			Consolidating			Homes
		USA, Inc.			Subsidiaries			Subsidiaries			Adjustments			USA, Inc.
ASSETS
Cash and cash equivalents		$	110,754		$	(40,079	)	$	2,697		$	-		$	73,372
Accounts receivable			-			64,620			1,383			-			66,003
Owned inventory			-			1,677,965			-			9,844			1,687,809
Consolidated inventory not owned			-			35,674			-			-			35,674
Investments in unconsolidated joint ventures			-			26,569			-			-			26,569
Deferred tax asset			26,160			-			-			-			26,160
Property, plant and equipment, net			-			19,166			19			-			19,185
Goodwill			-			251,603			-			-			251,603
Investments in subsidiaries			1,246,831			-			-			(1,246,831	)		-
Intercompany			403,945			(415,211	)		11,266			-			-
Other assets			11,085			9,018			5,556			-			25,659
Total Assets		$	1,798,775		$	1,629,325		$	20,921		$	(1,236,987	)	$	2,212,034
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable		$	-		$	125,099		$	422		$	-		$	125,521
Other liabilities			64,963			242,503			9,642			3,888			320,996
Obligations related to consolidated inventory not owned			-			30,457			-			-			30,457
Intercompany			(1,248	)		-			1,248			-			-
Term Loan			200,000			-			-			-			200,000
Senior Notes			541,365			-			-			-			541,365
Total Liabilities			805,080			398,059			11,312			3,888			1,218,339
Stockholders' Equity			993,695			1,231,266			9,609			(1,240,875	)		993,695
Total Liabilities and Stockholders' Equity		$	1,798,775		$	1,629,325		$	20,921		$	(1,236,987	)	$	2,212,034

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Beazer Homes USA, Inc.
Consolidating Statement of Income
September 30, 2004
(in thousands)
														Consolidated
		Beazer												Beazer
		Homes			Guarantor			Non-Guarantor			Consolidating			Homes
		USA, Inc.			Subsidiaries			Subsidiaries			Adjustments			USA, Inc.
Total revenue		$	-		$	3,899,971		$	7,138		$	-		$	3,907,109
Costs and expenses:
Home construction and land sales			76,035			3,023,697			-			-			3,099,732
Selling, general and administrative			-			436,726			2,552			(9,836	)		429,442
Expenses related to retirement of debt			-			-			-			-			-
Operating income			(76,035	)		439,548			4,586			9,836			377,935
Equity in income of unconsolidated joint ventures			-			1,561			-			-			1,561
Other income/(expense), net			-			7,079			-			-			7,079
Income before income taxes			(76,035	)		448,188			4,586			9,836			386,575
Provision for income taxes			(29,654	)		174,794			1,788			3,836			150,764
Equity in income of subsidiaries			282,192			-			-			(282,192	)		-
Net income		$	235,811		$	273,394		$	2,798		$	(276,192	)	$	235,811

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Beazer Homes USA, Inc.
Consolidating Statement of Income
September 30, 2003
(in thousands)
														Consolidated
		Beazer												Beazer
		Homes			Guarantor			Non-Guarantor			Consolidating			Homes
		USA, Inc.			Subsidiaries			Subsidiaries			Adjustments			USA, Inc.
Total revenue		$	-		$	3,169,765		$	7,643		$	-		$	3,177,408
Costs and expenses:
Home construction and land sales			65,295			2,478,059			525			(9,844	)		2,534,035
Selling, general and administrative			-			354,088			2,560			-			356,648
Expenses related to retirement of debt			7,570			-			-			-			7,570
Operating income			(72,865	)		337,618			4,558			9,844			279,155
Equity in income of unconsolidated joint ventures			-			1,597			-			-			1,597
Other income, net			-			4,750			27			-			4,777
Income before income taxes			(72,865	)		343,965			4,585			9,844			285,529
Provision for income taxes			(28,782	)		135,867			1,811			3,888			112,784
Equity in income of subsidiaries			216,828			-			-			(216,828	)		-
Net income		$	172,745		$	208,098		$	2,774		$	(210,872	)	$	172,745

