Edgar Filing: BEAZER HOMES USA INC

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2007

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)

DELAWARE	58-2086934
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	Identification no.)

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.

YES

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated file” in Rule 12b-2 of the Exchange Act (Check One):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES

Class		Outstanding at April 20, 2007
Common Stock, $0.001 par value		39,102,650 shares

BEAZER HOMES USA, INC.

FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
Unaudited Condensed Consolidated Balance Sheets, March 31, 2007 and September 30, 2006		3
Unaudited Condensed Consolidated Statements of Operations, Three and Six Months Ended March 31, 2007 and 2006		4
Unaudited Condensed Consolidated Statements of Cash Flows, Six Months Ended March 31, 2007 and 2006		5
Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3. Quantitative and Qualitative Disclosures about Market Risk		39
Item 4. Controls and Procedures		40
PART II. OTHER INFORMATION		40
Item 1. Legal Proceedings		40
Item 1.A. Risk Factors		42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		42
Item 4. Submission of Matters to a Vote of Security Holders		42
Item 6. Exhibits		43
SIGNATURES		43

The Company’s Audit Committee is performing an independent internal review as described in Part II, Item 1 of this report. As a result, the financial information in this report has not been reviewed by the Company’s independent registered public accounting firm as required by Section 10-01(d) of Regulation S-X.

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)

		March 31, 2007			September 2006
ASSETS
Cash and cash equivalents	$	218,841		$	162,570
Restricted cash		5,641			9,873
Accounts receivable		66,093			333,571
Inventory
Owned inventory		2,909,285			3,048,891
Consolidated inventory not owned		462,296			471,441
Total inventory		3,371,581			3,520,332
Residential mortgage loans available-for-sale		10,337			92,157
Investments in unconsolidated joint ventures		128,355			122,799
Deferred tax assets		110,864			59,842
Property, plant and equipment, net		25,936			29,465
Goodwill		121,368			121,368
Other assets		132,008			107,454
Total assets	$	4,191,024		$	4,559,431

LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable	$	87,294		$	141,131
Other payables and accrued liabilities		402,493			547,014
Obligations related to consolidated inventory not owned		335,629			330,703
Senior notes (net of discounts of $3,302 and $3,578, respectively)		1,531,698			1,551,422
Junior subordinated notes		103,093			103,093
Warehouse line		9,350			94,881
Other notes payable		118,332			89,264
Total liabilities		2,587,889			2,857,508

Stockholders’ equity:
Preferred stock (par value $.01 per share, 5,000,000 shares authorized, no shares issued)		—			—
Common stock (par value $.001 per share, 80,000,000 shares authorized, 42,532,520 and 42,318,098 issued and 39,100,752 and 38,889,554 outstanding, respectively)		43			42
Paid-in capital		539,628			528,376
Retained earnings		1,253,057			1,362,958
Treasury stock, at cost (3,431,768 and 3,428,544 shares, respectively)		(189,593	)		(189,453	)
Total stockholders’ equity		1,603,135			1,701,923
Total liabilities and stockholders’ equity	$	4,191,024		$	4,559,431

See Notes to Unaudited Condensed Consolidated Financial Statements

BEAZER HOMES USA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Three Months Ended March 31,					Six Months Ended March 31,
	2007			2006		2007			2006
Total revenue	$	826,295		$	1,269,091	$	1,629,309		$	2,374,707
Home construction and land sales expenses		701,029			944,992		1,363,011			1,774,851
Inventory impairments and option contract abandonments		79,854			9,604		199,777			12,531
Gross profit		45,412			314,495		66,521			587,325

Selling, general and administrative expenses		109,729			149,793		225,097			282,871
Operating (loss) income		(64,317	)		164,702		(158,576	)		304,454
Equity in (loss) income of unconsolidated joint ventures		(7,692	)		330		(10,052	)		682
Other income, net		2,694			1,582		4,687			5,685
(Loss) income before income taxes		(69,315	)		166,614		(163,941	)		310,821
(Benefit) provision for income taxes		(26,226	)		62,263		(61,846	)		116,557
Net (loss) income	$	(43,089	)	$	104,351	$	(102,095	)	$	194,264

Weighted average number of shares:
Basic		38,427			40,442		38,353			40,703
Diluted		38,427			45,066		38,353			45,395

Net (loss) income per common share:
Basic	$	(1.12	)	$	2.58	$	(2.66	)	$	4.77
Diluted	$	(1.12	)	$	2.35	$	(2.66	)	$	4.34

