10-Q 1 a04-5289_110q.htm 10-Q

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended March 31, 2004

 

or

 

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

 

Commission File Number 001-12822

 

BEAZER HOMES USA, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE

 

58-2086934

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. employer
Identification no.)

 

 

 

1000 Abernathy Road, Suite 1200, Atlanta, Georgia

 

30328

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(770) 829-3700

(Registrant’s telephone number, including area code)

 

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

 

YES

ý

NO

o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

YES

ý

NO

o

 

Class

 

Outstanding at May 6, 2004

 

 

 

Common Stock, $0.01 par value

 

13,691,748 shares

 

 



 

BEAZER HOMES USA, INC.

FORM 10-Q

 

INDEX

 

PART I

 

FINANCIAL INFORMATION

 

 

 

 

 

Item 1

 

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets, March 31, 2004 (unaudited) and September 30, 2003

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations, Three and Six Months Ended March 31, 2004 and 2003

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows, Six Months Ended March 31, 2004 and 2003

 

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Income, Three and Six Months Ended March 31, 2004 and 2003

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

 

 

 

Item 2

 

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

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

 

Item 4

 

Controls and Procedures

 

 

 

 

 

PART II

 

OTHER INFORMATION

 

 

 

 

 

Item 1

 

Legal Proceedings

 

 

 

 

 

Item 4

 

Submission of Matters to a Vote of Security Holders

 

 

 

 

 

Item 6

 

Exhibits and Reports on Form 8-K

 

 

 

 

 

SIGNATURES

 

 

 

 

2



 

Part I. Financial Information

 

BEAZER HOMES USA, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

March 31,
2004

 

September 30,
2003

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

89,559

 

$

73,372

 

Accounts receivable

 

41,975

 

66,003

 

Inventory

 

 

 

 

 

Owned inventory

 

1,989,659

 

1,687,809

 

Consolidated inventory not owned

 

284,196

 

35,674

 

Total inventory

 

2,273,855

 

1,723,483

 

Deferred tax asset

 

25,305

 

26,160

 

Property, plant and equipment, net

 

22,120

 

19,185

 

Goodwill

 

251,603

 

251,603

 

Other assets

 

60,483

 

52,228

 

Total assets

 

$

2,764,900

 

$

2,212,034

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Trade accounts payable

 

$

153,714

 

$

125,521

 

Other payables and accrued liabilities

 

330,046

 

320,996

 

Obligations related to consolidated inventory not owned

 

238,129

 

30,457

 

Term loan

 

200,000

 

200,000

 

Senior Notes (net of discount of $9,949 and $8,635 respectively)

 

740,051

 

541,365

 

Other notes payable

 

8,928

 

 

Total liabilities

 

1,670,868

 

1,218,339

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

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

 

 

 

Common stock (par value $.01 per share, 30,000,000 shares authorized, 17,649,817 and 17,501,052 issued and 13,691,741 and 13,542,976 outstanding, respectively)

 

177

 

175

 

Paid-in capital

 

579,615

 

572,070

 

Retained earnings

 

604,667

 

511,349

 

Treasury stock (3,958,076 shares)

 

(70,604

)

(70,604

)

Unearned compensation

 

(17,692

)

(15,852

)

Accumulated other comprehensive loss

 

(2,131

)

(3,443

)

Total stockholders’ equity

 

1,094,032

 

993,695

 

Total liabilities and stockholders’ equity

 

$

2,764,900

 

$

2,212,034

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

3



 

BEAZER HOMES USA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

 

 

Three Months
Ended March 31,

 

Six Months
Ended March 31,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

876,581

 

$

665,567

 

$

1,686,689

 

$

1,365,727

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Home construction and land sales

 

699,020

 

527,733

 

1,343,969

 

1,091,450

 

Selling, general and administrative

 

99,717

 

76,347

 

189,224

 

153,724

 

Operating income

 

77,844

 

61,487

 

153,496

 

120,553

 

Other income, net

 

2,250

 

1,277

 

3,952

 

3,236

 

Income before income taxes

 

80,094

 

62,764

 

157,448

 

123,789

 

Provision for income taxes

 

31,236

 

24,792

 

61,404

 

48,897

 

Net income

 

$

48,858

 

$

37,972

 

$

96,044

 

$

74,892

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

Basic

 

13,331

 

12,815

 

13,306

 

12,813

 

Diluted

 

13,865

 

13,403

 

13,846

 

13,403

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

3.66

 

$

2.96

 

$

7.22

 

$

5.85

 

Diluted

 

$

3.52

 

$

2.83

 

$

6.94

 

$

5.59

 

 

 

 

 

 

 

 

 

 

 

Cash dividends per share

 

$

0.10

 

$

 

$

0.20

 

$

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

4



 

BEAZER HOMES USA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

Six Months Ended
March 31,

 

 

 

2004

 

2003

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

96,044

 

$

74,892

 

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

 

 

 

 

 

Depreciation and amortization

 

8,035

 

5,684

 

Changes in operating assets and liabilities:

 

 

 

 

 

Decrease in accounts receivable

 

24,028

 

5,193

 

Increase in inventory

 

(333,772

)

(177,682

)

Increase in other assets

 

(11,451

)

(540

)

Increase (decrease) in trade accounts payable

 

28,193

 

(6,963

)

Increase (decrease) in other liabilities

 

11,741

 

(3,879

)

Other changes

 

586

 

610

 

Net cash used in operating activities

 

(176,596

)

(102,685

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(3,926

)

(4,157

)

Investments in and distributions from unconsolidated joint ventures

 

67

 

903

 

Proceeds from sale of interests in joint ventures

 

 

5,062

 

Net cash provided/(used) by investing activities

 

(3,859

)

1,808

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from 6 1/2% Senior Notes

 

198,100

 

 

Proceeds from stock option exercises

 

1,728

 

1,631

 

Common share repurchases

 

 

(6,925

)

Dividends paid

 

(2,726

)

 

Debt issuance costs

 

(460

)

 

Net cash provided/(used) by financing activities

 

196,642

 

(5,294

)

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

16,187

 

(106,171

)

Cash and cash equivalents at beginning of period

 

73,372

 

124,989

 

Cash and cash equivalents at end of period

 

$

89,559

 

$

18,818

 

 

 

 

 

 

 

Supplemental disclosures of non-cash activities:

 

 

 

 

 

Consolidated inventory not owned

 

$

207,672

 

$

30,457

 

Land purchased through issuance of note payable

 

$

8,928

 

$

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

5



 

BEAZER HOMES USA, INC.

UNAUDITED CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

(in thousands)

 

 

 

Three Months
Ended March 31,

 

Six Months
Ended March 31,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

48,858

 

$

37,972

 

$

96,044

 

$

74,892

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Unrealized gain on interest rate swaps, net of related taxes

 

565

 

273

 

1,312

 

393

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

49,423

 

$

38,245

 

$

97,356

 

$

75,285

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

6



 

(1)  Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of Beazer Homes USA, Inc. (“Beazer Homes” or “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Such financial statements do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.  In our opinion, all adjustments (consisting solely of normal recurring accruals) necessary for a fair presentation have been included in the accompanying financial statements.  Certain items in prior period financial statements have been reclassified to conform to the current presentation.  For further information, refer to our audited consolidated financial statements appearing in our Annual Report on Form 10-K for the fiscal year ended September 30, 2003.

 

(2)  Stock-Based Compensation

 

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

 

We account for stock awards issued to non-employees under the recognition and measurement principles of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure”.  Stock options issued to non-employees are valued using the Black-Scholes option pricing model.  Restricted stock granted to non-employees is initially valued based on the market price of the common stock on the date of the grant.

 

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

 

The following table illustrates the effect (in thousands, except per share amounts) on net earnings and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:

 

7



 

 

 

Three Months Ended
March 31,

 

Six Months Ended
March 31,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Net income, as reported

 

$

48,858

 

$

37,972

 

$

96,044

 

$

74,892

 

Add: Stock-based employee compensation expense included in reported net income, net of related tax effects

 

1,129

 

609

 

2,108

 

819

 

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects

 

(1,867

)

(1,397

)

(3,466

)

(2,318

)

 

 

 

 

 

 

 

 

 

 

Pro forma net income

 

$

48,120

 

$

37,184

 

$

94,686

 

$

73,393

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic - as reported

 

$

3.66

 

$

2.96

 

$

7.22

 

$

5.85

 

Basic - pro forma

 

$

3.61

 

$

2.90

 

$

7.12

 

$

5.73

 

 

 

 

 

 

 

 

 

 

 

Diluted - as reported

 

$

3.52

 

$

2.83

 

$

6.94

 

$

5.59

 

Diluted - pro forma

 

$

3.49

 

$

2.77

 

$

6.92

 

$

5.48

 

 

(3)  Inventory

 

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

 

 

 

March 31,
2004

 

September 30,
2003

 

Homes under construction

 

$

828,944

 

$

658,909

 

Development projects in progress

 

1,017,184

 

919,257

 

Unimproved land held for future development

 

59,865

 

33,583

 

Model homes

 

83,666

 

76,060

 

Consolidated inventory not owned

 

284,196

 

35,674

 

 

 

$

2,273,855

 

$

1,723,483

 

 

Homes under construction includes homes finished and ready for delivery and homes in various stages of construction.  Excluding model homes, we had 372 completed homes (valued at $54.4 million) and 362

 

8



 

completed homes (valued at $58.3 million) at March 31, 2004 and September 30, 2003, respectively, that were not subject to a sales contract.

 

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

 

We acquire certain lots by means of option contracts.  Option contracts generally require the payment of cash for the right to acquire lots during a specified period of time at a certain price.  Under option contracts, both with and without specific performance requirements, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers.  Our obligation with respect to options with specific performance requirements is included on our consolidated balance sheets in other liabilities.  Under option contracts without specific performance obligations, our liability is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts incurred, which aggregated approximately $130.6 million at March 31, 2004.  This amount includes letters of credit of approximately $36.0 million.

