10-Q 1 bzh-63018document.htm 10-Q 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 June 30, 2018
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-12822
_____________________________________________________________ 
BEAZER HOMES USA, INC.
(Exact name of registrant as specified in its charter)
 _____________________________________________________________ 
DELAWARE
 
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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.    YES  x    NO  ¨
Indicate by check mark whether the registrant has submitted electronically 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer
¨
Accelerated filer
x
 
 
 
 
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
 
 
 
 
 
Smaller reporting company
¨
Emerging growth company
¨
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x
Class
 
Outstanding as of July 23, 2018
Common Stock, $0.001 par value
 
33,674,122



BEAZER HOMES USA, INC.
TABLE OF CONTENTS

 


1


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BEAZER HOMES USA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
in thousands (except share and per share data)
June 30,
2018
 
September 30,
2017
ASSETS
 
 
 
Cash and cash equivalents
$
136,298

 
$
292,147

Restricted cash
12,167

 
12,462

Accounts receivable (net of allowance of $392 and $330, respectively)
28,005

 
36,323

Income tax receivable
119

 
88

Owned inventory
1,767,983

 
1,542,807

Investments in unconsolidated entities
4,237

 
3,994

Deferred tax assets, net
195,145

 
307,896

Property and equipment, net
22,212

 
17,566

Other assets
10,861

 
7,712

Total assets
$
2,177,027

 
$
2,220,995

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Trade accounts payable
$
143,135

 
$
103,484

Other liabilities
124,722

 
107,659

Total debt (net of premium of $2,833 and $3,413, respectively, and debt issuance costs of $15,170 and $14,800, respectively)
1,326,503

 
1,327,412

Total liabilities
1,594,360

 
1,538,555

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, 33,678,305 issued and outstanding and 33,515,768 issued and outstanding, respectively)
34

 
34

Paid-in capital
879,270

 
873,063

Accumulated deficit
(296,637
)
 
(190,657
)
Total stockholders’ equity
582,667

 
682,440

Total liabilities and stockholders’ equity
$
2,177,027

 
$
2,220,995


See accompanying notes to condensed consolidated financial statements.


2


BEAZER HOMES USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
June 30,
 
June 30,
 in thousands (except per share data)
2018
 
2017
 
2018
 
2017
Total revenue
$
511,521

 
$
478,588

 
$
1,339,188

 
$
1,243,297

Home construction and land sales expenses
428,109

 
399,675

 
1,119,870

 
1,043,041

Inventory impairments and abandonments
168

 
470

 
168

 
752

Gross profit
83,244

 
78,443

 
219,150

 
199,504

Commissions
19,535

 
18,773

 
51,225

 
48,728

General and administrative expenses
42,473

 
40,794

 
120,610

 
117,282

Depreciation and amortization
3,656

 
3,307

 
9,229

 
9,139

Operating income
17,580

 
15,569

 
38,086

 
24,355

Equity in income of unconsolidated entities
147

 
158

 
302

 
213

Loss on extinguishment of debt

 

 
(25,904
)
 
(15,563
)
Other expense, net
(30
)
 
(2,871
)
 
(4,628
)
 
(12,007
)
Income (loss) from continuing operations before income taxes
17,697

 
12,856

 
7,856

 
(3,002
)
Expense (benefit) from income taxes
4,268

 
5,742

 
113,386

 
(1,262
)
Income (loss) from continuing operations
13,429

 
7,114

 
(105,530
)
 
(1,740
)
(Loss) income from discontinued operations, net of tax
(20
)
 
9

 
(450
)
 
(101
)
Net income (loss) and comprehensive income (loss)
$
13,409

 
$
7,123

 
$
(105,980
)
 
$
(1,841
)
Weighted average number of shares:
 
 
 
 
 
 
 
Basic
32,147

 
31,971

 
32,113

 
31,944

Diluted
32,726

 
32,375

 
32,113

 
31,944

Basic earnings (loss) per share:
 
 
 
 
 
 
 
Continuing operations
$
0.42

 
$
0.22

 
$
(3.29
)
 
$
(0.05
)
Discontinued operations

 

 
(0.01
)
 

Total
$
0.42

 
$
0.22

 
$
(3.30
)
 
$
(0.05
)
Diluted income (loss) per share:
 
 
 
 
 
 
 
Continuing operations
$
0.41

 
$
0.22

 
$
(3.29
)
 
$
(0.05
)
Discontinued operations

 
$

 
(0.01
)
 

Total
$
0.41

 
$
0.22

 
$
(3.30
)
 
$
(0.05
)

See accompanying notes to condensed consolidated financial statements.


3


BEAZER HOMES USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Nine Months Ended
 
June 30,
in thousands
2018
 
2017
Cash flows from operating activities:
 
 
 
Net loss
$
(105,980
)
 
$
(1,841
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
9,229

 
9,139

Stock-based compensation expense
7,692

 
7,327

Inventory impairments and abandonments
618

 
752

Deferred and other income tax expense (benefit)
112,752

 
(2,404
)
Write-off of deposit on legacy land investment

 
2,700

Gain on sale of fixed assets
(207
)
 
(123
)
Change in allowance for doubtful accounts
62

 
(178
)
Equity in income of unconsolidated entities
(329
)
 
(233
)
Cash distributions of income from unconsolidated entities
331

 
138

Non-cash loss on extinguishment of debt
3,173

 
3,676

Changes in operating assets and liabilities:
 
 
 
Decrease in accounts receivable
8,256

 
13,588

Increase in income tax receivable
(31
)
 
(88
)
Increase in inventory
(222,304
)
 
(70,770
)
Increase in other assets
(3,469
)
 
(1,970
)
Increase in trade accounts payable
39,651

 
14,986

Increase (decrease) in other liabilities
17,080

 
(14,607
)
Net cash used in operating activities
(133,476
)
 
(39,908
)
Cash flows from investing activities:
 
 
 
Capital expenditures
(13,894
)
 
(8,661
)
Proceeds from sale of fixed assets
226

 
126

Investments in unconsolidated entities
(421
)
 
(3,005
)
Return of capital from unconsolidated entities
176

 
1,621

Net cash used in investing activities
(13,913
)
 
(9,919
)
Cash flows from financing activities:
 
 
 
Repayment of debt
(401,509
)
 
(257,173
)
Proceeds from issuance of new debt
400,000

 
250,000

Repayment of borrowings from credit facility
(75,000
)
 
(25,000
)
Borrowings from credit facility
75,000

 
25,000

Debt issuance costs
(5,743
)
 
(4,757
)
Other financing activities
(1,503
)
 
(403
)
Net cash used in financing activities
(8,755
)
 
(12,333
)
Decrease in cash, cash equivalents, and restricted cash
(156,144
)
 
(62,160
)
Cash, cash equivalents, and restricted cash at beginning of period
304,609

 
243,276

Cash, cash equivalents, and restricted cash at end of period
$
148,465

 
$
181,116


See accompanying notes to condensed consolidated financial statements.

4


BEAZER HOMES USA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Description of Business
Beazer Homes USA, Inc. is a geographically diversified homebuilder with active operations in 13 states within three geographic regions in the United States: the West, East, and Southeast. Unless the context indicates otherwise, the terms “we,” “us,” “our,” “Beazer,” “Beazer Homes,” and the “Company” used in this Quarterly Report on Form 10-Q refer to Beazer Homes USA, Inc. and its subsidiaries.
The Company's homes are designed to appeal to homeowners at different price points across various demographic segments and are generally offered for sale in advance of their construction. Our objective is to provide our customers with homes that incorporate exceptional value and quality, while seeking to maximize our return on invested capital over the course of a housing cycle.
For an additional description of our business, refer to Item 1 within our Annual Report on Form 10-K for the fiscal year ended September 30, 2017 (2017 Annual Report).
(2) Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of 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 unaudited condensed consolidated financial statements do not include all of the information and disclosures required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2017. In the opinion of management, all adjustments (consisting primarily of normal recurring adjustments) necessary for a fair presentation have been included in the accompanying unaudited condensed consolidated financial statements. The results of the Company's consolidated operations presented herein for the three and nine months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full fiscal year due to seasonal variations in our operations and other factors.
Basis of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Beazer Homes USA, Inc. and its consolidated subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
In the past, we have discontinued homebuilding operations in various markets. Results from certain of these exited markets are reported as discontinued operations in the accompanying unaudited condensed consolidated statements of income (loss) for all periods presented (see Note 16 for a further discussion of our discontinued operations).
We evaluated events that occurred after the balance sheet date but before these financial statements were issued for accounting treatment and disclosure.
Our fiscal 2018 began on October 1, 2017 and ends on September 30, 2018. Our fiscal 2017 began on October 1, 2016 and ended on September 30, 2017.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make informed estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Accordingly, actual results could differ from these estimates.
Inventory Valuation
We assess our inventory assets no less than quarterly for recoverability in accordance with the policies described in Notes 2 and 5 to the audited consolidated financial statements within our 2017 Annual Report. Our homebuilding inventories that are accounted for as held for development (projects in progress) include land and home construction assets grouped together as communities. Homebuilding inventories held for development are stated at cost (including direct construction costs, capitalized indirect costs, capitalized interest and real estate taxes) unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. For those communities that 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 land held for sale at the lower of the carrying value or fair value less costs to sell.

