2 0 1 8 A N N U A L R E P O R T
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Beazer Homes USA, Inc.
1000 Abernathy Road
Suite 260
Atlanta, Georgia 30328
(770) 829-3700
www.beazer.com
BZH-048_2018AR_COVER-C1.indd 1
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About Beazer Homes
Headquartered in Atlanta, Beazer Homes is a
geographically diversified homebuilder with operations
in 13 states within three geographic regions of the
United States. The Company’s homes meet or exceed
the benchmark for energy-efficient home construction
as established by the Department of Energy’s ENERGY
STAR® program and are designed with Choice Plans™
to meet the personal preferences and lifestyles of
our buyers. In addition, the Company is committed
to providing a range of preferred lenders through our
Mortgage Choice program to facilitate both transparent
competition between lenders and enhanced customer
service. The Company’s operations are in the following
states: Arizona, California,
Delaware, Florida, Georgia,
Indiana, Maryland, Nevada,
North Carolina, South
Carolina, Tennessee, Texas
and Virginia. Beazer Homes
is listed on the New York
Stock Exchange under the
ticker symbol “BZH.”
FINANCIAL SUMMARY
Beazer Homes USA, Inc.
(Total Revenue and Adjusted EBITDA dollars in millions, Average Selling Price dollars in thousands)
Year Ended September 30,
2014
2015
2016
2017
2018
Continuing Operations Data (except EBITDA)
Home Orders
Home Closings
Total Revenue
Average Selling Price
4,748
4,951
$1,464
$ 285
5,358
5,010
$1,627
$ 314
5,297
5,419
$1,822
$ 329
5,464
5,525
$1,916
$ 343
5,544
5,767
$ (cid:143)(cid:143)2,107
$ (cid:143)360
Homebuilding Gross Margin*
22.2%
21.5%
20.6%
21.2%
21.2%
Net Income (Loss) Per Share
Adjusted EBITDA**
$ 1.10
$©133
$ 10.91
$ ««144
$ 0.16
$ ««156
$ 0.99
$ ««179
$(1.40)
$ 205
Beazer Homes
BZH-048_2018AR_COVER-C1.indd 2
Board of Directors
Shareholder and Corporate Information
Stephen P. Zelnak, Jr.«(1)(3)(5)(6)
Non-Executive Chairman of the Board,
Beazer Homes USA, Inc.
Brian C. Beazer«(2)(3)(6)
Chairman Emeritus,
Beazer Homes USA, Inc.
Elizabeth S. Acton«(1)(4)(5)(6)
Retired Executive Vice President
and Chief Financial Officer,
Comerica, Inc.
Laurent Alpert«(3)(4)(6)
Senior Counsel,
Cleary, Gottlieb, Steen & Hamilton LLP
Peter G. Leemputte«(1)(4)(5)(6)
Retired Chief Financial Officer and Treasurer,
Keurig Green Mountain, Inc.
Allan P. Merrill
President and Chief Executive Officer,
Beazer Homes USA, Inc.
Peter M. Orser«(2)(4)(5)(6)
Retired President and Chief Executive Officer,
Weyerhaeuser Real Estate Company
Norma A. Provencio«(2)(3)(5)(6)
President and Owner,
Provencio Advisory Services, Inc.
Danny R. Shepherd«(1)(2)(5)(6)
Retired Vice Chairman,
Vulcan Materials Company
COMMITTEES
(1)««« Member of the Audit Committee
(2)«« Member of the Compensation Committee
(3)«« Member of the Nominating/
Corporate Governance Committee
(4)«« Member of the Finance Committee
(5)«« Audit Committee Financial Expert,
as defined by SEC regulations
(6)«« Independent, within the meaning of the
Sarbanes-Oxley Act and NYSE Listing
Standards
Executive Officers
Allan P. Merrill
President and Chief Executive Officer
Keith L. Belknap
Executive Vice President and General Counsel
Robert L. Salomon
Executive Vice President, Chief Financial
Officer and Chief Accounting Officer
CORPORATE HEADQUARTERS
Beazer Homes USA, Inc.
1000 Abernathy Road
Suite 260
Atlanta, Georgia 30328
(770) 829-3700
www.beazer.com
INDEPENDENT AUDITORS
Deloitte & Touche LLP
BEAZER HOMES CONFIDENTIAL ETHICS HOTLINE
Beazer Homes is committed to maintaining the highest ethical standards and
compliance with the law at all levels. To help ensure that all instances of known
or suspected fraud, theft, accounting or auditing improprieties, other financial
misconduct, and any other type of misconduct involving a violation of Beazer
Homes’ Code of Business Conduct and Ethics, the assets, operations or employees
of Beazer Homes USA, Inc. are reported, we maintain an ethics hotline.
Interested parties may contact the hotline by calling 1-866-457-9346 and
reporting their concerns to a representative of Global Compliance, a third-
party company that administers our ethics hotline.
Alternatively, interested parties can report any such concern via an online form
by visiting the following website: www.integrity-helpline.com/Beazer.jsp. The
link provides an online form that upon completion will be submitted directly to
Global Compliance. Interested parties may report their concerns anonymously,
should they wish to do so. All concerns, whether reported through the toll-free
number or the online form, will be directed to certain officers of Beazer Homes,
and will be reviewed and investigated as appropriate. Where warranted after
investigation, messages will be summarized and referred to the Audit Committee
of our Board of Directors for appropriate action.
INQUIRIES
Individuals seeking financial data or information about the Company and its
operations should visit the Company’s website at www.beazer.com or contact
our Investor Relations and Corporate Communications Department.
FINANCIAL INFORMATION
Copies of Beazer Homes USA, Inc.’s Annual Report on Form 10-K, Proxy
Statement and Forms 10-Q and 8-K, as filed with the United States Securities
and Exchange Commission, will be furnished upon written request to our
Investor Relations and Corporate Communications Department or can be
accessed at www.beazer.com.
TRANSFER AGENT
American Stock Transfer & Trust Company
59 Maiden Lane
New York, New York 10038
(212) 936-5100
TRADING INFORMATION
Beazer Homes USA, Inc. lists its common shares on the New York Stock
Exchange (NYSE) under the symbol “BZH.”
DUPLICATE MAILINGS
If you are receiving duplicate or unwanted copies of our publications, please
contact American Stock Transfer & Trust Company at the number listed above.
CERTIFICATION TO NYSE
Pursuant to Section 303A.12(a) of the New York Stock Exchange Listed
Company Manual, the Company submitted the Annual CEO Certification
to the NYSE, effective February 7, 2018.
12/11/18 2:02 PM
To Our Shareholders
Fiscal 2018 was a highly productive year for Beazer, with
numerous achievements resulting from our “Balanced Growth”
strategy. As you may recall, we introduced the “Balanced
Growth” strategy in Fiscal 2016, making a commitment to
reduce our outstanding debt by at least $250 million over the
next three fiscal years while continuing to grow our business.
This strategy drove four major accomplishments in Fiscal 2018,
as we:
§ Surpassed our “2B-10” goal, exceeding $2 billion in Revenue
and $200 million in Adjusted EBITDA
§ Completed our $250 million debt reduction plan
§ Welcomed owners to the first new Gatherings community
outside the Mid-Atlantic, as we advanced the rollout of our
active-adult communities
§ Acquired two builders, including Venture Homes, increasing
our opportunity to serve first-time buyers
As implementation of our “Balanced Growth” strategy continues
to evolve, we will focus on achieving a double-digit return on
assets, driven by further improvements in both profitability and
capital efficiency.
“BALANCED GROWTH”
In Fiscal 2018, we increased our
Adjusted EBITDA by more than 14 percent
compared to Fiscal 2017, marking our
seventh consecutive year of EBITDA
growth, as well as the achievement
of our “2B-10” Plan. Additionally, we
further reduced our outstanding debt
by nearly $100 million, completing our
three-year, $250 million debt reduction
plan. The charts below demonstrate the
progress that we have made in executing
our “Balanced Growth” strategy.
NET DEBT/LTM
ADJUSTED EBITDA**
x
0
9
.
x
8
8
.
x
1
.
7
x
8
5
.
x
3
5
.
Q4
FY14
Q4
FY15
Q4
FY16
Q4
FY17
Q4
FY18
RETURN ON ASSETS
%
5
6
.
%
0
6
.
%
1
.
7
%
0
8
.
%
6
9
.
FY14
FY15
FY16
FY17
FY18
BZH-048_2018AR_NARRATIVE-C1.indd 1
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2018 Annual Report
1
THE “2B-10”
PLAN RESULTS
In November 2013, we outlined a set of interim objectives: to reach
$2 billion in Revenue and $200 million in Adjusted EBITDA. We named
this our “2B-10” Plan, and we consistently noted that there were a number
of potential paths to achieving our goals. In the table below, we show the
ranges we targeted for our key metrics, as well as our Fiscal 2018 results in
each of those categories.
We are excited to announce that we achieved and surpassed our “2B-10”
goals in Fiscal 2018.
REVENUE
“2B-10” Plan Ranges
FY18 Results
Sales/Community/Month
2.8 – 3.2
3.0
Average Selling Price (ASP)
$340K – $350K
$360.2K
Average Community Count
170 – 175
156
Total Revenue
$2.0 Billion
$2.1 Billion
MARGIN
HB Gross Margin* %
SG&A (% of Total Revenue)
21% – 22%
11% – 12%
21.2%
11.8%
Adjusted EBITDA**
$200 Million
$204.7 Million
2
Beazer Homes
* Excluding impairments, abandonments and interest included in cost of sales as well as
certain unexpected warranty costs and recoveries detailed in Item 6 on our Form 10-K.
** For a full reconciliation of our Adjusted EBITDA, see Item 6 on our Form 10-K.
BZH-048_2018AR_NARRATIVE-C1.indd 2
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THE “2B-10” PLAN
ACHIEVEMENTS
GROWING
OUR BUSINESS
TOTAL REVENUE
(dollars in millions)
$1,627
FY15
“2B-10”
OBJECTIVE
SURPASSED
$1,464
FY14
$1,288
FY13
$ ADJUSTED EBITDA**
(dollars in millions)
$144
FY15
$156
FY16
“2B-10”
OBJECTIVE
SURPASSED
$133
FY14
$86
FY13
$1,822
FY16
$1,916
FY17
$2,000
“2B-10”
$2,107
FY18
$179
FY17
$200
“2B-10”
$205
FY18
Venture Homes Acquisition
In July of 2018, we acquired Venture Homes,
a leading private homebuilder in the Atlanta market.
The company was founded in 1984, and prior to our
purchase, had delivered more than 6,000 homes
during its 34-year history. As a result of this
transaction, we acquired more than 1,000 lots
located in nine active communities and 18 future
communities, principally serving first-time and
first-move-up homebuyers. The incorporation
of the Venture assets into our existing Atlanta
operations has made Beazer Homes a top 10
builder in the market.
Gatherings
We continued the rollout of our higher-density,
age-restricted Gatherings communities in Fiscal 2018.
These communities consist of four-story, 27-unit
condominiums with four different floor plans. The
economics of this building, and the sites it allows us
to acquire, enable us to target downsizing Baby
Boomers who wish to remain in, or near, their existing
neighborhoods. For these buyers, the convenience,
safety, affordability and low cost maintenance of a
Gatherings home represents an exceptional value
compared to other alternatives. As of the end of
Fiscal 2018, we owned, or had approved for
acquisition, land for Gatherings communities in
Maryland, Virginia, Florida, Georgia, Tennessee
and Texas. Gatherings sales activity will expand or
commence in many of these markets in Fiscal 2019.
2018 Annual Report
3
BZH-048_2018AR_NARRATIVE-C1.indd 3
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CAPITAL ALLOCATION
AND 10+ ROA
For Fiscal 2019, our capital allocation
priorities will be focused on three main
areas:
¡¡ Land Spend — We are prepared to
spend $500 - $600 million on land
acquisition and development in Fiscal
2019, although our total spend will be
contingent upon consumer demand and land
prices as we move throughout the fiscal year
¡¡ Share Repurchases — At current share prices,
our stock has become an attractive investment
opportunity, and our Board of Directors has
approved a $50 million share repurchase program.
We executed a $16.5 million accelerated share
repurchase program in November, with the
potential for additional repurchases, up to an
aggregate $50 million, made throughout the
fiscal year
¡¡ Debt Reduction — As we complete our
share repurchases, we have committed to
repurchasing an equal dollar value of our
outstanding senior notes in Fiscal 2019
As we continue the execution of our “Balanced
Growth” strategy, we look forward to making
further progress toward achieving our double-
digit ROA goal.
Conclusion
Fiscal 2018 was a major step forward for the Company,
and we are proud of the progress we have made on
our profitability and balance sheet objectives. We
want to thank you for your ongoing support as we
continue to execute our “Balanced Growth” strategy
and drive toward a double-digit ROA.
Sincerely,
Stephen P. Zelnak, Jr.
Non-Executive Chairman
of the Board
Allan P. Merrill
President and Chief
Executive Officer
The Beazer Difference
We are constantly updating and
improving the homes we offer. In fact,
we believe that buying a Beazer home
provides the best new home value of
any offering in the industry. Specifically,
we emphasize three key pillars of
differentiation to our customers:
MORTGAGE CHOICE
We attempt to create a more valuable
mortgage application process for our
customers by selecting a preferred set
of lenders based on quality customer
service, available loan programs and
competitive rates. These lenders
then compete to earn our customers’
business, which allows each buyer to
select the right mortgage and lender
for their purchase.
CHOICE PLANS™
With “Beazer Choice PlansTM”, we
have created structural floor plan
options for every plan we offer. These
Choice Plans allow buyers to configure
their primary living areas – particularly
kitchens and master bathrooms – to
match their living preferences at no
additional charge.
ENERGY EFFICIENCY
In 2018, Beazer was once again named
an ENERGY STAR® Partner of the Year
by the Department of Energy. We were
an early leader in energy and water
conservation and we continue to build
highly efficient homes. Every Beazer
home is ENERGY STAR certified and
rated by a third party, enabling our
homeowners to save up to 30 percent
on monthly energy use.
Surpassed
50,000
ENERGY STAR
Certified Homes
4
Beazer Homes
BZH-048_2018AR_NARRATIVE-C1.indd 4
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________________________
FORM 10-K
_____________________________________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2018
or
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
(State or other jurisdiction of
incorporation or organization)
1000 Abernathy Road, Suite 260,
Atlanta, Georgia
(Address of principal executive offices)
58-2086934
(I.R.S. employer
Identification no.)
30328
(Zip Code)
(770) 829-3700
(Registrant’s telephone number, including area code)
_____________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Securities
Common Stock, $.001 par value per share
Exchanges on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES
NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES
NO
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 12 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
NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). YES
NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Non-accelerated filer
Smaller reporting company
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). YES
NO
The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant as of March 31, 2018, based
on the closing sale price per share as reported by the New York Stock Exchange on such date, was $520,899,550.
Class
Common Stock, $0.001 par value
Outstanding at November 8, 2018
33,522,046
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the registrant’s 2019 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Form 10-K to the extent stated herein. The Proxy Statement will be filed within 120 days of the
registrant’s fiscal year ended September 30, 2018.
BEAZER HOMES USA, INC.
TABLE OF CONTENTS
Forward Looking Statements
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
SIGNATURES
1
2
11
18
18
18
19
20
22
25
43
44
92
92
92
93
93
93
93
93
94
100
References to “we,” “us,” “our,” “Beazer,” “Beazer Homes” and the “Company” in this Annual Report on Form 10-K refer to
Beazer Homes USA, Inc.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (Form 10-K) contains forward-looking statements. These forward-looking statements represent
our expectations or beliefs concerning future results, and it is possible that the results described in this Form 10-K 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 as of the date they are made.
These forward-looking statements involve 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 Form 10-K in the section captioned “Management’s 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 this Form 10-K. These factors are not intended to be an all-inclusive list of risks and
uncertainties that may affect the operations, performance, development and results of our business, but instead are the risks that
we currently perceive as potentially being material. Such factors may include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the cyclical nature of the homebuilding industry and a potential deterioration in homebuilding industry conditions;
economic changes nationally or in local markets, changes in consumer confidence, declines in employment or wage
levels, inflation or increases in the quantity and decreases in the price of new homes and resale homes on the market;
shortages of or increased prices for labor, land or raw materials used in housing production, and the level of quality
and craftsmanship provided by our subcontractors;
factors affecting margins, such as decreased land values underlying land option agreements, increased land development
costs in communities under development or delays or difficulties in implementing initiatives to reduce our production
and overhead cost structure;
the availability and cost of land and the risks associated with the future value of our inventory, such as additional asset
impairment charges or write-downs;
estimates related to homes to be delivered in the future (backlog) are imprecise, as they are subject to various cancellation
risks that cannot be fully controlled;
increases in mortgage interest rates, increased disruption in the availability of mortgage financing, continued changes in
tax laws or otherwise regarding the deductibility of mortgage interest expenses and real estate taxes or an increased
number of foreclosures;
our allocation of capital and the cost of and ability to access capital, due to factors such as limitations in the capital markets
or adverse credit market conditions, and otherwise meet our ongoing liquidity needs, including the impact of any
downgrades of our credit ratings or liquidity levels;
our ability to reduce our outstanding indebtedness and to comply with covenants in our debt agreements or satisfy such
obligations through repayment or refinancing;
increased competition or delays in reacting to changing consumer preferences in home design;
natural disasters and other related events that could result in delays in land development or home construction, increase
our costs or decrease demand in the impacted areas;
the potential recoverability of our deferred tax assets;
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 or
governmental policies, including those related to the environment;
the results of litigation or government proceedings and fulfillment of any related obligations;
the impact of construction defect and home warranty claims, including water intrusion issues in Florida;
the cost and availability of insurance and surety bonds, as well as the sufficiency of these instruments to cover potential
losses incurred;
the impact of information technology failures, cybersecurity issues or data security breaches;
terrorist acts, natural disasters, acts of war or other factors over which the Company has little or no control; or
the impact on homebuilding in key markets of governmental regulations limiting the availability of water.
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
to predict all such factors.
1
Item 1. Business
PART I
We are a geographically diversified homebuilder with active operations in 13 states within three geographic regions in the United
States: the West, East, and Southeast. Our homes are designed to appeal to homeowners at different price points across various
demographic segments, and are generally offered for sale in advance of their construction. Our objective is to provide our customers
with homes that incorporate exceptional value and quality, at affordable prices, while seeking to maximize our return on invested
capital over the course of a housing cycle.
Beazer Homes USA, Inc. was incorporated in Delaware in 1993. Our principal executive offices are located at 1000 Abernathy
Road, Suite 260, Atlanta, Georgia 30328, and our main telephone number is (770) 829-3700. We also provide information about
our company, including active communities, through our Internet website located at www.beazer.com. Information on our website
is not a part of this Form 10-K and shall not be deemed incorporated by reference.
Industry Overview and Current Market Conditions
The sale and production of new homes has been, and will likely remain, a large industry in the United States for four primary
reasons: (1) historical growth in both population and households; (2) demographic patterns that indicate an increased likelihood
of home ownership as age and income increase; (3) job creation within geographic markets that necessitate new home construction;
and (4) consumer demand for home features that can be more easily provided in a new home than an existing home.
The demand for new and existing homes is dependent on a variety of demographic and economic factors, including job and wage
growth, household formation, consumer confidence and mortgage financing. Currently, we are experiencing a strong job market
as wages rise and the rate of household formation continues to grow. However, as the prices for new and existing homes have
increased over the past few years and mortgage interest rates have inched upward, the affordability of homes has recently come
under pressure, causing a slowdown in sales activity. In addition, labor availability concerns have helped constrain the growth of
the supply of new homes available for sale. Though affordability concerns will continue, we believe the strong economic backdrop
along with the limited supply of homes for sale provides us with confidence in the overall market for new home sales over the
near term.
Long-Term Business Strategy
We achieved both our “2B-10” plan and our $250.0 million debt reduction goal in fiscal 2018. Collectively, these multi-year
initiatives were part of our larger and longer-term Balanced Growth strategy. We remain committed to this Balanced Growth
strategy, which is designed to increase shareholder value by improving our return on assets while reducing operational risk and
debt.
For fiscal 2019, we have several objectives that are aligned with this longer-term strategy. These include generating higher
profitability, increasing return on total assets, and further reducing our net debt to EBITDA ratio.
To drive additional profitability, we expect to have a higher community count and an increase in our average selling price (ASP)
in fiscal 2019, primarily driven by a mix shift between communities and divisions. We will still maintain one of the lowest ASPs
among our peer group.
To improve our return on assets, we expect to benefit from the activation of a number of assets that were previously classified as
land held for future development, increase the portion of our land position that is controlled by lot options, and target smaller
communities for acquisition.
To reduce our net debt to EBITDA ratio, we expect to increase profitability and modestly reduce our outstanding debt by the end
of the fiscal year.
2
Reportable Business Segments
Our active homebuilding operations consist of the design, sale, and construction of single-family and multi-family homes in the
following geographic regions, which represent our reportable segments:
Segment/State
West:
Arizona
California
Nevada
Texas
East:
Indiana
Maryland/Delaware
Tennessee
Virginia
Southeast:
Florida
Georgia
North Carolina
South Carolina
Market(s)
Phoenix
Los Angeles County, Orange County, Riverside and San Bernardino
Counties, San Diego County, Sacramento County, Yuba County
Las Vegas
Dallas/Ft. Worth, Houston
Indianapolis
Baltimore, Howard, Metro-Washington, D.C./Sussex
Nashville
Loudoun County, Prince William County, Stafford County,
Spotsylvania County, Fredericksburg
Tampa/St. Petersburg, Orlando
Atlanta, Savannah
Raleigh/Durham
Charleston, Myrtle Beach
The following tables summarize certain operating information of our reportable segments, including number of homes closed, the
average selling price for the periods presented, and units and dollar value in backlog as of September 30, 2018, 2017, and 2016.
Refer to “Management's Discussion and Analysis of Results of Operations and Financial Condition” in Item 7 of this Form 10-K
for additional information.
($ in thousands)
West
East
Southeast
Total Company
West
East
Southeast
Total Company
ASP in backlog (in thousands)
2018
2017
2016
Number of
Homes
Closed
Average
Closing Price
Number of
Homes
Closed
Average
Closing Price
Number of
Homes
Closed
Average
Selling Price
2,895
$
1,221
1,651
5,767
$
345.3
418.3
343.5
360.2
2,527
$
1,382
1,616
5,525
$
336.9
386.1
316.1
343.1
2,508
$
1,373
1,538
5,419
$
326.1
368.0
300.1
329.4
September 30, 2018
September 30, 2017
September 30, 2016
Units in
Backlog
Dollar Value
in Backlog (in
millions)
Units in
Backlog
Dollar Value
in Backlog (in
millions)
Units in
Backlog
Dollar Value
in Backlog (in
millions)
858
$
281
493
1,632
$
$
305.5
127.5
195.0
628.0
384.8
879
$
413
563
1,855
$
$
306.0
161.7
198.1
665.8
358.9
828
$
444
644
1,916
$
$
278.5
168.5
205.6
652.7
340.6
3
Seasonal and Quarterly Variability
Our homebuilding operating cycle generally reflects higher levels of new home order activity in our second and third fiscal quarters,
and increased closings in our third and fourth fiscal quarters. However, these seasonal patterns may be impacted or reduced by a
variety of factors, including periods of economic downturn, which result in decreased revenues and closings.
Markets and Product Description
We evaluate a number of factors in determining which geographic markets to enter and remain in as well as which consumer
segments to target with our homebuilding activities. We compete in sixteen geographic markets across the United States in part
to reduce our exposure to any particular regional economy. Within these markets, we build homes in a variety of new home
communities. We continually review our sixteen markets based on aggregate demographic information, land prices and availability,
competitive dynamics, and our own operating results. We use the results of these reviews to re-allocate our investments to those
markets where we believe we can maximize our profitability and return on capital.
We generally seek to differentiate ourselves from our competition in a particular market with respect to customer service, product
type, incorporating energy-efficient features into the homes we build and design, and construction quality. We maintain the
flexibility to alter our product mix within a given market, depending on market conditions. In determining our product mix, we
consider demographic trends, demand for a particular type of product, consumer preferences, margins, timing, and the economic
strength of the market. Depending on the market, we attempt to address one or more of the following categories of home buyers:
entry-level, move-up, or retirement-oriented. We expect our focus on retirement-oriented buyers to increase as our Gatherings®
business progresses, which is further discussed below. Within these buyer groups, we have developed detailed targeted buyer
profiles based on demographic and psychographic data, including information about their marital and family status, employment,
age, affluence, special interests, media consumption, and distance moved. Although we offer a selection of amenities and home
customization options, we generally do not build “custom homes.” In all of our home offerings, we attempt to maximize customer
satisfaction by incorporating quality and energy-efficient materials, distinctive design features, convenient locations, and
competitive prices.
Gatherings. Gatherings® by Beazer Homes was officially launched in 2016 to address the growing 55 plus segment and to capitalize
on Beazer’s success in building age-targeted condominiums. We strive to provide exceptional value at an affordable price and
become a premier provider of condominium living for active adults over age 55. We are currently pursuing Gatherings assets in
Florida, Texas, Georgia, Tennessee, Maryland, Virginia, Nevada, Arizona, California, North Carolina, and South Carolina. As of
September 30, 2018, we have approved new communities representing nearly 700 future sales.
Operational Overview
Corporate Operations
We perform the following functions at our corporate office to promote standardization and operational excellence:
•
•
•
•
•
•
•
evaluate and select geographic markets;
allocate capital resources for land acquisitions;
maintain and develop relationships with lenders and capital markets to create and maintain access to financial resources;
maintain and develop relationships with national product vendors;
perform certain accounting, finance, legal, risk and marketing functions to support our field operations;
operate and manage information systems and technology support operations; and
monitor the operations of our divisions and partners.
We allocate capital resources in a manner consistent with our overall business strategy. We will vary our capital allocation based
on market conditions, results of operations, and other factors. Capital commitments are determined through consultation among
selected executive and operational personnel who play an important role in ensuring that new investments are consistent with our
strategy. Financial controls are also maintained through the centralization and standardization of accounting and finance activities,
policies, and procedures.
4
Field Operations
The development and construction of each new home community is managed by our operating divisions, each of which is led by
a regional market leader who reports to our Chief Executive Officer. Within our operating divisions, our field teams are equipped
with the skills needed to complete the functions of identifying land acquisition opportunities, land entitlement, land development,
home construction, local marketing, sales, warranty service, and certain purchasing and planning/design functions. However, the
accounting and accounts payable functions of our field operations are concentrated in our national accounting center, which we
consider to be part of our corporate operations.
Land Acquisition and Development
Generally, the land we acquire is purchased only after necessary entitlements have been obtained so that we have the right to begin
development or construction as market conditions dictate. The term “entitlements” refers to subdivision approvals, development
agreements, tentative maps, or recorded plats, depending on the jurisdiction in which the land is located. Entitlements generally
give a developer the right to obtain building permits upon compliance with conditions that are usually within the developer's
control. Although entitlements are ordinarily obtained prior to the purchase of land, we are still required to obtain a variety of
other governmental approvals and permits during the development process. In limited circumstances, we will purchase property
without all necessary entitlements where we have identified an opportunity to build on such property in a manner consistent with
our strategy.
We select land for purchase based upon a variety of factors, including:
•
•
•
•
•
•
•
internal and external demographic and marketing studies;
suitability for development during the time period of one to five years from the beginning of the development process to
the last closing;
financial review as to the feasibility of the proposed project, including profit margins and returns on capital employed;
the ability to secure governmental approvals and entitlements;
environmental and legal due diligence;
competition in the area;
proximity to local traffic corridors and amenities; and
• management's judgment of the real estate market and economic trends and our experience in a particular market.
We generally purchase land or obtain an option to purchase land, which, in either case, requires certain site improvements prior
to home construction. Where required, we then undertake or the grantor of the option then undertakes in the case of land under
option, the development activities (through contractual arrangements with local developers, general contractors, and/or
subcontractors), which include site planning and engineering as well as constructing roads, water, sewer, and utility infrastructures,
drainage and recreational facilities, and other amenities. When available in certain markets, we also buy finished lots that are ready
for home construction. During our fiscal 2018 and 2017, we continued to pursue land acquisition opportunities and develop our
land positions, spending approximately $425.4 million and $301.4 million, respectively, for land acquisition and $210.1 million
and $145.0 million, respectively, for land development.
We strive to develop a design and marketing concept for each of our communities, which includes determination of the size, style,
and price range of the homes, layout of streets and individual lots, and overall community design. The product line offered in a
particular new home community depends upon many factors, including the housing generally available in the area, the needs of
a particular market, and our cost of lots in the new home community.
Option Contracts
We acquire certain lots by means of option contracts from various sellers and developers, including land banking entities. Option
contracts generally require the payment of a cash deposit or issuance of a letter of credit for the right to acquire lots during a
specified period of time at a fixed or variable price.
5
Under option contracts, purchase of the underlying properties is contingent upon satisfaction of certain requirements by us and
the sellers. Our liability under option contracts is generally limited to forfeiture of the non-refundable deposits, letters of credit,
and other non-refundable amounts incurred, which totaled approximately $72.8 million as of September 30, 2018. The total
remaining purchase price, net of cash deposits, committed under all land option contracts was $383.2 million as of September 30,
2018.
We expect to exercise, subject to market conditions and seller satisfaction of contract terms, most of our option contracts. 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 lot options will be exercised
at all.
The following table summarizes land controlled by us by reportable segment as of September 30, 2018:
Lots Owned
Lots with
Homes Under
Construction (a)
Finished
Lots
Lots Under
Development
Lots Held
for Future
Development
Lots
Held for
Sale
Total Lots
Owned
Total Lots
Under
Contract
Total Lots
Controlled
West
Arizona
California
Nevada
Texas
Total West
East
Indiana
Maryland/Delaware
New Jersey
Tennessee
Virginia
Total East
Southeast
Florida
Georgia
North Carolina
South Carolina
Total Southeast
Corporate and
unallocated (b)
Total
167
264
174
558
1,163
103
112
—
112
28
355
213
246
95
139
693
—
2,211
252
523
372
1,204
2,351
188
90
—
131
82
491
462
366
125
445
1,398
—
4,240
481
2,101
482
2,439
5,503
690
544
—
715
172
2,121
344
462
40
1,132
1,978
—
9,602
—
578
239
—
817
—
93
117
—
—
210
33
—
21
68
122
—
1,149
—
1
—
—
1
40
7
—
101
—
148
—
86
—
36
122
42
313
900
3,467
1,267
4,201
9,835
1,021
846
117
1,059
282
3,325
1,052
1,160
281
1,820
4,313
42
17,515
605
40
601
2,478
3,724
97
644
—
137
353
1,231
533
525
314
346
1,718
—
6,673
1,505
3,507
1,868
6,679
13,559
1,118
1,490
117
1,196
635
4,556
1,585
1,685
595
2,166
6,031
42
24,188
(a) This category represents lots upon which construction of a home has commenced, including model homes.
(b) Lots held for sale are parcels held by our operations considered to be discontinued.
6
The following table summarizes the dollar value of our land under development, land held for future development, and land held
for sale by reportable segment as of September 30, 2018:
(In thousands)
West
East
Southeast
Corporate and unallocated (a)
Total
Land Under
Development
Land Held for Future
Development
Land Held for Sale
$
$
509,406
$
58,125
$
185,462
212,925
—
907,793
$
14,077
10,971
—
83,173
$
—
4,580
3,177
24
7,781
(a) Land held for sale are parcels held by our operations considered to be discontinued.
Investments in Unconsolidated Entities
Occasionally, we use legal entities in which we have less than a controlling interest. We enter into the majority of these investments
with land developers, other homebuilders and financial partners to acquire attractive land positions, to manage our risk profile
and to leverage our capital base. The underlying land positions are developed into finished lots for sale to the unconsolidated
entity’s members or other third parties. We account for our interest in unconsolidated entities under the equity method.
Historically, we and our partners have provided varying levels of guarantees of debt or other obligations of our unconsolidated
entities. As of September 30, 2018, our unconsolidated entities had borrowings outstanding totaling $12.3 million. See Note 4 of
notes to the consolidated financial statements in this Form 10-K for further information.
Our consolidated balance sheets include investments in unconsolidated entities totaling $4.0 million and $4.0 million as of
September 30, 2018 and September 30, 2017, respectively.
Construction
We typically act as the general contractor for the construction of our new home communities. Our project development activities
are controlled by our operating divisions whose employees supervise the construction of each new home community by coordinating
the activities of subcontractors and suppliers, subjecting their work to quality and cost controls and ensuring compliance with
zoning and building codes. We specify that quality, durable materials be used in the construction of our homes. Our subcontractors
follow design plans prepared by architects and engineers who are retained or directly employed by us and whose designs are
geared to the local market. Our home plans are created in a collaborative effort with industry leading architectural firms, allowing
us to stay current in our home designs with changing trends as well as expanding our focus on value engineering without sacrificing
design value for our customers.
Agreements with our subcontractors and materials suppliers are generally entered into after a competitive bidding process during
which we obtain information from prospective subcontractors and vendors with respect to their financial condition and ability to
perform their agreements with us in accordance with the specifications we provide. Subcontractors typically are retained on a
project-by-project basis to complete construction at a fixed price. We do not maintain significant inventories of construction
materials, except for materials being utilized for homes under construction. We have numerous suppliers of raw materials and
services used in our business, and such materials and services have been and continue to be available. However, material prices
may fluctuate due to various factors, including demand or supply shortages and the price of certain commodities, which may be
beyond the control of us or our vendors. Whenever possible, we enter into regional and national supply contracts with certain of
our vendors. We believe that our relationships with our suppliers and subcontractors are good.
Construction time for our homes depends on local governmental approval processes, product type, location, and the availability
of labor, materials, and supplies. Homes are designed to promote efficient use of space and materials and to minimize construction
costs and time. In all of our markets, construction of a home is typically completed within three to six months following
commencement of construction. As of September 30, 2018, excluding models, we had 1,973 homes at various stages of completion,
of which 1,246 were under contract and included in backlog at such date and 727 homes (240 were substantially completed and
487 under construction) were not under a sales contract, either because the construction of the home was begun without a sales
contract or because the original sales contract had been canceled (known as “speculative” or “spec” homes).
7
Warranty Program
We currently provide a limited warranty (ranging from one to two years) covering workmanship and materials per our defined
standards of performance. In addition, we provide a limited warranty for up to ten years covering only certain defined structural
element failures. For certain homes sold through March 31, 2004 (and in certain markets through July 31, 2004), we self-insured
our warranty obligations through our wholly-owned risk retention group. We continue to maintain reserves to cover potential
claims on homes covered under this warranty program. Beginning with homes sold on or after April 1, 2004 (August 1, 2004 in
certain markets), our warranties have been issued, administered and insured, subject to applicable self-insured retentions, by
independent third parties.
Since we subcontract our homebuilding work to subcontractors whose contracts generally include an indemnity obligation and a
requirement that certain minimum insurance requirements be met, including providing us with a certificate of insurance prior to
receiving payments for their work, many claims relating to workmanship and materials are the primary responsibility of our
subcontractors.
In addition, we maintain third-party insurance, subject to applicable self-insured retentions, for most construction defects that we
encounter in the normal course of business. We believe that our warranty and litigation accruals and third-party insurance are
adequate to cover the ultimate resolution of our potential liabilities associated with known and anticipated warranty and construction
defect related claims and litigation. Please see Note 9 of notes to the consolidated financial statements in this Form 10-K for
additional information. However, there can be no assurance that the terms and limitations of the limited warranty will be effective
against claims made by homebuyers; that we will be able to renew our insurance coverage or renew it at reasonable rates; that we
will not be liable for damages, the cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil
subsidence, or building related claims; or that claims will not arise out of events or circumstances not covered by insurance and/
or not subject to effective indemnification agreements with our subcontractors.
Marketing and Sales
We make extensive use of digital and traditional marketing vehicles and other promotional activities, including our websites
(www.beazer.com and www.beazerenespanol.com), mobile site (m.beazer.com), real estate listing sites, digital advertising
(including search engine marketing and display advertising), social media, video, brochures, direct marketing, and out-of-home
advertising (including billboards and signage) located in the immediate areas of our developments, as well as additional activities.
In connection with these marketing vehicles, we have registered or applied for registration of trademarks and internet domain
names, including Beazer Homes®, Gatherings®, and Choice PlansTM, for use in our business.
Our practice is to build, decorate, furnish, and landscape model homes for each community we build and maintain on-site sales
offices. As of September 30, 2018, we maintained and owned 238 model homes. We believe that model homes play a particularly
important role in our selling efforts, and we are continuously innovating within our model homes to provide a unique, memorable,
and hands-on experience for our customers, i.e., digital kiosks, interactive site maps/plans, interactive magnetic floor plan boards,
signage, and more. The selection of interior features is also a principal component of our marketing and sales efforts.
Our homes are customarily sold through commissioned new home sales counselors (who work from the sales offices located in
the model homes used in the community) as well as through independent brokers. Our new home counselors are available to assist
prospective homebuyers by providing them with floor plans, price information, tours of model homes, the community's unique
selling proposition, detailed explanations of our three differentiators, discussed below, and associated savings opportunities. Sales
personnel are trained internally and participate in a structured training program focused on sales techniques, product enhancements,
competitive products in the area, construction schedules, and Company policies around compliance, which management believes
results in a sales force with extensive knowledge of our operating policies and housing products. Our policy is that sales personnel
must be licensed real estate agents where required by law.
We sometimes use various sales incentives in order to attract homebuyers. The use of incentives depends largely on local economic
and competitive market conditions.
Depending on market conditions, we also at times begin construction on a number of homes for which no signed sales contract
exists, known as “speculative” or “spec” homes. This speculative inventory satisfies demand by providing near ready or move in
ready homes targeted at relocated personnel and others who require a completed home within 60 days.
