2020
ANNUAL REPORT
ABOUT BEAZER HOMES
Headquartered in Atlanta, Georgia, Beazer
Homes is one of the country’s largest
homebuilders. Every Beazer home is designed
and built to provide Surprising Performance,
giving you more quality and more comfort from
the moment you move in — saving you money
every month. With Beazer’s Choice Plans™,
you can personalize your primary living areas
— giving you a choice of how you want to live
in the home — at no additional cost. And unlike
most national homebuilders, we empower
our customers to shop and compare loan
options. Our Mortgage Choice program gives
you the resources to easily compare multiple
loan offers and choose the best lender and
loan offer for you, saving you thousands over
the life of your loan. We build our homes in
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.”
RETURN ON ASSETS
9.6%
9.2%
10.2%
8.0%
7.1%
Q4/FY16
Q4/FY17 Q4/FY18 Q4/FY19 Q4/FY20
NET DEBT/LTM ADJUSTED EBITDA*
7.1x
5.8x
5.3x
5.9x
3.9x
Q4/FY16
Q4/FY17 Q4/FY18 Q4/FY19 Q4/FY20
* For a full reconciliation of our Adjusted EBITDA, see Item 6
on our Form 10-K.
FINANCIAL SUMMARY
Beazer Homes USA, Inc.
(Total Revenue and Adjusted EBITDA dollars in millions, Average Selling Price dollars in thousands)
Year Ended September 30,
2016
2017
2018
2019
2020
Continuing Operations Data (except EBITDA)
Home Orders
Home Closings
5,297
5,419
5,464
5,525
5,544
5,767
5,576
5,500
Total Revenue
$1,822
$ 1,916
$ 2,107
$2,088
Average Selling Price
$ 329
$ 343
$ 360
$ 378
6,293
5,492
$ 2,127
$ 385
Homebuilding Gross Margin*
20.6%
21.2%
21.2%
19.7%
21.0%
Net Income (Loss) Per Share
$0.16
$ 0.99
$ (1.40)
$ (2.59)
$ 1.78
Adjusted EBITDA**
$ 156
$ 179
$ 205
$ 180
$ 204
* Excluding impairments, abandonments, and interest included in cost of sales, as well as certain unexpected
warranty costs and recoveries detailed in Item 7 on our Form 10-K.
** For a full reconciliation of our Adjusted EBITDA, see Item 6 on our Form 10-K.
DEAR STOCKHOLDER
Fiscal 2020 was a challenging — but highly successful — year for Beazer Homes,
as we exceeded the financial objectives we set for ourselves at the beginning
of the year despite the disruption caused by the pandemic. Thanks to
the creativity, agility and grit of our employees, we reinvented many of
our business processes to adapt to a new “social distancing” business
environment. Their efforts allowed us to safely continue selling, building and
delivering homes — and positioned us to benefit from a surge in demand for
new homes that accelerated through the summer. In fact, the sales strength
we experienced over the last several months of the year drove the dollar
value of homes in backlog up nearly 50% versus the prior year, providing
us with increased visibility and confidence heading into the coming year.
2020 FINANCIAL GOALS
Grow Adjusted EBITDA by > 10%
Produce > 10% ROA
Achieve Net Debt to EBITDA < 5x
1
2020 STOCKHOLDER LETTER
2021 REPRESENTS AN INFLECTION YEAR
Fiscal 2021 will be an important inflection year for Beazer,
as we tilt our long-term Balanced Growth Strategy
toward growth. Over the last 10 years, we significantly
improved our profitability while intentionally shrinking our
balance sheet, enabling us to reduce debt by hundreds
of millions of dollars. Now, with our goal of reaching
total debt below $1 billion in sight, we are positioned to
allocate most of our investment capital toward growth.
This means we’ll be increasing land and land development
spending compared to recent years. Taken together with
our increased emphasis on controlling land positions
through options, we expect to achieve a material
expansion in our community count beginning in our next
fiscal year (FY22). This should contribute to growth in
revenue, earnings, and returns for our stockholders.
Although buying land is a clear signal for future growth, it typically takes 12 to 18 months for new
communities to begin generating revenue. As such, investors will have to be a bit patient to see the
benefits of this increased investment. But this doesn’t mean the current fiscal year won’t also be
rewarding. In fact, we expect to deliver higher profitability in the current fiscal year (FY21) as the
expansion in our backlog, efforts to increase our operating margin, and a big reduction in interest
expense should allow us to overcome a smaller community count.
OBJECTIVES FOR
FISCAL 2021
Generate Higher EBITDA &
Double-Digit EPS Growth
• benefit from higher backlog
• increase operating margin
• maximize overhead leverage
Grow Our Total Lot Position
• higher land spending
• even greater use of options
Retire Debt
• repurchase more than
$50 million of our
outstanding senior debt
2
2020 Annual Report
COMMITMENT TO ESG
AVERAGE HERS SCORES FOR BEAZER HOMES
Our focus this year is not only about growth but also
involves another important part of our operations —
namely our commitment to ESG matters. Although
we believe we’ve been a leader among the public
homebuilders in ESG for some time, we’re taking a
number of important steps forward in 2021. First, as
we’ve described in our Proxy Statement, we are the
first national builder to publicly commit to ensuring
each home we build is Net Zero Energy Ready and we
expect to reach this objective by the end of 2025. We
calculate the energy performance of our homes using
the industry standard Home Energy Rating System
(HERS), which measures energy efficiency on an easy
to understand scale: the lower the number, the more
energy efficient the home. Net Zero Energy Ready
means that every home we build will have a gross HERS
Index Score (before any benefit of renewable energy
production) of 45 or less. This means homeowners
will be able to achieve net zero energy by attaching
a properly sized renewable energy system. Reaching
our Net Zero Energy Ready target represents a
significant improvement in energy efficiency and will
lead to a reduction in greenhouse gas emissions.
56
<45
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CHARITY TITLE
As part of our ongoing commitment to strengthen
the communities we serve, we’ve created a new,
wholly-owned title insurance agency — Charity Title.
Charity Title donates 100% of its profits to charity.
While most large builders offer title insurance
through a captive agency, we believe we are the only
one to commit all title insurance agency profits to
charitable organizations. Specifically, we will continue
supporting the Fisher House Foundation — for whom
we have raised nearly $1 million in recent years —
while providing new assistance for a limited number
of organizations that work to make home ownership
more attainable or pursue socially responsible
initiatives. By creating a dedicated funding source
for our philanthropic efforts, we expect to be a
consistent and important financial partner and
make meaningful positive contributions in the
communities where our customers live and work.
GATHERINGS®
We continued to build and market our Gatherings 55+ condo communities in Fiscal 2020. In FY21, we will be
actively selling or constructing Gatherings sites in Atlanta, Dallas, Houston, Maryland, Nashville, and Orlando.
These communities consist of four-story condominiums that are strategically placed in or near the existing
neighborhoods of many downsizing Baby Boomers. For these buyers, the convenience, affordability and
low-cost maintenance of a Gatherings home allows them to simplify their lives and represents an exceptional
value compared to alternatives.
Beazer Homes
3
900 THE BEAZER
DIFFERENCE
We strive to provide Extraordinary Value at an Affordable Price, and we are
continually improving the homes we offer. Our underlying value proposition is
supported by our three key points of differentiation to our customers:
MORTGAGE CHOICE
We provide a more valuable mortgage application process for our customers by
ensuring they have an opportunity to shop and compare loan estimates from more
than one lender. We do this by providing each buyer with access to a selection of
high-quality lenders and tools that assist customers in comparing loan offers based
on what is most important to them.
CHOICE PLANS™
With Beazer’s Choice PlansTM, we have created structural floor plan options for every
plan we offer. These Choice Plans allow buyers to personalize their primary living
areas to match their living preferences at no additional charge.
SURPRISING PERFORMANCE
We design and build every Beazer home to provide more quality and more comfort
from the moment our customers move in. With the experience of nine generations
of builders, quality and comfort is a part of everything we do—from our people, to
our process, to our materials from industry-leading partners. Our commitment to
exceed the latest ENERGY STAR® standards means wall-to-wall comfort in every
Beazer home, and we were pleased to receive the ENERGY STAR® Partner of the
Year—Sustained Excellence Award for the fifth consecutive year in 2020.
CONCLUSION
Beazer generated exceptional results in 2020. We improved profitability and returns, increased
sales pace, and grew our backlog significantly, giving us confidence and positioning us for
continued success in 2021. Our accomplishments would not have been possible without the
resiliency of our employees and their ability to adapt under unprecedented circumstances.
I am extremely grateful for their commitment. We will build upon all our achievements in
2020 as we expect to pivot our capital allocation toward growth and increase our
commitment to ESG in 2021. Thank you for your continued support as we execute our
strategy to drive higher earnings and improved stockholder returns.
Sincerely,
Allan P. Merrill
Chairman, President and
Chief Executive Officer
4
2020 Annual Report
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, 2020
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 each class
Common Stock, $0.001 par value
Trading Symbol(s)
BZH
Name of each exchange 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 x
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 x
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes x No ¨
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,” and ""emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Non-accelerated filer
¨ Accelerated filer
¨ Smaller reporting company
Emerging growth company
x
☐
☐
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 has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO x
The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant as of March 31, 2020,
based on the closing sale price per share as reported by the New York Stock Exchange on such date, was $193,280,088.
Class
Common Stock, $0.001 par value
Outstanding at November 9, 2020
31,012,826
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the registrant’s 2020 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, 2020.
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
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3
13
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22
22
22
23
25
28
46
47
91
91
91
92
92
92
92
92
93
99
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 events or results, and it is possible that such events or results described
in this Form 10-K will not occur or 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,”, "outlook", “goal,” “target” or other similar words or phrases.
These forward-looking statements involve risks, uncertainties and other factors, many of which are outside of our control, that
could cause actual events or results to differ materially from the events or 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 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, wage levels, declines in
employment levels, inflation or increases in the quantity and decreases in the price of new homes and resale homes on
the market;
the potential negative impact of the COVID-19 pandemic, which, in addition to exacerbating each of the risks listed
above and below, may include a significant decrease in demand for our homes or consumer confidence generally with
respect to purchasing a home, an inability to sell and build homes in a typical manner or at all, increased costs or
decreased supply of building materials, including lumber, or the availability of subcontractors, housing inspectors, and
other third-parties we rely on to support our operations, and recognizing charges in future periods, which may be
material, for goodwill impairments, inventory impairments and/or land option contract abandonments;
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;
the availability and cost of land and the risks associated with the future value of our inventory, such as asset
impairment charges we took on select California assets during the second quarter of fiscal 2019;
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;
our ability to raise debt and/or equity capital, due to factors such as limitations in the capital markets (including market
volatility) or adverse credit market conditions, and our ability to otherwise meet our ongoing liquidity needs (which
could cause us to fail to meet the terms of our covenants and other requirements under our various debt instruments
and therefore trigger an acceleration of a significant portion or all of our outstanding debt obligations), including the
impact of any downgrades of our credit ratings or reduction in our liquidity levels;
market perceptions regarding any capital raising initiatives we may undertake (including future issuances of equity or
debt capital);
terrorist acts, protests and civil unrest, political uncertainty, natural disasters, acts of war or other factors over which
the Company has little or no control;
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, changes in tax laws
or otherwise regarding the deductibility of mortgage interest expenses and real estate taxes or an increased number of
foreclosures;
increased competition or delays in reacting to changing consumer preferences in home design;
natural disasters or 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;
1
•
•
•
•
•
•
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;
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; or
the impact on homebuilding in key markets of governmental regulations limiting the availability of water.
Any forward-looking statement, including any statement expressing confidence regarding future outcomes, 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.
2
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 extraordinary 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. At the start of our fiscal 2020, factors including rising levels of household formation, a constrained supply of new and
used homes, wage growth, strong employment conditions and mortgage rates that continue to be low by historical standards
were contributing to improving conditions for new home sales.
Beginning in mid-March of fiscal 2020, we experienced extraordinary volatility in business conditions. On March 11, 2020, the
World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and, on March 13, 2020,
the United States declared a national emergency concerning the outbreak. In response to the initial onset of the pandemic in the
U.S., state and local governmental authorities and institutions implemented containment and mitigation measures, including
various “shelter in place” or “stay at home” orders, which created broad and severe economic impacts. However, all the states
and local government authorities in the markets in which we operate deemed housing an essential service, which enabled us to
continue building and delivering homes to our customers.
In response to the pandemic, we placed our highest priority on helping to protect the health and safety of our employees,
customers, and trade partners. We took unprecedented actions in mid-March to temporarily close our sales centers, model
homes and design studios to the general public. Our sales teams shifted to an appointment-only home sales process and
leveraged virtual sales tools to connect with our customers online. We followed recommended social distancing and other
health and safety protocols when meeting in person with a customer and shifted our corporate and division office functions to
work remotely. We implemented construction site health and safety guidelines in an effort to ensure both our employees and
our trade partners were adhering to safety, hygiene, and social distancing requirements. During the latter part of May, with
restrictions easing in many of our markets, we began to take steps to effectively and safely resume nearly all of our operations,
while also expanding construction and warranty service activities to the extent permitted by local authorities and our safety
protocols.
While the economic recovery following initial containment and mitigation measures is still ongoing, economic conditions in
our markets have improved. We believe this is the result of low interest rates and short supply of homes, together with what
may be a desire by many people to move out of crowded urban areas into new homes in the suburbs. The strength in our
markets may also be partially attributable to pent up demand from the earlier part of the COVID-19 pandemic when more
restrictive "stay-at-home" orders were in place. Due to the return of demand towards the end of May, homebuilding gross
margin (excluding impairments, abandonments and amortized interest) was 21.2% and 21.7% for the fiscal third quarter and
fourth quarter, respectively, up 180 basis points and 180 basis points compared to prior year quarters, respectively.
Despite growth in many of our key operational metrics as housing market conditions improved, the magnitude and duration of
the COVID-19 pandemic remains unknown. If economic conditions deteriorate, we expect to experience material declines in
our net new orders, closings, revenues, cash flow and/or profitability in fiscal 2021, compared to the corresponding prior-year
periods, and compared to our expectations. In addition, if conditions in the overall housing market or in a specific market
worsen in the future beyond our current expectations, if future changes in our business strategy significantly affect any key
assumptions used in our projections of future cash flows, or if there are material changes in any of the other items we consider
in assessing recoverability, we may recognize charges in future periods for inventory impairments related to our current
3
inventory assets. Any such charges could be material to our consolidated financial statements. For further discussion of the
potential impacts on our business from the COVID-19 pandemic, see Part I, Item 1A – Risk Factors below.
Long-Term Business Strategy
We continue to execute against our long-term balanced growth strategy, which we define as the expansion of earnings at a
faster rate than our revenue growth, supported by a less-leveraged and return-driven capital structure. This strategy provides us
with flexibility to increase return on capital, reduce leverage, or increase investment in land and other operating assets in
response to changing market conditions.
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. Aligned with this long-term strategy, our specific objectives include
increasing EBITDA, improving balance sheet efficiency, and reducing leverage.
We repaid $50.0 million of our Senior Unsecured Term Loan and repurchased $3.3 million of outstanding common stock
during fiscal 2020. Over the past five years, we repaid a total of $442.3 million of debt. We expect to reduce more outstanding
debt over time with a goal of having less than $1.0 billion of outstanding debt. As of September 30, 2020, we had outstanding
debt of $1.1 billion.
Reportable Business Segments
Our active homebuilding operations consist of the design, sale, and construction of single-family and multi-family homes in the
following geographic regions, which represent our reportable segments:
Segment/State
West:
Arizona
California
Nevada
Texas
East:
Indiana
Maryland/Delaware
Tennessee
Virginia
Southeast:
Florida
Georgia
North Carolina
South Carolina
Market(s)
Phoenix
Los Angeles County, Orange County, Riverside County, Sacramento
County, San Bernardino County, San Diego County, Tulare County
Las Vegas
Dallas/Ft. Worth, Houston
Indianapolis
Anne Arundel County, Baltimore County, Howard County,
Montgomery County, Sussex County
Nashville
Fairfax County, Loudoun County, Prince William County, Stafford
County
Orlando, Tampa/St. Petersburg
Atlanta, Savannah
Raleigh/Durham
Charleston, Myrtle Beach
4
The following tables summarize certain operating information of our reportable segments, including number of homes closed,
the average selling price (ASP) for the periods presented, and units and dollar value in backlog as of September 30, 2020, 2019,
and 2018. Refer to “Management's Discussion and Analysis of Results of Operations and Financial Condition” in Item 7 of this
Form 10-K for additional information.
2020
2019
2018
($ in thousands)
West
East
Southeast
Total Company
West
East
Southeast
Total Company
ASP in backlog (in thousands)
Seasonal and Quarterly Variability
Number of
Homes
Closed
Average
Closing Price
368.2
3,206 $
Number of
Homes
Closed
Average
Closing Price
354.3
2,859 $
Number of
Homes
Closed
Average
Selling Price
345.3
2,895 $
1,045
1,241
5,492 $
455.7
370.8
385.5
1,092
1,549
5,500 $
463.7
360.2
377.7
1,221
1,651
5,767 $
418.3
343.5
360.2
September 30, 2020
September 30, 2019
September 30, 2018
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)
1,365 $
624
520
2,509 $
$
493.7
301.1
200.5
995.3
396.7
982 $
341
385
1,708 $
$
362.5
155.1
147.5
665.1
389.4
858 $
281
493
1,632 $
$
305.5
127.5
195.0
628.0
384.8
Our homebuilding operating cycle typically 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.
While the first half of fiscal 2020 largely followed our typical seasonal pattern, the impacts of the COVID-19 pandemic resulted
in a shift from our typical seasonal trend such that higher levels of new home orders were observed in the fourth fiscal quarter
instead of the third fiscal quarter, which we expect will lead to increased closings in the first half of fiscal 2021 as compared to
fiscal 2020.
Marketing and Sales
We make extensive use of digital and traditional marketing vehicles and other promotional activities, including our website
(www.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, 2020, we maintained and owned 248 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, including digital kiosks, interactive site maps/plans, interactive
magnetic floor plan boards, interactive Surprising Performance rooms, 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, pricing information, tours of model homes, the community's
unique selling proposition, detailed explanations of our differentiators as discussed below, and associated savings opportunities.
Sales personnel are trained internally through a structured training program focused on sales techniques, product familiarity,
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. Sales personnel must
be licensed real estate agents where required by law.
5
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:
Mortgage Choice – Most of our buyers need to arrange financing in order to purchase a new home. Unlike many of our major
competitors, we have no ownership or other interest in a mortgage company, which allows us to partner with our customers to
help them get the most competitive interest rates, fees and service levels available. For every Beazer community, we identify
Choice Lenders, who are selected for their ability to provide a comprehensive array of products and programs, meet our high
customer service standards and willingness to compete to earn our customer’s business. We then provide our customers with an
industry-leading online comparison tool that helps them easily compare multiple mortgage offers side-by-side.
Choice PlansTM – Every family lives in their home differently, which is why we created Choice PlansTM. Choice PlansTM provide
our buyers with more floor plan flexibility at no additional cost. For example, buyers of to-be-built homes can typically choose
between two different configurations in the kitchen/great room and in the primary bedroom/bathroom based on individual
preferences, at no additional cost. Offering these pre-designed floor plan alternatives allows us to offer fewer different plans,
which improves efficiency and reduce costs while creating living areas that match an individual buyer's lifestyle.
Surprising Performance – We place an emphasis on building high-quality homes and delivering outstanding customer
experience. All Beazer homes are designed and built to provide Surprising Performance, which means more quality, comfort,
and savings. We deliver these benefits through our people, materials, and process. From the perspective of people, our
experienced team of new home counselors, designers, builders, and customer care representatives are dedicated to provide
excellent service at every point of the home purchase process. From the perspective of materials, we work with industry-leading
partners who, like us, are committed to innovation and quality. From the perspective of process, we ensure quality of
construction through high caliber construction practices and rigorous inspections. For example, we ensure our homes are built
to the latest ENERGY STAR® standards and provide buyers 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. As
of September 30, 2020, the average new Beazer home has an energy rating of 56. Part of our Surprising Performance
differentiator also includes regularly surveying the homebuyer process in order to measure and continuously improve the
customer experience.
