BZH

Business Context and Reporting Period

Company: Beazer Homes USA, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2002
Business Overview: Beazer designs, sells, and builds single-family homes across the Southeast, West, Central, and Mid-Atlantic regions. The company also operates ancillary businesses including mortgage origination (Beazer Mortgage Corp) and title services. As of the reporting date, the company operated in 14 states. Following the reporting period, on April 17, 2002, Beazer completed the acquisition of Crossmann Communities, Inc., expanding operations into Indiana, Ohio, and Kentucky.

Key Financial Metrics

Liquidity: Cash and cash equivalents decreased from $41.7 million at September 30, 2001, to $0 at March 31, 2002. The company had $244.2 million available under its $250 million revolving credit facility with no outstanding borrowings at period end.

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 34.5% for the three months ended March 31, 2002, compared to the same period in 2001. This was driven by a 30.1% increase in home closings and a 5.9% increase in average sales price.
• Profitability: Net income rose 38.1% year-over-year for the quarter ($24.2M vs. $17.5M). Operating income increased 31.6%.
• Order Activity: New orders increased 3.8% for the quarter and 17.1% for the six-month period. The West region saw a 23.0% increase in new orders, offsetting a 13.6% decline in the Southeast region.
• Backlog: The number of homes in backlog increased 19.5% to 4,825 units, with the aggregate sales value rising 26.4% to $1.01 billion.
• Cash Flow: Net cash used by operating activities was $37.4 million for the six months ended March 31, 2002, compared to $83.5 million in the prior year period, indicating improved operational cash efficiency despite inventory buildup.

Guidance, Outlook, and Risks

Management Outlook: Management expressed confidence in fiscal 2002 prospects, citing increased earnings in the first six months and a higher backlog. They projected fiscal 2002 earnings per share to exceed $10.00, representing an increase of at least 22% over fiscal 2001.

Recent Acquisition: The merger with Crossmann Communities (effective April 17, 2002) was funded by $310 million in stock, $191.6 million in cash, and the repayment of $125 million in Crossmann debt. The cash portion was funded by a new $350 million private placement of Senior Notes due 2012.

Accounting Changes: The company early-adopted SFAS No. 142, discontinuing the amortization of goodwill (previously $0.8 million annually). No impairment charges were recognized.

Risks and Contingencies:

• Market Risks: Exposure to economic changes, mortgage interest rate volatility, and competition.
• Operational Risks: Shortages of skilled labor or raw materials, increased land development costs, and insurance availability.
• Integration Risk: Challenges in effectively integrating the acquired Crossmann operations.
• Debt Covenants: Compliance with operating and financial covenants in credit facilities and notes is required to avoid accelerated repayment.

Investor Verification Checklist

• Cash Position: Verify the impact of the $0 cash balance at period end on immediate liquidity needs, despite the $244.2 million credit facility availability.
• Debt Structure: Confirm the terms and interest rates of the new $350 million Senior Notes issued in April 2002 to fund the Crossmann acquisition.
• Backlog Conversion: Monitor the conversion rate of the $1.01 billion backlog into revenue, noting the 19.5% increase in unit count.
• Regional Performance: Analyze the divergence between the Southeast region (declining orders) and the West/Central regions (strong growth) to assess market concentration risks.
• Integration Progress: Track the financial integration of Crossmann Communities in subsequent filings to ensure projected synergies are realized.