FORM
10-K
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
(Mark
One)
x
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended September 30, 2005
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)
(Registrant's
telephone number including area code) (770)
829-3700
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of Securities
|
Exchanges
on which Registered
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|||
|
Common
Stock, $.001 par value per share
|
New
York Stock Exchange
|
|||
|
Preferred
Share Purchase Rights
|
New
York Stock Exchange
|
Securities
registered pursuant to section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer (as defined
in
Rule 405 of the Act).
Yes
x
No
o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o
No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.
x
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule
12b-2 of the
Act).
Yes
x
No
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the
Act).
Yes
o
No
x
The
aggregate market value of the registrant’s Common Stock held by non-affiliates
of the registrant
(40,415,652
shares) as of March 31, 2005, based on the closing sale price per share as
reported by the New York Stock Exchange on such date, was $2,015,124,409.
The
number of shares outstanding of the registrant’s Common Stock as of November 30,
2005 was 41,192,244.
DOCUMENTS
INCORPORATED BY REFERENCE
|
Part
of 10-K where
incorporated
|
||
|
Portions
of the registrant’s Proxy Statement for the 2006 Annual Meeting of
Stockholders
|
III
|
Website
Access to Company Reports
Beazer
Homes’ Internet website address is www.beazer.com. Our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to those reports filed or furnished pursuant to section 13(a) or 15(d) of the
Exchange Act are available free of charge through our website as soon as
reasonably practicable after we electronically file with or furnish them to
the
Securities and Exchange Commission and are available in print to any stockholder
who requests a printed copy.
BEAZER
HOMES USA, INC.
FORM
10-K
INDEX
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Page
Number
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PART
I.
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Item
1.
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2
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Item
1A.
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10
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Item
2.
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13
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Item
3.
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13
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Item
4.
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14
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PART
II.
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Item
5.
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16
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Item
6.
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18
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Item
7.
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20
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Item
7A.
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34
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Item
8.
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35
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Item
9.
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66
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Item
9A.
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66
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Item
9B.
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67
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PART
III.
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Item
10.
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67
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Item
11.
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67
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Item
12.
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67
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Item
13.
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67
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Item
14.
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67
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PART
IV.
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Item
15.
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68
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PART
I
Item
1. Business
Our
principal executive offices are located at 1000 Abernathy Road, Suite 1200,
Atlanta, Georgia 30328, telephone (770) 829-3700. We also provide information
about our active communities and mortgage financing through our Internet website
located at http://www.beazer.com.
Information on our website is not a part of and
shall
not be deemed incorporated by reference in this
report.
We
design, sell and build primarily single-family homes in the following locations
within the United States:
|
Region/State
|
Market(s)
/ Year Entered
|
|
|
Southeast
Region:
|
||
|
Florida
|
Jacksonville
(1993), Fort Myers/Naples (1996), Tampa/St. Petersburg (1996), Orlando
(1997), Sarasota (2005)
|
|
|
Georgia
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Atlanta
(1985), Savannah (2005)
|
|
|
North
Carolina
|
Charlotte
(1987), Raleigh/Durham (1992), Greensboro (1999)
|
|
|
South
Carolina
|
Charleston
(1987), Columbia (1993), Myrtle Beach (2002)
|
|
|
Tennessee/Mississippi
|
Nashville
(1987), Memphis (2002), Northern Mississippi (2002)
|
|
|
West
Region:
|
||
|
Arizona
|
Phoenix
(1993)
|
|
|
California
|
Los
Angeles County (1993), Orange County (1993), Riverside and San Bernardino
Counties (1993), San Diego County (1992), Ventura County (1993),
Sacramento (1993), Fresno (2005)
|
|
|
Colorado
|
Denver (2001), Colorado Springs (2003) | |
|
New
Mexico
|
Albuquerque
(2005)
|
|
|
Nevada
|
Las
Vegas (1993)
|
|
|
Central
Region:
|
||
|
Texas
|
Dallas/Ft.
Worth (1995), Houston (1995)
|
|
|
Mid-Atlantic
Region:
|
||
|
Maryland/Delaware
|
Baltimore
(1998), Metro-Washington, D.C. (1998), Delaware (2003)
|
|
|
New
Jersey/New York/Pennsylvania
|
Central
and Southern New Jersey (1998), Bucks County, PA (1998), Orange County,
NY
(2005)
|
|
|
Virginia/West
Virginia
|
Fairfax
County (1998), Loudoun County (1998), Prince William County (1998),
West
Virginia (2004)
|
|
|
Midwest
Region:
|
||
|
Indiana
|
Indianapolis
(2002), Ft. Wayne (2002)
|
|
|
Kentucky
|
Lexington (2002) | |
|
Ohio
|
Columbus (2002), Cincinnati/Dayton (2002) |
We
design
our homes at various price points to appeal to homebuyers across various
demographic segments. Our objective is to provide our customers at each price
point with homes that incorporate exceptional value and quality while seeking
to
maximize our return on invested capital. To achieve this objective, we have
developed a business strategy which focuses on the following elements:
Geographic
Diversity and Growth Markets.
We
compete in a large number of geographically diverse markets in an attempt to
reduce our exposure to any particular regional economy. Within these markets,
we
build homes in a variety of projects. Our business strategy entails further
increasing our market penetration and investing in our most profitable markets.
Leverage
of National Brand. Our
national branding strategy presents us as one company with one name, one logo,
one message and one purpose. We feel that this strengthened national brand
identity better positions us to consistently address the needs of our customers
across all of our markets.
Leverage
Size, Scale and Capabilities to Achieve Optimal Efficiencies.
We
have
implemented specific profitability initiatives which focus on leveraging our
size, scale and capabilities in order to achieve enhanced gross profit and
operating profit margins. These initiatives include:
|
§
|
leveraging
our size to create economies of scale in purchasing and
construction;
|
|
§
|
standardizing
best practices and product designs;
|
|
§
|
using
branding and increased market penetration to maximize efficiency
of land
use; and
|
|
§
|
leveraging
our fixed cost infrastructure by increasing depth and breadth in
markets
where we have an established presence.
|
Quality
Homes at Various Price Points to Meet the Needs of Increasingly Diverse
Homebuyers.
We seek
to maximize customer satisfaction by offering homes which incorporate quality
materials, distinctive design features, convenient locations and competitive
prices. During fiscal year 2005, the average sales price of our homes closed
was
approximately $271,300. Our product strategy entails addressing the needs of
an
increasingly diverse profile of buyers as evidenced by demographic trends
including, among others, increased immigration, changing profiles of households,
the aging of the baby-boomers, and the rise of the echo-boomers (children of
the
baby-boomers) into the ranks of homeownership. Our product offering is broken
down into the following product categories:
Economy.
These
homes are targeted primarily at entry-level buyers, are generally 1,500 square
feet or less in size, and are intended to meet the needs of those buyers for
whom price is the most important factor in the buying decision.
Value.
These
homes are targeted at entry-level and move-up buyers, generally range from
1,500
to 2,500 square feet in size, and are intended to appeal to buyers who are
more
interested in style and features, but are still somewhat
price-focused.
Style.
These
homes are targeted at more affluent move-up buyers, are generally greater than
2,500 square feet in size, and are intended to appeal to buyers in the more
luxurious segment of the market, who place greater emphasis on style and
features.
In
addition, we also offer homes to the ‘active adult’ segment which is targeted to
buyers over 55 years of age, in communities with special amenities. We offer
these homes within the Economy, Value and Style categories described
above.
Additional
Products and Services for Homebuyers. In
order
to maximize our profitability and provide our customers with the additional
products and services that they desire, we have incorporated design studios
and
mortgage origination operations into our business. Recognizing that our
customers want to choose certain components of their new home, we offer limited
customization through the use of design studios in most of our markets. These
design studios allow the customer to select certain non-structural
customizations for their homes such as cabinetry, flooring, fixtures, appliances
and wall coverings. Additionally,
recognizing the homebuyer's desire to simplify the financing process, we
originate mortgages on behalf of our customers through our subsidiary Beazer
Mortgage Corporation, or Beazer Mortgage. Beazer Mortgage originates, processes
and brokers mortgages to third-party investors. Beazer Mortgage generally does
not retain or service the mortgages that it brokers. Beginning
in the second or third quarter of fiscal year 2006, Beazer Mortgage will finance
our mortgage lending activities with borrowings under a new warehouse line
of
credit or from general corporate funds prior to selling the loans and their
servicing rights shortly after origination to third-party investors.
We
also
provide title services to our customers in many of our markets.
Conservative
Land Policies.
We seek
to maximize our return on capital by judiciously managing our investment in
land. To reduce the risks associated with investments in land, we often use
options to control land. We generally do not speculate in land which is not
subject to entitlements providing basic development rights to the
owner.
Company
History
In
March
1994, we completed a concurrent initial public offering of common stock and
issuance of senior notes (the “IPO”). Prior to our IPO, we were an indirect
wholly owned subsidiary of Hanson PLC (“Hanson”), a company registered in the
United Kingdom. Hanson currently does not hold any investment, or ongoing
interest, in us.
Markets
and Product Description
We
evaluate a number of factors in determining which geographic markets to enter
or
in which markets to concentrate our homebuilding activities. We attempt to
anticipate swings in economic and real estate conditions by evaluating such
statistical information as:
|
·
|
the
historical and projected growth of the population;
|
|
·
|
the
number of new jobs created or projected to be created;
|
|
·
|
the
number of housing starts in previous periods;
|
|
·
|
building
lot availability and price;
|
|
·
|
housing
inventory;
|
|
·
|
level
of competition; and
|
|
·
|
home
sale absorption rates.
|
We
generally seek to differentiate ourselves from our competition in a particular
market with respect to customer service and product type. We maintain the
flexibility to alter our product mix within a given market, depending on market
conditions. In determining our product mix, we consider demographic trends,
demand for a particular type of product, margins, timing and the economic
strength of the market. Although some of our Value and Style homes are priced
at
the upper end of the market, and we offer a selection of amenities, we generally
do not build "custom homes." We attempt to maximize efficiency by using
standardized design plans whenever possible.
The
following table summarizes certain operating information regarding our markets
as of and for the year ended September 30, 2005 (dollars
in thousands):
|
State
|
Number
of Active Subdivisions
|
Number
of Homes Closed
|
Average
Closing Price
|
Units
in Backlog at Year
End
|
Dollar
Value of Backlog at Year
End
|
|||||||||||
|
Arizona/New
Mexico
|
30
|
1,662
|
$
|
234.1
|
1,348
|
$
|
385,513
|
|||||||||
|
California
|
40
|
2,572
|
420.8
|
917
|
393,464
|
|||||||||||
|
Colorado
|
22
|
544
|
336.3
|
123
|
43,462
|
|||||||||||
|
Florida
|
34
|
2,236
|
267.6
|
1,259
|
401,309
|
|||||||||||
|
Georgia
|
22
|
780
|
235.2
|
180
|
51,844
|
|||||||||||
|
Indiana
|
85
|
1,395
|
142.0
|
951
|
149,990
|
|||||||||||
|
Kentucky
|
6
|
154
|
158.0
|
94
|
16,823
|
|||||||||||
|
Maryland/Delaware
|
24
|
606
|
372.2
|
480
|
169,788
|
|||||||||||
|
Nevada
|
14
|
1,452
|
327.4
|
729
|
269,918
|
|||||||||||
|
New
Jersey/NewYork/ Pennsylvania
|
13
|
477
|
372.7
|
215
|
87,150
|
|||||||||||
|
North
and South Carolina
|
79
|
2,536
|
167.5
|
1,359
|
246,313
|
|||||||||||
|
Ohio
|
45
|
704
|
184.3
|
289
|
54,548
|
|||||||||||
|
Tennessee/Mississippi
|
25
|
814
|
199.7
|
276
|
68,910
|
|||||||||||
|
Texas
|
51
|
1,427
|
161.8
|
515
|
82,537
|
|||||||||||
|
Virginia/West
Virginia
|
28
|
787
|
555.7
|
498
|
300,175
|
|||||||||||
|
Total
Company
|
518
|
18,146
|
$
|
271.3
|
9,233
|
$
|
2,721,744
|
|||||||||
Our
homebuilding and marketing activities are conducted under the name of Beazer
Homes in each of our
markets.
Corporate
Operations
We
perform the following functions at a centralized level:
|
·
|
evaluate
and select geographic markets;
|
|
·
|
allocate
capital resources to particular markets for land
acquisitions;
|
|
·
|
maintain
and develop relationships with lenders and capital markets to regulate
the
flow of financial resources;
|
|
·
|
maintain
centralized information systems; and
|
|
·
|
monitor
the operations of our subsidiaries and divisions.
|
We
allocate capital resources necessary for new projects in a manner consistent
with our overall operating strategy. We will vary the capital allocation based
on market conditions, results of operations and other factors. Capital
commitments are determined through consultation among selected executive and
operational personnel, who play an important role in ensuring that new projects
are consistent with our strategy. Centralized financial controls are also
maintained through the standardization of accounting and financial policies
and
procedures.
Structurally,
we operate through separate divisions, which are generally located within the
areas in which they operate. In addition, each division is equipped with the
skills to complete the functions of land acquisition, land entitlement, land
development, construction, marketing, sales and product service.
Land
Acquisition and Development
Generally,
the land we acquire is purchased only after necessary entitlements have been
obtained so that we have the right to begin development or construction as
market conditions dictate. In certain situations, we will purchase property
without all necessary entitlements where we perceive an opportunity to build
on
such property in a manner consistent with our strategy. The term "entitlements"
refers to subdivision approvals, development agreements, tentative maps or
recorded plats, depending on the jurisdiction within which the land is located.
Entitlements generally give a developer the right to obtain building permits
upon compliance with conditions that are usually within the developer's control.
Although entitlements are ordinarily obtained prior to the purchase of land,
we
are still required to obtain a variety of other governmental approvals and
permits during the development process.
We
select
our land for development based upon a variety of factors,
including:
|
·
|
internal
and external demographic and marketing
studies;
|
|
·
|
suitability
for development during the time period of one to five years from
the
beginning of the development process to the last closing;
|
|
·
|
centralized
corporate-level management review of all
decisions;
|
|
·
|
financial
review as to the feasibility of the proposed project, including profit
margins and returns on capital employed;
|
|
·
|
the
ability to secure governmental approvals and entitlements;
|
|
·
|
environmental
and legal due diligence;
|
|
·
|
competition
in the area;
|
|
·
|
proximity
to local traffic corridors and amenities; and
|
|
·
|
management's
judgment as to the real estate market and economic trends and our
experience in a particular market.
|
We
generally purchase land or obtain an option to purchase land, which, in either
case, requires certain site improvements prior to construction. Where required,
we then undertake or, in the case of land under option, the grantor of the
option then undertakes, the development activities (through contractual
arrangements with local developers), which include site planning and
engineering, as well as constructing road, sewer, water, utilities, drainage
and
recreational facilities and other amenities. When available in certain markets,
we also buy finished lots that are ready for construction.
We
strive
to develop a design and marketing concept for each of our projects, which
includes determination of size, style and price range of the homes, layout
of
streets, layout of individual lots and overall community design. The product
line offered in a particular project depends upon many factors, including the
housing generally available in the area, the needs of a particular market and
our cost of lots in the project. We are, however, often able to use standardized
design plans.
The
development and construction of each project is managed by our operating
divisions, each of which is generally led by a president who, in turn, reports
directly or indirectly to our Chief Operating Officer. At the development stage,
a manager (who may be assigned to several projects and reports to the president
of the division) supervises development of buildable lots. In addition, a
builder is responsible for each project site to supervise actual construction,
and each division has one or more customer care and marketing representatives
assigned to projects operated by that division.
The
following table sets forth, by state, land controlled by us as of September
30,
2005:
|
Lots
Owned
|
||||||||||||||||||||||
|
Undeveloped
Lots(1)
|
Lots
Under Development
|
Finished
Lots
|
Homes
Under Construction(2)
|
Total
Lots Owned
|
Total
Lots Under Contract
|
Total
Lots Controlled
|
||||||||||||||||
|
Southeast
Region:
|
||||||||||||||||||||||
|
Georgia
|
-
|
498
|
267
|
235
|
1,000
|
1,784
|
2,784
|
|||||||||||||||
|
Florida
|
353
|
2,929
|
1,283
|
1,159
|
5,724
|
5,611
|
11,335
|
|||||||||||||||
|
North
and South Carolina
|
60
|
2,565
|
1,146
|
1,136
|
4,907
|
8,721
|
13,628
|
|||||||||||||||
|
Tennessee/Mississippi
|
-
|
1,073
|
132
|
427
|
1,632
|
2,010
|
3,642
|
|||||||||||||||
|
West
Region:
|
||||||||||||||||||||||
|
Arizona/New
Mexico
|
-
|
1,187
|
913
|
816
|
2,916
|
8,315
|
11,231
|
|||||||||||||||
|
California
|
-
|
4,454
|
159
|
869
|
5,482
|
7,319
|
12,801
|
|||||||||||||||
|
Colorado
|
-
|
541
|
117
|
246
|
904
|
1,834
|
2,738
|
|||||||||||||||
|
Nevada
|
-
|
1,847
|
504
|
615
|
2,966
|
1,468
|
4,434
|
|||||||||||||||
|
Central
Region:
|
||||||||||||||||||||||
|
Texas
|
670
|
2,983
|
1,840
|
640
|
6,133
|
1,837
|
7,970
|
|||||||||||||||
|
Mid-Atlantic
Region:
|
||||||||||||||||||||||
|
Maryland/Delaware
|
-
|
1,138
|
294
|
344
|
1,776
|
4,620
|
6,396
|
|||||||||||||||
|
New
Jersey/New York/ Pennsylvania
|
-
|
167
|
384
|
245
|
796
|
4,880
|
5,676
|
|||||||||||||||
|
Virginia/West
Virginia
|
41
|
735
|
208
|
261
|
1,245
|
3,405
|
4,650
|
|||||||||||||||
|
Midwest
Region:
|
-
|
|||||||||||||||||||||
|
Indiana
|
1,020
|
4,046
|
2,215
|
725
|
8,006
|
4,246
|
12,252
|
|||||||||||||||
|
Kentucky
|
-
|
471
|
37
|
107
|
615
|
452
|
1,067
|
|||||||||||||||
|
Ohio
|
1,628
|
1,073
|
921
|
340
|
3,962
|
1,828
|
5,790
|
|||||||||||||||
|
Total
|
3,772
|
25,707
|
10,420
|
8,165
|
48,064
|
58,330
|
106,394
|
|||||||||||||||
|
(1)
|
“Undeveloped
Lots” consists of raw land that is expected to be developed into the
respective number of lots reflected in this
table.
|
|
(2)
|
The
category “Homes Under Construction” represents lots on which construction
of a home has commenced.
|
Option
Contracts.
We
acquire certain lots by means of option contracts. Option contracts generally
require the payment of a cash deposit or issuance of a letter of credit for
the
right to acquire lots during a specified period of time at a certain
price. Our
option contracts generally have expiration periods ranging from one to 60
months.
Under
option contracts, both with and without specific performance, 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 is
included on our consolidated balance sheet in other liabilities at September
30,
2005. At September 30, 2005, we are committed to future amounts under option
contracts with specific performance obligations that aggregated $10.4 million,
net of cash deposits. 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 $332.4 million at September 30, 2005.
This amount includes non-refundable letters of credit of approximately $35.0
million. At September 30, 2005, future amounts under option contracts without
specific performance obligations aggregated approximately $2.8 billion, net
of
cash deposits.
Construction
We
act as
the general contractor for the construction of our projects. Our project
development operations are controlled by our subsidiaries and divisions, whose
employees supervise the construction of each project, coordinate the activities
of subcontractors and suppliers, subject their work to quality and cost controls
and assure compliance with zoning and building codes. We specify that quality,
durable materials be used in the construction of our homes. Our subcontractors
follow design plans prepared by architects and engineers who are retained by
us
and whose designs are geared to the local market. Subcontractors typically
are
retained on a project-by-project basis to complete construction at a fixed
price. Agreements with our subcontractors and materials suppliers are generally
entered into after competitive bidding. In connection with this competitive
bid
process, we obtain information from prospective subcontractors and vendors
with
respect to their financial condition and ability to perform their agreements
with us. We do not maintain significant inventories of construction materials,
except for materials being utilized for homes under construction. We have
numerous suppliers of raw materials and services used in our business, and
such
materials and services have been, and continue to be, available. Material prices
may fluctuate, however, due to various factors, including demand or supply
shortages, which may be beyond the control of our vendors. From time to time
we
enter into regional and national supply contracts with certain of our vendors.
We believe that our relationships with our suppliers and subcontractors are
good.
Construction
time for our homes depends on the availability of labor, materials and supplies,
product type and location. Homes are designed to promote efficient use of space
and materials, and to minimize construction costs and time. In all of our
markets, construction of a home is typically completed within three to six
months following commencement of construction. At September 30, 2005, we had
1,112 finished homes (excluding models), of which 698 were sold and included
in
backlog at such date.
Warranty
Program
For
homes
sold through March 31, 2004 (and in certain markets through July 31, 2004),
we
self-insured our structural warranty obligations through our wholly owned risk
retention group. Beginning with homes sold April 1, 2004 (August 1, 2004 in
certain markets), our warranties are issued, administered, and insured by
independent third parties. Under the current program, we provide a
variety of construction defect warranties for our homes, ranging from a minimum
of ten years up to the period covered by the applicable statute of repose,
whichever is greater.
We
provide a one to two year limited warranty of workmanship and materials with
each of our homes, which generally includes home visits with the customer during
the first year following the purchase of a home. 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 and,
therefore, claims relating to workmanship and materials are generally the
primary responsibility of our subcontractors. In addition, the first year of
our
warranty covers defects in plumbing, electrical, heating, cooling and
ventilation systems, and construction defects; the second year of such warranty
covers construction defects and certain defects in plumbing, electrical,
heating, cooling and ventilation systems of the home (exclusive of defects
in
appliances, fixtures and equipment); and the remaining years of protection
cover
only construction defects.
In
addition, we maintain third-party insurance for most construction defects that
we encounter in the normal course of business. We believe that our accruals
and
third-party insurance are adequate to cover the ultimate resolution of our
potential liabilities associated with known and anticipated warranty and
construction defect related claims and litigation.
There
can
be no assurance, however, that the terms and limitations of the limited warranty
will be effective against claims made by the homebuyers, that we will be able
to
renew our insurance coverage or renew it at reasonable rates, that we will
not
be liable for damages, the cost of repairs, and/or the expense of litigation
surrounding possible construction defects, soil subsidence or building related
claims or that claims will not arise out of uninsurable events or circumstances
not covered by insurance and not subject to effective indemnification agreements
with our subcontractors.
Marketing
and Sales
We
make
extensive use of advertising and other promotional activities, including our
website (http://www.beazer.com),
mass-media advertisements, brochures, direct mail and the placement of
strategically located signboards in the immediate areas of our developments.
We
normally build, decorate, furnish and landscape between one and five model
homes
for each project and maintain on-site sales offices. At September 30, 2005,
we
maintained 683 model homes, of which 490 were
owned and 193 were leased from third parties pursuant to sale and leaseback
agreements. We believe that model homes play a particularly important role
in
our marketing efforts.
We
generally sell our homes through commissioned employees (who typically work
from
the sales offices located at the model homes used in the subdivision) as well
as
through independent brokers. Our personnel are available to assist prospective
homebuyers by providing them with floor plans, price information and tours
of
model homes, and in connection with the selection of options. The selection
of
interior features is a principal component of our marketing and sales efforts.
Sales personnel are trained by us and attend periodic meetings to be updated
on
sales techniques, competitive products in the area, the availability of
financing, construction schedules and marketing and advertising plans, which
management believes results in a sales force with extensive knowledge of our
operating policies and housing products. Our policy also provides that sales
personnel be licensed real estate agents where required by law. We also build
a
number of homes for which no signed sales contract exists at the time of
commencement of construction. The use of an inventory of such homes is necessary
to satisfy the requirements of relocated personnel and of independent brokers,
who often represent customers who require a completed home within 60 days.
At
September 30, 2005, excluding models, we had 2,046 homes at various stages
of
completion (of which 414 were completed) for which we had not received a sales
contract.
We
sometimes use various sales incentives in order to attract homebuyers. The
use
of incentives depends largely on local economic and competitive market
conditions.
Customer
Financing
We
provide customer financing through Beazer Mortgage. Beazer Mortgage
provides mortgage origination services only, and generally does not retain
or
service the mortgages that it originates. Through September 30, 2005,
these mortgages were generally funded by one of a network of mortgage lenders.
Beginning in the second or third quarter of fiscal year 2006, Beazer Mortgage
will finance our mortgage lending activities with borrowings under a new
warehouse line of credit or from general corporate funds prior to selling the
loans and their servicing rights shortly after origination to third-party
investors. Beazer Mortgage can provide qualified homebuyers numerous financing
options, including a wide variety of conventional, FHA and VA financing
programs. In certain situations, we will seek to assist our homebuyers in
obtaining financing from outside mortgage lenders and, in certain limited
circumstances, we may attempt to minimize potential risks relating to the
availability of customer financing by purchasing mortgage financing commitments
that lock in the availability of funds and interest rates at specified levels
for a certain period of time. Because substantially all homebuyers utilize
long-term mortgage financing to purchase a home, adverse economic conditions,
increases in unemployment and high mortgage interest rates may deter and
eliminate a substantial number of potential homebuyers from our markets in
the
future. In addition, we provide title services to our homebuyers in many of
our
markets.
Competition
and Market Factors
The
development and sale of residential properties is highly competitive and
fragmented. We compete for residential sales on the basis of a number of
interrelated factors, including location, reputation, amenities, design, quality
and price, with numerous large and small homebuilders, including some
homebuilders with nationwide operations and greater financial resources and/or
lower costs than us. We also compete for residential sales with individual
resales of existing homes, available rental housing and, to a lesser extent,
resales of condominiums. We believe that we compare favorably to other builders
in the markets in which we operate, due primarily to:
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our
experience within our geographic markets and breadth of product line,
which allows us to vary our regional product offerings to reflect
changing
market conditions;
|
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our
responsiveness to market conditions, enabling us to capitalize on
the
opportunities for advantageous land acquisitions in desirable
locations;
|
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our
reputation for quality design, construction and service;
and
|
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our
focus on providing customers with a product they
enjoy.
|
The
housing industry is cyclical and is affected by consumer confidence levels
and
prevailing economic conditions generally, including interest rate levels. A
variety of other factors affect the housing industry and demand for new homes,
including the availability of labor and materials and increases in the costs
thereof, changes in costs associated with homeownership such as increases in
property taxes and energy costs, changes in consumer preferences, demographic
trends and the availability of and changes in mortgage financing
programs.
Government
Regulation and Environmental Matters
Generally,
our land is purchased with entitlements, giving us the right to obtain building
permits upon compliance with specified conditions, which generally are within
our control. Upon compliance with such conditions, we must obtain building
permits. The length of time necessary to obtain such permits and approvals
affects the carrying costs of unimproved property acquired for the purpose
of
development and construction. In addition, the continued effectiveness of
permits already granted is subject to factors such as changes in policies,
rules
and regulations and their interpretation and application. Several governmental
authorities have imposed impact fees as a means of defraying the cost of
providing certain governmental services to developing areas. To date, the
governmental approval processes discussed above have not had a material adverse
effect on our development activities, and indeed all homebuilders in a given
market face the same fees and restrictions. There can be no assurance, however,
that these and other restrictions will not adversely affect us in the
future.
We
may
also be subject to periodic delays or may be precluded entirely from developing
communities due to building moratoriums or "slow-growth" or "no-growth"
initiatives or building permit allocation ordinances which could be implemented
in the future in the states and markets in which we operate. Substantially
all
of our land is entitled and, therefore, the moratoriums generally would only
adversely affect us if they arose from health, safety and welfare issues such
as
insufficient water or sewage facilities. Local and state governments also have
broad discretion regarding the imposition of development fees for projects
in
their jurisdictions. These fees are normally established, however, when we
receive recorded final maps and building permits. We are also subject to a
variety of local, state and federal statutes, ordinances, rules and regulations
concerning the protection of health and the environment. These laws may result
in delays, cause us to incur substantial compliance and other costs, and
prohibit or severely restrict development in certain environmentally sensitive
regions or areas.
Bonds
and Other Obligations
We
are
frequently required, in connection with the development of our projects, to
obtain letters of credit and performance, maintenance and other bonds in support
of our related obligations with respect to such developments. The amount of
such
obligations outstanding at any time varies in accordance with our pending
development activities. In the event any such bonds or letters of credit are
drawn upon, we would be obligated to reimburse the issuer of such bonds or
letters of credit. At September 30, 2005 we had approximately $47.9 million
and
$470.1 million of outstanding letters of credit and performance bonds,
respectively, related to our obligations to local governments to construct
roads
and other improvements in various developments, in addition to outstanding
letters of credit of approximately $44.9 million related to our land option
contracts. We do not believe that we will be required to draw upon any such
bonds or letters of credit.
Employees
and Subcontractors
At
September 30, 2005, we employed 4,578 persons, of whom 968 were sales and
marketing personnel, 1,522 were executive, management and administrative
personnel, 1,756 were involved in construction and 332 were personnel of Beazer
Mortgage. Although none of our employees are covered by collective bargaining
agreements, certain of the subcontractors engaged by us are represented by
labor
unions or are subject to collective bargaining arrangements. We believe that
our
relations with our employees and subcontractors are good.
Item
1A. Risk
Factors
Our
home sales and operating revenues could decline due to macro-economic and other
factors outside of our control, such as changes in consumer confidence and
declines in employment levels.
Changes
in national and regional economic conditions, as well as local economic
conditions where we conduct our operations and where prospective purchasers
of
our homes live, may result in more caution on the part of homebuyers and,
consequently, fewer home purchases. These economic uncertainties involve, among
other things, conditions of supply and demand in local markets and changes
in
consumer confidence and income, employment levels, and government regulations.
These risks and uncertainties could periodically have an adverse effect on
consumer demand for and the pricing of our homes, which could cause our
operating revenues to decline. A reduction in our revenues could, in turn,
negatively affect the market price of our securities.
A
substantial increase in mortgage interest rates or unavailability of mortgage
financing may reduce consumer demand for our homes.
Virtually
all purchasers of our homes finance their acquisitions through lenders providing
mortgage financing. A substantial increase in mortgage interest rates or
unavailability of mortgage financing would adversely affect the ability of
prospective first-time and move-up homebuyers to obtain financing for our homes,
as well as adversely affect the ability of prospective move-up homebuyers to
sell their current homes. As a result, our margins, revenues and cash flows
may
also be adversely affected.
If
we
are unsuccessful in competing against our homebuilding competitors, our market
share could decline or our growth could be impaired and, as a result, our
financial results could suffer.
Competition
in the homebuilding industry is intense, and there are relatively low barriers
to entry into our business. Increased competition could hurt our business,
as it
could prevent us from acquiring attractive parcels of land on which to build
homes or make such acquisitions more expensive, hinder our market share
expansion, and lead to pricing pressures on our homes that may adversely impact
our margins and revenues. If we are unable to successfully compete, our
financial results could suffer and the value of, or our ability to service,
our
debt could be adversely affected. Our competitors may independently develop
land
and construct housing units that are superior or substantially similar to our
products. Furthermore, some of our competitors have substantially greater
financial resources and lower costs of funds than we do. Many of these
competitors also have longstanding relationships with subcontractors and
suppliers in the markets in which we operate. We currently build in several
of
the top markets in the nation and, therefore, we expect to continue to face
additional competition from new entrants into our markets.
We
could experience a reduction in home sales and revenues or reduced cash flows
due to our inability to acquire land for our housing developments if we are
unable to obtain reasonably priced financing to support our homebuilding
activities.
The
homebuilding industry is capital intensive, and homebuilding requires
significant up-front expenditures to acquire land and begin development.
