<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20594
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-12822
-----------------
BEAZER HOMES USA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-2086934
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
5775 Peachtree Dunwoody Road, Suite B-200, Atlanta, Georgia 30342
(Address of principal executive offices) (Zip Code)
(404) 250-3420
(Registrant's telephone number, including area code)
5775 Peachtree Dunwoody Road, Suite C-550, Atlanta, Georgia 30342
(former address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to the filing requirements for the past 90 days.
YES X NO
--------------- ----------------
Class Outstanding at May 15, 1999
----- ---------------------------
Common Stock, $0.01 par value 8,566,059 shares
Series A Cumulative Convertible
Exchangeable Preferred Stock, $0.01 par value 267,540 shares
Page 1 of 21 Pages
Exhibit Index Appears on Page 20
<PAGE>
BEAZER HOMES USA, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets,
March 31, 1999 (unaudited) and September 30, 1998 3
Unaudited Condensed Consolidated Statements of Operations,
Three and Six Months Ended March 31, 1999 and 1998 4
Unaudited Condensed Consolidated Statements of Cash Flows,
Six Months Ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 6 Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
BEAZER HOMES USE, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,558 $ 67,608
Accounts receivable 18,429 16,949
Inventory 553,015 405,095
Property, plant and equipment, net 12,893 12,332
Goodwill, net 8,451 8,853
Other assets 14,073 14,754
---------------- ----------------
Total assets $ 608,419 $ 525,591
---------------- ----------------
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $ 46,231 $ 61,942
Other payables and accrued liabilities 62,901 49,425
Revolving credit facility 75,000 ---
Senior notes 215,000 215,000
---------------- ----------------
Total liabilities 399,132 326,367
Stockholders' equity:
Preferred stock (par value $.01 per share, 5,000,000 shares
authorized, 427,240 and 2,000,000 issued and outstanding;
$10,681 and $50,000 aggregate liquidation preference) 4 20
Common stock (par value $.01 per share, 30,000,000 shares
authorized, 11,648,256 and 9,559,200 issued,
8,356,479 and 6,267,423 outstanding) 117 93
Paid in capital 193,179 192,729
Retained earnings 73,494 64,003
Unearned restricted stock (5,524) (5,638)
Treasury stock (3,291,777 shares) (51,983) (51,983)
---------------- ----------------
Total stockholders' equity 209,287 199,224
---------------- ----------------
Total liabilities and stockholders' equity $ 608,419 $ 525,591
---------------- ----------------
---------------- ----------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
BEAZER HOMES USE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
----------------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenue $ 327,345 $ 221,323 $ 569,455 $ 376,949
Costs and expenses:
Home construction and land sales 272,021 185,318 473,186 315,793
Interest 6,262 4,271 11,297 7,318
Selling, general and administrative 35,871 25,599 64,118 44,895
------------ ------------- ------------ -------------
Operating income 13,191 6,135 20,854 8,943
Other income (45) 51 (92) 201
------------ ------------- ------------ -------------
Income before income taxes 13,146 6,186 20,762 9,144
Provision for income taxes 5,061 2,381 7,993 3,520
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Net income $ 8,085 $ 3,805 $ 12,769 $ 5,624
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Dividends and other payments to preferred shareholders $ 2,009 $ 1,000 $ 3,009 $ 2,000
Net income applicable to common stockholders:
Basic $ 6,076 $ 2,805 $ 9,760 $ 3,624
Diluted $ 6,290 $ 3,805 $ 10,187 $ 5,624
Weighted average number of shares (in thousands):
Basic 6,550 5,850 6,219 5,842
Diluted 7,471 8,732 7,139 6,095
Net income per common share:
Basic $ 0.93 $ 0.48 $ 1.57 $ 0.62
Diluted $ 0.84 $ 0.44 $ 1.43 $ 0.59
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
------------------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,769 $ 5,624
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 2,061 1,344
Changes in operating assets and liabilities,
net of effects of acquisitions
Increase in inventory (43,585) (20,708)
Increase in trade accounts payable (25,887) (14,879)
Other changes 10,136 (11,804)
------------------ ------------------
Net cash used by operating activities (44,506) (40,423)
------------------ ------------------
Cash flows from investing activities:
Acquisitions, net of cash acquired (91,800) (16,766)
Capital expenditures (1,472) (2,995)
------------------ ------------------
Net cash used by investing activities (93,272) (19,761)
------------------ ------------------
Cash flows from financing activities:
Proceeds from issuance of senior notes, net 96,433
Changes in revolving credit facility, net 75,000 (10,000)
Dividends and other payments
to preferred shareholders (3,272) (2,000)
------------------ ------------------
Net cash provided by financing activities 71,728 84,433
------------------ ------------------
Increase (decrease) in cash and cash equivalents (66,050) 24,249
Cash and cash equivalents at beginning of period 67,608 1,267
------------------ ------------------
Cash and cash equivalents at end of period $ 1,558 $ 25,516
------------------ ------------------
------------------ ------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
BEAZER HOMES USA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of Beazer Homes USA, Inc. ("Beazer" or the "Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Consequently, such financial
statements do not include all of the information and disclosures required by
generally accepted accounting principles for complete financial statements.
