NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business
Beazer Homes USA, Inc. (“we,” “us,” “our,” “Beazer,” “Beazer Homes” and the “Company”) is a geographically diversified homebuilder with active operations in
13
states within
three
geographic regions in the United States: the West, East and Southeast. Our homes are designed to appeal to homeowners at different price points across various demographic segments, and are generally offered for sale in advance of their construction. Our objective is to provide our customers with homes that incorporate exceptional value and quality, while seeking to maximize our return on invested capital over the course of a housing cycle.
(2) Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Consolidation.
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), and present the consolidated financial position, income, comprehensive income, stockholders' equity and cash flows of Beazer Homes USA, Inc. and its consolidated subsidiaries. Intercompany 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 consolidated statements of income for all periods presented (see Note 20 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 2017 began on October 1, 2016 and ended on September 30, 2017. Our fiscal 2016 began on October 1, 2015 and ended on September 30, 2016. Our fiscal 2015 began on October 1, 2014 and ended on September 30, 2015.
Use of Estimates.
The preparation of financial statements in conformity with GAAP requires management to make informed estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Accordingly, actual results could differ from these estimates.
Cash and Cash Equivalents and Restricted Cash
.
We consider highly liquid investments with maturities of three months or less when acquired to be cash equivalents. As of
September 30, 2017
, the majority of our cash and cash equivalents were invested in highly marketable securities, or were on deposit with major banks. These assets were valued at par and had no withdrawal restrictions. The underlying investments of these funds were U.S. Government and U.S. Government Agency obligations or high-quality marketable securities. Restricted cash includes cash restricted by state law or a contractual requirement, including cash collateral for our outstanding cash-secured letters of credit (refer to Note 8).
Accounts Receivable
.
Accounts receivable include escrow deposits to be received from title companies associated with closed homes, receivables from municipalities related to the development of utilities or other infrastructure, insurance recovery receivables, rebates to be received from our suppliers and other miscellaneous receivables. Generally, we receive cash from title companies within a few days of the home being closed. We regularly review our receivable balances for collectiblity and record an allowance against any receivable for which collectiblity is deemed to be uncertain.
Inventory.
Owned inventory consists solely of residential real estate developments. Interest, real estate taxes and development costs are capitalized in inventory during the development and construction period. Construction and land costs are comprised of direct and allocated costs, such as for amenities and estimated costs for future warranties. Land, land improvements and other common costs are typically allocated to individual residential lots on a pro-rata basis, and the costs of residential lots are transferred to homes under construction when home construction begins. Land not owned under option agreements, if outstanding, represents the value of land under option agreements with a variable interest entity (VIE) where the Company is deemed to be the primary beneficiary of the VIE. VIEs are entities in which (1) equity investors do not have a controlling financial interest and/or (2) the entity is unable to finance its activities without additional subordinated financial support from other parties (refer to section below entitled “Land Not Owned Under Option Agreements” for a further discussion of VIEs). In addition, when our deposits and pre-acquisition development costs exceed certain thresholds, we record the remaining purchase price of the lots as consolidated inventory not owned and obligations related to consolidated inventory not owned on our consolidated balance sheets. Refer to Note 5 for a further discussion and detail of our inventory balance.
Inventory Valuation - Projects in Progress
.
Our homebuilding inventories that are accounted for as held for development (projects in progress) include land and home construction assets grouped together as communities. Homebuilding inventories held for development are stated at cost (including direct construction costs, capitalized indirect costs, capitalized interest and real estate taxes) unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. We assess these assets no less than quarterly for recoverability. Generally, upon the commencement of land development activities, it may take
three
to
five years
(depending on, among other things, the size of the community and its sales pace) to fully develop, sell, construct and close all the homes in a typical community. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If the expected undiscounted cash flows generated are expected to be less than its carrying amount, an impairment charge is recorded to write down the carrying amount of such asset to its estimated fair value based on discounted cash flows.
When conducting our community level review for the recoverability of our homebuilding inventory related to projects in progress, we establish a quarterly “watch list” of communities that carry profit margins in backlog or in our forecast that are below a minimum threshold of profitability, as well as recent closings that have gross margins less than a specified threshold. In our experience, this threshold represents a level of profitability that may be an indicator of conditions that would require an asset impairment, but does not necessitate that such an impairment is warranted without additional analysis. Each community is first evaluated qualitatively to determine if there are temporary factors driving the low profitability levels. Following our qualitative evaluation, communities with more than
ten
homes remaining to close are subjected to substantial additional financial and operational analyses and review that consider the competitive environment and other factors contributing to profit margins below our watch list threshold. For communities where the current competitive and market dynamics indicate that these factors may be other than temporary, which may call into question the recoverability of our investment, a formal impairment analysis is performed. The formal impairment analysis consists of both qualitative competitive market analyses and a quantitative analysis reflecting market and asset specific information.
Our qualitative competitive market analyses include site visits to new home communities of our competitors and written community-level competitive assessments. A competitive assessment consists of a comparison of our specific community with its competitor communities, considering square footage of homes offered, amenities offered within the homes and the communities, location, transportation availability and school districts, among other relevant attributes. In addition, we review the pace of monthly home sales of our competitor communities in relation to our specific community. We also review other factors, such as the target buyer and the macro-economic characteristics that impact the performance of our asset, including unemployment and the availability of mortgage financing, among other things. Based on this qualitative competitive market analysis, adjustments to our sales prices may be required in order to make our communities competitive. We incorporate these adjusted prices in our quantitative analysis for the specific community.
The quantitative analyses compare the projected future undiscounted cash flows for each such community with its current carrying value. This undiscounted cash flow analysis requires important assumptions regarding the location and mix of house plans to be sold, current and future home sale prices and incentives for each plan, current and future construction costs for each plan and the pace of monthly sales to occur today and into the future.
There is uncertainty associated with preparing the undiscounted cash flow analyses because future market conditions will almost certainly be different, either better or worse, than current conditions. The single most important input to the cash flow analysis is current and future home sales prices for a specific community. The risk of over or under-stating any of the important cash flow variables, including home prices, is greater with longer-lived communities and within markets that have historically experienced greater home price volatility. In an effort to address these risks, we consider some home price and construction cost appreciation in future years for certain communities that are expected to be selling for more than three years and/or if the market has typically exhibited high levels of price volatility. Absent these assumptions on cost and sales price appreciation, we believe the long-term cash flow analysis would be unrealistic and would serve to artificially improve expected future profitability. Finally, we also ensure that the monthly sales absorptions, including historical seasonal differences of our communities and those of our competitors, used in our undiscounted cash flow analyses are realistic, consider our development schedules and relate to those achieved by our competitors for the specific communities.
If the aggregate undiscounted cash flows from our quantitative analyses are in excess of the carrying value, the asset is considered to be recoverable and is not impaired. If the aggregate undiscounted cash flows are less than the carrying or book value, we perform a discounted cash flow analysis to determine the fair value of the community. The fair value of the community is estimated using the present value of the estimated future cash flows using discount rates commensurate with the risk associated with the underlying community assets. The discount rate used may be different for each community. The factors considered when determining an appropriate discount rate for a community include, among others: (1) community specific factors such as the number of lots in the community, the status of land development in the community and the competitive factors influencing the sales performance of the community and (2) overall market factors such as employment levels, consumer confidence and the existing supply of new and used homes for sale. If the determined fair value is less than the carrying value of the specific asset, the asset is considered
not recoverable and is written down to its fair value. The carrying value of assets in communities that were previously impaired and continue to be classified as projects in progress is not increased for future estimates of increases in fair value in future reporting periods. However, market deterioration that exceeds our initial estimates may lead us to incur impairment charges on previously impaired homebuilding assets, in addition to homebuilding assets not currently impaired but for which indicators of impairment may arise if markets deteriorate.
Asset Valuation - Land Held for Future Development.
For those communities that have been idled (land held for future development), all applicable carrying costs, such as interest and real estate taxes, are expensed as incurred, and the inventory is stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable, such as the future enactment of a development plan or the occurrence of outside events. We evaluate the potential plans for each community in land held for future development if changes in facts and circumstances occur that would give rise to a more detailed analysis for a change in the status of a community.
Asset Valuation - Land Held for Sale.
We record assets held for sale at the lower of the asset's carrying value or fair value less costs to sell. The following criteria are used to determine if land is held for sale:
•
management has the authority and commits to a plan to sell the land;
•
the land is available for immediate sale in its present condition;
•
there is an active program to locate a buyer and the plan to sell the property has been initiated;
•
the sale of the land is probable within one year;
•
the property is being actively marketed at a reasonable sale price relative to its current fair value; and
•
it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made.
Additionally, in certain circumstances, such as a change in strategy, management will re-evaluate the best use of an asset that is currently being accounted for as held for development. In such instances, management will review, among other things, the current and projected competitive circumstances of the community, including the level of supply of new and used inventory, the level of sales absorptions by us and our competition, the level of sales incentives required and the number of owned lots remaining in the community. If, based on this review, we believe that the best use of the asset is the sale of all or a portion of the asset in its current condition, then all or portions of the community are accounted for as held for sale if the foregoing criteria have been met as of the end of the applicable reporting period.
In determining the fair value of the assets less cost to sell, we consider factors including current sales prices for comparable assets in the area, recent market analysis studies, appraisals, any recent legitimate offers and listing prices of similar properties. If the estimated fair value less cost to sell of an asset is less than its current carrying value, the asset is written down to its estimated fair value less cost to sell.
Land Not Owned Under Option Agreements.
In addition to purchasing land directly, we utilize lot option agreements that enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise our lot option. The majority of our lot option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land for the right to acquire lots during a specified period of time at a specified price. Purchase of the properties under these agreements is contingent upon satisfaction of certain requirements by us and the sellers. Under lot option contracts, our liability is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts incurred. If the Company cancels a lot option agreement, it would result in a write-off of the related deposits and pre-acquisition costs, but would not expose the Company to the overall risks or losses of the applicable entity we are purchasing from.
In accordance with GAAP, if the entity holding the land under option is a VIE, the Company's deposit represents a variable interest in that entity. To determine whether we are the primary beneficiary of the VIE, we are first required to evaluate whether we have the ability to control the activities of the VIE that most significantly impact its economic performance. Such activities include, but are not limited to, (1) the ability to determine the budget and scope of land development work, if any; (2) the ability to control financing decisions for the VIE; (3) the ability to acquire additional land into the VIE or dispose of land in the VIE not under contract with Beazer; and (4) the ability to change or amend the existing option contract with the VIE. If we are not determined to control such activities, we are not considered the primary beneficiary of the VIE and thus do not consolidate the VIE. If we do have the ability to control such activities, we will continue our analysis by determining if we are expected to absorb a potentially significant amount of the VIE's losses or, if no party absorbs the majority of such losses, if we will benefit from potentially a significant amount of the VIE's expected gains.
If we are the primary beneficiary of the VIE, we will consolidate the VIE even though creditors of the VIE have no recourse against the Company. For those we consolidate, we record the remaining contractual purchase price under the applicable lot option agreement, net of cash deposits already paid, to land not owned under option agreements with an offsetting increase to obligations related to land not owned under option agreements on our consolidated balance sheets. Also, to reflect the total purchase price of
this inventory on a consolidated basis, we present the related option deposits as land not owned under option agreement. Consolidation of these VIEs has no impact on the Company’s statements of income or cash flows.
Investments in Unconsolidated Entities.
We participate in a number of joint ventures and other investments in which we have less than a controlling interest. We enter into the majority of these investments with land developers, other homebuilders and financial partners to acquire attractive land positions, to manage our risk profile and to leverage our capital base. The land positions are developed into finished lots for sale to the unconsolidated entity’s members or other third parties. We recognize our share of equity in income (loss) and profits (losses) from the sale of lots to other buyers. Our share of profits from lots we purchase from the unconsolidated entities is deferred and treated as a reduction of the cost of the land purchased from the unconsolidated entity. Such profits are subsequently recognized at the time the home closes and title passes to the homebuyer. We evaluate our investments in unconsolidated entities for impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the value of our investment in the unconsolidated entity has occurred that is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying value over its estimated fair value. Our unconsolidated entities typically obtain secured acquisition, development and construction financing. We account for our interest in unconsolidated entities under the equity method. For additional discussion of these entities, refer to Note 4.
Property and Equipment.
Our property and equipment is recorded at cost. Depreciation is computed on a straight-line basis based on estimated useful lives as follows:
|
|
|
|
Asset Class
|
|
Useful Lives
|
Information systems
|
|
Lesser of estimated useful life of the asset or 5 years
|
Furniture, fixtures and computer and office equipment
|
|
3 - 7 years
|
Model and sales office improvements
|
|
Lesser of estimated useful life of the asset or estimated life of the community
|
Leasehold improvements
|
|
Lesser of the lease term or the estimated useful life of the asset
|
Other Assets.
Our other assets principally include prepaid expenses and assets related to our deferred compensation plan (refer to Note 15 for a discussion of our deferred compensation plan).
Other Liabilities.
Our other liabilities principally include accrued warranty expense, accrued interest on our outstanding borrowings, customer deposits, income tax liabilities and other accruals related to our operations. Refer to Note 12 for a detail of our other liabilities.
Income Taxes.
Our provision for income taxes is comprised of taxes that are currently payable and deferred taxes that relate to temporary differences between financial reporting carrying values and tax bases of assets and liabilities. Deferred tax assets and liabilities result from deductible or taxable amounts in future years when such assets and liabilities are recovered or settled, and are measured using the enacted tax rates and laws that are expected to be in effect when the assets and liabilities are recovered or settled. We include any estimated interest and penalties on tax related matters in income taxes payable. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than
50%
likely of being realized. Changes in recognition of measurement are recorded in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits in income tax expense.
For a discussion of our evaluation of and accounting for valuation allowances, refer to Note 13.
Revenue Recognition and Classification of Costs
.
Revenue and related profit are recognized by us at the time of the closing of a sale, when title to and possession of the property, as well as risk of loss, are transferred to the buyer.
Sales discounts and incentives include items such as cash discounts, discounts on options included in the home, option upgrades (such as upgrades for cabinetry, countertops and flooring) and seller-paid financing or closing costs. In addition, from time to time, we may also provide homebuyers with retail gift certificates and/or other nominal retail merchandise. All sales incentives other than cash discounts are recognized as a cost of selling the home and are included in home construction expense in our consolidated statements of income. Cash discounts are accounted for as a reduction in the sales price of the home, thereby decreasing the amount of revenue we recognize on that closing.
Estimated future warranty costs are charged to home construction expense in the period when the revenues from home closings are recognized. Such estimated warranty costs generally range from
0.3%
to
1.2%
of total revenue recognized for each home
closed. Additional warranty costs are charged to home construction expense as necessary based on management's estimate of the costs to remediate existing claims. See Note 9 for a more detailed discussion of warranty costs and related reserves.
Advertising costs related to continuing operations of
$17.5 million
,
$19.2 million
and
$18.0 million
for our fiscal years
2017
,
2016
and
2015
, respectively, were expensed as incurred and were included in general and administrative (G&A) expenses.