Accordingly, we incur substantial indebtedness to finance our homebuilding
activities. Although we believe that internally generated funds and available
borrowings under our revolving credit facility will be available to fund our
capital and other expenditures (including land purchases in connection with
ordinary development activities), the amounts available from such sources may
not be sufficient. If such sources are not sufficient, we would 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. The
amount and types of indebtedness which we may incur are limited by the terms
of
the indentures governing our existing debt. In addition, the
availability of borrowed funds, especially for land acquisition and construction
financing, may be greatly reduced nationally, and the lending community may
require increased amounts of equity to be invested in a project by borrowers
in
connection with both new loans and the extension of existing loans. If we are
not successful in obtaining sufficient capital to fund our planned capital
and
other expenditures, we may be unable to acquire land for our housing
developments. Additionally, if we cannot obtain additional financing to fund
the
purchase of land under our option contracts, we may incur contractual penalties
and fees.
Our
substantial indebtedness could adversely affect our financial condition, limit
our growth and make it more difficult for us to satisfy our debt
obligations.
As
of
September 30, 2005, we had approximately $1.3 billion, net of unamortized
discount of approximately $4.1 million, of outstanding indebtedness. Our
substantial indebtedness could have important consequences to us and the holders
of our securities, including, among other things:
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causing
us to be unable to satisfy our obligations under our debt
agreements;
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making
us more vulnerable to adverse general economic and industry
conditions;
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making
it difficult to fund future working capital, land purchases, acquisitions,
share repurchases, general corporate purposes or other purposes;
and
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causing
us to be limited in our flexibility in planning for, or reacting
to,
changes in our business.
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In
addition, subject to restrictions in our existing debt instruments, we may
incur
additional indebtedness. In particular, as of September 30, 2005, we had
available borrowings of approximately $530.1 million under our revolving
credit facility. If new debt is added to our current debt levels, the related
risks that we now face could intensify. Our growth plans and our ability to
make
payments of principal or interest on, or to refinance, our indebtedness, will
depend on our future operating performance and our ability to enter into
additional debt and/or equity financings. If we are unable to generate
sufficient cash flows in the future to service our debt, we may be required
to
refinance all or a portion of our existing debt, to sell assets or to obtain
additional financing. We may not be able to do any of the foregoing on terms
acceptable to us, if at all.
We
are subject to extensive government regulation which could cause us to incur
significant liabilities or restrict our business activities.
Regulatory
requirements could cause us to incur significant liabilities and operating
expenses and could restrict our business activities. We are subject to local,
state and federal statutes and rules regulating, among other things, certain
developmental matters, building and site design, and matters concerning the
protection of health and the environment. Our operating expenses may be
increased by governmental regulations such as building permit allocation
ordinances and impact and other fees and taxes, which may be imposed to defray
the cost of providing certain governmental services and improvements. Other
governmental regulations, such as building moratoriums and "no growth" or "slow
growth" initiatives, which may be adopted in communities which have developed
rapidly, may cause delays in home projects or otherwise restrict our business
activities resulting in reductions in our revenues. Any delay or refusal from
government agencies to grant us necessary licenses, permits and approvals could
have an adverse effect on our operations.
We
may incur additional operating expenses due to compliance programs or fines,
penalties and remediation costs pertaining to environmental regulations within
our markets.
We
are
subject to a variety of local, state and federal statutes, ordinances, rules
and
regulations concerning the protection of health and the environment. The
particular environmental laws which apply to any given community vary greatly
according to the community site, the site's environmental conditions and the
present and former use of the site. Environmental laws may result in delays,
may
cause us to implement time consuming and expensive compliance programs and
may
prohibit or severely restrict development in certain environmentally sensitive
regions or areas. From time to time, the United States Environmental Protection
Agency (“EPA”) and similar federal or state agencies review homebuilders'
compliance with environmental laws and may levy fines and penalties for failure
to strictly comply with applicable environmental laws or impose additional
requirements for future compliance as a result of past failures. Any such
actions taken with respect to us may increase our costs. Further, we expect
that
increasingly stringent requirements will be imposed on homebuilders in the
future. Environmental regulations can also have an adverse impact on the
availability and price of certain raw materials such as lumber. Our projects
in
California are especially susceptible to restrictive government regulations
and
environmental laws.
We
may be subject to significant potential liabilities as a result of construction
defect, product liability and warranty claims made against us.
As
a
homebuilder, we have been, and continue to be, subject to construction defect,
product liability and home warranty claims, including moisture intrusion and
related mold claims, arising in the ordinary course of business. These claims
are common to the homebuilding industry and can be costly.
We
and
certain of our subsidiaries have been, and continue to be, named as defendants
in various construction defect claims, product liability claims, complaints
and
other legal actions that include claims related to moisture intrusion and mold.
Furthermore, plaintiffs may in certain of these legal proceedings seek class
action status with potential class sizes that vary from case to case. Class
action lawsuits can be costly to defend, and if we were to lose any certified
class action suit, it could result in substantial potential liability for us.
We
record reserves for such matters in accordance with accounting principles
generally accepted in the United States of America (“GAAP”).
With
respect to certain general liability exposures, including construction defect,
moisture intrusion and related mold claims and product liability, interpretation
of underlying current and future trends, assessment of claims and the related
liability and reserve estimation process is highly judgmental due to the complex
nature of these exposures, with each exposure exhibiting unique circumstances.
Furthermore, once claims are asserted for construction defects, it is difficult
to determine the extent to which the assertion of these claims will expand
geographically. Although we have obtained insurance for construction defect
claims, such policies may not be available or adequate to cover any liability
for damages, the cost of repairs, and/or the expense of litigation surrounding
current claims, and future claims may arise out of uninsurable events or
circumstances not covered by insurance and not subject to effective
indemnification agreements with our subcontractors.
Our
operating expenses could increase if we are required to pay higher insurance
premiums or litigation costs for claims involving construction defect and
product liability claims, which could cause our net income to
decline.
The
costs
of insuring against construction defect and product liability claims are high,
and the amount and scope of coverage offered by insurance companies is currently
limited. This coverage may be further restricted and may become more
costly.
Increasingly
in recent years, lawsuits (including class action lawsuits) have been filed
against builders, asserting claims of personal injury and property damage caused
by the presence of mold in residential dwellings. Our insurance may not cover
all of the claims, including personal injury claims, arising from the presence
of mold, or such coverage may become prohibitively expensive. If we are not
able
to obtain adequate insurance against these claims, we may experience losses
that
could reduce our net income and restrict our cash flow available to service
debt.
Historically,
builders have recovered from subcontractors and their insurance carriers a
significant portion of the construction defect liabilities and costs of defense
that the builders have incurred. Insurance coverage available to subcontractors
for construction defects is becoming increasingly expensive, and the scope
of
coverage is restricted. If we cannot effectively recover from our subcontractors
or their carriers, we may suffer greater losses which could decrease our net
income.
Builders'
ability to recover against any available insurance policy depends upon the
continued solvency and financial strength of the insurance carrier that issued
the policy. Many of the states in which we build homes have lengthy statutes
of
limitations applicable to claims for construction defects. To the extent that
any carrier providing insurance coverage to us or our subcontractors becomes
insolvent or experiences financial difficulty in the future, we may be unable
to
recover on those policies, and our net income may decline.
We
are dependent on the services of certain key employees, and the loss of their
services could hurt our business.
Our
future success depends upon our ability to attract, train, assimilate and retain
skilled personnel. If we are unable to retain our key employees or attract,
train, assimilate or retain other skilled personnel in the future, it could
hinder our business strategy and impose additional costs of identifying and
training new individuals. Competition for qualified personnel in all of our
operating markets is intense. A significant increase in the number of our active
projects would necessitate the hiring of a significant number of additional
construction managers, who are in short supply in our markets.
We
are dependent on the continued availability and satisfactory performance of
our
subcontractors, which, if unavailable, could have a material adverse effect
on
our business.
We
conduct our construction operations only as a general contractor. Virtually
all
construction work is performed by unaffiliated third-party subcontractors.
As a
consequence, we depend on the continued availability of and satisfactory
performance by these subcontractors for the construction of our homes. There
may
not be sufficient availability of and satisfactory performance by these
unaffiliated third-party subcontractors in the markets in which we operate.
In
addition, inadequate subcontractor resources could have a material adverse
effect on our business.
We
experience fluctuations and variability in our operating results on a quarterly
basis and, as a result, our historical performance may not be a meaningful
indicator of future results.
Our
operating results in a future quarter or quarters may fall below expectations
of
securities analysts or investors and, as a result, the market value of our
common stock will fluctuate. While we have reported positive annual net income
for each of the past five fiscal years, we historically have experienced, and
expect to continue to experience, variability in home sales and net earnings
on
a quarterly basis. As a result of such variability, our historical performance
may not be a meaningful indicator of future results. Our quarterly results
of
operations may continue to fluctuate in the future as a result of a variety
of
both national and local factors, including, among others:
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the
timing of home closings and land
sales;
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our
ability to continue to acquire additional land or secure option contracts
to acquire land on acceptable
terms;
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conditions
of the real estate market in areas where we operate and of the general
economy;
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raw
material and labor shortages;
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seasonal
homebuying patterns; and
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other
changes in operating expenses, including the cost of labor and raw
materials, personnel and general economic
conditions.
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The
occurrence of natural disasters could increase our operating expenses and reduce
our revenues and cash flows.
The
climates and geology of many of the states in which we operate, including
California, Florida, Georgia, North Carolina, South Carolina, Tennessee and
Texas, present increased risks of natural disasters. To the extent that
hurricanes, severe storms, earthquakes, droughts, floods, wildfires or other
natural disasters or similar events occur, our homes under construction or
our
building lots in such states could be damaged or destroyed, which may result
in
losses exceeding our insurance coverage. Any of these events could increase
our
operating expenses, impair our cash flows and reduce our revenues, which could,
in turn, negatively affect the market price of our securities.
Future
terrorist attacks against the United States or increased domestic or
international instability could have an adverse effect on our
operations.
Adverse
developments in the war on terrorism, future terrorist attacks against the
United States, or any outbreak or escalation of hostilities between the United
States and any foreign power, including the armed conflict with Iraq, may cause
disruption to the economy, our Company, our employees and our customers, which
could adversely affect our revenues, operating expenses, and financial
condition.
Item
2. Properties
We
lease
approximately 86,000 square feet of office space in Atlanta, Georgia to house
our corporate headquarters. We also lease an aggregate of approximately 590,000
square feet of office space for our subsidiaries’ operations at various
locations. We own approximately 18,500 square feet of warehouse space and an
aggregate of 57,872 square feet of office space in Nashville, Tennessee and
Indianapolis, Indiana.
Item
3. Legal Proceedings
In
November 2003, Beazer Homes received a request for information from the EPA
pursuant to Section 308 of the Clean Water Act seeking information concerning
the nature and extent of storm water discharge practices relating to certain
of
our projects completed or under construction. The EPA has since requested
information on additional projects and has conducted site inspections at a
number of locations. In certain instances, the EPA or the equivalent state
agency has issued Administrative Orders identifying alleged instances of
noncompliance and requiring corrective action to address the alleged
deficiencies in storm water management practices. As of September 30, 2005,
no
monetary penalties have been imposed in connection with such Administrative
Orders. The EPA has reserved the right to impose monetary penalties at a later
date, the amount of which, if any, cannot currently be estimated. Beazer Homes
has taken action to comply with the requirements of each of the Administrative
Orders and is working to otherwise maintain compliance with the requirements
of
the Clean Water Act.
The
Company and certain of its subsidiaries have been named as defendants in various
claims, complaints and other legal actions, most relating to moisture intrusion
and related mold claims, construction defects and product liability. Certain
of
the liabilities resulting from these actions are covered by insurance. With
respect to certain general liability exposures, including construction defect,
moisture intrusion and related mold claims and product liability, interpretation
of underlying current and future trends, assessment of claims and the related
liability and reserve estimation process is highly judgmental due to the complex
nature of these exposures, with each exposure exhibiting unique circumstances.
In particular, for construction defect liability there is a high degree of
uncertainty relating to whether insurance coverage exists, when losses occur,
the size of each loss, expectations for future interpretive rulings concerning
contract provisions and the extent to which the assertion of these claims will
expand geographically. In the Company’s opinion, based on its current
assessment, the ultimate resolution of these matters will not have a material
adverse effect on Beazer Homes’ financial condition, results of operations or
cash flows.
Item
4. Submission of Matters to a Vote of Security
Holders
No
matters were submitted during the fourth quarter of the fiscal year covered
by
this report to a vote of security holders, through the solicitation of proxies
or otherwise.
SEPARATE
ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
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Name
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Age
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Position
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Executive
Officers
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Ian
J. McCarthy
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52
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President,
Chief Executive Officer and Director
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Michael
H. Furlow
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55
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Executive
Vice President, Chief Operating Officer
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|
James
O’Leary
|
42
|
Executive
Vice President, Chief Financial Officer
|
||
|
Kenneth
J. Gary
|
47
|
Executive
Vice President, General Counsel, Secretary
|
||
|
C.
Lowell Ball
|
48
|
Senior
Vice President, General Counsel - Real Estate
|
||
|
Cory
J. Boydston
|
46
|
Senior
Vice President, Treasurer
|
||
|
Fred
Fratto
|
51
|
Senior
Vice President, Human Resources
|
||
|
Michael
T. Rand
|
43
|
Senior
Vice President, Chief Accounting Officer
|
||
|
John
Skelton
|
56
|
Senior
Vice President, Forward Planning
|
||
|
Jonathan
P. Smoke
|
36
|
Senior
Vice President, Corporate Strategy and
Innovation
|
Business
Experience
IAN
J.
MCCARTHY. Mr.
McCarthy is the President and Chief Executive Officer of Beazer Homes and has
served as a director of Beazer Homes since the IPO. Mr. McCarthy has
served as President of predecessors of Beazer Homes since January 1991 and
was
responsible for all United States residential homebuilding operations in that
capacity. During the period May 1981 to January 1991, Mr. McCarthy was
employed in Hong Kong and Thailand, becoming a director of Beazer Far East
and
from January 1980 to May 1981 was employed by Kier, Ltd., a company engaged
in
the United Kingdom construction industry which became an indirect, wholly owned
subsidiary of Beazer PLC. Mr. McCarthy is a Chartered Civil Engineer with a
Bachelor of Science degree from The City University, London. Mr. McCarthy
currently serves as a member of the Board of HomeAid America. He also
serves on the Board of Directors of Builder Homesite, Inc. and the Board of
Directors of the Metro Atlanta Chamber of Commerce. He was inducted into
the California Building Industry Hall of Fame in 2004, the first non-California
resident to receive this honor.
MICHAEL
H. FURLOW. Mr. Furlow joined us in October 1997 as the Executive Vice President
for Operations and was named Chief Operating Officer in 1998. In this capacity,
the Division Presidents report, directly or indirectly, to Mr. Furlow, and
he is
responsible for the performance of those operating divisions. During the 12
years prior to joining Beazer Homes, Mr. Furlow was with Pulte Home Corporation
in various field and corporate roles, most recently as a Regional President.
Mr.
Furlow received a Bachelor of Arts degree with honors in Accounting from the
University of West Florida and initially worked as a Certified Public Accountant
for Arthur Young & Company.
JAMES
O’LEARY. Mr. O’Leary joined us in June 2002 as Executive Vice President,
Corporate Development. In August 2003 he was appointed Executive Vice President
and Chief Financial Officer. Mr. O’Leary was previously with U.S. Industries,
Inc. from 1995 to 2002. From 2000 to 2002, Mr. O’Leary was Chairman and CEO of
LCA Group, Inc., U.S. Industries’ global lighting subsidiary. He also served as
Executive Vice President of U.S. Industries from 1999 to 2002, Senior Vice
President and Chief Financial Officer from 1998 to 1999 and Vice President
and
Corporate Controller from 1995 to 1998. Mr. O’Leary held various financial and
operational positions at Hanson PLC., U.S. Industries’ former parent company,
from 1993 to 1995, at which time U.S. Industries was spun off to Hanson’s
shareholders. Mr. O’Leary was with Deloitte & Touche from 1985 to 1993. Mr.
O’Leary holds a Master of Business Administration degree from the Wharton School
of the University of Pennsylvania and a Bachelor of Business Administration
degree from Pace University. Mr. O’Leary is a licensed Certified Public
Accountant. Mr. O’Leary currently serves on the Board of Directors of Kaydon
Corporation.
KENNETH
J. GARY. Mr. Gary joined us in March 2005 as Executive Vice President, General
Counsel and Corporate Secretary. From 1990 to March 2005, Mr. Gary served as
Senior Vice President and General Counsel of Toll Brothers, Inc. He also served
as Chief Executive Officer of that company’s mortgage and title insurance
subsidiaries. Prior to 1990, Mr. Gary served as Counsel of Bell Atlantic
Properties, the real estate subsidiary of Bell Atlantic Corporation (now known
as Verizon Communications) and practiced real estate and corporate law with
two
major law firms for several years. Mr. Gary is a graduate of Brown University
and the University of Pennsylvania Law School, where he was an editor of the
Law
Review.
C.
LOWELL
BALL. Mr. Ball joined us in August 2000 as Senior Vice President and currently
serves as General Counsel - Real Estate. From 1992 to August 2000, Mr. Ball
held
senior positions with commercial real estate investment, development-operating
companies, including Regent Partners, Inc., Compass Management and Leasing,
Inc.
and Dutch Institutional Holding Company. Prior to 1992, Mr. Ball practiced
law
for ten years with two major law firms. Mr. Ball graduated with honors from
the
University of North Carolina School of Law and received his undergraduate degree
from the University of North Carolina where he was a Morehead
Scholar.
CORY
J.
BOYDSTON. Mrs. Boydston joined us in January 1998 as Vice President and
Treasurer, and was promoted to Senior Vice President in October 2004. Mrs.
Boydston is currently responsible for the Treasury functions of the Company.
She
also oversees the Company’s Title and Homeowner Insurance operations. Prior to
joining Beazer, Mrs. Boydston was with Lennar Corporation from 1987 to 1997,
serving in various capacities, including Vice President, Finance and Chief
Financial Officer, Corporate Controller, and Chief Financial Officer, Investment
Division. Before joining Lennar, Mrs. Boydston was with Hayes Microcomputer
Products and Arthur Andersen & Co. Mrs. Boydston received a Bachelor of
Science degree in Accounting from Florida State University in 1981 and is a
licensed Certified Public Accountant.
FRED
FRATTO. Mr.
Fratto joined us in October, 2002 as Vice President, Human Resources and was
promoted to Senior Vice President in October 2004. Prior to joining Beazer
Homes, Mr. Fratto served as Vice President, Human Resources and Administration
for the Gulfstream Aerospace Corporation from 1999 to 2002. Previously, Mr.
Fratto was with the Newell Rubbermaid Company from 1995 to 1999 and Westinghouse
Electric Corporation from 1980 to 1995. He holds a Master of Science degree
in
Industrial and Labor Relations from West Virginia University and a Bachelor
of
Arts degree from Fairmont State College.
MICHAEL
T. RAND. Mr. Rand joined us in November 1996 as Vice President, Operational
and
Accounting Controls and was promoted to Vice President, Corporate Controller
in
June of 1998. Mr. Rand was promoted to Senior Vice President, Corporate
Controller in October 2002, and to Senior Vice President, Chief Accounting
Officer in August 2004. Prior to joining Beazer Homes, Mr. Rand was with the
firm KPMG Peat Marwick from 1984 to 1996, at which time he served as a Senior
Audit Manager. Mr. Rand holds a bachelor’s degree in Commerce from the
University of Virginia and is a licensed Certified Public
Accountant.
JOHN
SKELTON. Mr. Skelton served as Senior Vice President, Operations from the IPO
through fiscal 1998, was appointed Senior Vice President, Financial Planning
in
fiscal 1999 and appointed Senior Vice President, Forward Planning in fiscal
2003. Mr. Skelton served as Vice President and Chief Financial Officer of Beazer
Homes, Inc., a subsidiary of Beazer Homes, since 1985 and Vice President and
Chief Financial Officer of Beazer Homes Holdings, Inc., a subsidiary of Beazer
Homes, since April 1993. During the period 1977 to 1985, Mr. Skelton served
as
Finance Director of Leech Homes, a subsidiary of Leech PLC which was acquired
by
Beazer PLC in 1985. After graduating with a bachelor's degree from Durham
University in the United Kingdom, he was employed by Deloitte & Touche and
is a Fellow of the Institute of Chartered Accountants in England and
Wales.
JONATHAN
P. SMOKE. Mr. Smoke joined us in March 2001 as Vice President, eBusiness, was
appointed Chief Information Officer in April 2002, was promoted to Senior Vice
President in September 2003 and appointed Senior Vice President, Corporate
Strategy and Innovation in October 2005. Mr. Smoke was previously with Lend
Lease Corporation from 1999 to 2001 where he was responsible for eBusiness
strategy and initiatives. Mr. Smoke was a management consultant with Deloitte
& Touche from 1993 to 1999. Mr. Smoke holds a Master of Business
Administration degree from the McCombs School of Business at the University
of
Texas at Austin and a Bachelor of Arts degree from Rhodes College.
PART
II
Item
5. Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market
Information
The
Company lists its common shares on the New York Stock Exchange (NYSE) under
the
symbol “BZH.” On November 30, 2005, the last reported sales price of the
Company’s common stock on the NYSE was $ 69.97. On November 30, 2005, Beazer
Homes USA, Inc. had approximately 180 shareholders of record and 41,192,244
shares of common stock outstanding. The following table sets forth, for the
quarters indicated, the range of high and low trading for the Company’s common
stock during fiscal 2005 and 2004, as adjusted for the effect of the Company’s
March 2005 three-for-one stock split.
|
|
1st
Quarter
|
2nd
Quarter
|
3rd
Quarter
|
4th
Quarter
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Fiscal
Year 2005:
|
|
|
|
|
|||||||||
|
High
|
$
|
49.46
|
$
|
58.83
|
$
|
60.71
|
$
|
67.50
|
|||||
|
Low
|
$
|
32.55
|
$
|
44.67
|
$
|
43.99
|
$
|
55.05
|
|||||
|
|
|||||||||||||
|
Fiscal
Year 2004:
|
|||||||||||||
|
High
|
$
|
36.53
|
$
|
37.66
|
$
|
35.70
|
$
|
36.62
|
|||||
|
Low
|
$
|
27.80
|
$
|
29.42
|
$
|
29.72
|
$
|
28.81
|
|||||
Dividends
For
fiscal 2005, the Company paid quarterly cash dividends aggregating $0.33 per
common share or a total of approximately $13.9 million. For fiscal 2004,
adjusted for the stock split, we paid quarterly cash dividends aggregating
$0.13
per common share, or a total of approximately $5.5 million. We expect to
continue paying regular cash dividends on a quarterly basis. However, the Board
of Directors will periodically reconsider the declaration of dividends, and
we
will pay dividends at the discretion of the Board of Directors. The continuation
of payments, the amount of such dividends, and the form in which the dividends
are paid (cash or stock) depends upon the results of operations, the financial
condition of the Company and other factors which the Board of Directors deems
relevant. The
indentures under which our senior notes were issued contain certain restrictive
covenants, including limitations on payment of dividends. At September 30,
2005,
under the most restrictive covenants of each indenture, approximately $359
million of our retained earnings was available for cash dividends and for share
repurchases.
The
following table provides information as of September 30, 2005 with respect
to
our shares of common stock that may be issued under our existing equity
compensation plans, all of which have been approved by our
stockholders:
|
Plan
Category
|
Number
of Common Shares to be Issued Upon Exercise of Outstanding
Options
|
Weighted
Average Exercise Price of Outstanding Options
|
Number
of Common Shares Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Common Shares Reflected in Column
(a))
|
|||
|
(a)
|
(b)
|
(c)
|
||||
|
Equity
compensation plans approved by stockholders
|
1,654,751
|
$23.91
|
2,617,212
|
Issuer
Purchases of Equity Secutities
|
Period
|
Total
Number of Shares Purchased (1)
|
Average
Price Paid Per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced
Plans
|
Maximum
Number of Shares That May Yet Be Purchased Under the
Plans
|
||||
|
9/1/05
- 9/30/05
|
142,459
|
$56.80
|
--
|
--
|
(1)
We did not repurchase any shares in the open market during fiscal 2005; however,
142,459 shares were surrendered to us by employees in payment of minimum tax
obligations upon the vesting of restricted stock under our stock incentive
plans. We valued the stock at the market price on the date of surrender, for
an
aggregate value of $8.1 million, or approximately $57 per share.
Item
6. Selected Financial Data
(in
thousands, except per share amounts)
|
Year
Ended September 30,
|
||||||||||||||||
|
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||
|
Statement
of Operations Data:
|
|
|
|
|
|
|||||||||||
|
Total
revenue
|
$
|
4,995,353
|
$
|
3,907,109
|
$
|
3,177,408
|
$
|
2,641,173
|
$
|
1,805,177
|
||||||
|
Operating
income before goodwill impairment (i)
|
617,153
|
377,935
|
279,155
|
193,174
|
121,027
|
|||||||||||
|
Goodwill
impairment (i)
|
130,235
|
-
|
-
|
-
|
-
|
|||||||||||
|
Operating
income (i)
|
486,918
|
377,935
|
279,155
|
193,174
|
121,027
|
|||||||||||
|
Net
income (i)
|
262,524
|
235,811
|
172,745
|
122,634
|
74,876
|
|||||||||||
|
Net
income per common share:
|
||||||||||||||||
|
Basic
(i), (ii)
|
6.49
|
5.91
|
4.47
|
3.88
|
3.06
|
|||||||||||
|
Diluted
(i), (ii)
|
5.87
|
5.59
|
4.26
|
3.58
|
2.73
|
|||||||||||
|
Dividends
paid per common share
|
0.33
|
0.13
|
-
|
-
|
-
|
|||||||||||
|
Balance
Sheet Data (end of year):
|
||||||||||||||||
|
Cash
|
$
|
297,098
|
$
|
320,880
|
$
|
73,372
|
$
|
124,989
|
$
|
41,678
|
||||||
|
Inventory
|
2,901,165
|
2,344,095
|
1,723,483
|
1,364,133
|
844,737
|
|||||||||||
|
Total
assets (i)
|
3,770,516
|
3,163,030
|
2,219,407
|
1,902,319
|
998,456
|
|||||||||||
|
Total
debt
|
1,321,936
|
1,150,972
|
748,738
|
748,572
|
398,405
|
|||||||||||
|
Stockholders'
equity
|
1,504,688
|
1,232,121
|
993,695
|
799,515
|
351,195
|
|||||||||||
|
Supplemental
Financial Data:
|
||||||||||||||||
|
Cash
(used in)/provided by:
|
||||||||||||||||
|
Operating
activities
|
$
|
(84,263
|
)
|
$
|
(73,719
|
)
|
$
|
(41,049
|
)
|
$
|
59,464
|
$
|
(25,578
|
)
|
||
|
Investing
activities
|
(48,470
|
)
|
(30,476
|
)
|
(6,552
|
)
|
(314,633
|
)
|
(72,835
|
)
|
||||||
|
Financing
activities
|
108,951
|
351,703
|
(4,016
|
)
|
338,480
|
140,091
|
||||||||||
|
EBIT
(iii)
|
581,722
|
452,774
|
340,980
|
245,060
|
155,983
|
|||||||||||
|
EBITDA
(iii)
|
602,896
|
468,529
|
354,200
|
254,513
|
165,236
|
|||||||||||
|
Interest
incurred (iv)
|
89,678
|
76,035
|
65,295
|
51,171
|
35,825
|
|||||||||||
|
EBIT/interest
incurred
|
6.49x
|
5.95x
|
5.22x
|
4.79x
|
4.35x
|
|||||||||||
|
EBITDA/interest
incurred
|
6.72x
|
6.16x
|
5.42x
|
4.97x
|
4.61x
|
|||||||||||
|
Financial
Statistics (v):
|
||||||||||||||||
|
Total
debt as a percentage of total debt and stockholders'
equity
|
46.8
|
%
|
48.3
|
%
|
43.0
|
%
|
48.4
|
%
|
53.1
|
%
|
||||||
|
Asset
turnover
|
1.44x
|
1.45x
|
1.54x
|
1.82x
|
2.13x
|
|||||||||||
|
EBIT
margin
|
11.6
|
%
|
11.6
|
%
|
10.7
|
%
|
9.3
|
%
|
8.6
|
%
|
||||||
|
Return
on average assets (pre-tax)
|
16.8
|
%
|
16.8
|
%
|
16.5
|
%
|
16.9
|
%
|
18.4
|
%
|
||||||
|
Return
on average capital (pre-tax)
|
22.3
|
%
|
21.9
|
%
|
20.7
|
%
|
21.3
|
%
|
24.5
|
%
|
||||||
|
Return
on average equity
|
19.2
|
%
|
21.2
|
%
|
19.3
|
%
|
21.3
|
%
|
24.1
|
%
|
||||||
(i)
As
discussed in Item 7 below, Beazer Homes acquired Crossmann Communities effective
April 17, 2002. In 2005, we recognized a non-cash, non-tax deductible goodwill
impairment charge of $130.2 million associated with this acquisition (see Note
1
to the Consolidated Financial Statements for further discussion). 2005 operating
income, net income and earnings per share include the impact of this impairment
charge. In addition to the results above reported in accordance with GAAP,
we
have provided operating income before goodwill impairment above, a non-GAAP
financial measure. Adjusted net income, adjusted earnings per share and adjusted
EBITDA, which exclude the effects of the non-cash goodwill impairment charge
recorded during fiscal year 2005 and are non-GAAP financial measures, were
$392.8 million, $8.72 per share and $733.1 million, respectively. Management
believes that these adjusted financial results are useful to both management
and
investors in the analysis of the Company’s financial performance when comparing
it to prior periods and that they provide investors with an important
perspective on the current underlying operating performance of the business
by
isolating the impact of a non-cash adjustment related to a prior acquisition.
A
reconciliation of these non-GAAP financial measures to the most directly
comparable GAAP measure, is provided below for fiscal year 2005:
|
(in
thousands, except per share data)
|
Year
Ended September 30,
2005
|
|||
|
Operating
income
|
$
|
486,918
|
||
|
Goodwill
impairment
|
130,235
|
|||
|
Operating
income before goodwill impairment
|
$
|
617,153
|
||
|
Net
income
|
$
|
262,524
|
||
|
Goodwill
impairment
|
130,235
|
|||
|
Adjusted
net income
|
$
|
392,759
|
||
|
EPS,
diluted
|
$
|
5.87
|
||
|
Goodwill
impairment
|
2.85
|
|||
|
Adjusted
EPS
|
$
|
8.72
|
||
|
|
||||
|
EBITDA
|
$
|
602,896
|
||
|
Goodwill
impairment
|
130,235
|
|||
|
Adjusted
EBITDA
|
$
|
733,131
|
||
(ii)
In
October 2004, the Emerging Issues Task Force (“EITF”) of the Financial
Accounting Standards Board (“FASB”) ratified the consensus on EITF Issue No.
04-8: “The Effect of Contingently Convertible Debt on Diluted Earnings Per
Share.” EITF 04-8 requires that shares issuable upon conversion of contingently
convertible debt instruments (“Co-Co’s”) be included in diluted EPS computations
using the “if-converted method” regardless of whether the issuer’s stock price
exceeds the contingent conversion price. Per
share
amounts have been retroactively adjusted to reflect the Company’s March 2005
three-for-one stock split and the Company’s adoption of EITF 04-8, as
applicable.
(iii)
EBIT and EBITDA: EBIT (earnings before interest and taxes) equals net income
before (a) previously capitalized interest amortized to costs and expenses
and
(b) income taxes. EBITDA (earnings before interest, taxes, depreciation and
amortization) is calculated by adding depreciation and amortization for the
period to EBIT. EBIT and EBITDA are not GAAP financial measures. EBIT and EBITDA
should not be considered alternatives to net income determined in accordance
with GAAP as an indicator of operating performance, nor an alternative to cash
flows from operating activities determined in accordance with GAAP as a measure
of liquidity. Because some analysts and companies may not calculate EBIT and
EBITDA in the same manner as Beazer Homes, the EBIT and EBITDA information
presented above may not be comparable to similar presentations by others.