Cash dividends per share	$	0.10		$	0.10	$	0.20		$	0.20

See Notes to Unaudited Condensed Consolidated Financial Statements

BEAZER HOMES USA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Six Months Ended March 31,
	2007			2006
Cash flows from operating activities:
Net (loss) income	$	(102,095	)	$	194,264
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		5,002			5,061
Stock-based compensation expense		3,927			5,981
Inventory impairments and option contract abandonments		199,777			12,531
Deferred income tax (benefit) provision		(51,022	)		11,014
Tax benefit from stock transactions		(3,219	)		(6,893	)
Equity in loss (income) of unconsolidated joint ventures		10,052			(682	)
Distributions from earnings in unconsolidated joint ventures		2,326			—
Changes in operating assets and liabilities:
Decrease in accounts receivable		267,478			35,216
Increase in inventory		(12,140	)		(481,675	)
Decrease (increase) in residential mortgage loans available-for-sale		81,820			(27,775	)
Increase in other assets		(24,235	)		(22,437	)
(Decrease) increase in trade accounts payable		(53,837	)		9,056
Decrease in other liabilities		(141,875	)		(79,560	)
Other changes, net		1,354			217
Net cash provided by (used in) operating activities		183,313			(345,682	)
Cash flows from investing activities:
Capital expenditures, net		(1,988	)		(7,335	)
Investments in unconsolidated joint ventures		(16,906	)		(36,668	)
Changes in restricted cash		4,232			—
Distributions from unconsolidated joint ventures		1,196			2,911
Net cash used in investing activities		(13,466	)		(41,092	)
Cash flows from financing activities:
Borrowings under credit facilities		91,258			699,469
Repayment of credit facilities		(176,789	)		(534,812	)
Repayment of other notes payable		(6,445	)		(5,354	)
Repurchase of senior notes		(20,563	)		—
Debt issuance costs		(319	)		(871	)
Treasury stock purchases		—			(133,207	)
Common stock redeemed		(140	)		—
Proceeds from stock option exercises		4,009			6,574
Tax benefit from stock transactions		3,219			6,893
Dividends paid		(7,806	)		(8,250	)
Net change in book overdraft		—			74,417
Net cash (used in) provided by financing activities		(113,576	)		104,859
Increase (decrease) in cash and cash equivalents		56,271			(281,915	)
Cash and cash equivalents at beginning of period		162,570			297,098
Cash and cash equivalents at end of period	$	218,841		$	15,183
Supplemental cash flow information:
Interest paid	$	69,085		$	53,818
Income taxes paid	$	14,690		$	108,900
Supplemental disclosures of non-cash activities:
Increase in consolidated inventory not owned	$	4,926		$	78,258
Increase in inventory financed through notes payable	$	35,513		$	32,595

See Notes to Unaudited Condensed Consolidated Financial Statements

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 (“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. Certain items in prior period financial statements have been reclassified to conform to the current presentation. For further information, 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, 2006 (the “2006 Annual Report”).

(2) Summary of Significant Accounting Policies

A discussion of our significant accounting policies other than as discussed below is included in the notes to the consolidated financial statements included in Beazer Homes’ Consolidated Financial Statements for the fiscal year ended September 30, 2006 as filed with the Securities and Exchange Commission in the 2006 Annual Report.

Stock-Based Compensation

In the first quarter of fiscal 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) 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 new 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 the 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.

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. Unrecognized compensation cost related to nonvested stock is included in paid-in capital in accordance with SFAS 123R. As of March 31, 2007, there was $22.3 million of total unrecognized compensation cost related to nonvested stock. That cost is expected to be recognized over a weighted average period of 3.9 years. For the three months and six months ended March 31, 2007, our total stock-based compensation expense was approximately $200,000 ($62,000 net of tax) and $3.9 million ($2.7 million net of tax), respectively.

Stock compensation expense for the quarter ended March 31, 2007 includes the reversal of approximately $2.8 million of previously recorded stock compensation expense as a result of unvested stock-based award forfeitures. The following table summarizes nonvested stock awards as of March 31, 2007, as well as activity for the three and six months then ended.

	Three Months Ended March 31, 2007					Six Months Ended March 31, 2007
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Beginning of period		1,054,738		$	50.15		974,457		$	50.66
Granted		53,496			36.29		181,554			42.06
Vested		(4,500	)		44.35		(23,622	)		48.41
Forfeited		(183,580	)		52.80		(212,235	)		51.42
End of period		920,154		$	48.85		920,154		$	48.85

In addition, during the three months and six months ended March 31, 2007, employees surrendered 1,261 and 3,224 shares, respectively, to the Company in payment of minimum tax obligations upon the vesting of nonvested stock under our stock incentive plans. During the three and six months ended March 31, 2007, we valued the stock at the market price on the date of surrender for an aggregate value of approximately $55,000 and $140,000, or approximately $43.51 and $43.33 per share, respectively.