Accordingly, for further information, the reader of this Form 10-Q should
refer to the audited consolidated financial statements of the Company
incorporated by reference in the Company's Annual Report on Form 10-K for the
year ended September 30, 1998.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included in the accompanying condensed financial statements.
(2) INVENTORY
A summary of inventory is as follows (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, September 30,
1999 1998
---- ----
<S> <C> <C>
Homes under construction................................. $211,201 $194,566
Development projects in progress......................... 289,880 165,218
Unimproved land held for future development.............. 15,874 18,605
Model homes.............................................. 36,060 26,706
-------- --------
$553,015 $405,095
-------- --------
-------- --------
</TABLE>
Homes under construction includes homes finished and ready for delivery
and homes in various stages of construction. The Company had 195 completed homes
($28.0 million) and 208 completed homes ($30.7 million) at March 31, 1999 and
September 30, 1998, respectively, that were not subject to a sales contract, not
including model homes.
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.
6
<PAGE>
BEAZER HOMES USA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(3) INTEREST
The following table sets forth certain information regarding interest:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
During the period:
Interest incurred $ 7,080 $ 5,300 $ 13,019 $ 9,916
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Previously capitalized interest
amortized to costs and expenses $ 6,262 $ 4,271 $ 11,297 $ 7,318
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
At the end of the period:
Capitalized interest in ending
inventory $ 11,535 $ 9,453 $ 11,535 $ 9,453
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
(4) PREFERRED STOCK TRANSACTIONS
During the quarter ended March 31, 1999, the Company paid an aggregate
of $1.2 million in cash to holders of 1,572,760 shares of its Series A
Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") to
induce those holders to convert their preferred shares into 2,063,984 common
shares in accordance with the original conversion terms of the Preferred Stock.
The payments were made in conjunction with individually negotiated transactions
and a general inducement offer during the period.
On April 19, 1999, subsequent to additional individually negotiated
transactions involving 159,700 shares of Preferred Stock (including cash
payments aggregating $120,000) during April 1999, the Company called the
remaining outstanding 267,540 shares of Preferred Stock for redemption on May
19, 1999 for cash (including accrued and unpaid dividends) of $26.678 per
preferred share.
7
<PAGE>
BEAZER HOMES USA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(5) EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
March 31, March 31,
----------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings
Net income $ 8,085 $ 3,805 $ 12,769 $ 5,624
Less: Dividends and other payments to preferred
shareholders 2,009 1,000 3,009 2,000
----------------------- -------------------------
Net income applicable to common shareholders $ 6,076 $ 2,805 $ 9,760 $ 3,624
----------------------- -------------------------
----------------------- -------------------------
Basic:
Net income applicable to common shareholders $ 6,076 $ 2,805 $ 9,760 $ 3,624
Weighted average number of common shares outstanding 6,550 5,850 6,219 5,842
Basic earnings per share $ 0.93 $ 0.48 $ 1.57 $ 0.62
Diluted:
Net income applicable to common shareholders $ 6,076 $ 2,805 $ 9,760 $ 3,624
Add back: Payments to preferred shareholders on
shares outstanding during the entire period 214 1,000 427 n/a
----------------------- -------------------------
Adjusted net income applicable to common shareholders $ 6,290 $ 3,805 $ 10,187 $ 3,624
----------------------- -------------------------
----------------------- -------------------------
Weighted average number of common shares outstanding 6,550 5,850 6,219 5,842
Effect of dilutive securities-
Assumed conversion of Preferred Stock
outstanding during the entire period 561 2,625 561 n/a
Restricted stock 254 176 254 184
Options to acquire common stock 106 81 105 69
----------------------- -------------------------
Diluted weighted common shares outstanding 7,471 8,732 7,139 6,095
Diluted earnings per share $ 0.84 $ 0.44 $ 1.43 $ 0.59
</TABLE>
The computation of diluted earnings per share for the three and six
month periods ended March 31, 1999 excludes both (i) the effect of all payments
(including dividends) made to preferred shareholders who converted their shares
into common stock during the period and (ii) the associated assumed conversion
of such Preferred Stock to common stock for the period prior to their actual
conversion, as the effect is antidilutive to the computation for such periods.