 

Below is a summary of amounts (in thousands) committed under all options at March 31, 2004:

 

 

 

Aggregate
Purchase
Price Under
Options

 

Options with specific performance

 

$

26,808

 

Options without specific performance

 

1,489,062

 

Total options

 

$

1,515,870

 

 

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”).  On December 24, 2003, FIN 46 was replaced by FIN 46R.  FIN 46 applied immediately to variable interest entities created after January 31, 2003, and with respect to variable interests held before February 1, 2003, FIN 46R applied beginning  with our quarter ended March 31, 2004.

 

We have evaluated all of our existing joint venture agreements, and we have determined that none of our joint ventures are Variable Interest Entities (“VIEs”).  Therefore, we have not consolidated any of our joint venture agreements pursuant to the requirements of FIN 46.  We have evaluated our option contracts for land  and determined we are the primary beneficiary of certain of these option contracts.  Although we do not have legal title to the optioned land, for those option contracts for which we are the primary beneficiary, we are required to consolidate the land under option at fair value.  We believe that the exercise prices of our option contracts approximate their fair value.  The consolidation of the land subject to these option contracts had the effect of increasing consolidated inventory not owned by $238.1 million with a corresponding increase to obligations related to consolidated inventory not owned in the accompanying consolidated balance sheet as of March 31, 2004.  The liabilities represent the difference between the exercise price of the optioned land and our deposits. Additionally, to reflect the fair value of the inventory consolidated under FIN 46, we reclassified $46.1 million of related option deposits from development projects in progress to consolidated inventory not owned.

 

9



 

(4)  Interest

 

The following table sets forth certain information regarding interest (in thousands):

 

 

 

Three Months Ended
March 31,

 

Six Months Ended
March 31,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Capitalized interest in inventory, beginning of period

 

$

37,469

 

$

29,123

 

$

34,285

 

$

24,441

 

Interest incurred and capitalized

 

18,532

 

16,916

 

35,403

 

33,498

 

Capitalized interest amortized to cost  of sales

 

(15,187

)

(12,200

)

(28,874

)

(24,100

)

Capitalized interest in inventory, end of period

 

$

40,814

 

$

33,839

 

$

40,814

 

$

33,839

 

 

(5) Earnings Per Share

 

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

 

 

 

Three Months Ended
March 31,

 

Six Months Ended
March 31,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

Net income

 

$

48,858

 

$

37,972

 

$

96,044

 

$

74,892

 

Weighted average number of common shares outstanding

 

13,331

 

12,815

 

13,306

 

12,813

 

Basic earnings per share

 

$

3.66

 

$

2.96

 

$

7.22

 

$

5.85

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

Net income

 

$

48,858

 

$

37,972

 

$

96,044

 

$

74,892

 

Weighted average number of common shares outstanding

 

13,331

 

12,815

 

13,306

 

12,813

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Restricted stock

 

256

 

204

 

255

 

193

 

Options to acquire common stock

 

278

 

384

 

285

 

397

 

Diluted weighted average common shares outstanding

 

13,865

 

13,403

 

13,846

 

13,403

 

Diluted earnings per share

 

$

3.52

 

$

2.83

 

$

6.94

 

$

5.59

 

 

10



 

(6)  Long Term Debt and Associated Derivatives

 

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

 

In January 2004 we filed a registration statement on Form S-4, relating to an offer to exchange registered notes for the 6 ½% Senior Notes, and on April 12, 2004 we commenced such exchange offer as required under the registration rights agreement executed in connection with the sale of the 6 ½% Senior Notes.

 

In addition to the 6 ½% Senior Notes, at March 31, 2004, we had outstanding $200 million 8 5/8% Senior Notes due in May 2011 and $350 million 8 3/8% Senior Notes due in April 2012 (collectively, with the  6 ½% Senior Notes, the “Senior Notes”) and a $200 million four-year term loan due June 2007 (the “Term Loan”) which bears interest at a fluctuating rate (2.75% at March 31, 2004) based upon LIBOR or the corporate base rate of interest announced by our lead bank.

 

We are exposed to fluctuations in interest rates.  We enter into derivative agreements to manage interest costs and hedge against risks associated with fluctuating interest rates.  We do not enter into or hold derivatives for trading or speculative purposes.  At March 31, 2004 and September 30, 2003, we had swap agreements (the “Swap Agreements”) to effectively fix the variable interest on $100 million of floating rate debt.  The Swap Agreements mature in December 2004.  No portion of these hedges was considered ineffective for the period ended March 31, 2004.  Our Swap Agreements effectively fix the interest rate (before spread) on $100 million of floating rate debt at a weighted average rate of 5.74% per annum.

 

The effect of the Swap Agreements as of March 31, 2004 and September 30, 2003 was to record an after-tax accumulated other comprehensive loss of $2.1 million and $3.4 million, respectively.  The estimated fair value of the Swap Agreements, based on current market rates, approximated $3.5 million and $5.6 million at March 31, 2004 and September 30, 2003, respectively, and is included in other liabilities.