The fair value of each option or SSAR grant is estimated on the date of grant using the Black-Scholes option-pricing model. Expected life of options and SSARs granted are generally computed using the mid-point between the vesting period and contractual life of the awards granted. Expected volatilities are based on the historical volatility of the Beazer Homes’ stock and other factors. Expected discrete dividends of $0.10 per quarter are assumed in lieu of a continuously compounding dividend yield.

The following table summarizes stock options and SSARs outstanding as of March 31, 2007 as well as activity during the three and six months then ended:

	Three Months Ended					Six Months Ended
	March 31, 2007					March 31, 2007
	Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price

Outstanding at beginning of period		1,817,309		$	48.71		2,135,572		$	43.82
Granted		273,888			43.07		273,888			43.07
Exercised		(17,394	)		32.96		(297,501	)		13.47
Forfeited		(196,004	)		64.47		(234,160	)		60.95
Outstanding at end of period		1,877,799		$	46.39		1,877,799		$	46.39
Exercisable at end of period		637,608		$	26.24		637,608		$	26.24

At March 31, 2007, the weighted-average remaining contractual life for all options and SSARs outstanding and currently exercisable was 5.05 years and 4.72 years, respectively. At March 31, 2007, the aggregate intrinsic value of both stock options outstanding and stock options exercisable was $2.7 million. (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.) The intrinsic value of stock options exercised during the three and six months ended March 31, 2007 was approximately $14,300 and $8.6 million.

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. As a result of inventory impairments discussed in Note 3, we analyzed the estimated fair value of certain of our reporting units with goodwill as of March 31, 2007. Based on our analysis, we determined that goodwill for these reporting units was not impaired as of March 31, 2007. We will perform our annual goodwill impairment test for all reporting units as of April 30, 2007.

Recent Accounting Pronouncements

In July 2006, the FASB issued 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 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective beginning in our fiscal year 2008. We are currently evaluating the impact adopting FIN 48 will have on our consolidated financial condition and results of operations.

On November 29, 2006, the FASB ratified EITF Issue No. 06-8, Applicability of the Assessment of a Buyer’s 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 buyer’s 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 in our fiscal year 2008. We are currently evaluating the impact adopting EITF 06-8 will have on our consolidated financial condition and results of operations.

(3) Inventory

	March 31,		September 30,
(in thousands)	2007		2006
Homes under construction	$	1,186,280	$	1,368,056
Development projects in progress		1,647,947		1,623,819
Unimproved land held for future development		12,095		12,213
Model homes		62,963		44,803
Consolidated inventory not owned		462,296		471,441
	$	3,371,581	$	3,520,332

Homes under construction includes homes finished and ready for delivery and homes in various stages of construction. We had 717 ($168.3 million) and 1,197 ($257.9 million) completed homes that were not subject to a sales contract, not including model homes, at March 31, 2007 and September 30, 2006, 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.

Consistent with our accounting policy described in our 2006 Annual Report, housing projects, development projects in progress and unimproved land held for future development (components of inventory) were reviewed this quarter for recoverability as a result of continuing difficult market conditions in the homebuilding industry. Most markets across the country continue to experience lower levels of demand, significant competition and discounting coupled with higher levels of inventory. In response to these market conditions, we discounted prices and/or offered other incentives to buyers in certain communities with an objective to reduce inventory and generate cash flow. Based on these events and our analysis we determined that the carrying amount of certain of our inventory assets exceeded its estimated fair value. We estimated fair value using a discounted cash flow methodology. As a result, during the three and six months ended March 31, 2007, we incurred $60.8 million and $155.5 million, respectively, of non-cash pretax charges related to inventory impairments.

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 on the Company’s unaudited condensed consolidated balance sheets in other payables and accrued 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 pre-acquisition development costs incurred, which aggregated approximately $302.5 million at March 31, 2007. This amount includes letters of credit of approximately $42.4 million. Total remaining purchase price, net of cash deposits, committed under all options was $2.1 billion at March 31, 2007. $16.2 million of total remaining purchase price under such options contain specific performance clauses which may require us to purchase the land or lots upon the land seller meeting certain obligations. We incurred non-cash pretax charges related to the abandonment of lot option agreements and write-off of option deposits and other pre-acquisition costs of $19.1 million and $44.2 million for the three months ended March 31, 2007 and charges of $8.8 million and $11.7 million for the three and six months ended March 31, 2006, respectively.