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Beazer Homes USA, Inc.
Consolidating Statement of Income
September 30, 2002
(in thousands)
														Consolidated
		Beazer												Beazer
		Homes			Guarantor			Non-Guarantor			Consolidating			Homes
		USA, Inc.			Subsidiaries			Subsidiaries			Adjustments			USA, Inc.
Total revenue		$	-		$	2,635,619		$	5,554		$	-		$	2,641,173
Costs and expenses:
Home construction and land sales			51,171			2,112,261			153			(8,170	)		2,155,415
Selling, general and administrative			-			290,533			2,051			-			292,584
Operating income			(51,171	)		232,825			3,350			8,170			193,174
Equity in income of unconsolidated joint ventures			-			2,338			-			-			2,338
Other income, net			-			6,509			38			-			6,547
Income before income taxes			(51,171	)		241,672			3,388			8,170			202,059
Provision for income taxes			(20,114	)		94,997			1,331			3,211			79,425
Equity in income of subsidiaries			153,691			-			-			(153,691	)		-
Net income		$	122,634		$	146,675		$	2,057		$	(148,732	)	$	122,634

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Beazer Homes USA, Inc.
Consolidating Statement of Cash Flows
September 30, 2004
(in thousands)
														Consolidated
		Beazer												Beazer
		Homes			Guarantor			Non-Guarantor			Consolidating			Homes
		USA, Inc.			Subsidiaries			Subsidiaries			Adjustments			USA, Inc.
Net cash provided/(used) by operating activities		$	12,169		$	(88,774	)	$	2,886		$	-		$	(73,719	)
Cash flows from investing activities:
Capital expenditures			-			(10,271	)		-			-			(10,271	)
Proceeds from sale of fixed assets			-			-			-			-			-
Investments in unconsolidated joint ventures			-			(25,844	)		-			-			(25,844	)
Distributions from and proceeds from sale of															-
unconsolidated joint ventures			-			5,639			-			-			5,639
Net cash used by investing activities			-			(30,476	)		-			-			(30,476	)
Cash flows from financing activities:
Proceeds of Term Loan			200,000			-			-			-			200,000
Repayment of Term Loan			(200,000	)		-			-			-			(200,000	)
Proceeds from issuance of 6 1/2% Senior Notes			198,100			-			-			-			198,100
Proceeds from issuance of 4 5/8% Convertible Senior Notes			174,600			-			-			-			174,600
Advances to/from subsidiaries			(82,516	)		87,760			(5,244	)		-			-
Debt Issuance Cost			(3,354	)		-			-			-			(3,354	)
Proceeds from stock option exercises			5,362			-			-			-			5,362
Common share repurchases			(17,546	)		-			-			-			(17,546	)
Dividends paid			(5,459	)		-			-			-			(5,459	)
Net cash provided/(used) by financing activities			269,187			87,760			(5,244	)		-			351,703
Increase (decrease) in cash and cash equivalents			281,356			(31,490	)		(2,358	)		-			247,508
Cash and cash equivalents at beginning of year			110,754			(40,079	)		2,697			-			73,372
Cash and cash equivalents at end of year		$	392,110		$	(71,569	)	$	339		$	-		$	320,880