5


Recent Accounting Pronouncements
Revenue from Contracts with Customers. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 requires entities to recognize revenue at an amount that the entity expects to be entitled to upon transferring control of goods or services to a customer, as opposed to when risks and rewards transfer to a customer under the existing revenue recognition guidance. In August 2015, the FASB issued ASU 2015-14 to defer the effective date of ASU 2014-09 for one year, which makes the guidance effective for the Company's first fiscal year beginning after December 15, 2017. Additionally, the FASB is permitting entities to early adopt the standard, which allows for either full retrospective or modified retrospective methods of adoption, for reporting periods beginning after December 15, 2016. We have been involved in industry-specific discussions with the FASB on the treatment of certain items related to our business. However, due to the nature of our operations, we expect to identify similar performance obligations under ASU 2014-09 compared with the deliverables and separate units of account we have identified under existing accounting standards. We expect to adopt the provisions of ASU 2014-09 effective October 1, 2018 under the modified retrospective approach. We do not believe the adoption of ASU 2014-09 will have a material impact on the amount or timing of our homebuilding revenues, although we expect our revenue-related disclosures to change. We are also continuing to evaluate the impact that adoption of this guidance may have on other areas of our business.
Leases. In February 2016, the FASB issued ASU 2016-02, Leases (ASU 2016-02). ASU 2016-02 requires lessees to record most leases on their balance sheets. The timing and classification of lease-related expenses for lessees will depend on whether a lease is determined to be an operating lease or a finance lease using updated criteria within ASU 2016-02. Operating leases will result in straight-line expense (similar to current operating leases), while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Regardless of lease type, the lessee will recognize a right-of-use asset, representing the right to use the identified asset during the lease term, and a related lease liability, representing the present value of the lease payments over the lease term. Lessor accounting will be largely similar to that under the current lease accounting rules. The guidance within ASU 2016-02 will be effective for the Company's first fiscal year beginning after December 15, 2018, with early adoption permitted. ASU 2016-02 must be adopted using a modified retrospective approach, which requires application of the standard at the beginning of the earliest comparative period presented, with certain optional practical expedients. ASU 2016-02 also requires significantly enhanced disclosures around an entity's leases and the related accounting. We continue to evaluate the impact of ASU 2016-02 on our consolidated financial statements. However, a large majority of our leases are for office space, which we have determined will be treated as operating leases under ASU 2016-02. As such, we anticipate recording a right-of-use asset and related lease liability for these leases, but we do not expect our expense recognition pattern to change. Therefore, we do not anticipate any significant change to our statements of income or cash flows as a result of adopting ASU 2016-02.
Statement of Cash Flows. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flow - Restricted Cash (ASU 2016-18). ASU 2016-18 requires that an entity's statement of cash flows explain the change during the period in that entity's total cash and cash equivalents, including amounts generally described as restricted cash or restricted cash equivalents. Therefore, changes in restricted cash and restricted cash equivalents will no longer be shown as specific line items within the statement of cash flows. Additionally, an entity is to reconcile its cash and cash equivalents as per its balance sheet to the cash and cash equivalent balances presented in its statement of cash flows. The Company early adopted the guidance within ASU 2016-18 as of September 30, 2017. Therefore, changes in our restricted cash balances are no longer shown in our statements of cash flows as these balances are included in the beginning and ending cash balances in our statements of cash flows.
The following table presents the changes to our consolidated statements of cash flows as of June 30, 2017 due to the adoption of ASU 2016-18:
in thousands
 
Nine Months Ended
June 30, 2017
Consolidated Statements of Cash Flows:
 
 
    Net cash used in investing activities (as originally reported)
 
$
(8,249
)
    Movements in restricted cash
 
(1,670
)
    Net cash used in investing activities (as re-casted)
 
$
(9,919
)

6


Business Combinations. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01). ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for transactions that have not been reported in previously issued financial statements. The Company early adopted this guidance as of December 31, 2017 and applied it to applicable transactions occurring during this period.
Income Taxes. In December 2017, the Securities and Exchange Commission Staff issued SAB 118, which provides guidance on accounting for the income tax effects of the Tax Cuts and Jobs Act (Tax Act). SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements and should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The Company adopted the guidance of SAB 118 as of December 31, 2017. Refer to Note 10 for additional information on the Tax Act and the impact to our financial statements.
(3) Supplemental Cash Flow Information
The following table presents supplemental disclosure of non-cash and cash activity for the periods presented:
 
Nine Months Ended
 
June 30,
in thousands
2018
 
2017
Supplemental disclosure of non-cash activity:
 
 
 
Non-cash land acquisitions (a)
$

 
$
8,346

Land acquisitions for debt

 
6,305

Supplemental disclosure of cash activity:

 

Interest payments
$
60,025

 
$
60,847

Income tax payments
495

 
548

Tax refunds received
39

 
3

Reconciliation of cash, cash equivalents, and restricted cash:
 
 
 
Cash and cash equivalents
$
136,298

 
$
168,381

Restricted cash
12,167

 
12,735

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
$
148,465

 
$
181,116

(a) For the nine months ended June 30, 2017, non-cash land acquisitions were comprised of lot takedowns from one of the Company's unconsolidated land development joint ventures.

7


(4) Investments in Unconsolidated Entities
As of June 30, 2018, the Company participated in certain joint ventures and had investments in unconsolidated entities in which it had less than a controlling interest. The following table presents the Company's investment in unconsolidated entities as well as the total equity and outstanding borrowings of such unconsolidated entities as of June 30, 2018 and September 30, 2017:
in thousands
June 30, 2018
 
September 30, 2017
Investment in unconsolidated entities
$
4,237

 
$
3,994

Total equity of unconsolidated entities
11,491

 
11,811

Total outstanding borrowings of unconsolidated entities
15,234

 
15,797

Equity in income of unconsolidated entities is as follows for the periods presented:
 
Three Months Ended
 
Nine Months Ended
 
June 30,
 
June 30,
in thousands
2018
 
2017
 
2018
 
2017
Equity in income of unconsolidated entities
$
147

 
$
158

 
$
302

 
$
213

For the three and nine months ended June 30, 2018 and 2017, there were no impairments related to investments in unconsolidated entities.
Guarantees
Historically, the Company's joint ventures typically obtained secured acquisition, development, and construction financing. In addition, the Company and its joint venture partners provided varying levels of guarantees of debt and other debt-related obligations for these unconsolidated entities. However, as of June 30, 2018 and September 30, 2017, the Company had no outstanding guarantees or other debt-related obligations related to investments in unconsolidated entities.
Beazer and its joint venture partners generally provide unsecured environmental indemnities to land development joint venture project lenders. These indemnities obligate the Company to reimburse the project lenders for claims related to environmental matters for which they are held responsible. During the three and nine months ended June 30, 2018 and 2017, Beazer was not required to make any payments related to environmental indemnities.
In assessing the need to record a contingent liability for these guarantees, the Company considers its historical experience in being required to perform under the guarantees, the fair value of the collateral underlying these guarantees, and the financial condition of the applicable unconsolidated entities. In addition, the fair value of the collateral of unconsolidated entities is monitored to ensure that the related borrowings do not exceed the specified percentage of the value of the property securing the borrowings. As of June 30, 2018, no liability was recorded for the contingent aspects of any guarantees that were determined to be reasonably possible but not probable.