 

All of our significant subsidiaries are full and unconditional guarantors of the Senior Notes and our obligations under the Term Loan, and are jointly and severally liable for obligations under the Senior Notes and Term Loan.  Each guarantor subsidiary is a 100% owned subsidiary of Beazer Homes.

 

11



 

(7)  Contingencies

 

We and certain of our subsidiaries have been and continue to be named as defendants in various construction defect claims, complaints and other legal actions that include claims related to moisture intrusion and mold.  Recently, we have experienced an increase in such claims in our Midwestern region and particularly with respect to homes built by Trinity Homes LLC.

 

Our warranty reserves at March 31, 2004 and September 30, 2003 include accruals for our estimated costs to assess and remediate all homes for which Trinity had received complaints related to moisture intrusion and mold, including a provision for legal fees. We did not consider any claims to be resolved as of March 31, 2004.  The following is a roll-forward of total complaints received, on which our accruals were based:

 

 

 

Three Months Ended
March 31, 2004

 

Six Months Ended
March 31, 2004

 

Complaints outstanding at beginning of period

 

511

 

415

 

Complaints received during the period

 

248

 

344

 

Complaints resolved during the period

 

 

 

Complaints outstanding at March 31, 2004

 

759

 

759

 

 

The cost to assess and remediate a home depends on the extent of moisture damage, if any, that the home has incurred.  We classify homes for which we receive complaints into one of three categories: 1) homes with no moisture damage, 2) homes with isolated moisture damage or 3) homes with extensive moisture damage.  For purposes of calculating our accrual we estimated the cost to assess and remediate homes to cover a range up to $37,000 per home, depending on the category to which it was assigned.

 

As of March 31, 2004 and September 30, 2003 we accrued for our estimated cost to remediate homes that we had assessed and assigned to one of the above categories, as well as our estimated cost to remediate those homes for which we had received complaints, but for which we had not yet performed assessments.  For purposes of our accrual, we assigned homes not yet assessed to categories based on our expectations about the extent of damage.  In general, we expected homeowners with the most extensive damage to contact us first.  As a result, we expected a higher percentage of homes not yet assessed to have no moisture damage or isolated moisture damage than in the population of homes already assessed.

 

During the quarter ended December 31, 2003, we initiated a program under which we offered to repurchase a limited number of homes from specific homeowners.  As of March 31, 2004 we had agreed to repurchase 54 homes under this program, and had two repurchase offers pending.  Our accrual at March 31, 2004 includes our estimated costs to sell homes that we expect to repurchase, and our estimated losses on the sale of those homes.

 

Changes in our accrual during the three and six months ended March 31, 2004 were as follows (in thousands):

 

12



 

 

 

Three Months Ended
March 31, 2004

 

Six Months Ended
March 31, 2004

 

Balance at beginning of period

 

$

14,014

 

$

9,200

 

Provisions

 

11,373

 

18,258

 

Payments

 

(1,292

)

(3,363

)

Balance at end of period

 

$

24,095

 

$

24,095

 

 

Our accruals at March 31, 2004 and September 30, 2003 represent our best estimates at each balance sheet date of the costs to resolve all asserted complaints.  Actual costs to assess and remediate homes in each category, the extent of damage to homes not yet assessed, our estimates of costs to sell homes expected to be repurchased, and our losses on such sales could differ from our estimates.  As a result, the costs to resolve existing complaints could differ from our recorded accruals and have a material adverse effect on our net income in the periods in which the matters are resolved.  Additionally, it is reasonably possible that we will incur additional losses related to these matters, including losses related to homes for which we have not yet received complaints.  However, the amount or range of such losses can not be determined at this time.

 

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

 

As noted above, our warranty reserves at March 31, 2004 and September 30, 2003 include accruals for our estimated costs to assess and remediate all homes for which Trinity had received complaints related to moisture intrusion and mold.  Warranty reserves are included in accrued expenses in the consolidated financial statements.  We record reserves covering our anticipated warranty expense for each home closed.  Management reviews the adequacy of warranty reserves each reporting period based on historical experience and management’s estimate of the costs to remediate the claims and adjusts these provisions accordingly.  While we believe that our warranty reserves at March 31, 2004 are adequate, there can be no assurances that historical data and trends will accurately predict our actual warranty costs or that future developments might not lead to a significant change in the reserve.

 

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

 

13



 

 

 

Three Months Ended
March 31,

 

Six Months Ended
March 31,

 

 

 

2004

 

2003

 

2004

 

2003

 

Balance at beginning of period

 

$

47,939

 

$

26,692

 

$

40,473

 

$

25,527

 

Provisions

 

19,303

 

6,856

 

35,190

 

13,641

 

Payments

 

(5,515

)

(5,709

)

(13,936

)

(11,329

)

Balance at end of period

 

$

61,727

 

$

27,839

 

$

61,727

 

$

27,839

 

 

(8)  Supplemental Guarantor Information

 

As discussed in Note 6, Beazer Homes’ obligations to pay principal, premium, if any, and interest under certain debt are guaranteed on a joint and several basis by substantially all of its subsidiaries.  The guarantees are full and unconditional and the guarantor subsidiaries are 100% owned by Beazer Homes USA, Inc.  The Company has determined that separate, full financial statements of the guarantors would not be material to investors and, accordingly, supplemental financial information for the guarantors is presented.

