NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Organization.
Beazer Homes USA, Inc. is one of the ten largest homebuilders in the United States, based on number of homes closed. We are a geographically diversified homebuilder with active operations in
16
states: Arizona, California, Delaware, Florida, Georgia, Indiana, Maryland, Nevada, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas, and Virginia. Results from our title services business and exit markets are reported as discontinued operations in the accompanying Consolidated Statements of Operations for all periods presented (see Note 16 for further discussion of our Discontinued Operations). We evaluated events that occurred after the balance sheet date but before the financial statements were issued or are available to be issued for accounting treatment and disclosure.
Presentation.
The accompanying consolidated financial statements include the accounts of Beazer Homes USA, Inc. and our subsidiaries. Intercompany balances have been eliminated in consolidation. Certain items in prior period financial statements have been revised to conform to the current presentation. Our net loss is equivalent to our comprehensive loss so we have not presented a separate statement of comprehensive loss.
Cash and Cash Equivalents and Restricted Cash
.
We consider investments with maturities of three months or less when purchased to be cash equivalents. At
September 30, 2013
, the majority of our cash and cash equivalents were invested in high-quality money market mutual funds, highly marketable securities, or on deposit with major banks, which were valued at par with 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 cash secured term loan and outstanding letters of credit.
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 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 the receivable when 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, including estimated future costs for warranties and amenities. 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. Consolidated inventory not owned represents the fair value of land under option agreements of 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. 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 in the Consolidated Balance Sheets.
Inventory Valuation - Held for Development
.
Our homebuilding inventories that are accounted for as held for development include land and home construction assets grouped together as communities. Homebuilding inventories held for development are stated at cost (including direct construction costs, capitalized indirect costs, capitalized interest and real estate taxes) unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. 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. A significant downturn in our business, as experienced in the recent past, may negatively impact the estimated life of communities. 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 should be 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 inventories held for development, we establish a quarterly “watch list” of communities with more than 10 homes remaining that carry profit margins in backlog or in our forecast that are below a minimum threshold of profitability. In our experience, this threshold represents a level of profitability that may be an indicator of conditions which would require an asset impairment but does not guarantee that such impairment will definitively be appropriate. As such, assets on the quarterly watch list are subject to substantial additional financial and operational analyses and review that consider the competitive environment and other factors contributing to profit margins below our watch list threshold. 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 competitor new home communities 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 many factors. 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 assets, such as 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 analysis compares 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.
t
There is uncertainty associated with preparing the undiscounted cash flow analysis 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 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 analysis 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, 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 plus the asset's share of capitalized unallocated interest and other costs. The carrying value of assets in communities that were previously impaired and continue to be classified as held for development is not increased for future estimates of increases in fair value in future reporting periods. Due to uncertainties in the estimation process, particularly with respect to projected home sales prices and absorption rates, the timing and amount of the estimated future cash flows and discount rates, it is reasonably possible that actual results could differ from the estimates used in our impairment analyses.
Asset Valuation - Land Held for Future Development.
For those communities for which construction and development activities are expected to occur in the future or have been idled (land held for future development), all applicable interest and real estate taxes are expensed as incurred and the inventory is stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. The future enactment of a development plan or the occurrence of events and circumstances may indicate that the carrying amount of an asset may not be recoverable. We evaluate the potential development plans of each community in land held for future development if changes in facts and circumstances occur which would give rise to a more detailed analysis for a change in the status of a community to active status or held for development.
Asset Valuation - Land Held for Sale.
We record assets held for sale at the lower of the carrying value or fair value less costs to sell. The following criteria are used to determine if land is held for sale:
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•
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management has the authority and commits to a plan to sell the land;
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•
|
the land is available for immediate sale in its present conditions;
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•
|
there is an active program to locate a buyer and the plan to sell the property has been initiated;
|
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•
|
the sale of the land is probable within one year;
|
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|
•
|
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, 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 and the foregoing criteria have been met at the end of the applicable reporting period, 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.
In determining the fair value of the assets less cost to sell, we consider factors including current sales prices for comparable assets in the area, recent market analysis studies, appraisals, any recent legitimate offers, and listing prices of similar properties. If the estimated fair value less cost to sell of an asset is less than its current carrying value, the asset is written down to its estimated fair value less cost to sell. Due to uncertainties in the estimation process, it is reasonably possible that actual results could differ from the estimates used in our historical analyses.
Land Not Owned Under Option Agreements.
In addition to purchasing land directly, we utilize lot option agreements 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. A majority of our lot option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land for the right to acquire lots during a specified period of time at a certain price. Under lot option contracts, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers. 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.
In accordance with generally accepted accounting principles in the United States of America (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, the ability to determine the budget and scope of land development work, if any; the ability to control financing decisions for the VIE; the ability to acquire additional land into the VIE or dispose of land in the VIE not under contract with Beazer; and 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 and reflect such assets and liabilities as land not owned under option agreements in our balance sheets, though creditors of the VIE have no recourse against the Company. For VIEs we are required to consolidate, we record the remaining contractual purchase price under the applicable lot option agreement to land not owned under option agreements with an offsetting increase to obligations related to land not owned under option agreements. During the recent housing industry downturn, the Company canceled a significant number of lot option agreements, which resulted in significant write-offs of the related deposits and pre-acquisition costs but did not expose the Company to the overall risks or losses of the applicable VIEs.
Investments in Unconsolidated Entities.
We participate in a number of land development joint ventures and have investments in other unconsolidated entities in which we have less than a controlling interest. We enter into investments in unconsolidated entities in order to acquire attractive land positions, to manage our risk profile and to leverage our capital base. Excluding our investment in a pre-owned rental homes real estate investment trust (REIT), our investments in our unconsolidated entities are typically entered into with developers, other homebuilders and financial partners to develop finished lots for sale to the unconsolidated entity’s members and other third parties. We account for our interest in our unconsolidated entities under the equity method. 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 which 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 and development financing. See Note 3,
Investments in Unconsolidated Entities
.
Property, Plant and Equipment.
Property, plant and equipment is recorded at cost. Depreciation is computed on a straight-line basis at rates based on estimated useful lives as follows:
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Buildings
|
|
25 - 30 years
|
Building improvements
|
|
Lesser of estimated useful life of the improvements or remaining useful life of the building
|
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 useful life of the community
|
Leasehold improvements
|
|
Lesser of the lease term or the estimated useful life of the asset
|
Other Assets.
Other assets principally include prepaid expenses, debt issuance costs and deferred compensation plan assets.
Income Taxes.
The 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.
Other Liabilities.
Other
liabilities include the following:
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(In thousands)
|
September 30, 2013
|
|
September 30, 2012
|
Income tax liabilities
|
$
|
20,170
|
|
|
$
|
22,225
|
|
Accrued warranty expenses
|
11,663
|
|
|
15,477
|
|
Accrued interest
|
33,372
|
|
|
28,673
|
|
Accrued and deferred compensation
|
25,579
|
|
|
24,612
|
|
Customer deposits
|
11,408
|
|
|
8,830
|
|
Other
|
43,431
|
|
|
47,901
|
|
Total
|
$
|
145,623
|
|
|
$
|
147,718
|
|
Income Recognition and Classification of Costs
.
Revenue and related profit are generally recognized at the time of the closing of a sale, when title to and possession of the property 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 and land sales expenses. Cash discounts are accounted for as a reduction in the sales price of the home.
Estimated future warranty costs are charged to cost of sales in the period when the revenues from home closings are recognized. Such estimated warranty costs generally range from
0.1%
to
1.6%
of total revenue. Additional warranty costs are charged to cost of sales 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 our continuing operations of
$14.2 million
,
$13.5 million
and
$11.4 million
for fiscal years
2013
,
2012
and
2011
, respectively, were expensed as incurred and are included in general and administrative expenses.
Earnings Per Share.
The computation of basic EPS is determined by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS additionally gives effect (when dilutive) to stock options, other stock based awards and other potentially dilutive securities including the common shares issuable upon conversion of our Tangible Equity Unit prepaid stock purchase contracts. In computing diluted loss per share for the fiscal years ended
September 30, 2013
,
2012
, and
2011
, all common stock equivalents were excluded from the computation of diluted loss per share as a result of their anti-dilutive effect. These common stock equivalents for the fiscal year ended September 30, 2013 included options/stock-settled appreciation rights (SSARs) to purchase
0.6 million
shares of common stock and
7.9 million
shares issuable upon the conversion of our TEU prepaid stock purchase contracts (based on the maximum potential shares upon conversion). See Notes 7, 12 and 13 for further discussion of these common stock equivalents.
Fair Value Measurements.
