Exhibit 13
1 Financial Highlights
1 Market Data
2 Letter to Shareholders
6 Offering More Services
8 Efficient Home Design
10 Sharing Information
12 Importance of Training
14 Directory of Homebuilders
15 Financial Review
40 Note Regarding Forward-looking Statements
41 Corporate and Operating Management
42 Board of Directors
43 Shareholder Information
GOING PLACES
Beazer Homes has come far since entering the U.S. homebuilding market in 1985
and going public in 1994. We believe that our recent focus on improving
profitability will take us even further. Over the past year, we have begun
implementing key profitability initiatives - including expanding customer
services and installing the latest available technology - designed to expand
profit margins in the future. We believe these efforts will allow Beazer Homes
to experience healthy, profitable growth. Watch for Beazer Homes to be Going
Places in 1998 and beyond.
BUSINESS DESCRIPTION
Beazer Homes USA, Inc., headquartered in Atlanta, Georgia, is one of the
nation's largest geographically diversified homebuilders. The Company currently
has operations in nine states: five in the Southeast, three in the Southwest,
and Texas. Beazer Homes focuses on building quality homes that provide value to
entry-level and first move-up home buyers. The Company has been doing business
in the United States since 1985 and has been listed on the New York Stock
Exchange since 1994. Its common stock is traded under the symbol "BZH."
Note: Market position represents a Company estimate based upon the most recent
market data available. Market data consists of homes closed or sold.
TENNESSEE 22 active subdivisions
Key Trends
Nashville is becoming increasingly competitive as more builders enter the
market and growth slows.
Key Initiatives
Having anticipated this trend, Beazer entered Knoxville in 1996 as a
satellite market managed out of Nashville and became the #1 builder in
Knoxville. Beazer intends to continue to expand Knoxville and maintain its
position in Nashville.
Market Position #1 in Knoxville
#1 in Nashville
NEVADA 13 active subdivisions
Key Trends
Tremendous scheduled capital investment in the gaming and tourism industries
in Las Vegas is expected to continue fueling strong job growth.
Key Initiatives
Focus on phasing out older, lower margin communities and improving margins in
newer communities. Gross margins, before interest, in Las Vegas went from
under 7% in the second quarter of 1997 to 12% in the fourth quarter,
reflecting this trend. Beazer intends to close out its only subdivision in
Reno during calendar 1998.
Market Position #5 in Las Vegas
NO. CAROLINA 22 active subdivisions
Key Trends
North Carolina markets are becoming increasingly competitive as growth has
slowed and more competitors have entered the markets.
Key Initiatives
Beazer is increasing its focus on affordability, especially in the first time
buyer segment of the market.
Market Position #2 in Charlotte
#3 in Raleigh
TEXAS 33 active subdivisions
Key Trends
Having entered Texas in 1995 and grown to over 700 homes in 1997, Beazer
expects Texas to continue to be one of its largest growth markets as Beazer
expands its market position to the top ten in both Dallas and Houston.
Key Initiatives
Product focus is on in-fill sites and smaller sites for Beazer to develop
near master planned communities.
Market Position #12 in Dallas
#14 in Houston
SO. CAROLINA 15 active subdivisions
Key Trends
After some years of slow or no growth, Charleston's economy is expected to
grow over the national average in 1998.
Key Initiatives
Beazer focuses on entry level and first time buyers in Charleston. In
Columbia, Beazer focuses on value engineering its homes and reducing average
price to below $100,000 to focus on the largest segment of the Columbia
market.
Market Position #1 in Charleston
#5 in Columbia
CALIFORNIA 17 active subdivisions
Key Trends
Southern California continues to rebound, especially in Orange County, with
margins improving. The Sacramento area is also recovering.
Key Initiatives
Beazer is expanding its Sacramento area presence, nearly doubling in 1997 and
becoming the #2 builder. Northern California is the first Beazer market to
implement the new sales office automation system.
Market Position #2 in Sacramento Approx.2% market
share in Southern California
FLORIDA 32 active subdivisions
Key Trends
Beazer continues to expand its presence in Florida, a state expected to have
one of the highest employment growth rates over the next five years. During
1997 Beazer increased its active subdivision count from 22 to 32.
Key Initiatives
Beazer entered Orlando in November 1997 through acquisition of Calton Homes
of Florida. Beazer is expanding its presence in first and second move up
price points in northeast Florida markets (Jacksonville and surrounding
areas).
Market Position #2 in Jacksonville
GEORGIA 13 active subdivisions
Key Trends
After five years of nearly continual growth, housing starts declined in
Atlanta in 1997.
Key Initiatives
Beazer is reducing its number of communities and presence in this
increasingly competitive market and focusing on improving margins in a
limited number of subdivisions.
Market Position #12 in Atlanta
ARIZONA 30 active subdivisions
Key Trends
Housing starts in Phoenix continued to grow in 1997, contrary to projections
at the beginning of the year.
Key Initiatives
Beazer has increased its land bank and its number of active subdivisions,
especially in the first time buyer segment, after entering 1997 with its
subdivision count down.
Market Position #3 in Phoenix
BEAZER HOMES USA
COMPANY HIGHLIGHTS
Dollars in thousands, except per share and market data
FINANCIAL HIGHLIGHTS Year Ended September 30,
1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA
Homes closed 5,785 5,935 4,363 3,926
- --------------------------------------------------------------------------------------------------
Total revenue $851,101 $866,627 $647,828 $536,526
Earnings before interest and taxes ("EBIT") $ 33,051(i) $ 45,327 $ 32,188 $ 37,169
- --------------------------------------------------------------------------------------------------
Net income $ 11,189(i) $ 18,266 $ 11,352 $ 16,468
Net income per common share
Primary $ 1.15(i) $ 2.20 $ 1.23 $ 1.76(ii)
Fully-diluted 1.15(i) $ 2.01 $ 1.23 $ 1.76(ii)
- --------------------------------------------------------------------------------------------------
BALANCE SHEET DATA AT YEAR END
- --------------------------------------------------------------------------------------------------
Total assets $399,595 $356,643 $345,240 $314,941
- --------------------------------------------------------------------------------------------------
Total debt $145,000 $115,000 $115,000 $115,000
Stockholders' equity $179,286 $178,701 $164,544 $150,406
- --------------------------------------------------------------------------------------------------
RETURN DATA (iii)
Return on average assets 8.7%(i) 12.9% 9.8% 13.3%
- --------------------------------------------------------------------------------------------------
Return on average capital 10.7%(i) 15.8% 11.8% 15.5%
Return on average equity 6.3%(i) 10.6% 7.2% 13.4%
MAKET DATA 9/30/97 FISCAL 1997 AVERAGE PRICE
BACKLOG CLOSINGS OF HOMES CLOSED
- --------------------------------------------------------------------------------
SELECTED INFORMATION BY STATE
Arizona 262 1,416 $112,800
................................................................................
California 78 1,035 $151,600
Florida 100 394 $182,600
Georgia 43 174 $164,500
Nevada 139 567 $155,400
North Carolina 172 628 $155,200
South Carolina 109 391 $117,000
Tennessee 81 457 $196,700
Texas 208 723 $155,900
Total 1,192 5,785 $147,100
- --------------------------------------------------------------------------------
(i) Fiscal 1997 includes the effect of a $6,326 writedown of inventory in
Nevada. EBIT, net income and net income per common share excluding the
writedown would be $39,377, $15,079 and $1.70, respectively. Return on
average assets, return on average capital and return on average equity
excluding the writedown would be 10.4%, 12.7% and 8.4% respectively.
(ii) Pro forma to give effect to the initial public offering and related
transactions, as if such transactions were effected as of October 1, 1993.
(iii) Return on average assets is defined as earnings before interest and taxes
("EBIT") divided by average total assets for the year. Return on average
capital is defined as EBIT divided by average total debt plus stockholders'
equity for the year. Return on average equity is defined as net income
divided by average stockholders' equity.
1997 ANNUAL REPORT -- GOING PLACES
BEAZER HOMES USA
LETTER TO SHAREHOLDERS
During our 1997 fiscal year, Beazer Homes made investments that will provide
a framework for future growth and improvements in profitability. Our fourth
fiscal quarter showed increased earnings, accelerating growth in new orders and
an improving operating profit margin. We believe that as a result of the actions
taken in 1997, Beazer Homes will be Going Places in fiscal 1998 and well into
the future.
At the same time, however, our number of homes closed declined and our
earnings were adversely impacted by issues in certain markets in fiscal 1997. We
are disappointed in the reduction in our 1997 earnings, but believe that we have
learned from the issues that confronted us and have addressed them in ways that
make us a stronger company.
HOME CLOSINGS AND EPS DOWN FROM 1996 - DECREASED PROFITABILITY
IN NEVADA; FEWER SUBDIVISIONS IN PHOENIX
After five years of continual growth, Beazer Homes had its first year of
reduced home closings in 1997. The number of homes closed declined to 5,785. Net
income, before the effect of a writedown in Nevada, declined to $15.1 million
($11.2 million after the writedown) from $18.3 million in fiscal 1996. Earnings
per share, before the writedown, were $1.70 ($1.15 after the writedown) compared
to $2.01 for fiscal 1996.
The principal contributors to the decline in earnings were:
decreased profitability in Nevada and
a reduced number of active subdivisions in early fiscal 1997.
Significant overruns in land development costs resulted in a $6.3 million
writedown of two subdivisions in Nevada - one in Reno, the other in Las Vegas.
In addition, the Company experienced lower profitability on other subdivisions
in Nevada.
Since taking the writedown, we have made changes in the management of our
Nevada operations. We have also put in place additional Company-wide controls,
including a second independent review of all land purchases involving
significant land development. By the fourth quarter of fiscal 1997, overall
profit margins in Nevada had improved significantly. We believe that changes
made in 1997 have contributed to this improvement and that profit margins will
continue to expand into fiscal 1998.
Phoenix, our largest market, experienced a 24% decline in home closings
during 1997 as a result of a reduction in the number of active subdivisions in
that market earlier in the year. During the first quarter of fiscal 1997, our
number of active subdivisions in Phoenix declined from 26 to 16. As fiscal 1997
progressed, however, we purchased and obtained options on some very attractive
subdivisions in Phoenix. By September 30, 1997, our number of active
subdivisions in Phoenix was up to 30, higher than the level at which it started
the year. We expect the recently opened subdivisions to contribute to increased
new orders in future quarters in Phoenix.
Similarly, during the second half of fiscal 1997, we acquired a number of
attractive pieces of land and opened many new subdivisions throughout the
Company. This contributed to a 13% increase in new orders during the quarter
ended September 30, 1997 compared to the same quarter in the prior year.
MEASURABLE PROGRESS ON PROFITABILITY INITIATIVES
In our 1996 Annual Report to Shareholders, we reported that we were embarking
on a number of initiatives to improve profitability. During fiscal 1997, we made
significant progress on these initiatives. This progress has required an
investment during the year, both in terms of dollars and management
attention, but is beginning to yield measurable results.
1997 ANNUAL REPORT -- GOING PLACES
Our profitability initiatives can be divided into three general categories:
Opening design centers and mortgage origination operations
Redesigning processes and improving systems
Strengthening focus on return on capital
DESIGN CENTERS AND MORTGAGE ORIGINATION OPERATIONS - Design
centers are centralized showrooms within each market where
homebuyers choose decorator options and upgrades. Beazer
Mortgage allows homebuyers to more easily determine which
mortgage lenders have the best programs for which they qualify.
With these two extensions of our operations, we are increasing
our service to our homebuyers and improving our profitability.
Of the nine states in which we operate, we now have mortgage operations in
six and design centers in seven. In the fourth quarter of 1997, design centers
and mortgage operations added over 25 basis points (1 basis point = 1/100 of a
percent) to our pretax profit margin. We expect the benefits of these operations
to increase in fiscal 1998 as we have the benefit of a full year's earnings for
both the design centers and mortgage operations in most markets.
PROCESS REDESIGN AND SYSTEMS - In fiscal 1996, we embarked on a project to
analyze the homebuying and homebuilding process, breaking it down into eight
sub-processes - from land purchasing to servicing our home warranties. We sought
to determine the best practices being used across the Company and establish
Company-wide systems to support these best practices. During 1997, we made
significant progress on a number of the systems initiatives that came out of
this study.
The principal technology initiatives on which we have made progress are:
wide area and local area networks linking all of our operations to assist
in the sharing of information across the Company and to reduce
communication costs,
an executive information system giving managers across the Company access
to detailed, current information on sales, costs and profitability,
a sales office automation system giving our sales agents and their
customers access to the most current information on homes, options,
mortgages available and demographic data, and
a centralized accounting system to increase the consistency of information
and reduce the cost of producing that information.
By the end of fiscal 1997, the local area networks, wide area network and
executive information system were all in place. In addition, we had finished
development of the sales office automation system and had installed it in four
markets. We also completed designing the centralized accounting system, which is
now being used in its first market. Our systems efforts had costs in fiscal
1997, but by the fourth quarter began to yield benefits which we expect will
accelerate and contribute to our improved profitability in fiscal 1998.
We recognize that without appropriate training, even the best systems will
not operate as intended. As a result, we have established Company-wide training
programs in construction, sales and marketing, and finance programs run
principally by our operating managers.
STRENGTHENING FOCUS ON RETURN ON CAPITAL - We have always recognized
return-on-capital-employed as the ultimate gauge of profitability. This gauge
combines both asset turnover as well as profit margin. We stress the appropriate
balance between these two components and closely control the level of investment
to improve asset turnover. We believe that by controlling the balance sheet and
the level of investment we can provide a superior return on capital with less
risk than by focusing on margins alone.
Over the five years from 1992 to 1996, our return-on-capital-employed
averaged 15%, which is in excess of the average of 13% for other large public
homebuilders. During fiscal 1997, however, as a result of the issues that we
discussed previously, our return on capital dropped to 13% before writedown (11%
after writedown), below both the Company's average and our goal for the future.
During the year, we have strengthened our focus on return on capital in
ways that we believe will contribute to future improvements in profitability.
The most significant of these is the development of an incentive compensation
system based upon what we call "Value Created," demonstrated as follows:
Value Created = earnings before interest and taxes ("EBIT") - capital charge
Capital Charge = total capital employed x weighted average cost of capital
If an operating division beats its cost of capital, its Value Created is
positive. Value Created is now the bottom line of all internal Company income
statements. Starting in fiscal 1997, our senior corporate managers were placed
on an incentive plan in which their payments are based on a percentage of Value
Created. For 1998, managers throughout the Company's operations have been placed
on the same plan. We believe that this plan rewards sound strategic decisions
and will add value to the business, improve our return on capital and increase
returns to our shareholders.
The new incentive plan is just one way that the increased focus on
profitability is taking hold at Beazer. Other initiatives are smaller and more
subtle - for instance, becoming the first homebuilder to have a captive
insurance risk retention group licensed to insure our home warranty liability.
We expect this to give us more control over the warranty process while also
reducing our costs. Our managers continually strive to increase profits with as
little capital as possible, thereby increasing Value Created.
BEAZER STICKS TO ITS DECENTRALIZED MANAGEMENT PHILOSOPHY
AND CONSERVATIVE FINANCIAL POLICIES
Since becoming a public company in 1994, we have described our "Formula For
Success" - a formula that combines decentralized operations with strong
centralized financial controls. Even with the initiatives that we are
implementing, this formula remains a critical part of our culture.
Homebuilding is a highly localized, entrepreneurial business. To succeed in
homebuilding in any market, you need a depth of knowledge of that particular
market. At Beazer we continually rely on our local managers, who possess an
average of 20 years of homebuilding experience, to drive the business. The
systems that we are trying to centralize are developed by teams that include
managers from a cross section of our markets.
We believe that we support our local teams by providing 1) the best and
most efficient systems possible, 2) access to information from other markets,
and 3) the framework of a prudently managed company with access to adequate
capital. We ended fiscal 1997 with a level of debt to total capitalization of
45%, below the industry average of over 55%. In addition, during 1997 we
increased our unsecured, revolving credit facility from $150 million to $200
million. With only $30 million of this drawn at September 30, 1997, we believe
we have enough financial flexibility to take advantage of opportunities that we
expect to arise in a changing economy and a dynamic homebuilding environment.
LOOKING TO FUTURE IMPROVEMENTS IN PROFITABILITY
Over the four years that preceded 1997, revenues increased 579% - a compound
annual growth rate of 61%. As we disclosed in our 1996 Annual Report to
Shareholders, we now intend to concentrate more heavily on improvements in
profitability with more moderate growth. With this objective in mind, 1997 was a
transition year as we made the investments that we believe will produce improved
profitability in future years.
In our 1996 Annual Report we said of our profitability initiatives, "our
near-term objective is to significantly improve our operating profit margin by
the fourth quarter of fiscal 1997." In the fourth quarter of this year our EBIT
margin increased by 20 basis points, relative to the fourth quarter of last
year. While this is consistent with our stated goal, we are only part of the way
there and expect further improvements in fiscal 1998. As a result, absent
unforeseen adverse economic changes, we expect earnings per share in fiscal 1998
to exceed 1997.
Our employees at Beazer Homes have exerted considerable effort and made
substantial investments in 1997 that we expect will pay off in future years. We
thank them for their guidance, support and expertise. Because of them, we
believe that our shareholders will see Beazer Going Places in 1998 and beyond.
Sincerely,
/S/ BRIAN C. BEAZER /S/ IAN J. MCCARTHY
Brian C. Beazer Ian J. McCarthy
Non-Executive Chairman of the Board President and Chief Executive Officer
1997 ANNUAL REPORT -- GOING PLACES
BEAZER HOMES USA
OFFERING MORE SERVICES
TO OUR HOMEBUYERS
by Sandra Panitz, President Panitz Homes, Jacksonville
For over 20 years, Panitz Homes has enjoyed a sterling reputation as north
Florida's premier builder of first- and second-time move-up homes. The
foundation of this success - seamless customer service - has recently been
significantly expanded with the addition of our Panitz Homes Design Center and
our branch of Beazer Mortgage.
When a family decides to purchase a home, it is one of the most important
personal and financial commitments they will make. This decision has the
potential to be one of the most nerve-wracking as well. It's our job to make
sure this is not the case. A happy homebuyer is one who has had all of his or
her questions answered and who experiences an efficient home buying process.
In the past, we have been able to assist homebuyers only in limited ways with
the interior design and mortgage processes. Today, with the Panitz Homes Design
Center and Beazer Mortgage, our customers are able to draw upon the broad range
of knowledge and experience possessed by our in-house professionals, providing
unparalleled convenience and service. These are quantum leaps forward in the
range and quality of our customer service.
After selecting their home, homebuyers meet with Audrey Bishop at Beazer
Mortgage. She describes all the mortgage programs available from the extensive
network of Beazer Mortgage lenders and helps them decide which mortgage programs
best suit them. Audrey also helps them determine how much in upgrades they can
finance and explains the tax advantages of financing these at the time of
construction. She then provides them with "Beazer Bucks" for the additional
amount of financing for which they can qualify above the base price of their
home.
Armed with their Beazer Bucks, the buyers go across the hall to our design
center to meet with Christi Aldridge, our professional Design Consultant.
Christi shows them the many options available in interior and exterior finishes,
floor coverings, cabinetry, lighting, fixtures and other designer options. It is
like having your own personal decorator. With our design center, buyers get
exactly what they want, which increases their satisfaction as well as our
profits. We have also developed a satisfied customer who will be a valuable
reference and, hopefully, a future repeat homebuyer.
Since joining the Beazer family in 1993, Panitz Homes has more than tripled
in size and become north Florida's largest builder of homes over $100,000. We
would not have been able to accomplish this without the financial strength of
Beazer and the ideas we have adapted from other Beazer markets.
1997 ANNUAL REPORT -- GOING PLACES
BEAZER HOMES USA
FOCUSING ON
EFFICIENT HOME DESIGN
by Robert Polanco, President Squires Homes Raleigh Division
When I moved from Charlotte to help Squires Homes (Beazer's Carolinas
operation) start up a Raleigh division in 1992, I knew I had a tough job ahead
of me. One thing I did not worry about, however, was the ability to design
efficient house plans. I knew that with the resources available to me and my
managers, we would have access to some of the most efficient plans in the
country.
An efficient plan is one that is both attractive to the buyer and designed
to be constructed for the lowest cost given its size and number of rooms. No one
wants to pay for additional costs for which they get no benefit. With my 20
years of experience in home construction, I have grown to appreciate how
efficient home design eliminates unnecessary costs. A home can be designed
within a rectangle - the most efficient way to build - that contains enough
interior angles to make it attractive and exciting.
One example of the benefit of efficient design is Squires' Hamlet Series in
Charlotte. Because Squires can build these plans so efficiently, Scott Thorson,
our Charlotte division President, can offer homes starting under $80,000 at
Southern Chase, our subdivision north of Charlotte. These plans were actually
adapted by our Southeast Region Design Group from plans originally used by
Beazer in Phoenix. The success of these plans is demonstrated by the 45 new
orders in Southern Chase in the eight months since it opened. It can also be
seen in the profit margins at Southern Chase - among the highest in the Squires
organization.
We have adapted these plans for the tastes of the Raleigh market, renamed
them the Cottage Series and are now offering them at Homestead Park, in the Apex
area west of Raleigh. We expect Homestead Park to be even more successful than
Southern Chase.
Efficiency of plan design is important not just in the lower priced segment
of the market, but in all segments, right up to luxury housing. It allows a
homebuilder to provide the most affordable home to whatever segment of the
market is being targeted. Upon my arrival in Raleigh, we completed an analysis
of market needs which showed we had an opportunity for success with a larger
product line than Squires had customarily built in the Carolinas. With the
assistance of our Southeast Design Group, we were able to design a new series of
plans that has become an award-winning, top-selling success story - both in
Raleigh and throughout the Carolinas.
Since starting Squires' Raleigh division with one home closing in 1992, we
have grown it to be the third largest builder in Raleigh - an operation that
consistently sells more than 200 homes a year and was named Raleigh's Builder of
the Year by the Triangle Sales and Marketing Council. Certainly the sharing of
efficient plans from all of our markets has contributed to this success.
1997 ANNUAL REPORT | GOING PLACES
BEAZER HOMES USA
SHARING INFORMATION
THROUGH SYSTEMS
by Anthony Tonso, President Beazer Homes Northern California, Sacramento
I have always believed that the best solution for every issue has already
been implemented somewhere. If we all had access to information on these
solutions, our jobs would be much easier. That is why I am such a strong
proponent of the latest in information systems.
My background includes over 29 years in homebuilding and real estate sales.
So, when I heard that Beazer was working on a sales office automation system, I
wanted to make sure that Northern California would be the prototype market.
In 1997, a year in which the number of homes our division sold and closed
nearly doubled, our managers devoted significant time and effort to developing
and implementing our sales office automation system and training all users in
its operation. We know that the system we have developed will help not only us
in Northern California, but also others throughout the entire Beazer
organization.
With our newly implemented sales office automation system, the sales agents
at our communities now have the most current information on mortgage rates and
programs available. Our sales people can also generate contracts more easily,
because forms are continually updated in a central database and are stored in
memory, rather than in file cabinets. The system also maintains a database of
prospects and follow-up letters. In addition, current information is reported to
our office on a daily basis, giving us an opportunity to make more timely
decisions. The improved availability of information from our sales office system
also makes our sales agents' jobs easier and more consistent by automating much
of what was previously done manually.
The sales office automation system is now being implemented in other Beazer
markets. As they are adapting it to fit their needs, we hear about improvements
they are making which we can incorporate into an upgrade to our own system here
in Northern California. This is another benefit of sharing information.
The sales office automation system is one of several systems for which our
staff has provided development support at Beazer. Brendan O'Neill (CFO), Carla
Collinge (Controller) and Ann Stamas (Purchasing Manager) have also been heavily
involved, along with the corporate office, in the development of the
Company-wide executive information and accounting systems. These will all make
our jobs easier and make Beazer a better company.
1997 ANNUAL REPORT -- GOING PLACES
BEAZER HOMES USA
IMPORTANCE OF TRAINING
by Marilyn Gardner, Sales Manager, Beazer Texas and National Sales Trainer
In just two years since our inception in 1995 when we closed 64 homes, Beazer
Homes Texas has become an operation with over 700 home closings in two markets -
and still looking for further growth. Acquisitions have helped Beazer Homes
Texas grow. First there was the acquisition of Bramalea Homes Texas in 1995
followed by the 1996 acquisition of Trendmaker Homes of Dallas. As the person
responsible for training all of the new sales people that have come with this
growth, I am proud of what we have been able to achieve. I am also glad that
Beazer recognizes the importance of training and has expanded this sales
training program to other markets.
In any environment, training is important, but most especially so in the
case of an acquisition. The people at the acquired company need to know the
resources available and the best way to take advantage of them. The company that
has made the acquisition also needs a chance to incorporate and adapt to the
knowledge and culture of its new group of employees.
After the Trendmaker acquisition, we set up a sales training course at
Beazer Homes Texas aimed at teaching the best practices in sales. Even our most
experienced people have something to learn from our training classes. Whether it
is a reminder of a follow-up technique they know but haven't been using or
learning the best use of the latest technology, the classes always have
something for all participants.
Our training classes in Texas were so well received that we have now
organized both national sales conferences as well as local training classes in
other markets throughout Beazer. Some of these are geared to "train the
trainer," so that sales managers taking the class can pass along the knowledge
to others, including new employees. We are also completing a national sales
training manual to be used in all markets.
Beazer also conducts national and regional training sessions and
conferences in a number of areas, such as construction, finance and purchasing.
Certainly sales is not the only area where training is critical.
Training has been central to our growth at Beazer Homes Texas. We still
feel that there is much more growth ahead of us, including expansion to other
markets in Texas. Training and access to the resources of a strong, national
homebuilder like Beazer will provide the backbone for this growth.
1997 ANNUAL REPORT | GOING PLACES
BEAZER HOMES USA
DIRECTORY OF HOMEBUILDERS
BEAZER HOMES ARIZONA
2005 West 14th Street
Tempe, AZ 85281
BEAZER HOMES CALIFORNIA
Southern California Division
Executive Tower
1100 Town and Country
Orange, CA 92868
Northern California Division
3009 Douglas Boulevard
Roseville, CA 95661
BEAZER HOMES FLORIDA
Panitz Homes (Jacksonville)
3020 Hartley Avenue
Jacksonville, FL 32257
Gulfcoast Homes (Ft. Myers/ Naples)
11934 Fairway Lakes Drive Ft. Myers, FL 33913
Tampa Division
1211 N. Westshore Boulevard
Tampa, FL 33607
Orlando Division
380 S. North Lake Boulevard
Altamonte Springs, FL 32701
BEAZER HOMES GEORGIA
3790 Data Drive
Norcross, GA 30092
BEAZER HOMES NEVADA
Las Vegas Division
770 East Warm Springs Road
Las Vegas, NV 89119
Reno/Sparks Division
4480 Scott Peak Circle
Sparks, NV 89434
BEAZER HOMES TEXAS
Houston Division
10235 West Little York
Houston, TX 77040
Dallas Division
1231 Greenway Drive
Irving, TX 75038
PHILLIPS BUILDERS
Nashville Division
2910 Kraft Drive
Nashville, TN 37204
Knoxville Division
1645 Downtown West Blvd.
Knoxville, TN 37919
SQUIRES HOMES
Charlotte Division
5501 Executive Center
Charlotte, NC 28212
Raleigh Division
3701 National Drive
Raleigh, NC 27612
Charleston Division
7410 Northside Drive
North Charleston, SC
29420-4200
Columbia Division
2001 Assembly Street
Columbia, SC 29201
Myrtle Beach Division
710 21st Avenue North
Hampton Park
Myrtle Beach, SC 29577
16 Management's Responsibility
for Financial Reporting and
System of Internal Controls
17 Selected Financial Data
18 Management's Discussion and
Analysis of Financial Condition
and Results of Operations
25 Independent Auditor's Report
26 Consolidated Statements
of Operations
27 Consolidated Balance Sheets
28 Consolidated Statements of Stockholders' Equity
29 Consolidated Statements
of Cash Flows
30 Notes to Consolidated
Financial Statements
39 Quarterly Financial Data and
Stock Price Information
FINANCIAL
REVIEW
1997 ANNUAL REPORT GOING PLACES
BEAZER HOMES USA
MANAGEMENT'S RESPONSIBILITY
for Financial Reporting & System of Internal Controls
FINANCIAL STATEMENTS
The accompanying consolidated financial statements are the responsibility of
the Company's management. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and, as
such, include amounts based on management's best estimates and judgments.
The Company's consolidated financial statements have been audited by
Deloitte & Touche LLP, independent auditors, who were given unrestricted access
to all financial records and related data. The Company believes that all
representations made to the independent auditors during their audit were valid
and appropriate. Deloitte & Touche LLP's audit report included on page 25
provides an independent opinion as to the fairness of presentation of the
consolidated financial statements.
SYSTEM OF INTERNAL CONTROLS
The Company maintains a system of internal controls over financial recording
and reporting which is designed to provide reasonable assurance that assets are
safeguarded and transactions are recorded in accordance with the Company's
policies and procedures and which ultimately will result in the preparation of
reliable financial statements. The system contains self-monitoring mechanisms,
and actions are taken to correct deficiencies as they are identified. Even an
effective internal control system has inherent limitations - including the
possibility of the overriding of controls - and therefore can provide only
reasonable, not absolute, assurance with respect to financial statement
preparation.
The Company assessed its internal control system as of September 30, 1997
in relation to criteria for effective internal control over preparation of its
published annual (and interim) financial statements described in "Internal
Control - Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commissions. Based on this assessment, the Company
believes that, as of September 30, 1997, its system of internal controls over
the preparation of its published annual (and interim) financial statements met
these criteria. Deloitte & Touche LLP also reviewed and tested the effectiveness
of these systems to the extent they deemed necessary to determine the extent of
audit procedures needed in connection with their audit of the consolidated
financial statements.
The Audit Committee of the Board of Directors, which is composed of
Directors who are not officers or employees of the Company, provides oversight
to the financial reporting process. The independent auditors have unrestricted
access to the Audit Committee.
/S/IAN J. MCCARTHY /S/DAVID S. WEISS
Ian J. McCarthy David S. Weiss
President and Chief Executive Officer Executive Vice President and
Chief Financial Officer
/S/JOHN SKELTON
John Skelton
Senior Vice President and Controller
SELECTED FINANCIAL DATA
Year Ended September 30,
(dollars in thousands except per share data) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Total revenue $851,101 $866,627 $647,828 $536,526 $275,054
Writedown of inventory $ 6,326
Operating income $ 17,656(i) $ 30,122 $ 18,629 $ 27,377 $ 19,959
Net income $ 11,189(i) $ 18,266 $ 11,352 $ 16,468 $ 16,046(ii)
Net income per common share :
Primary $ 1.15(i) $ 2.20 $ 1.23 $ 1.76(iii) n/m
Fully-diluted $ 1.15(i) $ 2.01 $ 1.23 $ 1.76(iii) n/m
- -----------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Cash $ 1,267 $ 12,942 $ 40,407 $ 35,980 $ 819
Inventory $361,945 $320,969 $285,268 $253,356 $225,863
Total assets $399,595 $356,643 $345,240 $314,941 $245,349
Total debt $145,000 $115,000 $115,000 $115,000 $119,925
Stockholders' equity $179,286 $178,701 $164,544 $150,406 $ 95,595
- -----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL FINANCIAL DATA:
EBIT (iv) $ 33,051(i) $ 45,327 $ 32,188 $ 37,169 $ 22,713
EBITDA (iv) $ 35,272(i) $ 46,855 $ 33,542 $ 38,384 $ 23,609
Interest incurred $ 16,159 $ 14,176 $ 14,737 $ 11,306 $ 6,553
EBIT/interest incurred 2.05x 3.20x 2.18x 3.29x 3.47x
EBITDA/interest incurred 2.18x 3.31x 2.28x 3.40x 3.60x
- -----------------------------------------------------------------------------------------------------------
FINANCIALS STATISTICS (v):
Total debt as a percentage of total
debt and stockholders' equity 44.7% 39.2% 41.1% 43.3% 55.6%
Asset turnover 2.25x 2.47x 1.96x 1.92x 1.77x
EBIT margin 3.9%(i) 5.2% 5.0% 6.9% 8.3%
Return on average assets 8.7%(i) 12.9% 9.8% 13.3% 14.6%
Return on average capital 10.7%(i) 15.8% 11.8% 15.5% 16.6%
Return on average equity 6.3%(i) 10.6% 7.2% 13.4% 20.8%
- -----------------------------------------------------------------------------------------------------------
<FN>
(i) Fiscal 1997 includes the effect of a $6,326 writedown to inventory in
Nevada. Excluding the effect of the writedown, operating income, net
income and net income per share for fiscal 1997 are $23,982, $15,079
and $1.70, respectively. Excluding the effect of the writedown, EBIT and
EBITDA for fiscal 1997 are $39,377 and $41,598, respectively. Excluding
the effect of the writedown, EBIT margin, return on assets, return on
capital and return on equity for fiscal 1997 are 4.6%, 10.4%, 12.7% and
8.4%, respectively.
(ii) Net income for the year ended September 30, 1993 includes a benefit of
$3,776 to reflect the cumulative effect of a change in accounting for
income taxes for the adoption of SFAS No. 109.
(iii) Pro forma to give effect to the initial public offering and related
transactions, as if such transactions were effected as of October 1, 1993.
(iv) EBIT and EBITDA: EBIT (earnings before interest and taxes) equals net
income before (a) previously capitalized interest amortized to costs and
expenses; (b) income taxes; and (c) cumulative effect of change in
accounting principle. EBITDA (earnings before interest, taxes,
depreciation, and amortization) is calculated by adding depreciation and
amortization for the period to EBIT. EBITDA is commonly used to analyze
companies on the basis of operating performance, leverage, and liquidity.
EBITDA is not intended to represent cash flows for the period nor has it
been presented as an alternative to net income as an indicator of
operating performance.
(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).
n/m - not meaningful
</FN>
1997 ANNUAL REPORT -- GOING PLACES
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations
OPERATING AND FINANCIAL DATA
The following tables present certain operating and financial data for the
periods discussed:
Year Ended September 30,
1997 1996 1995 1994 1993
(dollars in thousands) AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT AMOUNT AMOUNT
- ----------------------------------------------------------------------------------------
NUMBER OF NEW ORDERS, NET
OF CANCELLATIONS(i):
Southeast Region:
Georgia 165 (34.8)% 253 (18.4)% 310 274 301
North Carolina 608 (9.4) 671 1.5 661 545 502
South Carolina 393 29.7 303 30.0 233 248 169
Tennessee 413 (9.6) 457 (14.9) 537 418 420
Florida 390 7.1 364 6.4 342 241
- ----------------------------------------------------------------------------------------
Total Southeast 1,969 (3.9) 2,048 (1.7) 2,083 1,726 1,392
========================================================================================
Southwest Region:
Arizona 1,264 (24.8) 1,681 23.3 1,363 1,146 660
California 1,017 0.9 1,008 17.8 856 472 176
Nevada 536 11.0 483 9.5 441 284 235
- ----------------------------------------------------------------------------------------
Total Southwest 2,817 (11.2) 3,172 19.2 2,660 1,902 1,071
========================================================================================
Central Region:
Texas 765 90.8 401 309.2 98
Other Markets n/m n/m 48 80
- ----------------------------------------------------------------------------------------
Total 5,551 (1.2)% 5,621 16.1% 4,841 3,676 2,543
========================================================================================
BACKLOG AT END OF PERIOD:
Southeast Region:
Georgia 43 (17.3)% 52 (51.4)% 107 51 68
North Carolina 172 (10.4) 192 (11.9) 218 154 161
South Carolina 109 1.9 107 33.8 80 72 45
Tennessee 81 (35.2) 125 (35.6) 194 128 163
Florida 100 (3.8) 104 (4.6) 109 73
- ----------------------------------------------------------------------------------------
Total Southeast 505 (12.9) 580 (18.1) 708 478 437
========================================================================================
Southwest Region:
Arizona 262 (36.7) 414 (9.2) 456 348 454
California 78 (18.8) 96 (9.4) 106 88 72
Nevada 139 (18.2) 170 6.3 160 70 151
- ----------------------------------------------------------------------------------------
Total Southwest 479 (29.6) 680 (5.8) 722 506 677
========================================================================================
Central Region:
Texas 208 25.3 166 213.2 53
Other Markets n/m n/m 1 3 74
- ----------------------------------------------------------------------------------------
Total 1,192 (16.4)% 1,426 (3.9)% 1,484 987 1,188
========================================================================================
<FN>
(i) New orders for 1996, 1995, 1994 and 1993 do not include 256, 19, 49 and 376
homes in backlog, respectively, from acquired operations at the date of
their acquisition.
</FN>
Year Ended September 30,
1997 1996 1995 1994 1993
(dollars in thousands) AMOUNT % CHANGE AMOUNT % CHANGE AMOUNT AMOUNT AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
SALES VALUE OF HOMES IN
BACKLOG AT END OF PERIOD:
Southeast region $ 81,720 (16.7)% $ 98,092 (4.3)% $ 102,511 $ 70,129 $ 55,765
Southwest region 73,346 (15.2) 86,539 (14.6) 101,346 72,754 88,290
Central region 35,373 36.0 26,006 219.8 8,133
Other markets n/m n/m 173 515 10,577
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 190,439 (9.6)% $ 210,637 (0.7)% $ 212,163 $ 143,398 $ 154,632
====================================================================================================================================
NUMBER OF CLOSINGS:
Southeast Region:
Georgia 174 (43.5)% 308 21.3% 254 291 297
North Carolina 628 (9.9) 697 16.8 597 552 460
South Carolina 391 41.7 276 22.7 225 221 167
Tennessee 457 (13.1) 526 11.7 471 453 388
Florida 394 (2.7) 405 32.4 306 217
- ------------------------------------------------------------------------------------------------------------------------------------
Total Southeast 2,044 (7.6) 2,212 19.4 1,853 1,734 1,312
====================================================================================================================================
Southwest Region:
Arizona 1,416 (23.5) 1,852 47.6 1,255 1,252 441
California 1,035 1.7 1,018 21.5 838 456 195
Nevada 567 19.9 473 34.8 351 365 139
- ------------------------------------------------------------------------------------------------------------------------------------
Total Southwest 3,018 (9.7) 3,343 36.8 2,444 2,073 775
====================================================================================================================================
Central Region:
Texas 723 90.8 379 492.2 64
Other Markets (100.0) 1 (50.0) 2 119 6
- ------------------------------------------------------------------------------------------------------------------------------------
Total 5,785 (2.5)% 5,935 36.0% 4,363 3,926 2,093
====================================================================================================================================
REVENUES:
Southeast region $ 333,648 0.4% $ 332,159 24.8% $ 266,228 $ 223,967 $ 153,600
Southwest region 404,760 (14.9) 475,662 28.4 370,369 294,467 120,601
Central region 112,693 92.2 58,621 438.5 10,886
Other markets n/m 185 (46.4) 345 18,092 853
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 851,101 (1.8)% $ 866,627 33.8% $ 647,828 $ 536,526 $ 275,054
====================================================================================================================================
AVERAGE SALES PRICE PER HOME CLOSED:
---------
Southeast region $ 163.2 8.7% $ 150.2 4.5% $ 143.7 $ 129.2 $ 117.1
Southwest region 134.1 (5.8) 142.3 (6.1) 151.5 142.0 155.6
Central region 155.9 0.7 154.7 (9.1) 170.1
Other markets n/m 185.0 7.2 172.5 152.0 142.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 147.1 0.8% $ 146.0 (1.7)% $ 148.5 $ 136.7 $ 131.4
====================================================================================================================================
NUMBER OF ACTIVE SUBDIVISIONS
AT YEAR END:
Southeast region 104 5.1% 99 12.5% 88 82 94
Southwest region 60 (3.2) 62 21.6 51 39 50
Central region 33 6.5 31 210.0 10
Other markets n/m n/m 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total 197 2.6% 192 28.9% 149 122 145
====================================================================================================================================
n/a - Not applicable
n/m - Percentage change not meaningful
1997 ANNUAL REPORT -- GOING PLACES
OVERVIEW
Beazer Homes 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's other markets include a single project in
New Jersey which was closed out during fiscal 1996. 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 time move-up homebuyers, 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.
During fiscal 1996 the Company began providing mortgage origination
services for its local homebuilders through Beazer Mortgage Company ("Beazer
Mortgage"). Beazer Mortgage originates mortgages principally for homebuyers of
Beazer Homes. Beazer Mortgage does not hold or service the mortgages. Beazer
Mortgage net operating results are included in costs of home construction of the
homebuilding operations of the Company.
NEW ORDERS AND BACKLOG - The Company
experienced fewer new orders during the year ended September 30, 1997 than the
year ended September 30, 1996. The principal reason for this decrease is a
reduction in the number of active subdivisions in early fiscal 1997 in the
Company's Arizona operations. Excluding the Company's Arizona operations, new
orders increased by 347 homes in fiscal 1997. The principal increase was in the
Company's Texas operations.
The Company has historically experienced fluctuations in new order activity
in periods of significant mortgage rate changes. Additional factors that impact
the Company's new order trends include the ability to react to changing customer
preferences through product mix and pricing, local economic conditions and
product supply (as measured by the number of active subdivisions). The Company
believes that during the year ended September 30, 1996, effective product mix
and pricing, especially in the affordable first-time homebuyer market in
Arizona, contributed to positive order growth in the Company's markets despite
the increase in mortgage interest rates that began in January 1996 and continued
for the remainder of the Company's fiscal year.
Backlog levels correspond directly with the new order and closing trends
experienced by the Company. Despite an accelerating new order trend late in the
Company's 1997 fiscal year, increased closings during the fourth quarter
contributed to lower backlog levels at September 30, 1997 compared to September
30, 1996.
The comparison of active subdivision levels for the Company has been
positive for each of the last two fiscal years. The increase in active
subdivisions at September 30, 1997 compared to September 30, 1996 is the result
of the Company acquiring favorable land positions and opening a number of new
subdivisions during the last two quarters of fiscal 1997, replenishing
subdivision levels depleted during the first six months of the fiscal year. In
contrast, while the number of active subdivisions at September 30, 1996 is above
that of September 30, 1995 many of the subdivisions were nearing close-out
status and the number of active subdivisions declined by 30 in the first quarter
of 1997.
SEASONALITY AND QUARTERLY VARIABILITY - The Company has historically experienced
significant seasonality and quarter-to-quarter variability in homebuilding
activity levels. The annual operating cycle generally reflects escalating new
orders in the Company's second and third fiscal quarters. Since closings usually
trail home sales by four to six months, closings typically are lowest in the
first quarter of the fiscal year, and revenues from home closings usually peak
in the third and fourth quarters of the fiscal year. The Company believes that
this 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. This trend, however, may be altered in periods of extreme
fluctuations in economic conditions, such as interest rates and general
confidence.
The following table presents certain unaudited quarterly financial and
operating data for the Company's last eight fiscal quarters. These historical
results are not necessarily indicative of results to be expected for any future
period.
Quarter Ended
(dollars in thousands) September 30, June 30, March 31, December 31, September 30, June 30, March 31, December 31,
1997 1997 1997 1996 1996 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenue $316,647 $195,608 $177,762 $161,083 $294,828 $217,065 $196,505 $158,230
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF NEW ORDERS, NET:
Southeast 472 555 573 369 445 550 617 436
Southwest 750 789 733 545 646 837 995 694
Central 167 250 228 120 134 119 94 54
Other markets
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1,389 1,594 1,534 1,034 1,225 1,506 1,706 1,184
====================================================================================================================================
NUMBER OF CLOSINGS:
Southeast 716 493 457 378 709 554 483 466
Southwest 1,140 651 627 600 1,044 868 836 595
Central 274 171 143 135 202 74 46 57
Other markets 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total 2,130 1,315 1,227 1,113 1,955 1,496 1,365 1,119
====================================================================================================================================
The Company's operations can be affected by inflation. All costs and
expenses including land, raw materials, subcontracted labor and interest would
increase in an inflationary period. The Company's margins could decrease unless
the increased costs were recovered through higher sales prices.
1997 ANNUAL REPORT -- GOING PLACES
MANAGEMENT'S DISCUSSION
AND ANALYSIS
RESULTS OF OPERATIONS
The following table shows certain items in the Company's statements of income
expressed as a percentage of total revenue.
Year ended September 30,
1997 1996 1995
- --------------------------------------------------------------------------------
Total revenue 100.0% 100.0% 100.0%
Costs and Expenses:
Costs of home construction and land sales (84.7) (84.5) (85.2)
Amortization of previously capitalized interest (1.7) (1.7) (2.0)
Selling, general and administrative expenses (10.7) (10.3) (9.8)
Writedown of inventory (0.7)
................................................................................
Operating income 2.1% 3.5% 3.0%
================================================================================
REVENUES - The decrease in revenues for the year ended September 30, 1997
compared to the year ended September 30, 1996 is the result of a 3% decrease in
the number of homes closed offset by a 1% increase in average sales price. The
principal reason for the decrease in home closings was a decline in home
closings in Arizona, the Company's largest market. This decrease is partially
offset by the continued expansion of the Company's Texas operations. The slight
increase in the average sales price is the result of the decrease in closings in
Arizona where the average sales price is below the Company average.
The increase in revenues for the year ended September 30, 1996 compared to
the same period in 1995 is the result of a 36% increase in the number of homes
closed and a 1.7% decrease in average sales price. The increase in home closings
was experienced in all markets and is a result of the strong order growth early
in fiscal 1996, and the expansion of the Texas operations entered initially via
the acquisition of Bramalea Homes Texas ("Bramalea") in April 1995 and
supplemented through the acquisition of Trendmaker Homes - Dallas in June 1996.
The small decrease in average sales price is the result of shifting product mix
in the Southeast region, an emphasis on the affordable product mix in the
Southwest (especially in Arizona), and decreases in Texas as a result of the
Company opening new, lower-priced subdivisions in Dallas.
COST OF HOME CONSTRUCTION AND LAND SALES - Cost of home construction and land
sales ("COS") as a percentage of revenues increased for the year ended September
30, 1997 compared to 1996. The principal reason for the increase relates to
issues in the Company's Nevada operations. For the fiscal year ended September
30, 1997, the COS as a percentage of revenues was 91.2% for the Nevada
operations compared to 84.7% for the total Company. During fiscal 1997, the
Company experienced development issues in two subdivisions in Nevada, resulting
in a writedown to inventory (see "Writedown of inventory") and reduced margins
in other subdivisions in Nevada. The Company has made management changes in its
Nevada operations and has implemented additional controls around projects
involving significant development expenditures. The Company believes the issues
in Nevada have been resolved and anticipates recognizing improving gross margins
as a percentage of revenues for the Nevada operations during fiscal 1998. COS as
a percentage of revenues decreased for the year ended September 30, 1996
compared to 1995. The decrease is largely attributable to decreases in hard
construction costs (material and labor), and an increase in deliveries from
homes started subsequent to sale relative to fiscal 1995. Additionally,
the Company's Arizona and Texas markets, which typically experience higher gross
margins than the Company average, represent a greater percentage of total
closings for the year.
WRITEDOWN OF INVENTORY - During the quarter ended March 31, 1997, the Company
recorded a pre-tax charge of $6.3 million to write down two properties located
in Nevada to their estimated fair market value (based on the sales prices of
comparable projects). The two Nevada properties, Craig Ranch in North Las Vegas
and Promontory in Reno, had incurred significant development costs that were not
anticipated at the beginning of the project. As a result, the estimated future
un-discounted cash flows of the projects were less than their respective book
values at that time.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative ("SG&A") expenses increased as a percentage of revenues in each
of the last two fiscal years. The increase in fiscal 1997 compared to fiscal
1996 is principally the result of increased sales and marketing expenses
relating to the opening of new subdivisions within the Company's existing
markets. The sales and marketing component of total SG&A as a percentage of
revenues increased to 6.5% from 6.1% in fiscal 1996. The general and
administrative component of total SG&A was 4.2% for both fiscal 1997 and 1996.
The increase in SG&A as a percentage of revenues in fiscal 1996 compared to
fiscal 1995 can be attributed primarily to certain consulting and start-up costs
relating to various long-term initiatives the Company began in late fiscal 1996.
AMORTIZATION OF PREVIOUSLY CAPITALIZED INTEREST - The decrease in interest
amortized to costs and expenses as a percentage of revenues for the year ended
September 30, 1996 compared to the same period in 1995 is the result of a
favorable interest rate environment and accelerated inventory turnover.
INCOME TAXES - The Company's effective income tax rate was 38.5%, 39.5% and
40.0% for 1997, 1996 and 1995, respectively. The decrease in 1997 and 1996 is
principally the result of various tax savings strategies implemented during
1996.
EARNINGS PER SHARE - In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128
establishes new standards for computing and presenting earnings per share
("EPS") information. The Company is required to adopt SFAS 128 during the first
quarter of fiscal 1998. If the provisions of SFAS 128 had been used to calculate
EPS for the years ended September 30, 1997, 1996 and 1995, basic EPS would have
been $1.18, $2.24 and $1.26, respectively, and diluted EPS would have
approximated reported fully-diluted EPS amounts.
FINANCIAL CONDITION AND LIQUIDITY
At September 30, 1997 the Company had $1.3 million of cash and $30 million
outstanding borrowings under its $200 million unsecured revolving credit
facility. The Company fulfills its short-term cash requirements with cash
generated from its operations and unused funds available from its unsecured
revolving credit facility. Available borrowings under this credit agreement are
limited to certain percentages of homes under contract, unsold homes,
substantially improved lots and accounts receivable. At September 30, 1997 the
Company had available additional borrowings of $65 million under the credit
agreement.
In October 1996, the Company entered into a $150 million unsecured,
revolving credit agreement with a group of banks to replace a similar $80
million unsecured, revolving credit agreement the Company had utilized since
January 1995. In July 1997, the Company amended
1997 ANNUAL REPORT -- GOING PLACES
MANAGEMENT'S DISCUSSION
AND ANALYSIS
the credit agreement to increase the available borrowings to $200 million,
increase the number of participating banks from seven to eight, reduce the
borrowing rates and increase the Company's flexibility under certain covenants.
During fiscal 1996 the Company utilized borrowings under its credit
agreement of $21.4 million for acquisitions. All such borrowings were repaid as
of September 30, 1996.
The Company has issued $115 million of Senior Notes which mature in March
2004. The Senior Notes bear interest at 9% payable semiannually. The Senior Note
Indenture contains certain restrictive covenants, including limitations on
payment of dividends. At September 30, 1997, under the most restrictive
covenants, approximately $29.5 million of the Company's retained earnings was
available for payment of cash dividends and for the acquisition by the Company
of its common stock.
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 the 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.
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 then outstanding
stock. 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. As of September 30, 1997 the Company
had purchased 542,510 shares for an aggregate purchase price of approximately
$7.3 million under this repurchase plan.
The Company has utilized, and will continue to utilize, land options as a
method of controlling and subsequently acquiring land. At September 30, 1997,
the Company had 9,817 lots under option. At September 30, 1997, the Company had
commitments with respect to option contracts with specific performance
obligations of approximately $50.5 million. The Company expects to exercise all
of its option contracts with specific performance obligations and, subject to
market conditions, substantially all of its option contracts without specific
performance obligations.
Management believes that the Company's current borrowing capacity, cash on
hand at September 30, 1997, and anticipated cash flows from 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.
In November 1997, the Company utilized approximately $16.7 million in
borrowings under the Credit Agreement to acquire the assets of the Orlando,
Florida homebuilding operations of Calton Homes.
INDEPENDENT AUDITOR'S REPORT
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. as of September 30, 1997 and September 30, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the management of Beazer Homes USA, Inc. Our responsibility is
to express an opinion on these financial statements based on our audits. The
consolidated financial statements for the year ended September 30, 1995 were
audited by other auditors, whose report dated October 27, 1995, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Beazer Homes USA, Inc. at September 30, 1997 and September 30, 1996 and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
Atlanta, Georgia
October 30, 1997
(November 28, 1997 as to Note 13)
1997 ANNUAL REPORT -- GOING PLACES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
September 30,
(dollars in thousands, except per share amounts) 1997 1996 1995
- ------------------------------------------------------------------------------------------
Total revenue $ 851,101 $ 866,627 $ 647,828
Costs and expenses
Home construction and land sales 720,992 732,395 552,204
Amortization of previously capitalized interest 14,857 15,134 13,268
Selling, general and administrative 91,270 88,976 63,727
Writedown of inventory 6,326
- ------------------------------------------------------------------------------------------
Operating income 17,656 30,122 18,629
Other income 538 71 291
- ------------------------------------------------------------------------------------------
Income before income taxes 18,194 30,193 18,920
Provision for income taxes 7,005 11,927 7,568
- ------------------------------------------------------------------------------------------
Net income $ 11,189 $ 18,266 $ 11,352
- ------------------------------------------------------------------------------------------
Preferred dividends $ 4,000 $ 4,000 $ 611
Net income applicable to common shareholders $ 7,189 $ 14,266 $ 10,741
- ------------------------------------------------------------------------------------------
Net income per common share
Primary $ 1.15 $ 2.20 $ 1.23
Fully-diluted $ 1.15 $ 2.01 $ 1.23
Weighted average number of shares
Primary 6,274,250 6,475,167 8,716,965
Fully-diluted 6,274,250 9,099,839 8,716,965
CONSOLIDATED BALANCE SHEETS
September 30,
(dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------
ASSETS:
Cash and cash equivalents $ 1,267 $ 12,942
Accounts receivable 7,114 6,473
Inventory 361,945 320,969
Deferred tax asset 3,142 1,645
Property, plant and equipment, net 11,592 3,123
Goodwill, net 5,664 6,204
Other assets 8,871 5,287
- -----------------------------------------------------------------------------
Total assets $ 399,595 $ 356,643
=============================================================================
- -----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Trade accounts payable $ 44,443 $ 31,431
Other liabilities 30,866 31,511
Revolving credit facility 30,000
Senior notes 115,000 115,000
- -----------------------------------------------------------------------------
Total liabilities 220,309 177,942
- -----------------------------------------------------------------------------
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,
9,355,957 and 9,305,200 issued,
6,064,180 and 6,530,933 outstanding) 93 93
Paid in capital 187,798 187,477
Retained earnings 44,802 37,613
Treasury stock, at cost
(3,291,777 and 2,774,267 shares) (51,983) (45,056)
Unearned restricted stock (1,444) (1,446)
- -----------------------------------------------------------------------------
Total stockholders' equity 179,286 178,701
- -----------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 399,595 $ 356,643
=============================================================================
See Notes to Consolidated Financial Statements.
1997 ANNUAL REPORT -- GOING PLACES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNEARNED
(dollars in thousands) PREFERRED COMMON PAID IN RETAINED RESTRICTED TREASURY TOTAL
STOCK STOCK CAPITAL EARNINGS STOCK STOCK
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1994 $ 92 $ 139,281 $ 12,273 $ (1,240) $ 150,406
Purchase of treasury stock
(2,749,267 shares) $ (44,707) (44,707)
Issuance of preferred stock
(2,000,000 shares) $ 20 47,386 47,406
Issuance of restricted stock
(103,000 shares) 1 1,184 (1,185)
Cancellation of restricted stock
(26,250 shares) (340) 340
Remeasurement of unearned
restricted stock 187 (187)
Amortization of unearned
restricted stock 365 365
Preferred stock dividends paid (278) (278)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 11,352 11,352
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1995 20 93 187,698 23,347 (1,907) (44,707) 164,544
Purchase of treasury stock
(25,000 shares) (349) (349)
Issuance of restricted stock
(46,500 shares) 482 (482)
Cancellation of restricted stock
(38,417 shares) (458) 458
Remeasurement of unearned
restricted stock (228) 228
Amortization of unearned
restricted stock 257 257
Preferred stock dividends paid (4,000) (4,000)
Other (17) (17)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 18,266 18,266
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1996 20 93 187,477 37,613 (1,446) (45,056) 178,701
Purchase of treasury stock
(517,510 shares) (6,927) (6,927)
Issuance of restricted stock
(50,757 shares) 321 (321)
Amortization of unearned
restricted stock 323 323
Preferred stock dividends paid (4,000) (4,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 11,189 11,189
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1997 $ 20 $ 93 $ 187,798 $ 44,802 $ (1,444) $ (51,983) $ 179,286
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
SEPTEMBER 30,
(dollars in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,189 $ 18,266 $ 11,352
Adjustments to reconcile net income to net cash
provided (used) by operating
activities:
Depreciation and amortization 2,221 1,528 1,354
Provision for deferred income taxes (1,280) 588 1,111
Writedown of inventory 6,326
Changes in operating assets and liabilities,
net of effects from acquisitions:
Increase in inventory (47,302) (11,603) (28,674)
(Decrease) increase in trade accounts payable 13,012 (9,024) 9,409
Other (4,633) 352 11,650
- --------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (20,467) 107 6,202
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,445) (1,866) (540)
Acquisitions, net of cash acquired (21,357) (3,656)
Net cash used by investing activities (9,445) (23,223) (4,196)
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from preferred stock issuance 47,406
Net borrowings under revolving credit facility 30,000
Debt issuance costs (836)
Cash dividends paid on preferred stock (4,000) (4,000) (278)
Share repurchases (6,927) (349) (44,707)
- --------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 18,237 (4,349) 2,421
- --------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (11,675) (27,465) 4,427
Cash and cash equivalents at beginning of year 12,942 40,407 35,980
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,267 $ 12,942 $ 40,407
============================================================================================
- --------------------------------------------------------------------------------------------
SUPPLEMTAL CASH FLOW INFORMATION:
Interest paid $ 15,659 $ 13,885 $ 14,023
Income taxes paid $ 5,399 $ 11,581 $ 2,857
1997 ANNUAL REPORT -- GOING PLACES
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Beazer Homes USA, Inc. ("Beazer" or the "Company") designs, constructs,
markets and sells single family homes in Arizona, California, Florida,
Georgia, Nevada, North Carolina, South Carolina, Tennessee and Texas.
In March 1994, the Company completed a concurrent initial public offering
of common stock and issuance of Senior Notes ("IPO"). Prior to its IPO, the
Company was an indirect wholly owned subsidiary of Hanson PLC ("Hanson"), a
company registered in the United Kingdom. As a result of the IPO, Hanson's
ownership interest in the Company was reduced to approximately 30%. During 1995,
the Company repurchased the remaining 30% of the shares, which had been
transferred to a former affiliate of Hanson.
BASIS OF PRESENTATION - The accompanying consolidated financial statements
include the accounts of Beazer Homes USA, Inc. and its wholly owned
subsidiaries. Intercompany balances have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS - The Company considers cash investments with
maturities of three months or less when purchased to be cash equivalents. Cash
and cash equivalents as of September 30, 1997 and 1996 include $1.3 million and
$1.4 million, respectively, of cash held in escrow for periods of up to three
days.
INVENTORY - Inventory consists of residential real estate developments including
interest, real estate taxes and development costs capitalized to land and
construction costs during the development and construction period.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded at
cost. Depreciation is computed on a straight line basis at rates based on
estimated useful lives as follows:
Building 15 years
...............................................................................
Machinery and equipment 3 - 12 years
...............................................................................
Information systems 3 - 5 years
...............................................................................
Furniture and fixtures 3 - 5 years
...............................................................................
INCOME TAXES - Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
INCOME RECOGNITION AND CLASSIFICATION OF COSTS - Income from the sale of land
and residential units 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 expense.
MORTGAGE COMPANY OPERATIONS - Beazer Mortgage originates mortgages principally
for homebuyers of Beazer Homes. Beazer Mortgage net operating results are
included in costs of home construction in the accompanying consolidated
statements of operations.
GOODWILL - Goodwill represents the excess of the purchase price over the fair
value of assets acquired and is amortized over a 15-year period. Amortization
expense was $541,000, $541,000, and $538,000, for the years ended September 30,
1997, 1996, and 1995, respectively. Accumulated amortization was $2,449,000 and
$1,908,000 at September 30, 1997 and 1996,
respectively. In the event that facts and circumstances indicate that the
carrying value of goodwill may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is required. Fair Value of Financial Instruments p
The historical carrying amount of short-term financial instruments is a
reasonable estimate of fair value. The fair value of the Senior Notes
approximates their book value at September 30, 1997 and was approximately $104
million at September 30, 1996 based upon quoted market prices.
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 shares contingently issuable, primarily from stock options. Common share
equivalents are computed using the treasury stock method.
Fully diluted earnings per share in fiscal 1996 further assumes the
conversion of 2,000,000 shares of Series A Cumulative Convertible Exchangeable
Preferred Stock issued in August 1995 (see Note 10) into 2,624,672 shares of
Common Stock. The conversion of the Preferred Stock into Common Stock is not
included in fully diluted earnings per share for fiscal 1997 and fiscal 1995
since such conversion would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
("SFAS") No. 128, "Earnings per Share." SFAS 128 establishes new standards for
computing and presenting earnings per share ("EPS"). The Company is required to
adopt SFAS 128 during the first quarter of fiscal 1998. If the provisions of
SFAS 128 had been used to calculate EPS for the years ended September 30, 1997,
1996 and 1995, basic EPS would have been $1.18, $2.24 and $1.26, respectively,
and diluted EPS would have approximated reported fully-diluted EPS amounts.
WARRANTY COSTS - Estimated future home warranty costs are charged to cost of
sales in the period when the revenues from home closings are recognized. Such
estimated warranty costs range from 0.5% to 1.0% of total revenue and, based
upon experience, have been sufficient to cover costs incurred. Other Liabilities
p Other liabilities includes home buyer deposits, land purchase obligations,
accrued compensation and various other accrued expenses.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles 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.
1997 ANNUAL REPORT -- GOING PLACES
NOTE 2 - ACQUISITIONS
Since October 1, 1994 the Company has acquired substantially all of the assets
or all of the outstanding capital stock of each of the following businesses:
CONSIDERATION ACQUISITION
COMPANY ACQUIRED (IN THOUSANDS) DATE
..............................................................................
Trendmaker Homes - Dallas $22,000 June 1996
..............................................................................
Gulfcoast Homes 3,200 May 1996
..............................................................................
Bramalea Homes Texas, Inc. 3,100 April 1995
..............................................................................
Bauer & Barone, Inc. 200 October 1994
..............................................................................
Consideration includes cash paid plus certain borrowings assumed and repaid
immediately subsequent to the acquisitions. These acquisitions have been
recorded using the purchase method of accounting and, accordingly, the purchase
price has been allocated to the assets acquired and the liabilities assumed
based on their estimated fair values as of the date of acquisitions. The
operating results of the acquired businesses are included in the Company's
consolidated statements of income from their respective dates of acquisition.
The pro forma effect on the Company's operating results of acquired businesses
prior to their acquisition date would not be significant.
NOTE 3 - INVENTORY
Inventory at September 30 includes:
(in thousands) 1997 1996
- ------------------------------------------------------------------------------
Finished homes $69,609 $64,709
Development projects in progress 231,692 197,984
Unimproved land held for future development 34,792 34,040
Model homes 25,852 24,236
..............................................................................
$361,945 $320,969
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.
In March 1997, the Company recorded a pre-tax charge of $6.3 million to
write down two properties located in Nevada to their estimated fair market value
(based on the sales prices of comparable projects). The two Nevada properties,
Craig Ranch in North Las Vegas and Promontory in Reno, had incurred significant
development costs that were not anticipated at the beginning of the projects. As
a result, the estimated future undiscounted cash flows of the projects at that
time were less than their respective book values.
Inventory located in California, the state with the Company's largest
concentration of inventory, was $74.5 million and $72.5 million at September 30,
1997, and 1996, respectively.
The Company acquires 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
without specific performance obligations, the Company's
liability is generally limited to forfeiture of the non-refundable deposits,
which aggregated approximately $10.3 million at September 30, 1997 and 1996, and
are included in development projects in process. Under option contracts, both
with and without specific performance obligations, purchase of the properties is
contingent upon satisfaction of certain requirements by the Company and the
sellers. Below is a summary of amounts committed under all options at September
30, 1997:
(in thousands) AGGREGATE PURCHASE PRICE
- ------------------------------------------------------------------------------
Options with specific performance $50,465
Options without specific performance 139,419
..............................................................................
Total options $189,884
==============================================================================
NOTE 4 - INTEREST
Information regarding interest is as follows:
Year Ended September 30,
(in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
DURING THE PERIOD:
Interest incurred $16,159 $ 14,176 $ 14,737
Interest capitalized (16,159) (14,176) (14,737)
Previously capitalized interest
amortized to cost of sales 14,857 15,134 13,268
..............................................................................
Total interest expensed in
statements of operations $14,857 $ 15,134 $ 13,268
==============================================================================
AT THE END OF THE PERIOD:
Capitalized interest in inventory $ 6,855 $ 5,553 $ 6,511
NOTE 5 -P PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of :
September 30,
(in thousands) 1997 1996
- ------------------------------------------------------------------------------
Land and buildings $1,041 $ 998
Leasehold improvements 660 378
Machinery and equipment 4,050 2,547
Information systems 4,232 300
Furniture and fixtures 6,517 3,074
..............................................................................
16,500 7,297
Less accumulated depreciation 4,908 4,174
..............................................................................
Property, plant and equipment, net $11,592 $3,123
==============================================================================
1997 ANNUAL REPORT -- GOING PLACES
NOTE 6 - REVOLVING CREDIT FACILITY
The Company maintains a revolving line of credit with a group of banks. The
credit agreement at September 30, 1997 provides for up to $200 million of
unsecured borrowings. Borrowings under the credit agreement generally bear
interest payable monthly at a fluctuating rate based upon the corporate base
rate of interest announced by the lead bank, the federal funds rate or LIBOR.
All outstanding borrowings under the credit agreement are due in February 2001.
The credit agreement contains various operating and financial covenants. Each of
the Company's subsidiaries is a guarantor under the credit agreement.
Available borrowings under the credit agreement are limited to certain
percentages of homes under contract, unsold homes, substantially improved lots
and accounts receivable. At September 30, 1997 the Company had $30 million in
borrowings outstanding at an average interest rate of 7.0% and had available
additional borrowings of $65 million under the credit agreement.
NOTE 7 - SENIOR NOTES
The Company has $115 million of Senior Notes which mature in March 2004.
Interest on the Senior Notes is payable semiannually at 9% annually. The Company
may, at its option, redeem the Senior Notes in whole or in part at any time
after February 1999, initially at 102.571% of the principal amount, declining to
100% of the principal amount after February 2001. The Senior Notes are unsecured
and rank pari passu (except as to collateral) with, or senior in right of
payment to, all other existing and future senior indebtedness of the Company.
The Senior Notes are guaranteed by all of the subsidiaries of the Company.
The Senior Note Indenture contains certain restrictive covenants, including
limitations on payment of dividends. At September 30, 1997, under the most
restrictive covenants, approximately $29.5 million of the Company's retained
earnings was available for payment of cash dividends and for the acquisition by
the Company of its common stock. In addition, the Senior Note Indenture provides
that, in the event of defined changes in control, or if the consolidated
tangible net worth of the Company falls below a specified level, or in certain
circumstances upon sale of assets, the Company is required to offer to
repurchase certain specified amounts of outstanding Senior Notes.
NOTE 8 - INCOME TAXES
The provision for income taxes consists of:
Year Ended September 30,
(in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------
Current:
Federal $7,507 $9,579 $5,231
State 778 1,759 1,226
Deferred: (1,280) 588 1,111
..............................................................................
Total $7,005 $11,927 $7,568
==============================================================================
The provision for income taxes differs from the amount computed by applying
the federal income tax statutory rate as follows:
Year Ended September 30,
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Income tax computed at statutory rate 6,368 10,568 6,622
State income taxes, net of federal benefit 506 1,143 784
Goodwill amortization 189 189 162
Other, net (58) 27
................................................................................
Total $7,005 $11,927 $7,568
================================================================================
Deferred tax assets relate principally to differences between book and tax
bases of inven-tory and certain accrued costs.
NOTE 9 - LEASES
The Company is obligated under various noncancelable operating leases for
office facilities and equipment. Rental expense under these agreements amounted
to approximately $2,258,000, $2,485,000 and $1,292,000 for the years ended
September 30, 1997, 1996 and 1995, respectively. As of September 30, 1997,
future minimum lease payments under noncancelable operating lease agreements are
as follows:
Year Ending September 30, (in thousands)
- ------------------------------------------------------------------------------
1998 $2,974
1999 2,479
2000 1,652
2001 829
2002 485
Thereafter 180
..............................................................................
Total $8,599
==============================================================================
During the year ended September 30, 1995, the Company sold and leased back
(for up to 33 months) model homes in Arizona, California and Nevada for
approximately $15.0 million. The transactions were accounted for as a
sale-leaseback and resulted in the recognition of a $350,000 gain in that year.
Lease payments for these model homes aggregated $499,000, $1,536,000 and
$914,000 for fiscal years 1997, 1996 and 1995, respectively.
1997 ANNUAL REPORT -- GOING PLACES
NOTE 10 - STOCKHOLDERS' EQUITY
PREFERRED STOCK - In August 1995, the Company sold 2,000,000 shares of its
Series A Cumulative Convertible Exchangeable Preferred Stock (liquidation
preference $25.00 per share). The Preferred Stock pays dividends quarterly at an
annual rate of 8%, is convertible at the holder's option into the Company's
Common Stock at a conversion price of $19.05 per Common Share and is
exchangeable, at the Company's option, into 8% Convertible Subordinated
Debentures due 2005. The net proceeds of approximately $48.1 million were used
principally to repurchase shares of the Company's Common Stock formerly held by
Hanson (See Note 1).
COMMON STOCK REPURCHASE PLAN - In June 1996, the Company's Board of Directors
approved a stock repurchase plan authorizing the purchase of up to 10% of the
Company's then outstanding common stock. Such repurchases, if completed, would
be effected at various prices from time to time in the open market. As of
September 30, 1997, the Company had purchased 542,510 shares for an aggregate
purchase price of approximately $7.3 million under this repurchase plan.
SHAREHOLDER RIGHTS PLAN - In June 1996 the Company's 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 "Preferred
Shares"), of the Company. The Rights become exercisable in certain limited
circumstances involving principally the acquisition of over 20% of the Company's
outstanding common stock by any one individual or group. The Rights are
initially exercisable at a price of $80.00 per one hundredth of a 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 the Company's 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 the Company's option before
they become exercisable. Until a Right is exercised, the holder of a Right has
no rights as a shareholder of the Company. The Rights expire in June 2006.
NOTE 11 - RETIREMENT AND INCENTIVE PLANS
401(k) RETIREMENT PLAN - The Company sponsors a 401(k) Retirement Savings and
Investment Plan (the "Plan"). Substantially all employees are eligible for
participation in the Plan after completing one year of service with the Company.
Participants may defer and contribute to the Plan from 1% to 17% of their salary
with certain limitations on highly compensated individuals. The Company matches
50% of the first 6% of the participant's contributions. The participant's
contributions vest 100% immediately, while the Company's contributions vest
after five years. The Company's total contributions for the years ended
September 30, 1997, 1996 and 1995 were approximately $620,000, $587,000 and
$495,000, respectively.
RESTRICTED STOCK AWARDS - The Company has issued several restricted stock awards
to officers and key employees under the 1994 Stock Incentive Plan (the "Stock
Plan"). All restricted stock is awarded in the name of each participant, who
have all the rights of other common stockholders subject to restrictions and
forfeiture provisions. Accordingly, all restricted stock awards are considered
outstanding shares.
Stock awards are valued when granted and associated unearned compensation,
if any, is amortized as expense over the vesting period of the awarded shares.
Unearned compensation related to such awards is reflected as a reduction of
stockholders' equity. Compensation expense recognized for such awards totals
$323,000, $257,000 and $365,000 for the years ended September 30, 1997, 1996 and
1995 respectively.
Activity relating to restricted stock awards is summarized as follows:
Year Ended September 30,
1997 1996 1995
- --------------------------------------------------------------------------------
Restricted shares, beginning of period 179,833 171,750 95,000
Shares awarded 50,757 46,500 103,000
Shares forfeited (38,417) (26,250)
................................................................................
Restricted shares, end of period 230,590 179,833 171,750
================================================================================
Stock Option Awards p The Company has issued several stock option awards to
officers and key employees under the 1994 Stock Incentive Plan and to
non-employee directors under the Company's Non-Employee Director Stock Option
Plan. Stock options are generally exercisable at the fair market value on the
grant date and may be exercised between three to 10 years from the date such
options were granted.
Information regarding activity under the Company's stock option plans is
summarized as follows:
NON-EMPLOYEE WEIGHT
1994 STOCK DIRECTOR AVERAGE
INCENTIVE STOCK OPTION
PRICE
PLAN OPTION PLAN PER SHARE
- --------------------------------------------------------------------------------
SHARES UNDER OPTION:
September 30, 1994 185,000 -- $17.50
Granted at $13.375 - $14.375 127,000 40,000 14.136
................................................................................
September 30, 1995 312,000 40,000 15.901
Granted at $16.875 - $19.125 per share 24,000 18,000 17.721
Canceled at $16.875 - $17.50 per share (48,000) 16.094
................................................................................
September 30, 1996 288,000 58,000 16.069
Granted at $20.0625 per share 210,500 4,000 20.0625
................................................................................
September 30, 1997 498,500 62,000 $17.567
................................................................................
At September 30, 1997 all options outstanding had an average remaining
contractual life of 8.0 years. Also at that date 165,000 options were
exercisable at $17.50 per share with a remaining average contractual life of 6.4
years.
The Company applies Accounting Principle Board Opinion No. 25 in accounting
for its stock option plans and, accordingly, no compensation cost has been
recognized for its stock options in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS 123, the Company's net income
1997 ANNUAL REPORT -- GOING PLACES
and net earnings per share would have been reduced by $52,000 and $0.01,
respectively in fiscal 1997. Fiscal 1996 net income and net earnings per share
would not have changed under SFAS 123 as these awards were issued on the last
day of the fiscal year.
For purposes of such computations under SFAS 123, the per share weighted
average fair value of stock options granted was estimated as $10.17 for options
granted in fiscal 1997 and $9.09 for options granted in fiscal 1996 using the
Black-Scholes option-pricing model with the following assumptions:
1997 1996
- -----------------------------------------------------------------------------
Expected volatility 39.3% 42.4%
Expected dividend yield none none
Risk-free interest rate 6.1% 6.0%
Expected life of stock options (in years) 6.5 6.5
As of September 30, 1997, the Company has reserved 759,546 shares of common
stock for issuance under its various stock incentive plans and has 115,454
shares available for future grants.
NOTE 12 - CONTINGENCIES
The Company had outstanding letters of credit and performance bonds of
approximately $7.8 and $60.2 million, respectively, at September 30, 1997
related principally to its obligations to local governments to construct roads
and other improvements in various developments. The Company does not believe
that any such letters of credit or bonds are likely to be drawn upon.
The Company is a defendant or plaintiff in various legal actions which have
arisen in the normal course of business. In the opinion of management, the
ultimate resolution of these matters will not have a material adverse effect on
the Company's financial position or results of operations.
NOTE 13 - SUBSEQUENT EVENTS
Effective November 28, 1997 the Company acquired the assets of the Orlando,
Florida operations of Calton Homes, for a purchase price, subject to financial
adjustment and including the assumption of certain liabilities, of approximately
$16.7 million.
QUARTERLY FINANCIAL DATA AND STOCK PRICE INFORMATION
SUMMARIZED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Quarter Ended
(in thousands, except per share data) September 30 June 30 March 31 December 31
- ---------------------------------------------------------------------------------------------------
FISCAL 1997:
Total revenue $ 316,647 $ 195,608 $ 177,762 $ 161,083
...................................................................................................
Operating income (loss) 12,147 5,438 (4,133) 4,199
Net income (loss) 7,537 3,434 (2,460) 2,677
Net income (loss) per common share:
Primary $ 1.09 $ 0.40 $ (0.54) $ 0.26
...................................................................................................
Fully-diluted 0.87 0.40 (0.54) 0.26
- ---------------------------------------------------------------------------------------------------
FISCAL 1996:
Total revenue $ 294,828 $ 217,065 $ 196,505 $ 158,230
...................................................................................................
Operating income 11,228 7,979 6,084 4,833
Net income 6,888 4,817 3,663 2,900
Net income per common share:
Primary $ 0.91 $ 0.59 $ 0.41 $ 0.29
...................................................................................................
Fully-diluted 0.76 0.53 0.40 0.29
- ---------------------------------------------------------------------------------------------------
FISCAL 1995:
Total revenue $ 270,604 $ 151,377 $ 123,544 $ 102,303
...................................................................................................
Operating income 10,472 2,324 2,461 3,372
Net income 6,317 1,417 1,485 2,133
Net income per common share:
Primary $ 0.78 $ 0.16 $ 0.16 $ 0.23
...................................................................................................
Fully-diluted 0.71 n/a n/a n/a
QUARTERLY STOCK PRICE INFORMATION: HIGH LOW
- ------------------------------------------------------------------------------
1997 PERIOD:
July 1, 1997 through September 30, 1997 $ 20 7/16 $ 16
..............................................................................
April 1, 1997 through June 30, 1997 $ 17 1/4 $ 12 3/4
January 1, 1997 through March 31, 1997 $ 18 1/2 $ 14 3/4
October 1, 1996 through December 31, 1996 $ 18 1/2 $ 13 3/4
- ------------------------------------------------------------------------------
1996 PERIOD:
July 1, 1996 through September 30, 1996 $ 16 3/4 $ 14
..............................................................................
April 1, 1996 through June 30, 1996 $ 18 3/8 $ 15 1/4
January 1, 1996 through March 31, 1996 $ 20 1/2 $ 16 1/4
October 1, 1995 through December 31, 1995 $ 20 5/8 $ 16 3/8
1997 ANNUAL REPORT -- GOING PLACES
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report 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 fiscal 1998, overall and
market-specific volume trends, pricing trends and forces in the industry, cost
reduction strategies and their results, targeted goals for margins and returns,
the Company's expectations as to funding its capital expenditures and operations
during fiscal 1998, 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.
As described in this Annual Report, the Company has begun various
initiatives designed to improve its operating profit margin. The most
significant factors that could prevent the Company from achieving these goals
and 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 or more 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 homes
increased land development cost on projects under development
any delays in reacting to changing consumer preferences in home design
delays or difficulties in implementing the Company's initiatives to reduce the
Company's production and overhead cost structure to a more competitive level.
OPERATING MANAGEMENT
YEARS IN YEARS IN
NAME TITLE HOMEBUILDING MARKET
- --------------------------------------------------------------------------------
SOUTHEAST REGION
Florida
Sandra Panitz President, Panitz Homes 25 25
Randy Thibaut President, Gulfcoast Homes 14 14
Jeffrey D. Thorson President, Tampa Division 16 6
Don Knutson President, Orlando Division 11 4
Georgia
Scott A. Hoisington President 13 2
North and South Carolina
Gary N. Baucom Regional Manager and
President, Squires Homes 26 26
North Carolina
Scott K. Thorson President, Squires Homes - Charlotte 14 3
Robert J. Polanco President, Squires Homes - Raleigh 20 5
South Carolina
Frank Finlaw President, Squires Homes - Charleston 20 5
William J. Mazar President, Squires Homes - Columbia 15 3
Jeffrey L. Kiefer City Manager, Squires Homes - Myrtle Beach 10 4
Tennessee
H. Eddie Phillips Regional Manager and
President, Phillips Builders 30 30
Thomas O. Brooks President, Phillips Builders - Knoxville 14 11
- --------------------------------------------------------------------------------
SOUTWEST REGION
Arizona
Joseph C. Thompson President 23 23
California
Anthony R. Tonso President, Northern California Division 29 8
Gerald A. Gates President, Southern California Division 25 10
Nevada
Warren D. Kiggins, Jr. President 25 1
- --------------------------------------------------------------------------------
CENTRAL REGION
Kurt S. Watzek Regional Manager 20 20
Texas
Randy Alford President, Houston Division 24 24
- --------------------------------------------------------------------------------
AVERAGE EXPERIENCE OF OPERATING MANAGEMENT 20 12
CORPORATE MANAGEMENT
Ian J. McCarthy
President and Chief Executive Officer
David S. Weiss
Executive Vice President and Chief Financial Officer
Michael H. Furlow
Executive Vice President, Operations
John Skelton
Senior Vice President, Operations and Controller
James A. Moore
Vice President
Process Redesign and Systems Advisory Committee Chairman
Peter H. Simons
Vice President, Corporate Development
Jennifer P. Jones
Vice President, Human Resources
Robert M. Kagenski
Vice President, Management Information Systems
David T. Root
Vice President, Operations
Michael T. Rand
Vice President, Operational and Accounting Controls
1997 ANNUAL REPORT -- GOING PLACES
BOARD OF DIRECTORS
BRIAN C. BEAZER
Non-Executive Chairman of the Board
Beazer Homes USA, Inc.
Mr. Beazer has served as a non-executive Chairman since March 1994. He began
work in the construction industry in the late 1950s. He served as Chief
Executive Officer of Beazer PLC, from 1968 to 1991, and Chairman of that company
from 1983 to 1991. Mr. Beazer is also a Director of Beazer Japan, Ltd., Seal
Mint Ltd., Jade Holdings Pte Ltd., Jade Technologies Singapore Pte Ltd. and U.S.
Industries, Inc.
THOMAS B. HOWARD, JR.
Former Chairman and Chief Executive Officer
Gifford-Hill & Company
Mr. Howard has been Director of the Company since 1995. He served as the
Chairman and Chief Executive Officer of Gifford-Hill & Company, a construction
and aggregates company, from 1969 to 1989. Gifford-Hill & Co. was acquired by
Beazer PLC in 1989 and Mr. Howard served as Chairman and Chief Executive Officer
of the successor company until 1992. During the period 1957 to 1969, Mr. Howard
held various positions with Vulcan Materials Company. Mr. Howard currently
serves as a Director of Lennox International, Inc. and on the Board of Trustees
of the Methodist Hospitals Foundation.
IAN J. MCCARTHY
President and Chief Executive Officer
Beazer Homes USA, Inc.
Mr. McCarthy has served as a Director and Chief Executive Officer since November
1993. Mr. McCarthy served as President of Beazer Homes, Inc. ("BHI") since
October 1992 and as President of Beazer Homes Holdings, Inc. ("BHH") since April
1993. From January 1991 to October 1992, he served as Executive Vice President
of BHI, responsible for all U.S. residential home building operations. During
the period May 1981 to January 1991, Mr. McCarthy was employed in Hong Kong and
Thailand as a Director of Beazer Far East, and from January 1980 to May 1981 was
employed by Kier Limited, a company engaged in the U.K. construction industry.
GEORGE W. MEFFERD
Former Group Vice President
Fluor Corporation
Newport Beach, California
Mr. Mefferd has served as a Director since March 1994. In 1986, Mr. Mefferd
served as Group Vice President and a Director of Fluor Corporation, an
engineering and construction company. From 1974 to 1986, Mr. Mefferd held
various positions with Fluor Corporation, an engineering and construction
company, including Senior Vice President - Finance, Treasurer, Group Vice
President and Chief Financial Officer.
D. E. MUNDELL
Chairman, ORIX USA Corporation
San Francisco, California
Mr. Mundell has served as a Director since March 1994. Mr. Mundell has served as
Chairman of ORIX USA Corporation, a financial services company, since January
1991. During the period 1959 to 1990, Mr. Mundell held various positions within
United States Leasing International, Inc., retiring as Chairman in 1990. He is
also a Director of Varian Associates and Stockton Holding, Ltd.
LARRY T. SOLARI
Former President, Building Materials Group, Domtar, Inc.
Ann Arbor, Michigan
Mr. Solari has served as a Director since March 1994. He is the Chairman and
CEOof Sequentia, Inc., Cleveland, OH. Mr. Solari was the President of the
Building Materials Group of Domtar, Inc. He was the President of the
Construction Products Group, Owens-Corning Fiberglass from 1986 to 1994. Mr.
Solari is a Director of Pacific Coast Building Products, Inc., Sequentia, Inc.
and Therma Tree, Inc. and he has been a Director of the Policy Advisory Board of
the Harvard Joint Center for Housing Studies and an Advisory Board Member of the
National Home Builders Association.
DAVID S. WEISS
Executive Vice President and Chief Financial Officer
Beazer Homes USA, Inc.
Mr. Weiss has served as a Director and as Executive Vice President and Chief
Financial Officer since November 1993. Previously he was Assistant Corporate
Controller of Hanson Industries from February 1993. He was Manager of Financial
Reporting for Colgate - Palmolive Company from November 1991 to February 1993
and was with the firm Deloitte & Touche from 1982 to 1991 at which time he
served as a Senior Audit Manager.
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
Beazer Homes USA, Inc.
5775 Peachtree Dunwoody Road
Suite C-550
Atlanta, GA 30342
Telephone: (404) 250-3420
GENERAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
INQUIRIES
Individuals seeking financial data should contact David S. Weiss, Executive Vice
President and Chief Financial Officer or Scott M. McKelvey, Assistant Corporate
Controller.
Others seeking information about the Company and its operations should contact
Ian J. McCarthy, President and Chief Executive Officer.
FORM 10 - K
Copies of Beazer Homes USA, Inc.'s Annual Report on Form 10-K as filed with the
United States Securities and Exchange Commission will be furnished upon written
request to David S. Weiss, Executive Vice President and Chief Financial Officer.
ANNUAL MEETING
The Annual Shareholders' meeting will be held at 9:00 am EST on February 5, 1998
at The Westin Atlanta North at Perimeter, 7 Concourse Parkway, Atlanta, Georgia
30328.
TRANSFER AGENT
First Chicago Trust Company of New York
525 Washington Boulevard
Suite 4694
Jersey City, NJ 07310
INDEPENDENT AUDITORS
Deloitte & Touche LLP
TRADING INFORMATION
Beazer Homes USA, Inc. lists its common shares on the New York Stock Exchange,
reading under the symbol BZH, and its preferred shares under the symbol BZH.PrA.
On December 2, 1997, the last reported sales price of Company's Common Stock on
the New York Stock Exchange was $18.25.
OWNERSHIP
On December 2, 1997, Beazer Homes USA, Inc. had approximately 70 shareholders
of record and 6,075,523 shares of Common Stock outstanding.
1997 ANNUAL REPORT -- GOING PLACES
BEAZER
HOMES
Beazer Homes USA, Inc.
5775 Peachtree Dunwoody Road
Suite C-550
Atlanta, GA 30342
404.250.3420