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 generally to those markets where we believe we can maximize our profitability and return on capital.
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, product affordability, consumer
preferences, land availability, 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 active adult. Within these buyer
groups, we have developed detailed targeted buyer profiles based on demographic and psychographic data, including
information about 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 increase customer satisfaction by incorporating quality and energy-efficient
materials, distinctive design features, convenient locations, and competitive prices.
6
Gatherings. For over a decade, we have been building age-targeted four-story condominiums to address the growing 55-plus
segment in the Mid-Atlantic market. In 2016, Gatherings® by Beazer Homes was officially introduced across several new areas
within Beazer's geographic footprint. We strive to provide extraordinary value at an affordable price and become a premier
provider of condominium living for adults over age 55. Our Dallas, Nashville, and Orlando markets are actively selling
Gatherings homes, while development is currently underway in Dallas, Nashville, Orlando, Atlanta, and Houston. As of
September 30, 2020, we have approved communities representing nearly 870 potential 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 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.
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 and/or an area president 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 land acquisition, 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;
7
•
•
•
•
the ability to secure governmental approvals and entitlements;
environmental and legal due diligence;
competition in the area;
proximity to local traffic corridors, job centers, and other 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 2020 and 2019, we continued to pursue land acquisition
opportunities and develop our land positions, spending approximately $276.9 million and $226.0 million, respectively, for land
acquisition and $163.9 million and $243.9 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.
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 $75.9 million as of September 30, 2020. The total
remaining purchase price, net of cash deposits, committed under all land option contracts was $395.1 million as of
September 30, 2020.
We expect to exercise, subject to market conditions and seller satisfaction of contract terms, substantially all 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.
8
The following table summarizes land controlled by us by reportable segment as of September 30, 2020:
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
285
326
290
679
222
598
251
1,151
Total West
1,580
2,222
East
Indiana
Maryland/Delaware
New Jersey
Tennessee
Virginia
Total East
Southeast
Florida
Georgia
North Carolina
South Carolina
Total Southeast
106
203
183
162
—
—
222
57
588
189
23
557
201
210
86
145
642
2,810
246
487
34
376
1,143
3,922
78
571
214
1,252
2,115
303
290
—
355
151
1,099
—
—
1
66
—
67
—
93
117
—
—
210
283
—
73
356
30
1
—
3
—
34
585
1,779
821
3,155
6,340
622
749
117
769
231
2,488
108
135
48
787
1,078
4,292
33
—
21
68
122
399
1
63
41
34
139
529
589
895
230
1,410
3,124
11,952
455
169
843
2,388
1,040
1,948
1,664
5,543
3,855
10,195
181
595
—
24
206
1,006
579
92
289
57
1,017
5,878
803
1,344
117
793
437
3,494
1,168
987
519
1,467
4,141
17,830
Total
(a) This category represents lots upon which construction of a home has commenced, including model homes.
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, 2020:
in thousands
West
East
Southeast
Total
Land Under
Development
Land Held for Future
Development
Land Held for Sale
$
$
325,777 $
119,358
144,628
589,763 $
3,483 $
14,077
10,971
28,531 $
4,516
3,702
4,404
12,622
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, 2020, our unconsolidated entities had borrowings outstanding totaling $8.8 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 as of September 30, 2020
and September 30, 2019.
9
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 independent 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 with changing home design trends as well as expanding our focus on
engineering without sacrificing 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. When it is economically advantageous, 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, 2020, excluding models, we had 2,562 homes at various stages
of completion, of which 1,913 were under contract and included in backlog at such date and 649 were unsold homes (133 of
which were substantially completed), either because the construction of the home was begun without a sales contract or because
the original sales contract had been canceled (collectively known as “speculative” or “spec” homes).
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. Our warranties are 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.
10
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
Choice program. Approximately 94% of our fiscal 2020 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 because they are the two largest demographic groups
of potential home buyers.
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, moratoriums generally
adversely affect us only 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.
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.
11
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, 2020, we had outstanding letters of credit and surety bonds of $48.8 million and $248.2 million, 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, 2020, we employed 1,063 persons, of whom 301 were sales and marketing personnel and 252 were
construction personnel. Although none of our employees are covered by collective bargaining agreements, at times certain of
the independent 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.
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.
12
Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well
as other information in this Form 10-K, before deciding whether to invest in shares of our common stock. The occurrence of
any of the events described below could harm our business, financial condition, results of operations, and growth prospects. In
such an event, the trading price of our common stock may decline, and you may lose all or part of your investment.
Business and Market Risks
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.
Our business could be materially and adversely disrupted by an epidemic or pandemic (such as the present outbreak and
worldwide spread of COVID-19), or similar public threat, or fear of such an event, and the measures that international,
federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it.
An epidemic, pandemic or similar serious public health issue, and the measures undertaken by governmental authorities to
address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period,
and thereby, and/or along with any associated economic and/or social instability or distress, have a material adverse impact on
our consolidated financial statements.
On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and
recommended containment and mitigation measures. On March 13, 2020, the United States declared a national emergency
concerning the outbreak, and many states and municipalities have since declared public health emergencies. Along with these
declarations, there have been extraordinary and wide-ranging actions taken by international, federal, state and local public
health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions across the United
States and the world, including quarantines, “stay-at-home” or "shelter in place" orders and similar mandates for many
individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.
In response to these steps, in mid-March 2020, we temporarily closed our sales centers, model homes and design studios to the
general public and shifted to an appointment-only personalized home sales process where permitted, following recommended
social distancing and other health and safety protocols when meeting in person with a customer. In addition, we shifted our
corporate and division office functions to work remotely. These measures, combined with limiting our construction operations
to authorized activities and a reduction in the availability, capacity and efficiency of municipal and private services necessary to
the progress of land development, homebuilding, completing mortgage loans and delivering homes, which in each case has
varied by market depending on the scope of the restrictions local authorities have established, tempered our sales pace and
delayed home deliveries beginning in the latter part of March and through most of our third fiscal quarter. We also prioritized
our warranty service activities to respond to emergency repair requests, and otherwise on a by-exception basis. We are
uncertain of the potential full magnitude or duration of the business and economic impacts from the unprecedented public
health effort to contain and combat the spread of COVID-19, which include, among other things, significant volatility in
financial markets and a sharp decrease in the value of equity securities, including our common stock. In addition, we can
provide no assurance as to whether the COVID-19 public health effort will be intensified to such an extent that we will not be
able to conduct any business operations in certain of our served markets or at all for an indefinite period.
13
Our business could also be negatively impacted over the medium-to-longer term if the disruptions related to the COVID-19
pandemic decrease consumer confidence generally or with respect to purchasing a home; cause civil unrest; or precipitate a
prolonged economic downturn and/or an extended rise in unemployment or tempering of wage growth, any of which could
lower demand for our products; impair our ability to sell and build homes in a typical manner or at all, generate revenues and
cash flows, and/or access the Facility (as defined below) or the capital or lending markets (or significantly increase the costs of
doing so), as may be necessary to sustain our business; increase the costs or decrease the supply of building materials or the
availability of subcontractors and other talent, including as a result of infections or medically necessary or recommended self-
quarantining, or governmental mandates to direct production activities to support public health efforts; and/or result in our
recognizing charges in future periods, which may be material, for goodwill impairments, inventory impairments, and/or land
option contract abandonments. Any sustained or prolonged reductions in future earnings periods may change our conclusions
on whether we are more likely than not to realize portions of our deferred tax assets. The inherent uncertainties surrounding the
COVID-19 pandemic, due in part to rapidly changing governmental directives, public health challenges and progress, and
market reactions thereto, also makes it more challenging for our management to estimate the future performance of our business
and develop strategies to generate growth or achieve any initial or revised objectives for 2021.
Should the adverse impacts described above (or others that are currently unknown) occur, whether individually or collectively,
we would expect to experience, among other things, decreases in our net new orders, home closings, average selling prices,
revenues and profitability, some of which we have experienced in our second and third fiscal quarters, and such impacts could
be material to our consolidated financial statements for the current fiscal year and beyond. In addition, should public health
efforts related to the COVID-19 pandemic intensify to such a degree that we cannot operate in some or all of our served
markets, the number of home orders we receive and home closings we complete, if any during such period (which may be
prolonged), may be significantly lower than historical norms. Along with an increase in cancellations of home purchase
contracts, if there are prolonged government restrictions on our business and our customers, and/or an extended economic
recession, we could be unable to produce revenues and cash flows sufficient to conduct our business; meet the terms of our
covenants and other requirements under the Facility, our senior notes and the related indenture, and/or mortgages and land
contracts due to land sellers and other loans; service our outstanding debt. Such a circumstance could, among other things,
exhaust our available liquidity (and ability to access liquidity sources) and/or trigger an acceleration to pay a significant portion
or all of our then-outstanding debt obligations, which we may be unable to do.
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 low compared to most historical periods for the last several years, which has made the homes we sell more affordable.
Mortgage rates have continuously fallen in fiscal years 2019 and 2020 due in part to Federal Reserve interest rate reductions,
decelerating economic growth and other factors. However, given the recent volatility in interest rates, we cannot predict
whether interest rates will continue to fall or remain low or rise. 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. If these or other lenders’ borrowing standards are tightened and/or the
federal government were to reduce or eliminate these mortgage loan programs (including due to any failure of lawmakers to
agree on a budget or appropriation legislation to fund relevant programs or operations), it would likely make it more difficult
for our customers to obtain acceptable financing, which would, in turn, 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, Maryland, and Virginia, and therefore could adversely affect our business, financial
condition and results of operations.
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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, less leverage 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.
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.
The market value of our land and/or homes may decline, leading to impairments or other charges 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.
While we employ measures to manage inventory risk, we may not be able to adequately insulate our operations from a severe
drop in inventory values. As a result, we may incur impairment charges or have to sell land at a loss. For example, during the
second quarter of fiscal 2019, we recognized impairments of $110.0 million on projects in progress and $38.6 million on land
held for sale. See Note 5 of the notes to our consolidated financial statements in this Form 10-K. In addition, when market
conditions are such that land values are not appreciating, option contracts previously entered into may become less desirable, at
which time we may elect to forgo deposits and pre-acquisition costs and terminate the agreements, which could result in
abandonment charges. Material impairment charges, abandonment charges or other write-downs of assets could adversely affect
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.
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Operational, Legal and Regulatory Risks
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.
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, changes in immigration laws and trends in labor
migration, 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 and political factors. For example, government imposed tariffs
and trade regulations on imported building supplies have, and in the future could have, significant impacts on the cost to
construct our homes. Such measures limit our ability to control costs, which if we are not able to successfully offset such
increased costs through higher sales prices, could adversely affect our margins on the homes we build.
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 affect our profitability and
results of operations.
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.
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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.
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, tornadoes, severe storms, heavy or prolonged precipitation, 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.
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. 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.
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.
In addition, there is a growing concern from advocacy groups and the general public that the emissions of greenhouse gases and
other human activities have caused, or will cause, significant changes in weather patterns and temperatures and the frequency
and severity of natural disasters. Government mandates, standards and regulations enacted in response to these projected
climate changes impacts could result in restrictions on land development in certain areas or increased energy, transportation and
raw material costs that may adversely affect our financial condition and results of operations.
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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.
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
are also party to putative class action lawsuits related to the inventory impairment charges we recognized during fiscal 2019.
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.
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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.
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, including officers and directors. 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.
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. While, to date, we have not had a significant cybersecurity breach
or attack that had a material impact on our business or results of operations, there can be no assurance that our efforts to
maintain the security and integrity of these types of IT networks and related systems will be effective or that attempted security
breaches or disruptions would not be successful or damaging.
Financial and Liquidity Risks
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.
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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.
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, unsecured term loan, 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.
Our substantial indebtedness could have important consequences to us and the holders of our securities, including, among other
things:
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•
causing us to be unable to satisfy our obligations under our debt agreements;
causing us to pay higher interest rates upon refinancing indebtedness if interest rates rise;
• making us more vulnerable to adverse general economic and industry conditions;
• making it difficult to fund future working capital, land purchases, acquisitions, capital expenditures, 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.
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.
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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. In February 2019, our stockholders approved an extension of these protective provisions in our certificate of
incorporation and the rights agreement, which as a result are scheduled to expire on November 2022. Any extension of these
protective provisions and our entry into a new rights agreement will require additional 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.
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.
Risk Relating to an Investment in our Common Stock
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:
•
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•
•
•
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
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
21
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.
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;
inventory impairments or other material write-downs;
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.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of September 30, 2020, we had under lease approximately 35,000 square feet of office space in Atlanta, Georgia to house
our corporate headquarters. We also lease and own an aggregate of approximately 191,000 and 7,700 square feet of office
space, respectively, 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
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
that 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.
For a discussion of our legal proceedings, see Note 9 of the notes to our consolidated financial statements in this Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
22
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 9,
2020, the last reported sales price of the Company's common stock on the NYSE was $12.67, and we had approximately 185
stockholders of record and 31,012,826 shares of common stock outstanding.
Dividends
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 2020, 2019, or 2018. 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, 2020, 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
392,465
$15.47
2,337,092
Issuer Purchases of Equity Securities
None.
23
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, 2020 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, 2015 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.
u Beazer Homes USA, Inc.
g S&P 500 Index
p S&P 500 Homebuilding Index
Fiscal Year Ended September 30,
2016
2017
2018
2019
2020
87.47
140.59
115.43
136.91
99.29
130.74
78.77
161.43
126.36
111.77
168.30
163.55
99.02
193.80
220.32
24
Item 6. Selected Financial Data
The following table summarizes certain financial data for the periods presented:
Net income (loss)
$ 52.2
$
(79.5)
$
(45.4)
$
Statements of Operations Data: (a)
Total revenue
Gross profit
Gross margin (b)
Operating income (loss)
Income (loss) from continuing operations
Income (loss) per share from continuing operations -
basic
Income (loss) per share from continuing operations -
diluted
Balance Sheet Data (end of year): (c)
Cash, cash equivalents and restricted cash
Inventory
Total assets
Total debt
Stockholders' equity
Supplemental Financial Data: (c)
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Financial Statistics: (c)
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) (d)
Adjusted EBITDA from total operations (e)
Adjusted EBITDA margin from total operations (f)
Operating Statistics from continuing operations:
Fiscal Year Ended September 30,
2020
2019
2018
2017
2016
($ in millions, except per share amounts and unit data)
$ 2,127
$ 2,088
$ 2,107
$ 1,916
$ 1,822
$
348
16.4 %
79
53
1.80
1.78
166
8.0 %
(90)
(79)
$
345
313
297
16.4 %
16.3 %
16.3 %
$
$
82
(45)
62
32
$
59
5
(2.59)
(1.40)
$
1.00
$
0.16
(2.59)
(1.40)
$
$
343
1,351
2,007
1,131
593
$
123
1,504
1,958
1,178
539
$
153
1,692
2,128
1,231
644
0.99
31.8
305
1,543
2,221
1,327
682
$
$
0.16
4.7
243
1,569
2,213
1,332
643
$
289
(10)
(59)
$
114
(25)
(119)
$
55
(74)
(132)
$
105
(14)
(30)
$
171
(13)
(206)
65.6 %
68.6 %
65.7 %
66.0 %
67.4 %
57.5 %
66.5 %
62.9 %
60.3 %
63.2 %
$ 204.4
$ 180.2
$ 204.7
$ 178.8
$ 156.3
9.6 %
8.6 %
9.7 %
9.3 %
8.6 %
New orders, net
Closings
6,293
5,492
5,576
5,500
5,544
5,767
5,464
5,525
5,297
5,419
Average selling price on closings (in thousands)
$ 385.5
$ 377.7
$ 360.2
$ 343.1
$ 329.4
1,708
2,509
Units in backlog (end of year)
Average selling price in backlog (end of year; in
$ 396.7
thousands)
(a) Statements of operations data is from continuing operations. Gross profit includes inventory impairments and abandonments
of $2.9 million, $148.6 million, $6.5 million, $2.4 million, and $15.3 million for the fiscal years ended September 30, 2020,
2019, 2018, 2017, and 2016, 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 (1)
decision to abandon lots or not exercise certain option contracts and the resulting abandonment charges, (2) reduction in
average selling prices taken for certain communities as a result of competitive pressures, and (3) charges taken to write down
$ 389.4
$ 384.8
$ 358.9
$ 340.6
1,632
1,855
1,916
25
land held for sale assets to its net realizable value over the applicable years. Income (loss) from continuing operations for the
fiscal years ended 2019, 2018, 2017, and 2016 also includes losses on extinguishment of debt of $24.9 million, $27.8 million,
$12.6 million, and $13.4 million, respectively, with no such expense in fiscal 2020.
(b) Gross margin = gross profit divided by total revenue.
(c) Discontinued operations were not segregated in the consolidated balance sheets or consolidated statements of cash flows and
are not material in the periods presented.
(d) Net Debt = Total debt less unrestricted cash and cash equivalents and restricted cash related to the cash secured loan, when
outstanding.
in millions
Total debt
Fiscal Year Ended September 30,
2020
2019
2018
2017
2016
$
1,131 $
1,178 $
1,231 $
1,327 $
1,332
Unrestricted cash and cash equivalents
328
107
140
292
229
Net debt
$
803 $
1,071 $
1,091 $
1,035 $
1,103
(e) EBIT (earnings before interest and taxes) equals net income (loss) before (a) expense (benefit) from income taxes, and (b)
previously capitalized interest amortized to home construction and land sales expenses, capitalized interest impaired, and
interest expense not qualified for capitalization. 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 is
calculated by adding charges, including stock-based compensation, debt extinguishment charges, inventory impairment and
abandonment 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 (loss) 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.
(f) Adjusted EBITDA margin = Adjusted EBITDA divided by total revenue.
26
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 (loss) determined in accordance with GAAP as an indicator of operating performance.
The reconciliation of Adjusted EBITDA to total company net income (loss) below differs from prior year, as it reclassifies
stock-based compensation expense from an adjustment within EBITDA to an adjustment within Adjusted EBITDA in order to
accurately present EBITDA per its definition.
The following table reconciles our net income (loss) to Adjusted EBITDA for the periods presented:
in thousands
Net income (loss)
Expense (benefit) from income taxes
Interest amortized to home construction and land
sales expenses and capitalized interest impaired
Fiscal Year Ended September 30,
2020
2019
2018
2017
2016
$
52,226 $
(79,520) $
(45,375) $
31,813 $
4,693
17,664
(37,245)
94,373
2,621
16,224
95,662
108,941
93,113
88,820
79,322
5,325
147,436
13,807
161,243
10,258
27,839
8,468
174,020
15,640
189,660
10,036
—
15,636
138,890
14,014
152,904
8,159
12,630
3,109
(4,715)
14,759
10,044
10,526
24,920
Interest expense not qualified for capitalization
EBIT
Depreciation and amortization
EBITDA
Stock-based compensation expense
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)
Additional insurance recoveries from third-party
insurer
Litigation settlement in discontinued operations
Restructuring and severance expenses
Write-off of deposit on legacy land investment
Adjusted EBITDA
(a) In periods during which we impaired certain of our inventory assets, capitalized interest that is impaired is included in the
(15,500)
—
—
—
$ 204,384 $ 180,201 $ 204,669 $ 178,782 $ 156,262
25,388
125,627
13,793
139,420
7,959
13,423
—
—
—
2,700
—
1,260
1,317
—
134,711
—
14,572
—
—
—
—
—
—
—
—
—
2,111
—
4,988
341
2,389
—
(3,612)
—
—
—
—
line above titled “Interest amortized to home construction and land sales expenses and capitalized interest impaired."
27
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read together with the sections entitled “Risk Factors,” “Selected Financial
Data,” and the financial statements and the accompanying notes included elsewhere in this Form 10-K. We have omitted
discussion of 2018 results where it would be redundant to include discussion previously included in Item 7 of our 2019 Annual
Report on Form 10-K filed with the SEC on November 13, 2019.
In addition, the statements in this discussion and analysis regarding industry outlook, our expectations regarding the
performance of our business, anticipated financial results, liquidity and the other non-historical statements are forward-looking
statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the
risks and uncertainties described in “Forward-Looking Statements” and in “Risk Factors” above. Our actual results may
differ materially from those contained in or implied by any forward-looking statements.