EBITDA
is
a measure commonly used in the homebuilding industry and is presented to assist
readers in understanding the ability of our operations to generate cash in
addition to the cash needed to service existing interest requirements and
ongoing tax obligations. By providing a measure of available cash,
management believes that this non-GAAP measure enables holders of
our securities to better understand our cash performance and our ability to
service our debt obligations as they currently exist and as additional
indebtedness is incurred in the future. The measure is useful in budgeting
and determining capital expenditure levels because it enables management to
evaluate the amount of cash that will be available for discretionary
spending.
A
reconciliation of EBITDA and EBIT to cash (used)/provided by operations, the
most directly comparable GAAP measure, is provided below for each period
presented:
|
Year
Ended September 30,
|
||||||||||||||||
|
2005
|
2004
|
2003
|
2002
|
2001
|
||||||||||||
|
Net
cash (used)/provided by operating activities
|
$
|
(84,263
|
)
|
$
|
(73,719
|
)
|
$
|
(41,049
|
)
|
$
|
59,464
|
$
|
(25,578
|
)
|
||
|
Increase
in inventory
|
566,603
|
410,525
|
328,893
|
152,990
|
153,668
|
|||||||||||
|
Provision
for income taxes
|
236,810
|
150,764
|
112,784
|
79,425
|
47,872
|
|||||||||||
|
Deferred
income tax benefit (provision)
|
54,631
|
22,740
|
(87
|
)
|
6,613
|
7,906
|
||||||||||
|
Interest
amortized to cost of sales
|
82,388
|
66,199
|
55,451
|
43,001
|
33,235
|
|||||||||||
|
Increase
in accounts payable and other liabilities
|
(217,412
|
)
|
(120,976
|
)
|
(96,224
|
)
|
(71,781
|
)
|
(38,721
|
)
|
||||||
|
Change
in book overdraft
|
-
|
-
|
-
|
-
|
(20,095
|
)
|
||||||||||
|
Goodwill
impairment
|
(130,235
|
)
|
-
|
-
|
-
|
-
|
||||||||||
|
Increase
(decrease) in accounts receivable and other assets
|
108,081
|
21,399
|
13,105
|
(4,348
|
)
|
16,837
|
||||||||||
|
Earnings
in joint ventures, net of income distributions
|
(823
|
)
|
1,561
|
1,597
|
2,338
|
63
|
||||||||||
|
Loss
on early extinguishment of debt
|
-
|
-
|
(7,570
|
)
|
-
|
(1,202
|
)
|
|||||||||
|
Tax
benefit from stock transactions
|
(11,551
|
)
|
(8,127
|
)
|
(11,502
|
)
|
(12,235
|
)
|
(3,837
|
)
|
||||||
|
Other
|
(1,333
|
)
|
(1,837
|
)
|
(1,198
|
)
|
(954
|
)
|
(4,912
|
)
|
||||||
|
EBITDA
|
602,896
|
468,529
|
354,200
|
254,513
|
165,236
|
|||||||||||
|
Less
depreciation and amortization
|
21,174
|
15,755
|
13,220
|
9,453
|
9,253
|
|||||||||||
|
EBIT
|
$
|
581,722
|
$
|
452,774
|
$
|
340,980
|
$
|
245,060
|
$
|
155,983
|
||||||
(iv)
All interest incurred is capitalized to inventory and subsequently amortized
to
cost of sales as homes are closed.
(v)
Asset turnover = (total revenue divided by average total assets); EBIT margin
=
(EBIT divided by total revenues); Return on average assets = (EBIT divided
by
average total assets); Return on average capital = (EBIT divided by average
total debt plus stockholders' equity); Return on average equity = (net income
divided by average stockholders' equity).
Item
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
Homebuilding.
We
design, sell and build single-family homes in the following regions and states:
|
Southeast
|
West
|
Central
|
Mid-Atlantic
|
Midwest
|
||||||
|
Florida
|
Arizona
|
Texas
|
Delaware
|
Indiana
|
||||||
|
Georgia
|
California
|
Maryland
|
Kentucky
|
|||||||
|
Mississippi
|
Colorado
|
New
Jersey
|
Ohio
|
|||||||
|
North
Carolina
|
Nevada
|
New
York
|
||||||||
|
South
Carolina
|
New
Mexico
|
Pennsylvania
|
||||||||
|
Tennessee
|
Virginia
|
|||||||||
|
West
Virginia
|
We
intend, subject to market conditions, to expand in our current markets through
focused product expansion and price point diversification and to consider
entering new markets either through expansion from existing markets or through
acquisitions of established regional homebuilders. Our business strategy
emphasizes further increasing our market penetration in those markets in which
we currently operate most profitably, while continuously reviewing opportunities
to curtail or limit investment in less profitable markets.
Our
homes
are designed to appeal to homebuyers at
various price points across various demographic segments,
and are
generally offered for sale in advance of their construction. Once a sales
contract has been signed by both the homebuyer and Beazer Homes, we classify
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.
Crossmann
Acquisition. In
April
2002, we acquired Crossmann Communities, Inc. (“Crossmann”). We have included
Crossmann’s operating results in our consolidated financial statements since
April 1, 2002. The aggregate merger consideration we paid consisted of
approximately 3.9 million shares (pre-split) of our common stock (valued at
approximately $308.6 million) and $191.6 million in cash.
Ancillary
Businesses.
We have
established several businesses to support our core homebuilding operations.
We
operate design studios in the majority of our markets. Through design studios,
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. Beazer Mortgage originates, processes
and brokers mortgages to third-party investors. Beazer Mortgage generally does
not retain or service the mortgages that it brokers. 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") 144, Accounting
for the Impairment or Disposal of Long-Lived Assets.
SFAS
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 goodwill exceeds implied fair value of that
goodwill.
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 adverse
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 local economic conditions or changes in our strategic plans
may
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.
During
the quarter ended March 31, 2005, we obtained an independent valuation of our
reporting units and recorded a $130.2 million non-cash, non-tax-deductible
impairment charge to write off substantially all of the goodwill allocated
to
certain underperforming markets in Indiana, Ohio, Kentucky and Charlotte, North
Carolina. The goodwill had been recorded as a result of the April 2002
acquisition of Crossmann. The forecasts and valuations of the respective
divisions, along with weaker than anticipated local economies, particularly
in
the Midwest markets, and severe price competition, particularly at entry level
price points, led the Company to conclude the goodwill was impaired in
accordance with the provisions of SFAS 142, Goodwill
and Other Intangible Assets.
While
we
believe that no additional impairment existed as of September 30, 2005, future
economic or financial developments, including general interest rate increases
or
poor performance in either the national economy or individual local economies,
could lead to impairment of goodwill, prospectively.
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 construction defects.
In addition, we provide a warranty (ranging from a minimum of ten years up
to
the period covered by the applicable statute of repose, whichever is greater)
with each of our homes, covering construction 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 other liabilities in the consolidated balance sheets.
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. 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. Our warranty reserves
at September 30, 2005 and 2004 include accruals for certain moisture intrusion
issues. Our estimation process for such accruals is discussed in Note 14 to
the
Consolidated Financial Statements. While we believe that our warranty reserves
at September 30, 2005 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.
The
following tables present certain operating and financial data for the
years discussed:
|
Year
Ended September 30,
|
||||||||||||||||
|
2005
|
2004
|
2003
|
||||||||||||||
|
|
Amount
|
%
Change
|
Amount
|
%
Change
|
Amount
|
|||||||||||
|
Number
of new orders, net of cancellations:
|
||||||||||||||||
|
Southeast
Region:
|
||||||||||||||||
|
Florida
|
2,295
|
11.4
|
%
|
2,061
|
33.1
|
%
|
1,549
|
|||||||||
|
Georgia
|
792
|
21.8
|
650
|
25.2
|
519
|
|||||||||||
|
North
and South Carolina
|
2,879
|
17.0
|
2,461
|
(13.6
|
)
|
2,850
|
||||||||||
|
Tennessee/Mississippi
|
845
|
18.7
|
712
|
2.3
|
696
|
|||||||||||
|
Total
Southeast
|
6,811
|
15.8
|
5,884
|
4.8
|
5,614
|
|||||||||||
|
West
Region:
|
||||||||||||||||
|
Arizona/New
Mexico
|
1,942
|
10.1
|
1,764
|
22.2
|
1,443
|
|||||||||||
|
California
|
2,469
|
(11.1
|
)
|
2,776
|
38.2
|
2,009
|
||||||||||
|
Colorado
|
534
|
30.2
|
410
|
13.9
|
360
|
|||||||||||
|
Nevada
|
1,262
|
(29.2
|
)
|
1,783
|
34.1
|
1,330
|
||||||||||
|
Total
West
|
6,207
|
(7.8
|
)
|
6,733
|
30.9
|
5,142
|
||||||||||
|
Central
Region:
|
|
|||||||||||||||
|
Texas
|
1,513
|
43.7
|
1,053
|
(6.6
|
)
|
1,128
|
||||||||||
|
Mid-Atlantic
Region:
|
||||||||||||||||
|
Maryland/Delaware
|
715
|
66.3
|
430
|
15.9
|
371
|
|||||||||||
|
New
Jersey/New York/ Pennsylvania
|
456
|
12.9
|
404
|
15.4
|
350
|
|||||||||||
|
Virginia
|
845
|
24.4
|
679
|
(27.3
|
)
|
934
|
||||||||||
|
Total
Mid-Atlantic
|
2,016
|
33.2
|
1,513
|
(8.6
|
)
|
1,655
|
||||||||||
|
Midwest
Region:
|
||||||||||||||||
|
Indiana
|
1,471
|
(5.6
|
)
|
1,558
|
(23.1
|
)
|
2,026
|
|||||||||
|
Kentucky
|
206
|
56.1
|
132
|
(42.4
|
)
|
229
|
||||||||||
|
Ohio
|
699
|
15.0
|
608
|
16.5
|
522
|
|||||||||||
|
Total
Midwest
|
2,376
|
3.4
|
2,298
|
(17.2
|
)
|
2,777
|
||||||||||
|
Total
|
18,923
|
8.2
|
%
|
17,481
|
7.1
|
%
|
16,316
|
|||||||||
|
Backlog
at end of year:
|
||||||||||||||||
|
Southeast
Region:
|
||||||||||||||||
|
Florida
|
1,259
|
4.9
|
%
|
1,200
|
58.9
|
%
|
755
|
|||||||||
|
Georgia
|
180
|
7.1
|
168
|
(10.6
|
)
|
188
|
||||||||||
|
North
and South Carolina
|
1,359
|
33.8
|
1,016
|
(9.2
|
)
|
1,119
|
||||||||||
|
Tennessee/Mississippi
|
276
|
12.7
|
245
|
(5.4
|
)
|
259
|
||||||||||
|
Total
Southeast
|
3,074
|
16.9
|
2,629
|
13.3
|
2,321
|
|||||||||||
|
West
Region:
|
||||||||||||||||
|
Arizona/New
Mexico
|
1,348
|
26.2
|
1,068
|
51.1
|
707
|
|||||||||||
|
California
|
917
|
(10.1
|
)
|
1,020
|
45.5
|
701
|
||||||||||
|
Colorado
|
123
|
(7.5
|
)
|
133
|
(7.0
|
)
|
143
|
|||||||||
|
Nevada
|
729
|
(20.7
|
)
|
919
|
24.9
|
736
|
||||||||||
|
Total
West
|
3,117
|
(0.7
|
)
|
3,140
|
37.3
|
2,287
|
||||||||||
|
Central
Region:
|
|
|||||||||||||||
|
Texas
|
515
|
20.0
|
429
|
8.3
|
396
|
|||||||||||
|
Mid-Atlantic
Region:
|
||||||||||||||||
|
Maryland/Delaware
|
480
|
29.4
|
371
|
35.4
|
274
|
|||||||||||
|
New
Jersey/New York/ Pennsylvania
|
215
|
(8.9
|
)
|
236
|
10.8
|
213
|
||||||||||
|
Virginia
|
498
|
13.2
|
440
|
(30.2
|
)
|
630
|
||||||||||
|
Total
Mid-Atlantic
|
1,193
|
13.9
|
1,047
|
(6.3
|
)
|
1,117
|
||||||||||
|
Midwest
Region:
|
||||||||||||||||
|
Indiana
|
951
|
8.7
|
875
|
(3.6
|
)
|
908
|
||||||||||
|
Kentucky
|
94
|
123.8
|
42
|
(64.7
|
)
|
119
|
||||||||||
|
Ohio
|
289
|
(1.7
|
)
|
294
|
5.8
|
278
|
||||||||||
|
Total
Midwest
|
1,334
|
10.2
|
1,211
|
(7.2
|
)
|
1,305
|
||||||||||
|
Total
|
9,233
|
9.2
|
%
|
8,456
|
13.9
|
%
|
7,426
|
|||||||||
The
following tables present certain operating and financial data for the years
discussed:
|
Year
Ended September 30,
|
||||||||||||||||
|
2005
|
2004
|
2003
|
||||||||||||||
|
Amount
|
%
Change
|
Amount
|
%
Change
|
Amount
|
||||||||||||
|
Number
of closings:
|
||||||||||||||||
|
Southeast
Region:
|
||||||||||||||||
|
Florida
|
2,236
|
38.4
|
%
|
1,616
|
10.4
|
%
|
1,464
|
|||||||||
|
Georgia
|
780
|
16.4
|
670
|
39.6
|
480
|
|||||||||||
|
North
and South Carolina
|
2,536
|
(1.1
|
)
|
2,564
|
0.4
|
2,554
|
||||||||||
|
Tennessee/Mississippi
|
814
|
12.1
|
726
|
9.7
|
662
|
|||||||||||
|
Total
Southeast
|
6,366
|
14.2
|
5,576
|
8.1
|
5,160
|
|||||||||||
|
West
Region:
|
||||||||||||||||
|
Arizona/New
Mexico
|
1,662
|
18.5
|
1,403
|
3.8
|
1,351
|
|||||||||||
|
California
|
2,572
|
4.7
|
2,457
|
20.4
|
2,041
|
|||||||||||
|
Colorado
|
544
|
29.5
|
420
|
55.0
|
271
|
|||||||||||
|
Nevada
|
1,452
|
(9.3
|
)
|
1,600
|
56.1
|
1,025
|
||||||||||
|
Total
West
|
6,230
|
6.0
|
5,880
|
25.4
|
4,688
|
|||||||||||
|
Central
Region:
|
||||||||||||||||
|
Texas
|
1,427
|
39.9
|
1,020
|
(17.7
|
)
|
1,239
|
||||||||||
|
Mid-Atlantic
Region:
|
||||||||||||||||
|
Maryland/Delaware
|
606
|
82.0
|
333
|
35.4
|
246
|
|||||||||||
|
New
Jersey/New York/Pennsylvania
|
477
|
25.2
|
381
|
38.0
|
276
|
|||||||||||
|
Virginia
|
787
|
(9.4
|
)
|
869
|
21.4
|
716
|
||||||||||
|
Total
Mid-Atlantic
|
1,870
|
18.1
|
1,583
|
27.9
|
1,238
|
|||||||||||
|
Midwest
Region:
|
||||||||||||||||
|
Indiana
|
1,395
|
(12.3
|
)
|
1,591
|
(27.6
|
)
|
2,197
|
|||||||||
|
Kentucky
|
154
|
(26.3
|
)
|
209
|
11.8
|
187
|
||||||||||
|
Ohio
|
704
|
18.9
|
592
|
(15.4
|
)
|
700
|
||||||||||
|
Total
Midwest
|
2,253
|
(5.8
|
)
|
2,392
|
(22.4
|
)
|
3,084
|
|||||||||
|
Total
|
18,146
|
10.3
|
%
|
16,451
|
6.8
|
%
|
15,409
|
|||||||||
|
|
||||||||||||||||
|
Homebuilding
revenues (in
thousands):
|
||||||||||||||||
|
Southeast
Region
|
$
|
1,369,327
|
31.3
|
%
|
$
|
1,042,589
|
15.7
|
%
|
$
|
900,901
|
||||||
|
West
Region
|
2,129,784
|
25.7
|
1,694,954
|
45.9
|
1,161,983
|
|||||||||||
|
Central
Region
|
230,855
|
41.1
|
163,569
|
(15.2
|
)
|
192,841
|
||||||||||
|
Mid-Atlantic
Region
|
840,714
|
50.2
|
559,596
|
37.6
|
406,708
|
|||||||||||
|
Midwest
Region
|
352,113
|
(2.0
|
)
|
359,320
|
(18.1
|
)
|
438,831
|
|||||||||
|
Total
|
$
|
4,922,793
|
28.9
|
%
|
$
|
3,820,028
|
23.2
|
%
|
$
|
3,101,264
|
||||||
|
Average
sales price per home closed (in
thousands):
|
||||||||||||||||
|
Southeast
Region
|
$
|
215.1
|
15.0
|
%
|
$
|
187.0
|
7.1
|
%
|
$
|
174.6
|
||||||
|
West
Region
|
341.9
|
18.6
|
288.3
|
16.3
|
247.9
|
|||||||||||
|
Central
Region
|
161.8
|
0.9
|
160.4
|
3.1
|
155.6
|
|||||||||||
|
Mid-Atlantic
Region
|
449.6
|
27.2
|
353.5
|
7.6
|
328.5
|
|||||||||||
|
Midwest
Region
|
156.3
|
4.1
|
150.2
|
5.6
|
142.3
|
|||||||||||
|
Company
Average
|
$
|
271.3
|
16.8
|
%
|
$
|
232.2
|
15.4
|
%
|
$
|
201.3
|
||||||
|
Number
of active subdivisions at year end:
|
||||||||||||||||
|
Southeast
Region
|
160
|
(9.6
|
)%
|
177
|
(0.6
|
)%
|
178
|
|||||||||
|
West
Region
|
106
|
17.8
|
90
|
(7.2
|
)
|
97
|
||||||||||
|
Central
Region
|
51
|
18.6
|
43
|
10.3
|
39
|
|||||||||||
|
Mid-Atlantic
Region
|
65
|
14.0
|
57
|
42.5
|
40
|
|||||||||||
|
Midwest
Region
|
136
|
5.4
|
129
|
(7.9
|
)
|
140
|
||||||||||
|
Total
|
518
|
4.4
|
%
|
496
|
0.4
|
%
|
494
|
|||||||||
New
Orders.
New
orders increased in each of the last two fiscal years compared to the prior
year.
The
increases in new orders during fiscal 2005 compared to fiscal 2004 were driven
by our Southeast, Central and Mid-Atlantic regions. Order increases in our
Southeast region reflect continued double-digit growth in most of our markets,
offset slightly by weakness in parts of the Carolinas. Orders increased in
all
markets in our Mid-Atlantic and Central regions, where demand continues to
be
strong. Midwest orders increased 3.4% over the prior fiscal year, with positive
contributions in all but Indiana which continues to be impacted by a soft
economy. Orders were down in our West region compared to a strong 2004, as
community delays in Nevada and California resulted in fewer available sales
opportunities during the second half of the fiscal year.
The
increases in new orders in fiscal 2004 reflected strong growth in our Southeast
and West regions. Orders were down in the Mid-Atlantic region compared to a
strong 2003, including orders during 2003 for affordable housing units built
through governmental programs. The decreases in orders in our Midwest region
reflected weakness in our Indiana and Kentucky markets driven primarily by
the
soft economy in those markets. Orders were also down in our Central Region,
reflecting weakness in our Dallas market in 2004.
The
fundamentals that drive sales activity are numerous and varied. On a macro
level, low unemployment and low mortgage interest rates each contribute to
a
positive general homebuilding market environment. Our ability to stay ahead
of
changing customer preferences and local demographic trends with our product
mix
and to maintain adequate product supply contributes locally to new order
trends.
Backlog. The
increases in unit backlog in each of the past three fiscal years reflect the
favorable homebuilding environment driving new order activity, and our ability
to gain market share and increase our product diversity. The average sales
price
of homes in backlog increased at September 30, 2005 to $294,800 from $264,400
at
September 30, 2004 and $221,500 at September 30, 2003. The increase in the
overall average price in backlog is due to the improved pricing power in each
of
our markets and the increasingly favorable shift in our product mix. The
increase in product mix reflects the expansion of our product offerings in
many
markets to include higher priced homes.
|
Aggregate
Sales Value of Homes in Backlog
|
||||
|
(in
thousands)
|
||||
|
|
|
|||
|
2005
|
$
|
2,721,744
|
||
|
2004
|
2,235,917
|
|||
|
2003
|
1,644,814
|
|||
Seasonality
and Quarterly Variability.
Our
homebuilding operating cycle generally reflects escalating new order activity
in
our second and third fiscal quarters and increased closings in our third and
fourth fiscal quarters. We believe that the typical seasonality reflects the
preference of homebuyers to shop for a new home in the spring, as well as the
scheduling of construction to accommodate seasonal weather conditions.
The
following chart presents certain quarterly operating data for our last twelve
fiscal quarters and is indicative of this seasonality.
|
New
Orders
|
|
|
|
|
|||||||||
|
|
1stQ
|
2ndQ
|
3rdQ
|
4thQ
|
|||||||||
|
2005
|
3,545
|
5,239
|
5,202
|
4,937
|
|||||||||
|
2004
|
3,304
|
5,032
|
4,869
|
4,276
|
|||||||||
|
2003
|
3,141
|
4,579
|
4,734
|
3,862
|
|||||||||
|
Closings
|
|
|
|
|
|||||||||
|
|
1stQ
|
2ndQ
|
3rdQ
|
4thQ
|
|||||||||
|
2005
|
3,574
|
3,602
|
4,631
|
6,339
|
|||||||||
|
2004
|
3,608
|
3,684
|
4,061
|
5,098
|
|||||||||
|
2003
|
3,482
|
3,297
|
3,616
|
5,014
|
|||||||||
Financial
Results.
The
following table provides additional details of revenues and certain expenses
included in our consolidated statements of income (in
thousands):
|
Year
Ended September 30,
|
||||||||||
|
2005
|
2004
|
2003
|
||||||||
|
Revenues:
|
||||||||||
|
Homebuilding
(1)
|
$
|
4,922,793
|
$
|
3,824,142
|
$
|
3,097,021
|
||||
|
Land
and lot sales
|
34,527
|
44,702
|
39,069
|
|||||||
|
Mortgage
origination
|
54,310
|
51,140
|
57,152
|
|||||||
|
Intercompany
elimination - mortgage
|
(16,277
|
)
|
(12,875
|
)
|
(15,834
|
)
|
||||
|
Total
revenue
|
$
|
4,995,353
|
$
|
3,907,109
|
$
|
3,177,408
|
||||
|
Cost
of home construction and land sales:
|
||||||||||
|
Homebuilding
(1)
|
$
|
3,810,123
|
$
|
3,069,976
|
$
|
2,515,015
|
||||
|
Land
and lot sales
|
29,454
|
42,631
|
34,854
|
|||||||
|
Intercompany
elimination - mortgage
|
(16,277
|
)
|
(12,875
|
)
|
(15,834
|
)
|
||||
|
Total
cost of home construction and land sales
|
$
|
3,823,300
|
$
|
3,099,732
|
$
|
2,534,035
|
||||
|
Selling,
general and administrative:
|
||||||||||
|
Homebuilding
|
$
|
516,217
|
$
|
397,601
|
$
|
325,657
|
||||
|
Mortgage
origination
|
38,683
|
31,841
|
30,991
|
|||||||
|
Total
selling, general and administrative
|
$
|
554,900
|
$
|
429,442
|
$
|
356,648
|
||||
|
(1)
|
Homebuilding
revenues for fiscal 2004 reflect the recognition on a consolidated
basis
of $4.1 million of revenues related to closings that occurred in
fiscal
2003, but for which funding was not received until fiscal 2004. During
fiscal 2003, revenues and related cost of sales were not recognized
on
those closings where the buyers' initial investments were not sufficient
to recognize profit at the time of closing. We received funding on
such
closings pursuant to commitments from bond authority programs in
early
fiscal 2004, at which time we recognized the revenues and related
cost of
sales.
|
Revenues.
The
increase in homebuilding revenues for fiscal 2005 compared to fiscal 2004 is
the
result of an increase both in the number of homes closed and in average sales
prices in most of our markets. During fiscal year 2005, we benefited from
improved pricing power in each of our major markets and improved product mix,
as
well as a strong housing market. Also, our revenue growth reflects a key
component of our growth strategy, to continue to increase our market penetration
through geographic diversification and price point diversification, expanding
our product offerings to grow market share in existing markets.
The
increase in homebuilding revenues for fiscal 2004 compared to fiscal 2003 is
the
result of an increase in the number of homes closed and increased average sales
prices in most of our markets. The increases in both closings and average sales
price were driven primarily by continued strong demand in most of our
markets.
Cost
of Home Construction and Land Sales.
|
Cost
of Home Construction and Land Sales
|
|
|
|
|||||||
|
(in
thousands)
|
|
|
|
|||||||
|
|
2005
|
2004
|
2003
|
|||||||
|
Revenues
|
$
|
4,995,353
|
$
|
3,907,109
|
$
|
3,177,408
|
||||
|
Cost
of home construction and land sales
|
$
|
3,823,300
|
$
|
3,099,732
|
$
|
2,534,035
|
||||
|
Gross
margin
|
23.5
|
%
|
20.7
|
%
|
20.2
|
%
|
||||
Gross
margin increased in fiscal 2005 as compared to fiscal 2004 as a result of a
strong pricing environment and improved product mix as we continue to invest
in
markets with the highest impact on results and continue our execution of
specific strategic initiatives focused on maximizing profitability. The fiscal
2005 gross margin improvement was achieved despite $55.0 million in warranty
expenses associated with construction defect claims from water intrusion at
one
of our Midwest divisions compared to $43.9 million of similar expense in
2004.
Gross
margin increased in fiscal 2004 as compared to fiscal 2003 as a result of a
strong pricing environment driven by robust demand and constraints on supply
in
many of our markets, combined with the realization of cost savings arising
from
the execution of our profit improvement initiatives. Fiscal 2004 gross margins
also benefited from a higher percentage of revenues from our West and
Mid-Atlantic regions, where margins are high, relative to other markets. The
fiscal 2004 margin improvement was achieved despite $43.9 million in warranty
expenses associated with construction defect claims from water intrusion at
one
of our Midwest divisions.
We
executed several land sales during the past three fiscal years. We realized
gross profits of $5.1 million, $2.1 million and $4.2 million on these land
sales
in fiscal 2005, 2004 and 2003, respectively.
Selling,
General and Administrative Expense.
Selling,
general and administrative expense (SG&A) totaled $554.9 million in fiscal
2005, $429.4 million in fiscal 2004 and $356.6 million in fiscal 2003. As a
percentage of total revenue, SG&A expenses were 11.1% in fiscal 2005, 11.0%
in fiscal 2004 and 11.2% in fiscal 2003.
Mortgage
Origination Operations.
|
Number
of Mortgages Originated
|
|
|
|
|||||||
|
|
2005
|
2004
|
2003
|
|||||||
|
Beazer
Mortgage originations
|
11,183
|
9,633
|
10,139
|
|||||||
|
Total
closings
|
18,146
|
16,451
|
15,409
|
|||||||
|
Capture
rate
|
62
|
%
|
59
|
%
|
66
|
%
|
||||
Our
capture rate of mortgages originated for customers of our homebuilding business
increased in fiscal year 2005 from 2004 due primarily to our continued focus
on
serving our customer base. Our capture rate during fiscal 2004 decreased from
2003 due primarily to increased competition for new purchase mortgages driven
by
a slowdown in the refinance market. Our capture rate is based on total closings.
Our capture rate excluding non-financed closings was approximately 65% for
fiscal 2005.
Income
Taxes.
Income
taxes for fiscal 2005 were provided at the effective rate of 37.61%, excluding
the non-tax-deductible goodwill impairment of $130.2 million and including
a
$4.0 million favorable tax adjustment. Income taxes for fiscal 2004 were
provided at the effective rate of 39.0%. Income taxes for fiscal 2003 were
provided at the effective rate of 39.5%. The principal difference between our
effective rate and the U.S. federal statutory rate is state income
taxes.
Derivative
Instruments and Hedging Activities. We
are
exposed to fluctuations in interest rates. From time to time, 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. During the year ended September
30, 2001 we entered into interest rate swap agreements (the “Swap Agreements”)
to effectively fix the variable interest rate on $100 million of floating rate
debt. The Swap Agreements matured in December 2004. The Company has no
derivative instruments as of September 30, 2005.
The
Swap
Agreements were designated as cash flow hedges and recorded at fair value in
our
consolidated balance sheets, and the related gains or losses are deferred in
stockholders’ equity, net of taxes, as a component of other comprehensive income
as of September 30, 2004. We reclassified $610,000, net of taxes of $354,000,
from other comprehensive loss to interest expense upon maturation of the Swap
Agreements in fiscal 2005.
Financial
Condition and Liquidity. Our
sources of cash liquidity include, but are not limited to, cash from operations,
amounts available under credit facilities, proceeds from senior notes and other
bank borrowings, the issuance of equity securities and other external sources
of
funds. Our short-term and long-term liquidity depend primarily upon our level
of
net income, working capital management (accounts receivable, accounts payable
and other liabilities) and bank borrowings. We believe that available short-term
and long-term capital resources are sufficient to fund capital expenditures
and
working capital requirements, scheduled debt and dividend payments, and interest
and tax obligations for the next twelve months. However, any material variance
of our operating results or land acquisitions from our projections or
investments in or acquisitions of businesses, could require us to obtain
additional equity or debt financing. We plan to use cash generated to invest
in
growing the business, to fund land acquisitions and operations, pay dividends
and to repurchase our common stock. We have targeted using $200-$250 million
for
repurchases of our common stock in fiscal 2006, subject to market conditions
and
other factors. We will fund this share repurchase program (discussed further
below) by limiting or curtailing operations in underperforming markets,
reinvesting in higher margin markets and accelerating cash generation through
increased profitability.
At
September 30, 2005, we had cash of $297.1 million, compared to $320.9 million
at
September 30, 2004. The decrease in cash was primarily due to the increase
in
inventory related to higher year end backlog in units and average prices and
increased land bank. Our net cash used in operating activities for the year
ended September 30, 2005 was $84.3 million compared to $73.7 million in fiscal
2004 and $41.0 million in fiscal 2003, as increased inventory supply for future
growth more than offset increased net income. Based on the applicable year’s
closings, as of September 30, 2005, our land bank had grown to include a 5.9
year supply of land/lots for future development compared to a 5.5 year supply
as
of September 30, 2004 and a 5.2 year supply as of September 30,
2003.
Net
cash
used in investing activities was $48.5 million for fiscal 2005 compared to
$30.5
million for fiscal 2004 and $6.6 million for fiscal 2003, as we invested in
unconsolidated joint ventures to support our land acquisition strategy.
Net
cash
provided by financing activities was $109.0 million in fiscal 2005 and $351.7
million in fiscal 2004 compared to a net use of cash of $4.0 million in fiscal
2003. In fiscal 2004 and 2005, proceeds from the senior note issuances
(discussed below) and stock option exercises were somewhat offset by other
debt
repayments, common share repurchases and dividend payments. In fiscal 2003,
proceeds from our term loan were used to pay off an existing term loan and
certain senior notes (as discussed below).
At
September 30, 2005 we had the following long-term debt (in thousands):
|
Debt
|
Due
|
Amount
|
|||||
|
4
5/8%
Convertible Senior Notes
|
June
2024
|
$
|
180,000
|
||||
|
6
7/8%
Senior Notes
|
July
2015
|
350,000
|
|||||
|
6
1/2%
Senior Notes
|
November
2013
|
200,000
|
|||||
|
8
3/8%
Senior Notes
|
April
2012
|
350,000
|
|||||
|
8
5/8%
Senior Notes
|
May
2011
|
200,000
|
|||||
|
Other
notes payable
|
Various
dates
|
46,054
|
|||||
|
Unamortized
discounts
|
(4,118
|
)
|
|||||
|
Total
|
$
|
1,321,936
|
|||||
In
August
2005, we replaced our former credit facility with a new $750 million unsecured
credit facility (the “Credit Facility”) that matures in August 2009. The former
credit facility included a $550 million four-year revolving credit facility
and
a $200 million four-year term loan which would have matured in June 2008. The
Credit Facility is expandable to $1 billion, includes a $50 million swing line
commitment, and bears interest at a fluctuating rate based on the type of loan
elected (ranging from 3.25%-6.75% at September 30, 2005). The Credit Facility
contains various operating and financial covenants. Substantially all of our
significant subsidiaries are guarantors of the obligations under the Credit
Facility. There were no amounts outstanding under the Credit Facility at
September 30, 2005.