The computation of diluted earnings per share for the six months ended March 31,
1998 excludes the assumed conversion of 2.0 million shares of Preferred Stock
into 2.6 million shares of common stock at the conversion price of $19.05 since
the effect of such conversion is antidilutive for that period.
8
<PAGE>
BEAZER HOMES USA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(6) CREDIT AGREEMENT
The Company maintains a revolving line of credit with a group of banks.
In November 1998, the Company amended and restated the credit facility to extend
the maturity and modify certain provisions, including the determination of
available borrowings. The credit facility provides for up to $200 million of
unsecured borrowings. Borrowings under the credit facility generally bear
interest at a fluctuating rate based upon the corporate base rate of interest
announced by the lead bank, the federal funds rate or LIBOR. All outstanding
borrowings will be due in November 2002. The credit facility contains various
operating and financial covenants. Each of the Company's significant
subsidiaries is a guarantor under the credit facility.
(7) ACQUISITIONS
In December 1998, the Company acquired the assets of the homebuilding
operations of Trafalgar House Property, Inc. ("THPI") for approximately $90
million in cash. The Company funded this acquisition with borrowings under the
Credit Facility.The acquisition has been accounted for as a purchase and,
accordingly the purchase price has been tentatively allocated to reflect the
fair value of assets and liabilities acquired. Such allocation resulted
principally in a reduction in inventory from THPI's historical carrying value
and no residual goodwill.
The following unaudited pro forma financial data give effect to
Beazer's acquisition of THPI as if it had occurred on the first day of each
period presented. The pro forma financial data is provided for comparative
purposes only and are not necessarily indicative of the results which would have
been obtained if the THPI acquisition had been effected during the periods
presented. This pro forma financial information reflects purchase accounting
adjustments necessary for the acquisition, including a reduction in gross margin
for homes closed in the period immediately following the acquisition date.
9
<PAGE>
BEAZER HOMES USA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
<TABLE>
<CAPTION>
Six Months Ended
March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Total revenues $ 604,396 $ 449,219
Net income 13,487 5,523
Net income per share
Basic $ 1.68 $ 0.60
Diluted $ 1.53 $ 0.58
</TABLE>
In October 1998 , the Company acquired the assets of Snow Construction,
Inc. in Orlando, Florida for approximately $1.8 million.
In November 1997 the Company acquired the assets of the Orlando,
Florida homebuilding operations of Calton Homes of Florida, Inc. for
approximately $16.8 million. The allocation of the purchase price resulted in
approximately $3.9 million of goodwill.
(8) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information,"("SFAS 131"). SFAS 131 will
be effective for the Company's 1999 annual financial statements. The Company
does not expect a significant effect on the presentation of its financial
information under SFAS 131.
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is
effective for periods beginning after June 15, 1999. The Company has not yet
completed an analysis of the effect of this statement on its financial
statements.
10
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents certain operating and financial data for the
Company (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------------------- ----------------------------------------
1999 1998 1999 1998
--------------------------- ---------- ----------------------------------------
% %
Amount Change Amount Amount Change Amount
----------- ------------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF NEW ORDERS,
NET OF CANCELLATIONS: (a)
Southeast region 958 1.8 % 941 1,555 14.5 % 1,358
Southwest region 866 (18.1) 1,058 1,476 (9.5) 1,631
Central region 130 (53.2) 278 208 (44.4) 374
Mid-Atlantic region 404 n/a - 468 n/a -
----------- ---------- ---------- ----------
Total 2,358 3.6 2,277 3,707 10.2 3,363
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
NUMBER OF CLOSINGS:
Southeast region 708 26.2 % 561 1,243 27.4 % 976
Southwest region 725 9.4 663 1,320 16.6 1,132
Central region 128 (14.1) 149 264 (12.9) 303
Mid-Atlantic region 240 n/a - 370 n/a -
----------- ---------- ---------- ----------
Total 1,801 31.2 1,373 3,197 32.6 2,411
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
TOTAL REVENUE:
Southeast region $ 118,933 30.5 % $ 91,110 $ 206,677 31.4 % $ 157,289
Southwest region 130,796 26.1 103,727 231,739 38.6 167,170
Central region 22,730 (14.2) 26,486 47,648 (9.2) 52,490
Mid-Atlantic region 52,785 n/a - 78,977 n/a -
----------- ---------- ---------- ----------
Total $ 325,244 47.0 $ 221,323 $ 565,041 49.9 $ 376,949
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
AVERAGE SALES PRICE PER HOME CLOSED:
Southeast region $ 168.0 3.9 % $ 161.7 $ 166.3 3.5 % $ 160.7
Southwest region 180.4 16.1 155.4 175.6 19.4 147.1
Central region 177.6 0.6 176.6 180.5 4.5 172.7
Mid-Atlantic region 219.9 n/a n/a 212.9 n/a n/a
Total 180.6 12.7 160.3 176.9 13.5 155.8
</TABLE>
(a) New orders for the six months ended March 31, 1999 and 1998 do not
include 555 and 96 homes, respectively, in backlog acquired from business
acquisitions.
11
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------
1999 1998
------------------------------- ------------
%
AMOUNT CHANGE AMOUNT
----------- ----------------- ------------
<S> <C> <C> <C>
BACKLOG UNITS AT END OF PERIOD:
Southeast region 1,378 40.2 % 983
Southwest region 899 (8.1) 978
Central region 262 (6.1) 279
Mid-Atlantic region 583 n/a -
----------- ------------
Total 3,122 39.4 2,240
----------- ------------
----------- ------------
AGGREGATE SALES VALUE OF HOMES IN
BACKLOG AT END OF PERIOD: $ 579,332 65.4 % $ 350,364
----------- ------------
----------- ------------
NUMBER OF ACTIVE SUBDIVISIONS AT
END OF PERIOD:
Southeast region 122 4.3 % 117
Southwest region 65 0.0 65
Central region 32 0.0 32
Mid-Atlantic region 42 n/a -
----------- ------------
Total 261 22.0 214
----------- ------------
----------- ------------
</TABLE>
OVERVIEW:
Beazer Homes USA, Inc. (the "Company" and "Beazer") designs, builds and sells
single family homes in the Southeast, Southwest, Central and (through its
December 4, 1998 acquisition of Trafalgar House, see below) Mid-Atlantic regions
of the United States. The Company's Southeast Region includes Georgia, North
Carolina, South Carolina, Tennessee and Florida; its Southwest Region includes
Arizona, California and Nevada; its Central Region includes Texas; and its
Mid-Atlantic region includes Maryland, New Jersey and Virginia. The Company
intends, subject to market conditions, to expand in its current markets and to
consider entering new markets through expansion from existing markets
("satellite expansion") or through acquisitions of established regional
homebuilders.
12
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In October 1998, the Company acquired the assets of Snow Construction, Inc., in
Orlando, Florida for approximately $1.8 million. On December 4, 1998 the Company
acquired certain assets of the homebuilding operations of Trafalgar House
Property, Inc. ("Trafalgar House") for approximately $90 million in cash.
The Company's homes are designed to appeal primarily to entry-level and first
move-up home buyers, and are generally offered for sale in advance of their
construction. The majority of homes are sold pursuant to standard sales
contracts entered into prior to commencement of construction. Once a contract
has been signed, the Company classifies the transaction as a "new order." Such
sales contracts are usually subject to certain contingencies such as the buyer's
ability to qualify for financing. Homes covered by such sales contracts are
considered by the Company as its "backlog." The Company does not recognize
revenue on homes in backlog until the sales are closed and the risk of ownership
has been transferred to the buyer.
Through its subsidiary, Beazer Mortgage Corp. ("Beazer Mortgage"), the Company
originates mortgages principally for homebuyers of Beazer. Beazer Mortgage
does not hold or service the mortgages.
During fiscal 1998, the Company entered into a joint venture agreement with
Corporacion GEO, the largest builder of affordable homes in Mexico, to build
homes in the United States. The joint venture, which operates under the name
Premier Communities will focus exclusively on the development, construction and
sale of affordable housing throughout the U.S., initially priced between $35,000
and $55,000. The joint venture is owned 60% by Corporacion GEO and 40% by
Beazer. Development has begun on Premier Communities' first community, Oasis
Ranch, in El Paso, Texas. The Company does not anticipate a significant
contribution from the joint venture in fiscal 1999.
NEW ORDERS AND BACKLOG: The increase in new orders for the three and six month
period ended March 31, 1999 compared to the same periods in 1998 reflects
post-acquisition new orders from Trafalgar House. Excluding 404 and 468 new
orders from Trafalgar House for the three and six month periods ended March 31,
1999, respectively, the Company's new orders in its existing operations
decreased by 14% and 4%, respectively. The decrease results primarily from
comparisons to extremely strong prior year periods where new orders were up
48% and 31% for the three and six month periods ended March 31, 1998,
respectively. In addition the Company has raised prices in certain markets
where labor and material availability constraints have increased the length
of time necessary to build a home.
The number of homes in backlog at March 31, 1999 increased 39% (13% excluding
583 homes in backlog from the acquired Trafalgar House operations). This
increase is both the result of historically high opening backlog levels and
strong new order volume for the three and six month periods. The increase in
the dollar value of backlog at March 31, 1999 is greater than that of the
number of homes in backlog as a result of a 19% increase in the average price
of homes in backlog.
RESULTS OF OPERATIONS:
The following table provides additional details of revenues and certain expenses
and shows certain items
13
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
expressed as a percentage of certain components of
revenues (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
DETAILS OF REVENUES AND CERTAIN EXPENSES:
- -----------------------------------------
REVENUES:
Home sales $ 325,244 $ 211,501 $565,041 $367,102
Land and lot sales 363 8,538 1,002 8,563
Mortgage operations 3,314 2,491 5,850 2,715
Intercompany elimination - mortgage (1,576) (1,207) (2,438) (1,431)
-------------------------- --------------------------
Total revenue $ 327,345 $221,323 $ 569,455 $ 376,949
-------------------------- --------------------------
-------------------------- --------------------------
COST OF HOME CONSTRUCTION AND LAND SALES
Home sales $ 273,260 $178,332 $ 474,835 $ 309,004
Land and lot sales 337 8,193 791 8,220
Intercompany elimination - mortgage (1,576) (1,207) (2,438) (1,431)
-------------------------- --------------------------
Total cost of home construction and land sales $272,021 $ 185,318 $473,188 $315,793
-------------------------- --------------------------
-------------------------- --------------------------
SELLING, GENERAL AND ADMINISTRATIVE:
Homebuilding operations $ 33,778 $ 24,071 $ 60,290 $ 43,367
Mortgage origination operations 2,093 1,528 3,827 1,528
-------------------------- --------------------------
Total selling, general and administrative $ 35,871 $ 25,599 $ 64,117 $ 44,895
-------------------------- --------------------------
-------------------------- --------------------------
CERTAIN ITEMS AS A PERCENTAGE OF REVENUES:
- ------------------------------------------
AS A PERCENTAGE OF TOTAL REVENUE:
Costs of home construction and land sales 83.1% 83.7% 83.1% 83.8%
Amortization of previously capitalized interest 1.9% 1.9% 2.0% 1.9%
Selling, general and administrative
Homebuilding operations 10.3% 10.9% 10.6% 11.5%
Mortgage operations 0.6% 0.7% 0.7% 0.4%
AS A PERCENTAGE OF HOME SALE REVENUE:
Costs of home construction 84.0% 84.3% 84.0% 84.2%
</TABLE>
14
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
REVENUES: The increase in revenues for the three and six months ended March 31,
1999 compared to the same periods in 1998 is the result of increased home
closings in the Company's southeast and southwest regions and 240 and 370
closings for the three and six month periods, respectively, from the Trafalgar
House operations acquired in December 1998. Higher backlog levels entering the
current quarter and fiscal year were the primary reason for the increase. The
company's central region experienced decreases in both revenues and closings for
the comparable periods, due to construction delays that resulted from limited
availability of subcontractors during the period. The average price of homes
closed increased in all of the Company's regions.
COST OF HOME CONSTRUCTION: The decrease in the cost of home construction as a
percentage of home sales for both the three and six month period was a result of
a continued strong economic environment as well as the benefits of profitability
initiatives implemented over the past two years - principally design centers and
mortgage origination operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: The decrease in homebuilding
selling, general and administrative expense as a percentage of total revenues
for the quarter ended March 31, 1999 compared to the same period in the prior
year is a result of higher revenues recognized on the fixed portion of such
expense.
MORTGAGE ORIGINATION OPERATIONS: Beazer mortgage had pretax income of $1.2
million and $2.0 million for the quarter and six months ended March 31, 1999
compared to $963,000 and $1.2 million for the same periods in the prior year.
The increase is attributable to the completion of the rollout of the Company's
mortgage operations during fiscal 1998. Beazer Mortgage is now operating in
substantially all of the Company's markets, other than its newly acquired
Trafalgar House operations. The Company anticipates opening Beazer Mortgage
branches in the acquired operations during fiscal 1999.
INCOME TAXES: The Company's effective income tax rate was 38.5% for both the
three month periods ended March 31, 1999 and 1998.
15
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY:
At March 31, 1999 the Company had $75 million of outstanding borrowings under
its $200 million unsecured revolving credit facility. The Company fulfills its
short-term cash requirements with cash generated from its operations and unused
funds available from its unsecured revolving credit facility. Available
borrowings under this credit agreement are limited to certain percentages of
homes under contract, unsold homes, substantially improved lots and accounts
receivable. At March 31, 1999 the Company had available additional borrowings of
$109.6 million under the credit agreement.
All significant subsidiaries of Beazer Homes USA, Inc. are guarantors of the
Senior Notes and are jointly and severally liable for the Company's obligations
under the Senior Notes. Separate financial statements and other disclosures
concerning each of the significant subsidiaries are not included, as the
aggregate assets, liabilities, earnings and equity of the subsidiaries equal
such amounts for the Company on a consolidated basis and separate subsidiary
financial statements are not considered material to investors. The total assets,
revenues and operating profit of the non-guarantor subsidiaries are in the
aggregate immaterial to the Company on a consolidated basis. Neither the Credit
Agreement nor the Senior Notes restrict distributions to Beazer Homes USA, Inc.
by its subsidiaries.
The Company has utilized, and will continue to utilize, land options as a method
of controlling and subsequently acquiring land. At March 31, 1999 the Company
had 11,103 lots under option. At March 31, 1999, the Company had commitments
with respect to option contracts with specific performance obligations of
approximately $ 60 million. The Company expects to exercise all of its option
contracts with specific performance obligations and, subject to market
conditions, substantially all of its options contracts without specific
performance obligations.
During the quarter ended March 31, 1999, the Company paid an aggregate of $1.2
million in cash to holders of 1,572,760 shares of its Series A Cumulative
Convertible Exchangeable Preferred Stock (the "Preferred Stock") to induce those
holders to convert their preferred shares into 2,063,984 common shares in
accordance with the original conversion terms of the Preferred Stock. The
payments were made in conjunction with individually negotiated transactions and
a general inducement offer during the period.
On April 19, 1999, subsequent to additional individually negotiated transactions
involving 159,700 shares of Preferred Stock (including cash payments aggregating
$120,000) during April 1999, the Company called the remaining outstanding
267,540 shares of Preferred Stock for redemption on May 19, 1999 for a cash
(including accrued and unpaid dividends) of $26.678 per preferred share.
16
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management believes that the Company's current borrowing capacity at March 31,
1999, and anticipated cash flows from the operations is sufficient to meet
liquidity needs for the foreseeable future. There can be no assurance, however,
that amounts available in the future from the Company's sources of liquidity
will be sufficient to meet the Company's future capital needs. The amount and
types of indebtedness that the Company may incur may be limited by the terms of
the Indenture governing its Senior Notes and its Credit Agreement. The Company
continually evaluates expansion opportunities through acquisition of established
regional homebuilders and such opportunities may require the Company to seek
additional capital in the form of equity or debt financing from a variety of
potential sources, including additional bank financing and/or securities
offerings.
OUTLOOK:
Beazer's record dollar backlog and the acquisition of Trafalgar House provides
the Company confidence that absent significant adverse economic changes, fiscal
1999 new orders and closings will exceed those reported in fiscal 1998 and
earnings will approximate $4.00 per diluted share.
YEAR 2000 COMPLIANCE AND READINESS DISCLOSURES:
GENERAL: The Company recognizes the importance of the year 2000 issue and is
taking a proactive approach intended to facilitate an appropriate transition
into the year 2000. This proactive approach includes the following phases:
- - Allocation of Company resources to manage the approach,
- - Evaluation of the Company's information technology ("IT") systems and
non-IT systems that include imbedded microprocessors (together the
Company's "Internal Systems'),
- - Evaluation of IT and non-IT systems for principal vendors ( principally
subcontractors) and other service providers (together the Company's
"External Systems"),
- - Evaluation of risk associated with Internal and External Systems
compliance efforts,
- - Test all material Internal and External Systems as practicable,
- - Creation of contingency plans for non-compliance of either Internal or
External Systems, and
- - Determination of the expected total cost of a complete state of
readiness for the Company
STATE OF READINESS: The Company is in the process of implementing a series of
profitability initiatives including a streamlining of all Internal Systems.
These efforts include updating the hardware and software being used by a
majority of the Company's employees. All such purchases contemplated future Year
2000 issues and are considered compliant. As such, the Company's Year 2000
initiative has not required substantial investments as of March 31, 1999 and the
Company does not believe it will require a substantial future investment.
The Company has allocated resources to the phased approach outlined
above and has completed an inventory of Internal Systems and substantially
completed an inventory of External Systems to determine those that do not
properly recognize dates after December 31, 1999.
The Company's principal Internal Systems include its general systems
architecture (local and wide area networks), common financial system, executive
information system, payroll services system and cash
17
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
management system. The Company is currently operating on the latest version
of each of the listed systems (excluding architecture) and has received
representations from the vendors indicating that they are year 2000
compliant. The Company is in the process of evaluating the compliance of its
general systems architecture. Despite the certifications from the software
vendors the Company will test compliance on its principal Internal Systems
during fiscal 1999.
The Company's principal External Systems include those of its
subcontractors, significant raw material vendors, and general service providers
such as telecommunications and power. The Company has substantially completed
its evaluation of its significant subcontractors and raw material providers via
inquiry. The Company has not performed its own tests on these systems, and no
assurance can be given as to the compliance of these systems. Based on the
information currently available, the company is not aware of any material
non-compliance by its general service providers; however, the Company does not
control these systems and cannot assure their compliance.
COSTS: As of March 31, 1999, less than $150,000 of outside consulting costs have
been incurred related to the Company's Year 2000 initiatives. The Company will
incur capital expenditures and internal staff costs as well as additional
outside consulting expenditures related to this process. Based on currently
available information, the Company does not expect the costs of these
initiatives to exceed $500,000.
RISKS PRESENTED BY THE YEAR 2000 ISSUE: The failure by the Company to
appropriately address a material Year 2000 issue within its Internal Systems, or
the failure by any third party to address an External System could have a
material adverse impact on the Company's financial condition, liquidity or
results of operations. To date, however, the Company has not identified any
material Internal or External System that presents a significant risk of not
being year 2000 ready for which a suitable alternative does not exist. With
continued evaluation, however, the Company may identify an Internal or External
System that presents a risk for a Year 2000 disruption in operations. The
homebuilding construction process by nature is a labor intensive and could
operate for a limited time in a manual environment. At this time, the Company
believes the most likely worst case scenario for the Company would result if
there were a significant disruption in services provided by banking
institutions, utility service providers, or certain government agencies which
could inhibit the ability of the Company to deliver finished homes to its
customers.
