<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 June 30, 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)
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 August 11, 1999
----- ------------------------------
Common Stock, $0.01 par value 8,924,465 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.
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets,
June 30, 1999 (unaudited) and September 30, 1998 3
Unaudited Condensed Consolidated Statements of Operations,
Three and Nine Months Ended June 30, 1999 and 1998 4
Unaudited Condensed Consolidated Statements of Cash Flows,
Nine Months Ended June 30, 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 6 Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
2
<PAGE>
Part I. Financial Information
BEAZER HOMES USA, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ -- $ 67,608
Accounts receivable 21,688 16,949
Inventory 563,059 405,095
Property, plant and equipment, net 12,657 12,332
Goodwill, net 8,251 8,853
Other assets 16,939 14,754
---------------- ----------------
Total assets $ 622,594 $ 525,591
---------------- ----------------
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $ 53,814 $ 61,942
Other payables and accrued liabilities 72,014 49,425
Revolving credit facility 62,000 --
Senior notes 215,000 215,000
---------------- ----------------
Total liabilities 402,828 326,367
Stockholders' equity:
Preferred stock (par value $.01 per share, 5,000,000 shares
authorized, 2,000,000 issued and outstanding with a
$50,000 aggregate liquidation preference at September 30, 1998) -- 20
Common stock (par value $.01 per share, 30,000,000 shares
authorized, 12,216,242 and 9,559,200 issued,
8,924,465 and 6,267,423 outstanding) 122 93
Paid in capital 193,340 192,729
Retained earnings 83,574 64,003
Unearned restricted stock (5,287) (5,638)
Treasury stock (3,291,777 shares) (51,983) (51,983)
---------------- ----------------
Total stockholders' equity 219,766 199,224
---------------- ----------------
Total liabilities and stockholders' equity $ 622,594 $ 525,591
---------------- ----------------
---------------- ----------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenue $ 370,431 $ 234,811 $ 939,885 $ 611,760
Costs and expenses:
Home construction and land sales 306,424 194,380 779,632 510,173
Interest 6,472 4,914 17,769 12,232
Selling, general and administrative 40,571 26,703 104,689 71,597
------------ ------------- ------------ -------------
Operating income 16,964 8,814 37,796 17,758
Other income (294) 252 (364) 453
------------ ------------- ------------ -------------
Income before income taxes 16,670 9,066 37,432 18,211
Provision for income taxes 6,418 3,445 14,410 6,965
------------ ------------- ------------ -------------
Net income $ 10,252 $ 5,621 $ 23,022 $ 11,246
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Dividends and other payments to preferred shareholders $ 36 $ 1,000 $ 3,343 $ 3,000
Net income applicable to common stockholders:
Basic $ 10,216 $ 4,621 $ 19,679 $ 8,246
Diluted $ 10,252 $ 5,621 $ 23,022 $ 11,246
Weighted average number of shares (in thousands):
Basic 8,285 5,886 6,908 5,857
Diluted 8,919 8,772 8,922 8,737
Net income per common share:
Basic $ 1.23 $ 0.79 $ 2.85 $ 1.41
Diluted $ 1.15 $ 0.64 $ 2.58 $ 1.29
</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>
Nine Months Ended
June 30,
--------------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,022 $ 11,246
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 3,449 2,118
Changes in operating assets and liabilities,
net of effects of acquisitions
Increase in inventory (53,629) (56,584)
(Decrease)/Increase in trade accounts payable (18,304) 2,549
Other changes 13,290 (7,855)
---------------- ---------------
Net cash used by operating activities (32,172) (48,526)
---------------- ---------------
Cash flows from investing activities:
Acquisitions, net of cash acquired (91,800) (16,766)
Capital expenditures (2,187) (4,408)
---------------- ---------------
Net cash used by investing activities (93,987) (21,174)
---------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of senior notes, net 96,933
Changes in revolving credit facility, net 62,000 (25,500)
Dividends and other payments
to preferred shareholders (3,449) (3,000)
---------------- ---------------
Net cash provided by financing activities 58,551 68,433
---------------- ---------------
Increase (decrease) in cash and cash equivalents (67,608) (1,267)
Cash and cash equivalents at beginning of period 67,608 1,267
---------------- ---------------
Cash and cash equivalents at end of period $ 0 $ 0
---------------- ---------------
---------------- ---------------
</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>
June 30, September 30,
1999 1998
---- ----
<S> <C> <C>
Homes under construction ......................... $231,766 $194,566
