<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 December 31, 1998
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 FEBRUARY 15, 1999
----- --------------------------------
Common Stock, $0.01 par value 6,288,424 shares
Series A Cumulative Convertible
Exchangeable Preferred Stock, $0.01 par value 2,000,000 shares
Page 1 of 20 Pages
Exhibit Index Appears on Page 19
<PAGE>
BEAZER HOMES USA, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets,
December 31, 1998(unaudited) and September 30, 1998 3
Unaudited Condensed Consolidated Statements of Operations,
Three Months Ended December 31, 1998 and 1997 4
Unaudited Condensed Consolidated Statements of Cash Flows,
Three Months Ended December 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ -- $ 67,608
Accounts receivable 12,543 16,949
Inventory 540,233 405,095
Property, plant and equipment, net 12,561 12,332
Goodwill, net 8,651 8,853
Other assets 15,417 14,754
------------- ---------
Total assets $ 589,405 $ 525,591
------------- ---------
------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $ 44,121 $ 61,942
Other payables and accrued liabilities 57,155 49,425
Revolving credit facility 70,000 --
Senior Notes 215,000 215,000
------------- ---------
Total liabilities 386,276 326,367
Stockholders' equity:
Preferred stock (par value $.01 per share, 5,000,000 shares authorized,
2,000,000 issued and outstanding; $50,000
aggregate liquidation preference) 20 20
Common stock (par value $.01 per share, 30,000,000 shares
authorized, 9,559,200 issued,
6,270,423 and 6,267,423 outstanding) 93 93
Paid in capital 192,729 192,729
Retained earnings 67,686 64,003
Unearned restricted stock (5,416) (5,638)
Treasury stock (3,291,777 shares) (51,983) (51,983)
------------- ---------
Total stockholders' equity 203,129 199,224
------------- ---------
Total liabilities and stockholders' equity $ 589,405 $ 525,591
------------- ---------
------------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Total revenue $ 242,110 $ 155,626
Costs and expenses:
Home construction and land sales 201,167 130,475
Interest 5,035 3,047
Selling, general and administrative 28,246 19,296
--------- ---------
Operating income 7,662 2,808
Other income (expense) (48) 150
--------- ---------
Income before income taxes 7,614 2,958
Provision for income taxes 2,931 1,139
--------- ---------
Net income $ 4,683 $ 1,819
--------- ---------
--------- ---------
Preferred dividends $ 1,000 $ 1,000
Net income applicable to common stockholders $ 3,683 $ 819
Net income per common share:
Basic $ 0.62 $ 0.14
Diluted $ 0.53 $ 0.14
Weighted average number of shares (in thousands):
Basic 5,896 5,834
Diluted 8,868 6,041
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMETNS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,683 $ 1,819
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 1,008 677
Changes in operating assets and liabilities,
net of effects of acquisitions
Increase in inventory (30,803) (45,070)
Decrease in trade accounts payable (27,997) (20,037)
Other changes 8,825 (8,895)
--------- ---------
Net cash used by operating activities (44,284) (71,506)
--------- ---------
--------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired (91,800) (16,766)
Capital expenditures (524) (1,995)
--------- ---------
Net cash used by investing activities (92,324) (18,761)
--------- ---------
Cash flows from financing activities:
Proceeds from revolving credit facility, net 70,000 90,000
Dividend paid on preferred stock (1,000) (1,000)
--------- ---------
Net cash provided by financing activities 69,000 89,000
--------- ---------
--------- ---------
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 $ -- $ --
--------- ---------
--------- ---------
</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>
DECEMBER 31, September 30,
1998 1998
------------ -------------
<S> <C> <C>
Homes under construction........................................ $188,756 $194,566
Development projects in progress................................ 282,500 165,218
Unimproved land held for future development..................... 36,243 18,605
Model homes..................................................... 32,734 26,706
------------ ----------
$540,233 $405,095
------------ ----------
------------ ----------
</TABLE>
Homes under construction includes homes finished and ready for delivery
and homes in various stages of construction. The Company had 270 completed homes