Fair Value Measurements.
Certain of our assets are required to be recorded at fair value on a recurring basis; the fair value of our deferred compensation plan assets are based on market-corroborated inputs (level 2). Certain of our assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value may not be recovered (level 3). For example, we review our long-lived assets, including inventory, for recoverability when factors indicate an impairment may exist, but no less than quarterly. Fair value is based on estimated cash flows discounted for market risks associated with the long-lived assets. The fair value of certain of our financial instruments approximates their carrying amounts due to the short maturity of these assets and liabilities or the variable interest rates on such obligations. The fair value of our publicly-held debt is generally estimated based on quoted bid prices for these instruments (level 2). Certain of our other financial instruments are estimated by discounting scheduled cash flows through maturity or using market rates currently being offered on loans with similar terms and credit quality. The fair value of our investments in unconsolidated entities is determined primarily using a discounted cash flow model to value the underlying net assets of the respective entities. See Note 10 for additional discussion of our fair value measurements.
Stock-Based Compensation.
We use the Black-Scholes model to value our stock option grants. Other stock-based awards with only performance conditions granted to employees are valued based on the market price of the common stock on the date of the grant. Stock-based awards with market conditions granted to employees are valued using the Monte Carlo valuation method. Any portion of our stock-based awards that can be settled in cash is initially valued based on the market price of the underlying common stock on the date of the grant, and is adjusted to fair value until vested and recorded as a liability on our consolidated balance sheets. On the date of grant, we estimate forfeitures in calculating the expense related to stock-based compensation. In addition, we reflect the benefits of tax deductions in excess of recognized compensation cost as an operating cash outflow. Compensation cost arising from all stock-based compensation awards is recognized as expense using the straight-line method over the vesting period and is included in G&A in our consolidated statements of income. See Note 16 for additional discussion of our stock-based compensation.
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. As a result, we expect the timing of our revenues to remain generally the same. Nonetheless, we expect our revenue-related disclosures to change. We expect to adopt the provisions of ASU 2014-09 effective October 1, 2018.
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. The impact of ASU 2016-18 on our financial statements was as follows: (1) 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; and (2) we included within Note 3 a reconciliation between our cash balances presented on our balance sheets with the amounts presented in our statements of cash flows.
The following table presents the changes to our consolidated statements of cash flows as of September 30, 2016 and 2015 due to the adoption of ASU 2016-18:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
2016
|
|
2015
|
Consolidated Statements of Cash Flows:
|
|
|
|
|
Net cash provided by investing activities (as originally reported)
|
|
$
|
11,802
|
|
|
$
|
27,377
|
|
Movements in restricted cash
|
|
(24,496
|
)
|
|
(24,040
|
)
|
Net cash (used in) provided by investing activities (as re-casted)
|
|
$
|
(12,694
|
)
|
|
$
|
3,337
|
|
(3) Supplemental Cash Flow Information
The following table presents supplemental disclosure of non-cash and cash activity as well as a reconciliation of our total cash balances between our consolidated balance sheets and our consolidated statements of cash flows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Supplemental disclosure of non-cash activity:
|
|
|
|
|
|
Decrease in obligations related to land not owned under option agreements
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2,916
|
)
|
Non-cash land acquisitions
(a)
|
14,651
|
|
|
8,265
|
|
|
12,904
|
|
Non-cash capital expenditure
|
—
|
|
|
—
|
|
|
674
|
|
Supplemental disclosure of cash activity:
|
|
|
|
|
|
Interest payments
(b)
|
$
|
100,125
|
|
|
$
|
131,730
|
|
|
$
|
117,177
|
|
Income tax payments
|
1,616
|
|
|
1,420
|
|
|
942
|
|
Tax refunds received
|
351
|
|
|
201
|
|
|
—
|
|
Reconciliation of cash, cash equivalents and restricted cash:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
292,147
|
|
|
$
|
228,871
|
|
|
$
|
251,583
|
|
Restricted cash
|
12,462
|
|
|
14,405
|
|
|
38,901
|
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
|
$
|
304,609
|
|
|
$
|
243,276
|
|
|
$
|
290,484
|
|
(a)
For the fiscal year ended September 30, 2017, non-cash land acquisitions were comprised of
$6.3 million
related to non-cash seller financing and
$8.4 million
in lot takedowns from one of our unconsolidated land development joint ventures. For the fiscal year ended September 30, 2016, non-cash land acquisitions were comprised of lot takedowns from one of our unconsolidated land development joint ventures. For the fiscal year ended September 30, 2015, non-cash land acquisitions were 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.
(b)
Elevated interest payments made during our fiscal 2016 was due to early redemption of certain of our outstanding debt obligations; refer to Note 8.
(4) Investments in Unconsolidated Entities
Unconsolidated Entities
As of
September 30, 2017
, we participated in certain joint ventures and other unconsolidated entities in which Beazer had less than a controlling interest. The following table presents our investment in these unconsolidated entities, as well as the total equity and outstanding borrowings of these unconsolidated entities as of
September 30, 2017
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2017
|
|
September 30, 2016
|
Beazer’s investment in unconsolidated entities
|
$
|
3,994
|
|
|
$
|
10,470
|
|
Total equity of unconsolidated entities
|
11,811
|
|
|
31,615
|
|
Total outstanding borrowings of unconsolidated entities
|
15,797
|
|
|
14,702
|
|
Our equity in income from unconsolidated entity activities included in income from continuing operations is as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Income from unconsolidated entity activity
|
$
|
371
|
|
|
$
|
131
|
|
|
$
|
536
|
|
For the fiscal years ended September,
2017
,
2016
and
2015
, there were no impairments related to our investments in these unconsolidated entities.
Guarantees.
Our joint ventures typically obtain secured acquisition, development and construction financing. Historically, Beazer and our land development joint venture partners had provided varying levels of guarantees of debt and other debt-related obligations for these unconsolidated entities. However, as of
September 30, 2017
and
September 30, 2016
, we had
no
outstanding guarantees or other debt-related obligations related to our investments in unconsolidated entities.
We and our joint venture partners generally provide unsecured environmental indemnities to land development joint venture project lenders. These indemnities obligate us to reimburse the project lenders for claims related to environmental matters for which they are held responsible. During our
fiscal years ended
September 30, 2017
and
2016
, 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.
(5) Inventory
The components of our owned inventory are as follows as of
September 30, 2017
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2017
|
|
September 30, 2016
|
Homes under construction
|
$
|
419,312
|
|
|
$
|
377,191
|
|
Development projects in progress
|
785,777
|
|
|
742,417
|
|
Land held for future development
|
112,565
|
|
|
213,006
|
|
Land held for sale
|
17,759
|
|
|
29,696
|
|
Capitalized interest
|
139,203
|
|
|
138,108
|
|
Model homes
|
68,191
|
|
|
68,861
|
|
Total owned inventory
|
$
|
1,542,807
|
|
|
$
|
1,569,279
|
|
Homes under construction include homes substantially finished and ready for delivery and homes in various stages of construction, including the cost of the underlying lot. We had
171
(with a cost of
$52.6 million
) and
178
(with a cost of
$56.1 million
) substantially completed homes that were not subject to a sales contract (spec homes) as of
September 30, 2017
and
2016
, respectively.
Development projects in progress consist principally of land and land improvement costs. Certain of the fully developed lots in this category are reserved by a customer deposit or sales contract. Land held for future development consists of communities for which construction and development activities are expected to occur in the future or have been idled, and are stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. All applicable interest and real estate taxes on land held for future development are expensed as incurred. Land held for sale includes land and lots that do not fit within our homebuilding programs and strategic plans in certain markets, and is classified as such once certain criteria is met (refer to Note 2). These assets are recorded at the lower of the carrying value or fair value less costs to sell.
The amount of interest we are able to capitalize 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).
Total owned inventory, by reportable segment, is presented in the table below as of
September 30, 2017
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Projects in
Progress
(a)
|
|
Land Held for Future
Development
|
|
Land Held
for Sale
|
|
Total Owned
Inventory
|
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
|
|
September 30, 2016
|
|
|
|
|
|
|
|
West Segment
|
$
|
586,420
|
|
|
$
|
172,015
|
|
|
$
|
6,577
|
|
|
$
|
765,012
|
|
East Segment
|
276,785
|
|
|
30,036
|
|
|
20,930
|
|
|
327,751
|
|
Southeast Segment
|
276,385
|
|
|
10,955
|
|
|
1,090
|
|
|
288,430
|
|
Corporate and unallocated
(b)
|
186,987
|
|
|
—
|
|
|
1,099
|
|
|
188,086
|
|
Total
|
$
|
1,326,577
|
|
|
$
|
213,006
|
|
|
$
|
29,696
|
|
|
$
|
1,569,279
|
|
(a)
Projects in progress include homes under construction, development projects in progress, capitalized interest and model home categories from the preceding table.
(b)
Projects in progress amount includes capitalized interest and indirect costs that are maintained within our Corporate and unallocated segment. Land held for sale amount includes parcels held by our discontinued operations.
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 profit 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 year ended
September 30, 2017
, there were
two
communities that were included in our watch list that required further analysis to be performed after considering the number of lots remaining in each community and certain other qualitative factors. This additional analysis led to an impairment charge of
$1.7 million
for
one
of these communities, principally due to a reduction in price taken that is other than temporary based on current competitive and market dynamics. For the year ended
September 30, 2016
, there were
seven
communities on our watch list that required further analysis. This additional analysis led to an impairment
charge of
$13.7 million
for
three
of these communities, principally due to a reduction in price taken at each community that is other than temporary based on current competitive and market dynamics. For the year ended
September 30, 2015
, there were
no
communities on our watch list that required further analysis to be performed.
The table below summarizes the results of our undiscounted cash flow analysis by reportable segment, where applicable, for the periods ended September 30,
2017
and
2016
(the years that such analyses were required):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
Undiscounted Cash Flow Analyses Prepared
|
Segment
(a)
|
Number of
Communities
on Watch List
(b)
|
|
Number of
Communities
(c)
|
|
Pre-analysis
Book Value
(BV)
|
|
Aggregate Undiscounted Cash Flow as a % of BV
(d)
|
Year Ended September 30, 2017
|
|
|
|
|
|
|
|
West
|
4
|
|
|
2
|
|
|
$
|
15,801
|
|
|
94.4
|
%
|
Southeast
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
Corporate and unallocated
(e)
|
—
|
|
|
—
|
|
|
3,337
|
|
|
N/A
(f)
|
|
Total
|
6
|
|
|
2
|
|
|
$
|
19,138
|
|
|
|
Year Ended September 30, 2016
|
|
|
|
|
|
|
|
West
|
9
|
|
|
6
|
|
|
$
|
75,028
|
|
|
114.0
|
%
|
East
|
4
|
|
|
1
|
|
|
22,469
|
|
|
88.5
|
%
|
Southeast
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
Corporate and unallocated
(e)
|
—
|
|
|
—
|
|
|
3,899
|
|
|
N/A
(f)
|
|
Total
|
14
|
|
|
7
|
|
|
$
|
101,396
|
|
|
|
(a)
We have elected to aggregate our disclosure at the reportable segment level because we believe this level of disclosure is most meaningful to the readers of our financial statements.
(b)
Number of communities in this column excludes communities that are closing out and have less than
ten
closings remaining.
(c)
Number of communities in this column is lower than the number of communities on our watch list because it excludes communities due to certain qualitative considerations that would imply that the low profitability levels are temporary in nature.
(d)
An aggregate undiscounted cash flow as a percentage of book value under 100% would indicate a possible impairment and is consistent with our "watch list" methodology. While this metric for the communities in the West segment was above 100% for the year ended September 30, 2016 in total, for the two communities that we ultimately impaired, the metric was below 100%, while the metric for communities we did not impair was above 100%.
(e)
Amount represents capitalized interest and indirects balance related to the communities for which an undiscounted cash flow analysis was prepared. Capitalized interest and indirects are maintained within our Corporate and unallocated segment.
(f)
N/A - not applicable.
The following table presents, by reportable segment, details around the impairment charges taken on projects in progress for the periods presented (no impairment were recorded on projects in progress during our fiscal 2015):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
Results of Discounted Cash Flow Analyses Prepared
|
Segment
|
# of
Communities
Impaired
|
|
# of Lots
Impaired
|
|
Impairment
Charge
|
|
Estimated Fair
Value of
Impaired
Inventory at time of Impairment
|
Year Ended September 30, 2017
|
West
|
1
|
|
|
46
|
|
|
$
|
1,625
|
|
|
$
|
3,791
|
|
Corporate and unallocated
(a)
|
—
|
|
|
—
|
|
|
68
|
|
|
—
|
|
Total
|
1
|
|
|
46
|
|
|
$
|
1,693
|
|
|
$
|
3,791
|
|
Year Ended September 30, 2016
|
West
|
2
|
|
|
213
|
|
|
$
|
6,729
|
|
|
$
|
16,345
|
|
East
|
1
|
|
|
78
|
|
|
5,894
|
|
|
18,073
|
|
Corporate and unallocated
(a)
|
—
|
|
|
—
|
|
|
1,101
|
|
|
—
|
|
Total
|
3
|
|
|
291
|
|
|
$
|
13,724
|
|
|
$
|
34,418
|
|
(a)
Amount represents capitalized interest and indirects balance that was impaired. Capitalized interest and indirects are maintained within our Corporate and unallocated segment.
The following table presents the ranges or values of significant quantitative unobservable inputs we used in determining the fair value of the communities we impaired during the periods presented (the years that such analyses were required):
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
Unobservable Inputs
|
|
2017
|
|
2016
|
Average selling price
(in thousands)
(a)
|
|
$405
|
|
$355 - $560
|
Closings per community per month
|
|
1 - 4
|
|
2 - 4
|
Discount rate
|
|
12.83%
|
|
14.15% - 15.33%
|
(a)
For the fiscal year ended September 30, 2016, the lower end of this ASP range was related to the communities we impaired in our West segment, while the higher end of the ASP range was for the community we impaired in our East segment.
Impairments on land held for sale generally represent write downs of these properties to net realizable value, less estimated costs to sell, and are based on current market conditions and our review of recent comparable transactions. Our assumptions about land sales prices require significant judgment because the real estate market is highly sensitive to changes in economic conditions. We calculate the estimated fair value of land held for sale based on current market conditions and assumptions made by management, which may differ materially from actual results and may result in additional impairments if market conditions deteriorate.
From time to time, we also determine that the proper course of action with respect to a community is to not exercise an option and to write-off the deposit securing the option takedown and the related pre-acquisition costs, as applicable. In determining whether to abandon lots or lot option contracts, our evaluation is primarily based upon the expected cash flows from the property. Additionally, in certain limited instances, we are forced to abandon lots due to permitting or other regulatory issues that do not allow us to build on those lots. If we intend to abandon or walk away from a property, we record a charge to earnings for the deposit amount and any related capitalized costs in the period such decision is made. Abandonment charges generally relate to our decision to abandon lots or not exercise certain option contracts that are not projected to produce adequate results, no longer fit with our long-term strategic plan or, in limited circumstances, are not suitable for building due to regulatory or environmental restrictions that are enacted.