Differentiating Beazer Homes
We know that our buyers have many choices when purchasing a home. To help us become a builder of choice and thereby achieve
the operational objectives we have outlined, we have identified the following three strategic pillars that differentiate Beazer's
homes from both resale homes and other newly built homes:
8
Mortgage Choices - Most of our buyers need to arrange financing in order to purchase a new home. Unlike many of our major
competitors, we do not have an in-house mortgage company. Instead, for every Beazer community, we have identified a group of
preferred lenders that provide a comprehensive product portfolio, competitive rates and fees, and outstanding customer service.
We encourage those lenders to compete for our customers’ business, which is a unique program among national homebuilders and
enables our customers to secure the mortgage program that best fits their needs.
Choice PlansTM - Every family lives in their home differently, which is why we created Choice PlansTM. Choice PlansTM allow
buyers to choose how primary living areas, like the kitchen and master bathroom, are configured at no extra cost. Whether our
buyers choose an office or an expanded family room, our plans are designed for the way a buyer wants to live.
Energy Efficiency - Nearly all newly-built homes afford buyers a substantial reduction in utility bills due to their modern, energy-
efficient construction and materials. That's a feature most used homes cannot provide. At Beazer, we go even further by ensuring
our homes are built to the latest ENERGY STAR® standards and by providing every buyer with an energy rating for their home,
completed by a qualified third-party rating company. Used homes typically have an energy rating (on a scale in which a lower
score is better) of 130, while new homes that are built to code typically score around 100. The average new Beazer home has an
energy rating of 62.
Customer Financing
As previously mentioned, we do not provide mortgage origination services. Unlike many of our peers, we have no ownership
interest in any lender and are able to promote competition among lenders on behalf of our customers through our Mortgage Choices
program. Approximately 91% of our fiscal 2018 customers elected to finance a portion of their home purchase.
Competition
The development and sale of residential properties is highly competitive and fragmented. We compete for residential sales on the
basis of a number of interrelated factors, including location, reputation, amenities, design, quality, and price with numerous large
and small homebuilders, including many homebuilders with nationwide operations and greater financial resources and/or lower
costs than us. We also compete for residential sales with individual resales of existing homes and available rental housing.
We utilize our experience within our geographic markets and the breadth of our product line to vary regional product offerings to
reflect changing market conditions. We strive to respond to market conditions and to capitalize on the opportunities for advantageous
land acquisitions in desirable locations. Our product offerings strive to provide extraordinary value at an affordable price with
intentional focus on Millennials and Baby Boomers.
Government Regulation and Environmental Matters
In most instances, our land is purchased with entitlements, giving us the right to obtain building permits upon compliance with
specified conditions, which generally are within our control. The length of time necessary to obtain such permits and approvals
affects the carrying costs of unimproved property acquired for the purpose of development and construction. In addition, the
continued effectiveness of permits already granted is subject to factors such as changes in policies, rules and regulations, and their
interpretation and application. Many governmental authorities have imposed impact fees as a means of defraying the cost of
providing certain governmental services to developing areas. To date, these governmental approval processes have not had a
material adverse effect on our development activities, and all homebuilders in a given market face the same fees and restrictions.
However, there can be no assurance that these and other restrictions will not adversely affect us in the future.
We may also be subject to periodic delays or may be precluded entirely from developing communities due to building moratoriums,
“slow-growth” or “no-growth” initiatives, or building permit allocation ordinances, which could be implemented in the future in
the markets in which we operate. Substantially all of our land is entitled and, therefore, the moratoriums generally would only
adversely affect us if they arose from health, safety, and welfare issues such as insufficient water or sewage facilities. Local and
state governments also have broad discretion regarding the imposition of development fees for communities in their jurisdictions.
However, these fees are normally established when we receive recorded final maps and building permits. We are also subject to
a variety of local, state, and federal statutes, ordinances, rules, and regulations concerning the protection of health and the
environment. These laws may result in delays, cause us to incur substantial compliance and other costs, and prohibit or severely
restrict development in certain environmentally sensitive regions or areas. Our communities in California are especially susceptible
to restrictive government regulations and environmental laws, particularly surrounding water usage due to continuing drought
conditions within that region.
In order to provide homes to homebuyers qualifying for Federal Housing Administration (FHA)-insured or Veterans Affairs (VA)-
guaranteed mortgages, we must construct homes in compliance with FHA and VA regulations. These laws and regulations include
provisions regarding operating procedures, investments, lending, and privacy disclosures and premiums.
9
In some states, we are required to be registered as a licensed contractor and comply with applicable rules and regulations. Also,
in various states, our new home counselors are required to be licensed real estate agents and to comply with the laws and regulations
applicable to real estate agents.
Failure to comply with any of these laws or regulations, where applicable, could result in loss of licensing and a restriction of our
business activities in the applicable jurisdiction.
Health and Safety Matters
We strive to provide a safe and healthy work environment for all employees. We believe that corporate social responsibility is an
essential factor for our overall success. This includes adopting ethical practices to direct how we do business while keeping the
interests of our stakeholders and the environment in mind, including valuing and challenging the talented men and women who
comprise our workforce.
The objectives of our practices and policies underscore this commitment:
• To treat all employees with dignity and respect. Employee diversity and inclusion are embraced and opportunities for
training, growth, and advancement are strongly encouraged.
• To uphold ethical standards and comply with applicable laws and our internal guidelines, including a Code of Conduct
applicable to all employees and an actively-managed ethics hotline.
• To promote the idea that the quality of our products and employee well-being are predicated on a safe and healthy work
environment. Our Safety First culture focuses on the safety of our people at every level of the organization.
We are also committed to maintaining high standards in health and safety at all of our sites. We have a health and safety audit
system that includes comprehensive independent third-party inspections. All of our team members are required to attend certain
health and safety related training programs applicable to their respective job responsibilities.
Bonds and Other Obligations
In connection with the development of our communities, we are frequently required to provide performance, maintenance, and
other bonds and letters of credit in support of our related obligations with respect to such developments. The amount of such
obligations outstanding at any time varies in accordance with our pending development activities. In the event any such bonds or
letters of credit are drawn upon, we would be obligated to reimburse the issuer of such bonds or letters of credit. As of September 30,
2018, we had approximately $237.8 million and $38.1 million of outstanding performance bonds and letters of credit, respectively,
primarily related to our obligations to local governments to construct roads and other improvements in various developments.
Employees and Subcontractors
As of September 30, 2018, we employed approximately 1,280 persons, of whom 393 were sales and marketing personnel and 316
were construction personnel. Although none of our employees are covered by collective bargaining agreements, at times certain
of the subcontractors engaged by us may be represented by labor unions or may be subject to collective bargaining arrangements.
We believe that our relations with our employees and subcontractors are good.
Available Information
Our Internet website address is www.beazer.com and our mobile site is m.beazer.com. Our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a)
or 15(d) of the Securities Exchange Act are available free of charge through our website as soon as reasonably practicable after
we electronically file with or furnish them to the Securities and Exchange Commission (SEC), and are available in print to any
stockholder who requests a printed copy. The public may also read and copy any materials that we file with the SEC at the SEC's
Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. Furthermore, the SEC maintains a website that contains reports, proxy
statements, information statements and other information regarding issuers, including us, that file electronically with the SEC at
www.sec.gov.
In addition, many of our corporate governance documents are available on our website at www.beazer.com. Specifically, our Audit,
Finance, Compensation, and Nominating/Corporate Governance Committee Charters, our Corporate Governance Guidelines and
Code of Business Conduct and Ethics are available. Each of these documents is also available in print to any stockholder who
requests it.
10
The content on our website and mobile site is available for information purposes only and is not a part of and shall not be deemed
incorporated by reference in this Form 10-K.
Item 1A. Risk Factors
A number of conditions that affect demand for the homes we sell are outside of our control. Many of these conditions, such as
interest rates, inflation, employment levels, wage levels and governmental actions also impact consumer confidence, upon
which our business is highly dependent.
Changes in national and regional economic conditions, as well as local economic conditions where we conduct our operations,
may result in more caution on the part of homebuyers and, consequently, fewer home purchases. These economic uncertainties
involve, among other things, interest rates, inflation, employment levels, wage growth and governmental actions, all of which are
out of our control and affect the affordability of, and demand for, the homes we sell. These conditions also impact consumer
confidence, upon which our business is highly dependent. Adverse changes in any of these conditions could decrease demand and
pricing for our homes or result in customer cancellations of pending contracts, which could adversely affect the number of home
sales we make or reduce home prices, either of which could result in a decrease in our revenues and earnings and adversely affect
our financial condition.
Because almost all of our customers require mortgage financing, increases in interest rates could negatively affect the
affordability of the homes we sell. In addition, reductions in mortgage availability or increases in the effective costs of owning
a home could prevent our customers from buying our homes and adversely affect our business and financial results.
Substantially all of the purchasers of our homes finance their acquisition with mortgage financing. Mortgage interest rates have
remained near historic lows for the last several years, which has made the homes we sell more affordable. However, interest rates
are currently rising and are expected to continue to rise in the near term. Increases in interest rates increase the costs of owning
a home and could adversely affect the purchasing power of consumers and lower demand for the homes we sell, which could result
in a decrease in our revenues and earnings and adversely affect our financial condition.
The availability of mortgage financing is significantly influenced by governmental entities such as the Federal Housing
Administration, Veteran’s Administration and Government National Mortgage Association and government-sponsored enterprises
known as Fannie Mae and Freddie Mac. The tightening of their or other lenders’ borrowing standards may make it more difficult
for our customers to obtain acceptable financing and, therefore, may adversely affect our business, financial condition and results
of operations.
Mortgage interest expense and real estate taxes represent significant costs of homeownership. Therefore, when there are changes
in federal or state income tax laws that eliminate or substantially limit the income tax deductions relating to these expenses, the
after-tax costs of owning a new home can increase significantly. For example, the “Tax Cuts and Jobs Act,” which was enacted
in December 2017, includes provisions that impose significant limitations with respect to these income tax deductions. Under this
legislation, through the end of 2025, the annual deduction for real estate property taxes and state and local income or sales taxes
has been limited to a combined amount of $10,000 ($5,000 in the case of a separate return filed by a married individual). In
addition, through the end of 2025, the deduction for mortgage interest will generally only be available with respect to acquisition
indebtedness that does not exceed $750,000 ($375,000 in the case of a separate return filed by a married individual). We believe
changes such as these adversely impact the demand for and sales prices of homes in certain markets, including parts of California
and Maryland, and therefore could adversely affect our business, financial condition and results of operations.
Inflation may adversely affect us by increasing costs beyond what we can recover through price increases.
Inflation can adversely affect us by increasing costs of land, materials and labor. In addition, inflation is often accompanied by
higher interest rates which, as discussed above, are currently on the rise. In an inflationary environment, depending on homebuilding
industry and other economic conditions, we may be unable to raise home prices enough to keep up with the rate of inflation, which
would reduce our profit margins. Although the rate of inflation has been low for the last several years, during the same period we
have experienced, and we continue to experience, increases in the prices of land, labor and materials above the general inflation
rate.
11
Supply shortages and other risks related to the demand for skilled labor and building materials could increase costs, delay
deliveries and could adversely affect our financial condition and results of operations.
The residential construction industry experiences price fluctuations and shortages in labor and materials from time to time. Shortages
in labor can be due to shortages in qualified trades people, lack of availability of adequate utility infrastructure and services, or
our need to rely on local subcontractors who may not be adequately capitalized or insured. Labor and material shortages can be
more severe during periods of strong demand for housing or during periods in which the markets where we operate experience
natural disasters such as hurricanes or flooding as discussed more fully below. Pricing for labor and materials can be affected by
the factors discussed above, changes in energy prices, and various other national, regional and local economic factors. For example,
recent government imposed tariffs on imported building supplies, such as lumber, have significantly increased the cost to construct
our homes. Such cost increases limit our ability to control costs, potentially reducing margins on the homes we build if we are not
able to successfully offset the increased costs through higher sales prices.
The homebuilding industry is cyclical. A downturn in the industry could adversely affect our business, financial condition and
results of operations.
During periods of downturn in the homebuilding industry, housing markets across the United States may experience an oversupply
of both new and resale home inventory, an increase in foreclosures, reduced levels of consumer demand for new homes, increased
cancellation rates, aggressive price competition among homebuilders and increased incentives for home sales. In the event of a
downturn, we may experience a material reduction in revenues and margins and our financial condition as well as our results of
operations could be adversely affected.
Our long-term success depends on our ability to acquire finished lots and undeveloped land suitable for residential homebuilding
at reasonable prices, in accordance with our land investment criteria.
The homebuilding industry is highly competitive for suitable land and the risk inherent in purchasing and developing land increases
as consumer demand for housing increases. The availability of finished and partially finished developed lots and undeveloped
land for purchase that meet our investment criteria depends on a number of factors outside our control, including land availability
in general, competition with other homebuilders and land buyers, inflation in land prices, zoning, allowable housing density, the
ability to obtain building permits and other regulatory requirements. Should suitable lots or land become less available, the number
of homes we may be able to build and sell could be reduced, and the cost of land could increase, perhaps substantially, which
could adversely impact our financial condition and results of operations.
As competition for suitable land increases, the cost of acquiring both finished and undeveloped lots and the cost of developing
owned land could rise, and the availability of suitable land at acceptable prices may decline, which could adversely impact our
financial results. The availability of suitable land assets could also affect the success of our land acquisition strategy and ultimately
our long-term strategic goals by impacting our ability to increase the number of actively selling communities, grow our revenues
and margins and achieve or maintain profitability.
The market value of our land and/or homes may decline, leading to impairments and reduced profitability.
We regularly acquire land for replacement and expansion of our land inventory within our existing and new markets. The market
value of land, building lots and housing inventories can fluctuate significantly as a result of changing market conditions, and the
measures we employ to manage inventory risk may not be adequate to insulate our operations from a severe drop in inventory
values. When market conditions are such that land values are not appreciating, option agreements previously entered into may
become less desirable, at which time we may elect to forgo deposits and preacquisition costs and terminate the agreements. In a
situation of adverse market conditions, we may incur impairment charges or have to sell land at a loss, which could adversely
affect our financial condition and results of operations.
Reduced numbers of home sales extend the time it takes us to recover land purchase and property development costs, negatively
impacting profitability and our results of operations.
We incur many costs even before we begin to build homes in a community. Depending on the stage of development a land parcel
is in when we acquire it, these may include costs of preparing land, finishing and entitling lots, installing roads, sewers, water
systems and other utilities, taxes and other costs related to ownership of the land on which we plan to build homes. If the rate at
which we sell and deliver homes slows, or if we delay the opening of new home communities, we may incur additional pre-
construction costs and it may take longer for us to recover our costs, which could adversely affects our profitability and results of
operations.
12
An increase in cancellation rates may negatively impact our business and lead to imprecise estimates related to homes to be
delivered in the future (backlog).
Our backlog reflects the number and value of homes for which we have entered into a sales contract with a customer but have not
yet delivered the home. Although these sales contracts typically require a cash deposit and do not make the sale contingent on the
sale of the customer's existing home, in some cases a customer may cancel the contract and receive a complete or partial refund
of the deposit as a result of local laws or as a matter of our business practices. If industry or economic conditions deteriorate or if
mortgage financing becomes less accessible, more homebuyers may have an incentive to cancel their contracts with us, even where
they might be entitled to no refund or only a partial refund, rather than complete the purchase. Significant cancellations have had,
and could have, a material adverse effect on our business as a result of lost sales revenue and the accumulation of unsold housing
inventory. It is important to note that both backlog and cancellation metrics are operational, rather than accounting data, and should
be used only as a general gauge to evaluate our performance. There is an inherent imprecision in these metrics based on an
evaluation of qualitative factors during the transaction cycle.
Our access to capital and our ability to obtain additional financing could be affected by any downgrade of our credit ratings,
as well as limitations in the capital markets or adverse credit market conditions.
The Company's credit rating and ratings on our senior notes and our current credit condition affect, among other things, our ability
to access new capital, especially debt. Negative changes in these ratings may result in more stringent covenants and higher interest
rates under the terms of any new debt. If our credit ratings are lowered or rating agencies issue adverse commentaries in the future,
it could have a material adverse effect on our business, financial condition, results of operations and liquidity. In particular, a
weakening of our financial condition, including a significant increase in our leverage or decrease in our profitability or cash flows,
could adversely affect our ability to obtain necessary funds, result in a credit rating downgrade or change in outlook, or otherwise
increase our cost of borrowing.
We could experience a reduction in home sales and revenues due to our inability to acquire and develop land for our communities
if we are unable to obtain reasonably priced financing.
The homebuilding industry is capital intensive and homebuilding requires significant up-front expenditures to acquire land and
to begin development. Accordingly, we incur substantial indebtedness to finance our homebuilding activities. If internally generated
funds are not sufficient, we would seek additional capital in the form of equity or debt financing from a variety of potential sources,
including additional bank financing and/or securities offerings. The amount and types of indebtedness that we may incur are limited
by the terms of our existing debt. In addition, the availability of borrowed funds, especially for land acquisition and construction
financing, may be greatly reduced nationally, and the lending community may require increased amounts of equity to be invested
in a project by borrowers in connection with both new loans and the extension of existing loans. The credit and capital markets
have continued to experience significant volatility. If we are required to seek additional financing to fund our operations, the
volatility in these markets may restrict our flexibility to access such financing. If we are not successful in obtaining sufficient
capital to fund our planned capital and other expenditures, we may be unable to acquire land for our housing developments, thereby
limiting our anticipated growth and community count. Additionally, if we cannot obtain additional financing to fund the purchase
of land under our option contracts, we may incur contractual penalties and fees.
Our senior notes, revolving credit facility, letter of credit facilities and certain other debt impose significant restrictions and
obligations on us. Restrictions on our ability to borrow could adversely affect our liquidity. In addition, our substantial
indebtedness could adversely affect our financial condition, limit our growth and make it more difficult for us to satisfy our
debt obligations.
Our senior notes, revolving credit facility, letter of credit facilities and other debt impose certain restrictions and obligations on
us. Under certain of these instruments, we must comply with defined covenants that limit our ability to, among other things, incur
additional indebtedness, engage in certain asset sales, make certain types of restricted payments, engage in transactions with
affiliates and create liens on our assets. Failure to comply with certain of these covenants could result in an event of default under
the applicable instrument. Any such event of default could negatively impact other covenants or lead to cross defaults under certain
of our other debt agreements. There can be no assurance that we will be able to obtain any waivers or amendments that may become
necessary in the event of a future default situation without significant additional cost or at all.
13
Our substantial indebtedness could have important consequences to us and the holders of our securities, including, among other
things:
•
causing us to be unable to satisfy our obligations under our debt agreements;
• making us more vulnerable to adverse general economic and industry conditions;
• making it difficult to fund future working capital, land purchases, acquisitions, share repurchases, general corporate or
other activities; and
•
causing us to be limited in our flexibility in planning for, or reacting to, changes in our business.
In addition, subject to the restrictions of our existing debt instruments, we may incur additional indebtedness. If new debt is added
to our current debt levels, the related risks that we now face could intensify. Our growth plans and our ability to make payments
of principal or interest on, or to refinance, our indebtedness will depend on our future operating performance and our ability to
enter into additional debt and/or equity financings. If we are unable to generate sufficient cash flows in the future to service our
debt, we may be required to refinance all or a portion of our existing debt, to sell assets or to obtain additional financing. We may
not be able to do any of the foregoing on terms acceptable to us, if at all.
If we are unsuccessful in competing against our competitors, our market share could decline or our growth could be impeded
and, as a result, our financial condition and results of operations could suffer.
Competition in the homebuilding industry is intense, and there are relatively low barriers to entry into our business. Increased
competition could hurt our business, as it could prevent us from acquiring attractive parcels of land on which to build homes or
make such acquisitions more expensive, hinder our market share expansion and lead to pricing pressures on our homes that may
adversely impact our margins and revenues. If we are unable to successfully compete, our financial results could suffer and our
ability to service our debt could be adversely affected. Our competitors may independently develop land and construct housing
units that are superior or substantially similar to our products. Furthermore, many of our competitors have substantially greater
financial resources and lower costs of funds and operations than we do. Many of these competitors also have longstanding
relationships with subcontractors and suppliers in the markets in which we operate. We currently build in several of the top markets
in the nation and, therefore, we expect to continue to face additional competition from new entrants into our markets.
Natural disasters and other related events could result in delays in land development or home construction, increase our costs
or decrease demand in the impacted areas.
The climates and geology of many of the states in which we operate, including California, Florida, Georgia, North Carolina, South
Carolina, Tennessee, Texas and certain mid-Atlantic states, present increased risks of natural disasters. To the extent that hurricanes,
severe storms, earthquakes, droughts, floods, wildfires or other natural disasters or similar events occur, our homes under
construction or our building lots in such states could be damaged or destroyed, which may result in losses exceeding our insurance
coverage. For example, in fiscal 2017 and 2018, Hurricanes Harvey, Irma and Florence disrupted our operations in Texas, Florida,
North Carolina and South Carolina, which resulted in what we believe were temporary reductions in sales and closings. Natural
disasters can also lead to increased competition for subcontractors, which can delay our progress even after the event has concluded.
Additionally, and as discussed above, increased competition for skilled labor can lead to cost overruns, as we may have to incentivize
the impacted region’s limited trade base to work on our homes. Finally, natural disasters and other related events may also
temporarily impact demand, as buyers are not as willing to shop for new homes during or after the event. These risks could
adversely affect our business, financial condition and results of operations.
The tax benefits of our pre-ownership change net operating loss carryforwards and built-in losses were substantially limited
since we experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code, and portions of our
deferred income tax asset have been written off since they were not fully realizable. Any subsequent ownership change, should
it occur, could have a further impact on these tax attributes.
Section 382 of the Internal Revenue Code contains rules that limit the ability of a company that undergoes an “ownership change,”
which is generally defined as any change in ownership of more than 50% of its common stock over a three-year period, to utilize
its net operating loss carryforwards and certain built-in losses or deductions, as of the ownership change date, that are recognized
during the five-year period after the ownership change. These rules generally operate by focusing on changes in the ownership
among shareholders owning, directly or indirectly, 5% or more of the company's common stock (including changes involving a
shareholder becoming a 5% shareholder) or any change in ownership arising from a new issuance of stock or share repurchases
by the company.
14
We believe we have significant “built-in losses” in our assets, i.e., an excess tax basis over current fair market value, which may
result in tax losses as such assets are sold. Net operating losses generally may be carried forward for a 20-year period to offset
future earnings and reduce our federal income tax liability. Any net operating losses created during or after our fiscal 2019 may
be carried forward indefinitely; however, the loss can only be utilized to offset 80% of taxable income generated in a tax year. Built-
in losses, if and when recognized, generally will result in tax losses that may then be deducted or carried forward. However, we
experienced an “ownership change” under Section 382 as of January 12, 2010. As a result of this previous “ownership change”
for purposes of Section 382, our ability to use certain net operating loss carryforwards and built-in losses or deductions in existence
prior to the ownership change was limited by Section 382. We cannot predict or control the occurrence or timing of another
ownership change in the future. If another ownership change were to occur, the limitations imposed by Section 382 could result
in a material amount of our net operating loss carryforwards expiring unused and, therefore, significantly impair the future value
of our deferred tax assets.
Our certificate of incorporation prohibits certain transfers of our common stock that could result in an ownership change. In
addition, we are party to a rights agreement intended to act as a deterrent to any person desiring to acquire 4.95% or more of our
common stock. However, these protective provisions of our certificate of incorporation and the rights agreement expire on
November 12, 2019. Any extension of these protective provisions and our entry into a new rights agreement will require approval
by our stockholders. We cannot guarantee that the requisite stockholder approvals will be obtained. In addition, neither the protective
provisions nor the rights agreement offer a complete solution, and an ownership change may occur even if the protective provisions
of our charter are extended and a new rights agreement is approved upon expiration. The protective provisions of our certificate
of incorporation may not be enforceable against all stockholders and may not prevent all stock transfers that have the potential to
cause a Section 382 ownership shift, and the rights agreement may deter, but ultimately cannot block, all transfers of our common
stock that might result in an ownership change.
The realization of all or a portion of our deferred income tax assets (including net operating loss carryforwards) is dependent upon
the generation of future income during the statutory carryforward periods. Our inability to utilize our limited pre-ownership change
net operating loss carryforwards and recognized built-in losses or deductions, or the occurrence of a future ownership change and
resulting additional limitations to these tax attributes, could have a material adverse effect on our financial condition, results of
operations and cash flows.
Information technology failures, cybersecurity breaches or data security breaches could harm our business.
We use information technology and other computer resources to perform important operational and marketing activities and to
maintain our business records. Certain of these resources are provided to us and/or maintained by third-party service providers
pursuant to agreements that specify certain security and service level standards. Our computer systems, including our back-up
systems and portable electronic devices, and those of our third-party providers, are subject to damage or interruption from power
outages, computer and telecommunication failures, computer viruses, security breaches including malware and phishing,
cyberattacks, natural disasters, usage errors by our employees or contractors and other related risks. As part of our normal business
activities, we collect and store certain confidential information, including information about employees, homebuyers, customers,
vendors and suppliers. This information is entitled to protection under a number of regulatory regimes. We share some of this
information with third parties who assist us with certain aspects of our business. A significant and extended disruption of or breach
of security related to our computer systems and back-up systems may result in business disruption, damage our reputation and
cause us to lose customers, sales and revenue, result in the unintended misappropriation of proprietary, personal and confidential
information and require us to incur significant expense to remediate or otherwise resolve these issues including financial obligations
to third parties, fines, penalties, regulatory proceedings and private litigation with potentially large costs and other competitive
disadvantages.
Our stock price is volatile and could decline.
The securities markets in general and our common stock in particular have experienced significant price and volume volatility
over the past several years. The market price and volume of our common stock may continue to experience significant fluctuations
due not only to general stock market conditions, but also to a change in sentiment in the market regarding our industry, operations
or business prospects. The price and volume volatility of our common stock may be affected by:
•
•
•
•
operating results that vary from the expectations of securities analysts and investors;
factors influencing home purchases, such as higher interest rates and availability of home mortgage loans, credit criteria
applicable to prospective borrowers, ability to sell existing residences and homebuyer sentiment in general;
the operating and securities price performance of companies that investors consider comparable to us;
announcements of strategic developments, acquisitions and other material events by us or our competitors; and
15
•
changes in global financial markets and global economies and general market conditions, such as interest rates, commodity
and equity prices and the value of financial assets.
Our ability to raise funds through the issuance of equity or otherwise use our common stock as consideration is impacted by the
price of our common stock. A low stock price may adversely impact our ability to reduce our financial leverage, as measured by
the ratio of total debt to total capital. Continued high levels of leverage or significant increases may adversely affect our credit
ratings and make it more difficult for us to access additional capital. These factors may limit our ability to implement our operating
and growth plans.
Inefficient or ineffective allocation of capital could adversely affect our operating results and/or stockholder value.
Our goal is to allocate capital to maximize our overall long-term returns. This includes spending on capital projects, such as
developing strategic businesses (e.g., the launch of our Gatherings® business in 2016 to meet the needs of the growing 55 plus
segment) and acquiring other homebuilders with the potential to strengthen our industry position. In addition, from time to time
we may engage in bond repurchases to reduce our indebtedness and return value to our stockholders through share repurchases.
If we do not properly allocate our capital, we may fail to produce optimal financial results and we may experience a reduction in
stockholder value, including increased volatility in our stock price.
We experience fluctuations and variability in our operating results on a quarterly basis and, as a result, our historical
performance may not be a meaningful indicator of future results.
We historically have experienced, and expect to continue to experience, variability in home sales and earnings on a quarterly basis.
As a result of such variability, our historical performance may not be a meaningful indicator of future results. Our quarterly results
of operations may continue to fluctuate in the future as a result of a variety of both national and local factors, including, among
others:
•
•
•
•
•
•
the timing of home closings and land sales;
our ability to continue to acquire additional land or secure option contracts to acquire land on acceptable terms;
conditions of the real estate market in areas where we operate and of the general economy;
raw material and labor shortages;
seasonal home buying patterns; and
other changes in operating expenses, including the cost of labor and raw materials, personnel and general economic
conditions.
We may incur additional operating expenses or longer construction cycle times due to compliance programs or fines, penalties
and remediation costs pertaining to environmental regulations within our markets. Additionally, any violations of such
regulations could harm our reputation, thereby negatively impacting our financial condition and results of operations.
We are subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health
and the environment. The particular environmental laws that apply to any given community vary greatly according to the location
of the community site, the site's environmental conditions and the present and former use of the site. Environmental laws may
result in delays, may cause us to implement time consuming and expensive compliance programs and may prohibit or severely
restrict development in certain environmentally sensitive regions or areas. From time to time, the United States Environmental
Protection Agency (EPA) and similar federal or state agencies review homebuilders' compliance with environmental laws and
may levy fines and penalties for failure to strictly comply with applicable environmental laws or impose additional requirements
for future compliance as a result of past failures. Any such actions taken with respect to us may increase our costs or harm our
reputation. Further, we expect that increasingly stringent requirements will be imposed on homebuilders in the future.
Environmental regulations can also have an adverse impact on the availability and price of certain raw materials such as lumber.
Our communities in California are especially susceptible to restrictive government regulations and environmental laws, particularly
surrounding water usage due to continuing drought conditions within that region.
16
We are subject to extensive government regulation, which could cause us to incur significant liabilities or restrict our business
activities.
Regulatory requirements could cause us to incur significant liabilities and operating expenses and could restrict our business
activities. We are subject to local, state and federal statutes and rules regulating, among other things, certain developmental matters,
building and site design, the availability of water and matters concerning the protection of health, safety and the environment. Our
operating costs may be increased by governmental regulations, such as building permit allocation ordinances and impact and other
fees and taxes, which may be imposed to defray the cost of providing certain governmental services and improvements. Other
governmental regulations, such as building moratoriums and “no growth” or “slow growth” initiatives, which may be adopted in
communities that have developed rapidly, may cause delays in new home communities or otherwise restrict our business activities,
resulting in reductions in our revenues. Any delay or refusal from government agencies to grant us necessary licenses, permits
and approvals could have an adverse effect on our financial condition and results of operations.
We may be subject to significant potential liabilities as a result of construction defect, product liability and warranty claims
made against us.
As a homebuilder, we have been, and continue to be, subject to construction defect, product liability and home warranty claims,
including moisture intrusion and related claims, arising in the ordinary course of business. These claims are common to the
homebuilding industry and can be costly, as evidenced by the water intrusion issues in Florida.
With respect to certain general liability exposures, including construction defect claims, product liability claims and related claims,
assessment of claims and the related liability and reserve estimation process is highly judgmental due to the complex nature of
these exposures and unique circumstances of each claim. Furthermore, once claims are asserted for construction defects, it can be
difficult to determine the extent to which the assertion of these claims will expand geographically. Although we have obtained
insurance for construction defect claims, such policies may not be available or adequate to cover liability for damages, the cost
of repairs and/or the expense of litigation. Current and future claims may arise out of events or circumstances not covered by
insurance and not subject to effective indemnification agreements with our subcontractors.
At any given time, we are the subject of pending civil litigation that could require us to pay substantial damages or could
otherwise have a material adverse effect on us.
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 current lawsuits, or the effect that any adverse determinations the
lawsuits may have on us. An unfavorable determination in any of the lawsuits could result in the payment by us of substantial
monetary damages that may not be covered by insurance. Further, the legal costs associated with 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. In addition to expenses incurred to
defend the Company in these matters, under Delaware law and our bylaws, we may have an obligation to indemnify our current
and former officers and directors in relation to these matters. We have obligations to advance legal fees and expenses to directors
and certain officers.
Our insurance carriers may seek to rescind or deny coverage with respect to certain of the pending lawsuits, or we may not have
sufficient coverage under such policies. If the insurance companies are successful in rescinding or denying coverage, or if we do
not have sufficient coverage under our policies, our business, financial condition and results of operations could be materially
adversely affected.
Our operating expenses could increase if we are required to pay higher insurance premiums or litigation costs for various
claims, which could negatively impact our financial condition and results of operations. Additionally, our insurance policies
may not offset our entire expense due to limitation in coverages, amounts payable under the policies or other related restrictions.
The costs of insuring against construction defect, product liability and director and officer claims are substantial. Increasingly in
recent years, lawsuits (including class action lawsuits) have been filed against builders, asserting claims of personal injury and
property damage. Our insurance may not cover all of the claims, including personal injury claims, or such coverage may become
prohibitively expensive. If we are not able to obtain adequate insurance against these claims, we may experience losses that could
negatively impact our financial condition and results of operations, as well as our cash flows.
Historically, builders have recovered from subcontractors and their insurance carriers a significant portion of the construction
defect liabilities and costs of defense that the builders have incurred. However, insurance coverage available to subcontractors for
construction defects is becoming increasingly expensive and the scope of coverage is restricted. If we cannot effectively recover
from our subcontractors or their carriers, we may suffer even greater losses.
17
A builder's ability to recover against any available insurance policy depends upon the continued solvency and financial strength
of the insurance carrier that issued the policy. Many of the states in which we build homes have lengthy statutes of limitations
applicable to claims for construction defects. To the extent that any carrier providing insurance coverage to us or our subcontractors
becomes insolvent or experiences financial difficulty in the future, we may be unable to recover on those policies, thereby negatively
impact our financial condition and results of operations.
We are dependent on the services of certain key employees and the loss of their services could hurt our business.
Our future success depends upon our ability to attract, train and retain skilled personnel. If we are unable to retain our key employees
or attract, train or retain other skilled personnel in the future, it could hinder our business strategy and impose additional costs of
identifying and training new individuals. Competition for qualified personnel in all of our operating markets, as well as within
our corporate operations, is intense.
Terrorist attacks or acts of war against the United States or increased domestic or international instability could have an adverse
effect on our operations.
Adverse developments in the war on terrorism, terrorist attacks against the United States or any outbreak or escalation of hostilities
between the United States and any foreign power may cause disruption to the economy, our Company, our employees and our
customers, which could negatively impact our financial condition and results of operations.
Negative publicity or poor relations with the residents of our communities could negatively impact sales, which could cause
our revenues or results of operations to decline.
Unfavorable media related to our industry, company, brands, marketing, personnel, operations, business performance, or prospects
may affect our stock price and the performance of our business, regardless of its accuracy or inaccuracy. Our success in maintaining,
extending and expanding our brand image depends on our ability to adapt to a rapidly changing media environment. Adverse
publicity or negative commentary on social media outlets could hurt operating results, as consumers might avoid or protest brands
that receive bad press or negative reviews. Negative publicity may result in a decrease in our operating results. In addition, residents
of communities we develop may look to us to resolve issues or disputes that may arise in connection with the operation or
development of their communities. Efforts made by us to resolve these issues or disputes could be deemed unsatisfactory by the
affected residents, and subsequent actions by these residents could adversely affect sales or our reputation.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of September 30, 2018, we had under lease approximately 35,000 square feet of office space in Atlanta, Georgia to house our
corporate headquarters. We also lease an aggregate of approximately 210,000 square feet of office space for our divisional and
shared services operations at various locations. All facilities are in good condition, adequately utilized, and sufficient to meet our
present operating needs.
Due to the nature of our business, significant amounts of property are held by us as inventory in the ordinary course of our
homebuilding operations. See Note 5 of notes to the consolidated financial statements in this Form 10-K for a further discussion
of our inventory.
Item 3. Legal Proceedings
Litigation
From time to time, we receive claims from institutions that have acquired mortgages originated by our subsidiary, Beazer Mortgage
Corporation (BMC), demanding damages or indemnity or that we repurchase such mortgages. BMC stopped originating mortgages
in 2008. We have been able to resolve these claims for no cost or for amounts that are not material to our consolidated financial
statements. At present there are no such claims outstanding; however, we cannot rule out the potential for additional mortgage
loan repurchase or indemnity claims in the future. At this time, we do not believe that the exposure related to any such claims
would be material to our consolidated financial condition, results of operations, or cash flows.
18
In the normal course of business, we are subject to various lawsuits. We cannot predict or determine the timing or final outcome
of these lawsuits or the effect that any adverse findings or determinations in pending lawsuits may have on us. In addition, an
estimate of possible loss or range of loss, if any, cannot presently be made with respect to certain of these pending matters. An
unfavorable determination in any of the pending 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 lawsuits and the amount of time required
to be spent by management and our Board of Directors on these matters, even if we are ultimately successful, could have a material
adverse effect on our financial condition, results of operations, or cash flows.
Other Matters
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. 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.
Item 4. Mine Safety Disclosures
Not applicable.
19
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The Company lists its common stock on the New York Stock Exchange (NYSE) under the symbol “BZH.” On November 8, 2018,
the last reported sales price of the Company's common stock on the NYSE was $8.80, and we had approximately 185 stockholders
of record and 33,522,046 shares of common stock outstanding. The following table sets forth, for the periods presented, the range
of high and low trading prices for the Company's common stock during our fiscal 2018 and 2017.
Fiscal Year Ended September 30, 2018
High
Low
Fiscal Year Ended September 30, 2017
High
Low
Dividends
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
$
$
$
$
23.24
18.66
15.80
9.67
$
$
$
$
20.94
15.02
14.82
11.18
$
$
$
$
17.46
14.05
15.10
11.58
$
$
$
$
16.08
10.46
18.75
13.09
The indentures under which our senior notes were issued contain certain restrictive covenants, including limitations on the payment
of dividends. There were no dividends paid during our fiscal 2018, 2017, or 2016. The Board of Directors will periodically
reconsider the declaration of dividends, assuming payment of dividends is not limited under our indentures. The reinstatement of
quarterly dividends, the amount of such dividends and the form in which the dividends are paid (cash or stock) will depend upon
our financial condition, results of operations, and other factors that the Board of Directors deems relevant.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information about the Company's shares of common stock that may be issued under our existing
equity compensation plans as of September 30, 2018, all of which have been approved by our stockholders:
Plan Category
Number of Common
Shares to be Issued Upon
Exercise of Outstanding
Options, Warrants and
Rights
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
Number of Common Shares
Remaining Available for
Future Issuance Under
Equity Compensation Plans
Equity compensation plans approved by stockholders
533,052
$14.26
2,066,189
Issuer Purchases of Equity Securities
None.