($38.1 million) and 208 completed homes ($30.7 million) at December 31, 1998 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>
(3) INTEREST
The following table sets forth certain information regarding interest:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
(IN THOUSANDS) 1998 1997
-------- --------
<S> <C> <C>
During the period:
Interest incurred $5,939 $4,615
-------- --------
-------- --------
Previously capitalized interest
amortized to costs and expenses $5,035 $3,047
-------- --------
-------- --------
At the end of the period:
Capitalized interest in ending
Inventory $9,987 $8,424
-------- --------
-------- --------
</TABLE>
(4) EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-----------------
1998 1997
------- --------
<S> <C> <C>
Earnings
Net income $4,683 $1,819
Less: Dividends on preferred shares 1,000 1,000
------- --------
------- --------
Net income applicable to common shareholders $3,683 $ 819
------- --------
------- --------
BASIC:
Net income applicable to common shareholders $3,683 $ 819
Weighted average number of common shares outstanding 5,896 5,834
Basic earnings per share $ 0.62 $ 0.14
DILUTED:
Net income applicable to common shareholders $3,683 $ 819
Plus: Dividends on preferred shares 1,000 n/a
------- --------
Net income applicable to common shareholders $4,683 $ 819
------- --------
------- --------
Weighted average number of common shares outstanding 5,896 5,834
Effect of dilutive securities-
Assumed conversion of preferred shares 2,625 n/a
Restricted stock 243 162
Options to acquire common stock 104 45
------- --------
Diluted weighted average number of common shares outstanding 8,868 6,041
------- --------
------- --------
Diluted earnings per share $ 0.53 $ 0.14
</TABLE>
7
<PAGE>
The computation of diluted earnings per share for the three months
ended December 31, 1997 excludes the assumed conversion of 2.0 million shares of
Series A Cumulative Convertible Exchangeable 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.
(5) 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.
(6) 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.
8
<PAGE>
<TABLE>
<CAPTION>
Three months ended
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Total revenue $ 277,051 $ 196,863
Net income 5,402 1,432
Net income per share
Basic $ 0.75 $ 0.07
Diluted $ 0.61 $ 0.07
</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.
(7) 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.
9
<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
DECEMBER 31,
----------------------------------------
1998 1997
-------------------------- ----------
%
AMOUNT CHANGE AMOUNT
---------- ------------ ----------
<S> <C> <C> <C>
Number of new orders,
NET OF CANCELLATIONS: (A)
Southeast region 597 43.2 % 417
Southwest region 610 6.5 573
Central region 78 (18.8) 96
Mid-Atlantic region 64 n/m -
---------- ----------
Total 1,349 24.2 1,086
---------- ----------
---------- ----------
NUMBER OF CLOSINGS:
Southeast region 535 28.9 % 415
Southwest region 595 26.9 469
Central region 136 (11.7) 154
Mid-Atlantic region 130 n/m -
---------- ----------
Total 1,396 34.5 1,038
---------- ----------
---------- ----------
TOTAL REVENUE:
Southeast region $ 88,471 33.7 % $ 66,179
Southwest region 101,991 60.8 63,443
Central region 25,456 (2.1) 26,004
Mid-Atlantic region 26,192 n/m -
---------- ----------
Total $ 242,110 55.6 $ 155,626
---------- ----------
---------- ----------
AVERAGE SALES PRICE PER HOME CLOSED:
Southeast region $ 164.0 2.8 % $ 159.5
Southwest region 169.7 25.4 135.3
Central region 183.2 8.5 168.9
Mid-Atlantic region 201.5 n/m -
Total 172.2 14.9 149.9
BACKLOG UNITS AT END OF PERIOD:
Southeast region 1,128 87.1 % 603
Southwest region 758 30.0 583
Central region 260 73.3 150
Mid-Atlantic region 419 n/m -
---------- ----------
Total 2,565 92.0 1,336
---------- ----------
---------- ----------
AGGREGATE SALES VALUE OF HOMES IN
backlog at end of period: $ 468,780 120.4 % $ 212,650
---------- ----------
---------- ----------
Number of active subdivisions at end of period:
Southeast region 113 0.0 % 113
Southwest region 61 0.0 61
Central region 30 (6.3) 32
Mid-Atlantic region 46 n/m -
---------- ----------
Total 250 21.4 206
---------- ----------
---------- ----------
</TABLE>
(a) New orders for the three months ended December 31, 1998 and 1997 do not
include 555 and 96, respectively, homes in backlog from acquired operations.