The following table presents, by reportable segment, our total impairment and abandonment charges for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Projects in Progress:
|
|
|
|
|
|
West
|
$
|
1,625
|
|
|
$
|
6,729
|
|
|
$
|
—
|
|
East
|
—
|
|
|
5,894
|
|
|
—
|
|
Corporate and unallocated
(a)
|
68
|
|
|
1,101
|
|
|
—
|
|
Total impairment charges on projects in progress
|
$
|
1,693
|
|
|
$
|
13,724
|
|
|
$
|
—
|
|
Land Held for Sale:
|
|
|
|
|
|
West
|
$
|
94
|
|
|
$
|
119
|
|
|
$
|
—
|
|
East
|
470
|
|
|
280
|
|
|
1,433
|
|
Southeast
|
—
|
|
|
371
|
|
|
—
|
|
Total impairment charges on land held for sale
|
$
|
564
|
|
|
$
|
770
|
|
|
$
|
1,433
|
|
Abandonments:
|
|
|
|
|
|
East
|
$
|
188
|
|
|
$
|
—
|
|
|
$
|
1,676
|
|
Southeast
|
—
|
|
|
788
|
|
|
—
|
|
Total abandonments charges
|
$
|
188
|
|
|
$
|
788
|
|
|
$
|
1,676
|
|
Total impairment and abandonment charges
|
$
|
2,445
|
|
|
$
|
15,282
|
|
|
$
|
3,109
|
|
(a)
Amount represents capitalized interest and indirects balance that was impaired. Capitalized interest and indirects are maintained within our Corporate and unallocated segment.
Lot Option Agreements and Variable Interest Entities (VIE).
As previously discussed, we also have access to land inventory through lot option contracts, which generally enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise our lot option. The majority of our lot option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land for the right to acquire lots during a specified period of time at a specified price. Under lot option contracts, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers. Our liability under option contracts is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts incurred. We expect to exercise, subject to market conditions and seller satisfaction of contract terms, most of our remaining option contracts. Various factors,
some of which are beyond our control, such as market conditions, weather conditions and the timing of the completion of development activities, will have a significant impact on the timing of option exercises or whether lot options will be exercised at all.
The following table provides a summary of our interests in lot option agreements as of
September 30, 2017
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
Deposits &
Non-refundable
Preacquisition
Costs Incurred
|
|
Remaining
Obligation
|
As of September 30, 2017
|
|
|
|
Unconsolidated lot option agreements
|
$
|
91,854
|
|
|
$
|
408,300
|
|
As of September 30, 2016
|
|
|
|
Unconsolidated lot option agreements
|
$
|
80,433
|
|
|
$
|
446,414
|
|
(6) Interest
Our ability to capitalize interest incurred during the
fiscal years
ended
September 30, 2017
,
2016
and
2015
was limited by our inventory eligible for capitalization. The following table presents certain information regarding interest for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Capitalized interest in inventory, beginning of period
|
$
|
138,108
|
|
|
$
|
123,457
|
|
|
$
|
87,619
|
|
Interest incurred
|
105,551
|
|
|
119,360
|
|
|
121,754
|
|
Capitalized interest impaired
|
(56
|
)
|
|
(710
|
)
|
|
—
|
|
Interest expense not qualified for capitalization and included as other expense
(a)
|
(15,636
|
)
|
|
(25,388
|
)
|
|
(29,752
|
)
|
Capitalized interest amortized to home construction and land sales expenses
(b)
|
(88,764
|
)
|
|
(78,611
|
)
|
|
(56,164
|
)
|
Capitalized interest in inventory, end of period
|
$
|
139,203
|
|
|
$
|
138,108
|
|
|
$
|
123,457
|
|
(a)
The amount of interest we are able to capitalize is dependent upon our qualified inventory balance, which considers the status of our inventory holdings. Our qualified inventory balance includes the majority of our homes under construction and development projects in progress, but excludes land held for future development and land held for sale.
(b)
Capitalized interest amortized to home construction and land sale expenses varies based on the number of homes closed during the period and land sales, if any, as well as other factors.
(7) Property and Equipment
The following table presents our property and equipment as of
September 30, 2017
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2017
|
|
September 30, 2016
|
Model furnishings and sales office improvements
|
$
|
28,589
|
|
|
$
|
28,036
|
|
Information systems
|
14,326
|
|
|
14,326
|
|
Furniture, fixtures and office equipment
|
10,971
|
|
|
12,247
|
|
Leasehold improvements
|
3,698
|
|
|
4,069
|
|
Property and equipment, gross
|
57,584
|
|
|
58,678
|
|
Less: Accumulated Depreciation
|
(40,018
|
)
|
|
(39,540
|
)
|
Property and equipment, net
|
$
|
17,566
|
|
|
$
|
19,138
|
|
(8) Borrowings
As of
September 30, 2017
and
September 30, 2016
, we had the following debt, net of premium/discounts and unamortized debt issuance costs:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Maturity Date
|
|
September 30, 2017
|
|
September 30, 2016
|
5 3/4% Senior Notes
|
June 2019
|
|
$
|
321,393
|
|
|
$
|
321,393
|
|
7 1/2% Senior Notes
|
September 2021
|
|
—
|
|
|
198,000
|
|
8 3/4% Senior Notes
|
March 2022
|
|
500,000
|
|
|
500,000
|
|
7 1/4% Senior Notes
|
February 2023
|
|
199,834
|
|
|
199,834
|
|
6 3/4% Senior Notes
|
March 2025
|
|
250,000
|
|
|
—
|
|
Unamortized debt premium, net
|
|
|
3,413
|
|
|
2,362
|
|
Unamortized debt issuance costs
|
|
|
(14,800
|
)
|
|
(14,063
|
)
|
Total Senior Notes, net
|
|
|
1,259,840
|
|
|
1,207,526
|
|
Term Loan (net of unamortized discount of $880 and unamortized debt issuance costs of $1,451)
|
March 2018
|
|
—
|
|
|
52,669
|
|
Junior Subordinated Notes (net of unamortized accretion of $38,837 and $40,903, respectively)
|
July 2036
|
|
61,937
|
|
|
59,870
|
|
Other Secured Notes Payable
|
Various Dates
|
|
5,635
|
|
|
11,813
|
|
Total debt, net
|
|
|
$
|
1,327,412
|
|
|
$
|
1,331,878
|
|
As of
September 30, 2017
, the future maturities of our borrowings were as follows:
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
(In thousands)
|
|
2018
|
$
|
1,468
|
|
2019
|
325,479
|
|
2020
|
—
|
|
2021
|
—
|
|
2022
|
500,000
|
|
Thereafter
|
550,608
|
|
Total
|
$
|
1,377,555
|
|
Secured Revolving Credit Facility.
Our Secured Revolving Credit Facility (the Facility) provides us with working capital and letter of credit capacity. On October 13, 2016, we executed a third amendment (the Third Amendment) to the Facility. The Third Amendment (1) extended the termination date of the Facility from January 15, 2018 to February 15, 2019; (2) increased the available maximum aggregate amount of commitments under the Facility (including borrowings and letters of credit) from
$145.0 million
to
$180.0 million
; (3) reduced the aggregate collateral ratio (as defined by the underlying Credit Agreement) from
5.00
to
1.00
to
4.00
to
1.00
; and (4) reduced the after-acquired exclusionary condition (also as defined by the underlying Credit Agreement) from
$1.0 billion
to
$800.0 million
. The Facility continues to be with
three
lenders.
The Facility allows us to issue letters of credit against the undrawn capacity. Subject to our option to cash collateralize our obligations under the Facility upon certain conditions, our obligations under the Facility are secured by liens on substantially all of our personal property and a significant portion of our owned real property. We also pledged approximately
$800.0 million
of inventory assets to the Facility to collateralize potential future borrowings or letters of credit (in addition to the letters of credit already issued under the Facility). As of
September 30, 2017
and
September 30, 2016
, we had
no
borrowings outstanding under the Facility. The Facility contains certain covenants, including negative covenants and financial maintenance covenants, with which we are required to comply. As of
September 30, 2017
, we were in compliance with all such covenants.
Subsequent to September 30, 2017, we executed a fourth amendment to the Facility (the Fourth Amendment). The Fourth Amendment, among other things, extends the termination date of the Facility to February 15, 2020 and increases its capacity from
$180.0 million
to
$200.0 million
. For a further discussion of the Fourth Amendment, refer to Note 22.
Letter of Credit Facilities.
We have entered into stand-alone, cash-secured letter of credit agreements with banks to maintain our pre-existing letters of credit and to provide for the issuance of new letters of credit (in addition to the letters of credit issued under
the Facility). As of
September 30, 2017
and
September 30, 2016
, we had letters of credit outstanding under these additional facilities of
$10.8 million
and
$12.1 million
, respectively, all of which were secured by cash collateral in restricted accounts. The Company may enter into additional arrangements to provide additional letter of credit capacity.
Senior Notes.
Our Senior Notes are unsecured obligations ranking pari passu with all other existing and future senior indebtedness. Substantially all of our significant subsidiaries are full and unconditional guarantors of the Senior Notes and are jointly and severally liable for obligations under the Senior Notes and the Facility. Each guarantor subsidiary is a
100%
owned subsidiary of Beazer Homes. See Note 19 for further information.
All unsecured Senior Notes rank equally in right of payment with all of our existing and future senior unsecured obligations, senior to all of the Company's existing and future subordinated indebtedness and effectively subordinated to the Company's existing and future secured indebtedness, including indebtedness under the Facility, if outstanding, to the extent of the value of the assets securing such indebtedness. The unsecured Senior Notes and related guarantees are structurally subordinated to all indebtedness and other liabilities of all of the Company's subsidiaries that do not guarantee these notes, but are fully and unconditionally guaranteed jointly and severally on a senior basis by the Company's wholly-owned subsidiaries party to each applicable indenture.
The Company's Senior Notes are issued under indentures that contain certain restrictive covenants which, among other things, restrict our ability to pay dividends, repurchase our common stock, incur certain types of additional indebtedness and to make certain investments. Compliance with our Senior Note covenants does not significantly impact our operations. We were in compliance with the covenants contained in the indentures of all of our Senior Notes as of
September 30, 2017
.
Subsequent to September 30, 2017, we issued and sold
$400.0 million
aggregate principal amount of
5.875%
unsecured Senior Notes due October 2027 (the 2027 Notes) and redeemed
$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. For a further discussion of the 2027 Notes, refer to Note 22.
In March 2017, we issued and sold
$250.0 million
aggregate principal amount of
6.75%
unsecured Senior Notes due March 2025 at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers (the 2025 Notes). Interest on the 2025 Notes is payable semi-annually, beginning on September 15, 2017. The 2025 Notes will mature on March 15, 2025. We may redeem the 2025 Notes at any time prior to March 15, 2020, in whole or in part, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, together with accrued and unpaid interest to, but excluding, the redemption date, plus a customary make-whole premium. In addition, on or prior to March 15, 2020, we may redeem up to
35%
of the aggregate principal amount of the 2025 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to
106.75%
of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at least
65%
of the aggregate principal amount of the 2025 Notes originally issued remains outstanding immediately after such redemption. Upon the occurrence of certain specified changes of control, the holders of the 2025 Notes will have the right to require us to purchase all or a part of the notes at a repurchase price equal to
101%
of their principal amount, plus accrued and unpaid interest to, but excluding, the repurchase date.
In September 2016, we issued and sold
$400.0 million
aggregate principal amount of
8.75%
unsecured Senior Notes due March 2022 at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers. Soon thereafter, we issued an additional
$100.0 million
"tack on" aggregate principal amount of
8.75%
unsecured Senior Notes due March 2022 at a premium of
104.25
, for a total issuance of
$500.0 million
(collectively, the 2022 Notes). Interest on the 2022 Notes is payable semi-annually, beginning on March 15, 2017. The 2022 Notes will mature on March 15, 2022. We may redeem the 2022 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, 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, 2019, we may redeem up to
35%
of the aggregate principal amount of the 2022 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to
108.75%
of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, provided at least
65%
of the aggregate principal amount of the 2022 Notes originally issued remain outstanding immediately after such redemption. Upon the occurrence of certain specified changes of control, the holders of the 2022 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 the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.
For additional redemption features, refer to the table below that summarizes the redemption terms for our Senior Notes:
|
|
|
|
|
|
|
|
Senior Note Description
|
|
Issuance Date
|
|
Maturity Date
|
|
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
|
|
Callable 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; on or 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 102.41% 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
|
During the current fiscal year, we redeemed our outstanding Senior Notes due 2021, as well as the remaining balance on our term loan (discussed below), mainly by utilizing the proceeds received from the 2025 Notes issued during the current fiscal year, which is discussed above, as well as cash on hand. This debt repurchase activity resulted in a loss on extinguishment of debt of
$15.6 million
for the year ended September 30, 2017.
During the fiscal 2016, we redeemed the then outstanding 2018 Notes and the May 2019 Notes principally by utilizing the proceeds received from the issuance of the 2022 Notes, as well as cash on hand. We also redeemed the then outstanding Senior Notes due 2016, mainly by utilizing the proceeds received from the term loan issued in March 2016, which is discussed below. Additionally, we redeemed
$3.6 million
of our Senior Notes due June 2019 and
$2.0 million
of our Senior Notes due September 2021 during fiscal 2016, as well as a de minimus amount of our Senior Notes due February 2023. These debt repurchase activities resulted in a total net loss on extinguishment of debt of
$13.4 million
for the year ended September 30, 2016.
Term Loan.
In March 2016, we entered into a credit agreement (the Credit Agreement) that provided us with a
$140 million
,
two
-year secured term loan (the Term Loan). We prepaid the then outstanding balance on the Term Loan in full in March 2017 with the proceeds of the 2025 Notes, along with cash on hand.
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
4.12%
as of
September 30, 2017
(because the rate on the portion of the Junior Subordinated Notes that was modified, as discussed below, is subject to a floor). The obligations relating to these notes are subordinated to the Facility and the Senior Notes. In January 2010, we modified the terms of
$75.0 million
of these notes and recorded them at their then estimated fair value. Over the remaining life of the Junior Subordinated Notes, we will increase their carrying value until this carrying value equals the face value of the notes. As of
September 30, 2017
, the unamortized accretion was
$38.8 million
and will be amortized over the remaining life of the notes. As of
September 30, 2017
, we were in compliance with all covenants under our Junior Subordinated Notes.
Other Secured Notes Payable.
We periodically acquire land through the issuance of notes payable. As of
September 30, 2017
and
September 30, 2016
, we had outstanding notes payable of
$5.6 million
and
$11.8 million
, respectively, primarily related to land acquisitions. These secured notes payable have varying expiration dates between 2017 and 2019, have a weighted average fixed interest rate of
1.41%
as of
September 30, 2017
and are secured by the real estate to which they relate.
