UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20594
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1996
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-12822
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BEAZER HOMES USA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-2086934
(State or other jurisdiction (I.R.S. employer
incorporation or organization) identification no.)
5775 Peachtree Dunwoody Road, Suite C-550, Atlanta, Georgia 30342
(Address of principal executive offices) (Zip Code)
(404) 250-3420
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
YES X NO
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Class Outstanding at February 13, 1997
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Common Stock, $0.01 par value 6,509,390 shares
Series A Cumulative Convertible
Exchangeable Preferred Stock,
$0.01 par value 2,000,000 shares
Page 1 of 16 Pages
Exhibit Index Appears on Page 15
BEAZER HOME USA, INC.
FORM 10-Q
INDEX
Page No.
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets,
December 31, 1996 (unaudited) and September 30, 1996 3
Unaudited Condensed Consolidated Statements of Operations,
Three Months Ended December 31, 1996 and 1995 4
Unaudited Condensed Consolidated Statements of Cash Flows,
Three Months Ended December 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
PART I. FINANCIAL INFORMATION
BEAZER HOMES USA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, SEPTEMBER 30,
1996 1996
---- ----
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 3,178 $ 12,942
Accounts receivable 3,494 6,473
Inventory 347,627 320,969
Property, plant and equipment, net 3,030 2,823
Goodwill, net 6,069 6,204
Other assets 9,481 7,232
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Total assets $ 372,879 $ 356,643
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----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $ 20,917 $ 31,431
Other payables and accrued liabilities 20,303 31,511
Revolving credit facility 37,000 ---
Senior notes 115,000 115,000
----------- -----------
Total liabilities 193,220 177,942
Stockholders' equity:
Preferred stock (par value $.01 per share, 5,000,000 shares
authorized, 2,000,000 issued and outstanding; $50,000
aggregate liquidation preference) 20 20
Common stock (par value $.01 per share, 30,000,000 shares
authorized, 9,297,117 issued,
6,509,390 and 6,530,933 outstanding) 93 93
Paid in capital 187,477 187,477
Retained earnings 39,290 37,613
Unearned restricted stock (1,376) (1,446)
Less treasury stock, at cost (2,830,567 and 2,774,267 shares) (45,845) (45,056)
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Total stockholders' equity 179,659 178,701
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Total liabilities and stockholders' equity $ 372,879 $ 356,643
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----------- -----------
See Notes to Condensed Consolidated Financial Statements
3
BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS
ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
Total revenue $ 161,083 $ 158,230
Costs and expenses:
Home construction and land sales 135,371 133,337
Interest 2,740 3,131
Selling, general and administrative 18,773 16,929
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Operating income 4,199 4,833
Other income 190 ---
------------ ------------
Income before income taxes 4,389 4,833
Provision for income taxes 1,712 1,933
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Net income $ 2,677 $ 2,900
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------------ ------------
Preferred dividends $ 1,000 1,000
Net income applicable to common stockholders $ 1,677 $ 1,900
Weighted average number of
shares outstanding 6,457,686 6,524,618
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------------ ------------
Net income per common share $ 0.26 $ 0.29
------------ ------------
------------ ------------
See Notes to Condensed Consolidated Financial Statements
4
BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 2,677 $ 2,900
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 408 410
Changes in operating assets and liabilities,
net of effects of acquisitions (47,670) (48,340)
----------- -----------
Net cash used by operating activities (44,585) (45,030)
----------- -----------
Cash flows from investing activities:
Capital expenditures (390) (508)
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Net cash used by investing activities (390) (508)
----------- -----------
Cash flows from financing activities:
Proceeds from revolving credit facility, net 37,000 10,000
Treasury stock purchased (789) ---
Dividend paid on preferred stock (1,000) (1,000)
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Net cash provided by financing activities 35,211 9,000
----------- -----------
(Decrease) in cash and cash equivalents (9,764) (36,538)
Cash and cash equivalents at beginning of period 12,942 40,407
----------- -----------
Cash and cash equivalents at end of period $ 3,178 $ 3,869
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----------- -----------
See Notes to Condensded Consolidated Financial Statements
5
BEAZER HOMES USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Beazer Homes USA, Inc. ("Beazer" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X, and consequently such financial statements do not include all
of the information and disclosures required by generally accepted accounting
principles for complete financial statements. Accordingly, for further
information, the reader of this Form 10-Q should refer to the audited
consolidated financial statements of the Company for the year ended September
30, 1996 incorporated by reference in the Company's Annual Report on Form 10-K.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included in the accompanying condensed financial statements.
(2) INVENTORY
A summary of inventory is as follows (dollars in thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1996
---- ----
(unaudited)
Finished homes $ 63,682 $ 64,709
Development projects in progress 218,820 197,984
Unimproved land held for future
development 35,410 34,040
Model homes 29,715 24,236
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$ 347,627 $ 320,969
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------- -------
Development projects in progress consist principally of land, land
improvement costs and, if applicable, construction costs for houses which are in
various stages of development but not ready for sale. Certain of the finished
homes in inventory are reserved by a deposit or sales contract.
6
BEAZER HOMES USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(3) INTEREST
The following table sets forth certain information regarding interest
(dollars in thousands):
THREE MONTHS ENDED
------------------
DECEMBER 31,
------------
(unaudited)
1996 1995
---- ----
During the period:
Interest incurred $ 3,181 $ 3,144
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--------- ---------
Previously capitalized interest
amortized to costs and expenses $ 2,740 $ 3,131
--------- ---------
--------- ---------
At the end of the period:
Capitalized interest in ending
inventory $ 5,994 $ 6,483
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--------- ---------
(4) EARNINGS PER SHARE
The computation of primary earnings per common share is based upon the
weighted average number of common shares outstanding during the period plus (in
periods in which they have a dilutive effect) the effect of common stock
equivalents, primarily from stock options. Common share equivalents are
computed using the treasury stock method.
Fully diluted earnings per share, which further assumes the conversion of
2.0 million shares of Series A Cumulative Convertible Exchangeable Preferred
Stock ($50.0 million aggregate liquidation preference) issued in August 1995
into 2.6 million shares of common stock at the conversion price of $19.05, is
not presented in the accompanying condensed consolidated statements of
operations for the three month periods ended December 31, 1996 and 1995 since
the effect of such conversion is antidilutive for such periods.
7
BEAZER HOMES USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(5) CREDIT AGREEMENT
In October 1996, the Company entered into a $150 million unsecured,
revolving credit agreement (the "Credit Agreement") with a group of banks to
replace the previous $80 million credit agreement. Borrowings under the Credit
Agreement generally bear interest at a fluctuating rate equal to (i) the sum of
a specified margin PLUS the higher of (a) the corporate base rate of interest
announced by the lead bank (the "Agent") from time to time or (b) a specified
spread above the Federal Funds Rate or (ii) the sum of a specified margin plus a
rate of interest based on LIBOR determined by the Agent pursuant to a specified
formula. All outstanding indebtedness under the Credit Agreement will be due in
October 1999. The Credit Agreement contains various operating and financial
covenants. Each of the Company's significant subsidiaries is a guarantor under
the Credit Agreement.
(6) RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation, ("SFAS 123"). SFAS 123
encourages, but does not require companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen
to continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. The Company will disclose
the pro-forma impact of full adoption of SFAS 123 in its financial statements
for the fiscal year ending September 30, 1997.
8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents certain operating and financial data for the
Company (dollars in thousands):
Operating and Financial Data
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 % CHANGE DECEMBER 31, 1995
NUMBER OF NEW ORDERS,
NET OF CANCELLATIONS (1):
Southeast Region 369 (15.4)% 436
Southwest Region 545 (21.5) 694
Central Region 120 122.2 54
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Total 1,034 (12.7) 1,184
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--------- --------
NUMBER OF CLOSINGS:
Southeast Region 378 (18.9)% 466
Southwest Region 600 0.8 595
Central Region 135 136.8 57
Other Markets n/m 1
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Total 1,113 (0.5) 1,119
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TOTAL REVENUE:
Southeast Region $ 64,069 (2.9)% $ 65,970
Southwest Region 76,144 (8.6) 83,319
Central Region 20,870 138.4 8,756
Other Markets n/m 185
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Total $ 161,083 1.8 $ 158,230
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AVERAGE SALES PRICE PER
HOME CLOSED:
Southeast Region $ 169.5 19.7% $ 141.6
Southwest Region 126.9 (9.4) 140.0
Central Region 154.6 0.7 153.6
Other Markets n/m 185.0
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Total $ 144.7 2.3 $ 141.4
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BACKLOG UNITS AT END OF
PERIOD:
Southeast Region 571 (15.8)% 678
Southwest Region 625 (34.2) 950
Central Region 151 202.0 50
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Total 1,347 (19.7) 1,678
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AGGREGATE SALES VALUE OF
HOMES IN BACKLOG AT END
OF PERIOD: $ 198,265 (14.7)% $ 232,367
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NUMBER OF ACTIVE
SUBDIVISIONS:
Southeast Region 86 (5.5)% 91
Southwest Region 45 (22.4) 58
Central Region 31 121.4 14
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Total 162 (0.6) 163
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n/m Percentage change not meaningful
(1) New orders for the three months ended December 31, 1995 do not include 129
homes in backlog acquired from Del Mar Development, Inc.
9
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW:
Beazer Homes USA, Inc. (the "Company" or "Beazer") designs, builds and sells
single family homes in the Southeast, Southwest and Central regions of the
United States. The Company's Southeast Region includes Georgia, North Carolina,
South Carolina, Tennessee and Florida, its Southwest Region includes Arizona,
California and Nevada and its Central Region includes Texas. The Company
intends, subject to market conditions, to expand in its current markets and to
consider entering new markets through expansion from existing markets
("satellite expansion") or through acquisitions of established regional
homebuilders.
The Company's homes are designed to appeal primarily to entry-level and first
move-up home buyers, and are generally offered for sale in advance of their
construction. The majority of homes are sold pursuant to standard sales
contracts entered into prior to commencement of construction. Once a contract
has been signed, the Company classifies the transaction as a "new order." Such
sales contracts are usually subject to certain contingencies such as the buyer's
ability to qualify for financing. Homes covered by such sales contracts are
considered by the Company as its "backlog." The Company does not recognize
revenue on homes in backlog until the sales are closed and the risk of ownership
has been transferred to the buyer.
The Company began offering mortgage origination services for its local
homebuilders through branch offices of Beazer Mortgage Corp. ("Beazer Mortgage")
during 1996. Beazer Mortgage originates and processes mortgages on behalf of
third-party investors, but does not retain or service the mortgages that it
originates. Beazer Mortgage currently has branch offices in Georgia, North
Carolina and Texas, and anticipates having branch offices open in nearly all of
the Company's markets by the end of calendar year 1997. The results of
operations for Beazer Mortgage were not significant for the quarter ended
December 31, 1996.
NEW ORDERS AND BACKLOG: The Company believes the decreased volume of new orders
for the three months ended December 31, 1996 compared to the same period in 1995
is the result of decreased active subdivision counts in several key markets, and
comparisons against an unusually strong first quarter of fiscal 1996. In light
of the volatility in certain economic factors during mid to late 1996, including
unstable interest rates and escalating land prices in many of our markets, the
Company did not aggressively expand into new subdivisions and worked to close
out existing subdivisions in the later stages of their life cycles. As such,
the Company's active subdivision counts decreased by 30 from the preceding
quarter ended September 30, 1996 with the greatest decreases in Arizona (10
projects) and North Carolina (7 projects). In comparison, favorable economic
indicators in 1995 stimulated the Company's expansion into new subdivisions
resulting in a Company record for new order activity for the first quarter of
fiscal 1996. The Company anticipates active subdivision levels to increase
during the second fiscal quarter of 1997.
The decrease in backlog units at December 31, 1996 compared to December 31, 1995
is attributable to the decreased level of order growth experienced during the
quarter and is consistent with such decreases in each of the Company's
individual markets. Additionally, the higher unit backlog levels at December
31, 1995 include
10
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
129 units in backlog acquired during the quarter in connection with a bulk land
acquisition in Arizona. The aggregate sales value of homes in backlog decreased
significantly from the comparable period reflecting the decreased units in
backlog, however the average price of homes in backlog increased reflecting the
increase in backlog units in Texas and Florida, markets with average sales
prices historically higher than the overall Company average.
RESULTS OF OPERATIONS:
The following table shows certain items in the Company's statements of income
expressed as a percentage of total revenue.
Three Months Ended
December 31,
1996 1995
---- ----
Total revenue 100.0% 100.0%
Costs of home construction and
land sales 84.0 84.3
Interest 1.7 2.0
Selling, general and administrative 11.7 10.7
Operating income 2.6 3.1
REVENUES: The Company experienced decreased revenues for the three months ended
December 31, 1996 compared to the same period in 1995 in the Southeast and
Southwest region, which was more than offset by increased revenues for the same
periods in the Central region. The total level of revenue growth is the result
of a 0.5% decrease in the number of homes closed, and 2.4% increase in the
average price per home closed for the comparative three month periods. The
Southeast Region's average price per home closed increased for the three month
period ended December 31, 1996 in comparison to the same period in 1995,
reflecting primarily the increase in the percentage of total homes closed in the
region from the Company's Florida operations, which have historically had higher
average sales prices than the overall Company average. The average price per
home closed has decreased from the comparable period in the Southwest Region,
reflecting continued success in the first-time buyer market, especially in
Arizona. The average sales price in the Company's Central Region for the first
fiscal quarter of 1997 remained consistent with the same period in the prior
year.
COST OF HOME CONSTRUCTION AND LAND SALES: Cost of home construction and land
sales as a percentage of revenues decreased slightly for the three months ended
December 31, 1996 compared to the same period in 1995. This decrease is largely
attributable to decreases in the hard construction costs (material and labor)
and early efficiencies gained as a result of various profitability initiatives
implemented during fiscal 1996.
11
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: Selling, general and
administrative expenses increased significantly as a percentage of total
revenues for the three months ended December 31, 1996 compared to the prior year
period. This increase can be attributed to the costs of initial implementation
of the profitability initiatives discussed previously (such as initial set up of
mortgage origination operations and design centers as well as certain systems
development costs) as well as a higher overhead base in certain key markets that
the Company anticipates will provide higher closing volumes in the subsequent
quarters including the Arizona, Texas and Florida markets.
AMORTIZATION OF PREVIOUSLY CAPITALIZED INTEREST: Amortization of previously
capitalized interest expense as a percentage of revenues for the three months
ended December 31, 1996 is less than the comparable period in 1995 as a result
of reduced interest incurred and capitalized during 1996.
INCOME TAXES: The decrease in the Company's effective income tax rate from 40%
at December 31, 1995 to 39% at December 31, 1996 is principally the result of
a reduction in the overall state effective income tax rate.
FINANCIAL CONDITION AND LIQUIDITY:
In October 1996, the Company entered into a $150 million unsecured, revolving
credit agreement (the "Credit Agreement") with a group of banks to replace a
similar $80 million unsecured, revolving credit agreement the Company has
utilized since January 1995. The Credit Agreement is used primarily to fund
seasonal working capital needs. The Company's debt to total capitalization
ratio at December 31, 1996 was 45.8%.
At December 31, 1996, the Company had $37 million of borrowings outstanding
under the Credit Agreement, and had available additional borrowings of $49
million. Available borrowings under the Credit Agreement are limited to a
Borrowing Base, as defined in the Credit Agreement, based upon certain
percentages of homes under contract, unsold homes, substantially improved lots
and accounts receivable.
The Company has utilized, and will continue to utilize, land options as a method
of controlling and subsequently acquiring land. At December 31, 1996, the
Company had 9,370 lots under option. At December 31, 1996, the Company had
commitments with respect to option contracts with specific performance
obligations of approximately $57.4 million. The Company expects to exercise all
of its option contracts with specific performance obligations and, subject to
market conditions, substantially all of its options contracts without specific
performance obligations.
In August 1995, the Company sold 2,000,000 shares of its Series A Cumulative
Convertible Exchangeable Preferred Stock. The Preferred Stock pays dividends
quarterly at an annual rate of 8% (aggregating $4 million annually).
12
BEAZER HOMES USA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In June 1996, the Company's Board of Directors approved a stock repurchase plan
authorizing the repurchase of up to 10% of the Company's currently outstanding
common stock (the "Stock Repurchase Plan"). Such repurchases, if completed,
would be effected at various prices from time to time in the open market. The
timing of the purchase and the exact number of shares will depend on market
conditions. Through December 31, 1996 the Company had purchased 81,300 shares
for an aggregate purchase price of approximately $1,138,000.
All significant subsidiaries of Beazer Homes USA, Inc. are guarantors of the
Senior Notes and are jointly and severally liable for the Company's obligations
under the Senior Notes. Separate financial statements and other disclosures
concerning each of the significant subsidiaries are not included, as the
aggregate assets, liabilities, earnings and equity of these subsidiaries equal
such amounts for the Company on a consolidated basis and separate subsidiary
financial statements are not considered material to investors. The total
assets, revenues and operating profit of the non-guarantor subsidiaries are
in the aggregate immaterial to the Company on a consolidated basis. Neither
the Credit Agreement nor the Senior Notes restrict distributions to Beazer
Homes USA, Inc. by its subsidiaries.
Management believes that the Company's current borrowing capacity, cash on hand
at December 31, 1996, and anticipated cash flows from the operations is
sufficient to meet liquidity needs for the foreseeable future. There can be no
assurance, however, that amounts available in the future from the Company's
sources of liquidity will be sufficient to meet the Company's future capital
needs. The amount and types of indebtedness that the Company may incur may be
limited by the terms of the Indenture governing its Senior Notes and its Credit
Agreement. The Company continually evaluates expansion opportunities through
acquisition of established regional homebuilders and such opportunities may
require the Company to seek additional capital in the form of equity or debt
financing from a variety of potential sources, including additional bank
financing and/or securities offerings.
13
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995:
This quarterly report on Form 10-Q contains "forward-looking statements" within
the meaning of the federal securities laws. These forward-looking statements
include, among others, statements concerning the Company's outlook for future
quarters, overall and market specific volume trends, pricing trends and forces
in the industry, cost reduction strategies and their results, the Company's
expectations as to funding its capital expenditures and operations during 1997,
and other statements of expectations, beliefs, future plans and strategies,
anticipated events or trends, and similar expressions concerning matters that
are not historical facts. The forward-looking statements in this report are
subject to risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements. The most
significant factors that could cause actual results to differ materially from
those expressed in the forward-looking statements include, but are not
limited to, the following:
- Economic changes nationally or in one of the Company's local markets
- Volatility of mortgage interest rates
- Increased competition in some of the Company's local markets
- Increased prices for labor, land and raw materials used in the
production of houses
- Any delays in reacting to changing consumer preference in home design
- Delays or difficulties in implementing the Company's initiatives
to reduce its production and overhead cost structure.
14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the
quarter ended December 31, 1996.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Beazer Homes USA, Inc.
Date: February 13, 1997 By: /s/ David S. Weiss
--------------------- ------------------------
Name: David S. Weiss
Executive Vice President
and Chief Financial Officer
16