Certain of our option contracts are with sellers who are deemed to be Variable Interest Entities (“VIE”s) under FASB Interpretation No. 46R, 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 unaudited condensed consolidated balance sheets at March 31, 2007 and September 30, 2006 reflect consolidated inventory not owned of $462.3 million and $471.4 million, respectively. We consolidated $143.8 million and $146.6 million of lot option agreements as consolidated inventory not owned pursuant to FIN 46R as of March 31, 2007 and September 30, 2006, respectively. In addition, as of March 31, 2007 and September 30, 2006, we recorded $318.5 million and $324.8 million, respectively, of land under the caption consolidated inventory not owned related to lot option agreements for which our deposits and pre-acquisition development costs exceeded certain thresholds. Obligations related to consolidated inventory not owned totaled $335.6 million at March 31, 2007 and $330.7 million at September 30, 2006. The difference between the balances of consolidated inventory not owned and obligations related to consolidated inventory not owned represents cash deposits paid and other pre-acquisition costs incurred under the option agreements.

(4) Investments in and Advances to Unconsolidated Joint Ventures

We participate in a number of land development joint ventures in which Beazer Homes has 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 venture’s members and other third parties. We account for our interest in these joint ventures under the equity method. We recognize our share of profits from the sale of lots to other buyers. Our share of profits from lots purchased from the joint ventures are 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. During the quarter ended March 31, 2007, we wrote down our investment in two of our Virginia joint ventures reflecting impairments of inventory held within those ventures. The related impairment charge of $7.1 million is recorded in equity in loss of unconsolidated joint ventures in the accompanying Statements of Operations for the three and six months ended March 31, 2007.

Our joint ventures typically obtain secured acquisition and development financing. At March 31, 2007, our unconsolidated joint ventures have borrowings outstanding totaling $788.8 million. 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, 2007, we had repayment guarantees of $13.0 million and limited maintenance guarantees of $6.3 million related to certain of our unconsolidated joint ventures’ debt. The repayment guarantee requires the repayment of a portion of the debt of the unconsolidated joint venture in the event the joint venture defaults on its obligations under the borrowings. The limited maintenance guarantees only apply if an unconsolidated joint venture defaults on its loan arrangements and the value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. We have not recorded a liability for the non-contingent aspect of these guarantees as such amounts are not material. In assessing the need to record a liability for the contingent aspect of these guarantees, 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 repayment or limited maintenance 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.

(5) Interest

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

	Three Months Ended March 31,						Six Months Ended March 31,
		2007			2006			2007			2006
Capitalized interest in inventory, beginning of period	$	90,322		$	58,769		$	76,134		$	51,411
Interest incurred and capitalized		35,091			27,903			69,394			53,436
Capitalized interest amortized to cost of sales		(29,427	)		(20,542	)		(49,542	)		(38,717	)
Capitalized interest in inventory, end of period		95,986		$	66,130		$	95,986		$	66,130

(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 March 31,					Six Months Ended March 31,
		2007			2006		2007			2006
Basic:
Net (loss) income	$	(43,089	)	$	104,351	$	(102,095	)	$	194,264
Weighted average common shares outstanding		38,427			40,442		38,353			40,703
Basic (loss) earnings per share	$	(1.12	)	$	2.58	$	(2.66	)	$	4.77

Diluted:
Net (loss) income	$	(43,089	)	$	104,351	$	(102,095	)	$	194,264
Interest on convertible debt - net of taxes		—			1,347		—			2,691
Net (loss) income available to common shareholders	$	(43,089	)	$	105,698	$	(102,095	)	$	196,955
Weighted average number of common shares outstanding		38,427			40,442		38,353			40,703
Effect of dilutive securities:
Shares issuable upon conversion of convertible debt		—			3,499		—			3,499
Options to acquire common stock		—			439		—			573
Contingent shares (performance based stock)		—			70		—			35
Nonvested restricted stock		—			616		—			585
Diluted weighted average common shares outstanding		38,427			45,066		38,353			45,395
Diluted (loss) earnings per share	$	(1.12	)	$	2.35	$	(2.66	)	$	4.34

Emerging Task Force Issue No. 04-8: The Effect of Contingently Convertible Debt on Diluted Earnings Per Share (“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. EITF 04-8 applies to our 4 ⅝% Convertible Senior Notes issued in June 2004. In computing diluted loss per share for the three and six months ended March 31, 2007, common stock equivalents were excluded from the computation of diluted loss per share as a result of their anti-dilutive effect. Options to purchase 230,653 shares of common stock were not included in the computation of diluted earnings per share for the six months ended March 31, 2006 because their inclusion would have been antidilutive.

In June 2006, the Shareholder Rights Plan adopted in June 1996 by our Board of Directors expired. No rights issued under this plan were redeemed or exercised prior to expiration.