The agreements governing these other secured notes payable contain various affirmative and negative covenants. There can be no assurance that we will be able to obtain any future waivers or amendments that may become necessary without significant additional cost or at all. In each instance, however, a covenant default can be cured by repayment of the indebtedness.
(9) Contingencies
Beazer Homes and certain of its subsidiaries have been and continue to be named as defendants in various construction defect claims, complaints and other legal actions. The Company is subject to the possibility of loss contingencies related to these defects, as well as others arising from its business. In determining loss contingencies, we consider the likelihood of loss, as well as our 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 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 standards of performance. 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 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 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.
Our warranty reserves are included in other liabilities on our consolidated balance sheets, and the provision for warranty accruals is included in home construction expenses in our consolidated statements of income. We record reserves covering anticipated warranty expense for each home we close. 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 division. An analysis by division allows us to consider market specific factors such as our warranty experience, the number of home closings, the prices of homes, product mix and other data in estimating our warranty reserves. In addition, our analysis also contemplates the existence of any non-recurring or community-specific warranty-related matters that might not be included 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.
Changes in our warranty reserves are as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Balance at beginning of period
|
$
|
39,131
|
|
|
$
|
27,681
|
|
|
$
|
16,084
|
|
Accruals for warranties issued
(a)
|
14,215
|
|
|
13,835
|
|
|
10,356
|
|
Changes in liability related to warranties existing in prior periods
(b)
|
4,807
|
|
|
53,109
|
|
|
30,482
|
|
Payments made
(b)
|
(40,062
|
)
|
|
(55,494
|
)
|
|
(29,241
|
)
|
Balance at end of period
|
$
|
18,091
|
|
|
$
|
39,131
|
|
|
$
|
27,681
|
|
(a)
Accruals for warranties issued are a function of the number of home closings in the period, the selling prices of the homes closed and the rates of accrual per home estimated as a percentage of the selling price of the home.
(b)
Changes in liability related to warranties existing and payments made in all periods are elevated 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 and New Jersey Water Intrusion Issues
In the latter portion of our fiscal 2014, we began to experience an increase in calls from homeowners reporting stucco and water intrusion issues in certain of our communities in Florida (the Florida stucco issues). These issues continued to be reported to us in Florida throughout our fiscal 2015, fiscal 2016 and fiscal 2017. Through
September 30, 2017
, we cumulatively recorded charges related to these issues of
$85.6 million
.
During our fiscal 2017, the number of homeowner calls beyond those anticipated based on our procedures and previous call history has continued to trend down. However, largely due to increased cost estimates for repairs of homes discovered in more recent periods, we recorded additional warranty adjustments related to the Florida stucco issues of
$5.2 million
during the current fiscal year, compared to
$48.0 million
in the prior year. As of
September 30, 2017
,
710
homes have been identified as likely to require repairs (an increase of
20
homes to those that were anticipated to require repairs as of the end of our fiscal 2016), of which
640
homes have been repaired. We made payments related to the Florida stucco issues of
$23.1 million
during the current fiscal year, including payments on fully repaired homes, as well as payments on homes for which remediation is not yet complete, bringing the remaining accrual to
$4.7 million
as of
September 30, 2017
, compared to
$22.6 million
as of
September 30, 2016
. The accrual for the Florida stucco issues is included in our overall warranty liability detailed above. As of
September 30, 2017
, additional homes in the impacted communities remain within the period specified by the applicable statute of repose but are not yet deemed likely to require repairs and have not been reserved for. The cost to repair these additional homes would be approximately
$2.5 million
if the current cost estimates were applied to these additional homes.
Our assessment of the Florida stucco issues is ongoing. As a result, we anticipate that the ultimate magnitude of our liability may change as additional information is obtained. Certain visual and other inspections of the homes that could be subject to defect often do not reveal the severity or extent of the defects, which can only be discovered once we receive a homeowner call and begin repairs. The current fiscal year charges were offset by additional insurance recoveries; for a discussion of the amounts we have already recovered or anticipate recovering from our insurers, refer to the “Insurance Recoveries” section below.
In addition, we believe that we will also recover a portion of such repair costs from sources other than our own insurer, including the subcontractors involved with the construction of these homes and their insurers; however, no amounts related to subcontractor recoveries have been recorded in our consolidated financial statements as of
September 30, 2017
. Any amounts recovered from our subcontractors related to homes closed during policy years for which we have exceeded the deductible in our insurance policies would be remitted to our insurers, while recoveries in other policy years would be retained by us.
Insurance Recoveries
The Company has insurance policies that provide for the reimbursement of certain warranty costs incurred by us above a specified threshold for each period covered. We have surpassed these thresholds for certain policy years, particularly those that cover most of the homes impacted by the water intrusion issues discussed above. As such, beginning with the first quarter of our fiscal 2015, we expect a substantial majority of additional costs for warranty work on homes within these policy years to be reimbursed by our insurers. For two policy years, our exposure has exceeded the insurance claim limit for one division under our first layer of coverage; however, we are claiming and recovering additional amounts under our excess insurance coverage.
Warranty expense beyond the thresholds set in our insurance policies was recorded related to homes impacted by the Florida stucco issues, as well as other various warranty issues that are in excess of our insurance thresholds. We adjust our insurance receivable balance each quarter to reflect our estimate of future costs to be incurred, as well as amounts received from our insurers. The adjustments were an increase of
$4.8 million
and
$59.3 million
during our fiscal 2017 and 2016, respectively, to reflect the amount that we deem probable of receiving. The changes to our insurance receivable fully offset the current fiscal year movements in our reserve related to the Florida stucco issues. The recoveries recorded during our fiscal 2016 were
$3.6 million
greater than the underlying expense related to the Florida stucco issues, as we began to recover more costs than initially anticipated. The remaining insurance recovery amount for the year ended September 30, 2016 beyond the Florida stucco issues related to expenditures for warranty issues that were individually immaterial but were also in excess of our insurance thresholds.
Amounts recorded for anticipated insurance recoveries are reflected within our consolidated statements of income as a reduction of our home construction expenses, and associated amounts not yet received from our insurer were recorded on a gross basis, i.e., not net of any associated warranty expense, as a receivable within accounts receivable on our consolidated balance sheets.
Amounts still to be recovered under our insurance policies will vary based on whether expected additional warranty costs are actually incurred for periods for which our threshold has already been met. As a result, we anticipate the balance of our established receivable for insurance recoveries to fluctuate for potential future reimbursements, as well as the amounts ultimately owed to us from our insurer.
Additionally, we entered into agreements with our third-party insurer during our fiscal 2016 to resolve certain issues related to the extent of our insurance coverage for multiple policy years. These agreements resulted in our recognition of
$15.5 million
in further insurance recoveries (in addition to those discussed above), which was recorded within our consolidated statement of income as a reduction of our home construction expenses.
Litigation
From time to time, we receive claims from institutions that have acquired mortgages originated by our subsidiary, Beazer Mortgage Corporation (BMC), demanding damages or indemnity or that we repurchase such mortgages. BMC stopped originating mortgages in 2008. We have been able to resolve these claims for no cost or for amounts that are not material to our consolidated financial statements. At present there are no such claims outstanding, however, we cannot rule out the potential for additional mortgage loan repurchase or indemnity claims in the future. At this time, we do not believe that the exposure related to any such claims would be material to our consolidated financial condition, results of operations or cash flows.
As of
September 30, 2017
, 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 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
During January 2017, we made our final payment under the Deferred Prosecution Agreement and associated Bill of Information (the DPA) entered into on July 1, 2009 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 (HUD) and the Civil Division of the United States Department of Justice (the HUD Agreement). In total, we paid a cumulative
$33.5 million
related to the DPA and the HUD Agreement. Our expense related to these agreements was
$4.9 million
and
$5.3 million
for our fiscal 2016 and 2015, respectively, which was recorded in G&A in our consolidated statements of income. This will be the last report for this matter.
We and certain of our subsidiaries have been named as defendants in various claims, complaints and other legal actions, most relating to construction defects, moisture intrusion and product liability. Certain of the liabilities resulting from these actions are covered in whole or part by insurance. In our opinion, based on our current assessment, the ultimate resolution of these matters will not have a material adverse effect on our financial condition, results of operations or cash flows.
We have an accrual of
$3.9 million
and
$10.2 million
in other liabilities on our consolidated balance sheets related to litigation and other matters, excluding warranty, as of
September 30, 2017
and
2016
, respectively.
We had outstanding letters of credit and performance bonds of approximately
$45.5 million
and
$200.6 million
, respectively, as of
September 30, 2017
, related principally to our obligations to local governments to construct roads and other improvements in various developments.
(10) Fair Value Measurements
As of the dates presented, we had assets on our consolidated balance sheets that were required to be measured at fair value on a recurring or non-recurring basis. We use a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value as follows:
|
|
•
|
Level 1 – Quoted prices in active markets for identical assets or liabilities;
|
|
|
•
|
Level 2 – Inputs other than quoted prices included in Level 1 that are observable either directly or indirectly through corroboration with market data; and
|
|
|
•
|
Level 3 – Unobservable inputs that reflect our own estimates about the assumptions market participants would use in pricing the asset or liability.
|
Certain of our assets are required to be recorded at fair value on a recurring basis. The fair value of our deferred compensation plan assets is based on market-corroborated inputs (Level 2).
Certain of our assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value of these assets may not be recovered. We review our long-lived assets, including inventory, for recoverability when factors indicate an impairment may exist, but no less than quarterly. Fair value on assets deemed to be impaired is determined based upon the type of asset being evaluated. Fair value of our owned inventory assets, when required to be calculated, is further discussed within Notes 2 and 5. The fair value of our investments in unconsolidated entities is determined primarily using a discounted cash flow model to value the underlying net assets of the respective entities. Due to the substantial use of unobservable
inputs in valuing the assets on a non-recurring basis, they are classified within Level 3.
During the fiscal year ended
September 30, 2017
, we recorded
$1.7 million
in impairments on projects in process and impairments on land held for sale impairments of
$0.6 million
. During the fiscal year ended
September 30, 2016
, we recorded impairments on projects in process of
$13.7 million
and impairments related to land held for sale of
$0.8 million
. During the fiscal year ended
September 30, 2015
, we recorded impairments on land held for sale of
$1.4 million
.
Determining within which hierarchical level an asset or liability falls requires significant judgment. We evaluate our hierarchy
disclosures each quarter.
The following table presents the period-end balances of our assets measured at fair value on a recurring basis, and the impairment-date fair value of certain assets measured at fair value on a non-recurring basis, for each hierarchy level. These balances represent only those assets whose carrying values were adjusted to fair value during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Year Ended September 30, 2017
|
|
|
|
|
|
|
|
Deferred compensation plan assets
(a)
|
$
|
—
|
|
|
$
|
1,114
|
|
|
$
|
—
|
|
|
$
|
1,114
|
|
Development projects in progress
(b)
|
—
|
|
|
—
|
|
|
3,791
|
|
(c)
|
3,791
|
|
Land held for sale
(b)
|
—
|
|
|
—
|
|
|
325
|
|
(c)
|
325
|
|
Year Ended September 30, 2016
|
|
|
|
|
|
|
|
Deferred compensation plan assets
(a)
|
$
|
—
|
|
|
$
|
765
|
|
|
$
|
—
|
|
|
$
|
765
|
|
Development projects in progress
(b)
|
—
|
|
|
—
|
|
|
34,418
|
|
(c)
|
34,418
|
|
Land held for sale
(b)
|
—
|
|
|
—
|
|
|
19,973
|
|
(c)
|
19,973
|
|
Year Ended September 30, 2015
|
|
|
|
|
|
|
|
Deferred compensation plan assets
(a)
|
$
|
—
|
|
|
$
|
669
|
|
|
$
|
—
|
|
|
$
|
669
|
|
Development projects in progress
(b)
|
—
|
|
|
—
|
|
|
8,814
|
|
(c)
|
8,814
|
|
(a)
Measured at fair value on a recurring basis.
(b)
Measured at fair value on a non-recurring basis.
(c)
Amount represents the impairment-date fair value of the development projects in progress and land held for sale assets that were impaired during the periods indicated.
The fair value of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, other liabilities, amounts due under the Facility (if outstanding) and other secured notes payable approximate their carrying amounts due to the short maturity of these assets and liabilities. When outstanding, obligations related to land not owned under option agreements approximate fair value.
The following table presents the carrying value and estimated fair value of certain of our other financial liabilities as of
September 30, 2017
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017
|
|
As of September 30, 2016
|
(In thousands)
|
Carrying
Amount
(a)
|
|
Fair Value
|
|
Carrying
Amount
(a)
|
|
Fair Value
|
Senior Notes
(b)
|
$
|
1,259,840
|
|
|
$
|
1,355,657
|
|
|
$
|
1,207,526
|
|
|
$
|
1,253,614
|
|
Term Loan
|
N/A
(c)
|
|
|
N/A
|
|
|
52,669
|
|
|
52,669
|
|
Junior Subordinated Notes
|
61,937
|
|
|
61,937
|
|
|
59,870
|
|
|
59,870
|
|
|
$
|
1,321,777
|
|
|
$
|
1,417,594
|
|
|
$
|
1,320,065
|
|
|
$
|
1,366,153
|
|
(a)
Carrying amounts are net of unamortized debt premium/discounts, debt issuance costs or accretion.
(b)
The estimated fair value for our publicly-held Senior Notes has been determined using quoted market rates (Level 2).
(c)
N/A - Not applicable
(11) Operating Leases
We are obligated under various noncancelable operating leases for our office facilities and equipment. Rental expense under these agreements, which is included in G&A in our consolidated statements of income, amounted to approximately
$4.9 million
,
$4.7 million
and
$5.2 million
for the fiscal years ended
September 30, 2017
,
2016
and
2015
, respectively. This rental expense excludes expense related to our discontinued operations, which is not material in any period presented. Additionally, sublease income received in all periods presented was not material. As of
September 30, 2017
, future minimum lease payments under noncancelable operating lease agreements are as follows:
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
|
2018
|
$
|
4,124
|
|
2019
|
4,001
|
|
2020
|
3,161
|
|
2021
|
2,518
|
|
2022
|
1,588
|
|
Thereafter
|
831
|
|
Total
|
$
|
16,223
|
|
(12) Other Liabilities
Other
liabilities include the following as of
September 30, 2017
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2017
|
|
September 30, 2016
|
Accrued bonus and deferred compensation
|
$
|
36,753
|
|
|
$
|
30,466
|
|
Accrued warranty expenses
|
18,091
|
|
|
39,131
|
|
Customer deposits
|
11,704
|
|
|
12,140
|
|
Accrued interest
|
11,024
|
|
|
11,530
|
|
Litigation accrual
|
3,899
|
|
|
10,178
|
|
Income tax liabilities
|
811
|
|
|
1,718
|
|
Other
|
25,377
|
|
|
29,090
|
|
Total
|
$
|
107,659
|
|
|
$
|
134,253
|
|
(13) Income Taxes
Our expense (benefit) from income taxes from continuing operations consists of the following for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Current federal
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(64
|
)
|
Current state
|
859
|
|
|
595
|
|
|
520
|
|
Deferred federal
(a)
|
1,625
|
|
|
5,574
|
|
|
(314,651
|
)
|
Deferred state
(a) (b)
|
212
|
|
|
10,329
|
|
|
(10,374
|
)
|
Total
|
$
|
2,696
|
|
|
$
|
16,498
|
|
|
$
|
(324,569
|
)
|
(a)
Fiscal 2015 benefit is due to release of a substantial portion of the valuation allowance on our deferred tax assets; refer to discussion below titled “Valuation Allowance.”