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, mortgage financing, and overall housing affordability. At the start of
our fiscal 2020, factors including rising levels of household formation, a constrained supply of new and used homes, wage
growth, strong employment conditions and mortgage rates that continue to be low by historical standards were contributing to
improving conditions for new home sales.
Beginning in mid-March of fiscal 2020, we experienced extraordinary volatility in business conditions. On March 11, 2020, the
World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and, on March 13, 2020,
the United States declared a national emergency concerning the outbreak. In response to the initial onset of the pandemic in the
U.S., state and local governmental authorities and institutions implemented containment and mitigation measures, including
various “shelter in place” or “stay at home” orders, which created broad and severe economic impacts. However, all the states
and local government authorities in the markets in which we operate deemed housing an essential service, which enabled us to
continue building and delivering homes to our customers.
In response to the pandemic, we placed our highest priority on helping to protect the health and safety of our employees,
customers, and trade partners. We took unprecedented actions in mid-March to temporarily close our sales centers, model
homes and design studios to the general public. Our sales teams shifted to an appointment-only home sales process and
leveraged virtual sales tools to connect with our customers online. We followed recommended social distancing and other
health and safety protocols when meeting in person with a customer and shifted our corporate and division office functions to
work remotely. We implemented construction site health and safety guidelines in an effort to ensure both our employees and
our trade partners were adhering to safety, hygiene, and social distancing requirements. During the latter part of May, with
restrictions easing in many of our markets, we began to take steps to effectively and safely resume nearly all of our operations,
while also expanding construction and warranty service activities to the extent permitted by local authorities and our safety
protocols.
While the economic recovery following initial containment and mitigation measures is still ongoing, economic conditions in
our markets have improved. We believe this is the result of low interest rates and short supply of homes, together with what
may be a desire by many people to move out of crowded urban areas into new homes in the suburbs. The strength in our
markets may also be partially attributable to pent up demand from the earlier part of the COVID-19 pandemic when more
restrictive "stay-at-home" orders were in place. Due to the return of demand towards the end of May, homebuilding gross
margin (excluding impairments, abandonments and amortized interest) was 21.2% and 21.7% for the fiscal third quarter and
fourth quarter, respectively, up 180 basis points and 180 basis points compared to prior year quarters, respectively.
Despite growth in many of our key operational metrics as housing market conditions improved, the magnitude and duration of
the COVID-19 pandemic remains unknown. If economic conditions deteriorate, we expect to experience material declines in
our net new orders, closings, revenues, cash flow and/or profitability in fiscal 2021, compared to the corresponding prior-year
periods, and compared to our expectations. In addition, if conditions in the overall housing market or in a specific market
worsen in the future beyond our current expectations, if future changes in our business strategy significantly affect any key
assumptions used in our projections of future cash flows, or if there are material changes in any of the other items we consider
in assessing recoverability, we may recognize charges in future periods for inventory impairments related to our current
inventory assets. Any such charges could be material to our consolidated financial statements. For further discussion of the
potential impacts on our business from the COVID-19 pandemic, see Part I, Item 1A – Risk Factors above.
28
Overview of Results for Our Fiscal 2020
Fiscal 2020 represented continued progress towards the execution of our balanced growth strategy. Specifically, we have
successfully improved our balance sheet by reducing our debt balance, and our strong improvements in net new orders, sales
pace, homes in backlog and homebuilding gross margin has positioned us well for fiscal 2021 growth.
Profitability
For the fiscal year ended September 30, 2020, we recorded net income from continuing operations of $53.3 million, an increase
of $132.7 million from the prior fiscal year’s net loss from continuing operations of $79.4 million. There were certain items that
impacted the comparability of our net income (loss) from continuing operations between periods:
• We recorded $2.9 million in inventory impairment and abandonment charges in fiscal 2020, as compared to $148.6
million charges recorded in the prior year.
• We recognized $1.3 million in restructuring and severance charges in fiscal 2020 compared to no such charges in fiscal
2019.
• We recognized $24.9 million in loss on extinguishment of debt in fiscal 2019 compared to no such charges in fiscal
2020.
•
Income tax expense from continuing operations was $18.0 million for fiscal 2020 and income tax benefit was $37.2
million for fiscal 2019. The income tax expense in fiscal 2020 primarily resulted from income from operations and our
permanent book/tax differences, partially offset by the generation of additional federal tax credits. The income tax
benefit in fiscal 2019 primarily resulted from the loss from operations and the generation of additional federal tax
credits. Refer to Note 13 of the notes to the consolidated financial statements for additional discussion of these matters.
Balanced Growth Strategy
At the start of our fiscal year, we executed against our long-term balanced growth strategy, which we define as the expansion of
earnings at a faster rate than our revenue growth, supported by a less-leveraged and return-driven capital structure. Due to the
impacts of the initial onset of the COVID-19 pandemic, we shifted focus to maximizing cash flow, including temporarily
reducing or deferring land acquisition and development and general and administrative spending. During the third quarter of
fiscal 2020 as conditions in our markets improved, we gradually restarted land acquisition and development spending, while
remaining focused on maintaining a strong liquidity position. Currently, we continue to execute against our long-term balanced
growth strategy. This strategy provides us with flexibility to increase return on capital, reduce leverage, or increase investment
in land and other operating assets in response to changing market conditions. The following is a summary of our performance
against certain key operating and financial metrics during the current period:
•
Sales per community per month was 3.2 and 2.8 for the fiscal years ended September 30, 2020 and 2019,
respectively. Our strong emphasis on sales absorptions allowed us to expand the unit and dollar value of our backlog.
The increase in sales pace in fiscal 2020 primarily resulted from low interest rates and short supply of homes. Due to
the high demand experienced during the fourth fiscal quarter in the homebuilding industry, our sales absorption rate
for the quarter ending September 30, 2020 increased to 4.4 compared to 2.9 in the prior year quarter. Over time, we
expect sales pace will normalize at the competitive range of 2.8 to 3.2 going forward.
• Our ASP for homes closed during the fiscal year ended September 30, 2020 was $385.5 thousand, up 2.1%
compared to the prior year. The year-over-year increase in ASP on closings was primarily a function of geographic
mix and product shift, though we also benefited from pricing power in most markets. In addition, we ended fiscal 2020
with an ASP of $396.7 thousand for our units in backlog, indicating that ASP growth may continue in the near term.
•
During the year ended September 30, 2020, our net new orders increased to 6,293, up 12.9% from the prior
year, while our average active community count of 163 was down 1.7% from the prior year. Our net new orders
for the quarter ending September 30, 2020 increased to 2,009 compared to 1,458 in the prior year quarter, up 37.8%.
We ended the year with an active community count of 145 in part due to strong sales pace experienced in the fourth
fiscal quarter. We will work to rebuild community counts by investing in new communities. We continue to evaluate
strategic opportunities to purchase land within our geographic footprint, balancing our desire to reduce leverage with
land acquisition strategies that maximize the efficiency of capital employed.
29
• Homebuilding gross margin excluding impairments and abandonments and interest for the fiscal year ended
September 30, 2020 was 21.0%, up from 19.7% in the prior year. With our strong sales paces and strong backlog,
we believe opportunities remain for continued gross margin expansion through maximizing revenue while reducing
costs by simplifying our product offerings, although cost pressures from lumber and other direct materials costs may
temper gross margin expansion in the future.
•
•
SG&A for the fiscal year ended September 30, 2020 was 11.9% of total revenue compared with 11.6% a year
earlier. We have taken steps to limit overhead expenditures, partly through reducing our workforce which resulted in
restructuring and severance charges of $1.3 million for the year ended September 30, 2020. We remain focused on
improving overhead cost management in relation to our revenue growth.
Capital efficiency, debt reduction, and share repurchases. We continue to employ a number of strategies to
improve capital efficiency, including the use of option contracts, acquisition of shorter duration land parcels, and
activation of previously land held for future development communities. In addition, as part of our share repurchase
program, we repurchased a total of $3.3 million of our common stock during fiscal 2020 through open market
transactions and 10b-1 plans. During fiscal 2020, we also made the first $50.0 million principal payment on our Senior
Unsecured Term Loan (see Note 8 of the notes to our consolidated financial statements in this Form 10-K for
discussion of debt activities). We expect to continue to reduce outstanding debt during fiscal 2021 with a goal of
having less than $1.0 billion of outstanding debt over time.
Seasonal and Quarterly Variability: Our homebuilding operating cycle historically has reflected escalating new order activity
in the second and third fiscal quarters and increased closings in the 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. While the first half of fiscal 2020 largely followed our typical seasonal pattern, the impacts of the
COVID-19 pandemic resulted in a shift from our typical seasonal trend such that higher levels of new home orders were
observed in the fourth fiscal quarter instead of the third fiscal quarter, which we expect will lead to increased closings in the
first half of fiscal 2021 as compared to fiscal 2020. The following tables present new order and closings data for the periods
presented:
2020
2019
2018
2020
2019
2018
New Orders (Net of Cancellations)
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Total
1,251
976
1,110
1,661
1,598
1,679
1,372
1,544
1,450
2,009
1,458
1,305
6,293
5,576
5,544
1st Qtr
Closings
2nd Qtr
3rd Qtr
4th Qtr
Total
1,112
1,083
1,066
1,277
1,134
1,266
1,366
1,269
1,391
1,737
2,014
2,044
5,492
5,500
5,767
30
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 (loss):
Homebuilding
Land sales and other
Total
Gross margin:
Homebuilding (a)
Land sales and other (b)
Total
Commissions
G&A
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 (loss)
Operating income (loss) as a percentage of total revenue
Effective tax rate (c)
Equity in income of unconsolidated entities
Loss on extinguishment of debt, net
Fiscal Year Ended September 30,
2020
2019
2018
$ 2,116,910
$ 2,077,245
$ 2,077,360
10,167
10,494
29,773
$ 2,127,077
$ 2,087,739
$ 2,107,133
$
348,110
$
206,034
$
348,275
(470)
(39,998)
(3,260)
$
347,640
$
166,036
$
345,015
16.4 %
(4.6) %
16.3 %
9.9 %
(381.2) %
8.0 %
16.8 %
(10.9) %
16.4 %
$
$
82,507
170,386
$
$
79,802
161,371
$
$
81,002
168,658
11.9 %
8.0 %
15,640
79,107
3.7 %
25.2 %
347
—
$
$
$
$
11.6 %
7.7 %
14,759
(89,896)
(4.3) %
31.9 %
404
(24,920)
$
$
$
$
11.8 %
8.0 %
13,807
81,548
3.9 %
191.1 %
34
(27,839)
$
$
$
$
(a) Homebuilding gross margin for fiscal 2019 was impacted by $110.0 million of impairments primarily related to impairments
recorded in the second quarter for certain projects in progress in California.
(b) Calculated as land sales and other gross loss divided by land sales and other revenue. Land sales and other gross margin is
shown as a significant negative percentage for fiscal 2019 due to the $38.6 million of impairments recorded in the second
quarter related to land held for sale assets in California.
(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 pre-tax income (loss) for the associated periods.
31
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
2020
2019
2018
20 v 19
19 v 18
2020
2019
2018
3,589
1,328
1,376
6,293
2,983
1,152
1,441
5,576
2,874
1,089
1,581
5,544
20.3 %
15.3 %
(4.5) %
12.9 %
3.8 %
5.8 %
(8.9) %
0.6 %
16.5 %
14.5 %
15.1 %
15.8 %
16.7 %
16.0 %
15.2 %
16.1 %
18.4 %
20.9 %
16.2 %
18.3 %
Net new orders for the year ended September 30, 2020 increased to 6,293, up 12.9% from the year ended September 30, 2019.
The increase in net new orders was primarily driven by an increase in sales per active community per month to 3.2 for fiscal
2020 compared to 2.8 for fiscal 2019 with increases in all three segments due to higher demand for new homes. Due to the high
demand experienced during the fourth fiscal quarter in the homebuilding industry, our net new orders for the quarter ending
September 30, 2020 increased to 2,009, up 37.8%, compared to 1,458 from the prior year quarter, and our sales per active
community per month for the quarter ending September 30, 2020 increased to 4.4, up 52.6%, compared to 2.9 in the prior year
quarter. Net new orders increased in the West and the East but decreased slightly in the Southeast segment primarily due to a
decrease in average active communities, partially offset by a slight increase in sales per active community per month.
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, 2020, 2019, and 2018:
Backlog Units:
West
East
Southeast
Total
Aggregate dollar value of homes in backlog (in millions)
ASP in backlog (in thousands)
$
$
As of September 30,
2020
2019
2018
20 v 19
19 v 18
1,365
624
520
2,509
995.3 $
396.7 $
982
341
385
1,708
665.1 $
389.4 $
858
281
493
1,632
628.0
384.8
14.5 %
39.0 %
83.0 %
21.4 %
35.1 % (21.9) %
4.7 %
46.9 %
5.9 %
49.6 %
1.2 %
1.9 %
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, 2020 increased 49.6% compared to the prior
year due to a 46.9% increase in units in backlog and a 1.9% increase in the ASP of homes in backlog. The increase in backlog
units was primarily due to the aforementioned increase in net new orders for the year ended September 30, 2020 compared to
prior year. Potential negative impacts of the COVID-19 pandemic could cause us to experience higher cancellation rates
compared to prior periods related to homes within our backlog as of September 30, 2020.
32
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
2020
2019
2018
20 v 19
19 v 18
2020
2019
2018
20 v 19
19 v 18
West
East
Southeast
$ 1,180,577 $ 1,012,977 $ 999,599
16.5 % 1.3 % $
368.2 $
354.3 $
345.3
3.9 % 2.6 %
476,167
460,166
506,389
510,710
(6.0) % (0.8) %
557,879
567,051
(17.5) % (1.6) %
455.7
370.8
463.7
360.2
418.3
(1.7) % 10.9 %
343.5
2.9 % 4.9 %
Total
$ 2,116,910 $ 2,077,245 $ 2,077,360
1.9 %
— % $
385.5 $
377.7 $
360.2
2.1 % 4.9 %
West
East
Southeast
Total
2020
2019
3,206
1,045
1,241
5,492
2,859
1,092
1,549
5,500
Closings
2018
2,895
1,221
1,651
5,767
20 v 19
19 v 18
12.1 %
(4.3) %
(19.9) %
(0.1) %
(1.2) %
(10.6) %
(6.2) %
(4.6) %
Our overall increase in homebuilding revenue for fiscal 2020 as compared to fiscal 2019 is primarily the result of increase in
ASP. The increase in ASP for fiscal 2020 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 improved
market conditions in certain geographies in the latter half of our fiscal year. On average, we anticipate that our ASP will
continue to increase slightly during the first two quarters of fiscal 2021, as indicated by our ASP for homes in backlog as of
September 30, 2020.
For fiscal 2020, year-over-year increase in closings in our West segment was primarily attributable to our Southern California
market which had more units in beginning backlog for fiscal 2020 compared to fiscal 2019. Closings in the East were slightly
down year-over-year primarily driven by lower closings due to lower average active communities during fiscal 2020 compared
to the prior year. Southeast segment closings were down year-over-year as a result of fewer units in beginning backlog for fiscal
2020 compared to fiscal 2019.
33
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).
$ in thousands
Fiscal Year Ended September 30, 2020
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 (Loss)
w/o I&A and
Interest
HB Gross
Margin
w/o I&A and
Interest
West
East
Southeast
Corporate &
unallocated
$
258,675
21.9 % $
923 $
259,598
22.0 % $
— $
259,598
98,446
87,935
(96,946)
20.7 %
19.1 %
82
641
98,528
88,576
20.7 %
19.2 %
—
—
98,528
88,576
—
(96,946)
94,844
(2,102)
22.0 %
20.7 %
19.2 %
Total homebuilding
$
348,110
16.4 % $
1,646 $
349,756
16.5 % $
94,844 $
444,600
21.0 %
$ in thousands
Fiscal Year Ended September 30, 2019
HB Gross
Profit (Loss)
HB Gross
Margin
Impairments
&
Abandonment
s
(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
$
119,624
11.8 % $
92,912 $
212,536
21.0 % $
— $
212,536
96,008
95,603
19.0 %
17.1 %
—
858
96,008
96,461
19.0 %
17.3 %
—
—
96,008
96,461
21.0 %
19.0 %
17.3 %
(105,201)
16,259
(88,942)
93,875
4,933
West
East
Southeast
Corporate &
unallocated
Total homebuilding
$
206,034
9.9 % $
110,029 $
316,063
15.2 % $
93,875 $
409,938
19.7 %
$ in thousands
Fiscal Year Ended September 30, 2018
HB Gross
Profit (Loss)
HB Gross
Margin
Impairments
&
Abandonment
s
(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
$
228,637
22.9 % $
— $
228,637
22.9 % $
— $
228,637
102,346
104,051
(86,759)
20.0 %
18.3 %
—
793
102,346
104,844
20.0 %
18.5 %
—
—
102,346
104,844
212
(86,547)
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 %
(a) w/o - without
34
Our overall homebuilding gross profit increased to $348.1 million for the fiscal year ended September 30, 2020, from $206.0
million in the prior year. As shown in the tables above, the comparability of our gross profit and gross margin was impacted by
impairment and abandonment charges which decreased by $108.4 million and interest amortized to homebuilding cost of sales
which increased by $1.0 million year-over-year (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 and interest amortized
to homebuilding cost of sales, year-over-year homebuilding gross profit increased by $34.7 million, primarily driven by growth
in homebuilding revenue of $39.7 million and an increase in gross margin by 130 basis points to 21.0%.
The year-over-year change 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; and
(4) lower warranty costs in the current period. In fiscal 2020, we focused on a continuing objective to simplify our product
offerings, which includes streamlining our plan and structural options and design studio offerings to improve efficiency and
reduce costs. We expect these efforts to positively contribute to our gross margin in the future.
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.
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 2020, our
homebuilding gross margin was 16.4% and excluding interest and inventory impairments and abandonments, it was 21.0%. For
the same period, homebuilding gross margin was as follows in those communities that have previously been impaired, which
represented 9.8% of total closings during fiscal 2020:
35
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
0.4 %
4.5 %
4.9 %
17.5 %
22.4 %
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 Revenue and Gross Profit (Loss)
Land sales revenue relate to land and lots sold that do not fit within our homebuilding programs and strategic plans. We also
have other revenue related to title examinations provided for our homebuyers in certain markets. The following tables
summarize our land sales and other revenue 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)
$
$
$
Land Sales and Other Revenue
2020
2019
2018
20 v 19
19 v 18
2,762 $
1,457
5,948
10,167 $
1,725 $
8,572
197
10,494 $
15,204
13,853
716
29,773
60.1 %
(83.0) %
2,919.3 %
(3.1) %
(88.7) %
(38.1) %
(72.5) %
(64.8) %
Land Sales and Other Gross Profit (Loss)
2020
2019
2018
20 v 19
19 v 18
417 $
111
200
(1,198)
(37,854) $
208
(65)
(2,287)
(39,998) $
1,708
321
(3,153)
(2,136)
(3,260)
101.1 %
(46.6) %
407.7 %
47.6 %
98.8 %
(2,316.3) %
(35.2) %
97.9 %
(7.1) %
(1,126.9) %
Total
$
(470) $
(a) Corporate and unallocated includes capitalized interest and capitalized indirect costs expensed to land cost of sale related to
land sold, as well as capitalized interest and capitalized indirect costs impaired in order to reflect land held for sale assets at net
realizable value.
For the fiscal year ended September 30, 2020, we recognized impairment charges in our West, Southeast, and Corporate and
unallocated segments. 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 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.
36
Operating Income (Loss)
The table below summarizes operating income (loss) by reportable segment for the periods presented:
in thousands
West
East
Southeast
Corporate and Unallocated (a)
Operating income (loss) (b)
Fiscal Year Ended September 30,
2020
2019
2018
20 v 19
19 v 18
$
161,786 $
(5,492) $
142,310 $
167,278 $
(147,802)
56,319
51,576
57,372
40,746
(179,744)
40,165
(176,145)
45,950
(164,084)
4,743
581
(3,599)
(5,796)
(5,785)
(12,061)
(171,444)
(a) Corporate and unallocated operating loss includes amortization of capitalized interest and capitalized indirect costs, 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.