 

Beazer Homes USA, Inc.

Consolidating Balance Sheet

March 31, 2004

(in thousands)

 

 

 

Beazer
Homes
USA, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminating
Entries

 

Consolidated
Beazer
Homes
USA, Inc.

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

148,160

 

$

(58,884

)

$

283

 

$

 

$

89,559

 

Accounts receivable

 

 

40,320

 

1,655

 

 

41,975

 

Inventory

 

 

2,267,326

 

 

6,529

 

2,273,855

 

Deferred tax asset

 

25,305

 

 

 

 

25,305

 

Property, plant and equipment, net

 

 

22,120

 

 

 

22,120

 

Goodwill

 

 

251,603

 

 

 

251,603

 

Investments in subsidiaries

 

1,342,479

 

 

 

(1,342,479

)

 

Intercompany

 

570,912

 

(584,799

)

13,887

 

 

 

Other assets

 

12,481

 

39,822

 

8,180

 

 

60,483

 

Total Assets

 

$

2,099,337

 

$

1,977,508

 

$

24,005

 

$

(1,335,950

)

$

2,764,900

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

 

$

153,618

 

$

96

 

$

 

$

153,714

 

Other liabilities

 

66,667

 

249,845

 

10,988

 

2,546

 

330,046

 

Intercompany

 

(1,413

)

 

1,413

 

 

 

Obligations related to consolidated inventory not owned

 

 

238,129

 

 

 

238,129

 

Term Loan

 

200,000

 

 

 

 

200,000

 

Senior Notes

 

740,051

 

 

 

 

740,051

 

Other notes payable

 

 

8,928

 

 

 

8,928

 

Total Liabilities

 

1,005,305

 

650,520

 

12,497

 

2,546

 

1,670,868

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

1,094,032

 

1,326,988

 

11,508

 

(1,338,496

)

1,094,032

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$

2,099,337

 

$

1,977,508

 

$

24,005

 

$

(1,335,950

)

$

2,764,900

 

 

14



 

Beazer Homes USA, Inc.

Consolidating Balance Sheet

September 30, 2003

(in thousands)

 

 

 

Beazer
Homes
USA, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminating
Entries

 

Consolidated
Beazer
Homes
USA, Inc.

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

110,754

 

$

(40,079

)

$

2,697

 

$

 

$

73,372

 

Accounts receivable

 

 

64,620

 

1,383

 

 

66,003

 

Inventory

 

 

1,713,639

 

 

9,844

 

1,723,483

 

Deferred tax asset

 

26,160

 

 

 

 

26,160

 

Property, plant and equipment, net

 

 

19,166

 

19

 

 

19,185

 

Goodwill

 

 

251,603

 

 

 

251,603

 

Investments in subsidiaries

 

1,246,831

 

 

 

(1,246,831

)

 

Intercompany

 

403,945

 

(415,211

)

11,266

 

 

 

Other assets

 

11,085

 

35,587

 

5,556

 

 

52,228

 

Total Assets

 

$

1,798,775

 

$

1,629,325

 

$

20,921

 

$

(1,236,987

)

$

2,212,034

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

 

$

125,099

 

$

422

 

$

 

$

125,521

 

Other liabilities

 

64,963

 

242,503

 

9,642

 

3,888

 

320,996

 

Intercompany

 

(1,248

)

 

1,248

 

 

 

Obligations related to consolidated inventory not owned

 

 

30,457

 

 

 

30,457

 

Term Loan

 

200,000

 

 

 

 

200,000

 

Senior Notes

 

541,365

 

 

 

 

541,365

 

Total Liabilities

 

805,080

 

398,059

 

11,312

 

3,888

 

1,218,339

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

993,695

 

1,231,266

 

9,609

 

(1,240,875

)

993,695

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$

1,798,775

 

$

1,629,325

 

$

20,921

 

$

(1,236,987

)

$

2,212,034

 

 

Beazer Homes USA, Inc.

Consolidating Statement of Income

Three Months Ended March 31, 2004

(in thousands)

 

 

 

Beazer
Homes
USA, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminating
Entries

 

Consolidated
Beazer
Homes
USA, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

 

$

874,990

 

$

1,591

 

$

 

$

876,581

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Home construction and land sales

 

18,532

 

683,833

 

 

(3,345

)

699,020

 

Selling, general and administrative

 

 

99,018

 

699

 

 

99,717

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

(18,532

)

92,139

 

892

 

3,345

 

77,844

 

Other income, net

 

 

2,250

 

 

 

2,250

 

Income before income taxes

 

(18,532

)

94,389

 

892

 

3,345

 

80,094

 

Provision for income taxes

 

(7,227

)

36,811

 

348

 

1,305

 

31,236

 

Equity in income of subsidiaries

 

60,163

 

 

 

(60,163

)

 

Net income

 

$

48,858

 

$

57,578

 

$

544

 

$

(58,123

)

$

48,858

 

 

15



 

Beazer Homes USA, Inc.