(b)
Fiscal 2016 expense includes
$8.6 million
of additional valuation allowance on our state deferred tax assets due to a number of changes to the legal forms of our operating entities; refer to discussion below titled “Valuation Allowance.”
The expense (benefit) from income taxes from continuing operations differs from the amount computed by applying the federal income tax statutory rate as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Income tax computed at statutory rate
|
$
|
12,052
|
|
|
$
|
7,596
|
|
|
$
|
7,711
|
|
State income taxes, net of federal benefit
|
1,287
|
|
|
4,974
|
|
|
2,485
|
|
(Decrease) increase in valuation allowance - other
(a) (b) (c)
|
(3,482
|
)
|
|
6,457
|
|
|
(334,605
|
)
|
Changes for uncertain tax positions
|
(685
|
)
|
|
(40
|
)
|
|
42
|
|
Stock based compensation
|
741
|
|
|
—
|
|
|
—
|
|
State rate change
|
—
|
|
|
(678
|
)
|
|
—
|
|
Tax credits
|
(7,460
|
)
|
|
(2,134
|
)
|
|
—
|
|
Other, net
|
243
|
|
|
323
|
|
|
(202
|
)
|
Total
|
$
|
2,696
|
|
|
$
|
16,498
|
|
|
$
|
(324,569
|
)
|
(a)
For fiscal 2015, amount includes
$335.2 million
release of a substantial portion of the valuation allowance on our deferred tax assets; refer to discussion below titled “Valuation Allowance.”
(b)
For fiscal 2016, amount includes
$8.6 million
of additional valuation allowance on our state deferred tax assets due to a number of changes to the legal forms of our operating entities; refer to discussion below titled “Valuation Allowance.”
(c)
For fiscal 2017, amount includes
$3.5 million
reduction in valuation allowance on our state deferred tax assets due to changes in our state net operating loss estimates; refer to discussion below titled “Valuation Allowance.”
The principal differences between our effective tax rate and the U.S. federal statutory rate relate to state taxes, changes in our valuation allowance and tax credits.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of our assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences that give rise to the net deferred tax assets are as follows as of
September 30, 2017
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2017
|
|
September 30, 2016
|
Deferred tax assets:
|
|
|
|
Federal and state tax carryforwards
|
$
|
293,298
|
|
|
$
|
298,426
|
|
Inventory adjustments
|
59,507
|
|
|
62,985
|
|
Incentive compensation
|
19,043
|
|
|
15,390
|
|
Warranty and other reserves
|
6,140
|
|
|
16,943
|
|
Property, equipment and other assets
|
3,247
|
|
|
2,896
|
|
Other
|
1,785
|
|
|
809
|
|
Uncertain tax positions
|
1,332
|
|
|
1,721
|
|
Total deferred tax assets
|
384,352
|
|
|
399,170
|
|
Deferred tax liabilities:
|
|
|
|
Deferred revenues
|
(11,297
|
)
|
|
(22,950
|
)
|
Total deferred tax liabilities
|
(11,297
|
)
|
|
(22,950
|
)
|
Net deferred tax assets before valuation allowance
|
373,055
|
|
|
376,220
|
|
Valuation allowance
(a)
|
(65,159
|
)
|
|
(66,265
|
)
|
Net deferred tax assets
|
$
|
307,896
|
|
|
$
|
309,955
|
|
(a)
For fiscal 2016, amount includes
$8.6 million
of additional valuation allowance on our state deferred tax assets due to a number of changes to the legal forms of our operating entities; refer to discussion below titled “Valuation Allowance.”
As of
September 30, 2017
, our gross deferred tax assets above included
$241.3 million
for federal net operating loss carryforwards,
$31.7 million
for state net operating loss carryforwards,
$9.6 million
for an alternative minimum tax credit and
$14.5 million
for general business credits. The net operating loss carryforwards expire at various dates through 2033, and the general business credits expire at various dates through 2037. The alternative minimum tax credit has an unlimited carryforward period. We experienced
an “ownership change” as defined in Section 382 of the Internal Revenue Code (Section 382) as of January 12, 2010. Section 382 contains rules that limit the ability of a company that undergoes an “ownership change” to utilize its net operating loss carryforwards (NOLs) and certain built-in losses or deductions recognized during the five-year period after the ownership change to offset future taxable income. Because the five-year period has expired, we have determined the actual impact and final classification of those amounts, which are properly reflected in the amounts presented above. The actual realization of our deferred tax assets is difficult to predict and is dependent on future events.
We recognized income tax expense from continuing operations of
$2.7 million
in our fiscal 2017, compared to income tax expense from continuing operations of
$16.5 million
and income tax benefit of
$324.6 million
in our fiscal 2016 and fiscal 2015, respectively. The income tax expense in our fiscal 2017 primarily resulted from income in the current year, offset by the generation of federal tax credits and an additional benefit resulting from changes to our valuation allowance due to changes in our state net operating loss estimates. The income tax expense in our fiscal 2016 primarily resulted from income generated in the fiscal year, offset by the generation of federal tax credits. In fiscal 2015, our income tax benefit primarily resulted from the release of a substantial portion of the valuation allowance. Due to the effects of changes in our valuation allowance on our deferred tax balance and changes in our unrecognized tax benefits, our effective tax rates in fiscal 2017, 2016 and 2015 are not meaningful metrics, as our income tax amounts were not directly correlated to the amount of our pretax income for those periods.
Valuation Allowance
A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the more-likely-than-not realization threshold criterion. In the assessment for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, the Company's experience with loss carryforwards not expiring unused and tax planning alternatives.
Based upon an evaluation of all available evidence, the most important of which was recent losses incurred, we established a valuation allowance for substantially all of our deferred tax assets during our fiscal 2008. We have continued to evaluate the need for our valuation allowance by assessing all positive and negative evidence indicating our ability to realize our deferred tax assets. In these evaluations, we gave more significant weight to objective evidence, such as our actual financial condition and results of operations, as compared to subjective evidence.
The positive evidence we considered as part of our analysis during the fourth quarter of 2015 included our recent trends in cumulative income from continuing operations, along with our growth in backlog units, closings and ASP for both backlog and actual closings. Our levels of backlog (in both units and dollars) supported our expectations of future profitability. The negative evidence we considered as part of our analysis centered around significant quarterly losses that the Company incurred through the quarter ended March 31, 2013, which rolled-off our 36-month cumulative income position during the first half of our fiscal 2016. The removal of these losses from our analysis provided a significant increase in our recent earnings trend and, coupled with our actual improvements in continuing operations, pointed to an objectively verifiable increase in our earnings profile.
Therefore, during the quarter ended September 30, 2015, we concluded that it was more likely than not that a substantial amount of our deferred tax assets would be realized. This conclusion was based on an evaluation of all relevant evidence, both positive and negative, as discussed above, as well as a generally improving housing market and stabilization in broader economic conditions. The principal positive evidence that led us to this determination was our improved pre-tax earnings profile, particularly over our most recent fiscal years. Given the remaining recovery period for the majority of our deferred tax assets, our recent historical operating results continued to support the realization of a significant amount of our deferred tax assets. The valuation allowance on our deferred tax assets was
$57.7 million
as of September 30, 2015. The remaining valuation allowance was balanced between various federal and state attributes for which the Company had concluded it is not more likely than not that these attributes would be realized at that time.
During our fiscal 2016, we contemplated various tax planning strategies based on our operations profile. This planning resulted in a restructuring effort immediately following the close of our fiscal 2016, where we executed certain tax elections and a number of changes to the legal forms of our operating entities, which significantly reduced our income profile in certain state jurisdictions going forward. The restructuring reduced our effective tax rate in fiscal 2017 to an amount that is in-line with our peers, through a significant reduction in our state effective tax rate. In addition, the restructure provides cash tax savings in various jurisdictions where we no longer have significant state loss carryforwards available. In conjunction with the restructure, we also evaluated our ability to realize certain state components of our deferred tax asset. Given this change, we evaluated both positive and negative evidence, including consideration of a change in expected future taxable earnings in the separate state jurisdictions that will be
impacted by the restructuring. Based on those evaluations, we recorded an additional
$8.6 million
in valuation allowance during the quarter ended September 30, 2016 for state deferred tax assets we concluded are no longer more likely than not to be realized.
In fiscal 2017, we recorded additional impacts related to our tax elections and changes in legal form as further determinations were made throughout the year. These impacts included changes to our apportionment and deferred balances by jurisdiction, as well as changes to our uncertain tax positions. As a result, we recorded a decrease of
$3.5 million
in valuation allowance during the quarter ended September 30, 2017 for changes in our expected state net operating loss utilization due to changes in our uncertain tax positions.
During our fiscal 2017, we continued to monitor the various factors that led to our determination of the realization of a significant portion of our deferred tax assets during our fiscal 2015. Our fiscal 2017 income from continuing operations continues to reflect the positive trends of recent years, along with increases in closings and ASP from closings. We continue to maintain levels of backlog and community count to support our expectations of future profitability. During the current fiscal year, the Company continued its plan to repurchase portions of its outstanding debt, which altered its debt maturity and interest rate profile through new issuances and redemptions of prior issuances. The change in the Company's debt portfolio will create future interest expense savings that further support its estimates of future profitability, and may result in the realization of additional deferred tax assets in the future. As of September 30, 2017, the Company will have to cumulatively generate approximately
$721.9 million
in pre-tax income over the course of its carryforward period to realize its deferred tax assets prior to their expiration, which, as previously discussed, is the Company's fiscal 2037.
The valuation allowance of
$65.2 million
as of
September 30, 2017
was balanced between various federal and state attributes for which the Company has concluded it is not more likely than not that these attributes would be realized at that time.
Unrecognized Tax Benefits
A reconciliation of our unrecognized tax benefits is as follows for the beginning and end of each period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Balance at beginning of year
|
$
|
4,541
|
|
|
$
|
4,721
|
|
|
$
|
4,615
|
|
Additions for (reductions in) tax positions related to current year
|
61
|
|
|
(180
|
)
|
|
252
|
|
Additions for tax positions related to prior years
|
2,611
|
|
|
—
|
|
|
—
|
|
Reductions in tax positions of prior years
|
(2,273
|
)
|
|
—
|
|
|
(10
|
)
|
Lapse of statute of limitations
|
(1,136
|
)
|
|
—
|
|
|
(136
|
)
|
Balance at end of year
|
$
|
3,804
|
|
|
$
|
4,541
|
|
|
$
|
4,721
|
|
If we were to recognize our
$3.8 million
of gross unrecognized tax benefits remaining as of
September 30, 2017
, substantially all would impact our effective tax rate. Additionally, we had
$1.4 thousand
and
$339.5 thousand
, respectively, of accrued interest and penalties as of
September 30, 2017
and
2016
. Our income tax expense includes tax-related interest.
In the normal course of business, we are subject to audits by federal and state tax authorities regarding various tax liabilities. Certain state income tax returns for various fiscal years are under routine examination. The statute of limitations for our major tax jurisdictions remains open for examination for fiscal years 2007 and subsequent years. As of
September 30, 2017
, it is reasonably possible that
$17.0 thousand
of our uncertain tax positions will reverse within the next twelve months.
(14) Stockholders' Equity
Preferred Stock.
We currently have
no
shares of preferred stock outstanding.
Common Stock.
As of
September 30, 2017
, we had
63,000,000
shares of common stock authorized and
33,515,768
shares both issued and outstanding.
Common Stock Repurchases.
During our fiscal
2017
,
2016
and
2015
, we did not repurchase any shares of our common stock in the open market. Any future stock repurchases, to the extent allowed by our existing debt covenants, must be approved by the Company's Board of Directors or its Finance Committee.
During our fiscal
2017
,
2016
and
2015
,
32,035
,
16,779
and
10,302
shares of our common stock, respectively, were surrendered to us by employees as payment of minimum tax obligations upon the vesting of restricted stock awards under our stock incentive
plans. We valued the surrendered stock at the market price on the date of surrender, for an aggregate value of approximately
$415.0 thousand
in fiscal
2017
,
$222.0 thousand
in fiscal
2016
and
$192.0 thousand
in fiscal
2015
.
Dividends.
The indentures under which our Senior Notes were issued contain certain restrictive covenants, including limitations on our payment of dividends. There were no dividends paid during our fiscal
2017
,
2016
or
2015
.
Section 382 Rights Agreement.
In February 2011, the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation (the Protective Amendment) designed to preserve the value of certain tax assets associated with NOL carryforwards under Section 382. In February 2013, the Company’s stockholders approved an extension of the term of the Protective Amendment and approved a Section 382 Rights Agreement that was adopted by our Board of Directors. These instruments are intended to act as deterrents to any person or group, together with their affiliates and associates, from being or becoming the beneficial owner of
4.95%
or more of the Company’s common stock. In February 2016, the Company’s stockholders approved an extension of the Protective Amendment to November 12, 2019 and approved a new Section 382 Rights Agreement adopted by our Board of Directors with an expiration date of November 14, 2019.
(15) Retirement and Deferred Compensation Plans
401(k) Retirement Plan.
We sponsor a defined-contribution plan that is a tax-qualified retirement plan under section 401(k) of the Internal Revenue Code (the Plan). Substantially all employees are eligible for participation in the Plan after completing one calendar month of service. Participants may defer and contribute from
1%
to
80%
of their salary to the Plan, with certain limitations on highly compensated individuals. We match
50%
of the first
6%
of the participant's contributions. The participant's contributions vest immediately, while the Company's contributions vest over
five years
. Our total contributions for the fiscal years ended
September 30, 2017
,
2016
and
2015
were approximately
$3.0 million
,
$2.6 million
and
$2.4 million
, respectively. During fiscal
2017
,
2016
and
2015
, participants forfeited
$0.6 million
,
$0.4 million
and
$0.5 million
, respectively, of unvested matching contributions.
Deferred Compensation Plan.
The Beazer Homes USA, Inc. Deferred Compensation Plan (the DCP) is a non-qualified deferred compensation plan for a select group of executives and highly compensated employees. The DCP allows the executives to defer current compensation on a pre-tax basis to a future year, until termination of employment. The objectives of the DCP are to assist executives with financial planning and capital accumulation and to provide the Company with a method of attracting, rewarding and retaining executives. Participation in the DCP is voluntary. Beazer Homes may voluntarily make a contribution to the participants' DCP accounts. Deferred compensation assets of
$1.1 million
and
$0.8 million
and deferred compensation liabilities of
$3.8 million
and
$3.0 million
as of
September 30, 2017
, and
2016
, respectively, are included in other assets and other liabilities on our consolidated balance sheets, and are recorded at fair value. For the years ended
September 30, 2017
,
2016
and
2015
, we contributed approximately
$268.0 thousand
,
$204.0 thousand
and
$227.0 thousand
, respectively, to the DCP in the form of voluntary contributions.