20
Performance Graph
The following graph illustrates the cumulative total stockholder return on Beazer Homes' common stock for the last five fiscal
years through September 30, 2018 as compared to the S&P 500 Index and the S&P 500 Homebuilding Index. The comparison
assumes an investment of $100 at September 30, 2013 in Beazer Homes' common stock and in each of the benchmark indices
specified, assumes that all dividends were reinvested, and accounts for the impact of any stock splits, where applicable. Stockholder
returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns.
Beazer Homes USA, Inc.
S&P 500 Index
S&P 500 Homebuilding Index
Fiscal Year Ended September 30,
2014
2015
2016
2017
2018
93.22
119.73
108.26
74.06
119.00
137.15
64.78
137.36
136.18
104.11
162.92
179.31
58.33
192.10
173.30
21
Item 6. Selected Financial Data
The following table summarizes certain financial data for the periods presented:
Statements of Operations Data: (a)
Total revenue
Gross profit
Gross margin (b)
Operating income
(Loss) income from continuing operations
(Loss) income per share from continuing operations -
basic
(Loss) income per share from continuing operations -
diluted
Net (loss) income (c)
Balance Sheet Data (end of year): (d)
Cash, cash equivalents and restricted cash
Inventory
Total assets
Total debt
Stockholders' equity
Supplemental Financial Data: (d)
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Financial Statistics: (d)
Total debt as a percentage of total debt and stockholders'
equity (end of year)
Net debt as a percentage of net debt and stockholders'
equity (end of year) (e)
Adjusted EBITDA from total operations (f)
Adjusted EBITDA margin from total operations (g)
Operating Statistics from continuing operations:
New orders, net
Closings
Average selling price on closings (in thousands)
Units in backlog (end of year)
Average selling price in backlog (end of year; in
thousands)
Fiscal Year Ended September 30,
2018
2017
2016
2015
2014
($ in millions, except per share amounts and unit data)
$
$
$
$
$
2,107
345
16.4%
82
(45)
(1.40)
(1.40)
(45.4)
153
1,692
2,128
1,231
644
30
(74)
(108)
$
$
$
$
$
1,916
313
16.3%
62
32
1.00
0.99
31.8
305
1,543
2,221
1,327
682
96
(14)
(21)
$
$
$
$
$
1,822
297
16.3%
59
5
0.16
0.16
4.7
243
1,569
2,213
1,332
643
163
(13)
(198)
$
$
$
$
$
1,627
272
16.7%
52
347
12.54
10.91
344.1
290
1,698
2,409
1,516
630
(81)
3
(19)
1,464
263
18.0%
56
35
1.35
1.10
34.4
387
1,561
2,050
1,520
279
(160)
(18)
12
65.7%
66.0%
67.4%
70.6%
84.5%
62.9%
204.7
9.7%
5,544
5,767
360.2
1,632
$
$
60.3%
178.8
9.3%
5,464
5,525
343.1
1,855
$
$
63.2%
156.3
8.6%
5,297
5,419
329.4
1,916
$
$
66.3%
144.1
8.9%
5,358
5,010
313.5
2,038
$
$
80.8%
133.2
9.1%
4,748
4,951
284.8
1,690
$
$
$
$
$
$
$
$
384.8
$
358.9
$
340.6
$
327.6
$
305.3
(a) Statements of operations data is from continuing operations. Gross profit includes inventory impairments and abandonments
of $6.5 million, $2.4 million, $15.3 million, $3.1 million, and $8.3 million for the fiscal years ended September 30, 2018, 2017,
2016, 2015, and 2014, respectively, as well as unexpected warranty costs and additional insurance recoveries from our third-
party insurer, both of which are detailed in the table below that reconciles our net income to Adjusted EBITDA (subsequently
defined). The aforementioned charges related to impairments and abandonments were primarily driven by reductions in pricing
taken for certain communities as a result of competitive pressures over the applicable years. Income (loss) from continuing
operations for the fiscal years ended 2018, 2017, 2016, 2015, and 2014 also includes losses on extinguishment of debt of $27.8
million, $12.6 million, $13.4 million, $0.1 million, and $19.9 million, respectively.
22
(b) Gross margin = gross profit divided by total revenue.
(c) For fiscal 2015, amount includes $335.2 million release of a substantial portion of the valuation allowance on our deferred tax
assets. For fiscal 2018, amount includes $110.1 million tax expense for the remeasurement of our deferred tax assets at the
newly enacted 21.0% federal tax rate, partially offset by an additional $27.4 million release of valuation allowance on our
deferred tax assets. See Note 13 of notes to the consolidated financial statements in this Form 10-K for a further discussion of
income taxes and the valuation allowance.
(d) Discontinued operations were not segregated in the consolidated balance sheets or consolidated statements of cash flows and
are not material in the periods presented.
(e) Net Debt = debt less unrestricted cash and cash equivalents and restricted cash related to the cash secured loan, when outstanding.
(f) EBIT (earnings before interest and taxes) equals net income (loss) before (a) previously capitalized interest amortized to home
construction and land sales expenses, capitalized interest impaired, and interest expense not qualified for capitalization; and (b)
income taxes. EBITDA (earnings before interest, taxes, depreciation, and amortization) is calculated by adding non-cash charges,
including depreciation and amortization for the period to EBIT. Adjusted EBITDA (earnings before interest, taxes, depreciation,
and amortization) is calculated by adding charges, including debt extinguishment charges, inventory impairment and
abandonment charges, joint venture impairment charges, and other non-recurring items for the period to EBITDA. EBITDA
and Adjusted EBITDA are not Generally Accepted Accounting Principles (GAAP) financial measures. EBITDA and Adjusted
EBITDA should not be considered alternatives to net income determined in accordance with GAAP as an indicator of operating
performance. Because some analysts and companies may not calculate EBITDA and Adjusted EBITDA in the same manner as
Beazer Homes, the EBITDA and Adjusted EBITDA information presented above may not be comparable to similar presentations
by others.
(g) Adjusted EBITDA margin = Adjusted EBITDA divided by total revenue.
23
Reconciliation of Adjusted EBITDA to total company net income (loss), the most directly comparable GAAP measure, is provided
for each period discussed below. Management believes that Adjusted EBITDA assists investors in understanding and comparing
the operating characteristics of homebuilding activities by eliminating many of the differences in companies' respective
capitalization, tax position, and level of impairments. These EBITDA measures should not be considered alternatives to net income
determined in accordance with GAAP as an indicator of operating performance.
The following table reconciles our net income (loss) to Adjusted EBITDA for the periods presented:
(In thousands)
Net (loss) income
Expense (benefit) from income taxes
Interest amortized to home construction and land
sales expenses and capitalized interest impaired
Interest expense not qualified for capitalization
EBIT
Depreciation and amortization and stock-based
compensation amortization
EBITDA
Loss on extinguishment of debt
Inventory impairments and abandonments (a)
Joint venture impairment and abandonment charges
Unexpected warranty costs related to Florida stucco
issues (net of expected insurance recoveries)
Unexpected warranty costs related to water intrusion
issues in New Jersey (net of expected insurance
recoveries)
Additional insurance recoveries from third-party
insurer
Litigation settlement in discontinued operations
Write-off of deposit on legacy land investment
Fiscal Year Ended September 30,
$
2018
(45,375) $
94,373
2017
2016
2015
2014
31,813
$
4,693
$
2,621
16,224
344,094
(325,927)
$
34,383
(41,802)
91,331
5,325
88,820
15,636
79,322
25,388
56,164
29,822
145,654
138,890
125,627
104,153
24,065
169,719
27,839
6,770
341
—
—
—
—
—
22,173
161,063
12,630
2,389
—
—
—
—
—
2,700
21,752
147,379
13,423
14,572
—
19,473
123,626
80
3,109
—
(3,612)
13,582
—
(15,500)
—
—
—
—
3,660
—
41,065
50,784
84,430
15,866
100,296
19,917
8,062
—
4,290
648
—
—
—
Adjusted EBITDA
$
204,669
$
178,782
$
156,262
$
144,057
$
133,213
(a) In periods during which we impaired certain of our inventory assets, capitalized interest that is impaired is included in the lines
above titled “Interest amortized to home construction and land sales expenses and capitalized interest impaired" and "Interest
expense not qualified for capitalization.”
24
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview and Outlook
Market Conditions
The demand for new and existing homes is dependent on a variety of demographic and economic factors, including job and wage
growth, household formation, consumer confidence, and mortgage financing. Currently, we are experiencing a strong job market
as wages rise and household formation continues. However, as the prices for new and existing homes increased over the past few
years, coupled with rising mortgage interest rates, the affordability of homes has come under pressure, causing a slowdown in
sales activity. In addition, labor availability concerns have helped constrain the growth of the supply of new homes available for
sale. Accordingly, despite more constrained affordability, we expect conditions in the housing market to remain relatively
comparable in the coming year.
Therefore, the strong economic backdrop along with the limited supply of homes for sale provides us with confidence in the market
for new home sales going forward.
Overview of Results for Our Fiscal 2018
Fiscal 2018 represented the culmination of a multi-year effort to achieve "2B-10" with revenue of $2.1 billion and $204.7 million
in Adjusted EBITDA, which we have attained through execution of our Balanced Growth strategy and a continued focus on our
five key metrics. Additionally, we successfully completed the acquisition of Venture Homes ("Venture"), a leading private
homebuilder in the Atlanta market.
Profitability
For the fiscal year ended September 30, 2018, we recorded net loss from continuing operations of $45.0 million, a decrease of
$77.0 million from the prior fiscal year’s net income from continuing operations of $32.0 million. However, there were
multiple items that impacted the comparability of our net income from continuing operations between periods:
•
Income tax expense from continuing operations was $94.5 million and $2.7 million for fiscal 2018 and fiscal 2017,
respectively. Income tax expense in fiscal 2018 was impacted by a $110.1 million charge from the remeasurement of our
deferred tax assets as a result of the reduced federal corporate tax rate related to the Tax Cuts and Jobs Act enacted on
December 22, 2017, partially offset by an income tax benefit of $27.4 million related to the release of the valuation
allowance on a portion of our deferred tax assets. Refer to Note 13 of the notes to the consolidated financial statements
for additional discussion of these matters.
• We recognized $27.8 million in loss on extinguishment of debt in fiscal 2018, an increase of $15.2 million compared to
the prior fiscal year.
• We recorded $6.5 million in impairment and abandonment charges in fiscal 2018, an increase of $4.1 million from the
prior year.
Debt Reduction and Capital Efficiency
We also reduced our outstanding debt by $96.4 million as follows:
•
In October 2017, we issued and sold $400.0 million of Senior Notes due October 2027. The proceeds from the 2027
Notes were principally used to fund the repayment of $225.0 million of our 2019 Notes and $175.0 million of our 2023
Notes.
• During September 2018, we redeemed the remaining $96.4 million principal balance of our 2019 Notes.
We have fulfilled our plan to reduce debt by $250.0 million over three years. Refer to Note 8 of the notes to our consolidated
financial statements in this Form 10-K for further discussion of our outstanding borrowings.
During the current fiscal year, our land held for future development balance declined by approximately $29.4 million due to the
activation of multiple parcels for homebuilding activities, leaving a remaining balance of $83.2 million as of September 30, 2018.
25
Reaching “2B-10”
In November 2013, we introduced a multi-year “2B-10” plan, which provided a roadmap of revenue and margin metrics to achieve
$2.0 billion in revenue with a 10% Adjusted EBITDA margin. Taken together, reaching “2B-10” would result in Adjusted EBITDA
of at least $200 million, which we have attained in fiscal 2018.
In fiscal 2018, we made additional improvements across most of our targeted metrics to reach this goal, as discussed below. In
turn, we generated revenue of $2.1 billion, up 10.0% year-over-year, and $204.7 million in Adjusted EBITDA, a 14.5% increase
compared to the prior fiscal year (refer to Item 6, Selected Financial Data, in this Form 10-K for a reconciliation of Adjusted
EBITDA). Our progress on each metric is discussed below:
•
Sales per community per month was 3.0 and 2.9 for the fiscal years ended September 30, 2018 and 2017, respectively.
We improved our sales absorptions on a year-over-year basis, resulting in sales absorptions for the current year within
our targeted range of 2.8 to 3.2 sales per community per month as established in our “2B-10” plan. We continue to believe
that we are among the industry leaders in sales absorption rates and are focused on driving further increases in our sales
pace moving forward.
• We ended the year with an active community count of 160, which was 3.2% higher than the prior year. This increase
in community count was anticipated, as we placed additional emphasis during fiscal 2017 on land and land development
activities. Furthermore, we capitalized on the strategic opportunity to acquire Venture Homes in fiscal 2018, which
contributed to our overall community count and increased our presence in the Atlanta market.
• Our ASP for homes closed during the fiscal year ended September 30, 2018 was $360.2 thousand, up 5.0% compared
to the prior year. The year-over-year improvement in ASP on closings was primarily a function of geographic mix and
product shift, though we also benefited from pricing power in some markets. In addition, we ended fiscal 2018 with an
ASP of $384.8 thousand for our units in backlog, indicating that price growth should continue to persist in the near future.
Our targeted “2B-10” metric for ASP was a range of $340.0 thousand to $350.0 thousand.
• Homebuilding gross margin excluding impairments and abandonments and interest for the fiscal year ended
September 30, 2018 was 21.2%, which remains consistent with the prior year. The current year adjusted gross margin
is within the “2B-10” target for our homebuilding margin of between 21.0% and 22.0% (excluding impairments and
abandonments and interest amortized to homebuilding cost of sales).
•
SG&A for the fiscal year ended September 30, 2018 was 11.8% of total revenue compared with 12.4% a year
earlier. SG&A as a percentage of total revenue declined in the current year due to our continued focus on improving
overhead cost management in relation to our revenue growth. We completed the year with SG&A as a percentage of total
revenue within the "2B-10" target range of 11.0% to 12.0%.
Seasonal and Quarterly Variability: Our homebuilding operating cycle generally reflects escalating new order activity in the
second and third fiscal quarters and increased closings in the third and fourth fiscal quarters. The following tables present new
order and closings data for the periods presented:
2018
2017
2016
2018
2017
2016
New Orders (Net of Cancellations)
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Total
1,110
1,005
923
1,679
1,549
1,538
Closings
1,450
1,595
1,490
1,305
1,315
1,346
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Total
1,066
995
1,049
1,266
1,239
1,150
1,391
1,387
1,364
2,044
1,904
1,856
5,544
5,464
5,297
5,767
5,525
5,419
26
RESULTS OF CONTINUING OPERATIONS
The following table summarizes certain key income statement metrics for the periods presented:
($ in thousands)
Revenues:
Homebuilding
Land sales and other
Total
Gross profit:
Homebuilding
Land sales and other
Total
Gross margin:
Homebuilding (a)
Land sales and other
Total
Commissions
G&A (b)
SG&A (commissions plus G&A) as a percentage of total revenue
G&A as a percentage of total revenue
Depreciation and amortization
Operating income
Operating income as a percentage of total revenue
Effective tax rate (c)
Equity in income of unconsolidated entities
Loss on extinguishment of debt
Fiscal Year Ended September 30,
2018
2017
2016
$
$
$
$
$
$
$
$
$
$
2,077,360
29,773
2,107,133
348,275
(3,260)
345,015
16.8 %
(10.9)%
16.4 %
81,002
168,658
11.8 %
8.0 %
13,807
81,548
3.9 %
191.1 %
34
27,839
$
$
$
$
$
$
$
$
$
$
1,895,855
20,423
1,916,278
312,201
663
312,864
16.5%
3.2%
16.3%
74,811
161,906
12.4%
8.4%
14,009
62,138
3.2%
7.8%
371
12,630
$
$
$
$
$
$
$
$
$
$
1,784,777
37,337
1,822,114
293,860
3,347
297,207
16.5%
9.0%
16.3%
70,460
153,628
12.3%
8.4%
13,794
59,325
3.3%
76.0%
131
13,423
(a) Homebuilding gross margin for fiscal 2016 was impacted by a $15.5 million reduction in home construction expenses resulting
from a settlement with our third-party insurer to resolve certain issues related to the extent of our insurance coverage for multiple
policy years, and unexpected warranty costs related to the Florida stucco issues as well as the associated insurance recoveries.
Refer to further discussion of these items below in section titled “Homebuilding Gross Profit and Gross Margin.”
(b) G&A was impacted in 2017 by a $2.7 million charge to write off a deposit on a legacy investment in a development site that
we deemed uncollectible.
(c) Calculated as tax expense (benefit) for the period divided by income (loss) from continuing operations. Due to a variety of
factors, including the impact of discrete tax items on our effective tax rate, our income tax expense (benefit) is not always directly
correlated to the amount of pretax income (loss) for the associated periods.
27
Homebuilding Operations Data
The following table summarizes net new orders and cancellation rates by reportable segment for the periods presented:
West
East
Southeast
Total
New Orders, net
Cancellation Rates
2018
2017
2016
2,874
1,089
1,581
5,544
2,578
1,351
1,535
5,464
2,381
1,330
1,586
5,297
18 v 17
11.5 %
(19.4)%
3.0 %
1.5 %
17 v 16
8.3 %
1.6 %
(3.2)%
3.2 %
2018
18.4%
20.9%
16.2%
18.3%
2017
2016
18.1%
18.1%
19.4%
18.5%
21.9%
20.1%
18.2%
20.4%
Sales per active community per month were 3.0 for fiscal year 2018 compared to 2.9 for fiscal year 2017, contributing to the 1.5%
increase in net new orders year-over-year, driven by our continued emphasis on sales absorptions. Average active communities
were relatively flat compared to the prior year, with 156 average active communities during fiscal 2018 compared to 155 during
fiscal 2017. For the fiscal year ended September 30, 2018, the 11.5% increase in net new orders in our West segment was primarily
attributable to a significant year-over-year increase in our Las Vegas and Dallas markets. Net new orders declined by 19.4% in
the East as we work to rebuild community counts by making new investments. The 3.0% increase in net new orders in the Southeast
segment was primarily due to 100 net new orders in the fourth quarter of fiscal 2018 within communities acquired from Venture
Homes. Additionally, net new orders were impacted in North and South Carolina in the Southeast segment due to Hurricane
Florence, which impacted our ability to sell homes in the affected areas for a number of weeks.
Sales per active community per month were 2.9 for fiscal year 2017 compared to 2.7 for fiscal year 2016, an increase of 10.5%.
Our ability to drive sales pace also reflected the robust demand we witnessed throughout the spring and summer selling seasons
in the majority of our markets as well as our community mix and the maturation of certain communities versus the prior year. Our
average active communities declined from 166 during fiscal 2016 to 155 during fiscal 2017, partially offsetting our stronger
absorptions and ultimately resulting in a 3.2% increase in net new orders for the fiscal year. For the fiscal year ended September 30,
2017, the 8.3% increase in net new orders in our West segment was due to stronger sales in our Las Vegas, Phoenix, and Southern
California markets, where we activated several new communities during fiscal 2016, offset by a decline in net new orders in our
Houston market due to severe weather-related conditions as well as lower community count in response to local economic conditions
in prior periods. The 1.6% increase in net new orders in our East segment during our fiscal 2017 was mainly driven by improved
sales absorptions in our Virginia market. Finally, the year-over-year decline in net new orders in our Southeast segment was
primarily driven by our Florida markets due to a lower community count in both our Orlando and Tampa divisions and, to a lesser
extent, impacts from severe weather during the fourth quarter.
The table below summarizes backlog units by reportable segment as well as the aggregate dollar value and ASP of homes in
backlog as of September 30, 2018, 2017, and 2016:
As of September 30,
2018
2017
2016
18 v 17
17 v 16
Backlog Units:
West
East
Southeast
Total
Aggregate dollar value of homes in backlog (in millions)
ASP in backlog (in thousands)
858
281
493
1,632
628.0
384.8
$
$
879
413
563
1,855
665.8
358.9
$
$
828
444
644
1,916
652.7
340.6
$
$
6.2 %
(2.4)%
(32.0)%
(7.0)%
(12.4)% (12.6)%
(12.0)%
(3.2)%
(5.7)%
7.2 %
2.0 %
5.4 %
Backlog reflects the number of homes for which the Company has entered into a sales contract with a customer but has not yet
delivered the home. Homes in backlog are generally delivered within three to six months following commencement of construction.
The aggregate dollar value of homes in backlog as of September 30, 2018 decreased 5.7% compared to the prior year due to a
12.0% decline in units in backlog, partially offset by a 7.2% increase in the ASP of homes in backlog. The decline in units in
backlog was primarily driven by a rise in the pace of closings compared to the prior fiscal year and disruptions related to Hurricane
Florence in North and South Carolina.
28
The aggregate dollar value of homes in backlog as of September 30, 2017 increased 2.0% compared to September 30, 2016 due
to a 5.4% increase in the ASP of homes in backlog, partially offset by a 3.2% decline in units in backlog. The decline in units in
backlog was primarily due to shorter cycle times, disruptions related to Hurricanes Harvey and Irma in Houston and certain markets
in our Southeast segment, and lower community counts in fiscal 2017 as compared to fiscal 2016.
Homebuilding Revenue, Average Selling Price, and Closings
The tables below summarize homebuilding revenue, the ASP of our homes closed, and closings by reportable segment for the
periods presented:
Homebuilding Revenue
Average Selling Price
($ in thousands)
2018
2017
2016
18 v 17
17 v 16
2018
2017
2016
18 v 17
17 v 16
West
East
Southeast
$ 999,599
$ 851,472
$ 817,971
17.4 %
4.1% $
345.3
$
336.9
$
510,710
567,051
533,585
510,798
505,198
(4.3)%
5.6%
461,608
11.0 % 10.7%
418.3
343.5
386.1
316.1
Total
$2,077,360
$1,895,855
$1,784,777
9.6 %
6.2% $
360.2
$
343.1
$
326.1
368.0
300.1
329.4
2.5%
8.3%
8.7%
5.0%
3.3%
4.9%
5.3%
4.2%
West
East
Southeast
Total
2018
2017
2,895
1,221
1,651
5,767
2,527
1,382
1,616
5,525
Closings
2016
2,508
1,373
1,538
5,419
18 v 17
17 v 16
14.6 %
(11.6)%
2.2 %
4.4 %
0.8%
0.7%
5.1%
2.0%
The increase in ASP across all segments for the year ended September 30, 2018 was impacted by a change in the mix of closings
between geographies, products, and communities within each individual market as compared with the prior fiscal year. It was also
positively impacted by our operational strategies as well as improved market conditions in certain geographies. These same
dynamics enhanced our ability to generate a higher ASP during fiscal 2017 when compared with fiscal 2016; in particular, a higher
proportion of closings generated from certain markets with higher ASPs, including California. On average, we anticipate that our
ASP will likely continue to increase in the near-term as indicated by our ASP for homes in backlog as of September 30, 2018.
For fiscal year 2018, the year-over-year increase in closings in our West segment was primarily driven by strong growth in our
Las Vegas and Phoenix markets, where we sold a significant number of homes in certain communities. Closings in our East segment
declined due to lower closings in our Indianapolis market, partially offset by growth in our Maryland market. Closings increased
in our Southeast segment primarily due to growth in the Atlanta market related to the Venture Homes acquisition, which added
70 closings in the fourth quarter of fiscal 2018, partially offset by disruption from Hurricane Florence which caused us to push a
small number of closings into the first quarter of fiscal year 2019.
Closings for fiscal year 2017 increased compared to fiscal year 2016 in all markets of our West segment except for Texas. The
decrease in Texas was due to a year-over-year decline in community count and, to a lesser extent, weather-related conditions in
Houston that resulted in home construction delays in the fiscal fourth quarter of 2017. The decline in Texas was offset by growth
in our Sacramento division, which continued to gain momentum after being re-activated, and our Las Vegas division, where certain
communities continued to mature. In our East segment, we experienced increases in closings in our Indianapolis and Nashville
divisions, offset by decreases in our Maryland division, where community count declined slightly and less emphasis was placed
in 2017 on building and closing spec homes than in the prior year. In our Southeast segment, the increase in closings was primarily
driven by our Atlanta, Charleston, and Myrtle Beach divisions, partially offset by declines in our Orlando division.
Our overall higher ASP coupled with the increase in closings described above resulted in homebuilding revenue growth for fiscal
2018 as compared to fiscal 2017 and fiscal 2016.
29
Homebuilding Gross Profit and Gross Margin
The following tables present our homebuilding (HB) gross profit and gross margin by reportable segment and in total. In addition,
such amounts are presented excluding inventory impairments and abandonments and interest amortized to cost of sales (COS).
Homebuilding gross profit is defined as homebuilding revenue less home cost of sales (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 abandonment charges). For fiscal 2016, we have shown the gross profit and gross margin impact of
unexpected warranty costs related to the Florida stucco issues (net of expected insurance recoveries) as well as additional insurance
recoveries from a third-party insurer, both of which we consider to be non-recurring items.
($ in thousands)
Fiscal Year Ended September 30, 2018
HB Gross
Profit (Loss)
HB Gross
Margin
Impairments
&
Abandonme
nts
(I&A)
HB Gross
Profit (Loss)
w/o (a)
I&A
HB Gross
Margin w/o
I&A
Interest
Amortized
to COS
(Interest)
HB Gross
Profit
w/o I&A and
Interest
HB Gross
Margin
w/o I&A and
Interest
West
East
Southeast
Corporate &
unallocated
$
228,637
22.9 % $
— $
228,637
22.9 % $
— $
228,637
102,346
104,051
(86,759)
20.0 %
18.3 %
—
793
212
102,346
104,844
(86,547)
20.0 %
18.5 %
—
—
102,346
104,844
91,132
4,585
22.9 %
20.0 %
18.5 %
Total homebuilding $
348,275
16.8 % $
1,005
$
349,280
16.8 % $
91,132
$
440,412
21.2 %
($ in thousands)
Fiscal Year Ended September 30, 2017
HB Gross
Profit (Loss)
HB Gross
Margin
Impairments
&
Abandonmen
ts
(I&A)
HB Gross
Profit (Loss)
w/o I&A
HB Gross
Margin w/o
I&A
Interest
Amortized to
COS
(Interest)
HB Gross
Profit
w/o I&A and
Interest
HB Gross
Margin
w/o I&A and
Interest
West
East
Southeast
Corporate &
unallocated
$
186,629
21.9 % $
1,625
$
188,254
22.1 % $
— $
188,254
109,289
103,193
(86,910)
20.5 %
20.2 %
188
—
68
109,477
103,193
(86,842)
20.5 %
20.2 %
—
—
109,477
103,193
88,764
1,922
22.1 %
20.5 %
20.2 %
Total homebuilding
$
312,201
16.5 % $
1,881
$
314,082
16.6 % $
88,764
$
402,846
21.2 %
($ in thousands)
Fiscal Year Ended September 30, 2016
HB Gross
Profit (Loss)
HB Gross
Margin
Impairments
&
Abandonmen
ts
(I&A)
HB Gross
Profit (Loss)
w/o I&A
HB Gross
Margin w/o
I&A
Interest
Amortized to
COS
(Interest)
HB Gross
Profit
w/o I&A and
Interest
HB Gross
Margin
w/o I&A and
Interest
West
East
Southeast
Corporate &
unallocated
$
169,603
20.7 % $
6,729
$
176,332
21.6 % $
— $
176,332
89,572
92,573
(57,888)
17.7 %
20.1 %
5,894
788
1,101
95,466
93,361
(56,787)
18.9 %
20.2 %
—
—
77,941
95,466
93,361
21,154
21.6 %
18.9 %
20.2 %
Total homebuilding
$
293,860
16.5 % $
14,512
$
308,372
17.3 % $
77,941
$
386,313
21.6 %
Unexpected warranty
costs related to
Florida stucco issues
(net of expected
insurance recoveries)
Additional insurance
recoveries from third-
party insurer
Adjusted
homebuilding
(a) w/o - without
(3,612)
(15,500)
(3,612)
(15,500)
$
274,748
15.4 %
$
367,201
20.6 %
30
Our overall homebuilding gross profit increased to $348.3 million for the fiscal year ended September 30, 2018, from $312.2
million in the prior year. The increase was driven by growth in homebuilding revenue of $181.5 million combined with slightly
higher gross margin. However, as shown in the tables above, the comparability of our gross profit and gross margin was modestly
impacted by certain items. Specifically, interest amortized to homebuilding cost of sales increased by $2.4 million year-over-year,
and impairment and abandonment charges decreased by $0.9 million over the same period (refer to Note 5 and Note 6 of the notes
to our consolidated financial statements in this Form 10-K for additional details). When excluding the impact of impairments and
abandonments, interest, and non-recurring items, year-over-year gross profit increased by $37.6 million while our gross margin
remained flat at 21.2%. The year-over-year stability in gross margin is due to a variety of factors, including: (1) mix of closings
between geographies/markets, individual communities within each market, and product type; (2) our pricing strategies, including
margin impact on homes closed during the current fiscal year; (3) increased focus on managing our house costs and improving
cycle times; (4) fluctuations in discrete items in the current period such as warranty costs; and (5) the impact of purchase accounting
related to our acquisition of Venture Homes. Going forward, our gross margin will continue to be impacted by several headwinds,
including activation of land assets formerly classified as land held for future development, which generally have lower margins,
the structure of some of our land purchase transactions, such as finished lot purchases, which tend to result in lower gross margins,
and increasing land and direct homebuilding costs.
Our overall homebuilding gross profit increased to $312.2 million for the fiscal year ended September 30, 2017, from $293.9
million in the prior year. The increase was due to additional gross profit generated on the $111.1 million increase in homebuilding
revenue, while our gross margin remained flat year-over-year. The comparability of our gross profit and gross margin, as shown
in the tables above, was impacted by three significant items as follows: (1) impairments and abandonments, which decreased from
$14.5 million in fiscal 2016 to $1.9 million in fiscal 2017; (2) interest amortized to homebuilding cost of sales, which increased
from $77.9 million in fiscal 2016 to $88.8 million in fiscal 2017; and (3) our fiscal 2016 gross profit and gross margin included
a $3.6 million impact related to the Florida stucco issues, net of anticipated insurance recoveries, and a $15.5 million settlement
with our third-party insurer. When factoring out the impact of impairments and abandonments, interest, and non-recurring items,
our gross margin increased by 60 basis points, from 20.6% in fiscal 2016 to 21.2% in fiscal 2017.
Measures of homebuilding gross profit and gross margin after excluding inventory impairments and abandonments, interest
amortized to cost of sales, and other non-recurring items are not GAAP financial measures. These measures should not be considered
alternatives to homebuilding gross profit and gross margin determined in accordance with GAAP as an indicator of operating
performance.
In particular, the magnitude and volatility of non-cash inventory impairment and abandonment charges for the Company and other
homebuilders have been significant historically and, as such, have made financial analysis of our industry more difficult.
Homebuilding metrics excluding these charges, as well as interest amortized to cost of sales and other similar presentations by
analysts and other companies, are frequently used to assist investors in understanding and comparing the operating characteristics
of homebuilding activities by eliminating many of the differences in companies' respective level of impairments and levels of
debt. Management believes these non-GAAP measures enable holders of our securities to better understand the cash implications
of our operating performance and our ability to service our debt obligations as they currently exist and as additional indebtedness
is incurred in the future. These measures are also useful internally, helping management to compare operating results and to measure
cash available for discretionary spending.
In a given period, our reported gross profit is generated from both communities previously impaired and communities not previously
impaired. In addition, as indicated above, certain gross profit amounts arise from recoveries of prior period costs, including warranty
items that are not directly tied to communities generating revenue in the period. Home closings from communities previously
impaired would, in most instances, generate very low or negative gross margins prior to the impact of the previously recognized
impairment. Gross margin for each home closing is higher for a particular community after an impairment because the carrying
value of the underlying land was previously reduced to the present value of future cash flows as a result of the impairment, leading
to lower cost of sales at the home closing. This improvement in gross margin resulting from one or more prior impairments is
frequently referred to in the aggregate as the “impairment turn” or “flow-back” of impairments within the reporting period. The
amount of this impairment turn may exceed the gross margin for an individual impaired asset if the gross margin for that asset
prior to the impairment would have been negative. The extent to which this impairment turn is greater than the reported gross
margin for the individual asset is related to the specific historical cost basis of that individual asset.
31
The asset valuations that result from our impairment calculations are based on discounted cash flow analyses and are not derived
by simply applying prospective gross margins to individual communities. As such, impaired communities may have gross margins
that are somewhat higher or lower than the gross margins for unimpaired communities. The mix of home closings in any particular
quarter varies to such an extent that comparisons between previously impaired and never impaired communities would not be a
reliable way to ascertain profitability trends or to assess the accuracy of previous valuation estimates. In addition, since any amount
of impairment turn is tied to individual lots in specific communities, it will vary considerably from period to period. As a result
of these factors, we review the impairment turn impact on gross margin on a trailing 12-month basis rather than a quarterly basis
as a way of considering whether our impairment calculations are resulting in gross margins for impaired communities that are
comparable to our unimpaired communities. For fiscal 2018, our homebuilding gross margin was 16.8% and excluding interest
and inventory impairments and abandonments, it was 21.2%. For the same period, homebuilding gross margin was as follows in
those communities that have previously been impaired, which represented 9.4% of total closings during fiscal 2018:
Homebuilding Gross Margin from previously impaired communities:
Pre-impairment turn gross margin
Impact of interest amortized to COS related to these communities
Pre-impairment turn gross margin, excluding interest amortization
Impact of impairment turns
Gross margin (post impairment turns), excluding interest amortization
(13.9)%
15.7 %
1.8 %
16.1 %
17.9 %
For a further discussion of our impairment policies and communities impaired during the current and prior two fiscal years, refer
to Notes 2 and 5 of the notes to consolidated financial statements in this Form 10-K.
Land Sales and Other Revenues and Gross Profit
Land sales relate to land and lots sold that did not fit within our homebuilding programs and strategic plans in certain markets.
Other revenues included net fees we received for general contractor services that we performed on behalf of a third party and
broker fees. The following tables summarize our land sales and other revenues and related gross profit (loss) by reportable segment
for the periods presented:
($ in thousands)
West
East
Southeast
Total
($ in thousands)
West
East
Southeast
Corporate and unallocated (a)
Total
Land Sales and Other Revenues
2018
2017
2016
18 v 17
17 v 16
15,204
$
1,758
$
13,853
716
17,837
828
29,773
$
20,423
$
9,936
21,751
5,650
37,337
764.8 %
(22.3)%
(13.5)%
45.8 %
(82.3)%
(18.0)%
(85.3)%
(45.3)%
Land Sales and Other Gross Profit (Loss)
2018
2017
2016
18 v 17
17 v 16
1,708
$
321
(3,153)
(2,136)
(3,260) $
$
732
(119)
50
—
663
$
2,921
678
598
(850)
3,347
133.3 %
369.7 %
(6,406.0)%
n/m
(591.7)%
(74.9)%
(117.6)%
(91.6)%
n/m
(80.2)%
$
$
$
$
(a) Corporate and unallocated includes interest and indirects related to land sold that was expensed.
n/m - indicates the percentage is “not meaningful.”
For the fiscal year ended September 30, 2018, we recognized impairment charges in our Southeast and Corporate and unallocated
segments of approximately $3.2 million and $2.1 million, respectively, related to a community in our Atlanta market. Please see
Note 5 of the notes to consolidated financial statements in this Form 10-K for additional details.
To further support our efforts to reduce leverage, we continued to focus on closing a number of land sales in the current fiscal year
for land positions that did not fit within our strategic plans. Future land and lot sales will depend on a variety of factors, including
local market conditions, individual community performance, and changing strategic plans.
32
Operating Income
The table below summarizes operating income by reportable segment for the periods presented:
Fiscal Year Ended September 30,
(In thousands)
2018
2017
2016
18 v 17
17 v 16
West
East (a)
Southeast (b)
Corporate and Unallocated (c)
Operating income (d)
$
142,310
$
110,600
$
99,835
$
31,710
$
57,372
45,950
(164,084)
$
81,548
$
58,191
53,905
42,205
49,250
(160,558)
62,138
$
(131,965)
59,325
$
(819)
(7,955)
(3,526)
19,410
$
10,765
15,986
4,655
(28,593)
2,813
(a) Operating income for our East segment for the year ended September 30, 2017 was impacted by a charge to G&A of $2.7 million
related to the write-off of a deposit on a legacy investment in a development site that we deemed uncollectible.
(b) Operating income for our Southeast segment for the year ended September 30, 2016 was impacted by a credit to cost of sales
of $3.6 million for unexpected warranty costs related to the Florida stucco issues, net of expected insurance recoveries.
(c) Corporate and unallocated operating loss includes amortization of capitalized interest and capitalized indirects; expenses related
to numerous shared services functions that benefit all segments but are not allocated to the operating segments; and certain other
amounts that are not allocated to our operating segments. Corporate and unallocated for the year ended September 30, 2016
also included the impact of a $15.5 million reduction in home construction expenses resulting from an agreement entered into
in fiscal 2016 with our third-party insurer to resolve certain issues related to the extent of our insurance coverage for multiple
policy years.
(d) Operating income is impacted by impairment and abandonment charges incurred during the periods presented (see Note 5 of
the notes to our consolidated financial statements in this Form 10-K).
Our operating income increased by $19.4 million to $81.5 million for the fiscal year ended September 30, 2018, compared to
$62.1 million for fiscal 2017. The increase was primarily due to a $36.1 million increase in homebuilding profit, partially offset
by a decrease in land sales and other gross profit, an increase in commissions expense on higher homebuilding revenue, and an
increase in G&A costs due to overall business growth. However, commissions and G&A declined year-over-year as a percentage
of total revenue by approximately 6 basis points and 44 basis points, respectively. Also, as previously discussed, fiscal 2017
included a $2.7 million write-off of a deposit on a legacy investment in a development site that we deemed uncollectible. No such
write-off was recognized during fiscal 2018. As a percentage of total revenue, our operating income was 3.9% for fiscal 2018
compared to 3.2% for fiscal 2017.