169,003 $
(89,896) $
79,107 $
81,548 $
$
(b) Operating income (loss) 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 $169.0 million to $79.1 million for the fiscal year ended September 30, 2020, compared to a
loss of $89.9 million for fiscal 2019. Excluding the impact of impairment and abandonment charges and interest amortized to
cost of sales which impacts year-over-year comparability, the increase in operating income was primarily driven by the
previously discussed increase in gross profit, partially offset by higher SG&A costs compared to the prior year. SG&A as a
percentage of total revenue increased year-over-year by 30 basis points.
Below operating income, we had two noteworthy fluctuations between fiscal 2020 and fiscal 2019 as follows: (1) we
experienced an increase in other expense, net, primarily attributable to a year-over-year increase in interest costs not qualified
for capitalization; and (2) we recorded a loss of $24.9 million on the extinguishment of debt in fiscal 2019 due to the
management of our debt portfolio compared to no such expense in fiscal 2020. See the notes to our consolidated financial
statements in this Form 10-K for additional discussion of these matters.
Fiscal year ended September 30, 2020 as compared to 2019
West Segment: Homebuilding revenue increased by 16.5% for the fiscal year ended September 30, 2020 compared to the prior
fiscal year due to a 12.1% increase in closings as well as a 3.9% increase in ASP. Compared to the prior fiscal year,
homebuilding gross profit increased by $139.1 million primarily due to an increase in homebuilding revenue and $92.9 million
of previously discussed impairment charges recognized during the second quarter of fiscal 2019. Excluding impairments,
homebuilding gross margin increased to 22.0% from 21.0% in the prior year driven primarily by lower sales incentives and
pricing increases. The $167.3 million year-over-year increase in operating income was the result of the aforementioned
impairment charges, partially offset by higher SG&A expenses in the segment.
East Segment: Homebuilding revenue decreased by 6.0% for the fiscal year ended September 30, 2020 compared to the prior
fiscal year due to a 4.3% decrease in closings as well as a 1.7% decrease in ASP. Compared to the prior fiscal year,
homebuilding gross profit increased by $2.4 million due to higher homebuilding gross margin. Excluding impairments,
homebuilding gross margin increased to 20.7% from 19.0% in the prior year driven primarily by lower sales incentives and
pricing increases. The $4.7 million year-over year increase in operating income was a result of the aforementioned increase in
gross profit as well as lower SG&A expenses in the segment.
Southeast Segment: Homebuilding revenue decreased by 17.5% for the fiscal year ended September 30, 2020 compared to the
prior fiscal year due to a decrease in closings of 19.9%, partially offset by a 2.9% increase in ASP. Compared to the prior fiscal
year, homebuilding gross profit decreased by $7.7 million due to the decrease in homebuilding revenue partially offset by an
increase in homebuilding gross margin. Excluding impairments, homebuilding gross margin increased to 19.2% from 17.3% in
the prior year driven primarily by lower sales incentives and pricing increases. The $0.6 million year-over-year increase in
operating income was a result of lower SG&A expenses, partially offset by lower gross profit in the segment.
37
Corporate and Unallocated: Our corporate and unallocated results include amortization of capitalized interest and capitalized
indirect costs, 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, 2020, corporate and unallocated net costs
increased by $3.6 million over the prior fiscal year. The increase was primarily due to an increase in G&A costs, and an
increase in the proportion of interest and indirect costs expensed to cost of sales year-over-year, partially offset by prior year
write-off of capitalized interest and indirect costs related to the impairment of assets in the West and Southeast segments.
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.
The income tax expense recorded during the fiscal year ended September 30, 2020 primarily resulted from income generated in
the current year and permanent book/tax differences, partially offset by the generation of additional federal tax credits.
The income tax benefit recorded during our fiscal year ended September 30, 2019 primarily resulted from loss generated in the
fiscal year and the generation of additional federal tax credits.
The income tax expense recorded during our fiscal year ended September 30, 2018 primarily resulted from income generated in
the fiscal year and the remeasurement of deferred tax asset at the newly enacted 21.0% federal tax rate, partially offset by the
generation of federal tax credits and an additional release of 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 operating losses was reduced due to our
determination that it is more likely than not that these assets will be realized.
Refer to Note 13 of the notes to the consolidated financial statements in this Form 10-K for a further discussion of our income
taxes and valuation allowance.
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, cash equivalents, and restricted cash 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 increase (decrease) in cash and cash equivalents
Operating Activities
2020
2019
2018
$
$
289,095 $
113,635 $
(10,164)
(59,197)
(25,125)
(118,964)
219,734 $
(30,454) $
54,838
(74,148)
(132,051)
(151,361)
Net cash provided by operating activities was $289.1 million for the fiscal year ended September 30, 2020. The primary drivers
of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and land
development spending. Net cash provided by operating activities during the period was driven primarily by income before
income taxes of $69.9 million, which included $28.2 million of non-cash charges, a net decrease in non-inventory working
38
capital of $36.1 million, and a decrease in inventory of $154.9 million as a result of from home sales partially offset by land
acquisition, land development, and house construction spending to support continued growth.
Net cash provided by operating activities was $113.6 million during the fiscal year ended September 30, 2019. Net cash
provided by operating activities during the period was driven primarily by loss before income taxes of $116.8 million, which
included $198.5 million of non-cash charges, a net increase in non-inventory working capital of $11.0 million, and a decrease in
inventory of $42.9 million as a result of from home sales offset by land acquisition, land development, and house construction
spending to support continued growth.
Investing Activities
Net cash used in investing activities for the fiscal year ended September 30, 2020 and September 30, 2019, was $10.2 million
and $25.1 million, respectively, primarily driven in both periods by capital expenditures for model homes.
Financing Activities
Net cash used in financing activities was $59.2 million for the fiscal year ended September 30, 2020 driven by installment
payment of the Senior Unsecured Term Loan (Term Loan), common stock repurchases under our share repurchase program, tax
payments for stock-based compensation awards vesting, cash settlement of performance-based restricted stock, the repayment
of other secured notes payable, and payment of debt issuance costs.
Net cash used in financing activities during the fiscal year ended September 30, 2019 was $119.0 million, primarily due to the
repayment of certain debt issuances (including our 2022, 2023, 2025 and 2027 Senior Notes and other secured notes payable),
the payment of cash for debt issuance costs, common stock repurchases under our share repurchase program, partially offset by
proceeds received from the issuance of Senior Notes due 2029 as well as the Term Loan.
Financial Position
As of September 30, 2020, our liquidity position consisted of $327.7 million in cash and cash equivalents and $250.0 million of
remaining capacity under the Facility.
The unprecedented public health and governmental efforts to contain the COVID-19 pandemic have created significant
uncertainty as to general economic and housing market conditions for 2020 and beyond. As of the date of this report, we
believe we have adequate capital resources and sufficient access to external financing sources to satisfy our current and
reasonably anticipated requirements for funds to conduct our operations and meet other needs in the ordinary course of our
business.
During this time, we may also engage in capital markets, bank loan, project debt or other financial transactions, including the
repurchase of debt or potential new issuances of debt or equity securities to support our business needs. The amounts involved
in these transactions, if any, may be material. In addition, as necessary or desirable, we may adjust or amend the terms of and/or
expand the capacity of the Facility (including as described below), or enter into additional letter of credit facilities, or other
similar facility arrangements, in each case with the same or other financial institutions, or allow any such facilities to mature or
expire. However, with the uncertainty surrounding the COVID-19 pandemic, our ability to engage in such transactions may be
constrained by volatile or tight economic, capital, credit and financial market conditions, as well as lender interest and capacity
and our liquidity, leverage and net worth. Accordingly, we can provide no assurance as to the successful completion of, or the
operational limitations arising from, any one or series of such transactions. For further discussion of the potential impacts from
the COVID-19 pandemic on our capital resources and liquidity, see Part I, Item 1A – Risk Factors.
Debt
We generally fulfill our short-term cash requirements with cash generated from our operations and available borrowings.
Additionally, our Secured Revolving Credit Facility provides working capital and letter of credit capacity of $250.0 million. As
of September 30, 2020, no borrowings and no letters of credit were outstanding under the facility, resulting in $250.0 million
remaining capacity.
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 $12.7
million of outstanding letters of credit under these facilities, secured with cash collateral that is maintained in restricted
accounts totaling $12.9 million.
39
To provide greater letter of credit capacity, the Company has also 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"). On June 17, 2020, the Company executed an Amendment No. 1 to the Bilateral Facility that extends the
termination date of the agreement from June 10, 2021 to June 10, 2022. As of September 30, 2020, the total stated amount of
performance letters of credit issued under the reimbursement agreement was $36.1 million (and the stated amount of the
backstop standby letter of credit issued under the credit agreement was $40.0 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.
Supplemental Guarantor Information
As discussed in Note 8 of the notes to the consolidated financial statements in this Form 10-K, the Company's obligations to
pay principal and interest under certain debt agreements are guaranteed on a joint and several basis by substantially all of the
Company's subsidiaries. Some of the immaterial subsidiaries do not guarantee the Senior Notes. The guarantees are full and
unconditional.
In March 2020, the SEC released Rule Release No. 33-10762, Financial Disclosures About Guarantors and Issuers of
Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities ("Rule 33-10762”). Rule 33-10762
simplifies the disclosure requirements related to certain registered securities under SEC Regulation S-X, Rules 3-10 and 3-16,
permitting registrants to provide certain alternative financial disclosures and non-financial disclosures in lieu of separate
consolidating financial statements for subsidiary issuers and guarantors of registered debt securities (which we previously
included within the notes to our consolidated financial statements included in our Annual Reports on Form 10-K and Quarterly
Reports on Form 10-Q) if certain conditions are met. The amendments in Rule 33-10762 are generally effective for filings on or
after January 4, 2021, with early application permitted. We early adopted the new disclosure requirements permitted under Rule
33-10762 effective for the interim period ending June 30, 2020.
The following summarized financial information is presented for Beazer Homes USA, Inc. and the guarantor subsidiaries on a
combined basis after elimination of intercompany transactions between entities in the combined group and amounts related to
investments in any subsidiary that is a non-guarantor.
in thousands
Due from non-guarantor subsidiary
Total assets
Due to non-guarantor subsidiary
Total liabilities
in thousands
Total revenues
Gross profit
Income (loss) from continuing operations
Net income (loss)
As of September 30, 2020
As of September 30,2019
$
$
$
$
$
$
$
$
417 $
2,006,611 $
— $
1,414,105 $
—
1,955,950
1,680
1,418,877
Year Ended
Year Ended
September 30, 2020
September 30, 2019
2,126,660 $
2,087,739
347,387 $
53,909 $
52,861 $
165,921
(79,507)
(79,592)
40
Credit Ratings
Our credit ratings are periodically reviewed by rating agencies. In July 2020, Moody's reaffirmed the Company's issuer
corporate family rating of B3 and stable outlook for the Company. In October 2020, S&P revised the Company’s outlook to
positive and reaffirmed the Company’s corporate credit rating of B-. 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
During the first quarter of fiscal 2019, 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. As part of this program, the Company has
repurchased common stock during fiscal 2019 through open market transactions, 10b5-1 plans, and accelerated share
repurchase (ASR) agreements. All shares have been retired upon repurchase during fiscal 2019. The aggregate reduction to
stockholders’ equity related to share repurchases during the fiscal year ended September 30, 2019 was $34.6 million.
During fiscal 2020, the Company repurchased approximately 362,000 shares of its common stock for $3.3 million at an average
price per share of $9.20 through open market transactions and 10b5-1 plans. All shares have been retired upon repurchase. As
of September 30, 2020, the remaining availability of the share repurchase program was $12.0 million.
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, 2020, 2019, or 2018.
Off-Balance Sheet Arrangements
Lot Option Contracts
We historically have attempted to control a portion of our land supply through options. As of September 30, 2020, we
controlled 17,830 lots, which includes 399 lots of land held for future development and 529 lots of land held for sale. Of the
total active 16,902 lots, we owned 11,024, or 65.2%, of these lots and the remaining 5,878 of these lots, or 34.8%, were under
option contracts with land developers and land bankers, which generally require the payment of cash or the posting of a letter of
credit for the right to acquire lots during a specified period of time at a certain price. As a result of the flexibility that these
options provide us, upon a change in market conditions (such as those created as a result of the impacts of the COVID-19
pandemic), 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 $75.9 million as of September 30, 2020. The total remaining purchase price, net of cash deposits, committed
under all options was $395.1 million as of September 30, 2020. 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.
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.
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
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.
41
Historically, we and our partners have provided varying levels of guarantees of debt or other obligations for our unconsolidated
entities. As of September 30, 2020, 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.
Letters of Credit and Surety Bonds
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. We had
outstanding letters of credit and surety bonds of $48.8 million and $248.2 million, respectively, as of September 30, 2020,
primarily related to our obligations to local governments to construct roads and other improvements in various developments.
Contractual Commitments
The following table summarizes our aggregate contractual commitments as of September 30, 2020:
in thousands
Senior notes, term loan, and junior
subordinated notes (a)
Interest commitments under senior notes,
term loan, and junior subordinated notes (b)
Obligations related to lots under option
Operating leases
Uncertain tax positions (c)
Payments Due by Period
Total
Less than 1 Year
1-3 Years
3-5 Years
More than 5
Years
$ 1,174,328 $
50,000 $
50,000 $
229,555 $
844,773
498,472
395,133
17,407
—
73,175
224,595
4,604
—
352,374 $
139,038
142,898
6,676
—
338,612 $
128,208
27,122
3,336
—
158,051
518
2,791
—
388,221 $ 1,006,133
Total
$ 2,085,340 $
(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, 2020.
(c) Based on its current inventory of uncertain tax positions and tax carryforward attributes, the Company does not expect a cash
settlement of unrecognized tax benefits related to uncertain tax positions in future years. 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 related to uncertain tax positions as of September 30, 2020.
We had outstanding letters of credit and surety bonds of $48.8 million and $248.2 million, respectively, as of September 30,
2020, primarily related to our obligations to local governments to construct roads and other improvements in various
developments.
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, 2020, we were not a party
to any such derivative agreements. We do not enter into or hold derivatives for trading or speculative purposes.
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.
42
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 home construction costs, direct overhead costs, capitalized indirect costs, capitalized interest, real estate taxes and
allocated lot costs) 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 consider both qualitative and quantitative factors to establish a quarterly “watch list” of communities. Each
community is evaluated qualitatively and quantitatively to determine if there are factors driving the low profitability levels.
Communities with more than ten homes remaining to close with potential indicators of impairment resulting from this initial
evaluation are subjected to substantial additional financial and operational reviews that consider the competitive environment
and other factors contributing to profit margins below our specified thresholds. 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, it may be 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 assets may not be recoverable, 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.
43
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.
Inventory 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.
Inventory 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, subject only to terms that are usual and customary for
sales of land assets;
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.
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.
44
Revenue Recognition
We recognize revenue upon the transfer of promised goods to our customers in an amount that reflects the consideration to
which we expect to be entitled by applying the following five-step process specified in ASC 606.
•
•
•
•
•
Identify the contract(s) with a customer
Identify the performance obligations
Determine the transaction price
Allocate the transaction price
Recognize revenue when the performance obligations are met
Homebuilding revenue
Homebuilding revenue is reported net of any discounts and incentives and is generally recognized when title to and possession
of the home are transferred to the buyer at the closing date. The performance obligation to deliver the home is generally
satisfied in less than one year from the original contract date. Home sale contract assets consist of cash from home closings held
in escrow for our benefit, typically for less than five days, and are considered accounts receivable.
Land sales and other revenue
Land sales revenue relates to land and lots sold that do not fit within our homebuilding programs and strategic plans. Land sales
typically require cash consideration on the closing date, which is generally when performance obligations are satisfied. We also
provide title examinations for our homebuyers in certain markets. Revenues associated with our title operations are recognized
as closing services are rendered and title insurance policies are issued, both of which generally occur as each home is closed.
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 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.
45
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.
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
evaluate 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. Based on the available evidence and operating
trends, as of September 30, 2018 we determined that it was appropriate to release an additional portion of our valuation
allowance, which also generated a non-cash tax benefit. As of September 30, 2020, our conclusions on whether we are more
likely than not to realize all of our federal tax attributes and certain portions of our state tax attributes remain consistent with
our fiscal 2018 determinations. For fiscal 2020, a number of additional positive and negative factors were considered as part of
our analysis. The negative factors for fiscal 2020 included the general economic uncertainties due to the COVID-19 pandemic.
The positive factors included our current income from continuing operations, a recovery in housing demand throughout the year
that resulted in backlog levels significantly higher than prior year, and interest savings from our multi-year debt reduction
strategy. 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 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, 2020, our Junior Subordinated Notes were our only variable-rate debt outstanding, totaling
approximately $68.1 million. A one percent increase in the interest rate for these notes would result in an increase of our
interest expense by approximately $1.0 million over the next twelve-month period. The estimated fair value of our fixed rate
debt as of September 30, 2020 was $1.10 billion, compared to a carrying value of $1.06 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 $1.16 billion as of September 30, 2020.
46
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 $358 and $304, respectively)
Income tax receivable
Owned inventory
Investments in unconsolidated entities
Deferred tax assets, net
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable
Operating lease liabilities
Other liabilities
Total debt (net of debt issuance costs of $10,891 and $12,470, respectively)
Total liabilities
Stockholders’ equity:
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, 31,012,326 issued
and outstanding and 30,933,110 issued and outstanding, respectively)
Paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
September 30,
2020
September 30,
2019
$
327,693 $
106,741
14,835
19,817
9,252
16,053
26,395
4,935
1,350,738
1,504,248
4,003
225,143
22,280
13,103
11,376
9,240
2,007,480 $
3,962
246,957
27,421
—
11,376
9,556
1,957,644
132,192 $
15,333
135,983
1,130,801
1,414,309
131,152
—
109,429
1,178,309
1,418,890
$
$
—
—
31
856,466
(263,326)
593,171
2,007,480 $
31
854,275
(315,552)
538,754
1,957,644
$
47
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 (loss)
Equity in income of unconsolidated entities
Loss on extinguishment of debt, net
Other expense, net
Income (loss) from continuing operations before income taxes
Expense (benefit) from income taxes
Income (loss) from continuing operations
Loss from discontinued operations, net of tax
Net income (loss)
Weighted-average number of shares:
Basic
Diluted
Basic income (loss) per share:
Continuing operations
Discontinued operations
Total
Diluted income (loss) per share:
Continuing operations
Discontinued operations
Total
Fiscal Year Ended September 30,
2020
2019
2018
$
2,127,077 $
2,087,739 $
2,107,133
1,776,534
1,773,085
1,755,619
2,903
347,640
82,507
170,386
15,640
79,107
347
—
(8,165)
71,289
17,973
53,316
(1,090)
52,226 $
148,618
166,036
79,802
161,371
14,759
(89,896)
404
(24,920)
(2,226)
(116,638)
(37,217)
(79,421)
(99)
(79,520) $
29,704
29,948
30,617
30,617
1.80 $
(0.04)
1.76 $
1.78 $
(0.04)
1.74 $
(2.59) $
(0.01)
(2.60) $
(2.59) $
(0.01)
(2.60) $
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)
32,141
32,141
(1.40)
(0.01)
(1.41)
(1.40)
(0.01)
(1.41)
$
$
$
$
$
See accompanying notes to consolidated financial statements.
48
BEAZER HOMES USA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
in thousands
Common Stock
Shares
Amount
Paid-in
Capital
Accumulated
Deficit
Total
Balance as of September 30, 2017
33,516 $
34 $
873,063 $
(190,657) $
682,440
Net loss and comprehensive loss
Stock-based compensation expense
Exercises of stock options
Shares issued under employee stock plans, net
Forfeiture of restricted stock
Common stock redeemed for tax liability
Other activity
—
—
8
443
(216)
(229)
—
—
—
—
—
—
—
—
(45,375)
(45,375)
10,258
64
—
—
(3,378)
18
—
—
—
—
—
10,258
64
—
—
(3,378)
18
Balance as of September 30, 2018
33,522 $
34 $
880,025 $
(236,032) $
644,027
Net loss and comprehensive loss
Stock-based compensation expense
Exercises of stock options
Shares issued under employee stock plans, net
Forfeiture of restricted stock
Common stock redeemed for tax liability
—
—
32
917
(68)
(185)
—
—
—
—
—
—
10,526
314
—
—
(1,969)
Share repurchases
(3,285)
(3)
(34,621)
—
—
—
—
—
—
10,526
314
—
—
(1,969)
(34,624)
—
(79,520)
(79,520)
Balance as of September 30, 2019
30,933 $
31 $
854,275 $
(315,552) $
538,754
Net income and comprehensive income
Stock-based compensation expense
Exercises of stock options
Shares issued under employee stock plans, net
Forfeiture and other settlements of restricted
stock
Common stock redeemed for tax liability
Share repurchases
—
—
52
588
(26)
(173)
(362)
—
—
—
—
—
—
—
—
52,226
10,036
226
—
(2,058)
(2,686)
(3,327)
—
—
—
—
—
—
52,226
10,036
226
—
(2,058)
(2,686)
(3,327)
Balance as of September 30, 2020
31,012 $
31 $
856,466 $
(263,326) $
593,171
See accompanying notes to consolidated financial statements.