(7) Borrowings

At March 31, 2007 and September 30, 2006 we had the following borrowings (in thousands):

	Maturity Date		March 31, 2007			September 30, 2006
Mortgage Warehouse Line		February 2008	$	9,350		$	94,881
Revolving Credit Facility		August 2009		—			—
8 5/8% Senior Notes*		May 2011		190,000			200,000
8 3/8% Senior Notes*		April 2012		340,000			350,000
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 Notes Payable		Various Dates		118,332			89,264
Unamortized debt discounts				(3,302	)		(3,578	)
Total			$	1,762,473		$	1,838,660

*	Collectively, the “Senior Notes”

Mortgage Warehouse Line - On January 11, 2006, Beazer Mortgage Corporation (“Beazer Mortgage”), our wholly-owned subsidiary, entered into a 364-day credit agreement with a number of banks to fund the origination of residential mortgage loans (the “Warehouse Line”). Beazer Mortgage amended (the “Second Amendment”) the Warehouse Line to extend the maturity date to February 6, 2008 and to modify the maximum available borrowing capacity to $100 million (expandable to $200 million), subject to compliance with the mortgage loan eligibility requirements as provided in the Second Amendment. The Warehouse Line is secured by certain mortgage loans held for sale and related property and is not guaranteed by Beazer Homes or any of its subsidiaries that are guarantors of the Senior Notes or the Revolving Credit Facility. Beginning in the second quarter of fiscal 2006, Beazer Mortgage finances a portion of its mortgage lending activities with borrowings under the Warehouse Line. Borrowings under the Warehouse Line were $9.4 million and bore interest at 6.3% per annum as of March 31, 2007. Beazer Mortgage had a pipeline of loans in process of approximately $675 million as of March 31, 2007 which may be financed either through the Warehouse Line or with third party investors. The Warehouse Line contains various operating and financial covenants. The Company was in compliance with such covenants at March 31, 2007.

Revolving Credit Facility - In August 2005, we entered into a new four-year unsecured revolving credit facility (the “Revolving Credit Facility”) with a group of banks which was expanded in June 2006 to $1 billion and which matures in August 2009. The Revolving Credit Facility includes a $50 million swing line commitment. 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. We were in compliance with such covenants at March 31, 2007. Substantially all of our significant subsidiaries are guarantors of the obligations under the Revolving Credit Facility (see Note 11).

We fulfill our short-term cash requirements with cash generated from our operations and funds available from our Revolving Credit Facility. Available borrowings under the Revolving Credit Facility are limited to certain percentages of homes under contract, unsold homes, substantially improved lots, lots under development, raw land and accounts receivable. At March 31, 2007, we had available borrowings of $232.7 million under the Revolving Credit Facility. There were no borrowings outstanding under the Revolving Credit Facility at March 31, 2007 or September 30, 2006.

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, 2007, under the most restrictive covenants of each indenture, approximately $189.8 million of our 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 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% 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 included in other (loss) income in the accompanying Statement of Operations. 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. Senior Notes purchased by the Company were cancelled on the books of the Senior Notes’ trustee.

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.

Other Notes - We periodically acquire land through the issuance of notes payable. As of March 31, 2007 and September 30, 2006, we had outstanding notes payable of $118.3 million and $89.3 million, respectively, primarily related to land acquisitions and land development. These notes payable expire at various times through 2010 and had fixed and variable rates ranging from 6.75% to 11.00% at March 31, 2007. These notes are secured by the real estate to which they relate.

(8) Contingencies

United States Attorney Inquiry and Outstanding Litigation- As previously disclosed in our Form 8-K dated March 27, 2007, Beazer Homes received a subpoena from the United States Attorney’s office in the Western District of North Carolina, seeking the production of documents focusing on our mortgage origination services and, together with certain of our subsidiaries and current and former officers, has been named as a defendant in a putative securities class action lawsuit and a putative homeowner class action lawsuit. The Company has also recently learned that a second putative homeowner class action lawsuit has been filed in South Carolina and that it was named as a nominal defendant in a shareholder derivative complaint filed on April 16, 2007 against certain of our current and former executive officers and directors claiming violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 and breaches of fiduciary duty based on matters related to the Company’s mortgage origination business. We are cooperating with the United States Attorney and the document production request and intend to vigorously defend each of the lawsuits. The Audit Committee of the Beazer Homes Board of Directors has initiated an independent internal review of Beazer Homes’ mortgage origination business and related matters and has retained independent legal counsel and an independent financial consultant to assist with that review. The U.S. Attorney inquiry and the related internal review by the Audit Committee and the outstanding lawsuits are in their early stages. At this time, we cannot predict the outcome of these matters or the length of time it will take to resolve them. For more detailed information see Part II, Item 1. Legal Proceedings of this Form 10-Q.