We
fulfill our short-term cash requirements with cash generated from our operations
and funds available from our Credit Facility. Available borrowings under the
Credit Facility are limited to certain percentages of homes under contract,
unsold homes, substantially improved lots and accounts receivable. At September
30, 2005, we had available borrowings of $530.1 million under the Credit
Facility.
In
June
2005, the Company issued $300 million aggregate principal amount of 6 ⅞% Senior
Notes due July 2015 (the “6 ⅞% Senior Notes”). The 6 ⅞% Senior Notes were issued
at a price of 99.096% of their face amount (before underwriting and other
issuance costs). In July 2005, the Company issued an additional $50 million
aggregate principal amount of the 6 ⅞% Senior Notes. The additional $50 million
of 6 ⅞% Senior Notes was issued at a price of 99.976% of their face amount
(before underwriting and other issuance costs) and accrue interest from June
8,
2005 (the date of the original issuance of the 6 ⅞% Senior Notes). Interest on
the 6 ⅞% Senior Notes is payable semiannually. Beazer Homes may, at the
Company’s option, redeem the 6 ⅞% Senior Notes in whole or in part at any time
after July 2008 under certain conditions at specified redemption prices.
In
June
2004, we issued $180 million aggregate principal amount of 4 ⅝%
Convertible Senior Notes due 2024 (the “Convertible Senior Notes”). In August
2004 we filed a registration statement on Form S-3 with the Securities and
Exchange Commission (“SEC”) covering resales of the Convertible Senior Notes and
the common stock issuable upon conversion. The Convertible Senior Notes were
issued at a price of 100% of their face amount (before underwriting and other
issuance costs). Interest on the Convertible Senior Notes is payable
semiannually beginning December 2004. The notes are convertible by holders
into
shares of our common stock at an initial conversion rate of 19.44 (post split)
shares of Beazer Homes common stock per $1,000 principal amount (subject to
adjustment for customary reasons), representing an initial conversion price
of
$51.44 per share (post split) of common stock, under the certain circumstances.
We may, at our option, redeem for cash the Convertible Senior Notes in whole
or
in part at any time on or after June 15, 2009 at certain specified redemption
prices. Holders have the right to require us to purchase all or any portion
of
the Convertible Senior Notes for cash on June 15, 2011, June 15, 2014
and June 15, 2019 or if we undergo a fundamental change, as defined.
During
fiscal 2003, we retired our $100 million 8 ⅞% Senior Notes due in 2008 (the “8
⅞% Senior Notes”). The 8 ⅞% Senior Notes were redeemed at 104.438% of the
principal amount, plus accrued interest. As a result of the redemption of the
8
⅞% Senior Notes, we recorded a pre-tax charge of $7.6 million, which includes
the write off of previously capitalized fees.
The
Convertible Senior Notes, the 6 ⅞% Senior Notes, the 6 ½ % Senior Notes, the 8
⅜% Senior Notes and the 8 ⅝% Senior Notes (collectively the “Senior Notes”) were
all issued in public offering or private placements pursuant to Rule 144A and
Regulation S promulgated under the Securities Act of 1933, as amended. The
Senior Notes are unsecured obligations ranking pari
passu
with all
other existing and future senior indebtedness. Excluding the 8 ⅜% Senior Notes
issued in September 2002 which were used partially to fund the cash portion
of
the Crossmann acquisition and to repay Crossmann’s outstanding net indebtedness,
the Senior Notes were generally used to pay off borrowings under existing credit
facilities, fund land acquisitions and for general corporate purposes.
Substantially all of our significant subsidiaries are full and unconditional
guarantors of the Senior Notes and our obligations under the Credit Facility,
and are jointly and severally liable for obligations under the Senior Notes
and
the Credit Facility. Each guarantor subsidiary is a 100% owned subsidiary of
Beazer Homes. Neither the Credit Facility nor the Senior Notes restrict
distributions to Beazer Homes by its subsidiaries. At September 30, 2005 we
were
in compliance with all covenants related to the Credit Facility and Senior
Notes. At September 30, 2005, under the most restrictive covenants of each
indenture governing Senior Notes, approximately $359 million of our retained
earnings were available for cash dividends and for share repurchases. See Note
8
to the Consolidated Financial Statements for additional information regarding
the Senior Notes.
Beazer
Mortgage provides mortgage origination services only, and generally does not
retain or service the mortgages that it originates. Through September 30,
2005, these mortgages were generally funded by one of a network of mortgage
lenders. Beginning
in the second or third quarter of fiscal 2006, Beazer Mortgage will finance
certain of our mortgage lending activities with borrowings under a new warehouse
line of credit. This warehouse line is expected to be effective in December
2005
or early January 2006.
In
February 2003, our Board of Directors approved a stock repurchase plan
authorizing the purchase of up to three million shares (split adjusted) of
our
outstanding common stock. During fiscal 2005, we did not repurchase any shares
in the open market; however, 142,459 shares were surrendered to us by employees
in payment of minimum tax obligations upon the vesting of restricted stock
under
our stock incentive plans. We valued the stock at the market price on the date
of surrender, for an aggregate value of $8.1 million, or approximately $57
per
share. During fiscal 2004, we repurchased 539,400 shares for an aggregate
purchase price of $17.5 million or approximately $33 per share pursuant to
the
plan. During fiscal 2003, we repurchased 384,000 shares for an aggregate
purchase price of $6.9 million or approximately $18 per share pursuant to the
plan. At September 30, 2005, we are authorized to purchase approximately two
million additional shares pursuant to the plan.
On
November 18, 2005, as part of an acceleration of our comprehensive plan to
enhance stockholder value, our Board of Directors authorized an increase of
our
stock repurchase plan to ten million shares of our common stock. Shares may
be
purchased for cash in the open market, on the NYSE or in privately negotiated
transactions. During November 2005, we purchased 778,600 shares with an
aggregate purchase price of $50.4 million pursuant to this plan. We intend
to
enter into a plan under Rule 10b5-1 of the Securities Exchange Act of 1934
to
execute a portion of the share repurchase program, supplemented with
opportunistic purchases in the open market or in privately negotiated
transactions.
For
fiscal 2005, the Company paid quarterly cash dividends aggregating $0.33 per
common share, or a total of approximately $13.9 million. For fiscal 2004, the
Company paid quarterly cash dividends aggregating $0.13 per common share,
adjusted for the stock split, or a total of approximately $5.5 million. No
dividends were paid during fiscal year 2003.
We
attempt to control half or more of our land supply through options. At September
30, 2005, we controlled 106,394 lots (a 5.9-year supply based on fiscal 2005
closings) as follows:
|
Land
Bank
|
|
|
|||||
|
|
Lots
|
Percentage
|
|||||
|
Owned
|
48,064
|
45
|
%
|
||||
|
Optioned
|
58,330
|
55
|
%
|
||||
|
Total
|
106,394
|
100
|
%
|
||||
We
expect
to exercise all of our option contracts with specific performance obligations
and, subject to market conditions, substantially all of our option contracts
without specific performance obligations. As a result of the flexibility that
these options provide us, upon a change in market conditions we may renegotiate
the terms of the options prior to their ultimate exercise.
Off-Balance
Sheet Arrangements and Aggregate Contractual Commitments.
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 provisions, 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 provisions 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 $332.4 million
at September 30, 2005. This amount includes non-refundable letters of credit
of
approximately $35.0 million. Below is a summary of amounts, net of cash
deposits, committed under all options at September 30, 2005 (in
thousands):
|
|
Aggregate
Exercise Price of Options
|
|||
|
Options
with specific performance
|
$
|
10,450
|
||
|
Options
without specific performance
|
2,821,008
|
|||
|
Total
options
|
$
|
2,831,458
|
||
We
expect
to exercise all of our option contracts with specific performance obligations
and, subject to market conditions, substantially all of our option contracts
without specific performance obligations. Various factors, some of which are
beyond our control, such as market conditions, weather conditions and the timing
of the completion of development activities, can have a significant impact
on
the timing of option exercises. Under their current terms, and assuming no
significant changes in market conditions or other factors, we expect to exercise
our land options as follows (in
thousands):
|
Years
Ending September 30,
|
|
|||
|
2006
|
$
|
548,804
|
||
|
2007
|
858,046
|
|||
|
Thereafter
|
1,424,608
|
|||
|
Total
|
$
|
2,831,458
|
||
We
have
historically funded the exercise of land options though a combination of
operating cash flows and borrowings under our credit facilites. We expect these
sources to continue to be adequate to fund anticipated future option exercises.
Therefore, we do not anticipate that the exercise of our land options will
have
a material adverse effect on our liquidity.
Certain
of our option contracts are with sellers who are deemed to be Variable Interest
Entities (“VIEs”) under FASB Interpretation No. 46 (Revised), Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51
(“FIN
46R”). We have determined that we are the primary beneficiary of certain of
these option contracts. Our risk is generally limited to the option deposits
that we pay, and creditors of the sellers generally have no recourse to the
general credit of the Company. 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. Our consolidated balance sheets at September 30, 2005 and 2004
reflect consolidated inventory not owned of $230.1 million and $254.8 million,
respectively. Obligations related to consolidated inventory not owned totaled
$166.2 million at September 30, 2005 and $219.0 million at September 30, 2004.
The difference between the balances of consolidated inventory not owned and
obligations related to consolidated inventory not owned represents cash deposits
paid under the option agreements. The above disclosures of amounts committed
under options include our obligations related to consolidated inventory not
owned.
We
participate in a number of land development joint ventures in which we have
less
than a controlling interest. We enter into joint ventures in order to acquire
attractive land positions, to manage our risk profile and to leverage our
capital base. Our joint ventures are typically entered into with developers
and
other homebuilders to develop finished lots for sale to the joint venture’s
members and other third parties. We account for our interest in these joint
ventures under the equity method. Our consolidated balance sheets include
investments in joint ventures totaling $78.6 million and $44.7 million at
September 30, 2005 and 2004, respectively.
Our
joint
ventures typically obtain secured acquisition, development and construction
financing. At September 30, 2005, our unconsolidated joint ventures had
borrowings outstanding totaling $598.4 million. In some instances, we and our
joint venture partners have provided varying levels of guarantees of debt of
our
unconsolidated joint ventures. At September 30, 2005, we had repayment
guarantees of $10.4 million and loan-to-value maintenance guarantees of $84.6
million of debt of unconsolidated joint ventures. Repayment guarantees require
us to repay our share of debt of unconsolidated joint ventures in the event
the
joint venture defaults on its obligations under the borrowings. Loan-to-value
maintenance guarantees require us to repay our share of the venture’s borrowings
to the extent such borrowings exceed a specified percentage of the value of
the
property securing the loan.
The
following summarizes our aggregate contractual commitments at September 30,
2005:
|
Payments
Due by Period (in
thousands)
|
||||||||||||||||
|
Contractual
Obligations
|
Total
|
Less
than 1 Year
|
1-3
Years
|
3-5
Years
|
More
than 5 Years
|
|||||||||||
|
Senior
Notes and other notes payable
|
$
|
1,326,054
|
$
|
1,705
|
$
|
-
|
$
|
44,349
|
$
|
1,280,000
|
||||||
|
Interest
commitments under Senior Notes
and other notes payable (1)
|
801,428
|
95,438
|
191,035
|
188,590
|
326,365
|
|||||||||||
|
Operating
leases
|
57,205
|
13,617
|
22,158
|
13,224
|
8,206
|
|||||||||||
|
Purchase
obligations (2)
|
10,450
|
5,591
|
3,523
|
1,336
|
-
|
|||||||||||
|
Total
|
$
|
2,195,137
|
$
|
116,351
|
$
|
216,716
|
$
|
247,499
|
$
|
1,614,571
|
||||||
(1)
Interest on variable rate obligations is based on rates effective as of
September 30, 2005.
(2)
Represents obligations under option contracts with specific performance
provisions, net of cash deposits.
We
had
outstanding letters of credit and performance bonds of approximately $47.9
million and $470.1 million, respectively, at September 30, 2005 related
principally to our obligations to local governments to construct roads and
other
improvements in various developments in addition to the letters of credit of
approximately $44.9 million relating to our land option contracts discussed
above. We do not believe that any such letters of credit or bonds are likely
to
be drawn upon.
Recent
Accounting Pronouncements. In
November 2004, the FASB issued SFAS 151, Inventory
Costs, an Amendment of ARB No. 43, Chapter 4.
SFAS
151 provides clarification of the accounting for abnormal amounts of freight,
handling costs, and wasted material and requires that these items be recognized
as current period charges. SFAS 151 is effective for inventory costs incurred
beginning in the first quarter of fiscal 2006. We do not believe the adoption
of
SFAS 151 will have a material impact on our consolidated results of operations
or financial position.
In
December 2004, the FASB issued SFAS 123 (Revised), Share-Based
Payment
(“SFAS
123 (R)”), which will be effective in the first quarter of our fiscal year 2006.
This statement will eliminate the ability to account for share-based
compensation transactions using APB Opinion 25, Accounting
for Stock Issued to Employees,
and
will require instead that compensation expense be recognized based on the fair
value on the date of the grant. The recognition of compensation expense for
stock options will reduce net income in the future. We have decided that we
will
use the modified prospective method for our adoption of SFAS 123(R), and
anticipate that the related incremental compensation expense for existing
unvested and newly granted stock options that will be recognized during fiscal
2006 will range from $4 million to $6 million depending on the number of stock
options granted as well as the assumptions used to value them, including stock
price. SFAS 123(R) also requires the benefits of tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow, rather
than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing
cash
flows in periods after adoption.
In
May
2005, the FASB issued SFAS 154, Accounting
Changes and Error Corrections,
which
will be effective in the first quarter of fiscal year 2007. This statement
addresses the retrospective application of such changes and corrections and
will
be followed if and when necessary. We do not anticipate adoption of this
standard will have a material impact on our consolidated financial statements.
Outlook.
Absent
any unanticipated adverse changes, our outlook for fiscal 2006 diluted earnings
per share is $10.50 per share, not taking into account any impact from our
capital allocation strategies announced in November 2005, including stock
repurchases. Any impact these strategies may have on our outlook will be
addressed prospectively.
Disclosure
Regarding Forward-Looking Statements. This
annual report on Form 10-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements represent our expectations or beliefs concerning
future events, and it is possible that the results described in this annual
report will not be achieved. These forward-looking statements can generally
be
identified by the use of statements that include words such as “estimate,”
“project,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,”
“likely,” “will,” “goal,” “target” or other similar words or phrases. All
forward-looking statements are based upon information available to us on the
date of this annual report. Except as may be required under applicable law,
we
do not undertake any obligation to update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise.
These
forward-looking statements are subject to risks, uncertainties and other
factors, many of which are outside of our control, that could cause actual
results to differ materially from the results discussed in the forward-looking
statements, including, among other things, the matters discussed in this annual
report in the sections captioned “Outlook” and “Financial Condition and
Liquidity.” Additional information about factors that could lead to material
changes in performance is contained Item 1. Business - Risk Factors. Such
factors may include:
|
·
|
economic
changes nationally or in local
markets;
|
|
·
|
volatility
of mortgage interest rates and
inflation;
|
|
·
|
increased
competition;
|
|
·
|
shortages
of skilled labor or raw materials used in the production of
houses;
|
|
·
|
increased
prices for labor, land and raw materials used in the production of
houses;
|
|
·
|
increased
land development costs on projects under
development;
|
|
·
|
the
cost and availability of insurance, including the availability of
insurance for the presence of mold;
|
|
·
|
the
impact of construction defect and home warranty
claims;
|
|
·
|
a
material failure on the part of Trinity Homes LLC to satisfy the
conditions of the class action settlement
agreement;
|
|
·
|
any
delays in reacting to changing consumer preference in home
design;
|
|
·
|
terrorist
acts and other acts of war;
|
|
·
|
changes
in consumer confidence;
|
|
·
|
delays
or difficulties in implementing initiatives to reduce production
and
overhead cost structure;
|
|
·
|
delays
in land development or home construction resulting from adverse weather
conditions;
|
|
·
|
potential
delays or increased costs in obtaining necessary permits as a result
of
changes to, or complying with, laws, regulations, or governmental
policies
and possible penalties for failure to comply with such laws, regulations
and governmental policies;
|
|
·
|
changes
in accounting policies, standards, guidelines or principles, as may
be
adopted by regulatory agencies as well as the FASB;
or
|
|
·
|
other
factors over which the Company has little or no
control.
|
Any
forward-looking statement speaks only as of the date on which such statement
is
made, and, except as required by law, we undertake no obligation to update
any
forward-looking statement to reflect events or circumstances after the date
on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all such factors.
Item
7(a). Quantitative and Qualitative Disclosures
About Market Risk
We
are
exposed to a number of market risks in the ordinary course of business. Our
primary market risk exposure relates to fluctuations in interest rates. We
do
not believe that our exposure in this area is material to cash flows or
earnings. As of September 30, 2005, we had $46.1 million of variable rate debt
outstanding. Based on our fiscal 2005 average outstanding borrowings under
our
variable rate debt, a one-percentage point increase in interest rates would
negatively impact our annual pre-tax earnings by less than $400,000.
The
estimated fair value of our fixed rate debt at September 30, 2005 was $1,310.6
million, compared to a carrying value of $1,275.9 million, due primarily to
the
impact of our increased stock price on the fair value of our 4 ⅝% Convertible
Senior Notes. In addition, the effect of a hypothetical one-percentage point
decrease in interest rates would increase the estimated fair value of the fixed
rate debt instruments from $1,310.6 million to $1,408.0 million at September
30,
2005.
Item
8.
Financial
Statements and Supplementary
Data
Beazer
Homes USA, Inc.
Consolidated
Statements of Income
(in
thousands, except per share amounts)
|
|
Year
Ended September 30,
|
|||||||||
|
|
2005
|
2004
|
2003
|
|||||||
|
|
|
|
|
|||||||
|
Total
revenue
|
$
|
4,995,353
|
$
|
3,907,109
|
$
|
3,177,408
|
||||
|
|
||||||||||
|
Costs
and expenses:
|
||||||||||
|
Home
construction and land sales
|
3,823,300
|
3,099,732
|
2,534,035
|
|||||||
|
Selling,
general and administrative
|
554,900
|
429,442
|
356,648
|
|||||||
|
Goodwill
impairment
|
130,235
|
-
|
-
|
|||||||
|
Expenses
related to retirement of debt
|
-
|
-
|
7,570
|
|||||||
|
Operating
income
|
486,918
|
377,935
|
279,155
|
|||||||
|
Equity
in earnings of unconsolidated joint ventures
|
5,021
|
1,561
|
1,597
|
|||||||
|
Other
income, net
|
7,395
|
7,079
|
4,777
|
|||||||
|
Income
before income taxes
|
499,334
|
386,575
|
285,529
|
|||||||
|
Provision
for income taxes
|
236,810
|
150,764
|
112,784
|
|||||||
|
Net
income
|
$
|
262,524
|
$
|
235,811
|
$
|
172,745
|
||||
|
|
||||||||||
|
|
||||||||||
|
Weighted
average number of shares:
|
||||||||||
|
Basic
|
40,468
|
39,879
|
38,658
|
|||||||
|
Diluted
|
45,634
|
42,485
|
40,541
|
|||||||
|
|
||||||||||
|
Earnings
per share:
|
||||||||||
|
Basic
|
$
|
6.49
|
$
|
5.91
|
$
|
4.47
|
||||
|
Diluted
|
$
|
5.87
|
$
|
5.59
|
$
|
4.26
|
||||
|
|
||||||||||
|
Cash
dividends per share
|
$
|
0.33
|
$
|
0.13
|
$
|
-
|
||||
See
Notes
to Consolidated Financial Statements
Beazer
Homes USA, Inc.
Consolidated
Balance Sheets
(in
thousands, except per share amounts)
|
|
September
30,
|
||||||
|
|
2005
|
2004
|
|||||
|
ASSETS
|
|
|
|||||
|
Cash
and cash equivalents
|
$
|
297,098
|
$
|
320,880
|
|||
|
Accounts
receivable
|
161,880
|
70,574
|
|||||
|
Inventory
|
|||||||
|
Owned
inventory
|
2,671,082
|
2,089,330
|
|||||
|
Consolidated
inventory not owned
|
230,083
|
254,765
|
|||||
|
Total
Inventory
|
2,901,165
|
2,344,095
|
|||||
|
Investments
in and advances to unconsolidated joint ventures
|
78,571
|
44,748
|
|||||
|
Deferred
tax assets
|
101,329
|
47,052
|
|||||
|
Property,
plant and equipment, net
|
28,367
|
24,671
|
|||||
|
Goodwill
|
121,368
|
251,603
|
|||||
|
Other
assets
|
80,738
|
59,407
|
|||||
|
Total
Assets
|
$
|
3,770,516
|
$
|
3,163,030
|
|||
|
|
|||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
|
Trade
accounts payable
|
$
|
141,623
|
$
|
123,287
|
|||
|
Other
liabilities
|
636,106
|
437,608
|
|||||
|
Obligations
related to consolidated inventory not owned
|
166,163
|
219,042
|
|||||
|
Term
Loan
|
-
|
200,000
|
|||||
|
Senior
Notes (net of discounts of $4,118 and $1,095,
respectively)
|
1,275,882
|
928,905
|
|||||
|
Other
notes payable
|
46,054
|
22,067
|
|||||
|
Total
Liabilities
|
2,265,828
|
1,930,909
|
|||||
|
Stockholders'
Equity:
|
|||||||
|
Preferred
stock (par value $.01 per share, 5,000,000 shares authorized, no
shares
issued)
|
-
|
-
|
|||||
|
Common
stock (par value $0.001 and $.01 per share, 80,000,000 and 30,000,000
(pre-split) shares authorized, 41,844,414 and 53,605,047 issued,
41,701,955 and 41,191,419 outstanding)
|
42
|
54
|
|||||
|
Paid
in capital
|
534,523
|
593,874
|
|||||
|
Retained
earnings
|
990,341
|
741,701
|
|||||
|
Treasury
stock, at cost (142,459 and 12,413,628 shares)
|
(8,092
|
)
|
(88,150
|
)
|
|||
|
Unearned
compensation
|
(12,126
|
)
|
(14,748
|
)
|
|||
|
Accumulated
other comprehensive loss
|
-
|
(610
|
)
|
||||
|
Total
Stockholders' Equity
|
1,504,688
|
1,232,121
|
|||||
|
|
|||||||
|
Total
Liabilities and Stockholders' Equity
|
$
|
3,770,516
|
$
|
3,163,030
|
|||
See
Notes
to Consolidated Financial Statements
|
Beazer
Homes USA, Inc.
|
|||||||||||||||||||||||||
|
Consolidated
Statement of Stockholders' Equity
|
|||||||||||||||||||||||||
|
(in
thousands)
|
|||||||||||||||||||||||||
|
|
Preferred
Stock
|
Common
Stock
|
Paid
in Capital
|
Retained
Earnings
|
Treasury
Stock
|
Unearned
Compensation
|
Accumulated
Other Comprehensive Loss
|
Total
|
|||||||||||||||||
|
Balance,
September 30, 2002
|
$
|
-
|
$
|
50
|
$
|
535,577
|
$
|
338,604
|
$
|
(63,679
|
)
|
$
|
(6,260
|
)
|
$
|
(4,777
|
)
|
$
|
799,515
|
||||||
|
Comprehensive
income:
|
|||||||||||||||||||||||||
|
Net
income
|
-
|
-
|
-
|
172,745
|
-
|
-
|
-
|
172,745
|
|||||||||||||||||
|
Unrealized
gain on interest rate swaps, net of tax of $871
|
-
|
-
|
-
|
-
|
-
|
-
|
1,334
|
1,334
|
|||||||||||||||||
|
Total
comprehensive income
|
174,079
|
||||||||||||||||||||||||
|
Amortization
of unearned compensation
|
-
|
-
|
-
|
-
|
-
|
3,984
|
-
|
3,984
|
|||||||||||||||||
|
Exercises
of stock options (1,387,518 shares)
|
-
|
2
|
9,803
|
-
|
-
|
-
|
-
|
9,805
|
|||||||||||||||||
|
Issuance
of bonus stock (291,693 shares)
|
-
|
-
|
1,735
|
-
|
-
|
-
|
-
|
1,735
|
|||||||||||||||||
|
Tax
benefit from stock transactions
|
-
|
-
|
11,502
|
-
|
-
|
-
|
-
|
11,502
|
|||||||||||||||||
|
Issuance
of restricted stock (646,926 shares)
|
-
|
1
|
13,281
|
-
|
-
|
(13,282
|
)
|
-
|
-
|
||||||||||||||||
|
Purchase
of treasury stock (384,000 shares)
|
-
|
-
|
-
|
-
|
(6,925
|
)
|
-
|
-
|
(6,925
|
)
|
|||||||||||||||
|
Other
|
-
|
-
|
294
|
-
|
-
|
(294
|
)
|
-
|
-
|
||||||||||||||||
|
Balance,
September 30, 2003
|
-
|
53
|
572,192
|
511,349
|
(70,604
|
)
|
(15,852
|
)
|
(3,443
|
)
|
993,695
|
||||||||||||||
|
Comprehensive
income:
|
|||||||||||||||||||||||||
|
Net
income
|
-
|
-
|
-
|
235,811
|
-
|
-
|
-
|
235,811
|
|||||||||||||||||
|
Unrealized
gain on interest rate swaps, net of tax of $1,849
|
-
|
-
|
-
|
-
|
-
|
-
|
2,833
|
2,833
|
|||||||||||||||||
|
Total
comprehensive income
|
238,644
|
||||||||||||||||||||||||
|
Dividends
paid
|
-
|
-
|
-
|
(5,459
|
)
|
-
|
-
|
-
|
(5,459
|
)
|
|||||||||||||||
|
Amortization
of unearned compensation
|
-
|
-
|
-
|
-
|
-
|
7,381
|
-
|
7,381
|
|||||||||||||||||
|
Change
in fair value of unearned compensation
|
-
|
-
|
753
|
-
|
-
|
(753
|
)
|
-
|
-
|
||||||||||||||||
|
Exercises
of stock options (778,401 shares)
|
-
|
1
|
5,361
|
-
|
-
|
-
|
-
|
5,362
|
|||||||||||||||||
|
Tax
benefit from stock transactions
|
-
|
8,127
|
-
|
-
|
-
|
-
|
8,127
|
||||||||||||||||||
|
Issuance
of bonus stock (204,411 shares)
|
-
|
-
|
1,917
|
-
|
-
|
-
|
-
|
1,917
|
|||||||||||||||||
|
Issuance
of restricted stock (119,079 shares)
|
-
|
-
|
4,736
|
-
|
-
|
(4,736
|
)
|
-
|
-
|
||||||||||||||||
|
Purchase
of treasury stock (539,400 shares)
|
-
|
-
|
-
|
-
|
(17,546
|
)
|
-
|
-
|
(17,546
|
)
|
|||||||||||||||
|
Other
|
-
|
-
|
788
|
-
|
-
|
(788
|
)
|
-
|
-
|
||||||||||||||||
|
Balance,
September 30, 2004
|
$
|
-
|
$
|
54
|
$
|
593,874
|
$
|
741,701
|
$
|
(88,150
|
)
|
$
|
(14,748
|
)
|
$
|
(610
|
)
|
$
|
1,232,121
|
||||||
|
Comprehensive
income:
|
|||||||||||||||||||||||||
|
Net
income
|
-
|
-
|
-
|
262,524
|
-
|
-
|
-
|
262,524
|
|||||||||||||||||
|
Unrealized
gain on interest rate swaps, net of tax of $354
|
-
|
-
|
-
|
-
|
-
|
610
|
610
|
||||||||||||||||||
|
Total
comprehensive income
|
263,134
|
||||||||||||||||||||||||
|
Dividends
paid
|
-
|
-
|
-
|
(13,884
|
)
|
-
|
-
|
-
|
(13,884
|
)
|
|||||||||||||||
|
Amortization
of unearned compensation
|
-
|
-
|
-
|
-
|
-
|
11,945
|
-
|
11,945
|
|||||||||||||||||
|
Change
in fair value of unearned compensation, net of forfeitures (17,719
shares)
|
-
|
-
|
2,432
|
-
|
-
|
(2,432
|
)
|
-
|
-
|
||||||||||||||||
|
Exercises
of stock options (412,125 shares)
|
5,631
|
244
|
5,875
|
||||||||||||||||||||||
|
Tax
benefit from stock transactions
|
-
|
-
|
11,551
|
-
|
-
|
-
|
-
|
11,551
|
|||||||||||||||||
|
Issuance
of bonus stock (109,937 shares)
|
-
|
-
|
2,034
|
-
|
-
|
4
|
-
|
2,038
|
|||||||||||||||||
|
Issuance
of restricted stock, net of forfeitures (137,957 shares)
|
-
|
-
|
5,823
|
-
|
-
|
(5,823
|
)
|
-
|
-
|
||||||||||||||||
|
Use
of treasury stock for stock dividend (12,413,628 shares)
|
-
|
(12
|
)
|
(88,138
|
)
|
-
|
88,150
|
-
|
-
|
-
|
|||||||||||||||
|
Common
stock redeemed (142,459 shares)
|
-
|
-
|
-
|
-
|
(8,092
|
)
|
-
|
-
|
(8,092
|
)
|
|||||||||||||||
|
Other
|
-
|
-
|
1,316
|
-
|
-
|
(1,316
|
)
|
-
|
-
|
||||||||||||||||
|
Balance,
September 30, 2005
|
$
|
-
|
$
|
42
|
$
|
534,523
|
$
|
990,341
|
$
|
(8,092
|
)
|
$
|
(12,126
|
)
|
$
|
-
|
$
|
1,504,688
|
|||||||
See
Notes
to Consolidated Financial Statements
|
Beazer
Homes USA, Inc.
|
||||||||||
|
Consolidated
Statements of Cash Flows
|
||||||||||
|
(in
thousands)
|
||||||||||
|
|
Year
Ended
|
|||||||||
|
|
September
30,
|
|||||||||
|
|
2005
|
2004
|
2003
|
|||||||
|
Cash
flows from operating activities:
|
|
|
|
|||||||
|
Net
income
|
$
|
262,524
|
$
|
235,811
|
$
|
172,745
|
||||
|
Adjustments
to reconcile net income to net cash used by operating
activities:
|
||||||||||
|
Depreciation
and amortization
|
9,229
|
8,374
|
9,236
|
|||||||
|
Amortization
of unearned compensation
|
11,945
|
7,381
|
3,984
|
|||||||
|
Expenses
related to retirement of debt
|
-
|
-
|
7,570
|
|||||||
|
Goodwill
impairment charge
|
130,235
|
-
|
-
|
|||||||
|
Deferred
income tax (benefit) provision
|
(54,631
|
)
|
(22,740
|
)
|
87
|
|||||
|
Tax
benefit from stock transactions
|
11,551
|
8,127
|
11,502
|
|||||||
|
Equity
in earnings of unconsolidated joint ventures
|
(5,021
|
)
|
(1,561
|
)
|
(1,597
|
)
|
||||
|
Cash
distributions of income from unconsolidated joint ventures
|
5,844
|
-
|
-
|
|||||||
|
Changes
in operating assets and liabilities:
|
||||||||||
|
Increase
in accounts receivable
|
(91,306
|
)
|
(4,571
|
)
|
(11,674
|
)
|
||||
|
Increase
in inventory
|
(566,603
|
)
|
(410,525
|
)
|
(328,893
|
)
|
||||
|
Increase
in other assets
|
(16,775
|
)
|
(16,828
|
)
|
(1,431
|
)
|
||||
|
Increase/(decrease)
in trade accounts payable
|
18,336
|
(2,234
|
)
|
16,967
|
||||||
|
Increase
in other liabilities
|
199,076
|
123,210
|
79,257
|
|||||||
|
Other
changes
|
1,333
|
1,837
|
1,198
|
|||||||
|
Net
cash used by operating activities
|
(84,263
|
)
|
(73,719
|
)
|
(41,049
|
)
|
||||
|
Cash
flows from investing activities:
|
||||||||||
|
Capital
expenditures
|
(13,448
|
)
|
(10,271
|
)
|
(9,325
|
)
|
||||
|
Investments
in unconsolidated joint ventures
|
(40,619
|
)
|
(25,844
|
)
|
(4,941
|
)
|
||||
|
Distributions
from and proceeds from sale of unconsolidated joint
ventures
|
5,597
|
5,639
|
7,714
|
|||||||
|
Net
cash used by investing activities
|
(48,470
|
)
|
(30,476
|
)
|
(6,552
|
)
|
||||
|
Cash
flows from financing activities:
|
||||||||||
|
Proceeds
from Term Loan
|
-
|
200,000
|
200,000
|
|||||||
|
Repayment
of Term Loan
|
(200,000
|
)
|
(200,000
|
)
|
(100,000
|
)
|
||||
|
Borrowings
under credit facilities
|
439,700
|
-
|
114,100
|
|||||||
|
Repayment
of credit facilities
|
(439,700
|
)
|
-
|
(114,100
|
)
|
|||||
|
Repayment
of other notes payable
|
(16,776
|
)
|
-
|
-
|
||||||
|
Redemption
of Senior Notes
|
-
|
-
|
(104,438
|
)
|
||||||
|
Proceeds
from issuance of Senior Notes
|
346,786
|
380,000
|
-
|
|||||||
|
Debt
issuance costs
|
(4,958
|
)
|
(10,654
|
)
|
(2,458
|
)
|
||||
|
Proceeds
from stock option exercises
|
5,875
|
5,362
|
9,805
|
|||||||
|
Common
stock redeemed
|
(8,092
|
)
|
-
|
-
|
||||||
|
Treasury
stock purchases
|
-
|
(17,546
|
)
|
(6,925
|
)
|
|||||
|
Dividends
paid
|
(13,884
|
)
|
(5,459
|
)
|
-
|
|||||
|
Net
cash provided/(used) by financing activities
|
108,951
|
351,703
|
(4,016
|
)
|
||||||
|
(Decrease)/increase
in cash and cash equivalents
|
(23,782
|
)
|
247,508
|
(51,617
|
)
|
|||||
|
Cash
and cash equivalents at beginning of year
|
320,880
|
73,372
|
124,989
|
|||||||
|
Cash
and cash equivalents at end of year
|
$
|
297,098
|
$
|
320,880
|
$
|
73,372
|
||||
|
|
||||||||||
|
Supplemental
cash flow information:
|
||||||||||
|
Interest
paid
|
$
|
79,088
|
$
|
65,237
|
$
|
67,580
|
||||
|
Income
taxes paid
|
$
|
233,965
|
$
|
170,475
|
$
|
77,904
|
||||
|
Supplemental
disclosure of non-cash activity:
|
||||||||||
|
Consolidated
inventory not owned
|
$
|
-
|
$
|
188,585
|
$
|
30,457
|
||||
|
Land
acquired through issuance of notes payable
|
$
|
40,608
|
$
|
21,502
|
$
|
-
|
||||
See
Notes
to Consolidated Financial Statements
Notes
to Consolidated Financial Statements
(1)
Summary of Significant Accounting Policies
Organization.