49
BEAZER HOMES USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
in thousands
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Fiscal Year Ended September 30,
2020
2019
2018
$
52,226 $
(79,520) $
(45,375)
Depreciation and amortization
Stock-based compensation expense
Inventory impairments and abandonments
Deferred and other income tax expense (benefit)
Gain on sale of fixed assets
Change in allowance for doubtful accounts
Equity in income of unconsolidated entities
Cash distributions of income from unconsolidated entities
Loss on extinguishment of debt, net
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable
Decrease in income tax receivable
Decrease (increase) in inventory
Decrease (increase) in other assets
Increase 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
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
Repurchase of common stock
Tax payments for stock-based compensation awards
Stock option exercises and other financing activities
Net cash used in financing activities
Increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
15,640
10,036
2,903
17,664
(335)
54
(347)
306
—
6,524
315
154,865
3
1,040
28,201
289,095
(10,642)
478
—
—
—
(10,164)
14,759
10,526
148,618
(37,245)
(232)
(74)
(403)
408
24,920
(1,674)
—
42,927
323
4,720
(14,418)
113,635
(21,356)
251
(4,088)
—
68
(25,125)
13,807
10,258
6,949
93,935
(351)
48
(127)
331
27,839
11,875
88
(95,809)
(1,300)
17,492
15,178
54,838
(17,020)
370
(57,253)
(421)
176
(74,148)
(51,150)
(576,548)
(522,465)
—
500,000
400,000
(390,000)
(425,000)
(225,000)
390,000
425,000
225,000
(202)
(6,137)
(6,272)
(3,327)
(34,624)
(2,686)
(1,832)
(1,969)
314
(59,197)
(118,964)
219,734
122,794
(30,454)
153,248
—
(3,378)
64
(132,051)
(151,361)
304,609
Cash, cash equivalents, and restricted cash at end of period
$
342,528 $
122,794 $
153,248
See accompanying notes to consolidated financial statements.
50
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
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP), and present the consolidated financial position, income,
stockholders' equity, and cash flows of Beazer Homes USA, Inc. and its consolidated subsidiaries. Intercompany transactions
and balances have been eliminated in consolidation. Our net income (loss) is equivalent to our comprehensive income (loss), so
we have not presented a separate statement of comprehensive income (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 19 for a further discussion of our discontinued operations).
Our fiscal year 2020 began on October 1, 2019 and ended on September 30, 2020. Our fiscal year 2019 began on October 1,
2018 and ended on September 30, 2019. Our fiscal year 2018 began on October 1, 2017 and ended on September 30, 2018.
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 assets acquired and liabilities assumed based upon management's estimates of fair values as of the acquisition
date. Any excess purchase price over the estimated fair value of net assets acquired is recorded as goodwill, which is assigned
to applicable reporting units based on expected revenues. The fair value estimation process includes analyses based on income
and market approaches. 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. The estimates and assumptions 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.
On July 13, 2018, the Company acquired substantially all of the assets, operations, and certain assumed liabilities of Venture
Homes, a leading private homebuilder in the Atlanta market, for a purchase price of $61.3 million, net of cash acquired. The
acquired assets and liabilities were recorded at their estimated fair values and resulted in inventory of $55.2 million and
goodwill of $11.4 million, and other assets of $0.4 million as well as accounts payable of $5.5 million and other liabilities
of $0.2 million.
51
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, 2020, the majority of our cash and cash equivalents were on demand deposits with major banks. These assets
were valued at par and had no withdrawal restrictions. 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 and Allowance
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, land banker reimbursements to be received
related to land development costs, 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
collectability and record an allowance against any receivable for which collectability is deemed to be uncertain.
Owned Inventory
Owned inventory consists of residential real estate developments. Inventory includes land acquisition costs, land development
costs, home construction costs, capitalized interest, real estate taxes, direct overhead costs and capitalized indirect costs
incurred during land development and home construction, and common costs that benefit the entire community, less
impairments, if any. Land acquisition, land development and other common costs (both incurred and estimated to be incurred)
are allocated to individual lots on a pro-rata basis, and the cost of individual lots is transferred to homes under construction
when home construction begins. Home construction costs are accumulated on a per-home basis. Cost of home closings includes
the specific construction costs of the home and the allocated lot costs. Any changes to the estimated total development costs of
a community or phase are allocated to the remaining homes to be closed in the community or phase. 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 home construction costs, direct overhead costs, capitalized indirect costs, capitalized interest, real estate taxes and
allocated lot costs) 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 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 consider both qualitative and quantitative factors to establish a quarterly “watch list” of communities. Each
community is evaluated qualitatively and quantitatively to determine if there are factors driving the low profitability levels.
Communities with more than ten homes remaining to close with potential indicators of impairment resulting from this initial
evaluation 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 specified thresholds. 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, it may be 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 assets may not be recoverable, 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.
52
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. 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, considering our
development schedules and comparing to those achieved by our competitors for the comparable 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 value, we
perform a discounted cash flow analysis to determine the fair value of the community. The fair value of the community is
estimated based on 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.
Inventory 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.
Inventory 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, subject only to terms that are usual and customary for
sales of land assets;
there is an active program to locate a buyer and the plan to sell the property has been initiated;
53
•
•
•
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.
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.
Lot Option Agreements and Variable Interest Entities (VIE)
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 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 ASC Topic 810, Consolidation (ASC 810), if the entity holding the land under option is a variable VIE, the
Company's deposit represents a variable interest in that entity. ASC 810 requires a company consolidate a VIE if the company
is determined to be the primary beneficiary. To determine whether we are the primary beneficiary of the VIE, we first 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.
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 option deposits already paid, to consolidated inventory not owned with an offsetting increase to
obligations related to consolidated inventory not owned 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 consolidated inventory not owned. No
VIEs required consolidation as of September 2020 and 2019 because we have determined that we were not the primary
beneficiary of any VIEs.
54
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, Net
Our property and equipment is recorded at cost, net of accumulated depreciation. Depreciation is computed on a straight-line
basis based on estimated useful lives as follows:
Asset Class
Buildings
Information systems
Furniture, fixtures and computer and office equipment
Useful Lives
25 - 30 years
Lesser of estimated useful life of the asset or 5 years
3 - 7 years
Model and sales office improvements
Leasehold improvements
Goodwill
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 represents the excess of the purchase price over the fair value of the identifiable net assets from the businesses that we
acquire. The Company's entire goodwill balance, recorded in our Southeast reportable segment, is related to the Venture Homes
acquisition that occurred during fiscal 2018. The Company evaluates goodwill for impairment at the reporting unit level
annually during the fourth quarter or more often if indicators of impairment exist.
The Company has the option to perform a qualitative or quantitative assessment to determine whether the fair value of a
reporting unit exceeds its carrying value. Qualitative factors may include, but are not limited to economic conditions, industry
and market considerations, cost factors, overall financial performance of the reporting unit and other entity and reporting unit
specific events. If after assessing these qualitative factors, the Company determines it is more likely than not that the fair value
of the reporting unit is less than the carrying value, then a quantitative assessment is performed.
The fair value of the reporting unit is estimated using a combination of the income approach, utilizing the discounted cash flow
method, and the market approach, utilizing readily available market valuation multiples. If the estimated fair value of the
reporting unit is less than its carrying value, an impairment will be recognized for the amount by which the carrying amount
exceeds the reporting unit’s fair value. Determining the fair value of a reporting unit under the quantitative goodwill impairment
assessment requires the Company to make estimates and assumptions regarding future operating results, cash flows (including
timing), discount rates, expected growth rates, capital expenditures and cost of capital, similar to those a market participant
would use to assess fair value. We also make certain assumptions about future economic conditions and other data. Many of the
factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in
future periods.
During the fourth quarter of 2020, the Company performed its annual goodwill impairment analysis and concluded our
goodwill was not impaired.
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).
55
Other Liabilities
Our other liabilities principally include accrued compensations and benefits, accrued interest on our outstanding borrowings,
customer deposits, accrued warranty expense, litigation accruals, income tax liabilities and other accruals related to our
operations. Refer to Note 12 for a detail of our other liabilities.
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. We record interest and penalties related to
unrecognized tax benefits in income tax expense within our consolidated statements of operations. Changes in recognition of
measurement are recorded in the period in which the change in judgment occurs. For a discussion of our evaluation of and
accounting for valuation allowances, refer to Note 13.
Our income tax receivable includes the refundable portion of our alternative minimum tax credit. The alternative minimum tax
credit became a refundable credit when the alternative minimum tax was eliminated with the enactment of the Tax Cuts and
Jobs Act on December 22, 2017. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on
March 27, 2020. The CARES Act provides companies with the ability to make a refund claim for their entire alternative
minimum tax credits as early as their 2018 tax return. As a result, we reduced our deferred tax asset by the remaining $4.6
million of alternative minimum tax credits and increased our tax receivable for the refund we expect to receive with the filing of
our fiscal 2019 tax return.
Revenue Recognition
We recognize revenue upon the transfer of promised goods to our customers in an amount that reflects the consideration to
which we expect to be entitled by applying the following five-step process specified in ASC 606.
•
•
•
•
•
Identify the contract(s) with a customer
Identify the performance obligations
Determine the transaction price
Allocate the transaction price
Recognize revenue when the performance obligations are met
The following table presents our total revenue disaggregated by revenue stream:
in thousands
Homebuilding revenue
Land sales and other revenue
Total revenue (a)
(a) Please see Note 18 for total revenue disaggregated by reportable segment.
Fiscal Year Ended
September 30,
2020
2019
2018
$
2,116,910 $
2,077,245 $
2,077,360
10,167
10,494
29,773
$
2,127,077 $
2,087,739 $
2,107,133
56
Homebuilding revenue
Homebuilding revenue is reported net of any discounts and incentives and is generally recognized when title to and possession
of the home are transferred to the buyer at the closing date. The performance obligation to deliver the home is generally
satisfied in less than one year from the original contract date. Home sale contract assets consist of cash from home closings held
by title companies in escrow for our benefit, typically for less than five days, and are considered accounts receivable. Contract
liabilities include customer deposits related to sold but undelivered homes and totaled $18.9 million and $11.5 million as of
September 30, 2020 and September 30, 2019, respectively. Of the customer liabilities outstanding as of September 30, 2019,
$10.5 million was recognized in revenue during the year ended September 30, 2020, upon closing of the related homes, and
$1.0 million was refunded to or forfeited by the buyer.
Land sales and other revenue
Land sales revenue relates to land and lots sold that do not fit within our homebuilding programs and strategic plans. Land sales
typically require cash consideration on the closing date, which is generally when performance obligations are satisfied. We also
provide title examinations for our homebuyers in certain markets. Revenues associated with our title operations are recognized
as closing services are rendered and title insurance policies are issued, both of which generally occur as each home is closed.
Home Construction Expenses
Home construction expenses includes the specific construction costs of the home and the allocated lot costs (land acquisition,
land development and other common costs are allocated to individual lots on a pro-rata basis based on the number of lots
remaining to close). All home closing costs are charged to home construction expenses in the period when the revenues from
home closing are recognized.
Sales discounts and incentives include cash discounts, discounts on home building options, option upgrades and seller-paid
financing or closing costs. Cash discounts are accounted for as a reduction in the sale price of the home, thereby decreasing the
amount of revenue we recognize on that closing. All sales incentives other than cash discounts are recognized as a cost of
selling the home and are included in home construction expenses.
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 expenses 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
Advertising costs related to continuing operations of $15.9 million, $17.9 million, and $17.6 million for our fiscal years 2020,
2019 and 2018, respectively, were expensed as incurred and were included in general and administrative (G&A) expenses in the
consolidated statements of operations.
Fair Value Measurements
Certain of our assets are required to be recorded at fair value on a recurring basis, for example, 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.
57
Stock-Based Compensation
We use the Black-Scholes option-pricing 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.
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.
Recent Accounting Pronouncements
Leases. On October 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (ASU 2016-02) and related
amendments, collectively codified in ASC 842, Leases (ASC 842). ASC 842 requires lessees to record most leases on their
balance sheets by recognizing a right-of-use asset, representing the right to use the identified asset during the lease term, and a
corresponding lease liability, representing the present value of the lease payments over the lease term. Lessor accounting will be
largely similar to that under the previous accounting rules. ASC 842 also requires significantly enhanced disclosures around an
entity's leases and the related accounting. As part of our adoption of ASC 842, we applied a modified retrospective approach,
whereby prior year financial statements were not recast. As a result, our consolidated financial statements as of and for the year
ending September 30, 2019 were not restated and continues to be reported under the previous lease standard (ASC 840) and is
therefore not comparative. We also elected the package of transition practical expedients, which allowed us to not reassess (1)
whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and
(3) the initial direct costs for any existing leases. In addition, we elected the practical expedient that allows lessees to account
for lease and non-lease components together as a single component for all leases. Upon adoption of ASC 842, we recorded net
operating lease right-of-use (ROU) assets of $13.9 million and operating lease liabilities of $16.0 million. Existing prepaid rent
and accrued rent were recorded as an offset to the gross operating lease ROU assets. The adoption of ASC 842 did not have any
impact on our retained earnings. See Note 11 for additional discussion of our operating leases.
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 beginning after December 15, 2019 and interim periods within those fiscal years.
Early adoption is permitted for any removed or modified disclosures. We do not expect the adoption of ASU 2018-13 to have a
material impact on our consolidated financial statements or related disclosures.
Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on
Financial Reporting (ASU 2020-04). ASU 2020-04 provides companies with optional guidance to ease the potential accounting
burden associated with transitioning away from reference rates that are expected to be discontinued. This guidance is effective
beginning on March 12, 2020, and can be adopted no later than December 31, 2022, with early adoption permitted. The
Company is currently evaluating the effect that the new guidance will have on its consolidated financial statements and related
disclosures.
58
(3) Supplemental Cash Flow Information
The following table presents supplemental disclosure of non-cash and cash activity as well as a reconciliation of total cash
balances between the condensed consolidated balance sheets and condensed consolidated statements of cash flows for the
periods presented:
in thousands
Supplemental disclosure of non-cash activity:
Beginning operating lease right-of-use asset (ASC 842 adoption)
Beginning operating lease liability (ASC 842 adoption)
Supplemental disclosure of cash activity:
Interest payments
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,
2020
2019
2018
$
$
13,895 $
16,028
— $
—
—
—
71,888 $
101,109 $
95,857
546
315
766
12
607
162
$
327,693 $
106,741 $
139,805
14,835
16,053
13,443
$
342,528 $
122,794 $
153,248
59
(4) Investments in Unconsolidated Entities
Unconsolidated Entities
As of September 30, 2020, 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, 2020 and
September 30, 2019:
in thousands
Investment in unconsolidated entities
Total equity of unconsolidated entities
Total outstanding borrowings of unconsolidated entities
September 30, 2020
September 30, 2019
$
4,003 $
7,079
8,807
3,962
9,969
12,658
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
Equity in income of unconsolidated entities
Fiscal Year Ended September 30,
2020
2019
2018
$
$
347 $
—
347 $
404 $
—
404 $
375
(341)
34
No impairments for unconsolidated entities were recorded during the fiscal years ended September 30, 2020 and September 30,
2019. 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.
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, 2020 and September 30, 2019, the Company 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, 2020 and 2019, the
Company was not required to make any payments related to environmental indemnities.
In assessing the need to record a liability for 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, 2020, no liability was recorded for the contingent aspects of any guarantees that were determined to be
reasonably possible but not probable.
60
(5) Inventory
The components of our owned inventory as of September 30, 2020 and September 30, 2019 are as follows:
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, 2020
September 30, 2019
$
525,021 $
589,763
28,531
12,622
119,659
75,142
507,542
738,201
28,531
12,662
136,565
80,747
$
1,350,738 $
1,504,248
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 133 (with a cost of $42.2 million) and 238 (with a cost of $82.2
million) substantially completed homes that were not subject to a sales contract (spec homes) as of September 30, 2020 and
2019, respectively.
Development projects in progress consist principally of land acquisition, land development and other common costs. These land
related costs are allocated to individual lots on a pro-rata basis, and the lot costs are transferred to homes under construction
when home construction begins for the respective lots. 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).
61
Total owned inventory by reportable segment is presented in the table below as of September 30, 2020 and September 30, 2019:
in thousands
September 30, 2020
West Segment
East Segment
Southeast Segment
Corporate and unallocated (b)
Total
September 30, 2019
West Segment
East Segment
Southeast Segment
Corporate and unallocated (b)
Projects in
Progress (a)
Land
Held for Future
Development
Land Held
for Sale
Total Owned
Inventory
$
$
$
627,986 $
241,799
266,905
172,895
1,309,585 $
3,483 $
14,077
10,971
—
28,531 $
4,516 $
3,702
4,404
—
12,622 $
723,094 $
3,483 $
5,160 $
228,937
318,737
192,287
14,077
10,971
—
4,104
3,398
—
635,985
259,578
282,280
172,895
1,350,738
731,737
247,118
333,106
192,287
Total
$
1,463,055 $
28,531 $
12,662 $
1,504,248
(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.
62
Inventory Impairments and Abandonments
The following table presents, by reportable segment, our total impairment and abandonment charges for the periods presented:
in thousands
Projects in Progress:
West
Southeast
Corporate and unallocated (a)
Total impairments on projects in progress
Land Held for Sale:
West
East
Southeast
Corporate and unallocated (a)
Total impairments on land held for sale
Abandonments:
West
East
Southeast
Total abandonments
Total continuing operations
Discontinued Operations:
Land Held for Sale
Total discontinued operations
Total impairments and abandonments
Fiscal Year Ended September 30,
2020
2019
2018
— $
92,912 $
—
—
858
16,260
—
793
212
— $
110,030 $
1,005
89 $
37,963 $
—
8
1,160
—
—
625
1,257 $
38,588 $
923 $
82
641
1,646 $
2,903 $
— $
— $
2,903 $
— $
—
—
— $
148,618 $
— $
— $
148,618 $
—
168
3,218
2,108
5,494
—
—
—
—
6,499
450
450
6,949
$
$
$
$
$
$
$
$
$
$
(a)
Amount represents capitalized interest and indirect costs that were impaired. Capitalized interest and indirect costs are
maintained within our Corporate and unallocated segment.
Projects in Progress Impairments
When conducting our community level review for the recoverability of inventory related to projects in progress, we consider
both qualitative and quantitative factors to establish a quarterly “watch list” of communities. Each community is evaluated
qualitatively and quantitatively to determine if there are factors driving the low profitability levels. Communities with more
than ten homes remaining to close with potential indicators of impairment resulting from this initial evaluation are subjected to
additional financial and operational reviews that consider the competitive environment and other factors contributing to gross
margins below our specified 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, it may be 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 assets may not be recoverable,
a formal impairment analysis is performed. The formal impairment analysis consists of both qualitative competitive market
analyses and quantitative analyses reflecting market and asset specific information. The quantitative analyses compare the
projected future undiscounted cash flows for each such community with its current carrying value. 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 value, we perform a
discounted cash flow analysis to determine the fair value of the community.
During the year ended September 30, 2020, we performed our quarterly inventory impairment assessment taking into
consideration the qualitative and quantitative factors discussed above, and determined that no community required a formal
impairment analysis (projected cash flow analysis). No project in progress impairment charges were recognized during fiscal
2020.
63
During the year ended September 30, 2019, we performed discounted cash flow analysis on ten communities, nine in the West
segment and one in the Southeast segment, and recognized a total of $110.0 million impairment charges related to our projects
in progress. Refer to below for further discussion.