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 and mold. We have experienced a significant number of such claims in our 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 March 31, 2007, there were six 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 Trinity’s 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 water intrusion issues at the homes which includes, among other things, that the homes will be repaired at Trinity’s 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 Trinity’s timely performance of the specified assessments and remediation activities for homeowners who file claims, each homeowner releases Trinity, Beazer Homes Investment Corp. and other affiliated companies, including Beazer Homes, from the claims asserted in the class action lawsuit, claims arising out of external water 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 court’s 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, 2007, we have completed remediation of 1,226 homes related to 1,803 total Trinity claims.

Our warranty reserves at March 31, 2007 and September 30, 2006 include accruals for our estimated costs to assess and remediate all homes for which Trinity had received complaints related to moisture intrusion and mold, including a provision for legal fees. 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.

As of March 31, 2007 and September 30, 2006, 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 repurchased a total of 54 homes under the program. During the six months ended March 31, 2007, the Company sold five of the repurchased homes, bringing the total homes sold to date to 27. The remaining 27 homes were acquired for an aggregate purchase price of $11.6 million. The accrual at March 31, 2007 includes the estimated costs to sell homes that we have repurchased, and our estimated losses on the sale of those homes, if any.

The following accruals at March 31 represent our best estimates of the costs to resolve all asserted complaints associated with Trinity moisture intrusion and related mold issues. We regularly review our estimate of these costs. During the quarter ended March 31, 2007, we adjusted our estimate of these costs and the related accruals based on historical experience in resolving such complaints and reduced our accrual by $6.0 million. 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 and related mold issues during the period were as follows (in thousands):

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2007			2006			2007			2006
Balance at beginning of period	$	45,711		$	78,056		$	47,704		$	80,708
Reductions		(6,000	)		(6,500	)		(6,000	)		(6,500	)
Payments		(2,736	)		(2,075	)		(4,729	)		(4,727	)
Balance at end of period	$	36,975		$	69,481		$	36,975		$	69,481

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.

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 Beazer Homes subcontracts its 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.

As noted above, our warranty reserves at March 31, 2007 and September 30, 2006 include accruals for Trinity moisture intrusion and related mold issues. Warranty reserves are included in other payables and accrued liabilities in the unaudited condensed consolidated balance sheets. 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 management’s 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.

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

	Three Months Ended March 31,						Six Months Ended March 31,
	2007			2006			2007			2006
Balance at beginning of period	$	95,843		$	131,805		$	101,033		$	138,033
Provisions		4,461			5,724			10,658			11,582
Payments		(10,834	)		(12,537	)		(22,221	)		(24,623	)
Balance at end of period	$	89,470		$	124,992		$	89,470		$	124,992

Other Contingencies - We and certain of our subsidiaries have been named as defendants in various claims, complaints and other legal actions, including matters relating to moisture intrusion and related mold claims, construction defects and product liability. Certain of the liabilities resulting from these actions are covered in whole or part by insurance. With respect to certain general liability exposures, including construction defect, moisture intrusion and related mold claims and product liability claims, 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 some degree of uncertainty related to the recoverability of insurance proceeds, when losses occur, the size of each loss, expectations for future interpretive rulings concerning contract provisions, possible recovery against other responsible parties, and the extent to which the assertion of these claims will expand geographically. 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 had performance bonds and outstanding letters of credit of approximately $836.0 million and $95.3 million, respectively, at March 31, 2007 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 $58.6 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.

(9) 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 six months ended March 31, 2007. During the six months ended March 31, 2006, we repurchased approximately 2.0 million shares for an aggregate purchase price of $133.2 million or approximately $66 per share pursuant to the plan. At March 31, 2007, we are authorized to purchase approximately 5.4 million additional shares pursuant to the plan.

(10) Segment Information

As defined in SFAS 131, “Disclosures About Segments of an Enterprise and Related Information”, we have 32 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

Management’s 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 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 the notes to the consolidated financial statements in our 2006 Annual Report. The following information is in thousands:

	Three Months Ended March 31,						Six Months Ended March 31,
	2007			2006			2007			2006
*Revenue*
West	$	266,722		$	471,854		$	564,629		$	840,446
Mid-Atlantic		102,366			233,108			194,594			432,614
Florida		106,409			167,769			197,654			313,350
Southeast		183,626			188,969			338,755			365,902
Other homebuilding		159,556			198,755			317,710			406,525
Financial Services		11,226			13,135			22,969			24,113
Intercompany elimination		(3,610	)		(4,499	)		(7,002	)		(8,243	)
Consolidated total	$	826,295		$	1,269,091		$	1,629,309		$	2,374,707

