UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2005

or

o 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)

1000 Abernathy Road, Suite 1200, Atlanta, Georgia 30328

(Address of principal executive offices)                            (Zip Code)

(770) 829-3700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

BEAZER HOMES USA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

See Notes to Unaudited Condensed Consolidated Financial Statements

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BEAZER HOMES USA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

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 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 the Company’s opinion, all adjustments (consisting solely of normal recurring accruals) necessary for a fair presentation have been included in the accompanying financial statements.  Certain items in prior period financial statements have been reclassified to conform to the current presentation.  For further information, refer to the Company’s audited consolidated financial statements appearing in Beazer Homes’ Annual Report on Form 10-K for the fiscal year ended September 30, 2004.

At the annual stockholders’ meeting held on February 3, 2005, the Company’s stockholders approved an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of common stock from 30 million to 80 million shares and to change the par value of the common stock to $0.001 per share.  The Company’s Board of Directors subsequently approved a three-for-one stock split in February 2005.  The stock split was effected in the form of a stock dividend paid on March 22, 2005 to stockholders of record at the close of business on March 10, 2005.  All share and per share amounts (except par value) have been retroactively adjusted to reflect the split.  There was no net effect on stockholders’ equity as a result of the stock split.

(2) Goodwill Impairment Charge

During the quarter ended March 31, 2005, the Company recorded a $130.2 million non-cash, non tax-deductible impairment charge to write off substantially all of the goodwill allocated to certain underperforming markets in Indiana, Ohio, Kentucky and Charlotte, North Carolina.  The goodwill had been recorded as a result of the April 2002 acquisition of Crossmann Communities.  The fair value of each reporting unit is determined based on expected discounted future cash flows.  The forecasts and valuations of the respective divisions, along with weaker than anticipated local economies, particularly in the Midwest markets, and severe price competition, particularly at entry level price points, led the Company to conclude the goodwill was impaired in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142.

(3) Stock-Based Compensation

The Company accounts for stock awards granted to employees under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations.  No compensation expense is recognized for stock options granted to employees because all stock options granted have exercise prices not less than the market value of the Company’s stock on the date of the grant.  Restricted stock granted to employees is valued based on the market price of the common stock on the date of the grant.

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Below is a summary of amounts, net of cash deposits, committed under all options at June 30, 2005 (in thousands):

Certain of the Company’s option contracts are with sellers who are deemed to be Variable Interest Entities (“VIEs”) under FASB Revised Interpretation No. 46, “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.

Beazer Homes has determined that it is the primary beneficiary of certain of these option contracts.  Beazer Homes’ risk is generally limited to the option deposits that the Company pays, and creditors of the sellers generally have no recourse to the general credit of the Company.  Although Beazer Homes does not have legal title to the optioned land, for those option contracts for which the Company is the primary beneficiary, the Company is required to consolidate the land under option at fair value.  Beazer Homes believes that the exercise prices of the option contracts approximate their fair value.  The Company’s consolidated balance sheets at June 30, 2005 and September 30, 2004 reflect consolidated inventory not owned of $224.0 million and $254.8 million, respectively.  Obligations related to consolidated inventory not owned totaled $173.2 million at June 30, 2005 and $219.0 million at September 30, 2004.  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.   The above disclosures of amounts committed under options include the Company’s obligations related to consolidated inventory not owned.

(5) Investments in and Advances to Unconsolidated Joint Ventures

Beazer Homes participates in a number of land development joint ventures in which the Company has less than a controlling interest.  The Company’s joint ventures are generally entered into with developers and other homebuilders to develop finished lots for sale to the joint venture’s members and other third parties.  The Company’s interest in these joint ventures is accounted for under the equity method.  The Company recognizes its share of profits from the sale of lots to other buyers.  The Company’s share of joint venture profits from lots purchased from the joint ventures is deferred and treated as a reduction of the cost of the land purchased from the joint venture.  Such profits are subsequently recognized at the time the home closes and title passes to the homebuyer.

Beazer Homes’ joint ventures typically obtain secured acquisition and development financing.  In some instances, Beazer Homes and the joint venture partners have provided varying levels of guarantees of debt of certain

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unconsolidated joint ventures.  At June 30, 2005 the Company had repayment guarantees of $10.4 million and loan-to-value maintenance guarantees of $66.7 million related to debt of unconsolidated joint ventures.  Repayment guarantees require the Company to repay its share of debt of unconsolidated joint ventures in the event the joint venture defaults on its obligations under the loans.  Loan-to-value maintenance guarantees only apply if an unconsolidated joint venture defaults on its loan arrangements and the value of the collateral is less than a specified percentage of the loan balance.  If the Company is required to repay its share of the venture’s borrowings to the extent such borrowings exceed a specified percentage of the value of the property securing the loan, the payment would be a capital contribution or loan to the venture.  At June 30, 2005 there were no funding obligations related to any loan-to-value maintenance guarantees.