Certain of our assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value may not be recovered. We review our long-lived assets, including inventory for recoverability when factors that indicate an impairment may exist, but no less than quarterly. Fair value is based on estimated cash flows discounted for market risks associated with the long-lived assets. The fair value of certain of our financial instruments approximate 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. 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. See Notes 4 and 10 for additional discussion of our fair value measurements.
Stock-Based Compensation.
We use the Black-Scholes model to value SSARs and stock option grants. 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 a financing cash inflow and an operating cash outflow. Nonvested stock granted to employees is valued based on the market price of the common stock on the date of the grant. Performance based, nonvested stock granted to employees is valued using the Monte Carlo valuation method. Cash-settled, stock-based awards if, and when, granted to employees are initially valued based on the market price of the underlying common stock on the date of the grant and are adjusted to fair value until vested. Stock options issued to non-employees are valued using the Black-Scholes option pricing model. Nonvested stock granted to non-employees is initially valued based on the market price of the common stock on the date of the grant and is adjusted to fair value until vested. Compensation cost arising from nonvested stock granted to employees, from cash-settled, stock-based employee awards and from non-employee stock awards is recognized as expense using the straight-line method over the vesting period. Although the Company may, from time to time grant cash-settled awards to employees, for the fiscal years ended and as of
September 30, 2013
,
2012
, and
2011
, there were no such awards either granted or outstanding.
Use of Estimates.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements.
In April 2013, the FASB issued Accounting Standards Update (ASU) 2013-04,
Liabilities
(ASU 2013-04), which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. ASU 2013-04 is effective for the Company beginning October 1, 2014 and subsequent interim periods. The adoption of ASU 2013-04 is not expected to have a material effect on our consolidated financial statements or disclosures.
In July 2013, the FASB issued ASU 2013-11,
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a similar Tax Loss, or a Tax Credit Carryforward Exists,
(ASU 2013-11). ASU 2013-11 which states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward with certain defined exceptions. ASU 2013-11 is intended to end inconsistent practices regarding the presentation of a
unrecognized tax benefits when a net operating loss (NOL), a similar tax loss or a tax credit carryforward is available to reduce the taxable income or tax
payable that would result from the disallowance of a tax position. ASU 2013-11 will be effective for the Company’s fiscal year beginning October 1, 2014
and subsequent interim periods. Early and retrospective adoption is permitted. The adoption of ASU 2013-11 is not expected to have a material effect on our consolidated financial statements.
(2) Supplemental Cash Flow Information
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Fiscal Year Ended September 30,
|
(In thousands)
|
2013
|
|
2012
|
|
2011
|
Supplemental disclosure of non-cash activity:
|
|
|
|
|
|
Decrease in obligations related to land not owned under option agreements
|
$
|
(154
|
)
|
|
$
|
(602
|
)
|
|
$
|
(25,277
|
)
|
(Decrease) increase in future land purchase rights
|
—
|
|
|
(11,651
|
)
|
|
11,651
|
|
Contribution of future land purchase rights to unconsolidated entities
|
—
|
|
|
11,651
|
|
|
—
|
|
Increase in repayment guarantee obligation
|
—
|
|
|
—
|
|
|
15,670
|
|
Decrease in debt related to conversion of Mandatory Convertible Subordinated Notes and Tangible Equity Units for common stock
|
(9,402
|
)
|
|
(55,308
|
)
|
|
—
|
|
Contribution of Pre-owned net assets for investment in unconsolidated entity
|
—
|
|
|
(19,670
|
)
|
|
—
|
|
Non-cash land acquisitions
|
11,000
|
|
|
7,813
|
|
|
770
|
|
Issuance of stock under deferred bonus stock plans
|
68
|
|
|
—
|
|
|
101
|
|
Supplemental disclosure of cash activity:
|
|
|
|
|
|
Interest payments
|
102,716
|
|
|
126,313
|
|
|
116,049
|
|
Income tax payments
|
403
|
|
|
831
|
|
|
405
|
|
Tax refunds received
|
6,730
|
|
|
2,568
|
|
|
5,823
|
|
(3) Investments in Unconsolidated Entities
As of
September 30, 2013
, we participated in certain land development joint ventures and other unconsolidated entities in which Beazer Homes had less than a controlling interest. The following table presents our investment in our unconsolidated entities, the total equity and outstanding borrowings of these unconsolidated entities, and our guarantees of these borrowings, as of
September 30, 2013
and
September 30, 2012
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2013
|
|
September 30, 2012
|
Beazer’s investment in unconsolidated entities
|
$
|
44,997
|
|
|
$
|
42,078
|
|
Total equity of unconsolidated entities
|
385,040
|
|
|
383,482
|
|
Total outstanding borrowings of unconsolidated entities
|
85,938
|
|
|
64,912
|
|
Beazer’s estimate of its maximum exposure to our repayment guarantees
|
—
|
|
|
696
|
|
For the
fiscal years ended
September 30, 2013
,
2012
, and
2011
, our income from unconsolidated entity activities, the impairments of our investments in certain of our unconsolidated entities, and the overall equity in (loss) income of unconsolidated entities is as follows:
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|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2013
|
|
2012
|
|
2011
|
Continuing operations:
|
|
|
|
|
|
Income from unconsolidated entity activity
|
$
|
68
|
|
|
$
|
304
|
|
|
$
|
652
|
|
Impairment of unconsolidated entity investment
|
(181
|
)
|
|
—
|
|
|
(92
|
)
|
Equity in (loss) income of unconsolidated entities - continuing operations
|
$
|
(113
|
)
|
|
$
|
304
|
|
|
$
|
560
|
|
South Edge/Inspirada
The Company holds a minority (less than
10%
) interest in Inspirada Builders LLC which was formed in connection with the bankruptcy and subsequent plan of reorganization of the South Edge joint venture. During the quarter ended December 31, 2011, we paid
$15.9 million
in connection with this plan of reorganization.
Our right to acquire land in Las Vegas, Nevada from Inspirada is a component of our investment. As such, we have recorded an investment in Inspirada, which includes the
$11.7 million
we previously estimated for our future right to purchase land and our cash contributions to the joint venture, primarily for organization costs. In addition to our initial payment, we, as a member of the Inspirada joint venture, will have obligations for a portion of future infrastructure and other development costs. At this time, these costs cannot be quantified due to, among other things, uncertainty over the future development configuration of the project and
the related costs, market conditions, uncertainty over the remaining infrastructure costs and potential recoveries from previously filed bankruptcies of certain other South Edge members. In addition, there are uncertainties with respect to the location and density of the land we will receive as a result of our investment in Inspirada, the products we will build on such land and the estimated selling prices of such homes. Because there are uncertainties with respect to development costs, in future periods, we may be required to record adjustments to the carrying value of this Inspirada investment as better information becomes available.
Pre-Owned Rental Homes
Effective May 3, 2012, we contributed
$0.3 million
in cash and our Pre-Owned Homes business at cost, including
190
homes in Arizona and Nevada, of which
187
were leased, for a
23.5%
equity method investment in an unconsolidated real estate investment trust (the REIT). The Company also received grants of restricted units in the REIT, of which a portion vested during the year ended September 30, 2012. As of
September 30, 2013
, we held a
15.0%
investment in the REIT.
Subsequent to the initial REIT offering, we entered into a transition services agreement with the REIT under which we agreed to provide interim Chief Financial Officer (CFO) and various back office and administrative support on an as needed basis. During our fiscal 2013, the REIT hired a CFO. In the future, we may continue to provide services including treasury operations, cash management, accounting and financial reporting support, legal services, human resources support, environmental and safety services, and tax support on an as needed basis. Fees received related to the transition services agreement billed at our cost and recognized as other income were not material to our consolidated financial results.
Guarantees
Our land development joint ventures typically obtain secured acquisition, development and construction financing. Historically, Beazer and our land development joint ventures partners have provided varying levels of guarantees of debt and other obligations for these unconsolidated entities. As of
September 30, 2013
, we had no outstanding guarantees of debt or other obligations related to our unconsolidated entities.
As of September 30, 2012, we had recorded
$0.7 million
in Other Liabilities related to one repayment guarantee. During the
fiscal year
ended
September 30, 2013
, we entered into a guarantee release agreement and paid
$0.5 million
to settle our liability and recognized the remaining
$0.2 million
as other income.
We and our joint venture partners generally provide unsecured environmental indemnities to land development joint venture project lenders. In each case, we have performed due diligence on potential environmental risks. These indemnities obligate us to reimburse the project lenders for claims related to environmental matters for which they are held responsible. During the
fiscal years ended
September 30, 2013
and
2012
, 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 reasonable possible but not probable.