	Three Months Ended March 31,						Six Months Ended March 31,
	2007			2006			2007			2006
*Operating (loss) income (a)*
West	$	(20,607	)	$	87,242		$	(47,111	)	$	150,981
Mid-Atlantic		(17,221	)		53,115			(20,472	)		102,616
Florida		6,773			38,256			(21,720	)		68,887
Southeast		14,705			10,573			23,139			26,676
Other homebuilding		(16,846	)		(7,131	)		(32,554	)		(6,411	)
Financial Services		2,046			2,947			5,276			3,242
Segment operating (loss) income		(31,150	)		185,002			(93,442	)		345,991
Corporate and unallocated (b)		(33,167	)		(20,300	)		(65,134	)		(41,537	)
Total operating (loss) income		(64,317	)		164,702			(158,576	)		304,454
Equity in (loss) income of unconsolidated joint ventures (e)		(7,692	)		330			(10,052	)		682
Other income, net		2,694			1,582			4,687			5,685
(Loss) income before income taxes	$	(69,315	)	$	166,614		$	(163,941	)	$	310,821

	March 31, 2007		September 30, 2006
*Assets (c)*
West	$	1,188,983	$	1,392,660
Mid-Atlantic		575,327		562,332
Florida		345,919		418,915
Southeast		412,938		433,922
Other homebuilding		542,135		632,437
Financial Services		105,702		205,684
Corporate and unallocated (d)		1,020,020		913,481
Consolidated total	$	4,191,024	$	4,559,431

(a)

Operating (loss) income for the three and six months ended March 31, 2007 includes $19.1 million and $44.2 million, respectively, of charges related to the abandonment of lot option agreements and $60.8 million and $155.5 million, respectively, of inventory impairments which have been recorded in the segments to which the inventory relates (see Note 3). Total charges for inventory impairments and option contract abandonments by segment during the three and six months ended March 31, 2007 were as follows: $30.1 million and $82.6 million, respectively, in the West, $24.7 million and $31.7 million, respectively, in the Mid-Atlantic, $8.0 million and $50.3 million, respectively, in Florida, $2.9 million and $5.8 million, respectively, in the Southeast and $14.6 million and $28.5 million, respectively, in other homebuilding.

(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. The three and six months ended March 31 include reductions in the accrual and costs related to the Trinity class action litigation settlement of $6.0 million for 2007 and $6.5 million for 2006.

(c)

Segment assets as of both March 31, 2007 and September 30, 2006 include goodwill assigned from prior acquisitions as follows: $55.5 million in the West, $23.3 million in the Mid-Atlantic, $13.7 million in Florida, $17.6 million in the Southeast and $11.2 million in other homebuilding. There was no change in goodwill from September 30, 2006 to March 31, 2007.

(d)	Primarily consists of cash and cash equivalents, consolidated inventory not owned, deferred taxes, and capitalized interest and other corporate items that are not allocated to the segments.

(e)	Equity in (loss) income of unconsolidated joint ventures includes $7.1 million of investment impairment reflecting impairments of inventory held within two of our Virginia ventures.

(11) 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.

Beazer Homes USA, Inc.

Unaudited Condensed Consolidating Balance Sheet Information

March 31, 2007

(in thousands)

	Beazer Homes USA, Inc.			Guarantor Subsidiaries			Beazer Mortgage Corp			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated Beazer Homes USA, Inc.
ASSETS
Cash and cash equivalents	$	263,868		$	(55,666	)	$	8,351		$	2,288	$	—		$	218,841
Restricted cash		—			5,641			—			—		—			5,641
Accounts receivable		—			64,680			1,247			166		—			66,093
Owned inventory		—			2,909,285			—			—		—			2,909,285
Consolidated inventory not owned		—			462,296			—			—		—			462,296
Residential mortgage loans available-for-sale		—			—			10,337			—		—			10,337
Investments in unconsolidated joint ventures		3,093			125,262			—			—		—			128,355
Deferred tax assets		110,871			—			(7	)		—		—			110,864
Property, plant and equipment, net		—			25,044			869			23		—			25,936
Goodwill		—			121,368			—			—		—			121,368
Investments in subsidiaries		1,718,625			—			—			—		(1,718,625	)		—
Intercompany		1,158,128			(1,235,296	)		51,132			26,036		—			—
Other assets		20,756			102,410			500			8,342		—			132,008
Total assets	$	3,275,341		$	2,525,024		$	72,429		$	36,855	$	(1,718,625	)	$	4,191,024

LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable		—			87,098			45			151		—			87,294
Other payables and accrued liabilities		39,079			350,922			2,194			10,298		—			402,493
Intercompany		(1,664	)		—			—			1,664		—			—
Obligations related to consolidated inventory not owned		—			335,629			—			—		—			335,629
Senior notes (net of discounts of $3,302)		1,531,698			—			—			—		—			1,531,698
Junior subordinated notes		103,093			—			—			—		—			103,093
Warehouse line		—			—			9,350			—		—			9,350
Other notes payable		—			118,332			—			—		—			118,332
Total liabilities		1,672,206			891,981			11,589			12,113		—			2,587,889

Stockholders’ equity		1,603,135			1,633,043			60,840			24,742		(1,718,625	)		1,603,135

Total liabilities and stockholders’ equity	$	3,275,341		$	2,525,024		$	72,429		$	36,855	$	(1,718,625	)	$	4,191,024

Beazer Homes USA, Inc.