Beazer
Homes USA, Inc. is one of the ten largest homebuilders in the United States,
based on number of homes closed. We design, sell and build primarily
single-family homes in over 45 markets located in Arizona, California, Colorado,
Delaware, Florida, Georgia, Indiana, Kentucky, Maryland, Mississippi, Nevada,
New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, South
Carolina, Tennessee, Texas, Virginia and West Virginia. We also provide mortgage
origination services for our homebuyers through Beazer Mortgage Corporation,
or
Beazer Mortgage. Beginning
in fiscal year 2006, Beazer Mortgage will finance our mortgage lending
activities with borrowings under a new warehouse line of credit or from general
corporate funds prior to selling the loans and their servicing rights shortly
after origination to third-party investors. In
addition, we provide title services to our homebuyers in many of our
markets.
Presentation.
Our
homebuilding operations conducted across several geographic regions of the
United States have similar characteristics; therefore, they have been aggregated
into one reportable segment - the homebuilding segment.
The
accompanying consolidated financial statements include the accounts of Beazer
Homes USA, Inc. and our wholly owned subsidiaries. Intercompany balances
have
been eliminated in consolidation.
Cash
and Cash Equivalents. We
consider investments with maturities of three months or less when purchased
to
be cash equivalents.
Inventory.
Owned inventory
consists solely of residential real estate developments. Interest, real estate
taxes and development costs are capitalized in inventory during the development
and construction period. Sold units are expensed on a specific identification
basis or on a relative sales value basis as cost of sales. Consolidated
inventory not owned represents the fair value of land under option agreements
consolidated pursuant to Financial Accounting Standards Board (“FASB”)
Interpretation No. 46 (Revised), Consolidation
of Variable Interest Entities,
an
Interpretation of ARB No. 51 (“FIN 46R”).
Investments
in and Advances to Unconsolidated Joint Ventures. We
participate in a number of land development joint ventures in which we have
less
than a controlling interest. Our joint ventures are typically entered into
with
developers and other homebuilders to develop finished lots for sale to the
joint
venture’s members and other third parties. We account for our interest in these
joint ventures under the equity method. We recognize our share of profits
from
the sale of lots to other buyers. Our share of profits from lots we purchase
from the joint ventures is deferred and treated as a reduction of the cost
of
the land purchased from the joint venture. Such profits are subsequently
recognized at the time the home closes and title passes to the
homebuyer.
Property,
Plant and Equipment. Property,
plant and equipment is recorded at cost. Depreciation is computed on a
straight-line basis at rates based on estimated useful lives as
follows:
|
Buildings
|
15
- 30 years
|
|
Machinery
and equipment
|
3
-
10 years
|
|
Information
systems
|
5
years
|
|
Furniture
and fixtures
|
3
-
7 years
|
|
Leasehold
improvements
|
Lesser
of the lease term or the estimated useful life of the
asset
|
Impairment
of Long Lived Assets. Housing
projects and unimproved land held for future development (components of
inventory) and property, plant and equipment are reviewed for recoverability
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.
Goodwill. Goodwill
represents the excess of the purchase price over the fair value of assets
acquired. We test goodwill for impairment annually as of April 30 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 goodwill exceeds
implied fair value of that goodwill. During fiscal 2005, we obtained an
independent valuation of our reporting units and recorded a $130.2 million
non-cash, non tax-deductible impairment charge to write off substantially
all of
the goodwill allocated to certain underperforming markets in Indiana, Ohio,
Kentucky and Charlotte, North Carolina. The forecasts and valuations of the
respective divisions, along with weaker than anticipated local economies,
particularly in the Midwest markets, and severe price competition, particularly
at entry level price points, led the Company to conclude the goodwill was
impaired in accordance with Statement of Financial Accounting Standards (“SFAS”)
142, Goodwill
and Other Intangible Assets.
Other
Assets. Other
assets principally include prepaid expenses, debt issuance costs and deferred
compensation plan assets.
Income
Taxes. Income
taxes are accounted for in accordance with SFAS 109, Accounting
for Income Taxes.
Under
SFAS 109, deferred tax assets and liabilities are determined based on
differences between financial reporting carrying values and tax bases of
assets
and liabilities and are measured using the enacted tax rates and laws that
are
expected to be in effect when the differences are expected to
reverse.
Other
Liabilities. Other liabilities
include homebuyer deposits, land purchase obligations, accrued compensation,
accrued warranty costs and various other accrued expenses.
Income
Recognition and Classification of Costs. Income
from the sale of residential units or land parcels is recognized when closings
have occurred and the risk of ownership is transferred to the buyer. Sales
commissions are included in selling, general and administrative
expenses.
Fees
paid
to Beazer Mortgage from third-party lenders are recognized as revenue concurrent
with the closing on the sale of the residential unit. All expenses of operating
Beazer Mortgage are included in selling, general and administrative expenses
in
the period incurred.
Estimated
future warranty costs are charged to cost of sales in the period when the
revenues from home closings are recognized. Such estimated warranty costs
generally range from 0.5% to 1.0% of total revenue. Additional warranty costs
are charged to cost of sales as necessary based on management’s estimate of the
costs to remediate existing claims. See Note 14 for a more detailed discussion
of warranty costs and related reserves.
Advertising
costs of $44,792,000, $44,696,000 and $34,775,000 for fiscal years 2005,
2004
and 2003, respectively, were expensed as incurred and are included in selling,
general and administrative expenses.
Earnings
Per Share (“EPS”) and Stock Split. The
computation of basic earnings per common share is determined by dividing
net
income applicable to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted EPS additionally gives
effect (when dilutive) to stock options, other stock based awards and other
potentially dilutive securities. In October 2004, the Emerging Issues Task
Force
(“EITF”) of the FASB ratified the consensus on EITF Issue No. 04-8: The
Effect of Contingently Convertible Debt on Diluted Earnings Per
Share
(“EITF
04-8”). EITF 04-8 requires that shares issuable upon conversion of contingently
convertible debt instruments (“Co-Co’s”) be included in diluted EPS computations
using the “if-converted method” regardless of whether the issuer’s stock price
exceeds the contingent conversion price. Prior to EITF 04-8, shares issuable
upon conversion of Co-Co’s were generally excluded from diluted EPS computations
until the issuer’s stock price exceeded the contingent conversion price. EITF
04-8, which applies to our 4 ⅝% Convertible Senior Notes issued in June 2004,
was effective beginning with the first fiscal quarter of our 2005 fiscal
year.
On
February 4, 2005, the Company’s Board of Directors declared a three-for-one
stock split in the form of a stock dividend. The stock dividend was distributed
on March 22, 2005 to stockholders of record on March 10, 2005. In addition,
during fiscal 2005, the
Company’s stockholders approved an amendment to the Company’s certificate of
incorporation to increase the number of authorized shares of common stock
from
30 million to 80 million shares and to change the par value of the common
stock
to $.001 per share. As a result, the Company reclassified amounts from
common stock to additional paid in capital based on the total shares of common
stock issued. The Company used approximately 12.4 million shares of treasury
shares to satisfy a portion of the stock dividend. The issuance of treasury
shares was accounted for by transferring the book value of those shares from
treasury stock to additional paid in capital and common stock.
All
share
and per share information including earnings
per share calculations for all periods presented have been restated to give
retroactive application to the three-for-one stock split and for the inclusion
of shares issuable upon conversion of our Co-Co’s in accordance
with EITF 04-08, as applicable.
Fair
Value of Financial Instruments. The
fair
value of our cash and cash equivalents, term loan and other notes payable
approximate their carrying amounts due to the short maturity of these assets
and
the variable interest rates on such obligations. The fair value of our publicly
held senior notes (Note 8) is estimated based on the quoted bid prices for
these
debt instruments and was approximately $1,310.6 million at September 30,
2005
and $1,010.2 million at September 30, 2004. The fair value of our interest
rate
swaps, based on then existing current rates, approximated $1.0 million and
was
included in other liabilities at September 30, 2004. There are no interest
rate
swaps outstanding at September 30, 2005.
Stock-Based
Compensation.
We
account for stock awards granted to employees under the recognition and
measurement principles of Accounting Principles Board Opinion 25, Accounting
for Stock Issued to Employees,
and
related Interpretations (“APB 25”). 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. Compensation expense for restricted stock granted to employees is
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 SFAS 123, Accounting
for Stock-Based Compensation
and
Emerging Issues Task Force Issue No. 96-18, Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
or
in Conjunction with Selling, Goods or Services.
Stock
options issued to non-employees are valued using the Black-Scholes option
pricing model. Expense for restricted stock granted to non-employees is
initially 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 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 123, as amended by SFAS 148 Accounting
for Stock-Based Compensation - Transition and Disclosure,
to
stock-based employee compensation:
|
Year
Ended
|
||||||||||
|
September
30,
|
||||||||||
|
2005
|
2004
|
2003
|
||||||||
|
Net
income, as reported
|
$
|
262,524
|
$
|
235,811
|
$
|
172,745
|
||||
|
Add:
Stock-based employee compensation expense included in reported
net income,
net of related tax effects
|
7,376
|
4,503
|
2,410
|
|||||||
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards, net of related tax
effects
|
(10,341
|
)
|
(7,521
|
)
|
(5,409
|
)
|
||||
|
Pro
forma net income
|
$
|
259,559
|
$
|
232,793
|
$
|
169,746
|
||||
|
Earnings
per share:
|
||||||||||
|
Basic
- as reported
|
$
|
6.49
|
$
|
5.91
|
$
|
4.47
|
||||
|
Basic
- pro forma
|
$
|
6.41
|
$
|
5.84
|
$
|
4.39
|
||||
|
Diluted
- as reported
|
$
|
5.87
|
$
|
5.59
|
$
|
4.26
|
||||
|
Diluted
- pro forma
|
$
|
5.85
|
$
|
5.55
|
$
|
4.22
|
||||
The
weighted average fair value of each option granted during the years ended
September 30, 2005, 2004, and 2003 was $15.80, $13.60 and $10.96, respectively.
The fair values of options granted were estimated on the date of their grant
using the Black-Scholes option pricing model based on the following weighted
average assumptions:
|
|
2005
|
2004
|
2003
|
||
|
Expected
volatility
|
44.01%
|
44.14%
|
46.70%
|
||
|
Expected
dividend yield
|
0.33%
|
0.40%
|
none
|
||
|
Risk-free
interest rate
|
3.39%
|
3.13%
|
3.60%
|
||
|
Expected
life (in years)
|
5.0
|
5.0
|
7.0
|
Use
of Estimates. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets
and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications.
Certain
items in prior-period financial statements have been reclassified to conform
to
the current presentation.
Recent
Accounting Pronouncements.
In
November 2004, the FASB issued SFAS 151, Inventory
Costs, an Amendment of ARB 43, Chapter 4.
SFAS
151 provides clarification of the accounting for abnormal amounts of freight,
handling costs, and wasted material and requires that these items be recognized
as current period charges. SFAS 151 is effective for inventory costs incurred
beginning in the first quarter of fiscal 2006. We do not believe the adoption
of
SFAS 151 will have a material impact on our consolidated results of operations
or financial position.
In
December 2004, the FASB issued SFAS 123 (revised), Share-Based
Payment,
which
will be effective in the first quarter of fiscal year 2006. This statement
will
eliminate the ability to account for share-based compensation transactions
using
APB 25 and will require instead that compensation expense be recognized based
on
the fair value on the date of the grant. The recognition of compensation
expense
for stock options will reduce net income in the future. We have decided that
we
will use the modified prospective method for our adoption of SFAS 123(R),
and
anticipate that the related incremental compensation expense for existing
unvested and newly granted stock options that will be recognized during fiscal
2006 will range from $4 million to $6 million depending on the number of
stock
options granted as well as the assumptions used to value them, including
stock
price. SFAS 123(R) also requires the benefits of tax deductions in excess
of
recognized compensation cost to be reported as a financing cash flow, rather
than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing
cash
flows in periods after adoption.
In
May
2005, the FASB issued SFAS 154, Accounting
Changes and Error Corrections,
which
will be effective in the first quarter of fiscal year 2007. This statement
addresses the retrospective application of such changes and corrections and
will
be followed if and when necessary. We do not anticipate adoption of this
standard will have a material impact on our consolidated financial statements.
(2)
Derivative Instruments and Hedging Activities
We
are
exposed to fluctuations in interest rates. From time to time, 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. During the year ended September
30, 2001 we entered into interest rate swap agreements (the “Swap Agreements”)
to effectively fix the variable interest rate on $100 million of floating
rate
debt. The Swap Agreements matured in December 2004. The Company has no
derivative instruments as of September 30, 2005.
The
Swap
Agreements were designated as cash flow hedges and, accordingly, were recorded
at fair value in our consolidated balance sheets and the related gains or
losses
were deferred in stockholders’ equity, net of taxes, as a component of other
comprehensive income. No portion of these hedges was considered ineffective
for
the year ended September 30, 2004. We reclassified approximately $610,000,
net
of taxes of $354,000, from other comprehensive loss to interest expense during
fiscal 2005.
(3)
Investments in and Advances to Unconsolidated Joint
Ventures
Our
joint
ventures typically obtain secured acquisition, development and construction
financing. At September 30, 2005, our unconsolidated joint ventures had
borrowings outstanding totaling $598.4 million. In some instances, we and
our
joint venture partners have provided varying levels of guarantees of debt
of our
unconsolidated joint ventures. At September 30, 2005, we had repayment
guarantees of $10.4 million and loan-to-value maintenance guarantees of $84.6
million of debt of unconsolidated joint ventures. Repayment guarantees require
us to repay our share of debt of unconsolidated joint ventures in the event
the
joint venture defaults on its obligations under the borrowings. Loan-to-value
maintenance guarantees require us to repay our share of the venture’s borrowings
to the extent such borrowings exceed a specified percentage of the value
of the
property securing the loan.
(4)
Inventory
Inventory
consists of (in
thousands):
|
|
September
30,
|
||||||
|
|
2005
|
2004
|
|||||
|
Homes
under construction
|
$
|
1,040,193
|
$
|
847,517
|
|||
|
Development
projects in progress
|
1,519,554
|
1,105,933
|
|||||
|
Unimproved
land held for future development
|
44,809
|
57,563
|
|||||
|
Model
homes
|
66,526
|
78,317
|
|||||
|
Consolidated
inventory not owned
|
230,083
|
254,765
|
|||||
|
|
$
|
2,901,165
|
$
|
2,344,095
|
|||
Homes
under construction include homes finished and ready for delivery and homes
in
various stages of construction. We had 414 ($72.2 million) and 345 ($69.1
million) completed homes that were not subject to a sales contract, not
including model homes, at September 30, 2005 and 2004,
respectively.
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.
Inventory
located in California, the state with our largest concentration of inventory,
was $536.7 million and $400.6 million at September 30, 2005, and 2004,
respectively.
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 provisions, 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 provisions is included in 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 $332.4 million
at September 30, 2005. This amount includes non-refundable letters of credit
of
approximately $35.0 million. Below is a summary of amounts, net of cash
deposits, committed under all options at September 30, 2005 (in
thousands):
|
|
Aggregrate
Exercise Price of Options
|
|||
|
Options
with specific performance
|
$
|
10,450
|
||
|
Options
without specific performance
|
2,821,008
|
|||
|
Total
options
|
$
|
2,831,458
|
||
We
expect
to exercise all of our option contracts with specific performance obligations
and, subject to market conditions, substantially all of our option contracts
without specific performance obligations. Various factors, some of which
are
beyond our control, such as market conditions, weather conditions and the
timing
of the completion of development activities, can have a significant impact
on
the timing of option exercises. Under their current terms, and assuming no
significant changes in market conditions or other factors, we expect to exercise
our land options as follows (in
thousands):
|
Year
Ending September 30,
|
|
|||
|
2006
|
$
|
548,804
|
||
|
2007
|
858,046
|
|||
|
Thereafter
|
1,424,608
|
|||
|
Total
|
$
|
2,831,458
|
||
Certain
of our option contracts are with sellers who are deemed to be Variable Interest
Entities (“VIEs”) under FIN 46R. FIN 46R defines a VIE as an entity with
insufficient equity investment to finance its planned activities without
additional financial support or an entity in which the equity investors lack
certain characteristics of a controlling financial interest. Pursuant to
FIN
46R, an enterprise that absorbs a majority of the expected losses or receives
a
majority of the expected residual returns of a VIE is deemed to be the primary
beneficiary of the VIE and must consolidate the VIE.
We
have
determined that we are the primary beneficiary of certain of these option
contracts. Our risk is generally limited to the option deposits that we pay,
and
creditors of the sellers generally have no recourse to the general credit
of the
Company. 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. Our consolidated
balance sheets at September 30, 2005 and 2004 reflect consolidated inventory
not
owned of $230.1 million and $254.8 million, respectively. Obligations related
to
consolidated inventory not owned totaled $166.2 million at September 30,
2005
and $219.0 million at September 30, 2004. The difference between the balances
of
consolidated inventory not owned and obligations related to consolidated
inventory not owned represents cash deposits paid under the option agreements.
The above disclosures of amounts committed under options include our obligations
related to consolidated inventory not owned.
(5)
Interest
Information
regarding interest (in
thousands)
is as
follows:
|
|
Year
Ended September 30,
|
|||||||||
|
|
2005
|
2004
|
2003
|
|||||||
|
Capitalized
interest in inventory, beginning of year
|
$
|
44,121
|
$
|
34,285
|
$
|
24,441
|
||||
|
Interest
incurred and capitalized
|
89,678
|
76,035
|
65,295
|
|||||||
|
Capitalized
interest amortized to cost of sales
|
(82,388
|
)
|
(66,199
|
)
|
(55,451
|
)
|
||||
|
Capitalized
interest in inventory, end of year
|
$
|
51,411
|
$
|
44,121
|
$
|
34,285
|
||||
(6)
Property, Plant and Equipment
Property,
plant and equipment consists of (in
thousands):
|
|
September
30,
|
||||||
|
|
2005
|
2004
|
|||||
|
Land
and buildings
|
$
|
5,502
|
$
|
5,464
|
|||
|
Leasehold
improvements
|
8,157
|
7,100
|
|||||
|
Machinery
and equipment
|
25,708
|
20,459
|
|||||
|
Information
systems
|
19,441
|
17,226
|
|||||
|
Furniture
and fixtures
|
13,884
|
13,307
|
|||||
|
|
72,692
|
63,556
|
|||||
|
Less:
Accumulated depreciation
|
(44,325
|
)
|
(38,885
|
)
|
|||
|
Property,
plant and equipment, net
|
$
|
28,367
|
$
|
24,671
|
|||
(7)
Credit Facility
In
August
2005 we entered into a new $750 million (expandable up to $1 billion), four-year
unsecured revolving credit facility (the “Credit Facility”) with a group of
banks that matures in August 2009. The Credit Facility replaced our former
$550
million bank credit facility and $200 million Term Loan. The Credit Facility
includes a $50 million swing line commitment and has a $350 million sublimit
for
the issuance of standby letters of credit. Substantially all of the Company’s
significant subsidiaries are guarantors of the obligations under the Credit
Facility (see Note 15). The Credit Facility contains various operating and
financial covenants. The Company has the option to elect two types of loans
under the Credit Facility which incur interest as applicable based on either
the
Alternative Base Rate or the Applicable Eurodollar Margin (both as defined
in
the Credit Facility).
Available
borrowings under the Credit Facility are limited to certain percentages of
homes
under contract, unsold homes, substantially improved lots and accounts
receivable. At September 30, 2005, we had no borrowings outstanding, and
had
available borrowings of $530.1 million under the Credit Facility.
(8)
Long-Term Debt
In
June
2005, the Company issued $300 million aggregate principal amount of 6 ⅞% Senior
Notes due July 2015 (the “6 ⅞% Senior Notes”). The 6 ⅞% Senior Notes were issued
at a price of 99.096% of their face amount (before underwriting and other
issuance costs). In July 2005, the Company issued an additional $50 million
aggregate principal amount of the 6 ⅞% Senior Notes. The additional $50 million
of 6 ⅞% Senior Notes was issued at a price of 99.976% of their face amount
(before underwriting and other issuance costs) and accrue interest from June
8,
2005 (the date of the original issuance of the 6 ⅞% Senior Notes). Interest on
the 6 ⅞% Senior Notes is payable semiannually. Beazer Homes may, at the
Company’s option, redeem the 6 ⅞% Senior Notes in whole or in part at any time
after July 2008, under certain conditions and at specific redemption prices.
In
June
2004, we issued $180 million aggregate principal amount of 4 ⅝%
Convertible Senior Notes due 2024 (the “Convertible Senior Notes”). In August
2004 we filed a registration statement on Form S-3 with the SEC covering
resales
of the Convertible Senior Notes and the common stock issuable upon conversion.
The Convertible Senior Notes were issued at a price of 100% of their face
amount
(before underwriting and other issuance costs). Interest on the Convertible
Senior Notes is payable semiannually beginning December 2004. The notes are
convertible by holders into shares of our common stock at an initial conversion
rate of 19.44 shares of Beazer Homes common stock per $1,000 principal amount
(subject to adjustment for customary reasons), representing an initial
conversion price of $51.44 per share of common stock, under certain
circumstances. We may, at our option, redeem for cash the Convertible Senior
Notes in whole or in part at any time on or after June 15, 2009 at specified
redemption prices. Holders have the right to require us to purchase all or
any
portion of the Convertible Senior Notes for cash on June 15, 2011,
June 15, 2014 and June 15, 2019 or if we undergo a fundamental change,
as defined. In each case, we will pay a purchase price equal to 100% of the
principal amount of the notes to be purchased plus any accrued and unpaid
interest, including contingent interest, if any, and any additional amounts
owed, if any, to such purchase date.
In
May
2004, we completed an offer to exchange all of the $200 million 6 ½% Senior
Notes issued November 2003 for an equal amount of 6 ½% Senior Notes due November
2013 (the “6 ½% Senior Notes”), which were registered under the Securities Act
of 1933. These notes were initially sold at a price of 100% of their face
amount
(before underwriting 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 under certain conditions and at specified
redemption prices.
In
September 2002, we completed an offer to exchange all of the outstanding
$350
million 8 ⅜% Senior Notes issued April 2002 for an equal amount of 8 ⅜ Senior
Notes due 2012 (the “8 ⅜% Senior Notes”), which were registered under the
Securities Act of 1933. These notes were initially sold at a price of 100%
of
their face amount (before underwriting and other issuance costs). Interest
on
the 8 ⅜% Senior Notes is payable semiannually. We may, at our option, redeem the
8 ⅜% Senior Notes in whole or in part at any time under certain conditions and
at specified redemption prices.
In
May
2001, we issued $200 million 8 ⅝% Senior Notes due May 2011 (the “8 ⅝% Senior
Notes”) at a price of 99.178% of their face amount (before underwriting and
other issuance costs). Interest on the 8 ⅝% Senior Notes is payable
semiannually. We may, at our option, redeem the 8 ⅝% Senior Notes in whole or in
part at any time after May 2006 at specified redemption prices.
During
fiscal 2003, we retired our $100 million 8 ⅞% Senior Notes due in 2008 (the “8
⅞% Senior Notes”). The 8 ⅞% Senior Notes were redeemed at 104.438% of the
principal amount, plus accrued interest. As a result of the redemption of
the 8
⅞% Senior Notes, we recorded a pre-tax charge of $7.6 million, which includes
the write off of previously capitalized fees.
Unless
otherwise stated, the 6 ⅞% Senior Notes, the Convertible Senior Notes, the 6 ½%
Senior Notes, the 8 ⅜% Senior Notes and the 8 ⅞% Senior Notes (collectively the
“Senior Notes”) were issued in private placements pursuant to Rule 144A and
Regulation S promulgated under the Securities Act of 1933, as amended. The
Senior Notes are unsecured obligations ranking pari
passu
with all
other existing and future senior indebtedness. Substantially all of our
significant subsidiaries are full and unconditional guarantors of the Senior
Notes and our obligations under the Credit Facility, and are jointly and
severally liable for obligations under the Senior Notes, and the Credit
Facility. Each guarantor subsidiary is a 100% owned subsidiary of Beazer
Homes.
The
indentures under which the Senior Notes were issued contain certain restrictive
covenants, including limitations on payment of dividends. At September 30,
2005,
under the most restrictive covenants of each indenture, approximately $359
million of our retained earnings was available for cash dividends and for
share
repurchases. Each indenture provides that, in the event of defined changes
in
control or if our consolidated tangible net worth falls below a specified
level
or in certain circumstances upon a sale of assets, we are required to offer
to
repurchase certain specified amounts of outstanding Senior Notes.
We
periodically acquire land through the issuance of notes payable. As of September
30, 2005 and 2004, we had outstanding notes payable of $46.1 million and
$22.1million related to land acquisitions, respectively. These notes payable
expire at various times through 2010 at variable rates ranging from 5.0%
to 8.1%
at September 30, 2005.
As
of
September 30, 2005, future maturities of long-term debt are as follows
(in
thousands):
|
Year
Ending September 30,
|
|
|||
|
2006
|
$
|
1,705
|
||
|
2007
|
-
|
|||
|
2008
|
-
|
|||
|
2009
|
11,710
|
|||
|
2010
|
32,639
|
|||
|
Thereafter
|
1,280,000
|
|||
|
Total
|
$
|
1,326,054
|
||
(9)
Income Taxes
The
provision for income taxes consists of (in
thousands):
|
|
Year
Ended September 30,
|
|||||||||
|
|
2005
|
2004
|
2003
|
|||||||
|
Current:
|
|
|
|
|||||||
|
Federal
|
$
|
254,765
|
$
|
153,228
|
$
|
106,871
|
||||
|
State
|
31,682
|
22,427
|
16,261
|
|||||||
|
Deferred
|
(49,637
|
)
|
(24,891
|
)
|
(10,348
|
)
|
||||
|
Total
|
$
|
236,810
|
$
|
150,764
|
$
|
112,784
|
||||
The
provision for income taxes differs from the amount computed by applying the
federal income tax statutory rate as follows (in
thousands):
|
|
Year
Ended September 30,
|
|||||||||
|
|
2005
|
2004
|
2003
|
|||||||
|
Income
tax computed at statutory rate
|
$
|
174,767
|
$
|
135,298
|
$
|
99,935
|
||||
|
State
income taxes, net of federal benefit
|
15,904
|
16,226
|
12,764
|
|||||||
|
Impairment
of non-deductible goodwill
|
45,582
|
-
|
-
|
|||||||
|
Other
|
557
|
(760
|
)
|
85
|
||||||
|
Total
|
$
|
236,810
|
$
|
150,764
|
$
|
112,784
|
||||
Deferred
tax assets and liabilities are composed of the following (in
thousands):
|
|
September
30,
|
||||||
|
|
2005
|
2004
|
|||||
|
Deferred
tax assets:
|
|
|
|||||
|
Warranty
and other reserves
|
$
|
82,328
|
$
|
40,900
|
|||
|
Incentive
compensation
|
14,725
|
7,377
|
|||||
|
Property,
equipment and other assets
|
2,227
|
2,275
|
|||||
|
Interest
rate swaps
|
-
|
354
|
|||||
|
State
loss carryforward
|
3,639
|
-
|
|||||
|
Other
|
3,570
|
2,004
|
|||||
|
Total
deferred tax assets
|
106,489
|
52,910
|
|||||
|
|
|||||||
|
Deferred
tax liabilities:
|
|||||||
|
Inventory
adjustments
|
(3,745
|
)
|
(5,416
|
)
|
|||
|
Other
|
(1,415
|
)
|
(442
|
)
|
|||
|
Total
deferred tax liabilities
|
(5,160
|
)
|
(5,858
|
)
|
|||
|
|
|||||||
|
Net
deferred tax assets
|
$
|
101,329
|
$
|
47,052
|
|||
At
September 30, 2005, we had U.S. state net operating loss carryforwards (“NOL”)
of approximately $67.5 million that will expire between 2009 and 2024. We
expect
to fully utilize these NOLs. We believe that based upon our history of
profitable operations, it is more likely than not that our net deferred tax
assets will be realized.