8


(5) Inventory
Owned inventory consisted of the following as of June 30, 2018 and September 30, 2017:
in thousands
June 30, 2018
 
September 30, 2017
Homes under construction
$
641,780

 
$
419,312

Development projects in progress
805,619

 
785,777

Land held for future development
84,813

 
112,565

Land held for sale
10,128

 
17,759

Capitalized interest
152,182

 
139,203

Model homes
73,461

 
68,191

Total owned inventory
$
1,767,983

 
$
1,542,807

Homes under construction include homes substantially finished and ready for delivery and homes in various stages of construction, including the cost of the underlying lot. The Company had 168 (with a cost of $55.1 million) and 171 (with a cost of $52.6 million) substantially completed homes that were not subject to a sales contract (spec homes) as of June 30, 2018 and September 30, 2017, respectively. Development projects in progress consist principally of land and land improvement costs. Certain of the fully developed lots in this category are reserved by a customer deposit or sales contract. Land held for future development consists of communities for which construction and development activities are expected to occur in the future or have been idled. Land held for future development is stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. All applicable interest and real estate taxes on land held for future development are expensed as incurred. Land held for sale includes land and lots that do not fit within our homebuilding programs and strategic plans in certain markets. Land held for sale is recorded at the lower of the carrying value or fair value less costs to sell.
The amount of interest we are able to capitalize is dependent upon our qualified inventory balance, which considers the status of our inventory holdings. Our qualified inventory balance includes the majority of our homes under construction and development projects in progress, but excludes land held for future development and land held for sale (see Note 6 for additional information on capitalized interest).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

9


Total owned inventory by reportable segment and by category is presented in the table below as of June 30, 2018 and September 30, 2017:
in thousands
Projects in
Progress (a)
 
Land Held for Future Development
 
Land Held
for Sale
 
Total Owned
Inventory
June 30, 2018
 
 
 
 
 
 
 
West Segment
$
815,784

 
$
59,764

 
$
2,255

 
$
877,803

East Segment
302,950

 
14,077

 
7,159

 
324,186

Southeast Segment
344,729

 
10,972

 
690

 
356,391

Corporate and unallocated (b)
209,579



 
24

 
209,603

Total
$
1,673,042

 
$
84,813

 
$
10,128

 
$
1,767,983

September 30, 2017
 
 
 
 
 
 
 
West Segment
$
673,828

 
$
87,231

 
$
3,848

 
$
764,907

East Segment
250,002

 
14,391

 
11,578

 
275,971

Southeast Segment
301,268

 
10,943

 
1,233

 
313,444

Corporate and unallocated (b)
187,385

 

 
1,100

 
188,485

Total
$
1,412,483

 
$
112,565

 
$
17,759

 
$
1,542,807

(a) Projects in progress include homes under construction, development projects in progress, capitalized interest, and model homes categories from the preceding table.
(b) Projects in progress amount includes capitalized interest and indirect costs that are maintained within our Corporate and unallocated segment. Land held for sale amount includes parcels held by our discontinued operations.
Inventory Impairments
When conducting our community level review for the recoverability of our inventory related to projects in progress, we establish a quarterly “watch list” of communities that carry gross margins in backlog and in our forecast that are below a minimum threshold of profitability, as well as recent closings that have gross margins less than a specific threshold. Each community is first evaluated qualitatively to determine if there are temporary factors driving the low profitability levels. Following our qualitative evaluation, communities with more than ten homes remaining to close are subjected to substantial additional financial and operational analyses and review that consider the competitive environment and other factors contributing to gross margins below our watch list threshold. Our assumptions about future home sales prices and absorption rates require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions. For certain communities, we determined that it is prudent to reduce sales prices or further increase sales incentives in response to a variety of factors, including competitive market conditions in those specific submarkets for the product and locations of these communities. For communities where the current competitive and market dynamics indicate that these factors may be other than temporary, which may call into question the recoverability of our investment, a formal impairment analysis is performed. The formal impairment analysis consists of both qualitative competitive market analyses and a quantitative analysis reflecting market and asset specific information. Market deterioration that exceeds our initial estimates may lead us to incur impairment charges on previously impaired homebuilding assets, in addition to homebuilding assets not currently impaired but for which indicators of impairment may arise if markets deteriorate.
For the quarter ended June 30, 2018, there were four communities on our quarterly watch list, two in the West segment and two in the Southeast segment. However, none of these communities required further analysis to be performed after considering certain qualitative factors. For the quarter ended June 30, 2017, there were three communities on our quarterly watch list, all in our West segment. However, none of these communities required further impairment analysis to be performed after considering certain qualitative factors.

10


Impairments on land held for sale generally represent write downs of these properties to net realizable value less estimated costs to sell and are based on current market conditions and our review of recent comparable transactions. Our assumptions about land sales prices require significant judgment because the real estate market is highly sensitive to changes in economic conditions. We calculate the estimated fair value of land held for sale based on current market conditions and assumptions made by management, which may differ materially from actual results and may result in additional impairments if market conditions deteriorate.
From time-to-time, we also determine that the proper course of action with respect to a community is to not exercise an option and to write off the deposit securing the option takedown and the related pre-acquisition costs, as applicable. In determining whether to abandon lots or lot option contracts, our evaluation is primarily based upon the expected cash flows from the property. Additionally, in certain limited instances, we are forced to abandon lots due to environmental, permitting, or other regulatory issues that do not allow us to build on those lots. If we intend to abandon or walk away from a property, we record a charge to earnings for the deposit amount and any related capitalized costs in the period such decision is made. Abandonment charges generally relate to our decision to abandon lots or not exercise certain option contracts that are not projected to produce adequate results, no longer fit with our long-term strategic plan or, in limited circumstances, are not suitable for building due to environmental or regulatory restrictions that are enacted.
The following table presents our total impairment and abandonment charges for the periods presented:
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
in thousands
2018
 
2017
 
2018
 
2017
Land Held for Sale:
 
 
 
 
 
 
 
West
$

 
$

 
$

 
$
94

East
168

 
470

 
168

 
470

Total impairment charges on land held for sale
$
168

 
$
470

 
$
168

 
$
564

Abandonments:
 
 
 
 
 
 
 
East

 

 

 
188

Total continuing operations
$
168

 
$
470

 
$
168

 
$
752

Discontinued Operations:
 
 
 
 
 
 
 
Land Held for Sale

 

 
450

 

Total impairment and abandonment charges
$
168

 
$
470

 
$
618

 
$
752

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 unconsolidated entities until we have determined whether to exercise our lot option. The majority of our lot option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land for the right to acquire lots during a specified period of time at a specified price. Under lot option contracts, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers. Our liability under option contracts is generally limited to forfeiture of the non-refundable deposits, letters of credit, and other non-refundable amounts incurred. We expect to exercise, subject to market conditions and seller satisfaction of contract terms, most of our remaining option contracts. Various factors, some of which are beyond our control, such as market conditions, weather conditions, and the timing of the completion of development activities, will have a significant impact on the timing of option exercises or whether lot options will be exercised at all.
The following table provides a summary of our interests in lot option agreements as of June 30, 2018 and September 30, 2017:
in thousands
Deposits &
Non-refundable
Pre-acquisition
Costs Incurred
 
Remaining
Obligation
As of June 30, 2018
 
 
 
Unconsolidated lot option agreements
$
73,018

 
$
355,773

As of September 30, 2017
 
 
 
Unconsolidated lot option agreements
$
91,854

 
$
408,300


11


(6) Interest
Interest capitalized during the three and nine months ended June 30, 2018 and 2017 was limited by the balance of inventory eligible for capitalization. The following table presents certain information regarding interest for the periods presented:
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
in thousands
2018
 
2017
 
2018
 
2017
Capitalized interest in inventory, beginning of period
$
149,034

 
$
146,916

 
$
139,203

 
$
138,108

Interest incurred
25,803

 
26,243

 
76,850

 
79,812

Interest expense not qualified for capitalization and included as other expense (a)
(205
)
 
(2,934
)
 
(5,290
)
 
(12,232
)
Capitalized interest amortized to home construction and land sales expenses (b)
(22,450
)
 
(21,895
)
 
(58,581
)
 
(57,358
)
Capitalized interest in inventory, end of period
$
152,182

 
$
148,330

 
$
152,182

 
$
148,330

(a) The amount of interest we are able to capitalize is dependent upon our qualified inventory balance, which considers the status of our inventory holdings. Our qualified inventory balance includes the majority of our homes under construction and development projects in progress, but excludes land held for future development and land held for sale.
(b) Capitalized interest amortized to home construction and land sale expenses varies based on the number of homes closed during the period and land sales, if any, as well as other factors.
(7) Borrowings
The Company's debt, net of premiums, discounts, and unamortized debt issuance costs consisted of the following as of June 30, 2018 and September 30, 2017:
in thousands
Maturity Date
 
June 30, 2018
 
September 30, 2017
5 3/4% Senior Notes
June 2019
 
$
96,393

 
$
321,393

8 3/4% Senior Notes
March 2022
 
500,000

 
500,000

7 1/4% Senior Notes
February 2023
 
24,834

 
199,834

6 3/4% Senior Notes
March 2025
 
250,000

 
250,000

5 7/8% Senior Notes
October 2027
 
400,000

 

Unamortized debt premium, net
 
 
2,833

 
3,413

Unamortized debt issuance costs
 
 
(15,170
)
 
(14,800
)
Total Senior Notes, net
 
 
1,258,890

 
1,259,840

Junior Subordinated Notes (net of unamortized accretion of $37,286 and $38,837, respectively)
July 2036
 
63,487

 
61,937

Other Secured Notes payable
Various Dates
 
4,126

 
5,635

Total debt, net
 
 
$
1,326,503

 
$
1,327,412

Secured Revolving Credit Facility
The Secured Revolving Credit Facility (the Facility) provides working capital and letter of credit capacity. In October 2017, a Fourth Amendment to the Facility was executed. The Fourth Amendment (1) extends the termination date of the Facility from February 15, 2019 to February 15, 2020; (2) increases the maximum aggregate amount of commitments under the Facility (including borrowings and letters of credit) from $180.0 million to $200.0 million; and (3) includes a condition that allows the Facility to be increased by an additional $50 million to $250 million, subject to the approval of any lenders providing any such increase. The aggregate collateral ratio (as defined by the underlying Credit Agreement) remained at 4.00 to 1.00 and the after-acquired exclusionary condition (also as defined by the underlying Credit Agreement) remained at $800.0 million. The Facility continues to be with three lenders. For additional discussion of the Facility, refer to Note 8 to the audited consolidated financial statements within our 2017 Annual Report.

12


As of June 30, 2018, no borrowings and no letters of credit were outstanding under the Facility, resulting in a remaining capacity of $200.0 million. As of September 30, 2017, no borrowings were outstanding under the Facility; however, $34.7 million in letters of credit were outstanding, resulting in a remaining capacity of $145.3 million. The Facility requires compliance with certain covenants, including negative covenants and financial maintenance covenants. As of June 30, 2018, the Company was in compliance with all such covenants.
Letter of Credit Facilities
We have entered into stand-alone, cash-secured letter of credit agreements with banks to maintain our pre-existing letters of credit and to provide for the issuance of new letters of credit in addition to those issued under the Facility. As of June 30, 2018 and September 30, 2017, total letters of credit outstanding under these facilities were $10.8 million and $10.8 million, respectively, all of which were secured by cash collateral in restricted accounts.
In May 2018, the Company entered into a reimbursement agreement with Credit Suisse AG, which provides for the issuance of performance letters of credit, and an unsecured credit agreement with Credit Suisse International that provides for the issuance of up to $50.0 million of standby letters of credit to backstop the Company's obligations under the reimbursement agreement (collectively, the "Bilateral Facility"). The Bilateral Facility will terminate on June 10, 2021. As of June 30, 2018, the total stated amount of performance letters of credit issued under the reimbursement agreement was $26.4 million (and the stated amount of the backstop standby letter of credit issued under the credit agreement was $30.0 million). The Company may enter into additional arrangements to provide greater letter of credit capacity.
Senior Notes
Our Senior Notes are unsecured obligations ranking pari passu with all other existing and future senior indebtedness. Substantially all of our significant subsidiaries are full and unconditional guarantors of the Senior Notes and are jointly and severally liable for obligations under the Senior Notes and the Facility. Each guarantor subsidiary is a 100% owned subsidiary of Beazer Homes. See Note 15 for further information.
All unsecured Senior Notes rank equally in right of payment with all of our existing and future senior unsecured obligations, senior to all of the Company's existing and future subordinated indebtedness and effectively subordinated to the Company's existing and future secured indebtedness, including any outstanding indebtedness under the Facility, to the extent of the value of the assets securing such indebtedness. The unsecured Senior Notes and related guarantees are structurally subordinated to all indebtedness and other liabilities of all of the Company's subsidiaries that do not guarantee these notes, but are fully and unconditionally guaranteed jointly and severally on a senior basis by the Company's wholly-owned subsidiaries party to each applicable indenture.
The Company's Senior Notes are issued under indentures that contain certain restrictive covenants which, among other things, restrict our ability to pay dividends, repurchase our common stock, incur certain types of additional indebtedness, and to make certain investments. Compliance with our Senior Note covenants does not significantly impact our operations. We were in compliance with the covenants contained in the indentures of all of our Senior Notes as of June 30, 2018.
In October 2017, we issued and sold $400.0 million aggregate principal amount of 5.875% unsecured Senior Notes due October 2027 at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers (the 2027 Notes). Interest on the 2027 Notes is payable semi-annually beginning on April 15, 2018. The 2027 Notes will mature on October 15, 2027. We may redeem the 2027 Notes at any time prior to October 15, 2022, in whole or in part, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, together with accrued and unpaid interest to, but excluding, the redemption date, plus a customary make-whole premium. In addition, on or prior to October 15, 2022, we may redeem up to 35% of the aggregate principal amount of the 2027 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to 105.875% of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at least 65% of the aggregate principal amount of the 2027 Notes originally issued remains outstanding immediately after such redemption. Upon the occurrence of certain specified changes of control, the holders of the 2027 Notes will have the right to require us to purchase all or a part of the notes at a repurchase price equal to 101% of their principal amount, plus accrued and unpaid interest to, but excluding, the repurchase date. The covenants related to the 2027 Notes are consistent with our other senior notes. Refer to the table on the following page for additional details regarding redemption features of the 2027 Notes.
During the first quarter of fiscal 2018, the proceeds of the 2027 Notes, as well as $34.5 million cash on hand, were used to redeem $225.0 million of our 5.75% unsecured Senior Notes due 2019 and $175.0 million of our 7.25% unsecured Senior Notes due 2023, resulting in a loss on extinguishment of debt of $25.9 million during the nine months ended June 30, 2018, of which $3.2 million was a non-cash write-off of debt issuance and discount costs.

13


In March 2017, we issued and sold $250 million aggregate principal amount of 6.75% unsecured Senior Notes due March 2025 at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers (the 2025 Notes). Interest on the 2025 Notes is payable semi-annually, beginning on September 15, 2017. The 2025 Notes will mature on March 15, 2025. We may redeem the 2025 Notes at any time prior to March 15, 2020, in whole or in part, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, together with accrued and unpaid interest to, but excluding, the redemption date, plus a customary make-whole premium. In addition, on or prior to March 15, 2020, we may redeem up to 35% of the aggregate principal amount of the 2025 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to 106.75% of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at least 65% of the aggregate principal amount of the 2025 Notes originally issued remains outstanding immediately after such redemption. Upon the occurrence of certain specified changes of control, the holders of the 2025 Notes will have the right to require us to purchase all or a part of the notes at a repurchase price equal to 101% of their principal amount, plus accrued and unpaid interest to, but excluding, the repurchase date. The covenants related to the 2025 Notes are consistent with our other senior notes.
During the nine months ended June 30, 2017, we redeemed our outstanding Senior Notes due 2021, as well as the then outstanding balance on our term loan, mainly by utilizing the proceeds received from the 2025 Notes issued during the second quarter of fiscal 2017, which is discussed above, as well as cash on hand. This debt repurchase activity resulted in a loss on extinguishment of debt of $15.6 million during the nine months ended June 30, 2017.
For additional redemption features, refer to the table below that summarizes the redemption terms of our Senior Notes:
Senior Note Description
 
Issuance Date
 
Maturity Date
 
Redemption Terms
5 3/4% Senior Notes
 
April 2014
 
June 2019
 
Callable at any time before March 15, 2019, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium; on or after March 15, 2019, callable at 100% of the principal amount plus, in each case, accrued and unpaid interest
8 3/4% Senior Notes
 
September 2016
 
March 2022
 
Callable at any time prior to March 15, 2019, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium; on or after March 15, 2019, callable at a redemption price equal to 104.375% of the principal amount; on or after March 15, 2020, callable at a redemption price equal to 102.188% of the principal amount; on or after March 15, 2021, callable at a redemption price equal to 100% of the principal amount plus, in each case, accrued and unpaid interest
7 1/4% Senior Notes
 
February 2013
 
February 2023
 
After February 1, 2018, callable at a redemption price equal to 103.625% of the principal amount; on or after February 1, 2019, callable at a redemption price equal to 102.417% of the principal amount; on or after February 1, 2020, callable at a redemption price equal to 101.208% of the principal amount; on or after February 1, 2021, callable at 100% of the principal amount plus, in each case, accrued and unpaid interest
6 3/4% Senior Notes
 
March 2017
 
March 2025
 
Callable at any time prior to March 15, 2020, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium; on or after March 15, 2020, callable at a redemption price equal to 105.063% of the principal amount; on or after March 15, 2021, callable at a redemption price equal to 103.375% of the principal amount; on or after March 15, 2022, callable at a redemption price equal to 101.688% of the principal amount; on or after March 15, 2023, callable at a redemption price equal to 100.000% of the principal amount, plus, in each case, accrued and unpaid interest
5 7/8% Senior Notes
 
October 2017
 
October 2027
 
Callable at any time prior to October 15, 2022, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium; on or after October 15, 2022, callable at a redemption price equal to 102.938% of the principal amount; on or after October 15, 2023, callable at a redemption price equal to 101.958% of the principal amount; on or after October 15, 2024, callable at a redemption price equal to 100.979% of the principal amount; on or after October 15, 2025, callable at a redemption price equal to 100.000% of the principal amount, plus, in each case, accrued and unpaid interest

14


Junior Subordinated Notes
Our unsecured junior subordinated notes (Junior Subordinated Notes) mature on July 30, 2036. The Junior Subordinated Notes are redeemable at par and paid interest at a fixed rate of 7.987% for the first ten years ending July 30, 2016. The securities now have a floating interest rate as defined in the Junior Subordinated Notes Indenture, which was a weighted-average of 4.81% as of June 30, 2018 (because the rate on the portion of the Junior Subordinated Notes that was modified, as discussed subsequently, is subject to a floor). The obligations relating to these notes are subordinated to the Facility and the Senior Notes. In January 2010, we modified the terms of $75.0 million of these notes and recorded them at their then estimated fair value. Over the remaining life of the Junior Subordinated Notes, we will increase their carrying value until this carrying value equals the face value of the notes. As of June 30, 2018, the unamortized accretion was $37.3 million and will be amortized over the remaining life of the notes. As of June 30, 2018, we were in compliance with all covenants under our Junior Subordinated Notes.
Other Secured Notes Payable
We periodically acquire land through the issuance of notes payable. As of June 30, 2018 and September 30, 2017, we had outstanding secured notes payable of $4.1 million and $5.6 million, respectively, primarily related to land acquisitions. These secured notes payable related to land acquisitions have varying expiration dates between 2018 and 2019, and have a weighted-average fixed interest rate of 1.56% as of June 30, 2018. 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) Contingencies
Beazer Homes and certain of its subsidiaries have been and continue to be named as defendants in various construction defect claims, complaints, and other legal actions. The Company is subject to the possibility of loss contingencies related to these defects as well as others arising from its business. In determining loss contingencies, we consider the likelihood of loss and our ability to reasonably estimate the amount of such loss. An estimated loss is recorded when it is considered probable that a liability has been incurred and the amount of loss can be reasonably estimated.
Warranty Reserves
We currently provide a limited warranty ranging from one to two years covering workmanship and materials per our defined performance quality standards. In addition, we provide a limited warranty for up to ten years covering only certain defined structural element failures.
Our homebuilding work is performed by subcontractors that typically must agree to indemnify us with regard to their work and provide certificates of insurance demonstrating that they have met our insurance requirements and have named us as an additional insured under their policies. Therefore, many claims relating to workmanship and materials that result in warranty spending are the primary responsibility of these subcontractors. In addition, we maintain insurance coverage related to our construction efforts that can result in recoveries of warranty and construction defect costs above certain specified limits.
Warranty reserves are included in other liabilities within the consolidated balance sheets, and the provision for warranty accruals is included in home construction expenses in our consolidated statements of income. Reserves covering anticipated warranty expenses are recorded for each home closed. Management assesses the adequacy of warranty reserves each reporting period based on historical experience and the expected costs to remediate potential claims. Our review includes a quarterly analysis of the historical data and trends in warranty expense by operating division. Such analysis considers market-specific factors such as warranty experience, the number of home closings, the prices of homes, product mix, and other data in estimating warranty reserves. In addition, the analysis also contemplates the existence of any non-recurring or community-specific warranty-related matters that might not be included in historical data and trends. While estimated warranty liabilities are adjusted each reporting period based on the results of our quarterly analyses, we may not accurately predict actual warranty costs, which could lead to significant changes in the reserves.

15


Changes in warranty reserves are as follows for the periods presented:
 
Three Months Ended
 
Nine Months Ended
 
June 30,
 
June 30,
in thousands
2018
 
2017
 
2018
 
2017
Balance at beginning of period
$
14,583

 
$
25,386

 
$
18,091

 
$
39,131

Accruals for warranties issued (a)
3,254

 
3,727

 
10,758

 
9,549

Changes in liability related to warranties existing in prior periods (b)
711

 
(1,293
)
 
(2,574
)
 
6,581

Payments made (b)
(3,258
)
 
(7,998
)
 
(10,985
)
 
(35,439
)
Balance at end of period
$
15,290

 
$
19,822

 
$
15,290

 
$
19,822

(a) Accruals for warranties issued are a function of the number of home closings in the period, the selling prices of the homes closed, and the rates of accrual per home estimated as a percentage of the selling price of the home.
(b) Changes in liability related to warranties existing and payments made are elevated during the periods presented primarily due to charges and subsequent payments related to water intrusion issues in certain of our communities located in Florida (refer to separate discussion below).
Florida Water Intrusion Issues
In the latter portion of fiscal 2014, we began to experience an increase in reported stucco and water intrusion issues in certain of our communities in Florida (the Florida stucco issues). Through June 30, 2018, we cumulatively recorded charges related to these issues of $85.1 million.
Warranty reserves related to the Florida stucco issues increased during the three months ended June 30, 2018 by $0.1 million but decreased by $0.5 million during the nine months ended June 30, 2018. As of June 30, 2018, 708 homes have been identified as likely to require repairs, of which 682 homes have been repaired. The majority of the remaining repairs in our Florida communities are expected to be completed during fiscal 2018. We made payments related to the Florida stucco issues of $0.4 million and $2.1 million during the three and nine months ended June 30, 2018, respectively. These amounts included payments on fully repaired homes and homes for which remediation is not yet complete, bringing the remaining accrual related to this issue to $2.1 million as of June 30, 2018. This accrual is included in the overall warranty liability detailed above and includes homes deemed likely to require repair. Within the impacted communities, the total estimated cost of remediation for homes under warranty but deemed unlikely to require repair is approximately $2.3 million. For additional information related to the Florida stucco issues, refer to Note 9 of the notes to the consolidated financial statements in our 2017 Annual Report.
Insurance Recoveries
The Company has insurance policies that provide for the reimbursement of certain warranty costs incurred above specified thresholds for each period covered. We have surpassed these thresholds for certain policy years, particularly those that cover most of the homes impacted by the Florida stucco issues discussed above. As such, beginning with the first quarter of our fiscal 2015, we expect a substantial majority of additional costs incurred for warranty work on homes within these policy years to be reimbursed by our insurers.
We adjust our insurance receivables each quarter to reflect our estimate of future costs to be incurred subject to recoveries from insurers. Insurance receivables increased by $0.2 million during the three months ended June 30, 2018 and decreased by $0.2 million during the nine months ended June 30, 2018 to reflect the amounts deemed probable of receiving. The changes to our insurance receivables offset the current three and nine month period changes in our reserve related to the Florida stucco issues. For the three and nine months ended June 30, 2017, insurance receivables decreased by $0.6 million and increased by $5.6 million, respectively. Through June 30, 2018, actual plus expected insurance recoveries related to the Florida stucco issues cumulatively totaled $82.8 million.
Amounts recorded for anticipated insurance recoveries are reflected within the consolidated statements of income as a reduction of home construction expenses. Amounts not yet received from our insurer are recorded on a gross basis, without any reduction for the associated warranty expense, within accounts receivable on our consolidated balance sheets.

16


Litigation
From time-to-time, we receive claims from institutions that have acquired mortgages originated by our subsidiary, Beazer Mortgage Corporation (BMC), demanding damages or indemnity or that we repurchase such mortgages. BMC stopped originating mortgages in 2008. We have been able to resolve these claims for no cost or for amounts that are not material to our consolidated financial statements. We cannot rule out the potential for additional mortgage loan repurchase or indemnity claims in the future from other investors. At this time, we do not believe that the exposure related to any such claims would be material to our consolidated financial condition, results of operations, or cash flows. As of June 30, 2018, no liability has been recorded for any additional claims related to this matter 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 that may not be fully covered by insurance. Further, the legal costs associated with the lawsuits and the amount of time required to be spent by management and our Board of Directors on these matters, even if we are ultimately successful, could have a material adverse effect on our financial condition, results of operations, or cash flows.
Other Matters
We and certain of our subsidiaries have been named as defendants in various claims, complaints, and other legal actions, most relating to construction defects, moisture intrusion, and product liability. Certain of the liabilities resulting from these actions are covered in whole or in part by insurance. In our opinion, based on our current assessment, the ultimate resolution of these matters will not have a material adverse effect on our financial condition, results of operations, or cash flows.
We have an accrual of $2.7 million and $3.9 million in other liabilities on our consolidated balance sheets for litigation and related matters, excluding warranty, as of June 30, 2018 and September 30, 2017, respectively.
We had outstanding letters of credit and performance bonds of approximately $37.2 million and $233.6 million, respectively, as of June 30, 2018, related principally to our obligations to local governments to construct roads and other improvements in various developments.

17


(9) Fair Value Measurements
As of the dates presented, we had assets on our consolidated balance sheets that were required to be measured at fair value on a recurring or non-recurring basis. We use a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices included in Level 1 that are observable either directly or indirectly through corroboration with market data; and
Level 3 – Unobservable inputs that reflect our own estimates about the assumptions market participants would use in pricing the asset or liability.
Certain of our assets are required to be recorded at fair value on a recurring basis. The fair value of our deferred compensation plan assets is based on market-corroborated inputs (Level 2).
Certain of our assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value of these assets may not be recovered. We review our long-lived assets, including inventory, for recoverability when factors indicate an impairment may exist, but no less than quarterly. Fair value of assets deemed to be impaired is determined based upon the type of asset being evaluated. The fair value of our owned inventory assets, when required to be calculated, is discussed within Notes 2 and 5. The fair value of our investments in unconsolidated entities is determined primarily using a discounted cash flow model to value the underlying net assets of the respective entities. Due to the substantial use of unobservable inputs in valuing the assets on a non-recurring basis, they are classified within Level 3.
Determining which hierarchical level an asset or liability falls within requires significant judgment. We evaluate our hierarchy disclosures each quarter.
The following table presents the period-end balances of assets measured at fair value on a recurring basis and the impairment-date fair value of certain assets measured at fair value on a non-recurring basis for each hierarchy level. These balances represent only those assets whose carrying values were adjusted to fair value during the periods presented:
in thousands
Level 1
 
Level 2
 
Level 3
 
Total
As of June 30, 2018
 
 
 
 
 
 
 
Deferred compensation plan assets (a)
$

 
$
1,507

 
$

 
$
1,507

Land held for sale (b)

 

 
426

 
426

As of September 30, 2017
 
 
 
 
 
 
 
Deferred compensation plan assets (a)
$

 
$
1,114

 
$

 
$
1,114

Development projects in progress (b)

 

 
3,791

 
3,791

Land held for sale (b)

 

 
325

 
325

(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, amounts due under the Facility (if outstanding), and other secured notes payable approximate their carrying amounts due to the short maturity of these assets and liabilities. When outstanding, obligations related to land not owned under option agreements approximate fair value.
The following table presents the carrying value and estimated fair value of certain of our other financial liabilities as of June 30, 2018 and September 30, 2017:
 
As of June 30, 2018
 
As of September 30, 2017
 (In thousands)
Carrying
Amount
(a)
 
Fair Value
 
Carrying
Amount
(a)
 
Fair Value
Senior Notes (b)
$
1,258,890

 
$
1,237,492

 
$
1,259,840

 
$
1,355,657

Junior Subordinated Notes
63,487

 
63,487

 
61,937

 
61,937

 
$
1,322,377

 
$
1,300,979

 
$
1,321,777

 
$
1,417,594

(a) Carrying amounts are net of unamortized debt premiums, debt issuance costs, and accretion.
(b) The estimated fair value for our publicly-held Senior Notes has been determined using quoted market rates (Level 2).

18


(10) Income Taxes
Income Tax Provision
The Company's income tax provision for quarterly interim periods is based on an estimated annual effective income tax rate calculated separately from the effect of significant, infrequent, or unusual items. The total income tax provision, including discontinued operations, was a tax expense of $4.3 million and $113.2 million for the three and nine months ended June 30, 2018, respectively, compared to an income tax expense of $5.7 million and income tax benefit of $1.3 million for the three and nine months ended June 30, 2017, respectively. The current fiscal year income tax expense was primarily driven by (1) income from continuing operations; (2) the remeasurement of our deferred tax assets as a result of the enactment of the Tax Cuts and Jobs Act (Tax Act); and (3) several discrete tax items, including the impacts to our stock-based compensation expense as a result of current period activity; these expenses were partially offset by (4) the completion of work necessary to claim an additional $2.8 million in tax credits related to prior fiscal years. The tax benefit for the nine months ended June 30, 2017 was primarily driven by the Company's loss from continuing operations, the completion of work necessary to claim an additional $1.3 million in tax credits, which were recorded in fiscal 2017 but related to fiscal 2016, and several other discrete tax items, including a prior period balance due for one of our operating jurisdictions.
Deferred Tax Assets and Liabilities
The Tax Act is comprehensive tax reform legislation that was enacted by the U.S. government on December 22, 2017. The Tax Act includes significant changes to the Internal Revenue Code, including a reduction in the corporate tax rate from 35% to 21%. Additionally, the Tax Act establishes new laws that will impact our fiscal 2019, including, but not limited to, eliminating the corporate alternative minimum tax (AMT), changes to how existing AMT credits can be realized, and imposing new limitations on the deductibility of certain executive compensation.
In connection with our initial analysis of the Tax Act's impacts, and in accordance with the guidance in SAB 118, we recorded a discrete net tax expense of $112.6 million during the three months ended December 31, 2017. This net expense is primarily related to the corporate tax rate reduction and the associated remeasurement of our deferred tax assets. While a provisional tax expense of $112.6 million was recorded based on reasonable estimates of the impact of the reduction in the corporate tax rate, the estimate may be affected by additional analyses related to the Tax Act and temporary differences that will reverse during our fiscal 2018 and subsequent tax years. No change to the estimate was recorded during the three months ended June 30, 2018.
The Company continues to evaluate its deferred tax assets each period to determine if a valuation allowance is required based on whether it is more likely than not that some portion of these deferred tax assets will not be realized. As of June 30, 2018, we concluded that it is more likely than not that a substantial portion of our deferred tax assets will be realized. As part of our analysis, we considered both positive and negative factors that impact profitability and whether those factors would lead to a change in the estimate of our deferred tax assets that may be realized in the future. Although the Tax Act may result in changes to our taxable income in the future, we do not anticipate that these changes, along with all available positive and negative evidence, would result in a change to our estimate of the realization of our deferred tax assets as of June 30, 2018. As such, our conclusions on the valuation allowance and Internal Revenue Code Section 382 limitations related to our deferred tax assets remain consistent with the determinations we made during the period ended September 30, 2017, and such conclusions are based on similar company specific and industry factors to those discussed in Note 13 to the audited consolidated financial statements within our 2017 Annual Report. In a near future period, we expect to reduce a portion of our remaining valuation allowance, generating a non-cash tax benefit that will have a material impact on net income and stockholders' equity, if additional positive evidence is present indicating that it is more likely than not that certain portions of our deferred tax assets will be realized.

19


(11) Stock-based Compensation
Stock-based compensation expense is included in G&A expenses in the condensed consolidated statements of income. A summary of the expense related to stock-based compensation by award type is as follows for the periods presented:
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
in thousands
 
2018
 
2017
 
2018
 
2017
Stock options expense
 
$
42

 
$
53

 
$
175

 
$
215

Restricted stock awards expense
 
2,442

 
2,757

 
7,517

 
7,112

Before tax stock-based compensation expense
 
2,484

 
2,810

 
7,692

 
7,327

Tax benefit
 
(630
)
 
(1,001
)
 
(1,951
)
 
(2,608
)
After tax stock-based compensation expense
 
$
1,854

 
$
1,809

 
$
5,741

 
$
4,719

During the nine months ended June 30, 2018 and 2017, employees surrendered 78,718 shares and 31,359 shares, respectively, to the Company in payment of minimum tax obligations upon the vesting of stock awards under our stock incentive plans. The aggregate value of surrendered shares based on the market price on the date of surrender was approximately $1.6 million and $0.4 million for the nine months ended June 30, 2018 and 2017, respectively.
Stock Options
The fair value of each stock option granted is estimated on the grant date using the Black-Scholes option-pricing model (Black-Scholes Model). As of June 30, 2018, the intrinsic value of our stock options outstanding, vested and expected to vest, and exercisable were $1.0 million, $1.0 million, and $1.0 million, respectively. As of June 30, 2018 and September 30, 2017, total unrecognized compensation cost related to nonvested stock options was $0.3 million and $0.3 million, respectively. The cost remaining as of June 30, 2018 is expected to be recognized over a weighted-average period of 2.0 years.
During the nine months ended June 30, 2018, we issued 23,680 stock options, each for one share of the Company's stock. These stock options typically vest ratably over three years from the grant date or two years from the grant date if issued under the Employee Stock Option Program (EOP; refer to Note 16 of the notes to the consolidated financial statements in our 2017 Annual Report). Following are the assumptions used to value stock options granted, which derived the weighted average fair value shown, for the period presented:
 
 
Nine Months Ended
 
 
June 30, 2018
Expected life of options
 
5.0 years

Expected volatility
 
44.71
%
Expected dividends
 

Weighted average risk-free interest rate
 
2.06
%
Weighted average fair value
 
$
8.49

We relied upon a combination of the observed exercise behavior of our prior grants with similar characteristics, the vesting schedule of the current grants, and an index of peer companies with similar grant characteristics to determine the expected life of the options granted. We considered historic returns of our stock and the implied volatility of our publicly-traded options in determining expected volatility. We assumed no dividends would be paid since our Board of Directors has suspended payment of dividends indefinitely and payment of dividends is restricted under our Senior Note covenants. The risk-free interest rate is based on the term structure of interest rates at the time of the option grant.

20


Activity related to stock options for the periods presented is as follows:
 
Three Months Ended
 
Nine Months Ended
 
June 30, 2018
 
June 30, 2018
 
Shares
 
Weighted Average
Exercise Price
 
Shares
 
Weighted Average
Exercise Price
Outstanding at beginning of period
550,259

 
$
14.18

 
593,753

 
$
14.76

Granted

 

 
23,680

 
20.46

Exercised
(6,525
)
 
7.51

 
(8,191
)
 
7.52

Expired
(5,000
)
 
18.00

 
(61,967
)
 
23.19

Forfeited
(7,012
)
 
11.68

 
(15,553
)
 
10.46

Outstanding at end of period
531,722

 
$
14.26

 
531,722

 
$
14.26

Exercisable at end of period
475,672

 
$
14.06

 
475,672

 
$
14.06

Vested or expected to vest in the future
531,722

 
$
14.26

 
531,722

 
$
14.26

Restricted Stock Awards
The fair value of restricted stock awards with market conditions is estimated on the grant date using a Monte Carlo valuation model. The fair value of restricted stock awards without market conditions is based on the market price of the Company's common stock on the date of grant. If applicable, the cash-settled component of any awards granted to employees is accounted for as a liability, which is adjusted to fair value each reporting period until vested.
Compensation cost arising from restricted stock awards granted to employees is recognized as an expense using the straight-line method over the vesting period. As of June 30, 2018 and September 30, 2017, there was $11.2 million and $8.8 million, respectively, of total unrecognized compensation cost related to nonvested restricted stock awards. The cost remaining as of June 30, 2018 is expected to be recognized over a weighted average period of 1.8 years.
We issued two types of restricted stock awards during the nine months ended June 30, 2018 as follows: (1) performance-based restricted stock awards with a payout based on the Company's performance and certain market conditions; and (2) time-based restricted stock awards. Each award type is discussed further below.
Performance-Based Restricted Stock Awards. During the nine months ended June 30, 2018, we issued 165,085 shares of performance-based restricted stock with market conditions (2018 Performance Shares) to our executive officers and certain other employees. The 2018 Performance Shares are structured to be awarded based on the Company's performance under three pre-determined financial metrics at the end of the three-year performance period. After determining the number of shares earned based on these financial metrics, which can range from 0% to 175% of the targeted number of shares, the award will be subject to further upward or downward adjustment by as much as 20% based on the Company's relative total shareholder return (TSR) compared against the S&P Homebuilders Select Industry Index during the three-year performance period. The 2018 Performance Shares were valued using the Monte Carlo valuation model due to the existence of the TSR market condition and had an estimated fair value of $22.40 per share on the date of grant.
A Monte Carlo valuation model requires the following inputs: (1) the expected dividend yield on the underlying stock; (2) the expected price volatility of the underlying stock; (3) the risk-free interest rate for the period corresponding with the expected term of the award; and (4) the fair value of the underlying stock. For the Company and each member of the peer group, the following inputs were used in the Monte Carlo valuation model to determine the fair value as of the grant date for the 2018 Performance Shares: 0% dividend yield for the Company; expected price volatility ranging from 21.1% to 50.0%; and a risk-free interest rate of 1.81%. 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.
Each Performance Share represents a contingent right to receive one share of the Company's common stock if vesting is satisfied at the end of the three-year performance period. Any 2018 Performance Shares earned in excess of the target number of 165,085 shares may be settled in cash or additional shares at the discretion of the Compensation Committee of our Board of Directors. Any portion of these that do not vest at the end of the period will be forfeited.
Time-Based Restricted Stock Awards. During nine months ended June 30, 2018, we also issued 277,165 shares of time-based restricted stock (Restricted Shares) to our directors, executive officers, and certain other employees. The Restricted Shares granted to our non-employee directors vest on the one-year anniversary of the date of grant, while the Restricted Shares granted to our executive officers and other employees vest ratably over three years on each anniversary from the date of grant.

21


Activity relating to restricted stock awards for the period presented is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30, 2018
 
Performance-Based Restricted Stock
 
Time-Based Restricted Stock
 
Total Restricted Stock
 
Shares
 
Weighted Average
Grant Date Fair Value
 
Shares
 
Weighted Average
Grant Date Fair Value
 
Shares
 
Weighted Average
Grant Date Fair Value
Beginning of period
668,766

 
$
15.72

 
872,181

 
$
16.47

 
1,540,947

 
$
16.14

Granted
165,085

 
22.40

 
277,165

 
18.98

 
442,250

 
20.26

Vested

 

 
(277,611
)
 
15.07

 
(277,611
)
 
15.07

Forfeited
(188,058
)
 
18.96

 
(21,643
)
 
16.52

 
(209,701
)
 
18.71

End of period
645,793

 
$
16.48

 
850,092

 
$
17.75

 
1,495,885

 
$
17.20

(12) Earnings Per Share
Basic income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of shares outstanding during the period. Diluted income per share adjusts the basic income per share for the effects of any potentially dilutive instruments, only in periods in which the Company has net income and such effects are dilutive under the treasury stock method. Basic and diluted income (loss) per share is calculated using unrounded numbers.
The Company reported net income for the three months ended June 30, 2018, but a net loss for the remaining periods presented. Accordingly, for the periods with a net loss, all common stock equivalents were excluded from the computation of diluted loss per share because inclusion would have resulted in anti-dilution. For the three and nine months ended June 30, 2018, 0.4 million and 1.6 million shares related to nonvested stock-based compensation awards, respectively, were excluded from our calculation of diluted income (loss) per share as a result of their anti-dilutive effect. For the three and nine months ended June 30, 2017, 0.5 million and 1.6 million shares related to nonvested stock-based compensation awards, respectively, were excluded from our calculation of diluted income per share as a result of their anti-dilutive effect.
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
in thousands
 
2018
 
2017
 
2018
 
2017
Basic shares
 
32,147

 
31,971

 
32,113

 
31,944

Shares issuable upon vesting of restricted stock
 
500

 
352

 

 

Shares issuable upon vesting of performance stock
 

 
14

 

 

Shares issuable upon exercise of options
 
79

 
38

 

 

   Diluted shares
 
32,726

 
32,375

 
32,113

 
31,944

(13) Other Liabilities
Other liabilities include the following as of June 30, 2018 and September 30, 2017:
in thousands
June 30, 2018
 
September 30, 2017
Accrued bonus and deferred compensation
$
29,541

 
$
36,753

Customer deposits
20,714

 
11,704

Accrued interest
24,367

 
11,024

Accrued warranty expense
15,290

 
18,091

Litigation accrual
2,749

 
3,899

Income tax liabilities
867

 
811

Other
31,194

 
25,377

Total other liabilities
$
124,722

 
$
107,659


22


(14) Segment Information
We currently operate in 13 states that are grouped into three homebuilding segments based on geography. Revenue from our homebuilding segments is derived from the sale of homes that we construct and from land and lot sales. Our reportable segments have been determined on a basis that is used internally by management for evaluating segment performance and resource allocations. We have considered the applicable aggregation criteria and have combined our homebuilding operations into three reportable segments as follows:
West: Arizona, California, Nevada, and Texas
East: Delaware, Indiana, Maryland, New Jersey(a), Tennessee, and Virginia
Southeast: Florida, Georgia, North Carolina, and South Carolina
(a) During our fiscal 2015, we made the decision that we would not continue to reinvest in new homebuilding assets in our New Jersey division; therefore, it is no longer considered an active operation. However, it is included in this listing because the segment information below continues to include New Jersey.
Management’s evaluation of segment performance is based on segment operating income. Operating income for our homebuilding segments is defined as homebuilding, land sale, and other revenues less home construction, land development, and land sales expense, commission expense, depreciation and amortization, and certain G&A expenses that are incurred by or allocated to our homebuilding segments. The accounting policies of our segments are described in Note 2 to the consolidated financial statements within our 2017 Annual Report.
The following tables contain our revenue, operating income, and depreciation and amortization by segment for the periods presented:
 
Three Months Ended
 
Nine Months Ended
 
June 30,
 
June 30,
in thousands
2018
 
2017
 
2018
 
2017
Revenue
 
 
 
 
 
 
 
West
$
242,308

 
$
208,394

 
$
654,789

 
$
565,298

East
132,415

 
135,246

 
328,680

 
336,045

Southeast
136,798

 
134,948

 
355,719

 
341,954

Total revenue
$
511,521

 
$
478,588

 
$
1,339,188

 
$
1,243,297


 
Three Months Ended
 
Nine Months Ended
 
June 30,
 
June 30,
in thousands
2018
 
2017
 
2018
 
2017
Operating income (a)
 
 
 
 
 
 
 
West
$
31,180

 
$
27,724

 
$
84,005

 
$
69,518

East (b)
13,642

 
14,544

 
29,964

 
26,633

Southeast
11,557

 
14,520

 
26,364

 
32,109

Segment total
56,379

 
56,788

 
140,333

 
128,260

Corporate and unallocated (c)
(38,799
)
 
(41,219
)
 
(102,247
)
 
(103,905
)
Total operating income
$
17,580

 
$
15,569

 
$
38,086

 
$
24,355



23


 
Three Months Ended
 
Nine Months Ended
 
June 30,
 
June 30,
in thousands
2018
 
2017
 
2018
 
2017
Depreciation and amortization
 
 
 
 
 
 
 
West
$
1,983

 
$
1,641

 
$
4,936

 
$
4,434

East
700

 
742

 
1,690

 
1,869

Southeast
746

 
646

 
1,867

 
1,768

Segment total
3,429

 
3,029

 
8,493

 
8,071

Corporate and unallocated (c)
227

 
278

 
736

 
1,068

Total depreciation and amortization
$
3,656

 
$
3,307

 
$
9,229

 
$
9,139

(a) Operating income is impacted by impairment and abandonment charges incurred during the periods presented (see Note 5).
(b) Operating income for our East segment for the nine months ended June 30, 2017 was impacted by a charge to G&A of $2.7 million related to the write-off of a deposit on a legacy investment in a development site that we deemed uncollectible.
(c) Corporate and unallocated operating loss includes amortization of capitalized interest; movement in capitalized indirects; expenses related to numerous shared services functions that benefit all segments but are not allocated to the operating segments reported above, including information technology, treasury, corporate finance, legal, branding and national marketing; and certain other amounts that are not allocated to our operating segments.
Corporate and unallocated depreciation and amortization represents depreciation and amortization related to assets held by our corporate functions that benefit all segments.
The following table contains capital expenditures by segment for the periods presented:
 
Nine Months Ended
 
June 30,
in thousands
2018
 
2017
Capital Expenditures
 
 
 
West
$
6,478

 
$
4,659

East
1,870

 
2,073

Southeast
2,215

 
1,705

Corporate and unallocated
3,331

 
224

Total capital expenditures
$
13,894

 
$
8,661

The following table contains our asset balance by segment as of June 30, 2018 and September 30, 2017:
in thousands
June 30, 2018
 
September 30, 2017
Assets
 
 
 
West
$
897,470

 
$
779,964

East
335,537

 
298,532

Southeast
370,270

 
331,618

Corporate and unallocated (a)
573,750

 
810,881

Total assets
$
2,177,027

 
$
2,220,995

(a) Primarily consists of cash and cash equivalents, restricted cash, deferred taxes, capitalized interest and indirects, and other items that are not allocated to the segments.
(15) 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 the Facility. The guarantees are full and unconditional and the guarantor subsidiaries are 100% owned by Beazer Homes USA, Inc. The following unaudited financial information presents the line items of our unaudited condensed consolidated financial statements separated by amounts related to the parent issuer, guarantor subsidiaries, non-guarantor subsidiaries, and consolidating adjustments as of or for the periods presented.

24



Beazer Homes USA, Inc.
Condensed Consolidating Balance Sheet Information
June 30, 2018
(Unaudited)
 
in thousands
Beazer Homes
USA, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Beazer Homes
USA, Inc.
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
130,457

 
$
9,087

 
$
631

 
$
(3,877
)
 
$
136,298

Restricted cash
10,970

 
1,197

 

 

 
12,167

Accounts receivable (net of allowance of $392)


 
28,003

 
2

 

 
28,005

Income tax receivable
119

 

 

 

 
119

Owned inventory


 
1,767,983

 

 

 
1,767,983

Investments in unconsolidated entities
773

 
3,464

 

 

 
4,237

Deferred tax assets, net
195,145

 

 

 

 
195,145

Property and equipment, net


 
22,212

 

 

 
22,212

Investments in subsidiaries
615,081

 

 

 
(615,081
)
 

Intercompany
978,478

 

 
2,312

 
(980,790
)
 

Other assets
809

 
10,033

 
19

 

 
10,861

Total assets
$
1,931,832

 
$
1,841,979

 
$
2,964

 
$
(1,599,748
)
 
$
2,177,027

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Trade accounts payable
$

 
$
143,135

 
$

 



 
$
143,135

Other liabilities
24,476

 
100,056

 
190

 


 
124,722

Intercompany
2,312

 
982,355

 

 
(984,667
)
 

Total debt (net of premium and debt issuance costs)
1,322,377

 
4,126

 

 


 
1,326,503

Total liabilities
1,349,165

 
1,229,672

 
190

 
(984,667
)
 
1,594,360

Stockholders’ equity
582,667

 
612,307

 
2,774

 
(615,081
)
 
582,667

Total liabilities and stockholders’ equity
$
1,931,832

 
$
1,841,979

 
$
2,964

 
$
(1,599,748
)
 
$
2,177,027


25


Beazer Homes USA, Inc.
Condensed Consolidating Balance Sheet Information
September 30, 2017
(Unaudited)

in thousands
Beazer Homes
USA, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Beazer Homes
USA, Inc.
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
283,191

 
$
15,393

 
$
724

 
$
(7,161
)
 
$
292,147

Restricted cash
11,001

 
1,461

 

 

 
12,462

Accounts receivable (net of allowance of $330)

 
36,322

 
1

 

 
36,323

Income tax receivable
88

 

 

 

 
88

Owned inventory

 
1,542,807

 

 

 
1,542,807

Investments in unconsolidated entities
773

 
3,221

 

 

 
3,994

Deferred tax assets, net
307,896

 

 

 

 
307,896

Property and equipment, net

 
17,566

 

 

 
17,566

Investments in subsidiaries
808,067

 

 

 
(808,067
)
 

Intercompany
606,168

 

 
2,337

 
(608,505
)
 

Other assets
599

 
7,098

 
15

 

 
7,712

Total assets
$
2,017,783

 
$
1,623,868

 
$
3,077

 
$
(1,423,733
)
 
$
2,220,995

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Trade accounts payable
$

 
$
103,484

 
$

 
$

 
$
103,484

Other liabilities
11,229

 
96,189

 
241

 

 
107,659

Intercompany
2,337

 
613,329

 

 
(615,666
)
 

Total debt (net of premium and debt issuance costs)
1,321,777

 
5,635

 

 

 
1,327,412

Total liabilities
1,335,343

 
818,637

 
241

 
(615,666
)
 
1,538,555

Stockholders’ equity
682,440

 
805,231

 
2,836

 
(808,067
)
 
682,440

Total liabilities and stockholders’ equity
$
2,017,783

 
$
1,623,868

 
$
3,077

 
$
(1,423,733
)
 
$
2,220,995




26


Beazer Homes USA, Inc.
Consolidating Statements of Income (Loss) and Comprehensive Income (Loss)
(Unaudited)
in thousands
Beazer Homes
USA, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Beazer Homes
USA, Inc.
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
Total revenue
$

 
$
511,521

 
$
23

 
$
(23
)
 
$
511,521

Home construction and land sales expenses
22,441

 
405,691

 

 
(23
)
 
428,109

Gross (loss) profit
(22,441
)
 
105,662

 
23

 

 
83,244

Commissions

 
19,535

 

 

 
19,535

General and administrative expenses

 
42,445

 
28

 

 
42,473

Depreciation and amortization

 
3,656

 

 

 
3,656

Operating (loss) income
(22,441
)
 
40,026

 
(5
)
 

 
17,580

Equity in income of unconsolidated entities

 
147

 

 

 
147

Other (expense) income, net
(204
)
 
187

 
(13
)
 

 
(30
)
(Loss) income before income taxes
(22,645
)
 
40,360

 
(18
)
 

 
17,697

(Benefit) expense from income taxes
(6,069
)
 
10,341

 
(4
)
 

 
4,268

Equity in income of subsidiaries
30,005

 

 

 
(30,005
)
 

Income (loss) from continuing operations
13,429

 
30,019

 
(14
)
 
(30,005
)
 
13,429

Loss from discontinued operations, net of tax


 
(11
)
 
(9
)
 


 
(20
)
Equity in loss of subsidiaries from discontinued operations
(20
)
 


 


 
20

 


Net income (loss) and comprehensive income (loss)
$
13,409

 
$
30,008

 
$
(23
)
 
$
(29,985
)
 
$
13,409

 
 
 
 
 
 
 
 
 
 
 in thousands
Beazer Homes
USA, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Beazer Homes
USA, Inc.
Three Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
Total revenue
$

 
$
478,588

 
$
24

 
$
(24
)
 
$
478,588

Home construction and land sales expenses
21,895

 
377,804

 

 
(24
)
 
399,675

Inventory impairments and abandonments

 
470

 

 

 
470

Gross (loss) profit
(21,895
)
 
100,314

 
24