Our operating income increased by $2.8 million to $62.1 million for the fiscal year ended September 30, 2017, compared to $59.3
million for fiscal 2016. The increase was driven by an $18.3 million increase in homebuilding gross profit, partially offset by
lower land sales and other gross profit, an increase in commissions expense on higher homebuilding revenue, and an increase in
G&A costs due to growth in our business. Both commissions and G&A remained consistent as a percentage of total revenue year-
over-year. As a percentage of total revenue, our operating income was 3.2% for fiscal 2017 compared to 3.3% for fiscal 2016.
Below operating income, we had four noteworthy fluctuations between fiscal 2018 and fiscal 2017 as follows: (1) we experienced
a decline in other expense, net, primarily attributable to a year-over-year decrease in interest costs not qualified for capitalization;
(2) we recorded a loss of $27.8 million on the extinguishment of debt versus $12.6 million in the prior year due to the management
of our debt portfolio; (3) we recognized $110.1 million of income tax expense in the current year due to the remeasurement of our
deferred tax assets as a result of the reduced federal corporate tax rate related to the Tax Cuts and Jobs Act enacted on December
22, 2017; and (4) we recognized a $27.4 million income tax benefit in the current year related to the release of the valuation
allowance on a portion of our deferred tax assets. See the notes to our consolidated financial statements in this Form 10-K for
additional discussion of these matters.
33
Income taxes
Our income tax assets and liabilities and related effective tax rate are affected by various factors, the most significant of which is
the valuation allowance recorded against a portion of our deferred tax assets. Due to the effect of our valuation allowance adjustments
beginning in fiscal 2008, a comparison of our annual effective tax rates must consider the changes in our valuation allowance. As
such, our effective tax rates have not been meaningful metrics, as our income tax expense/benefit was not directly correlated to
the amount of pretax income or loss for the associated periods. Beginning in fiscal 2016, the Company began using an annualized
effective tax rate in interim periods to determine its income tax expense/benefit, which we believe more closely correlates with
our periodic pretax income or loss. The annualized effective tax rate will continue to be impacted by discrete tax items.
Income tax expense during the fiscal year ended September 30, 2018 resulted from our income from operations and the
remeasurement of our deferred tax asset at the newly enacted 21.0% federal tax rate, partially offset by the generation of federal
tax credits and an additional benefit resulting from changes in our valuation allowance. The valuation allowance on all of our
federal tax net operating losses and credits as well as portions of our state net losses was reduced due to our determination that it
is more likely than not that these assets will be realized.
The tax expense we recorded during our fiscal year ended September 30, 2017 resulted from our income from operations, offset
by the generation of federal tax credits and an additional benefit resulting from changes in our valuation allowance. Our valuation
allowance on our state net operating losses was reduced due to an increase in our estimate of utilization related to changes in our
uncertain tax positions.
During fiscal 2016, we contemplated various tax planning strategies based on our operations profile. This planning resulted in a
restructuring effort immediately following the close of fiscal 2016, where we executed certain tax elections and a number of
changes to the legal forms of our operating entities, which significantly reduced our income profile in certain state jurisdictions
going forward. The restructuring reduced our effective tax rate in fiscal 2017 to an amount that is in-line with our peers through
a significant reduction in our state effective tax rate. In addition, the restructure provides cash tax savings in various jurisdictions
where we no longer have significant state loss carryforwards available. In conjunction with the restructure, we also evaluated our
ability to realize certain state components of our deferred tax asset. As a result, as of September 30, 2016, we no longer anticipated
that we would be able to realize portions of the deferred tax assets for these jurisdictions, which caused us to put a valuation
allowance on these assets in fiscal 2016.
Refer to Note 13 of the notes to consolidated financial statements in this Form 10-K for a further discussion of our income taxes
and valuation allowance changes.
Fiscal year ended September 30, 2018 as compared to 2017
West Segment: Homebuilding revenue increased by 17.4% for the fiscal year ended September 30, 2018 compared to the prior
fiscal year due to a 14.6% increase in closings, led by gains in our Las Vegas and Phoenix markets, and an increase in ASP of
2.5%. Compared to the prior fiscal year, homebuilding gross profit increased by $42.0 million due to the increase in homebuilding
revenue combined with higher homebuilding gross margin, which rose from 21.9% to 22.9%. The increase in gross margin was
primarily driven by our Las Vegas market, where our communities continue to gain momentum, and our Southern California
market, where newer communities are driving margin growth. The $31.7 million year-over-year increase in operating income was
the result of the previously discussed increase in homebuilding gross profit, partially offset by an increase in commissions expense
on higher homebuilding revenue and higher G&A costs associated with growth in the segment.
East Segment: Homebuilding revenue decreased by 4.3% for the fiscal year ended September 30, 2018 compared to the prior
fiscal year due to an 11.6% decrease in closings, partially offset by an 8.3% increase in ASP. Homebuilding gross profit decreased
by $6.9 million over the same period due to a decline in homebuilding revenue and lower homebuilding gross margin, which
decreased from 20.5% in the prior fiscal year to 20.0% in fiscal 2018. The decrease was primarily attributable to the Indianapolis
market, which achieved lower margins due to year-over-year changes in product and community mix. The $0.8 million decrease
in operating income resulted from the aforementioned decrease in gross profit, partially offset by a year-over-year decline in G&A
costs and a decrease in commissions expense on lower homebuilding revenue. In addition, the prior year included a $2.7 million
write-off of a deposit on a legacy land investment, whereas there was no such charge incurred during the current year.
34
Southeast Segment: Homebuilding revenue increased by 11.0% for the fiscal year ended September 30, 2018 compared to the
prior fiscal year due to a 2.2% increase in closings, primarily driven by the Atlanta market due to the Venture Homes acquisition,
and an 8.7% increase in ASP, offset by the loss of a number of closings due to the disruption from Hurricane Florence. Compared
to the prior fiscal year, homebuilding gross profit increased by $0.9 million due to the increase in homebuilding revenue offset by
a decrease in gross margin, from 20.2% in fiscal 2017 to 18.3% in fiscal 2018. The decrease in gross margin was driven by the
geographic mix of closings between our markets and a $1.0 million impairment on a formerly land held asset. The $8.0 million
year-over-year decrease in operating income resulted from the previously discussed decline in homebuilding gross profit, higher
G&A costs due to growth in the segment, and a $3.2 million impairment of a land held for sale asset in the Atlanta market (see
Note 5 of the notes to our consolidated financial statements in this Form 10-K for discussion of impairment activity).
Corporate and Unallocated: Our corporate and unallocated results include amortization of capitalized interest and capitalized
indirects; expenses for various shared services functions that benefit all segments but are not allocated, including information
technology, treasury, corporate finance, legal, branding and national marketing; and certain other amounts that are not allocated
to our operating segments. For the fiscal year ended September 30, 2018, corporate and unallocated net costs increased by $3.5
million over the prior fiscal year. The increase was primarily due to higher corporate costs incurred due to (1) business growth,
including costs associated with the opportunity to increase the scope of our Gatherings projects for active adults; (2) an increase
in loss on extinguishment of debt due to the management of our debt portfolio; and (3) a $2.1 million write-off of capitalized
interest and indirect costs related to the impairment of a land held for sale asset; partially offset by (4) an increase in the proportion
of interest and indirect costs capitalized to inventory within our respective operating segments, resulting in a decrease to interest
expense not qualified for capitalization.
Fiscal year ended September 30, 2017 as compared to 2016
West Segment: Homebuilding revenue increased 4.1% for the fiscal year ended September 30, 2017 compared to our prior fiscal
year, primarily due to a 3.3% year-over-year increase in ASP. In addition, closings increased by 0.8% versus the prior year in this
segment, led by gains in our Las Vegas and Sacramento markets, where closings grew more than 50%, partially offset by our
Houston market, due to a lower community count and weather-related conditions in our fiscal fourth quarter. Our homebuilding
gross profit increased by $17.0 million, compared to the prior fiscal year, mainly due to an increase in homebuilding gross margin
from 20.7% to 21.9% and an increase in homebuilding revenue. Excluding the impairment recorded during the current fiscal year
on one community in our West segment, homebuilding gross margin would have increased from 21.6% in the prior fiscal year to
22.1%. Operating income rose $10.8 million, driven by the aforementioned increase in homebuilding gross profit, partially offset
by a decrease in land sales and a $2.2 million decrease in other gross profit year-over-year.
East Segment: Homebuilding revenue increased 5.6% for the fiscal year ended September 30, 2017 compared to our prior fiscal
year, primarily due to a 4.9% increase in ASP. In addition, closings increased 0.7%, driven primarily by our Indianapolis market,
where we continue to build our community count, offset by our Maryland market, where community count has declined slightly
and less emphasis was placed in the current year on building and closing spec homes than in the prior year. As compared to the
prior fiscal year, our homebuilding gross profit increased by $19.7 million, related to a higher homebuilding gross margin, which
climbed from 17.7% in the prior fiscal year to 20.5% in our fiscal 2017, as well as the aforementioned increase in homebuilding
revenue. Excluding the impairment and abandonment charges recorded, homebuilding gross margin would have increased from
18.9% in fiscal 2016 to 20.5% in fiscal 2017. This increase in gross margin is attributable to the shift of closings between markets,
as well as margin improvement in the majority of the divisions in this segment, particularly Indianapolis and Nashville, due to
our pricing strategies resulting from favorable market conditions and community mix. The $16.0 million increase in operating
income resulted from the increase in gross profit, as previously discussed, offset by a year-over-year increase in G&A costs, driven
by a charge of $2.7 million related to the write-off of a deposit on a legacy investment in a development site that we deemed
noncollectible during the current fiscal year.
Southeast Segment: Homebuilding revenue increased 10.7% for the fiscal year ended September 30, 2017 compared to the prior
fiscal year, driven by a 5.1% increase in closings (which increased in all divisions except for Orlando) combined with a 5.3%
increase in ASP. Our homebuilding gross profit in the Southeast segment increased by $10.6 million, due to the aforementioned
increase in homebuilding revenue. Our gross margin slightly increased from 20.1% to 20.2%; however, our year-over-year
comparison of gross profit and gross margin is impacted by the Florida stucco issues (see Note 9 of the notes to our consolidated
financial statements included in this Form 10-K) and, to a lesser extent, the higher charges in impairments and abandonments
recorded during the prior year. Once adjusting for these items, gross profit for the Southeast segment increased by $13.4 million,
and gross margin improved from 19.4% to 20.2%, as we saw underlying gross margin improvement in most of our markets in the
Southeast segment. The year-over-year increase in operating income of $4.7 million was driven by higher gross profit discussed
above, offset by higher commissions on additional homebuilding revenue and higher G&A costs due to our business growth in
this region.
35
Corporate and Unallocated: Our Corporate and unallocated results include amortization of capitalized interest and capitalized
indirects; expenses for various shared services functions that benefit all segments but are not allocated, including information
technology, treasury, corporate finance, legal, branding and national marketing; and certain other amounts that are not allocated
to our operating segments. For the fiscal year ended September 30, 2017, our Corporate and unallocated net costs increased by
$28.6 million over the prior fiscal year primarily due to (1) a year-over-year increase in interest amortized to cost of sales of $10.8
million (see Note 6 of the notes to our consolidated financial statements included in this Form 10-K); (2) an increase in indirect
costs expensed to cost of sales year-over-year due to growth in our business; (3) higher corporate costs incurred due to business
growth, including costs associated with the opportunity to increase the scope of our Gatherings projects for active adults, and
business improvement; offset by (4) the impact of a $15.5 million reduction in cost of sales in the prior year period resulting from
an agreement entered into with our third-party insurer to resolve certain issues related to the extent of our insurance coverage for
multiple policy years.
Derivative Instruments and Hedging Activities
We are exposed to fluctuations in interest rates. From time to time, we may enter into derivative agreements to manage interest
costs and hedge against risks associated with fluctuating interest rates. However, as of September 30, 2018, we were not a party
to any such derivative agreements. We do not enter into or hold derivatives for trading or speculative purposes.
Liquidity and Capital Resources
Our sources of liquidity include, but are not limited to, cash from operations; proceeds from Senior Notes, our Secured Revolving
Credit Facility (the Facility), and other bank borrowings; the issuance of equity and equity-linked securities; and other external
sources of funds. Our short-term and long-term liquidity depends primarily upon our level of net income, working capital
management (cash, accounts receivable, accounts payable and other liabilities) and available credit facilities.
Cash and cash equivalents changed as follows for the periods presented:
(In thousands)
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Net (decrease) increase in cash and cash equivalents
2018
2017
2016
$
$
$
30,288
(74,148)
(107,501)
(151,361) $
95,909
(13,783)
(20,793)
61,333
$
$
163,025
(12,694)
(197,539)
(47,208)
Operating Activities
Net cash provided by operating activities was $30.3 million for the fiscal year ended September 30, 2018 compared to $95.9
million for the fiscal year ended September 30, 2017. Our primary drivers of operating cash flows are typically cash earnings and
changes in inventory levels, including land and land development spending. Net cash provided by operating activities was driven
primarily by income from continuing operations before income taxes of $49.4 million, which included $34.2 million of non-cash
charges, and a $43.3 million decrease in non-inventory working capital balances, partially offset by a net increase in inventory of
$95.8 million resulting from land acquisition, land development, and house construction spending to support future growth. This
net increase in inventory excludes the initial cash paid to acquire inventory from Venture Homes, which is included in investing
cash flows due to our treatment of the acquisition as a business combination (refer to "Investing Activities" below for discussion
of the cash flow impact of the Venture Homes acquisition; also refer to Note 2 of the notes to our consolidated financial statements
for additional details regarding the Venture Homes acquisition).
Net cash provided by operating activities during the fiscal year ended September 30, 2017 was $95.9 million compared to $163.0
million for the fiscal year ended September 30, 2016. The decline in cash provided by operations was driven primarily by the
$446.4 million spent on land and land development activities, an increase of $109.5 million, or 32.5%, compared to our prior fiscal
year, offset by our year-over-year increase in earnings after adjustment for non-cash items. The increase in earnings was driven
by higher revenue from additional closings and an elevated ASP. The increase in land and land development spending positions
us to grow our community count in future years as compared to fiscal 2016 when we limited land spending to generate cash to
complete our $157.0 million in debt reduction.
36
Investing Activities
Net cash used in investing activities was $74.1 million for fiscal year 2018 compared to $13.8 million in fiscal 2017 and $12.7
million in fiscal 2016. The use of cash from investing activities in 2018 was primarily due to the acquisition of Venture Homes
as well as capital expenditures for model homes (refer to Note 2 of the notes to our consolidated financial statements included in
this Form 10-K for discussion of the Venture Homes acquisition). For both fiscal 2017 and fiscal 2016, net cash used in investing
activities was primarily driven by capital expenditures for model homes, partially offset by the receipt of proceeds from the sale
of fixed assets and the return of capital from unconsolidated entities.
Financing Activities
Net cash used in financing activities of $107.5 million for the fiscal year ended September 30, 2018 was significantly higher than
the prior fiscal year, primarily due to the repayment of certain debt issuances (including our 2019 and 2023 Senior Notes and other
miscellaneous borrowings) and the payment of cash for debt issuance costs related to our Senior Notes due 2027, offset by the
proceeds received from the issuance of Senior Notes due 2027 (refer to Note 8 of the notes to our consolidated financial statements
included in this Form 10-K, as well as discussion below). Net cash used in financing activities during the fiscal year ended
September 30, 2017 was $20.8 million, primarily due to the repayment of certain debt issuances (including our 2021 Senior Notes,
the then outstanding Term Loan, and other miscellaneous borrowings) and the payment of cash for debt issuance costs related to
our Senior Notes due 2025, offset by the proceeds received from the issuance of Senior Notes due 2025. Net cash used in financing
activities for the fiscal year ended September 30, 2016 was $197.5 million, primarily due to the repayment of certain debt issuances,
partially offset by proceeds received from the issuance new debt, net of debt issuance costs paid as we completed the $157.0
million in debt reduction.
Financial Position
As of September 30, 2018, our liquidity position consisted of the following:
•
•
$139.8 million in cash and cash equivalents;
$200.0 million of remaining capacity under the Facility (subsequent to September 30, 2018, we further increased the
capacity of the Facility by $10.0 million to $210.0 million); and
•
$13.4 million of restricted cash, the majority of which is used to secure certain stand-alone letters of credit.
While we believe we possess sufficient liquidity, we are mindful of potential short-term or seasonal requirements for enhanced
liquidity that may arise to operate and grow our business. We expect to be able to meet our liquidity needs in fiscal 2019 and to
maintain a significant liquidity position, subject to changes in market conditions that would alter our expectations for land and
land development expenditures or capital market transactions, which could increase or decrease our cash balance on a period-to-
period basis.
Debt
During the current fiscal year, we redeemed the following debt issuances, which resulted in a net reduction of our outstanding
debt of $96.4 million after considering the issuances described below: (1) our Senior Notes due June 2019 (the 2019 Notes), which
had a balance of $321.4 million as of the beginning of the current fiscal year; and (2) $175.0 million of our Senior Notes due
February 2023 (the 2023 Notes), which had a balance of $199.8 million as of the beginning of the current fiscal year. Additionally,
we redeemed $1.5 million of loans secured by real estate during the fiscal year. These redemptions resulted in a loss on the
extinguishment of debt of $27.8 million.
In October 2017, we issued and sold $400.0 million aggregate principal amount of 5.875% unsecured Senior Notes due October
2027 at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers (the 2027
Notes). The proceeds from the 2027 Notes were principally used to fund the repayment of $225.0 million of our 2019 Notes and
$175.0 million of our 2023 Notes. Interest on the 2027 Notes is payable semi-annually, beginning on April 15, 2018. The 2027
Notes will mature on October 15, 2027. We may redeem the 2027 Notes at any time prior to October 15, 2022, in whole or in part,
at a redemption price equal to 100% of the principal amount of the notes to be redeemed, together with accrued and unpaid interest
to, but excluding, the redemption date, plus a customary make-whole premium. For additional details and the redemption features
of the 2027 Notes, see Note 8 of the notes to our consolidated financial statements in this Form 10-K.
37
We generally fulfill our short-term cash requirements with cash generated from our operations and available borrowings.
Additionally, we maintain the Facility, which had a total and available capacity of $200.0 million as of September 30, 2018.
Subsequent to September 30, 2018, the Company executed a Fifth Amendment to the Facility. The Fifth Amendment extends the
termination date of the Facility from February 15, 2020 to February 15, 2021, increases the maximum aggregate amount of
commitments under the Facility (including borrowings and letters of credit) from $200.0 million to $210.0 million, and reduces
the applicable margin by 50 basis points.
We have also entered into a number of stand-alone, cash-secured letter of credit agreements with banks. These combined facilities
provide for letter of credit needs collateralized by either cash or assets of the Company. We currently have $10.4 million of
outstanding letters of credit under these facilities, secured with cash collateral that is maintained in restricted accounts totaling
$9.2 million.
In the future, we may from time to time seek to continue to retire or purchase our outstanding debt through cash repurchases or
in exchange for other debt securities, in open market purchases, privately-negotiated transactions, or otherwise. We may also seek
to expand our business through acquisition, which may be funded through cash, additional debt, or equity. In addition, any material
variance from our projected operating results could require us to obtain additional equity or debt financing. There can be no
assurance that we will be able to complete any of these transactions in the future on favorable terms or at all. See Note 8 of the
notes to the consolidated financial statements in this Form 10-K for more information related to our borrowings.
Credit Ratings
Our credit ratings are periodically reviewed by rating agencies. In July 2018, Moody's reaffirmed the Company's issuer default
debt rating of B3. Moody’s outlook on the Company remains positive. In June 2018, S&P reaffirmed the Company's corporate
credit rating of B- and raised its outlook of the Company to positive. In October 2017, Fitch reaffirmed the Company's default
rating of B- and revised its outlook from stable to positive. These ratings and our current credit condition affect, among other
things, our ability to access new capital. Negative changes to these ratings may result in more stringent covenants and higher
interest rates under the terms of any new debt. Our credit ratings could be lowered or rating agencies could issue adverse
commentaries in the future, which could have a material adverse effect on our business, financial condition, results of operations,
and liquidity. In particular, a weakening of our financial condition, including any further increase in our leverage or decrease in
our profitability or cash flows, could adversely affect our ability to obtain necessary funds, could result in a credit rating downgrade
or change in outlook, or could otherwise increase our cost of borrowing.
Stock Repurchases and Dividends Paid
The Company did not repurchase any shares in the open market during the fiscal years ended September 30, 2018, 2017, or 2016.
Any future stock repurchases, to the extent allowed by our debt covenants, must be approved by the Company’s Board of Directors
or its Finance Committee.
The indentures under which our Senior Notes were issued contain certain restrictive covenants, including limitations on the payment
of dividends. There were no dividends paid during our fiscal years ended September 30, 2018, 2017, or 2016.
Off-Balance Sheet Arrangements
As of September 30, 2018, we controlled 24,188 lots. We owned 17,515, or 72.4%, of these lots and 6,673, or 27.6%, of these lots
were under option contracts with land developers and land bankers, which generally require the payment of cash for the right to
acquire lots during a specified period of time at a certain price. We historically have attempted to control a portion of our land
supply through options. 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. Under option contracts, purchase of the properties
is contingent upon satisfaction of certain requirements by us and the sellers, and our liability is generally limited to forfeiture of
the non-refundable deposits and other non-refundable amounts incurred, which totaled approximately $72.2 million as of
September 30, 2018. The total remaining purchase price, net of cash deposits, committed under all options was $383.2 million as
of September 30, 2018. Based on market conditions and our liquidity, we may further expand our use of option agreements to
supplement our owned inventory supply.
We expect to exercise, subject to market conditions and seller satisfaction of contract terms, most of our option contracts. 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 lot options will be exercised
at all.
38
We have historically funded the exercise of lot options with operating cash flows, which we expect to continue to be adequate to
fund anticipated future option exercises. Therefore, we do not anticipate that the exercise of our lot options will have a material
adverse effect on our liquidity.
Occasionally, we use legal entities in which we have less than a controlling interest. We enter into the majority of these arrangements
with land developers, other homebuilders, and financial partners to acquire attractive land positions, to manage our risk profile,
and to leverage our capital base. The underlying land positions are developed into finished lots for sale to the unconsolidated
entity’s members or other third parties. We account for our interest in unconsolidated entities under the equity method.
Historically, we and our partners have provided varying levels of guarantees of debt or other obligations for our unconsolidated
entities. As of September 30, 2018, we had no repayment guarantees outstanding related to the debt of our unconsolidated entities.
See Note 4 of the notes to the consolidated financial statements in this Form 10-K for additional information.
Contractual Commitments
The following table summarizes our aggregate contractual commitments as of September 30, 2018:
(In thousands)
Total
Less than 1 Year
1-3 Years
3-5 Years
More than 5
Years
Payments Due by Period
Senior notes, term loan, junior
subordinated notes, and other secured notes
payable (a)
Interest commitments under senior notes,
term loan, junior subordinated notes, and
other secured notes payable (b)
Obligations related to lots under option
Operating leases
Uncertain tax positions (c)
Total
$
1,279,694
$
4,087
$
— $
524,834
$
750,773
529,475
383,150
16,830
—
90,804
230,323
4,624
—
181,503
115,440
7,343
—
112,855
29,882
4,024
—
144,313
7,505
839
—
$
2,209,149
$
329,838
$
304,286
$
671,595
$
903,430
(a) For a listing of our borrowings, refer to Note 8 of the notes to the consolidated financial statements in this Form 10-K.
(b) Interest on variable rate obligations is based on rates effective as of September 30, 2018.
(c) Due to the uncertainty of the timing of settlement with tax authorities, the Company is unable to make reasonably reliable
estimates of the period of cash settlement of unrecognized tax benefits related to uncertain tax positions. See Note 13 of the
notes to the consolidated financial statements in this Form 10-K for additional information regarding the Company's unrecognized
tax benefits as of September 30, 2018.
We had outstanding performance bonds of approximately $237.8 million as of September 30, 2018, related principally to our
obligations to local governments to construct roads and other improvements in various developments.
Critical Accounting Policies and Estimates
Our critical accounting policies require the use of judgment in their application and in certain cases require estimates of inherently
uncertain matters. Although our accounting policies are in compliance with accounting principles generally accepted in the United
States of America (GAAP), 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. It is also possible that other professionals
applying reasonable judgment to the same set of facts and circumstances could reach a different conclusion. Listed below are those
policies that we believe are critical and require the use of complex judgment in their application.
39
Inventory Valuation - Projects in Progress
Our homebuilding inventories that are accounted for as held for development (projects in progress) 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 no less than quarterly for recoverability.
Generally, upon the commencement of land development activities, it may take three to five years (depending on, among other
things, the size of the community and its sales pace) to fully develop, sell, construct, and close all of the homes in a typical
community. 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 is recorded to write down the carrying amount of such asset to its estimated fair value based on
discounted cash flows.
When conducting our community level review for the recoverability of our homebuilding inventory related to projects in progress,
we establish a quarterly “watch list” of communities that carry profit margins in backlog or in our forecast that are below a minimum
threshold of profitability, as well as recent closings that have gross margins less than a specified threshold. In our experience, this
threshold represents a level of profitability that may be an indicator of conditions that would require an asset impairment but does
not necessitate that such an impairment is warranted without additional analysis. Each community is first evaluated qualitatively
to determine if there are temporary factors driving the low profitability levels. Following our qualitative evaluation, communities
with more than ten homes remaining to close are subjected to substantial additional financial and operational analyses and reviews
that consider the competitive environment and other factors contributing to profit margins below our watch list threshold. For
communities where the current competitive and market dynamics indicate that these factors may be other than temporary, which
may call into question the recoverability of our investment, a formal impairment analysis is performed. The formal impairment
analysis consists of both qualitative competitive market analyses and a quantitative analysis reflecting market and asset specific
information.
Our qualitative competitive market analyses include site visits to new home communities of our competitors and written community-
level competitive assessments. A competitive assessment consists of a comparison of our specific community with its competitor
communities, considering square footage of homes offered, amenities offered within the homes and the communities, location,
transportation availability, and school districts, among other relevant attributes. In addition, we review the pace of monthly home
sales of our competitor communities in relation to our specific community. We also review other factors, such as the target buyer
and the macro-economic characteristics that impact the performance of our asset, including unemployment and the availability of
mortgage financing, among other things. Based on this qualitative competitive market analysis, adjustments to our sales prices
may be required in order to make our communities competitive. We incorporate these adjusted prices in our quantitative analysis
for the specific community.
The quantitative analyses compare the projected future undiscounted cash flows for each such community with its current carrying
value. This undiscounted cash flow analysis requires important assumptions regarding the location and mix of house plans to be
sold, current and future home sale prices and incentives for each plan, current and future construction costs for each plan, and the
pace of monthly sales to occur today and into the future.
There is uncertainty associated with preparing the undiscounted cash flow analyses because future market conditions will almost
certainly be different, either better or worse, than current conditions. The single most important input to the cash flow analysis is
current and future home sales prices for a specific community. The risk of over or under-stating any of the important cash flow
variables, including home prices, is greater with longer-lived communities and within markets that have historically experienced
greater home price volatility. In an effort to address these risks, we consider some home price and construction cost appreciation
in future years for certain communities that are expected to be selling for more than three years and/or if the market has typically
exhibited high levels of price volatility. Absent these assumptions on cost and sales price appreciation, we believe the long-term
cash flow analysis would be unrealistic and would serve to artificially improve expected future profitability. Finally, we also ensure
that the monthly sales absorptions, including historical seasonal differences of our communities and those of our competitors,
used in our undiscounted cash flow analyses are realistic, consider our development schedules, and relate to those achieved by
our competitors for the specific communities.
40
If the aggregate undiscounted cash flows from our quantitative analyses are in excess of the carrying value, the asset is considered
to be recoverable and is not impaired. If the aggregate undiscounted cash flows are less than the carrying or book value, we perform
a discounted cash flow analysis to determine the fair value of the community. The fair value of the community 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, and 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. If the determined fair value is less than the carrying value of the specific asset, the asset is considered
not recoverable and is written down to its fair value. The carrying value of assets in communities that were previously impaired
and continue to be classified as projects in progress is not increased for future estimates of increases in fair value in future reporting
periods.
Due to uncertainties in the estimation process, particularly with respect to projected home sales prices and absorption rates, 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 impairment 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. Because the projected cash flows used to evaluate the fair value of inventory are significantly impacted by changes in
market conditions, including decreased sales prices, a change in sales prices, or changes in absorption estimates based on current
market conditions, management's assumptions relative to future results could lead to additional impairments in certain communities
during any given period. Market deterioration that exceeds our estimates may lead us to incur additional impairment charges on
previously impaired homebuilding assets in addition to homebuilding assets not currently impaired but for which indicators of
impairment may arise if market conditions deteriorate.
Asset Valuation - Land Held for Future Development
For those communities that have been idled (land held for future development), all applicable carrying costs, such as interest and
real estate taxes, are expensed as incurred, and the inventory is stated at cost unless facts and circumstances indicate that the
carrying value of the assets may not be recoverable. The future enactment of a development plan or the occurrence of outside
events and circumstances may indicate that the carrying amount of an asset may not be recoverable. We evaluate the potential
plans of each community in land held for future development if changes in facts and circumstances occur that would give rise to
a more detailed analysis for a change in the status of a community.
Asset Valuation - Land Held for Sale
We record assets held for sale at the lower of the asset's carrying value or fair value less costs to sell. 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 property has been initiated;
the sale of the land is probable within one year;
the property is being actively marketed at a reasonable sales 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, such as a change in strategy, management will re-evaluate the best use of an asset that is
currently being accounted for as held for development. In such instances, management 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, 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 if the foregoing criteria have been met as of the
end of the applicable reporting period.
In determining the fair value of the assets less cost to sell, we consider 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.
41
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 market is highly sensitive
to changes in economic conditions. We calculate 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 deteriorate.
Homebuilding Revenue and Costs
Revenue from the sale of a home is recognized when the closing has occurred and the risk of ownership has transferred to the
buyer. All associated homebuilding costs, some of which must be estimated, are charged to cost of sales in the period when the
revenue from home closings is recognized. Homebuilding costs include land and land development costs (based on an allocation
of such costs, including costs to complete the development, which are subject to estimation), 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. Sales commissions owed to internal sales personnel and external
brokers are also recognized as expense when the closing occurs. All other costs are expensed as incurred.
Warranty Reserves
We currently provide a limited warranty ranging from one to two years covering workmanship and materials per our defined
quality standards. In addition, we provide a limited warranty for up to ten years covering only certain defined structural element
failures.
Since we subcontract our homebuilding work to other companies whose agreements generally include an indemnity obligation
and a requirement that certain minimum insurance requirements be met, including that they provide us with a certificate of insurance
prior to receiving payments for their work, claims relating to workmanship and materials are generally the primary responsibility
of our subcontractors.
Warranty reserves are included in other liabilities on our consolidated balance sheets. We record reserves covering our 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 any claims and adjusts these provisions accordingly.
Our review includes a quarterly analysis of the historical data and trends in warranty expense by division. An analysis by division
allows us to consider market specific factors such as our warranty experience, the number of home closings, the prices of homes,
product mix, and other data in estimating our warranty reserves. In addition, our analysis also factors in the existence of any non-
recurring or community-specific warranty matters that might not be contemplated in our historical data and trends. The cost of
material non-recurring or community-specific warranty matters is often separately estimated based on management's judgment
of the ultimate cost of repair for that specific issue. As a result of our analyses, we adjust our estimated warranty liabilities on a
quarterly basis. Based on historical results, we believe that our existing estimation process is accurate and do not anticipate the
process to materially change in the future. Our estimation process for such accruals is discussed in Note 9 of notes to the consolidated
financial statements in this Form 10-K. While we believe that our current warranty reserves are adequate, there can be no assurances
that historical data and trends will accurately predict our actual warranty costs or that future developments might not lead to a
significant change in the reserve.
Income Taxes - Valuation Allowance and Ownership Change
Judgment is required in estimating valuation allowances for deferred tax assets. Deferred tax assets are reduced by a valuation
allowance if an assessment of their components indicates that it is more likely than not that all or some portion of these assets will
not be realized. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in either
the carryback or carryforward periods under tax law. We assess the need for valuation allowances for deferred tax assets based on
more-likely-than-not realization threshold criteria. In our assessment, appropriate consideration is given to all positive and negative
evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, (1) the nature,
frequency and severity of any current and cumulative losses; (2) forecasts of future profitability; (3) the duration of statutory
carryforward periods; (4) our experience with operating loss and tax credit carryforwards not expiring unused; (5) the Section 382
limitation on our ability to carryforward pre-ownership change net operating losses; (6) recognized built-in losses or deductions;
and (7) tax planning alternatives.
42
Our assessment of the need for the valuation of deferred tax assets includes assessing the likely future tax consequences of events
that have been recognized in our financial statements or tax returns. We base our estimate of deferred tax assets and liabilities on
current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. Changes in existing
tax laws or rates could affect actual tax results and future business results may affect the amount of deferred tax liabilities or the
valuation of deferred tax assets over time. Our accounting for deferred tax consequences represents our best estimate of future
events. Although it is possible there will be changes that are not anticipated in our current estimates, we believe it is unlikely such
changes would have a material period-to-period impact on our financial condition or results of operations.
During fiscal 2008, we determined that it was not more likely than not that substantially all of our deferred tax assets would be
realized and, therefore, we established a valuation allowance on substantially all of our deferred tax assets. Each period, we
evaluated the continued need for the valuation allowance based on extensive quantitative and qualitative factors, a process that
requires significant estimates to be made. As of September 30, 2015, we determined that it was appropriate to release a substantial
portion of our valuation allowance, generating a non-cash tax benefit. As of September 30, 2018, we determined that it was
appropriate to release an additional portion of our valuation allowance, also generating a non-cash tax benefit. We considered
positive evidence including, most importantly, our current earnings profile, as well as evidence of recovery in the housing markets
where we operate, the prospects of continued profitability and growth, a strong order backlog, and sufficient balance sheet liquidity
to sustain and grow operations. We also considered negative evidence that had caused us to record the valuation allowance.
Management continues to reassess the realizability of our deferred tax assets each reporting period and, in future periods, we may
reduce the remaining portion of our valuation allowance or re-establish it based on our ongoing analysis. This ongoing analysis
will continue to be based on our actual financial performance over an estimated “look-back” period, our expectation of future
performance based on detailed forecasts, as well as a variety of qualitative factors. These analyses, while rooted in actual Company
performance, are highly subjective and rely on certain estimates, including forecasts, which could be very different from actual
results.
We experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code (Section 382) as of January 12,
2010. Section 382 contains rules that limit the ability of a company that undergoes an “ownership change” to utilize its net operating
loss carryforward and certain built-in losses or deductions recognized during the five-year period after the ownership change.
Therefore, our ability to utilize our pre-ownership change net operating loss (NOL) carryforwards and certain recognized built-
in losses or deductions is substantially limited by Section 382. There can be no assurance that another ownership change, as defined
in the tax law, will not occur. If another “ownership change” occurs, a new annual limitation on the utilization of net operating
losses would be determined as of that date. This limitation, should one be required in the future, is subject to assumptions and
estimates that could differ from actual results.
Item 7A. 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 our cash flows or results of operations.
As of September 30, 2018, our Junior Subordinated Notes were our only variable-rate debt outstanding. A one percent increase
in the interest rate for these variable-rate issuances would result in an increase of our interest expense by $1.0 million over the
next twelve-month period. The estimated fair value of our fixed rate debt as of September 30, 2018 was $1.10 billion, compared
to a carrying value of $1.16 billion. The effect of a hypothetical one-percentage point decrease in our estimated discount rates
would increase the estimated fair value of the fixed rate debt instruments from $1.10 billion to $1.15 billion as of September 30,
2018.
43
Item 8. Financial Statements and Supplementary Data
BEAZER HOMES USA, INC.
CONSOLIDATED BALANCE SHEETS
in thousands (except share and per share data)
ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable (net of allowance of $378 and $330, respectively)
Income tax receivable
Owned inventory
Investments in unconsolidated entities
Deferred tax assets, net
Property and equipment, net
Goodwill and other intangible assets, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable
Other liabilities
Total debt (net of premium of $2,640 and $3,413, respectively, and debt issuance costs of
$14,336 and $14,800, respectively)
Total liabilities
Stockholders’ equity:
September 30,
2018
September 30,
2017
$
139,805
$
292,147
13,443
24,647
—
12,462
36,323
88
1,692,284
1,542,807
4,035
213,955
20,843
9,751
9,339
3,994
307,896
17,566
—
7,712
$
$
2,128,102
$
2,220,995
126,432
$
126,389
103,484
107,659
1,231,254
1,484,075
1,327,412
1,538,555
Preferred stock (par value $0.01 per share, 5,000,000 shares authorized, no shares issued)
Common stock (par value $0.001 per share, 63,000,000 shares authorized, 33,522,046
issued and outstanding and 33,515,768 issued and outstanding, respectively)
—
34
—
34
Paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
880,025
(236,032)
644,027
873,063
(190,657)
682,440
$
2,128,102
$
2,220,995
See accompanying notes to consolidated financial statements.