(4) Inventory
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2013
|
|
September 30, 2012
|
Homes under construction
|
$
|
262,476
|
|
|
$
|
251,828
|
|
Development projects in progress
|
578,453
|
|
|
391,019
|
|
Land held for future development
|
341,986
|
|
|
367,102
|
|
Land held for sale
|
31,331
|
|
|
10,149
|
|
Capitalized interest
|
52,562
|
|
|
38,190
|
|
Model homes
|
37,886
|
|
|
40,844
|
|
Total owned inventory
|
$
|
1,304,694
|
|
|
$
|
1,099,132
|
|
Homes under construction includes homes substantially finished and ready for delivery and homes in various stages of construction. We had
113
(
$30.7 million
) and
174
(
$39.7 million
) substantially completed homes that were not subject to a sales contract (spec homes) at
September 30, 2013
and
2012
, respectively. Development projects in progress consist principally of land and land improvement costs. Certain of the fully developed lots in this category are reserved by a deposit or sales contract. Land held for future development consists of communities for which construction and development activities are expected to occur in the future
or have been idled and are stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. All applicable interest and real estate taxes on land held for future development are expensed as incurred. The decrease in land held for future development relates to our activation of certain projects during fiscal 2013. Land held for sale in Unallocated and Other as of
September 30, 2013
included land held for sale in the markets we have decided to exit including Jacksonville, Florida and Charlotte, North Carolina. Total owned inventory, by reportable segment, is set forth in the table below. Inventory located in California, the state with our largest concentration of inventory, was
$388.1 million
and
$350.9 million
at
September 30, 2013
and
2012
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Projects in
Progress
|
|
Held for Future
Development
|
|
Land Held
for Sale
|
|
Total Owned
Inventory
|
September 30, 2013
|
|
|
|
|
|
|
|
West Segment
|
$
|
339,319
|
|
|
$
|
292,875
|
|
|
$
|
16,572
|
|
|
$
|
648,766
|
|
East Segment
|
331,894
|
|
|
25,491
|
|
|
3,833
|
|
|
361,218
|
|
Southeast Segment
|
178,624
|
|
|
23,620
|
|
|
8,208
|
|
|
210,452
|
|
Unallocated & Other
|
81,540
|
|
|
—
|
|
|
2,718
|
|
|
84,258
|
|
Total
|
$
|
931,377
|
|
|
$
|
341,986
|
|
|
$
|
31,331
|
|
|
$
|
1,304,694
|
|
September 30, 2012
|
|
|
|
|
|
|
|
West Segment
|
$
|
261,239
|
|
|
$
|
318,351
|
|
|
$
|
2,553
|
|
|
$
|
582,143
|
|
East Segment
|
279,954
|
|
|
25,130
|
|
|
3,204
|
|
|
308,288
|
|
Southeast Segment
|
118,853
|
|
|
23,621
|
|
|
1,675
|
|
|
144,149
|
|
Unallocated & Other
|
61,835
|
|
|
—
|
|
|
2,717
|
|
|
64,552
|
|
Total
|
$
|
721,881
|
|
|
$
|
367,102
|
|
|
$
|
10,149
|
|
|
$
|
1,099,132
|
|
Inventory Impairments.
When conducting our community level review for the recoverability of our homebuilding inventories held for development, we establish a quarterly “watch list” of communities with more than 10 homes remaining that carry profit margins in backlog and in our forecast that are below a minimum threshold of profitability. Assets on the quarterly watch list are subject to substantial additional financial and operational analyses and review that consider the competitive environment and other factors contributing to profit margins below our watch list threshold. 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.
In our undiscounted cash flow impairment analyses for the year ended
September 30, 2013
, we have assumed limited market improvements in some communities beginning in fiscal 2014 and continuing improvement in these communities in subsequent years. For any communities scheduled to close out in fiscal 2014, we did not assume any market improvements. The discount rate in our discounted cash flow analyses may be different for each community and ranged from
11.2%
to
17.0%
for the communities analyzed in the fiscal year ended
September 30, 2012
and
12.6%
to
18.2%
for the fiscal year ended September 30, 2011. The following tables represent the results, by reportable segment of our community level review of the recoverability of our inventory assets held for development as of
September 30, 2013
,
2012
and
2011
. 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. The aggregate undiscounted cash flow fair value as a percentage of book value for the communities represented below is consistent with our expectations given our “watch list” methodology.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
Undiscounted Cash Flow Analyses Prepared
|
Segment
|
# of
Communities
on Watch List
|
|
# of
Communities
|
|
Pre-analysis
Book Value
(BV)
|
|
Aggregate Undiscounted Cash Flow as a % of BV
|
Year Ended September 30, 2013
|
|
|
|
|
|
|
|
West
|
1
|
|
|
1
|
|
|
$
|
11,080
|
|
|
117.6
|
%
|
East
|
3
|
|
|
3
|
|
|
9,588
|
|
|
107.0
|
%
|
Southeast
|
1
|
|
|
1
|
|
|
5,257
|
|
|
128.6
|
%
|
Unallocated
|
—
|
|
|
—
|
|
|
1,755
|
|
|
100.0
|
%
|
Total
|
5
|
|
|
5
|
|
|
$
|
27,680
|
|
|
114.9
|
%
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2012
|
|
|
|
|
|
|
|
West
|
14
|
|
|
8
|
|
|
$
|
28,467
|
|
|
94.7
|
%
|
East
|
12
|
|
|
8
|
|
|
30,052
|
|
|
91.8
|
%
|
Southeast
|
5
|
|
|
3
|
|
|
9,247
|
|
|
116.5
|
%
|
Unallocated
|
—
|
|
|
—
|
|
|
5,193
|
|
|
100.0
|
%
|
Total
|
31
|
|
|
19
|
|
|
$
|
72,959
|
|
|
96.7
|
%
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2011
|
|
|
|
|
|
|
|
West
|
18
|
|
|
15
|
|
|
$
|
58,848
|
|
|
88.4
|
%
|
East
|
7
|
|
|
5
|
|
|
16,436
|
|
|
94.6
|
%
|
Southeast
|
4
|
|
|
3
|
|
|
11,017
|
|
|
60.3
|
%
|
Unallocated
|
1
|
|
|
—
|
|
|
9,707
|
|
|
100.0
|
%
|
Total
|
30
|
|
|
23
|
|
|
$
|
96,008
|
|
|
87.7
|
%
|
There were no impairments recorded during the fiscal year ended
September 30, 2013
related to our impairment analyses. The table below summarizes the results of our discounted cash flow analysis for the
fiscal years
ended September 30,
2012
and
2011
. The impairment charges below include impairments taken as a result of these discounted cash flow analyses and also impairment charges recorded for individual homes sold and in backlog with net contribution margins below a minimum threshold of profitability in communities that were not otherwise impaired through our discounted cash flow analyses. The estimated fair value of the impaired inventory is determined immediately after a community’s impairment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ 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
Period End
|
Year Ended September 30, 2012
|
West
|
2
|
|
|
116
|
|
|
$
|
3,902
|
|
|
$
|
11,058
|
|
East
|
2
|
|
|
93
|
|
|
4,316
|
|
|
7,342
|
|
Southeast
|
1
|
|
|
37
|
|
|
796
|
|
|
2,457
|
|
Unallocated
|
—
|
|
|
—
|
|
|
473
|
|
|
—
|
|
Continuing Operations
|
5
|
|
|
246
|
|
|
9,487
|
|
|
20,857
|
|
Discontinued Operations
|
—
|
|
|
—
|
|
|
60
|
|
|
—
|
|
Total
|
5
|
|
|
246
|
|
|
$
|
9,547
|
|
|
$
|
20,857
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2011
|
|
|
|
West
|
12
|
|
|
859
|
|
|
$
|
20,150
|
|
|
$
|
33,066
|
|
East
|
4
|
|
|
86
|
|
|
1,611
|
|
|
10,671
|
|
Southeast
|
3
|
|
|
278
|
|
|
5,182
|
|
|
6,022
|
|
Unallocated
|
—
|
|
|
—
|
|
|
2,362
|
|
|
—
|
|
Continuing Operations
|
19
|
|
|
1,223
|
|
|
29,305
|
|
|
49,759
|
|
Discontinued Operations
|
—
|
|
|
—
|
|
|
276
|
|
|
—
|
|
Total
|
19
|
|
|
1,223
|
|
|
$
|
29,581
|
|
|
$
|
49,759
|
|
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. During these periods, for certain communities we determined that it was prudent to reduce sales prices or further increase sales incentives in response to factors, including competitive market conditions in those specific submarkets for the product and locations of these communities. Because the projected cash flows used to evaluate the fair value of inventory are significantly impacted by changes in market conditions including decreased sales prices, the change in sales prices and changes in absorption estimates based on current market conditions and management’s assumptions relative to future results led to impairments in
five
communities during the fiscal year ended
September 30, 2012
. During the fiscal year ended September 30,
2011
, discrete changes in our revenue and absorption estimates for certain communities due to pricing reductions in response to competitor actions and local market conditions led to impairments in
19
communities. Market deterioration that exceeds our estimates may lead us to incur additional impairment charges on previously impaired homebuilding assets in addition to homebuilding assets not currently impaired but for which indicators of impairment may arise if markets deteriorate.