(6) Interest

The following table sets forth certain information regarding interest (in thousands):

(7) Earnings Per Share

Basic and diluted earnings per share were calculated as follows (in thousands, except per share amounts):

Basic and diluted earnings per share amounts and weighted average shares outstanding for prior periods have been retroactively restated to reflect the effect of the Company’s March 2005 three-for-one stock split.

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In September 2004 the Emerging Issues Task Force (“EITF”) of the FASB reached a consensus on EITF Issue No. 04-8: “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share” (“EITF 04-8”).  The consensus was ratified by the FASB in October 2004.  EITF 04-8 requires that shares issuable upon conversion of contingently convertible debt instruments (“Co-Cos”) be included in diluted earnings per share computations using the “if-converted method” regardless of whether the issuer’s stock price exceeds the contingent conversion price.  Prior to EITF 04-8, shares issuable upon conversion of Co-Cos were generally excluded from diluted earnings per share computations until the issuer’s stock price exceeded the contingent conversion price.   EITF 04-8, which applies to the Company’s 4 5/8 % Convertible Senior Notes issued in June 2004, was effective beginning with the first quarter of Beazer Homes’ 2005 fiscal year.  Restatement of prior period earnings per share amounts presented for comparative purposes is required.  The 4 5/8% Convertible Senior Notes were outstanding for a portion of the quarter ended June 30, 2004.  Diluted earnings per share have been retroactively restated to reflect the effect of the adoption of EITF 04-8 for the three and nine months ended June 30, 2004.  The impact of this adoption reduced diluted earnings per share by $0.02 for the quarter ended June 30, 2004 and $0.01 for the nine months ended June 30, 2004.

(8) Long Term Debt

The Company has a credit facility (the “Credit Facility”) with a group of banks.  The Credit Facility included a $550 million four-year revolving credit facility (the “Revolving Credit Facility”) and a $200 million four-year term loan (the “Term Loan”).  The Term Loan was repaid during the quarter ended June 30, 2005 with a portion of the proceeds from the Company’s $300 million 6 7/8% Senior Notes discussed below.  The Revolving Credit Facility matures in June 2008.  The Revolving Credit Facility bears interest at a variable rate based upon LIBOR or the alternate base rate of interest announced by the lead bank.  The Credit Facility contains various operating and financial covenants.

Available borrowings under the Revolving Credit Facility are limited to certain percentages of homes under contract, unsold homes, substantially improved lots, lots under development, entitled raw land, and accounts receivable.  At June 30, 2005, the Company had no borrowings outstanding under the Revolving Credit Facility, and had available borrowings of $453.0 million under the Revolving Credit Facility.

In June 2005, the Company issued $300 million aggregate principal amount of 6 7/8% Senior Notes due July 2015 (the “6 7/8% Senior Notes”) in a private placement pursuant to Rule 144A and Regulation S, promulgated under the Securities Act of 1933, as amended.  The 6 7/8% Senior Notes were issued at a price of 99.096% of their face amount (before underwriting discount and other issuance costs).  In July 2005, the Company issued an additional $50 million aggregate principal amount of the 6 7/8% Senior Notes in a private placement pursuant to Rule 144A, promulgated under the Securities Act of 1933, as amended.  The additional $50 million of 6 7/8% Senior Notes was issued at a price of 99.976% of their face amount (before underwriting discount and other issuance costs) and accrue interest from June 8, 2005 (the date of the original issuance of the 6 7/8% Senior Notes).  Interest on the 6 7/8% Senior Notes is payable semi-annually.  Beazer Homes may, at the Company’s option, redeem the 6 7/8% Senior Notes in whole or in part at any time after July 2010, initially at 103.438% of the principal amount, declining to 100% of the principal amount after July 2013.  The Company may redeem the 6 7/8% Senior Notes, in whole or in part, at any time before July 2010 at a redemption price equal to the principal amount thereof plus a “make-whole” premium, plus accrued and unpaid interest.  A portion of such notes may also be redeemed prior to July 2008 under certain conditions.

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In June 2004, Beazer Homes issued $180 million aggregate principal amount of 4 5/8% Convertible Senior Notes due 2024 (the “Convertible Senior Notes”) in a private placement pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended.  In August 2004, the Company filed a registration statement on Form S-3 with the SEC covering resales of the Convertible Senior Notes and the common stock issuable upon conversion.  The Convertible Senior Notes were issued at a price of 100% of their face amount (before underwriting discount and other issuance costs).  Interest on the Convertible Senior Notes is payable semiannually.  The notes are convertible by holders into shares of Beazer Homes common stock at an initial conversion rate of 19.44 shares of Beazer Homes common stock per $1,000 principal amount (subject to adjustment for customary reasons), representing an initial conversion price of $51.44 per share of common stock (adjusted for the March 2005 three-for-one stock split).  The notes are convertible if the price of the Company’s common stock is equal to or greater than 120% of the conversion price for 20 of the last 30 consecutive trading days of a calendar quarter and under certain other circumstances as more fully described in Note 8 to the consolidated financial statements appearing in the Beazer Homes’ Annual Report on Form 10-K for the fiscal year ended September 30, 2004.

