BZH

Business Context and Reporting Period

Company: Beazer Homes USA, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2001 (Nine months ended June 30, 2001)
Business Overview: Beazer designs, builds, and sells single-family homes across the Southeast, West, Central, and Mid-Atlantic regions. The company also operates ancillary businesses including mortgage origination, title services, and design centers. The company targets entry-level and first-time move-up homebuyers.

Key Financial Metrics

Note: Operating cash flow is negative due to significant inventory buildup ($155.6 million increase) typical of the homebuilding cycle.

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 15.2% for the nine months ended June 30, 2001, compared to the prior year. This was driven by a 12.2% increase in home closings and a 2.5% increase in average sales price.
• Profitability: Net income more than doubled to $51.0 million (from $26.9 million). Operating margins improved as the cost of home construction as a percentage of revenue decreased from 83.5% to 81.2%.
• Backlog Expansion: Backlog units increased 34.3% to 4,636 units, with an aggregate sales value of $891.9 million (up 31.4%).
• Debt Restructuring: The company issued $200 million in 8.625% Senior Notes due 2011 and used proceeds to redeem $115 million of 9% Senior Notes due 2004. This resulted in an extraordinary loss of $1.2 million (net of tax) for the write-off of unamortized debt issuance costs.
• Term Loan Increase: The four-year term loan was increased from $75 million to $90 million, with proceeds used to pay down the revolving credit facility.

Guidance, Outlook, and Risks

Management Commentary and Outlook

• Fiscal 2001 Guidance: Management expects diluted earnings per share for fiscal 2001 to be in the range of $7.75 to $8.00, representing a 53% to 58% increase over fiscal 2000.
• Long-Term Target: The company aims to achieve its five-year goal of $9.00 diluted EPS by fiscal 2002, two years ahead of the original schedule.
• Market Drivers: Outlook is supported by strong population growth, gains in market share by large public builders, and the increasing use of the internet in the home-buying process.

Risks and Contingencies

• Acquisition Integration: In August 2001 (subsequent event), Beazer acquired Sanford Homes of Colorado for approximately $66 million. Risks include difficulties in integrating these new operations.
• Joint Venture Winding Down: The company is winding down its 49% interest in Premier Communities. While a $3.3 million charge was taken in the prior year, $0.4 million remains accrued, with no further charges currently expected.
• Market Risks: Exposure to economic changes, volatility in mortgage interest rates, labor shortages, and raw material price increases.
• Accounting Changes: The company is considering early adoption of SFAS No. 142, which would discontinue goodwill amortization ($0.8 million annually) but requires annual impairment testing.

Investor Verification Checklist

• Backlog Conversion: Verify the ability to convert the record backlog of 4,636 units into revenue in the coming quarters, given the 2% decrease in average backlog price.
• Debt Service Coverage: Confirm that the new debt structure ($300 million Senior Notes + $90 million Term Loan) remains sustainable given the interest rate environment and the company's reliance on variable-rate debt (hedged via swaps).
• Inventory Levels: Monitor the $785 million inventory balance, specifically the $26.7 million in completed homes not under contract, to assess potential markdown risks.
• Acquisition Synergies: Track the financial performance and integration progress of the Sanford Homes of Colorado acquisition post-closing.
• Goodwill Impairment: Watch for potential impairment charges related to goodwill upon the adoption of SFAS No. 142.