During the year ended September 30, 2018, we performed discounted cash flow analysis on one community in the Southeast
segment, and recognized an impairment charge of $1.0 million principally due to a reduction in price taken that is other than
temporary based on the competitive and market dynamics.
The table below presents, by reportable segment, details of the impairment charges taken on projects in progress for the periods
presented (no discounted cash flow analysis was performed during fiscal 2020):
$ in thousands
Results of Discounted Cash Flow Analyses Prepared
Segment
Year Ended September 30, 2019
West
Southeast
Corporate and unallocated (a)
Total
Year Ended September 30, 2018
# of
Communities
Impaired
# of Lots
Impaired
Impairment
Charge
Estimated Fair
Value of
Impaired
Inventory at Time of
Impairment
9
1
—
10
839 $
15
—
854 $
92,912 $
858
16,260
110,030 $
69,449
1,367
14,166
84,982
Southeast
Corporate and unallocated (a)
1,312
1
—
—
1,312
1
(a) Amount represents the capitalized interest and indirect cost that were impaired. Capitalized interest and indirect costs are
793 $
212
1,005 $
25 $
—
25 $
Total
maintained within our Corporate and unallocated segment.
During the second quarter of fiscal 2019, we recognized impairment charges of $147.6 million related to fifteen communities in
our California submarkets, all of which were previously land held for future development assets. As of the beginning of the
quarter, nine of these communities were included in projects in progress due to their activation for development in prior
periods, while the remaining six communities were classified as land held for future development (refer to below section titled
"Land Held for Sale Impairments" for further discussion). We performed discounted cash flow analyses for the nine
communities in projects in progress and recognized $109.0 million impairment charges, principally due to a reduction in price
that is other than temporary based on competitive and market dynamics.
Valuation assumptions for communities tested for impairment are specific to each community. For projects in progress
impaired during the periods presented, we determined the fair value of each community by discounting its estimated future cash
flows at a rate commensurate with the risks inherent in the project. The discount rate used depends on the development stage
and expected duration of the project, local market conditions, and other specific factors. The estimated future cash flows for
each community were determined based on the expected pace of closings and average sales price of the community less
expected costs for land acquisition and land development, direct construction, overhead, and interest. We determined the fair
value of land held for sale assets impaired during the periods presented based on sales contracts, letters of intent, and recent
comparable land sale transactions, as applicable. The assumptions used in the determination of fair value of both projects in
progress and land held for sale communities are based on factors known to us at the time such estimates are made and our
expectations of future operations and market conditions. Should the estimates or expectations used in determining estimated fair
64
values deteriorate in the future, we may be required to recognize additional impairment charges and write-offs related to these
assets, and such amounts could be material.
The table below presents the ranges or values of significant quantitative unobservable inputs we used in determining the fair
value of the communities impaired during the periods presented:
Unobservable Inputs
Average selling price (in thousands)
Closings per community per month
Discount rate
Land Held for Sale Impairments
Fiscal Year Ended September 30,
2019
$350 - $615
1 - 4
14.7% - 16.8%
2018
$356
1 - 6
15.1 %
Impairments on land held for sale generally represent write downs of these properties to net realizable value based on sales
contracts, letters of intent, current market conditions and recent comparable land sale transactions, as applicable. Absent an
executed sales contract, our assumptions related to land sales prices require significant judgment because the real estate market
is highly sensitive to changes in economic conditions, and our estimates of sale prices could differ significantly from actual
results.
During the year ended September 30, 2020, we recognized $1.3 million land held for sales impairment charges related to two
held for sale communities in our West and Southeast segments.
During the second quarter of fiscal 2019, concurrent with the California projects in progress impairment analyses described
above, we performed a strategic review of our remaining land held for future development assets in California and determined
to sell these parcels. As a consequence of change in strategy with respect to the future use of these assets, we recognized land
held for sale impairments totaling $38.6 million for six communities in our West segment.
During the year ended September 30, 2018, we recognized $5.5 million land held for sales impairment charges related to two
held for sale communities in the East and Southeast segments. In addition, we recognized $0.5 million land held for sales
impairment charges related to one held for sale community in our discontinued operations.
Abandonments
From time-to-time, we may determine to abandon lots or not exercise certain option contracts that are not projected to produce
adequate results, or no longer fit with our long-term strategic plan. 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 seller non-performance, or 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 an abandonment charge to
earnings for the deposit amount and any related capitalized costs in the period such decision is made. During the year ended
September 30, 2020, we recognized $1.6 million abandonment charges related to six under contract land acquisition deals that
we decided to terminate. There were no abandonment charges recognized during our fiscal 2019 and 2018.
Lot Option Agreements
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.
65
The following table provides a summary of our interests in lot option agreements as of September 30, 2020 and September 30,
2019:
in thousands
As of September 30, 2020
Unconsolidated lot option agreements
As of September 30, 2019
Unconsolidated lot option agreements
(6) Interest
Deposits &
Non-refundable
Pre-acquisition
Costs Incurred
Remaining
Obligation
$
$
75,921 $
395,133
78,202 $
389,705
Interest capitalized during the fiscal years ended September 30, 2020, 2019 and 2018 was limited by the balance of inventory
eligible for capitalization. The following table presents certain information regarding interest for the periods presented:
in thousands
Fiscal Year Ended September 30,
2020
2019
2018
$
136,565 $
Capitalized interest in inventory, beginning of period
Interest incurred
Capitalized interest impaired
Interest expense not qualified for capitalization and included as other
expense (a)
Capitalized interest amortized to home construction and land sales
expenses (b)
(91,152)
144,645
Capitalized interest in inventory, end of period
(a) The amount of interest capitalized depends on the qualified inventory balance, which considers the status of the Company's
inventory holdings. The qualified inventory balance includes the majority of homes under construction and development
projects in progress but excludes land held for future development and land held for sale.
144,645 $
103,970
(13,907)
139,203
103,880
(1,961)
(95,034)
136,565 $
(94,870)
119,659 $
(8,468)
(3,109)
(5,325)
(792)
87,224
$
(b) Capitalized interest amortized to home construction and land sales 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, 2020 and September 30, 2019:
in thousands
Model furnishings and sales office improvements
Information systems
Furniture, fixtures and office equipment
Leasehold improvements
Buildings and improvements
Property and equipment, gross
Less: Accumulated depreciation
Property and equipment, net
September 30, 2020
September 30, 2019
$
$
17,604 $
14,930
10,287
4,959
1,671
49,451
(27,171)
22,280 $
21,114
15,045
10,068
5,136
1,671
53,034
(25,613)
27,421
66
(8) Borrowings
The Company's debt, net of unamortized debt issuance costs consisted of the following as of September 30, 2020 and
September 30, 2019:
in thousands
Maturity Date
September 30, 2020
September 30, 2019
Senior Unsecured Term Loan (Term Loan)
September 2022
$
100,000 $
6 3/4% Senior Notes (2025 Notes)
5 7/8% Senior Notes (2027 Notes)
7 1/4% Senior Notes (2029 Notes)
Unamortized debt issuance costs
Total Senior Notes, net
March 2025
October 2027
October 2029
Junior Subordinated Notes (net of unamortized accretion
of $32,636 and $34,703, respectively)
Secured Revolving Credit Facility
Other Secured Notes Payable
July 2036
February 2022 (a)
Various Dates
229,555
394,000
350,000
(10,891)
1,062,664
68,137
—
—
150,000
229,555
394,000
350,000
(12,470)
1,111,085
66,070
—
1,154
Total debt, net
1,178,309
(a) On October 8, 2020, the Company executed a Ninth Amendment to the Facility. The Ninth Amendment extended the
termination date of the Facility from February 15, 2022 to February 15, 2023. For further discussion of the Ninth
Amendment, refer to Note 21.
1,130,801 $
$
As of September 30, 2020, the future maturities of our borrowings were as follows:
Fiscal Year Ended September 30,
in thousands
2021
2022
2023
2024
2025
Thereafter
Total
$
$
50,000
50,000
—
—
229,555
844,773
1,174,328
Secured Revolving Credit Facility
The Secured Revolving Credit Facility (the Facility) provides working capital and letter of credit capacity of $250.0 million.
The Facility is currently with four 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 $1.1 billion 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, 2020 and September 30, 2019, no borrowings and no letters of credit
were outstanding under the Facility, resulting in a remaining capacity of $250.0 million. The Facility requires compliance with
certain covenants, including negative covenants and financial covenants. As of September 30, 2020, the Company believes it
was in compliance with all such covenants.
Senior Unsecured Term Loan
On September 9, 2019, the Company entered into a term loan agreement, which provides for a Senior Unsecured Term Loan
(the Term Loan). The principal balance as of September 30, 2020 is $100.0 million. The Term Loan will (1) mature in
September 2022, with remaining $50.0 million annual repayment installments due in September 2021 and September 2022; (2)
bears interest at a fixed rate of 4.875%; and (3) includes an option to prepay, subject to certain conditions and the payment of
certain premiums. The Term Loan contains covenants generally consistent with the covenants contained in the Facility. As of
September 30, 2020, the Company believes it was in compliance with all such covenants.
67
Letter of Credit Facilities
The Company has entered into stand-alone, cash-secured letter of credit agreements with banks to maintain 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, 2020 and September 30, 2019, the Company had letters of credit outstanding under these additional facilities
of $12.7 million and $14.1 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"). On June 17,
2020, the Company executed an Amendment No. 1 to the Bilateral Facility that extends the termination date of the agreement
from June 10, 2021 to June 10, 2022. As of September 30, 2020, the total stated amount of performance letters of credit issued
under the reimbursement agreement was $36.1 million (and the stated amount of the backstop standby letter of credit issued
under the credit agreement was $40.0 million). The Company may enter into additional arrangements to provide greater letter of
credit capacity.
Senior Notes
The Company's Senior Notes are unsecured obligations ranking pari passu with all other existing and future senior
indebtedness. Substantially all of the Company's 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.
All unsecured Senior Notes rank equally in right of payment with all 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 make
certain investments. Compliance with the Senior Note covenants does not significantly impact the Company's operations. The
Company believes it was in compliance with the covenants contained in the indentures of all of its Senior Notes as of
September 30, 2020.
We recognized $24.9 million in loss on extinguishment of debt in fiscal 2019 compared to no such charges in fiscal 2020.
68
For additional redemption features, refer to the table below that summarizes the redemption terms of our Senior Notes:
Senior Note Description
Issuance Date
Maturity Date
6 3/4% Senior Notes
March 2017
March 2025
5 7/8% Senior Notes
October 2017
October 2027
7 1/4% Senior Notes
September
2019
October 2029
Redemption Terms
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
106.750% 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.
Callable at any time prior to March 15, 2020, in whole or in part, at
a redemption price equal to 100.000% 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 100.000% of the principal
amount, plus, in each case, accrued and unpaid interest
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.
Callable at any time prior to October 15, 2022, in whole or in part,
at a redemption price equal to 100.000% 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 100.000% of the principal
amount, plus, in each case, accrued and unpaid interest
On or prior to October 15, 2022, we may redeem up to 35% of the
aggregate principal amount of the 2029 Notes with the net cash
proceeds of certain equity offerings at a redemption price equal to
107.250% 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 2029 Notes
originally issued remains outstanding immediately after such
redemption.
Callable at any time prior to October 15, 2024, in whole or in part,
at a redemption price equal to 100.000% of the principal amount,
plus a customary make-whole premium; on or after October 15,
2024, callable at a redemption price equal to 103.625% of the
principal amount; on or after October 15, 2025, callable at a
redemption price equal to 102.417% of the principal amount; on or
after October 15, 2026, callable at a redemption price equal to
101.208% of the principal amount; on or after October 15, 2027,
callable at a redemption price equal to 100.000% of the principal
amount, plus, in each case, accrued and unpaid interest
69
Junior Subordinated Notes
The Company's 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 10 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 4.25% as of September 30, 2020. The obligations relating to these notes are subordinated to the Facility and the
Senior Notes. In January 2010, the Company 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, 2020, the unamortized accretion was $32.6 million and
will be amortized over the remaining life of the notes. As of September 30, 2020, the Company believes it was in compliance
with all covenants under the Junior Subordinated Notes.
(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
Payments made
Fiscal Year Ended September 30,
2020
2019
2018
$
13,388 $
10,910
(1,352)
(9,894)
15,331 $
11,847
(1,686)
(12,104)
18,091
13,755
(2,401)
(14,114)
Balance at end of period
15,331
(a) Accruals for warranties issued are a function of the number of home closings in the period, the selling prices of the homes
13,052 $
13,388 $
$
closed and the rates of accrual per home estimated as a percentage of the selling price of the home.
70
Insurance Recoveries
The Company has insurance policies that provide for the reimbursement of certain warranty costs incurred above specified
thresholds for each period covered. Amounts recorded for anticipated insurance recoveries are reflected within the consolidated
statements of operations as a reduction of home construction expenses. Amounts not yet received from our insurer are recorded
on a gross basis, without any reduction for the associated warranty expense, within accounts receivable on our consolidated
balance sheets.
Litigation
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
that 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.
Claims Related to Inventory Impairment Charges. During the quarter ended March 31, 2019, we recognized inventory
impairment charges related to 15 communities in California, all of which were previously land held for future development
assets. Related to these inventory impairment charges, on June 5, 2019, a putative class action lawsuit was filed against Beazer
Homes USA, Inc. and certain of our officers in the U.S. District Court for the Southern District of New York. The proposed
class consisted of all persons and entities that acquired our securities between August 1, 2014 and May 2, 2019. On October 18,
2019, the plaintiffs filed a notice of voluntary dismissal of this case, and the Court subsequently entered an order dismissing the
case.
Beginning June 25, 2019, several shareholder derivative lawsuits relating to the same inventory impairment charges discussed
above were filed against Beazer Homes USA, Inc., certain of our officers and members of our Board of Directors in the U.S.
District Court for the Northern District of Georgia. The plaintiffs in these cases allege breaches of fiduciary duty, unjust
enrichment and violations of the federal securities laws. These federal actions have been consolidated into a single derivative
action. Additionally, a substantially similar derivative action has been filed in the Superior Court of Fulton County, Georgia.
The plaintiffs in each of these actions seek, among other things, monetary damages, disgorgement of profits and attorneys’ and
experts’ fees, but do not specify any specific amounts. On October 25, 2020, the Court granted a motion to dismiss the
consolidated federal action but provided the plaintiffs an opportunity to attempt to amend their complaint. We continue to
believe the allegations are without merit and intend to continue to vigorously defend against the claims. However, because the
outcome of these legal proceedings cannot be predicted with certainty, we have determined that the amount of any possible
losses or range of possible losses in connection with these matters is not reasonably estimable.
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 in 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 $5.0 million and $3.4 million in other liabilities on our consolidated balance sheets related to litigation
and other matters, excluding warranty, as of September 30, 2020 and 2019, respectively.
We had outstanding letters of credit and surety bonds of $48.8 million and $248.2 million, respectively, as of September 30,
2020, 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
71
•
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, 2020, we recognized no impairments on projects in process and $1.3 million on
land held for sale. During the fiscal year ended September 30, 2019, we recognized impairments of $110.0 million on projects
in process and $38.6 million on land held for sale. During the fiscal year ended September 30, 2018, we recognized
impairments of $1.0 million on projects in process and $5.9 million on land held for sale.
Determining within which hierarchical level an asset or liability falls requires significant judgment. We evaluate our hierarchy
disclosures each quarter.
The following table presents the period-end balances of 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
As of September 30, 2020
Deferred compensation plan assets (a)
Land held for sale (b)
As of September 30, 2019
Deferred compensation plan assets (a)
Development projects in progress (b)
Land held for sale (b)
As of September 30, 2018
Deferred compensation plan assets (a)
Development projects in progress (b)
Land held for sale (b)
Unconsolidated entity investments
Level 1
Level 2
Level 3
Total
$
$
$
— $
—
— $
—
—
— $
—
—
—
$
$
$
2,339 $
—
—
6,240 (c)
1,970 $
—
—
1,578 $
—
—
—
—
84,982 (c)
5,207 (c)
—
1,312 (c)
1,724 (c)
80
2,339
6,240
1,970
84,982
5,207
1,578
1,312
1,724
80
(a) Measured at fair value on a recurring basis.
(b) Measured at fair value on a non-recurring basis, including the capitalized interest and indirect costs related to the asset.
(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 period indicated.
The fair value of 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 consolidated inventory not owned
approximate fair value.
72
The following table presents the carrying value and estimated fair value of certain other financial liabilities as of September 30,
2020 and September 30, 2019:
in thousands
Senior Notes (b)
Junior Subordinated Notes (c)
Total
As of September 30, 2020
As of September 30, 2019
Carrying
Amount (a)
Fair Value
Carrying
Amount (a)
Fair Value
$
1,062,664 $
1,098,117 $
1,111,085 $
1,115,011
68,137
68,137
66,070
66,070
$
1,130,801 $
1,166,254 $
1,177,155 $
1,181,081
(a)
Carrying amounts are net of debt issuance costs or accretion.
(b)
The estimated fair value for our publicly-held Senior Notes and the Term Loan have been determined using quoted market
rates (Level 2).
(c) Since there is no trading market for our Junior Subordinated Notes, the fair value of these notes is estimated by discounting
scheduled cash flows through maturity (Level 3). The discount rate is estimated using market rates currently being offered on
loans with similar terms and credit quality. Judgment is required in interpreting market data to develop these estimates of fair
value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a
current market exchange.
(11) Operating Leases
The Company leases certain office space and equipment under operating leases for use in our operations. We recognize
operating lease expense on a straight-line basis over the lease term. Certain of our lease agreements include one or more options
to renew. The exercise of lease renewal options is generally at our discretion. Variable lease expense primarily relates to
maintenance and other monthly expense that do not depend on an index or rate.
We determine if an arrangement is a lease at contract inception. Lease and non-lease components are accounted for as a single
component for all leases. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on
the present value of the future lease payments over the expected lease term, which includes optional renewal periods if we
determine it is reasonably certain that the option will be exercised. As our leases do not provide an implicit rate, the discount
rate used in the present value calculation represents our incremental borrowing rate determined using information available at
the commencement date.
Operating lease expense is included as a component of general and administrative expenses in our consolidated statements of
operations. For the fiscal year ended September 30, 2020, we recorded operating lease expense of $4.5 million. Cash payments
on lease liabilities during the fiscal year ended September 30, 2020 totaled $4.6 million. Sublease income and variable lease
expenses are de minimis. The Company increased both its operating lease ROU asset and operating lease liability by $3.1
million as a result of additional leases that commenced during the fiscal year ended September 30, 2020.
At September 30, 2020, weighted-average remaining lease term and discount rate were as follows:
Weighted-average remaining lease term
Weighted-average discount rate
5.1 years
4.87%
73
The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating
lease liabilities as of September 30, 2020:
Fiscal Year Ended September 30,
in thousands
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: imputed interest
Total operating lease liabilities
$
$
4,604
3,743
2,933
1,818
1,518
2,791
17,407
2,074
15,333
Under ASC 840, Leases (ASC 840), the Company’s total rental expense was $5.8 million and $4.8 million for 2019 and 2018,
respectively.
At September 30, 2019, under ASC 840, the future minimum rental commitments totaled $20.2 million under non-cancelable
operating leases as follows: 2020 - $4.7 million; 2021 - $4.5 million; 2022 - $3.6 million; 2023 - $2.9 million; 2024 -
$1.8 million; and $2.6 million thereafter.
(12) Other Liabilities
Other liabilities include the following as of September 30, 2020 and September 30, 2019:
in thousands
Accrued compensations and benefits
Accrued interest
Customer deposits
Accrued warranty expenses
Litigation accruals
Income tax liabilities
Other
Total
(13) Income Taxes
September 30, 2020
September 30, 2019
$
$
50,246 $
23,870
18,937
13,052
4,981
584
24,313
135,983 $
36,237
12,767
11,539
13,388
3,420
648
31,430
109,429
The Company's expense (benefit) from income taxes from continuing operations consists of the following for the periods
presented:
in thousands
Current federal (a)
Current state
Deferred federal (b)
Deferred state (c)
Fiscal Year Ended September 30,
2020
2019
2018
$
(4,641) $
(4,935) $
485
20,639
1,490
693
(31,291)
(1,684)
57
512
102,082
(8,167)
Total expense (benefit)
94,484
(a) Fiscal 2020 federal current benefit is primarily driven by the expected refund of our remaining alternative minimum tax
credit balance due to the enactment of the CARES Act. Fiscal 2019 federal current benefit is primarily driven by the expected
refund of half of our outstanding alternative minimum tax credit that became refundable due to the enactment of the Tax Cuts
and Jobs Act. See further discussion below.