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Beazer Homes USA, Inc.
Consolidating Statement of Cash Flows
September 30, 2003
(in thousands)
														Consolidated
		Beazer												Beazer
		Homes			Guarantor			Non-Guarantor			Consolidating			Homes
		USA, Inc.			Subsidiaries			Subsidiaries			Adjustments			USA, Inc.
Net cash provided/(used) by operating activities		$	(11,140	)	$	(32,990	)	$	3,081		$	-		$	(41,049	)
Cash flows from investing activities:
Capital expenditures			-			(9,309	)		(16	)		-			(9,325	)
Investments in unconsolidated joint ventures			-			(4,941	)		-			-			(4,941	)
Distributions from and proceeds from sale
of unconsolidated joint ventures			-			7,714			-			-			7,714
Net cash used by investing activities			-			(6,536	)		(16	)		-			(6,552	)
Cash flows from financing activities:
Proceeds from Term Loan			200,000			-			-			-			200,000
Repayment of Term Loan			(100,000	)		-			-			-			(100,000	)
Redemption of 8 7/8% Senior Notes			(104,438	)		-			-			-			(104,438	)
Advances (to) from subsidiaries			(21,445	)		25,206			(3,761	)		-			-
Debt issuance costs			(2,458	)		-			-			-			(2,458	)
Proceeds from stock option exercises			9,805			-			-			-			9,805
Common share repurchases			(6,925	)		-			-			-			(6,925	)
Net cash provided/(used) by financing activities			(25,461	)		25,206			(3,761	)		-			(4,016	)
Decrease in cash and cash equivalents			(36,601	)		(14,320	)		(696	)		-			(51,617	)
Cash and cash equivalents at beginning of year			147,355			(25,759	)		3,393			-			124,989
Cash and cash equivalents at end of year		$	110,754		$	(40,079	)	$	2,697		$	-		$	73,372

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Beazer Homes USA, Inc.
Consolidating Statement of Cash Flows
September 30, 2002
(in thousands)
														Consolidated
		Beazer												Beazer
		Homes			Guarantor			Non-Guarantor			Consolidating			Homes
		USA, Inc.			Subsidiaries			Subsidiaries			Adjustments			USA, Inc.
Net cash provided/(used) by operating activities		$	(18,717	)	$	71,291		$	6,890		$	-		$	59,464
Cash flows from investing activities:
Capital expenditures			-			(8,213	)		-			-			(8,213	)
Proceeds from sale of fixed assets			-			4,800			-			-			4,800
Investments in unconsolidated joint ventures			-			(3,146	)		-			-			(3,146	)
Distributions from and proceeds from sale			-									-
of unconsolidated joint ventures			-			12,736			-			-			12,736
Acquisitions, net of cash acquired			-			(320,810	)		-			-			(320,810	)
Net cash used by investing activities			-			(314,633	)		-			-			(314,633	)
Cash flows from financing activities:
Proceeds from issuance of 8 3/8% Senior Notes			343,000			-			-			-			343,000
Advances (to) from subsidiaries			(223,050	)		225,916			(2,866	)		-			-
Debt issuance costs			(7,513	)		-			-			-			(7,513	)
Proceeds from stock option exercises			5,162			-			-			-			5,162
Common share repurchases			(2,169	)		-			-			-			(2,169	)
Net cash provided/(used) by financing activities			115,430			225,916			(2,866	)		-			338,480
Increase/(decrease) in cash and cash equivalents			96,713			(17,426	)		4,024			-			83,311
Cash and cash equivalents at beginning of year			50,642			(8,333	)		(631	)		-			41,678
Cash and cash equivalents at end of year		$	147,355		$	(25,759	)	$	3,393		$	-		$	124,989

 

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Beazer Homes USA, Inc.

We have audited the accompanying consolidated balance sheets of Beazer Homes USA, Inc. and subsidiaries (the “Company”) as of September 30, 2004 and 2003, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Beazer Homes USA, Inc. and subsidiaries at September 30, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2004 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 4 to the consolidated financial statements, in 2003 the Company changed its method of accounting for consolidated inventory not owned to conform to Financial Accounting Standards Board Interpretation No. 46.

 

 

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia

November 5, 2004

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Quarterly Financial Data
Summarized quarterly financial information (unaudited):
		Quarter Ended
(in thousands, except per share data)		September 30			June 30			March 31			December 31
Fiscal 2004:
Total revenue		$	1,211,141		$	1,009,279		$	876,581		$	810,108
Operating income			128,201			96,238			77,844			75,652
Net income			80,087			59,680			48,858			47,186
Net income per common share:
Basic		$	6.05		$	4.48		$	3.66		$	3.55
Diluted		$	5.82		$	4.31		$	3.52		$	3.41
Fiscal 2003:
Total revenue		$	1,039,923		$	771,758		$	665,567		$	700,160
Operating income			92,634			65,968			61,487			59,066
Net income			57,164			40,689			37,972			36,920
Net income per common share:
Basic		$	4.38		$	3.16		$	2.96		$	2.88
Diluted		$	4.18		$	3.01		$	2.83		$	2.75

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

None.