44
BEAZER HOMES USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
in thousands (except per share data)
Total revenue
Home construction and land sales expenses
Inventory impairments and abandonments
Gross profit
Commissions
General and administrative expenses
Depreciation and amortization
Operating income
Equity in income of unconsolidated entities
Loss on extinguishment of debt
Other expense, net
Income from continuing operations before income taxes
Expense from income taxes
(Loss) income from continuing operations
Loss from discontinued operations, net of tax
Net (loss) income
Weighted-average number of shares:
Basic
Diluted
Basic (loss) income per share:
Continuing operations
Discontinued operations
Total
Diluted (loss) income per share:
Continuing operations
Discontinued operations
Total
Fiscal Year Ended September 30,
2018
2017
2016
$
2,107,133
$
1,916,278
$
1,822,114
1,755,619
1,600,969
1,509,625
6,499
345,015
81,002
168,658
13,807
81,548
34
(27,839)
(4,305)
49,438
94,484
(45,046)
(329)
2,445
312,864
74,811
161,906
14,009
62,138
371
(12,630)
(15,230)
34,649
2,696
31,953
(140)
$
(45,375) $
31,813
$
32,141
32,141
31,952
32,426
$
$
$
$
(1.40) $
(0.01)
(1.41) $
(1.40) $
(0.01)
(1.41) $
1.00
—
1.00
0.99
—
0.99
$
$
$
$
15,282
297,207
70,460
153,628
13,794
59,325
131
(13,423)
(24,330)
21,703
16,498
5,205
(512)
4,693
31,798
31,803
0.16
(0.01)
0.15
0.16
(0.01)
0.15
See accompanying notes to consolidated financial statements.
45
BEAZER HOMES USA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
in thousands
Common Stock
Shares
Amount
Balance as of September 30, 2015
32,661
$
Net income and comprehensive income
Amortization of nonvested stock awards
Shares issued under employee stock plans, net
Forfeiture of restricted stock
Common stock redeemed
—
—
491
(64)
(17)
Balance as of September 30, 2016
33,071
$
Net income and comprehensive income
Amortization of nonvested stock awards
Exercises of stock options
Shares issued under employee stock plans, net
Forfeiture of restricted stock
Common stock redeemed
Balance as of September 30, 2017
Net loss and comprehensive loss
Amortization of nonvested stock awards
Exercises of stock options
Shares issued under employee stock plans, net
Forfeiture of restricted stock
Common stock redeemed
Other activity
—
—
2
536
(61)
(32)
33,516
$
—
—
8
443
(216)
(229)
—
Balance as of September 30, 2018
33,522
$
Paid in
Capital
Accumulated
Deficit
Total
$
857,553
$
(227,163) $
630,423
—
7,959
—
—
(222)
4,693
—
—
—
—
4,693
7,959
—
—
(222)
$
865,290
$
(222,470) $
642,853
—
8,164
24
—
—
(415)
31,813
—
—
—
—
—
31,813
8,164
24
1
—
(415)
$
873,063
$
(190,657) $
682,440
—
10,258
64
—
—
(3,378)
18
(45,375)
—
—
—
—
—
—
(45,375)
10,258
64
—
—
(3,378)
18
$
880,025
$
(236,032) $
644,027
33
—
—
—
—
—
33
—
—
—
1
—
—
34
—
—
—
—
—
—
—
34
See accompanying notes to consolidated financial statements.
46
BEAZER HOMES USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
in thousands
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization
Stock-based compensation expense
Inventory impairments and abandonments
Deferred and other income tax expense
Write-off of deposit on legacy land investment
Gain on sale of fixed assets
Change in allowance for doubtful accounts
Equity in income of unconsolidated entities and marketable securities
Cash distributions of income from unconsolidated entities
Non-cash loss on extinguishment of debt
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable
Decrease in income tax receivable
(Increase) decrease in inventory
(Increase) in other assets
Increase (decrease) in trade accounts payable
Increase (decrease) in other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds from sale of fixed assets
Acquisition, net of cash acquired
Investments in unconsolidated entities
Return of capital from unconsolidated entities and marketable securities
Net cash used in investing activities
Cash flows from financing activities:
Repayment of debt
Proceeds from issuance of new debt
Repayment of borrowings from credit facility
Borrowings from credit facility
Debt issuance costs
Other changes
Net cash used in financing activities
(Decrease) increase in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
Fiscal Year Ended September 30,
2018
2017
2016
$
(45,375) $
31,813
$
4,693
13,807
10,258
6,949
93,935
—
(351)
48
(127)
331
3,289
11,875
88
(95,809)
(1,300)
17,492
15,178
30,288
(17,020)
370
(57,253)
(421)
176
(74,148)
14,009
8,159
2,445
678
2,700
(294)
(24)
(401)
171
3,677
16,927
204
41,911
(168)
(690)
(25,208)
95,909
(12,440)
297
—
(3,261)
1,621
(13,783)
13,794
7,959
15,282
15,903
—
(957)
(698)
(143)
165
4,978
(149)
127
129,028
(471)
(9,365)
(17,121)
163,025
(12,219)
2,624
—
(4,241)
1,142
(12,694)
(497,915)
400,000
(225,000)
225,000
(6,272)
(3,314)
(107,501)
(151,361)
304,609
153,248
$
(265,483)
250,000
(25,000)
25,000
(4,919)
(391)
(20,793)
61,333
243,276
304,609
$
(828,221)
642,150
(90,000)
90,000
(11,246)
(222)
(197,539)
(47,208)
290,484
243,276
$
See accompanying notes to consolidated financial statements.
47
BEAZER HOMES USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business
Beazer Homes USA, Inc. (“we,” “us,” “our,” “Beazer,” “Beazer Homes” and the “Company”) is a geographically diversified
homebuilder with active operations in 13 states within three geographic regions in the United States: the West, East and Southeast.
Our homes are designed to appeal to homeowners at different price points across various demographic segments, and are generally
offered for sale in advance of their construction. Our objective is to provide our customers with homes that incorporate exceptional
value and quality, while seeking to maximize our return on invested capital over the course of a housing cycle.
(2) Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (GAAP), and present the consolidated financial position, income, comprehensive income, stockholders'
equity, and cash flows of Beazer Homes USA, Inc. and its consolidated subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation. Our net loss is equivalent to our comprehensive loss, so we have not presented
a separate statement of comprehensive loss.
In the past, we have discontinued homebuilding operations in various markets. Results from certain of these exited markets are
reported as discontinued operations in the accompanying consolidated statements of operations for all periods presented (see Note
20 for a further discussion of our discontinued operations).
Our fiscal year 2018 began on October 1, 2017 and ended on September 30, 2018. Our fiscal year 2017 began on October 1, 2016
and ended on September 30, 2017. Our fiscal year 2016 began on October 1, 2015 and ended on September 30, 2016.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make informed estimates and judgments
that affect the amounts reported in the consolidated financial statements and accompanying notes. Accordingly, actual results could
differ from these estimates.
Business Combinations
The Company accounts for acquisitions in accordance with ASC 805, Business Combinations, by allocating the purchase price
of the business to the various assets acquired and liabilities assumed at their respective fair values. Any excess of the purchase
price over the estimated fair value of the identifiable net assets acquired is recorded as goodwill. While the Company uses its best
estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities
assumed at the acquisition date, estimates are inherently uncertain and subject to refinement. As a result, during the measurement
period, which may be up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed, with
the corresponding offset to goodwill, are recorded in the reporting period in which the adjustment amounts are determined. Upon
the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever
comes first, any subsequent adjustments are recorded in our results of operations in the reporting period such adjustments are
made. Significant judgment is often required in estimating the fair value of assets acquired, particularly inventory and intangible
assets. These estimates and assumptions are based on historical experience, information obtained from the management of the
acquired companies, and the Company’s judgment about the significant assumptions that market participants would use when
determining fair value.
On July 13, 2018, the Company acquired substantially all of the assets, operations, and certain assumed liabilities of Venture
Homes ("Venture"), a leading private homebuilder in the Atlanta market, for a purchase price of $60.6 million, net of cash acquired.
As of September 30, 2018, $57.3 million of the purchase price had been paid, net of cash acquired, with the remaining $3.3 million
due during the first quarter of fiscal 2019. The acquired assets consisted of more than 1,100 total owned or controlled lots within
27 single-family communities in the greater Atlanta metropolitan area. The acquired lots included a backlog of 48 homes and 6
model homes. The acquired assets and liabilities were recorded at their estimated fair values and resulted in inventory of $56.0
million, goodwill and other intangible assets of $9.8 million, and other assets of $0.6 million as well as accounts payable of $5.5
million and other liabilities of $0.2 million. The acquisition of Venture Homes was not material to our results of operations or
financial condition.
48
The purchase price accounting reflected above is preliminary and is based on estimates and assumptions that are subject to change
within the measurement period, which is generally up to one year from the acquisition date pursuant to ASC 805. The purchase
price allocation of Venture Homes is provisional pending completion of the fair value analysis of acquired assets and assumed
liabilities.
Acquired inventories consisted of both acquired land and work in process inventories. We determined the estimate of fair value
for acquired land inventory with the assistance of a third-party appraiser using, as applicable, a discounted cash flow approach
for the development, marketing, and sale of each community acquired and a market approach based on comparable sales of finished
lots. Significant valuation assumptions included future per lot land development, direct construction, and overhead costs as well
as average sales prices and absorption rates. We estimated the fair value of acquired work in process inventories based upon the
stage of production of each unit and a gross margin that we believe a market participant would require to complete development
and selling activities. As of the acquisition date, the stage of production ranged from recently started lots to fully completed single
family residences.
Cash and Cash Equivalents and Restricted Cash
We consider highly liquid investments with maturities of three months or less when acquired to be cash equivalents. As of
September 30, 2018, the majority of our cash and cash equivalents were invested in highly marketable securities, or were on
deposit with major banks. These assets were valued at par and had no withdrawal restrictions. The underlying investments of these
funds were U.S. Government and U.S. Government Agency obligations or high-quality marketable securities. Restricted cash
includes cash restricted by state law or a contractual requirement, including cash collateral for our outstanding cash-secured letters
of credit (refer to Note 8).
Accounts Receivable
Accounts receivable include escrow deposits to be received from title companies associated with closed homes, receivables from
municipalities related to the development of utilities or other infrastructure, insurance recovery receivables, rebates to be received
from our suppliers and other miscellaneous receivables. Generally, we receive cash from title companies within a few days of the
home being closed. We regularly review our receivable balances for collectiblity and record an allowance against any receivable
for which collectiblity is deemed to be uncertain.
Inventory
Owned inventory consists solely of residential real estate developments. Interest, real estate taxes and development costs are
capitalized in inventory during the development and construction period. Construction and land costs are comprised of direct and
allocated costs, such as for amenities and estimated costs for future warranties. Land, land improvements and other common costs
are typically allocated to individual residential lots on a pro-rata basis, and the costs of residential lots are transferred to homes
under construction when home construction begins. Land not owned under option agreements, if outstanding, represents the value
of land under option agreements with a variable interest entity (VIE) where the Company is deemed to be the primary beneficiary
of the VIE. VIEs are entities in which (1) equity investors do not have a controlling financial interest and/or (2) the entity is unable
to finance its activities without additional subordinated financial support from other parties (refer to section below entitled “Land
Not Owned Under Option Agreements” for a further discussion of VIEs). In addition, when our deposits and pre-acquisition
development costs exceed certain thresholds, we record the remaining purchase price of the lots as consolidated inventory not
owned and obligations related to consolidated inventory not owned on our consolidated balance sheets. Refer to Note 5 for a
further discussion and detail of our inventory balance.
Inventory Valuation - Projects in Progress
Our homebuilding inventories that are accounted for as held for development (projects in progress) 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 no less than quarterly for recoverability.
Generally, upon the commencement of land development activities, it may take three to five years (depending on, among other
things, the size of the community and its sales pace) to fully develop, sell, construct and close all the homes in a typical community.
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 is recorded to write down the carrying amount of such asset to its estimated fair value based on discounted
cash flows.
49
When conducting our community level review for the recoverability of our homebuilding inventory related to projects in progress,
we establish a quarterly “watch list” of communities that carry profit margins in backlog or in our forecast that are below a minimum
threshold of profitability, as well as recent closings that have gross margins less than a specified threshold. In our experience, this
threshold represents a level of profitability that may be an indicator of conditions that would require an asset impairment, but does
not necessitate that such an impairment is warranted without additional analysis. Each community is first evaluated qualitatively
to determine if there are temporary factors driving the low profitability levels. Following our qualitative evaluation, communities
with more than ten homes remaining to close are subjected to substantial additional financial and operational analyses and review
that consider the competitive environment and other factors contributing to profit margins below our watch list threshold. For
communities where the current competitive and market dynamics indicate that these factors may be other than temporary, which
may call into question the recoverability of our investment, a formal impairment analysis is performed. The formal impairment
analysis consists of both qualitative competitive market analyses and a quantitative analysis reflecting market and asset specific
information.
Our qualitative competitive market analyses include site visits to new home communities of our competitors and written community-
level competitive assessments. A competitive assessment consists of a comparison of our specific community with its competitor
communities, considering square footage of homes offered, amenities offered within the homes and the communities, location,
transportation availability and school districts, among other relevant attributes. In addition, we review the pace of monthly home
sales of our competitor communities in relation to our specific community. We also review other factors, such as the target buyer
and the macro-economic characteristics that impact the performance of our asset, including unemployment and the availability of
mortgage financing, among other things. Based on this qualitative competitive market analysis, adjustments to our sales prices
may be required in order to make our communities competitive. We incorporate these adjusted prices in our quantitative analysis
for the specific community.
The quantitative analyses compare the projected future undiscounted cash flows for each such community with its current carrying
value. This undiscounted cash flow analysis requires important assumptions regarding the location and mix of house plans to be
sold, current and future home sale prices and incentives for each plan, current and future construction costs for each plan and the
pace of monthly sales to occur today and into the future.
There is uncertainty associated with preparing the undiscounted cash flow analyses because future market conditions will almost
certainly be different, either better or worse, than current conditions. The single most important input to the cash flow analysis is
current and future home sales prices for a specific community. The risk of over or under-stating any of the important cash flow
variables, including home prices, is greater with longer-lived communities and within markets that have historically experienced
greater home price volatility. In an effort to address these risks, we consider some home price and construction cost appreciation
in future years for certain communities that are expected to be selling for more than three years and/or if the market has typically
exhibited high levels of price volatility. Absent these assumptions on cost and sales price appreciation, we believe the long-term
cash flow analysis would be unrealistic and would serve to artificially improve expected future profitability. Finally, we also ensure
that the monthly sales absorptions, including historical seasonal differences of our communities and those of our competitors,
used in our undiscounted cash flow analyses are realistic, consider our development schedules and relate to those achieved by our
competitors for the specific communities.
If the aggregate undiscounted cash flows from our quantitative analyses are in excess of the carrying value, the asset is considered
to be recoverable and is not impaired. If the aggregate undiscounted cash flows are less than the carrying or book value, we perform
a discounted cash flow analysis to determine the fair value of the community. The fair value of the community 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 and 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. If the determined fair value is less than the carrying value of the specific asset, the asset is considered
not recoverable and is written down to its fair value. The carrying value of assets in communities that were previously impaired
and continue to be classified as projects in progress is not increased for future estimates of increases in fair value in future reporting
periods. However, market deterioration that exceeds our initial estimates may lead us to incur impairment charges on previously
impaired homebuilding assets, in addition to homebuilding assets not currently impaired but for which indicators of impairment
may arise if markets deteriorate.
50
Asset Valuation - Land Held for Future Development
For those communities that have been idled (land held for future development), all applicable carrying costs, such as interest and
real estate taxes, are expensed as incurred, and the inventory is stated at cost unless facts and circumstances indicate that the
carrying value of the assets may not be recoverable, such as the future enactment of a development plan or the occurrence of
outside events. We evaluate the potential plans for each community in land held for future development if changes in facts and
circumstances occur that would give rise to a more detailed analysis for a change in the status of a community.
Asset Valuation - Land Held for Sale
We record assets held for sale at the lower of the asset's carrying value or fair value less costs to sell. 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 property has been initiated;
the sale of the land is probable within one year;
the property 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, such as a change in strategy, management will re-evaluate the best use of an asset that is
currently being accounted for as held for development. In such instances, management 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, 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 if the foregoing criteria have been met as of the
end of the applicable reporting period.
In determining the fair value of the assets less cost to sell, we consider 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.
Land Not Owned Under Option Agreements
In addition to purchasing land directly, we utilize lot option agreements that enable us to defer acquiring portions of properties
owned by third parties and unconsolidated entities until we have determined whether to exercise our lot option. The majority of
our lot option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase
price of the land for the right to acquire lots during a specified period of time at a specified price. Purchase of the properties under
these agreements is contingent upon satisfaction of certain requirements by us and the sellers. Under lot option contracts, our
liability is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts incurred.
If the Company cancels a lot option agreement, it would result in a write-off of the related deposits and pre-acquisition costs, but
would not expose the Company to the overall risks or losses of the applicable entity we are purchasing from.
In accordance with GAAP, if the entity holding the land under option is a VIE, the Company's deposit represents a variable interest
in that entity. To determine whether we are the primary beneficiary of the VIE, we are first required to evaluate whether we have
the ability to control the activities of the VIE that most significantly impact its economic performance. Such activities include,
but are not limited to, (1) the ability to determine the budget and scope of land development work, if any; (2) the ability to control
financing decisions for the VIE; (3) the ability to acquire additional land into the VIE or dispose of land in the VIE not under
contract with Beazer; and (4) the ability to change or amend the existing option contract with the VIE. If we are not determined
to control such activities, we are not considered the primary beneficiary of the VIE and thus do not consolidate the VIE. If we do
have the ability to control such activities, we will continue our analysis by determining if we are expected to absorb a potentially
significant amount of the VIE's losses or, if no party absorbs the majority of such losses, if we will benefit from potentially a
significant amount of the VIE's expected gains.
51
If we are the primary beneficiary of the VIE, we will consolidate the VIE even though creditors of the VIE have no recourse against
the Company. For those we consolidate, we record the remaining contractual purchase price under the applicable lot option
agreement, net of cash deposits already paid, to land not owned under option agreements with an offsetting increase to obligations
related to land not owned under option agreements on our consolidated balance sheets. Also, to reflect the total purchase price of
this inventory on a consolidated basis, we present the related option deposits as land not owned under option agreement.
Consolidation of these VIEs has no impact on the Company’s statements of operations or cash flows.
Investments in Unconsolidated Entities
We participate in a number of joint ventures and other investments in which we have less than a controlling interest. We enter into
the majority of these investments with land developers, other homebuilders and financial partners to acquire attractive land positions,
to manage our risk profile and to leverage our capital base. The land positions are developed into finished lots for sale to the
unconsolidated entity’s members or other third parties. We recognize our share of equity in income (loss) and profits (losses) from
the sale of lots to other buyers. Our share of profits from lots we purchase from the unconsolidated entities is deferred and treated
as a reduction of the cost of the land purchased from the unconsolidated entity. Such profits are subsequently recognized at the
time the home closes and title passes to the homebuyer. We evaluate our investments in unconsolidated entities for impairment
during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the value
of our investment in the unconsolidated entity has occurred that is other-than-temporary. The amount of impairment recognized
is the excess of the investment’s carrying value over its estimated fair value. Our unconsolidated entities typically obtain secured
acquisition, development and construction financing. We account for our interest in unconsolidated entities under the equity
method. For additional discussion of these entities, refer to Note 4.
Property and Equipment
Our property and equipment is recorded at cost. Depreciation is computed on a straight-line basis based on estimated useful lives
as follows:
Asset Class
Information systems
Furniture, fixtures and computer and office equipment
Model and sales office improvements
Leasehold improvements
Useful Lives
Lesser of estimated useful life of the asset or 5 years
3 - 7 years
Lesser of estimated useful life of the asset or estimated life
of the community
Lesser of the lease term or the estimated useful life of the
asset
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets from the businesses that we
acquire. Goodwill will be evaluated for impairment annually during the fourth quarter of each year, or more frequently if impairment
indicators are present or changes in circumstances suggest that impairment may exist. For reporting units with goodwill, we assess
goodwill for impairment by comparing the carrying value of the reporting unit to its estimated fair value. The Company's entire
goodwill balance as of September 30, 2018 is related to the Venture acquisition and resides within our Southeast reportable segment.
Other Assets
Our other assets principally include prepaid expenses and assets related to our deferred compensation plan (refer to Note 15 for
a discussion of our deferred compensation plan).
Other Liabilities
Our other liabilities principally include accrued warranty expense, accrued interest on our outstanding borrowings, customer
deposits, income tax liabilities and other accruals related to our operations. Refer to Note 12 for a detail of our other liabilities.
52
Income Taxes
Our provision for income taxes is comprised of taxes that are currently payable and deferred taxes that relate to temporary differences
between financial reporting carrying values and tax bases of assets and liabilities. Deferred tax assets and liabilities result from
deductible or taxable amounts in future years when such assets and liabilities are recovered or settled, and are measured using the
enacted tax rates and laws that are expected to be in effect when the assets and liabilities are recovered or settled. We include any
estimated interest and penalties on tax related matters in income taxes payable. We recognize the effect of income tax positions
only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest
amount that is greater than 50% likely of being realized. Changes in recognition of measurement are recorded in the period in
which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits in income tax expense.
For a discussion of our evaluation of and accounting for valuation allowances, refer to Note 13.
Revenue Recognition and Classification of Costs
Revenue and related profit are recognized by us at the time of the closing of a sale, when title to and possession of the property,
as well as risk of loss, are transferred to the buyer.
Sales discounts and incentives include items such as cash discounts, discounts on options included in the home, option upgrades
(such as upgrades for cabinetry, countertops and flooring) and seller-paid financing or closing costs. In addition, from time to
time, we may also provide homebuyers with retail gift certificates and/or other nominal retail merchandise. All sales incentives
other than cash discounts are recognized as a cost of selling the home and are included in home construction expense in our
consolidated statements of operations. Cash discounts are accounted for as a reduction in the sales price of the home, thereby
decreasing the amount of revenue we recognize on that closing.
Estimated future warranty costs are charged to home construction expense in the period when the revenues from home closings
are recognized. Such estimated warranty costs generally range from 0.3% to 1.3% of total revenue recognized for each home
closed. Additional warranty costs are charged to home construction expense as necessary based on management's estimate of the
costs to remediate existing claims. See Note 9 for a more detailed discussion of warranty costs and related reserves.
Advertising costs related to continuing operations of $17.6 million, $17.5 million, and $19.2 million for our fiscal years 2018,
2017 and 2016, respectively, were expensed as incurred and were included in general and administrative (G&A) expenses.
Fair Value Measurements
Certain of our assets are required to be recorded at fair value on a recurring basis; the fair value of our deferred compensation plan
assets are based on market-corroborated inputs (level 2). Certain of our assets are required to be recorded at fair value on a non-
recurring basis when events and circumstances indicate that the carrying value may not be recovered (level 3). For example, we
review our long-lived assets, including inventory, for recoverability when factors indicate an impairment may exist, but no less
than quarterly. Fair value is based on estimated cash flows discounted for market risks associated with the long-lived assets. The
fair value of certain of our financial instruments approximates their carrying amounts due to the short maturity of these assets and
liabilities or the variable interest rates on such obligations. The fair value of our publicly-held debt is generally estimated based
on quoted bid prices for these instruments (level 2). Certain of our other financial instruments are estimated by discounting
scheduled cash flows through maturity or using market rates currently being offered on loans with similar terms and credit quality.
The fair value of our investments in unconsolidated entities is determined primarily using a discounted cash flow model to value
the underlying net assets of the respective entities. See Note 10 for additional discussion of our fair value measurements.
Stock-Based Compensation
We use the Black-Scholes model to value our stock option grants. Other stock-based awards with only performance conditions
granted to employees are valued based on the market price of the common stock on the date of the grant. Stock-based awards with
market conditions granted to employees are valued using the Monte Carlo valuation method. Any portion of our stock-based
awards that can be settled in cash is initially valued based on the market price of the underlying common stock on the date of the
grant, and is adjusted to fair value until vested and recorded as a liability on our consolidated balance sheets. On the date of grant,
we estimate forfeitures in calculating the expense related to stock-based compensation. In addition, we reflect the benefits of tax
deductions in excess of recognized compensation cost as an operating cash outflow. Compensation cost arising from all stock-
based compensation awards is recognized as expense using the straight-line method over the vesting period and is included in
G&A in our consolidated statements of operations. See Note 16 for additional discussion of our stock-based compensation.
53
Recent Accounting Pronouncements
Revenue from Contracts with Customers. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 requires entities to
recognize revenue at an amount that the entity expects to be entitled to upon transferring control of goods or services to a customer,
as opposed to when risks and rewards transfer to a customer under the existing revenue recognition guidance. In August 2015, the
FASB issued ASU 2015-14 “Revenue from Contracts with Customers” (“ASU 2015-14”), which delays the effective date of ASU
2014-09 by one year. ASU 2014-09, as amended by ASU 2015-14, is effective for us for fiscal annual and interim periods beginning
October 1, 2018, and, at that time, we expect to adopt the new standard under the modified retrospective approach. We have
substantially completed our evaluation of the impact of adopting the new revenue standard. Based on our assessment, we do not
expect the adoption of ASU 2014-09 to have a material impact on our financial statements. In addition, we do not expect significant
changes to our business processes, systems, or internal controls as a result of adopting the standard.
Leases. In February 2016, the FASB issued ASU 2016-02, Leases (ASU 2016-02). ASU 2016-02 requires lessees to record most
leases on their balance sheets. The timing and classification of lease-related expenses for lessees will depend on whether a lease
is determined to be an operating lease or a finance lease using updated criteria within ASU 2016-02. Operating leases will result
in straight-line expense (similar to current operating leases), while finance leases will result in a front-loaded expense pattern
(similar to current capital leases). Regardless of lease type, the lessee will recognize a right-of-use asset, representing the right to
use the identified asset during the lease term, and a related lease liability, representing the present value of the lease payments
over the lease term. Lessor accounting will be largely similar to that under the current lease accounting rules. ASU 2016-02 also
requires significantly enhanced disclosures around an entity's leases and the related accounting. The guidance within ASU 2016-02
will be effective for the Company's fiscal year beginning October 1, 2019, with early adoption permitted. In July 2018, the FASB
issued ASU 2018-11, Leases - Targeted Improvements (ASU 2018-11), which provides an optional transition method to apply the
requirements of the new lease standard through a cumulative-effect adjustment in the period of adoption. The Company expects
to adopt the standard on October 1, 2019 using the optional transition method. We continue to evaluate the impact of ASU 2016-02
on our consolidated financial statements. However, a large majority of our leases are for office space, which we have determined
will be treated as operating leases under ASU 2016-02. As such, we anticipate recording a right-of-use asset and related lease
liability for these leases, but we do not expect our expense recognition pattern to change. Therefore, we do not anticipate any
significant change to our statements of operations or cash flows as a result of adopting ASU 2016-02.
Business Combinations. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the
Definition of a Business (ASU 2017-01). ASU 2017-01 clarifies the framework for determining whether an integrated set of assets
and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated
set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions
being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition
of a business are accounted for as asset acquisitions. This pronouncement is effective for fiscal years, and for interim periods
within those fiscal years, beginning after December 15, 2017, with early adoption permitted for transactions that have not been
reported in previously issued financial statements. The Company early adopted this guidance as of December 31, 2017 and applied
it to applicable transactions occurring during this period.
Intangibles - Goodwill and Other. In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 from the goodwill impairment
test. This change will allow an entity to avoid calculating the implied fair value of goodwill by assigning the fair value of a reporting
unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination, thus reducing the cost
and complexity of evaluating goodwill for impairment. This amendment is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2019, with early adoption permitted, and applied prospectively. We do not believe the
adoption of ASU 2017-04 will have a material impact on our consolidated financial statements and disclosures.
Income Taxes. In December 2017, the Securities and Exchange Commission Staff issued SAB 118, which provides guidance on
accounting for the income tax effects of the Tax Cuts and Jobs Act (Tax Act). SAB 118 provides a measurement period that should
not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In
accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting
under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete
but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements and should
continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of
the Tax Act. The Company adopted the guidance of SAB 118 as of December 31, 2017. As of September 30, 2018, we have
completed our analysis of the impacts of the Tax Act under SAB 118 with immaterial differences to our provisional amounts
previously recorded. Refer to Note 13 for additional information on the Tax Act and the impact to our financial statements.
54
Fair Value Measurements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure
Framework (ASU 2018-13). The updated guidance improves the disclosure requirements for fair value measurements. The updated
guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early
adoption is permitted for any removed or modified disclosures. We are currently assessing the impact of adopting the updated
provisions.
Internal Use Software. In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software
(Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a
Service Contract (ASU 2018-15). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting
arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use software. This new guidance will be effective for public companies for fiscal years beginning after December 15,
2019 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect
that the new guidance will have on its consolidated financial statements and related disclosures.
(3) Supplemental Cash Flow Information
The following table presents supplemental disclosure of non-cash and cash activity as well as a reconciliation of our total cash
balances between our consolidated balance sheets and our consolidated statements of cash flows for the periods presented:
(In thousands)
Supplemental disclosure of non-cash activity:
Non-cash land acquisitions (a)
Supplemental disclosure of cash activity:
Interest payments (b)
Income tax payments
Tax refunds received
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash shown in the
statement of cash flows
Fiscal Year Ended September 30,
2018
2017
2016
$
$
$
$
— $
14,651
95,857
$
100,125
607
162
1,616
351
$
$
139,805
$
292,147
$
13,443
12,462
8,265
131,730
1,420
201
228,871
14,405
153,248
$
304,609
$
243,276
(a) For the fiscal year ended September 30, 2018, we did not have any non-cash land acquisitions. For the fiscal year ended
September 30, 2017, non-cash land acquisitions were comprised of $6.3 million related to non-cash seller financing and $8.4
million in lot takedowns from one of our unconsolidated land development joint ventures. For the fiscal year ended September
30, 2016, non-cash land acquisitions were comprised of lot takedowns from one of our unconsolidated land development joint
ventures.
(b) Elevated interest payments made during our fiscal 2016 were due to early redemption of certain of our outstanding debt
obligations; refer to Note 8.
55
(4) Investments in Unconsolidated Entities
Unconsolidated Entities
As of September 30, 2018, the Company participated in certain joint ventures and had investments in unconsolidated entities in
which it had less than a controlling interest. The following table presents the Company's investment in these unconsolidated entities
as well as the total equity and outstanding borrowings of these unconsolidated entities as of September 30, 2018 and September 30,
2017:
(In thousands)
September 30, 2018
September 30, 2017
Beazer’s investment in unconsolidated entities
$
4,035
$
Total equity of unconsolidated entities
Total outstanding borrowings of unconsolidated entities
10,113
12,266
3,994
11,811
15,797
Equity in income from unconsolidated entity activities included in income from continuing operations is as follows for the periods
presented:
(In thousands)
Income from unconsolidated entity activity
Impairment of unconsolidated entity investment
Total equity in income of unconsolidated entities
Fiscal Year Ended September 30,
2018
2017
2016
$
$
375
(341)
34
$
$
371
—
371
$
$
131
—
131
For the fiscal year ended September 30, 2018, we recorded a $0.3 million impairment charge in the consolidated statements of
operations related to an investment in an unconsolidated entity. No impairments for unconsolidated entities were recorded during
the fiscal years ended September 30, 2017 and 2016.
Guarantees. Historically, the Company's joint ventures typically obtained secured acquisition, development, and construction
financing. In addition, the Company and its joint venture partners provided varying levels of guarantees of debt and other debt-
related obligations for these unconsolidated entities. However, as of September 30, 2018 and September 30, 2017, we had no
outstanding guarantees or other debt-related obligations related to our investments in unconsolidated entities.
The Company and its joint venture partners generally provide unsecured environmental indemnities to land development joint
venture project lenders. These indemnities obligate the Company to reimburse the project lenders for claims related to environmental
matters for which they are held responsible. During our fiscal years ended September 30, 2018 and 2017, the Company was not
required to make any payments related to environmental indemnities.
In assessing the need to record a liability for these these guarantees, the Company considers its 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 entities. In addition, the fair value of the collateral of unconsolidated entities is monitored to
ensure that the related borrowings do not exceed the specified percentage of the value of the property securing the borrowings.
As of September 30, 2018, no liability was recorded for the contingent aspects of any guarantees that were determined to be
reasonably possible but not probable.
56
(5) Inventory
The components of our owned inventory are as follows as of September 30, 2018 and September 30, 2017:
(In thousands)
Homes under construction
Development projects in progress
Land held for future development
Land held for sale
Capitalized interest
Model homes
Total owned inventory
September 30, 2018
476,752
$
907,793
83,173
7,781
144,645
72,140
1,692,284
$
September 30, 2017
419,312
$
785,777
112,565
17,759
139,203
68,191
1,542,807
$
Homes under construction include homes substantially finished and ready for delivery and homes in various stages of construction,
including the cost of the underlying lot. We had 240 (with a cost of $84.8 million) and 171 (with a cost of $52.6 million) substantially
completed homes that were not subject to a sales contract (spec homes) as of September 30, 2018 and 2017, 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 customer deposit or sales contract. Land held for future development consists of communities for
which construction and development activities are expected to occur in the future or have been idled and are stated at cost unless
facts and circumstances indicate that the carrying value of the assets may not be recoverable. All applicable interest and real estate
taxes on land held for future development are expensed as incurred. Land held for sale includes land and lots that do not fit within
our homebuilding programs and strategic plans in certain markets, and land is classified as held for sale once certain criteria are
met (refer to Note 2). These assets are recorded at the lower of the carrying value or fair value less costs to sell.
The amount of interest we are able to capitalize depends on our qualified inventory balance, which considers the status of our
inventory holdings. Our qualified inventory balance includes the majority of our homes under construction and development
projects in progress but excludes land held for future development and land held for sale (see Note 6 for additional information
on capitalized interest).
Total owned inventory by reportable segment is presented in the table below as of September 30, 2018 and September 30, 2017:
(In thousands)
September 30, 2018
West Segment
East Segment
Southeast Segment
Corporate and unallocated (b)
Total
September 30, 2017
West Segment
East Segment
Southeast Segment
Corporate and unallocated (b)
Total
Projects in
Progress (a)
Land
Held for Future
Development
Land Held
for Sale
Total Owned
Inventory
$
$
$
$
$
$
$
763,453
280,761
358,126
198,990
1,601,330
673,828
250,002
301,268
187,385
$
$
$
58,125
14,077
10,971
—
83,173
87,231
14,391
10,943
—
— $
4,580
3,177
24
7,781
3,848
11,578
1,233
1,100
$
$
821,578
299,418
372,274
199,014
1,692,284
764,907
275,971
313,444
188,485
1,412,483
$
112,565
$
17,759
$
1,542,807
(a) Projects in progress include homes under construction, development projects in progress, capitalized interest, and model home
categories from the preceding table.
(b) Projects in progress amount includes capitalized interest and indirect costs that are maintained within our Corporate and
unallocated segment. Land held for sale amount includes parcels held by our discontinued operations.
57
Inventory Impairments
When conducting our community level review for the recoverability of inventory related to projects in progress, we establish a
quarterly “watch list” comprised of communities that carry profit margins in backlog and in our forecast that are below a minimum
threshold of profitability. We also include in our watch list communities with recent closings that have gross margins less than a
specific threshold. Each community is first evaluated qualitatively to determine if there are temporary factors driving the low
profitability levels. Following our qualitative evaluation, communities with more than ten homes remaining to close are subjected
to substantial additional financial and operational analysis and review that considers the competitive environment and other factors
contributing to gross margins below our watch list threshold. 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. For certain communities, we determined that it is prudent to reduce sales prices or further increase sales incentives in
response to a variety of factors, including competitive market conditions in those specific submarkets for the product and locations
of these communities. For communities where the current competitive and market dynamics indicate that these factors may be
other than temporary, which may call into question the recoverability of our investment, a formal impairment analysis is performed.
The formal impairment analysis consists of both qualitative competitive market analyses and a quantitative analysis reflecting
market and asset specific information. Market deterioration that exceeds our initial estimates may lead us to incur impairment
charges on previously impaired homebuilding assets, in addition to homebuilding assets not currently impaired but for which
indicators of impairment may arise if markets deteriorate.
For the year ended September 30, 2018, there were four communities that were included in our watch list that required further
analysis to be performed after considering the number of lots remaining in each community and certain other qualitative factors.
This additional analysis led to an impairment charge of $1.0 million for one of these communities, principally due to a reduction
in price taken that is other than temporary based on current competitive and market dynamics. For the year ended September 30,
2017, there were two communities on our watch list that required further analysis. This additional analysis led to an impairment
charge of $1.7 million for one of these communities, principally due to a reduction in price taken at each community that is other
than temporary based on current competitive and market dynamics.
The table below summarizes the results of our undiscounted cash flow analyses by reportable segment, where applicable, for the
periods ended September 30, 2018 and 2017 (the years that such analyses were required):
($ in thousands)
Undiscounted Cash Flow Analyses Prepared
Segment (a)
Year Ended September 30, 2018
West
Southeast
Corporate and unallocated (e)
Total
Year Ended September 30, 2017
West
Southeast
Corporate and unallocated (e)
Total
Number of
Communities
on Watch List (b)
Number of
Communities (c)
Pre-analysis
Book Value
(BV)
Aggregate Undiscounted
Cash Flow as a % of BV (d)
2
2
—
4
4
2
—
6
— $
2
—
2
$
2
—
—
2
$
$
—
4,360
1,307
5,667
15,801
—
3,337
19,138
—%
99.0%
N/A (f)
94.4 %
— %
N/A (f)
(a) We have elected to aggregate our disclosure at the reportable segment level because we believe this level of disclosure is most
meaningful to the readers of our financial statements.
(b) Number of communities in this column excludes communities that are closing out and have less than ten closings remaining.
(c) Number of communities in this column is lower than the number of communities on our watch list because it excludes communities
due to certain qualitative considerations that would imply that the low profitability levels are temporary in nature.
(d) An aggregate undiscounted cash flow as a percentage of book value under 100% would indicate a possible impairment and is
consistent with our "watch list" methodology.
(e) Amount represents capitalized interest and indirects balance related to the communities for which an undiscounted cash flow
analysis was prepared. Capitalized interest and indirects are maintained within our Corporate and unallocated segment.
(f) N/A - not applicable.