(37,217) $
17,973 $
$
(b) 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 as a result of the Tax Cuts and Jobs Act, partially offset by the release of the remaining valuation
allowance on our federal deferred tax assets.
74
(c) Fiscal 2018 state deferred benefit is primarily driven by the release of valuation allowance in certain operating jurisdictions;
refer to discussion below titled “Valuation Allowance.”
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 in valuation allowance - other (a)
Changes in uncertain tax positions
Permanent differences
Tax credits
Other, net
Fiscal Year Ended September 30,
2020
2019
2018
$
14,971 $
(24,494) $
1,300
260
—
(2)
2,177
(939)
206
(590)
(88)
—
(7)
2,908
(14,902)
(44)
12,112
111
110,071
(27,370)
598
2,133
(3,174)
3
94,484
Total expense (benefit)
$
17,973 $
(37,217) $
(a) For fiscal 2018, amount represents 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 and the enactment of the Tax Cuts
and Jobs Act, our fiscal 2018 provision was calculated using a blended 24.5% federal tax rate.
The principal differences between our effective tax rate and the U.S. federal statutory rate for fiscals 2020 and 2019 relate to
state taxes, permanent differences and tax credits.
We recognized income tax expense from continuing operations of $18.0 million in our fiscal 2020, compared to income tax
benefit from continuing operations of $37.2 million in our fiscal 2019 and income tax expense from continuing operations of
$94.5 million in our fiscal 2018. The income tax expense in our fiscal 2020 primarily resulted from income generated in the
current year and our permanent book/tax differences, partially offset by the generation of additional federal tax credits. The
income tax benefit in our fiscal 2019 primarily resulted from the loss generated in the fiscal year and the generation of
additional federal tax credits. In fiscal 2018, our income tax expense primarily resulted from income generated in the fiscal 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 federal tax credits. Due to the effects of changes in our valuation allowance on our
deferred tax balance, tax credits and changes in our unrecognized tax benefits, our effective tax rates in fiscal 2020, 2019, and
2018 are not meaningful metrics, as our income tax amounts were not directly correlated to the amount of our pretax income
(loss) for those periods.
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, 2020 and September 30,
2019:
in thousands
Deferred tax assets:
September 30, 2020
September 30, 2019
Federal and state tax carryforwards
$
192,981 $
Inventory adjustments
Intangible assets
Incentive compensation
Warranty and other reserves
Property, equipment and other assets
Uncertain tax positions
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
34,971
13,993
13,116
5,503
2,197
723
844
264,328
(39,185)
225,143 $
$
75
208,360
42,605
17,209
9,360
4,302
2,255
729
623
285,443
(38,486)
246,957
As of September 30, 2020, our gross deferred tax assets above included $120.0 million for federal net operating loss
carryforwards, $42.8 million for state net operating loss carryforwards, and $33.6 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 2040. The alternative minimum tax credit became a refundable credit when the alternative minimum tax was eliminated
with the enactment of the Tax Cuts and Jobs Act on December 22, 2017. For the year-ended September 30, 2019, we recorded
our initial refund claim of $4.6 million, or half of our outstanding $9.2 million credit. During fiscal 2020, the enactment of the
Coronavirus Aid, Relief and Economic Security (CARES) Act on March 27, 2020 enabled us to claim the entire $9.2 million
alternative minimum tax credit with the filing of our fiscal 2019 return and the amount was recorded in our income tax
receivable. 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 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.
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 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
fiscal 2018, 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.
During fiscal 2019, our conclusions on whether we are more likely than not to realize all of our federal tax attributes and certain
portions of our state tax attributes remain consistent with our fiscal 2018 determinations. For fiscal 2019, a number of
additional positive and negative factors were considered as part of our analysis. The negative factors for fiscal 2019 included
current period operating losses, primarily a result of impairments recorded on a number of long held assets in our California
submarkets and a loss on debt extinguishment charge in the fourth quarter. The positive factors included a recovery in housing
demand throughout the year that resulted in backlog levels consistent with prior year, interest savings from our current year
debt repurchases and debt refinance, a new multi-year debt reduction strategy, and additional changes in our taxable income as
we continue to account for the changes to the tax code under the Tax Cuts and Jobs Act and the related state impacts.
In fiscal 2020, we analyzed a number of additional positive and negative factors to determine whether we are more likely than
not to realize all our federal tax attributes and certain portions of our state tax attributes. The significant positive factors
included our current earnings from continuing operations and increased backlog over the prior year, as well as continued
interest savings from our current debt reduction strategy. The negative factors for fiscal 2020 generally included uncertainties
and long-term impacts to the broader economy as a result of the COVID-19 pandemic. Our fiscal 2020 determinations remain
consistent with our fiscal 2018 and 2019 determinations. As of September 30, 2020, the Company will have to cumulatively
generate approximately $915.5 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 2040. As we continue to monitor the
impacts of the COVID-19 pandemic on our business, any sustained or prolonged reductions in future earnings periods may
change our conclusions on whether we are more likely than not to realize portions of our deferred tax assets.
As of September 30, 2020, valuation allowance of $39.2 million 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.
76
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 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,
2020
2019
2018
$
3,473 $
3,494 $
3,804
—
—
—
—
—
—
(32)
(21)
$
3,441 $
3,473 $
—
—
—
(310)
3,494
If we were to recognize our $3.4 million of gross unrecognized tax benefits remaining as of September 30, 2020, substantially
all would impact our effective tax rate. Additionally, we had no accrued interest and penalties as of September 30, 2020 and an
immaterial amount of accrued interest and penalties as of September 30, 2019. We record interest and penalties related to
unrecognized tax benefits in income tax expense within our consolidated statements of operations.
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, 2020, it is
reasonably possible that $83 thousand of our uncertain tax positions will reverse within the next twelve months.
(14) Stockholders' Equity
Preferred Stock
The Company currently has no shares of preferred stock outstanding.
Common Stock
As of September 30, 2020, the Company had 63,000,000 shares of common stock authorized and 31,012,326 shares both issued
and outstanding.
Common Stock Repurchases
During the first quarter of fiscal 2019, 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. As part of this program, the Company has
repurchased common stock during fiscal 2019 through open market transactions, 10b5-1 plans, and accelerated share
repurchase (ASR) agreements. All shares have been retired upon repurchase during fiscal 2019. The aggregate reduction to
stockholders’ equity related to share repurchases during the fiscal year ended September 30, 2019 was $34.6 million.
During fiscal 2020, the Company repurchased approximately 362,000 shares of its common stock for $3.3 million at an average
price per share of $9.20 during the first half of fiscal 2020 through open market transactions and 10b5-1 plans. All shares have
been retired upon repurchase. As of September 30, 2020, the remaining availability of the share repurchase program was $12.0
million.
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 2020, 2019, or 2018.
Section 382 Rights Agreement
Prior to fiscal 2019, the Company’s stockholders had approved amendments to the Company’s Certificate of Incorporation (the
Protective Amendment) designed to preserve the value of certain tax assets associated with net operating loss carryforwards
under Section 382. In February 2019, 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.
77
(15) Retirement and Deferred Compensation Plans
401(k) Retirement Plan
The Company sponsors 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. Participants may defer and
contribute from 1% to 80% of their salary to the Plan, with certain limitations on highly compensated individuals. The
Company matches 50% of the first 6% of the participant's contributions. The participant's contributions vest immediately, while
the Company's contributions vest over five years. The total Company contributions for the fiscal years ended September 30,
2020, 2019, and 2018 were approximately $3.4 million, $3.6 million, and $3.3 million, respectively. During fiscal 2020, 2019,
and 2018, participants forfeited $1.0 million, $0.7 million, and $0.7 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 $2.3 million and $2.0 million as of September 30, 2020 and 2019, respectively, are
included in other assets on our consolidated balance sheets and are recorded at fair value. Deferred compensation liabilities of
$5.6 million and $4.9 million as of September 30, 2020 and 2019, respectively, are included in other liabilities on our
consolidated balance sheets. For the years ended September 30, 2020, 2019 and 2018, the Company contributed approximately
$0.2 million, $0.2 million, and $0.2 million, respectively, to the DCP in the form of voluntary contributions.
(16) Stock-Based Compensation
The Company has shares available for grant under the Amended and Restated 2014 Beazer Homes USA, Inc. Long-Term
Incentive Plan (the 2014 Plan). We issue new shares upon the exercise of stock options and the vesting of restricted stock
awards. In cases of forfeitures and cancellations, those shares are returned to the share pool for future issuance. As of
September 30, 2020, we had approximately 2.7 million shares of common stock for issuance under our various equity incentive
plans, of which approximately 2.3 million shares are available for future grants.
Stock-based compensation expense is included in general and administrative expenses in our consolidated statements of
operations. Following is a summary of stock-based compensation expense related to stock options and restricted stock awards
for the fiscal years ended 2020, 2019, and 2018, respectively.
in thousands
Stock options expense
Restricted stock awards expense
Stock-based compensation expense
Stock Options
Fiscal Year Ended September 30,
2020
2019
2018
$
$
133 $
9,903
10,036 $
178 $
10,348
10,526 $
225
10,033
10,258
We have issued stock options to officers and key employees under the 2014 Plan and the 2010 Equity Incentive Plan (the 2010
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, 2020, the intrinsic value of our stock options outstanding, vested or expected to
vest in the future, vested and exercisable were $0.2 million, $0.2 million, and $0.1 million, respectively. As of September 30,
2020 and September 30, 2019, there was less than $0.1 million and $0.1 million, respectively, of total unrecognized
compensation cost related to unvested stock options. The cost remaining as of September 30, 2020 is expected to be recognized
over a weighted-average period of 0.4 years.
78
During fiscal 2018, the Compensation Committee of our Board of Directors approved the Employee Stock Option Program
(ESOP). This program is available to all full-time employees and is designed to enable employees to share in potential price
appreciation of the Company's stock. The ESOP 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 shares are purchased by the
employee, which is also the ESOP grant date. 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 ESOP is limited to 100,000, of which 31,732 options
were granted through the end of fiscal 2020.
During the year ended September 30, 2020, we issued 950 stock options, all were issued under the ESOP, each for one share of
the Company's stock. These stock options typically vest ratably over two years from the date of grant.
We used the following valuation assumptions for stock options granted for the periods presented:
Expected life of options
Expected volatility
Expected dividends
Weighted-average risk-free interest rate
Weighted-average fair value
Fiscal Year Ended September 30,
2020
2019
2018
5.7 years
51.52 %
—
0.43 %
4.99
$
5.0 years
46.69 %
—
2.70 %
4.50
$
5.0 years
44.71 %
—
2.10 %
8.30
$
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.
Following is a summary of stock option activity for the periods presented is as follows:
Outstanding at beginning of period
Granted
Exercised
Expired
Forfeited
Outstanding at end of period
Exercisable at end of period
Vested or expected to vest in the
future
2020
2019
2018
Weighted-
Average
Exercise
Price
Shares
Weighted-
Average
Exercise
Price
Shares
Weighted-
Average
Exercise
Price
Shares
523,754 $
950
(128,921)
—
(3,318)
392,465 $
354,796 $
14.34
10.67
11.01
—
9.55
15.47
15.90
533,052 $
30,782
(31,450)
—
(8,630)
523,754 $
470,501 $
14.26
10.23
10.00
—
10.45
14.34
14.42
593,753 $
25,230
(8,411)
(61,967)
(15,553)
533,052 $
479,538 $
14.76
19.99
7.52
23.19
10.46
14.26
14.03
391,968 $
15.48
521,362 $
14.36
533,052 $
14.26
79
The following table summarizes information about stock options outstanding and exercisable as of September 30, 2020:
Range of Exercise Price
$1 - $10
$11 - $15
$16 -$20
$1 - $20
Stock Options Outstanding
Stock Options Exercisable
Weighted-
Average
Contractual
Remaining
Life (Years)
4.7
1.5
1.7
1.9
Number
Outstanding
37,433
181,990
173,042
392,465
Weighted-
Average
Exercise Price
Number
Exercisable
$
$
8.48
13.27
19.30
15.47
22,571
174,970
165,148
362,689
Weighted-
Average
Contractual
Remaining
Life (Years)
3.6
1.3
1.5
1.5
Weighted-
Average
Exercise Price
$
$
7.52
13.34
19.25
15.67
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
Restricted Stock Awards
Fiscal Year Ended September 30,
2020
2019
2018
$
587 $
144
90 $
178
76
296
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, 2020 and September 30, 2019, there was $9.0 million and $9.0 million,
respectively, of total unrecognized compensation cost related to unvested restricted stock awards. The cost remaining as of
September 30, 2020 is expected to be recognized over a weighted-average period of 1.7 years.
We have issued restricted stock awards to officers and key employees under both the 2014 Plan and the 2010 Plan. During
fiscal 2020, 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, 2020, we issued 260,131 shares of performance-based restricted stock (2020 Performance
Shares) to our executive officers and certain other employees that also have market conditions. The 2020 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 2020 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 $16.98 per share on
the date of grant.
80
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,
2020
2019
2018
21.2% - 54.8%
21.0% - 57.1%
21.1% - 61.2%
1.61 %
—
2.92 %
—
$
15.62
$
9.82
$
1.81 %
—
20.50
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. Our performance stock award plans provide that any performance
shares earned in excess of the target number of performance shares issued may be settled in cash or additional shares at the
discretion of the Compensation Committee. In November 2019, we cash settled 135,337 shares earned above target level based
on the performance level achieved under our 2017 performance-based award plan. The cash payment totaled $2.1 million,
which was reflected as a reduction to paid-in capital in the accompanying condensed consolidated statements of stockholders'
equity. We have not cash settled any such performance-based awards prior to or subsequent to the November 2019 transaction,
and we have no current plans to cash settle any additional performance-based restricted shares in the future.
The performance criteria of the 2018 Performance Share grant were satisfied as of September 30, 2020. Based on the actual
performance level achieved, 222,165 performance-based restricted stock awards from the 2018 Performance Share grant will
cliff vest at the end of the three-year vesting period on November 16, 2020. Of the total $6.3 million compensation cost related
to these awards, we have recognized $2.6 million, $2.3 million, and $1.1 million during the fiscal years ended September 30,
2020, 2019, and 2018, respectively. The remaining $0.3 million of unrecognized compensation cost will be recognized in the
first quarter of fiscal 2021.
81
Time-Based Restricted Stock Awards
During the year ended September 30, 2020, we also issued 327,571 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:
Year Ended September 30, 2020
Performance-Based
Time-Based
Total
Weighted-
Average
Grant
Date Fair
Value
13.60
16.98
13.60
—
14.71
Shares
778,814 $
260,131
(242,921)
—
796,024 $
Weighted-
Average
Grant
Date Fair
Value
12.11
15.29
11.89
13.79
13.85
Shares
611,607 $
327,571
(302,255)
(26,793)
610,130 $
Weighted-
Average
Grant
Date Fair
Value
16.53
16.04
12.65
13.79
14.34
Shares
1,390,421 $
587,702
(545,176)
(26,793)
1,406,154 $
Year Ended September 30, 2019
Performance-Based
Time-Based
Total
Weighted-
Average
Grant
Date Fair
Value
16.47
9.95
15.36
13.44
13.60
Shares
644,785 $
467,819
(321,833)
(11,957)
778,814 $
Weighted-
Average
Grant
Date Fair
Value
16.60
9.82
16.41
12.20
12.11
Shares
431,783 $
448,657
(212,558)
(56,275)
611,607 $
Weighted-
Average
Grant
Date Fair
Value
16.53
9.89
15.78
12.42
16.53
Shares
1,076,568 $
916,476
(534,391)
(68,232)
1,390,421 $
Beginning of period
Granted
Vested
Forfeited
End of period
Beginning of period
Granted (a)
Vested (a)
Forfeited
End of period
(a) Grant and vesting activity during the twelve months ended September 30, 2019 include 86,050 shares that were issued above
target based on performance level achieved under performance-based restricted stock vesting in the current period.
Year Ended September 30, 2018
Performance-Based
Time-Based
Total
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 $
Weighted-
Average
Grant
Date Fair
Value
16.15
20.26
17.38
18.74
16.53
Shares
1,540,947 $
442,250
(690,922)
(215,707)
1,076,568 $
Beginning of period
Granted
Vested
Forfeited
End of period
82
(17) Earnings Per Share
Basic income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of shares outstanding
during the period. Diluted income (loss) per share adjusts the basic income (loss) 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 income (loss) per share for the periods presented:
in thousands, except per share data
Numerator:
Income (loss) from continuing operations
Loss from discontinued operations, net of tax
Net income (loss)
Denominator:
Basic weighted-average shares
Dilutive effect of restricted stock awards
Dilutive effect of stock options
Diluted weighted-average shares (a)
Basic income (loss) per share:
Continuing operations
Discontinued operations
Total
Fiscal Year Ended September 30,
2020
2019
2018
53,316 $
(1,090)
52,226 $
(79,421) $
(99)
(79,520) $
(45,046)
(329)
(45,375)
29,704
229
15
29,948
30,617
—
—
30,617
1.80 $
(0.04)
1.76 $
(2.59) $
(0.01)
(2.60) $
32,141
—
—
32,141
(1.40)
(0.01)
(1.41)
$
$
$
$
Diluted income (loss) per share:
Continuing operations
Discontinued operations
Total
(1.40)
(0.01)
(1.41)
(a) The following potentially dilutive shares were excluded from the calculation of diluted income (loss) per share as a result of
their anti-dilutive effect. Due to the reported net losses for the years ended September 30, 2019 and 2018, all common stock
equivalents were excluded from the computation of diluted loss per share for fiscal years 2019 and 2018 because inclusion
would have resulted in anti-dilution.
(2.59) $
(0.01)
(2.60) $
1.78 $
(0.04)
1.74 $
$
$
in thousands
Stock options
Time-based restricted stock
Performance-based restricted stock
Fiscal Year Ended September 30,
2020
2019
2018
375
46
—
524
612
779
533
432
645
83
(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 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 (loss). Operating income (loss) for
our homebuilding segments is defined as homebuilding and land sales and other revenue 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 (loss), and depreciation and amortization by segment for the
periods presented:
in thousands
Revenue
West
East
Southeast
Total revenue
in thousands
Operating income (loss) (a)
West
East
Southeast
Segment total
Corporate and unallocated (b)
$
$
$
Fiscal Year Ended September 30,
2020
2019
2018
1,183,339 $
477,624
466,114
2,127,077 $
1,014,702 $
514,961
558,076
2,087,739 $
1,014,803
524,563
567,767
2,107,133
Fiscal Year Ended September 30,
2020
2019
2018
161,786 $
56,319
40,746
258,851
(179,744)
(5,492) $
51,576
40,165
86,249
142,310
57,372
45,950
245,632
(176,145)
(164,084)
Total operating income (loss)
$
(a) Operating income (loss) is impacted by impairment and abandonment charges incurred during the periods presented (see
Note 5 for further information). For the year ended September 30, 2020, September 30, 2019, and September 30, 2018, we
recognized $1.7 million, $131.7 million and $4.2 million of inventory impairment and abandonment charges, respectively, at
our three reportable segments.
(89,896) $
79,107 $
81,548
(b) Corporate and unallocated operating loss includes amortization of capitalized interest, movement in capitalized indirect costs,
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 other amounts that are not allocated to our operating segments. For the year ended September 30, 2020,
September 30, 2019, and September 30, 2018, we wrote off $1.2 million, $16.9 million, and $2.3 million of capitalized
interest and capitalized indirect costs, respectively (see Note 5 for further information).
84
in thousands
Depreciation and amortization
West
East
Southeast
Segment total
Corporate and unallocated (a)
Fiscal Year Ended September 30,
2020
2019
2018
$
8,227 $
6,456 $
2,458
2,857
13,542
2,098
3,250
3,455
13,161
1,598
7,062
2,619
3,053
12,734
1,073
Total depreciation and amortization
13,807
(a) Corporate and unallocated depreciation and amortization represents depreciation and amortization related to assets held by
15,640 $
14,759 $
$
our corporate functions that benefit all segments.