Consolidating Statement of Income

Three Months Ended March 31, 2003

(in thousands)

 

 

 

Beazer
Homes
USA, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminating
Entries

 

Consolidated
Beazer
Homes
USA, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

 

$

664,086

 

$

1,481

 

$

 

$

665,567

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Home construction and land sales

 

16,916

 

515,533

 

 

(4,716

)

527,733

 

Selling, general and administrative

 

 

75,738

 

609

 

 

76,347

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

(16,916

)

72,815

 

872

 

4,716

 

61,487

 

Other income, net

 

 

1,277

 

 

 

1,277

 

Income before income taxes

 

(16,916

)

74,092

 

872

 

4,716

 

62,764

 

Provision for income taxes

 

(6,682

)

29,267

 

344

 

1,863

 

24,792

 

Equity in income of subsidiaries

 

48,206

 

 

 

(48,206

)

 

Net income

 

$

37,972

 

$

44,825

 

$

528

 

$

(45,353

)

$

37,972

 

 

Beazer Homes USA, Inc.

Consolidating Statement of Income

Six Months Ended March 31, 2004

(in thousands)

 

 

 

Beazer
Homes
USA, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminating
Entries

 

Consolidated
Beazer
Homes
USA, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

 

$

1,683,102

 

$

3,587

 

$

 

$

1,686,689

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Home construction and land sales

 

35,403

 

1,315,095

 

 

(6,529

)

1,343,969

 

Selling, general and administrative

 

 

187,745

 

1,479

 

 

189,224

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

(35,403

)

180,262

 

2,108

 

6,529

 

153,496

 

Other income, net

 

 

3,952

 

 

 

3,952

 

Income before income taxes

 

(35,403

)

184,214

 

2,108

 

6,529

 

157,448

 

Provision for income taxes

 

(13,807

)

71,842

 

823

 

2,546

 

61,404

 

Equity in income of subsidiaries

 

117,640

 

 

 

(117,640

)

 

Net income

 

$

96,044

 

$

112,372

 

$

1,285

 

$

(113,657

)

$

96,044

 

 

16



 

Beazer Homes USA, Inc.

Consolidating Statement of Income

Six Months Ended March 31, 2003

(in thousands)

 

 

 

Beazer
Homes
USA, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminating
Entries

 

Consolidated
Beazer
Homes
USA, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

$

 

$

1,362,585

 

$

3,142

 

$

 

$

1,365,727

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Home construction and land sales

 

33,498

 

1,067,350

 

 

(9,398

)

1,091,450

 

Selling, general and administrative

 

 

152,509

 

1,215

 

 

153,724

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

(33,498

)

142,726

 

1,927

 

9,398

 

120,553

 

Other income, net

 

 

3,236

 

 

 

3,236

 

Income before income taxes

 

(33,498

)

145,962

 

1,927

 

9,398

 

123,789

 

Provision for income taxes

 

(13,232

)

57,656

 

761

 

3,712

 

48,897

 

Equity in income of subsidiaries

 

95,158

 

 

 

(95,158

)

 

Net income

 

$

74,892

 

$

88,306

 

$

1,166

 

$

(89,472

)

$

74,892

 

 

Beazer Homes USA, Inc.

Consolidating Statement of Cash Flows

March 31, 2004

(in thousands)

 

 

 

Beazer
Homes
USA, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminating
Entries

 

Consolidated
Beazer
Homes
USA, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided/(used) by operating activities

 

(21,288

)

(155,585

)

277

 

 

(176,596

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(3,926

)

 

 

(3,926

)

Investments in and distributions from unconsolidated joint ventures

 

 

67

 

 

 

67

 

Net cash used by investing activities

 

 

(3,859

)

 

 

(3,859

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of 6 1/2% Senior Notes

 

198,100

 

 

 

 

198,100

 

Advances (to) from subsidiaries

 

(137,948

)

140,639

 

(2,691

)

 

 

Debt issuance costs

 

(460

)

 

 

 

(460

)

Proceeds from stock option exercises

 

1,728

 

 

 

 

1,728

 

Dividends paid

 

(2,726

)

 

 

 

(2,726

)

Net cash provided/(used) by financing activities

 

58,694

 

140,639

 

(2,691

)

 

196,642

 

Increase (decrease) in cash and cash equivalents

 

37,406

 

(18,805

)

(2,414

)

 

16,187

 

Cash and cash equivalents at beginning of period

 

110,754

 

(40,079

)

2,697

 

 

73,372

 

Cash and cash equivalents at end of period

 

$

148,160

 

$

(58,884

)

$

283

 

$

 

$

89,559

 

 

17



 

Beazer Homes USA, Inc.