(16) Stock-Based Compensation
During fiscal 2014, we adopted, and our stockholders approved, the 2014 Beazer Homes USA, Inc. Long-Term Incentive Plan (the 2014 Plan). Following adoption of the 2014 Plan, shares available for grant under our 2010 Equity Incentive Plan (the 2010 Plan) remain available for grant in accordance with the terms of that plan. However, there are no more shares available for future issuance under our Amended and Restated 1999 Stock Incentive Plan (the 1999 Plan). We issue new shares upon the exercise of stock options and the vesting of restricted stock awards. In cases of forfeitures and shares returned to us for taxes, those shares are returned to the share pool for future issuance. As of
September 30, 2017
, we had approximately
2.8 million
shares of common stock for issuance under our various equity incentive plans, of which approximately
2.2 million
shares are available for future grants.
Our total stock-based compensation expense is included in G&A expenses in our consolidated statements of income and recognized using the straight-line method over the vesting period. A summary of the expense related to stock-based compensation by award type is as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In millions)
|
|
2017
|
|
2016
|
|
2015
|
|
Stock options expense
|
|
$
|
274
|
|
|
$
|
534
|
|
|
$
|
697
|
|
|
Restricted stock awards expense
|
|
7,885
|
|
|
7,425
|
|
|
5,408
|
|
|
Before tax stock-based compensation expense
|
|
8,159
|
|
|
7,959
|
|
|
6,105
|
|
|
Tax benefit
|
|
(2,917
|
)
|
|
(2,832
|
)
|
|
—
|
|
(a)
|
After tax stock-based compensation expense
|
|
$
|
5,242
|
|
|
$
|
5,127
|
|
|
$
|
6,105
|
|
|
(a)
Tax impact is
zero
due to the existence of a valuation allowance on our deferred tax assets in prior year periods.
Stock Options.
We have issued stock options to officers and key employees under the 2014 Plan, the 2010 Plan and the 1999 Plan. Stock options have an exercise price equal to the fair market value of the common stock on the grant date, vest
three
years after the date of grant and may be exercised thereafter until their expiration, subject to forfeiture upon termination of employment as provided in the applicable plan. Under certain conditions of retirement, eligible participants may receive a partial vesting of stock options. Stock options generally expire on the seventh or eighth anniversary from the date such options were granted, depending on the terms of the award.
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model (Black-Scholes Model). The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price. As of
September 30, 2017
, the intrinsic value of our stock options outstanding, vested and expected to vest and exercisable were
$2.7 million
,
$2.6 million
and
$1.6 million
, respectively. As of
September 30, 2017
and
September 30, 2016
, there was
$0.3 million
and
$0.4 million
, respectively, of total unrecognized compensation cost related to nonvested stock options. The cost remaining as of
September 30, 2017
is expected to be recognized over a weighted average period of
1.4 years
.
During our fiscal 2016, the Compensation Committee of our Board of Directors approved the Employee Stock Option Program (EOP). This program is available to all full-time employees, other than our senior leadership team, and is designed to enable employees to share in potential price appreciation of the Company's stock. The EOP matches stock purchases made by eligible employees meeting certain conditions with an option to purchase an additional share of the Company's shares on a one-to-one basis. The exercise price of the options granted is equal to the closing price of the Company's stock on the day the underlying stock is purchased. The options will vest on the second anniversary of the date of grant, but are forfeited if (1) the eligible employee no longer works for the Company or (2) the underlying shares are sold before the two-year vesting period is over. The total number of options available under the EOP is limited to
100,000
, of which
87,249
options were granted through the end of fiscal 2017.
During the year ended
September 30, 2017
, we issued
29,410
stock options, including those issued under the EOP, each for one share of the Company's stock. These stock options typically vest ratably over
three
years from the date of grant, or
two
years from the date of grant if issued under the EOP. We used the following assumptions for stock options granted, which derived the weighted average fair value shown, for the period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
2017
|
|
2016
|
|
2015
|
Expected life of options
|
|
5.4 years
|
|
|
4.9 years
|
|
|
N/A
(a)
|
Expected volatility
|
|
50.10
|
%
|
|
46.49
|
%
|
|
N/A
|
Expected dividends
|
|
—
|
|
|
—
|
|
|
N/A
|
Weighted average risk-free interest rate
|
|
1.85
|
%
|
|
1.36
|
%
|
|
N/A
|
Weighted average fair value
|
|
$
|
5.83
|
|
|
$
|
4.03
|
|
|
N/A
|
(a)
N/A - Not applicable, as
no
stock options were granted during the period.
We relied upon a combination of the observed exercise behavior of our prior grants with similar characteristics, the vesting schedule of the current grants and an index of peer companies with similar grant characteristics to determine the expected life of the options granted. We considered historic returns of our stock and the implied volatility of our publicly-traded options in determining expected volatility. We assumed no dividends would be paid, since our Board of Directors has suspended payment of dividends indefinitely and payment of dividends is restricted under our Senior Note covenants. The risk-free interest rate is based on the term structure of interest rates at the time of the option grant.
Activity related to stock options for the periods presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
Outstanding at beginning of period
|
672,669
|
|
|
$
|
16.49
|
|
|
643,907
|
|
|
$
|
18.13
|
|
|
650,223
|
|
|
$
|
18.12
|
|
Granted
|
29,410
|
|
|
12.50
|
|
|
125,449
|
|
|
9.19
|
|
|
—
|
|
|
—
|
|
Exercised
|
(2,313
|
)
|
|
10.80
|
|
|
—
|
|
|
—
|
|
|
(1,209
|
)
|
|
12.07
|
|
Expired
|
(84,976
|
)
|
|
28.45
|
|
|
(86,606
|
)
|
|
19.70
|
|
|
—
|
|
|
—
|
|
Canceled
|
(480
|
)
|
|
23.65
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(20,557
|
)
|
|
11.97
|
|
|
(10,081
|
)
|
|
10.98
|
|
|
(5,107
|
)
|
|
19.05
|
|
Outstanding at end of period
|
593,753
|
|
|
$
|
14.76
|
|
|
672,669
|
|
|
$
|
16.49
|
|
|
643,907
|
|
|
$
|
18.13
|
|
Exercisable at end of period
|
476,606
|
|
|
$
|
15.91
|
|
|
503,594
|
|
|
$
|
17.76
|
|
|
491,029
|
|
|
$
|
18.40
|
|
Vested or expected to vest in the future
|
585,186
|
|
|
$
|
14.83
|
|
|
672,669
|
|
|
$
|
16.49
|
|
|
643,877
|
|
|
$
|
18.13
|
|
The following table summarizes information about stock options outstanding and exercisable as of
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding
|
|
Stock Options Exercisable
|
Range of Exercise Price
|
Number Outstanding
|
|
Weighted Average Contractual Remaining Life (Years)
|
|
Weighted Average Exercise Price
|
|
Number Exercisable
|
|
Weighted Average Contractual Remaining Life (Years)
|
|
Weighted Average Exercise Price
|
$1 - $15
|
379,657
|
|
|
4.05
|
|
$
|
11.63
|
|
|
262,610
|
|
|
2.87
|
|
$
|
12.33
|
|
$16 - $20
|
157,129
|
|
|
3.99
|
|
19.08
|
|
|
157,029
|
|
|
3.99
|
|
19.08
|
|
$21- $30
|
56,967
|
|
|
0.12
|
|
23.65
|
|
|
56,967
|
|
|
0.12
|
|
23.65
|
|
$1- $30
|
593,753
|
|
|
3.66
|
|
$
|
14.76
|
|
|
476,606
|
|
|
2.91
|
|
$
|
15.91
|
|
Restricted Stock Awards.
The fair value of each restricted stock award with any market conditions is estimated on the date of grant using the Monte Carlo valuation method. The fair value of any restricted stock awards without market conditions is based on the market price of the Company's common stock on the date of grant. If applicable, the cash-settled component of any awards granted to employees is accounted for as a liability, which is adjusted to fair value each reporting period until vested.
Compensation cost arising from restricted stock awards granted to employees is recognized as an expense using the straight-line method over the vesting period. As of
September 30, 2017
and
September 30, 2016
, there was
$8.8 million
and
$11.0 million
, respectively, of total unrecognized compensation cost related to nonvested restricted stock awards. The cost remaining as of
September 30, 2017
is expected to be recognized over a weighted average period of
1.5 years
.
We have issued restricted stock awards to officers and key employees under both the 2014 Plan and the 2010 Plan. During our fiscal
2017
, we issued two types of restricted stock awards 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 year ended
September 30, 2017
, we issued
263,696
shares of performance-based restricted stock (2017 Performance Shares) to our executive officers and certain other employees that also have market conditions. The 2017 Performance Shares are structured to be awarded based on the Company's performance under three pre-determined financial metrics at the end of the three-year performance period. After determining the number of shares earned based on the financial metrics, which can range from
0%
to
175%
of the targeted number of shares, the award will be subject to further upward or downward adjustment by as much as
20%
based on the Company's relative total shareholder return (TSR) compared against the S&P Homebuilders Select Industry Index during the three-year performance period. The 2017 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
$13.60
per share on the date of grant.
A Monte Carlo valuation model requires the following inputs: (1) the expected dividend yield on the underlying stock; (2) the expected price volatility of the underlying stock; (3) the risk-free interest rate for the period corresponding with the expected term of the award; and (4) the fair value of the underlying stock. For the Company and each member of the peer group, the following
inputs were used, as applicable, in the Monte Carlo valuation model to determine the fair value as of the grant date for the 2017 Performance Shares:
0%
dividend yield for the Company, expected price volatility ranging from
32.6%
to
66.0%
and a risk-free interest rate of
1.30%
. 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 2017 Performance Shares earned in excess of the target number of
263,696
may be settled in cash or additional shares at the discretion of the Compensation Committee. Any portion of these shares that do not vest at the end of the period will be forfeited.
Time-Based Restricted Stock Awards.
During the year ended
September 30, 2017
, we also issued
271,855
shares of time-based restricted stock (Restricted Shares) to our directors, executive officers and certain other employees. Restricted Shares are valued based on the market price of the Company's common stock on the date of the grant. The Restricted Shares granted to our non-employee directors vest on the first anniversary of the grant, while the Restricted Shares granted to our executive officers and other employees generally vest ratably over three years from the date of grant.
Activity relating to all restricted stock awards for the periods presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2017
|
|
Performance-Based
|
|
Time-Based
|
|
Total
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
Beginning of period
|
448,693
|
|
|
$
|
16.71
|
|
|
807,124
|
|
|
$
|
17.52
|
|
|
1,255,817
|
|
|
$
|
17.23
|
|
Granted
|
263,696
|
|
|
13.60
|
|
|
271,855
|
|
|
12.50
|
|
|
535,551
|
|
|
13.04
|
|
Vested
|
—
|
|
|
—
|
|
|
(189,029
|
)
|
|
15.52
|
|
|
(189,029
|
)
|
|
15.52
|
|
Forfeited
|
(43,623
|
)
|
|
13.11
|
|
|
(17,769
|
)
|
|
14.08
|
|
|
(61,392
|
)
|
|
13.39
|
|
End of period
|
668,766
|
|
|
$
|
15.72
|
|
|
872,181
|
|
|
$
|
16.47
|
|
|
1,540,947
|
|
|
$
|
16.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2016
|
|
Performance-Based
|
|
Time-Based
|
|
Total
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
Beginning of period
|
252,022
|
|
|
$
|
16.34
|
|
|
704,261
|
|
|
$
|
18.97
|
|
|
956,283
|
|
|
$
|
18.27
|
|
Granted
|
231,624
|
|
|
15.43
|
|
|
259,819
|
|
|
14.04
|
|
|
491,443
|
|
|
14.69
|
|
Vested
|
—
|
|
|
—
|
|
|
(127,993
|
)
|
|
18.58
|
|
|
(127,993
|
)
|
|
18.58
|
|
Forfeited
|
(34,953
|
)
|
|
5.51
|
|
|
(28,963
|
)
|
|
16.78
|
|
|
(63,916
|
)
|
|
10.62
|
|
End of period
|
448,693
|
|
|
$
|
16.71
|
|
|
807,124
|
|
|
$
|
17.52
|
|
|
1,255,817
|
|
|
$
|
17.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2015
|
|
Performance-Based
|
|
Time-Based
|
|
Total
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
Beginning of period
|
166,413
|
|
|
$
|
5.78
|
|
|
580,154
|
|
|
$
|
18.62
|
|
|
746,567
|
|
|
$
|
15.76
|
|
Granted
|
201,157
|
|
|
19.03
|
|
|
209,035
|
|
|
19.00
|
|
|
410,192
|
|
|
19.01
|
|
Vested
|
—
|
|
|
—
|
|
|
(64,719
|
)
|
|
15.96
|
|
|
(64,719
|
)
|
|
15.96
|
|
Forfeited
|
(115,548
|
)
|
|
5.82
|
|
|
(20,209
|
)
|
|
18.95
|
|
|
(135,757
|
)
|
|
7.77
|
|
End of period
|
252,022
|
|
|
$
|
16.34
|
|
|
704,261
|
|
|
$
|
18.97
|
|
|
956,283
|
|
|
$
|
18.27
|
|
(17) Earnings Per Share
Basic income per share is calculated by dividing net income 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 per share is calculated using unrounded numbers.
For the years ended September 30,
2017
,
2016
and
2015
,
0.3 million
,
1.5 million
and
1.1 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.
The weighted-average number of common shares outstanding used to calculate basic income per share is reconciled to shares used to calculate diluted income per share as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Basic shares
|
|
31,952
|
|
|
31,798
|
|
|
27,628
|
|
Shares issued upon conversion of TEUs
(a)
|
|
N/A
(b)
|
|
|
N/A
|
|
|
4,069
|
|
Shares issuable upon vesting of stock awards
|
|
433
|
|
|
5
|
|
|
75
|
|
Shares issuable upon exercise of options
|
|
41
|
|
|
—
|
|
|
—
|
|
Diluted shares
|
|
32,426
|
|
|
31,803
|
|
|
31,772
|
|
(a)
In July 2015, the remaining prepaid stock purchase contracts related to our previously outstanding Tangible Equity Units (TEUs) were settled in Beazer Homes' common stock. This conversion required us to issue approximately
5.2 million
shares of common stock to the instrument holders. These instruments were dilutive from October 1, 2014 through July 15, 2015; once the shares were converted, they were included in the number of the weighted-average basic shares outstanding.