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 (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.
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 the 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
NEW ORDERS AND BACKLOG: The increase in new orders for the three month period
ended December 31, 1998 compared to the same period in 1997 reflects both
post-acquisition new orders from Trafalgar House as well as growth in the
Company's existing operations. Excluding 64 new orders from Trafalgar House in
the December 1998 quarter, the Company's new orders in its existing operations
increased 18%. New orders increased in all markets in the southeast and
southwest regions, except Nevada, where the Company has reduced its level of
investment and number of active subdivisions. New orders increased by more than
30% in California, Florida, Georgia and North Carolina. The Company believes the
increases in new orders in its southeast and southwest regions is attributable
to generally strong economic conditions in each of the markets that it operates
and the Company's increased investment in markets where it believes it can
significantly exceed its cost of capital. New orders decreased in the Company's
central region (Texas) as the Company raised its prices to allow delayed
construction to catch up to the region's strong backlog (up 73% compared to
December 31, 1997).
The number of homes in backlog at December 31, 1998 increased 92% compared to
December 31, 1997 both as a result of the Trafalgar House acquisition and as a
result of the increase in new orders at the Company's existing operations.
Excluding 419 homes in backlog from Trafalgar House, the number of homes in
backlog in the Company's existing operations at December 31, 1998 increased 61%
compared to the number of homes in backlog at December 31, 1997. The increase in
the dollar value of backlog at December 31, 1998 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.
12
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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
December 31,
1998 1997
-------- --------
<S> <C> <C>
DETAILS OF REVENUES AND CERTAIN EXPENSES
REVENUES:
Home sales $239,797 $155,601
Land and lot sales 639 25
Mortgage operations 2,536 224
Intercompany elimination - mortgage (862) (224)
-------- --------
Total revenue $242,110 $155,626
-------- --------
COST OF HOME CONSTRUCTION AND LAND SALES:
Home sales $201,575 $130,672
Land and lot sales 454 27
Intercompany elimination - mortgage (862) (224)
-------- --------
Total cost of home construction and land sales $201,167 $130,475
-------- --------
SELLING, GENERAL AND ADMINISTRATIVE:
Homebuilding operations $26,512 $19,296
Mortgage origination operations 1,734 -
-------- --------
Total selling, general and administrative $28,246 $19,296
-------- --------
CERTAIN ITEMS AS A PERCENTAGE OF REVENUES
AS A PERCENTAGE OF TOTAL REVENUE:
Costs of home construction and land sales 83.1 % 84.0 %
Amortization of previously capitalized interest 2.1 % 2.0 %
Selling, general and administrative
Homebuilding operations 11.1 % 12.4 %
Mortgage operations 0.7 % n/a
AS A PERCENTAGE OF HOME SALE REVENUE:
Costs of home construction 84.1 % 84.0 %
</TABLE>
13
<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 months ended December 31, 1998
compared to the same period in 1997 is the result of increased home closings in
the Company's southeast and southwest regions and 130 closings from the
Trafalgar House operations acquired during the quarter. Higher backlog levels
entering the quarter was the primary reason for the increase. The company's
central region experienced decreases in both revenues and closings for the
comparable period, 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 increase in the cost of home construction as a
percentage of home sales was a result of lower gross margins realized (due to
the impact of purchase accounting adjustments) on homes closed in the period
immediately following the acquisition of Trafalgar House and Snow Construction.
Excluding such adjustment, the cost of home construction as a percentage of home
sales for the quarter ended December 31, 1998 would have been 83.4%, a decrease
compared to the quarter ended December 31, 1997. The Company believes that such
decrease is principally a result of continued improved profitability from the
Company's profit improvement initiatives, especially design centers.