(10)
Leases
We
are
obligated under various noncancelable operating leases for office facilities
and
equipment. Rental expense under these agreements amounted to approximately
$17,054,000, $14,116,000 and $11,562,000 for the years ended September 30,
2005,
2004 and 2003, respectively. As of September 30, 2005, future minimum lease
payments under noncancelable operating lease agreements are as follows
(in
thousands):
|
Year
Ending September 30,
|
|
|||
|
2006
|
$
|
13,617
|
||
|
2007
|
11,922
|
|||
|
2008
|
10,236
|
|||
|
2009
|
8,075
|
|||
|
2010
|
5,149
|
|||
|
Thereafter
|
8,206
|
|||
|
Total
|
$
|
57,205
|
||
(11)
Stockholders' Equity
Preferred
Stock. We
currently have no shares of preferred stock outstanding.
Common
Stock Repurchase Plan. In
February 2003, our Board of Directors approved a stock repurchase plan
authorizing the purchase of up to three million shares (split adjusted) of
our
outstanding common stock. During fiscal 2005, we did not repurchase any shares
in the open market; however, 142,459 shares were surrendered to us by employees
in payment of minimum tax obligations upon the vesting of restricted stock
under
our stock incentive plans. We valued the stock at the market price on the
date
of surrender, for an aggregate value of $8.1 million, or approximately $57
per
share. During fiscal 2004, we repurchased 539,400 shares for an aggregate
purchase price of $17.5 million or approximately $33 per share pursuant to
the
plan. During fiscal 2003, we repurchased 384,000 shares for an aggregate
purchase price of $6.9 million or approximately $18 per share pursuant to
the
plan. At September 30, 2005, we are authorized to purchase approximately
two
million additional shares pursuant to the plan.
On
November 18, 2005, as part of an acceleration of our comprehensive plan to
enhance stockholder value, our Board of Directors authorized an increase
of our
stock repurchase plan to ten million shares of our common stock. Shares may
be
purchased for cash in the open market, on the NYSE or in privately negotiated
transactions. During November 2005, we repurchased 778,600 shares for an
aggregate purchase price of $50.4 million or approximately $65 per share
pursuant to the plan. We intend to enter into a plan under Rule 10b5-1 of
the
Securities Act of 1934 to execute a portion of the share repurchase program,
supplemented with opportunistic purchases in the open market or in privately
negotiated transactions.
Shareholder
Rights Plan. In
June
1996, our Board of Directors adopted a Shareholder Rights Plan and distributed
a
dividend of one preferred share purchase right (a “Right”) to purchase one
one-hundredth of a share of Series B Junior Participating Preferred Stock,
par
value $0.01 per share (the “Junior Preferred Shares”), of Beazer Homes. The
Rights become exercisable in certain limited circumstances involving principally
the acquisition of over 20% of our outstanding common stock by any one
individual or group. The Rights are initially exercisable at a price of $80
per
one hundredth of a Junior Preferred Share subject to adjustment. Following
certain other events after the Rights have become exercisable, each Right
entitles its holder to purchase at the Right’s then-current exercise price, a
number of shares of our common stock having a market value of twice such
price,
or, in certain circumstances, securities of the acquirer, having a then-current
market value of two times the exercise price of the Right.
The
Rights are redeemable and may be amended at our option before they become
exercisable. Until a Right is exercised, the holder of a Right has no rights
as
a stockholder of Beazer Homes. The Rights expire in June 2006.
Dividends.
For
fiscal 2005, we paid quarterly cash dividends aggregating $0.33 per common
share, or a total of approximately $13.9 million. For fiscal 2004, adjusted
for
the stock split, we paid quarterly cash dividends aggregating $0.13 per common
share, or a total of approximately $5.5 million. No dividends were paid during
fiscal year 2003.
(12)
Earnings Per Share
Basic
and
diluted earnings per share are calculated as follows (in
thousands, except per share amounts):
|
Year
Ended September 30,
|
||||||||||
|
2005
|
2004
|
2003
|
||||||||
|
Basic:
|
||||||||||
|
Net
income
|
$
|
262,524
|
$
|
235,811
|
$
|
172,745
|
||||
|
Weighted
average number of common shares outstanding
|
40,468
|
39,879
|
38,658
|
|||||||
|
Basic
earnings per share
|
$
|
6.49
|
$
|
5.91
|
$
|
4.47
|
||||
|
Diluted:
|
||||||||||
|
Net
income
|
$
|
262,524
|
$
|
235,811
|
$
|
172,745
|
||||
|
Interest
on convertible debt -
net of taxes
|
5,325
|
1,616
|
-
|
|||||||
|
Net
income applicable to common stockholders
|
$
|
267,849
|
$
|
237,427
|
$
|
172,745
|
||||
|
Weighted
average number of common shares outstanding
|
40,468
|
39,879
|
38,658
|
|||||||
|
Effect
of dilutive securities:
|
||||||||||
|
Shares
issuable upon conversion of convertible debt
|
3,499
|
1,083
|
-
|
|||||||
|
Options
to acquire common stock
|
621
|
729
|
1,126
|
|||||||
|
Restricted
stock units
|
1,046
|
794
|
757
|
|||||||
|
Diluted
weighted average number of common shares outstanding
|
45,634
|
42,485
|
40,541
|
|||||||
|
Diluted
earnings per share
|
$
|
5.87
|
$
|
5.59
|
$
|
4.26
|
||||
Options
to purchase 411,978 shares of common stock were not included in the computation
of diluted earnings per share for the year ended September 30, 2003, because
the
options’ exercise price was greater than the average market price of the common
shares during that year.
(13)
Retirement Plan and Incentive Awards
401(k)
Retirement Plan. We
sponsor a 401(k) Plan (the "Plan”). Substantially all employees are eligible for
participation in the Plan after completing one calendar month of service
with
us. Participants may defer and contribute to the Plan from 1% to 80% of their
salary with certain limitations on highly compensated individuals. We match
50%
of the first 6% of the participant's contributions. The participant's
contributions vest 100% immediately, while our contributions vest over five
years. Our total contributions for the years ended September 30, 2005, 2004
and
2003 were approximately $3,261,000, $2,764,000 and $2,022,000, respectively.
Deferred
Compensation Plan. During
fiscal 2002,
we
adopted the Beazer Homes USA, Inc. Deferred Compensation Plan (the “DCP Plan”).
The DCP Plan is a non-qualified deferred compensation plan for a select group
of
executives and highly compensated employees. The Plan allows the executives
to
defer current compensation on a pre-tax basis to a future year, up until
termination of employment. The objectives of the Plan are to assist executives
with financial planning and capital accumulation and to provide the Company
with
a method of attracting, rewarding, and retaining highly compensated executives.
Participation in the DCP Plan is voluntary. Beazer Homes may voluntarily
make a
contribution to the participants’ DCP accounts. For the years ended September
30, 2005, 2004 and 2003, Beazer Homes contributed $4,364,000, $2,814,000
and
$626,000, respectively, to the DCP Plan.
Stock
Incentive Plans. During
fiscal 2000, we adopted the 1999 Stock Incentive Plan (the “1999 Plan”) because
the shares reserved under the 1994 Stock Incentive Plan (the “1994 Plan”) had
been substantially depleted. We also maintained a Non-Employee Director Stock
Option Plan (the “Non-Employee Director Plan”) that expired September 30, 2005.
At September 30, 2005, we had reserved 11,925,000 shares of common stock
for
issuance under our various stock incentive plans, of which approximately
2.6
million shares are available for future grants.
Stock
Option Awards. We
have
issued various stock option awards to officers and key employees under both
the
1999 Plan and the 1994 Plan and to non-employee directors pursuant to the
Non-Employee Director Plan. Stock options are generally exercisable at the
fair
market value of the common stock on the grant date, vest three years after
the
date of grant and may be exercised thereafter until their expiration, subject
to
forfeiture upon termination of employment as provided in the applicable plan.
Under certain conditions of retirement, eligible participants may receive
a
partial vesting of stock options. Stock options granted prior to fiscal 2004,
generally expire on the tenth anniversary from the date such options were
granted. Stock options granted beginning in fiscal 2004 expire on the seventh
anniversary from the date such options were granted.
Stock
Option Awards.
Information regarding activity under our stock option plans is summarized
as
follows:
|
Year
Ended September 30,
|
2005
|
2004
|
2003
|
||||||||||||||||
|
|
Shares
|
Weighted
Average
Exercise Price
|
Shares
|
Weighted
Average
Exercise Price
|
Shares
|
Weighted
Average
Exercise Price
|
|||||||||||||
|
Options
outstanding at beginning of year
|
1,821,804
|
$
|
19.59
|
2,378,145
|
$
|
13.83
|
3,212,640
|
$
|
9.46
|
||||||||||
|
Granted
|
289,250
|
38.54
|
310,164
|
32.91
|
643,731
|
20.74
|
|||||||||||||
|
Exercised
|
(412,125
|
)
|
14.26
|
(778,401
|
)
|
6.89
|
(1,387,518
|
)
|
7.23
|
||||||||||
|
Forfeited
|
(44,178
|
)
|
32.05
|
(88,104
|
)
|
23.07
|
(90,708
|
)
|
15.80
|
||||||||||
|
Options
outstanding at end of year
|
1,654,751
|
23.91
|
1,821,804
|
19.59
|
2,378,145
|
13.83
|
|||||||||||||
|
Options
exercisable at end of year
|
577,050
|
$
|
15.45
|
598,860
|
$
|
7.25
|
1,365,261
|
$
|
6.90
|
||||||||||
The
following table summarizes information about stock options outstanding and
exercisable at September 30, 2005:
|
|
Stock
Options Outstanding
|
Stock
Options Exercisable
|
||||||||||||||
|
Range
of Exercise Prices
|
Number
Outstanding
|
Weighted
Average Contractual Remaining Life (Years)
|
Weighted
Average Exercise Price
|
Number
Exercisable
|
Weighted
Average Exercise Price
|
|||||||||||
|
$6
- $9
|
338,757
|
4.43
|
$
|
7.44
|
338,757
|
$
|
7.44
|
|||||||||
|
$18
- $21
|
520,641
|
7.10
|
20.72
|
-
|
-
|
|||||||||||
|
$24
- $29
|
238,293
|
6.56
|
26.83
|
238,293
|
26.83
|
|||||||||||
|
$30
- $39
|
552,060
|
5.32
|
35.39
|
-
|
-
|
|||||||||||
|
$65
- $66
|
5,000
|
6.83
|
65.55
|
-
|
-
|
|||||||||||
|
|
1,654,751
|
577,050
|
||||||||||||||
Other
Stock Awards. We
have
made various restricted stock awards to officers and key employees under
both
the 1999 Plan and the 1994 Plan. All restricted stock is awarded in the name
of
the participant, who has all the rights of other common stockholders with
respect to such stock, subject to restrictions and forfeiture provisions.
Accordingly, such restricted stock awards are considered outstanding shares.
Restricted stock awards vest from three to seven years after the date of
grant.
Certain restricted stock awards provide for accelerated vesting if certain
performance goals are achieved. Activity relating to restricted stock awards
is
summarized as follows:
|
|
Year
Ended September 30,
|
|||||||||
|
|
2005
|
2004
|
2003
|
|||||||
|
Restricted
shares, beginning of year
|
1,004,016
|
878,859
|
265,011
|
|||||||
|
Shares
awarded
|
146,066
|
143,844
|
646,926
|
|||||||
|
Shares
forfeited
|
(25,828
|
)
|
(18,687
|
)
|
(6,078
|
)
|
||||
|
Shares
vested
|
(675,987
|
)
|
-
|
(27,000
|
)
|
|||||
|
Restricted
shares, end of year
|
448,267
|
1,004,016
|
878,859
|
|||||||
|
|
||||||||||
|
Weighted
average price of shares awarded
|
$
|
40.33
|
$
|
32.92
|
$
|
18.85
|
||||
We
have
two incentive compensation plans (called the Value Created Incentive Plan
and
the Executive Value Created Incentive Plan), modeled under the concepts of
economic profit or economic value added. Participants may defer a portion
of
their earned annual incentive compensation under the applicable plan pursuant
to
the terms of the Corporate Management Stock Purchase Program (the “CMSPP”). The
deferred amounts are represented by restricted stock units (“Bonus Stock”), each
of which represent the right to receive one share of Beazer Homes common
stock
upon vesting. Such shares are issued after a three-year vesting period, subject
to an election for further deferral by the participant. The number of restricted
stock units granted is based on a discount to the market value of our common
stock at the time the bonus is earned. Should the participant’s employment
terminate during the vesting period, the deferred incentive compensation
is
settled in cash or cash and stock, depending on the cause of termination
as set
forth in the CMSPP or applicable deferred compensation plan. Activity relating
to Bonus Stock is as follows:
|
|
Year
Ended September 30,
|
|||||||||
|
|
2005
|
2004
|
2003
|
|||||||
|
Bonus
Stock issuable, beginning of year
|
289,164
|
385,212
|
627,474
|
|||||||
|
Shares
awarded
|
114,149
|
110,499
|
68,541
|
|||||||
|
Shares
forfeited
|
(2,506
|
)
|
(2,136
|
)
|
(19,110
|
)
|
||||
|
Shares
vested and issued
|
(109,937
|
)
|
(204,411
|
)
|
(291,693
|
)
|
||||
|
Bonus
Stock issuable, end of year
|
290,870
|
289,164
|
385,212
|
|||||||
Compensation
expense recognized for the restricted stock and Bonus Stock awards totaled
$7,934,000, $5,581,000 and $3,984,000 for the years ended September 30, 2005,
2004 and 2003, respectively.
Our
former Chief Financial Officer resigned effective September 30, 2003. Effective
October 1, 2003, Beazer Homes and our former CFO entered into a consulting
and
non-compete agreement pursuant to which our former CFO retained and continued
to
vest in various stock awards during the two-year life of the agreement which
would have otherwise been forfeited upon termination and represented up to
139,227 shares of the Company’s common stock. The agreement expired September
30, 2005 at which time all remaining shares were forfeited. Our consolidated
balance sheets at September 30, 2004 included $2,050,000 of unearned
compensation cost reflecting the fair value of these stock awards. Such unearned
compensation cost, as adjusted by changes in the value of the Company’s common
stock, was recognized over the two-year life of the consulting and non-compete
agreement ending September 30, 2005. Compensation expense recognized for
such
awards totaled $4,011,000 and $1,800,000 for the years ended September 30,
2005
and 2004, respectively.
(14)
Contingencies
Beazer
Homes and certain of its 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. We have
experienced a significant number of such claims in our Midwest region and
particularly with respect to homes built by Trinity Homes LLC, a subsidiary
which was acquired in the Crossmann acquisition in 2002.
As
of
September 30, 2005, there were eleven pending lawsuits related to such
complaints received by Trinity. All eleven suits are by individual homeowners,
and the cost to resolve these matters is not expected to be material, either
individually or in the aggregate. Additionally, a class action suit was filed
in
the State of Indiana in August 2003 against Trinity Homes LLC. The parties
in
the class action reached a settlement agreement which was approved by the
Court
on October 20, 2004.
The
settlement class includes, with certain exclusions, the current owners of
all
Trinity homes that have brick veneer, where the closing of Trinity’s initial
sale of the home took place between June 1, 1998 and October 31, 2002. The
settlement agreement establishes an agreed protocol and process for assessment
and remediation of any external water intrusion issues at the homes which
includes, among other things, that the homes will be repaired at Trinity’s
expense. The settlement agreement also provides for payment of plaintiffs’
attorneys’ fees and for Trinity to pay an agreed amount for engineering
inspection costs for each home for which a claim is filed under the settlement.
Under
the
settlement, subject to Trinity’s timely performance of the specified assessments
and remediation activities for homeowners who file claims, each homeowner
releases Trinity, Beazer Homes Investment Corp. and other affiliated companies,
including Beazer Homes, from the claims asserted in the class action lawsuit,
claims arising out of external water intrusion, claims of improper brick
installation, including property damage claims, loss or diminution of property
value claims, and most personal injury claims, among others. No appeals of
the
Court’s Order approving the settlement were received by the Court within the
timeframe established by the Court. We sent out the claims notices on December
17, 2004, and the Class Members had until February 15, 2005 to file claims.
A
total of 1,311 valid claims were filed (of the 2,161 total Class Members),
of
which 613 complaints had been received prior to our receipt of the claim
notices. Class Members who did not file a claim by February 15, 2005 are
no
longer able to file a class action claim under the settlement or pursue an
individual claim against Trinity.
Beazer
Homes’ warranty reserves at September 30, 2005 and September 30, 2004 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. Warranty reserves at September 30,
2005
also include accruals for class action claims received, pursuant to the
settlement discussed above, from Class Members who had not previously contacted
Trinity with complaints.
The
following is a roll-forward of total complaints received as of each balance
sheet date:
|
Fiscal
Year Ended September 30,
|
|||||||
|
2005
|
2004
|
||||||
|
Complaints
outstanding at beginning of year
|
887
|
415
|
|||||
|
Complaints
received
|
784
|
564
|
|||||
|
Complaints
resolved
|
(128
|
)
|
(92
|
)
|
|||
|
Complaints
outstanding at end of the year
|
1,543
|
887
|
|||||
The
cost
to assess and remediate a home depends on the extent of moisture damage,
if any,
that the home has incurred. Homes for which we receive complaints are classified
into one of three categories: 1) homes with no moisture damage, 2) homes
with
isolated moisture damage or 3) homes with extensive moisture damage.
As
of
September 30, 2005 and 2004, we accrued for our estimated cost to remediate
homes that we had assessed and assigned to one of the above categories. For
purposes of our accrual, we have historically assigned homes not yet assessed
to
categories based on our expectations about the extent of damage and trends
observed from the results of assessments performed to date. In addition,
beginning in the quarter ended March 31, 2005, we refined our cost estimation
process to consider the subdivision of the claimant along with the
categorization discussed above. Once a home is categorized, detailed budgets
are
used as the basis to prepare our estimated costs to remediate such
home.
During
fiscal 2004, we initiated a program under which we offered to repurchase
a
limited number of homes from specific homeowners. The program was concluded
during the first quarter of fiscal 2005. We have repurchased a total of 54
homes
under the program. During the fiscal year ended September 30, 2005, we sold
six
of the repurchased homes. The remaining 48 homes were acquired for an aggregate
purchase price of $15.8 million. The accrual at September 30, 2005 includes
the
estimated costs to sell homes that we have repurchased, and our estimated
losses
on the sale of those homes, if any.
Changes
in the accrual for Trinity moisture intrusion and related mold issues during
the
fiscal year were as follows (in
thousands):
|
Fiscal
Year Ended September 30,
|
||||||||||
|
2005
|
2004
|
2003
|
||||||||
|
Balance
at beginning of year
|
$
|
42,173
|
$
|
9,200
|
$
|
730
|
||||
|
Provisions
|
55,000 |
43,858
|
15,523
|
|||||||
|
Payments
|
(16,465 | ) |
(10,885
|
)
|
(7,053
|
)
|
||||
|
Balance
at end of year
|
$
|
80,708
|
$
|
42,173
|
$
|
9,200
|
||||
Our
accruals at September 30, 2005 and 2004 represent our best estimates of the
costs to resolve all asserted complaints. Actual costs to assess and remediate
homes in each category and subdivision, the extent of damage to homes not
yet
assessed, estimates of costs to sell repurchased homes, and 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 the Company’s earnings in the periods in which the matters are
resolved. Additionally, it is possible that we will incur additional losses
related to these matters, including additional losses related to homes for
which
we have not yet received complaints. However, the amount or range of such
losses
cannot be determined at this time.
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 construction defects.
In addition, we provide a warranty (ranging from a minimum of ten years up
to
the period covered by the applicable statute of repose) with each home, covering
construction defects only. Since Beazer Homes subcontracts its 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 the
subcontractors.
As
noted
above, our warranty reserves at September 30, 2005 and 2004 include accruals
for
Trinity moisture intrusion and related mold issues. Warranty reserves are
included in accrued expenses in the consolidated financial statements. We
record
reserves covering 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 are adequate, historical data and trends may not accurately
predict actual warranty costs, or future developments could lead to a
significant change in the reserve.
Changes
in our warranty reserves, which include amounts related to the Trinity moisture
intrusion and mold issues discussed above, during the fiscal year are as
follows
(in
thousands):
|
Fiscal
Year Ended September 30,
|
||||||||||
|
2005
|
2004
|
2003
|
||||||||
|
Balance
at beginning of year
|
$
|
86,163
|
$
|
40,473
|
$
|
25,527
|
||||
|
Provisions
|
98,307 |
80,291
|
39,244
|
|||||||
|
Payments
|
(46,437 | ) |
(34,601
|
)
|
(24,298
|
)
|
||||
|
Balance
at end of year
|
$
|
138,033
|
$
|
86,163
|
$
|
40,473
|
||||
Other
Contingencies.
We and
certain of our subsidiaries have been named as defendants in various claims,
complaints and other legal actions, most relating to moisture intrusion and
related mold claims, construction defects and product liability. Certain
of the
liabilities resulting from these actions are covered by insurance. With respect
to certain general liability exposures, including construction defect, moisture
intrusion and related mold claims and product liability, interpretation of
underlying current and future trends, assessment of claims and the related
liability and reserve estimation process is highly judgmental due to the
complex
nature of these exposures, with each exposure exhibiting unique circumstances.
In particular, for construction defect liability there is a high degree of
uncertainty relating to whether insurance coverage exists, when losses occur,
the size of each loss, expectations for future interpretive rulings concerning
contract provisions and the extent to which the assertion of these claims
will
expand geographically. In our opinion, based on our current assessment, the
ultimate resolution of these matters will not have a material adverse effect
on
our financial condition, results of operations, or cash flows.
We
had
outstanding letters of credit and performance bonds of approximately $47.9
million and $470.1 million, respectively, at September 30, 2005 related
principally to our obligations to local governments to construct roads and
other
improvements in various developments in addition to the letters of credit
of
approximately $44.9 million relating to our land option contracts discussed
in
Note 4. We do not believe that any such letters of credit or bonds are likely
to
be drawn upon.
(15)
Supplemental Guarantor Information
As
discussed in Note 8, the Company’s 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
|
|||||||||||||||||||
|
September
30, 2005
|
|||||||||||||||||||
|
(in
thousands)
|
|||||||||||||||||||
|
ASSETS
|
Beazer
Homes USA, Inc.
|
Guarantor
Subsidiaries
|
Beazer
Mortgage Corp.(a)
|
Other
Non-Guarantor Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Beazer Homes USA, Inc.
|
|||||||||||||
|
Cash
and cash equivalents
|
$
|
386,423
|
$
|
(90,238
|
)
|
$
|
230
|
$
|
683
|
$
|
-
|
$
|
297,098
|
||||||
|
Accounts
receivable
|
-
|
157,523
|
2,775
|
1,582
|
-
|
161,880
|
|||||||||||||
|
Owned
inventory
|
-
|
2,663,792
|
-
|
-
|
7,290
|
2,671,082
|
|||||||||||||
|
Consolidated
inventory not owned
|
-
|
230,083
|
-
|
-
|
-
|
230,083
|
|||||||||||||
|
Investment
in and advances to unconsolidated joint ventures
|
-
|
78,571
|
-
|
-
|
-
|
78,571
|
|||||||||||||
|
Deferred
tax assets
|
101,329
|
-
|
-
|
-
|
-
|
101,329
|
|||||||||||||
|
Property,
plant and equipment, net
|
-
|
27,550
|
817
|
-
|
-
|
28,367
|
|||||||||||||
|
Goodwill
|
-
|
121,368
|
-
|
-
|
-
|
121,368
|
|||||||||||||
|
Investments
in subsidiaries
|
1,639,405
|
-
|
-
|
-
|
(1,639,405
|
)
|
-
|
||||||||||||
|
Intercompany
|
745,018
|
(820,519
|
)
|
53,074
|
22,427
|
-
|
-
|
||||||||||||
|
Other
assets
|
20,123
|
49,473
|
293
|
10,849
|
-
|
80,738
|
|||||||||||||
|
Total
Assets
|
$
|
2,892,298
|
$
|
2,417,603
|
$
|
57,189
|
$
|
35,541
|
$
|
(1,632,115
|
)
|
$
|
3,770,516
|
||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||||||||||||||
|
Trade
accounts payable
|
$
|
-
|
$
|
141,312
|
$
|
242
|
$
|
69
|
$
|
-
|
$
|
141,623
|
|||||||
|
Other
liabilities
|
115,023
|
503,352
|
2,162
|
12,827
|
2,742
|
636,106
|
|||||||||||||
|
Intercompany
|
(3,295
|
)
|
-
|
-
|
3,295
|
-
|
-
|
||||||||||||
|
Obligations
related to consolidated inventory not owned
|
-
|
166,163
|
-
|
-
|
-
|
166,163
|
|||||||||||||
|
Senior
notes (net of discounts of $4,118)
|
1,275,882
|
-
|
-
|
-
|
-
|
1,275,882
|
|||||||||||||
|
Other
notes payable
|
-
|
46,054
|
-
|
-
|
-
|
46,054
|
|||||||||||||
|
Total
Liabilities
|
1,387,610
|
856,881
|
2,404
|
16,191
|
2,742
|
2,265,828
|
|||||||||||||
|
Stockholders'
Equity
|
1,504,688
|
1,560,722
|
54,785
|
19,350
|
(1,634,857
|
)
|
1,504,688
|
||||||||||||
|
Total
Liabilities and Stockholders' Equity
|
$
|
2,892,298
|
$
|
2,417,603
|
$
|
57,189
|
$
|
35,541
|
$
|
(1,632,115
|
)
|
$
|
3,770,516
|
||||||
(a)
Effective in fiscal year 2005, Beazer Mortgage Corp. is a guarantor of the
Senior Notes, but is not a guarantor of the Credit Facility.
|
Beazer
Homes USA, Inc.
|
||||||||||||||||
|
Consolidating
Balance Sheet
|
||||||||||||||||
|
September
30, 2004
|
||||||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
ASSETS
|
Beazer
Homes USA, Inc.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Beazer Homes USA, Inc.
|
|||||||||||
|
Cash
and cash equivalents
|
$
|
392,110
|
$
|
(71,569
|
)
|
$
|
339
|
$
|
-
|
$
|
320,880
|
|||||
|
Accounts
receivable
|
-
|
70,237
|
337
|
-
|
70,574
|
|||||||||||
|
Owned
inventory
|
-
|
2,079,494
|
-
|
9,836
|
2,089,330
|
|||||||||||
|
Consolidated
inventory not owned
|
254,765
|
-
|
-
|
254,765
|
||||||||||||
|
Investment
in and advances to unconsolidated joint ventures
|
-
|
44,748
|
-
|
-
|
44,748
|
|||||||||||
|
Deferred
tax assets
|
47,052
|
-
|
-
|
-
|
47,052
|
|||||||||||
|
Property,
plant and equipment, net
|
-
|
24,671
|
-
|
-
|
24,671
|
|||||||||||
|
Goodwill
|
-
|
251,603
|
-
|
-
|
251,603
|
|||||||||||
|
Investments
in subsidiaries
|
1,468,078
|
-
|
-
|
(1,468,078
|
)
|
-
|
||||||||||
|
Intercompany
|
566,216
|
(583,038
|
)
|
16,822
|
-
|
-
|
||||||||||
|
Other
assets
|
33,000
|
17,881
|
8,526
|
-
|
59,407
|
|||||||||||
|
Total
Assets
|
$
|
2,506,456
|
$
|
2,088,792
|
$
|
26,024
|
$
|
(1,458,242
|
)
|
$
|
3,163,030
|
|||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||||||||
|
Trade
accounts payable
|
$
|
-
|
$
|
123,174
|
$
|
113
|
$
|
-
|
$
|
123,287
|
||||||
|
Other
liabilities
|
146,473
|
276,242
|
11,057
|
3,836
|
437,608
|
|||||||||||
|
Intercompany
|
(1,043
|
)
|
-
|
1,043
|
-
|
-
|
||||||||||
|
Obligations
related to consolidated inventory not owned
|
-
|
219,042
|
-
|
-
|
219,042
|
|||||||||||
|
Term
Loan
|
200,000
|
-
|
-
|
-
|
200,000
|
|||||||||||
|
Senior
notes (net of discounts of $1,095)
|
928,905
|
-
|
-
|
-
|
928,905
|
|||||||||||
|
Other
notes payable
|
-
|
22,067
|
-
|
-
|
22,067
|
|||||||||||
|
Total
Liabilities
|
1,274,335
|
640,525
|
12,213
|
3,836
|
1,930,909
|
|||||||||||
|
Stockholders'
Equity
|
1,232,121
|
1,448,267
|
13,811
|
(1,462,078
|
)
|
1,232,121
|
||||||||||
|
Total
Liabilities and Stockholders' Equity
|
$
|
2,506,456
|
$
|
2,088,792
|
$
|
26,024
|
$
|
(1,458,242
|
)
|
$
|
3,163,030
|
|||||
|
Beazer
Homes USA, Inc.
|
|||||||||||||||||||
|
Consolidating
Statement of Income
|
|||||||||||||||||||
|
September
30, 2005
|
|||||||||||||||||||
|
(in
thousands)
|
|||||||||||||||||||
|
Beazer
Homes USA, Inc.
|
Guarantor
Subsidiaries
|
Beazer
Mortgage Corp.(a)
|
Other
Non-Guarantor Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Beazer Homes USA, Inc.
|
||||||||||||||
|
Total
revenue
|
$
|
-
|
$
|
4,949,699
|
$
|
54,310
|
$
|
7,621
|
$
|
(16,277
|
)
|
$
|
4,995,353
|
||||||
|
Costs
and expenses:
|
|||||||||||||||||||
|
Home
construction and land sales
|
89,678
|
3,749,899
|
-
|
-
|
(16,277
|
)
|
3,823,300
|
||||||||||||
|
Selling,
general and administrative
|
-
|
521,639
|
38,683
|
1,868
|
(7,290
|
)
|
554,900
|
||||||||||||
|
Goodwill
impairment
|
-
|
130,235
|
-
|
-
|
-
|
130,235
|
|||||||||||||
|
Operating
income
|
(89,678
|
)
|
547,926
|
15,627
|
5,753
|
7,290
|
486,918
|
||||||||||||
|
Equity
in earnings of unconsolidated joint ventures
|
-
|
5,021
|
-
|
-
|
-
|
5,021
|
|||||||||||||
|
Other
income, net
|
-
|
7,395
|
-
|
-
|
-
|
7,395
|
|||||||||||||
|
Income
before income taxes
|
(89,678
|
)
|
560,342
|
15,627
|
5,753
|
7,290
|
499,334
|
||||||||||||
|
Provision
for income taxes
|
(33,732
|
)
|
259,758
|
5,878
|
2,164
|
2,742
|
236,810
|
||||||||||||
|
Equity
in income of subsidiaries
|
318,470
|
(318,470
|
)
|
-
|
|||||||||||||||
|
Net
income
|
$
|
262,524
|
$
|
300,584
|
$
|
9,749
|
$
|
3,589
|
$
|
(313,922
|
)
|
$
|
262,524
|
||||||
|
Beazer
Homes USA, Inc.
|
||||||||||||||||
|
Consolidating
Statement of Income
|
||||||||||||||||
|
September
30, 2004
|
||||||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Beazer
Homes USA, Inc.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Beazer Homes USA, Inc.
|
||||||||||||
|
Total
revenue
|
$
|
-
|
$
|
3,899,971
|
$
|
7,138
|
$
|
-
|
$
|
3,907,109
|
||||||
|
Costs
and expenses:
|
||||||||||||||||
|
Home
construction and land sales
|
76,035
|
3,023,697
|
-
|
-
|
3,099,732
|
|||||||||||
|
Selling,
general and administrative
|
-
|
436,726
|
2,552
|
(9,836
|
)
|
429,442
|
||||||||||
|
Operating
income
|
(76,035
|
)
|
439,548
|
4,586
|
9,836
|
377,935
|
||||||||||
|
Equity
in income of unconsolidated joint ventures
|
-
|
1,561
|
-
|
-
|
1,561
|
|||||||||||
|
Other
income, net
|
-
|
7,079
|
-
|
-
|
7,079
|
|||||||||||
|
Income
before income taxes
|
(76,035
|
)
|
448,188
|
4,586
|
9,836
|
386,575
|
||||||||||
|
Provision
for income taxes
|
(29,654
|
)
|
174,794
|
1,788
|
3,836
|
150,764
|
||||||||||
|
Equity
in income of subsidiaries
|
282,192
|
-
|
-
|
(282,192
|
)
|
-
|
||||||||||
|
Net
income
|
$
|
235,811
|
$
|
273,394
|
$
|
2,798
|
$
|
(276,192
|
)
|
$
|
235,811
|
|||||
|
Beazer
Homes USA, Inc.