58
The following table presents, by reportable segment, details of the impairment charges taken on projects in progress for the periods
presented:
($ in thousands)
Results of Discounted Cash Flow Analyses Prepared
Segment
Year Ended September 30, 2018
Southeast
Corporate and unallocated (a)
Total
Year Ended September 30, 2017
West
Corporate and unallocated (a)
Total
Year Ended September 30, 2016
West
East
Corporate and unallocated (a)
Total
# of
Communities
Impaired
# of Lots
Impaired
Impairment
Charge
Estimated Fair
Value of
Impaired
Inventory at time of
Impairment
1
—
1
1
—
1
2
1
—
3
$
$
$
$
$
25
—
25
46
—
46
213
78
—
$
$
$
$
$
793
212
1,005
1,625
68
1,693
6,729
5,894
1,101
291
$
13,724
$
1,312
—
1,312
3,791
—
3,791
16,345
18,073
—
34,418
(a) Amount represents capitalized interest and indirects balance that was impaired. Capitalized interest and indirects are maintained
within our Corporate and unallocated segment.
The following table presents the ranges or values of significant quantitative unobservable inputs we used in determining the fair
value of the communities we impaired during the periods presented:
Unobservable Inputs
Average selling price (in thousands)
Closings per community per month
Discount rate
Fiscal Year Ended September 30,
2018
2017
$
$
356
1 - 6
15.11%
405
1 - 4
12.83%
Impairments on land held for sale generally represent write downs of these properties to net realizable value, less estimated costs
to sell, and are based on current market conditions and our review of recent comparable transactions. Our assumptions about land
sales prices require significant judgment because the real estate market is highly sensitive to changes in economic conditions. We
calculate the estimated fair value 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 deteriorate.
From time to time, we also determine that the proper course of action with respect to a community is to not exercise an option
and to write-off the deposit securing the option takedown and the related pre-acquisition costs, as applicable. In determining
whether to abandon lots or lot option contracts, our evaluation is primarily based upon the expected cash flows from the property.
Additionally, in certain limited instances, we are forced to abandon lots due to permitting or other regulatory issues that do not
allow us to build on those lots. If we intend to abandon or walk away from a property, we record a charge to earnings for the
deposit amount and any related capitalized costs in the period such decision is made. Abandonment charges generally relate to
our decision to abandon lots or not exercise certain option contracts that are not projected to produce adequate results, no longer
fit with our long-term strategic plan or, in limited circumstances, are not suitable for building due to regulatory or environmental
restrictions that are enacted.
59
The following table presents, by reportable segment, our total impairment and abandonment charges for the periods presented:
(In thousands)
Projects in Progress:
West
East
Southeast
Corporate and unallocated (a)
Total impairment charges on projects in progress
Land Held for Sale:
West
East
Southeast
Corporate and unallocated (a)
Total impairment charges on land held for sale
Abandonments:
East
Southeast
Total abandonments charges
Total continuing operations
Discontinued Operations:
Land Held for Sale
Total discontinued operations
Total impairment and abandonment charges
Fiscal Year Ended September 30,
2018
2017
2016
$
$
$
$
$
$
$
$
$
$
— $
—
793
212
1,005
$
— $
168
3,218
2,108
5,494
$
— $
—
— $
$
6,499
450
450
6,949
$
$
$
1,625
—
—
68
1,693
94
470
—
—
564
188
—
188
2,445
$
$
$
$
$
$
$
— $
— $
$
2,445
6,729
5,894
—
1,101
13,724
119
280
371
—
770
—
788
788
15,282
—
—
15,282
(a)
Amount represents capitalized interest and indirects balance that was impaired. Capitalized interest and indirects are
maintained within our Corporate and unallocated segment.
Lot Option Agreements and Variable Interest Entities (VIE)
As previously discussed, we also have access to land inventory through lot option contracts, which generally enable us to defer
acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise
our lot option. The majority of our lot option contracts require a non-refundable cash deposit or irrevocable letter of credit based
on a percentage of the purchase price of the land for the right to acquire lots during a specified period of time at a specified price.
Under lot option contracts, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers.
Our liability under option contracts is generally limited to forfeiture of the non-refundable deposits, letters of credit, and other
non-refundable amounts incurred. We expect to exercise, subject to market conditions and seller satisfaction of contract terms,
most of our remaining option contracts. 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 lot options will be exercised at all.
The following table provides a summary of our interests in lot option agreements as of September 30, 2018 and September 30,
2017:
(In thousands)
As of September 30, 2018
Unconsolidated lot option agreements
As of September 30, 2017
Unconsolidated lot option agreements
Deposits &
Non-refundable
Preacquisition
Costs Incurred
Remaining
Obligation
$
$
72,191
91,854
$
$
383,150
408,300
60
(6) Interest
Our ability to capitalize interest incurred during the fiscal years ended September 30, 2018, 2017, and 2016 was limited by our
inventory eligible for capitalization. The following table presents certain information regarding interest for the periods presented:
(In thousands)
Fiscal Year Ended September 30,
2018
2017
2016
Capitalized interest in inventory, beginning of period
$
139,203
$
138,108
$
Interest incurred
Capitalized interest impaired
103,880
(1,961)
105,551
(56)
123,457
119,360
(710)
Interest expense not qualified for capitalization and included as other
expense (a)
Capitalized interest amortized to home construction and land sales
expenses (b)
Capitalized interest in inventory, end of period
(5,325)
(15,636)
(25,388)
(91,152)
144,645
$
(88,764)
139,203
$
(78,611)
138,108
$
(a) The amount of interest we are able to capitalize is dependent upon our qualified inventory balance, which considers the status
of our inventory holdings. Our qualified inventory balance includes the majority of our homes under construction and
development projects in progress, but excludes land held for future development and land held for sale.
(b) Capitalized interest amortized to home construction and land sale expenses varies based on the number of homes closed during
the period and land sales, if any, as well as other factors.
(7) Property and Equipment
The following table presents our property and equipment as of September 30, 2018 and September 30, 2017:
(In thousands)
Model furnishings and sales office improvements
Information systems
Furniture, fixtures and office equipment
Leasehold improvements
Property and equipment, gross
Less: Accumulated Depreciation
Property and equipment, net
(8) Borrowings
September 30, 2018
28,311
$
13,183
9,332
4,388
55,214
(34,371)
20,843
$
September 30, 2017
$
$
28,589
14,326
10,971
3,698
57,584
(40,018)
17,566
As of September 30, 2018 and September 30, 2017, we had the following debt, net of premium/discounts and unamortized debt
issuance costs:
(In thousands)
5 3/4% Senior Notes
8 3/4% Senior Notes
7 1/4% Senior Notes
6 3/4% Senior Notes
5 7/8% Senior Notes
Unamortized debt premium, net
Unamortized debt issuance costs
Total Senior Notes, net
Junior Subordinated Notes (net of unamortized accretion
of $36,770 and $38,837, respectively)
Other Secured Notes Payable
Total debt, net
Maturity Date
June 2019
March 2022
February 2023
March 2025
October 2027
July 2036
Various Dates
61
September 30, 2018
$
— $
500,000
24,834
250,000
400,000
2,640
(14,336)
1,163,138
64,003
4,113
September 30, 2017
321,393
500,000
199,834
250,000
—
3,413
(14,800)
1,259,840
61,937
5,635
$
1,231,254
$
1,327,412
As of September 30, 2018, the future maturities of our borrowings were as follows:
Fiscal Year Ended September 30,
(In thousands)
2019
2020
2021
2022
2023
Thereafter
Total
Secured Revolving Credit Facility
$
$
4,087
—
—
500,000
24,834
750,773
1,279,694
The Secured Revolving Credit Facility (the Facility) provides working capital and letter of credit capacity. In October 2017, a
Fourth Amendment to the Facility was executed. The Fourth Amendment (1) extends the termination date of the Facility from
February 15, 2019 to February 15, 2020; (2) increases the maximum aggregate amount of commitments under the Facility (including
borrowings and letters of credit) from $180.0 million to $200.0 million; and (3) includes a condition that allows the Facility to be
increased by an additional $50.0 million to $250.0 million, subject to the approval of any lenders providing any such increase.
The aggregate collateral ratio (as defined by the underlying Credit Agreement) remained at 4.00 to 1.00 and the after-acquired
exclusionary condition (also as defined by the underlying Credit Agreement) remained at $800.0 million. The Facility continues
to be with three lenders.
The Facility allows us to issue letters of credit against the undrawn capacity. Subject to our option to cash collateralize our
obligations under the Facility upon certain conditions, our obligations under the Facility are secured by liens on substantially all
of our personal property and a significant portion of our owned real property. We also pledged approximately $951.5 million of
inventory assets to the Facility to collateralize potential future borrowings or letters of credit (in addition to the letters of credit
already issued under the Facility). As of September 30, 2018, no borrowings and no letters of credit were outstanding under the
Facility, resulting in a remaining capacity of $200.0 million. As of September 30, 2017, no borrowings were outstanding under
the Facility; however, $34.7 million in letters of credit were outstanding, resulting in a remaining capacity of $145.3 million The
Facility contains certain covenants, including negative covenants and financial maintenance covenants, with which we are required
to comply. As of September 30, 2018, we were in compliance with all such covenants.
In October 2018, the Company executed a Fifth Amendment to the Facility, extending the termination date of the Facility from
February 15, 2020 to February 15, 2021 and increasing the maximum aggregate amount of commitments under the Facility,
including borrowings and letters of credit, from $200.0 million to $210.0 million. For a further discussion of the Fifth Amendment,
refer to Note 22.
Letter of Credit Facilities
We have entered into stand-alone, cash-secured letter of credit agreements with banks to maintain our pre-existing letters of credit
and to provide for the issuance of new letters of credit (in addition to the letters of credit issued under the Facility). As of
September 30, 2018 and September 30, 2017, we had letters of credit outstanding under these additional facilities of $10.4 million
and $10.8 million, respectively, all of which were secured by cash collateral in restricted accounts. The Company may enter into
additional arrangements to provide additional letter of credit capacity.
In May 2018, the Company entered into a reimbursement agreement, which provides for the issuance of performance letters of
credit, and an unsecured credit agreement that provides for the issuance of up to $50.0 million of standby letters of credit to
backstop the Company's obligations under the reimbursement agreement (collectively, the "Bilateral Facility"). The Bilateral
Facility will terminate on June 10, 2021. As of September 30, 2018, the total stated amount of performance letters of credit issued
under the reimbursement agreement was $27.7 million (and the stated amount of the backstop standby letter of credit issued under
the credit agreement was $30.0 million). The Company may enter into additional arrangements to provide greater letter of credit
capacity.
62
Senior Notes
Our 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 Facility. Each guarantor subsidiary is a 100% owned subsidiary of Beazer Homes. See
Note 19 for further information.
All unsecured Senior Notes rank equally in right of payment with all of our existing and future senior unsecured obligations, senior
to all of the Company's existing and future subordinated indebtedness and effectively subordinated to the Company's existing and
future secured indebtedness, including indebtedness under the Facility, if outstanding, to the extent of the value of the assets
securing such indebtedness. The unsecured Senior Notes and related guarantees are structurally subordinated to all indebtedness
and other liabilities of all of the Company's subsidiaries that do not guarantee these notes, but are fully and unconditionally
guaranteed jointly and severally on a senior basis by the Company's wholly-owned subsidiaries party to each applicable indenture.
The Company's Senior Notes are issued under indentures that contain certain restrictive covenants which, among other things,
restrict our ability to pay dividends, repurchase our common stock, incur certain types of additional indebtedness and to make
certain investments. Compliance with our Senior Note covenants does not significantly impact our operations. We were in
compliance with the covenants contained in the indentures of all of our Senior Notes as of September 30, 2018.
In September 2018, we redeemed our outstanding 5.75% unsecured Senior Notes due June 2019 for $98.2 million using cash on
hand, resulting in a loss on extinguishment of debt of $1.9 million, of which $0.1 million was a non-cash write-off of debt issuance
and discount costs and $1.8 million was debt extinguishment costs. As a result, the Company terminated, cancelled, and discharged
all of its obligations under the 2019 Notes. The retirement of the 2019 and 2027 Notes in fiscal 2018 resulted in an aggregate loss
on extinguishment of debt of $27.8 million for the year ended September 30, 2018.
In October 2017, we issued and sold $400.0 million aggregate principal amount of 5.875% unsecured Senior Notes due October
2027 at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers (the 2027
Notes). Interest on the 2027 Notes is payable semi-annually, beginning on April 15, 2018. The 2027 Notes will mature on October
15, 2027. We may redeem the 2027 Notes at any time prior to October 15, 2022, in whole or in part, at a redemption price equal
to 100% of the principal amount of the notes to be redeemed, together with accrued and unpaid interest to, but excluding, the
redemption date, plus a customary make-whole premium. In addition, on or prior to October 15, 2022, we may redeem up to 35%
of the aggregate principal amount of the 2027 Notes with the net cash proceeds of certain equity offerings at a redemption price
equal to 105.875% of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at
least 65% of the aggregate principal amount of the 2027 Notes originally issued remains outstanding immediately after such
redemption. The covenants related to the 2027 Notes are consistent with our other senior notes.
During the first quarter of fiscal 2018, the proceeds of the 2027 Notes, as well as $34.5 million cash on hand, were used to redeem
$225.0 million of our 5.75% unsecured Senior Notes due 2019 and $175.0 million of our 7.25% unsecured Senior Notes due 2023,
resulting in a loss on extinguishment of debt of $25.9 million, of which $3.2 million was a non-cash write-off of debt issuance
and discount costs.
In March 2017, we issued and sold $250.0 million aggregate principal amount of 6.75% unsecured Senior Notes due March 2025
at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers (the 2025 Notes).
Interest on the 2025 Notes is payable semi-annually, beginning on September 15, 2017. The 2025 Notes will mature on March
15, 2025. We may redeem the 2025 Notes at any time prior to March 15, 2020, in whole or in part, at a redemption price equal to
100% of the principal amount of the notes to be redeemed, together with accrued and unpaid interest to, but excluding, the
redemption date, plus a customary make-whole premium. In addition, on or prior to March 15, 2020, we may redeem up to 35%
of the aggregate principal amount of the 2025 Notes with the net cash proceeds of certain equity offerings at a redemption price
equal to 106.75% of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at
least 65% of the aggregate principal amount of the 2025 Notes originally issued remains outstanding immediately after such
redemption. Upon the occurrence of certain specified changes of control, the holders of the 2025 Notes will have the right to
require us to purchase all or a part of the notes at a repurchase price equal to 101% of their principal amount, plus accrued and
unpaid interest to, but excluding, the repurchase date. The covenants related to the 2025 Notes are consistent with our other senior
notes.
During fiscal 2017, we redeemed our Senior Notes due 2021 and the remaining balance on our term loan, mainly by utilizing the
proceeds received from the 2025 Notes issued during the current fiscal year, which is discussed above, as well as cash on hand.
This debt repurchase activity resulted in a loss on extinguishment of debt of $15.6 million for the year ended September 30, 2017.
63
For additional redemption features, refer to the table below that summarizes the redemption terms for our Senior Notes:
Senior Note Description
Issuance Date
Maturity Date
8 3/4% Senior Notes
September
2016
March 2022
7 1/4% Senior Notes
February 2013
February
2023
6 3/4% Senior Notes
March 2017
March 2025
5 7/8% Senior Notes
October 2017
October 2027
Redemption Terms
Callable at any time prior to March 15, 2019, in whole or in part, at
a redemption price equal to 100% of the principal amount, plus a
customary make-whole premium; on or after March 15, 2019,
callable at a redemption price equal to 104.375% of the principal
amount; on or after March 15, 2020, callable at a redemption price
equal to 102.188% of the principal amount; on or after March 15,
2021, callable at a redemption price equal to 100% of the principal
amount plus, in each case, accrued and unpaid interest
Callable at any time on or after February 1, 2018 at a redemption
price equal to 103.625% of the principal amount; on or after February
1, 2019, callable at a redemption price equal to 102.417% of the
principal amount; on or after February 1, 2020, callable at a
redemption price equal to 101.208% of the principal amount; on or
after February 1, 2021, callable at 100% of the principal amount plus,
in each case, accrued and unpaid interest
Callable at any time prior to March 15, 2020, in whole or in part, at
a redemption price equal to 100% of the principal amount, plus a
customary make-whole premium; on or after March 15, 2020,
callable at a redemption price equal to 105.063% of the principal
amount; on or after March 15, 2021, callable at a redemption price
equal to 103.375% of the principal amount; on or after March 15,
2022, callable at a redemption price equal to 101.688% of the
principal amount; on or after March 15, 2023, callable at a redemption
price equal to 100% of the principal amount, plus, in each case,
accrued and unpaid interest
Callable at any time prior to October 15, 2022, in whole or in part,
at a redemption price equal to 100% of the principal amount, plus a
customary make-whole premium; on or after October 15, 2022,
callable at a redemption price equal to 102.938% of the principal
amount; on or after October 15, 2023, callable at a redemption price
equal to 101.958% of the principal amount; on or after October 15,
2024, callable at a redemption price equal to 100.979% of the
principal amount; on or after October 15, 2025, callable at a
redemption price equal to 100% of the principal amount, plus, in each
case, accrued and unpaid interest
Junior Subordinated Notes
Our unsecured junior subordinated notes (Junior Subordinated Notes) mature on July 30, 2036. The Junior Subordinated Notes
are redeemable at par and paid interest at a fixed rate of 7.987% for the first ten years ending July 30, 2016. The securities now
have a floating interest rate as defined in the Junior Subordinated Notes Indenture, which was a weighted-average of 4.79% as of
September 30, 2018 (because the rate on the portion of the Junior Subordinated Notes that was modified, as discussed below, is
subject to a floor). The obligations relating to these notes are subordinated to the Facility and the Senior Notes. In January 2010,
we modified the terms of $75.0 million of these notes and recorded them at their then estimated fair value. Over the remaining
life of the Junior Subordinated Notes, we will increase their carrying value until this carrying value equals the face value of the
notes. As of September 30, 2018, the unamortized accretion was $36.8 million and will be amortized over the remaining life of
the notes. As of September 30, 2018, we were in compliance with all covenants under our Junior Subordinated Notes.
Other Secured Notes Payable
We periodically acquire land through the issuance of notes payable. As of September 30, 2018 and September 30, 2017, we had
outstanding notes payable of $4.1 million and $5.6 million, respectively, primarily related to land acquisitions. These secured
notes payable have varying expiration dates in 2019, have a weighted-average fixed interest rate of 1.56% as of September 30,
2018 and are secured by the real estate to which they relate.
The agreements governing these other secured notes payable contain various affirmative and negative covenants. There can be no
assurance that we will be able to obtain any future waivers or amendments that may become necessary without significant additional
cost or at all. In each instance, however, a covenant default can be cured by repayment of the indebtedness.
64
(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. The Company is subject to the possibility of loss contingencies related to these defects
as well as others arising from its business. In determining loss contingencies, we consider the likelihood of loss and our ability to
reasonably estimate the amount of such loss. An estimated loss is recorded when it is considered probable that a liability has been
incurred and the amount of loss can be reasonably estimated.
Warranty Reserves
We currently provide a limited warranty ranging from one to two years covering workmanship and materials per our defined
quality standards. In addition, we provide a limited warranty for up to ten years covering only certain defined structural element
failures.
Our homebuilding work is performed by subcontractors who typically must agree to indemnify us with regard to their work and
provide certificates of insurance demonstrating that they have met our insurance requirements and have named us as an additional
insured under their policies. Therefore, many claims relating to workmanship and materials that result in warranty spending are
the primary responsibility of these subcontractors. In addition, we maintain insurance coverage related to our construction efforts
that can result in recoveries of warranty and construction defect costs above certain specified limits.
Warranty reserves are included in other liabilities within the consolidated balance sheets, and the provision for warranty accruals
is included in home construction expenses in the consolidated statements of operations. Reserves covering anticipated warranty
expenses are recorded for each home closed. Management assesses the adequacy of warranty reserves each reporting period based
on historical experience and the expected costs to remediate potential claims. Our review includes a quarterly analysis of the
historical data and trends in warranty expense by division. Such analysis considers market specific factors such as warranty
experience, the number of home closings, the prices of homes, product mix, and other data in estimating warranty reserves. In
addition, the analysis also contemplates the existence of any non-recurring or community-specific warranty-related matters that
might not be included in historical data and trends. While estimated warranty liabilities are adjusted each reporting period based
on the results of our quarterly analyses, we may not accurately predict actual warranty costs, which could lead to significant
changes in the reserve.
Changes in warranty reserves are as follows for the periods presented:
(In thousands)
Balance at beginning of period
Accruals for warranties issued (a)
Changes in liability related to warranties existing in prior periods (b)
Payments made (b)
Balance at end of period
Fiscal Year Ended September 30,
2018
2017
2016
$
$
18,091
$
39,131
$
13,755
(2,401)
(14,114)
15,331
$
14,215
4,807
(40,062)
18,091
$
27,681
13,835
53,109
(55,494)
39,131
(a) Accruals for warranties issued are a function of the number of home closings in the period, the selling prices of the homes closed
and the rates of accrual per home estimated as a percentage of the selling price of the home.
(b) Changes in liability related to warranties existing and payments made in all periods are elevated in 2017 and 2016 due to charges
and subsequent payments related to water intrusion issues in certain of our communities located in Florida (refer to separate
discussion below).
Florida Water Intrusion Issues
In the latter portion of our fiscal 2014, we began to experience an increase in calls from homeowners reporting stucco and water
intrusion issues in certain of our communities in Florida (the Florida stucco issues). Through September 30, 2018, we cumulatively
recorded charges related to these issues of $85.0 million.
Warranty reserves related to the Florida stucco issues decreased during the current fiscal year by $0.6 million but increased by
$5.2 million during the prior year. As of September 30, 2018, 707 homes have been identified as likely to require repairs, of which
685 homes have been repaired. We made payments related to the Florida stucco issues of $2.4 million during the current fiscal
year. This amount included payments on fully repaired homes and homes for which remediation is not yet complete, bringing the
remaining accrual related to this issue to $1.7 million as of September 30, 2018 compared to $4.7 million as of September 30,
2017. These accruals are included in the overall warranty liabilities detailed above.
65
Our assessment of the Florida stucco issues is ongoing. As a result, we anticipate that the ultimate magnitude of our liability may
change as additional information is obtained. Certain visual and other inspections of the homes that could be subject to defect
often do not reveal the severity or extent of the defects, which can only be discovered once we receive a homeowner call and begin
repairs. The current fiscal year charges were impacted by additional insurance recoveries; for a discussion of the amounts we have
already recovered or anticipate recovering from our insurers, refer to the “Insurance Recoveries” section below.
In addition, we believe that we will also recover a portion of such repair costs from sources other than our own insurer, including
the subcontractors involved with the construction of these homes and their insurers; however, no amounts related to subcontractor
recoveries have been recorded in our consolidated financial statements as of September 30, 2018. Any amounts recovered from
our subcontractors related to homes closed during policy years for which we have exceeded the deductible in our insurance policies
would be remitted to our insurers, while recoveries in other policy years would be retained by us.
Insurance Recoveries
The Company has insurance policies that provide for the reimbursement of certain warranty costs incurred above a specified
threshold for each period covered. We have surpassed these thresholds for certain policy years, particularly those that cover most
of the homes impacted by the water intrusion issues discussed above. As such, beginning with the first quarter of fiscal 2015, we
expect a substantial majority of additional costs for warranty work on homes within these policy years to be reimbursed by our
insurers. For two policy years, our exposure has exceeded the insurance claim limit for one division under our first layer of
coverage; however, we are claiming and recovering additional amounts under our excess insurance coverage.
Warranty expense beyond the thresholds set in our insurance policies was recorded related to homes impacted by the Florida stucco
issues as well as other various warranty issues that are in excess of our insurance thresholds. We adjust our insurance receivable
balance each quarter to reflect our estimate of future costs to be incurred subject to recoveries from insurers. Insurance receivables
decreased by $0.2 million during fiscal 2018 and increased by $4.8 million in fiscal 2017 to reflect the amounts deemed probable
of receiving. The changes to our insurance receivables offset the current fiscal year movements in our reserve related to the Florida
stucco issues. The recoveries recorded during fiscal 2016 were $3.6 million greater than the underlying expense related to the
Florida stucco issues, as we began to recover more costs than initially anticipated. The remaining insurance recovery amount for
the year ended September 30, 2016 beyond the Florida stucco issues related to expenditures for warranty issues that were
individually immaterial but were also in excess of our insurance thresholds.
Amounts recorded for anticipated insurance recoveries are reflected within consolidated statements of operations as a reduction
of home construction expenses. Amounts not yet received from our insurer were recorded on a gross basis, without any reduction
for the associated warranty expense, within accounts receivable within the consolidated balance sheets.
Amounts still to be recovered under our insurance policies will vary based on whether expected additional warranty costs are
actually incurred for periods for which our threshold has already been met. As a result, we anticipate the balance of our established
receivable for insurance recoveries to fluctuate for potential future reimbursements as well as the amounts ultimately owed to us
from our insurer.
Additionally, we entered into agreements with our third-party insurer during fiscal 2016 to resolve certain issues related to the
extent of our insurance coverage for multiple policy years. These agreements resulted in our recognition of $15.5 million in further
insurance recoveries (in addition to those discussed above), which was recorded within our consolidated statements of operations
as a reduction of our home construction expenses.
Litigation
From time to time, we receive claims from institutions that have acquired mortgages originated by our subsidiary, Beazer Mortgage
Corporation (BMC), demanding damages or indemnity or that we repurchase such mortgages. BMC stopped originating mortgages
in 2008. We have been able to resolve these claims for no cost or for amounts that are not material to our consolidated financial
statements. At present there are no such claims outstanding; however, we cannot rule out the potential for additional mortgage
loan repurchase or indemnity claims in the future. At this time, we do not believe that the exposure related to any such claims
would be material to our consolidated financial condition, results of operations, or cash flows. As of September 30, 2018, no
liability has been recorded for any such additional claims as such exposure is not both probable and reasonably estimable.
66
In the normal course of business, we are subject to various lawsuits. We cannot predict or determine the timing or final outcome
of these lawsuits or the effect that any adverse findings or determinations in pending lawsuits may have on us. In addition, an
estimate of possible loss or range of loss, if any, cannot presently be made with respect to certain of these pending matters. An
unfavorable determination in any of the pending 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 lawsuits and the amount of time required
to be spent by management and our Board of Directors on these matters, even if we are ultimately successful, could have a material
adverse effect on our financial condition, results of operations, or cash flows.
Other Matters
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. 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 an accrual of $3.7 million and $3.9 million in other liabilities on our consolidated balance sheets related to litigation and
other matters, excluding warranty, as of September 30, 2018 and 2017, respectively.
We had outstanding letters of credit and performance bonds of approximately $38.1 million and $237.8 million, respectively, as
of September 30, 2018, related principally to our obligations to local governments to construct roads and other improvements in
various developments.
(10) Fair Value Measurements
As of the dates presented, we had assets on our consolidated balance sheets that were required to be measured at fair value on a
recurring or non-recurring basis. We use a fair value hierarchy that requires us to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value as follows:
• Level 1 – Quoted prices in active markets for identical assets or liabilities;
• Level 2 – Inputs other than quoted prices included in Level 1 that are observable either directly or indirectly through
corroboration with market data; and
• Level 3 – Unobservable inputs that reflect our own estimates about the assumptions market participants would use in
pricing the asset or liability.
Certain of our assets are required to be recorded at fair value on a recurring basis. The fair value of our deferred compensation
plan assets is based on market-corroborated inputs (Level 2).
Certain of our assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate
that the carrying value of these assets may not be recovered. We review our long-lived assets, including inventory, for recoverability
when factors indicate an impairment may exist, but no less than quarterly. Fair value on assets deemed to be impaired is determined
based upon the type of asset being evaluated. Fair value of our owned inventory assets, when required to be calculated, is further
discussed within Notes 2 and 5. The fair value of our investments in unconsolidated entities is determined primarily using a
discounted cash flow model to value the underlying net assets of the respective entities. Due to the substantial use of unobservable
inputs in valuing the assets on a non-recurring basis, they are classified within Level 3.
During the fiscal year ended September 30, 2018, we recorded $1.0 million in impairments on projects in process, impairments
on land held for sale of $5.9 million, and impairments on an investment in an unconsolidated entity of $0.3 million. During the
fiscal year ended September 30, 2017, we recorded impairments on projects in process of $1.7 million and impairments related
to land held for sale of $0.6 million. During the fiscal year ended September 30, 2016, we recorded impairments on projects in
process of $13.7 million and impairments related to land held for sale of $0.8 million.
Determining within which hierarchical level an asset or liability falls requires significant judgment. We evaluate our hierarchy
disclosures each quarter.
67
The following table presents the period-end balances of our assets measured at fair value on a recurring basis and the impairment-
date fair value of certain assets measured at fair value on a non-recurring basis for each hierarchy level. These balances represent
only those assets whose carrying values were adjusted to fair value during the periods presented:
(In thousands)
Year Ended September 30, 2018
Deferred compensation plan assets (a)
Development projects in progress (b)
Land held for sale (b)
Unconsolidated entity investments (b)
Year Ended September 30, 2017
Deferred compensation plan assets (a)
Development projects in progress (b)
Land held for sale (b)
Year Ended September 30, 2016
Deferred compensation plan assets (a)
Development projects in progress (b)
Land held for sale (b)
(a) Measured at fair value on a recurring basis.
(b) Measured at fair value on a non-recurring basis.
Level 1
Level 2
Level 3
Total
$
$
$
— $
—
—
—
— $
—
—
— $
—
—
$
$
$
1,578
—
—
—
1,114
—
—
765
—
—
$
$
$
—
1,312 (c)
1,724 (c)
80
—
3,791 (c)
325 (c)
—
34,418 (c)
19,973
1,578
1,312
1,724
80
1,114
3,791
325
765
34,418
19,973
(c) Amount represents the impairment-date fair value of the development projects in progress and land held for sale assets that were
impaired during the periods indicated.
The fair value of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, other liabilities,
amounts due under the Facility (if outstanding), and other secured notes payable approximate their carrying amounts due to the
short maturity of these assets and liabilities. When outstanding, obligations related to land not owned under option agreements
approximate fair value.
The following table presents the carrying value and estimated fair value of certain of our other financial liabilities as of
September 30, 2018 and September 30, 2017:
(In thousands)
Senior Notes (b)
Junior Subordinated Notes
Total
As of September 30, 2018
As of September 30, 2017
Carrying
Amount (a)
Fair Value
Carrying
Amount (a)
Fair Value
$
$
1,163,138
64,003
1,227,141
$
$
1,096,214
64,003
1,160,217
$
$
1,259,840
61,937
1,321,777
$
$
1,355,657
61,937
1,417,594
(a)
Carrying amounts are net of unamortized debt premium/discounts, debt issuance costs or accretion.
(b)
The estimated fair value for our publicly-held Senior Notes has been determined using quoted market rates (Level 2).
68
(11) Operating Leases
We are obligated under various noncancelable operating leases for our office facilities and equipment. Rental expense under these
agreements, which is included in G&A in our consolidated statements of operations, amounted to approximately $4.8 million,
$4.9 million, and $4.7 million for the fiscal years ended September 30, 2018, 2017, and 2016, respectively. This rental expense
excludes expense related to our discontinued operations, which is not material in any period presented. Additionally, sublease
income received in all periods presented was not material. As of September 30, 2018, future minimum lease payments under
noncancelable operating lease agreements are as follows:
Fiscal Year Ended September 30,
(In thousands)
2019
2020
2021
2022
2023
Thereafter
Total
(12) Other Liabilities
$
$
4,624
4,017
3,326
2,381
1,643
839
16,830
Other liabilities consisted of the following as of September 30, 2018 and September 30, 2017:
(In thousands)
Accrued bonus and deferred compensation
Accrued warranty expenses
Customer deposits
Accrued interest
Litigation accrual
Income tax liabilities
Other
Total
(13) Income Taxes
September 30, 2018
September 30, 2017
$
$
41,508
$
15,331
14,903
14,401
3,656
710
35,880
126,389
$
36,753
18,091
11,704
11,024
3,899
811
25,377
107,659
Our expense from income taxes from continuing operations consists of the following for the periods presented:
(In thousands)
Current federal
Current state
Deferred federal (a)
Deferred state (a) (b)
Total
Fiscal Year Ended September 30,
2018
2017
2016
$
$
57
$
512
102,082
(8,167)
94,484
$
— $
859
1,625
212
2,696
$
—
595
5,574
10,329
16,498
(a) Fiscal 2018 federal deferred expense is primarily driven by the remeasurement of our deferred tax asset at the newly enacted
21.0% federal tax rate, partially offset by the release of the remaining valuation allowance on our federal deferred tax assets.
Fiscal 2018 state benefit is primarily driven by the release of valuation allowance in certain operating jurisdictions; refer to
discussion below titled “Valuation Allowance.”
(b) Fiscal 2016 expense includes $8.6 million of additional valuation allowance on our state deferred tax assets due to a number
of changes to the legal forms of our operating entities. This additional valuation allowance was for states that did not have a
valuation allowance release in 2018. Refer to the discussion below titled “Valuation Allowance” for additional details.
69
The expense from income taxes from continuing operations differs from the amount computed by applying the federal income
tax statutory rate as follows for the periods presented:
(In thousands)
Income tax computed at statutory rate
State income taxes, net of federal benefit
Deferred rate change
(Decrease) increase in valuation allowance - other (a) (b) (c)
Changes for uncertain tax positions
Stock based compensation
Permanent differences
Tax credits
Other, net
Total
Fiscal Year Ended September 30,
2018
2017
2016
$
12,112
$
12,052
$
111
110,071
(27,370)
598
—
2,133
(3,174)
3
$
94,484
$
1,287
—
(3,482)
(685)
741
496
(7,460)
(253)
2,696
$
7,596
4,974
(678)
6,457
(40)
—
400
(2,134)
(77)
16,498
(a) For fiscal 2016, amount includes $8.6 million of additional valuation allowance on our state deferred tax assets due to a number
of changes to the legal forms of our operating entities; refer to discussion below titled “Valuation Allowance.”
(b) For fiscal 2017, amount includes a $3.5 million release of the valuation allowance on our state deferred tax assets due to changes
in our state net operating loss estimates; refer to discussion below titled “Valuation Allowance.”
(c) For fiscal 2018, amount includes a $27.4 million release of the valuation allowance on our federal and state deferred tax assets;
refer to discussion below titled “Valuation Allowance.” Due to our fiscal year end, our fiscal provision was calculated using a
blended 24.5% federal tax rate. The increase in permanent differences in fiscal 2018 compared to the prior fiscal year was largely
driven by the limits on deductibility for executive compensation for current year incentive awards and anticipated limitations
on unvested stock awards due to the enactment of the Tax Cuts and Jobs Act.
The principal differences between our effective tax rate and the U.S. federal statutory rate relate to state taxes, changes in our
valuation allowance and tax credits.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of our assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences
that give rise to the net deferred tax assets are as follows as of September 30, 2018 and September 30, 2017:
(In thousands)
Deferred tax assets:
Federal and state tax carryforwards
Inventory adjustments
Incentive compensation
Warranty and other reserves
Property, equipment and other assets
Other
Uncertain tax positions
Total deferred tax assets
Deferred tax liabilities:
Deferred revenues
Total deferred tax liabilities
Net deferred tax assets before valuation allowance
Valuation allowance (a)
Net deferred tax assets
70
September 30, 2018
September 30, 2017
$
196,702
$
29,565
11,959
6,350
2,123
734
734
293,298
59,507
19,043
6,140
3,247
1,785
1,332
248,167
384,352
—
—
248,167
(34,212)
213,955
$
(11,297)
(11,297)
373,055
(65,159)
307,896
$
(a) For fiscal 2018, amount includes a $27.4 million release of the valuation allowance on our federal and state deferred tax assets.
For fiscal 2017, amount includes a $3.5 million release of the valuation allowance on our state deferred tax assets due to changes
in our state operating loss estimates; refer to discussion below titled “Valuation Allowance.”
The Tax Cuts and Jobs Act (Tax Act) is comprehensive tax reform legislation that was enacted by the U.S. government on December
22, 2017. The Tax Act includes significant changes to the Internal Revenue Code, including a reduction in the corporate tax rate
from 35.0% to 21.0%. Due to our fiscal year end, our fiscal 2018 provision was calculated using a blended 24.5% federal tax rate.
The Tax Act contained additional changes that will impact our taxable income determinations, including, but not limited to,
elimination of the corporate alternative minimum tax and a mechanism for refunding existing alternative minimum tax credits,
and limitations on the deductibility of certain executive compensation. Although these provisions are not applicable until our fiscal
2019, we have recognized the impacts of the reduced federal tax rate and anticipated limitations on the deductibility of executive
compensation in our fiscal 2018 provision. As of September 30, 2018, we have completed our analysis of the impacts of the Tax
Act under SAB 118 with immaterial differences to our provisional amounts previously recorded.
As of September 30, 2018, our gross deferred tax assets above included $133.2 million for federal net operating loss carryforwards,
$39.6 million for state net operating loss carryforwards, $9.6 million for an alternative minimum tax credit and $17.7 million for
general business credits. The net operating loss carryforwards expire at various dates through 2033, and the general business credits
expire at various dates through 2038. The alternative minimum tax credit has an unlimited carryforward period. We experienced
an “ownership change” as defined in Section 382 of the Internal Revenue Code (Section 382) as of January 12, 2010. Section 382
contains rules that limit the ability of a company that undergoes an “ownership change” to utilize its net operating loss carryforwards
(NOLs) and certain built-in losses or deductions recognized during the five-year period after the ownership change to offset future
taxable income. Because the five-year period has expired, we have determined the actual impact and final classification of those
amounts, which are properly reflected in the amounts presented above. The actual realization of our deferred tax assets is difficult
to predict and is dependent on future events.