Beazer Homes may, at the Company’s option, redeem for cash the Convertible Senior Notes in whole or in part at any time on or after June 15, 2009, initially at 101.321% of the principal amount, declining to 100% of the principal amount after June 15, 2011.  Holders have the right to require the Company to purchase all or any portion of the Convertible Senior Notes for cash on June 15, 2011, June 15, 2014 and June 15, 2019 or if Beazer Homes undergoes a fundamental change, as defined.  In each case, the Company will pay a purchase price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest to such purchase date.

In November 2003, the Company issued $200 million aggregate principal amount of 6 ½% Senior Notes due November 2013 (the “Original 2003 Notes”) in a private placement pursuant to Rule 144A and Regulation S promulgated under the Securities Act of 1933, as amended.  The Original 2003 Notes were issued at a price of 100% of their face amount (before underwriting discount and other issuance costs).  In May 2004 the Company completed an offer to exchange all of the outstanding Original 2003 Notes for an equal amount of 6 ½% Senior Notes due November 2013 (the “6 ½% Senior Notes”), which were registered under the Securities Act of 1933.  Interest on the 6 1/2% Senior Notes is payable semiannually.  Beazer Homes may, at the Company’s option, redeem the 6 1/2% Senior Notes in whole or in part at any time after November 2008, initially at 103.250% of the principal amount, declining to 100% of the principal amount after November 2011.  Beazer Homes may redeem the 6 1/2% Senior Notes, in whole or in part, at any time before November 2008 at a redemption price equal to the principal amount thereof plus a “make-whole” premium, plus accrued and unpaid interest.  A portion of such notes may also be redeemed prior to November 2006 under certain conditions.

In April 2002, the Company issued $350 million aggregate principal amount of 8 3/8% Senior Notes due April 2012 (the “Original Notes”) in a private placement pursuant to Rule 144A and Regulation S promulgated under the Securities Act of 1933, as amended.  In September 2002 the Company completed an offer to exchange all of the outstanding Original Notes for an equal amount of 8 3/8% Senior Notes due 2012 (the “8 3/8% Senior Notes”), which were registered under the Securities Act of 1933.  The terms of the 8 3/8% Senior Notes were substantially identical to the terms of the Original Notes.  The Original Notes were issued at a price of 100% of their face amount (before underwriting discount and other issuance costs).  Interest on the 8 3/8% Senior Notes is payable semiannually.  Beazer Homes may, at the Company’s option, redeem the 8 3/8% Senior Notes in whole or in part

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at any time after April 2007, initially at 104.188% of the principal amount, declining to 100% of the principal amount after April 2010.

In May 2001, Beazer Homes issued $200 million 8 5/8% Senior Notes due May 2011 (the “8 5/8% Senior Notes”) at a price of 99.178% of their face amount (before underwriting discount and other issuance costs).  Interest on the 8 5/8% Senior Notes is payable semiannually.  The Company may, at its option, redeem the 8 5/8% Senior Notes in whole or in part at any time after May 2006, initially at 104.3125% of the principal amount, declining to 100% of the principal amount after May 2009.

The Convertible Senior Notes, the 6 7/8% Senior Notes, the 6 1/2 % Senior Notes, the 8 3/8% Senior Notes and the 8 5/8% Senior Notes (collectively, the “Senior Notes”) are unsecured obligations ranking pari passu with all other existing and future senior indebtedness.  All of the Company’s significant subsidiaries are full and unconditional guarantors of the Senior Notes and the obligations under the Credit Facility, and are jointly and severally liable for obligations under the Senior Notes and the 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 June 30, 2005, under the most restrictive covenants of each indenture, approximately $291.0 million of the Company’s retained earnings was available for cash dividends and for share repurchases.  Each indenture provides that, in the event of defined changes in control or if Beazer Homes’ consolidated tangible net worth falls below a specified level or in certain circumstances upon a sale of assets, the Company is required to offer to repurchase certain specified amounts of outstanding Senior Notes.

The Company is exposed to fluctuations in interest rates.  From time to time, Beazer Homes has entered into derivative agreements to manage interest costs and hedge against risks associated with fluctuating interest rates related to $100 million of floating rate debt.  At September 30, 2004, Beazer Homes had swap agreements to effectively fix the interest rate on $100 million in floating rate debt.  As of September 30, 2004, the Company had recorded a cumulative after-tax other comprehensive loss of $610,000 as a result of the swap agreements.  The estimated fair value of the swap agreements, based on current market rates, approximated $1.0 million at September 30, 2004 and was included in other liabilities.  The swap agreements expired on December 20, 2004.

