Business Context and Reporting Period
Company: Beazer Homes USA, Inc.
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended September 30, 2002
Business Overview: Beazer designs, sells, and builds single-family homes primarily for entry-level and first-time move-up homebuyers. Operations are decentralized across 15 states in the Southeast, West, Central, Mid-Atlantic, and Midwest regions. The company utilizes a "Value Created" metric (EBIT less a 14% charge on capital employed) to evaluate performance.
Key Financial Metrics and Operational Data
Note: Specific revenue, net income, cash flow, and debt figures are incorporated by reference to the Annual Report to Shareholders and are not explicitly detailed in the provided text. The following operational metrics are available:
- Total Homes Closed: 13,603 units
- Average Closing Price: $190,800
- Backlog (Units): 6,519 units
- Backlog (Dollar Value): $1,293,290,000
- Active Subdivisions: 468
- Land Inventory: 34,791 lots owned; 41,987 lots under contract (Total land controlled: 76,778).
- Employees: 2,890 (as of September 30, 2002)
Debt and Liquidity Commitments:
- Option Contracts (Specific Performance): $15.1 million committed.
- Option Contracts (Non-Specific Performance): $1.2 billion in future amounts; $110.9 million in non-refundable deposits/letters of credit.
- Letters of Credit & Bonds: Approximately $37.5 million in letters of credit and $315.1 million in performance bonds outstanding.
- Senior Notes: The company has issued 8 7/8% Senior Notes due 2008, 8 5/8% Senior Notes due 2011, and 8 3/8% Senior Notes due 2012.
Material Changes and Unusual Items
- Acquisition: Completed the acquisition of Crossmann Communities, Inc. (Agreement dated January 29, 2002), expanding operations in Indiana, Kentucky, and Ohio.
- Accounting Adjustment: In the quarter ended June 30, 2002, the company recorded an increase to cost of sales of approximately $2.6 million ($0.12 per diluted share) to adjust for misallocations by the Fort Myers, Florida division.
- Debt Restructuring: Announced an exchange of $350 million of 8 3/8% Senior Notes due 2012 from a Rule 144A offering to publicly registered Senior Notes with substantially identical terms.
- Market Expansion: Entered new markets in 2002 including Myrtle Beach (SC), Northern Mississippi, Indianapolis, Lafayette, Ft. Wayne (IN), Lexington (KY), and Columbus/Cincinnati/Dayton (OH).
Guidance, Outlook, and Risks
Management Commentary: Management emphasizes geographic diversity to reduce exposure to regional economic swings. The strategy focuses on inventory turnover and limiting land investment through the use of options. The company targets entry-level and first-time move-up buyers, avoiding the "custom home" segment.
Risks and Contingencies:
- Market Cyclicality: The housing industry is highly sensitive to interest rates, consumer confidence, and unemployment levels.
- Competition: The market is fragmented and competitive; Beazer competes on location, price, and quality against larger national builders and existing home resales.
- Regulatory and Environmental: Subject to building moratoriums, "slow-growth" initiatives, and environmental regulations that could delay development or increase costs.
- Legal Proceedings: Involved in ordinary course litigation regarding construction defects and product liability; management does not expect a material adverse effect.
- Warranty Obligations: Self-insures structural warranties through risk retention groups; reserves approximately 0.5% to 1.0% of sales price for warranty expenses.
Investor Verification Checklist
- Financial Statements: Verify total revenue, net income, and cash flow figures in the Annual Report to Shareholders (incorporated by reference), as they are not present in the 10-K text provided.
- Debt Covenants: Review the specific terms of the Senior Notes (due 2008, 2011, 2012) and credit agreements to assess liquidity constraints.
- Backlog Conversion: Monitor the conversion rate of the $1.29 billion backlog into revenue, considering the impact of interest rates on buyer financing.
- Land Exposure: Assess the risk associated with the $1.2 billion in future commitments under option contracts without specific performance obligations.
- Integration of Crossmann: Evaluate the financial performance of the newly acquired Midwest operations (Indiana, Kentucky, Ohio) in subsequent filings.