Development projects in progress ................. 285,889 165,218
Unimproved land held for future development ...... 8,749 18,605
Model homes ...................................... 36,655 26,706
-------- --------
$563,059 $405,095
-------- --------
-------- --------
</TABLE>
Homes under construction includes homes finished and ready for delivery
and homes in various stages of construction. The Company had 125 completed homes
($19.0 million) and 208 completed homes ($30.7 million) at June 30, 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 Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
During the period:
Interest incurred $ 6,962 $ 5,525 $ 19,981 $ 15,440
----------- ----------- ---------- ---------
----------- ----------- ---------- ---------
Previously capitalized interest
amortized to costs and expenses $ 6,472 $ 4,863 $ 17,769 $ 12,182
----------- ----------- ---------- ---------
----------- ----------- ---------- ---------
At the end of the period:
Capitalized interest in ending
inventory $ 12,025 $ 10,113 $ 12,025 $ 10,113
----------- ----------- ---------- ---------
----------- ----------- ---------- ---------
</TABLE>
(4) Preferred Stock Transactions
During March and April, 1999, the Company paid an aggregate of $1.3
million in cash to holders of 1,732,460 shares of its Series A Cumulative
Convertible Exchangeable Preferred Stock (the "Preferred Stock") to induce
those holders to convert their preferred shares into 2,273,564 common shares
in accordance with the original conversion terms of the Preferred Stock. The
payments were made in conjunction with individually negotiated transactions
as well as a general inducement offer made during the period. On April 19,
1999 (subsequent to these induced transactions), the Company called the
remaining outstanding Preferred Stock for redemption. As a result, 265,376
shares of Preferred Stock were then voluntarily converted by their holders
into 348,406 common shares. On May 19, 1999 the Company redeemed the then
remaining outstanding 2,164 shares of Preferred Stock for cash (including
accrued and unpaid dividends) of $26.678 per preferred share. The Company
currently has no shares of Preferred Stock outstanding.
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 Nine Months Ended
June 30, June 30,
------------------------ ----------------------------
1999 1998 1999 1998
------------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
Earnings
Net income $ 10,252 $ 5,621 $23,022 $11,246
Less: Dividends and other payments to preferred
shareholders 36 1,000 3,343 3,000
------------------------ ----------------------------
Net income applicable to common shareholders $ 10,216 $ 4,621 $19,679 $ 8,246
------------------------ ----------------------------
------------------------ ----------------------------
Basic:
Net income applicable to common shareholders $ 10,216 $ 4,621 $19,679 $ 8,246
Weighted average number of common shares outstanding 8,285 5,886 6,908 5,857
Basic earnings per share $ 1.23 $ 0.79 $ 2.85 $ 1.41
Diluted:
Net income applicable to common shareholders $ 10,216 $ 4,621 $19,679 $ 8,246
Add back: Payments to preferred shareholders 36 1,000 3,343 3,000
------------------------ ----------------------------
Adjusted net income applicable to common shareholders $ 10,252 $ 5,621 $23,022 $11,246
------------------------ ----------------------------
Weighted average number of common shares outstanding 8,285 5,886 6,908 5,857
Effect of dilutive securities-
Assumed conversion of Preferred Stock 274 2,625 1,647 2,625
Restricted stock 273 143 268 173
Options to acquire common stock 87 118 99 82
------------------------ ----------------------------
Diluted weighted common shares outstanding 8,919 8,772 8,922 8,737
Diluted earnings per share $ 1.15 $ 0.64 $ 2.58 $ 1.29
</TABLE>
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.
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.
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Total revenues $ 974,827 $ 741,567
Net income 23,739 13,517
Net income per share
Basic $ 2.95 $ 1.80
Diluted $ 2.66 $ 1.55
</TABLE>
In October 1998 , the Company acquired the assets of Snow Construction,
Inc. in Orlando, Florida for approximately $1.8 million.
9
<PAGE>
BEAZER HOMES USA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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 (as now
amended) is effective for years beginning after June 15, 2000. The Company
has not yet completed an analysis of the effect of this standard on its
financial statements.
10
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW:
Beazer Homes USA, Inc. (the "Company" and "Beazer") designs, builds and sells
single family homes in the Southeast, Southwest, Central and (following 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.
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.