We recognized income tax expense from continuing operations of $94.5 million in our fiscal 2018, compared to income tax expense
from continuing operations of $2.7 million and $16.5 million in our fiscal 2017 and fiscal 2016, respectively. The income tax
expense in our fiscal 2018 primarily resulted from income in the current year and the remeasurement of our deferred tax asset at
a lower 21% federal tax rate, partially offset by the additional release of valuation allowance and the generation of additional
federal tax credits. The income tax expense in our fiscal 2017 primarily resulted from income in the current year, offset by the
generation of federal tax credits and an additional benefit resulting from changes to our valuation allowance due to changes in our
state net operating loss estimates. In fiscal 2016, our income tax expense primarily resulted from income generated in the fiscal
year, offset by the generation of federal tax credits. Due to the effects of changes in our valuation allowance on our deferred tax
balance and changes in our unrecognized tax benefits, our effective tax rates in fiscal 2018, 2017, and 2016 are not meaningful
metrics, as our income tax amounts were not directly correlated to the amount of our pretax income for those periods.
Valuation Allowance
A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required if, based on the available evidence,
it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred
tax assets is assessed periodically based on the more-likely-than-not realization threshold criterion. In the assessment for a valuation
allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax
assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses,
forecasts of future profitability, the duration of statutory carryforward periods, the Company's experience with loss carryforwards
not expiring unused and tax planning alternatives.
During fiscal 2016, we contemplated various tax planning strategies based on our operations profile. This planning resulted in a
restructuring effort immediately following the close of our fiscal 2016, where we executed certain tax elections and a number of
changes to the legal forms of our operating entities, which significantly reduced our income profile in certain state jurisdictions
going forward. The restructuring reduced our effective tax rate in fiscal 2017 to an amount that is in-line with our peers, through
a significant reduction in our state effective tax rate. In addition, the restructure provides cash tax savings in various jurisdictions
where we no longer have significant state loss carryforwards available. In conjunction with the restructure, we also evaluated our
ability to realize certain state components of our deferred tax asset. Given this change, we evaluated both positive and negative
evidence, including consideration of a change in expected future taxable earnings in the separate state jurisdictions that will be
impacted by the restructuring. Based on those evaluations, we recorded an additional $8.6 million in valuation allowance during
the quarter ended September 30, 2016 for state deferred tax assets we concluded are no longer more likely than not to be realized.
71
During fiscal 2017, we recorded additional impacts related to our tax elections and changes in legal form as further determinations
were made throughout the year. These impacts included changes to our apportionment and deferred balances by jurisdiction, as
well as changes to our uncertain tax positions. As a result, we recorded a decrease of $3.5 million in valuation allowance during
the quarter ended September 30, 2017 for changes in our expected state net operating loss utilization due to changes in our uncertain
tax positions.
In fiscal 2018, we concluded that it was more likely than not that all of our federal tax attributes and additional portions of our
state tax assets would be realized over their remaining recovery periods. This conclusion was based on an evaluation of all relevant
evidence, both positive and negative, that would impact our ability to realize our deferred tax assets. The positive evidence included
continued improvements in our pre-tax earnings profile, recent acquisitions and community count growth in future years, tax
planning strategies, and increases to our future taxable income due to the enactment of the Tax Cuts and Jobs Act. The negative
evidence included a number of factors within the homebuilding industry, notably recent market related impacts to costs of
production, labor constraints, mortgage interest rate forecasts, and the position of the current housing cycle. We continue to maintain
levels of backlog and community count to support our expectations of future profitability. During the current fiscal year, the
Company completed its plan to repurchase portions of its outstanding debt, which altered its debt maturity and interest rate profile
through new issuances and redemptions of prior issuances. The change in the Company's debt portfolio will create future interest
expense savings that further support its estimates of future profitability. As of September 30, 2018, the Company will have to
cumulatively generate approximately $768.0 million in pre-tax income over the course of its carryforward period to realize its
deferred tax assets prior to their expiration, which, as previously discussed, is the Company's fiscal 2038.
The valuation allowance of $34.2 million as of September 30, 2018 remains on various state attributes for which the Company
has concluded it is not more likely than not that these attributes would be realized at that time.
Unrecognized Tax Benefits
A reconciliation of our unrecognized tax benefits is as follows for the beginning and end of each period presented:
(In thousands)
Balance at beginning of year
Additions for (reductions in) tax positions related to current year
Additions for tax positions related to prior years
Reductions in tax positions of prior years
Lapse of statute of limitations
Balance at end of year
$
$
Fiscal Year Ended September 30,
2018
2017
2016
3,804
$
4,541
$
—
—
—
(310)
3,494
$
61
2,611
(2,273)
(1,136)
3,804
4,721
(180)
—
—
—
$
4,541
If we were to recognize our $3.5 million of gross unrecognized tax benefits remaining as of September 30, 2018, substantially all
would impact our effective tax rate. Additionally, we had $1.3 thousand and $1.4 thousand of accrued interest and penalties as of
September 30, 2018 and 2017, respectively. Our income tax expense includes tax-related interest.
In the normal course of business, we are subject to audits by federal and state tax authorities regarding various tax liabilities.
Certain state income tax returns for various fiscal years are under routine examination. The statute of limitations for our major tax
jurisdictions remains open for examination for fiscal years 2007 and subsequent years. As of September 30, 2018, it is reasonably
possible that $21.6 thousand of our uncertain tax positions will reverse within the next twelve months.
(14) Stockholders' Equity
Preferred Stock
We currently have no shares of preferred stock outstanding.
Common Stock
As of September 30, 2018, we had 63,000,000 shares of common stock authorized and 33,522,046 shares both issued and
outstanding.
72
Common Stock Repurchases
During our fiscal 2018, 2017, and 2016, we did not repurchase any shares of our common stock in the open market. Any future
stock repurchases, to the extent allowed by our existing debt covenants, must be approved by the Company's Board of Directors
or its Finance Committee.
During our fiscal 2018, 2017, and 2016, 229,191, 32,035, and 16,779 shares of our common stock, respectively, were surrendered
to us by employees as payment of minimum tax obligations upon the vesting of restricted stock awards under our stock incentive
plans. We valued the surrendered stock at the market price on the date of surrender for an aggregate value of approximately $3.4
million in fiscal 2018, $0.4 million in fiscal 2017, and $0.2 million in fiscal 2016.
Dividends
The indentures under which our Senior Notes were issued contain certain restrictive covenants, including limitations on our
payment of dividends. There were no dividends paid during our fiscal 2018, 2017, or 2016.
Section 382 Rights Agreement
In February 2011, the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation (the
Protective Amendment) designed to preserve the value of certain tax assets associated with NOL carryforwards under Section
382. In February 2013, the Company’s stockholders approved an extension of the term of the Protective Amendment and approved
a Section 382 Rights Agreement that was adopted by our Board of Directors. These instruments are intended to act as deterrents
to any person or group, together with their affiliates and associates, from being or becoming the beneficial owner of 4.95% or
more of the Company’s common stock. In February 2016, the Company’s stockholders approved an extension of the Protective
Amendment to November 12, 2019 and approved a new Section 382 Rights Agreement adopted by our Board of Directors with
an expiration date of November 14, 2019.
(15) Retirement and Deferred Compensation Plans
401(k) Retirement Plan
We sponsor a defined-contribution plan that is a tax-qualified retirement plan under section 401(k) of the Internal Revenue Code
(the Plan). Substantially all employees are eligible for participation in the Plan after completing one calendar month of service.
Participants may defer and contribute from 1% to 80% of their salary to the Plan, with certain limitations on highly compensated
individuals. We match 50% of the first 6% of the participant's contributions. The participant's contributions vest immediately,
while the Company's contributions vest over five years. Our total contributions for the fiscal years ended September 30, 2018,
2017, and 2016 were approximately $3.3 million, $3.0 million, and $2.6 million, respectively. During fiscal 2018, 2017, and 2016,
participants forfeited $0.7 million, $0.6 million, and $0.4 million, respectively, of unvested matching contributions.
Deferred Compensation Plan
The Beazer Homes USA, Inc. Deferred Compensation Plan (the DCP) is a non-qualified deferred compensation plan for a select
group of executives and highly compensated employees. The DCP allows the executives to defer current compensation on a pre-
tax basis to a future year, until termination of employment. The objectives of the DCP are to assist executives with financial
planning and capital accumulation and to provide the Company with a method of attracting, rewarding and retaining executives.
Participation in the DCP is voluntary. Beazer Homes may voluntarily make a contribution to the participants' DCP accounts.
Deferred compensation assets of $1.6 million and $1.1 million and deferred compensation liabilities of $4.6 million and $3.8
million as of September 30, 2018, and 2017, respectively, are included in other assets and other liabilities on our consolidated
balance sheets, and are recorded at fair value. For the years ended September 30, 2018, 2017, and 2016, we contributed
approximately $0.2 million, $0.3 million, and $0.2 million, respectively, to the DCP in the form of voluntary contributions.
73
(16) Stock-Based Compensation
During fiscal 2014, we adopted, and our stockholders approved, the 2014 Beazer Homes USA, Inc. Long-Term Incentive Plan
(the 2014 Plan). Following adoption of the 2014 Plan, shares available for grant under our 2010 Equity Incentive Plan (the 2010
Plan) remain available for grant in accordance with the terms of that plan. However, there are no more shares available for future
issuance under our Amended and Restated 1999 Stock Incentive Plan (the 1999 Plan). We issue new shares upon the exercise of
stock options and the vesting of restricted stock awards. In cases of forfeitures and shares returned to us for taxes, those shares
are returned to the share pool for future issuance. As of September 30, 2018, we had approximately 2.6 million shares of common
stock for issuance under our various equity incentive plans, of which approximately 2.1 million shares are available for future
grants.
Our total stock-based compensation expense is included in G&A expenses in our consolidated statements of operations and
recognized using the straight-line method over the vesting period. A summary of the expense related to stock-based compensation
by award type is as follows for the periods presented:
(In thousands)
Stock options expense
Restricted stock awards expense
Before tax stock-based compensation expense
Tax benefit
After tax stock-based compensation expense
$
$
Stock Options
Fiscal Year Ended September 30,
2018
2017
2016
225
$
10,033
10,258
(2,622)
7,636
$
274
$
7,885
8,159
(2,917)
5,242
$
534
7,425
7,959
(2,832)
5,127
We have issued stock options to officers and key employees under the 2014 Plan, the 2010 Plan, and the 1999 Plan. Stock options
have an exercise price equal to the fair market value of the common stock on the grant date, vest three years after the date of grant,
and may be exercised thereafter until their expiration, subject to forfeiture upon termination of employment as provided in the
applicable plan. Under certain conditions of retirement, eligible participants may receive a partial vesting of stock options. Stock
options generally expire on the seventh or eighth anniversary from the date such options were granted, depending on the terms of
the award.
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model (Black-
Scholes Model). As of September 30, 2018, the intrinsic value of our stock options outstanding, vested and expected to vest, vested
and exercisable were $0.1 million, $0.1 million, and $0.1 million, respectively. As of September 30, 2018 and September 30, 2017,
there was $0.2 million and $0.3 million, respectively, of total unrecognized compensation cost related to unvested stock options.
The cost remaining as of September 30, 2018 is expected to be recognized over a weighted-average period of 1.8 years.
During fiscal 2016, the Compensation Committee of our Board of Directors approved the Employee Stock Option Program (EOP).
This program is available to all full-time employees, other than our senior leadership team, and is designed to enable employees
to share in potential price appreciation of the Company's stock. The EOP matches stock purchases made by eligible employees
meeting certain conditions with an option to purchase an additional share of the Company's shares on a one-to-one basis. The
exercise price of the options granted is equal to the closing price of the Company's stock on the day the underlying stock is
purchased. The options will vest on the second anniversary of the date of grant but are forfeited if (1) the eligible employee no
longer works for the Company or (2) the underlying shares are sold before the two-year vesting period is over. The total number
of options available under the EOP is limited to 100,000, of which 3,950 options were granted through the end of fiscal 2018.
74
During the year ended September 30, 2018, we issued 25,230 stock options, including those issued under the EOP, each for one
share of the Company's stock. These stock options typically vest ratably over three years from the date of grant, or two years from
the date of grant if issued under the EOP. We used the following valuation assumptions for stock options granted for the periods
presented:
Fiscal Year Ended September 30,
2018
2017
2016
Expected life of options
Expected volatility
Expected dividends
Weighted-average risk-free interest rate
5.0 years
44.71%
—
2.10%
5.4 years
50.10%
—
1.85%
Weighted-average fair value
$
8.30
$
5.83
$
4.9 years
46.49%
—
1.36%
4.03
We relied upon a combination of the observed exercise behavior of our prior grants with similar characteristics, the vesting schedule
of the current grants, and an index of peer companies with similar grant characteristics to determine the expected life of the options
granted. We considered historic returns of our stock and the implied volatility of our publicly-traded options in determining expected
volatility. We assumed no dividends would be paid since our Board of Directors has suspended payment of dividends indefinitely
and payment of dividends is restricted under our Senior Note covenants. The risk-free interest rate is based on the term structure
of interest rates at the time of the option grant.
Activity related to stock options for the periods presented is as follows:
Outstanding at beginning of period
Granted
Exercised
Expired
Cancelled
Forfeited
Outstanding at end of period
Exercisable at end of period
Vested or expected to vest in the future
2018
2017
2016
Weighted-
Average
Exercise
Price
14.76
19.99
7.52
23.19
—
10.46
14.26
14.03
14.26
Shares
593,753
$
25,230
(8,411)
(61,967)
—
(15,553)
533,052
479,538
533,052
$
$
$
Weighted-
Average
Exercise
Price
16.49
12.50
10.80
28.45
23.65
11.97
14.76
15.91
14.83
Shares
672,669
$
29,410
(2,313)
(84,976)
(480)
(20,557)
593,753
476,606
585,186
$
$
$
Weighted-
Average
Exercise
Price
18.13
9.19
—
19.70
—
10.98
16.49
17.76
16.49
Shares
643,907
$
125,449
—
(86,606)
—
(10,081)
672,669
503,594
672,669
$
$
$
The following table summarizes information about stock options outstanding and exercisable as of September 30, 2018:
Range of Exercise Price
$1 - $10
$11 - $15
$16 - $20
$1 - $20
Stock Options Outstanding
Stock Options Exercisable
Weighted-
Average
Contractual
Remaining
Life (Years)
2.6
3.2
3.7
3.2
Number
Outstanding
152,004
207,451
173,597
533,052
Weighted-
Average
Exercise Price
Number
Exercisable
$
$
9.77
13.33
19.30
14.26
152,004
177,617
149,917
479,538
Weighted-
Average
Contractual
Remaining
Life (Years)
Weighted-
Average
Exercise
Price
2.6
2.7
3.1
2.8
$
$
9.77
13.37
19.12
14.03
Information pertaining to the intrinsic value of options exercised and the fair market value of options that vested is below:
(In thousands)
Intrinsic value of options exercised
Fair market value of options vested
Fiscal Year Ended September 30,
2018
2017
2016
$
$
75
76
296
$
$
13
482
$
$
—
681
Restricted Stock Awards
The fair value of each restricted stock award with market conditions is estimated on the date of grant using the Monte Carlo
valuation method. The fair value of restricted stock awards without market conditions is based on the market price of the Company's
common stock on the date of grant. If applicable, the cash-settled component of any awards granted to employees is accounted
for as a liability, which is adjusted to fair value each reporting period until vested.
Compensation cost arising from restricted stock awards granted to employees is recognized as an expense using the straight-line
method over the vesting period. As of September 30, 2018 and September 30, 2017, there was $8.8 million and $8.8 million,
respectively, of total unrecognized compensation cost related to unvested restricted stock awards. The cost remaining as of
September 30, 2018 is expected to be recognized over a weighted-average period of 1.8 years.
We have issued restricted stock awards to officers and key employees under both the 2014 Plan and the 2010 Plan. During fiscal
2018, we issued time-based restricted stock awards and performance-based restricted stock awards with a payout subject to certain
performance and market conditions. Each award type is discussed below.
Performance-Based Restricted Stock Awards
During the year ended September 30, 2018, we issued 165,085 shares of performance-based restricted stock (2018 Performance
Shares) to our executive officers and certain other employees that also have market conditions. The 2018 Performance Shares are
structured to be awarded based on the Company's performance under three pre-determined financial metrics at the end of the three-
year performance period. After determining the number of shares earned based on the financial metrics, which can range from 0%
to 175% of the targeted number of shares, the award will be subject to further upward or downward adjustment by as much as
20% based on the Company's relative total shareholder return (TSR) compared against the S&P Homebuilders Select Industry
Index during the three-year performance period. The 2018 Performance Shares were valued using the Monte Carlo valuation
model due to the existence of the TSR market condition and had an estimated fair value of $22.40 per share on the date of grant.
A Monte Carlo valuation model requires the following inputs: (1) the expected dividend yield on the underlying stock; (2) the
expected price volatility of the underlying stock; (3) the risk-free interest rate for the period corresponding with the expected term
of the award; and (4) the fair value of the underlying stock. For the Company and each member of the peer group, the following
inputs were used, as applicable, in the Monte Carlo valuation model to determine the fair value as of the grant date for performance-
based restricted stock granted in each of the fiscal years ended. The methodology used to determine these assumptions is similar
to the Black-Scholes Model; however, the expected term is determined by the model in the Monte Carlo simulation.
Expected volatility
Risk-free interest rate
Dividend yield
Grant-date stock price
Fiscal Year Ended September 30,
2018
2017
2016
21.1% - 61.2%
32.6% - 66.0%
29.9% - 151.2%
1.81%
—
1.30%
—
$
20.50
$
12.51
$
1.21%
—
14.24
Each performance share represents a contingent right to receive one share of the Company's common stock if vesting is satisfied
at the end of the three-year performance period. Any 2018 Performance Shares earned in excess of the target number of 165,085 may
be settled in cash or additional shares at the discretion of the Compensation Committee. Any portion of these shares that do not
vest at the end of the period will be forfeited.
The performance criteria of the 2016 Performance Share grant was satisfied as of September 30, 2018. Based on the actual
performance level achieved, 309,843 performance-based restricted stock awards from the 2016 Performance Share grant will cliff
vest at the end of the three-year vesting period on November 23, 2018. Of the total $4.8 million compensation cost related to these
awards, we have recognized $1.3 million, $2.3 million, and $1.0 million during the fiscal years ended September 30, 2018, 2017,
and 2016, respectively. The remaining $0.2 million of unrecognized compensation cost will be recognized in the first quarter of
fiscal 2019.
76
Time-Based Restricted Stock Awards
During the year ended September 30, 2018, we also issued 277,165 shares of time-based restricted stock (Restricted Shares) to
our directors, executive officers, and certain other employees. Restricted Shares are valued based on the market price of the
Company's common stock on the date of the grant. The Restricted Shares granted to our non-employee directors vest on the first
anniversary of the grant, while the Restricted Shares granted to our executive officers and other employees generally vest ratably
over three years from the date of grant.
Activity relating to all restricted stock awards for the periods presented is as follows:
Performance-Based
Time-Based
Total
Year Ended September 30, 2018
Weighted-
Average
Grant
Date Fair
Value
15.72
22.40
—
18.98
16.47
Shares
668,766
$
165,085
—
(189,066)
644,785
$
Weighted-
Average
Grant
Date Fair
Value
16.47
18.98
17.38
17.02
16.60
Shares
872,181
$
277,165
(690,922)
(26,641)
431,783
$
Shares
1,540,947
442,250
(690,922)
(215,707)
1,076,568
$
$
Performance-Based
Time-Based
Total
Year Ended September 30, 2017
Weighted-
Average
Grant
Date Fair
Value
16.71
13.60
—
13.11
15.72
Shares
448,693
$
263,696
—
(43,623)
668,766
$
Weighted-
Average
Grant
Date Fair
Value
17.52
12.50
15.52
14.08
16.47
Shares
807,124
$
271,855
(189,029)
(17,769)
872,181
$
Shares
1,255,817
$
535,551
(189,029)
(61,392)
1,540,947
$
Performance-Based
Time-Based
Total
Year Ended September 30, 2016
Weighted-
Average
Grant
Date Fair
Value
16.34
15.43
—
5.51
16.71
Shares
252,022
$
231,624
—
(34,953)
448,693
$
Weighted-
Average
Grant
Date Fair
Value
18.97
14.04
18.58
16.78
17.52
Shares
704,261
$
259,819
(127,993)
(28,963)
807,124
$
Shares
956,283
$
491,443
(127,993)
(63,916)
1,255,817
$
Weighted-
Average
Grant
Date Fair
Value
16.15
20.26
17.38
18.74
16.53
Weighted-
Average
Grant
Date Fair
Value
17.23
13.04
15.52
13.39
16.15
Weighted-
Average
Grant
Date Fair
Value
18.27
14.69
18.58
10.62
17.23
Beginning of period
Granted
Vested
Forfeited
End of period
Beginning of period
Granted
Vested
Forfeited
End of period
Beginning of period
Granted
Vested
Forfeited
End of period
77
(17) Earnings Per Share
Basic (loss) income per share is calculated by dividing net (loss) income by the weighted-average number of shares outstanding
during the period. Diluted (loss) income per share adjusts the basic (loss) income per share for the effects of any potentially dilutive
securities in periods in which the Company has net income and such effects are dilutive under the treasury stock method.
Following is a summary of the components of basic and diluted (loss) income per share for the periods presented:
(In thousands, except per share data)
Numerator:
(Loss) income from continuing operations
Loss from discontinued operations, net of tax
Net (loss) income
Denominator:
Basic weighted-average shares
Dilutive effect of restricted stock awards
Dilutive effect of stock options
Diluted weighted-average shares (1)
Basic (loss) income per share:
Continuing operations
Discontinued operations
Total
Diluted (loss) income per share:
Continuing operations
Discontinued operations
Total
Fiscal Year Ended September 30,
2018
2017
2016
$
$
$
$
$
$
(45,046) $
31,953
$
(329)
(140)
(45,375) $
31,813
$
32,141
—
—
32,141
31,952
433
41
32,426
(1.40) $
(0.01)
(1.41) $
(1.40) $
(0.01)
(1.41) $
1.00
$
—
1.00
$
0.99
$
—
0.99
$
5,205
(512)
4,693
31,798
5
—
31,803
0.16
(0.01)
0.15
0.16
(0.01)
0.15
(1) The following potentially dilutive shares were excluded from the calculation of diluted (loss) income per share as a result of
their anti-dilutive effect. Due to the reported net loss for the year ended September 30, 2018, all common stock equivalents were
excluded from the computation of diluted loss per share for fiscal year 2018 because inclusion would have resulted in anti-dilution.
(In thousands)
Stock options
Time-based restricted stock
Performance-based restricted stock
Fiscal Year Ended September 30,
2018
2017
2016
533
432
645
319
—
—
693
770
—
78
(18) Segment Information
We currently operate in 13 states that are grouped into three homebuilding segments based on geography. Revenues from our
homebuilding segments are derived from the sale of homes that we construct and from land and lot sales. Our reportable segments
have been determined on a basis that is used internally by management for evaluating segment performance and resource allocations.
We have considered the applicable aggregation criteria, and have combined our homebuilding operations into three reportable
segments as follows:
West: Arizona, California, Nevada, and Texas
East: Delaware, Indiana, Maryland, New Jersey(a), Tennessee, and Virginia
Southeast: Florida, Georgia, North Carolina, and South Carolina
(a) During our fiscal 2015, we made the decision that we would not continue to reinvest in new homebuilding assets in our New
Jersey division; therefore, it is no longer considered an active operation. However, it is included in this listing because the
segment information below continues to include New Jersey.
Management’s evaluation of segment performance is based on segment operating income. Operating income for our homebuilding
segments is defined as homebuilding and land sale and other revenues less home construction, land development and land sales
expense, commission expense, depreciation and amortization, and certain G&A expenses that are incurred by or allocated to our
homebuilding segments. The accounting policies of our segments are those described in Note 2.
The following tables contain our revenue, operating income, and depreciation and amortization by segment for the periods
presented:
(In thousands)
Revenue
West
East
Southeast
Total revenue
(In thousands)
Operating income (a)
West
East (b)
Southeast (c)
Segment total
Corporate and unallocated (d)
Total operating income
(In thousands)
Depreciation and amortization
West
East
Southeast
Segment total
Corporate and unallocated (d)
Total depreciation and amortization
Fiscal Year Ended September 30,
2018
2017
2016
1,014,803
$
524,563
567,767
$
853,230
551,422
511,626
827,907
526,949
467,258
2,107,133
$
1,916,278
$
1,822,114
Fiscal Year Ended September 30,
2018
2017
2016
142,310
$
110,600
$
57,372
45,950
245,632
(164,084)
81,548
$
58,191
53,905
222,696
(160,558)
62,138
$
99,835
42,205
49,250
191,290
(131,965)
59,325
Fiscal Year Ended September 30,
2018
2017
2016
7,062
$
7,207
$
2,619
3,053
12,734
1,073
2,927
2,564
12,698
1,311
13,807
$
14,009
$
6,086
3,173
2,451
11,710
2,084
13,794
$
$
$
$
$
$
(a) Operating income is impacted by impairment and abandonment charges incurred during the periods presented (see Note 5).
79
(b) Operating income for our East segment for the year ended September 30, 2017 was impacted by a charge to G&A of $2.7 million
related to the write-off of a deposit on a legacy investment in a development site that we deemed uncollectible.
(c) Operating income for our Southeast segment for the year ended September 30, 2016 was impacted by unexpected warranty
costs related to the Florida stucco issues, net of expected insurance recoveries. This impact was a credit of $3.6 million in fiscal
2016.
(d) Corporate and unallocated operating loss includes amortization of capitalized interest and capitalized indirects; expenses related
to numerous shared services functions that benefit all segments but are not allocated to the operating segments reported above,
including information technology, treasury, corporate finance, legal, branding and national marketing; and certain other amounts
that are not allocated to our operating segments. For the year ended September 30, 2016, the Corporate and unallocated operating
loss includes a $15.5 million reduction in home construction expenses resulting from an agreement entered into during the
current fiscal year with our third-party insurer to resolve certain issues related to the extent of our insurance coverage (refer to
Note 9).
Corporate and unallocated depreciation and amortization represents depreciation and amortization related to assets held by
corporate functions that benefit all segments.
The following table contains our capital expenditures by segment for the periods presented:
(In thousands)
Capital Expenditures
West
East
Southeast
Corporate and unallocated
Total capital expenditures
Fiscal Year Ended September 30,
2018
2017
2016
$
$
8,152
$
7,086
$
2,234
3,112
3,522
2,474
2,539
341
17,020
$
12,440
$
6,570
2,441
2,747
461
12,219
The following table contains our asset balance by segment as of September 30, 2018 and 2017:
(In thousands)
Assets
West
East
Southeast
Corporate and unallocated (a)
Total assets
September 30, 2018
September 30, 2017
$
$
835,230
$
335,474
414,685
542,713
779,964
298,532
331,618
810,881
2,128,102
$
2,220,995
(a) Primarily consists of cash and cash equivalents, restricted cash, deferred taxes, capitalized interest and indirects and other items
that are not allocated to the segments.
(19) Supplemental Guarantor Information
As discussed in Note 8, the Company's obligations to pay principal, premium, if any, and interest under certain debt agreements
are guaranteed on a joint and several basis by substantially all of its subsidiaries. Some immaterial subsidiaries do not guarantee
the Senior Notes. The guarantees are full and unconditional and the guarantor subsidiaries are 100% owned by Beazer Homes
USA, Inc. The following financial information presents the line items of the Company's consolidated financial statements separated
by amounts related to the parent issuer, guarantor subsidiaries, non-guarantor subsidiaries, and consolidating adjustments as of or
for the periods presented.
80
Beazer Homes USA, Inc.
Condensed Consolidating Balance Sheet Information
September 30, 2018
in thousands
ASSETS
Beazer Homes
USA, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Beazer Homes
USA, Inc.
Cash and cash equivalents
$
93,875
$
45,355
$
575
$
— $
139,805
Restricted cash
Accounts receivable (net of allowance of
$378)
Income tax receivable
Owned inventory
Investments in unconsolidated entities
Deferred tax assets, net
Property and equipment, net
Investments in subsidiaries
Intercompany
Goodwill and other intangible assets, net
Other assets
Total assets
LIABILITIES AND
STOCKHOLDERS’ EQUITY
10,921
—
—
—
773
213,955
—
645,086
922,525
—
694
2,522
24,647
—
1,692,284
3,262
—
20,843
—
—
9,751
8,626
—
—
—
—
—
—
—
—
2,304
—
19
—
—
—
—
—
—
—
(645,086)
(924,829)
—
—
13,443
24,647
—
1,692,284
4,035
213,955
20,843
—
—
9,751
9,339
$
1,887,829
$
1,807,290
$
2,898
$
(1,569,915) $
2,128,102
Trade accounts payable
$
— $
126,432
$
— $
— $
Other liabilities
Intercompany
Total debt (net of premium/discount and
debt issuance costs)
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’
equity
14,357
2,304
1,227,141
1,243,802
644,027
111,906
922,525
4,113
1,164,976
642,314
126
—
—
126
2,772
—
(924,829)
—
(924,829)
(645,086)
126,432
126,389
—
1,231,254
1,484,075
644,027
$
1,887,829
$
1,807,290
$
2,898
$
(1,569,915) $
2,128,102
81
Beazer Homes USA, Inc.
Condensed Consolidating Balance Sheet Information
September 30, 2017
in thousands
ASSETS
Beazer Homes
USA, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Beazer Homes
USA, Inc.
Cash and cash equivalents
$
283,191
$
15,393
$
724
$
Restricted cash
Accounts receivable (net of allowance
of $330)
Income tax receivable
Owned inventory
Investments in unconsolidated entities
Deferred tax assets, net
Property and equipment, net
Investments in subsidiaries
Intercompany
Other assets
Total assets
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Trade accounts payable
Other liabilities
Intercompany
Total debt (net of discount and debt
issuance costs)
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’
equity
11,001
—
88
—
773
307,896
—
808,067
606,168
599
1,461
36,322
—
1,542,807
3,221
—
17,566
—
—
7,098
—
1
—
—
—
—
—
—
2,337
15
(7,161) $
—
292,147
12,462
—
—
—
—
—
—
(808,067)
(608,505)
—
36,323
88
1,542,807
3,994
307,896
17,566
—
—
7,712
$
$
2,017,783
$
1,623,868
$
3,077
$
(1,423,733) $
2,220,995
— $
103,484
$
— $
— $
11,229
2,337
1,321,777
1,335,343
682,440
96,189
613,329
5,635
818,637
805,231
241
—
—
241
2,836
—
(615,666)
—
(615,666)
(808,067)
103,484
107,659
—
1,327,412
1,538,555
682,440
$
2,017,783
$
1,623,868
$
3,077
$
(1,423,733) $
2,220,995
82
Beazer Homes USA, Inc.
Consolidating Statements of Operations Information
in thousands
Fiscal Year Ended September 30, 2018
Total revenue
Home construction and land sales expenses
Inventory impairments and abandonments
Gross (loss) profit
Commissions
General and administrative expenses
Depreciation and amortization
Operating (loss) income
Equity in income of unconsolidated entities
Loss on extinguishment of debt
Other (expense) income, net
(Loss) income before income taxes
(Benefit) expense from income taxes
Equity in loss of subsidiaries
Loss from continuing operations
Loss from discontinued operations, net of
tax
Equity in loss of subsidiaries
Net loss
Fiscal Year Ended September 30, 2017
Total revenue
Home construction and land sales expenses
Inventory impairments and abandonments
Gross (loss) profit
Commissions
General and administrative expenses
Depreciation and amortization
Operating (loss) income
Equity in income of unconsolidated entities
Loss on extinguishment of debt
Other (expense) income, net
(Loss) income before income taxes
(Benefit) expense from income taxes
Equity in income of subsidiaries
Income (loss) from continuing operations
Loss from discontinued operations, net of
tax
Equity in loss of subsidiaries
Net income (loss)
Beazer Homes
USA, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Beazer Homes
USA, Inc.
$
— $
91,132
1,961
(93,093)
—
—
—
(93,093)
—
(27,839)
(5,323)
(126,255)
(93,714)
(12,505)
(45,046)
$
2,107,133
1,664,570
4,538
438,025
81,002
168,536
13,807
174,680
34
—
1,046
175,760
188,217
—
(12,457)
$
83
—
—
83
—
122
—
(39)
—
—
(28)
(67)
(19)
—
(48)
—
(329)
(45,375) $
(312)
—
(12,769) $
(17)
—
(65) $
(83) $
(83)
—
—
—
—
—
—
—
—
—
—
—
12,505
12,505
—
329
12,834
$
2,107,133
1,755,619
6,499
345,015
81,002
168,658
13,807
81,548
34
(27,839)
(4,305)
49,438
94,484
—
(45,046)
(329)
—
(45,375)
Beazer Homes
USA, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Beazer Homes
USA, Inc.
$
— $
88,764
56
(88,820)
—
—
—
(88,820)
—
(12,630)
(15,635)
(117,085)
(42,564)
106,474
31,953
1,916,278
1,512,312
2,389
401,577
74,811
161,804
14,009
150,953
371
—
429
151,753
45,266
—
106,487
$
107
—
—
107
—
102
—
5
—
—
(24)
(19)
(6)
—
(13)
—
(140)
31,813
$
(115)
—
106,372
$
(25)
—
(38) $
(107) $
(107)
—
—
—
—
—
—
—
—
—
—
—
(106,474)
(106,474)
—
140
(106,334) $
1,916,278
1,600,969
2,445
312,864
74,811
161,906
14,009
62,138
371
(12,630)
(15,230)
34,649
2,696
—
31,953
(140)
—
31,813
83
$
$
$
Beazer Homes USA, Inc.
Consolidating Statements of Operations Information
in thousands
Fiscal Year Ended September 30, 2016
Total revenue
Home construction and land sales expenses
Inventory impairments and abandonments
Gross (loss) profit
Commissions
General and administrative expenses
Depreciation and amortization
Operating (loss) income
Equity in income of unconsolidated entities
Loss on extinguishment of debt
Other (expense) income, net
(Loss) income before income taxes
(Benefit) expense from income taxes
Equity in income of subsidiaries
Income from continuing operations
Loss from discontinued operations, net of
tax
Equity in loss of subsidiaries
Net income
Beazer Homes
USA, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Beazer Homes
USA, Inc.
$
— $
77,941
710
(78,651)
—
—
—
(78,651)
—
(13,423)
(25,388)
(117,462)
(70,126)
52,541
5,205
$
1,822,114
1,431,840
14,572
375,702
70,460
153,524
13,794
137,924
131
—
1,061
139,116
86,605
—
52,511
$
156
—
—
156
—
104
—
52
—
—
(3)
49
19
—
30
—
(512)
4,693
$
(503)
—
52,008
$
$
(9)
—
21
$
(156) $
(156)
—
—
—
—
—
—
—
—
—
—
—
(52,541)
(52,541)
—
512
(52,029) $
1,822,114
1,509,625
15,282
297,207
70,460
153,628
13,794
59,325
131
(13,423)
(24,330)
21,703
16,498
—
5,205
(512)
—
4,693
84
Beazer Homes USA, Inc.
Condensed Consolidating Statements of Cash Flow Information
in thousands
Fiscal Year Ended September 30, 2018
Beazer Homes
USA, Inc.
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Beazer Homes
USA, Inc.
Net cash (used in) provided by operating activities
$
(25,713) $
56,153
$
(152) $
— $
30,288
Cash flows from investing activities:
Capital expenditures
Proceeds from sale of fixed assets
Cash used for business acquisition, net of cash
acquired
Investments in unconsolidated entities
Return of capital from unconsolidated entities
Advances to/from subsidiaries
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Repayment of debt
Proceeds from issuance of new debt
Repayment of borrowing from credit facility
Borrowing from credit facility
Debt issuance costs
Other financing activities
Advances to/from subsidiaries
Net cash (used in) provided by financing activities
(Decrease) increase in cash and cash equivalents
Cash, cash equivalents and restricted cash at
beginning of period
Cash, cash equivalents and restricted cash at end of
period
—
—
—
—
—
(56,182)
(56,182)
(497,915)
400,000
(225,000)
225,000
(6,272)
(3,314)
—
(107,501)
(189,396)
(17,020)
370
(57,253)
(421)
176
—
(74,148)
—
—
—
—
—
—
49,018
49,018
31,023
—
—
—
—
—
3
3
—
—
—
—
—
—
—
—
(149)
—
—
—
—
—
56,179
56,179
—
—
—
—
—
—
(49,018)
(49,018)
7,161
(17,020)
370
(57,253)
(421)
176
—
(74,148)
(497,915)
400,000
(225,000)
225,000
(6,272)
(3,314)
—
(107,501)
(151,361)
294,191
16,855
724
(7,161)
304,609
$
104,795
$
47,878
$
575
$
— $
153,248
85
Beazer Homes USA, Inc.
Condensed Consolidating Statements of Cash Flow Information
in thousands
Fiscal Year Ended September 30, 2017
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds from sale of fixed assets
Investments in unconsolidated entities
Return of capital from unconsolidated entities
Advances to/from subsidiaries
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Repayment of debt
Proceeds from issuance of new debt
Repayment of borrowing from credit facility
Borrowing from credit facility
Debt issuance costs
Other financing activities
Advances to/from subsidiaries
Net cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash, cash equivalents and restricted cash at
beginning of period
Cash, cash equivalents and restricted cash at end of
period
Fiscal Year Ended September 30, 2016
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds from sale of fixed assets
Investments in unconsolidated entities
Return of capital from unconsolidated entities
Advances to/from subsidiaries
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Repayment of debt
Proceeds from issuance of new debt
Borrowing from credit facility
Repayment of borrowing from credit facility
Debt issuance costs
Other financing activities
Advances to/from subsidiaries
Net cash used in financing activities
Decrease in cash and cash equivalents
Cash, cash equivalents and restricted cash at
beginning of period
Cash, cash equivalents and restricted cash at end of
period
Beazer Homes
USA, Inc.
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
Beazer Homes
USA, Inc.