The impairments on land held for sale below represent further write downs of these properties to net realizable value, less estimated costs to sell and are based on current market conditions and our review of recent comparable transactions at the applicable period end. The fiscal 2013 land held for sale impairment in the Southeast Segment related to our decision to reposition one community in South Carolina to address consumer demand, including the decision to sell a portion of the lots in this community. The negative impairments indicated below are due to adjustments to accruals for estimated selling costs related to either our strategic decision to develop a previously held-for-sale land position or revised estimates based on pending sales transactions. Our assumptions about land sales prices require significant judgment because the current market is highly sensitive to changes in economic conditions. We calculated the estimated fair values of land held for sale based on current market conditions and assumptions made by management, which may differ materially from actual results and may result in additional impairments if market conditions deteriorate.
Also, we have determined the proper course of action with respect to a number of communities within each homebuilding segment was to not exercise certain options and to write-off the deposits securing the option takedowns and pre-acquisition costs, as applicable. In determining whether to abandon a lot option contract, we evaluate the lot option primarily based upon the expected cash flows from the property that is the subject of the option. If we intend to abandon or walk-away from a lot option contract, we record a charge to earnings in the period such decision is made for the deposit amount and any related capitalized costs associated with the lot option contract. Abandonment charges relate to our decision to abandon or not exercise certain option contracts that are not projected to produce adequate results or no longer fit in our long-term strategic plan.
The following table sets forth, by reportable homebuilding segment, the inventory impairments taken as a result of these discounted cash flow analyses and also impairment charges recorded for individual homes sold and in backlog with net contribution margins below a minimum threshold of profitability, held for sale impariments and lot option abandonment charges recorded for the
fiscal years
ended
September 30, 2013
,
2012
, and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2013
|
|
2012
|
|
2011
|
Development projects and homes in process (Held for Development)
|
|
|
|
|
|
West
|
$
|
46
|
|
|
$
|
3,902
|
|
|
$
|
20,150
|
|
East
|
13
|
|
|
4,316
|
|
|
1,611
|
|
Southeast
|
—
|
|
|
796
|
|
|
5,182
|
|
Unallocated
|
—
|
|
|
473
|
|
|
2,362
|
|
Subtotal
|
$
|
59
|
|
|
$
|
9,487
|
|
|
$
|
29,305
|
|
Land Held for Sale
|
|
|
|
|
|
West
|
$
|
228
|
|
|
$
|
—
|
|
|
$
|
(51
|
)
|
East
|
123
|
|
|
100
|
|
|
193
|
|
Southeast
|
1,778
|
|
|
208
|
|
|
169
|
|
Subtotal
|
$
|
2,129
|
|
|
$
|
308
|
|
|
$
|
311
|
|
Lot Option Abandonments
|
|
|
|
|
|
West
|
$
|
104
|
|
|
$
|
301
|
|
|
$
|
405
|
|
East
|
20
|
|
|
1,320
|
|
|
2,048
|
|
Southeast
|
321
|
|
|
792
|
|
|
390
|
|
Unallocated
|
—
|
|
|
2
|
|
|
—
|
|
Subtotal
|
$
|
445
|
|
|
$
|
2,415
|
|
|
$
|
2,843
|
|
Continuing Operations
|
$
|
2,633
|
|
|
$
|
12,210
|
|
|
$
|
32,459
|
|
Discontinued Operations
|
|
|
|
|
|
Held for Development
|
$
|
—
|
|
|
$
|
60
|
|
|
$
|
276
|
|
Land Held for Sale
|
17
|
|
|
503
|
|
|
78
|
|
Lot Option Abandonments
|
—
|
|
|
16
|
|
|
2,552
|
|
Subtotal
|
$
|
17
|
|
|
$
|
579
|
|
|
$
|
2,906
|
|
Total Company
|
$
|
2,650
|
|
|
$
|
12,789
|
|
|
$
|
35,365
|
|
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. A majority of our lot option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land for the right to acquire lots during a specified period of time at a certain price. Under lot option contracts, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers. Our liability under option contracts is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts incurred, which aggregated approximately
$37.3 million
at
September 30, 2013
. The total remaining purchase price, net of cash deposits, committed under all options was
$288.6 million
as of
September 30, 2013
. We expect to exercise, subject to market conditions and seller satisfaction of contract terms, most of our remaining option contracts. Various factors, some of which are beyond our control, such as market conditions, weather conditions and the timing of the completion of development activities, will have a significant impact on the timing of option exercises or whether lot options will be exercised.
For the VIEs in which we are the primary beneficiary of the VIE, we have consolidated the VIE and reflected such assets and liabilities as land not owned under option agreements in our balance sheets. For VIEs we were required to consolidate, we recorded the remaining contractual purchase price under the applicable lot option agreement to land not owned under option agreements with an offsetting increase to obligations related to land not owned under option agreements. Also, to reflect the purchase price of this inventory consolidated, we present the related option deposits as land not owned under option agreement in the accompanying consolidated balance sheets. Consolidation of these VIEs has no impact on the Company’s results of operations or cash flows.
The following provides a summary of our interests in lot option agreements as of
September 30, 2013
and
September 30, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Deposits &
Non-refundable
Preacquisition
Costs Incurred
|
|
Remaining
Obligation
|
|
Land Not Owned -
Under Option
Agreements
|
As of September 30, 2013
|
|
|
|
|
|
Consolidated VIEs
|
$
|
4,491
|
|
|
$
|
4,633
|
|
|
$
|
9,124
|
|
Other consolidated lot option agreements (a)
|
—
|
|
|
—
|
|
|
—
|
|
Unconsolidated lot option agreements
|
32,822
|
|
|
284,005
|
|
|
—
|
|
Total lot option agreements
|
$
|
37,313
|
|
|
$
|
288,638
|
|
|
$
|
9,124
|
|
As of September 30, 2012
|
|
|
|
|
|
Consolidated VIEs
|
$
|
7,203
|
|
|
$
|
3,346
|
|
|
$
|
10,549
|
|
Other consolidated lot option agreements (a)
|
430
|
|
|
1,441
|
|
|
1,871
|
|
Unconsolidated lot option agreements
|
17,290
|
|
|
193,711
|
|
|
—
|
|
Total lot option agreements
|
$
|
24,923
|
|
|
$
|
198,498
|
|
|
$
|
12,420
|
|
|
|
(a)
|
Represents lot option agreements with non-VIE entities that we have deemed to be “financing arrangements” pursuant to ASC 470-40,
Product Financing Arrangements
.
|
(5) Interest
Our ability to capitalize all interest incurred during the
fiscal years
ended
September 30, 2013
,
2012
, and
2011
has been limited by our inventory eligible for capitalization. The following table sets forth certain information regarding interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2013
|
|
2012
|
|
2011
|
Capitalized interest in inventory, beginning of period
|
$
|
38,190
|
|
|
$
|
45,973
|
|
|
$
|
36,884
|
|
Interest incurred
|
115,076
|
|
|
124,918
|
|
|
130,818
|
|
Capitalized interest impaired
|
—
|
|
|
(275
|
)
|
|
(1,907
|
)
|
Interest expense not qualified for capitalization and included as other expense
|
(59,458
|
)
|
|
(71,474
|
)
|
|
(73,440
|
)
|
Capitalized interest amortized to house construction and land sales expenses
|
(41,246
|
)
|
|
(60,952
|
)
|
|
(46,382
|
)
|
Capitalized interest in inventory, end of period
|
$
|
52,562
|
|
|
$
|
38,190
|
|
|
$
|
45,973
|
|
(6) Property, Plant and Equipment
Property, plant and equipment consists of:
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2013
|
|
2012
|
Buildings and improvements
|
$
|
2,329
|
|
|
$
|
2,329
|
|
Model and sales office improvements
|
23,046
|
|
|
31,188
|
|
Leasehold improvements
|
4,212
|
|
|
4,456
|
|
Information systems
|
16,532
|
|
|
20,671
|
|
Furniture, fixtures and office equipment
|
16,215
|
|
|
15,528
|
|
Property, plant and equipment, gross
|
62,334
|
|
|
74,172
|
|
Less: Accumulated Depreciation
|
(45,334
|
)
|
|
(55,198
|
)
|
Property, plant and equipment, net
|
$
|
17,000
|
|
|
$
|
18,974
|
|
(7) Borrowings
At
September 30, 2013
and
September 30, 2012
we had the following debt:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Maturity Date
|
|
2013
|
|
2012
|
6 7/8% Senior Notes
|
July 2015
|
|
$
|
—
|
|
|
$
|
172,454
|
|
8 1/8% Senior Notes
|
June 2016
|
|
172,879
|
|
|
172,879
|
|
6 5/8% Senior Secured Notes
|
April 2018
|
|
300,000
|
|
|
300,000
|
|
9 1/8% Senior Notes
|
June 2018
|
|
298,000
|
|
|
300,000
|
|
9 1/8% Senior Notes
|
May 2019
|
|
235,000
|
|
|
235,000
|
|
7 1/2% Senior Notes
|
September 2021
|
|
200,000
|
|
|
—
|
|
7 1/4% Senior Notes
|
February 2023
|
|
200,000
|
|
|
—
|
|
TEU Senior Amortizing Notes
|
August 2013
|
|
—
|
|
|
316
|
|
TEU Senior Amortizing Notes
|
August 2015
|
|
16,141
|
|
|
23,500
|
|
Unamortized debt discounts
|
|
|
(5,160
|
)
|
|
(3,082
|
)
|
Total Senior Notes, net
|
|
|
1,416,860
|
|
|
1,201,067
|
|
Mandatory Convertible Subordinated Notes
|
January 2013
|
|
—
|
|
|
9,402
|
|
Junior Subordinated Notes
|
July 2036
|
|
53,670
|
|
|
51,603
|
|
Cash Secured Loans
|
November 2017
|
|
22,368
|
|
|
227,368
|
|
Other Secured Notes Payable
|
Various Dates
|
|
19,285
|
|
|
8,758
|
|
Total debt, net
|
|
|
$
|
1,512,183
|
|
|
$
|
1,498,198
|
|
As of
September 30, 2013
, future maturities of our borrowings are as follows:
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
2014
|
|
|
|
|
$
|
8,154
|
|
2015
|
|
|
|
|
12,126
|
|
2016
|
|
|
|
|
176,546
|
|
2017
|
|
|
|
|
3,666
|
|
2018
|
|
|
|
|
620,368
|
|
Thereafter
|
|
|
|
|
743,587
|
|
Total
|
|
|
|
|
$
|
1,564,447
|
|
Secured Revolving Credit Facility —
In September 2012, we amended and expanded our Secured Revolving Credit Facility from
$22 million
to
$150 million
. The amended three-year amended Secured Revolving Credit Facility provides for future working capital and letter of credit needs collateralized by substantially all of the Company's personal property (excluding cash and cash equivalents) and real property. This facility is subject to various financial, collateral-based and negative covenants with which we are required to comply. As of
September 30, 2013
, we were in compliance with all such covenants and had
$150 million
of available borrowings under the Secured Revolving Credit Facility. We have elected to cash collateralize all letters of credit; however, as of
September 30, 2013
, we have pledged approximately
$1.0 billion
of inventory assets to our Secured Revolving Credit Facility to collateralize potential future borrowings or letters of credit. The Secured Revolving Credit Facility contains certain covenants, including negative covenants and financial maintenance covenants, with which we are required to comply. Subject to our option to cash collateralize our obligations under the Secured Revolving Credit Facility upon certain conditions, our obligations under the Secured Revolving Credit Facility are secured by liens on substantially all of our personal property and a significant portion of our owned real properties. There were no outstanding borrowings under the Secured Revolving Credit Facility as of
September 30, 2013
or
September 30, 2012
.
We have entered into stand-alone, cash-secured letter of credit agreements with banks to maintain our pre-existing letters of credit and to provide for the issuance of new letters of credit. The letter of credit arrangements combined with our Secured Revolving Credit Facility provide a total letter of credit capacity of approximately
$194.8 million
. As of
September 30, 2013
and
September 30, 2012
, we have letters of credit outstanding of
$25.2 million
and
$24.7 million
, respectively, which are secured by cash collateral in restricted accounts. The Company may enter into additional arrangements to provide additional letter of credit capacity.
Senior Notes
— The majority of our Senior Notes are unsecured or secured obligations ranking pari passu with all other existing and future senior indebtedness. Substantially all of our significant subsidiaries are full and unconditional guarantors of the Senior Notes and are jointly and severally liable for obligations under the Senior Notes and the Secured Revolving Credit Facility. Each guarantor subsidiary is a 100% owned subsidiary of Beazer Homes USA, Inc.
The Company's Senior Notes are subject to indentures containing certain restrictive covenants which, among other things, restrict our ability to pay dividends, repurchase our common stock, incur additional indebtedness and to make certain investments. Specifically, all of our Senior Notes contain covenants that restrict our ability to incur additional indebtedness unless it is refinancing indebtedness or non-recourse indebtedness. The incurrence of refinancing indebtedness and non recourse indebtedness, as defined in the applicable indentures, are exempted from the covenant test. As of
September 30, 2013
, we were not able to incur additional indebtedness, except refinancing or non-recourse indebtedness. Compliance with our Senior Note covenants does not significantly impact our operations. We were in compliance with the covenants contained in all of our Senior Notes as of
September 30, 2013
.
Our Senior Notes due 2016 (the 2016 Notes) contain the most restrictive covenants, including the consolidated tangible net worth covenant, which states that should consolidated tangible net worth fall below
$85 million
for two consecutive quarters, the Company is required to make an offer to purchase
10%
of the 2016 Notes at par. If triggered and fully subscribed, this could result in our having to purchase
$27.5 million
of the 2016 Notes, which may be reduced by certain 2016 Note repurchases (potentially at less
than par) made in the open market after the triggering date. As of
September 30, 2013
, our consolidated tangible net worth was
$213.7 million
, well in excess of the minimum covenant requirement.
In September 2013, we issued and sold
$200 million
aggregate principal amount of
7.500%
Senior Notes due 2021 (the 2021 Notes) at a price of
98.541%
(before underwriting and other issuance costs) through a private placement to qualified institutional buyers. Interest on the 2021 Notes is payable semi-annually in cash in arrears, beginning on March 15, 2014. The 2021 Notes will mature on September 15, 2021.
The 2021 Notes were issued under an Indenture (2021 Indenture), issued September 30, 2013 that contains covenants which, subject to certain exceptions, limit the ability of the Company and its restricted subsidiaries (as defined in the Indenture) to, among other things, incur additional indebtedness, including secured indebtedness, and make certain types of restricted payments. The 2021 Indenture contains customary events of default. Upon the occurrence of an event of default, payments on the 2021 Notes may be accelerated and become immediately due and payable. Upon a change of control (as defined in the 2021 Indenture), the 2021 Indenture requires us to make an offer to repurchase the 2021 Notes at
101%
of their principal amount, plus accrued and unpaid interest.
We may redeem the 2021 Notes at any time prior to September 15, 2016, in whole or in part, at a redemption price equal to
100%
of the principal amount, plus a customary make-whole premium, plus accrued and unpaid interest to the redemption date. In addition, at any time on or prior to September 15, 2016, we may redeem up to
35%
of the aggregate principal amount of 2021 Notes with the proceeds of certain equity offerings at a redemption price equal to
107.500%
of the principal amount of the 2021 Notes plus accrued and unpaid interest, if any, to the date fixed for redemption; provided, that at least
65%
of the aggregate principal amount of the 2021 Notes originally issued under the Indenture remain outstanding after such redemption. On or after September 15, 2016, we may redeem some or all of the 2021 Notes at redemption prices set forth in the Indenture. These percentages range from
100.000%
to
105.625%
.
In February 2013, we issued and sold
$200 million
aggregate principal amount of
7.250%
Senior Notes due 2023 (the 2023 Notes)
at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers. Interest on the
2023 Notes is payable semi-annually in cash in arrears, beginning August 1, 2013. The 2023 Notes will mature on February 1, 2023.
The 2023 Notes were issued under an Indenture, dated as February 1, 2013 (the Indenture) that contains covenants which, subject
to certain exceptions, limit the ability of the Company and its restricted subsidiaries (as defined in the Indenture) to, among other
things, incur additional indebtedness, including secured indebtedness, and make certain types of restricted payments. The Indenture
contains customary events of default. Upon the occurrence of an event of default, payments on the 2023 Notes may be accelerated
and become immediately due and payable. Upon a change of control (as defined in the Indenture), the Indenture requires us to make an offer to repurchase the 2023 Notes at
101%
of their principal amount, plus accrued and unpaid interest.
We may redeem the 2023 Notes at any time prior to February 1, 2018, in whole or in part, at a redemption price equal to
100%
of the principal amount, plus a customary make-whole premium, plus accrued and unpaid interest to the redemption date. In addition, at any time on or prior to February 1, 2016, we may redeem up to
35%
of the aggregate principal amount of 2023 Notes with the proceeds of certain equity offerings at a redemption price equal to
107.250%
of the principal amount of the 2023 Notes plus accrued and unpaid interest, if any, to the date fixed for redemption; provided, that at least
65%
of the aggregate principal
amount of the 2023 Notes originally issued under the Indenture remain outstanding after such redemption. On or after February 1, 2018, we may redeem some or all of the 2023 Notes at redemption prices set forth in the Indenture. These percentages range from
100.000%
to
103.625%
. In August 2013, we exchanged 100% of the 2023 Notes for notes that are freely transferable and registered under the Securities Act of 1933.
The 2021 and 2023 Notes rank equally in right of payment with all of our existing and future senior unsecured obligations, senior to all of the Company's existing and future subordinated indebtedness and effectively subordinated to the Company's existing and future secured indebtedness, including indebtedness under our revolving credit facility and our
6.625%
Senior Secured Notes due 2018, to the extent of the value of the assets securing such indebtedness. The 2021 and 2023 Notes and related guarantees are structurally subordinated to all indebtedness and other liabilities of all of the Company's subsidiaries that do not guarantee the 2021 or 2023 Notes. The 2021 and 2023 Notes are fully and unconditionally guaranteed jointly and severally on a senior basis by the Company's wholly-owned subsidiaries party to the Indenture.
During the fiscal year ended
September 30, 2013
, we used a portion of the net cash proceeds from the 2023 Notes offering to redeem all of our outstanding
6.875%
Senior Notes due 2015 (the 2015 Notes). The 2015 Notes were redeemed at
101.146%
of the principal amount, plus accrued and unpaid interest. During fiscal 2013, we also repurchased
$2 million
of our outstanding
9.125%
Senior Notes due 2018 in open market transactions. These transactions resulted in a loss on debt extinguishment of
$3.6 million
, net of unamortized discounts and debt issuance costs. All Senior Notes redeemed/repurchased by the Company were canceled.
In July 2012, we issued and sold
$300 million
aggregate principal amount of our
6.625%
Senior Secured Notes due 2018 (Senior Secured Notes) through a private placement to qualified institutional buyers. The Senior Secured Notes were issued at par (before underwriting and other issuance costs). Interest on the Senior Secured Notes is payable semi-annually in cash in arrears, beginning October 15, 2012. The Senior Secured Notes will mature on April 15, 2018. The Senior Secured Notes were issued under an Indenture, dated as of July 18, 2012 (the "2012 Indenture”) that contains covenants which, subject to certain exceptions, limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional indebtedness, engage in certain asset sales, make certain types of restricted payments and create liens on assets of the Company or the guarantors. The 2012 Indenture contains customary events of default.
Upon a change of control (as defined in the Indenture), the Indenture requires the Company to make an offer to repurchase the Senior Secured Notes at
101%
of their principal amount, plus accrued and unpaid interest. If we sell certain assets and do not reinvest the net proceeds in compliance with the Indenture, then we must use the net proceeds to offer to repurchase the Senior Notes at
100%
of their principal amount, plus accrued and unpaid interest. We may redeem the Senior Notes at any time prior to July 15, 2015, in whole or in part, at a redemption price equal to
100%
of the principal amount, plus a customary make-whole premium, plus accrued and unpaid interest to the redemption date. In addition, at any time on or prior to July 15, 2015, we may redeem up to
35%
of the aggregate principal amount of Senior Secured Notes with the proceeds of certain equity offerings at a redemption price equal to
106.625%
of the principal amount of the Senior Secured Notes plus accrued and unpaid interest, if any, to the date fixed for redemption; provided, that at least
65%
of the aggregate principal amount of the Senior Secured Notes originally issued under the Indenture remain outstanding after such redemption. Thereafter, we may redeem some or all of the Senior Secured Notes at redemption prices set forth in the Indenture. These percentages range from
100.000%
to
103.313%
.
Concurrently with the Senior Secured Notes offering, we called for redemption of all
$250 million
outstanding of our
12%
senior secured notes due 2017. Cash used for this redemption, including payment of accrued interest and the contractual call premium was approximately
$280 million
. We recorded a
$42.4 million
pre-tax loss on debt extinguishment (including write-off of unamortized discount and debt issuance costs) related to the redemption of the
12%
senior secured notes due 2017 in fiscal 2012.
In November 2010, we issued
$250 million
aggregate principal amount of 9 1/8% Senior Notes due May 15, 2019 in a private placement. Interest on these notes is payable semi-annually in cash in arrears, commencing on May 15, 2011. These notes are unsecured and rank equally with our unsecured indebtedness. We may, at our option, redeem the 9 1/8% Senior Notes in whole or in part at any time at specified redemption prices which include a “make whole” provision through May 15, 2014. During fiscal year 2011, we exchanged substantially all of the
$250 million
9 1/8% Senior Notes due 2019 for notes that were publicly traded and registered under the Securities Act of 1933.
During fiscal 2012, we redeemed or repurchased in open market transactions
$15.0 million
of our 9 1/8% Senior Notes due 2019 for an aggregate purchase price of
$14.6 million
, plus accrued and unpaid interest. These transactions resulted in a gain on debt extinguishment of
$30,000
, net of unamortized discounts and debt issuance costs. During fiscal 2011, we redeemed or repurchased in open market transactions,
$209.5 million
principal amount of our Senior Notes (
$164.5 million
of 6
1
/
2
% Senior Notes due 2013,
$37.0 million
of 6 7/8% Senior Notes due 2015 and
$8.0 million
of 8 1/8% Senior Notes due 2016). The aggregate purchase price was
$210.0 million
in 2011, plus accrued and unpaid interest as of the purchase date. The redemption/repurchase of the notes
resulted in a
$2.9 million
pre-tax loss on extinguishment of debt, net of unamortized discounts and debt issuance costs related to these notes. All Senior Notes redeemed/repurchased by the Company were canceled.
Senior Notes: Tangible Equity Units
— In July 2012, we issued
4.6 million
7.5%
TEUs (the 2012 TEUs), which were comprised of prepaid stock purchase contracts (PSPs) and senior amortizing notes. As the two components of the TEUs are legally separate and detachable, we have accounted for the two components as separate items for financial reporting purposes and valued them based on their relative fair value at the date of issuance. The amortizing notes are unsecured senior obligations and rank equally with all of our other unsecured indebtedness. Outstanding notes pay quarterly installments of principal and interest through maturity. The PSPs were originally accounted for as equity (additional paid in capital) at the initial fair value of these contracts based on the relative fair value method. The PSPs related to these 2012 TEUs are scheduled to be settled in Beazer Homes' common stock on July 15, 2015. If on that date, our common stock price is (1) at or below
$14.50
per share, the PSPs will convert to
1.72414
shares per unit, (2) at or above
$17.75
per share, the PSPs will convert to
1.40746
shares per unit or (3) between
$14.50
and
$17.75
per share, the PSPs will convert to a number of shares of our common stock equal to
$25.00
divided by the applicable market value of our common stock. See Note 12 for additional information related to the PSPs
During May 2010, we issued
3.0 million
7.25%
TEUs (the 2010 TEUs). In March 2012, we exchanged
2.8 million
shares of our common stock for
2.8 million
2010 TEUs (comprised of prepaid stock purchase contracts and
$7.2 million
of senior amortizing notes). Since our offer to convert the 2010 TEUs included a premium share component and was not pursuant to the instrument's original conversion terms, we accounted for the exchange as an induced conversion of the 2010 TEUs. We compared the fair value of the common stock issued to the fair value of the 2010 TEU instruments at the date of acceptance in order to determine the premium of the consideration. This premium was then allocated between the debt and equity components of the 2010 TEUs based on each components relative fair value. The difference between the implied fair value of the amortizing notes (including the premium allocation) and the carrying value of the amortizing notes was recognized as a loss on extinguishment of debt and totaled approximately
$0.7 million
. The remaining related prepaid stock purchase contracts issued May 2010 settled in Beazer Homes’ common stock on August 15, 2013 in accordance with the 2010 TEU provisions..
Mandatory Convertible Subordinated Notes —
On January 12, 2010, we issued
$57.5 million
aggregate principal amount of 7 1/2% Mandatory Convertible Subordinated Notes due 2013 (the Mandatory Convertible Subordinated Notes).
During fiscal 2012, we exchanged
2.2 million
shares of our common stock for
$48.1 million
of our Mandatory Convertible Subordinated Notes. Since our offer to convert these notes included a premium share component, we accounted for the exchange as an induced conversion of these notes. We recognized a
$2.0 million
inducement expense equal to the fair value of the premium shares issued based on our common stock price as of the date of acceptance. This expense is included in loss on extinguishment of debt for the fiscal year ended September 30, 2012.
On January 15, 2013, the remaining
$9.4 million
of outstanding Mandatory Convertible Subordinated Notes converted into
0.4 million
shares of the Company’s common stock in accordance with the notes' conversion provisions.
Junior Subordinated Notes —
$103.1 million
of unsecured junior subordinated notes mature on July 30, 2036, are redeemable at par and pay a fixed rate of
7.987%
for the first ten years ending July 30, 2016. Thereafter, the securities have a floating interest as defined in the junior subordinated notes agreement. The obligations relating to these notes and the related securities are subordinated to the Secured Revolving Credit Facility and the Senior Notes. In January 2010, we modified the terms of
$75 million
of these notes and recorded these notes at their estimated fair value. As of
September 30, 2013
, the unamortized accretion was
$47.1 million
and will be amortized over the remaining life of the notes.
Cash Secured Loans —
We have entered into two separate loan facilities, totaling
$22.4 million
as of
September 30, 2013
. Borrowing under the cash secured loan facilities will replenish cash used to repay or repurchase the Company’s debt and would be considered “refinancing indebtedness” under certain of the Company’s existing indentures and debt covenants. However, because the loans are fully collateralized by cash equal to the loan amount, the loans do not provide liquidity to the Company.
The loans mature in November 2017, however, the lenders of these facilities may put the outstanding loan balances to the Company at the two or four year anniversaries of the loan. Borrowings under the facilities are fully secured by cash held by the lender or its affiliates. This secured cash is reflected as restricted cash on our consolidated balance sheet as of
September 30, 2013
. We borrowed
$32.6 million
at inception of the loans. As previously indicated and in order to protect financing capacity available under our covenant refinancing basket related to previous or future debt repayments, we borrowed an additional
$214.8 million
under the cash secured loan facilities in May 2011. The cash secured loan has an interest rate equivalent to
LIBOR
plus
0.4%
per annum which is paid every three months following the effective date of each borrowing.
During the fiscal year ended September 30, 2012, we repaid
$20 million
of the cash secured term loans. Further, during the fiscal year ended September 30, 2013, we repaid
$205 million
of the outstanding cash secured term loans and recognized a
$1 million
loss on debt extinguishment, primarily related to the unamortized discounts and debt issuances costs related to these loans.
Other Secured Notes Payable —
We periodically acquire land through the issuance of notes payable. As of
September 30, 2013
and
September 30, 2012
, we had outstanding notes payable of
$19.3 million
and
$8.8 million
respectively, primarily related to land acquisitions. These notes payable have varying expiration dates between 2012 and 2019 and have a weighted average fixed rate of
4.00%
at
September 30, 2013
. These notes are secured by the real estate to which they relate.
The agreements governing these secured notes payable contain various affirmative and negative covenants. There can be no assurance that we will be able to obtain any future waivers or amendments that may become necessary without significant additional cost or at all. In each instance, however, a covenant default can be cured by repayment of the indebtedness.
(8) Income Taxes
The (benefit from) provision for income taxes from continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2013
|
|
2012
|
|
2011
|
Current federal
|
$
|
(4,409
|
)
|
|
$
|
(34,242
|
)
|
|
$
|
(1,963
|
)
|
Current state
|
(394
|
)
|
|
(143
|
)
|
|
319
|
|
Deferred federal
|
1,476
|
|
|
(5,964
|
)
|
|
3,728
|
|
Deferred state
|
(162
|
)
|
|
2
|
|
|
1,282
|
|
Total
|
$
|
(3,489
|
)
|
|
$
|
(40,347
|
)
|
|
$
|
3,366
|
|
The (benefit from) provision for income taxes from continuing operations differs from the amount computed by applying the federal income tax statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2013
|
|
2012
|
|
2011
|
Income tax computed at statutory rate
|
$
|
(12,479
|
)
|
|
$
|
(61,590
|
)
|
|
$
|
(68,886
|
)
|
State income taxes, net of federal benefit
|
(684
|
)
|
|
(6,055
|
)
|
|
(4,613
|
)
|
Valuation allowance
|
11,729
|
|
|
59,601
|
|
|
74,047
|
|
(Decrease) increase in unrecognized tax benefits
|
(1,909
|
)
|
|
(32,441
|
)
|
|
1,511
|
|
Other, net
|
(146
|
)
|
|
138
|
|
|
1,307
|
|
Total
|
$
|
(3,489
|
)
|
|
$
|
(40,347
|
)
|
|
$
|
3,366
|
|
The principal difference between our effective tax rate and the U.S. federal statutory rate relates to our valuation allowance and the recognition of prior year unrecognized tax benefits.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the 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:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2013
|
|
September 30, 2012
|
Deferred tax assets:
|
|
|
|
Warranty and other reserves
|
$
|
11,559
|
|
|
$
|
12,408
|
|
Incentive compensation
|
17,368
|
|
|
16,285
|
|
Property, equipment and other assets
|
2,455
|
|
|
2,647
|
|
Federal and state tax carryforwards
|
383,508
|
|
|
365,283
|
|
Inventory adjustments
|
114,416
|
|
|
133,843
|
|
Uncertain tax positions
|
14,415
|
|
|
16,331
|
|
Other
|
3,052
|
|
|
4,285
|
|
Total deferred tax assets
|
546,773
|
|
|
551,082
|
|
Deferred tax liabilities:
|
|
|
|
Deferred revenues
|
(54,257
|
)
|
|
(56,017
|
)
|
Total deferred tax liabilities
|
(54,257
|
)
|
|
(56,017
|
)
|
Net deferred tax assets before valuation allowance
|
492,516
|
|
|
495,065
|
|
Valuation allowance
|
(487,263
|
)
|
|
(488,217
|
)
|
Net deferred tax assets
|
$
|
5,253
|
|
|
$
|
6,848
|
|
At
September 30, 2013
, our gross deferred tax assets above included
$292.6 million
for federal net operating loss carryforwards,
$80.4 million
for state net operating loss carryforwards and
$9.8 million
for an alternative minimum tax credit. The net operating loss carryforwards expire at various dates through 2033. The alternative minimum tax credit has an unlimited carryforward period.
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, we established a valuation allowance for substantially all of our deferred tax assets during fiscal 2008. As of September 30, 2013, we continued our evaluation of whether the valuation allowance against our deferred tax assets was still required. We considered positive evidence including evidence of recovery in the housing markets where we operate, the prospects of continued profitability and growth, a strong backlog and sufficient balance sheet liquidity to sustain and grow operations. Although the Company’s performance and current positioning is bringing it closer to a conclusion that a valuation allowance is no longer needed, further evidence of sustained profitability is needed to reverse our valuation allowance against our deferred tax assets. Therefore, based upon all available positive and negative evidence, we concluded a valuation allowance is still needed for substantially all of our gross deferred tax assets at September 30, 2013.
Therefore, at
September 30, 2013
and
2012
, the Company's deferred tax asset valuation allowance was
$487.3 million
and
$488.2 million
, respectively.
In future periods, we expect to reduce all or a portion of our valuation allowance, generating a non-cash tax benefit, if sufficient positive evidence is present indicating that more likely than not a portion or all of our deferred tax assets will be realized. Changes in existing tax laws could also affect actual tax results and the valuation of deferred tax assets over time.
Further, we experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code (Section 382) as of January 12, 2010. Section 382 contains rules that limit the ability of a company that undergoes an “ownership change” to utilize its net operating loss carryforwards (NOLs) and certain built-in losses or deductions recognized during the five-year period after the ownership change to offset future taxable income. Therefore, our ability to utilize our pre-ownership change net operating loss carryforwards and recognize certain built-in losses or deductions is limited by Section 382 to an estimated maximum amount of approximately
$11.4 million
(
$4 million
tax-effected) annually. Certain deferred tax assets are not subject to any limitation imposed by Section 382.
Due to the Section 382 limitation and the maximum carryforward period of our NOLs, we are unable to fully recognize certain deferred tax assets. Accordingly, during fiscal
2013
and
2012
, we reduced our gross deferred tax assets and corresponding valuation allowance by
$15.2 million
and
$15.6 million
, respectively. As future economic conditions unfold, we will be able to confirm that certain deferred tax assets will not provide any future tax benefit. At such time, we will accordingly remove any deferred tax asset and corresponding valuation allowance.
Accordingly, a portion of our
$546.8 million
of total gross deferred tax assets related to accrued losses on our inventory may be unavailable due to the limitation imposed by Section 382. As of September 30,
2013
, we estimate that between
$48.9 million
and
$88.4 million
may be unavailable due to our Section 382 limitation. As a result, upon the resumption of sustained profitability and reversal of our valuation allowance, between
$404.1 million
and
$443.6 million
of our net deferred tax assets may be available to us for the reduction of future cash taxes. The actual realization of our deferred tax assets is difficult to predict and will be dependent on future events.