Consolidating Statement of Cash Flows

March 31, 2003

(in thousands)

 

 

 

Beazer
Homes
USA, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminating
Entries

 

Consolidated
Beazer
Homes
USA, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used by operating activities

 

$

(17,002

)

$

(81,933

)

$

(3,750

)

$

 

$

(102,685

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(4,157

)

 

 

(4,157

)

Investments in and distributions from unconsolidated joint ventures

 

 

5,965

 

 

 

5,965

 

Net cash provided by investing activities

 

 

1,808

 

 

 

1,808

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Advances (to) from subsidiaries

 

(73,111

)

68,219

 

4,892

 

 

 

Proceeds from stock option exercises

 

1,631

 

 

 

 

1,631

 

Common share repurchases

 

(6,925

)

 

 

 

(6,925

)

Net cash provided/(used) by financing activities

 

(78,405

)

68,219

 

4,892

 

 

(5,294

)

Increase (decrease) in cash and cash equivalents

 

(95,407

)

(11,906

)

1,142

 

 

(106,171

)

Cash and cash equivalents at beginning of period

 

147,355

 

(25,759

)

3,393

 

 

124,989

 

Cash and cash equivalents at end of period

 

$

51,948

 

$

(37,665

)

$

4,535

 

$

 

$

18,818

 

 

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

 

OVERVIEW:

 

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

 

Southeast

 

West

 

Central

 

Mid-Atlantic

 

Midwest

Florida

 

Arizona

 

Texas

 

Maryland / Delaware

 

Indiana

Georgia

 

California

 

 

 

New Jersey

 

Kentucky

Mississippi

 

Colorado

 

 

 

Pennsylvania

 

Ohio

North Carolina

 

Nevada

 

 

 

Virginia

 

 

South Carolina

 

 

 

 

 

 

 

 

Tennessee

 

 

 

 

 

 

 

 

 

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

 

Most of our homes are designed to appeal to entry-level and first time move-up homebuyers, and are generally offered for sale in advance of their construction.  Once a sales contract has been signed, we classify

 

18



 

the transaction as a “new order” and include the home in “backlog.”  Such sales contracts are usually subject to certain contingencies such as the buyer’s ability to qualify for financing.  We do not recognize revenue on homes in backlog until the sales are closed and the risk of ownership has been transferred to the buyer.

 

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

 

Critical Accounting Policies: Some of our critical accounting policies require the use of judgment in their application or require estimates of inherently uncertain matters. Although our accounting policies are in compliance with accounting principles generally accepted in the United States of America, a change in the facts and circumstances of the underlying transactions could significantly change the application of the accounting policies and the resulting financial statement impact.  Listed below are those policies that we believe are critical and require the use of complex judgment in their application.

 

Inventory Valuation

 

Housing projects and land held for development and sale are stated at cost (including direct construction costs, capitalized indirect costs, capitalized interest and real estate taxes) unless facts and circumstances indicate that the carrying value of the assets may be impaired. We assess these assets for recoverability in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If these assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

 

These evaluations for impairment are significantly impacted by estimates of revenues, costs and expenses and other factors.  Due to uncertainties in the estimation process, it is reasonably possible that actual results could differ from those estimates.  Our assumptions about future home sales prices and volumes require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions. We continue to evaluate the carrying value of our inventory and, based on historical results, believe that our existing estimation process is accurate and do not anticipate the process to materially change in the future.

 

Goodwill

 

We test goodwill for impairment annually or more frequently if an event occurs or circumstances change that more likely than not reduce the value of a reporting unit below its carrying value. For purposes of goodwill impairment testing, we compare the fair value of each reporting unit with its carrying amount, including goodwill. Each of our operating divisions is considered a reporting unit. The fair value of each reporting unit is determined based on expected discounted future cash flows.  If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired.  If goodwill is considered impaired, the impairment loss to be recognized is measured by the amount by which the carrying amount of the

 

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goodwill exceeds implied fair value of that goodwill.  We performed our most recent annual impairment test of goodwill as of April 30, 2003 and determined that goodwill was not impaired.

 

Inherent in our fair value determinations are certain judgments and estimates, including projections of future cash flows, the discount rate reflecting the risk inherent in future cash flows, the interpretation of current economic indicators and market valuations and our strategic plans with regard to our operations.  A change in these underlying assumptions would cause a change in the results of the tests, which could cause the fair value of one or more reporting units to be less than their respective carrying amounts.  In addition, to the extent that there are significant changes in market conditions or overall economic conditions or our strategic plans change, it is possible that our conclusion regarding goodwill impairment could change, which could have a material effect on our financial position and results of operations.

 

Our goodwill has been assigned to reporting units in different geographic locations.  Therefore, potential goodwill impairment charges resulting from changes in local market and /or economic conditions or changes in our strategic plans would likely be isolated to one or a few of our reporting units.  However, our business is concentrated in the homebuilding industry and, as such, a widespread decline in the homebuilding industry or a significant deterioration of economic conditions could have a negative impact on the estimated fair value of a larger number of our reporting units.