Item 9A. Controls and Procedures

As of September 30, 2004, an evaluation was performed under the supervision and with the participation of Beazer Homes’ management, including the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, Beazer Homes’ management, including the CEO and CFO, concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that required information will be disclosed on a timely basis in our reports filed under the Exchange Act. No changes in Beazer Hom es’ internal control over financial reporting were identified during the evaluation described above that occurred during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART III

 

Item 10. Directors and Executive Officers of the Registrant

 

Director information is incorporated by reference to the section entitled “Election of Directors” of our Proxy Statement for our 2005 Annual Meeting of Stockholders, which is expected to be filed on or before December 20, 2004. Information regarding our executive officers is set forth herein under Part I as a separate item.

Beazer Homes has adopted a Code of Business Conduct and Ethics for its senior financial officers, which applies to its principal financial officer and controller, other senior financial officers and Chief Executive Officer. The full text of the Code of Business Conduct and Ethics can be found on the Company’s website. Our Corporate Governance Guidelines and the charters of the following committees of our Board of Directors: Audit, Compensation, and Nominating and Governance, are also posted to our website, and are available in print to any stockholder who requests a printed copy. Information regarding waivers of our code of business conduct and ethics will also be published on our website.

Item 11. Executive Compensation

 

The information required by this item is incorporated by reference to the section entitled “Executive Compensation” of our Proxy Statement for our 2005 Annual Meeting of Stockholders, which is expected to be filed on or before December 20, 2004.    

Item 12. Security Ownership of Certain Beneficial Owners and Management

 

The information required by this item is incorporated by reference to the section entitled “Security Ownership of Management” of our Proxy Statement for our 2005 Annual Meeting of Stockholders, which is expected to be filed on or before December 20, 2004.

Item 13. Certain Relationships and Related Transactions

 

None

Item 14. Principal Accounting Fees and Services

 

The information required by this item is incorporated by reference to the section entitled “Principal Accounting Firm Fees” of our Proxy Statement for our 2005 Annual Meeting of Stockholders, which is expected to be filed on or before December 20, 2004.

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PART IV

 

 

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

The following documents are filed as part of this Annual Report on Form 10-K.

(a) 1. Financial Statements

	Page herein
Consolidated Statements of Income for the years ended September 30, 2004, 2003 and 2002.	33
Consolidated Balance Sheets as of September 30, 2004 and 2003.	34
Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2004, 2003 and 2002.	35
Consolidated Statements of Cash Flows for the years ended September 30, 2004, 2003 and 2002.	36
Notes to Consolidated Financial Statements.	37

2. Financial Statement Schedules

None required

3. Exhibits

Exhibit Number			Exhibit Description	Page herein or incorporated by reference from
2.1		---	Agreement and Plan of Merger among Beazer Homes USA, Inc., Beazer Homes Investment Corp., and Crossmann Communities Inc. dated as of January 29, 2002	(6)
3.1		---	Amended and Restated Certificate of Incorporation of the Company	(9)
3.2		---	Second Amended and Restated Bylaws of the Company	Filed herewith
4.1		---	Indenture dated as of May 21, 2001 among the Company and U.S. Bank Trust National Association, as trustee, related to the Company’s 8 5/8% Senior Notes due 2011	(5)
4.2		---	Supplemental Indenture (8 5/8% Notes) dated as of May 21, 2001 among the Company, its subsidiaries party thereto and U.S. Bank Trust National Association, as trustee	(5)
4.3		---	Form of 8 5/8 % Senior Notes due 2011	(5)
4.4		---	Specimen of Common Stock Certificate	(2)
4.5*		---	Retirement Savings and Investment Plan (the “RSIP”)	(1)
4.6*		---	RSIP Summary Plan Description	(1)
4.7		---	Rights Agreement, dated as of June 21, 1996, between the Company and First Chicago Trust Company of New York, as Rights Agent	(8)
4.8		---	Indenture dated as of April 17, 2002 among Beazer, the Guarantors party thereto and U.S. Bank Trust National Association, as trustee, related to the Company’s 8 3/8% Senior Notes due 2012	(6)
4.9		---	First Supplemental Indenture dated as of April 17, 2002 among Beazer, the Guarantors party thereto and U.S. Bank Trust National Association, as trustee, related to the Company’s 8 3/8% Senior Notes due 2012	(6)
4.10		---	Form of 8 3/8 % Senior Notes due 2012	(6)
4.11		---	Second Supplemental Indenture dated as of November 13, 2003 among Beazer, the Guarantors party thereto and U.S. Bank Trust National Association, as trustee, related to the Company’s 6 1/2% Senior Notes due 2013	(8)

