UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the Quarterly Period Ended June 30, 2000
or
Commission File Number 001-12822
BEAZER HOMES USA, INC.
(Exact name of registrant as specified in its charter)
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.
Page 1 of 17 PagesExhibit Index Appears on Page 16
BEAZER HOMES USA, INC. FORM 10-Q
INDEX
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Part I. Financial Information
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
See Notes to Condensed Consolidated Financial Statements
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Beazer Homes USA, Inc. ("Beazer") 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. Such financial statements do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included in the accompanying condensed financial statements. For further information, refer to our audited consolidated financial statements incorporated by reference in our Annual Report on Form 10-K for the year ended September 30, 1999.
(2) Inventory
A summary of inventory is as follows (in thousands):
Homes under construction includes homes finished and ready for delivery and homes in various stages of construction. We had 176 completed homes ($25.7 million) and 162 completed homes ($27.1 million) at June 30, 2000 and September 30, 1999, respectively, that were not subject to a sales contract, excluding 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.
(3) Interest
The following table sets forth certain information regarding interest:
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(4) Preferred Stock Transactions
During the first nine months of fiscal 1999, we paid $1.3 million in cash to holders of 1,732,460 shares of our Series A Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") to induce those holders to convert their preferred shares into 2,273,564 common shares. We also called the remaining outstanding Preferred Stock for redemption, of which 265,376 shares were voluntarily converted into 348,406 common shares and the remaining 2,164 shares of Preferred Stock were redeemed for cash (including accrued and unpaid dividends) at $26.678 per preferred share. We currently have no shares of Preferred Stock outstanding.
5) Earnings Per Share
Basic and diluted earnings per share were calculated as follows (in thousands, except per share amounts):
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(6) Revolving Credit Agreement
We maintain a revolving line of credit with a group of banks. During December 1999, we amended the credit facility and added two banks to the group, increasing the facility from $200 million to $250 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 are due in November 2002. The credit facility contains various operating and financial covenants. Each of our significant subsidiaries is a guarantor under the credit facility.
(7) Investment in Unconsolidated Joint Venture
We have a non-controlling 49% interest in Premier Communities, a joint venture with Corporacion GEO S.A. de C.V., a Mexican homebuilder, to build affordable housing in the United States. The joint venture has experienced losses since its inception in 1997 and is now in the process of winding down. Included in other expense for the quarter ended June 30, 2000 is a $3.3 million charge ($.24 per share after-tax) to reflect the write-off of our remaining, now impaired, investment in the joint venture and our expected obligation to fund certain of the letters of credit we have issued to guarantee our share of the outstanding indebtedness of the joint venture. In addition to the charge for the costs of winding down the joint venture, other expense includes our share of the joint venture's operating losses of $1.0 million and $2.8 million for the three and nine months ended June 30, 2000, respectively and $0.5 million and $1.1 million for the three and nine months ended June 30, 1999, respectively. We currently do not expect to record further charges relating to the winding down of the joint venture in the future.
(8) Acquisitions
In December 1998, we acquired the assets of the homebuilding operations of Trafalgar House Property, Inc. ("THPI") for approximately $90 million in cash. We funded this acquisition with borrowings under the Credit Facility. We accounted for the acquisition as a purchase and allocated the purchase price 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.
(9) Treasury Stock Repurchase Program
In November 1999, our Board of Directors approved a stock repurchase plan authorizing the purchase of up to 500,000 shares of our outstanding common stock. During the first two quarters of fiscal 2000, we completed the plan and repurchased 500,000 shares on the open market for an aggregate purchase price of $9.2 million.
(10) Recent Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 (as now amended) is effective for all fiscal quarters of years beginning after June 15, 2000. We do not believe this standard will have a material effect on our financial statements.
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BEAZER HOMES USA, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW:
Homebuilding: We design, build and sell single family homes in the following states:
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.