(b)
N/A - Not applicable
(18) Segment Information
We currently operate in
13
states that are grouped into
three
homebuilding segments based on geography. Revenues from our homebuilding segments are derived from the sale of homes that we construct and from land and lot sales. Our reportable segments have been determined on a basis that is used internally by management for evaluating segment performance and resource allocations. We have considered the applicable aggregation criteria, and have combined our homebuilding operations into
three
reportable segments as follows:
West
: Arizona, California, Nevada and Texas
East
: Delaware, Indiana, Maryland, New Jersey
(a)
, Tennessee and Virginia
Southeast
: Florida, Georgia, North Carolina and South Carolina
(a)
During our fiscal 2015, we made the decision that we would not continue to reinvest in new homebuilding assets in our New Jersey division; therefore, it is no longer considered an active operation. However, it is included in this listing because the segment information below continues to include New Jersey.
Management’s evaluation of segment performance is based on segment operating income. Operating income for our homebuilding segments is defined as homebuilding, land sale and other revenues less home construction, land development and land sales expense, commission expense, depreciation and amortization and certain G&A expenses that are incurred by or allocated to our homebuilding segments. The accounting policies of our segments are those described in Note 2.
The following tables contain our revenue, operating income and depreciation and amortization by segment for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Revenue
|
|
|
|
|
|
West
|
$
|
853,230
|
|
|
$
|
827,907
|
|
|
$
|
607,515
|
|
East
|
551,422
|
|
|
526,949
|
|
|
576,560
|
|
Southeast
|
511,626
|
|
|
467,258
|
|
|
443,338
|
|
Total revenue
|
$
|
1,916,278
|
|
|
$
|
1,822,114
|
|
|
$
|
1,627,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Operating income
(a)
|
|
|
|
|
|
West
|
$
|
110,600
|
|
|
$
|
99,835
|
|
|
$
|
67,236
|
|
East
(b)
|
58,191
|
|
|
42,205
|
|
|
52,516
|
|
Southeast
(c)
|
53,905
|
|
|
49,250
|
|
|
37,114
|
|
Segment total
|
222,696
|
|
|
191,290
|
|
|
156,866
|
|
Corporate and unallocated
(d)
|
(160,558
|
)
|
|
(131,965
|
)
|
|
(105,279
|
)
|
Total operating income
|
$
|
62,138
|
|
|
$
|
59,325
|
|
|
$
|
51,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Depreciation and amortization
|
|
|
|
|
|
West
|
$
|
7,207
|
|
|
$
|
6,086
|
|
|
$
|
5,544
|
|
East
|
2,927
|
|
|
3,173
|
|
|
3,091
|
|
Southeast
|
2,564
|
|
|
2,451
|
|
|
2,776
|
|
Segment total
|
12,698
|
|
|
11,710
|
|
|
11,411
|
|
Corporate and unallocated
(d)
|
1,311
|
|
|
2,084
|
|
|
1,927
|
|
Total depreciation and amortization
|
$
|
14,009
|
|
|
$
|
13,794
|
|
|
$
|
13,338
|
|
(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 year ended
September 30, 2017
was impacted by a charge to G&A of
$2.7 million
related to the write-off of a deposit on a legacy investment in a development site that we deemed noncollectible.
(c)
Operating income for our Southeast segment for the year ended September 30, 2016 and 2015 was impacted by unexpected warranty costs related to the Florida stucco issues, net of expected insurance recoveries. This impact was a credit of
$3.6 million
in fiscal 2016 and an expense of
$13.6 million
in fiscal 2015.
(d)
Corporate and unallocated operating loss includes amortization of capitalized interest and capitalized indirects; expenses related to numerous shared services functions that benefit all segments but are not allocated to the operating segments reported above, including information technology, treasury, corporate finance, legal, branding and national marketing; and certain other amounts that are not allocated to our operating segments. For the year ended September 30, 2016, the Corporate and unallocated operating loss includes a
$15.5 million
reduction in home construction expenses resulting from an agreement entered into during the current fiscal year with our third-party insurer to resolve certain issues related to the extent of our insurance coverage (refer to Note 9).
Corporate and unallocated depreciation and amortization represents depreciation and amortization related to assets held by corporate functions that benefit all segments.
The following table contains our capital expenditures by segment for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2017
|
|
2016
|
|
2015
|
Capital Expenditures
|
|
|
|
|
|
West
|
$
|
7,086
|
|
|
$
|
6,570
|
|
|
$
|
7,348
|
|
East
|
2,474
|
|
|
2,441
|
|
|
3,692
|
|
Southeast
|
2,539
|
|
|
2,747
|
|
|
3,379
|
|
Corporate and unallocated
(a)
|
341
|
|
|
461
|
|
|
2,219
|
|
Total capital expenditures
|
$
|
12,440
|
|
|
$
|
12,219
|
|
|
$
|
16,638
|
|
(a)
Amount for fiscal 2015 includes non-cash capital expenditure; refer to Note 3.
The following table contains our asset balance by segment as of
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2017
|
|
September 30, 2016
|
Assets
|
|
|
|
West
|
$
|
779,964
|
|
|
$
|
778,521
|
|
East
|
298,532
|
|
|
344,898
|
|
Southeast
|
331,618
|
|
|
333,501
|
|
Corporate and unallocated
(a)
|
810,881
|
|
|
756,238
|
|
Total assets
|
$
|
2,220,995
|
|
|
$
|
2,213,158
|
|
(a)
Primarily consists of cash and cash equivalents, restricted cash, deferred taxes, capitalized interest and indirects and other items that are not allocated to the segments.
(19) Supplemental Guarantor Information
As discussed in Note 8, 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. The guarantees are full and unconditional and the guarantor subsidiaries are
100%
owned by Beazer Homes USA, Inc. The following financial information presents the line items of our 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.
Beazer Homes USA, Inc.
Condensed Consolidating Balance Sheet Information
September 30, 2017
(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/discount 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
|
|
Beazer Homes USA, Inc.
Condensed Consolidating Balance Sheet Information
September 30, 2016
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
215,646
|
|
|
$
|
16,866
|
|
|
$
|
859
|
|
|
$
|
(4,500
|
)
|
|
$
|
228,871
|
|
Restricted cash
|
12,867
|
|
|
1,538
|
|
|
—
|
|
|
—
|
|
|
14,405
|
|
Accounts receivable (net of allowance of $354)
|
—
|
|
|
53,225
|
|
|
1
|
|
|
—
|
|
|
53,226
|
|
Income tax receivable
|
292
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
292
|
|
Owned inventory
|
—
|
|
|
1,569,279
|
|
|
—
|
|
|
—
|
|
|
1,569,279
|
|
Investments in unconsolidated entities
|
773
|
|
|
9,697
|
|
|
—
|
|
|
—
|
|
|
10,470
|
|
Deferred tax assets, net
|
309,955
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
309,955
|
|
Property and equipment, net
|
—
|
|
|
19,138
|
|
|
—
|
|
|
—
|
|
|
19,138
|
|
Investments in subsidiaries
|
701,931
|
|
|
—
|
|
|
—
|
|
|
(701,931
|
)
|
|
—
|
|
Intercompany
|
734,766
|
|
|
—
|
|
|
2,574
|
|
|
(737,340
|
)
|
|
—
|
|
Other assets
|
577
|
|
|
6,930
|
|
|
15
|
|
|
—
|
|
|
7,522
|
|
Total assets
|
$
|
1,976,807
|
|
|
$
|
1,676,673
|
|
|
$
|
3,449
|
|
|
$
|
(1,443,771
|
)
|
|
$
|
2,213,158
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
—
|
|
|
$
|
104,174
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
104,174
|
|
Other liabilities
|
11,315
|
|
|
122,561
|
|
|
377
|
|
|
—
|
|
|
134,253
|
|
Intercompany
|
2,574
|
|
|
739,266
|
|
|
—
|
|
|
(741,840
|
)
|
|
—
|
|
Total debt (net of discount and debt issuance costs)
|
1,320,065
|
|
|
11,813
|
|
|
—
|
|
|
—
|
|
|
1,331,878
|
|
Total liabilities
|
1,333,954
|
|
|
977,814
|
|
|
377
|
|
|
(741,840
|
)
|
|
1,570,305
|
|
Stockholders’ equity
|
642,853
|
|
|
698,859
|
|
|
3,072
|
|
|
(701,931
|
)
|
|
642,853
|
|
Total liabilities and stockholders’ equity
|
$
|
1,976,807
|
|
|
$
|
1,676,673
|
|
|
$
|
3,449
|
|
|
$
|
(1,443,771
|
)
|
|
$
|
2,213,158
|
|
Beazer Homes USA, Inc.
Consolidating Statements of Income and Comprehensive Income Information
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
Fiscal Year Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
—
|
|
|
$
|
1,916,278
|
|
|
$
|
107
|
|
|
$
|
(107
|
)
|
|
$
|
1,916,278
|
|
Home construction and land sales expenses
|
88,764
|
|
|
1,512,312
|
|
|
—
|
|
|
(107
|
)
|
|
1,600,969
|
|
Inventory impairments and abandonments
|
56
|
|
|
2,389
|
|
|
—
|
|
|
—
|
|
|
2,445
|
|
Gross (loss) profit
|
(88,820
|
)
|
|
401,577
|
|
|
107
|
|
|
—
|
|
|
312,864
|
|
Commissions
|
—
|
|
|
74,811
|
|
|
—
|
|
|
—
|
|
|
74,811
|
|
General and administrative expenses
|
—
|
|
|
161,804
|
|
|
102
|
|
|
—
|
|
|
161,906
|
|
Depreciation and amortization
|
—
|
|
|
14,009
|
|
|
—
|
|
|
—
|
|
|
14,009
|
|
Operating (loss) income
|
(88,820
|
)
|
|
150,953
|
|
|
5
|
|
|
—
|
|
|
62,138
|
|
Equity in income of unconsolidated entities
|
—
|
|
|
371
|
|
|
—
|
|
|
—
|
|
|
371
|
|
Loss on extinguishment of debt
|
(12,630
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,630
|
)
|
Other (expense) income, net
|
(15,635
|
)
|
|
429
|
|
|
(24
|
)
|
|
—
|
|
|
(15,230
|
)
|
(Loss) income before income taxes
|
(117,085
|
)
|
|
151,753
|
|
|
(19
|
)
|
|
—
|
|
|
34,649
|
|
(Benefit) expense from income taxes
|
(42,564
|
)
|
|
45,266
|
|
|
(6
|
)
|
|
—
|
|
|
2,696
|
|
Equity in income of subsidiaries
|
106,474
|
|
|
—
|
|
|
—
|
|
|
(106,474
|
)
|
|
—
|
|
Income (loss) from continuing operations
|
31,953
|
|
|
106,487
|
|
|
(13
|
)
|
|
(106,474
|
)
|
|
31,953
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(115
|
)
|
|
(25
|
)
|
|
—
|
|
|
(140
|
)
|
Equity in loss of subsidiaries
|
(140
|
)
|
|
—
|
|
|
—
|
|
|
140
|
|
|
—
|
|
Net income and comprehensive income
|
$
|
31,813
|
|
|
$
|
106,372
|
|
|
$
|
(38
|
)
|
|
$
|
(106,334
|
)
|
|
$
|
31,813
|
|
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
Fiscal Year Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
—
|
|
|
$
|
1,822,114
|
|
|
$
|
156
|
|
|
$
|
(156
|
)
|
|
$
|
1,822,114
|
|
Home construction and land sales expenses
|
77,941
|
|
|
1,431,840
|
|
|
—
|
|
|
(156
|
)
|
|
1,509,625
|
|
Inventory impairments and abandonments
|
710
|
|
|
14,572
|
|
|
—
|
|
|
—
|
|
|
15,282
|
|
Gross (loss) profit
|
(78,651
|
)
|
|
375,702
|
|
|
156
|
|
|
—
|
|
|
297,207
|
|
Commissions
|
—
|
|
|
70,460
|
|
|
—
|
|
|
—
|
|
|
70,460
|
|
General and administrative expenses
|
—
|
|
|
153,524
|
|
|
104
|
|
|
—
|
|
|
153,628
|
|
Depreciation and amortization
|
—
|
|
|
13,794
|
|
|
—
|
|
|
—
|
|
|
13,794
|
|
Operating (loss) income
|
(78,651
|
)
|
|
137,924
|
|
|
52
|
|
|
—
|
|
|
59,325
|
|
Equity in income of unconsolidated entities
|
—
|
|
|
131
|
|
|
—
|
|
|
—
|
|
|
131
|
|
Loss on extinguishment of debt
|
(13,423
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,423
|
)
|
Other (expense) income, net
|
(25,388
|
)
|
|
1,061
|
|
|
(3
|
)
|
|
—
|
|
|
(24,330
|
)
|
(Loss) income before income taxes
|
(117,462
|
)
|
|
139,116
|
|
|
49
|
|
|
—
|
|
|
21,703
|
|
(Benefit) expense from income taxes
|
(70,126
|
)
|
|
86,605
|
|
|
19
|
|
|
—
|
|
|
16,498
|
|
Equity in income of subsidiaries
|
52,541
|
|
|
—
|
|
|
—
|
|
|
(52,541
|
)
|
|
—
|
|
Income from continuing operations
|
5,205
|
|
|
52,511
|
|
|
30
|
|
|
(52,541
|
)
|
|
5,205
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(503
|
)
|
|
(9
|
)
|
|
—
|
|
|
(512
|
)
|
Equity in loss of subsidiaries
|
(512
|
)
|
|
—
|
|
|
—
|
|
|
512
|
|
|
—
|
|
Net income and comprehensive income
|
$
|
4,693
|
|
|
$
|
52,008
|
|
|
$
|
21
|
|
|
$
|
(52,029
|
)
|
|
$
|
4,693
|
|
Beazer Homes USA, Inc.