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4.12		---	Form of 6 1/2 % Senior Notes due 2013	(8)
4.13		---	Indenture dated as of June 8, 2004 among Beazer, the Guarantors party thereto and SunTrust Bank, as trustee, related to the 4 5/8% Convertible Senior Notes due 2024	(10)
4.14		---	Form of 4 5/8% Convertible Senior Notes due 2024	(10)
10.1*		---	Amended and Restated 1994 Stock Incentive Plan	(3)
10.2*		---	Non-Employee Director Stock Option Plan	(8)
10.3*		---	Amended and Restated 1999 Stock Incentive Plan	(7)
10.4*		---	2005 Value Created Incentive Plan	Filed herewith
10.5*		---	Amended and Restated Corporate Management Stock Purchase Program	Filed herewith
10.6*		---	Customer Survey Incentive Plan	Filed herewith
10.7*		---	Director Stock Purchase Program	Filed herewith
10.8*		---	Form of Stock Option and Restricted Stock Award Agreement	Filed herewith
10.9*		---	Form of Stock Option Award Agreement	Filed herewith
10.9-15			Amended and Restated Employment Agreements dated as of September 1, 2004:
10.10*		---	Ian J. McCarthy	(11)
10.11*		---	Michael H. Furlow	(11)
10.12*		---	James O’Leary	(11)
10.13*		---	Lowell Ball	(11)
10.14*		---	Michael T. Rand	(11)
10.15*		---	John Skelton	(11)
10.16-22			Supplemental Employment Agreements dated as of September 1, 2004:
10.16*		---	Ian J. McCarthy	(11)
10.17*		---	Michael H. Furlow	(11)
10.18*		---	James O’Leary	(11)
10.19*		---	Lowell Ball	(11)
10.20*		---	Michael T. Rand	(11)
10.21*		---	John Skelton	(11)
10.22*		---	Jonathan P. Smoke	(11)
10.23*		---	Employment Agreement dated as of September 1, 2004 for Cory J. Boydston	Filed herewith
10.24		---	Purchase Agreement for Sanford Homes of Colorado LLLP	(4)
10.25		---	Amended and Restated Credit Agreement dated as of May 28, 2004 between the Company and Bank One, NA, as Agent, Guaranty Bank, BNP Paribas and Wachovia Bank, National Association as Syndication Agents, The Royal Bank of Scotland plc as Documentation Agent, SunTrust Bank, PNC Bank, National Association and Washington Mutual Bank, FA, as Managing Agents, Comerica Bank and Key Bank National Association as Co-Agents, and Banc One Capital Markets, Inc., Lead Arranger and Sole Bookrunner.	(12)
21		---	Subsidiaries of the Company	Filed herewith
23		---	Consent of Deloitte & Touche LLP	Filed herewith
31.1		---	Certification pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2		---	Certification pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1		---	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.2		---	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