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, the transaction is considered a "new order." Homes covered by these sales contracts are considered "backlog." 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 provide mortgage origination services for our homebuyers through Beazer Mortgage Corp. Beazer Mortgage originates, processes and sells mortgages to third party investors. Beazer Mortgage Corp. does not retain or service the mortgages that it originates. During fiscal 1999 we began providing title insurance services in certain markets through Homebuilders Title Services, Inc. We will continue to evaluate opportunities to provide other ancillary services to our homebuyers.
Value Created: We evaluate our financial performance using Value Created, a variation of economic profit or economic value added. Value Created measures the extent to which we beat 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.
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The following presents certain operating and financial data for Beazer (dollars in thousands):
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New Orders and Backlog: New orders increased by 3% and 7% during the three and nine month periods ended June 30, 2000, respectively, with only a 1% increase in the number of active subdivisions at June 30, 2000. The increase reflects order strength in our Central and Southwest Regions. We believe that the increase in new orders in many of our markets reflects the positive impact of population and employment growth fueled by immigration, combined with an overall strong economic environment. New orders for the three and nine months ended June 30, 2000 declined in most of our Southeast markets, where increased time to obtain building permits resulted in delays in opening new subdivisions.
The aggregate dollar value of homes in backlog at June 30, 2000 increased 11% from June 30, 1999, reflecting a 5% increase in the number of homes in backlog and a 6% increase in the average price of homes in backlog, from $185,900 at June 30, 1999 to $196,600 at June 30, 2000. The increased average price of homes in backlog reflects our continued ability to raise prices in most of our markets, as well as increased sales of options and upgrades on homes through our design centers.
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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):
Revenues: Revenues increased by 5% for the three months ended June 30, 2000 compared to the same period in the prior year, reflecting a 3% increase in the average sales price of homes closed, an increase in revenues from land sales, and a 1% increase in the number of homes closed. The 10% increase in revenues for the nine months ended June 30, 2000 reflects a 4% increase in the number of homes closed and a 5% increase in the average price.
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Cost of Home Construction: The cost of home construction as a percentage of home sales decreased for the three and nine months ended June 30, 2000, compared to the same periods of the prior year, as a result of our ability to raise prices, which has more than offset cost increases. In addition the increase in our sales of options and upgrades has contributed to the improvement in gross profit margin. Such options and upgrades generally have gross margins approximately double that of our base homes.
Selling, General and Administrative Expense: Our selling, general and administrative ("SG&A") expense decreased as a percentage of total revenues for the three and nine months ended June 30, 2000, compared to the same periods of the prior year, as a result of higher revenues, giving us greater leverage and operating efficiency on the fixed portion of such expense, and the completion of the integration of our Mid-Atlantic division, acquired in 1999.
Mortgage Origination Operations: Revenues increased for Beazer Mortgage during the three and nine months ended June 30, 2000, compared to the same periods of the prior year, as a result of both the increase in homebuilding revenues and the completion of the rollout of Beazer Mortgage to all of our markets. Beazer Mortgage began closing loans in our Mid-Atlantic region during fiscal 2000, which should contribute to increased mortgage revenues in the balance of fiscal 2000. The increase in SG&A expenses for Beazer Mortgage include the costs of starting up mortgage operations in the Mid-Atlantic region.
Investment in Unconsolidated Joint Venture: We have a non-controlling 49% interest in Premier Communities, a joint venture with Corporacion GEO S.A. de C.V., a Mexican homebuilder, to build affordable housing in the United States. The joint venture has experienced losses since its inception in 1997 and is now in the process of winding down. Included in other expense for the quarter ended June 30, 2000 is a $3.3 million charge ($.24 per share after-tax) for the write-off of our remaining, now impaired, investment in the joint venture and our expected obligation to fund certain of the letters of credit we have issued to guarantee our share of the outstanding indebtedness of the joint venture. In addition to the charge for the costs of winding down the joint venture, other expense includes our share of the joint venture's operating losses of $1.0 million and $2.8 million for the three and nine months ended June 30, 2000, respectively and $0.5 million and $1.1 million for the three and nine months ended June 30, 1999, respectively. We currently do not expect to record further charges relating to the winding down of the joint venture in the future.