|
||||||||||||||||
|
Consolidating
Statement of Income
|
||||||||||||||||
|
September
30, 2003
|
||||||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Beazer
Homes USA, Inc.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Beazer Homes USA, Inc.
|
||||||||||||
|
Total
revenue
|
$
|
-
|
$
|
3,169,765
|
$
|
7,643
|
$
|
-
|
$
|
3,177,408
|
||||||
|
Costs
and expenses:
|
||||||||||||||||
|
Home
construction and land sales
|
65,295
|
2,478,059
|
525
|
(9,844
|
)
|
2,534,035
|
||||||||||
|
Selling,
general and administrative
|
-
|
354,088
|
2,560
|
-
|
356,648
|
|||||||||||
|
Expenses
related to retirement of debt
|
7,570
|
-
|
-
|
-
|
7,570
|
|||||||||||
|
Operating
income
|
(72,865
|
)
|
337,618
|
4,558
|
9,844
|
279,155
|
||||||||||
|
Equity
in earnings of unconsolidated joint ventures
|
-
|
1,597
|
-
|
-
|
1,597
|
|||||||||||
|
Other
income, net
|
-
|
4,750
|
27
|
-
|
4,777
|
|||||||||||
|
Income
before income taxes
|
(72,865
|
)
|
343,965
|
4,585
|
9,844
|
285,529
|
||||||||||
|
Provision
for income taxes
|
(28,782
|
)
|
135,867
|
1,811
|
3,888
|
112,784
|
||||||||||
|
Equity
in income of subsidiaries
|
216,828
|
-
|
-
|
(216,828
|
)
|
-
|
||||||||||
|
Net
income
|
$
|
172,745
|
$
|
208,098
|
$
|
2,774
|
$
|
(210,872
|
)
|
$
|
172,745
|
|||||
|
Beazer
Homes USA, Inc.
|
|||||||||||||||||||
|
Consolidating
Statement of Cash Flows
|
|||||||||||||||||||
|
September
30, 2005
|
|||||||||||||||||||
|
(in
thousands)
|
|||||||||||||||||||
|
Beazer
Homes USA, Inc.
|
Guarantor
Subsidiaries
|
Beazer
Mortgage Corp.(a)
|
Other
Non-Guarantor Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Beazer Homes USA, Inc.
|
||||||||||||||
|
Net
cash (used)/provided by operating activities
|
$
|
(124,650
|
)
|
$
|
29,390
|
$
|
6,783
|
$
|
4,214
|
$
|
-
|
$
|
(84,263
|
)
|
|||||
|
Cash
flows from investing activities:
|
|||||||||||||||||||
|
Capital
expenditures
|
-
|
(13,089
|
)
|
(359
|
)
|
-
|
-
|
(13,448
|
)
|
||||||||||
|
Investments
in unconsolidated joint ventures
|
-
|
(40,619
|
)
|
-
|
-
|
-
|
(40,619
|
)
|
|||||||||||
|
Distributions
from and proceeds from sale of unconsolidated joint
ventures
|
-
|
5,597
|
-
|
-
|
-
|
5,597
|
|||||||||||||
|
Net
cash used by investing activities
|
-
|
(48,111
|
)
|
(359
|
)
|
-
|
-
|
(48,470
|
)
|
||||||||||
|
Cash
flows from financing activities:
|
|||||||||||||||||||
|
Repayment
of Term Loan
|
(200,000
|
)
|
-
|
-
|
-
|
-
|
(200,000
|
)
|
|||||||||||
|
Borrowings
under Credit Facility
|
439,700
|
-
|
-
|
-
|
-
|
439,700
|
|||||||||||||
|
Repayment
of Credit Facility
|
(439,700
|
)
|
-
|
-
|
-
|
-
|
(439,700
|
)
|
|||||||||||
|
Proceeds
from issuance of Senior Notes
|
346,786
|
-
|
-
|
-
|
-
|
346,786
|
|||||||||||||
|
Repayment
of other notes payable
|
-
|
(16,776
|
)
|
-
|
-
|
-
|
(16,776
|
)
|
|||||||||||
|
Advances
(to) from subsidiaries
|
(6,764
|
)
|
17,521
|
(6,887
|
)
|
(3,870
|
)
|
-
|
-
|
||||||||||
|
Debt
issuance costs
|
(4,958
|
)
|
-
|
-
|
-
|
-
|
(4,958
|
)
|
|||||||||||
|
Proceeds
from stock option exercises
|
5,875
|
-
|
-
|
-
|
-
|
5,875
|
|||||||||||||
|
Common
stock redeemed
|
(8,092
|
)
|
-
|
-
|
-
|
-
|
(8,092
|
)
|
|||||||||||
|
Dividends
paid
|
(13,884
|
)
|
-
|
-
|
-
|
-
|
(13,884
|
)
|
|||||||||||
|
Net
cash provided/(used) by financing activities
|
118,963
|
745
|
(6,887
|
)
|
(3,870
|
)
|
-
|
108,951
|
|||||||||||
|
(Decrease)/increase
in cash and cash equivalents
|
(5,687
|
)
|
(17,976
|
)
|
(463
|
)
|
344
|
-
|
(23,782
|
)
|
|||||||||
|
Cash
and cash equivalents at beginning of year
|
392,110
|
(72,262
|
)
|
693
|
339
|
-
|
320,880
|
||||||||||||
|
Cash
and cash equivalents at end of year
|
$
|
386,423
|
$
|
(90,238
|
)
|
$
|
230
|
$
|
683
|
$
|
-
|
$
|
297,098
|
||||||
|
Beazer
Homes USA, Inc.
|
||||||||||||||||
|
Consolidating
Statement of Cash Flows
|
||||||||||||||||
|
September
30, 2004
|
||||||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Beazer
Homes USA, Inc.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Beazer Homes USA, Inc.
|
||||||||||||
|
Net
cash provided/(used) by operating activities
|
$
|
12,169
|
$
|
(88,774
|
)
|
$
|
2,886
|
$
|
-
|
$
|
(73,719
|
)
|
||||
|
Cash
flows from investing activities:
|
||||||||||||||||
|
Capital
expenditures
|
-
|
(10,271
|
)
|
-
|
-
|
(10,271
|
)
|
|||||||||
|
Investments
in unconsolidated joint ventures
|
-
|
(25,844
|
)
|
-
|
-
|
(25,844
|
)
|
|||||||||
|
Distributions
from and proceeds from sale of unconsolidated joint
ventures
|
-
|
5,639
|
-
|
-
|
5,639
|
|||||||||||
|
Net
cash used by investing activities
|
-
|
(30,476
|
)
|
-
|
-
|
(30,476
|
)
|
|||||||||
|
Cash
flows from financing activities:
|
||||||||||||||||
|
Proceeds
of Term Loan
|
200,000
|
-
|
-
|
-
|
200,000
|
|||||||||||
|
Repayment
of Term Loan
|
(200,000
|
)
|
-
|
-
|
-
|
(200,000
|
)
|
|||||||||
|
Proceeds
from issuance of Senior Notes
|
380,000
|
-
|
-
|
-
|
380,000
|
|||||||||||
|
Advances
(to) from subsidiaries
|
(82,516
|
)
|
87,760
|
(5,244
|
)
|
-
|
-
|
|||||||||
|
Debt
issuance costs
|
(10,654
|
)
|
-
|
-
|
-
|
(10,654
|
)
|
|||||||||
|
Proceeds
from stock option exercises
|
5,362
|
-
|
-
|
-
|
5,362
|
|||||||||||
|
Treasury
stock purchases
|
(17,546
|
)
|
-
|
-
|
-
|
(17,546
|
)
|
|||||||||
|
Dividends
paid
|
(5,459
|
)
|
-
|
-
|
-
|
(5,459
|
)
|
|||||||||
|
Net
cash provided/(used) by financing activities
|
269,187
|
87,760
|
(5,244
|
)
|
-
|
351,703
|
||||||||||
|
Increase
(decrease) in cash and cash equivalents
|
281,356
|
(31,490
|
)
|
(2,358
|
)
|
-
|
247,508
|
|||||||||
|
Cash
and cash equivalents at beginning of year
|
110,754
|
(40,079
|
)
|
2,697
|
-
|
73,372
|
||||||||||
|
Cash
and cash equivalents at end of year
|
$
|
392,110
|
$
|
(71,569
|
)
|
$
|
339
|
$
|
-
|
$
|
320,880
|
|||||
|
Beazer
Homes USA, Inc.
|
||||||||||||||||
|
Consolidating
Statement of Cash Flows
|
||||||||||||||||
|
September
30, 2003
|
||||||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Beazer
Homes USA, Inc.
|
Guarantor
Subsidiaries
|
Non-Guarantor
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated
Beazer Homes USA, Inc.
|
||||||||||||
|
Net
cash (used)/provided by operating activities
|
$
|
(11,140
|
)
|
$
|
(32,990
|
)
|
$
|
3,081
|
$
|
-
|
$
|
(41,049
|
)
|
|||
|
Cash
flows from investing activities:
|
||||||||||||||||
|
Capital
expenditures
|
-
|
(9,309
|
)
|
(16
|
)
|
-
|
(9,325
|
)
|
||||||||
|
Investments
in unconsolidated joint ventures
|
-
|
(4,941
|
)
|
-
|
-
|
(4,941
|
)
|
|||||||||
|
Distributions
from and proceeds from sale of unconsolidated joint
ventures
|
-
|
7,714
|
-
|
-
|
7,714
|
|||||||||||
|
Net
cash used by investing activities
|
-
|
(6,536
|
)
|
(16
|
)
|
-
|
(6,552
|
)
|
||||||||
|
Cash
flows from financing activities:
|
||||||||||||||||
|
Proceeds
from Term Loan
|
200,000
|
-
|
-
|
-
|
200,000
|
|||||||||||
|
Repayment
of Term Loan
|
(100,000
|
)
|
-
|
-
|
-
|
(100,000
|
)
|
|||||||||
|
Borrowings
under credit facilities
|
114,100
|
-
|
-
|
-
|
114,100
|
|||||||||||
|
Repayment
of credit facilities
|
(114,100
|
)
|
-
|
-
|
-
|
(114,100
|
)
|
|||||||||
|
Redemption
of Senior Notes
|
(104,438
|
)
|
-
|
-
|
-
|
(104,438
|
)
|
|||||||||
|
Advances
(to) from subsidiaries
|
(21,445
|
)
|
25,206
|
(3,761
|
)
|
-
|
-
|
|||||||||
|
Debt
issuance costs
|
(2,458
|
)
|
-
|
-
|
-
|
(2,458
|
)
|
|||||||||
|
Proceeds
from stock option exercises
|
9,805
|
-
|
-
|
-
|
9,805
|
|||||||||||
|
Treasury
stock purchases
|
(6,925
|
)
|
-
|
-
|
-
|
(6,925
|
)
|
|||||||||
|
Net
cash (used)/provided by financing activities
|
(25,461
|
)
|
25,206
|
(3,761
|
)
|
-
|
(4,016
|
)
|
||||||||
|
Decrease
in cash and cash equivalents
|
(36,601
|
)
|
(14,320
|
)
|
(696
|
)
|
-
|
(51,617
|
)
|
|||||||
|
Cash
and cash equivalents at beginning of year
|
147,355
|
(25,759
|
)
|
3,393
|
-
|
124,989
|
||||||||||
|
Cash
and cash equivalents at end of year
|
$
|
110,754
|
$
|
(40,079
|
)
|
$
|
2,697
|
$
|
-
|
$
|
73,372
|
|||||
ACCOUNTING
FIRM
To
the
Board of Directors and Stockholders of
Beazer
Homes USA, Inc.
We
have
audited the accompanying consolidated balance sheets of Beazer Homes USA,
Inc.
and subsidiaries (the “Company”) as of September 30, 2005 and 2004, and the
related consolidated statements of income, stockholders’ equity, and cash flows
for each of the three years in the period ended September 30, 2005. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Beazer Homes USA, Inc. and subsidiaries
at
September 30, 2005 and 2004, and the results of their operations and their
cash
flows for each of the three years in the period ended September 30, 2005,
in
conformity with accounting principles generally accepted in the United States
of
America.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal
control over financial reporting as of September 30, 2005, based on the criteria
established in Internal
Control - Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission and
our
report dated December 8, 2005 expressed an unqualified opinion on management’s
assessment of the effectiveness of the Company’s internal control over financial
reporting and an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
/s/
Deloitte & Touche LLP
Atlanta,
Georgia
December
8, 2005
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER
FINANCIAL
REPORTING
Beazer
Homes USA, Inc.’s management is responsible for establishing and maintaining
adequate internal control over financial reporting. Pursuant to the rules
and
regulations of the Securities and Exchange Commission, internal control over
financial reporting is a process designed by, or under the supervision of,
the
Company’s principal executive and principal financial officers and effected by
Beazer Homes’ board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and
the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:
|
•
|
Pertain
to the maintenance of records that in reasonable detail accurately
and
fairly reflect the transactions and dispositions of the assets
of the
Company;
|
| • |
Provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with generally
accepted
accounting principles, and that receipts and expenditures of the
Company
are being made only in accordance with authorizations of management
and
directors of the Company; and
|
| • |
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial statements.
|
Management
has evaluated the effectiveness of its internal control over financial reporting
as of September 30, 2005 based on the control criteria established in a report
entitled Internal
Control - Integrated Framework,
issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
Based
on such evaluation, we have concluded that the Company’s internal control over
financial reporting is effective as of September 30, 2005.
The
independent registered public accounting firm of Deloitte & Touche LLP, as
auditors of Beazer Homes’ consolidated financial statements, has issued an
attestation report on management’s assessment of the Company’s internal control
over financial reporting, which report follows herein.
|
/s/
Ian J. McCarthy
|
|
/s/
James O’Leary
|
||
|
Ian
J. McCarthy
|
James
O’Leary
|
|||
|
President
and Chief Executive Officer
|
Executive
Vice President and Chief Financial Officer
|
|||
|
December
8, 2005
|
December
8, 2005
|
|||
REPORT
OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING
FIRM ON INTERNAL CONTROL
OVER
FINANCIAL REPORTING
To
the
Board of Directors and Stockholders of
Beazer
Homes USA, Inc.:
We
have
audited management’s assessment, included in the accompanying Management’s
Report on Internal Control over Financial Reporting, that Beazer Homes USA,
Inc.
and subsidiaries (the “Company”) maintained effective internal control over
financial reporting as of September 30, 2005, based on criteria established
in
Internal
Control - Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission. The
Company’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion
on
management’s assessment and an opinion on the effectiveness of the Company’s
internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected
by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and
the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use,
or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented
or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future
periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies
or
procedures may deteriorate.
In
our
opinion, management’s assessment that the Company maintained effective internal
control over financial reporting as of September 30, 2005, is fairly stated,
in
all material respects, based on the criteria established in Internal
Control - Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission. Also
in
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of September 30, 2005, based
on the
criteria established in Internal
Control - Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as
of and
for the year ended September 30, 2005 of the Company and our report dated
December 8, 2005 expressed an unqualified opinion on those financial statements.
/s/
Deloitte & Touche
Atlanta,
Georgia
December
8, 2005
|
Quarterly
Financial Data
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
||||||||||
|
Summarized
quarterly financial information (unaudited):
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
||||||||||
|
|
Quarter
Ended
|
||||||||||||||
|
(in
thousands, except per share data)
|
December
31
|
March
31
|
|
June
30
|
September
30
|
||||||||||
|
|
|
|
|
|
|
||||||||||
|
Fiscal
2005:
|
|
|
|
|
|
||||||||||
|
Total
revenue
|
$
|
911,827
|
$
|
976,248
|
$
|
1,293,227
|
$
|
1,814,051
|
|||||||
|
Operating
income before goodwill impairment
|
110,878
|
72,121
|
178,637
|
255,517
|
|||||||||||
|
Goodwill
impairment
|
-
|
130,235
|
(a)
|
|
-
|
-
|
|||||||||
|
Operating
income (loss)
|
110,878
|
(58,114
|
)
|
(a)
|
|
178,637
|
255,517
|
||||||||
|
Net
income (loss)
|
69,704
|
(84,344
|
)
|
(a)
|
|
112,740
|
164,424
|
||||||||
|
Net
income (loss) per common share:
|
|||||||||||||||
|
Basic
(b)
|
$
|
1.73
|
$
|
(2.09
|
)
|
(a)
|
|
$
|
2.78
|
$
|
4.04
|
||||
|
Diluted
(b)
|
$
|
1.57
|
$
|
(2.09
|
)
|
(a)
|
|
$
|
2.50
|
$
|
3.61
|
||||
|
|
|||||||||||||||
|
Fiscal
2004:
|
|||||||||||||||
|
Total
revenue
|
$
|
810,108
|
$
|
876,581
|
$
|
1,009,279
|
$
|
1,211,141
|
|||||||
|
Operating
income
|
75,652
|
77,844
|
96,238
|
128,201
|
|||||||||||
|
Net
income
|
47,186
|
48,858
|
59,680
|
80,087
|
|||||||||||
|
Net
income per common share:
|
|||||||||||||||
|
Basic
(b)
|
$
|
1.18
|
$
|
1.22
|
$
|
1.49
|
$
|
2.02
|
|||||||
|
Diluted
(b)
|
$
|
1.14
|
$
|
1.17
|
$
|
1.42
|
$
|
1.82
|
|||||||
|
(a)
|
In
March 2005, the Company recognized a $130.2 million non-cash,
non-tax-deductible goodwill impairment charge to write off substantially
all of the goodwill allocated to certain underperforming markets
in
Indiana, Ohio, Kentucky and North
Carolina.
|
|
(b)
|
Per
share information has been adjusted to give retrospective application
to
the March 2005 three-for-one stock split and for the inclusion
of shares
issuable upon conversion of our Co-Co’s in accordance with EITF 04-08, as
applicable.
|
Item
9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure
None.
Item
9A. Controls and Procedures
As
of the
end of the period covered by this report, management, including our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness
of
the design and operation of our disclosure controls and procedures. Based
upon,
and as of the date of that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that the disclosure controls and procedures were
effective, in all material respects, to ensure that information required
to be
disclosed in the reports we file and submit under the Exchange Act is recorded,
processed, summarized and reported as and when required. Further, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures have been designed to ensure that information required
to be disclosed in reports filed by us under the Securities Exchange Act
of
1934, as amended, is accumulated and communicated to management, including
the
Chief Executive Officer and Chief Financial Officer, in a manner to allow
timely
decisions regarding the required disclosure. There has been no significant
change in our internal control over financial reporting that occurred during
the
fourth quarter of 2005 that has materially affected, or is reasonably likely
to
materially affect, our internal control over financial reporting.
Management’s
report on internal control over financial reporting and the attestation report
of Beazer Homes’ independent registered public accounting firm are included in
Part II, Item 8. “Financial Statements and Supplementary Data” of this
report under the captions entitled “Management’s Report on Internal Control Over
Financial Reporting” and “Report of Independent Registered Public Accounting
Firm on Internal Control Over Financial Reporting” and are incorporated herein
by this reference.
Item
9B. Other Information
None.
Item
10. Directors and Executive Officers of the
Registrant
Director
information is incorporated by reference to the section entitled “Election of
Directors” of our Proxy Statement for our 2006 Annual Meeting of Stockholders,
which is expected to be filed on or before December 23, 2005. Information
regarding our executive officers is set forth herein under Part I as a separate
item.
Beazer
Homes has adopted a Code of Business Conduct and Ethics for its senior financial
officers, which applies to its principal financial officer and controller,
other
senior financial officers and Chief Executive Officer. The full text of the
Code
of Business Conduct and Ethics can be found on the Company’s website.
Our
Corporate Governance Guidelines and the charters of the following committees
of
our Board of Directors: Audit, Compensation, and Nominating and Governance,
are
also posted to our website, and are available in print to any stockholder
who
requests a printed copy. Information regarding waivers of our code of business
conduct and ethics will also be published on our website.
Item
11. Executive
Compensation
The
information required by this item is incorporated by reference to the section
entitled “Executive Compensation” of our Proxy Statement for our 2006 Annual
Meeting of Stockholders, which is expected to be filed on or before December
23,
2005.
Item
12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The
information required by this item is incorporated by reference to the section
entitled “Security Ownership of Management” of our Proxy Statement for our 2006
Annual Meeting of Stockholders, which is expected to be filed on or before
December 23, 2005.
Item
13. Certain Relationships and Related
Transactions
None.
Item
14. Principal Accounting Fees and
Services
The
information required by this item is incorporated by reference to the section
entitled “Principal Accounting Firm Fees” of our Proxy Statement for our 2006
Annual Meeting of Stockholders, which is expected to be filed on or before
December 23, 2005.
Item
15. Exhibits, Financial Statement
Schedules
The
following documents are filed as part of this Annual Report on Form
10-K.
(a)
1.
Financial Statements
|
|
Page
herein
|
|
Consolidated
Statements of Income for the years ended September 30, 2005, 2004
and
2003.
|
31
|
|
Consolidated
Balance Sheets as of September 30, 2005 and 2004.
|
32
|
|
Consolidated
Statements of Stockholders’ Equity for the years ended September 30, 2005,
2004 and 2003.
|
33
|
|
Consolidated
Statements of Cash Flows for the years ended September 30, 2005,
2004 and
2003.
|
34
|
|
Notes
to Consolidated Financial Statements.
|
35
|
2.
Financial Statement Schedules
None required.
3.
Exhibits
|
Exhibit
Number
|
Exhibit
Description
|
Page
herein or incorporate by reference from
|
|
|
2.1
|
---
|
Agreement
and Plan of Merger among Beazer Homes USA, Inc., Beazer Homes
Investment
Corp., and Crossmann Communities Inc. dated as of January 29,
2002
|
(6)
|
|
3.1
|
---
|
Amended
and Restated Certificate of Incorporation of the Company
|
(9)
|
|
3.2
|
---
|
Second
Amended and Restated Bylaws of the Company
|
(12)
|
|
4.1
|
---
|
Indenture
dated as of May 21, 2001 among the Company and U.S. Bank Trust
National
Association, as trustee, related to the Company’s 8 ⅝% Senior Notes due
2011
|
(5)
|
|
4.2
|
---
|
Supplemental
Indenture (8 ⅝% Notes) dated as of May 21, 2001 among the Company, its
subsidiaries party thereto and U.S. Bank Trust National Association,
as
trustee
|
(5)
|
|
4.3
|
---
|
Form
of 8 ⅝% Senior Notes due 2011
|
(5)
|
|
4.4
|
---
|
Specimen
of Common Stock Certificate
|
(2)
|
|
4.5*
|
---
|
Retirement
Savings and Investment Plan (the “RSIP”)
|
(1)
|
|
4.6*
|
---
|
RSIP
Summary Plan Description
|
(1)
|
|
4.7
|
---
|
Rights
Agreement, dated as of June 21, 1996, between the Company and
First
Chicago Trust Company of New York, as Rights Agent
|
(8)
|
|
4.8
|
---
|
Indenture
dated as of April 17, 2002 among Beazer, the Guarantors party
thereto and
U.S. Bank Trust National Association, as trustee, related to
the Company’s
8
⅜% Senior Notes due 2012
|
(6)
|
|
4.9
|
---
|
First
Supplemental Indenture dated as of April 17, 2002 among Beazer,
the
Guarantors party thereto and U.S. Bank Trust National Association,
as
trustee, related to the Company’s 8 ⅜% Senior Notes due
2012
|
(6)
|
|
4.10
|
---
|
Form
of 8 ⅜% Senior Notes due 2012
|
(6)
|
|
4.11
|
---
|
Second
Supplemental Indenture dated as of November 13, 2003 among Beazer,
the
Guarantors party thereto and U.S. Bank Trust National Association,
as
trustee, related to the Company’s 6 ½% Senior Notes due
2013
|
(8)
|
|
4.12
|
---
|
Form
of 6 ½% Senior Notes due 2013
|
(8)
|
|
4.13
|
---
|
Indenture
dated as of June 8, 2004 among Beazer, the Guarantors party thereto
and
SunTrust Bank, as trustee, related to the 4 ⅝% Convertible Senior Notes
due 2024
|
(10)
|
|
4.14
|
---
|
Form
of 4 ⅝% Convertible Senior Notes due 2024
|
(10)
|
|
4.15
|
---
|
Form
of 6 ⅞% Senior Notes due 2015
|
(15)
|
|
4.16
|
---
|
Form
of Fifth Supplement Indenture, dated as of June 8, 2005, by and
among
Beazer, the Subsidiary Guarantors party thereto and U.S. Bank
National
Association, as trustee
|
(15)
|
|
10.1*
|
---
|
Amended
and Restated 1994 Stock Incentive Plan
|
Filed
herewith
|
|
10.2*
|
---
|
Non-Employee
Director Stock Option Plan
|
(8)
|
|
10.3*
|
---
|
Amended
and Restated 1999 Stock Incentive Plan
|
(7)
|
|
10.4*
|
---
|
2005
Value Created Incentive Plan
|
(12)
|
|
10.5*
|
---
|
Amended
and Restated Corporate Management Stock Purchase Program
|
(12)
|
|
10.6*
|
---
|
Customer
Survey Incentive Plan
|
(12)
|
|
10.7*
|
---
|
Director
Stock Purchase Program
|
(12)
|
|
10.8*
|
---
|
Form
of Stock Option and Restricted Stock Award Agreement
|
(12)
|
|
10.9*
|
---
|
Form
of Stock Option Award Agreement
|
(12)
|
|
10.9-15
|
Amended
and Restated Employment Agreements dated as of September 1,
2004:
|
||
|
10.10*
|
---
|
Ian
J. McCarthy
|
(11)
|
|
10.11*
|
---
|
Michael
H. Furlow
|
(11)
|
|
10.12*
|
---
|
James
O’Leary
|
(11)
|
|
10.13*
|
---
|
C.
Lowell Ball
|
(11)
|
|
10.14*
|
---
|
Michael
T. Rand
|
(11)
|
|
10.15*
|
---
|
John
Skelton
|
(11)
|
|
10.16-22
|
Supplemental
Employment Agreements dated as of September 1, 2004:
|
||
|
10.16*
|
---
|
Ian
J. McCarthy
|
(11)
|
|
10.17*
|
---
|
Michael
H. Furlow
|
(11)
|
|
10.18*
|
---
|
James
O’Leary
|
(11)
|
|
10.19*
|
---
|
C.
Lowell Ball
|
(11)
|
|
10.20*
|
---
|
Michael
T. Rand
|
(11)
|
|
10.21*
|
---
|
John
Skelton
|
(11)
|
|
10.22*
|
---
|
Jonathan
P. Smoke
|
(11)
|
|
10.23*
|
---
|
Employment
Agreement dated as of September 1, 2004 for Cory J.
Boydston
|
(12)
|
|
10.24*
|
---
|
2005
Executive Value Created Incentive Plan
|
(3)
|
|
10.25
|
---
|
Purchase
Agreement for Sanford Homes of Colorado LLLP
|
(4)
|
|
10.26
|
---
|
Credit
Agreement dated as of August 22, 2005 between the Company and
JPMorgan
Chase Bank, NA, as Agent, Guaranty Bank, BNP Paribas and Wachovia
Bank,
National Association as Syndication Agents, The Royal Bank of
Scotland plc
as Documentation Agent, SunTrust Bank, Citicorp North America,
Inc. and
Washington Mutual Bank, FA, as Managing Agents, Comerica Bank,
PNC Bank,
National Association and UBS Loan Finance LLC as Co-Agents, and
J.P.
Morgan Securities Inc., as Lead Arranger and Sole
Bookrunner.
|
(14)
|
|
10.27*
|
---
|
Employment
Agreement dated as of 3/14/05 for Kenneth J. Gary
|
(13)
|
|
10.28*
|
---
|
Supplemental
Employment Agreement dated as of 3/14/05 for Kenneth J.
Gary
|
(13)
|
|
21
|
---
|
Subsidiaries
of the Company
|
Filed
herewith
|
|
23
|
---
|
Consent
of Deloitte & Touche LLP
|
Filed
herewith
|
|
31.1
|
---
|
Certification
pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of
the
Sarbanes-Oxley Act of 2002
|
Filed
herewith
|
|
31.2
|
---
|
Certification
pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of
the
Sarbanes-Oxley Act of 2002
|
Filed
herewith
|
|
32.1
|
---
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
Filed
herewith
|
|
32.2
|
---
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
Filed
herewith
|
*
Represents
a management contract or compensatory plan or arrangement
|
(1)
|
Incorporated
herein by reference to the exhibits to the Company’s Registration
Statement on Form S-8 (Registration No. 33-91904) filed on May
4,
1995.
|
|
(2)
|
Incorporated
herein by reference to the exhibits to the Company’s Registration
Statement on Form S-1 (Registration No. 33-72576) initially filed
on
December 6, 1993.
|
|
(3)
|
Incorporated
herein by reference to the exhibit to the Company’s report on Form 8-K
filed on February 9, 2005.
|
|
(4)
|
Incorporated
herein by reference to the exhibits to the Company’s report on Form 8-K
filed on August 10, 2001.
|
|
(5)
|
Incorporated
herein by reference to the exhibits to the Company’s report on Form 10-K
for the year ended September 30, 2001.
|
|
(6)
|
Incorporated
herein by reference to the exhibits to the Company’s Registration
Statement on Form S-4 (Registration No. 333-92470) filed on July
16, 2002.
|
|
(7)
|
Incorporated
herein by reference to the exhibits to the Company’s Registration
Statement on Form S-8/S-3 (Registration No. 333-101142) filed on
November
12, 2002.
|
|
(8)
|
Incorporated
herein by reference to the exhibits to the Company’s report on Form 10-K
for the year ended September 30, 2003.
|
|
(9)
|
Incorporated
herein by reference to the exhibits to the Company’s Registration
Statement on Form S-4/A filed on March 12, 2002.
|
|
(10)
|
Incorporated
herein by reference to the exhibits to the Company’s 10-Q for the
quarterly period ended June 30, 2004.
|
|
(11)
|
Incorporated
herein by reference to the exhibits to the Company’s report on Form 8-K
filed on September 1, 2004.
|
|
(12)
|
Incorporated
herein by reference to the exhibits to the Company’s report on Form 10-K
for the year ended September 30, 2004.
|
|
(13)
|
Incorporated
herein by reference to the exhibits to the Company’s report on Form 8-K
filed on March 18, 2005.
|
|
(14)
|
Incorporated
herein by reference to the exhibit to the Company’s report on Form 8-K
filed on August 24, 2005.
|
|
(15)
|
Incorporated
herein by reference to the Company’s Registration Statement of Form S-4
(Registration No. 333-127165) initially filed on August 3,
2005.
|
(c)
Exhibits
Reference
is made to Item 15(a)3 above. The following is a list of exhibits, included
in
item 15(a)3 above, that are filed concurrently with this report.
|
---
|
Subsidiaries
of the Company
|
|
|
---
|
Consent
of Deloitte & Touche LLP
|
|
|
---
|
Certification
pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of
the
Sarbanes-Oxley Act of 2002
|
|
|
---
|
Certification
pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of
the
Sarbanes-Oxley Act of 2002
|
|
|
---
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
|
|
---
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
(d)
Financial
Statement Schedules
Reference
is made to Item 15(a)2 above.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
||||
|
By:
|
/s/
Ian J. McCarthy
|
|||
|
Name:
|
Ian
J. McCarthy
|
|||
|
Title:
|
President
and Chief Executive Officer
|
|||
|
Date:
|
December
8, 2005
|
|||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in
the
capacities and on the dates indicated.
|
December
8, 2005
|
By:
|
/s/
Brian C. Beazer
|
||
|
Date
|
Brian
C. Beazer, Director and Non-Executive Chairman of the
Board
|
|||
|
December
8, 2005
|
By:
|
/s/
Ian J. McCarthy
|
||
|
Date
|
Ian
J. McCarthy, Director, President and Chief Executive Officer
(Principal
Executive Officer)
|
|||
|
December
8, 2005
|
By:
|
/s/
Laurent Alpert
|
||
|
Date
|
Laurent
Alpert, Director
|
|||
|
December
8, 2005
|
By:
|
/s/
Katie J. Bayne
|
||
|
Date
|
Katie
J. Bayne, Director
|
|||
|
December
8, 2005
|
By:
|
/s/
Peter G. Leemputte
|
||
|
Date
|
Peter
G. Leemputte, Director
|
|||
|
December
8, 2005
|
By:
|
/s/
Maureen E. O’Connell
|
||
|
Date
|
Maureen
E. O’Connell, Director
|
|||
|
December
8, 2005
|
By:
|
/s/
Larry T. Solari
|
||
|
Date
|
Larry
T. Solari, Director
|
|||
|
December
8, 2005
|
By:
|
/s/
Stephen P. Zelnak
|
||
|
Date
|
Stephen
P. Zelnak, Jr., Director
|
|||
|
December
8, 2005
|
By:
|
/s/
James O’Leary
|
||
|
Date
|
James
O’Leary, Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|||
|
December
8, 2005
|
By:
|
/s/
Michael T. Rand
|
||
|
Date
|
Michael
T. Rand, Senior Vice President, Chief Accounting
Officer
|
|||
|
(Principal
Accounting Officer)
|
||||
71
EXHIBIT
10.1
BEAZERHOMES
USA, INC.