Consolidating Statements of Income and Comprehensive Income Information
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
Fiscal Year Ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
—
|
|
|
$
|
1,627,413
|
|
|
$
|
198
|
|
|
$
|
(198
|
)
|
|
$
|
1,627,413
|
|
Home construction and land sales expenses
|
55,006
|
|
|
1,297,052
|
|
|
—
|
|
|
(198
|
)
|
|
1,351,860
|
|
Inventory impairments and abandonments
|
—
|
|
|
3,109
|
|
|
—
|
|
|
—
|
|
|
3,109
|
|
Gross (loss) profit
|
(55,006
|
)
|
|
327,252
|
|
|
198
|
|
|
—
|
|
|
272,444
|
|
Commissions
|
—
|
|
|
65,023
|
|
|
—
|
|
|
—
|
|
|
65,023
|
|
General and administrative expenses
|
—
|
|
|
142,391
|
|
|
105
|
|
|
—
|
|
|
142,496
|
|
Depreciation and amortization
|
—
|
|
|
13,338
|
|
|
—
|
|
|
—
|
|
|
13,338
|
|
Operating (loss) income
|
(55,006
|
)
|
|
106,500
|
|
|
93
|
|
|
—
|
|
|
51,587
|
|
Equity in income of unconsolidated entities
|
—
|
|
|
536
|
|
|
—
|
|
|
—
|
|
|
536
|
|
Loss on extinguishment of debt
|
(80
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(80
|
)
|
Other expense, net
|
(29,752
|
)
|
|
(258
|
)
|
|
(3
|
)
|
|
—
|
|
|
(30,013
|
)
|
(Loss) income before income taxes
|
(84,838
|
)
|
|
106,778
|
|
|
90
|
|
|
—
|
|
|
22,030
|
|
(Benefit) expense from income taxes
|
(32,275
|
)
|
|
(292,326
|
)
|
|
32
|
|
|
—
|
|
|
(324,569
|
)
|
Equity in income of subsidiaries
|
399,162
|
|
|
—
|
|
|
—
|
|
|
(399,162
|
)
|
|
—
|
|
Income from continuing operations
|
346,599
|
|
|
399,104
|
|
|
58
|
|
|
(399,162
|
)
|
|
346,599
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(2,495
|
)
|
|
(10
|
)
|
|
—
|
|
|
(2,505
|
)
|
Equity in loss of subsidiaries
|
(2,505
|
)
|
|
—
|
|
|
—
|
|
|
2,505
|
|
|
—
|
|
Net income
|
$
|
344,094
|
|
|
$
|
396,609
|
|
|
$
|
48
|
|
|
$
|
(396,657
|
)
|
|
$
|
344,094
|
|
Change in unrealized loss related to available-for-sale securities
|
1,276
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,276
|
|
Comprehensive income
|
$
|
345,370
|
|
|
$
|
396,609
|
|
|
$
|
48
|
|
|
$
|
(396,657
|
)
|
|
$
|
345,370
|
|
Beazer Homes USA, Inc.
Condensed Consolidating Statements of Cash Flow Information
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
Fiscal Year Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
$
|
(74,046
|
)
|
|
$
|
170,129
|
|
|
$
|
(174
|
)
|
|
$
|
—
|
|
|
$
|
95,909
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(12,440
|
)
|
|
—
|
|
|
—
|
|
|
(12,440
|
)
|
Proceeds from sale of fixed assets
|
—
|
|
|
297
|
|
|
—
|
|
|
—
|
|
|
297
|
|
Investments in unconsolidated entities
|
—
|
|
|
(3,261
|
)
|
|
—
|
|
|
—
|
|
|
(3,261
|
)
|
Return of capital from unconsolidated entities
|
—
|
|
|
1,621
|
|
|
—
|
|
|
—
|
|
|
1,621
|
|
Advances to/from subsidiaries
|
148,081
|
|
|
—
|
|
|
39
|
|
|
(148,120
|
)
|
|
—
|
|
Net cash provided by (used in) investing activities
|
148,081
|
|
|
(13,783
|
)
|
|
39
|
|
|
(148,120
|
)
|
|
(13,783
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
(253,046
|
)
|
|
(12,437
|
)
|
|
—
|
|
|
—
|
|
|
(265,483
|
)
|
Proceeds from issuance of new debt
|
250,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250,000
|
|
Repayment of borrowing from credit facility
|
(25,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,000
|
)
|
Borrowing from credit facility
|
25,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,000
|
|
Debt issuance costs
|
(4,919
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,919
|
)
|
Other financing activities
|
(391
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(391
|
)
|
Advances to/from subsidiaries
|
|
|
|
(145,459
|
)
|
|
|
|
|
145,459
|
|
|
—
|
|
Net cash (used in) provided by financing activities
|
(8,356
|
)
|
|
(157,896
|
)
|
|
—
|
|
|
145,459
|
|
|
(20,793
|
)
|
Increase (decrease) in cash and cash equivalents
|
65,679
|
|
|
(1,550
|
)
|
|
(135
|
)
|
|
(2,661
|
)
|
|
61,333
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
228,512
|
|
|
18,405
|
|
|
859
|
|
|
(4,500
|
)
|
|
243,276
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
294,191
|
|
|
$
|
16,855
|
|
|
$
|
724
|
|
|
$
|
(7,161
|
)
|
|
$
|
304,609
|
|
Beazer Homes USA, Inc.
Condensed Consolidating Statements of Cash Flow Information
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
Fiscal Year Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
$
|
(56,218
|
)
|
|
$
|
219,401
|
|
|
$
|
(158
|
)
|
|
$
|
—
|
|
|
$
|
163,025
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(12,219
|
)
|
|
—
|
|
|
—
|
|
|
(12,219
|
)
|
Proceeds from sale of fixed assets
|
—
|
|
|
2,624
|
|
|
—
|
|
|
—
|
|
|
2,624
|
|
Investments in unconsolidated entities
|
—
|
|
|
(4,241
|
)
|
|
—
|
|
|
—
|
|
|
(4,241
|
)
|
Return of capital from unconsolidated entities
|
—
|
|
|
1,142
|
|
|
—
|
|
|
—
|
|
|
1,142
|
|
Advances to/from subsidiaries
|
203,690
|
|
|
—
|
|
|
11
|
|
|
(203,701
|
)
|
|
—
|
|
Net cash provided by (used in) investing activities
|
203,690
|
|
|
(12,694
|
)
|
|
11
|
|
|
(203,701
|
)
|
|
(12,694
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
(819,044
|
)
|
|
(9,177
|
)
|
|
—
|
|
|
—
|
|
|
(828,221
|
)
|
Proceeds from issuance of new debt
|
642,150
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
642,150
|
|
Repayment of borrowing from credit facility
|
(90,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(90,000
|
)
|
Borrowing from credit facility
|
90,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
90,000
|
|
Debt issuance costs
|
(11,246
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,246
|
)
|
Other financing activities
|
(222
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(222
|
)
|
Advances to/from subsidiaries
|
—
|
|
|
(202,393
|
)
|
|
—
|
|
|
202,393
|
|
|
—
|
|
Net cash used in financing activities
|
(188,362
|
)
|
|
(211,570
|
)
|
|
—
|
|
|
202,393
|
|
|
(197,539
|
)
|
Decrease in cash and cash equivalents
|
(40,890
|
)
|
|
(4,863
|
)
|
|
(147
|
)
|
|
(1,308
|
)
|
|
(47,208
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
269,402
|
|
|
23,268
|
|
|
1,006
|
|
|
(3,192
|
)
|
|
290,484
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
228,512
|
|
|
$
|
18,405
|
|
|
$
|
859
|
|
|
$
|
(4,500
|
)
|
|
$
|
243,276
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
$
|
(388,584
|
)
|
|
$
|
307,668
|
|
|
$
|
(133
|
)
|
|
$
|
—
|
|
|
$
|
(81,049
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(15,964
|
)
|
|
—
|
|
|
—
|
|
|
(15,964
|
)
|
Investments in unconsolidated entities
|
—
|
|
|
(4,944
|
)
|
|
—
|
|
|
—
|
|
|
(4,944
|
)
|
Return of capital from unconsolidated entities
|
—
|
|
|
24,245
|
|
|
—
|
|
|
—
|
|
|
24,245
|
|
Advances to/from subsidiaries
|
302,569
|
|
|
—
|
|
|
25
|
|
|
(302,594
|
)
|
|
—
|
|
Net cash provided by investing activities
|
302,569
|
|
|
3,337
|
|
|
25
|
|
|
(302,594
|
)
|
|
3,337
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
(8,703
|
)
|
|
(9,870
|
)
|
|
—
|
|
|
—
|
|
|
(18,573
|
)
|
Debt issuance costs
|
(126
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(126
|
)
|
Borrowing from credit facility
|
75,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75,000
|
|
Repayment of borrowing from credit facility
|
(75,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(75,000
|
)
|
Other financing activities
|
(200
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(200
|
)
|
Dividends paid
|
500
|
|
|
—
|
|
|
(500
|
)
|
|
—
|
|
|
—
|
|
Advances to/from subsidiaries
|
21
|
|
|
(300,897
|
)
|
|
—
|
|
|
300,876
|
|
|
—
|
|
Net cash used in financing activities
|
(8,508
|
)
|
|
(310,767
|
)
|
|
(500
|
)
|
|
300,876
|
|
|
(18,899
|
)
|
(Decrease) increase in cash and cash equivalents
|
(94,523
|
)
|
|
238
|
|
|
(608
|
)
|
|
(1,718
|
)
|
|
(96,611
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
363,925
|
|
|
23,030
|
|
|
1,614
|
|
|
(1,474
|
)
|
|
387,095
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
269,402
|
|
|
$
|
23,268
|
|
|
$
|
1,006
|
|
|
$
|
(3,192
|
)
|
|
$
|
290,484
|
|
(20) Discontinued Operations
We continually review each of our markets in order to refine our overall investment strategy and to optimize capital and resource allocations in an effort to enhance our financial position and to increase stockholder value. This review entails an evaluation of both external market factors and our position in each market, and over time has resulted in the decision to discontinue certain of our homebuilding operations. During our fiscal 2015, we made the decision that we would not continue to reinvest in new homebuilding assets in our New Jersey division; therefore, it is no longer considered an active operation. However, the results of our New Jersey division are not included in the discontinued operations information shown below.
We have classified the results of operations of our discontinued operations separately in the accompanying consolidated statements of income for all periods presented. There were no material assets or liabilities related to our discontinued operations as of
September 30, 2017
or
September 30, 2016
. Discontinued operations were not segregated in the consolidated statements of cash flows. Therefore, amounts for certain captions in the consolidated statements of cash flows will not agree with the respective data in the consolidated statements of income. The results of our discontinued operations in the consolidated statements of income for the periods presented were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Total revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,030
|
|
Home construction and land sales expenses
(a)
|
|
72
|
|
|
668
|
|
|
4,518
|
|
Gross loss
|
|
(72
|
)
|
|
(668
|
)
|
|
(3,488
|
)
|
General and administrative expenses
|
|
169
|
|
|
137
|
|
|
380
|
|
Operating loss
|
|
(241
|
)
|
|
(805
|
)
|
|
(3,868
|
)
|
Equity in income of unconsolidated entities
|
|
31
|
|
|
12
|
|
|
—
|
|
Other (expense) income, net
|
|
(5
|
)
|
|
6
|
|
|
5
|
|
Loss from discontinued operations before income taxes
|
|
(215
|
)
|
|
(787
|
)
|
|
(3,863
|
)
|
Benefit from income taxes
|
|
(75
|
)
|
|
(275
|
)
|
|
(1,358
|
)
|
Loss from discontinued operations, net of tax
|
|
$
|
(140
|
)
|
|
$
|
(512
|
)
|
|
$
|
(2,505
|
)
|
(a)
The year ended September 30, 2015 included a
$3.7 million
expense related to the probable liability of a case regarding alleged past construction defects in our discontinued operations in Denver, Colorado.
(21) Selected Quarterly Financial Data (Unaudited)
Selected summarized quarterly financial information is as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
Quarter Ended
|
Fiscal 2017
|
|
December 31
|
|
March 31
|
|
June 30
|
|
September 30
|
Total revenue
|
|
$
|
339,241
|
|
|
$
|
425,468
|
|
|
$
|
478,588
|
|
|
$
|
672,981
|
|
Gross profit
(a)
|
|
53,663
|
|
|
67,398
|
|
|
78,443
|
|
|
113,360
|
|
Operating income
|
|
1,275
|
|
|
7,511
|
|
|
15,569
|
|
|
37,783
|
|
Net income (loss) from continuing operations
(b)
|
|
(1,359
|
)
|
|
(7,495
|
)
|
|
7,114
|
|
|
33,693
|
|
Basic EPS from continuing operations
(c)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
0.22
|
|
|
$
|
1.05
|
|
Diluted EPS from continuing operations
(c)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
0.22
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
344,449
|
|
|
$
|
385,607
|
|
|
$
|
459,937
|
|
|
$
|
632,121
|
|
Gross profit
(a)
|
|
57,582
|
|
|
59,566
|
|
|
77,653
|
|
|
102,406
|
|
Operating income
|
|
9,148
|
|
|
3,030
|
|
|
16,309
|
|
|
30,838
|
|
Net (loss) income from continuing operations
(b)
|
|
1,199
|
|
|
(1,312
|
)
|
|
6,107
|
|
|
(789
|
)
|
Basic EPS from continuing operations
(c)
|
|
$
|
0.04
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.19
|
|
|
$
|
(0.03
|
)
|
Diluted EPS from continuing operations
(c)
|
|
$
|
0.04
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.19
|
|
|
$
|
(0.03
|
)
|
|
|
(a)
|
Gross profit in fiscal
2017
and
2016
includes inventory impairment and abandonments as follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Fiscal 2017
|
|
Fiscal 2016
|
1st Quarter
|
|
$
|
—
|
|
|
$
|
1,356
|
|
2nd Quarter
|
|
282
|
|
|
1,825
|
|
3rd Quarter
|
|
470
|
|
|
11,917
|
|
4th Quarter
|
|
1,693
|
|
|
184
|
|
|
|
$
|
2,445
|
|
|
$
|
15,282
|
|
(b)
Net income (loss) from continuing operations in fiscal
2017
and
2016
includes gain (loss) on extinguishment of debt as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Fiscal 2017
|
|
Fiscal 2016
|
1st Quarter
|
|
$
|
—
|
|
|
$
|
(828
|
)
|
2nd Quarter
|
|
(15,563
|
)
|
|
(1,631
|
)
|
3rd Quarter
|
|
—
|
|
|
429
|
|
4th Quarter
|
|
2,933
|
|
|
(11,393
|
)
|
|
|
$
|
(12,630
|
)
|
|
$
|
(13,423
|
)
|
(c)
Amounts shown above for EPS for the quarterly periods are calculated separately from the full fiscal year amounts. Accordingly, quarterly amounts will not add to the respective annual amount.
(22) Subsequent Events
In October 2017, we issued and sold
$400.0 million
aggregate principal amount of
5.875%
unsecured Senior Notes due October 2027 at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers (the 2027 Notes). Interest on the 2027 Notes is payable semi-annually, beginning on April 15, 2018. The 2027 Notes will mature on October 15, 2027. We may redeem the 2027 Notes at any time prior to October 15, 2022, in whole or in part, at a redemption price equal to
100%
of the principal amount of the notes to be redeemed, together with accrued and unpaid interest to, but excluding, the redemption date, plus a customary make-whole premium. In addition, on or prior to October 15, 2022, we may redeem up to
35%
of the aggregate principal amount of the 2027 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to
105.875%
of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at least
65%
of the aggregate principal amount of the 2027 Notes originally issued remains outstanding immediately after such redemption. The covenants related to the 2027 Notes are consistent with our other senior notes.
The proceeds of the 2027 Notes, as well as
$34.5 million
cash on hand, were used to redeem
$225.0 million
of our
5.75%
unsecured Senior Notes due 2019 and
$175.0 million
of our
7.25%
unsecured Senior Notes due 2023, resulting in a loss on extinguishment of debt of
$25.9 million
, of which
$3.2 million
was a non-cash write-off of debt issuance and discount costs.
In October, 2017, we executed a Fourth Amendment to the Facility. 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
at the discretion of the lenders.