 

While we believe that no impairment existed as of March 31, 2004, there can be no assurances that future economic or financial developments, including general interest rate increases or a slowdown in the economy, might not lead to impairment of goodwill.  As part of our April 30, 2004 annual goodwill assessment, we will obtain independent valuations of our reporting units and assess such valuations relative to their respective carrying amounts.

 

Homebuilding Revenues and Costs

 

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

 

Warranty Reserves

 

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

 

Warranty reserves are included in accrued expenses in the consolidated financial statements.  We record reserves covering our anticipated warranty expense for each home closed.  Management reviews the adequacy of warranty reserves each reporting period based on historical experience and management’s

 

20



 

estimate of the costs to remediate the claims and adjusts these provisions accordingly.  Factors that affect our warranty liability include the number of  homes sold, historical and anticipated rates of warranty claims, and cost per claim. Based on historical results, we believe that our existing estimation process is accurate and do not anticipate the process to materially change in the future.  While we believe that our warranty reserves at March 31, 2004 are adequate, there can be no assurances that historical data and trends will accurately predict our actual warranty costs or that future developments might not lead to a significant change in the reserve.

 

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

 

21



 

RESULTS OF OPERATIONS:

 

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

 

 

 

Three Months Ended
March 31,

 

Six Months Ended
March 31,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

Amount

 

%
Change

 

Amount

 

Amount

 

%
Change

 

Amount

 

Number of new orders, net of cancellations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southeast region

 

1,636

 

0.5

%

1,628

 

2,679

 

1.4

%

2,643

 

West region

 

1,885

 

47.6

 

1,277

 

3,339

 

50.7

 

2,216

 

Central region

 

351

 

18.6

 

296

 

536

 

1.5

 

528

 

Mid-Atlantic region

 

403

 

(18.8

)

496

 

719

 

(24.2

)

948

 

Midwest region

 

757

 

(14.2

)

882

 

1,063

 

(23.2

)

1,385

 

Total

 

5,032

 

9.9

 

4,579

 

8,336

 

8.0

 

7,720

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of closings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Southeast region

 

1,197

 

9.5

%

1,093

 

2,454

 

12.3

%

2,186

 

West region

 

1,404

 

28.2

 

1,095

 

2,618

 

22.6

 

2,135

 

Central region

 

208

 

(23.5

)

272

 

448

 

(16.7

)

538

 

Mid-Atlantic region

 

367

 

57.5

 

233

 

685

 

29.7

 

528

 

Midwest region

 

508

 

(15.9

)

604

 

1,087

 

(21.9

)

1,392

 

Total

 

3,684

 

11.7

 

3,297

 

7,292

 

7.6

 

6,779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total homebuilding revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Southeast region

 

$

225,636

 

19.0

%

$

189,601

 

$

448,148

 

18.8

%

$

377,213

 

West region

 

391,157

 

50.2

 

260,363

 

736,277

 

43.8

 

511,999

 

Central region

 

34,074

 

(17.6

)

41,332

 

70,587

 

(14.0

)

82,068

 

Mid-Atlantic region

 

125,965

 

62.5

 

77,527

 

226,174

 

29.4

 

174,772

 

Midwest region

 

75,980

 

(12.5

)

86,791

 

161,764

 

(18.4

)

198,332

 

Total

 

$

852,812

 

30.1

 

$

655,614

 

$

1,642,950

 

22.2

 

$

1,344,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average sales price per home closed:

 

 

 

 

 

 

 

 

 

 

 

 

 

Southeast region

 

$

188.5

 

8.6

%

$

173.5

 

$

182.6

 

5.8

%

$

172.6

 

West region

 

278.6

 

17.2

 

237.8

 

281.2

 

17.3

 

239.8

 

Central region

 

163.8

 

7.8

 

152.0

 

157.6

 

3.3

 

152.5

 

Mid-Atlantic region

 

343.2

 

3.2

 

332.7

 

330.2

 

(0.2

)

331.0

 

Midwest region

 

149.6

 

4.1

 

143.7

 

148.8

 

4.4

 

142.5

 

Company average

 

231.5

 

16.4

 

198.9

 

225.3

 

13.6

 

198.3

 

 

22



 

 

 

March 31,

 

 

 

2004

 

2003

 

 

 

Amount

 

%
Change

 

Amount

 

 

 

 

 

 

 

 

 

Backlog units at end of period:

 

 

 

 

 

 

 

Southeast region

 

2,546

 

9.6

%

2,324

 

West region

 

3,008

 

57.2

 

1,914

 

Central region

 

484

 

(2.6

)

497

 

Mid-Atlantic region

 

1,151

 

2.8

 

1,120

 

Midwest region

 

1,281

 

(20.2

)

1,605

 

Total

 

8,470

 

13.5

 

7,460

 

 

 

 

 

 

 

 

 

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

 

$

2,036,493

 

37.1

%

$

1,485,401

 

 

 

 

 

 

 

 

 

Number of active subdivisions at end of period: