BEAZER HOMES USA, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2008
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-12822
BEAZER HOMES USA, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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58-2086934 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. employer
Identification no.) |
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1000 Abernathy Road, Suite 1200, Atlanta, Georgia
(Address of principal executive offices)
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30328
(Zip Code) |
(770) 829-3700
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to the filing requirements for the past 90 days.
YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act
(Check One):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
YES o NO x
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Class |
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Outstanding at May 9, 2008 |
Common Stock, $0.001 par value
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39,234,305 shares |
References to we, us, our, Beazer, Beazer Homes and the Company in this quarterly
report on Form 10-Q refer to Beazer Homes USA, Inc.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our
expectations or beliefs concerning future events, and it is possible that the results described in
this quarterly report will not be achieved. These forward-looking statements can generally be
identified by the use of statements that include words such as estimate, project, believe,
expect, anticipate, intend, plan, foresee, likely, will, goal, target or other
similar words or phrases. All forward-looking statements are based upon information available to
us on the date of this quarterly report.
These forward-looking statements are subject to risks, uncertainties and other factors, many of
which are outside of our control, that could cause actual results to differ materially from the
results discussed in the forward-looking statements, including, among other things, the matters
discussed in this quarterly report in the section captioned Managements Discussion and Analysis
of Financial Condition and Results of Operations. Additional information about factors that could
lead to material changes in performance is contained in Part I, Item 1A Risk Factors of our
Annual Report on Form 10-K for the fiscal year ended September 30, 2007. Such factors may include:
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the timing and final outcome of the United States Attorney investigation, the
Securities and Exchange Commissions (SEC) investigation and other state and federal
agency investigations, the putative class action lawsuits, the derivative claims,
multi-party suits and similar proceedings as well as the results of any other
litigation or government proceedings; |
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material weaknesses in our internal control over financial reporting; |
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additional asset impairment charges or writedowns; |
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economic changes nationally or in local markets, including changes in consumer
confidence, volatility of mortgage interest rates and inflation; |
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continued or increased downturn in the homebuilding industry; |
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estimates related to sales to be delivered in the future (backlog) are imprecise as
they are subject to various cancellation risks which cannot be fully controlled; |
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continued or increased disruption in the availability of mortgage financing; |
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our cost of and ability to access capital and otherwise meet our ongoing liquidity
needs including the impact of any further downgrades of our credit ratings; |
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potential inability to comply with covenants in our debt agreements; |
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continued negative publicity; |
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increased competition or delays in reacting to changing consumer preference in home
design; |
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shortages of or increased prices for labor, land or raw materials used in housing
production; |
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factors affecting margins such as decreased land values underlying land option
agreements, increased land development costs on projects under development or delays or
difficulties in implementing initiatives to reduce production and overhead cost
structure; |
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the performance of our joint ventures and our joint venture partners; |
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the impact of construction defect and home warranty claims and the cost and
availability of insurance, including the availability of insurance for the presence of
moisture intrusion; |
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a material failure on the part of our subsidiary Trinity Homes LLC to satisfy the
conditions of the class action settlement agreement, including assessment and
remediation with respect to moisture intrusion related issues; |
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delays in land development or home construction resulting from adverse weather
conditions; |
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potential delays or increased costs in obtaining necessary permits as a result of
changes to, or complying with, laws, regulations, or governmental policies and possible
penalties for failure to comply with such laws, regulations and governmental policies; |
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effects of changes in accounting policies, standards, guidelines or principles; or |
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terrorist acts, acts of war and other factors over which the Company has little or
no control. |
Any forward-looking statement speaks only as of the date on which such statement is made, and,
except as required by law, we undertake no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time and it is not possible
for management to predict all such factors.
2
BEAZER HOMES USA, INC.
FORM 10-Q
INDEX
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
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March 31, |
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September 30, |
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2008 |
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2007 |
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ASSETS |
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Cash and cash equivalents |
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$ |
273,670 |
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$ |
454,337 |
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Restricted cash |
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3,592 |
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5,171 |
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Accounts receivable |
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62,108 |
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45,501 |
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Income tax receivable |
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158,150 |
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63,981 |
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Inventory |
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Owned inventory |
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2,074,151 |
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2,537,791 |
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Consolidated inventory not owned |
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194,024 |
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237,382 |
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Total inventory |
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2,268,175 |
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2,775,173 |
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Residential mortgage loans available-for-sale |
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93 |
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781 |
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Investments in unconsolidated joint ventures |
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54,834 |
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109,143 |
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Deferred tax assets |
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391,458 |
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232,949 |
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Property, plant and equipment, net |
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56,342 |
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71,682 |
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Goodwill |
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20,508 |
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68,613 |
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Other assets |
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78,095 |
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102,690 |
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Total assets |
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$ |
3,367,025 |
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$ |
3,930,021 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Trade accounts payable |
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$ |
85,047 |
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$ |
118,030 |
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Other liabilities |
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420,988 |
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453,089 |
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Obligations related to consolidated inventory not owned |
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138,351 |
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177,931 |
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Senior Notes (net of discounts of $2,799 and $3,033, respectively) |
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1,522,201 |
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1,521,967 |
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Junior subordinated notes |
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103,093 |
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103,093 |
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Other secured notes payable |
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50,507 |
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118,073 |
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Model home financing obligations |
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96,422 |
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114,116 |
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Total liabilities |
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2,416,609 |
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2,606,299 |
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Stockholders equity: |
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Preferred stock (par value $.01 per share, 5,000,000 shares
authorized, no shares issued) |
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Common stock (par value $0.001 per share, 80,000,000 shares
authorized, 42,572,959 and 42,597,229 issued and
39,234,305 and 39,261,721 outstanding, respectively) |
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43 |
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43 |
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Paid-in capital |
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548,652 |
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543,705 |
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Retained earnings |
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585,628 |
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963,869 |
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Treasury stock, at cost (3,338,654 and 3,335,508 shares, respectively) |
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(183,907 |
) |
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(183,895 |
) |
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Total stockholders equity |
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950,416 |
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1,323,722 |
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Total liabilities and stockholders equity |
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$ |
3,367,025 |
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$ |
3,930,021 |
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See Notes to Unaudited Condensed Consolidated Financial Statements.
4
BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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March 31, |
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March 31, |
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2008 |
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2007 |
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2008 |
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2007 |
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Total revenue |
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$ |
405,417 |
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$ |
823,604 |
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$ |
906,071 |
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$ |
1,619,592 |
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Home construction and land sales expenses |
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379,424 |
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706,653 |
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815,740 |
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1,375,198 |
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Inventory impairments and option contract abandonments |
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187,860 |
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105,245 |
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356,372 |
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245,612 |
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Gross (loss) profit |
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(161,867 |
) |
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11,706 |
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(266,041 |
) |
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(1,218 |
) |
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Selling, general and administrative expenses |
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74,017 |
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96,604 |
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162,179 |
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205,996 |
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Depreciation and amortization |
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6,226 |
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7,619 |
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12,204 |
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15,065 |
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Goodwill impairment |
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48,105 |
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48,105 |
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Operating loss |
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(290,215 |
) |
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(92,517 |
) |
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(488,529 |
) |
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(222,279 |
) |
Equity in loss of unconsolidated joint ventures |
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(40,361 |
) |
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(3,713 |
) |
|
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(56,501 |
) |
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(6,073 |
) |
Other (expense) income, net |
|
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(4,569 |
) |
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3,115 |
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(7,418 |
) |
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5,206 |
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Loss from continuing operations before income taxes |
|
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(335,145 |
) |
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(93,115 |
) |
|
|
(552,448 |
) |
|
|
(223,146 |
) |
Benefit from income taxes |
|
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(106,422 |
) |
|
|
(35,044 |
) |
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(186,064 |
) |
|
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(83,687 |
) |
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Loss from continuing operations |
|
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(228,723 |
) |
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|
(58,071 |
) |
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(366,384 |
) |
|
|
(139,459 |
) |
(Loss) income from discontinued operations, net of tax |
|
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(1,170 |
) |
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|
880 |
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(1,745 |
) |
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2,365 |
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Net loss |
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(229,893 |
) |
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$ |
(57,191 |
) |
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$ |
(368,129 |
) |
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$ |
(137,094 |
) |
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Weighted average number of shares: |
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Basic |
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38,548 |
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38,427 |
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38,548 |
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38,353 |
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Diluted |
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38,548 |
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38,427 |
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38,548 |
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38,353 |
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Earnings
(loss) per share: |
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Basic loss per share from continuing operations |
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$ |
(5.93 |
) |
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$ |
(1.51 |
) |
|
$ |
(9.50 |
) |
|
$ |
(3.64 |
) |
Basic (loss)
earnings per share from discontinued operations |
|
$ |
(0.03 |
) |
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$ |
0.02 |
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|
$ |
(0.05 |
) |
|
$ |
0.06 |
|
Basic loss per share |
|
$ |
(5.96 |
) |
|
$ |
(1.49 |
) |
|
$ |
(9.55 |
) |
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$ |
(3.57 |
) |
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Diluted loss per share from continuing operations |
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$ |
(5.93 |
) |
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$ |
(1.51 |
) |
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$ |
(9.50 |
) |
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$ |
(3.64 |
) |
Diluted (loss)
earnings per share from discontinued operations |
|
$ |
(0.03 |
) |
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$ |
0.02 |
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$ |
(0.05 |
) |
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$ |
0.06 |
|
Diluted loss per share |
|
$ |
(5.96 |
) |
|
$ |
(1.49 |
) |
|
$ |
(9.55 |
) |
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$ |
(3.57 |
) |
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Cash dividends per share |
|
$ |
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$ |
0.10 |
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$ |
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$ |
0.20 |
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See Notes to Unaudited Condensed Consolidated Financial Statements.
5
BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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Six Months Ended |
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March 31, |
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2008 |
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2007 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(368,129 |
) |
|
$ |
(137,094 |
) |
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities: |
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Depreciation and amortization |
|
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12,369 |
|
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|
15,289 |
|
Stock-based compensation expense |
|
|
5,241 |
|
|
|
3,927 |
|
Inventory impairments and option contract abandonments |
|
|
356,372 |
|
|
|
245,612 |
|
Goodwill impairment charge |
|
|
48,105 |
|
|
|
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Deferred income tax benefit |
|
|
(93,921 |
) |
|
|
(66,711 |
) |
Excess tax benefit (deficiency) from equity-based compensation |
|
|
388 |
|
|
|
(3,219 |
) |
Equity in loss of unconsolidated joint ventures |
|
|
56,501 |
|
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|
6,073 |
|
Cash distributions of income from unconsolidated joint ventures |
|
|
1,047 |
|
|
|
2,326 |
|
Changes in operating assets and liabilities: |
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(Increase) decrease in accounts receivable |
|
|
(14,663 |
) |
|
|
267,478 |
|
Increase in income tax receivable |
|
|
(94,169 |
) |
|
|
(23,423 |
) |
Decrease (increase) in inventory |
|
|
170,048 |
|
|
|
(2,216 |
) |
Decrease in residential mortgage loans available-for-sale |
|
|
688 |
|
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|
81,820 |
|
Decrease (increase) in other assets |
|
|
45,730 |
|
|
|
(21,432 |
) |
Decrease in trade accounts payable |
|
|
(33,240 |
) |
|
|
(52,688 |
) |
Decrease in other liabilities |
|
|
(113,708 |
) |
|
|
(115,611 |
) |
Other changes |
|
|
(6,305 |
) |
|
|
1,016 |
|
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|
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|
Net cash (used in) provided by operating activities |
|
|
(27,646 |
) |
|
|
201,147 |
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Cash flows from investing activities: |
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Capital expenditures |
|
|
(5,921 |
) |
|
|
(16,105 |
) |
Investments in unconsolidated joint ventures |
|
|
(9,665 |
) |
|
|
(16,906 |
) |
Changes in restricted cash |
|
|
1,579 |
|
|
|
(768 |
) |
Distributions from unconsolidated joint ventures |
|
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|
1,196 |
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Net cash used in investing activities |
|
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(14,007 |
) |
|
|
(32,583 |
) |
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Cash flows from financing activities: |
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Borrowings under credit facilities and warehouse line |
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|
91,258 |
|
Repayment of credit facilities and warehouse line |
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(176,789 |
) |
Repayment of other secured notes payable |
|
|
(99,785 |
) |
|
|
(6,445 |
) |
Repurchase of senior notes |
|
|
|
|
|
|
(20,563 |
) |
Borrowings under model home financing obligations |
|
|
|
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|
|
1,444 |
|
Repayment of model home financing obligations |
|
|
(17,694 |
) |
|
|
(4,862 |
) |
Debt issuance costs |
|
|
(21,135 |
) |
|
|
(319 |
) |
Proceeds from stock option exercises |
|
|
|
|
|
|
4,009 |
|
Common stock redeemed |
|
|
(12 |
) |
|
|
(140 |
) |
Excess tax benefit (deficiency) from equity-based compensation |
|
|
(388 |
) |
|
|
3,219 |
|
Dividends paid |
|
|
|
|
|
|
(7,806 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(139,014 |
) |
|
|
(116,994 |
) |
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(180,667 |
) |
|
|
51,570 |
|
Cash and cash equivalents at beginning of period |
|
|
454,337 |
|
|
|
167,570 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
273,670 |
|
|
$ |
219,140 |
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
6
BEAZER HOMES USA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of Beazer Homes USA, Inc.
(Beazer Homes or the Company) have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP) for interim financial information and
in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Such financial
statements do not include all of the information and disclosures required by accounting principles
generally accepted in the United States of America for complete financial statements. In our
opinion, all adjustments (consisting solely of normal recurring accruals) necessary for a fair
presentation have been included in the accompanying financial statements. For further information
and a discussion of our significant accounting policies other than as discussed below, refer to our
audited consolidated financial statements appearing in the Beazer Homes Annual Report on Form 10-K
for the fiscal year ended September 30, 2007 (the 2007 Annual Report).
Stock-Based Compensation. In the first quarter of fiscal 2006, we adopted Statement of Financial
Accounting Standards (SFAS) 123R, Share-Based Payment. SFAS 123R applies to new awards and to
awards modified, repurchased, or cancelled after October 1, 2005, as well as to the unvested
portion of awards outstanding as of October 1, 2005. We use the Black-Scholes model to value
stock-settled appreciation rights (SSARs) and stock option grants under SFAS 123R, and applied
the modified prospective method for existing grants which requires us to value grants made prior
to our adoption of SFAS 123R under the fair value method and expense the unvested portion over the
remaining vesting period. SFAS 123R also requires us to estimate forfeitures in calculating the
expense related to stock-based compensation. In addition, SFAS 123R requires us to reflect the
benefits of tax deductions in excess of recognized compensation cost as a financing cash inflow and
an operating cash outflow.
Nonvested stock granted to employees is valued based on the market price of the common stock on the
date of the grant. Performance based, nonvested stock granted to employees is valued using the
Monte Carlo valuation method. No performance-based nonvested stock was granted during the six
months ended March 31, 2008 or 2007.
Compensation cost arising from nonvested stock granted to employees and from non-employee stock
awards is recognized as an expense using the straight-line method over the vesting period. Unearned
compensation is included in paid-in capital in accordance with SFAS 123R. As of March 31, 2008,
there was $17.0 million of total unrecognized compensation cost related to nonvested stock. That
cost is expected to be recognized over a weighted average period of 3.1 years. For the three and
six months ended March 31, 2008, our total stock-based compensation expense, included in selling,
general and administrative expenses (SG&A), was approximately $3.4 million ($2.3 million net of
tax) and $5.2 million ($3.8 million net of tax), respectively. Stock-based compensation expense
for the three and six months ended March 31, 2007 was approximately $200,000 ($62,000 net of tax) and
$3.9 million ($2.7 million net of tax), respectively.
Activity relating to nonvested stock awards for the three and six months ended March 31, 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, 2008 |
|
|
March 31, 2008 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
|
Shares |
|
|
Fair Value |
|
Beginning of period |
|
|
854,213 |
|
|
$ |
47.39 |
|
|
|
905,898 |
|
|
$ |
48.42 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
26,411 |
|
|
|
8.49 |
|
Vested |
|
|
|
|
|
|
|
|
|
|
(28,531 |
) |
|
|
47.75 |
|
Forfeited |
|
|
(4,817 |
) |
|
|
44.02 |
|
|
|
(54,382 |
) |
|
|
45.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
|
849,396 |
|
|
$ |
47.71 |
|
|
|
849,396 |
|
|
$ |
47.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
addition, during the six months ended March 31, 2008, employees
surrendered 3,146 shares, to us in payment of minimum tax obligations upon the vesting of
nonvested stock under our stock incentive plans. We valued the stock at the
market price on the date of surrender, for an aggregate value of
approximately $26,000, or approximately $8.53 per share, respectively.
7
The fair value of each option/SSAR grant is estimated on the date of grant using the Black-Scholes
option-pricing model. Expected life of options and SSARs granted is generally computed using the
mid-point between the vesting period and contractual life of the options/SSARs granted. Expected
volatilities are based on the historical volatility of the Beazer Homes stock and other factors.
Expected discrete dividends of $0.00 per quarter (previously $0.10 per quarter as of September 30,
2007) are assumed in lieu of a continuously compounding dividend yield. There were no options or
SSARs grants in the six months ended March 31, 2008.
The following table summarizes stock options and SSARs outstanding as of March 31, 2008, as well as
activity during the three and six months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, 2008 |
|
|
March 31, 2008 |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Shares |
|
|
Exercise Price |
|
Outstanding at beginning of period |
|
|
1,950,233 |
|
|
$ |
45.11 |
|
|
|
2,052,379 |
|
|
$ |
45.01 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(25,918 |
) |
|
|
35.10 |
|
|
|
(128,064 |
) |
|
|
41.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
1,924,315 |
|
|
$ |
45.25 |
|
|
|
1,924,315 |
|
|
$ |
45.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
|
|
746,617 |
|
|
$ |
28.76 |
|
|
|
746,617 |
|
|
$ |
28.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest in the future |
|
|
1,568,126 |
|
|
$ |
42.05 |
|
|
|
1,568,126 |
|
|
$ |
42.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2008, the weighted-average remaining contractual life for all options/SSARs
outstanding, currently exercisable, and vested or expected to vest in the future was 4.66 years,
3.71 years and 5.47 years, respectively.
At March 31, 2008, 1,568,126 SSARs/options were vested or expected to vest in the future with a
weighted average exercise price of $42.05 and a weighted average expected life of 2.77 years. At
March 31, 2008, the aggregate intrinsic value of SSARs/options outstanding, vested and expected to
vest in the future and SSARs/options exercisable was approximately $62,000. The intrinsic value
of a stock option is the amount by which the market value of the underlying stock exceeds the
exercise price of the stock option. There were no option/SSAR exercises during the three or six
months ended March 31, 2008.
Recently Adopted Accounting Pronouncements. On October 1, 2007, the Company adopted the provisions
of Emerging Issues Task Force (EITF) Issue No. 06-8, Applicability of the Assessment of a Buyers
Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales
of Condominiums. EITF 06-8 states that the adequacy of the buyers continuing investment under
SFAS 66 should be assessed in determining whether to recognize profit under the
percentage-of-completion method on the sale of individual units in a condominium project. This
consensus requires that additional deposits be collected by developers of condominium projects that
wish to recognize profit during the construction period under the percentage-of-completion method.
EITF 06-8 is effective for fiscal years beginning after March 15, 2007. The adoption of EITF 06-8
did not have a material impact on our consolidated financial position, results of operations or
cash flows.
As
described in Note 8, on October 1, 2007, the Company adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109.
Recent Accounting Pronouncements Not Yet Adopted. In December 2007, the FASB issued SFAS 141
(revised 2007), Business Combinations. SFAS 141R amends and clarifies the accounting guidance for
the acquirers recognition and measurement of assets acquired, liabilities assumed and
noncontrolling interests of an acquiree in a business combination. SFAS 141R is effective for our
fiscal year ended September 30, 2009. We do not expect the adoption of SFAS 141R to have a
material impact on our consolidated financial statements.
8
In September 2006, the FASB issued SFAS 157, Fair Value Measurements, SFAS 157 provides guidance
for using fair value to measure assets and liabilities. SFAS 157 applies whenever other standards
require (or permit) assets or liabilities to be measured at fair value but does not expand the use
of fair value in any new circumstances. SFAS 157 includes provisions that require expanded
disclosure of the effect on earnings for items measured using unobservable data. SFAS 157 is
effective for fiscal years beginning after November 15, 2007 and for interim periods within those
fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date
of FASB Statement No. 157, delaying the effective date of certain non-financial assets and
liabilities to fiscal periods beginning after November 15, 2008. We are currently evaluating the
impact of adopting SFAS 157 on our consolidated financial condition and results of operations;
however, it is not expected to have a material impact on our consolidated financial position,
results of operations or cash flows.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an amendment of FASB Statement No. 115. SFAS 159 permits
companies to measure certain financial instruments and other items at fair value. SFAS 159 is
effective for our fiscal year beginning October 1, 2008. We are currently evaluating the impact of
adopting SFAS 159 on our consolidated financial condition and results of operations; however, it is
not expected to have a material impact on our consolidated financial position, results of
operations or cash flows.
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial
Statements an Amendment of ARB 51. SFAS 160 requires that a noncontrolling interest (formerly
minority interest) in a subsidiary be classified as equity and the amount of consolidated net
income specifically attributable to the noncontrolling interest be included in the consolidated
financial statements. SFAS 160 is effective for our fiscal year beginning October 1, 2009 and its
provisions will be applied retrospectively upon adoption. We are currently evaluating the impact
of adopting SFAS 160 on our consolidated financial condition and results of operations.
In December 2007, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB) 110 which expresses the views of the Staff regarding the use of the simplified method
(the mid-point between the vesting period and contractual life of the option) for plain vanilla
options in accordance with SFAS 123R. SAB 110 will allow the use of the simplified method beyond
December 31, 2007 under certain conditions including a companys inability to rely on historical
exercise data. We will consider SAB 110 for future grants.
Inventory Valuation Held for Development. Our homebuilding inventories that are accounted for
as held for development include land and home construction assets grouped together as communities.
Homebuilding inventories held for development are stated at cost (including direct construction
costs, capitalized indirect costs, capitalized interest and real estate taxes) unless facts and
circumstances indicate that the carrying value of the assets may not be recoverable. We assess
these assets periodically for recoverability in accordance with the provisions of SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets is measured by
comparing the carrying amount of an asset to future undiscounted cash flows expected to be
generated by the asset. If the expected undiscounted cash flows generated are expected to be less
than its carrying amount, an impairment charge should be recorded to write down the carrying amount
of such asset to its estimated fair value based on discounted cash flows.
We conduct a review of the recoverability of our homebuilding inventory held for development at the
community level as factors indicate that an impairment may exist. We evaluate, among other things,
the following information for each community:
|
|
|
Actual Net Contribution Margin (defined as homebuilding revenues less homebuiling
costs and direct selling expenses) for homes closed in the current fiscal quarter, fiscal
year to date and prior two fiscal quarters. Homebuilding costs include land and land
development costs (based upon an allocation of such costs, including costs to complete the
development, or specific lot costs), home construction costs (including an estimate of
costs, if any, to complete home construction), previously capitalized indirect costs
(principally for construction supervision), capitalized interest and estimated warranty
costs; |
|
|
|
|
Projected Net Contribution Margin for homes in backlog; |
|
|
|
|
Actual and trending new orders and cancellation rates; |
|
|
|
|
Actual and trending base home sales prices and sales incentives for home sales that
occurred in the prior two fiscal quarters that remain in backlog at the end of the fiscal
quarter and expected future homes sales prices and sales incentives and absorption over the
expected remaining life of the community; |
|
|
|
|
A comparison of our community to our competition to include, among other things, an
analysis of various product offerings, including the size and style of the homes currently
offered for sale, community amenity levels, availability of lots in our community and our
competitions, desirability and uniqueness of our community and other market factors; and |
|
|
|
|
Other events that may indicate that the carrying value may not be recoverable. |
9
In determining the recoverability of the carrying value of the assets of a community that we have
evaluated as requiring a test for impairment, significant quantitative and qualitative assumptions
are made relative to the future home sales prices, sales incentives, direct and indirect costs of
home construction and land development and the pace of new home orders. In addition, these
assumptions are dependent upon the specific market conditions and competitive factors for each
specific community and may differ greatly between communities within the same market and
communities in different markets. Our estimates are made using information available at the date of
the recoverability test, however, as facts and circumstances may change in future reporting
periods, our estimates of recoverability are subject to change.
For assets in communities for which the undiscounted future cash flows are less than the carrying
value, the carrying value of that community is written down to its then estimated fair value based
on discounted cash flows. The carrying value for assets in communities that were previously
impaired and continue to be classified as held for development is not written up for future
estimates of increases in fair value in future reporting periods.
The fair value of the assets held for development is estimated using the present value of the
estimated future cash flows using discount rates commensurate with the risk associated with the
underlying community assets. The discount rate used may be different for each community. The
factors considered when determining an appropriate discount rate for a community include, among
others: (1) community specific factors such as the number of lots in the community, the status of
land development in the community, the competitive factors influencing the sales performance of the
community and (2) overall market factors such as employment levels, consumer confidence and the
existing supply of new and used homes for sale. As of March 31, 2008, we used discount rates of
16% to 23% in our estimated discounted cash flow impairment calculations. We recorded impairments
on land held for development and homes under construction during the three and six months ended
March 31, 2008 of $119.0 million and $227.1 million, respectively. We recorded impairments on
inventory held for development of $82.2 million and $197.4 million during the three and six months
ended March 31, 2007, respectively.
Due to uncertainties in the estimation process, particularly with respect to projected home sales
prices and absorption rate, the timing and amount of the estimated future cash flows and discount
rates, it is reasonably possible that actual results could differ from the estimates used in our
historical analyses. Our assumptions about future home sales prices and absorption rates require
significant judgment because the residential homebuilding industry is cyclical and is highly
sensitive to changes in economic conditions. We calculated the estimated fair values of inventory
held for development that were evaluated for impairment based on current market conditions and
assumptions made by management relative to future results. Because the projected cash flows are
significantly impacted by changes in market conditions, it is reasonably possible that actual
results could differ materially from our estimates and result in additional impairments.
Asset Valuation Land Held for Sale. We record assets held for sale at the lower of the carrying
value or fair value less costs to sell in accordance with SFAS 144. The following criteria are
used to determine if land is held for sale:
|
|
|
management has the authority and commits to a plan to sell the land; |
|
|
|
|
the land is available for immediate sale in its present condition; |
|
|
|
|
there is an active program to locate a buyer and the plan to sell the land has been
initiated; |
|
|
|
|
the sale of the land is probable within one year; |
|
|
|
|
the land is being actively marketed at a reasonable sale price relative to its current
fair value; and |
|
|
|
|
it is unlikely that the plan to sell will be withdrawn or that significant changes to
the plan will be made. |
Additionally, in certain circumstances, we will re-evaluate the best use of an asset that is
currently being accounted for as held for development. In such instances, we will review, among
other things, the current and projected competitive circumstances of the community, including the
level of supply of new and used inventory, the level of sales absorptions by us and our
competition, the level of sales incentives required and the number of owned lots remaining in the
community. If, based on this
review, the foregoing criteria have been met at the end of the applicable reporting period, we
believe that the best use of the asset is the sale of all or a portion of the asset in its current
condition, then all or portions of the community are accounted for as held for sale.
In determining the fair value of the assets less cost to sell, we considered factors including
current sales prices for comparable assets in the area, recent market analysis studies, appraisals,
any recent legitimate offers, and listing prices of similar properties. If the estimated fair
value less cost to sell of an asset is less than its current carrying value, the asset is written
down to its estimated fair value less cost to sell. During the quarter ended and six months ended
March 31, 2008, we recorded inventory impairments on land held for sale of approximately $55.7
million and $89.1 million, respectively. During both the quarter ended and six months ended March
31, 2007, we recorded inventory impairments on land held for sale of approximately $4.0 million.
10
Due to uncertainties in the estimation process, it is reasonably possible that actual results could
differ from the estimates used in our historical analyses. Our assumptions about land sales prices
require significant judgment because the current market is highly sensitive to changes in economic
conditions. We calculated the estimated fair values of land held for sale based on current market
conditions and assumptions made by management, which may differ materially from actual results and
may result in additional impairments if market conditions continue to deteriorate.
Goodwill. Goodwill represents the excess of the purchase price over the fair value of assets
acquired. We test goodwill for impairment annually as of April 30 or more frequently if an event
occurs or circumstances indicate that the asset might be impaired. For purposes of goodwill
impairment testing, we compare the fair value of each reporting unit with its carrying amount,
including goodwill. Each of our operating divisions is considered a reporting unit. The fair value
of each reporting unit is determined based on expected discounted future cash flows. If the
carrying amount of a reporting unit exceeds its fair value, the goodwill within the reporting unit
may be potentially impaired. An impairment loss is recognized if the carrying amount of the
goodwill exceeds implied fair value of that goodwill. As a result of significantly less than
expected new orders in our prime selling season, which is our second fiscal quarter, significant
pricing pressures and additional incentives provided to homebuyers, our reforecasting of expected
future results of operations and increasing inventory impairment charges, we tested all remaining goodwill
balances for impairment as of March 31, 2008. We have estimated goodwill impairment charges
totaling $48.1 million relating to our reporting units in Arizona, Southern California, New Jersey
and Virginia. We will finalize our impairment calculations in the third quarter of fiscal 2008 in
connection with our annual goodwill impairment test as of April 30, 2008.
Goodwill impairment charges are reported in Corporate and unallocated and are not allocated to our
homebuilding segments. Goodwill balances by reportable segment as of September 30, 2007 and March
31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
Goodwill |
|
|
March 31, |
|
(in thousands) |
|
2007 |
|
|
Impairment |
|
|
2008 |
|
West |
|
$ |
29,034 |
|
|
$ |
(29,034 |
) |
|
$ |
|
|
Mid-Atlantic |
|
|
23,286 |
|
|
|
(19,071 |
) |
|
|
4,215 |
|
Southeast |
|
|
5,044 |
|
|
|
|
|
|
|
5,044 |
|
Other Homebuilding |
|
|
11,249 |
|
|
|
|
|
|
|
11,249 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
68,613 |
|
|
$ |
(48,105 |
) |
|
$ |
20,508 |
|
|
|
|
|
|
|
|
|
|
|
Inherent in our fair value determinations are certain judgments and estimates, including
projections of future cash flows, the discount rate reflecting the risk inherent in future cash
flows, our interpretation of current economic indicators and market valuations and our strategic
plans with regard to our operations. A change in these underlying assumptions would cause a change
in the results of the tests, which could cause the fair value of one or more reporting units to be
more or less than their respective carrying amounts. In addition, to the extent that there are
significant changes in market conditions or overall economic conditions or our strategic plans
change, it is possible that our conclusion regarding goodwill impairment could change, which could
have a material adverse effect on our financial position and results of operations. Impairment
charges related to reporting units which are not currently impaired may occur in the future if
further market deterioration occurs resulting in a revised analysis of fair value.
11
(2) Supplemental Cash Flow Information
During the six months ended March 31, we paid interest of $87.3 million in 2008 and $74.4 million
in 2007. In addition, we paid income taxes of $0.8 million in 2008 and $14.7 million in 2007. We
also had the following non-cash activity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
Supplemental disclosure of non-cash activity: |
|
|
|
|
|
|
|
|
(Decrease) Increase in consolidated
inventory not owned |
|
$ |
(39,580 |
) |
|
$ |
4,926 |
|
Land acquired through issuance of
notes payable |
|
|
32,219 |
|
|
|
35,513 |
|
Issuance of stock under deferred
bonus stock plans |
|
|
94 |
|
|
|
98 |
|
(3) Inventory
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
September 30, |
|
(in thousands) |
|
2008 |
|
|
2007 |
|
Homes under construction |
|
$ |
669,332 |
|
|
$ |
787,102 |
|
Development projects in progress |
|
|
1,115,854 |
|
|
|
1,546,389 |
|
Unimproved land held for future development |
|
|
8,536 |
|
|
|
11,101 |
|
Land Held for Sale |
|
|
163,325 |
|
|
|
49,473 |
|
Model homes |
|
|
117,104 |
|
|
|
143,726 |
|
|
|
|
|
|
|
|
Total Owned Inventory |
|
$ |
2,074,151 |
|
|
$ |
2,537,791 |
|
|
|
|
|
|
|
|
Homes under construction includes homes finished and ready for delivery and homes in various stages
of construction. We had 439 ($94.9 million) and 862 ($179.4 million) completed homes that were not
subject to a sales contract at March 31, 2008 and September 30, 2007, respectively. Development
projects in progress consist principally of land and land improvement costs. Certain of the fully
developed lots in this category are reserved by a deposit or sales contract.
Total owned inventory, by reportable segment, is set forth in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
September 30, 2007 |
|
|
|
Held for |
|
|
Land Held for |
|
|
Total Owned |
|
|
Held for |
|
|
Land Held for |
|
|
Total Owned |
|
|
|
Development |
|
|
Sale |
|
|
Inventory |
|
|
Development |
|
|
Sale |
|
|
Inventory |
|
West Segment |
|
$ |
673,338 |
|
|
$ |
34,806 |
|
|
$ |
708,144 |
|
|
$ |
868,675 |
|
|
$ |
35,578 |
|
|
$ |
904,253 |
|
Mid-Atlantic Segment |
|
|
413,862 |
|
|
|
20,868 |
|
|
|
434,730 |
|
|
|
439,712 |
|
|
|
|
|
|
|
439,712 |
|
Florida Segment |
|
|
128,476 |
|
|
|
13,442 |
|
|
|
141,918 |
|
|
|
203,417 |
|
|
|
|
|
|
|
203,417 |
|
Southeast Segment |
|
|
247,856 |
|
|
|
60,047 |
|
|
|
307,903 |
|
|
|
373,111 |
|
|
|
1,407 |
|
|
|
374,518 |
|
Other |
|
|
278,828 |
|
|
|
34,162 |
|
|
|
312,990 |
|
|
|
407,194 |
|
|
|
12,488 |
|
|
|
419,682 |
|
Unallocated |
|
|
168,466 |
|
|
|
|
|
|
|
168,466 |
|
|
|
196,209 |
|
|
|
|
|
|
|
196,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,910,826 |
|
|
$ |
163,325 |
|
|
$ |
2,074,151 |
|
|
$ |
2,488,318 |
|
|
$ |
49,473 |
|
|
$ |
2,537,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
The following tables set forth, by reportable segment, the inventory impairments and lot option
abandonment charges recorded (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Development projects and homes in process (Held for Development) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
59,975 |
|
|
$ |
32,486 |
|
|
$ |
125,421 |
|
|
$ |
82,909 |
|
Mid-Atlantic |
|
|
26,877 |
|
|
|
23,809 |
|
|
|
49,878 |
|
|
|
34,979 |
|
Florida |
|
|
9,046 |
|
|
|
3,341 |
|
|
|
12,139 |
|
|
|
37,973 |
|
Southeast |
|
|
10,067 |
|
|
|
2,198 |
|
|
|
17,610 |
|
|
|
4,871 |
|
Other |
|
|
4,225 |
|
|
|
15,550 |
|
|
|
5,324 |
|
|
|
24,490 |
|
Unallocated |
|
|
8,848 |
|
|
|
4,841 |
|
|
|
16,737 |
|
|
|
12,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
119,038 |
|
|
$ |
82,225 |
|
|
$ |
227,109 |
|
|
$ |
197,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Held for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
804 |
|
|
$ |
3,105 |
|
|
$ |
804 |
|
|
$ |
3,105 |
|
Mid-Atlantic |
|
|
9,171 |
|
|
|
|
|
|
|
9,171 |
|
|
|
|
|
Florida |
|
|
23,035 |
|
|
|
|
|
|
|
23,035 |
|
|
|
|
|
Southeast |
|
|
980 |
|
|
|
500 |
|
|
|
15,453 |
|
|
|
500 |
|
Other |
|
|
21,663 |
|
|
|
350 |
|
|
|
40,630 |
|
|
|
350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
55,653 |
|
|
$ |
3,955 |
|
|
$ |
89,093 |
|
|
$ |
3,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lot Option Abandonments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
783 |
|
|
$ |
9,002 |
|
|
$ |
828 |
|
|
$ |
11,758 |
|
Mid-Atlantic |
|
|
4,862 |
|
|
|
2,410 |
|
|
|
6,658 |
|
|
|
4,697 |
|
Florida |
|
|
3,273 |
|
|
|
3,761 |
|
|
|
3,748 |
|
|
|
14,272 |
|
Southeast |
|
|
3,965 |
|
|
|
2,288 |
|
|
|
27,390 |
|
|
|
3,249 |
|
Other |
|
|
286 |
|
|
|
1,604 |
|
|
|
1,546 |
|
|
|
10,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
13,169 |
|
|
$ |
19,065 |
|
|
$ |
40,170 |
|
|
$ |
44,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
187,860 |
|
|
$ |
105,245 |
|
|
$ |
356,372 |
|
|
$ |
245,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The inventory impaired during the three and six months ended March 31, 2008 represented 3,534 and
6,420 lots in 85 and 147 communities with an estimated fair value of $205.5 million and $392.0
million, respectively. The impairments recorded on our held for development inventory, for all
segments, primarily resulted from the continued significant decline in the homebuilding environment
that negatively impacted the sales prices of homes and increased the sales incentives offered to
potential homebuyers in our efforts to increase home sales absorptions. Our West and Mid-Atlantic
segments experienced the most significant amount of inventory impairments as compared to our other
homebuilding segments due to the fact that the number of owned land and lots in the West and
Mid-Atlantic segments comprise approximately 29% and 10%, respectively, of our total land and lots
owned as of March 31, 2008 and approximately 35% and 22%, respectively, of the dollar value of our
held for development inventory as of March 31, 2008. In addition, our homebuilding markets that
comprise our West segment consist of markets that once experienced the most significant home price
appreciation in the nation during the 2004 through 2006 periods which was driven in large part by
speculative purchases and the availability of mortgage credit during those time periods which are
no longer present in the marketplace. The decline in the availability of mortgage loan products
and the exit of speculators from the market, among other factors, contributed to the significant
increase in the supply of new and used homes on the market for sale.
The impairments recorded in our other segments are primarily as a result of continued price
competition brought on by the significant increase in new and resale home inventory during the
three and six months ended March 31, 2008 that has resulted in increased sales incentives and home
sales price declines as we attempt to increase new orders and generate cash to the Company.
There was a significant increase in impairments related to properties held for sale during the
three and six months ended March 31, 2008 as a result of the Companys decision to reduce its
inventory risk in general and to exit markets no longer viewed as strategic.
13
We acquire 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, both with and without specific performance provisions, purchase of the
properties is contingent upon satisfaction of certain requirements by us and the sellers. Our
obligation with respect to options with specific performance provisions is included in our
consolidated balance sheets in other liabilities. Under option contracts without specific
performance obligations, our liability is generally limited to forfeiture of the non-refundable
deposits, letters of credit
and other non-refundable amounts incurred, which aggregated approximately $110.4 million at March
31, 2008. This amount includes non-refundable letters of credit of approximately $17.1 million.
The total remaining purchase price, net of cash deposits, committed under all options was $1.2
billion as of March 31, 2008. Only $71.8 million of the total remaining purchase price contains
specific performance clauses which may require us to purchase the land or lots upon the land seller
meeting certain obligations.
In addition, we have also completed a strategic review of all of the markets within our
homebuilding segments and the communities within each of those markets with an initial focus on the
communities for which land has been secured with option purchase contracts. As a result of this
review, we have determined the proper course of action with respect to a number of communities
within each homebuilding segment was to abandon the remaining lots under option and to write-off
the deposits securing the option takedowns, as well as preacquisition costs. The total
abandonments recorded for the three months and six months ended March 31, 2008 were $13.2 million
and $40.2 million representing 12 and 40 communities, respectively, with the Southeast segment
representing 68.2% of the six-month abandonments as we made the decision to abandon certain option
contracts that no longer fit in our long-term strategic plan.
We expect to exercise substantially all of our option contracts with specific performance
obligations and, subject to market conditions, most of our option contracts without specific
performance obligations. Various factors, some of which are beyond our control, such as market
conditions, weather conditions and the timing of the completion of development activities, will
have a significant impact on the timing of option exercises or whether land options will be
exercised.
Certain of our option contracts are with sellers who are deemed to be variable interest entities
(VIEs) under FASB Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51 (FIN 46R). FIN 46R defines a VIE as an entity with insufficient
equity investment to finance its planned activities without additional financial support or an
entity in which the equity investors lack certain characteristics of a controlling financial
interest. Pursuant to FIN 46R, an enterprise that absorbs a majority of the expected losses or
receives a majority of the expected residual returns of a VIE is deemed to be the primary
beneficiary of the VIE and must consolidate the VIE.
We have determined that we are the primary beneficiary of certain of these option contracts. Our
risk is generally limited to the option deposits that we pay, and creditors of the sellers
generally have no recourse to the general credit of the Company. Although we do not have legal
title to the optioned land, for those option contracts for which we are the primary beneficiary, we
are required to consolidate the land under option at fair value. We believe that the exercise
prices of our option contracts approximate their fair value. Our consolidated balance sheets at
March 31, 2008 and September 30, 2007 reflect consolidated inventory not owned of $194.0 million
and $237.4 million, respectively. We consolidated $76.5 million and $92.3 million of lot option
agreements as consolidated inventory not owned pursuant to FIN 46R as of March 31, 2008 and
September 30, 2007, respectively. In addition, as of March 31, 2008 and September 30, 2007, we
recorded $117.5 million and $145.1 million, respectively, of land under the caption consolidated
inventory not owned related to lot option agreements in accordance with SFAS 49, Product Financing
Arrangements. Obligations related to consolidated inventory not owned totaled $138.4 million at
March 31, 2008 and $177.9 million at September 30, 2007. The difference between the balances of
consolidated inventory not owned and obligations related to consolidated inventory not owned
represents cash deposits paid under the option agreements.
(4) Investments in Unconsolidated Joint Ventures
As of March 31, 2008 we participated in 19 land development joint ventures in which Beazer Homes
had less than a controlling interest. Our joint ventures are typically entered into with
developers, other homebuilders and financial partners to develop finished lots for sale to the
joint ventures members and other third parties. Equity in loss of unconsolidated joint
ventures was $(40.4) million and $(3.7) million for the three months ended March 31, 2008 and 2007
and $(56.5) million and $(6.1) million for the six months ended March 31, 2008 and 2007,
respectively. Equity in loss of unconsolidated joint ventures for three and six months ended March
31, 2008 included the writedown of our investment in certain of our joint ventures, reflecting
$31.7 million and $44.6 million, respectively, of impairments of inventory held within those
ventures in accordance with APB 18, The Equity Method of Accounting for Investments in Common
Stock. Joint venture impairments totaled $3.1 million for the three and six months ended March 31,
2007. Our joint ventures typically obtain secured acquisition and development financing. The
following table presents our investment in and guarantees under our unconsolidated joint ventures,
as well as total equity and outstanding borrowings of these joint ventures as of March 31, 2008 and
September 30, 2007:
14
|
|
|
|
|
|
|
|
|
(in thousands) |
|
March 31, 2008 |
|
|
September 30, 2007 |
|
Beazers investment in joint ventures |
|
$ |
54,834 |
|
|
$ |
109,143 |
|
Total equity of joint ventures |
|
|
374,979 |
|
|
|
523,597 |
|
Total outstanding borrowings of joint ventures |
|
|
642,808 |
|
|
|
785,437 |
|
Beazers portion of loan to maintenance guarantees |
|
|
6,101 |
|
|
|
7,717 |
|
Beazers portion of repayment guarantees |
|
|
38,993 |
|
|
|
42,307 |
|
The decrease in our investment in these joint ventures from September 30, 2007 to March 31, 2008
relates primarily to $44.6 million of impairments of inventory held within the joint ventures. In connection with the exchange of our
interest in these two joint ventures with our joint venture partner, we also acquired that partners
interest in two separate joint ventures. In connection with the acquisition of one of these joint
ventures, we assumed the joint ventures debt of approximately $22.7 million.
At March 31, 2008 and September 30, 2007, total borrowings outstanding above, include $327.9
million and $450.6 million related to one joint venture in which we are a 2.58% partner. In some
instances, Beazer Homes and our joint venture partners have provided varying levels of guarantees
of debt of our unconsolidated joint ventures. At March 31, 2008, these guarantees included, for
certain joint ventures, construction completion guarantees, loan to value maintenance agreements,
repayment guarantees and environmental indemnities. See Note 9 for further discussion of these
guarantees.
During the three months ended March 31, 2008, the lender to one of the Companys joint ventures, in
which the Company has a 2.58% partnership interest, notified the joint venture partners that it
believes the joint venture is in default of certain joint venture loan agreements as a result of
certain of the Companys joint venture partners not complying with all aspects of the joint
ventures loan agreements. The lender has not taken any action against the joint venture or the
Company at this time. The joint venture partners are currently in discussions with the lender.
The Companys share of the debt is approximately
$9.5 million at March 31, 2008 with a total repayment
guarantee of $15.1 million. Our equity interest at March 31, 2008
was $7.9 million in this joint venture.
(5) Interest
The following table sets forth certain information regarding interest (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Capitalized interest in inventory, beginning of period |
|
$ |
86,862 |
|
|
$ |
89,601 |
|
|
$ |
87,560 |
|
|
$ |
78,996 |
|
Interest incurred and capitalized |
|
|
21,883 |
|
|
|
37,899 |
|
|
|
50,987 |
|
|
|
74,708 |
|
Capitalized interest impaired |
|
|
(5,641 |
) |
|
|
(2,965 |
) |
|
|
(10,593 |
) |
|
|
(5,826 |
) |
Capitalized interest amortized to house
construction and land sales expenses |
|
|
(24,439 |
) |
|
|
(31,296 |
) |
|
|
(49,289 |
) |
|
|
(54,639 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest in inventory, end of period |
|
$ |
78,665 |
|
|
$ |
93,239 |
|
|
$ |
78,665 |
|
|
$ |
93,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
(6) Earnings Per Share and Stockholders Equity
Basic and diluted earnings per share were calculated as follows (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Loss from continuing operations |
|
$ |
(228,723 |
) |
|
$ |
(58,071 |
) |
|
$ |
(366,384 |
) |
|
$ |
(139,459 |
) |
(Loss) income from discontinued operations, net of tax |
|
|
(1,170 |
) |
|
|
880 |
|
|
|
(1,745 |
) |
|
|
2,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(229,893 |
) |
|
$ |
(57,191 |
) |
|
$ |
(368,129 |
) |
|
$ |
(137,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
38,548 |
|
|
|
38,427 |
|
|
|
38,548 |
|
|
|
38,353 |
|
Diluted |
|
|
38,548 |
|
|
|
38,427 |
|
|
|
38,548 |
|
|
|
38,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share from continuing operations |
|
$ |
(5.93 |
) |
|
$ |
(1.51 |
) |
|
$ |
(9.50 |
) |
|
$ |
(3.64 |
) |
Basic (loss)
earnings per share from discontinued operations |
|
$ |
(0.03 |
) |
|
$ |
0.02 |
|
|
$ |
(0.05 |
) |
|
$ |
0.06 |
|
Basic loss per share |
|
$ |
(5.96 |
) |
|
$ |
(1.49 |
) |
|
$ |
(9.55 |
) |
|
$ |
(3.57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share from continuing operations |
|
$ |
(5.93 |
) |
|
$ |
(1.51 |
) |
|
$ |
(9.50 |
) |
|
$ |
(3.64 |
) |
Diluted
(loss) earnings per share from discontinued operations |
|
$ |
(0.03 |
) |
|
$ |
0.02 |
|
|
$ |
(0.05 |
) |
|
$ |
0.06 |
|
Diluted loss per share |
|
$ |
(5.96 |
) |
|
$ |
(1.49 |
) |
|
$ |
(9.55 |
) |
|
$ |
(3.57 |
) |
In
computing diluted loss per share for the three and six months ended
March 31, 2008 and 2007, all common
stock equivalents were excluded from the computation of diluted loss per share as a result of their
anti-dilutive effect.
(7) Borrowings
At March 31, 2008 and September 30, 2007 we had the following borrowings (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
September 30, |
|
|
|
Maturity Date |
|
2008 |
|
|
2007 |
|
Revolving Credit Facility |
|
August 2009 |
|
$ |
|
|
|
$ |
|
|
8 5/8% Senior Notes* |
|
May 2011 |
|
|
180,000 |
|
|
|
180,000 |
|
8 3/8% Senior Notes* |
|
April 2012 |
|
|
340,000 |
|
|
|
340,000 |
|
6 1/2% Senior Notes* |
|
November 2013 |
|
|
200,000 |
|
|
|
200,000 |
|
6 7/8% Senior Notes* |
|
July 2015 |
|
|
350,000 |
|
|
|
350,000 |
|
8 1/8% Senior Notes* |
|
June 2016 |
|
|
275,000 |
|
|
|
275,000 |
|
4 5/8% Convertible Senior Notes* |
|
June 2024 |
|
|
180,000 |
|
|
|
180,000 |
|
Junior subordinated notes |
|
July 2036 |
|
|
103,093 |
|
|
|
103,093 |
|
Other secured notes payable |
|
Various Dates |
|
|
50,507 |
|
|
|
118,073 |
|
Model home financing obligations |
|
Various Dates |
|
|
96,422 |
|
|
|
114,116 |
|
Unamortized debt discounts |
|
|
|
|
(2,799 |
) |
|
|
(3,033 |
) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
1,772,223 |
|
|
$ |
1,857,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Collectively, the Senior Notes |
Warehouse Line Effective February 7, 2007, Beazer Mortgage amended its 364-day credit agreement
(the Warehouse Line) to extend its maturity date to February 8, 2008 and modify the maximum
available borrowing capacity to $100 million, subject to compliance with the mortgage loan
eligibility requirements as defined in the Warehouse Line. The Warehouse Line was secured by
certain mortgage loan sales and related property. The Warehouse Line was entered into with a
number of banks to fund the origination of residential mortgage loans. The maximum available
borrowing capacity was subsequently reduced through amendments down to $17 million as of September
30, 2007. We had no borrowings outstanding under the Warehouse Line as of September 30, 2007. The
Warehouse Line was not guaranteed by Beazer Homes USA, Inc. or any of its subsidiaries that are
guarantors of the Senior Notes or Revolving Credit Facility. Effective November 14, 2007, we
terminated the Warehouse Line, at which time there were no outstanding borrowings.
16
Revolving Credit Facility In July 2007, we replaced our former credit facility with a new $500
million, four-year unsecured revolving credit facility (the Revolving Credit Facility) with a
group of banks, which matures in 2011. The former credit facility included a $1 billion four-year
revolving credit facility which would have matured in August 2009. The Revolving Credit Facility
has a $350 million sublimit for the issuance of standby letters of credit. We have the option to
elect two types of loans under the Revolving Credit Facility
which incur interest as applicable based on either the Alternative Base Rate or the Applicable
Eurodollar Margin (both defined in the Revolving Credit Facility). The Revolving Credit Facility
contains various operating and financial covenants. Substantially all of our significant
subsidiaries are guarantors of the obligations under the Revolving
Credit Facility (see Note 12).
We fulfill our short-term cash requirements with cash generated from our operations and funds
available from our Revolving Credit Facility. There were no amounts outstanding under the
Revolving Credit Facility at March 31, 2008 or September 30, 2007; however, we had $68.0 million
and $133.3 million of letters of credit outstanding under the Revolving Credit Facility at March
31, 2008 and September 30, 2007, respectively.
On October 10, 2007, we entered into a waiver and amendment of our Revolving Credit Facility,
waiving events of default through May 15, 2008 under the facility arising from our failure to file
or deliver reports or other information we would be required to file with the SEC and our decision
to restate our financial statements. Under this and the October 26, 2007 amendments, any
obligations under the Revolving Credit Facility will be secured by certain assets and our ability
to borrow under this facility is subject to satisfaction of a secured borrowing base. We are
permitted to grow the borrowing base by adding additional cash and/or real estate as collateral
securing the Revolving Credit Facility. In addition, we obtained additional flexibility with
respect to our financial covenants in the Revolving Credit Facility. At March 31, 2008, we had
available borrowings of $18.9 million under the Revolving Credit Facility. On May 9, 2008, we
secured additional assets under the facility which increased our borrowing capacity to
approximately $55.0 million.
On May 13, 2008, we obtained a limited waiver which relaxed, through June 30, 2008, our minimum
consolidated tangible net worth and maximum leverage ratio requirements under our Revolving Credit
Facility. During the term of the waiver, the minimum consolidated tangible net worth shall not be
less than $700 million and the leverage ratio shall not exceed 2.50 to 1.00. We are currently
negotiating an amended covenant package with our bank group and expect to enter into an amendment
prior to finalizing our financial statements for the fiscal quarter ending June 30, 2008.
Senior Notes - The Senior Notes are unsecured obligations ranking pari passu with all other
existing and future senior indebtedness. Substantially all of our significant subsidiaries are
full and unconditional guarantors of the Senior Notes and are jointly and severally liable for
obligations under the Senior Notes and the Revolving Credit Facility. Each guarantor subsidiary is
a 100% owned subsidiary of Beazer Homes.
The indentures under which the Senior Notes were issued contain certain restrictive covenants,
including limitations on payment of dividends. At March 31, 2008, under the most restrictive
covenants of each indenture, no portion of our retained earnings was available for cash dividends
or for share repurchases. Each indenture provides that, in the event of defined changes in control
or if our consolidated tangible net worth falls below a specified level or in certain circumstances
upon a sale of assets, we are required to offer to repurchase certain specified amounts of
outstanding Senior Notes.
In March 2007, we voluntarily repurchased $10.0 million of our outstanding 8 5/8% Senior Notes and
$10.0 million of our outstanding 8 3/8% Senior Notes on the open market. The aggregate purchase
price was $20.6 million, or an average of 102.8% of the aggregate principal amount of the notes
repurchased, plus accrued and unpaid interest as of the purchase date. The repurchase of the notes
resulted in a $562,500 pretax loss during the second quarter of fiscal 2007. On March 28, 2007, we
repurchased an additional $10.0 million of our outstanding 8 5/8% Senior Notes which were cash
settled on April 2, 2007 at a purchase price of $9.85 million, or an average of 98.5% of the
aggregate principal amount of the notes repurchased, plus accrued and unpaid interest as of the
purchase date. The repurchase of the notes resulted in a $150,000 pre-tax gain during the third
quarter of fiscal 2007. Gains/losses from notes repurchased are included in other (expense) income,
net in the accompanying unaudited condensed consolidated statements of operations. Senior Notes
purchased by the Company were cancelled.
On October 26, 2007, we obtained consents from holders of our Senior Notes to approve amendments of
the indentures under which the Senior Notes were issued. These amendments restrict our ability to
secure additional debt in excess of $700 million until certain conditions are met and enable us to
invest up to $50 million in joint ventures. The consents also provided us with a waiver of any and
all defaults under the Senior Notes that may have occurred or may occur on or prior to May 15, 2008
relating to filing or delivering annual and quarterly financial statements. Fees and expenses
related to obtaining these consents totaled approximately $21 million. The recording of such fees
and expenses has been deferred and will be amortized as an adjustment to interest expense in
accordance with EITF 96-19 Debtors Accounting for a Modification or Exchange of Debt
Instruments.
17
Junior Subordinated Notes On June 15, 2006, we completed a private placement of $103.1 million of
unsecured junior subordinated notes which mature on July 30, 2036 and are redeemable at par on or
after July 30, 2011 and pay a fixed rate of 7.987% for the first ten years ending July 30, 2016.
Thereafter, the securities have a floating interest rate equal to three-month LIBOR plus 2.45% per
annum, resetting quarterly. These notes were issued to Beazer Capital Trust I, which
simultaneously issued, in a private transaction, trust preferred securities and common securities
with an aggregate value of $103.1 million to fund its purchase of these notes. The transaction is
treated as debt in accordance with GAAP. The obligations relating to these notes and the related
securities are subordinated to the Revolving Credit Facility and the Senior Notes.
On April 30, 2008, we received a default notice from The Bank of New York Trust Company, National
Association, the trustee under the indenture governing these junior subordinated notes. The notice
alleges that we are in default under the indenture because we have not yet furnished certain
required information (including our annual audited and quarterly unaudited financial statements).
The notice further alleges that this default will become an event of default under the indenture if
not remedied within 30 days. We expect to be able to cure this default on or before May 15, 2008.
Other Secured Notes Payable We periodically acquire land through the issuance of notes payable.
As of March 31, 2008 and September 30, 2007, we had outstanding notes payable of $50.5 million and
$118.1 million, respectively, primarily related to land acquisitions. These notes payable expire
at various times through 2010 and had fixed and variable rates ranging from 5.4% to 8.0% at March
31, 2008. These notes are secured by the real estate to which they relate. During the first six
months of fiscal 2008, we repaid $99.8 million of these secured notes payable. In connection with
the exchange of our interest in two joint ventures to our joint venture partner, we also acquired
that partners interest in two separate joint ventures. In connection with the acquisition of one
of these ventures, we assumed the joint ventures debt of approximately $22.7 million which is
included in other secured notes payable as of March 31, 2008.
Model Home Financing Obligations - Due to a continuing interest in certain model home
sale-leaseback transactions, we have recorded $96.4 million and $114.1 million of debt as of March
31, 2008 and September 30, 2007, respectively, related to these financing transactions in
accordance with SFAS 98 (As amended), Accounting for Leases. These model home transactions incur
interest at a variable rate of one-month LIBOR plus 450 basis points, 7.61% as of March 31, 2008,
and expire at various times through 2015.
Other than the addition of the model home financing obligations discussed above, there were no
material changes to the future maturities of our borrowings.
(8) Income Taxes
On October 1, 2007 the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes An Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in the financial statements in accordance
with SFAS 109, Accounting for Income Taxes. FIN 48 defines the threshold for recognizing the
benefits of tax return positions as well as guidance regarding the measurement of the resulting tax
benefits. FIN 48 requires a company to recognize for financial statement purposes the impact of a
tax position, if a tax return position is more likely than not to prevail (defined as a
likelihood of more than fifty percent of being sustained upon audit, based on the technical merits
of the tax position). FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. The cumulative effect of the
adoption of FIN 48 was recorded as a $10.1 million reduction to retained earnings as of October 1,
2007. The total amount of gross unrecognized tax benefits as of October 1, 2007 was $72.5 million
(which excludes interest, penalties, and the tax benefit relating to the deductibility of interest
and state income tax). The adoption of FIN 48 also increased our gross deferred tax assets by
approximately $65 million. The total amount of unrecognized tax benefits that, if recognized, would
affect the Companys effective tax rate was $26.5 million, as of October 1, 2007.
Since the adoption of FIN 48 on October 1, 2007, there have been no material changes to the
components of the Companys total unrecognized tax benefit, including the amounts that, if
recognized, would affect the Companys effective tax rate. It is reasonably possible that, within
the next 12 months, total unrecognized tax benefits may decrease as a result of the potential
resolution with the IRS relating to issues stemming from fiscal year 2003 and 2004 federal income
tax returns, in addition to the resolution of various state income tax audits and/or appeals. The
change that could occur within the next 12 months, however, cannot be estimated at this time. The
statute of limitations for the Companys major tax jurisdictions remains open for examination for
fiscal years 2003 through 2007.
18
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the
financial statements as a component of the income tax provision, consistent with the Companys
historical accounting policy. After the adoption of FIN 48, the total amount of gross accrued
interest and penalties was $19.3 million. The Company recorded an additional $0.9 million and $1.0
million of gross interest and penalties during the three and six months ended March 31, 2008,
respectively, in accordance with FIN 48, resulting in a $21.2 million accrued balance at March 31,
2008. The Companys liability for unrecognized tax benefits combined with accrued interest and
penalties is reflected as a component of other liabilities.
Primarily as a result of recording significant inventory impairment charges during fiscal 2007
and in the six months ended March 31, 2008, the balance of our deferred tax assets increased
substantially. The net deferred tax asset of $391.0 million as of March 31, 2008 assumes that the
value of these assets will be realized. In assessing the recoverability of deferred tax assets, we
analyze all evidence, both positive and negative. As of March 31, 2008, the positive evidence we
considered included (1) the cyclical nature of the homebuilding industry; (2) our long history of
profitability; (3) the determination that we are not in a cumulative loss position; (4) our
experience that no NOLs have expired unutilized; (5) our ability to carryback NOLs; and (6) the
steps we are taking to improve our future profitability. As of March 31, 2008, we considered the
negative evidence including (1) our first quarter fiscal 2008 loss and the expectation of losses in
the remainder of fiscal 2008 and (2) the uncertainty as to the timing of when the homebuilding
industry will rebound. After consideration of this evidence, we believe that as of March 31, 2008,
it is more likely than not that our net deferred tax assets are recoverable. If market conditions
within the homebuilding industry do not improve or continue to worsen and/or our assessment of the
positive and negative evidence changes, it may affect our ability to fully realize the value of
these assets, which may require a valuation adjustment and additional income tax expense in our
consolidated statements of operations, and such expense could be material.
Our income tax receivable was $158.2 million and $64.0 million as of March 31, 2008 and September
30, 2007, respectively. This receivable relates primarily to the carryback of losses in fiscal 2007
and the six months ended March 31, 2008 to open tax years in which we previously paid significant
income taxes.
(9) Contingencies
Beazer Homes and certain of its subsidiaries have been and continue to be named as defendants in
various construction defect claims, complaints and other legal actions that include claims related
to moisture intrusion.
Warranty Reserves We currently provide a limited warranty (ranging from one to two years)
covering workmanship and materials per our defined performance quality standards. In addition, we
provide a limited warranty (generally ranging from a minimum of five years up to the period covered
by the applicable statute of repose) covering only certain defined construction defects. We also
provide a defined structural element warranty with single-family homes and townhomes in certain
states.
Since we subcontract our homebuilding work to subcontractors who generally provide us with an
indemnity and a certificate of insurance prior to receiving payments for their work, many claims
relating to workmanship and materials are the primary responsibility of the subcontractors.
19
Our warranty reserves at March 31, 2008 and 2007 include accruals for Trinity Homes LLC (Trinity)
moisture intrusion issues discussed more fully below. Warranty reserves are included in other
liabilities and the provision for warranty accruals is included in home construction and land sales
expenses in the unaudited condensed consolidated financial statements. We record reserves covering
anticipated warranty expense for each home closed. Management reviews the adequacy of warranty
reserves each reporting period based on historical experience and managements estimate of the
costs to remediate the claims and adjusts these provisions accordingly. While we believe that our
warranty reserves are adequate, historical data and trends may not accurately predict actual
warranty costs, or future developments could lead to a significant change in the reserve. Our
warranty reserves, which include amounts related to the Trinity moisture intrusion issues discussed
below, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Balance at beginning of period |
|
$ |
48,956 |
|
|
$ |
93,840 |
|
|
$ |
57,053 |
|
|
$ |
99,030 |
|
Provisions (1) |
|
|
4,824 |
|
|
|
4,461 |
|
|
|
6,232 |
|
|
|
10,658 |
|
Payments |
|
|
(6,677 |
) |
|
|
(10,834 |
) |
|
|
(16,182 |
) |
|
|
(22,221 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
47,103 |
|
|
$ |
87,467 |
|
|
$ |
47,103 |
|
|
$ |
87,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Upon review of the adequacy of the warranty reserves, it was determined that the warranty
reserve as of March 31, 2008 and 2007, respectively, contained reserves in excess of anticipated
claims related to the Trinity moisture intrusion issues. As a result, the provision for warranty
reserves for the three and six months ended March 31, 2007 was reduced by $6.0 million and the
provision for warranty reserves for the three and six months ended March 31, 2008 was reduced by
$0.4 million and $1.0 million, respectively. |
Trinity Claims Beazer Homes and certain of our subsidiaries have been and continue to be named
as defendants in various construction defect claims, complaints and other legal actions that
include claims related to moisture intrusion. We have experienced a significant number of such
claims in our Midwest region and particularly with respect to homes built by Trinity, a subsidiary
which was acquired in the Crossmann acquisition in 2002.
As of March 31, 2008, there were four pending lawsuits related to such complaints received by
Trinity. All suits are by individual homeowners, and the cost to resolve these matters is not
expected to be material, either individually or in the aggregate. Additionally, a class action
suit was filed in the State of Indiana in August 2003 against Trinity Homes LLC. The parties in
the class action reached a settlement agreement which was approved by the court on October 20,
2004.
The settlement class includes, with certain exclusions, the current owners of all Trinity homes
that have brick veneer, where the closing of Trinitys initial sale of the home took place between
June 1, 1998 and October 31, 2002. The settlement agreement establishes an agreed protocol and
process for assessment and remediation of any external moisture intrusion issues at the homes which
includes, among other things, that the homes will be repaired at Trinitys expense. The settlement
agreement also provides for payment of plaintiffs attorneys fees and for Trinity to pay an agreed
amount for engineering inspection costs for each home for which a claim is filed under the
settlement.
Under the settlement, subject to Trinitys timely performance of the specified assessments and
remediation activities for homeowners who file claims, each homeowner releases Trinity, Beazer
Homes Investment, LLC and other affiliated companies, including Beazer Homes, from the claims
asserted in the class action lawsuit, claims arising out of external moisture intrusion, claims of
improper brick installation, including property damage claims, loss or diminution of property value
claims, and most personal injury claims, among others. No appeals of the courts order approving
the settlement were received by the court within the timeframe established by the court. The
Company sent out the claims notices on December 17, 2004, and the class members had until February
15, 2005 to file claims. A total of 1,310 valid claims were filed (of the 2,161 total class
members), of which 613 complaints had been received prior to our receipt of the claim notices.
Class members who did not file a claim by February 15, 2005 are no longer able to file a class
action claim under the settlement or pursue an individual claim against Trinity. As of March 31,
2008, we have completed remediation of 1,703 homes related to 1,838 total Trinity claims.
Our warranty reserves at March 31, 2008 and September 30, 2007 include accruals for our estimated
costs to assess and remediate all homes for which Trinity had received complaints related to
moisture intrusion. Warranty reserves also include accruals for class action claims received,
pursuant to the settlement discussed above, from class members who had not previously contacted
Trinity with complaints.
The cost to assess and remediate a home depends on the extent of moisture damage, if any, that the
home has incurred. Homes for which we receive complaints are classified into one of three
categories: 1) homes with no moisture damage, 2) homes with isolated moisture damage or 3) homes
with extensive moisture damage.
20
As of March 31, 2008 and September 30, 2007, we accrued for our estimated cost to remediate homes
that we had assessed and assigned to one of the above categories, as well as our estimated cost to
remediate those homes for which an assessment had not yet been performed. For purposes of our
accrual, we have historically assigned homes not yet assessed to categories based on our
expectations about the extent of damage and trends observed from the results of assessments
performed to date. In addition, our cost estimation process considers the subdivision of the
claimant along with the categorization discussed above. Once a home is categorized, detailed
budgets are used as the basis to prepare our estimated costs to remediate such home.
During fiscal 2004, we initiated a program under which we offered to repurchase a limited number of
homes from specific homeowners. The program was concluded during the first quarter of fiscal 2005.
We have repurchased a total of 54 homes under the program. During the six months ended March 31, 2008, the Company sold one of the repurchased homes, bringing
the total homes sold to date to 38. The remaining 15 homes were acquired for an aggregate purchase
price of $4.8 million and are included in owned inventory.
The following accruals at March 31, 2008 represent our best estimates of the costs to resolve all
asserted complaints associated with Trinity moisture intrusion issues. We regularly review our
estimate of these costs. Since the commencement of the remediation program, our remediation cost
per home has continued to decrease as homes requiring more extensive repairs were addressed first
and our internal processes and procedures, including enhanced contractor bid negotiations and
inspections, improved as experience gained in addressing these issues has yielded meaningful
benefits on a per home basis. Changes in the accrual for Trinity moisture intrusion issues during
the period were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Balance at beginning of period |
|
$ |
8,461 |
|
|
$ |
45,711 |
|
|
$ |
12,116 |
|
|
$ |
47,704 |
|
Provisions (Reductions) |
|
|
(358 |
) |
|
|
(6,000 |
) |
|
|
(970 |
) |
|
|
(6,000 |
) |
Payments |
|
|
(2,194 |
) |
|
|
(2,736 |
) |
|
|
(5,237 |
) |
|
|
(4,729 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
5,909 |
|
|
$ |
36,975 |
|
|
$ |
5,909 |
|
|
$ |
36,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual costs to assess and remediate homes in each category and subdivision, the extent of damage
to homes not yet assessed, estimates of costs to sell the remaining repurchased homes, and losses
on such sales could differ from our estimates. As a result, the costs to resolve existing
complaints could differ from our recorded accruals and have a material adverse effect on our
earnings in the periods in which the matters are resolved. Additionally, it is possible that we
will incur additional losses related to these matters, including additional losses related to homes
for which we have not yet received complaints.
Guarantees
Construction Completion Guarantees
We and our joint venture partners are generally obligated to the project lenders to complete land
development improvements and the construction of planned homes if the joint venture does not
perform the required development. Provided the joint venture and the partners are not in default
under any loan provisions, the project lenders would be obligated to fund these improvements
through any financing commitments available under the applicable loans.
Loan to Value Maintenance Agreements
We and our joint venture partners generally provide credit enhancements to acquisition, development
and construction borrowings in the form of loan to value maintenance agreements, which can limit
the amount of additional funding provided by the lenders (although not generally requiring
repayment of the borrowings) to the extent such borrowings plus construction completion costs
exceed a specified percentage of the value of the property securing the borrowings. During the six
months ended March 31, 2008 and 2007, we were not required to make any payments on the loan to
value maintenance guarantees. At March 31, 2008, we had total loan to value maintenance guarantees
of $6.1 million related to our unconsolidated joint venture borrowings.
Repayment Guarantees
We and our joint venture partners have repayment guarantees related to certain joint ventures
borrowings. These repayment guarantees require the repayment of all or a portion of the debt of
the unconsolidated joint venture in the event the joint venture defaults on its obligations under
the borrowing or files for bankruptcy. During the six months ended March 31, 2008, we were not
required to make payments related to any portion of the repayment guarantees. At March 31, 2008,
we had repayment guarantees of $39.0 million related to the borrowings on these applicable
unconsolidated joint ventures, some of which are only triggered upon bankruptcy of the joint
venture.
21
Environmental Indemnities
Additionally, we and our joint venture partners generally provide unsecured environmental
indemnities to joint venture project lenders. In each case, we have performed due diligence on
potential environmental risks. These indemnities obligate us to reimburse the project
lenders for claims related to environmental matters for which they are held responsible. During
the quarters ended March 31, 2008 and 2007, we were not required to make any payments related to
environmental indemnities.
In general, we have not recorded a liability for the non-contingent aspect of any of these
guarantees as such amounts are not material. In assessing the need to record a liability for the
contingent aspect of these guarantees in accordance with FIN 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, we
consider our historical experience in being required to perform under the guarantees, the fair
value of the collateral underlying these guarantees and the financial condition of the applicable
unconsolidated joint ventures. In addition, we monitor the fair value of the collateral of these
unconsolidated joint ventures to ensure that the related borrowings do not exceed the specified
percentage of the value of the property securing the borrowings. To date, we have not incurred any
obligations related to the aforementioned guarantees. Based on these considerations, we have
determined that it is remote that we will have to perform under the contingent aspects of these
guarantees and, as a result, have not recorded a liability for the contingent aspects of these
guarantees. To the extent the recording of a liability related to such guarantees would be
required, the recognition of such liability would result in an increase to the carrying value of
our investment in the associated joint venture.
Other Contingencies - We and certain of our subsidiaries have been named as defendants in various
claims, complaints and other legal actions, most relating to construction defects, moisture
intrusion and related mold claims and product liability. Certain of the liabilities resulting from
these actions are covered in whole or part by insurance. In our opinion, based on our current
assessment, the ultimate resolution of these matters will not have a material adverse effect on our
financial condition, results of operations or cash flows. We have accrued $17.6 million in other
liabilities related to these matters as of both March 31, 2008 and September 30, 2007.
Other Matters
In November 2003, Beazer Homes received a request for information from the EPA pursuant to Section
308 of the Clean Water Act seeking information concerning the nature and extent of storm water
discharge practices relating to certain of our projects completed or under construction. The EPA
has since requested information on additional projects and has conducted site inspections at a
number of locations. In certain instances, the EPA or the equivalent state agency has issued
Administrative Orders identifying alleged instances of noncompliance and requiring corrective
action to address the alleged deficiencies in storm water management practices. As of March 31,
2008, no monetary penalties had been imposed in connection with such Administrative Orders. The
EPA has reserved the right to impose monetary penalties at a later date, the amount of which, if
any, cannot currently be estimated. Beazer Homes has taken action to comply with the requirements
of each of the Administrative Orders and is working to otherwise maintain compliance with the
requirements of the Clean Water Act.
In 2006, we received two Administrative Orders issued by the New Jersey Department of Environmental
Protection. The Orders allege certain violations of a wetlands disturbance permits. The two Orders
assess proposed fines of $630,000 and $678,000, respectively. We have met with the Department to
discuss their concerns on the two affected projects and have requested hearings on both matters.
We believe that we have significant defenses to the alleged violations and intend to contest the
agencys findings and the proposed fines. We are currently pursuing settlement discussions with
the Department. A hearing before the judge has been postponed pending settlement discussions.
We had performance bonds and outstanding letters of credit of approximately $470.8 million and
$66.3 million, respectively, at March 31, 2008 related principally to our obligations to local
governments to construct roads and other improvements in various developments in addition to the
letters of credit of approximately $19.5 million relating to our land option contracts discussed in
Note 3. We do not believe that any such letters of credit or bonds are likely to be drawn upon.
22
Investigations and Litigation
We and our subsidiary, Beazer Mortgage Corporation, are under criminal and civil investigations by
the United States Attorneys office in the Western District of North Carolina, the SEC and other
federal and state agencies. We and certain of our current and former employees, officers and
directors have been named as defendants in securities class action lawsuits, lawsuits regarding
ERISA claims, and derivative shareholder actions. In addition, certain of our subsidiaries have
been named in class action and multi-party lawsuits regarding claims made by homebuyers. We cannot
predict or determine the timing or final outcome of the governmental investigations or the lawsuits
or the effect that any adverse findings in the investigations or adverse determinations in the
lawsuits may have on us. While we are cooperating with the governmental investigations,
developments, including the expansion of the scope of the investigations, could negatively impact
us and could divert the efforts and attention of our management team from the operation of our
business, and/or result in further departures of executives or other employees. An unfavorable
determination resulting from any governmental investigation could result in the filing of criminal
charges, the payment of substantial criminal or civil fines, the imposition
of injunctions on our conduct or the imposition of other penalties or consequences, including the
Company adjusting, curtailing or terminating the conduct of certain of our business operations. Any
of these outcomes could have a material adverse effect on our business, financial condition,
results of operations and prospects. An unfavorable determination in any of the lawsuits could
result in the payment by us of substantial monetary damages which may not be fully covered by
insurance. Further, the legal costs associated with the investigations and the lawsuits and the
amount of time required to be spent by management and the Board of Directors on these matters, even
if we are ultimately successful, could have a material adverse effect on our business, financial
condition and results of operations. See the discussion below for details related to these
investigations and related litigation.
Investigations
United States Attorney, State and Federal Agency Investigations. Beazer Homes and its subsidiary,
Beazer Mortgage Corporation, are under criminal and civil investigations by the United States
Attorneys Office in the Western District of North Carolina and other state and federal agencies
concerning the matters that were the subject of the independent investigation by the Audit
Committee of the Beazer Homes Board of Directors (the Investigation) as more fully described
Notes 14 and 17 to the consolidated financial statements included in Item 8 of our 2007 Form 10-K.
The Company is fully cooperating with these investigations.
Securities and Exchange Commission Investigation. On July 20, 2007, Beazer Homes received from the
SEC a formal order of private investigation to determine whether Beazer Homes and/or other persons
or entities involved with Beazer Homes have violated federal securities laws, including, among
others, the anti-fraud, books and records, internal accounting controls, periodic reporting and
certification provisions thereof. The SEC had previously initiated an informal investigation in
this matter in May 2007. The Company is fully cooperating with the SEC investigation.
Independent Investigation. The Audit Committee of the Beazer Homes Board of Directors has completed
an independent investigation (the Investigation) of Beazer Homes mortgage origination business,
including, among other things, investigating certain evidence that the Companys subsidiary, Beazer
Mortgage Corporation, violated U.S. Department of Housing and Urban Development (HUD) regulations
and may have violated certain other laws and regulations in connection with certain of its mortgage
origination activities. The results of the Investigation are fully described in Notes 14 and 17 to
the consolidated financial statements included in Item 8 of our 2007 Form 10-K.
Mortgage Origination Issues
The Investigation found evidence that employees of the Companys Beazer Mortgage Corporation
subsidiary may have violated certain federal and/or state regulations, including U.S. Department of
Housing and Urban Development (HUD) regulations. Areas of concern uncovered by the
Investigation include: down payment assistance programs; the charging of discount points; the
closure of certain HUD Licenses; closing accommodations; and the payment of a number of realtor
bonuses and decorator allowances in certain Federal Housing Administration (FHA) insured loans
and non-FHA conventional loans originated by Beazer Mortgage dating back to at least 2000. The
Investigation also uncovered limited improper practices in relation to the issuance of a number of
non-FHA Stated Income Loans. We reviewed the loan documents and supporting documentations and
determined that the assets were effectively isolated from the seller and its creditors (even in the
event of bankruptcy). Based on that information, management continues to believe that sale
accounting at the time of the transfer of the loans to third parties was appropriate.
We intend to attempt to negotiate a settlement with prosecutors and regulatory authorities that
would allow us to quantify our exposure associated with reimbursement of losses and payment of
regulatory and/or criminal fines, if they are imposed. See Notes 14 and 17 to the consolidated
financial statements included in Item 8 of our 2007 Form 10-K for additional discussion of this
matter. At this time, we believe that although it is probable that a liability exists related to
this exposure, it is not reasonably estimable and would be inappropriate to record a liability as
of March 31, 2008.
Effective February 1, 2008, we exited the mortgage origination business and entered into an
exclusive preferred lender arrangement with a national third-party mortgage provider. This
exclusive arrangement will continue to offer our homebuyers the option of a simplified financing
process while enabling us to focus on our core competency of homebuilding.
23
Litigation
Securities Class Actions. Beazer Homes and certain of our current and former executive officers are
named as defendants in a putative class action securities lawsuit filed on March 29, 2007 in the
United States District Court for the Northern District of Georgia. Plaintiffs filed this action on
behalf of a purported class of purchasers of Beazer Homes common stock between July 27, 2006 and
March 27,
2007. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by issuing materially false and
misleading statements regarding our business and prospects because we did not disclose facts
related to alleged improper lending practices in our mortgage origination business. Plaintiffs seek
an unspecified amount of compensatory damages. Two additional lawsuits were filed subsequently on
May 18, 2007 and May 21, 2007 in the United States District Court for the Northern District of
Georgia making similar factual allegations and asserting class periods of July 28, 2005 through
March 27, 2007, and March 30, 2005 through March 27, 2007, respectively. The court has consolidated
these three lawsuits and plaintiffs are expected to file a consolidated amended complaint within
thirty days after May 12, 2008, the date we filed our fiscal 2007 Form 10-K with the SEC. The
Company intends to vigorously defend against these actions.
Derivative Shareholder Actions. Certain of Beazer Homes current and former executive officers and
directors were named as defendants in a derivative shareholder suit filed on April 16, 2007 in the
United States District Court for the Northern District of Georgia. The complaint also names Beazer
Homes as a nominal defendant. The complaint, purportedly on behalf of Beazer Homes, alleges that
the defendants (i) violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder; (ii) breached their fiduciary duties and misappropriated information; (iii)
abused their control; (iv) wasted corporate assets; and (v) were unjustly enriched. Plaintiffs seek
an unspecified amount of compensatory damages against the individual defendants and in favor of
Beazer Homes. An additional lawsuit was filed subsequently on August 29, 2007 in the United States
District Court for the Northern District of Georgia asserting similar factual allegations. A
motion to consolidate the two Georgia derivative actions is pending, and the plaintiffs are
expected to designate the operative complaint within five days after the Court consolidates the
actions. Additionally, on September 12, 2007, another derivative suit was filed in Delaware
Chancery Court, and the plaintiffs filed an amended complaint on October 26, 2007. The Delaware
complaint raises similar factual and legal claims as those asserted by the plaintiffs in the
Georgia derivative actions. The defendants have moved to dismiss the Delaware action, or in the
alternative, to stay the case pending resolution of the derivative litigation pending in Georgia.
The defendants intend to vigorously defend against these actions.
ERISA Class Actions. On April 30, 2007, a putative class action complaint was filed on behalf of a
purported class consisting of present and former participants and beneficiaries of the Beazer Homes
401(k) Plan, naming Beazer Homes, certain of its current and former officers and directors and the
Benefits Administration Committee as defendants. The complaint was filed in the United States
District Court for the Northern District of Georgia. The complaint alleges breach of fiduciary
duties, including those set forth in the Employee Retirement Income Security Act (ERISA) as a
result of the investment of retirement monies held by the 401(k) Plan in common stock of Beazer
Homes at a time when participants were allegedly not provided timely, accurate and complete
information concerning Beazer Homes. Four additional lawsuits were filed subsequently on May 11,
2007, May 14, 2007, June 15, 2007 and July 27, 2007 in the United States District Court for the
Northern District of Georgia making similar allegations. The court has consolidated these five
lawsuits, and the plaintiffs are expected to file a consolidated amended complaint within thirty
days after May 12, 2008, the date we filed our fiscal 2007 Form 10-K with the SEC. The Company
intends to vigorously defend against these actions.
Homeowners Class Action Lawsuits and Multi-Plaintiff Lawsuit. Beazer Homes subsidiaries, Beazer
Homes Corp. and Beazer Mortgage Corporation, were named as defendants in a putative class action
lawsuit filed on March 23, 2007 in the General Court of Justice, Superior Court Division, County of
Mecklenburg, North Carolina. The case was removed to the U.S. District Court for the Western
District of North Carolina, Charlotte Division. The complaint was filed as a putative class action.
The purported class is defined as North Carolina residents who purchased homes in subdivisions in
North Carolina containing homes constructed by the defendants where the foreclosure rate is
allegedly significantly higher than the state-wide average. The complaint alleged that the
defendants utilized unfair trade practices to allow low-income purchasers to qualify for loans they
allegedly could not afford, resulting in foreclosures that allegedly diminished plaintiffs
property values. Plaintiffs sought an unspecified amount of compensatory damages and also requested
that any damage award be trebled. On April 25, 2008, the District Court dismissed all causes of
action with prejudice. If Plaintiffs appeal the judgment of the District Court, the defendants
will continue to vigorously defend this action.
A second putative homeowner class action lawsuit was filed on April 23, 2007 in the United States
District Court for the District of South Carolina, Columbia Division. The complaint alleged that
Beazer Homes Corp. and Beazer Mortgage Corporation illegally facilitated the financing of the
purchase of homes sold to low-income purchasers, who allegedly would not have otherwise qualified
for the loans. Certain of the plaintiffs also alleged that the defendants practices resulted in
foreclosures that allegedly diminished plaintiffs property values. The complaint demanded an
unspecified amount of damages, including damages for alleged violations of federal RICO statutes
and punitive damages. The Company filed a motion to dismiss and the District Court dismissed all
causes of action with prejudice on September 10, 2007. The plaintiffs subsequently filed a motion
for reconsideration which the District Court denied. The plaintiffs did not file a notice of
appeal and this case is now concluded.
24
An additional putative class action was filed on April 8, 2008 in the United States District Court
for the Middle District of North Carolina, Salisbury Division, against Beazer Homes, U.S.A., Inc.,
Beazer Homes Corp. and Beazer Mortgage Corporation. The Complaint alleges that Beazer violated the
Real Estate Settlement Practices Act and North Carolina Gen. Stat. § 75-1.1 by (1) improperly
requiring homebuyers to use Beazer-owned mortgage and settlement services as part of a down payment
assistance program, and (2) illegally increasing the cost of homes and settlement services sold by
Beazer Homes Corp. Plaintiff also asserts that Beazer was unjustly enriched by these alleged
actions. The purported class consists of all residents of North Carolina who purchased a home from
Beazer, using mortgage financing provided by and through Beazer that included seller-funded down
payment assistance, between January 1, 2000 and October 11, 2007. The Complaint demands an
unspecified amount of damages, various forms of equitable relief, treble damages, attorneys fees
and litigation expenses. The defendants have not yet filed a responsive pleading or motion, but we
intend to vigorously defend this action.
Beazer Homes Corp. and Beazer Mortgage Corporation are also named defendants in a lawsuit filed on
July 3, 2007, in the General Court of Justice, Superior Court Division, County of Mecklenburg,
North Carolina. The case was removed to the U.S. District Court for the Western District of North
Carolina, Charlotte Division, but remanded on April 23, 2008 to the General Court of Justice,
Superior Court Division, County of Mecklenburg, North Carolina. The complaint was filed on behalf
of ten individual homeowners who purchased homes from Beazer in Mecklenburg County. The complaint
alleges certain deceptive conduct by the defendants and brings various claims under North Carolina
statutory and common law, including a claim for punitive damages. The Company intends to vigorously
defend against this action.
Beazer Homes subsidiaries, Beazer Homes Holdings Corp. and Beazer Mortgage Corporation, were named
as defendants in a putative class action lawsuit filed on March 12, 2008 in the Superior Court of
the State of California, County of Placer. The purported class is defined as all residential
mortgage borrowers, who within four years of the filing of the complaint, purchased homes from
Beazer with the assistance of a federally related mortgage loan in which Beazer accepted a fee or
something of value from an affiliated or recommended title insurance company. The complaint alleges
that the defendants violated the Real Estate Settlement Procedures Act (RESPA) and asserts claims
under a number of state statutes alleging that defendants engaged in a uniform and systematic
practice of giving and/or accepting fees and kickbacks to affiliated businesses including
affiliated and/or recommended title insurance companies. The complaint also alleges a number of
common law claims. Plaintiffs seek an unspecified amount of damages under RESPA, unspecified
compensatory and punitive damages and injunctive and declaratory relief, as well as attorneys fees
and costs. The defendants have not yet been served in this action. We will vigorously defend
against the action.
Bond Indenture Trustee Litigation. On September 10, 2007, we filed an Amended Complaint For
Declaratory Judgment and Injunctive Relief in an action pending in the United States District Court
in Atlanta, Georgia against the trustees under the indentures governing our outstanding senior and
convertible senior notes. We sought, among other relief, a declaration from the court against the
trustees that the delay in filing with the SEC our Form 10-Q for the quarterly period ended June
30, 2007 does not constitute a default under the applicable indentures and that the delay will not
give rise to any right of acceleration on the part of the holders of the senior and convertible
senior notes.
On October 29, 2007, we notified the court and the trustees that we had successfully concluded a
consent solicitation concerning the notes at issue. Because the consents provide us with a waiver
of any and all defaults under the indentures at issue that may have occurred or may occur prior to
May 15, 2008 due to our failure to file or deliver reports or other information we would be
required to file with the SEC, we continued to request the court to rule on our demand for
declaratory judgment. In response to our notice of successful consent solicitation, the trustees
requested the court to deny our request for a ruling on the merits and dismiss the action, without
prejudice, on the ground that there is no justiciable controversy ripe for determination. We
opposed the trustees suggestion of mootness and requested the court to grant us declaratory
judgment.
(10) Stock Repurchase Program
On November 18, 2005, as part of an acceleration of Beazer Homes comprehensive plan to enhance
stockholder value, our Board of Directors authorized an increase in our stock repurchase plan to
ten million shares of our common stock. Shares may be purchased for cash in the open market, on
the NYSE or in privately negotiated transactions. We did not repurchase any shares in the open
market during the three or six months ended March 31, 2008 and 2007. At March 31, 2008, we are
authorized to purchase approximately 5.4 million additional shares pursuant to the plan. We have
currently suspended our repurchase program and any resumption of such program will be at the
discretion of the Board of Directors and is unlikely in the foreseeable future.
25
(11) Segment Information
As defined in SFAS 131, Disclosures About Segments of an Enterprise and Related Information, we
have 31 homebuilding operating segments operating in 21 states and one financial services segment.
Revenues in our homebuilding segments are derived from the sale of homes which we construct and
from land and lot sales. Revenues in our financial services segment are derived primarily from
mortgage originations provided predominantly to customers of our homebuilding operations. We have
aggregated our homebuilding segments into four reportable segments, described below, for our
homebuilding operations and one reportable segment for our financial services operations. The
segments reported have been determined to have similar economic characteristics including similar
historical and expected future operating performance, employment trends, land acquisition and land
constraints, and municipality behavior and meet the other aggregation criteria in SFAS 131. The
reportable homebuilding segments, and all other homebuilding operations not required to be reported
separately, include operations conducting business in the following states:
West: Arizona, California, Nevada and New Mexico
Mid-Atlantic: Delaware, Maryland, New Jersey, New York, Pennsylvania, Virginia and West Virginia
Florida
Southeast: Georgia, North Carolina, South Carolina and Nashville, Tennessee
Other Homebuilding: Colorado, Indiana, Kentucky, Ohio, Texas and Memphis, Tennessee
Managements evaluation of segment performance is based on segment operating income, which for our
homebuilding segments is defined as homebuilding and land sale revenues less the cost of home
construction, impairments, if any, land development and land sales, depreciation and amortization
and certain selling, general and administrative expenses which are incurred by or allocated to our
homebuilding segments. Segment operating income for our Financial Services segment is defined as
revenues less costs associated with our mortgage operations and certain selling, general and
administrative expenses incurred by or allocated to the Financial Services segment. The accounting
policies of our segments are those described in Note 1 herein and the notes to the consolidated
financial statements included in Item 8 of our 2007 Form 10-K. The following information is in
thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
115,497 |
|
|
$ |
268,056 |
|
|
$ |
233,385 |
|
|
$ |
565,962 |
|
Mid-Atlantic |
|
|
84,466 |
|
|
|
104,070 |
|
|
|
176,486 |
|
|
|
195,336 |
|
Florida |
|
|
39,126 |
|
|
|
106,409 |
|
|
|
94,454 |
|
|
|
197,654 |
|
Southeast |
|
|
71,314 |
|
|
|
183,626 |
|
|
|
168,809 |
|
|
|
339,238 |
|
Other homebuilding |
|
|
94,257 |
|
|
|
159,556 |
|
|
|
230,878 |
|
|
|
317,711 |
|
Financial Services |
|
|
757 |
|
|
|
1,887 |
|
|
|
2,059 |
|
|
|
3,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
405,417 |
|
|
$ |
823,604 |
|
|
$ |
906,071 |
|
|
$ |
1,619,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Operating (loss) income (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
(56,638 |
) |
|
$ |
(33,862 |
) |
|
$ |
(116,843 |
) |
|
$ |
(60,188 |
) |
Mid-Atlantic |
|
|
(34,538 |
) |
|
|
(15,825 |
) |
|
|
(55,085 |
) |
|
|
(25,353 |
) |
Florida |
|
|
(33,386 |
) |
|
|
8,307 |
|
|
|
(34,029 |
) |
|
|
(22,394 |
) |
Southeast |
|
|
(20,216 |
) |
|
|
11,394 |
|
|
|
(63,471 |
) |
|
|
19,705 |
|
Other homebuilding |
|
|
(37,317 |
) |
|
|
(18,961 |
) |
|
|
(57,557 |
) |
|
|
(37,849 |
) |
Financial Services |
|
|
190 |
|
|
|
1,029 |
|
|
|
810 |
|
|
|
1,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating loss |
|
|
(181,905 |
) |
|
|
(47,918 |
) |
|
|
(326,175 |
) |
|
|
(124,123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and unallocated (b) |
|
|
(108,310 |
) |
|
|
(44,599 |
) |
|
|
(162,354 |
) |
|
|
(98,156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss |
|
|
(290,215 |
) |
|
|
(92,517 |
) |
|
|
(488,529 |
) |
|
|
(222,279 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated
joint ventures |
|
|
(40,361 |
) |
|
|
(3,713 |
) |
|
|
(56,501 |
) |
|
|
(6,073 |
) |
Other (expense) income, net |
|
|
(4,569 |
) |
|
|
3,115 |
|
|
|
(7,418 |
) |
|
|
5,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
$ |
(335,145 |
) |
|
$ |
(93,115 |
) |
|
$ |
(552,448 |
) |
|
$ |
(223,146 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
1,752 |
|
|
$ |
2,617 |
|
|
$ |
3,073 |
|
|
$ |
5,327 |
|
Mid-Atlantic |
|
|
832 |
|
|
|
864 |
|
|
|
1,660 |
|
|
|
1,697 |
|
Florida |
|
|
365 |
|
|
|
506 |
|
|
|
894 |
|
|
|
893 |
|
Southeast |
|
|
745 |
|
|
|
1,105 |
|
|
|
1,665 |
|
|
|
2,003 |
|
Other homebuilding |
|
|
1,721 |
|
|
|
1,496 |
|
|
|
3,207 |
|
|
|
2,959 |
|
Financial Services |
|
|
7 |
|
|
|
17 |
|
|
|
14 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total |
|
|
5,422 |
|
|
|
6,605 |
|
|
|
10,513 |
|
|
|
12,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and unallocated (b) |
|
|
804 |
|
|
|
1,014 |
|
|
|
1,692 |
|
|
|
2,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
6,226 |
|
|
$ |
7,619 |
|
|
$ |
12,205 |
|
|
$ |
15,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
Assets (c) |
|
|
|
|
|
|
|
|
West |
|
$ |
754,561 |
|
|
$ |
940,161 |
|
Mid-Atlantic |
|
|
519,299 |
|
|
|
546,182 |
|
Florida |
|
|
155,352 |
|
|
|
242,733 |
|
Southeast |
|
|
335,152 |
|
|
|
403,472 |
|
Other homebuilding |
|
|
349,036 |
|
|
|
469,520 |
|
Financial Services |
|
|
35,195 |
|
|
|
36,035 |
|
Corporate and unallocated (d) |
|
|
1,218,114 |
|
|
|
1,279,017 |
|
Discontinued operations |
|
|
316 |
|
|
|
12,901 |
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
3,367,025 |
|
|
$ |
3,930,021 |
|
|
|
|
|
|
|
|
27
(a) |
|
Operating loss includes charges related to the abandonment of lot option agreements totaling
$13.2 million and $19.1 million for the three months ended March 31, 2008 and 2007 and $40.2
million and $44.2 million for the six months ended March 31, 2008 and 2007, respectively.
Operating loss also includes inventory impairment charges in the amounts of $174.7 million and
$86.2 million for the three months ended March 31, 2008 and 2007 and $316.2 million and $201.4
million for the six months ended March 31, 2008 and 2007, respectively, which have been
recorded in the segments to which the inventory relates (see Note 3). |
|
(b) |
|
Corporate and unallocated includes amortization of capitalized interest and numerous shared
services functions that benefit all segments, the costs of which are not allocated to the
operating segments reported above including information technology, national sourcing and
purchasing, treasury, corporate finance, legal, branding and other national marketing costs.
In addition, for the three and six months ended March 31, 2008, corporate and unallocated also
includes $7.5 million and $14.3 million, respectively, of investigation and related
restatement expenses. |
|
(c) |
|
Segment assets as of both March 31, 2008 and September 30, 2007 include goodwill assigned
from prior acquisitions. See Note 1 for goodwill by segment as of March 31, 2008 and
September 30. 2007. |
|
(d) |
|
Primarily consists of cash and cash equivalents, consolidated inventory not owned, deferred
taxes, capitalized interest and other corporate items that are not allocated to the segments. |
(12) Supplemental Guarantor Information
As discussed in Note 7, our obligation to pay principal, premium, if any, and interest under
certain debt are guaranteed on a joint and several basis by substantially all of our subsidiaries.
The guarantees are full and unconditional and the guarantor subsidiaries are 100% owned by Beazer
Homes. We have determined that separate, full financial statements of the guarantors would not be
material to investors and, accordingly, supplemental financial information for the guarantors is
presented.
28
Beazer Homes USA, Inc.
Condensed Consolidating Balance Sheet Information
March 31, 2008
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Beazer Homes |
|
|
Guarantor |
|
|
Mortgage |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
Beazer Homes |
|
|
|
USA, Inc. |
|
|
Subsidiaries |
|
|
Corp |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
USA, Inc. |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
285,334 |
|
|
$ |
|
|
|
$ |
123 |
|
|
$ |
2,166 |
|
|
$ |
(13,953 |
) |
|
$ |
273,670 |
|
Restricted cash |
|
|
|
|
|
|
3,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,592 |
|
Accounts receivable |
|
|
|
|
|
|
62,088 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
62,108 |
|
Income tax receivable |
|
|
158,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,150 |
|
Owned inventory |
|
|
|
|
|
|
2,074,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,074,151 |
|
Consolidated inventory not owned |
|
|
|
|
|
|
194,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194,024 |
|
Residential mortgage loans available-for-sale |
|
|
|
|
|
|
|
|
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
93 |
|
Investments in unconsolidated joint ventures |
|
|
3,093 |
|
|
|
51,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,834 |
|
Deferred tax assets |
|
|
391,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
391,458 |
|
Property, plant and equipment, net |
|
|
|
|
|
|
56,330 |
|
|
|
10 |
|
|
|
2 |
|
|
|
|
|
|
|
56,342 |
|
Goodwill |
|
|
|
|
|
|
20,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,508 |
|
Investments in subsidiaries |
|
|
975,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(975,237 |
) |
|
|
|
|
Intercompany |
|
|
954,944 |
|
|
|
(1,025,115 |
) |
|
|
57,874 |
|
|
|
7,239 |
|
|
|
5,058 |
|
|
|
|
|
Other assets |
|
|
37,799 |
|
|
|
34,293 |
|
|
|
70 |
|
|
|
5,933 |
|
|
|
|
|
|
|
78,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,806,015 |
|
|
$ |
1,471,612 |
|
|
$ |
58,190 |
|
|
$ |
15,340 |
|
|
$ |
(984,132 |
) |
|
$ |
3,367,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable |
|
|
|
|
|
|
85,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,047 |
|
Other liabilities |
|
|
136,545 |
|
|
|
278,992 |
|
|
|
1,218 |
|
|
|
7,515 |
|
|
|
(3,282 |
) |
|
|
420,988 |
|
Intercompany |
|
|
(2,662 |
) |
|
|
|
|
|
|
|
|
|
|
2,662 |
|
|
|
|
|
|
|
|
|
Obligations related to consolidated inventory not owned |
|
|
|
|
|
|
138,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,351 |
|
Senior notes (net of discounts of $2,799) |
|
|
1,522,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,522,201 |
|
Junior subordinated notes |
|
|
103,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,093 |
|
Other notes payable |
|
|
|
|
|
|
50,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,507 |
|
Model home financing obligations |
|
|
96,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,855,599 |
|
|
|
552,897 |
|
|
|
1,218 |
|
|
|
10,177 |
|
|
|
(3,282 |
) |
|
|
2,416,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
950,416 |
|
|
|
918,715 |
|
|
|
56,972 |
|
|
|
5,163 |
|
|
|
(980,850 |
) |
|
|
950,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
2,806,015 |
|
|
$ |
1,471,612 |
|
|
$ |
58,190 |
|
|
$ |
15,340 |
|
|
$ |
(984,132 |
) |
|
$ |
3,367,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Beazer Homes USA, Inc.
Unaudited Consolidating Balance Sheet Information
September 30, 2007
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Beazer |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Beazer |
|
|
|
Homes |
|
|
Guarantor |
|
|
Beazer |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
Homes |
|
|
|
USA, Inc. |
|
|
Subsidiaries |
|
|
Mortgage Corp. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
USA, Inc. |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
447,296 |
|
|
|
|
|
|
$ |
9,700 |
|
|
$ |
1,559 |
|
|
$ |
(4,218 |
) |
|
$ |
454,337 |
|
Restricted cash |
|
|
|
|
|
|
5,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,171 |
|
Accounts receivable |
|
|
|
|
|
|
44,449 |
|
|
|
1,038 |
|
|
|
14 |
|
|
|
|
|
|
|
45,501 |
|
Income tax receivable |
|
|
63,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,981 |
|
Owned inventory |
|
|
|
|
|
|
2,537,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,537,791 |
|
Consolidated inventory not owned |
|
|
|
|
|
|
237,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237,382 |
|
Residential mortgage loans available-for-sale |
|
|
|
|
|
|
|
|
|
|
781 |
|
|
|
|
|
|
|
|
|
|
|
781 |
|
Investments in unconsolidated joint ventures |
|
|
3,093 |
|
|
|
106,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,143 |
|
Deferred tax assets |
|
|
232,537 |
|
|
|
|
|
|
|
412 |
|
|
|
|
|
|
|
|
|
|
|
232,949 |
|
Property, plant and equipment, net |
|
|
|
|
|
|
70,979 |
|
|
|
701 |
|
|
|
2 |
|
|
|
|
|
|
|
71,682 |
|
Goodwill |
|
|
|
|
|
|
68,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,613 |
|
Investments in subsidiaries |
|
|
1,397,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,397,158 |
) |
|
|
|
|
Intercompany |
|
|
956,941 |
|
|
|
(1,039,576 |
) |
|
|
50,774 |
|
|
|
6,729 |
|
|
|
25,132 |
|
|
|
|
|
Other assets |
|
|
19,650 |
|
|
|
75,812 |
|
|
|
269 |
|
|
|
6,959 |
|
|
|
|
|
|
|
102,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
3,120,656 |
|
|
$ |
2,106,671 |
|
|
$ |
63,675 |
|
|
$ |
15,263 |
|
|
$ |
(1,376,244 |
) |
|
$ |
3,930,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable |
|
$ |
|
|
|
$ |
118,030 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
118,030 |
|
Other liabilities |
|
|
60,419 |
|
|
|
372,050 |
|
|
|
4,958 |
|
|
|
7,657 |
|
|
|
8,005 |
|
|
|
453,089 |
|
Intercompany |
|
|
(2,661 |
) |
|
|
|
|
|
|
|
|
|
|
2,661 |
|
|
|
|
|
|
|
|
|
Obligations related to consolidated inventory not owned |
|
|
|
|
|
|
177,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,931 |
|
Senior Notes (net of discounts of $3,033) |
|
|
1,521,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,521,967 |
|
Junior subordinated notes |
|
|
103,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,093 |
|
Other secured notes payable |
|
|
|
|
|
|
118,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,073 |
|
Model home financing obligations |
|
|
114,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
1,796,934 |
|
|
|
786,084 |
|
|
|
4,958 |
|
|
|
10,318 |
|
|
|
8,005 |
|
|
|
2,606,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
1,323,722 |
|
|
|
1,320,587 |
|
|
|
58,717 |
|
|
|
4,945 |
|
|
|
(1,384,249 |
) |
|
|
1,323,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
3,120,656 |
|
|
$ |
2,106,671 |
|
|
$ |
63,675 |
|
|
$ |
15,263 |
|
|
$ |
(1,376,244 |
) |
|
$ |
3,930,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Beazer Homes USA, Inc.
Unaudited Condensed Consolidating Statement of Operations Information
Three Months Ended March 31, 2008
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Beazer Homes |
|
|
Guarantor |
|
|
Mortgage |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
Beazer Homes |
|
|
|
USA, Inc. |
|
|
Subsidiaries |
|
|
Corp. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
USA, Inc. |
|
Total revenue |
|
$ |
|
|
|
$ |
405,269 |
|
|
$ |
|
|
|
$ |
148 |
|
|
$ |
|
|
|
$ |
405,417 |
|
Home construction and land sales expenses |
|
|
21,883 |
|
|
|
349,344 |
|
|
|
|
|
|
|
|
|
|
|
8,197 |
|
|
|
379,424 |
|
Inventory impairments and option contract
abandonments |
|
|
|
|
|
|
187,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit |
|
|
(21,883 |
) |
|
|
(131,935 |
) |
|
|
|
|
|
|
148 |
|
|
|
(8,197 |
) |
|
|
(161,867 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
73,986 |
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
74,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
6,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,226 |
|
Goodwill impairment |
|
|
|
|
|
|
48,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(21,883 |
) |
|
|
(260,252 |
) |
|
|
|
|
|
|
117 |
|
|
|
(8,197 |
) |
|
|
(290,215 |
) |
Equity in (loss) of unconsolidated joint ventures |
|
|
|
|
|
|
(40,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,361 |
) |
Other income, net |
|
|
|
|
|
|
(4,597 |
) |
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
(4,569 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(21,883 |
) |
|
|
(305,210 |
) |
|
|
|
|
|
|
145 |
|
|
|
(8,197 |
) |
|
|
(335,145 |
) |
(Benefit from) provision for income taxes |
|
|
(8,010 |
) |
|
|
(95,442 |
) |
|
|
|
|
|
|
53 |
|
|
|
(3,023 |
) |
|
|
(106,422 |
) |
Equity in income of subsidiaries |
|
|
(216,020 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations |
|
|
(229,893 |
) |
|
|
(209,768 |
) |
|
|
|
|
|
|
92 |
|
|
|
210,846 |
|
|
|
(228,723 |
) |
Net (loss) from discontinued operations |
|
|
|
|
|
|
|
|
|
|
(1,170 |
) |
|
|
|
|
|
|
|
|
|
|
(1,170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) |
|
$ |
(229,893 |
) |
|
$ |
(209,768 |
) |
|
$ |
(1,170 |
) |
|
$ |
92 |
|
|
$ |
210,846 |
|
|
$ |
(229,893 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer Homes USA, Inc.
Unaudited Condensed Consolidating Statement of Operations Information
Six Months Ended March 31, 2008
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Beazer Homes |
|
|
Guarantor |
|
|
Mortgage |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
Beazer Homes |
|
|
|
USA, Inc. |
|
|
Subsidiaries |
|
|
Corp. (a) |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
USA, Inc. |
|
Total revenue |
|
$ |
|
|
|
$ |
905,719 |
|
|
$ |
|
|
|
$ |
352 |
|
|
$ |
|
|
|
$ |
906,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home construction and land sales expenses |
|
|
50,987 |
|
|
|
755,858 |
|
|
|
|
|
|
|
|
|
|
|
8,895 |
|
|
|
815,740 |
|
Inventory impairments and option contract abandonments |
|
|
|
|
|
|
356,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
356,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit |
|
|
(50,987 |
) |
|
|
(206,511 |
) |
|
|
|
|
|
|
352 |
|
|
|
(8,895 |
) |
|
|
(266,041 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
162,100 |
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
162,179 |
|
Depreciation and amortization |
|
|
|
|
|
|
12,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,204 |
|
Goodwill impairment |
|
|
|
|
|
|
48,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(50,987 |
) |
|
|
(428,920 |
) |
|
|
|
|
|
|
273 |
|
|
|
(8,895 |
) |
|
|
(488,529 |
) |
Equity in (loss) of unconsolidated joint ventures |
|
|
|
|
|
|
(56,501 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,501 |
) |
Other income, net |
|
|
|
|
|
|
(7,490 |
) |
|
|
|
|
|
|
72 |
|
|
|
|
|
|
|
(7,418 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(50,987 |
) |
|
|
(492,911 |
) |
|
|
|
|
|
|
345 |
|
|
|
(8,895 |
) |
|
|
(552,448 |
) |
(Benefit from) provision for income taxes |
|
|
(18,810 |
) |
|
|
(164,099 |
) |
|
|
|
|
|
|
127 |
|
|
|
(3,282 |
) |
|
|
(186,064 |
) |
Equity in income of subsidiaries |
|
|
(335,952 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
335,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations |
|
|
(368,129 |
) |
|
|
(328,812 |
) |
|
|
|
|
|
|
218 |
|
|
|
330,339 |
|
|
|
(366,384 |
) |
Net (loss) from discontinued operations |
|
|
|
|
|
|
|
|
|
|
(1,745 |
) |
|
|
|
|
|
|
|
|
|
|
(1,745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) |
|
$ |
(368,129 |
) |
|
$ |
(328,812 |
) |
|
$ |
(1,745 |
) |
|
$ |
218 |
|
|
$ |
330,339 |
|
|
$ |
(368,129 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Beazer Homes USA, Inc.
Unaudited Condensed Consolidating Statement of Operations Information
Three Months Ended March 31, 2007
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Beazer Homes |
|
|
Guarantor |
|
|
Mortgage |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
Beazer Homes |
|
|
|
USA, Inc. |
|
|
Subsidiaries |
|
|
Corp. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
USA, Inc. |
|
Total revenue |
|
$ |
|
|
|
$ |
823,143 |
|
|
$ |
|
|
|
$ |
461 |
|
|
$ |
|
|
|
$ |
823,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home construction and land sales expenses |
|
|
37,899 |
|
|
|
675,357 |
|
|
|
|
|
|
|
|
|
|
|
(6,603 |
) |
|
|
706,653 |
|
Inventory impairments and option contract
abandonments |
|
|
|
|
|
|
105,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit |
|
|
(37,899 |
) |
|
|
42,541 |
|
|
|
|
|
|
|
461 |
|
|
|
6,603 |
|
|
|
11,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
96,390 |
|
|
|
|
|
|
|
214 |
|
|
|
|
|
|
|
96,604 |
|
Depreciation and amortization |
|
|
|
|
|
|
7,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(37,899 |
) |
|
|
(61,468 |
) |
|
|
|
|
|
|
247 |
|
|
|
6,603 |
|
|
|
(92,517 |
) |
Equity in (loss) of unconsolidated joint ventures |
|
|
|
|
|
|
(3,713 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,713 |
) |
Other income, net |
|
|
|
|
|
|
3,070 |
|
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
3,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(37,899 |
) |
|
|
(62,111 |
) |
|
|
|
|
|
|
292 |
|
|
|
6,603 |
|
|
|
(93,115 |
) |
(Benefit from) provision for income taxes |
|
|
(14,248 |
) |
|
|
(23,396 |
) |
|
|
|
|
|
|
110 |
|
|
|
2,490 |
|
|
|
(35,044 |
) |
Equity in income of subsidiaries |
|
|
(33,540 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations |
|
|
(57,191 |
) |
|
|
(38,715 |
) |
|
|
|
|
|
|
182 |
|
|
|
37,653 |
|
|
|
(58,071 |
) |
Net income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
880 |
|
|
|
|
|
|
|
|
|
|
|
880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(57,191 |
) |
|
$ |
(38,715 |
) |
|
$ |
880 |
|
|
$ |
182 |
|
|
$ |
37,653 |
|
|
$ |
(57,191 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer Homes USA, Inc.
Unaudited Condensed Consolidating Statement of Operations Information
Six Months Ended March 31, 2007
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Beazer Homes |
|
|
Guarantor |
|
|
Mortgage |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
Beazer Homes |
|
|
|
USA, Inc. |
|
|
Subsidiaries |
|
|
Corp. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
USA, Inc. |
|
Total revenue |
|
$ |
|
|
|
$ |
1,618,704 |
|
|
$ |
|
|
|
$ |
888 |
|
|
$ |
|
|
|
$ |
1,619,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home construction and land sales expenses |
|
|
74,708 |
|
|
|
1,320,559 |
|
|
|
|
|
|
|
|
|
|
|
(20,069 |
) |
|
|
1,375,198 |
|
Inventory impairments and option contract
abandonments |
|
|
|
|
|
|
245,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
245,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit |
|
|
(74,708 |
) |
|
|
52,533 |
|
|
|
|
|
|
|
888 |
|
|
|
20,069 |
|
|
|
(1,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
205,574 |
|
|
|
|
|
|
|
422 |
|
|
|
|
|
|
|
205,996 |
|
Depreciation and amortization |
|
|
|
|
|
|
15,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(74,708 |
) |
|
|
(168,106 |
) |
|
|
|
|
|
|
466 |
|
|
|
20,069 |
|
|
|
(222,279 |
) |
Equity in (loss) of unconsolidated joint ventures |
|
|
|
|
|
|
(6,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,073 |
) |
Other income, net |
|
|
|
|
|
|
5,121 |
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
5,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(74,708 |
) |
|
|
(169,058 |
) |
|
|
|
|
|
|
551 |
|
|
|
20,069 |
|
|
|
(223,146 |
) |
(Benefit from) provision for income taxes |
|
|
(28,018 |
) |
|
|
(63,403 |
) |
|
|
|
|
|
|
207 |
|
|
|
7,527 |
|
|
|
(83,687 |
) |
Equity in income of subsidiaries |
|
|
(90,404 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations |
|
|
(137,094 |
) |
|
|
(105,655 |
) |
|
|
|
|
|
|
344 |
|
|
|
102,946 |
|
|
|
(139,459 |
) |
Net income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
2,365 |
|
|
|
|
|
|
|
|
|
|
|
2,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(137,094 |
) |
|
$ |
(105,655 |
) |
|
$ |
2,365 |
|
|
$ |
344 |
|
|
$ |
102,946 |
|
|
$ |
(137,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Beazer Homes USA, Inc.
Unaudited Condensed Consolidating Statement of Cash Flows
Six Months Ended March 31, 2008
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Beazer Homes |
|
|
Guarantor |
|
|
Mortgage |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
Beazer Homes |
|
|
|
USA, Inc. |
|
|
Subsidiaries |
|
|
Corp. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
USA, Inc. |
|
Net cash (used in)/provided by operating activities |
|
$ |
(141,179 |
) |
|
$ |
115,421 |
|
|
$ |
(3,004 |
) |
|
$ |
1,116 |
|
|
$ |
|
|
|
$ |
(27,646 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(6,448 |
) |
|
|
527 |
|
|
|
|
|
|
|
|
|
|
|
(5,921 |
) |
Investments in unconsolidated joint ventures |
|
|
|
|
|
|
(9,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,665 |
) |
Changes in restricted cash |
|
|
|
|
|
|
1,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(14,534 |
) |
|
|
527 |
|
|
|
|
|
|
|
|
|
|
|
(14,007 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under credit facilities and warehouse line |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of credit facilities and warehouse line |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of other secured notes payable |
|
|
|
|
|
|
(99,785 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99,785 |
) |
Repurchase of senior notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under model home financing obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of model home financing obligations |
|
|
(17,694 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,694 |
) |
Debt issuance costs |
|
|
(21,135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,135 |
) |
Proceeds from stock option exercises |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock redeemed |
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
Treasury stock purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from stock transactions |
|
|
(388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(388 |
) |
Dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances to/from subsidiaries |
|
|
18,446 |
|
|
|
(1,102 |
) |
|
|
(7,100 |
) |
|
|
(509 |
) |
|
|
(9,735 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(20,783 |
) |
|
|
(100,887 |
) |
|
|
(7,100 |
) |
|
|
(509 |
) |
|
|
(9,735 |
) |
|
|
(139,014 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents |
|
|
(161,962 |
) |
|
|
|
|
|
|
(9,577 |
) |
|
|
607 |
|
|
|
(9,735 |
) |
|
|
(180,667 |
) |
Cash and cash equivalents at beginning of period |
|
|
447,296 |
|
|
|
|
|
|
|
9,700 |
|
|
|
1,559 |
|
|
|
(4,218 |
) |
|
|
454,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
285,334 |
|
|
$ |
|
|
|
$ |
123 |
|
|
$ |
2,166 |
|
|
$ |
(13,953 |
) |
|
$ |
273,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Beazer Homes USA, Inc.
Unaudited Condensed Consolidating Statement of Cash Flows
Six Months Ended March 31, 2007
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Beazer Homes |
|
|
Guarantor |
|
|
Mortgage |
|
|
Non-Guarantor |
|
|
Consolidating |
|
|
Beazer Homes |
|
|
|
USA, Inc. |
|
|
Subsidiaries |
|
|
Corp. |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
USA, Inc. |
|
Net cash (used in)/provided by operating activities |
|
$ |
(149,835 |
) |
|
$ |
269,064 |
|
|
$ |
82,452 |
|
|
$ |
(534 |
) |
|
|
|
|
|
$ |
201,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(15,966 |
) |
|
|
(139 |
) |
|
|
|
|
|
|
|
|
|
|
(16,105 |
) |
Investments in unconsolidated joint ventures |
|
|
|
|
|
|
(16,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,906 |
) |
Changes in restricted cash |
|
|
|
|
|
|
(768 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(768 |
) |
Distributions from unconsolidated joint ventures |
|
|
|
|
|
|
1,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(32,444 |
) |
|
|
(139 |
) |
|
|
|
|
|
|
|
|
|
|
(32,583 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under credit facilities and warehouse line |
|
|
|
|
|
|
|
|
|
|
91,258 |
|
|
|
|
|
|
|
|
|
|
|
91,258 |
|
Repayment of credit facilities and warehouse line |
|
|
|
|
|
|
|
|
|
|
(176,789 |
) |
|
|
|
|
|
|
|
|
|
|
(176,789 |
) |
Repayment of other secured notes payable |
|
|
|
|
|
|
(6,445 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,445 |
) |
Repurchase of senior notes |
|
|
(20,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,563 |
) |
Borrowings under model home financing obligations |
|
|
1,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,444 |
|
Repayment of model home financing obligations |
|
|
(4,862 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,862 |
) |
Debt issuance costs |
|
|
|
|
|
|
|
|
|
|
(319 |
) |
|
|
|
|
|
|
|
|
|
|
(319 |
) |
Proceeds from stock option exercises |
|
|
4,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,009 |
|
Common stock redeemed |
|
|
(140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(140 |
) |
Treasury stock purchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from stock transactions |
|
|
3,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,219 |
|
Dividends paid |
|
|
(7,806 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,806 |
) |
Advances to/from subsidiaries |
|
|
183,786 |
|
|
|
(230,175 |
) |
|
|
1,224 |
|
|
|
(111 |
) |
|
|
45,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
159,087 |
|
|
|
(236,620 |
) |
|
|
(84,626 |
) |
|
|
(111 |
) |
|
|
45,276 |
|
|
|
(116,994 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents |
|
|
9,252 |
|
|
|
|
|
|
|
(2,313 |
) |
|
|
(645 |
) |
|
|
45,276 |
|
|
|
51,570 |
|
Cash and cash equivalents at beginning of period |
|
|
254,915 |
|
|
|
|
|
|
|
10,664 |
|
|
|
829 |
|
|
|
(98,838 |
) |
|
|
167,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
264,167 |
|
|
$ |
|
|
|
$ |
8,351 |
|
|
$ |
184 |
|
|
$ |
(53,562 |
) |
|
$ |
219,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13) Discontinued Operations
On February 1, 2008, the Company determined that it would discontinue its mortgage origination
services through Beazer Mortgage Corporation (BMC). In February 2008, the Company entered into a
new marketing services arrangement with Countrywide Financial Corporation (Countrywide), whereby
the Company would market Countrywide as the preferred mortgage provider to its customers. In
addition, during the three months ended March 31, 2008, the Company wrote off its entire $7.1
million investment in Homebuilders Financial Network LLC (HFN). This writeoff is included in
equity in loss of unconsolidated joint ventures in the accompanying condensed consolidated
statements of operations. HFN was a joint venture investment which was established to provide loan
processing services to mortgage originators. The Company assigned its ownership interest to its
joint venture partner. The Companys joint venture interest in HFN was not owned by Beazer Mortgage
Corporation and, therefore, the associated write-off is not included in the discontinued operations
information presented below.
The Company has classified the results of operations of BMC, previously included in our Financial
Services segment, as discontinued operations in the accompanying unaudited condensed consolidated
statements of operations for all periods presented in accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144). As of March 31, 2008, substantially all BMC operating activities have ceased.
34
The results of the BMC operations classified as discontinued operations in the unaudited condensed
consolidated statements of operations for the three and six months ended March 31, 2008 and 2007
were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Total revenue |
|
$ |
1,003 |
|
|
$ |
5,729 |
|
|
$ |
3,497 |
|
|
$ |
12,276 |
|
Exit and disposal charges of mortgage origination business |
|
|
(593 |
) |
|
|
|
|
|
|
(593 |
) |
|
|
|
|
(Loss) income from discontinued operations before income taxes |
|
|
(1,875 |
) |
|
|
1,411 |
|
|
|
(2,797 |
) |
|
|
3,784 |
|
(Benefit) provision from income taxes |
|
|
(705 |
) |
|
|
531 |
|
|
|
(1,052 |
) |
|
|
1,419 |
|
Loss from discontinued operations, net of tax |
|
$ |
(1,170 |
) |
|
$ |
880 |
|
|
$ |
(1,745 |
) |
|
$ |
2,365 |
|
The loss from discontinued operations for the three and six months ended March 31, 2008, included
approximately $0.6 million of charges directly related to the cessation of BMC operating
activities. These charges consist of approximately $480,000 for severance and termination benefits
and approximately $113,000 for other expenses directly related to the liquidation.
Assets and liabilities from discontinued operations at March 31, 2008 and September 30, 2007, which
entirely relates to BMC, consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
123 |
|
|
$ |
9,700 |
|
Accounts receivable |
|
|
20 |
|
|
|
1,038 |
|
Residential mortgage loans available-for-sale |
|
|
93 |
|
|
|
781 |
|
Other |
|
|
80 |
|
|
|
1,382 |
|
|
|
|
|
|
|
|
Assets of discontinued operations |
|
$ |
316 |
|
|
$ |
12,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Trade accounts payable and other liabilities |
|
$ |
1,218 |
|
|
$ |
4,958 |
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
|
$ |
1,218 |
|
|
$ |
4,958 |
|
|
|
|
|
|
|
|
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview and Outlook. The homebuilding environment deteriorated during fiscal 2007 as
consumer confidence declined, the availability of home mortgage credit tightened significantly and
the economy began to slow down. In addition, the supply of new and resale homes in the marketplace
remained excessive for the levels of consumer demand. These pressures in the marketplace resulted
in the use of increased sales incentives and price reductions in an effort to generate sales and
reduce inventory levels. These factors continued to be present during the second quarter of fiscal
2008 and we believe that the homebuilding market will remain challenging throughout fiscal 2008.
In addition, as a result of the various ongoing investigations and litigation discussed herein and
the issues relating thereto, we have been the subject of continuing negative publicity. This
negative publicity has contributed to significant declines in the prices of our publicly traded
securities. We believe this negative publicity has also discouraged and may continue to discourage
a number of potential homebuyers from purchasing a home from us and has adversely affected our
relationships with certain of our partners, such as land sellers, contractors and suppliers.
Continuing negative publicity could continue to have a material adverse effect on our business and
the market price of our publicly traded securities.
We have responded to this challenging environment with a disciplined operating approach, responding
to what was during the second quarter of fiscal 2008 and what we expect will continue to be a
challenging environment for the homebuilding industry. We continue to make reductions in direct
costs and overhead expenses and remain committed to aligning our land supply and inventory levels
to current expectations for lower home closings, exercising caution with respect to further
investment in inventory. We have focused on the generation of cash from our existing inventory
supply as the timing of a market recovery in housing is currently uncertain.
35
We have also undertaken a comprehensive review of each of our markets in order to refine our
overall investment strategy and to optimize capital and resource allocations in an effort to
enhance our financial position and to increase shareholder value. This review entailed an
evaluation of both external market factors and our position in each market and has resulted in the
decision to discontinue homebuilding operations in Charlotte, NC, Cincinnati/Dayton, OH, Columbia,
SC, Columbus, OH and Lexington, KY which was announced on February 1, 2008. We intend to complete
an orderly exit from each of these markets and remain committed to our remaining customer care
responsibilities. We have committed to complete all homes under construction in these markets and
are in the process of marketing the remaining land positions for sale. While the underlying basis
for exiting each market was different, in each instance we concluded we could better serve
shareholder interests by re-allocating the capital employed in these markets. As of March 31,
2008, these markets represented less than 5% of the Companys total assets.
On February 1, 2008, we exited the mortgage origination business and entered into an exclusive
preferred lender relationship with a national mortgage provider. This exclusive relationship will
continue to offer our homebuyers the option of a simplified financing process while enabling us to
focus on our core competency of homebuilding. Our decision to exit the mortgage origination
business was related to the problems identified by the Audit Committees investigation of our
mortgage origination practices, the growing complexity and cost of compliance with national, state
and local lending rules, and the retrenchment among mortgage capital sources which has had
the effect of reducing the profitability of many mortgage brokerage activities. Our mortgage
origination business is now reported as a discontinued operation in our unaudited condensed
consolidated results of operations for all periods presented.
Long-Term Business Strategy. We have developed a long-term business strategy which focuses on the
following elements in order to provide a wide range of homebuyers with quality homes while
generating returns on our invested capital over the course of a housing cycle:
Geographic Diversification in Growth Markets. We compete in a large number of geographically
diverse markets in an attempt to reduce our exposure to any particular regional economy. Within
these markets, we build homes in a variety of projects. We continually review our selection of
markets based on both aggregate demographic information and our operating results. We use the
results of these reviews to re-allocate our investments to those markets where we believe we can
maximize our return on capital over the next several years.
Diversity of Product Offerings. Our product strategy entails addressing the needs of an
increasingly diverse profile of home buyers. Within each of our markets we determine the
profile of buyers we hope to address and design neighborhoods and homes with the specific needs
of those buyers in mind. Depending on the market, we attempt to address one or more of the
following types of home buyers: entry-level, move-up, luxury or retirement-oriented. The
targeted buyer profiles are further refined by information about their marital and family
status, employment, age, affluence and special interests. Recognizing that our customers want
to choose certain components of their new home, we offer limited customization through the use
of design studios in most of our markets. These design studios allow the customer to select
certain non-structural customizations for their homes such as cabinetry, flooring, fixtures,
appliances and wall coverings.
Consistent Use of National Brand. Our homebuilding and marketing activities are conducted under
the name of Beazer Homes in each of our markets. We adopted the strategy of a single brand name
across our markets in 2003 in order to better leverage our national and local marketing
activities. Using a single brand has allowed us to execute successful national marketing
campaigns and has accelerated our adoption of emerging online marketing practices.
Operational Scale Efficiencies. Beyond marketing advantages, we attempt to create both national
and local scale efficiencies as a result of the scope of our operations. On a national basis we
are able to achieve volume purchasing advantages in certain product categories, share best
practices in construction, planning and design among our markets and leverage our fixed costs in
ways that improve profitability. On a local level, while we are not generally the largest
builder within our markets, we do attempt to be a major participant within our selected
submarkets and targeted buyer profiles. There are further design, construction and cost
advantages associated with having strong market positions within particular markets.
Balanced Land Policies. We seek to maximize our return on capital by carefully managing our
investment in land. To reduce the risks associated with investments in land, we often use
options to control land. We generally do not speculate in land which does not have the benefit
of entitlements providing basic development rights to the owner.
Seasonal and Quarterly Variability. Our homebuilding operating cycle generally reflects escalating
new order activity in the second and third fiscal quarters and increased closings in the third and
fourth fiscal quarters. However, during fiscal 2008, we continued to experience challenging
conditions in most of our markets which contributed to decreased revenues and closings as compared
to prior periods including prior quarters, thereby reducing typical seasonal variations.
36
Reportable Business Segments. We design, sell and build single-family and multi-family homes in
the following geographic regions which are presented as reportable segments. Those remaining
homebuilding operations not separately reportable as segments are included in Other:
|
|
|
|
|
|
|
|
|
West |
|
Mid-Atlantic |
|
Florida |
|
Southeast |
|
Other |
Arizona
|
|
Delaware
|
|
Florida
|
|
Georgia
|
|
Colorado |
California
|
|
Maryland
|
|
|
|
Nashville, TN
|
|
Indiana |
Nevada
|
|
New Jersey
|
|
|
|
North Carolina
|
|
Kentucky |
New Mexico
|
|
New York
|
|
|
|
South Carolina
|
|
Memphis, TN |
|
|
Pennsylvania
|
|
|
|
|
|
Ohio |
|
|
Virginia
|
|
|
|
|
|
Texas |
|
|
West Virginia |
|
|
|
|
|
|
Financial Services. We provide title services to our customers in many of our markets. Financial
Services operations are a reportable segment.
Additional Products and Services for Homebuyers. In order to maximize our profitability and
provide our customers with the additional products and services that they desire, we have
incorporated design centers into our business. Recognizing that our customers want to choose
certain components of their new home, we offer limited customization through the use of design
studios in most of our markets. These design studios allow the customer to select certain
non-structural customizations for their homes such as cabinetry, flooring, fixtures, appliances and
wall coverings.
Mortgage Origination Issues. The Investigation found evidence that employees of the Companys
Beazer Mortgage Corporation subsidiary violated certain federal and/or state regulations, including
U.S. Department of Housing and Urban Development (HUD) regulations. Areas of concern uncovered
by the Investigation include: down payment assistance programs; the charging of discount points;
the closure of certain HUD Licenses; closing accommodations; and the payment of a number of realtor
bonuses and decorator allowances in certain Federal Housing Administration (FHA) insured loans
and non-FHA conventional loans originated by Beazer Mortgage dating back to at least 2000. The
Investigation also uncovered limited improper practices in relation to the issuance of a number of
non-FHA Stated Income Loans. We reviewed the loan documents and supporting documentations and
determined that the assets were effectively isolated from the seller and its creditors (even in the
event of bankruptcy). Based on that information, management continues to believe that sale
accounting at the time of the transfer of the loans to third parties was appropriate.
We intend to attempt to negotiate a settlement with prosecutors and regulatory authorities that
would allow us to quantify our exposure associated with reimbursement of losses and payment of
regulatory and/or criminal fines, if they are imposed. See Notes 14 and 17 to the consolidated
financial statements included in Item 8 of our 2007 Form 10-K for additional discussion of this
matter. At this time, we believe that although it is probable that a liability exists related to
this exposure, it is not reasonably estimable and would be inappropriate to record a liability as
of March 31, 2008.
Effective February 1, 2008, we exited the mortgage origination business and entered into an
exclusive preferred lender arrangement with a national third-party mortgage provider. This
exclusive arrangement will continue to offer our homebuyers the option of a simplified financing
process while enabling us to focus on our core competency of homebuilding.
Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of
the companys annual or interim financial statements will not be prevented or detected on a timely
basis. As is more fully discussed in our Form 10-K for fiscal 2007, management concluded that, as of
September 30, 2007, there were material weaknesses in internal control over financial reporting as
it relates to our control environment, including: deficiency in the effectiveness of our Code of
Business Conduct and Ethics, compliance with laws and regulations, segregation of duties, and
management override and collusion; and our accounting policy, procedures and controls related to
our accounting for certain estimates involving significant management judgments.
37
As of March 31, 2008, we do not believe these material weaknesses have been fully
remediated, but we are actively engaged in the implementation of remediation efforts to address
them. We have appointed a Compliance Officer to implement and oversee our enhanced Compliance
Program. We revised, adopted and distributed an amended Code of Business Conduct and Ethics Policy
and transferred the administration of our Ethics Hotline from officers of the Company to an
independent third party company. We terminated our former Chief Accounting Officer and took
appropriate action, including the termination of employment, against other business unit employees
who violated our Code of Business Conduct and Ethics. We hired a new, experienced Chief Accounting
Officer and reorganized our field operations to concentrate certain accounting, accounts payable,
billing, and purchasing functions into Regional Accounting Centers lead by Regional CFOs to
minimize the lack of segregation of duties in our prior structure. We are also in the process of
designing and/or clarifying and implementing accounting policies related to estimates involving
significant management judgments, as well as other financial reporting areas to ensure that we have
the appropriate review and approval, defining minimum documentation requirements, establishing
objective guidelines to minimize the degree of judgment in the determination of certain accruals,
enforcing consistent reporting practices, and enabling effective account reconciliation, trend
analyses, and exception reporting capabilities.
Despite these material weaknesses, management believes the unaudited condensed consolidated
financial statements included in this report present fairly, in all material respects, our
financial position, results of operations and cash flows as of the dates and for the periods
presented in conformity with accounting principals generally accepted in the United States of
America.
Item 4 Controls and Procedures describes the additional actions we are taking to remediate these
material weaknesses.
Recently Adopted Accounting Pronouncements. On October 1, 2007, the Company adopted the provisions
of Emerging Issues Task Force (EITF) Issue No. 06-8, Applicability of the Assessment of a Buyers
Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales
of Condominiums. EITF 06-8 states that the adequacy of the buyers continuing investment under
SFAS 66 should be assessed in determining whether to recognize profit under the
percentage-of-completion method on the sale of individual units in a condominium project. This
consensus requires that additional deposits be collected by developers of condominium projects that
wish to recognize profit during the construction period under the percentage-of-completion method.
EITF 06-8 is effective for fiscal years beginning after March 15, 2007. The adoption of EITF 06-8
did not have a material impact on our consolidated financial position, results of operations or
cash flows.
On October 1, 2007 the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes An Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in the financial statements in accordance
with SFAS 109, Accounting for Income Taxes. FIN 48 defines the threshold for recognizing the
benefits of tax return positions as well as guidance regarding the measurement of the resulting tax
benefits. FIN 48 requires a company to recognize for financial statement purposes the impact of a
tax position, if a tax return position is more likely than not to prevail (defined as a
likelihood of more than fifty percent of being sustained upon audit, based on the technical merits
of the tax position). FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. The cumulative effect of the
adoption of FIN 48 was recorded as a $10.1 million reduction to retained earnings as of October 1,
2007. The total amount of gross unrecognized tax benefits as of October 1, 2007 was $72.5 million
(which excludes interest, penalties, and the tax benefit relating to the deductibility of interest
and state income tax). The adoption of FIN 48 also increased our gross deferred tax assets by
approximately $65 million. The total amount of unrecognized tax benefits that, if recognized,
would affect the Companys effective tax rate was $26.5 million, as of October 1, 2007.
Since the adoption of FIN 48 on October 1, 2007, there have been no material changes to the
components of the Companys total unrecognized tax benefit, including the amounts that, if
recognized, would affect the Companys effective tax rate. It is reasonably possible that, within
the next 12 months, total unrecognized tax benefits may decrease as a result of the potential
resolution with the IRS relating to issues stemming from fiscal year 2003 and 2004 federal income
tax returns, in addition to the resolution of various state income tax audits and/or appeals. The
change that could occur within the next 12 months, however, cannot be estimated at this time. The
statute of limitations for the Companys major tax jurisdictions remains open for examination for
fiscal years 2003 through 2007.
38
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the
financial statements as a component of the income tax provision, consistent with the Companys
historical accounting policy. After the adoption of FIN 48, the total amount of gross accrued
interest and penalties was $19.3 million. The Company recorded
an additional $0.9 million and $1.0 million of gross interest and penalties during the three and six months ended March 31, 2008,
respectively, in accordance with FIN 48, resulting in a $21.2 million accrued balance at March 31,
2008. The Companys liability for unrecognized tax benefits combined with accrued interest and
penalties is reflected as a component of other liabilities.
Recent Accounting Pronouncements Not Yet Adopted. In December 2007, the FASB issued SFAS 141
(revised 2007), Business Combinations. SFAS 141R amends and clarifies the accounting guidance for
the acquirers recognition and measurement of assets acquired, liabilities assumed and
noncontrolling interests of an acquiree in a business combination. SFAS 141R is effective for our
fiscal year ended September 30, 2009. We do not expect the adoption of SFAS 141R to have a
material impact on our consolidated financial statements.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements, SFAS 157 provides guidance
for using fair value to measure assets and liabilities. SFAS 157 applies whenever other standards
require (or permit) assets or liabilities to be measured at fair value but does not expand the use
of fair value in any new circumstances. SFAS 157 includes provisions that require expanded
disclosure of the effect on earnings for items measured using unobservable data. SFAS 157 is
effective for fiscal years beginning after November 15, 2007 and for interim periods within those
fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date
of FASB Statement No. 157, delaying the effective date of certain non-financial assets and
liabilities to fiscal periods beginning after November 15, 2008. We are currently evaluating the
impact of adopting SFAS 157 on our consolidated
financial condition and results of operations; however, it is not expected to have a material
impact on our consolidated financial position, results of operations or cash flows.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115. SFAS 159 permits
companies to measure certain financial instruments and other items at fair value. SFAS 159 is
effective for our fiscal year beginning October 1, 2008. We are currently evaluating the impact of
adopting SFAS 159 on our consolidated financial condition and results of operations; however, it is
not expected to have a material impact on our consolidated financial position, results of
operations or cash flows.
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial
Statements an Amendment of ARB 51. SFAS 160 requires that a noncontrolling interest (formerly
minority interest) in a subsidiary be classified as equity and the amount of consolidated net
income specifically attributable to the noncontrolling interest be included in the consolidated
financial statements. SFAS 160 is effective for our fiscal year beginning October 1, 2009 and its
provisions will be applied retrospectively upon adoption. We are currently evaluating the impact
of adopting SFAS 160 on our consolidated financial condition and results of operations.
In December 2007, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB) 110 which expresses the views of the Staff regarding the use of the simplified method
(the mid-point between the vesting period and contractual life of the option) for plain vanilla
options in accordance with SFAS 123R. SAB 110 will allow the use of the simplified method beyond
December 31, 2007 under certain conditions including a companys inability to rely on historical
exercise data. We will consider SAB 110 for future grants.
39
RESULTS OF OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
(in thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding (a) |
|
$ |
400,656 |
|
|
$ |
780,178 |
|
|
$ |
892,443 |
|
|
$ |
1,561,695 |
|
Land and lot sales |
|
|
4,004 |
|
|
|
41,539 |
|
|
|
11,569 |
|
|
|
54,206 |
|
Financial Services |
|
|
757 |
|
|
|
1,887 |
|
|
|
2,059 |
|
|
|
3,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
405,417 |
|
|
$ |
823,604 |
|
|
$ |
906,071 |
|
|
$ |
1,619,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding (b) |
|
$ |
(159,305 |
) |
|
$ |
11,686 |
|
|
$ |
(267,060 |
) |
|
$ |
(7,106 |
) |
Land and lot sales |
|
|
(3,319 |
) |
|
|
(1,867 |
) |
|
|
(1,040 |
) |
|
|
2,197 |
|
Financial Services |
|
|
757 |
|
|
|
1,887 |
|
|
|
2,059 |
|
|
|
3,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(161,867 |
) |
|
$ |
11,706 |
|
|
$ |
(266,041 |
) |
|
$ |
(1,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative (SG&A) expenses: |
Homebuilding |
|
$ |
73,456 |
|
|
$ |
95,763 |
|
|
$ |
160,943 |
|
|
$ |
204,296 |
|
Financial Services |
|
|
561 |
|
|
|
841 |
|
|
|
1,236 |
|
|
|
1,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
74,017 |
|
|
$ |
96,604 |
|
|
$ |
162,179 |
|
|
$ |
205,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
6,226 |
|
|
$ |
7,619 |
|
|
$ |
12,204 |
|
|
$ |
15,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
|
|
-39.9 |
% |
|
|
1.4 |
% |
|
|
-29.4 |
% |
|
|
-0.1 |
% |
SG&A homebuilding |
|
|
18.1 |
% |
|
|
11.6 |
% |
|
|
17.8 |
% |
|
|
12.6 |
% |
SG&A Financial Services |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated joint ventures from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture activities |
|
$ |
(8,631 |
) |
|
$ |
(637 |
) |
|
$ |
(11,936 |
) |
|
$ |
(2,997 |
) |
Impairments |
|
|
(31,730 |
) |
|
|
(3,076 |
) |
|
|
(44,565 |
) |
|
|
(3,076 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of
unconsolidated joint ventures |
|
$ |
(40,361 |
) |
|
$ |
(3,713 |
) |
|
$ |
(56,501 |
) |
|
$ |
(6,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate continuing operations |
Total |
|
|
31.8 |
% |
|
|
37.6 |
% |
|
|
33.7 |
% |
|
|
37.5 |
% |
|
|
|
(a) |
|
Homebuilding revenues for the three and six months ended March 31, 2007 include $1.8
million and $29.5 million, respectively, of net revenue previously deferred in accordance
with SFAS 66. |
|
(b) |
|
Homebuilding gross loss for the three months and six months ended March 31, 2008
include $174.7 million and $316.2 million, respectively, of inventory impairment charges
and $13.2 million and $40.2 million, respectively, of charges related to the abandonment of
lot option agreements. Homebuilding gross profit (loss) for the three months and six
months ended March 31, 2007 include $86.2 million and $201.4 million, respectively, of
inventory impairment charges and $19.1 million and $44.2 million, respectively, of charges
related to the abandonment of lot option agreements. |
Revenues: Revenues decreased by 50.8% and 49.1% for the three and six months ended March 31, 2008,
respectively, compared to the same periods in the prior year as the number of homes closed
decreased by 42.9% and 34.0%. Continued reduction in the levels of demand compared to last year
resulted in decreased closings throughout most of our markets. Home closings decreased in all of
our homebuilding markets.
In addition, we had $4.0 million and $11.6 million of land and lot sales in the three and six
months ended March 31, 2008 compared to $41.5 million and $54.2 million in the three and six months
ended March 31, 2007, respectively, as we continued to review opportunities to minimize
underperforming investments and reallocate funds to investments that will optimize overall returns.
40
Gross Margin: Gross margin for the three months ended March 31, 2008 was (39.9%) and was
significantly impacted by reduced revenues, non-cash, pretax charges of $13.2 million to abandon
land option contracts and $174.7 million of recognized inventory impairments. Gross margin for the
six months ended March 31, 2008 was also impacted by the aforementioned revenue decrease, inventory
impairments of $316.2 million and lot option abandonment charges of $40.2 million. Gross margins
for the three months and six months ended March 31, 2007 were 1.4% and (0.1%), respectively and
were impacted by inventory impairments of $86.2 million and $201.4 million and lot option
abandonment charges of $19.1 million and $44.2 million for the three and six months ended March 31,
2007, respectively.
Selling, General and Administrative Expense: Selling, general and administrative expense (SG&A)
totaled $74.0 million and $96.6 million for the three months ended March 31, 2008 and 2007 and
$162.2 million and $206.0 million for the six months ended March 31, 2008 and 2007, respectively.
The decrease in SG&A expense for the three and six months ended March 31, 2008 compared to the same
periods of the prior year related to lower salary expense as a result of the realignment of our
overhead structure and lower sales commissions related to decreased revenues, partially offset by
$14.3 million in investigation and restatement related expenses. SG&A expense as a percentage of
total revenue for the three and six months ended March 31, 2008 increased to 18.3% and 17.9% from
11.7% and 12.7% for the comparable periods in the prior year due to the impact of reduced revenues
on fixed overhead expenses.
Goodwill Impairment Charges: As a result of significantly less than expected new orders in our
prime selling season, which is our second fiscal quarter, significant pricing pressures and
additional incentives provided to homebuyers, our reforecasting of expected future results of
operations and increasing inventory impairment charges, we tested all remaining goodwill balances for
impairment as of March 31, 2008. We have estimated goodwill impairment charges totaling $48.1
million relating to our reporting units in Arizona, Southern California, New Jersey and Virginia.
We will finalize our impairment calculations in the third quarter of fiscal 2008 in connection with
our annual goodwill impairment test as of April 30, 2008. The goodwill impairment charges were
based on estimates of fair value of the underlying assets of the reporting units. To the extent
that there is further deterioration in market conditions or overall economic conditions or our
strategic plans change, it is possible that our conclusion regarding fair value of reporting units
which are currently not impaired could change, which could result in future goodwill impairments
that have a material adverse effect on our financial position and results of operations.
Joint Venture Impairment Charges: As of March 31, 2008, we participated in 19 land development
joint ventures in which we had less than a controlling interest. Our joint ventures are typically
entered into with developers, other homebuilders and financial partners to develop finished lots for sale to the joint ventures members and other third parties.
As a result of the deterioration of the housing market thus far in fiscal 2008 during the six
months ended March 31, 2008, we wrote down our investment in certain of our joint ventures
reflecting $44.6 million of impairments of inventory held within those joint ventures. Joint
venture impairments during the three and six months ended March 31, 2007 totaled $3.1 million. If
these adverse market conditions continue or worsen, we may have to take further writedowns of our
investments in these joint ventures.
SEGMENT ANALYSIS ($ in thousands):
Homebuilding Revenue and Average Selling Price. The tables below summarize homebuilding revenue
and the average selling prices of our homes by reportable segment ($ in thousands) for the three
and six months ended March 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
Homebuilding Revenues |
|
|
Average Selling Price |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
West |
|
$ |
115,497 |
|
|
$ |
235,305 |
|
|
|
-50.9 |
% |
|
$ |
285.2 |
|
|
$ |
349.9 |
|
|
|
-18.5 |
% |
Mid-Atlantic |
|
|
81,953 |
|
|
|
104,070 |
|
|
|
-21.3 |
% |
|
|
401.7 |
|
|
|
454.2 |
|
|
|
-11.6 |
% |
Florida |
|
|
38,666 |
|
|
|
106,409 |
|
|
|
-63.7 |
% |
|
|
240.2 |
|
|
|
307.5 |
|
|
|
-21.9 |
% |
Southeast |
|
|
70,875 |
|
|
|
176,877 |
|
|
|
-59.9 |
% |
|
|
232.4 |
|
|
|
240.4 |
|
|
|
-3.3 |
% |
Other |
|
|
93,665 |
|
|
|
157,517 |
|
|
|
-40.5 |
% |
|
|
190.0 |
|
|
|
199.8 |
|
|
|
-4.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
400,656 |
|
|
$ |
780,178 |
|
|
|
-48.6 |
% |
|
$ |
255.5 |
|
|
$ |
280.8 |
|
|
|
-9.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
Homebuilding Revenues |
|
|
Average Selling Price |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
West |
|
$ |
229,115 |
|
|
$ |
522,261 |
|
|
|
-56.1 |
% |
|
$ |
285.6 |
|
|
$ |
362.3 |
|
|
|
-21.2 |
% |
Mid-Atlantic |
|
|
173,966 |
|
|
|
195,336 |
|
|
|
-10.9 |
% |
|
|
388.3 |
|
|
|
452.7 |
|
|
|
-14.2 |
% |
Florida |
|
|
93,994 |
|
|
|
197,654 |
|
|
|
-52.4 |
% |
|
|
239.2 |
|
|
|
319.2 |
|
|
|
-25.1 |
% |
Southeast |
|
|
167,993 |
|
|
|
331,812 |
|
|
|
-49.4 |
% |
|
|
228.3 |
|
|
|
231.6 |
|
|
|
-1.4 |
% |
Other |
|
|
227,375 |
|
|
|
314,632 |
|
|
|
-27.7 |
% |
|
|
189.8 |
|
|
|
196.3 |
|
|
|
-3.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
892,443 |
|
|
$ |
1,561,695 |
|
|
|
-42.9 |
% |
|
$ |
249.4 |
|
|
$ |
281.6 |
|
|
|
-11.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding Revenues: Homebuilding revenues decreased for the three and six months ended March
31, 2008 compared to the same period of the prior year due to decreased closings in the majority of
our markets, related to reduced demand, a continued high rate of cancellations and the mortgage
credit tightening. Specifically, homebuilding revenues in the West region decreased by 50.9% and
56.3% driven by decreased closings across all of our West markets totaling 40.0% and 43.1% for the
three and six months ended March 31, respectively. Homebuilding revenues in the Florida region,
for the three and six months ended March 31, decreased by 63.7% and 52.4% impacted by decreased
closings and a continued high level of cancellations driven by excess capacity in the resale
markets as investors continued to divest of prior home purchases and potential homebuyers have
difficulty selling their existing homes. Home closings in the Southeast region decreased by 58.2%
and 47.8% due to deteriorating market conditions and competitive pressures, driving a decrease in
revenue of 59.9% for the three months ended and 49.4% for the six months ended March 31, 2008
compared to the comparable periods of fiscal 2007. Revenue decreases in our Mid-Atlantic region
compared to the prior year were driven in part by a decline of home closings of 4.2% for the three
months ended March 31, 2008 offset by an 8.5% increase in home closings for the six months ended
March 31. Revenues in all markets in our Other homebuilding region decreased due primarily to
decreased closings.
Land and Lot Sales Revenue. The table below summarizes land and lot sales revenues by reportable
segment ($ in thousands) for the three and six months ended March 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
West |
|
$ |
|
|
|
$ |
32,751 |
|
|
|
-100.0 |
% |
|
$ |
4,270 |
|
|
$ |
43,701 |
|
|
|
-90.2 |
% |
Mid-Atlantic |
|
|
2,513 |
|
|
|
|
|
|
|
n/a |
|
|
|
2,520 |
|
|
|
|
|
|
|
n/a |
|
Florida |
|
|
460 |
|
|
|
|
|
|
|
n/a |
|
|
|
460 |
|
|
|
|
|
|
|
n/a |
|
Southeast |
|
|
439 |
|
|
|
6,749 |
|
|
|
-93.5 |
% |
|
|
816 |
|
|
|
7,426 |
|
|
|
-89.0 |
% |
Other |
|
|
592 |
|
|
|
2,039 |
|
|
|
-71.0 |
% |
|
|
3,503 |
|
|
|
3,079 |
|
|
|
13.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,004 |
|
|
$ |
41,539 |
|
|
|
-90.4 |
% |
|
$ |
11,569 |
|
|
$ |
54,206 |
|
|
|
-78.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We generated revenues from land and lot sales of $2.5 million in our Mid-Atlantic segment during
the second quarter of fiscal 2008, as we continued to evaluate and reduce our investments to
optimize overall returns. Land and lot sales in our West segment for the three and six months
ended March 31, 2007 primarily related to our decision to sell certain parcels of land and lots
that did not fit within our homebuilding programs in those markets.
42
Gross Profit (Loss). Homebuilding gross profit is defined as homebuilding revenues less
homebuilding costs (which includes land and land development costs, home construction costs,
capitalized interest, indirect costs of construction, estimated warranty costs, closing costs and
inventory impairment and lot option abandonment charges). The following table sets forth our
homebuilding gross profit (loss) and gross margin by reportable segment and total gross profit
(loss) and gross margin ($ in thousands) for the three and six months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
Gross Profit |
|
|
Gross |
|
|
Gross Profit |
|
|
Gross |
|
|
Gross Profit |
|
|
Gross |
|
|
Gross Profit |
|
|
Gross |
|
|
|
(Loss) |
|
|
Margin |
|
|
(Loss) |
|
|
Margin |
|
|
(Loss) |
|
|
Margin |
|
|
(Loss) |
|
|
Margin |
|
Homebuilding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
(42,030 |
) |
|
|
-36.4 |
% |
|
$ |
(7,188 |
) |
|
|
-3.1 |
% |
|
$ |
(86,980 |
) |
|
|
-38.0 |
% |
|
$ |
(8,224 |
) |
|
|
-1.6 |
% |
Mid-Atlantic |
|
|
(25,189 |
) |
|
|
-30.7 |
% |
|
|
(3,582 |
) |
|
|
-3.4 |
% |
|
|
(34,628 |
) |
|
|
-19.9 |
% |
|
|
63 |
|
|
|
0.0 |
% |
Florida |
|
|
(27,260 |
) |
|
|
-70.5 |
% |
|
|
19,530 |
|
|
|
18.4 |
% |
|
|
(20,799 |
) |
|
|
-22.1 |
% |
|
|
(726 |
) |
|
|
-0.4 |
% |
Southeast |
|
|
(9,194 |
) |
|
|
-13.0 |
% |
|
|
30,697 |
|
|
|
17.4 |
% |
|
|
(39,124 |
) |
|
|
-23.3 |
% |
|
|
57,843 |
|
|
|
17.4 |
% |
Other |
|
|
(18,194 |
) |
|
|
-19.4 |
% |
|
|
3,322 |
|
|
|
2.1 |
% |
|
|
(20,895 |
) |
|
|
-9.2 |
% |
|
|
7,622 |
|
|
|
2.4 |
% |
Corporate &
Unallocated |
|
|
(37,438 |
) |
|
|
|
|
|
|
(31,093 |
) |
|
|
|
|
|
|
(64,634 |
) |
|
|
|
|
|
|
(63,684 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Homebuilding |
|
|
(159,305 |
) |
|
|
-39.8 |
% |
|
|
11,686 |
|
|
|
1.5 |
% |
|
|
(267,060 |
) |
|
|
-29.9 |
% |
|
|
(7,106 |
) |
|
|
-0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and Lot Sales |
|
|
(3,319 |
) |
|
|
|
|
|
|
(1,867 |
) |
|
|
|
|
|
|
(1,040 |
) |
|
|
|
|
|
|
2,197 |
|
|
|
|
|
Financial Services |
|
|
757 |
|
|
|
|
|
|
|
1,887 |
|
|
|
n/m |
|
|
|
2,059 |
|
|
|
|
|
|
|
3,691 |
|
|
|
n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(161,867 |
) |
|
|
-39.9 |
% |
|
$ |
11,706 |
|
|
|
1.4 |
% |
|
$ |
(266,041 |
) |
|
|
-29.4 |
% |
|
$ |
(1,218 |
) |
|
|
-0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in gross profit across all regions is primarily due to further deteriorating market
conditions, increase in sales incentives, and the impact of charges related to inventory
impairments and the abandonment of certain lot option contracts.
Corporate and unallocated: Corporate and unallocated costs above include the amortization of
capitalized interest and indirect construction costs. The increase in corporate and unallocated
costs relates primarily to a reduction in capitalized inventory costs due to lower inventories and
costs incurred. Corporate and unallocated costs for the three and six months ended March 31, 2008
include increased amortization of capitalized interest and indirect costs due to a lower
capitalizable inventory base and the impairment of capitalized interest and indirect costs in
connection with our impairment of inventory held for development. Costs for the three and six
months ended March 31, 2007 are offset by $6.0 million of reductions in Trinity moisture intrusion
accruals.
Land and Lot Sales Gross Profit (Loss). The table below summarizes land and lot sales gross profit
(loss) by reportable segment ($ in thousands) for the three and six months ended March 31, 2008 and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
West |
|
$ |
|
|
|
$ |
(1,383 |
) |
|
|
100.0 |
% |
|
$ |
1,582 |
|
|
$ |
2,939 |
|
|
|
46.2 |
% |
Mid-Atlantic |
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
7 |
|
|
|
|
|
|
|
n/a |
|
Florida |
|
|
99 |
|
|
|
|
|
|
|
n/a |
|
|
|
99 |
|
|
|
|
|
|
|
n/a |
|
Southeast |
|
|
103 |
|
|
|
(202 |
) |
|
|
151.0 |
% |
|
|
116 |
|
|
|
(175 |
) |
|
|
166.3 |
% |
Other |
|
|
(3,521 |
) |
|
|
(282 |
) |
|
|
-1148.6 |
% |
|
|
(2,844 |
) |
|
|
(567 |
) |
|
|
-401.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(3,319 |
) |
|
$ |
(1,867 |
) |
|
|
-77.8 |
% |
|
$ |
(1,040 |
) |
|
$ |
2,197 |
|
|
|
147.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
The loss on land and lot sales recognized in the second quarter of fiscal 2008 reflects the
deteriorating market conditions and the sale of homebuilding assets in the markets in our Other
Homebuilding Segment in which we are exiting as discussed above.
Inventory Impairments. The following tables set forth, by reportable segment, the inventory
impairments and lot option abandonment charges recorded for the three and six months ended March
31, 2008 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Development projects and homes in process (Held for Development) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
59,975 |
|
|
$ |
32,486 |
|
|
$ |
125,421 |
|
|
$ |
82,909 |
|
Mid-Atlantic |
|
|
26,877 |
|
|
|
23,809 |
|
|
|
49,878 |
|
|
|
34,979 |
|
Florida |
|
|
9,046 |
|
|
|
3,341 |
|
|
|
12,139 |
|
|
|
37,973 |
|
Southeast |
|
|
10,067 |
|
|
|
2,198 |
|
|
|
17,610 |
|
|
|
4,871 |
|
Other |
|
|
4,225 |
|
|
|
15,550 |
|
|
|
5,324 |
|
|
|
24,490 |
|
Unallocated |
|
|
8,848 |
|
|
|
4,841 |
|
|
|
16,737 |
|
|
|
12,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
119,038 |
|
|
$ |
82,225 |
|
|
$ |
227,109 |
|
|
$ |
197,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Held for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
804 |
|
|
$ |
3,105 |
|
|
$ |
804 |
|
|
$ |
3,105 |
|
Mid-Atlantic |
|
|
9,171 |
|
|
|
|
|
|
|
9,171 |
|
|
|
|
|
Florida |
|
|
23,035 |
|
|
|
|
|
|
|
23,035 |
|
|
|
|
|
Southeast |
|
|
980 |
|
|
|
500 |
|
|
|
15,453 |
|
|
|
500 |
|
Other |
|
|
21,663 |
|
|
|
350 |
|
|
|
40,630 |
|
|
|
350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
55,653 |
|
|
$ |
3,955 |
|
|
$ |
89,093 |
|
|
$ |
3,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lot Option Abandonments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
783 |
|
|
$ |
9,002 |
|
|
$ |
828 |
|
|
$ |
11,758 |
|
Mid-Atlantic |
|
|
4,862 |
|
|
|
2,410 |
|
|
|
6,658 |
|
|
|
4,697 |
|
Florida |
|
|
3,273 |
|
|
|
3,761 |
|
|
|
3,748 |
|
|
|
14,272 |
|
Southeast |
|
|
3,965 |
|
|
|
2,288 |
|
|
|
27,390 |
|
|
|
3,249 |
|
Other |
|
|
286 |
|
|
|
1,604 |
|
|
|
1,546 |
|
|
|
10,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
13,169 |
|
|
$ |
19,065 |
|
|
$ |
40,170 |
|
|
$ |
44,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
187,860 |
|
|
$ |
105,245 |
|
|
$ |
356,372 |
|
|
$ |
245,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The inventory impaired during the three and six months ended March 31, 2008 represented 3,534 and
6,420 lots in 85 and 147 communities with an estimated fair value of $205.5 million and $392.0
million, respectively. The impairments recorded on our held for development inventory, for all
segments, primarily resulted from the continued significant decline in the homebuilding environment
that negatively impacted the sales prices of homes and increased the sales incentives offered to
potential homebuyers in our efforts to increase home sales absorptions. Our West and Mid-Atlantic
segments experienced the most significant amount of inventory impairments as compared to our other
homebuilding segments due to the fact that the number of owned land and lots in the West and Mid-Atlantic segments comprise approximately 29% and 10%, respectively, of our total land and lots
owned as of March 31, 2008 and approximately 35% and 22%, respectively, of the dollar value of our
held for development inventory as of March 31, 2008. In addition, our homebuilding markets that
comprise our West segment consist of markets that once experienced the most significant home price
appreciation in the nation during the 2004 through 2006 periods which was driven in large part by
speculative purchases and the availability of mortgage credit during those time periods which are
no longer present in the marketplace. The decline in the availability of mortgage loan products
and the exit of speculators from the market, among other factors, contributed to the significant
increase in the supply of new and used homes on the market for sale.
The impairments recorded in our other homebuilding segments are primarily as a result of continued
price competition brought on by the significant increase in new and resale home inventory during
the three and six months ended March 31, 2008 that has resulted in increased sales incentives and
home sales price declines as we attempt to increase new orders and generate cash to the Company.
44
In addition, we have also completed a strategic review of all of the markets within our
homebuilding segments and the communities within each of those markets with an initial focus on the
communities for which land has been secured with option purchase contracts. As a result of this
review, we have determined the proper course of action with respect to a number of communities
within each homebuilding segment was to abandon the remaining lots under option and to write-off
the deposits securing the option takedowns, as well as preacquisition costs. The total
abandonments recorded for the three months and six months ended March 31, 2008 were $13.2 million
and $40.2 million representing 12 and 40 communities, respectively, with the Southeast segment
representing 68.2% of the six-month abandonments as we made decisions to abandon certain option
contracts that no longer fit in our long-term strategic plan.
Unit Data by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Orders, net |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
West |
|
|
497 |
|
|
|
1,055 |
|
|
|
-52.9 |
% |
|
|
826 |
|
|
|
1,498 |
|
|
|
-44.9 |
% |
Mid-Atlantic |
|
|
224 |
|
|
|
563 |
|
|
|
-60.2 |
% |
|
|
304 |
|
|
|
801 |
|
|
|
-62.0 |
% |
Florida |
|
|
170 |
|
|
|
441 |
|
|
|
-61.5 |
% |
|
|
321 |
|
|
|
534 |
|
|
|
-39.9 |
% |
Southeast |
|
|
422 |
|
|
|
1,016 |
|
|
|
-58.5 |
% |
|
|
708 |
|
|
|
1,481 |
|
|
|
-52.2 |
% |
Other |
|
|
643 |
|
|
|
1,015 |
|
|
|
-36.7 |
% |
|
|
1,049 |
|
|
|
1,559 |
|
|
|
-32.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,956 |
|
|
|
4,090 |
|
|
|
-52.2 |
% |
|
|
3,208 |
|
|
|
5,873 |
|
|
|
-45.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closings |
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
2008 |
|
|
2007 |
|
|
Change |
|
West |
|
|
405 |
|
|
|
675 |
|
|
|
-40.0 |
% |
|
|
799 |
|
|
|
1,404 |
|
|
|
-43.1 |
% |
Mid-Atlantic |
|
|
204 |
|
|
|
213 |
|
|
|
-4.2 |
% |
|
|
448 |
|
|
|
413 |
|
|
|
8.5 |
% |
Florida |
|
|
161 |
|
|
|
349 |
|
|
|
-53.9 |
% |
|
|
393 |
|
|
|
595 |
|
|
|
-33.9 |
% |
Southeast |
|
|
305 |
|
|
|
729 |
|
|
|
-58.2 |
% |
|
|
736 |
|
|
|
1,410 |
|
|
|
-47.8 |
% |
Other |
|
|
493 |
|
|
|
782 |
|
|
|
-37.0 |
% |
|
|
1,198 |
|
|
|
1,590 |
|
|
|
-24.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,568 |
|
|
|
2,748 |
|
|
|
-42.9 |
% |
|
|
3,574 |
|
|
|
5,412 |
|
|
|
-34.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Orders and Backlog: New orders, net of cancellations, decreased 45.4% to 3,208 units during the
six month period ended March 31, 2008, compared to 5,873 units for the same period in the prior
year related to weaker market conditions resulting in reduced demand and higher cancellations
compared to the number of new orders received in the first six months of fiscal 2007. For the
three and six
months ended March 31, 2008, we experienced cancellation rates of 33.7% and 39.4% compared to 29.1%
and 34.1% for the three and six months ended March 31, 2007. These higher three and six-month
cancellation rates in fiscal 2008 reflect the challenging market environment including the
inability of many potential homebuyers to sell their existing homes.
The aggregate dollar value of homes in backlog at March 31, 2008 of $672.5 million decreased 59.7%
from $1.67 billion at March 31, 2007, related to a decrease in the number of homes in backlog from
5,563 units at March 31, 2007 to 2,619 units at March 31, 2008. The decrease in the number of
homes in backlog across all of our markets is driven primarily by the aforementioned market
weakness, lower new orders and higher rate of cancellations.
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog at March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
West |
|
|
518 |
|
|
|
1,269 |
|
|
|
-59.2 |
% |
Mid-Atlantic |
|
|
499 |
|
|
|
965 |
|
|
|
-48.3 |
% |
Florida |
|
|
166 |
|
|
|
447 |
|
|
|
-62.9 |
% |
Southeast |
|
|
476 |
|
|
|
1,392 |
|
|
|
-65.8 |
% |
Other |
|
|
960 |
|
|
|
1,490 |
|
|
|
-35.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,619 |
|
|
|
5,563 |
|
|
|
-52.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL CONDITION AND LIQUIDITY:
Our sources of cash liquidity include, but are not limited to, cash from operations, amounts
available under credit facilities, proceeds from senior notes and other bank borrowings, the
issuance of equity securities and other external sources of funds. Our short-term and long-term
liquidity depend primarily upon our level of net income, working capital management (accounts
receivable, accounts payable and other liabilities) and bank borrowings. We believe that available
short-term and long-term capital resources are sufficient to fund capital expenditures and working
capital requirements, scheduled debt payments, and interest and tax obligations for the next twelve
months. However, any material variance of our operating results or land acquisitions from our
projections or investments in or acquisitions of businesses could require us to obtain additional
equity or debt financing. Long-term, we plan to use cash generated to invest in growing the
business and/or to reduce our levels of debt. Additionally, in May 2008 we received a federal
income tax refund of approximately $55.8 million relating to a fiscal 2007 net operating loss
carryback claim, and we expect to generate in excess of $100 million prior to the end of fiscal
2008 as a result of the sale of certain assets that do not fit with our future homebuilding plans
in various markets. In December 2007, we suspended our dividend payments and share repurchase
program and any resumption of such programs will be at the discretion of the Board of Directors.
At March 31, 2008, we had cash and cash equivalents of $273.7 million, compared to $454.3 million
at September 30, 2007. The decrease in cash was due to a use of cash in operating activities of
$27.6 million relating primarily to the increase in income tax receivable and deferred income tax
benefit. These tax items were impacted by a reduction in inventory, offset by the repayment of
borrowings under our secured notes payable and model financing obligations, both driven by a lower
number of closings and new orders, net of cancellations. Our net cash used in operating activities
for the six months ended March 31, 2008 was $27.6 million compared to cash provided by operations
of $201.1 million in the same period of the prior year. Based on the applicable years closings, as
of March 31, 2008, our land bank includes a 5.3 year supply of land/lots for future development
compared to a 5.0 year supply as of March 31, 2007. The years supply in land bank increased as of
March 31, 2008 when compared to March 31, 2007 primarily due to the decline in closings despite a
32% decrease in the number of lots in the ending land bank as of March 31, 2008 as compared
to March 31, 2007. As the homebuilding market declined, we were successful in significantly
reducing our land bank through the abandonment of lot option contracts, the sale of land assets not
required in our homebuilding program and through the sale of new homes with only 3.4 years of owned
land and lots for future homebuilding activities as of March 31, 2008. The decrease in land bank
from March 31, 2007 to March 31, 2008 related to our decision to eliminate non-strategic positions
to align our land supply with our expectations for future home closings. Net cash used in
investing activities was $14.0 million for the six months ended March 31, 2008 compared to $32.6
million for the comparable period of fiscal 2007, as we invested in unconsolidated joint ventures,
albeit to a lesser extent, to support our land acquisition strategy and model and sales office
improvements to support our marketing efforts.
Net cash used in financing activities was $139.0 million for the six months ended March 31, 2008
related primarily to the repayment of certain secured notes payable. Net cash used in financing
activities was $117.0 million for the six months ended March 31, 2007 and
consisted primarily of net borrowings under credit facilities and warehouse line of $85.5 million,
repurchase of Senior Notes of $20.6 million and dividends paid of $7.8 million.
46
At March 31, 2008 we had the following borrowings (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity Date |
|
March 31, 2008 |
|
|
September 30, 2007 |
|
Revolving Credit Facility |
|
August 2009 |
|
$ |
|
|
|
$ |
|
|
8 5/8% Senior Notes* |
|
May 2011 |
|
|
180,000 |
|
|
|
180,000 |
|
8 3/8% Senior Notes* |
|
April 2012 |
|
|
340,000 |
|
|
|
340,000 |
|
6 1/2% Senior Notes* |
|
November 2013 |
|
|
200,000 |
|
|
|
200,000 |
|
6 7/8% Senior Notes* |
|
July 2015 |
|
|
350,000 |
|
|
|
350,000 |
|
8 1/8% Senior Notes* |
|
June 2016 |
|
|
275,000 |
|
|
|
275,000 |
|
4 5/8% Convertible Senior Notes* |
|
June 2024 |
|
|
180,000 |
|
|
|
180,000 |
|
Junior subordinated notes |
|
July 2036 |
|
|
103,093 |
|
|
|
103,093 |
|
Other secured notes payable |
|
Various Dates |
|
|
50,507 |
|
|
|
118,073 |
|
Model home financing obligations |
|
Various Dates |
|
|
96,422 |
|
|
|
114,116 |
|
Unamortized debt discounts |
|
|
|
|
(2,799 |
) |
|
|
(3,033 |
) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
1,772,223 |
|
|
$ |
1,857,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Collectively, the Senior Notes |
Warehouse Line Effective February 7, 2007, Beazer Mortgage amended its 364-day credit agreement
(the Warehouse Line) to extend its maturity date to February 8, 2008 and modify the maximum
available borrowing capacity to $100 million, subject to compliance with the mortgage loan
eligibility requirements as defined in the Warehouse Line. The Warehouse Line was secured by
certain mortgage loan sales and related property. The Warehouse Line was entered into with a
number of banks to fund the origination of residential mortgage loans. The maximum available
borrowing capacity was subsequently reduced through amendments down to $17 million as of September
30, 2007. We had no borrowings outstanding under the Warehouse Line as of September 30, 2007. The
Warehouse Line was not guaranteed by Beazer Homes USA, Inc. or any of its subsidiaries that are
guarantors of the Senior Notes or Revolving Credit Facility. There were no borrowings under the
Warehouse Line at March 31, 2008. Effective November 14, 2007, we terminated the Warehouse Line,
at which time there were no borrowings outstanding.
Revolving Credit Facility In July 2007, we replaced our former credit facility with a new $500
million, four-year unsecured revolving credit facility (the Revolving Credit Facility) with a
group of banks, which matures in 2011. The former credit facility included a $1 billion four-year
revolving credit facility which would have matured in August 2009. The Revolving Credit Facility
has a $350 million sublimit for the issuance of standby letters of credit. We have the option to
elect two types of loans under the Revolving Credit Facility which incur interest, as applicable,
based on either the Alternative Base Rate or the Applicable Eurodollar Margin (both defined in the
Revolving Credit Facility). The Revolving Credit Facility contains various operating and financial
covenants. Substantially all of our significant subsidiaries are guarantors of the obligations
under the Revolving Credit Facility (see Note 12).
We fulfill our short-term cash requirements with cash generated from our operations and funds
available from our Revolving Credit Facility. There were no amounts outstanding under the
Revolving Credit Facility at March 31, 2008 or September 30, 2007; however, we had $68.0 million
and $133.3 million of letters of credit outstanding under the Revolving Credit Facility at March
31, 2008 and September 30, 2007, respectively.
On October 10, 2007, we entered into a waiver and amendment of our Revolving Credit Facility,
waiving events of default through May 15, 2008 under the facility arising from our failure to file
or deliver reports or other information we would be required to file with the SEC and our decision
to restate our financial statements. Under this and the October 26, 2007 amendments, any
obligations under the Revolving Credit Facility will be secured by certain assets and our ability
to borrow under this facility is subject to satisfaction of a secured borrowing base. We are
permitted to grow the borrowing base by adding additional cash and/or real estate as collateral
securing the Revolving Credit Facility. In addition, we obtained additional flexibility with
respect to our financial covenants in the Revolving Credit Facility. At March 31, 2008, we had
available borrowings of $18.9 million under the Revolving Credit Facility. On
May 13, 2008, we received additional flexibility with respect to certain financial covenants until
June 30, 2008. On May 9, 2008, we secured additional assets under the facility which increased our
borrowing capacity to approximately $55.0 million.
47
On May 13, 2008, we obtained a limited waiver which relaxed, through June 30, 2008, our minimum
consolidated tangible net worth and leverage ratio requirements under our revolving credit
facility. During the term of the limited waiver, the minimum consolidated tangible net worth shall
not be less than $700 million and the leverage ratio shall not exceed 2.50 to 1.00. We are
currently negotiating an amended covenant package with our bank group and expect to enter into an
amendment prior to finalizing our financial statements for the fiscal quarter ending June 30, 2008.
Senior Notes - The Senior Notes are unsecured obligations ranking pari passu with all other
existing and future senior indebtedness. Substantially all of our significant subsidiaries are
full and unconditional guarantors of the Senior Notes and are jointly and severally liable for
obligations under the Senior Notes and the Revolving Credit Facility. Each guarantor subsidiary is
a 100% owned subsidiary of Beazer Homes.
The indentures under which the Senior Notes were issued contain certain restrictive covenants,
including limitations on payment of dividends. At March 31, 2008, under the most restrictive
covenants of each indenture, no portion of our retained earnings was available for cash dividends
or for share repurchases. Each indenture provides that, in the event of defined changes in control
or if our consolidated tangible net worth falls below a specified level or in certain circumstances
upon a sale of assets, we are required to offer to repurchase certain specified amounts of
outstanding Senior Notes.
In March 2007, we voluntarily repurchased $10.0 million of our outstanding 8 5/8% Senior Notes and
$10.0 million of our outstanding 8 3/8% Senior Notes on the open market. The aggregate purchase
price was $20.6 million, or an average of 102.9% of the aggregate principal amount of the notes
repurchased, plus accrued and unpaid interest as of the purchase date. The repurchase of the notes
resulted in a $562,500 pretax loss during the second quarter of fiscal 2007. On March 28, 2007, we
repurchased an additional $10.0 million of our outstanding 8 5/8% Senior Notes which were cash
settled on April 2, 2007 at a purchase price of $9.85 million or an average of 98.5% of the
aggregate principal amount of the notes repurchased, plus accrued and unpaid interest as of the
purchase date. The repurchase of the notes resulted in a $150,000 pre-tax gain which was recorded
during the three months ended June 30, 2007. Gains/losses from notes repurchased are included in
other (expense) income, net in the accompanying unaudited condensed consolidated statements of
operations. Senior Notes purchased by the Company were cancelled.
On October 26, 2007, we obtained consents from holders of our Senior Notes to approve amendments of
the indentures under which the Senior Notes were issued. These amendments restrict our ability to
secure additional debt in excess of $700 million until certain conditions are met and enable us to
invest up to $50 million in joint ventures. The consents also provided us with a waiver of any and
all defaults under the Senior Notes that may have occurred or may occur on or prior to May 15, 2008
relating to filing or delivering annual and quarterly financial statements. Fees and expenses
related to obtaining these consents totaled approximately $21 million. The recording of such fees
and expenses has been deferred and will be amortized as an adjustment to interest expense in
accordance with EITF 96-19 Debtors Accounting for a Modification or Exchange of Debt
Instruments.
Junior Subordinated Notes On June 15, 2006, we completed a private placement of $103.1 million of
unsecured junior subordinated notes which mature on July 30, 2036 and are redeemable at par on or
after July 30, 2011 and pay a fixed rate of 7.987% for the first ten years ending July 30, 2016.
Thereafter, the securities have a floating interest rate equal to three-month LIBOR plus 2.45% per
annum, resetting quarterly. These notes were issued to Beazer Capital Trust I, which
simultaneously issued, in a private transaction, trust preferred securities and common securities
with an aggregate value of $103.1 million to fund its purchase of these notes. The transaction is
treated as debt in accordance with GAAP. The obligations relating to these notes and the related
securities are subordinated to the Revolving Credit Facility and the Senior Notes.
On April 30, 2008, we received a default notice from The Bank of New York Trust Company, National
Association, the trustee under the indenture governing these junior subordinated notes. The notice
alleges that we are in default under the indenture because we have not yet furnished certain
required information (including our annual audited and quarterly unaudited financial statements).
The notice further alleges that this default will become an event of default under the indenture if
not remedied within 30 days. We expect to be able to cure this default on or before May 15, 2008.
Other Secured Notes Payable We periodically acquire land through the issuance of notes payable.
As of March 31, 2008 and September 30, 2007, we had outstanding notes payable of $50.5 million and
$118.1 million, respectively, primarily related to land
acquisitions. These notes payable expire at various times through 2010 and had fixed and variable
rates ranging from 5.4% to 8.0% at March 31, 2008. These notes are secured by the real estate to
which they relate. During the first six months of fiscal 2008, we repaid $99.8 million of these
secured notes payable. In connection with the sale of our interest in two joint ventures to our
joint venture partner, we also acquired that partners interest in two separate joint ventures. In
connection with the acquisition of one of these ventures, we assumed the joint ventures debt of
approximately $22.7 million which is included in other secured notes payable as of March 31, 2008.
48
Model Home Financing Obligations - Due to a continuing interest in certain model home
sale-leaseback transactions, we have recorded $96.4 million and $114.1 million of debt as of March
31, 2008 and September 30, 2007, respectively, related to these financing transactions in
accordance with SFAS 98 (As amended), Accounting for Leases. These model home transactions incur
interest at a variable rate of one-month LIBOR plus 450 basis points, 7.61% as of March 31, 2008,
and expire at various times through 2015.
Other than the addition of the model home financing obligations discussed above, there were no
material changes to our long-term debt and contractual obligations.
Stock Repurchases and Dividends Paid On November 18, 2005, as part of an acceleration of Beazer
Homes comprehensive plan to enhance stockholder value, our Board of Directors authorized an
increase in our stock repurchase plan to ten million shares of our common stock. Shares may be
purchased for cash in the open market, on the NYSE, or in privately negotiated transactions. We
did not repurchase any shares in the open market during the three or six months ended March 31,
2008 and 2007. At March 31, 2008, we are authorized to purchase approximately 5.4 million
additional shares pursuant to the plan. In December 2007, we suspended our repurchase program and
any resumption of such program will be at the discretion of the Board of Directors and is unlikely
in the foreseeable future.
For the six months ended March 31, 2007, we paid quarterly cash dividends of $0.10 per common
share, or a total of approximately $7.8 million. We did not pay any dividends for the six months
ended March 31, 2008. On November 2, 2007, our Board of Directors suspended our dividend payments.
The Board concluded that suspending dividends, which will allow us to conserve approximately $16
million of cash annually, was a prudent effort in light of the continued deterioration of the
housing market.
Off-Balance Sheet Arrangements and Aggregate Contractual Commitments We historically have
attempted to control half or more of our land supply through option contracts. As a result of the
flexibility that these options provide us, upon a change in market conditions we may renegotiate
the terms of the options prior to exercise or terminate the agreement. Option contracts generally
require the payment of cash or the posting of a letter of credit for the right to acquire lots
during a specified period of time at a certain price. Under option contracts, both with and
without specific performance provisions, purchase of the properties is contingent upon satisfaction
of certain requirements by us and the sellers. Our obligations with respect to options with
specific performance provisions are included in our unaudited condensed consolidated balance sheets
in other liabilities. Under option contracts without specific performance obligations, our
liability is generally limited to forfeiture of the non-refundable deposits, letters of credit and
other non-refundable amounts incurred, which aggregated approximately $110.4 million at March 31,
2008. This amount includes non-refundable letters of credit of approximately $17.1 million. The
total remaining purchase price, net of cash deposits, committed under all options was $1.2 billion
as of March 31, 2008. Only $71.8 million of total remaining purchase price under such options
contains specific performance clauses which may require us to purchase the land or lots upon the
land seller meeting certain obligations.
We expect to exercise substantially all of our option contracts with specific performance
obligations and, subject to market conditions, most of our option contracts without specific
performance obligations. Various factors, some of which are beyond our control, such as market
conditions, weather conditions and the timing of the completion of development activities, can have
a significant impact on the timing of option exercises or whether land options will be exercised.
We have historically funded the exercise of land options through a combination of operating cash
flows and borrowings under our credit facilities. We expect these sources to continue to be
adequate to fund anticipated future option exercises. Therefore, we do not anticipate that the
exercise of our land options will have a material adverse effect on our liquidity.
Certain of our option contracts are with sellers who are deemed to be Variable Interest Entities
(VIEs) under FASB Interpretation No. 46R, Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51 (FIN 46R). We have determined that we are the primary beneficiary
of certain of these option contracts. Our risk is generally limited to the option deposits that we
pay, and creditors of
the sellers generally have no recourse to the general credit of the Company. Although we do not
have legal title to the optioned land, for those option contracts for which we are the primary
beneficiary, we are required to consolidate the land under option at fair value. We believe that
the exercise prices of our option contracts approximate their fair value. Our condensed
consolidated balance sheets at March 31, 2008 and September 30, 2007 reflect consolidated inventory
not owned of $194.0 million and $237.4 million, respectively. We consolidated $76.5 million and
$92.3 million of lot option agreements as consolidated inventory not owned pursuant to FIN 46R as
of March 31, 2008 and September 30, 2007, respectively. In addition, as of March 31, 2008 and
September 30, 2007, we recorded $117.5 million and $145.1 million, respectively, of land under the
caption consolidated inventory not owned related to lot option agreements in accordance with SFAS
49, Product Financing Arrangements. Obligations related to consolidated inventory not owned
totaled $138.4 million at March 31, 2008 and $177.9 million at September 30, 2007. The difference
between the balances of consolidated inventory not owned and obligations related to consolidated
inventory not owned represents cash deposits paid under the option agreements.
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We participate in a number of land development joint ventures in which we have less than a
controlling interest. We enter into joint ventures in order to acquire attractive land positions,
to manage our risk profile and to leverage our capital base. Our joint ventures are typically
entered into with developers, other homebuilders and financial partners to develop finished lots
for sale to the joint ventures members and other third parties. We account for our interest in
these joint ventures under the equity method. Our condensed consolidated balance sheets include
investments in joint ventures totaling $54.8 million and $109.1 million at March 31, 2008 and
September 30, 2007, respectively.
Our joint ventures typically obtain secured acquisition and development financing. At March 31,
2008, our unconsolidated joint ventures had borrowings outstanding totaling $642.8 million. In
some instances, we and our joint venture partners have provided varying levels of guarantees of
debt of our unconsolidated joint ventures. At March 31, 2008, we had repayment guarantees totaling
$39.0 million and loan-to-value maintenance guarantees of $6.1 million related to certain of our
unconsolidated joint ventures debt (see Notes 4 and 9 to the unaudited condensed consolidated
financial statements for additional information regarding our joint ventures and related
guarantees).
CRITICAL ACCOUNTING POLICIES:
As discussed in our annual report on Form 10-K for the fiscal year ended September 30, 2007, some
of our critical accounting policies require the use of judgment in their application or require
estimates of inherently uncertain matters and relate to inventory valuation, goodwill, homebuilding
revenues and costs, warranty reserves, investments in unconsolidated joint ventures and income
taxes valuation allowance. Although our accounting policies are in compliance with accounting
principles generally accepted in the United States of America, a change in the facts and
circumstances of the underlying transactions could significantly change the application of the
accounting policies and the resulting financial statement impact. There have been no material
changes to our critical accounting policies as discussed in our Annual Report on Form 10-K for the
year ended September 30, 2007.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to a number of market risks in the ordinary course of business. Our primary market
risk exposure relates to fluctuations in interest rates. We do not believe that our exposure in
this area is material to cash flows or earnings. As of March 31, 2008, we had $146.9 million of
variable rate debt outstanding. Based on our average outstanding borrowings under our variable
rate debt at March 31, 2008, a one-percentage point increase in interest rates would negatively
impact our annual pre-tax earnings by approximately $1.5 million.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Management, under the supervision and with the participation of its Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), evaluated the effectiveness of the Companys disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Act), as
of the end of period covered by this report. Management concluded that, as of March 31, 2008, the
Companys disclosure controls and procedures were not effective primarily because of the
identification of material weaknesses in our internal control over financial reporting, further
described below and in Item 9A of our fiscal 2007 Form 10-K, which we view as an
integral part of our disclosure controls and procedures. In addition, our disclosure controls and
procedures not relating to internal control over financial reporting were not sufficiently
documented and were not designed to require all accounting and financial employees, and other
corporate employees with specific knowledge of, or responsibility for, other disclosures to
complete quarterly certifications (management representations).