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	* Represents a management contract or compensatory plan or arrangement
(1)	Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-8 (Registration No. 33-91904) filed on May 4, 1995.
(2)	Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-1 (Registration No. 33-72576) initially filed on December 6, 1993.
(3)	Incorporated herein by reference to the exhibits to the Company’s 10-Q for the quarterly period ended December 31, 2000.
(4)	Incorporated herein by reference to the exhibits to the Company’s report on Form 8-K filed on August 10, 2001.
(5)	Incorporated herein by reference to the exhibits to the Company’s report on Form 10-K for the year ended September 30, 2001.
(6)	Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-4 (Registration No. 333-92470) filed on July 16, 2002.
(7)	Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-8/S-3 (Registration No. 333-101142) filed on November 12, 2002.
(8)	Incorporated herein by reference to the exhibits to the Company’s report on Form 10-K for the year ended September 30, 2003.
(9)	Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-4/A filed on March 12, 2002.
(10)	Incorporated herein by reference to the exhibits to the Company’s 10-Q for the quarterly period ended June 30, 2004.
(11)	Incorporated herein by reference to the exhibits to the Company’s report on Form 8-K filed on September 1, 2004.
(12)	Incorporated herein by reference to the exhibits to the Company’s report on Form 8-K filed on June 2, 2004.

 

(b) Reports on Form 8-K

 

On July 8, 2004 we furnished a report on Form 8-K announcing under Item 12 our new home orders for the three month period ended June 30, 2004.

On July 29, 2004 we furnished a report on Form 8-K announcing under Item 12 our earnings and results of operations for the three and nine month periods ended June 30, 2004.

On September 1, 2004 we filed a report on Form 8-K announcing under Item 1.01 our entry into supplemental employment agreements with the following executives: Ian J. McCarthy, President and Chief Executive Officer; Michael H. Furlow, Executive Vice President and Chief Operating Officer; James O'Leary, Executive Vice President and Chief Financial Officer; Lowell Ball, Senior Vice President, General Counsel; Michael T. Rand, Senior Vice President, Chief Accounting Officer; John Skelton, Senior Vice President, Forward Planning; and Jonathan P. Smoke, Senior Vice President, Chief Information Officer.

(c) Exhibits

 

Reference is made to Item 15(a)3 above. The following is a list of exhibits, included in item 15(a)3 above, that are filed concurrently with this report.

 

	3.2	---	Second Amended and Restated Bylaws of the Company
	10.4*	---	2005 Value Created Incentive Plan
	10.5*	---	Amended and Restated Corporate Management Stock Purchase Program
	10.6*	---	Customer Survey Incentive Plan
	10.7*	---	Director Stock Purchase Program
	10.8*	---	Form of Stock Option and Restricted Stock Award Agreement
	10.9*	---	Form of Stock Option Award Agreement
	10.23*	---	Employment Agreement dated as of September 1, 2004 for Cory J. Boydston
	21	---	Subsidiaries of the Company
	23	---	Consent of Deloitte & Touche LLP
	31.1	---	Certification pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	---	Certification pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	---	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	---	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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(d) Financial Statement Schedules

 

Reference is made to Item 15(a)2 above.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	By:  /s/ IAN J. MCCARTHY
	Name: Ian J. McCarthy
	Title:   President and Chief Executive Officer
	Date:   December 6, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

December 6, 2004	By:  /s/ BRIAN C. BEAZER
Date	Brian C. Beazer, Director and Non-Executive Chairman of the Board
December 6, 2004	By:  /s/ IAN J. MCCARTHY
Date	Ian J. McCarthy, Director, President and Chief Executive Officer (Principal Executive Officer)
December 6, 2004	By:  /s/ LAURENT ALPERT
Date	Laurent Alpert, Director
December 6, 2004	By:  /s/ KATIE J. BAYNE
Date	Katie J. Bayne, Director
December 6, 2004	By:  /s/ MAUREEN E. O’CONNELL
Date	Maureen E. O’Connell, Director
December 6, 2004	By:  /s/ LARRY T. SOLARI
Date	Larry T. Solari, Director
December 6, 2004	By:  /s/ STEPHEN P. ZELNAK
Date	Stephen P. Zelnak, Jr., Director
December 6, 2004	By:  /s/ JAMES O’LAERY
Date	James O’Leary, Executive Vice President and Chief Financial Officer (Principal Financial Officer)
December 6, 2004	By:  /s/ MICHAEL T. RAND
Date	Michael T. Rand, Senior Vice President, Chief Accounting Officer
	(Principal Accounting Officer)

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