Additionally, a strong general economic environment contributed to price
increases in all 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 December 31, 1998 compared to the same period in the prior
year is a result of higher revenues recognized on the fixed portion of such
expense. In addition, Trafalgar House had only one month of selling, general and
administrative expenses, while its revenues during December (the final month of
the quarter), which represented its previous fiscal year end, were higher than
those expected during an average month.
MORTGAGE ORIGINATION OPERATIONS: Beazer mortgage had pretax income of $802,000
for the quarter ended December 31, 1998 compared to $224,000 for the quarter
ended December 31, 1997. 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.
AMORTIZATION OF PREVIOUSLY CAPITALIZED INTEREST: Amortization of previously
capitalized interest expense as a percentage of revenues for the three months
ended December 31, 1998 is greater than the comparable period in 1997 as a
result of increased borrowing levels associated with the Company's increased
investment in inventory and its acquisitions during the quarter.
INCOME TAXES: The Company's effective income tax rate was 38.5% for both the
three month periods ended December 31, 1998 and 1997.
14
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY:
At December 31, 1998 the Company had $70 million of outstanding borrowings under
its $200 million unsecured revolving credit facility, principally as a result of
its $90 million acquisition of Trafalgar House on December 4, 1998. 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 December 31, 1998 the Company had
available additional borrowings of $95.5 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 December 31, 1998 the Company
had 11,514 lots under option. At December 31, 1998, the Company had commitments
with respect to option contracts with specific performance obligations of
approximately $45.6 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.
The Company's Series A Cumulative Convertible Exchangeable Preferred Stock (the
"Preferred Stock") is convertible into common stock at an exchange rate of
$19.05 per common share and is currently callable by the Company at a 5%
premium. The Company intends to 1) call its Preferred Stock at the earliest
possible date that it believes it is likely that the majority of holders would
convert into common stock, or 2) adopt alternatives that would result in the
conversion of the Preferred Stock.
Management believes that the Company's current borrowing capacity at December
31, 1998, 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.
15
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OUTLOOK:
Beazer's record dollar backlog and the acquisition of Trafalgar House provides
the Company confidence that absent significant adverse economic changes, sales
and earnings for fiscal 1999 will exceed those reported in fiscal 1998.
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 to 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: During fiscal 1996, the Company began a series of
profitability initiatives including a streamlining of all Internal Systems.
These efforts included updating the hardware and softward 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 December 31, 1998 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.
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-
16
<PAGE>
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
compliance by its general service providers; however, the Company does not
control these systems and cannot assure their compliance.
COSTS: As of December 31, 1998, less than $100,000 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.
17
<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.
18
<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 filed a Current Report on Form 8-K and Amendment
Number 1 on Form 8-K/A on November 10, 1998 and December 18,
1998, respectively. These reports were filed to announce the
definitive agreement on November 2, 1998 and subsequent
closing on December 4, 1998 of the acquisition of the
residential homebuilding operations of Trafalgar House
Property, Inc.
19
<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: February 15, 1999 By: /s/ David S. Weiss
------------------------------ ---------------------------------
Name: David S. Weiss
Executive Vice President and
Chief Financial Officer
20
<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 DECEMBER 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 12,543
<ALLOWANCES> 0
<INVENTORY> 540,233
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,561
<DEPRECIATION> 0
<TOTAL-ASSETS> 589,405
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 215,000
0
20
<COMMON> 93
<OTHER-SE> 203,016
<TOTAL-LIABILITY-AND-EQUITY> 589,405
<SALES> 242,110
<TOTAL-REVENUES> 242,110
<CGS> 206,202
<TOTAL-COSTS> 234,448
<OTHER-EXPENSES> 48
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,614
<INCOME-TAX> 2,931
<INCOME-CONTINUING> 4,683
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,683
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.53
<FN>
<F1>The Company presents a condensed balance sheet.
</FN>
</TABLE>