AMENDED
AND RESTATED 1994 STOCK INCENTIVE PLAN
Section
1. Purpose.
This
Plan shall be
known as the “BEAZER HOMES USA, INC. AMENDED AND
RESTATED 1994 STOCK INCENTIVE PLAN”. The purpose
of the Plan is to promote the interests of the Company and its stockholders
by
aiding the Company in attracting and retaining management personnel capable
of
assuring the future success of the Company, to offer such personnel incentives
to put forth maximum efforts for the success of the Company’s business and to
afford such personnel an opportunity to acquire a proprietary interest in
the
Company.
Section
2. Definitions.
As
used in the
Plan, the following terms shall have the meanings set forth below:
(a)
“Affiliate”
shall mean (i) any entity that, directly or indirectly through one or more
intermediaries, is controlled by the Company and (ii) any entity in which
the
Company has a significant equity interest, in each case as determined by
the
Committee.
(b)
“Award”
shall
mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock
Unit, Performance Award, Dividend Equivalent or Other Stock-Based Award granted
under the Plan.
(c)
“Award
Agreement” shall mean any written agreement, contract or other instrument or
document evidencing any Award granted under the Plan.
(d)
“Code”
shall
mean the Internal Revenue Code of 1986, as amended from time to time, and
any
regulations promulgated thereunder.
(e)
“Committee”
shall mean a committee of the Board of Directors of the Company designated
by
such Board to administer the Plan, which shall consist of members appointed
from
time to time by the Board of Directors and shall be comprised of not less
than
such number of directors as shall be required to permit the Plan to satisfy
the
requirements of Rule 16b-3. Each member of the Committee shall be a
“non-employee director” within the meaning of Rule 16b-3.
(f)
“Company”
shall
mean BEAZER HOMES USA, INC.,
a Delaware corporation, and any successor corporation.
(g)
“Dividend
Equivalent” shall mean any right granted under Section 6(e) of the Plan.
(h)
“Eligible
Person” shall mean any employee, officer, director, consultant or independent
contractor providing services to the Company or any Affiliate who the Committee
determines to be an Eligible Person.
(i)
“Fair
Market
Value” shall mean, with respect to any property (including, without limitation,
any Shares or other securities), the fair market value of such property
determined by such methods or procedures as shall be established from time
to
time by the Committee; provided, however, that, for purposes of the
Plan, the Fair Market Value of Shares on any day on which Shares are traded
on
the New York Stock Exchange (“NYSE”) shall be the closing price of such Shares
on the NYSE Composite Tape on such day, except that for purposes of determining
the exercise price of any Option which is granted on or effective as of the
Plan
Effective Date or within 60 days after the Plan Effective Date, the Fair
Market
Value of Shares on the date on which such Option is granted shall be deemed
to
be the initial price at which Shares are offered to the public pursuant to
the
Offering.
(j)
“Incentive
Stock Option” shall mean an option granted under Section 6(a) of the Plan that
is intended to meet the requirements of Section 422 of the Code or any successor
provision.
(k)
“Non-Qualified
Stock Option" shall mean an option granted under Section 6(a) of the Plan
that
is not intended to be an Incentive Stock Option.
(l)
“Offering”
shall mean the offering to the public on or about February 28, 1994 of up
to
6,900,000 Shares contemplated by the Final Prospectus included in the
registration statement on Form S-1 with respect thereto in the form declared
effective by the Securities and Exchange Commission.
(m)
“Option"
shall
mean an Incentive Stock Option or a Non-Qualified Stock Option, and shall
include Restoration Options.
(n)
“Other
Stock-Based Award" shall mean any right granted under Section 6(f) of the
Plan.
(o)
“Participant”
shall mean an Eligible Person designated to be granted an Award under the
Plan.
(p)
“Performance
Award” shall mean any right granted under Section 6(d) of the Plan.
(q)
“Person”
shall
mean any individual, corporation, partnership, association or trust.
(r)
“Plan”
shall
mean this Amended and Restated 1994 Stock Incentive Plan, as amended from
time
to time.
2
(s)
“Plan
Effective
Date" shall mean the date on which the Offering was consummated (February
28,
1994).
(t)
“Restoration
Option” shall mean any Option granted under Section 6(a)(iv) of the Plan.
(u)
“Restricted
Stock” shall mean any Share granted under Section 6(c) of the Plan.
(v)
“Restricted
Stock Unit” shall mean any unit granted under Section 6(c) of the Plan
evidencing the right to receive a Share (or a cash payment equal to the Fair
Market Value of a Share) at some future date.
(w)
“Rule
16b-3”
shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, or any successor rule
or
regulation.
(x)
“Shares”
shall
mean shares of Common Stock, $.01 par value, of the Company or such other
securities or property as may become subject to Awards pursuant to an adjustment
made under Section 4(c) of the Plan.
(y)
“Stock
Appreciation Right” shall mean any right granted under Section 6(b) of the
Plan.
Section
3. Administration.
(a)
Power
and
Authority of the Committee. The Plan shall be administered by the Committee.
Subject to the express provisions of the Plan and to applicable law, the
Committee shall have full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to each Participant
under the Plan; (iii) determine the number of Shares to be covered by (or
with
respect to which payments, rights or other matters are to be calculated in
connection with) each Award; (iv) determine the terms and conditions of any
Award or Award Agreement; (v) amend the terms and conditions of any Award
or
Award Agreement and accelerate the exercisability of Options or the lapse
of
restrictions relating to Restricted Stock, Restricted Stock Units or other
Awards; (vi) determine whether, to what extent and under what circumstances
Awards may be exercised in cash, Shares, other securities, other Awards or
other
property, or canceled, forfeited or suspended; (vii) determine whether, to
what
extent and under what circumstances cash, Shares, other securities, other
Awards, other property and other amounts payable with respect to an Award
under
the Plan shall be deferred either automatically or at the election of the
holder
thereof or the Committee; (viii) interpret and administer the Plan and any
instrument or agreement relating to, or Award made under, the Plan; (ix)
establish, amend, suspend or waive such rules and regulations and appoint
such
agents as it shall deem appropriate for the proper administration of the
Plan;
and (x) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect
to the
Plan or any Award shall be within the sole discretion of the Committee, may
be
made at any time and shall be final, conclusive and binding upon any
participant, any holder or beneficiary of any Award and any employee of the
Company or any Affiliate.
3
(b)
Delegation. The Committee may delegate its powers and duties under the
Plan to one or more officers of the Company or any Affiliate or a committee
of
such officers, subject to such terms, conditions and limitations as the
Committee may establish in its sole discretion; provided, however, that
the Committee shall not delegate its powers and duties under the Plan with
regard to officers or directors of the Company or any Affiliate who are subject
to Section 16 of the Securities Exchange Act of 1934, as amended.
Section
4. Shares Available for Awards.
(a)
Shares
Available. Subject to adjustment as provided in Section 4(c), the number of
Shares available for granting Awards under the Plan shall be 875,000. Shares
to
be issued under the Plan may be either Shares reacquired and held in the
treasury or authorized but unissued Shares. If any Shares covered by an Award
or
to which an Award relates are not purchased or are forfeited, or if an Award
otherwise terminates without delivery of any Shares, then the number of Shares
counted against the aggregate number of Shares available under the Plan with
respect to such Award, to the extent of any such forfeiture or termination,
shall again be available for granting Awards under the Plan.
(b)
Accounting
for Awards. For purposes of this Section 4, if an Award entitles the holder
thereof to receive or purchase Shares, the number of Shares covered by such
Award or to which such Award relates shall be counted on the date of grant
of
such Award against the aggregate number of Shares available for granting
Awards
under the Plan.
(c)
Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance
of
warrants or other rights to purchase Shares or other securities of the Company
or other similar corporate transaction or event affects the Shares such that
an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to
be
made available under the Plan, then the Committee shall, in such manner as
it
may deem equitable, adjust any or all of (i) the number and type of Shares
(or
other securities or other property) which thereafter may be made the subject
of
Awards, (ii) the number and type of Shares (or other securities or other
property) subject to outstanding Awards and (iii) the purchase or exercise
price
with respect to any Award; provided, however, that the number of Shares
covered by any Award or to which such Award relates shall always be a whole
number.
4
(d) Incentive
Stock Options.
Notwithstanding the foregoing, the number of Shares available for granting
Incentive Stock Options under the Plan shall not exceed 875,000, subject
to
adjustment as provided in the Plan and Section 422 or 424 of the Code or
any
successor provisions, provided, however, that Incentive Stock Options
may not be granted under the Plan unless and until the stockholders of the
Company approve the amendment to the Plan that increased the number of Shares
available for granting Awards under the Plan to 875,000 Shares.
Section
5. Eligibility.
Any
Eligible
Person, including any Eligible Person who is an officer or director of the
Company or any Affiliate, shall be eligible to be designated a Participant.
In
determining which Eligible Persons shall receive an Award and the terms of
any
Award, the Committee may take into account the nature of the services rendered
by the respective Eligible Persons, their present and potential contributions
to
the success of the Company or such other factors as the Committee, in its
discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive
Stock Option may only be granted to full or part-time employees (which term
as
used herein includes, without limitation, officers and directors who are
also
employees) and an Incentive Stock Option shall not be granted to an employee
of
an Affiliate unless such Affiliate is also a “subsidiary corporation” of the
Company within the meaning of Section 424(f) of the Code or any successor
provision.
Section
6. Awards.
(a) Options.
The Committee is
hereby authorized to grant Options to Participants with the following terms
and
conditions and with such additional terms and conditions not inconsistent
with
the provisions of the Plan as the Committee shall determine:
(i) Exercise
Price. The purchase
price per Share purchasable under an Option shall be determined by the
Committee; provided, however, that such purchase price shall not be
less than 100% of the Fair Market Value of a Share on the date of grant of
such
Option.
(ii) Option
Term. The term of each
Option shall be fixed by the Committee.
(iii)
Time
and Method of Exercise. The
Committee shall determine the time or times at which an Option may be exercised
in whole or in part and the method or methods by which, and the form or forms
(including, without limitation, cash, Shares, promissory notes, other
securities, other Awards or other property, or any combination thereof, having
a
Fair Market Value on the exercise date equal to the relevant exercise price)
in
which, payment of the exercise price with respect thereto may be made or
deemed
to have been made.
5
(iv)
Restoration
Options. The Committee
may grant Restoration Options, separately or together with another Option,
pursuant to which, subject to the terms and conditions established by the
Committee and any applicable requirements of Rule 16b-3 or any other applicable
law, the Participant would be granted a new Option when the payment of the
exercise price of the option to which such Restoration Option relates is
made by
the delivery of Shares owned by the Participant pursuant to the relevant
provisions of the plan or agreement relating to such option, which new Option
would be an Option to purchase the number of Shares not exceeding the sum
of (A)
the number of Shares so provided as consideration upon the exercise of the
previously granted option to which such Restoration Option relates and (B)
the
number of Shares, if any, tendered or withheld as payment of the amount to
be
withheld under applicable tax laws in connection with the exercise of the
option
to which such Restoration Option relates pursuant to the relevant provisions
of
the plan or agreement relating to such option. Restoration Options may be
granted with respect to options previously granted under the Plan or any
other
stock option plan of the Company, and may be granted in connection with any
option granted under the Plan or any other stock option plan of the Company
at
the time of such grant.
(b) Stock
Appreciation Rights. The Committee is hereby authorized to grant Stock
Appreciation Rights to Participants subject to the terms of the Plan and
any
applicable Award Agreement. A Stock Appreciation Right granted under the
Plan
shall confer on the holder thereof a right to receive upon exercise thereof
the
excess of (i) the Fair Market Value of one Share on the date of exercise
(or, if
the Committee shall so determine, at any time during a specified period before
or after the date of exercise) over (ii) the grant price of the Stock
Appreciation Right as specified by the Committee, which price shall not be
less
than 100% of the Fair Market Value of one Share on the date of grant of the
Stock Appreciation Right. Subject to the terms of the Plan and any applicable
Award Agreement, the grant price, term, methods of exercise, dates of exercise,
methods of settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee
may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.
(c) Restricted
Stock and Restricted
Stock Units. The Committee is hereby authorized to grant Awards of
Restricted Stock and Restricted Stock Units to Participants with the following
terms and conditions and with such additional terms and conditions not
inconsistent with the provisions of the Plan as the Committee shall
determine:
6
(i) Restrictions.
Shares of
Restricted Stock and Restricted Stock Units shall be subject to such
restrictions as the Committee may impose (including, without limitation,
any
limitation on the right to vote a Share of Restricted Stock or the right
to
receive any dividend or other right or property with respect thereto), which
restrictions may lapse separately or in combination at such time or times,
in
such installments or otherwise as the Committee may deem appropriate.
(ii) Stock
Certificates. Any Restricted Stock granted under the Plan shall be evidenced
by issuance of a stock certificate or certificates, which certificate or
certificates shall be held by the Company. Such certificate or certificates
shall be registered in the name of the Participant and shall bear an appropriate
legend referring to the terms, conditions and restrictions applicable to
such
Restricted Stock. In the case of Restricted Stock Units, no Shares shall
be
issued at the time such Awards are granted.
(iii) Forfeiture;
Delivery of
Shares. Except as otherwise determined by the Committee, upon termination of
employment (as determined under criteria established by the Committee) during
the applicable restriction period, all Shares of Restricted Stock and all
Restricted Stock Units at such time subject to restriction shall be forfeited
and reacquired by the Company; provided, however, that the Committee
may, when it finds that a waiver would be in the best interest of the Company,
waive in whole or in part any or all remaining restrictions with respect
to
Shares of Restricted Stock or Restricted Stock Units. Any Share representing
Restricted Stock that is no longer subject to restrictions shall be delivered
to
the holder thereof promptly after the applicable restrictions lapse or are
waived. Upon the lapse or waiver of restrictions and the restricted period
relating to Restricted Stock Units evidencing the right to receive Shares,
such
Shares shall be issued and delivered to the holders of the Restricted Stock
Units.
(d)
Performance
Awards. The Committee is hereby authorized to grant Performance Awards to
Participants subject to the terms of the Plan and any applicable Award
Agreement. A Performance Award granted under the Plan (i) may be denominated
or
payable in cash, Shares (including, without limitation, Restricted Stock),
other
securities, other Awards or other property and (ii) shall confer on the holder
thereof the right to receive payments, in whole or in part, upon the achievement
of such performance goals during such performance periods as the Committee
shall
establish. Subject to the terms of the Plan and any applicable Award Agreement,
the performance goals to be achieved during any performance period, the length
of any performance period, the amount of any Performance Award granted, the
amount of any payment or transfer to be made pursuant to any Performance
Award
and any other terms and conditions of any Performance Award shall be determined
by the Committee.
7
(e)
Dividend
Equivalents. The Committee is hereby authorized to grant to Participants
Dividend Equivalents under which such Participants shall be entitled to receive
payments (in cash, Shares, other securities, other Awards or other property
as
determined in the discretion of the Committee) equivalent to the amount of
cash
dividends paid by the Company to holders of Shares with respect to a number
of
Shares determined by the Committee. Subject to the terms of the Plan and
any
applicable Award Agreement, such Dividend Equivalents may have such terms
and
conditions as the Committee shall determine.
(f)
Other
Stock-Based Awards. The Committee is hereby authorized to grant Participants
such other Awards that are denominated or payable in, valued in whole or
in part
by reference to, or otherwise based on or related to, Shares (including,
without
limitation, securities convertible into Shares), as are deemed by the Committee
to be consistent with the purpose of the Plan; provided, however, that
such grants must comply with Rule 16b-3 and applicable law. Subject to the
terms
of the Plan and any applicable Award Agreement, the Committee shall determine
the terms and conditions of such Awards. Shares or other securities delivered
pursuant to a purchase right granted under this Section 6(f) shall be purchased
for such consideration, which may be paid by such method or methods and in
such
form or forms (including without limitation, cash, Shares, promissory notes,
other securities, other Awards or other property or any combination thereof),
as
the Committee shall determine, the value of which consideration, as established
by the Committee, shall not be less than 100% of the Fair Market Value of
such
Shares or other securities as of the date such purchase right is
granted.
(g)
General.
(i)
No
Cash Consideration for Awards.
Awards shall be granted for no cash consideration or for such minimal cash
consideration as may be required by applicable law.
(ii)
Awards
May Be Granted Separately or
Together. Awards may, in the discretion of the Committee, be granted either
alone or in addition to, in tandem with or in substitution for any other
Award
or any award granted under any plan of the Company or any Affiliate other
than
the Plan. Awards granted in addition to or in tandem with other Awards or
in
addition to or in tandem with awards granted under any such other plan of
the
Company or any Affiliate may be granted either at the same time as or at
a
different time from the grant of such other Awards or awards.
(iii)
Forms
of Payment under Awards.
Subject to the terms of the Plan and of any applicable Award Agreement, payments
or transfers to be made by the Company or an Affiliate upon the grant, exercise
or payment of an Award may be made in such form or forms as the Committee
shall
determine (including, without limitation, cash, Shares, other securities,
other
Awards or other property or any combination thereof and through borrowings
under
the Company’s Stock Awards Loan Plan adopted in connection herewith), and may be
made in a single payment or transfer, in installments or on a deferred basis,
in
each case in accordance with rules and procedures established by the Committee.
Such rules and procedures may include, without limitation, provisions for
the
payment or crediting of reasonable interest on installment or deferred payments
or the grant or crediting of Dividend Equivalents with respect to installment
or
deferred payments.
8
(iv)
Limits
on Transfer of Awards. No
Award and no right under any such Award shall be transferable by a Participant
otherwise than by will or by the laws of descent and distribution; provided,
however, that, if so determined by the Committee, a Participant may, in the
manner established by the Committee, designate a beneficiary or beneficiaries
to
exercise the rights of the Participant and receive any property distributable
with respect to any Award upon the death of the Participant. Each Award or
right
under any Award shall be exercisable during the Participant's lifetime only
by
the Participant or, if permissible under applicable law, by the Participant's
guardian or legal representative. No Award or right under any such Award
may be
pledged, alienated, attached or otherwise encumbered, and any purported pledge,
alienation, attachment or encumbrance thereof shall be void and unenforceable
against the Company or any Affiliate.
(v)
Terms
of Awards. The term of each
Award shall be for such period as may be determined by the Committee.
(vi)
Restrictions;
Securities Exchange
Listing. All certificates for Shares or other securities delivered under the
Plan pursuant to any Award or the exercise thereof shall be subject to such
stop
transfer orders and other restrictions as the Committee may deem advisable
under
the Plan or the rules, regulations and other requirements of the Securities
and
Exchange Commission and any applicable federal or state securities laws,
and the
Committee may cause a legend or legends to be placed on any such certificates
to
make appropriate reference to such restrictions. If the Shares or other
securities are traded on a securities exchange, the Company shall not be
required to deliver any Shares or other securities covered by an Award unless
and until such Shares or other securities have been admitted for trading
on such
securities exchange.
Section
7. Amendment and Termination; Adjustments.
Except
to the
extent by applicable law and unless otherwise expressly provided in an Award
Agreement or in the Plan:
(a)
Amendments
to the Plan. The Board of Directors of the Company may amend, alter,
suspend, discontinue or terminate the Plan; provided, however, that,
notwithstanding any other provision of the Plan or any Award Agreement, without
the approval of the stockholders of the Company, no such amendment, alteration,
suspension, discontinuation or termination shall be made that, absent such
approval:
9
(i)
would cause Rule 16b-3 to become
unavailable with respect to the Plan;
(ii)
would violate the rules or regulations of
the New York Stock Exchange, any other securities exchange or the National
Association of Securities Dealers, Inc. that are applicable to the Company;
or
(iii)
would cause the Company to be unable,
under the Code, to grant Incentive Stock Options under the Plan.
(b)
Amendments
to Awards. The Committee may waive any conditions of or rights of the
Company under any outstanding Award, prospectively or retroactively. The
Committee may not amend, alter, suspend, discontinue or terminate any
outstanding Award, prospectively or retroactively, without the consent of
the
Participant or holder or beneficiary thereof, except as otherwise herein
provided.
(c)
Correction
of Defects, Omissions and Inconsistencies. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or
any
Award in the manner and to the extent it shall deem desirable to carry the
Plan
into effect.
Section
8. Income Tax Withholding; Tax Bonuses.
(a)
Withholding. In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll, withholding,
income or other taxes, which are the sole and absolute responsibility of
a
Participant, are withheld or collected from such Participant. In order to
assist
a Participant in paying all or a portion of the federal and state taxes to
be
withheld or collected upon exercise or receipt of (or the lapse of restrictions
relating to) an Award, the Committee, in its discretion and subject to such
additional terms and conditions as it may adopt, may permit the Participant
to
satisfy such tax obligation by (i) electing to have the Company withhold
a
portion of the Shares otherwise to be delivered upon exercise or receipt
of (or
the lapse of restrictions relating to) such Award with a Fair Market Value
equal
to the amount of such taxes or (ii) delivering to the Company Shares other
than
Shares issuable upon exercise or receipt of (or the lapse of restrictions
relating to) such Award with a Fair Market Value equal to the amount of such
taxes or (iii) borrowing funds to cover such tax liability under the Company’s
Stock Awards Loan Plan and directing such funds be delivered to the Company
in
satisfaction of any withholding obligation. The election, if any, must be
made
on or before the date that the amount of tax to be withheld is determined.
(b)
Tax
Bonuses. The Committee, in its discretion, shall have the authority, at the
time of grant of any Award under this Plan or at any time thereafter, to
approve
cash bonuses to designated Participants to be paid upon their exercise or
receipt of (or the lapse of restrictions relating to) Awards in order to
provide
funds to pay all or a portion of federal and state taxes due to a result
of such
exercise or receipt (or the lapse of such restrictions). The Committee shall
have full authority in its discretion to determine the amount of any such
tax
bonus.
10
Section
9. General Provisions.
(a)
No
Rights to
Awards. No Eligible Person, Participant or other Person shall have any claim
to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Eligible Persons, Participants or holders or
beneficiaries of Awards under the Plan. The terms and conditions of Awards
need
not be the same with respect to any Participant or with respect to different
Participants.
(b)
Award
Agreements. No Participant will have rights under an Award granted to such
Participant unless and until an Award Agreement shall have been duly executed
on
behalf of the Company.
(c)
No
Limit on
Other Compensation Arrangements. Nothing contained in the Plan shall prevent
the Company or any Affiliate from adopting or continuing in effect other
or
additional compensation arrangements, and such arrangements may be either
generally applicable or applicable only in specific cases.
(d)
No
Right to
Employment. The grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company or any
Affiliate, nor will it affect in any way the right of the Company or an
Affiliate to terminate such employment at any time, with or without cause.
In
addition, the Company or an Affiliate may at any time dismiss a Participant
from
employment free from any liability or any claim under the Plan, unless otherwise
expressly provided in the Plan or in any Award Agreement.
(e)
Governing
Law. The validity, construction and effect of the Plan or any Award, and
any
rules and regulations relating to the Plan or any Award, shall be determined
in
accordance with the laws of the State of Georgia.
(f)
Inclusion
of
Entire Plan Herein. This Plan is a complete amendment and restatement of the
Beazer Homes USA, Inc. 1994 Stock Incentive Plan (the “1994 Plan”) and this Plan
supercedes the 1994 Plan in its entirety.
(g)
Severability. If any provision of the Plan or any Award is or becomes or
is deemed to be invalid, illegal or unenforceable in any jurisdiction or
would
disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform
to
applicable laws, or if it cannot be so construed or deemed amended without,
in
the determination of the Committee, materially altering the purpose or intent
of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in
full
force and effect.
11
(h)
No
Trust or
Fund Created. Neither the Plan nor any Award shall create or be construed to
create a trust or separate fund of any kind or a fiduciary relationship between
the Company or any Affiliate and a Participant or any other Person. To the
extent that any Person aquires a right to receive payments from the Company
or
any Affiliate pursuant to an Award, such right shall be no greater than the
right of any unsecured general creditor of the Company or any Affiliate.
(i)
No
Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash shall be paid in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated or otherwise
eliminated.
(j)
Headings. Headings are given to the Sections and subsections of the Plan
solely as a convenience to facilitate reference. Such headings shall not
be
deemed in any way material or relevant to the construction or interpretation
of
the Plan or any provision thereof.
Section
10. Effective Date of the Plan.
The
Plan shall be
effective as of the Plan Effective Date, subject to approval by the stockholders
of the Company within one year thereafter.
Section
11. Term of the Plan.
Unless
the Plan
shall have been discontinued or terminated as provided in Section 7(a), the
Plan
shall terminate on December 31, 2003. No Award shall be granted after the
termination of the Plan. However, unless otherwise expressly provided in
the
Plan or in an applicable Award Agreement, any Award theretofore granted may
extend beyond the termination of the Plan, and the authority of the Committee
provided for hereunder with respect to the Plan and any Awards, and the
authority of the Board of Directors of the Company to amend the Plan, shall
extend beyond the termination of the Plan.
12
Exhibit 21
SUBSIDIARIES
OF THE COMPANY:
|
Name
|
Jurisdiction
of Incorporation
|
|
April
Corporation
|
Colorado
|
|
Arden
Park Ventures, LLC
|
Florida
|
|
Beazer
Allied Companies Holdings, Inc.
|
Delaware
|
|
Beazer
Clarksburg, LLC
|
Maryland
|
|
Beazer
Commercial Holdings, LLC
|
Delaware
|
|
Beazer
General Services, Inc.
|
Delaware
|
|
Beazer
Homes Corp.
|
Tennessee
|
|
Beazer
Homes Holdings Corp.
|
Delaware
|
|
Beazer
Homes Indiana, LLP
|
Indiana
|
|
Beazer
Homes Indiana Holding Corp.
|
Indiana
|
|
Beazer
Homes Investments, LLC
|
Delaware
|
|
Beazer
Homes Michigan, LLC
|
Delaware
|
|
Beazer
Homes Sales, Inc.
|
Delaware
|
|
Beazer
Homes Texas Holdings, Inc.
|
Delaware
|
|
Beazer
Homes Texas, LP
|
Texas
|
|
Beazer
Mortgage Corporation
|
Delaware
|
|
Beazer
Realty Corp.
|
Georgia
|
|
Beazer
Realty, Inc.
|
New
Jersey
|
|
Beazer
Realty Los Angeles, Inc.
|
Delaware
|
|
Beazer
Realty Sacramento, Inc.
|
Delaware
|
|
Beazer
Realty Services, LLC
|
Delaware
|
|
Beazer
Title Agency of Arizona, LLC
|
Arizona
|
|
Beazer
Title Agency of Nevada, LLC
|
Nevada
|
|
Beazer
SPE, LLC
|
Georgia
|
|
Beazer/Squires
Realty, Inc.
|
North
Carolina
|
|
BH
Building Products, LP
|
Delaware
|
|
BH
Procurement Services, LLC
|
Delaware
|
|
Homebuilders
Title Services of Virginia, Inc.
|
Virginia
|
|
Homebuilders
Title Services, Inc.
|
Delaware
|
|
Paragon
Title, LLC
|
Indiana
|
|
Security
Title Insurance Company
|
Vermont
|
|
Texas
Lone Star Title, LP
|
Texas
|
|
Trinity
Homes, LLC
|
Indiana
|
|
United
Home Insurance Company, A
Risk Retention Group
|
Vermont
|
EXHIBIT
23
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in Registration Statements No.
333-94843 and 333-117919 on Form S-3 and in Registration Statements No.
333-116573, 333-91904 and 333-24765 on Form S-8 of Beazer Homes USA, Inc. of
our
reports dated December 8, 2005, relating to the consolidated financial
statements of Beazer Homes USA, Inc. and management's report on the
effectiveness of internal control over financial reporting dated December 8,
2005, appearing in this Annual Report on Form 10-K of Beazer Homes USA, Inc.
for
the year ended September 30, 2005.
/s/
Deloitte & Touche LLP
Atlanta,
Georgia
December
8, 2005
EXHIBIT
31.1
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14 PROMULGATED UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I,
Ian J. McCarthy, President and Chief Executive Officer of Beazer Homes USA,
Inc., certify that:
|
1.
|
I
have reviewed this annual report on Form 10-K of Beazer Homes USA,
Inc.;
|
|
2.
|
Based
on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to
make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
annual report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects
the financial condition, results of operations and cash flows of
the
registrant as of, and for, the periods presented in this annual
report;
|
|
4.
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and we
have:
|
|
(a)
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is
being prepared;
|
|
(b)
|
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
(c)
|
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
(d)
|
disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely
to
materially affect, the registrant’s internal control over financial
reporting;
|
|
5.
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting,
to
the registrant’s auditors and the audit committee of the registrant’s
board of directors:
|
|
(a)
|
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
(b)
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal
controls over financial reporting.
|
Date:
December 8, 2005
/s/
Ian J. McCarthy
Ian J. McCarthy
President and Chief Executive Officer
EXHIBIT
31.2
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14 PROMULGATED UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I,
James O’Leary, Executive Vice President and Chief Financial Officer of Beazer
Homes USA, Inc., certify that:
|
1.
|
I
have reviewed this annual report on Form 10-K of Beazer Homes USA,
Inc.;
|
|
2.
|
Based
on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to
make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
annual report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects
the financial condition, results of operations and cash flows of
the
registrant as of, and for, the periods presented in this annual
report;
|
|
4.
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and we
have:
|
|
(a)
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is
being prepared;
|
|
(b)
|
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
(c)
|
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
(d)
|
disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely
to
materially affect, the registrant’s internal control over financial
reporting;
|
|
5.
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting,
to
the registrant’s auditors and the audit committee of the registrant’s
board of directors:
|
|
(a)
|
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
(b)
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal
controls over financial reporting.
|
Date:
December 8, 2005
/s/
James O’Leary
James
O’Leary
Executive
Vice President and Chief Financial Officer
Exhibit
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of Beazer Homes USA, Inc. (the "Company")
on
Form 10-K for the period ending September 30, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Ian J. McCarthy,
President and Chief Executive Officer of the Company, certify, pursuant to
18
U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002,
that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d)
of the
Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the
Company.
/s/
Ian J. McCarthy
Ian
J.
McCarthy
President
and Chief Executive Officer
December
8, 2005
Exhibit
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of Beazer Homes USA, Inc. (the "Company")
on
Form 10-K for the period ending September 30, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, James O’Leary,
Executive Vice President and Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of
the
Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the
Company.
/s/
James O’Leary
James
O’Leary
Executive
Vice President and Chief Financial Officer
December
8, 2005