Unaudited Condensed Consolidating Balance Sheet Information

September 30, 2006

(in thousands)

	Beazer Homes USA, Inc.			Guarantor Subsidiaries			Beazer Mortgage Corp		Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated Beazer Homes USA, Inc.
ASSETS
Cash and cash equivalents	$	254,915		$	(105,158	)	$	5,664	$	7,149	$	—		$	162,570
Restricted cash		—			4,873			5,000		—		—			9,873
Accounts receivable		—			328,740			4,329		502		—			333,571
Owned inventory		—			3,048,891			—		—		—			3,048,891
Consolidated inventory not owned		—			471,441			—		—		—			471,441
Residential mortgage loans available-for-sale		—			—			92,157		—		—			92,157
Investments in unconsolidated joint ventures		3,093			119,706			—		—		—			122,799
Deferred tax assets		59,345			—			497		—		—			59,842
Property, plant and equipment, net		—			28,454			954		57		—			29,465
Goodwill		—			121,368			—		—		—			121,368
Investments in subsidiaries		1,829,969			—			—		—		(1,829,969	)		—
Intercompany		1,250,702			(1,328,310	)		52,397		25,211		—			—
Other assets		22,751			74,751			2,419		7,533		—			107,454
Total assets	$	3,420,775		$	2,764,756		$	163,417	$	40,452	$	(1,829,969	)	$	4,559,431

LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable		—			140,902			132		97		—			141,131
Other payables and accrued liabilities		66,296			456,706			9,166		14,846		—			547,014
Intercompany		(1,959	)		—			—		1,959		—			—
Obligations related to consolidated inventory not owned		—			330,703			—		—		—			330,703
Senior notes (net of discounts of $3,578)		1,551,422			—			—		—		—			1,551,422
Junior subordinated notes		103,093			—			—		—		—			103,093
Warehouse line		—			—			94,881		—		—			94,881
Other notes payable		—			89,264			—		—		—			89,264
Total liabilities		1,718,852			1,017,575			104,179		16,902		—			2,857,508

Stockholders’ equity		1,701,923			1,747,181			59,238		23,550		(1,829,969	)		1,701,923

Total liabilities and stockholders’ equity	$	3,420,775		$	2,764,756		$	163,417	$	40,452	$	(1,829,969	)	$	4,559,431

Beazer Homes USA, Inc.

Unaudited Condensed Consolidating Statement of Income Information

Three Months Ended March 31, 2007

(in thousands)

	Beazer Homes USA, Inc.			Guarantor Subsidiaries			Beazer Mortgage Corp.			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated Beazer Homes USA, Inc.

Total revenue	$	—		$	819,075		$	9,339		$	1,491	$	(3,610	)	$	826,295

Home construction and land sales expenses		25,559			679,080			—			—		(3,610	)		701,029
Inventory impairments and option contract abandonments		—			79,854			—			—		—			79,854
Gross profit		(25,559	)		60,141			9,339			1,491		—			45,412

Selling, general and administrative expenses		—			101,262			7,976			491		—			109,729
Operating (loss) income		(25,559	)		(41,121	)		1,363			1,000		—			(64,317	)
Equity in loss of unconsolidated joint ventures		—			(7,692	)		—			—		—			(7,692	)
Royalty and management fee expense		—			532			(532	)		—		—			—
Other income, net		—			2,646			48			—		—			2,694
(Loss) income before income taxes		(25,559	)		(45,635	)		879			1,000		—			(69,315	)
(Benefit) provision for income taxes		(9,585	)		(17,347	)		330			376		—			(26,226	)
Equity in loss of subsidiaries		(27,115	)		—			—			—		27,115			—
Net (loss) income	$	(43,089	)	$	(28,288	)	$	549		$	624	$	27,115		$	(43,089	)

Beazer Homes USA, Inc.

Unaudited Condensed Consolidating Statement of Income Information

Three Months Ended March 31, 2006

(in thousands)

	Beazer Homes USA, Inc.		Guarantor Subsidiaries		Beazer Mortgage Corp.		Non-Guarantor Subsidiaries	Consolidating Adjustments	Consolidated Beazer Homes USA, Inc.

Total revenue	$	—	$	1,258,531	$	13,135