$
(74,046) $
170,129
$
(174) $
— $
95,909
—
—
—
—
148,081
148,081
(253,046)
250,000
(25,000)
25,000
(4,919)
(391)
—
(8,356)
65,679
(12,440)
297
(3,261)
1,621
—
(13,783)
(12,437)
—
—
—
—
—
(145,459)
(157,896)
(1,550)
—
—
—
—
39
39
—
—
—
—
—
—
—
(135)
—
—
—
—
(148,120)
(148,120)
—
—
—
—
—
—
145,459
145,459
(2,661)
(12,440)
297
(3,261)
1,621
—
(13,783)
(265,483)
250,000
(25,000)
25,000
(4,919)
(391)
—
(20,793)
61,333
228,512
18,405
859
(4,500)
243,276
$
294,191
$
16,855
$
724
$
(7,161) $
304,609
$
(56,218) $
219,401
$
(158) $
— $
163,025
—
—
—
—
203,690
203,690
(819,044)
642,150
90,000
(90,000)
(11,246)
(222)
—
(188,362)
(40,890)
(12,219)
2,624
(4,241)
1,142
—
(12,694)
(9,177)
—
—
—
—
—
(202,393)
(211,570)
(4,863)
—
—
—
—
11
11
—
—
—
—
—
—
—
—
(147)
—
—
—
—
(203,701)
(203,701)
—
—
—
—
—
—
202,393
202,393
(1,308)
(12,219)
2,624
(4,241)
1,142
—
(12,694)
(828,221)
642,150
90,000
(90,000)
(11,246)
(222)
—
(197,539)
(47,208)
269,402
23,268
1,006
(3,192)
290,484
$
228,512
$
18,405
$
859
$
(4,500) $
243,276
86
(20) Discontinued Operations
We continually review 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 stockholder value. This review entails an evaluation of
both external market factors and our position in each market, and over time has resulted in the decision to discontinue certain of
our homebuilding operations. During our fiscal 2015, we made the decision that we would not continue to reinvest in new
homebuilding assets in our New Jersey division; therefore, it is no longer considered an active operation. However, the results of
our New Jersey division are not included in the discontinued operations information shown below.
We have classified the results of operations of our discontinued operations separately in the accompanying consolidated statements
of operations for all periods presented. There were no material assets or liabilities related to our discontinued operations as of
September 30, 2018 or September 30, 2017. Discontinued operations were not segregated in the consolidated statements of cash
flows. Therefore, amounts for certain captions in the consolidated statements of cash flows will not agree with the respective data
in the consolidated statements of operations. The results of our discontinued operations in the consolidated statements of operations
for the periods presented were as follows:
Fiscal Year Ended September 30,
2018
2017
2016
$
633
612
450
(429)
101
(530)
93
(4)
(441)
(112)
(329) $
— $
72
—
(72)
169
(241)
31
(5)
(215)
(75)
(140) $
—
668
—
(668)
137
(805)
12
6
(787)
(275)
(512)
(In thousands)
Total revenue
Home construction and land sales expenses
Inventory impairments and abandonments
Gross loss
General and administrative expenses
Operating loss
Equity in income of unconsolidated entities
Other (expense) income, net
Loss from discontinued operations before income taxes
Benefit from income taxes
Loss from discontinued operations, net of tax
$
$
87
December 31
March 31
June 30
September 30
(21) Selected Quarterly Financial Data (Unaudited)
Selected summarized quarterly financial information is as follows for the periods presented:
(In thousands, except per share data)
Quarter Ended
Fiscal 2018
Total revenue
Gross profit (a)
Operating income
Net (loss) income from continuing operations (b)
Basic EPS from continuing operations (c)
Diluted EPS from continuing operations (c)
Fiscal 2017
Total revenue
Gross profit (a)
Operating income
Net (loss) income from continuing operations (b)
Basic EPS from continuing operations (c)
Diluted EPS from continuing operations (c)
$
$
$
$
$
$
372,489
$
455,178
$
511,521
$
60,829
6,681
(130,575)
75,077
13,825
11,616
83,244
17,580
13,429
(4.07) $
(4.07) $
0.36
0.36
$
$
0.42
0.41
$
$
339,241
$
425,468
$
478,588
$
53,663
67,398
1,275
(1,359)
(0.04) $
(0.04) $
7,511
(7,495)
(0.23) $
(0.23) $
78,443
15,569
7,114
0.22
0.22
$
$
(a) Gross profit in fiscal 2018 and 2017 includes inventory impairment and abandonments as follows:
(In thousands)
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Fiscal 2018
Fiscal 2017
$
$
— $
—
168
6,331
6,499
$
767,945
125,865
43,462
60,484
1.88
1.83
672,981
113,360
37,783
33,693
1.05
1.03
—
282
470
1,693
2,445
(b) Net (loss) income from continuing operations in fiscal 2018 and 2017 includes (loss) gain on extinguishment of debt as follows:
(In thousands)
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Fiscal 2018
Fiscal 2017
$
$
(25,904) $
—
—
(1,935)
(27,839) $
—
(15,563)
—
2,933
(12,630)
(c) Amounts shown above for EPS for the quarterly periods are calculated separately from the full fiscal year amounts. Accordingly,
quarterly amounts will not add to the respective annual amount.
88
(22) Subsequent Events
On October 1, 2018, the Company executed a Fifth Amendment to the Facility. The Fifth Amendment extended the termination
date of the Facility from February 15, 2020 to February 15, 2021, increased the maximum aggregate amount of commitments
under the Facility (including borrowings and letters of credit) from $200.0 million to $210.0 million, and reduced the applicable
margin by 50 basis points at each level.
On November 7, 2018, the Company’s Board of Directors approved a share repurchase program that authorizes the Company to
repurchase up to $50.0 million of its outstanding common stock. Under the share repurchase program, the Company intends to
initially purchase approximately $16.5 million of its outstanding shares pursuant to an accelerated share repurchase program
(ASR). Upon completion of the ASR, the Company may execute the remaining portion of its repurchase program from time to
time on the open-market, through privately negotiated transactions, or otherwise. Repurchases of such shares may be made under
a Rule 10b5-1 plan, which would permit repurchases when the Company might otherwise be precluded from doing so under insider
trading laws. The timing and amount of repurchase transactions is subject to the Company’s discretion and will depend on a variety
of factors, including market and business conditions, compliance with the Company’s debt agreements, and other considerations.
The Company expects to fund repurchases under the share repurchase program with cash on hand and cash generated from
operations. Once the ASR has been completed, the Company is not obligated to acquire any particular number of shares remaining
under its repurchase program and the program may be suspended or discontinued at any time.
89
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Beazer Homes USA, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Beazer Homes USA, Inc. and subsidiaries (the "Company")
as of September 30, 2018 and 2017, the related consolidated statements of operations, stockholders’ equity, and cash flows, for
each of the three years in the period ended September 30, 2018, and the related notes (collectively referred to as the "financial
statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company
as of September 30, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period
ended September 30, 2018, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of September 30, 2018, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated November 13, 2018, expressed an unqualified opinion on the Company's internal control over
financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
November 13, 2018
We have served as the Company’s auditor since 1996.
90
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Beazer Homes USA, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Beazer Homes USA, Inc. and subsidiaries (the "Company") as of
September 30, 2018, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of September 30, 2018, based on criteria established in Internal
Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended September 30, 2018, of the Company and our report
dated November 13, 2018, expressed an unqualified opinion on those financial statements.
As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment
the internal control over financial reporting at Venture Homes which was acquired on July 13, 2018 and whose financial statements
constitute 3.2% of total assets and 0.8% of revenues of the consolidated financial statement amounts as of and for the year ended
September 30, 2018. Accordingly, our audit did not include the internal control over financial reporting at Venture Homes.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
November 13, 2018
91
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of
September 30, 2018 pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (Exchange Act). Our disclosure
controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and that such information is accumulated and communicated to our management, including our
CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation, our CEO and CFO
concluded that our disclosure controls and procedures were effective as of September 30, 2018.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for the preparation and fair presentation of the consolidated financial statements included in this
Annual Report on Form 10-K. The consolidated financial statements have been prepared in conformity with U.S. generally accepted
accounting principles (U.S. GAAP) and reflect management’s judgments and estimates concerning events and transactions that
are accounted for or disclosed.
Our management is also responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed
under the supervision of our CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of the Company’s financial statements for external purposes in accordance with U.S. GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even
when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2018. Management’s
assessment was based on criteria for effective internal control over financial reporting described in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on
this assessment, management concluded that the Company has maintained effective internal control over financial reporting as
of September 30, 2018. The effectiveness of our internal control over financial reporting as of September 30, 2018 has been audited
by Deloitte & Touche LLP, our independent registered public accounting firm, as stated in their report, which is included in “Part II -
Item 8 - Financial Statements and Supplementary Data.”
Management's evaluation did not include the internal controls over financial reporting of Venture Homes, which was acquired on
July 13, 2018. Total assets and total revenue related to this acquisition represented 3.2% and 0.8%, respectively, of the related
consolidated financial statement amounts as of and for the year ended September 30, 2018.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30,
2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
92
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers
The information required by this item is incorporated by reference to our proxy statement for our 2019 Annual Meeting of
Stockholders, which is expected to be filed on or before December 15, 2018.
Code of Ethics
Beazer Homes has adopted a Code of Business Conduct and Ethics (the “Code”) for its senior financial officers, which applies to
its principal executive officer, principal financial officer, principal accounting officer, and other senior financial officers. In
November 2016, the Company’s Board of Directors amended the Code. The full text of the Code, as amended, can be found on
the Company’s website at www.beazer.com. If at any time there is an amendment or waiver of any provision of the Code that is
required to be disclosed, information regarding such amendment or waiver will be published on the Company’s website.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to our proxy statement for our 2019 Annual Meeting of
Stockholders, which is expected to be filed on or before December 15, 2018.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information relating to securities authorized for issuance under equity compensation plans is set forth above in Item 5 - Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. All of the other information
required by this item is incorporated by reference to our proxy statement for our 2019 Annual Meeting of Stockholders, which is
expected to be filed on or before December 15, 2018.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item is incorporated by reference to our proxy statement for our 2019 Annual Meeting of
Stockholders, which is expected to be filed on or before December 15, 2018.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to our proxy statement for our 2019 Annual Meeting of
Stockholders, which is expected to be filed on or before December 15, 2018.
93
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this Annual Report on Form 10-K.
PART IV
(a) 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2018 and 2017
Consolidated Statements of Operations for the fiscal years ended September 30, 2018, 2017, and 2016
Consolidated Statements of Stockholders' Equity for the fiscal years ended September 30, 2018, 2017,
and 2016
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2018, 2017, and 2016
Notes to Consolidated Financial Statements
Page Herein
44
45
46
47
48
2. Financial Statement Schedules
None required.
3. Exhibits
All exhibits were filed under File No. 001-12822, except as otherwise indicated below.
Exhibit
Number
Exhibit Description
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
4.1
4.2
—
—
—
—
—
—
—
—
—
—
Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to
Exhibit 3.1 of the Company's Form 10-K for the year ended September 30, 2008)
Certificate of Amendment, dated April 13, 2010, to the Amended and Restated Certificate of Incorporation
of the Company (incorporated herein by reference to Exhibit 3.1 of the Company's Form 10-Q for the
quarter ended March 31, 2010)
Certificate of Amendment, dated February 3, 2011, to the Amended and Restated Certificate of
Incorporation of the Company, as amended (incorporated herein by reference to Exhibit 3.1 of the
Company's Form 8-K filed on February 8, 2011)
Certificate of Amendment, dated October 11, 2012, to the Amended and Restated Certificate of
Incorporation of the Company, as amended (incorporated herein by reference to Exhibit 3.1 of the
Company's Form 8-K filed on October 12, 2012)
Certificate of Amendment, dated February 2, 2013, to the Amended and Restated Certificate of
Incorporation of the Company, as amended (incorporated herein by reference to Exhibit 3.1 of the
Company's Form 8-K filed on February 5, 2013)
Certificate of Amendment, dated November 6, 2013, to the Amended and Restated Certificate of
Incorporation of the Company, as amended (incorporated herein by reference to Exhibit 3.1 of the
Company's Form 8-K filed on November 7, 2013)
Certificate of Amendment, dated November 11, 2016, to the Amended and Restated Certificate of
Incorporation of the Company, as amended (incorporated herein by reference to Exhibit 3.8 of the
Company's Form 10-K for the year ended September 30, 2016)
Fourth Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.3
of the Company's Form 10-K for the year ended September 30, 2010)
Specimen Physical Common Stock Certificate of Beazer Homes USA, Inc. (incorporated herein by
reference to Exhibit 4.1 of the Company's Form 10-K filed on November 10, 2015)
Indenture, dated as of April 17, 2002 among the Company, the Guarantors party thereto and U.S. Bank
Trust National Association, as trustee (incorporated herein by reference to Exhibit 4.11 of the Company’s
Registration Statement on Form S-4 filed on July 16, 2002)
94
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25
—
Seventh Supplemental Indenture, dated January 9, 2006, to the Indenture dated as of April 17, 2002
(incorporated herein by referenced to Exhibit 99.2 of the Company’s Form 8-K filed on January 17, 2006)
—
Reserved.
— Reserved.
—
Form of Junior Subordinated Indenture, dated June 15, 2006, between the Company and JPMorgan Chase
Bank, National Association (incorporated herein by reference to Exhibit 4.1 of the Company's Form 8-K
filed on June 21, 2006)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Form of Amended and Restated Trust Agreement, dated June 15, 2006, among the Company, JPMorgan
Chase Bank, National Association, Chase Bank USA, National Association, and certain individuals named
therein as Administrative Trustees (incorporated herein by reference to Exhibit 4.2 of the Company's
Form 8-K filed on June 21, 2006)
Ninth Supplemental Indenture, dated October 26, 2007, amending and supplementing the Indenture dated
April 17, 2002, by and among Beazer Homes USA, Inc., the subsidiary guarantors party thereto and U.S.
Bank National Association, as trustee (incorporated herein by reference to Exhibit 10.3 of the Company's
Form 8-K filed on October 30, 2007)
Junior Subordinated Indenture between Beazer Homes USA, Inc. and Wilmington Trust Company, as
trustee, dated as of January 15, 2010 (incorporated herein by reference to Exhibit 10.2 of the Company's
Form 8-K dated January 21, 2010)
Reserved.
Fifteenth Supplemental Indenture, dated July 22, 2011, to the Indenture dated April 17, 2002, between the
Company and U.S. Bank National Association, as trustee, amending and supplementing the Thirteenth
Supplemental Indenture, dated May 20, 2010, and the Fourteenth Supplemental Indenture, dated
November 12, 2010 (incorporated herein by reference to Exhibit 10.2 of the Company's Form 10-Q for
the quarter ended June 30, 2011)
Reserved.
Indenture for 7.250% Senior Secured Notes due 2023, dated February 1, 2013, by and among the Company,
the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee (incorporated herein
by reference to Exhibit 4.1 of the Company's Form 8-K filed on February 5, 2013)
Form of 7.250% Senior Secured Note due 2023 (incorporated herein by reference to Exhibit 4.2 of the
Company's Form 8-K filed on February 5, 2013)
Indenture, dated as of October 10, 2017, between the Company, the Guarantors and U.S. Bank National
Association, as trustee (incorporated herein by reference to Exhibit 4.1 of the Company’s Form 8-K filed
on October 10, 2017)
Form of 5.875% Senior Note due 2027 (incorporated herein by reference to Exhibit 4.2 of the Company’s
Form 8-K filed on October 10, 2017)
Registration Rights Agreement, dated as of October 10, 2017, between the Company, the Guarantors and
Credit Suisse Securities (USA) LLC, as representative of the Initial Purchasers (incorporated herein by
reference to Exhibit 4.3 of the Company’s Form 8-K filed on October 10, 2017)
Section 382 Rights Agreement, dated as of November 6, 2015, and effective as of November 14, 2016,
between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent (incorporated
herein by reference to Appendix II of the Company's Form DEF 14A filed on December 21, 2015)
Seventeenth Supplemental Indenture, dated April 2, 2014, between Beazer-Inspirada LLC and U.S. Bank
National Association, as trustee (incorporated herein by reference to Exhibit 4.2(i) to the Company’s Form
S-4 filed on June 10, 2014 (File No. 333-196637))
Supplemental Indenture, dated April 2, 2014, between Beazer-Inspirada LLC and U.S. Bank National
Association, as trustee, related to the Company’s 6.625% Senior Secured Notes due 2018 (incorporated
herein by reference to Exhibit 4.5(c) to the Company’s Form S-4 filed on June 10, 2014 (File No.
333-196637))
Supplemental Indenture, dated April 2, 2014, between Beazer-Inspirada LLC and U.S. Bank National
Association, as trustee, related to the Company’s 7.250% Senior Notes due 2023 (incorporated herein by
reference to Exhibit 4.6(c) to the Company’s Form S-4 filed on June 10, 2014 (File No. 333-196637))
Supplemental Indenture, dated April 2, 2014, between Beazer-Inspirada LLC and U.S. Bank National
Association, as trustee, related to the Company’s 7.500% Senior Notes due 2021 (incorporated herein by
reference to Exhibit 4.7(c) to the Company’s Form S-4 filed on June 10, 2014 (File No. 333-196637))
Reserved.
Reserved.
Reserved.
95
4.26
4.27
4.28
4.29
4.30
4.31
4.32
4.33
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Indenture for 8.750% Senior Notes due 2022, dated September 21, 2016, by and among the Company, the
subsidiary guarantors party thereto and U.S. Bank National Association, as trustee (incorporated herein
by reference to Exhibit 4.1 of the Company’s Form 8-K filed on September 22, 2016)
Form of 8.750% Senior Note due 2022 (incorporated by reference to Exhibit 4.2 of the Company’s Form
8-K filed on September 21, 2016)
Supplemental Indenture for 8.750% Senior Notes due 2022, dated September 30, 2016, by and among the
Company, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee
(incorporated herein by reference to Exhibit 4.1 of the Company’s Form 8-K filed on September 30, 2016)
Registration Rights Agreement, dated as of September 21, 2016, by and among Beazer Homes USA, Inc.
and Credit Suisse Securities (USA) LLC (incorporated herein by reference to Exhibit 4.3 of the Company’s
Form 8-K filed September 22, 2016)
Registration Rights Agreement, dated as of September 30, 2016, by and among Beazer Homes USA, Inc.
and Credit Suisse Securities (USA) LLC (incorporated herein by reference to Exhibit 4.3 of the Company’s
Form 8-K filed September 30, 2016)
Indenture for 6.750% Senior Notes due 2025, dated March 14, 2017, by and among the Company, the
Guarantors and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit
4.1 of the Company’s Form 8-K filed on March 15, 2017)
Form of 6.750% Senior Note due 2025 (incorporated by reference to Exhibit 4.2 of the Company’s Form
8-K filed on March 15, 2017)
Registration Rights Agreement, dated as of March 14, 2017, by and among the Company, the Guarantors
and Credit Suisse Securities (USA) LLC, as representatives of the Initial Purchasers (incorporated herein
by reference to Exhibit 4.3 of the Company’s Form 8-K filed March 15, 2017)
Non-Employee Director Stock Option Plan (incorporated herein by reference to Exhibit 10.2 of the
Company's Form 10-K for the year ended September 30, 2003)
Amended and Restated 1999 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.2 of the
Company's Form 10-Q for the quarter ended June 30, 2008)
Second Amended and Restated Corporate Management Stock Purchase Program (incorporated herein by
reference to Exhibit 10.5 of the Company's Form 10-K for the year ended September 30, 2007)
Director Stock Purchase Program (incorporated herein by reference to Exhibit 10.7 of the Company's
Form 10-K for the year ended September 30, 2004)
Form of Stock Option and Restricted Stock Award Agreement (incorporated herein by reference to
Exhibit 10.8 of the Company's Form 10-K for the year ended September 30, 2004)
Form of Stock Option Award Agreement (incorporated herein by reference to Exhibit 10.9 of the
Company's Form 10-K for the year ended September 30, 2004)
Form of Amended and Restated 1999 Stock Incentive Plan Award Agreement for Performance Share
Awards, dated as of February 2, 2006 (incorporated herein by reference to Exhibit 10.18 of the Company's
Form 10-Q for the quarter ended March 31, 2006)
Form of Amended and Restated 1999 Stock Incentive Plan Award Agreement for Option and Restricted
Stock Awards, dated as of February 2, 2006 (incorporated herein by reference to Exhibit 10.19 of the
Company's Form 10-Q for the quarter ended March 31, 2006)
Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.1 of the Company's
Form 8-K filed on July 1, 2008)
2008 Beazer Homes USA, Inc. Deferred Compensation Plan, adopted effective January 1,
2008 (incorporated herein by reference to Exhibit 10.27 of the Company's Form 10-K for the fiscal year
ended September 30, 2007)
Discretionary Employee Bonus Plan (incorporated herein by reference to Exhibit 10.28 of the Company's
Form 10-K for the fiscal year ended September 30, 2007)
2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 of the Company's Form 10-
Q for the quarter ended March 31, 2010)
Form of 2010 Equity Incentive Plan Employee Award Agreement for Option and Restricted Stock
Awards (incorporated herein by reference to Exhibit 10.1 of the Company's Form 10-Q for the quarter
ended June 30, 2010)
Form of 2010 Equity Incentive Plan Award Agreement for Option and Restricted Stock Awards (Non-
Employee Directors) (incorporated herein by reference to Exhibit 10.2 of the Company's Form 10-Q for
the quarter ended June 30, 2010)
Form of 2010 Equity Incentive Plan Award Agreement for Option and Restricted Stock Awards (Named
Executive Officers) dated as of November 16, 2011 (incorporated herein by reference to Exhibit 10.1 of
the Company's 8-K filed on November 22, 2011)
96
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30
10.31
10.32
10.33
10.34
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10.35
—
10.36
—
Form of 2010 Equity Incentive Plan Performance Cash Award Agreement (Named Executive Officers)
(incorporated herein by reference to Exhibit 10.1 of the Company's 10-Q for the quarter ended December
31, 2012)
2014 Long-Term Incentive Plan, as amended (incorporated herein by reference to Appendix I of the
Company’s Form DEF 14A filed on December 19, 2016)
Reserved.
Reserved.
Reserved.
Form of 2014 Long-Term Incentive Plan Award Agreement for Restricted Stock Awards (Named Executive
Officers) (incorporated herein by reference to Exhibit 10.21 of the Company’s Form 10-K filed on
November 13, 2014)
Form of 2014 Long-Term Incentive Plan Award Agreement for TSR Performance Share Awards (Named
Executive Officers) (incorporated herein by reference to Exhibit 10.22 of the Company’s Form 10-K filed
on November 13, 2014)
Form of 2014 Long-Term Incentive Plan Award Agreement for Pre-Tax Income Performance Share Awards
(Named Executive Officers) (incorporated herein by reference to Exhibit 10.23 of the Company’s Form
10-K filed on November 13, 2014)
Form of 2014 Long-Term Incentive Plan Award Agreement for Restricted Stock Awards (Non-Employee
Directors) (incorporated herein by reference to Exhibit 10.24 of the Company’s Form 10-K filed on
November 13, 2014)
Form of 2014 Long-Term Incentive Plan Award Agreement for Performance Shares (Named Executive
Officers) (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 10-Q filed on February
4, 2016)
Form of 2014 Long-Term Incentive Plan Award Agreement for Performance Shares (Named Executive
Officers) (incorporated herein by reference to Exhibit 10.26 of the Company's Form 10-K filed on
November 14, 2017)
Severance and Change In Control Agreement by and between Allan P. Merrill and the Company, effective
as of September 18, 2018 (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K
filed on September 24, 2018)
Severance and Change In Control Agreement by and between Robert L. Salomon and the Company,
effective as of September 18, 2018 (incorporated herein by reference to Exhibit 10.2 of the Company’s
Form 8-K filed on September 24, 2018)
Severance and Change In Control Agreement by and between Keith L. Belknap and the Company, effective
as of September 18, 2018
Delayed-Draw Term Loan Facility, dated November 16, 2010, among Beazer Homes USA, Inc., Citibank,
N.A. and Citigroup Global Markets Inc. (incorporated herein by reference to Exhibit 10.1 of the Company's
Form 8-K filed on November 18, 2010)
Delayed-Draw Term Loan Facility, dated November 16, 2010, among Beazer Homes USA, Inc., Deutsche
Bank AG Cayman Islands Branch and Deutsche Bank Securities Inc. (incorporated herein by reference to
Exhibit 10.2 of the Company's Form 8-K filed on November 18, 2010)
First Amendment to the Delayed-Draw Term Loan Facility, dated as of November 16, 2010, by and between
Beazer Homes USA, Inc. and Citibank, N.A. (incorporated herein by reference to Exhibit 10.2 of the
Company's 8-K filed on August 9, 2012)
First Amendment to the Delayed-Draw Term Loan Facility, dated as of November 16, 2010, by and between
Beazer Homes USA, Inc. and Deutsche Bank AG Cayman Islands Branch (incorporated herein by reference
to Exhibit 10.3 of the Company's 8-K filed on August 9, 2012)
Second Amended and Restated Credit Agreement, dated as of September 24, 2012, between Beazer Homes
USA, Inc., as borrower, the lenders party thereto, the issuers party thereto, and Credit Suisse AG, Cayman
Islands Branch, as agent (incorporated herein by reference to Exhibit 10.1 of the Company's 8-K filed on
September 26, 2012)
First Amendment to Second Amended and Restated Credit Agreement, dated as of November 10, 2014,
between Beazer Homes USA, Inc., as borrower, the lenders party thereto, the issuers party thereto, and
Credit Suisse AG, Cayman Islands Branch, as agent (incorporated herein by reference to Exhibit 10.33 of
the Company’s Form 10-K filed on November 13, 2014)
Second Amendment to Second Amended and Restated Credit Agreement, dated as of November 6, 2015,
between Beazer Homes USA, Inc., as borrower, the lenders party thereto, the issuers party thereto, and
Credit Suisse AG, Cayman Islands Branch, as agent (incorporated herein by reference to Exhibit 10.34 of
the Company's 10-K filed on November 10, 2015)
97
10.37
10.38
—
—
10.39
—
10.40
—
10.41*
21
23
31.1
31.2
32.1
32.2
101.INS
—
—
—
—
—
—
—
—
Credit Agreement, dated March 11, 2016, by and between Beazer Homes USA, Inc. and Wilmington Trust
(incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed on March 11, 2016)
Third Amendment to Second Amended and Restated Credit Agreement, dated as of October 13, 2016, by
and among Beazer Homes USA, Inc., as borrower, the lenders party thereto, the issuers party thereto, and
Credit Suisse AG, Cayman Islands Branch (incorporated herein by reference to Exhibit 10.1 of the
Company’s Form 8-K filed October 13, 2016)
Fourth Amendment to the Second Amended and Restated Credit Agreement, dated as of September 24,
2012, among the Company, as borrower, the lenders party thereto, the issuers party thereto, and Credit
Suisse AG, Cayman Islands Branch, as agent, as amended (incorporated herein by reference to Exhibit
10.1 of the Company’s Form 8-K filed on October 24, 2017)
Fifth Amendment to the Second Amended and Restated Credit Agreement, dated as of September 24, 2012,
among the Company, as borrower, the lenders party thereto, the issuers party thereto, and Credit Suisse
AG, Cayman Islands Branch, as agent, as amended (incorporated herein by reference to Exhibit 10.1 of
the Company’s Form 8-K filed on October 5, 2018)
Form of 2014 Long-Term Incentive Plan Award Agreement for Performance Shares (Named Executive
Officers) (incorporated herein by reference to Exhibit 10.2 of the Company’s Form 10-Q for the quarter
ended December 31, 2017)
Subsidiaries of the Company
Consent of Deloitte & Touche LLP
Certification pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the Sarbanes-Oxley Act
of 2002
Certification pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the Sarbanes-Oxley Act
of 2002
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
XBRL Instance Document
101.SCH —
XBRL Schema Document
101.CAL —
XBRL Calculation Linkbase Document
101.LAB —
XBRL Labels Linkbase Document
101.PRE —
XBRL Presentation Linkbase Document
101.DEF —
XRBL Definition Linkbase Document
* Represents a management contract or compensatory plan or arrangement.
98
(b) Exhibits
Reference is made to Item 15(a)3 above. The following is a list of exhibits, included in item 15(a)3 above, that are filed concurrently
with this report.
10.29*
21
23
31.1
31.2
32.1
32.2
101.INS
—
—
—
—
—
—
—
—
Severance and Change In Control Agreement by and between Keith L. Belknap and the Company, effective
as of September 18, 2018
Subsidiaries of the Company
Consent of Deloitte & Touche LLP
Certification pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the Sarbanes-Oxley Act
of 2002
Certification pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the Sarbanes-Oxley Act
of 2002
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
XBRL Instance Document
101.SCH —
101.CAL —
XBRL Schema Document
XBRL Calculation Linkbase Document
101.LAB —
XBRL Labels Linkbase Document
101.PRE —
XBRL Presentation Linkbase Document
101.DEF —
XRBL Definition Linkbase Document
* Represents a management contract or compensatory plan or arrangement.
(c) Financial Statement Schedules
Reference is made to Item 15(a)2 above.
99
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: November 13, 2018
Beazer Homes USA, Inc.
By:
Name:
/s/ Allan P. Merrill
Allan P. Merrill
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Date: November 13, 2018
Date: November 13, 2018
Date: November 13, 2018
Date: November 13, 2018
Date: November 13, 2018
Date: November 13, 2018
Date: November 13, 2018
Date: November 13, 2018
Date: November 13, 2018
/s/ Stephen P. Zelnak
Stephen P. Zelnak, Jr.
Director and Non-Executive Chairman of the Board
/s/ Allan P. Merrill
Allan P. Merrill
President, Chief Executive Officer and Director
/s/ Elizabeth S. Acton
Elizabeth S. Acton
Director
/s/ Laurent Alpert
Laurent Alpert
Director
/s/ Brian C. Beazer
Brian C. Beazer
Director and Chairman Emeritus
/s/ Peter G. Leemputte
Peter G. Leemputte
Director
/s/ Peter M. Orser
Peter M. Orser
Director
/s/ Norma Provencio
Norma Provencio
Director
/s/ Danny R. Shepherd
Danny R. Shepherd
Director
Name:
Name:
Name:
Name:
Name:
Name:
Name:
Name:
Name:
By:
By:
By:
By:
By:
By:
By:
By:
By:
100
Date: November 13, 2018
By:
Name:
/s/ Robert L. Salomon
Robert L. Salomon
Executive Vice President and Chief Financial Officer
101
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, Allan P. Merrill, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Beazer Homes USA, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a)
(b)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: November 13, 2018
/s/ Allan P. Merrill
Allan P. Merrill
President and Chief Executive Officer
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, Robert L. Salomon, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Beazer Homes USA, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a)
(b)
all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: November 13, 2018
/s/ Robert L. Salomon
Robert L. Salomon
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of Beazer Homes USA,
Inc. (the “Company”) hereby certifies that the Report on Form 10-K of the Company for the period ended September 30, 2018,
accompanying this certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and that information contained in the periodic report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: November 13, 2018
/s/ Allan P. Merrill
Allan P. Merrill
President and Chief Executive Officer
The foregoing certification is being furnished solely pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and
Section 1350 of Title 18, United States Code, and is not being filed as part of the report or as a separate disclosure document.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of Beazer Homes USA,
Inc. (the “Company”) hereby certifies that the Report on Form 10-K of the Company for the period ended September 30, 2018,
accompanying this certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and that information contained in the periodic report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: November 13, 2018
/s/ Robert L. Salomon
Robert L. Salomon
Executive Vice President and Chief Financial Officer
The foregoing certification is being furnished solely pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and
Section 1350 of Title 18, United States Code, and is not being filed as part of the report or as a separate disclosure document.
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About Beazer Homes
Headquartered in Atlanta, Beazer Homes is a
geographically diversified homebuilder with operations
in 13 states within three geographic regions of the
United States. The Company’s homes meet or exceed
the benchmark for energy-efficient home construction
as established by the Department of Energy’s ENERGY
STAR® program and are designed with Choice Plans™
to meet the personal preferences and lifestyles of
our buyers. In addition, the Company is committed
to providing a range of preferred lenders through our
Mortgage Choice program to facilitate both transparent
competition between lenders and enhanced customer
service. The Company’s operations are in the following
states: Arizona, California,
Delaware, Florida, Georgia,
Indiana, Maryland, Nevada,
North Carolina, South
Carolina, Tennessee, Texas
and Virginia. Beazer Homes
is listed on the New York
Stock Exchange under the
ticker symbol “BZH.”
FINANCIAL SUMMARY
Beazer Homes USA, Inc.
(Total Revenue and Adjusted EBITDA dollars in millions, Average Selling Price dollars in thousands)
Year Ended September 30,
2014
2015
2016
2017
2018
Continuing Operations Data (except EBITDA)
Home Orders
Home Closings
Total Revenue
Average Selling Price
4,748
4,951
$1,464
$ 285
5,358
5,010
$1,627
$ 314
5,297
5,419
$1,822
$ 329
5,464
5,525
$1,916
$ 343
5,544
5,767
$ (cid:143)(cid:143)2,107
$ (cid:143)360
Homebuilding Gross Margin*
22.2%
21.5%
20.6%
21.2%
21.2%
Net Income (Loss) Per Share
Adjusted EBITDA**
$ 1.10
$©133
$ 10.91
$ ««144
$ 0.16
$ ««156
$ 0.99
$ ««179
$(1.40)
$ 205
Beazer Homes
BZH-048_2018AR_COVER-C1.indd 2
Board of Directors
Shareholder and Corporate Information
Stephen P. Zelnak, Jr.«(1)(3)(5)(6)
Non-Executive Chairman of the Board,
Beazer Homes USA, Inc.
Brian C. Beazer«(2)(3)(6)
Chairman Emeritus,
Beazer Homes USA, Inc.
Elizabeth S. Acton«(1)(4)(5)(6)
Retired Executive Vice President
and Chief Financial Officer,
Comerica, Inc.
Laurent Alpert«(3)(4)(6)
Senior Counsel,
Cleary, Gottlieb, Steen & Hamilton LLP
Peter G. Leemputte«(1)(4)(5)(6)
Retired Chief Financial Officer and Treasurer,
Keurig Green Mountain, Inc.
Allan P. Merrill
President and Chief Executive Officer,
Beazer Homes USA, Inc.
Peter M. Orser«(2)(4)(5)(6)
Retired President and Chief Executive Officer,
Weyerhaeuser Real Estate Company
Norma A. Provencio«(2)(3)(5)(6)
President and Owner,
Provencio Advisory Services, Inc.
Danny R. Shepherd«(1)(2)(5)(6)
Retired Vice Chairman,
Vulcan Materials Company
COMMITTEES
(1)««« Member of the Audit Committee
(2)«« Member of the Compensation Committee
(3)«« Member of the Nominating/
Corporate Governance Committee
(4)«« Member of the Finance Committee
(5)«« Audit Committee Financial Expert,
as defined by SEC regulations
(6)«« Independent, within the meaning of the
Sarbanes-Oxley Act and NYSE Listing
Standards
Executive Officers
Allan P. Merrill
President and Chief Executive Officer
Keith L. Belknap
Executive Vice President and General Counsel
Robert L. Salomon
Executive Vice President, Chief Financial
Officer and Chief Accounting Officer
CORPORATE HEADQUARTERS
Beazer Homes USA, Inc.
1000 Abernathy Road
Suite 260
Atlanta, Georgia 30328
(770) 829-3700
www.beazer.com
INDEPENDENT AUDITORS
Deloitte & Touche LLP
BEAZER HOMES CONFIDENTIAL ETHICS HOTLINE
Beazer Homes is committed to maintaining the highest ethical standards and
compliance with the law at all levels. To help ensure that all instances of known
or suspected fraud, theft, accounting or auditing improprieties, other financial
misconduct, and any other type of misconduct involving a violation of Beazer
Homes’ Code of Business Conduct and Ethics, the assets, operations or employees
of Beazer Homes USA, Inc. are reported, we maintain an ethics hotline.
Interested parties may contact the hotline by calling 1-866-457-9346 and
reporting their concerns to a representative of Global Compliance, a third-
party company that administers our ethics hotline.
Alternatively, interested parties can report any such concern via an online form
by visiting the following website: www.integrity-helpline.com/Beazer.jsp. The
link provides an online form that upon completion will be submitted directly to
Global Compliance. Interested parties may report their concerns anonymously,
should they wish to do so. All concerns, whether reported through the toll-free
number or the online form, will be directed to certain officers of Beazer Homes,
and will be reviewed and investigated as appropriate. Where warranted after
investigation, messages will be summarized and referred to the Audit Committee
of our Board of Directors for appropriate action.
INQUIRIES
Individuals seeking financial data or information about the Company and its
operations should visit the Company’s website at www.beazer.com or contact
our Investor Relations and Corporate Communications Department.
FINANCIAL INFORMATION
Copies of Beazer Homes USA, Inc.’s Annual Report on Form 10-K, Proxy
Statement and Forms 10-Q and 8-K, as filed with the United States Securities
and Exchange Commission, will be furnished upon written request to our
Investor Relations and Corporate Communications Department or can be
accessed at www.beazer.com.
TRANSFER AGENT
American Stock Transfer & Trust Company
59 Maiden Lane
New York, New York 10038
(212) 936-5100
TRADING INFORMATION
Beazer Homes USA, Inc. lists its common shares on the New York Stock
Exchange (NYSE) under the symbol “BZH.”
DUPLICATE MAILINGS
If you are receiving duplicate or unwanted copies of our publications, please
contact American Stock Transfer & Trust Company at the number listed above.
CERTIFICATION TO NYSE
Pursuant to Section 303A.12(a) of the New York Stock Exchange Listed
Company Manual, the Company submitted the Annual CEO Certification
to the NYSE, effective February 7, 2018.
12/11/18 2:02 PM
2 0 1 8 A N N U A L R E P O R T
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Beazer Homes USA, Inc.
1000 Abernathy Road
Suite 260
Atlanta, Georgia 30328
(770) 829-3700
www.beazer.com
BZH-048_2018AR_COVER-C1.indd 1
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