The following table presents 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,
2020
2019
2018
$
$
5,063 $
2,237
2,985
357
10,642 $
11,635 $
2,518
3,086
4,117
21,356 $
8,152
2,234
3,112
3,522
17,020
The following table presents assets by segment as of September 30, 2020 and 2019:
in thousands
Assets
West
East
Southeast
Corporate and unallocated (a)
Total assets
September 30, 2020
September 30, 2019
$
$
658,909 $
267,050
301,827
779,694
2,007,480 $
751,110
286,340
359,431
560,763
1,957,644
(a) Corporate and unallocated total assets primarily consists of cash and cash equivalents, restricted cash, deferred taxes,
capitalized interest and indirect costs, and other items that are not allocated to the segments.
85
(19) 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, 2020 or September 30, 2019. 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:
in thousands
Fiscal Year Ended September 30,
2020
2019
2018
$
— $
633
Total revenue
Home construction and land sales expenses (a)
612
450
Inventory impairments and abandonments
(429)
Gross loss
101
General and administrative expenses
(530)
Operating loss
93
Equity in (loss) income of unconsolidated entities
(4)
Other income (expense), net
(441)
Loss from discontinued operations before income taxes
(112)
Benefit from income taxes
(329)
$
Loss from discontinued operations, net of tax
(a) Home construction and land sales expenses for the year ended September 30, 2020 include a $1.3 million litigation settlement
1,245
—
(1,245)
173
(1,418)
—
19
(1,399)
(309)
(1,090) $
125
(131)
(1)
5
(127)
(28)
(99) $
55 $
61
—
(6)
accrual relating to a case regarding alleged past construction defects in our discontinued operations.
86
(20) Selected Quarterly Financial Data (Unaudited)
Selected summarized quarterly financial information is as follows for the periods presented:
686,748
116,600
35,586
24,627
0.83
0.82
781,701
116,297
36,005
2,464
0.08
0.08
in thousands, except per share data
Fiscal 2020
Total revenue
Gross profit (a)
Operating income
Net income from continuing operations (b)
Basic EPS from continuing operations (c)
Diluted EPS from continuing operations (c)
Fiscal 2019
December 31
March 31
June 30
September 30
Quarter Ended
$
417,804 $
489,413 $
533,112 $
63,137
3,946
2,804
0.09 $
0.09 $
78,845
16,424
10,615
89,058
23,151
15,270
0.36 $
0.35 $
0.51 $
0.51 $
$
$
$
Total revenue
Gross profit (loss)(a)
Operating income (loss)
Net income (loss) from continuing operations (b)
Basic EPS from continuing operations (c)
Diluted EPS from continuing operations (c)
(a) Gross profit (loss) in fiscal 2020 and 2019 includes inventory impairment and abandonments as follows:
421,260 $
(82,680)
402,040 $
60,655
(138,950)
(100,832)
(3.28) $
(3.28) $
0.23 $
0.23 $
3,506
7,322
$
$
9,543
11,625
482,738 $
71,764
0.38 $
0.38 $
in thousands
Fiscal 2020
Fiscal 2019
$
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
1,007
147,611
—
—
148,618
(b) Net income (loss) from continuing operations in fiscal 2020 and 2019 includes gain (loss) on extinguishment of debt as
— $
—
2,266
637
2,903 $
$
follows:
in thousands
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
Fiscal 2020
Fiscal 2019
— $
—
—
—
—
216
358
(25,494)
(24,920)
(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.
87
(21) Subsequent Events
On October 8, 2020, the Company executed a Ninth Amendment to the Facility. The Ninth Amendment (1) extended the
termination date of the Facility from February 15, 2022 to February 15, 2023; (2) permits the maximum aggregate amount of
commitments under the Credit Agreement to be increased to up to $300.0 million pursuant to one or more additional
incremental increases, subject to the approval of any lenders providing such increases; and (3) revises the minimum liquidity
covenant such that if the interest coverage ratio is greater than or equal to 1.00 to 1.00 and the housing collateral ratio is greater
than or equal to 1.75 to 1.00, the Company is required to maintain minimum liquidity of $50.0 million; and in all other cases,
the Company is required to maintain minimum liquidity of $100.0 million.
88
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, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows, for
each of the three years in the period ended September 30, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in
the period ended September 30, 2020, 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, 2020, 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 12, 2020, 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 12, 2020
We have served as the Company’s auditor since 1996.
89
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, 2020, 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, 2020, 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, 2020, of the Company and our
report dated November 12, 2020, expressed an unqualified opinion on those financial statements.
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 12, 2020
90
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, 2020 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, 2020.
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, 2020.
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, 2020. The effectiveness of our internal control over financial reporting as
of September 30, 2020 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.
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,
2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We
have not experienced any material impact to our internal control over financial reporting despite the fact that most of our
employees are working remotely due to the COVID-19 pandemic.
Item 9B. Other Information
None.
91
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 2021 Annual Meeting of
Stockholders, which is expected to be filed on or before December 15, 2020.
Code of Ethics
Beazer Homes has adopted a Code of Business Conduct and Ethics (the “Code”) that applies to its principal executive officer,
principal financial officer, principal accounting officer, and other senior financial officers. In November 2019, 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 2021 Annual Meeting of
Stockholders, which is expected to be filed on or before December 15, 2020.
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 2021 Annual Meeting of
Stockholders, which is expected to be filed on or before December 15, 2020.
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 2021 Annual Meeting of
Stockholders, which is expected to be filed on or before December 15, 2020.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to our proxy statement for our 2021 Annual Meeting of
Stockholders, which is expected to be filed on or before December 15, 2020.
92
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
Page Herein
47
48
49
50
51
Consolidated Balance Sheets as of September 30, 2020 and 2019
Consolidated Statements of Operations for the fiscal years ended September 30, 2020, 2019, and 2018
Consolidated Statements of Stockholders' Equity for the fiscal years ended September 30, 2020, 2019,
and 2018
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2020, 2019, and 2018
Notes to Consolidated Financial Statements
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
3.9
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)
Certificate of Amendment, dated as of November 8, 2019, and effective as of November 12, 2019, 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, 2019)
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)
93
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.31
—
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, 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, 2019, and effective as of November 14, 2019,
between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent
(incorporated herein by reference to Exhibit 4.18 of the Company's Form 10-K for the year ended
September 30, 2019)
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.
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)
94
4.32
4.33
4.34
4.35
4.36
4.37
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*
10.16*
10.17*
10.18*
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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)
Indenture for 7.250% Senior Notes due 2029, dated as of September 24, 2019, 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 September 24, 2019)
Form of 7.250% Senior Note due 2029 (incorporated herein by reference to Exhibit 4.2 of the
Company's 8-K filed on September 24, 2019)
Registration Rights Agreement, dated as of September 24, 2019, by and among 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 September 24,
2019)
Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange
Act of 1934
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)
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.
95
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
—
10.37
10.38
—
—
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 (incorporated herein by reference to Exhibit 10.29 of the Company's
Form 10-K filed on November 13, 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)
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)
96
10.39
—
10.40
—
10.41
—
10.42
10.43
10.44
10.45
10.46*
10.47
21
22
23
31.1
31.2
32.1
32.2
101.INS
—
—
—
—
—
—
—
—
—
—
—
—
—
—
101.SCH —
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)
Sixth 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 10-Q filed on May 2, 2019)
Seventh 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 September 10, 2019)
Term Loan Agreement, dated as of September 9, 2019, by and among the Company, the subsidiaries of
the Company as guarantors thereto, and Credit Suisse International, as lender (incorporated herein by
reference to Exhibit 10.2 of the Company's Form 8-K filed on September 10, 2019)
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)
Eighth Amendment to the Second Amended and Restated Credit Agreement, dated as of September 24,
2012, among the Company, as borrower, the lenders and issuers party thereto, and Credit Suisse AG,
Cayman Islands Branch, acting as agent, as amended (incorporated herein by reference to Exhibit 10.45
of the Company's Form 10-Q filed on April 4, 2020)
Amended and Restated 2014 Long-Term Incentive Plan (incorporated herein by reference to Appendix I
of the Company’s Form DEF 14A filed on December 20, 2019)
Ninth 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 13, 2020)
Subsidiaries of the Company
List of Guarantor Subsidiaries (incorporated herein by reference to Exhibit 22 of the Company's Form
10-Q for the quarter ended June 30, 2020)
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
Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
Inline XBRL Taxonomy Extension Schema Document
101.CAL —
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB —
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE —
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF —
Inline XBRL Taxonomy Extension Definition Linkbase Document
104
—
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Represents a management contract or compensatory plan or arrangement.
97
(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.
4.37
21
23
31.1
31.2
32.1
32.2
101.INS
—
—
—
—
—
—
—
—
101.SCH —
101.CAL —
101.LAB —
101.PRE
—
101.DEF —
104
Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange
Act of 1934
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
Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
(c) Financial Statement Schedules
Reference is made to Item 15(a)2 above.
98
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 12, 2020
Beazer Homes USA, Inc.
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.
By:
Name:
/s/ Allan P. Merrill
Allan P. Merrill
Chairman, President and Chief Executive Officer
Date: November 12, 2020
Date: November 12, 2020
Date: November 12, 2020
Date: November 12, 2020
Date: November 12, 2020
Date: November 12, 2020
Date: November 12, 2020
Date: November 12, 2020
Date: November 12, 2020
/s/ Allan P. Merrill
Allan P. Merrill
Chairman, President, Chief Executive Officer and
Director
/s/ Robert L. Salomon
Robert L. Salomon
Executive Vice President and Chief Financial Officer
/s/ Elizabeth S. Acton
Elizabeth S. Acton
Director
/s/ Laurent Alpert
Laurent Alpert
Director
/s/ Peter M. Orser
Peter M. Orser
Director
/s/ Norma A. Provencio
Norma A. Provencio
Director
/s/ Danny R. Shepherd
Danny R. Shepherd
Director
/s/ David J. Spitz
David J. Spitz
Director
/s/ C. Christian Winkle
C. Christian Winkle
Director
Name:
Name:
Name:
Name:
Name:
Name:
Name:
Name:
Name:
By:
By:
By:
By:
By:
By:
By:
By:
By:
99
EXHIBIT 4.37
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934
As of September 30, 2020, Beazer Homes USA, Inc. (the “Company,” “us,” “we,” or “our”) had one class of securities, our
common stock, par value $0.001 per share, registered under Section 12 of the Securities Exchange Act of 1934, as amended.
Our common stock is listed on the New York Stock Exchange under the symbol “BZH.”
The following summary does not purport to be complete and is subject to and qualified in its entirety by reference to the
General Corporation Law of the State of Delaware (the “DGCL”), our Amended and Restated Certificate of Incorporation
(“Charter”) and our Fourth Amended and Restated Bylaws (“Bylaws”), as each may be amended from time to time.
Common Stock
General. Our Charter authorizes the issuance of 63,000,000 shares of our common stock, par value $0.001 per share. As of
November 9, 2020, there were 31,012,826 shares of our common stock issued and outstanding.
Voting rights. Holders of shares of our common stock are entitled to one vote for each share held of record on all matters
submitted to a vote of stockholders. Except as otherwise provided in our Charter or as required by law, our common stock is the
only capital stock entitled to vote in the election of directors. Our common stock does not have cumulative voting rights.
Dividend rights. Holders of our common stock are entitled to receive dividends and distributions lawfully declared by our board
of directors. If we liquidate, dissolve, or wind up our business, whether voluntarily or involuntarily, holders of our common
stock will be entitled to receive any assets available for distribution to our stockholders after we have paid or set apart for
payment the amounts necessary to satisfy any preferential or participating rights to which the holders of any outstanding series
of preferred stock are entitled by the express terms of such series of preferred stock.
Other matters. Upon our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all
amounts required to be paid to creditors, the holders of shares of our common stock will be entitled to receive pro rata our
remaining assets available for distribution. Holders of shares of our common stock do not have preemptive, subscription,
redemption, or conversion rights, no redemption or sinking fund provisions are applicable to our common stock. All
outstanding shares of common stock are fully paid and nonassessable. We may issue additional shares of our authorized but
unissued common stock as approved by our board of directors from time to time.
Our Charter authorizes the issuance of 5,000,000 shares of preferred stock, $0.01 par value. The rights and privileges of holders
of our common stock are subject to any preferred stock that we may issue in the future.
Anti-Takeover Provisions
Our Charter and Bylaws, as well as the DGCL, contain provisions that may delay, defer, or discourage another party from
acquiring control of us. These provisions, which are summarized below, may discourage coercive takeover practices or
inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first
negotiate with our board of directors, which we believe may result in an improvement of the terms of any such acquisition in
favor of our stockholders. However, they also give our board of directors the power to discourage acquisitions that some
stockholders may favor.
Section 203 of the DGCL. We are subject to Section 203 of the DGCL. Subject to certain exceptions, Section 203 prevents a
publicly held Delaware corporation from engaging in a “business combination” with any “interested stockholder” for three
years following the date that the person became an interested stockholder, unless the interested stockholder attained such status
with the approval of our board of directors or unless the business combination is approved in a prescribed manner. A “business
combination” includes, among other things, a merger or consolidation involving us and the “interested stockholder” and the sale
of more than 10% of our assets. In general, an “interested stockholder” is any entity or person beneficially owning 15% or more
of our outstanding voting stock and any entity or person affiliated with or controlling or controlled by such entity or person.
Protective Amendment and Section 382 Rights Agreement. In February 2011, our stockholders approved an amendment to our
certificate of incorporation (the “Protective Amendment”) designed to preserve the value of certain tax assets associated with
net operating loss (“NOL”) carryforwards under Section 382. In February 2013, our 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 our common stock. In February 2016, our 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. In February 2019, our stockholders approved an
extension of the Protective Amendment to November 12, 2022 and approved a new Section 382 Rights Agreement adopted by
our board of directors with an expiration date of November 14, 2022.
Our board of directors has adopted a Rights Agreement pursuant to which holders of our common stock will be entitled to
purchase from us one one-thousandth of a share of our Series A Junior Participating Preferred Stock if any Acquiring Person (as
defined in the Rights Agreement) acquires beneficial ownership of 4.95% or more of our common stock or if a tender offer or
exchange offer is commenced that would result in a person or group acquiring beneficial ownership of 4.95% or more of our
common stock. The exercise price per right is $50, subject to adjustment. These provisions of the Rights Agreement could have
certain anti-takeover effects because the rights provided to holders of our common stock under the Rights Agreement will cause
substantial dilution to a person or group that acquires our common stock or engages in other specified events without the rights
under the agreement having been redeemed or in the event of an exchange of the rights for common stock as permitted in the
agreement.
Authorized but Unissued Shares. The authorized but unissued shares of our common stock and our preferred stock are available
for future issuance without stockholder approval, subject to any limitations imposed by the listing standards of the New York
Stock Exchange. These additional shares may be used for a variety of corporate finance transactions, acquisitions, and
employee benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could
make more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger, or
otherwise.
Special Meetings of Stockholders. Our Bylaws also provide that, except as otherwise required by law, special meetings of the
stockholders may only be called by our board of directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations. In addition, our Bylaws contain provisions
requiring that advance notice be delivered to us of any business to be brought by a stockholder before an annual meeting of
stockholders and providing for certain procedures to be followed by stockholders in nominating persons for election to our
board of directors. Generally, such advance notice provisions provide that the stockholder must give written notice to our
Secretary not less than 120 days nor more than 150 days prior to the first anniversary of the date of our notice of annual meeting
for the preceding year’s annual meeting; provided, however, that in the event that the date of the meeting is changed by more
than 30 days from the anniversary date of the preceding year’s annual meeting, notice by the stockholder to be timely must be
received no later than the close of business on the 10th day following the earlier of the day on which notice of the date of the
meeting was mailed or public disclosure was made. The notice must set forth specific information regarding such stockholder
and such business or director nominee, as described in our Bylaws. Such requirement is in addition to those set forth in the
regulations adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934.
Limitations on Liability and Indemnification of Officers and Directors
Our Charter and Bylaws provide indemnification for our directors and officers to the fullest extent permitted by the DGCL. In
addition, as permitted by Delaware law, our Charter includes provisions that eliminate the personal liability of our directors for
monetary damages resulting from breaches of certain fiduciary duties as a director. The effect of these provisions is to restrict
our rights and the rights of our stockholders in derivative suits to recover monetary damages against a director for breach of
fiduciary duties as a director, except that a director will be personally liable for:
•
•
•
•
any breach of his duty of loyalty to us or our stockholders;
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
any transaction from which the director derived an improper personal benefit; or
unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the
DGCL.
These provisions may be held not to be enforceable for violations of the federal securities laws of the United States.
Listing
Our common stock is listed on the New York Stock Exchange under the symbol “BZH.”
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC.
SUBSIDIARIES OF THE COMPANY
Name
Beazer Clarksburg, LLC
Beazer Employee Disaster Assistance Corp.
Beazer Gain, LLC
Beazer General Services, Inc.
Beazer Homes Capital Trust I
Beazer Homes, LLC
Beazer Homes Holdings, LLC
Beazer Homes Indiana LLP
Beazer Homes Indiana Holdings Corp.
Beazer Homes Investments, LLC
Beazer Homes Sales, Inc.
Beazer Homes Texas Holdings, Inc.
Beazer Homes Texas, L.P.
Beazer-Inspirada LLC
Beazer Mortgage Corporation
Beazer Realty Corp.
Beazer Realty Los Angeles, Inc.
Beazer Realty Services, LLC
BH Building Products, LP
BH Procurement Services, LLC
Charity Title Agency, LLC
Charity Title Group, LLC
Clarksburg Arora LLC
Clarksburg Skylark, LLC
Elysian Heights Potomia, LLC
Dove Barrington Development LLC
Gatherings, LLC
EXHIBIT 21
Jurisdiction of
Incorporation
Maryland
Georgia
Delaware
Delaware
Delaware
Delaware
Delaware
Indiana
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Georgia
Delaware
Delaware
Delaware
Delaware
Texas
Delaware
Maryland
Maryland
Virginia
Delaware
Delaware
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-238487, 333-172483, 333-196642, and
333-218380 on Form S-3; Registration Statement Nos. 333-236484, 333-222166 and 333-217903 on Form S-4 and in
Registration Statement Nos. 333-237347, 333-116573, 333-168794, 333-200542 and 333-215991 on Form S-8 of our reports
dated November 12, 2020, relating to the consolidated financial statements of Beazer Homes USA, Inc. and subsidiaries (the
"Company"), and the effectiveness of the Company's internal control over financial reporting, appearing in this Annual Report
on Form 10-K of Beazer Homes USA, Inc. for the year ended September 30, 2020.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
November 12, 2020
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 12, 2020
/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 (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 12, 2020
/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,
2020, 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 12, 2020
/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,
2020, 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 12, 2020
/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.
BOARD OF DIRECTORS
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
STOCKHOLDER AND
CORPORATE INFORMATION
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Allan P. Merrill
Chairman, 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
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.
Norma A. Provencio, Lead Director (2)(3)(5)(6)
President,
Provencio Advisory Services, Inc.
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.
Danny R. Shepherd (1)(2)(5)(6)
Retired Vice Chairman,
Vulcan Materials Company
David J. Spitz (2)(5)(6)
Chief Executive Officer,
ChannelAdvisor Corp.
C. Christian Winkle (1)(4)(5)(6)
Chief Executive Officer,
Sunrise Senior Living
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
Chairman, President and Chief Executive Officer
Keith L. Belknap
Executive Vice President, General
Counsel and Corporate Secretary
Robert L. Salomon
Executive Vice President, Chief Financial
Officer and Chief Accounting Officer
Alternatively, interested parties can report any such concern 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 6, 2020.
CORPORATE HEADQUARTERS
Beazer Homes USA, Inc.
1000 Abernathy Road, Suite 260
Atlanta, Georgia 30328
(770) 829-3700 | www.beazer.com
Beazer Homes USA, Inc.
1000 Abernathy Road, Suite 260
Atlanta, Georgia 30328
(770) 829-3700 | www.beazer.com