Income Taxes: Our effective income tax rate increased from 38.5% to 39.0% for both the three and nine month periods ended June 30, 2000 as a result of a higher overall state tax rate.
FINANCIAL CONDITION AND LIQUIDITY:
We fulfill our short-term cash requirements with cash generated from operations and unused funds available from an unsecured revolving credit facility (the "Credit Facility") with a group of banks. In December 1999, we amended the Credit Facility, adding two banks (now eight banks) and increasing the facility from $200 million to $250 million. Available borrowings under the facility are limited to certain percentages of homes under contract, unsold homes, substantially improved lots, raw land and accounts receivable. At June 30, 2000, we had $110 million outstanding and additional available borrowings of $114 million under the Credit Facility.
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We have $215 million of outstanding senior debt, which is comprised of $100 million of 87/8% Senior Notes due in April 2008 and $115 million of 9% Senior Notes due in March 2004 (collectively, the "Senior Notes"). All of our significant subsidiaries are guarantors of the Senior Notes and are jointly and severally liable for 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 consolidated amounts 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 on a consolidated basis. Neither the Credit Facility nor the Senior Notes restrict distributions to Beazer Homes USA, Inc. by its subsidiaries.
We have utilized, and will continue to utilize, land options as a method of controlling and subsequently acquiring land. At June 30, 2000, we had 15,189 lots under option. At June 30, 2000, we had commitments with respect to option contracts with specific performance obligations of approximately $34.7 million. We expect to exercise all of our option contracts with specific performance obligations and, subject to market conditions, substantially all of our options contracts without specific performance obligations.
During the first nine months of fiscal 1999, we paid $1.3 million in cash to holders of 1,732,460 shares of our Series A Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") to induce those holders to convert their preferred shares into 2,273,564 common shares. We also called the remaining outstanding Preferred Stock for redemption, of which 265,376 shares were voluntarily converted into 348,406 common shares and the remaining 2,164 shares of Preferred Stock were redeemed for cash (including accrued and unpaid dividends) of $26.678 per preferred share. We currently have no shares of Preferred Stock outstanding.
In January 2000, we filed a $300 million universal shelf registration statement on Form S-3 with the Securities and Exchange Commission. Pursuant to the filing, the Company may, from time to time over an extended period, offer new debt and/or equity securities. This shelf registration will allow the Company to expediently access capital markets periodically in the future. The timing and amount of offerings, if any, will depend on market and general business conditions.
We believe that our current borrowing capacity, together with anticipated cash flows from operations, is sufficient to meet liquidity needs for the foreseeable future. There can be no assurance, however, that amounts available in the future from our sources of liquidity will be sufficient to meet future capital needs. The amount and types of indebtedness that we may incur may be limited by the terms of the Indenture governing our Senior Notes and our Credit Agreement. We continually evaluate expansion opportunities through acquisition of established regional homebuilders and such opportunities may require us 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.
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OUTLOOK:
Our increased earnings for the nine months ended June 30, 2000 and our current higher level of backlog make us optimistic about the prospect for increased earnings in fiscal 2000 compared to fiscal 1999. In addition, as a result of projected future increases in households and employment, we are optimistic about the long-term prospects for the US housing market. Further, we believe that a number of e-business initiatives that we are currently implementing will enhance our ability to take advantage of these prospects and will ultimately improve our profitability.
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995:
This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of the federal securities laws. These forward-looking statements include, among others, statements concerning the Company's outlook for future quarters including projected earnings per share for fiscal 2000, 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 2000, 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:
Item 3: Quantitative and Qualitative Disclosures About Market Risk
There have been no changes since our Annual Report on Form 10-K for the year ended September 30, 1999.
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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:
We did not file any reports on Form 8-K during the quarter ended June 30, 2000.
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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.
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