11
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------------------------- ----------------------------------------
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 880 14.7 % 767 2,435 14.5 % 2,126
Southwest region 778 (19.9) 971 2,254 (13.4) 2,602
Central region 147 (40.0) 245 355 (42.6) 619
Mid-Atlantic region 329 n/a - 797 n/a -
----------- ---------- ---------- ----------
Total 2,134 7.6 1,983 5,841 9.2 5,347
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Number of closings:
Southeast region 796 30.9 % 608 2,039 28.7 % 1,584
Southwest region 734 (2.1) 750 2,054 9.1 1,882
Central region 163 17.3 139 427 (3.4) 442
Mid-Atlantic region 268 n/a - 638 n/a -
----------- ---------- ---------- ----------
Total 1,961 31.0 1,497 5,158 32.0 3,908
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Total homebuilding revenue:
Southeast region $ 133,118 36.8 % $ 97,285 $ 339,795 34.2 % $ 253,292
Southwest region 143,083 28.9 111,044 374,821 38.2 271,135
Central region 28,482 22.1 23,325 76,130 2.4 74,329
Mid-Atlantic region 60,798 n/a - 139,775 n/a -
----------- ---------- ---------- ----------
Total $ 365,481 57.8 $ 231,654 $ 930,521 55.4 $ 598,756
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Average sales price per home closed:
Southeast region $ 167.2 4.5 % $ 160.0 $ 166.6 4.2 % $ 159.9
Southwest region 194.9 31.7 148.1 182.5 26.7 144.1
Central region 174.7 4.1 167.8 178.3 6.0 168.2
Mid-Atlantic region 226.9 n/a n/a 219.1 n/a n/a
Total 186.4 18.8 156.9 180.4 15.3 156.5
</TABLE>
(a) New orders for the nine months ended June 30, 1999 and 1998 do not include
555 and 96 homes, respectively, in backlog from businesses acquired.
12
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------
1999 1998
------------------------------- ------------
%
Amount Change Amount
----------- ----------------- ------------
<S> <C> <C> <C>
Backlog units at end of period:
Southeast region 1,462 28.0 % 1,142
Southwest region 943 (21.4) 1,199
Central region 246 (36.1) 385
Mid-Atlantic region 644 n/a -
----------- ------------
Total 3,295 20.9 2,726
----------- ------------
----------- ------------
Aggregate sales value of homes in
backlog at end of period: $ 612,552 39.5 % $ 438,996
----------- ------------
----------- ------------
Number of active subdivisions at
end of period:
Southeast region 112 (5.9)% 119
Southwest region 68 9.7 62
Central region 28 (15.2) 33
Mid-Atlantic region 42 n/a -
----------- ------------
Total 250 16.8 214
----------- ------------
----------- ------------
</TABLE>
New Orders and Backlog: The increase in new orders for the three and nine month
period ended June 30, 1999 compared to the same periods in 1998 reflects
post-acquisition new orders from Trafalgar House. Excluding 329 and 797 new
orders from Trafalgar House for the three and nine month periods ended June 30,
1999, respectively, the Company's new orders in its existing operations
decreased by 9% and 6%, respectively. The decrease results primarily from
comparisons to extremely strong prior year periods where new orders were up 24%
and 29% for the three and nine month periods ended June 30, 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 June 30, 1999 increased 21% compared to June
30, 1998 both as a result of the Trafalgar House acquisition and strong backlog
levels entering both the quarter and year to date periods . Excluding 644 homes
in backlog from Trafalgar House, the number of homes in backlog in the Company's
existing operations at June 30, 1999 decreased 3% compared to the number of
homes in backlog at June 30, 1998. The increase in the dollar value of backlog
at June 30, 1999 is greater than that of the number of homes in backlog as a
result of a 15% increase in the average price of homes in backlog.
13
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table provides additional details of revenues and certain expenses
and shows certain items expressed as a percentage of certain components of
revenues (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Details of revenues and certain expenses:
- -----------------------------------------
Revenues:
Home sales $365,481 $231,654 $930,521 $ 598,756
Land and lot sales 3,553 1,961 4,555 10,524
Mortgage operations 3,467 2,168 9,317 4,883
Intercompany elimination - mortgage (2,070) (972) (4,508) (2,403)
-------------------------- --------------------------
Total revenue $370,431 $234,811 $ 939,885 $ 611,760
-------------------------- --------------------------
-------------------------- --------------------------
Cost of home construction and land sales
Home sales $305,521 $193,427 $ 780,362 $502,431
Land and lot sales 2,973 1,925 3,778 10,145
Intercompany elimination - mortgage (2,070) (972) (4,508) (2,403)
-------------------------- --------------------------
Total cost of home construction and land sales $306,424 $194,380 $ 779,632 $ 510,173
-------------------------- --------------------------
-------------------------- --------------------------
Selling, general and administrative:
Homebuilding operations $ 38,437 $ 25,562 $ 98,728 $ 68,928
Mortgage origination operations 2,134 1,141 5,961 2,669
-------------------------- --------------------------
Total selling, general and administrative $ 40,571 $ 26,703 $104,689 $ 71,597
-------------------------- --------------------------
-------------------------- --------------------------
Certain items as a percentage of revenues:
- ------------------------------------------
As a percentage of total revenue:
Costs of home construction and land sales 82.7% 82.8% 82.9% 83.4%
Amortization of previously capitalized interest 1.7% 2.1% 1.9% 2.0%
Selling, general and administrative
Homebuilding operations 10.4% 10.9% 10.5% 11.3%
Mortgage operations 0.6% 0.5% 0.6% 0.4%
As a percentage of home sale revenue:
Costs of home construction 83.6% 83.5% 83.9% 83.9%
</TABLE>
14
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Revenues: The increase in revenues for the three and nine months ended June 30,
1999 compared to the same periods in 1998 is the result of increased home
closings in the Company's southeast and central regions and an additional 268
and 638 closings for the three and nine 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 average price of homes closed also increased in all of the
Company's regions.
Cost of Home Construction: The cost of home construction as a percentage of home
sales for both the three and nine month period in 1999 was consistent with the
same periods in 1998 as a result of a continued strong economic environment and
the continued benefits of profitability initiatives implemented over the past
two years - principally design centers. These positive variances were offset by
price increases in labor and certain building materials in each of the Company's
markets.
Selling, General and Administrative Expense: The decrease in homebuilding
selling, general and administrative expense as a percentage of total revenues
for the quarter ended June 30, 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 $1.3
million and $3.4 million for the quarter and nine months ended June 30, 1999
compared to $1.0 million and $2.2 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 these acquired operations during fiscal 1999.
Income Taxes: The Company's effective income tax rate was 38.5% for both the
three month periods ended June 30, 1999 and 1998.
15
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY:
At June 30, 1999 the Company had $62 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 June 30, 1999 the Company had available additional borrowings of
$137.2 million under the credit agreement.
At June 30, 1999 the Company had $215 million of outstanding senior debt. This
debt is comprised of $100 million of 8 7/8% Senior Notes, due in April 2008 and
$115 million of Senior Notes due in March 2004 (collectively, the "Senior
Notes"). 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
Facility 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 June 30, 1999 the Company had
10,647 lots under option. At June 30, 1999, the Company had commitments with
respect to option contracts with specific performance obligations of
approximately $55 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 March and April, 1999, the Company paid an aggregate of $1.3 million
in cash to holders of 1,732,460 shares of its Series A Cumulative Convertible
Exchangeable Preferred Stock (the "Preferred Stock") to induce those holders
to convert their preferred shares into 2,273,564 common shares in accordance
with the original conversion terms of the Preferred Stock. The payments were
made in conjunction with individually negotiated transactions as well as a
general inducement offer made during the period. On April 19, 1999
(subsequent to these induced transactions), the Company called the remaining
outstanding Preferred Stock for redemption. As a result, 265,376 shares of
Preferred Stock were then voluntarily converted by their holders into 348,406
common shares. On May 19, 1999 the Company redeemed the then remaining
outstanding 2,164 shares of Preferred Stock for cash (including accrued and
unpaid dividends) of $26.678 per preferred share. The Company currently has
no shares of Preferred Stock outstanding.
Management believes that the Company's current borrowing capacity at June 30,
1999 together with anticipated cash flows from its 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
16
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 exceed $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:
o Allocation of Company resources to manage the approach,
o Evaluation of the Company's information technology ("IT") systems and
non-IT systems that include imbedded microprocessors (together the
Company's "Internal Systems'),
o Evaluation of IT and non-IT systems for principal vendors ( principally
subcontractors) and other service providers (together the Company's
"External Systems"),
o Evaluation of risk associated with Internal and External Systems compliance
efforts,
o Test all material Internal and External Systems as practicable,
o Creation of contingency plans for non-compliance of either Internal or
External Systems, and
o 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 June 30, 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 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.
17
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 June 30, 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 including projected earnings per share for fiscal 1999, 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:
o Economic changes nationally or in one of the Company's local markets
o Volatility of mortgage interest rates
o Increased competition in some of the Company's local markets
o Shortages of skilled labor or raw materials used in the production of
houses in one of the Company's local markets
o Increased prices for labor, land and raw materials used in the
production of houses
o Increased land development cost on projects under development
o Any delays in reacting to changing consumer preference in home design
o Delays or difficulties in implementing the Company's initiatives to
reduce its production and overhead cost structure
o 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the
quarter ended June 30, 1999.
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: August 11, 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 JUNE 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 21,688
<ALLOWANCES> 0
<INVENTORY> 563,059
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,657
<DEPRECIATION> 0
<TOTAL-ASSETS> 622,594
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 215,000
0
0
<COMMON> 122
<OTHER-SE> 219,644
<TOTAL-LIABILITY-AND-EQUITY> 622,594
<SALES> 939,885
<TOTAL-REVENUES> 939,885
<CGS> 797,401
<TOTAL-COSTS> 902,090
<OTHER-EXPENSES> 364
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 37,432
<INCOME-TAX> 14,410
<INCOME-CONTINUING> 23,022
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,022
<EPS-BASIC> 2.85
<EPS-DILUTED> 2.58
<FN>
<F1>THE COMPANY PRESENTS A CONDENSED BALANCE SHEET.
</FN>
</TABLE>
