10-Q 1 bzh-123114xq1document.htm 10-Q BZH-12.31.14-Q1 Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________________________ 
FORM 10-Q
_____________________________________________________________ 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 31, 2014
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
 
58-2086934
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
Identification no.)
1000 Abernathy Road, Suite 260,
Atlanta, Georgia
 
30328
(Address of principal executive offices)
 
(Zip Code)

(770) 829-3700
(Registrant’s telephone number, including area code)
 _____________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.    YES  x    NO  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One):
Large accelerated filer
¨
Accelerated filer
x
 
 
 
 
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x
Class
 
Outstanding at January 29, 2015
Common Stock, $0.001 par value
 
27,448,293



References to “we,” “us,” “our,” “Beazer”, “Beazer Homes” and the “Company” in this quarterly report on Form 10-Q refer to Beazer Homes USA, Inc.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements represent our expectations or beliefs concerning future events, and it is possible that the results described in this quarterly report will not be achieved. These forward-looking statements can generally be identified by the use of statements that include words such as “estimate,” “project,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “goal,” “target” or other similar words or phrases. All forward-looking statements are based upon information available to us on the date of this quarterly report.
These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, among other things, the matters discussed in this quarterly report in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Additional information about factors that could lead to material changes in performance is contained in Part I, Item 1A— Risk Factors of our Annual Report on Form 10-K for the fiscal year ended September 30, 2014. These factors are not intended to be an all-encompassing 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 availability and cost of land and the risks associated with the future value of our inventory such as additional asset impairment charges or writedowns;
economic changes nationally or in local markets, including changes in consumer confidence, declines in employment levels, inflation and increases in the quantity and decreases in the price of new homes and resale homes in the market;
the cyclical nature of the homebuilding industry and a potential deterioration in homebuilding industry conditions;
estimates related to homes to be delivered in the future (backlog) are imprecise as they are subject to various cancellation risks which cannot be fully controlled;
shortages of or increased prices for labor, land or raw materials used in housing production;
our cost of and ability to access capital and otherwise meet our ongoing liquidity needs including the impact of any downgrades of our credit ratings or reductions in our tangible net worth or liquidity levels;
our ability to comply with covenants in our debt agreements or satisfy such obligations through repayment or refinancing;
a substantial increase in mortgage interest rates, increased disruption in the availability of mortgage financing, a change in tax laws regarding the deductibility of mortgage interest, or an increased number of foreclosures;
increased competition or delays in reacting to changing consumer preference in home design;
factors affecting margins such as decreased land values underlying land option agreements, increased land development costs on communities under development or delays or difficulties in implementing initiatives to reduce production and overhead cost structure;
estimates related to the potential recoverability of our deferred tax assets;
potential delays or increased costs in obtaining necessary permits as a result of changes to, or complying with, laws, regulations, or governmental policies and possible penalties for failure to comply with such laws, regulations and governmental policies;
the results of litigation or government proceedings and fulfillment of the obligations in the consent orders with governmental authorities and other settlement agreements;
the impact of construction defect and home warranty claims, including water intrusion issues in Florida and New Jersey;
the cost and availability of insurance and surety bonds;
the performance of our unconsolidated entities and our unconsolidated entity partners;
delays in land development or home construction resulting from adverse weather conditions;
the impact of information technology failures or data security breaches;
effects of changes in accounting policies, standards, guidelines or principles; or
terrorist acts, acts of war and other factors over which the Company has little or no control.
Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all such factors.

2


BEAZER HOMES USA, INC.
FORM 10-Q
INDEX
 


3


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
 
December 31,
2014
 
September 30,
2014
ASSETS
 
 
 
Cash and cash equivalents
$
138,680

 
$
324,154

Restricted cash
64,092

 
62,941

Accounts receivable (net of allowance of $1,267 and $1,245, respectively)
32,316

 
34,429

Income tax receivable
46

 
46

Inventory
 
 
 
Owned inventory
1,677,611

 
1,557,496

Land not owned under option agreements
1,443


3,857

Total inventory
1,679,054

 
1,561,353

Investments in marketable securities and unconsolidated entities
34,735

 
38,341

Deferred tax assets, net
46

 
2,823

Property, plant and equipment, net
19,315

 
18,673

Other assets
21,102

 
23,460

Total assets
$
1,989,386

 
$
2,066,220

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Trade accounts payable
$
65,845

 
$
106,237

Other liabilities
127,542

 
142,516

Obligations related to land not owned under option agreements
1,248

 
2,916

Total debt (net of discounts of $4,209 and $4,399 respectively)
1,536,591

 
1,535,433

Total liabilities
1,731,226

 
1,787,102

Stockholders’ equity:
 
 
 
Preferred stock (par value $.01 per share, 5,000,000 shares authorized, no shares issued)

 

Common stock (par value $0.001 per share, 63,000,000 shares authorized, 27,448,293 and 27,173,421 issued and outstanding, respectively)
27

 
27

Paid-in capital
852,800

 
851,624

Accumulated deficit
(593,597
)
 
(571,257
)
Accumulated other comprehensive loss
(1,070
)
 
(1,276
)
Total stockholders’ equity
258,160

 
279,118

Total liabilities and stockholders’ equity
$
1,989,386

 
$
2,066,220


See Notes to Unaudited Condensed Consolidated Financial Statements.


4


BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
 
 
Three Months Ended
 
December 31,
 
2014
 
2013
Total revenue
$
265,764

 
$
293,170

Home construction and land sales expenses
230,546

 
238,469

Inventory impairments and option contract abandonments

 
31

Gross profit
35,218

 
54,670

Commissions
10,926

 
11,821

General and administrative expenses
31,441

 
28,410

Depreciation and amortization
2,341

 
2,907

Operating (loss) income
(9,490
)
 
11,532

Equity in income of unconsolidated entities
142

 
319

Other expense, net
(9,434
)
 
(15,757
)
Loss from continuing operations before income taxes
(18,782
)
 
(3,906
)
(Benefit from) provision for income taxes
(696
)
 
42

Loss from continuing operations
(18,086
)
 
(3,948
)
Loss from discontinued operations, net of tax
(4,254
)
 
(1,190
)
Net loss
$
(22,340
)
 
$
(5,138
)
Weighted average number of shares:
 
 
 
Basic and Diluted
26,457

 
25,009

Basic and Diluted loss per share:
 
 
 
Continuing Operations
$
(0.68
)
 
$
(0.16
)
Discontinued Operations
$
(0.16
)
 
$
(0.05
)
Total
$
(0.84
)
 
$
(0.21
)
 
 
 
 
Consolidated Statement of Comprehensive Income (Loss)
Net loss
$
(22,340
)
 
$
(5,138
)
Other comprehensive loss, net of income tax:
 
 
 
Unrealized gain related to available-for-sale securities
206

 

Comprehensive loss
$
(22,134
)
 
$
(5,138
)

See Notes to Unaudited Condensed Consolidated Financial Statements.


5


BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
Three Months Ended
 
December 31,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net loss
$
(22,340
)
 
$
(5,138
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
2,341

 
2,907

Stock-based compensation expense
1,375

 
609

Inventory impairments and option contract abandonments

 
31

Deferred and other income tax benefit
(765
)
 
(19
)
Changes in allowance for doubtful accounts
22

 
(156
)
Equity in income of unconsolidated entities
(142
)
 
(319
)
Cash distributions of income from unconsolidated entities
34

 
56

Changes in operating assets and liabilities:
 
 
 
Decrease in accounts receivable
2,091

 
1,424

Increase in inventory
(104,434
)
 
(63,062
)
Decrease in other assets
1,159

 
1,594

Decrease in trade accounts payable
(40,392
)
 
(23,295
)
Decrease in other liabilities
(11,432
)
 
(28,366
)
Other changes
(49
)
 
(144
)
Net cash used in operating activities
(172,532
)
 
(113,878
)
Cash flows from investing activities:
 
 
 
Capital expenditures
(2,934
)
 
(3,200
)
Investments in unconsolidated entities
(1,144
)
 
(2,164
)
Increases in restricted cash
(1,445
)
 
(728
)
Decreases in restricted cash
294

 
551

Net cash used in investing activities
(5,229
)
 
(5,541
)
Cash flows from financing activities:
 
 
 
Repayment of debt
(7,388
)
 
(2,035
)
Debt issuance costs
(126
)
 
(32
)
Payments for other financing activities
(199
)
 
(413
)
Net cash provided by financing activities
(7,713
)
 
(2,480
)
Decrease in cash and cash equivalents
(185,474
)
 
(121,899
)
Cash and cash equivalents at beginning of period
324,154

 
504,459

Cash and cash equivalents at end of period
$
138,680

 
$
382,560


See Notes to Unaudited Condensed Consolidated Financial Statements.

6


BEAZER HOMES USA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of Beazer Homes USA, Inc. (Beazer Homes, Beazer or the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Such financial statements do not include all of the information and disclosures required by GAAP for complete financial statements. In our opinion, all adjustments (consisting primarily of normal recurring accruals) necessary for a fair presentation have been included in the accompanying financial statements. The results of our consolidated operations presented herein for the three months ended December 31, 2014 are not necessarily indicative of the results to be expected for the full year due to seasonal variations in operations and other items. For further information and a discussion of our significant accounting policies other than as discussed below, refer to our audited consolidated financial statements appearing in Beazer Homes’ Annual Report on Form 10-K for the fiscal year ended September 30, 2014 (the 2014 Annual Report).
Over the past few years, we have discontinued homebuilding operations in certain of our markets. Results from our title services business and our exit markets are reported as discontinued operations in the accompanying unaudited condensed consolidated statements of operations for all periods presented (see Note 14 for further discussion of our Discontinued Operations). We evaluated events that occurred after the balance sheet date but before the financial statements were issued or were available to be issued for accounting treatment and disclosure.
Inventory Valuation. We assess our inventory assets no less than quarterly for recoverability in accordance with the policies as described in Notes 1 and 4 to the consolidated financial statements in our 2014 Annual Report. Our homebuilding inventories that are accounted for as held for development include land and home construction assets grouped together as communities. Homebuilding inventories held for development are stated at cost (including direct construction costs, capitalized indirect costs, capitalized interest and real estate taxes) unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. For those communities for which construction and development activities are expected to occur in the future or have been idled (land held for future development), all applicable 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. We record assets held for sale at the lower of the carrying value or fair value less costs to sell.
Other Liabilities. Other liabilities include the following:
(In thousands)
December 31, 2014
 
September 30, 2014
Income tax liabilities
$
2,154

 
$
5,576

Accrued warranty expenses
27,227

 
16,084

Accrued interest
20,187

 
34,645

Accrued and deferred compensation
10,477

 
24,270

Customer deposits
14,868

 
11,977

Other
52,629

 
49,964

Total
$
127,542

 
$
142,516


















7


(2) Supplemental Cash Flow Information
 
Three Months Ended
 
December 31,
(In thousands)
2014
 
2013
Supplemental disclosure of non-cash activity:
 
 
 
Decrease in obligations related to land not owned under option agreements
$
(1,668
)
 
$
(1,486
)
Non-cash land acquisitions (a)
12,904

 
5,400

Supplemental disclosure of cash activity:

 

Interest payments
42,709

 
43,778

Income tax payments
62

 
1

Tax refunds received

 

(a) For the three months ended December 31, 2014, non-cash land acquisitions are comprised of $7.8 million related to non-cash seller financing and $5.1 million in lot takedowns from one of our unconsolidated land development joint ventures.

(3) Investments in Marketable Securities and Unconsolidated Entities

Marketable Securities

The shares of American Homes 4 Rent (AMH) represent marketable equity securities with a readily available fair value. Based on the Company's intent to sell the shares in one or more future transactions but not actively trade in the shares, these securities were classified as available-for-sale securities. Upon receipt of the shares during the fourth quarter of fiscal 2014, in exchange for the Company's interest in a real estate investment trust (REIT), the fair value was recorded at $26.0 million. During the three months ended December 31, 2014, the Company recorded an unrealized gain of $0.2 million which is reflected in Other Comprehensive Income (Loss). The cumulative loss through December 31, 2014 was $1.1 million and the fair value of the shares as of December 31, 2014 was $25.0 million.

Unconsolidated Entities
As of December 31, 2014, we participated in certain land development joint ventures and other unconsolidated entities in which Beazer Homes had less than a controlling interest. The following table presents our investment in our unconsolidated entities, the total equity and outstanding borrowings of these unconsolidated entities as of December 31, 2014 and September 30, 2014:
(In thousands)
December 31, 2014
 
September 30, 2014
Beazer’s investment in unconsolidated entities
$
9,765

 
$
13,576

Total equity of unconsolidated entities
47,090

 
59,336

Total outstanding borrowings of unconsolidated entities
10,424

 
11,254


For the three months ended December 31, 2014 and 2013, there were no impairments related to our unconsolidated entity investments. Our income from unconsolidated entity activities and the overall equity in income of unconsolidated entities is as follows:
 
Three Months Ended
 
December 31,
(In thousands)
2014
 
2013
Continuing operations:
 
 
 
Income from unconsolidated entity activity
$
142

 
$
319

Equity in income of unconsolidated entities - continuing operations
$
142

 
$
319




8


South Edge/Inspirada
During the fiscal year ended September 30, 2014, we and the other members of Inspirada received land in exchange for our investments in Inspirada. The change in total equity of unconsolidated entities above reflects these distributions. Also during the fiscal year ended September 30, 2014, we paid $1.0 million to the joint venture related to infrastructure and development costs. We continue to have an obligation for our portion of future infrastructure and other development costs which are estimated at approximately $5.7 million.
Guarantees
Historically, Beazer and our land development joint venture partners provide varying levels of guarantees of debt and other debt-related obligations for these unconsolidated entities. As of December 31, 2014 and September 30, 2014, we had no outstanding guarantees or other debt-related obligations related to our unconsolidated entities.
We and our joint venture partners generally provide unsecured environmental indemnities to land development joint venture project lenders. In each case, we have performed due diligence on potential environmental risks. These indemnities obligate us to reimburse the project lenders for claims related to environmental matters for which they are held responsible. During the three months ended December 31, 2014 and 2013, we were not required to make any payments related to environmental indemnities.
In assessing the need to record a liability for the contingent aspect of these guarantees, we consider our historical experience in being required to perform under the guarantees, the fair value of the collateral underlying these guarantees and the financial condition of the applicable unconsolidated entities. In addition, we monitor the fair value of the collateral of these unconsolidated entities to ensure that the related borrowings do not exceed the specified percentage of the value of the property securing the borrowings. We have not recorded a liability for the contingent aspects of any guarantees that we determined were reasonably possible but not probable.

(4) Inventory
(In thousands)
December 31, 2014
 
September 30, 2014
Homes under construction
$
325,074

 
$
282,095

Development projects in progress
811,021

 
786,768

Land held for future development
312,148

 
301,048

Land held for sale
68,358

 
51,672

Capitalized interest
99,868

 
87,619

Model homes
61,142

 
48,294

Total owned inventory
$
1,677,611

 
$
1,557,496


Homes under construction includes homes substantially finished and ready for delivery and homes in various stages of construction. We had 169 ($42.3 million) and 205 ($48.0 million) substantially completed homes that were not subject to a sales contract (spec homes) at December 31, 2014 and September 30, 2014, respectively. Development projects in progress consist principally of land and land improvement costs. Certain of the fully developed lots in this category are reserved by a deposit or sales contract. 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. During the current quarter, there was a reclassification of a land parcel in Las Vegas from development projects in progress to land held for future development while certain financial issues involving this parcel are resolved. All applicable interest and real estate taxes on land held for future development are expensed as incurred. Land held for sale in Unallocated and Other as of December 31, 2014 includes land held for sale in the markets we have decided to exit including Charlotte, North Carolina and Detroit, Michigan. Total owned inventory, by reportable segment, is set forth in the table below:

9


(In thousands)
Projects in
Progress
 
Held for Future
Development
 
Land Held
for Sale
 
Total Owned
Inventory
December 31, 2014
 
 
 
 
 
 
 
West Segment
$
479,550

 
$
272,009

 
$
12,446

 
$
764,005

East Segment
379,191

 
29,215

 
36,958

 
445,364

Southeast Segment
283,014

 
10,924

 
16,658

 
310,596

Unallocated and Other
155,350

 

 
2,296

 
157,646

Total
$
1,297,105

 
$
312,148

 
$
68,358

 
$
1,677,611

September 30, 2014
 
 
 
 
 
 
 
West Segment
$
462,508

 
$
260,898

 
$
10,026

 
$
733,432

East Segment
353,859

 
29,239

 
34,530

 
417,628

Southeast Segment
264,843

 
10,911

 
4,821

 
280,575

Unallocated and Other
123,566

 

 
2,295

 
125,861

Total
$
1,204,776

 
$
301,048

 
$
51,672

 
$
1,557,496


Inventory Impairments. When conducting our community level review for the recoverability of our homebuilding held for development inventories, we establish a quarterly “watch list” of communities with generally more than 10 homes remaining that carry profit margins in backlog and in our forecast that are below a minimum threshold of profitability. Assets on the quarterly watch list are subject to substantial additional financial and operational analyses and review that consider the competitive environment and other factors contributing to profit margins below our watch list threshold. Our assumptions about future home sales prices and absorption rates require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions. For certain communities, we determined that it was prudent to reduce sales prices or further increase sales incentives in response to factors, including competitive market conditions in those specific submarkets for the product and locations of these communities. For communities where the current competitive and market dynamics indicate that these factors may be other than temporary, which may call into question the recoverability of our investment, a formal impairment analysis is performed. The formal impairment analysis consists of both qualitative competitive market analyses and a quantitative analysis reflecting market and asset specific information.

Our assumptions about future home sales prices and absorption rates require significant judgment because the residential home building industry is cyclical and is highly sensitive to changes in economic conditions. Market deterioration that exceeds our 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.

As of December 31, 2014, two communities in our West segment were on our quarterly watch list as compared to one community in our West segment as of December 31, 2013. After additional financial and operational review, we determined that the factors contributing to profit margins below our threshold were temporary in nature and therefore the communities were not subjected to further analysis. Accordingly, there were no impairments recorded during the three months ended December 31, 2014 or 2013 related to our analyses.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairments on land held for sale generally represent further write downs of these properties to net realizable value, less estimated costs to sell and are based on current market conditions and our review of recent comparable transactions at the applicable period end. Our assumptions about land sales prices require significant judgment because the current market is highly sensitive to changes in economic conditions. We calculated the estimated fair values of land held for sale based on current market conditions and assumptions made by management, which may differ materially from actual results and may result in additional impairments if market conditions deteriorate.

Also, from time to time, we determine the proper course of action with respect to a community is to not exercise an option and to write-off the deposit securing an option takedown and pre-acquisition costs, as applicable. In determining whether to abandon lots or lot option contracts, our evaluation is primarily based upon the expected cash flows from the property. If we intend to abandon or walk-away from the property, we record a charge to earnings in the period such decision is made for the deposit amount and any related capitalized costs. Abandonment charges generally relate to our decision to abandon lots or not exercise certain option contracts that are not projected to produce adequate results or no longer fit in our long-term strategic plan. Lot option abandonment charges recorded for the three months ended December 31, 2014 and 2013 were $0 and $31,000, respectively.
 
 
 
 
Lot Option Agreements and Variable Interest Entities (VIEs). 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

10


unconsolidated entities until we have determined whether to exercise our lot option. A 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 certain 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.
For the VIEs in which we are the primary beneficiary, we have consolidated the VIE and reflected such assets and liabilities as land not owned under option agreements in our balance sheets. For VIEs we were required to consolidate, we recorded the remaining contractual purchase price under the applicable lot option agreement to land not owned under option agreements with an offsetting increase to obligations related to land not owned under option agreements. Also, to reflect the purchase price of this inventory consolidated, we present the related option deposits as land not owned under option agreement in the accompanying unaudited condensed consolidated balance sheets. Consolidation of these VIEs has no impact on the Company’s results of operations or cash flows.
The following provides a summary of our interests in lot option agreements as of December 31, 2014 and September 30, 2014:
(In thousands)
Deposits &
Non-refundable
Preacquisition
Costs Incurred
 
Remaining
Obligation
 
Land Not Owned
Under Option
Agreements
As of December 31, 2014
 
 
 
 
 
Consolidated VIEs
$
195

 
$
1,248

 
$
1,443

Unconsolidated lot option agreements
44,538

 
379,482

 

Total lot option agreements
$
44,733

 
$
380,730

 
$
1,443

As of September 30, 2014
 
 
 
 
 
Consolidated VIEs
$
941

 
$
2,916

 
$
3,857

Unconsolidated lot option agreements
42,588

 
417,618

 

Total lot option agreements
$
43,529

 
$
420,534

 
$
3,857


(5) Interest
Our ability to capitalize all interest incurred during the three months ended December 31, 2014 and 2013 has been limited by our inventory eligible for capitalization. The following table sets forth certain information regarding interest:
 
Three Months Ended December 31,
(In thousands)
2014
 
2013
Capitalized interest in inventory, beginning of period
$
87,619

 
$
52,562

Interest incurred
30,283

 
32,441

Interest expense not qualified for capitalization and included as other expense
(9,747
)
 
(16,032
)
Capitalized interest amortized to house construction and land sales expenses
(8,287
)
 
(7,135
)
Capitalized interest in inventory, end of period
$
99,868

 
$
61,836


(6) Earnings Per Share

In computing diluted loss per share for the three months ended December 31, 2014 and 2013, all common stock equivalents were excluded from the computation of diluted loss per share as a result of their anti-dilutive effect. For the quarter ended December 31, 2014, these excluded common stock equivalents included options/stock-settled appreciation rights (SSARs) to purchase 0.7 million shares of common stock, 1.0 million shares of nonvested restricted stock and 5.2 million shares issuable upon the conversion of our Tangible Equity Unit (TEU) prepaid stock purchase contracts (PSPs).

As of December 31, 2014, there were approximately 3.7 million TEUs outstanding (including $5.1 million of amortizing notes). The PSPs related to the TEUs are scheduled to be settled in Beazer Homes' common stock on July 15, 2015. If on that date, our common stock price is (1) at or below $14.50 per share, the PSPs will convert to 1.72414 shares per unit, (2) at or above $17.75

11


per share, the PSPs will convert to 1.40746 shares per unit or (3) between $14.50 and $17.75 per share, the PSPs will convert to a number of shares of our common stock equal to $25.00 divided by the applicable market value of our common stock. If the remaining TEU PSPs were converted at the settlement factor under their agreement based on our current stock price, we would be required to issue approximately 5.2 million shares of common stock to the instrument holders upon conversion.

(7) Borrowings

At December 31, 2014 and September 30, 2014 we had the following long-term debt, net of discounts:
(In thousands)
Maturity Date
 
December 31, 2014
 
September 30, 2014
8 1/8% Senior Notes
June 2016
 
$
172,879

 
$
172,879

6 5/8% Senior Secured Notes
April 2018
 
300,000

 
300,000

9 1/8% Senior Notes
May 2019
 
235,000

 
235,000

5 3/4% Senior Notes
June 2019
 
325,000

 
325,000

7 1/2% Senior Notes
September 2021
 
200,000

 
200,000

7 1/4% Senior Notes
February 2023
 
200,000

 
200,000

TEU Senior Amortizing Notes
July 2015
 
5,065

 
6,703

Unamortized debt discounts
 
 
(4,209
)
 
(4,399
)
Total Senior Notes, net
 
 
$
1,433,735

 
$
1,435,183

Junior Subordinated Notes
July 2036
 
56,253

 
55,737

Cash Secured Loans
November 2017
 
22,368

 
22,368

Other secured notes payable
Various Dates
 
24,235

 
22,145

Total debt, net
 
 
$
1,536,591

 
$
1,535,433


Secured Revolving Credit Facility —The $150 million Secured Revolving Credit Facility provides for future working capital and letter of credit capacity. On November 10, 2014, we executed an amendment with three of the four lenders which included extending the maturity of the facility one additional year. With this amendment, $130 million of the $150 million facility will now mature in September 2016. One lender with a $20 million commitment chose not to extend their obligation, which is scheduled to mature in September 2015. Subject to our option to cash collateralize our obligations under the Secured Revolving Credit Facility upon certain conditions, our obligations under the Secured Revolving Credit Facility are secured by liens on substantially all of our personal property and a significant portion of our owned real properties. The Secured Revolving Credit Facility contains certain covenants, including negative covenants and financial maintenance covenants, with which we are required to comply. As of December 31, 2014, we were in compliance with all such covenants and had $150 million of available borrowings under the Secured Revolving Credit Facility. We have elected to cash collateralize all letters of credit; however, as of December 31, 2014, we have also pledged approximately $1 billion of inventory assets to our Secured Revolving Credit Facility to collateralize potential future borrowings or letters of credit. There were no borrowings under the Secured Revolving Credit Facility as of December 31, 2014 or September 30, 2014.

Letter of Credit Facilities — We have entered into stand-alone, cash-secured letter of credit agreements with banks to maintain our pre-existing letters of credit and to provide for the issuance of new letters of credit. The letter of credit arrangements combined with our Secured Revolving Credit Facility provide a total letter of credit capacity of approximately $150.0 million. As of December 31, 2014 and September 30, 2014, we have letters of credit outstanding of $38.6 million and $39.1 million, respectively, which are secured by cash collateral in restricted accounts. The Company may enter into additional arrangements to provide additional letter of credit capacity.
Senior Notes — The majority of our Senior Notes are unsecured or secured obligations ranking pari passu with all other existing and future senior indebtedness. Substantially all of our significant subsidiaries are full and unconditional guarantors of the Senior Notes and are jointly and severally liable for obligations under the Senior Notes and the Secured Revolving Credit Facility. Each guarantor subsidiary is a 100% owned subsidiary of Beazer Homes.
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 additional indebtedness and to make certain investments. Specifically, all of our Senior Notes contain covenants that restrict our ability to incur additional indebtedness unless it is refinancing indebtedness or non-recourse indebtedness. The incurrence of refinancing indebtedness and non-recourse indebtedness, as defined in the applicable indentures, are exempted from the covenant test. As of December 31, 2014, we were not able to incur additional

12


indebtedness under certain of our senior debt instruments, except refinancing or non-recourse indebtedness. Compliance with our Senior Note covenants does not significantly impact our operations. We were in compliance with the covenants contained in all of our Senior Notes as of December 31, 2014.
Our Senior Notes due 2016 (the 2016 Notes) contain the most restrictive covenants, including the consolidated tangible net worth covenant, which states that should consolidated tangible net worth fall below $85 million for two consecutive quarters, the Company is required to make an offer to purchase 10% of the 2016 Notes at par. If triggered and fully subscribed, this could result in our having to purchase $27.5 million of the 2016 Notes, which may be reduced by certain 2016 Note repurchases (potentially at less than par) made in the open market after the triggering date. As of December 31, 2014 our consolidated tangible net worth was $235.6 million, well in excess of the minimum covenant requirement.
In April 2014, we issued and sold $325 million aggregate principal amount of 5.75% Senior Notes due June 2019 (the June 2019 Notes) at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers. Interest on the June 2019 Notes is payable semi-annually in cash in arrears, beginning on December 15, 2014. The June 2019 Notes will mature on June 15, 2019. Prior to maturity, we may, at our option redeem the June 2019 Notes at any time, in whole or in part, at specified redemption prices, which also include a customary make-whole premium provision through March 15, 2019. In July 2014, we exchanged 100% of the June 2019 Notes for notes that are freely transferable and registered under the Securities Act of 1933.
The June 2019 Notes were issued under an indenture (June 2019 Indenture), issued April 8, 2014 that contains covenants which, subject to certain exceptions, limit the ability of the Company and its restricted subsidiaries (as defined in the June 2019 Indenture) to, among other things, incur additional indebtedness, including secured indebtedness, and make certain types of restricted payments. The June 2019 Indenture contains customary events of default. Upon the occurrence of an event of default, payments on the June 2019 Notes may be accelerated and become immediately due and payable. Upon a change of control (as defined in the June 2019 Indenture), the June 2019 Indenture requires us to make an offer to repurchase the June 2019 Notes at 101% of their principal amount, plus accrued and unpaid interest.
We may redeem the June 2019 Notes at any time prior to March 15, 2019, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium, plus accrued and unpaid interest to, but excluding, the redemption date. In addition, at any time on or prior to June 15, 2017, we may redeem up to 35% of the aggregate principal amount of June 2019 Notes with the proceeds of certain equity offerings at a redemption price equal to 105.750% of the principal amount of the June 2019 Notes plus accrued and unpaid interest, if any, to, but excluding, the date fixed for redemption; provided, that at least 65% of the aggregate principal amount of the June 2019 Notes originally issued under the June 2019 Indenture remain outstanding after such redemption. On or after March 15, 2019, we may redeem some or all of the June 2019 Notes at 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
The proceeds from the June 2019 Notes were used to redeem all of our outstanding Senior Notes due June 2018 (the 2018 Notes), including the applicable $17.2 million make-whole premium. We recognized a loss on debt extinguishment of the 2018 Notes of $19.8 million in the quarter ended June 30, 2014 related to the premiums paid and the write-off of unamortized debt issuance costs. The 2018 Notes redeemed by the Company were canceled.
In September 2013, we issued and sold $200 million aggregate principal amount of 7.500% Senior Notes due 2021 (the 2021 Notes) at a price of 98.541% (before underwriting and other issuance costs) through a private placement to qualified institutional buyers. Interest on the 2021 Notes is payable semi-annually in cash in arrears, beginning on March 15, 2014. The 2021 Notes will mature on September 15, 2021. Prior to maturity, we may, at our option, redeem the 2021 Notes at any time, in whole or in part, at specified redemption prices, which also include a customary make-whole premium provision through September 15, 2016. In January 2014, we exchanged 100% of the 2021 Notes for notes that are freely transferable and registered under the Securities Act of 1933.
The 2021 Notes were issued under an indenture (2021 Indenture), issued September 30, 2013 that contains covenants which, subject to certain exceptions, limit the ability of the Company and its restricted subsidiaries (as defined in the 2021 Indenture) to, among other things, incur additional indebtedness, including secured indebtedness, and make certain types of restricted payments. The 2021 Indenture contains customary events of default. Upon the occurrence of an event of default, payments on the 2021 Notes may be accelerated and become immediately due and payable. Upon a change of control (as defined in the 2021 Indenture), the 2021 Indenture requires us to make an offer to repurchase the 2021 Notes at 101% of their principal amount, plus accrued and unpaid interest.
We may redeem the 2021 Notes at any time prior to September 15, 2016, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium, plus accrued and unpaid interest to the redemption date. In addition, at any time on or prior to September 15, 2016, we may redeem up to 35% of the aggregate principal amount of 2021 Notes with the proceeds of certain equity offerings at a redemption price equal to 107.500% of the principal amount of the 2021

13


Notes plus accrued and unpaid interest, if any, to the date fixed for redemption; provided, that at least 65% of the aggregate principal amount of the 2021 Notes originally issued under the 2021 Indenture remain outstanding after such redemption. On or after September 15, 2016, we may redeem some or all of the 2021 Notes at redemption prices set forth in the Indenture. These percentages range from 100.000% to 105.625%.
In February 2013, we issued and sold $200 million aggregate principal amount of 7.25% Senior Notes due 2023 (the 2023 Notes) at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers. Interest on the 2023 Notes is payable semi-annually in cash in arrears, beginning August 1, 2013. The 2023 Notes will mature on February 1, 2023. Prior to maturity, we may, at our option, redeem the 2023 Notes at any time, in whole or in part, at specified redemption prices, which also include a customary make-whole premium prior to February 1, 2018.
The 2023 Notes were issued under an indenture, dated as February 1, 2013 (the 2023 Indenture) that contains covenants which, subject to certain exceptions, limit the ability of the Company and its restricted subsidiaries (as defined in the 2023 Indenture) to, among other things, incur additional indebtedness, including secured indebtedness, and make certain types of restricted payments. The 2023 Indenture contains customary events of default. Upon the occurrence of an event of default, payments on the 2023 Notes may be accelerated and become immediately due and payable. Upon a change of control (as defined in the Indenture), the 2023 Indenture requires us to make an offer to repurchase the 2023 Notes at 101% of their principal amount, plus accrued and unpaid interest.
We may redeem the 2023 Notes at any time prior to February 1, 2018, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium, plus accrued and unpaid interest to the redemption date. In addition, at any time on or prior to February 1, 2016, we may redeem up to 35% of the aggregate principal amount of 2023 Notes with the proceeds of certain equity offerings at a redemption price equal to 107.250% of the principal amount of the 2023 Notes plus accrued and unpaid interest, if any, to the date fixed for redemption; provided, that at least 65% of the aggregate principal amount of the 2023 Notes originally issued under the 2023 Indenture remain outstanding after such redemption. On or after February 1, 2018, we may redeem some or all of the 2023 Notes at redemption prices set forth in the 2023 Indenture. These percentages range from 100.000% to 103.625%. In August 2013, we exchanged 100% of the 2023 Notes for notes that are freely transferable and registered under the Securities Act of 1933.
All unsecured Senior Notes rank equally in right of payment with all of our existing and future senior unsecured obligations, senior to all of the Company's existing and future subordinated indebtedness and effectively subordinated to the Company's existing and future secured indebtedness, including indebtedness under our Secured Revolving Credit Facility and our 6.625% Senior Secured Notes due 2018, 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. The unsecured Senior Notes are fully and unconditionally guaranteed jointly and severally on a senior basis by the Company's wholly-owned subsidiaries party to each applicable Indenture.
Senior Notes: Tangible Equity Units — In July 2012, we issued 4.6 million 7.5% TEUs (the 2012 TEUs), which were comprised of prepaid stock purchase contracts (PSPs) and senior amortizing notes. As the two components of the TEUs are legally separate and detachable, we have accounted for the two components as separate items for financial reporting purposes and valued them based on their relative fair value at the date of issuance. The amortizing notes are unsecured senior obligations and rank equally with all of our other unsecured indebtedness. Outstanding notes pay quarterly installments of principal and interest through maturity. The PSPs were originally accounted for as equity (additional paid in capital) at the initial fair value of these contracts based on the relative fair value method. During the fiscal year ended September 30, 2014, we exchanged 890,000 TEUs, including approximately $2.4 million of amortizing notes, for Beazer Homes' common stock. The PSPs related to the remaining 2012 TEUs are scheduled to be settled in Beazer Homes' common stock on July 15, 2015. See Note 6 for more information related to this exchange and the future PSP settlement.
Junior Subordinated Notes — $103.1 million of unsecured junior subordinated notes (Junior Subordinated Notes) mature on July 30, 2036. The Junior Subordinated Notes are redeemable at par and pay a fixed rate of 7.987% for the first ten years ending July 30, 2016. Thereafter, the securities have a floating interest rate as defined in the Junior Subordinated Notes Indenture. The obligations relating to these notes and the related securities are subordinated to our Secured Revolving Credit Facility and Senior Notes. In January 2010, we modified the terms of $75 million of these notes and recorded these notes at their estimated fair value. Over the remaining life of the notes, we will increase their carrying value until this carrying value equals the face value of the notes. As of December 31, 2014, the unamortized accretion was $44.5 million and will be amortized over the remaining life of the notes.
As of December 31, 2014, we were in compliance with all covenants under our Junior Subordinated Notes.
Cash Secured Loans — We have two separate loan facilities, totaling $22.4 million outstanding as of December 31, 2014. Borrowing under the cash secured loan facilities will replenish cash used to repay or repurchase the Company’s debt and would

14


be considered “refinancing indebtedness” under certain of the Company’s existing indentures and debt covenants. However, because the loans are fully collateralized by cash equal to the loan amount, the loans do not provide liquidity to the Company.
The loans mature in November 2017, however, the lenders of these facilities may put the outstanding loan balances to the Company at the two or four year anniversaries of the loans. Borrowings under the facilities are fully secured by cash held by the lender or its affiliates. This secured cash is reflected as restricted cash on our unaudited condensed consolidated balance sheet as of December 31, 2014 and September 30, 2014. The cash secured loans have a maximum interest rate equivalent to LIBOR plus 0.4% per annum which is paid every three months following the effective date of each borrowing.
Other Secured Notes Payable — We periodically acquire land through the issuance of notes payable. As of December 31, 2014 and September 30, 2014, we had outstanding notes payable of $24.2 million and $22.1 million respectively, primarily related to land acquisitions. These notes payable have varying expiration dates between 2016 and 2019 and have a weighted average fixed rate of 4.67% at December 31, 2014. These notes are secured by the real estate to which they relate.
The agreements governing these secured notes payable contain various affirmative and negative covenants. There can be no assurance that we will be able to obtain any future waivers or amendments that may become necessary without significant additional cost or at all. In each instance, however, a covenant default can be cured by repayment of the indebtedness.

(8) Income Taxes
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, to provide guidance on the presentation of unrecognized tax benefits. ASU 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward with certain limited exceptions. ASU 2013-11 is effective for annual reporting periods beginning on or after December 15, 2013 and interim periods within those annual periods with earlier adoption permitted. The Company adopted this guidance in the quarter ended December 31, 2014 with no significant impact to the financial statements.

In the normal course of business, we are subject to audits by federal and state tax authorities regarding various tax liabilities. Our federal income tax returns for fiscal years 2011 through 2012 were agreed to with the IRS Appeals Office and approved by the Joint Committee on Taxation in the first quarter of fiscal year 2015. 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 December 31, 2014, it is reasonably possible that up to $2.8 million of the total uncertain tax positions will reverse within the next twelve months, primarily due to the expiration of statutes of limitation in various jurisdictions.

As of both December 31, 2014 and September 30, 2014, we had $0.4 million of accrued interest and penalties related to our unrecognized tax benefits.

We experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code (Section 382) as of January 12, 2010. Section 382 contains rules that limit the ability of a company that undergoes an “ownership change” to utilize its net operating loss carryforwards (NOLs) and certain built-in losses or deductions recognized during the five-year period after the ownership change to offset future taxable income. Therefore, our ability to utilize our pre-ownership change net operating loss carryforwards and recognize certain built-in losses or deductions is limited by Section 382 to an estimated maximum amount of approximately $11.4 million ($4 million tax-effected) annually. Certain deferred tax assets are not subject to any limitation imposed. Due to the Section 382 limitation and the maximum carryforward period of our NOLs, we will be unable to fully recognize certain deferred tax assets. As future economic conditions unfold, we will be able to confirm that certain deferred tax assets will not provide any future tax benefit. At such time, we will accordingly remove any deferred tax asset and corresponding valuation allowance.

Accordingly, a portion of our $500.4 million of total gross deferred tax assets related to accrued losses on our inventory may be unavailable due to the limitation imposed by Section 382. As of December 31, 2014, we estimate that between $7.9 million and $40.9 million may be unavailable due to our Section 382 limitation. As a result, upon the resumption of sustained profitability and reversal of our valuation allowance, between $416 million and $449 million of our net deferred tax assets may be available to us for the reduction of future cash taxes. The actual realization of our deferred tax assets is difficult to predict and will be dependent on future events.


15


Considering the limitation imposed by Section 382, the table below depicts the classifications of our deferred tax assets:
(In thousands)
December 31, 2014
Deferred tax assets:
 
Subject to annual limitation
$
102,207

Generally not subject to annual limitation
357,289

Certain components likely to be subject to annual limitation
40,905

Total deferred tax assets
500,401

Deferred tax liabilities
(43,496
)
Net deferred tax assets before valuation allowance
456,905

Valuation allowance
(456,859
)
Net deferred tax assets
$
46


Based upon an evaluation of all available evidence, we established a valuation allowance for substantially all of our deferred tax assets during fiscal 2008. As of December 31, 2014, we continued our evaluation of whether the valuation allowance against our deferred tax assets was still required. We considered positive evidence including evidence of recovery in the housing markets where we operate, the prospects of continued profitability and growth, a strong backlog and sufficient balance sheet liquidity to sustain and grow operations. Although the Company’s performance and current positioning is bringing it closer to a conclusion that a valuation allowance is no longer needed, further evidence of sustained profitability is needed to reverse our valuation allowance against our deferred tax assets. Therefore, based upon all available positive and negative evidence, we concluded a valuation allowance is still needed for substantially all of our gross deferred tax assets at December 31, 2014. The Company's deferred tax asset valuation allowance was $456.9 million and $445.2 million as of December 31, 2014 and September 30, 2014, respectively. In future periods, we expect to reduce all or a portion of our valuation allowance, generating a non-cash tax benefit, if sufficient positive evidence is present indicating that more likely than not a portion or all of our deferred tax assets will be realized. Changes in existing tax laws could also affect actual tax results and the valuation of deferred tax assets over time.
(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 arising in its business. In determining loss contingencies, we consider the likelihood of loss as well as the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when it is considered probable that a liability has been incurred and when 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 performance quality standards. In addition, we provide a limited warranty (generally ranging from a minimum of five years up to the period covered by the applicable statute of repose) covering only certain defined construction defects. We also provide a defined structural element warranty with single-family homes and townhomes in certain states.
Our homebuilding work is performed by subcontractors that typically must agree to indemnify us with regard to their work and provide us with certificates of insurance demonstrating that they have met our insurance requirements and that we are named 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 the subcontractors. In addition, we maintain insurance coverage relating 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 and the provision for warranty accruals is included in home construction expenses in the consolidated financial statements. We record reserves covering anticipated warranty expense for each home closed. Management reviews the adequacy of warranty reserves each reporting period based on historical experience and management’s estimate of the costs to remediate the claims and adjusts these provisions accordingly. Our review includes a quarterly analysis of the historical data and trends in warranty expense by operating segment. An analysis by operating segment 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 contemplates the existence of any non-recurring or community-specific warranty related matters that might not be contemplated in our historical data and trends. While we adjust our estimated warranty liabilities each reporting period to the extent required as a result of our quarterly analyses, historical data and trends may not accurately predict actual warranty costs which could lead to a significant change in the reserve.

16


Changes in our warranty reserves are as follows:
 
Three Months Ended
 
December 31,
(In thousands)
2014
 
2013
Balance at beginning of period
$
16,084

 
$
11,663

Accruals for warranties issued (a)
1,525

 
1,123

Changes in liability related to warranties existing in prior periods (b)
14,230

 
1,743

Payments made
(4,612
)
 
(2,618
)
Balance at end of period
$
27,227

 
$
11,911


(a) Accruals for warranties issued is a function of the number of home closings in the period, the average selling prices of the homes and the rates of accrual per home estimated as a percentage of the selling price of the home; the increase in the amount of accrual in the current period compared to the comparable prior-year period is due to an increase in the average selling prices of homes closed in the respective periods as well as increases in certain divisions' accrual rates.

(b) Changes in liability related to warranties existing in prior periods increased in the current year period primarily due to charges associated related to water intrusion issues in certain of our communities located in Florida.

Florida and New Jersey Water Intrusion Issues

In the latter portion of fiscal 2014, we experienced an increase in calls from homeowners reporting certain stucco and water intrusion issues in certain of our communities in Florida and New Jersey. During the fourth quarter of fiscal 2014, we recorded $4.9 million in charges related to these water intrusion issues, of which $4.3 million related to Florida and $0.6 million related to New Jersey.

Florida

The issues in Florida related to stucco installation in several communities. Through September 30, 2014, we had identified a total of 135 homes that we believed were likely to require more than minor repairs, of which we had resolved repairs on 11 of those homes. We consider warranty-related repairs for homes to be resolved when all repairs are complete and all repair costs are fully paid. As of September 30, 2014, our warranty liability included $4.0 million for the amount of estimated repair costs for the remaining 124 homes as well as an estimate of repair costs for homes that were likely to be identified in the future. At that time, we believed the issues were isolated to a limited number of specific house plans in several specific communities.

During the first quarter of 2015, with many homeowners seeing an increased level of warranty-related activities occurring in their communities, the number of stucco and water-related warranty calls in Florida increased significantly. This led us to expand the scope of our inspections, including to homes and communities from which no warranty calls had been received. This enhanced review, together with our growing experience repairing homes previously identified, resulted in us determining that more homes and communities in Florida were likely to be adversely affected. Based on all of these activities and our resulting analysis, we recorded an additional $13.6 million in the first quarter of fiscal 2015 related to these issues.

Through December 31, 2014, we had identified a total of 387 homes, with an average age of more than 8 years, in Florida with stucco installation issues that we believe are likely to require more than minor repairs, of which 42 were already fully repaired and numerous others were in various stages of repair. During the first quarter of fiscal 2015, we paid $1.4 million to repair such homes, and had cumulatively paid $2.3 million of repair costs associated with these homes. As of December 31, 2014, our overall warranty liability included $16.2 million for completing repairs on the remaining 345 homes as well as an estimated amount to cover repair costs for additional homes that we believe are likely to be identified in the future.

As of December 31, 2014, based on our assessment of the water intrusion issues, we believe it is likely that we will recover a portion of our repair costs associated with affected homes from various sources, including our direct insurers, the subcontractors involved with the construction of these homes and their insurers. However, as of December 31, 2014, we have not yet been able to estimate an amount that we believe is probable that we will recover, and thus, in accordance with accounting rules, we have neither recorded a receivable for estimated recoveries nor included an estimated amount of recoveries in determining our overall warranty liability. Our assessment of the water intrusion issues, including the process of determining potentially responsible parties and our efforts to obtain recoveries, is ongoing, and as a result, we anticipate that our assessment as to the ultimate value of our liability and the probability and magnitude of any recoveries may change as additional information is obtained.

17



New Jersey

The water intrusion issues in New Jersey related to flashing and stone installation in one specific community. These homes had an average age of 8 years. No new homes were identified in New Jersey during the first quarter of fiscal 2015. As of December 31, 2014, we believe the remaining warranty liability for New Jersey encompasses the probable cost of the repair effort remaining to resolve the issues in that community and is not material.

Litigation
As disclosed in prior SEC filings, we operated Beazer Mortgage Corporation (BMC) from 1998 through February 2008 to offer mortgage financing to buyers of our homes. BMC entered into various agreements with mortgage investors, pursuant to which BMC originated certain mortgage loans and ultimately sold these loans to investors. In general, underwriting decisions were not made by BMC but by the investors themselves or third-party service providers. From time to time we have received claims from institutions which have acquired certain of these mortgages demanding damages or indemnity arising from BMC's activities or that we repurchase such mortgages. We have been able to resolve these claims for amounts that are not material to our consolidated financial position or results of operation. We currently have no such claims outstanding. However, we cannot rule out the potential for additional mortgage loan repurchase or indemnity claims in the future from other investors, although, at this time, we do not believe that the exposure related to any such claims would be material to our consolidated financial position or results of operations. As of December 31, 2014, no liability has been recorded for any such additional claims as such exposure is not both probable and reasonably estimable.
In the normal course of business, we are subject to various lawsuits. We cannot predict or determine the timing or final outcome of these lawsuits or the effect that any adverse findings or determinations in pending lawsuits may have on us. In addition, an estimate of possible loss or range of loss, if any, cannot presently be made with respect to certain of these pending matters. An unfavorable determination in any of the pending lawsuits could result in the payment by us of substantial monetary damages which may not be fully covered by insurance. Further, the legal costs associated with the lawsuits and the amount of time required to be spent by management and the Board of Directors on these matters, even if we are ultimately successful, could have a material adverse effect on our business, financial condition and results of operations.
Other Matters
On July 1, 2009, we entered into a Deferred Prosecution Agreement and associated Bill of Information (the “DPA”) with the United States Attorney for the Western District of North Carolina and a separate but related agreement with the United States Department of Housing and Urban Development (the HUD Agreement) and the Civil Division of the United States Department of Justice. We have satisfied our obligations under the DPA and in July 2014 the United States District Court for the Western Division of North Carolina dismissed the Bill of Information. However, under these agreements, we are obligated to make payments equal to 4% of “adjusted EBITDA” as defined in the Agreements until the first to occur of (a) September 30, 2016 or (b) the date that a cumulative $48.0 million has been paid pursuant to the DPA and the HUD Agreement. As of December 31, 2014, we have paid a cumulative $22.7 million and an additional $2.7 million has been recorded as a liability at December 31, 2014 (of which $2.1 million was paid to HUD in January 2015).
We and certain of our subsidiaries have been named as defendants in various claims, complaints and other legal actions, most relating to construction defects, moisture intrusion and product liability. Certain of the liabilities resulting from these actions are covered in whole or part by insurance. In our opinion, based on our current assessment, the ultimate resolution of these matters will not have a material adverse effect on our financial condition, results of operations or cash flows.
We have accrued $15.6 million and $13.4 million in other liabilities related to litigation and other matters, excluding warranty, as of December 31, 2014 and September 30, 2014, respectively.
We had outstanding letters of credit and performance bonds of approximately $38.6 million and $219.2 million, respectively, at December 31, 2014 related principally to our obligations to local governments to construct roads and other improvements in various developments. We have no outstanding letters of credit relating to our land option contracts as of December 31, 2014.

(10) Fair Value Measurements
As of December 31, 2014, we had assets in our consolidated balance sheets that were required to be measured at fair value on a recurring and 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; Level 3 – Unobservable inputs that reflect our own estimates about the assumptions market participants would use in pricing the asset or liability.

18



Certain of our assets are required to be recorded at fair value on a recurring basis. The fair value of our available-for-sale marketable equity securities are based on readily available share prices. The fair value of our deferred compensation plan assets are based on market-corroborated inputs.

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. We review our long-lived assets, including inventory for recoverability when factors that 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 values of our investments in unconsolidated entities are determined primarily using a discounted cash flow model to value the underlying net assets of the respective entities.

See Notes 1, 3 and 4 for additional information related to the fair value accounting for the assets listed below. Determining which hierarchical level an asset or liability falls within requires significant judgment. We evaluate our hierarchy disclosures each quarter.

The following table presents our assets measured at fair value on a recurring and non-recurring basis for each hierarchy level and represents only those assets whose carrying values were adjusted to fair value during the three months ended December 31, 2014 and 2013:
(In thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Three Months Ended December 31, 2014
 
 
 
 
 
 
 
Available-for-sale marketable equity securities (a)
$
24,970

 
$

 
$

 
$
24,970

Deferred compensation plan assets (a)

 
775

 

 
775

Three Months Ended December 31, 2013
 
 
 
 
 
 
 
Deferred compensation plan assets (a)
$

 
$
805

 
$

 
$
805

Land held for sale (b)

 

 
3,536

 
3,536

(a) Measured at fair value on a recurring basis.
(b) Measured at fair value on a non-recurring basis.
The fair value of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, other liabilities, cash secured loans and other secured notes payable approximate their carrying amounts due to the short maturity of these assets and liabilities.
As of December 31, 2014, our investment in marketable equity securities, consisting solely of the shares held in AMH, was in a cumulative unrealized loss position of $1.1 million which is in Accumulated Other Comprehensive Loss, a component of Stockholders' Equity.
Obligations related to land not owned under option agreements approximate fair value. The carrying values and estimated fair values of other financial assets and liabilities were as follows:
(In thousands)
As of December 31, 2014
 
As of September 30, 2014
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Senior Notes
$
1,428,670

 
$
1,438,627

 
$
1,435,183

 
$
1,462,899

Junior Subordinated Notes
56,253

 
56,253

 
55,736

 
55,736

 
$
1,484,923

 
$
1,494,880

 
$
1,490,919

 
$
1,518,635


The estimated fair value shown above for our publicly-held Senior Notes has been determined using quoted market rates (Level 2). 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) Stock-based Compensation
For the three months ended December 31, 2014, our total stock-based compensation included in general and administrative expenses (G&A), was approximately $1.4 million ($1.1 million net of tax). The fair value of each option/stock-based stock appreciation right (SSAR) grant is estimated on the date of grant using the Black-Scholes option-pricing model (Black-Scholes Model). The

19


fair value of each performance-based, nonvested stock grant is estimated on the date of grant using the Monte Carlo valuation method. The cash-settled component of any awards granted to employees are accounted for as a liability award and the liability is adjusted to fair value each reporting period until vested. Non-performance based, nonvested stock is valued based on the market price of the common stock on the date of the grant.
During the three months ended December 31, 2014 and 2013, employees surrendered 9,807 and 21,693 shares, respectively, to us in payment of minimum tax obligations upon the vesting of stock awards under our stock incentive plans. We valued the stock at the market price on the date of surrender, for an aggregate value of approximately $184,000 and $413,000 for the three months ended December 31, 2014 and 2013, respectively.

Stock Options:
 
 
The intrinsic value of a stock option/SSAR is the amount by which the market value of the underlying stock exceeds the exercise price of the option/SSAR. At December 31, 2014, our SSAR/stock options outstanding had an intrinsic value of $1.9 million. The intrinsic value of SSARs/stock options vested and expected to vest in the future was $1.9 million. The SSARS/stock options vested and expected to vest in the future had a weighted average expected life of 2.5 years. The aggregate intrinsic value of exercisable SSARs/stock options as of December 31, 2014 was $1.5 million.
The following table summarizes stock options and SSARs outstanding as of December 31, 2014 (there were no grants or activity related to stock options or SSARs during the three months ended December 31, 2014):
 
Three Months Ended
 
December 31, 2014
 
Shares
 
Weighted-
Average
Exercise
Price
Outstanding at end of period
650,223

 
$
18.12

Exercisable at end of period
493,398

 
$
18.39

Vested or expected to vest in the future
649,954

 
$
18.12


Nonvested Stock Awards: Compensation cost arising from nonvested stock awards granted to employees is recognized as an expense using the straight-line method over the vesting period. As of December 31, 2014 and September 30, 2014, there was $15.9 million and $10.0 million, respectively, of total unrecognized compensation cost related to nonvested stock awards included in paid-in capital. The cost remaining at December 31, 2014 is expected to be recognized over a weighted average period of 2.7 years.
During the three months ended December 31, 2014, we issued 194,341 shares of performance-based restricted stock (Performance Shares) to our executive officers and certain other corporate employees. The first type of Performance Shares granted requires a total shareholder return (TSR) that compares favorably against an 11-member peer group measured at the end of a three-year performance period. The number of TSR Performance Shares that actually vest will range from 0% to 150% of the target number, based on the Company’s TSR ranking relative to its peer group during the three-year performance period. TSR calculations for the Company and the peer group companies will be based on the average closing price of the Company’s common stock on the NYSE for the 20 trading days immediately preceding (i) the start of the performance period (October 1, 2014) and (ii) the end of the performance period (September 30, 2017). The grants of the TSR performance-based, nonvested stock were valued using the Monte Carlo valuation method and had an estimated fair value of $19.90 per share.
A Monte Carlo simulation model requires the following inputs: (1) expected dividend yield on the underlying stock, (2) expected price volatility of the underlying stock, (3) risk-free interest rate for the period corresponding with the expected term of the award and (4) 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 simulation model to determine the fair value as of the grant date for the TSR Performance Shares: 0% dividend yield for the Company, expected price volatility ranging from 29.0% to 185.8% and a risk-free interest rate of 0.94%. 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.
The second type of Performance Shares granted are structured to require absolute performance measured by the Company’s fiscal year 2017 pre-tax income (PTI), defined as the Company’s income from continuing operations, before taxes and excluding impairments and abandonments, bond losses and such other non-recurring items as the Compensation Committee may approve. The PTI Performance Shares will vest in 2017, subject to determination of the Company’s actual pre-tax income performance. The PTI Performance Shares will be fully earned at a target pre-tax income level, with a 50% payout at the threshold level of pre-

20


tax income and a 200% payout at the maximum level of pre-tax income. Once the threshold 2017 pre-tax income performance level is achieved, to the extent the actual 2017 pre-tax income performance is between the threshold and target performance levels, or between the target and maximum performance levels, linear interpolation between the award opportunity percentages will be applied to determine the actual payout.
Performance Shares in excess of the target number (194,341) may be settled in cash or additional shares at the discretion of the Compensation Committee. Any portion of the Performance Shares that do not vest at the end of the period will be forfeited.
Activity relating to nonvested stock awards, including the Performance Shares, for the three months ended December 31, 2014 is as follows:
 
Three Months Ended
 
December 31, 2014
 
Shares
 
Weighted
Average
Grant
Date Fair
Value
Beginning of period
746,567

 
$
15.76

Granted
390,870

 
19.07

Vested
(62,807
)
 
15.89

Forfeited
(106,191
)
 
4.65

End of period
968,439

 
$
18.31


(12) Segment Information
We have three homebuilding segments operating in 16 states. Revenues in our homebuilding segments are derived from the sale of homes which 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. The reportable homebuilding segments and all other homebuilding operations, not required to be reported separately under the aggregation of ASC 280, include operations conducting business in the following states:
West: Arizona, California, Nevada and Texas
East: Delaware, Indiana, Maryland, New Jersey, New York, Pennsylvania, Tennessee (Nashville) and Virginia
Southeast: Florida, Georgia, North Carolina (Raleigh) and South Carolina
Management’s evaluation of segment performance is based on segment operating income. Operating income for our homebuilding segments is defined as homebuilding, land sale and other revenues less home construction, land development and land sales expense, commission expense, depreciation and amortization and certain general and administrative expenses which are incurred by or allocated to our homebuilding segments. The accounting policies of our segments are those described in Note 1 above and Note 1 to our consolidated financial statements in our 2014 Annual Report.
 
Three Months Ended
 
December 31,
(In thousands)
2014
 
2013
Revenue
 
 
 
West
$
87,465

 
$
122,576

East
104,813

 
107,589

Southeast
73,486

 
63,005

Total revenue
$
265,764

 
$
293,170



21


 
Three Months Ended
 
December 31,
(In thousands)
2014
 
2013
Operating (loss) income
 
 
 
West
$
6,783

 
$
15,762

East
7,369

 
8,235

Southeast
(6,233
)
 
5,628

Segment total
7,919

 
29,625

Corporate and unallocated (a)
(17,409
)
 
(18,093
)
Total operating (loss) income
$
(9,490
)
 
$
11,532


 
Three Months Ended
 
December 31,
(In thousands)
2014
 
2013
Depreciation and amortization
 
 
 
West
$
767

 
$
1,382

East
668

 
692

Southeast
485

 
391

Segment total
1,920

 
2,465

Corporate and unallocated (a)
421

 
442

Depreciation and amortization - continuing operations
$
2,341

 
$
2,907


 
Three Months Ended
 
December 31,
(In thousands)
2014
 
2013
Capital Expenditures
 
 
 
West
$
1,070

 
$
1,102

East
799

 
1,367

Southeast
862

 
446

Corporate and unallocated
203

 
285

Consolidated total
$
2,934

 
$
3,200


(In thousands)
December 31, 2014
 
September 30, 2014
Assets
 
 
 
West
$
784,654

 
$
756,575

East
457,112

 
433,032

Southeast
317,571

 
299,215

Corporate and unallocated (b)
430,049

 
577,398

Consolidated total
$
1,989,386

 
$
2,066,220


(a)
Corporate and unallocated includes amortization of capitalized interest and numerous shared services functions that benefit all segments, the costs of which are not allocated to the operating segments reported above including information technology, treasury, corporate finance, legal, branding and other national marketing costs.
(b)
Primarily consists of cash and cash equivalents, consolidated inventory not owned, deferred taxes, capitalized interest and other items that are not allocated to the segments.


22


(13) Supplemental Guarantor Information
As discussed in Note 7, our obligations to pay principal, premium, if any, and interest under certain debt are guaranteed on a joint and several basis by substantially all of our subsidiaries. Certain of our immaterial subsidiaries do not guarantee our Senior Notes or our Secured Revolving Credit Facility. The guarantees are full and unconditional and the guarantor subsidiaries are 100% owned by Beazer Homes USA, Inc.


Beazer Homes USA, Inc.
Unaudited Consolidating Balance Sheet Information
December 31, 2014
(In thousands)
 
 
Beazer Homes
USA, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Beazer Homes
USA, Inc.
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
147,840

 
$
(18
)
 
$
1,530

 
$
(10,672
)
 
$
138,680

Restricted cash
62,905

 
1,187

 

 

 
64,092

Accounts receivable (net of allowance of $1,267)

 
32,314

 
2

 

 
32,316

Income tax receivable
46

 

 

 

 
46

Owned inventory

 
1,677,611

 

 

 
1,677,611

Consolidated inventory not owned

 
1,443

 

 

 
1,443

Investments in marketable securities and unconsolidated entities
773

 
33,962

 

 

 
34,735

Deferred tax assets, net
46

 

 

 

 
46

Property, plant and equipment, net

 
19,315

 

 

 
19,315

Investments in subsidiaries
242,515

 

 

 
(242,515
)
 

Intercompany
1,323,583

 

 
2,402

 
(1,325,985
)
 

Other assets
16,026

 
4,986

 
90

 

 
21,102

Total assets
$
1,793,734

 
$
1,770,800

 
$
4,024

 
$
(1,579,172
)
 
$
1,989,386

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Trade accounts payable
$

 
$
65,845

 
$

 
$

 
$
65,845

Other liabilities
20,816

 
106,043

 
683

 

 
127,542

Intercompany
2,402

 
1,334,255

 

 
(1,336,657
)
 

Obligations related to land not owned under option agreements

 
1,248

 

 

 
1,248

Total debt (net of discounts of $4,209)
1,512,356

 
24,235

 

 

 
1,536,591

Total liabilities
1,535,574

 
1,531,626

 
683

 
(1,336,657
)
 
1,731,226

Stockholders’ equity
258,160

 
239,174

 
3,341

 
(242,515
)
 
258,160

Total liabilities and stockholders’ equity
$
1,793,734

 
$
1,770,800

 
$
4,024

 
$
(1,579,172
)
 
$
1,989,386


23


Beazer Homes USA, Inc.
Unaudited Consolidating Balance Sheet Information
September 30, 2014
(In thousands)

 
Beazer Homes
USA, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Beazer Homes
USA, Inc.
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
301,980

 
$
22,034

 
$
1,614

 
$
(1,474
)
 
$
324,154

Restricted cash
61,945

 
996

 

 

 
62,941

Accounts receivable (net of allowance of $1,245)

 
34,428

 
1

 

 
34,429

Income tax receivable
46

 

 

 

 
46

Owned inventory

 
1,557,496

 

 

 
1,557,496

Consolidated inventory not owned

 
3,857

 

 

 
3,857

Investments in marketable securities and unconsolidated entities
773

 
37,568

 

 

 
38,341

Deferred tax assets, net
2,823

 

 

 

 
2,823

Property, plant and equipment, net

 
18,673

 

 

 
18,673

Investments in subsidiaries
253,540

 

 

 
(253,540
)
 

Intercompany
1,195,349

 

 
2,405

 
(1,197,754
)
 

Other assets
17,226

 
6,144

 
90

 

 
23,460

Total assets
$
1,833,682

 
$
1,681,196

 
$
4,110

 
$
(1,452,768
)
 
$
2,066,220

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Trade accounts payable
$

 
$
106,237

 
$

 
$

 
$
106,237

Other liabilities
38,871

 
102,833

 
812

 

 
142,516

Intercompany
2,405

 
1,196,823

 

 
(1,199,228
)
 

Obligations related to land not owned under option agreements

 
2,916

 

 

 
2,916

Total debt (net of discounts of $4,399)
1,513,288

 
22,145

 

 

 
1,535,433

Total liabilities
1,554,564

 
1,430,954

 
812

 
(1,199,228
)
 
1,787,102

Stockholders’ equity
279,118

 
250,242

 
3,298

 
(253,540
)
 
279,118

Total liabilities and stockholders’ equity
$
1,833,682

 
$
1,681,196

 
$
4,110

 
$
(1,452,768
)
 
$
2,066,220




24


Beazer Homes USA, Inc.
Unaudited Consolidating Statement of Operations Information and Comprehensive Income (Loss)
(In thousands)
 
Beazer Homes
USA, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Beazer Homes
USA, Inc.
Three Months Ended December 31, 2014
 
 
 
 
 
 
 
 
 
Total revenue
$

 
$
265,764

 
$
98

 
$
(98
)
 
$
265,764

Home construction and land sales expenses
8,194

 
222,450

 

 
(98
)
 
230,546

Inventory impairments and option contract abandonments

 

 

 

 

Gross (loss) profit
(8,194
)
 
43,314

 
98

 

 
35,218

Commissions

 
10,926

 

 

 
10,926

General and administrative expenses

 
31,414

 
27

 

 
31,441

Depreciation and amortization

 
2,341

 

 

 
2,341

Operating (loss) income
(8,194
)
 
(1,367
)
 
71

 

 
(9,490
)
Equity in income of unconsolidated entities

 
142

 

 

 
142

Other (expense) income, net
(9,747
)
 
314

 
(1
)
 

 
(9,434
)
(Loss) income before income taxes
(17,941
)
 
(911
)
 
70

 

 
(18,782
)
(Benefit from) provision for income taxes
(6,627
)
 
5,906

 
25

 

 
(696
)
Equity in loss of subsidiaries
(6,772
)
 

 

 
6,772

 

(Loss) income from continuing operations
(18,086
)
 
(6,817
)
 
45

 
6,772

 
(18,086
)
Loss from discontinued operations

 
(4,251
)
 
(3
)
 

 
(4,254
)
Equity in loss of subsidiaries
(4,254
)
 

 

 
4,254

 

Net (loss) income
$
(22,340
)
 
$
(11,068
)
 
$
42

 
$
11,026

 
$
(22,340
)
Unrealized gain related to available-for-sale securities
206

 

 

 

 
206

Comprehensive (loss) income
$
(22,134
)
 
$
(11,068
)
 
$
42

 
$
11,026

 
$
(22,134
)
 
Beazer Homes
USA, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Beazer Homes
USA, Inc.
Three Months Ended December 31, 2013
 
 
 
 
 
 
 
 
 
Total revenue
$

 
$
293,170

 
$
80

 
$
(80
)
 
$
293,170

Home construction and land sales expenses
7,135

 
231,414

 

 
(80
)
 
238,469

Inventory impairments and option contract abandonments

 
31

 

 

 
31

Gross (loss) profit
(7,135
)
 
61,725

 
80

 

 
54,670

Commissions

 
11,821

 

 

 
11,821

General and administrative expenses

 
28,383

 
27

 

 
28,410

Depreciation and amortization

 
2,907

 

 

 
2,907

Operating (loss) income
(7,135
)
 
18,614

 
53

 

 
11,532

Equity in income of unconsolidated entities

 
319

 

 

 
319

Other (expense) income, net
(16,032
)
 
278

 
(3
)
 

 
(15,757
)
(Loss) income before income taxes
(23,167
)
 
19,211

 
50

 

 
(3,906
)
Provision for (benefit from) income taxes
141

 
(117
)
 
18

 

 
42

Equity in income of subsidiaries
19,360

 

 

 
(19,360
)
 

(Loss) income from continuing operations
(3,948
)
 
19,328

 
32

 
(19,360
)
 
(3,948
)
Loss from discontinued operations

 
(1,187
)
 
(3
)
 

 
(1,190
)
Equity in loss of subsidiaries
(1,190
)
 

 

 
1,190

 

Net (loss) income
$
(5,138
)
 
$
18,141

 
$
29

 
$
(18,170
)
 
$
(5,138
)
 
 
 
 
 
 
 
 
 
 

25


Beazer Homes USA, Inc.
 Unaudited Consolidating Statements of Cash Flow Information
(In thousands)
 
Beazer Homes
USA, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Beazer Homes
USA, Inc.
Three Months Ended December 31, 2014
 
 
 
 
 
 
 
 
 
Net cash used in operating activities
$
(30,841
)
 
$
(141,603
)
 
$
(88
)
 
$

 
$
(172,532
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(2,934
)
 

 

 
(2,934
)
Investments in unconsolidated entities

 
(1,144
)
 

 

 
(1,144
)
Increases in restricted cash
(959
)
 
(486
)
 

 

 
(1,445
)
Decreases in restricted cash

 
294

 

 

 
294

Advances to/from subsidiaries
(114,977
)
 

 

 
114,977

 

Net cash (used in) provided by investing activities
(115,936
)
 
(4,270
)
 

 
114,977

 
(5,229
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Repayment of debt
(7,038
)
 
(350
)
 

 

 
(7,388
)
Debt issuance costs
(126
)
 

 

 

 
(126
)
Advances to/from subsidiaries

 
124,171

 
4

 
(124,175
)
 

Payments for other financing activities
(199
)
 

 

 

 
(199
)
Net cash (used in) provided by financing activities
(7,363
)
 
123,821

 
4

 
(124,175
)
 
(7,713
)
Decrease in cash and cash equivalents
(154,140
)
 
(22,052
)
 
(84
)
 
(9,198
)
 
(185,474
)
Cash and cash equivalents at beginning of period
301,980

 
22,034

 
1,614

 
(1,474
)
 
324,154

Cash and cash equivalents at end of period
$
147,840

 
$
(18
)
 
$
1,530

 
$
(10,672
)
 
$
138,680

 
Beazer Homes
USA, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Beazer Homes
USA, Inc.
Three Months Ended December 31, 2013
 
 
 
 
 
 
 
 
 
Net cash used in operating activities
$
(37,161
)
 
$
(76,683
)
 
$
(34
)
 
$

 
$
(113,878
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(3,200
)
 

 

 
(3,200
)
Investments in unconsolidated entities

 
(2,164
)
 

 

 
(2,164
)
Increases in restricted cash
(433
)
 
(295
)
 

 

 
(728
)
Decreases in restricted cash
39

 
512

 

 

 
551

Net cash used in investing activities
(394
)
 
(5,147
)
 

 

 
(5,541
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Repayment of debt
(1,913
)
 
(122
)
 

 

 
(2,035
)
Debt issuance costs
(32
)
 

 

 

 
(32
)
Advances to/from subsidiaries
(70,833
)
 
75,697

 
(69
)
 
(4,795
)
 

Payments for other financing activities
(413
)
 

 

 

 
(413
)
Net cash (used in) provided by financing activities
(73,191
)
 
75,575

 
(69
)
 
(4,795
)
 
(2,480
)
Decrease in cash and cash equivalents
(110,746
)
 
(6,255
)
 
(103
)
 
(4,795
)
 
(121,899
)
Cash and cash equivalents at beginning of period
499,341

 
6,324

 
1,637

 
(2,843
)
 
504,459

Cash and cash equivalents at end of period
$
388,595

 
$
69

 
$
1,534

 
$
(7,638
)
 
$
382,560


26


(14) 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 shareholder 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.
We have classified the results of operations of our discontinued operations in the accompanying unaudited condensed consolidated statements of operations for all periods presented. There were no material assets or liabilities related to our discontinued operations as of December 31, 2014 or September 30, 2014. Discontinued operations were not segregated in the unaudited condensed consolidated statements of cash flows. Therefore, amounts for certain captions in the unaudited condensed consolidated statements of cash flows will not agree with the respective data in the unaudited condensed consolidated statements of operations. The results of our discontinued operations in the unaudited condensed consolidated statements of operations for the three months ended December 31, 2014 and 2013 were as follows:

 
Three Months Ended
 
December 31,
(In thousands)
2014
 
2013
Total revenue
$

 
$
464

Home construction and land sales expenses (a)
3,951

 
1,455

Gross loss
(3,951
)
 
(991
)
General and administrative expenses
304

 
189

Operating loss
(4,255
)
 
(1,180
)
Other (expense) income, net

 

Loss from discontinued operations before income taxes
(4,255
)
 
(1,180
)
(Benefit from) provision for income taxes
(1
)
 
10

Loss from discontinued operations, net of tax
$
(4,254
)
 
$
(1,190
)

(a) The three months ended December 31, 2014 includes a $4.0 million accrual related to the probable liability of a case regarding alleged past construction defects in our discontinued operation in Denver, Colorado.


27