CONTINGENCY PLANS: The Company is in the process of identifying contingency
plans that would allow for the construction and delivery of homes to customers
should any of the Company's Internal or External Systems fail. These contingency
plans will consist of construction and raw material scheduling arrangements and
potential alternative financing options for homebuyers.
All statements relating to the Year 2000 issue made in Forms 10-K, 10-Q
or Registration Statements filed by the Company with the Securities and Exchange
Commission after January 1, 1996 are hereby incorporated by reference and
designated as Year 2000 Readiness Disclosures.
18
<PAGE>
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995:
This quarterly report on form 10Q contains "forward-looking statements" within
the meaning of the federal securities laws. These forward-looking statements
include, among others, statements concerning the Company's outlook for future
quarters, overall and market specific volume trends, pricing trends and forces
in the industry, cost reduction strategies and their results, the Company's
expectations as to funding its capital expenditures and operations during 1999,
and other statements of expectations, beliefs, future plans and strategies,
anticipated events or trends, and similar expressions concerning matters that
are not historical facts. The forward-looking statements in this report are
subject to risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements. The most
significant factors that could cause actual results to differ materially from
those expressed in the forward-looking statements include, but are not limited
to, the following:
- Economic changes nationally or in one of the Company's local markets
- Volatility of mortgage interest rates
- Increased competition in some of the Company's local markets
- Shortages of skilled labor or raw materials used in the production of
houses in one of the Company's local markets
- Increased prices for labor, land and raw materials used in the
production of houses
- Increased land development cost on projects under development
- Any delays in reacting to changing consumer preference in home design
- Delays or difficulties in implementing the Company's initiatives to
reduce its production and overhead cost structure
- Delays in land development or home construction resulting from adverse
weather condition in one of the Company's local markets.
19
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On February 4, 1999, the Company held its annual meeting of
shareholders. At the annual meeting, the shareholders (i) elected seven members
to the Board of Directors to serve until the next annual meeting and (ii)
approved the 1999 Value Created Incentive Plan. The results of the voting was as
follows (based on 6,267,423 outstanding shares entitled to vote):
Election of Directors:
----------------------
<TABLE>
<CAPTION>
Name For Against Withheld Non-votes
---- --- ------- -------- ---------
<S> <C> <C> <C> <C>
Brian C. Beazer 5,121,684 0 26,300 0
Thomas B. Howard, Jr. 5,121,483 0 26,501 0
Ian J. McCarthy 5,121,684 0 26,300 0
George W. Mefferd 5,121,608 0 26,376 0
D. E. Mundell 5,121,684 0 26,300 0
Larry T. Solari 5,121,684 0 26,300 0
David S. Weiss 5,121,684 0 26,300 0
</TABLE>
Approval of 1999 Value Created Incentive Plan:
----------------------------------------------
For: 3,467,736 Against: 42,228 Abstain: 16,150 Non-votes: 1,621,870
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K/A (Amendment Number
2) on February 17, 1999. This report was filed to amend Item 7
(Financial Statements of Business Acquired) of the Form 8-K filed on
November 10, 1998 reporting the Company's acquisition of the
residential homebuilding operations of Trafalgar House Property, Inc.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Beazer Homes USA, Inc.
Date: May 15, 1999 By: /s/ David S. Weiss
------------------------- -----------------------------
Name: David S. Weiss
Executive Vice President and
Chief Financial Officer
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,558
<SECURITIES> 0
<RECEIVABLES> 18,429
<ALLOWANCES> 0
<INVENTORY> 553,015
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,093
<DEPRECIATION> 0
<TOTAL-ASSETS> 608,419
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 215,000
0
4
<COMMON> 117
<OTHER-SE> 209,166
<TOTAL-LIABILITY-AND-EQUITY> 608,419
<SALES> 569,455
<TOTAL-REVENUES> 569,455
<CGS> 484,483
<TOTAL-COSTS> 548,601
<OTHER-EXPENSES> 92
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 20,762
<INCOME-TAX> 7,993
<INCOME-CONTINUING> 12,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,769
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.43
<FN>
<F1>The Company presents a condensed balance sheet.
</FN>
</TABLE>