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Based on a number of factors, including the completion of the Audit Committees investigation, our
internal review that identified revisions to our previously issued financial statements, efforts to
remediate the material weaknesses in internal control over financial reporting described below, and
the performance of additional procedures by management designed to ensure the reliability of our
financial reporting, we believe that the unaudited condensed consolidated financial statements in
this Report fairly present, in all material respects, our financial position, results of operations
and cash flows as of the dates, and for the periods, presented, in conformity with accounting
principles generally accepted in the United States of America (GAAP).
We have reviewed and are implementing additional disclosure controls and procedures. This includes
expanding the Disclosure Committee to include representatives from Operations, Compliance, and
Audit and Controls. In addition, a formal Disclosure Committee charter and formal written
disclosure controls and procedures will be implemented in the third quarter of fiscal 2008.
Further, we are implementing an enhanced quarterly certification (management representation)
process that will include not just the signoff by executive management and the business unit
executives, but also by managers of the corporate finance departments, senior leadership at the
corporate office, and other business and finance employees who are significantly involved in the
financial reporting process. These new processes will help ensure Company employees at various
levels make full and complete representations concerning, and assume accountability for, the
accuracy and integrity of our financial statements and other public disclosures.
Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of our CEO and CFO,
which are required by Rule 13a-14 of the Act. This Disclosure Controls and Procedures section
includes information concerning managements evaluation of disclosure controls and procedures
referred to in those certifications and, as such, should be read in conjunction with the
certifications of the CEO and CFO.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of
the companys annual or interim financial statements will not be prevented or detected on a timely
basis. The Company has identified the following control deficiencies as of March 31, 2008, that
constituted material weaknesses:
Control Environment The control environment, which is the responsibility of senior management,
sets the tone of the organization, influences the actions of its employees, and is the foundation
for all other components of internal control over financial reporting. We did not maintain an
effective control environment. The Company identified the following deficiencies in our control
environment as of March 31, 2008, each of which is considered to be a material weakness:
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Code of Conduct Violations |
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The operating effectiveness of the Companys Code of Business Conduct and Ethics Policy (the
Code), which governs the execution by our employees of their duties and responsibilities
within established procedures, was deficient. As a result, the Code was not consistently
and strictly adhered to, including by certain of the Companys former executive officers,
and violations of the Code were not promptly and appropriately reported. This deficiency
led to an environment where improper and erroneous accounting information was utilized
related to certain transactions and financial statement matters and inappropriate decisions
could have been made, and were made, including with respect to certain model home
sale-leaseback transactions and certain home closings in California, that were not in
accordance with GAAP. |
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Compliance With Laws and Regulations |
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The design of the Companys controls related to our mortgage origination practices was not
sufficient to ensure compliance with all applicable laws, rules, and regulations, or to
enable a determination of the financial statement impact of such violations to the Companys
financial statement amounts and disclosures. This resulted in the violation of certain
applicable federal and/or state regulations, and could result in reimbursement of losses and
payment of regulatory and/or criminal fines. |
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Segregation of Duties |
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Our former Chief Accounting Officer had primary review and oversight responsibilities for
many financial reporting activities and controls designed to ensure the accuracy of our
financial statements. This lack of segregation of duties was a deficiency in the design of
our internal control over financial reporting that allowed for improprieties or errors in
the application of accounting practices to go undetected. |
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Management Override and Collusion |
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Based on the results of the independent investigation by the Audit Committee, we believe
that our former Chief Accounting Officer caused or permitted deficiencies to occur in the
operating effectiveness of our internal controls through the override of certain
documentation and financial accounting and reporting controls. In addition, the results of
the investigation uncovered collusion with some of the Companys business unit employees to
inappropriately manipulate earnings. |
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Accounting Policy, Procedures, and Controls There was a material weakness in the design of
accounting policies, procedures, and controls specifically related to the application of GAAP in
accounting for certain estimates involving significant management judgments. Specifically our
policies did not:
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Establish objective guidelines that should be applied in the determination of certain
accruals; |
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Require detailed analyses and review of certain subjective estimates; |
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Require significant estimates and related assumptions to be documented and approved; |
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Require dual approval for material journal entries that directly impact earnings through
the adjustment of accruals and reserves; |
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Establish consistent guidelines for the compilation of financial and operational
reports; and |
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Provide visibility into accruals and estimates which were recorded in the consolidated
financial statements in amounts that were different from the sum of such accruals recorded
at a divisional level. |
The material weaknesses described above resulted in the restatement of our annual financial
statements for fiscal years 1998-2006 and our quarterly financial statements for the quarters ended
December 31, 2006 and March 31, 2007. These material weaknesses had the following impacts on the
Companys financial reporting:
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Inappropriate reserves and other accrued liabilities were recorded relating to land
development costs, house construction costs and warranty accruals. These errors were
caused by a failure to require a determination and documentation of the reasonableness of
the assumptions used to develop such estimates of future expenditures for land development,
house construction and warranty claims. |
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Asset impairments were misstated because certain assumptions used to calculate
impairments, indirect costs and capitalized interest were improper or inaccurate. |
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The accounting for certain model home sale and leaseback agreements was not in
compliance with GAAP. GAAP does not permit a sale of real estate to be recognized if the
seller has a continuing involvement in the real estate sold. The Companys arrangement for
certain sale and leaseback transactions included various forms of continuing involvement
which prevented the Company from accounting for the transactions as sales. |
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Certain sale and leaseback agreements entered into by the former Chief Accounting
Officer were not properly documented and considered in the evaluation of the accounting for
the transaction. |
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Certain home closings in California were not reflected in the Companys accounting
records in the proper accounting periods. |
Change in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting during the quarter
ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting, except for the following:
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We revised, adopted, disclosed, and distributed an amended Code of Business Conduct and
Ethics in March 2008. In
addition, a comprehensive set of Interpretive Guidelines was developed and implemented in
conjunction with the amended Code of Business Conduct and Ethics. These guidelines are
intended to assist employees with understanding the requirements of the Code of Business
Conduct and Ethics by setting out specific examples of potential business situations. Both
the Code and the Guidelines highlight the existence of multiple lines of communication for
employees to report concerns which include: their immediate supervisor, any member of
management, any local or corporate officer, local or Corporate Human Resources, the
Compliance Officer, the Head of Audit and Controls, the Legal Department, the Chair of the
Nominating and Corporate Governance Committee of the Board of Directors or through the
Ethics Hotline. |
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We transferred the administration of our Ethics Hotline from officers of the Company to
an independent third party company in March 2008. Complaints are reported directly to the
independent third party, whether via the toll-free Ethics Hotline or via an on-line form.
In addition to other things, the transfer of administration of the Ethics Hotline is
intended to help ensure that all employees understand that there is an independent,
confidential, and if the employee chooses, anonymous method of reporting ethics concerns,
including those related to accounting, financial reporting or other irregularities. An
Awareness Campaign will be launched to introduce all employees to the new Ethics Hotline
process and to encourage reporting of all concerns. |
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We withdrew from the mortgage business and voluntarily discontinued accepting mortgage
applications in February 2008. Prior to our withdrawal from the mortgage
business, we terminated certain employees from our mortgage subsidiary who we concluded
violated certain HUD regulations. |
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We hired a new, experienced Chief Accounting Officer in February 2008. The new Chief
Accounting Officer has significant experience in the homebuilding industry, including one
prior circumstance where he was retained to oversee financial controls. |
Remediation Steps to Address Material Weaknesses
The Companys executive, regional and financial management are committed to achieving and
maintaining a strong control environment and an overall tone within the organization that empowers
all employees to act with the highest standards of ethical conduct. In addition, management remains
committed to the process of developing and implementing improved corporate governance and
compliance initiatives. In addition to the changes in internal control over financial reporting
described above and in our Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, our
current management team has been actively working on remediation efforts to address the material
weaknesses, as well as other identified areas of risk as follows:
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We launched a comprehensive training program in April 2008 that emphasizes adherence to
and the vital importance of the Companys Code of Business Conduct and Ethics. Every
employee in the Company is required to participate in the training program which was
developed by an outside company that specializes in ethics and other employee training
programs. |
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We terminated the Companys former Chief Accounting Officer and took appropriate action,
including the termination of employment, against other business unit employees who violated
the Companys Code of Business Conduct and Ethics Policy. While the former Chief
Accounting Officer was terminated for cause, due to violations of the Companys ethics
policy stemming from attempts to destroy documents in violation of the Companys document
retention policy, we believe his termination has addressed concerns about the internal
control deficiencies that we believe he caused or permitted to occur. |
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The Chief Accounting Officer and Regional CFOs are taking, or plan to take in the near
term, the following additional actions: |
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Conducting reviews of accounting processes to incorporate technology
improvements to strengthen the design and operation of controls; |
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Formalizing the process, analytics, and documentation around the monthly
analysis of actual results against budgets and forecasts conducted within the
accounting and finance departments; |
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Improving quality control reviews within the accounting function to ensure
account analyses and reconciliations are
completed accurately, timely, and with proper management review; |
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Formalizing and expanding the documentation of the Companys procedures for
review and oversight of financial reporting. |
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We are in the process of developing and/or clarifying existing accounting policies
related to estimates involving significant management judgments, as well as other financial
reporting areas. The new policies will focus on ensuring appropriate review and approval,
defining minimum documentation requirements, establishing objective guidelines to minimize
the degree of judgment in the determination of certain accruals, enforcing consistent
reporting practices, and enabling effective account reconciliation, trend analyses, and
exception reporting capabilities. |
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We believe the measures described above, once designed and operating effectively, will remediate
the material weaknesses we have identified and strengthen our internal control over financial
reporting. We are committed to continuing to improve our internal control processes and will
diligently and vigorously review our financial reporting controls and procedures. As we continue
to evaluate and work to improve our internal control over financial reporting, we may determine to
take additional remediation measures or determine to modify, or in appropriate circumstances not to
complete, certain of the remediation measures described above.
Inherent Limitations over Internal Controls
Our system of controls is designed to provide reasonable, not absolute, assurance regarding the
reliability and integrity of accounting and financial reporting. Management does not expect that
our disclosure controls and procedures or our internal control over financial reporting will
prevent or detect all errors and all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system will be met. These inherent limitations include the following:
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Judgments in decision-making can be faulty, and control and process breakdowns can occur
because of simple errors or mistakes. |
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Controls can be circumvented by individuals, acting alone or in collusion with each other,
or by management override. |
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The design of any system of controls is based in part on certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. |
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Over time, controls may become inadequate because of changes in conditions or deterioration
in the degree of compliance with associated policies or procedures. |
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The design of a control system must reflect the fact that resources are constrained, and
the benefits of controls must be considered relative to their costs. |
Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, have been detected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Investigations
United States Attorney, State and Federal Agency Investigations. Beazer Homes and its subsidiary,
Beazer Mortgage Corporation, are under criminal and civil investigations by the United States
Attorneys Office in the Western District of North Carolina and other state and federal agencies
concerning the matters that were the subject of the independent investigation by the Audit
Committee of the Beazer Homes Board of Directors as described in Notes 14 and 17 to the
consolidated financial statements included in Item 8 of our 2007 Form 10-K. The Company is fully
cooperating with these investigations.
Securities and Exchange Commission Investigation. On July 20, 2007, Beazer Homes received from the
SEC a formal order of private investigation to determine whether Beazer Homes and/or other persons
or entities involved with Beazer Homes have violated federal securities laws, including, among
others, the anti-fraud, books and records, internal accounting controls, periodic reporting and
certification provisions thereof. The SEC had previously initiated an informal investigation in
this matter in May 2007. The Company is fully cooperating with the SEC investigation.
Independent Investigation. The Audit Committee of the Beazer Homes Board of Directors has completed
an independent investigation (the Investigation) of Beazer Homes mortgage origination business,
including, among other things, investigating certain evidence that the Companys subsidiary, Beazer
Mortgage Corporation, violated U.S. Department of Housing and Urban Development (HUD) regulations
and may have violated certain other laws and regulations in connection with certain of its mortgage
origination activities. The results of the Investigation are fully described in Notes 14 and 17 to
the consolidated financial statements included in Item 8 of our fiscal 2007 Form 10-K.
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Mortgage Origination Issues
The Investigation found evidence that employees of the Companys Beazer Mortgage Corporation
subsidiary violated certain federal and/or state regulations, including U.S. Department of Housing
and Urban Development (HUD) regulations. Areas of concern uncovered by the Investigation include:
down payment assistance programs; the charging of discount points; the closure of certain HUD
Licenses; closing accommodations; and the payment of a number of realtor bonuses and decorator
allowances in certain Federal Housing Administration (FHA) insured loans and non-FHA conventional
loans originated by Beazer Mortgage dating back to at least 2000. The Investigation also
uncovered limited improper practices in relation to the issuance of a number of non-FHA Stated
Income Loans. We reviewed the loan documents and supporting documentations and determined that the
assets were effectively isolated from the seller and its creditors (even in the event of
bankruptcy). Based on that information, management continues to believe that sale accounting at
the time of the transfer of the loans to third parties was appropriate.
We intend to attempt to negotiate a settlement with prosecutors and regulatory authorities that
would allow us to quantify our exposure associated with reimbursement of losses and payment of
regulatory and/or criminal fines, if they are imposed. See Notes 14 and 17 to the consolidated
financial statements included in Item 8 of our 2007 Form 10-K for additional discussion of this
matter. At this time, we believe that although it is probable that a liability exists related to
this exposure, it is not reasonably estimable and would be inappropriate to record a liability as
of March 31, 2008.
Effective February 1, 2008, we exited the mortgage origination business and entered into an
exclusive preferred lender arrangement with a national third-party mortgage provider. This
exclusive arrangement will continue to offer our homebuyers the option of a simplified financing
process while enabling us to focus on our core competency of homebuilding.
Litigation
Securities Class Actions. Beazer Homes and certain of our current and former executive officers are
named as defendants in a putative class action securities lawsuit filed on March 29, 2007 in the
United States District Court for the Northern District of Georgia. Plaintiffs filed this action on
behalf of a purported class of purchasers of Beazer Homes common stock between July 27, 2006 and
March 27, 2007. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by issuing materially false
and misleading statements regarding our business and prospects because we did not disclose facts
related to alleged improper lending practices in our mortgage origination business. Plaintiffs seek
an unspecified amount of compensatory damages. Two additional lawsuits were filed subsequently on
May 18, 2007 and May 21, 2007 in the United States District Court for the Northern District of
Georgia making similar factual allegations and asserting class periods of July 28, 2005 through
March 27, 2007, and March 30, 2005 through March 27, 2007, respectively. The court has consolidated
these three lawsuits and plaintiffs are expected to file a consolidated amended complaint within
thirty days after May 12, 2008, the date we filed our fiscal 2007 Form 10-K with the SEC. The
Company intends to vigorously defend against these actions.
Derivative Shareholder Actions. Certain of Beazer Homes current and former executive officers and
directors were named as defendants in a derivative shareholder suit filed on April 16, 2007 in the
United States District Court for the Northern District of Georgia. The complaint also names Beazer
Homes as a nominal defendant. The complaint, purportedly on behalf of Beazer Homes, alleges that
the defendants (i) violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder; (ii) breached their fiduciary duties and misappropriated information; (iii)
abused their control; (iv) wasted corporate assets; and (v) were unjustly enriched. Plaintiffs seek
an unspecified amount of compensatory damages against the individual defendants and in favor of
Beazer Homes. An additional lawsuit was filed subsequently on August 29, 2007 in the United States
District Court for the Northern
District of Georgia asserting similar factual allegations. A motion to consolidate the two Georgia
derivative actions is pending, and the plaintiffs are expected to designate the operative complaint
within five days after the Court consolidates the actions. Additionally, on September 12, 2007,
another derivative suit was filed in Delaware Chancery Court, and the plaintiffs filed an amended
complaint on October 26, 2007. The Delaware complaint raises similar factual and legal claims as
those asserted by the plaintiffs in the Georgia derivative actions. The defendants have moved to
dismiss the Delaware action, or in the alternative, to stay the case pending resolution of the
derivative litigation pending in Georgia. The defendants intend to vigorously defend against these
actions.
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ERISA Class Actions. On April 30, 2007, a putative class action complaint was filed on behalf of a
purported class consisting of present and former participants and beneficiaries of the Beazer Homes
401(k) Plan, naming Beazer Homes, certain of its current and former officers and directors and the
Benefits Administration Committee as defendants. The complaint was filed in the United States
District Court for the Northern District of Georgia. The complaint alleges breach of fiduciary
duties, including those set forth in the Employee Retirement Income Security Act (ERISA) as a
result of the investment of retirement monies held by the 401(k) Plan in common stock of Beazer
Homes at a time when participants were allegedly not provided timely, accurate and complete
information concerning Beazer Homes. Four additional lawsuits were filed subsequently on May 11,
2007, May 14, 2007, June 15, 2007 and July 27, 2007 in the United States District Court for the
Northern District of Georgia making similar allegations. The court has consolidated these five
lawsuits, and the plaintiffs are expected to file a consolidated amended complaint within thirty
days after May 12, 2008, the date we filed our Form 10-K with the SEC. The Company intends to
vigorously defend against these actions.
Homeowners Class Action Lawsuits and Multi-Plaintiff Lawsuit. Beazer Homes subsidiaries, Beazer
Homes Corp. and Beazer Mortgage Corporation, were named as defendants in a putative class action
lawsuit filed on March 23, 2007 in the General Court of Justice, Superior Court Division, County of
Mecklenburg, North Carolina. The case was removed to the U.S. District Court for the Western
District of North Carolina, Charlotte Division. The complaint was filed as a putative class action.
The purported class is defined as North Carolina residents who purchased homes in subdivisions in
North Carolina containing homes constructed by the defendants where the foreclosure rate is
allegedly significantly higher than the state-wide average. The complaint alleged that the
defendants utilized unfair trade practices to allow low-income purchasers to qualify for loans they
allegedly could not afford, resulting in foreclosures that allegedly diminished plaintiffs
property values. Plaintiffs sought an unspecified amount of compensatory damages and also requested
that any damage award be trebled. On April 25, 2008, the District Court dismissed all causes of
action with prejudice. If Plaintiffs appeal the judgment of the District Court, the defendants will
continue to vigorously defend this action.
A second putative homeowner class action lawsuit was filed on April 23, 2007 in the United States
District Court for the District of South Carolina, Columbia Division. The complaint alleged that
Beazer Homes Corp. and Beazer Mortgage Corporation illegally facilitated the financing of the
purchase of homes sold to low-income purchasers, who allegedly would not have otherwise qualified
for the loans. Certain of the plaintiffs also alleged that the defendants practices resulted in
foreclosures that allegedly diminished plaintiffs property values. The complaint demanded an
unspecified amount of damages, including damages for alleged violations of federal RICO statutes
and punitive damages. The Company filed a motion to dismiss and the District Court dismissed all
causes of action with prejudice on September 10, 2007. The plaintiffs subsequently filed a motion
for reconsideration which the District Court denied. The plaintiffs did not file a notice of
appeal and this case is now concluded.
An additional putative class action was filed on April 8, 2008 in the United States District Court
for the Middle District of North Carolina, Salisbury Division, against Beazer Homes, U.S.A., Inc.,
Beazer Homes Corp. and Beazer Mortgage Corporation. The Complaint alleges that Beazer violated the
Real Estate Settlement Practices Act and North Carolina Gen. Stat. § 75-1.1 by (1) improperly
requiring homebuyers to use Beazer-owned mortgage and settlement services as part of a down payment
assistance program, and (2) illegally increasing the cost of homes and settlement services sold by
Beazer Homes Corp. Plaintiff also asserts that Beazer was unjustly enriched by these alleged
actions. The purported class consists of all residents of North Carolina who purchased a home from
Beazer, using mortgage financing provided by and through Beazer that included seller-funded down
payment assistance, between January 1, 2000 and October 11, 2007. The Complaint demands an
unspecified amount of damages, various forms of equitable relief, treble damages, attorneys fees
and litigation expenses. The defendants have not yet filed a responsive pleading or motion, but we
intend to vigorously defend this action.
Beazer Homes Corp. and Beazer Mortgage Corporation are also named defendants in a lawsuit filed on
July 3, 2007, in the General Court of Justice, Superior Court Division, County of Mecklenburg,
North Carolina. The complaint was filed on behalf of ten individual homeowners who purchased homes
from Beazer in Mecklenburg County. The case was removed to the U.S. District Court for the Western
District of North Carolina, Charlotte Division, but remanded on April 23, 2008 to the General Court
of Justice, Superior Court Division, County of Mecklenburg, North Carolina. The complaint alleges
certain deceptive conduct by the defendants and brings
various claims under North Carolina statutory and common law, including a claim for punitive
damages. The Company intends to vigorously defend against this action.
Beazer Homes subsidiaries, Beazer Homes Holdings Corp. and Beazer Mortgage Corporation, were named
as defendants in a putative class action lawsuit filed on March 12, 2008 in the Superior Court of
the State of California, County of Placer. The purported class is defined as all residential
mortgage borrowers, who within four years of the filing of the complaint, purchased homes from
Beazer with the assistance of a federally related mortgage loan in which Beazer accepted a fee or
something of value from an affiliated or recommended title insurance company. The complaint alleges
that the defendants violated the Real Estate Settlement Procedures Act (RESPA) and asserts claims
under a number of state statutes alleging that defendants engaged in a uniform and systematic
practice of giving and/or accepting fees and kickbacks to affiliated businesses including
affiliated and/or recommended title insurance companies. The complaint also alleges a number of
common law claims. Plaintiffs seek an unspecified amount of damages under RESPA, unspecified
compensatory and punitive damages and injunctive and declaratory relief, as well as attorneys fees
and costs. The defendants have not yet been served in this action. We will vigorously defend
against this action.
56
Bond Indenture Trustee Litigation. On September 10, 2007, we filed an Amended Complaint For
Declaratory Judgment and Injunctive Relief in an action pending in the United States District Court
in Atlanta, Georgia against the trustees under the indentures governing our outstanding senior and
convertible senior notes. We sought, among other relief, a declaration from the court against the
trustees that the delay in filing with the SEC our Form 10-Q for the quarterly period ended June
30, 2007 does not constitute a default under the applicable indentures and that the delay will not
give rise to any right of acceleration on the part of the holders of the senior and convertible
senior notes.
On October 29, 2007, we notified the court and the trustees that we had successfully concluded a
consent solicitation concerning the notes at issue. Because the consents provide us with a waiver
of any and all defaults under the indentures at issue that may have occurred or may occur prior to
May 15, 2008 due to our failure to file or deliver reports or other information we would be
required to file with the SEC, we continued to request the court to rule on our demand for
declaratory judgment. In response to our notice of successful consent solicitation, the trustees
requested the court to deny our request for a ruling on the merits and dismiss the action, without
prejudice, on the ground that there is no justiciable controversy ripe for determination. We
opposed the trustees suggestion of mootness and requested the court to grant us declaratory
judgment.
We cannot predict or determine the timing or final outcome of the governmental investigations or
the lawsuits or the effect that any adverse findings in the investigations or adverse
determinations in the lawsuits may have on us. While we are cooperating with the governmental
investigations, developments, including the expansion of the scope of the investigations, could
negatively impact us and could divert the efforts and attention of our management team from the
operation of our business and/or result in further departures of executives or other employees.
An unfavorable determination resulting from any governmental investigation could result in the
filing of criminal charges, the payment of substantial criminal or civil fines, the imposition of
injunctions on our conduct or the imposition of other penalties or consequences, including the
Company adjusting, curtailing or terminating the conduct of certain of our business operations. Any
of these outcomes could have a material adverse effect on our business, financial condition,
results of operations and prospects. An unfavorable determination in any of the lawsuits could
result in the payment by us of substantial monetary damages which may not be fully covered by
insurance. Further, the legal costs associated with the investigations and the lawsuits and the
amount of time required to be spent by management and the Board of Directors on these matters, even
if we are ultimately successful, could have a material adverse effect on our business, financial
condition and results of operations.
Other Matters
In November 2003, Beazer Homes received a request for information from the EPA pursuant to Section
308 of the Clean Water Act seeking information concerning the nature and extent of storm water
discharge practices relating to certain of our projects completed or under construction. The EPA
has since requested information on additional projects and has conducted site inspections at a
number of locations. In certain instances, the EPA or the equivalent state agency has issued
Administrative Orders identifying alleged instances of noncompliance and requiring corrective
action to address the alleged deficiencies in storm water management practices. As of March 31,
2008, no monetary penalties have been imposed in connection with such Administrative Orders. The
EPA has reserved the right to impose monetary penalties at a later date, the amount of which, if
any, cannot currently be estimated. Beazer Homes has taken action to comply with the requirements
of each of the Administrative Orders and is working to otherwise maintain compliance with the
requirements of the Clean Water Act.
In 2006, we received two Administrative Orders issued by the New Jersey Department of Environmental
Protection. The Orders allege certain violations of wetlands disturbance permits. The two Orders
assess proposed fines of $630,000 and $678,000, respectively. We have met with the Department to
discuss their concerns on the two affected projects and have requested hearings on both matters.
We believe that we have significant defenses to the alleged violations and intend to contest the
agencys findings and the proposed fines. We are currently pursuing settlement discussions with
the Department. A hearing before the judge has been postponed pending settlement discussions.
We and certain of our subsidiaries have been named as defendants in various claims, complaints and
other legal actions, most relating to construction defects, moisture intrusion and product
liability claims. Certain of the liabilities resulting from these actions are covered in whole or
part by insurance. In our opinion, based on our current assessment, the ultimate resolution of
these matters will not have a material adverse effect on our financial condition, results of
operations or cash flows.
57
Item 6. Exhibits
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10.1 |
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Limited Waiver, dated as of May 13, 2008, to and
under the Credit Agreement, dated as of July 15, 2007, among the Company,
the lenders thereto and Wachovia Bank, National Association, as Agent |
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31.1 |
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Certification pursuant to 17 CFR 240.13a-14
promulgated under Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
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Certification pursuant to 17 CFR 240.13a-14
promulgated under Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 |
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Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 |
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Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
58
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Beazer Homes USA, Inc.
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Date: May 15, 2008 |
By: |
/s/ Allan P. Merrill
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Name: |
Allan P. Merrill |
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Executive Vice President and
Chief Financial Officer |
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59