(9) Contingencies

Trinity Claims – 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 and mold.  The Company has experienced a significant number of such claims in its Midwest region and particularly with respect to homes built by Trinity Homes LLC, a subsidiary which was acquired in the Crossmann acquisition in 2002.

As of June 30, 2005, there were eleven pending lawsuits related to such complaints received by Trinity.  All eleven 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.

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refined its cost estimation process to consider 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 the Company’s estimated costs to remediate such home.

During fiscal 2004, the Company initiated a program under which it offered to repurchase a limited number of homes from specific homeowners.  The program was concluded during the first quarter of fiscal 2005.  The Company has repurchased a total of 54 homes under the program.  During the three and nine months ended June 30, 2005, the Company sold one and four of the repurchased homes, respectively.  The remaining fifty homes were acquired for an aggregate purchase price of $16.5 million.  The accrual at June 30, 2005 includes the estimated costs to sell homes that the Company has repurchased, and the Company’s estimated losses on the sale of those homes, if any.

Changes in the accrual for Trinity moisture intrusion and related mold issues during the period were as follows (in thousands):

The accruals at June 30, 2005 represent the Company’s best estimates of the costs to resolve all asserted complaints.  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 repurchased homes, and losses on such sales could differ from the Company’s estimates.  As a result, the costs to resolve existing complaints could differ from the Company’s recorded accruals and have a material adverse effect on the Company’s earnings in the periods in which the matters are resolved.   Additionally, it is possible that the Company will incur additional losses related to these matters, including additional losses related to homes for which the Company has not yet received complaints.  However, the amount or range of such losses cannot be determined at this time.

Warranty Reserves – Beazer Homes provides a limited warranty (ranging from one to two years) of workmanship and materials with each of its homes. Such warranty covers defects in plumbing, electrical, heating, cooling and ventilating systems and construction defects. In addition, the Company provides a warranty (ranging from a minimum of ten years up to the period covered by the applicable statute of repose) with each home, covering construction defects only. Since Beazer Homes subcontracts its homebuilding work to subcontractors who generally provide the Company with an indemnity and a certificate of insurance prior to receiving payments for their work, claims relating to workmanship and materials are generally the primary responsibility of the subcontractors.

As noted above, the Company’s warranty reserves at June 30, 2005 and September 30, 2004 include accruals for Trinity moisture intrusion and related mold issues.  Warranty reserves are included in accrued expenses in the condensed consolidated financial statements.  The Company records reserves covering anticipated warranty expense for each home closed.  Management reviews the adequacy of warranty reserves each reporting period based on historical experience and management’s estimate of the costs to remediate the claims and adjusts these

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provisions accordingly.  While the Company believes that its 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.

Changes in the Company’s warranty reserves, which include amounts related to the Trinity moisture intrusion and mold issues discussed above,  during the period are as follows (in thousands):

Other Contingencies - The Company and certain of its subsidiaries have been named as defendants in various claims, complaints and other legal actions, including relating to moisture intrusion and related mold claims, construction defects and product liability.  Certain of the liabilities resulting from these actions are covered by insurance.  With respect to certain general liability exposures, including construction defect, moisture intrusion and related mold claims and product liability, interpretation of underlying current and future trends, assessment of claims and the related liability and reserve estimation process is highly judgmental due to the complex nature of these exposures, with each exposure exhibiting unique circumstances.  In particular, for construction defect liability there is a high degree of uncertainty relating to whether insurance coverage exists, when losses occur, the size of each loss, expectations for future interpretive rulings concerning contract provisions and the extent to which the assertion of these claims will expand geographically.  In the Company’s opinion, based on its current assessment, the ultimate resolution of these matters will not have a material adverse effect on Beazer Homes financial condition, results of operations, or cash flows.

(10) Income Taxes

A provision for income taxes for the nine month period ended June 30, 2005 has been recorded at an estimated effective income tax rate exclusive of the goodwill impairment charge as such charge is not tax deductible.  Beazer Homes’ effective income tax rate was 38.25% for the three month and nine month periods ended June 30, 2005, exclusive of the goodwill impairment charge as discussed in Note 2.  The Company’s effective tax rate was 39.0% for the three and nine month periods ended June 30, 2004.

(11)  Supplemental Guarantor Information

As discussed in Note 8, Beazer Homes’ obligations to pay principal, premium, if any, and interest under certain debt are guaranteed on a joint and several basis by substantially all of its subsidiaries.  The guarantees are full and unconditional and the guarantor subsidiaries are 100% owned by Beazer Homes USA, Inc.  The Company has 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.

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