We expect to continue to add to our gross deferred tax assets for anticipated NOLs that will not be limited by Section 382.
Considering the limitation imposed by Section 382, the table below depicts the classifications of our deferred tax assets:
|
|
|
|
|
|
September 30, 2013
|
(In thousands)
|
|
Deferred tax assets:
|
|
Subject to annual limitation
|
$
|
94,258
|
|
Generally not subject to annual limitation
|
364,137
|
|
Certain components likely to be subject to annual limitation
|
88,378
|
|
Total deferred tax assets
|
546,773
|
|
Deferred tax liabilities
|
(54,257
|
)
|
Net deferred tax assets before valuation allowance
|
492,516
|
|
Valuation allowance
|
(487,263
|
)
|
Net deferred tax assets
|
$
|
5,253
|
|
A reconciliation of the beginning and ending amount of unrecognized tax benefits at the beginning and end of fiscal
2013
,
2012
and
2011
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2013
|
|
2012
|
|
2011
|
Balance at beginning of year
|
$
|
19,630
|
|
|
$
|
46,648
|
|
|
$
|
47,271
|
|
(Reductions in) additions for tax positions related to current year
|
(1,620
|
)
|
|
903
|
|
|
(1,624
|
)
|
Additions for tax positions related to prior years
|
—
|
|
|
—
|
|
|
1,563
|
|
Reductions for tax positions of prior years
|
—
|
|
|
(27,181
|
)
|
|
(252
|
)
|
Settlements with taxing authorities
|
—
|
|
|
—
|
|
|
(310
|
)
|
Lapse of statute of limitations
|
(546
|
)
|
|
(740
|
)
|
|
—
|
|
Balance at end of year
|
$
|
17,464
|
|
|
$
|
19,630
|
|
|
$
|
46,648
|
|
Due to our valuation allowance, if the Company were to recognize the
$17.5 million
of gross unrecognized tax benefits, substantially all would affect our effective tax rate. Additionally, we had
$2.6 million
and
$2.5 million
of accrued interest and penalties at
September 30, 2013
and
2012
, respectively. Our income tax benefit 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. Our federal income tax returns for fiscal year 2007 through 2010 are under IRS appeal. Our federal income tax returns for fiscal years 2011 and 2012 and 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. The final outcome of these appeals and examinations are not yet determinable and therefore the change in our unrecognized tax benefits that could occur within the next 12 months cannot be estimated at this time.
(9) Contingencies
Beazer Homes and certain of its subsidiaries have been and continue to be named as defendants in various construction defect claims, complaints and other legal actions. The Company is subject to the possibility of loss contingencies arising in its business. In determining loss contingencies, we consider the likelihood of loss as well as the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when it is considered probable that a liability has been incurred and when the amount of loss can be reasonably estimated.
Warranty Reserves.
We currently provide a limited warranty (ranging from one to two years) covering workmanship and materials per our defined performance quality standards. In addition, we provide a limited warranty (generally ranging from a minimum of five years up to the period covered by the applicable statute of repose) covering only certain defined construction defects. We also provide a defined structural element warranty with single-family homes and townhomes in certain states.
We subcontract our homebuilding work to subcontractors whose contracts generally include an indemnity obligation and a requirement that certain minimum insurance requirements be met, including providing us with a certificate of insurance prior to receiving payments for their work. Therefore, many claims relating to workmanship and materials are the primary responsibility of the subcontractors.
Warranty reserves are included in other liabilities and the provision for warranty accruals is included in home construction and land sales expenses in the consolidated financial statements. We record reserves covering anticipated warranty expense for each home closed. Management reviews the adequacy of warranty reserves each reporting period based on historical experience and management’s estimate of the costs to remediate the claims and adjusts these provisions accordingly. Our review includes a quarterly analysis of the historical data and trends in warranty expense by operating segment. An analysis by operating segment allows us to consider market specific factors such as our warranty experience, the number of home closings, the prices of homes, product mix and other data in estimating our warranty reserves. In addition, our analysis also contemplates the existence of any non-recurring or community-specific warranty related matters that might not be contemplated in our historical data and trends.
As a result of our quarterly analyses, we adjust our estimated warranty liabilities if required. While we believe our warranty reserves are adequate as of
September 30, 2013
, historical data and trends may not accurately predict actual warranty costs or future developments could lead to a significant change in the reserve. Our warranty reserves are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
2013
|
|
2012
|
|
2011
|
Balance at beginning of period
|
$
|
15,477
|
|
|
$
|
17,916
|
|
|
$
|
25,821
|
|
Accruals for warranties issued
|
5,897
|
|
|
6,540
|
|
|
5,665
|
|
Changes in liability related to warranties existing in prior periods
|
(2,856
|
)
|
|
(2,677
|
)
|
|
(2,790
|
)
|
Payments made
|
(6,855
|
)
|
|
(6,302
|
)
|
|
(10,780
|
)
|
Balance at end of period
|
$
|
11,663
|
|
|
$
|
15,477
|
|
|
$
|
17,916
|
|
Litigation
On June 3, 2009, Beazer Homes Corp., a wholly-owned subsidiary of the Company, was named as a defendant in a purported class action lawsuit in the Circuit Court for Lee County, State of Florida, filed by Bryson and Kimberly Royal, the owners of one of our homes in our Magnolia Lakes community in Ft. Myers, Florida. The complaint names the Company and certain distributors and suppliers of drywall and was on behalf of the named plaintiffs and other similarly situated owners of homes in Magnolia Lakes or alternatively in the State of Florida. The plaintiffs allege that the Company built their homes with defective drywall, manufactured in China, that contains sulfur compounds that allegedly corrode certain metals and that are allegedly capable of harming the health of individuals. Plaintiffs allege physical and economic damages and seek legal and equitable relief, medical monitoring and attorney's fees. This case has been transferred to the Eastern District of Louisiana pursuant to an order from the United States Judicial Panel on Multidistrict Litigation. In addition, the Company has been named in other multi-plaintiff complaints filed in the multidistrict litigation and individual state court actions. We believe that the claims asserted in these actions are governed by home warranties or are without merit. The Company has offered to repair all of these homes pursuant to a repair protocol that has been adopted by the multidistrict litigation court, including those homes involved in litigation. To date, the owners of all but two of the affected homes have accepted the Company's offer to repair. Furthermore, the Company has agreed to participate in a global class settlement with the plaintiff class counsel and numerous other defendants in the multidistrict litigation, which was approved by the Court on February 13, 2013. The class action settlement required Beazer to make a settlement payment that was not material to our consolidated financial position or results of operations, and resolves all claims, including future claims, against Beazer related to Chinese drywall. The only exception would have been any claims by persons or entities that opted out of the settlement, but there were no opt outs by the Court’s deadline. The Company also continues to pursue recovery against responsible subcontractors, drywall suppliers and drywall manufacturers for its repair costs.
As disclosed in prior SEC filings, we operated Beazer Mortgage Corporation (BMC) from 1998 through February 2008 to offer mortgage financing to buyers of our homes. BMC entered into various agreements with mortgage investors, pursuant to which BMC originated certain mortgage loans and ultimately sold these loans to investors. In general, underwriting decisions were not made by BMC but by the investors themselves or third-party service providers. From time to time we have received claims from institutions which have acquired certain of these mortgages demanding damages or indemnity arising from BMC's activities or that we repurchase such mortgages. We have been able to resolve these claims for amounts that are not material to our consolidated financial position or results of operation. We currently have an insignificant number of such claims outstanding for which we believe we have no liability. However, we cannot rule out the potential for additional mortgage loan repurchase or indemnity claims in the future from other investors, although, at this time, we do not believe that the exposure related to any such claims would be material to our consolidated financial position, cash flows or results of operations.
As of
September 30, 2013
, no liability has been recorded for any such additional claims as such exposure is not both probable and reasonably estimable.
We cannot predict or determine the timing or final outcome of the lawsuits or the effect that any adverse findings or determinations in the 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 the above pending matters. An unfavorable determination in any of the pending lawsuits could result in the payment by us of substantial monetary damages which may not be fully covered by insurance. Further, the legal costs associated with the lawsuits and the amount of time required to be spent by management and the Board of Directors on these matters, even if we are ultimately successful, could have a material effect on our business, financial condition and results of operations.
Other Matters
As disclosed in our 2009 Form 10-K, on July 1, 2009, the Company announced that it had resolved the criminal and civil investigations by the United States Attorney’s Office in the Western District of North Carolina (the U.S. Attorney) and other state and federal agencies concerning matters that were the subject of the independent investigation, initiated in April 2007 by the Audit Committee of the Board of Directors (the Investigation) and concluded in May 2008. Under the terms of a deferred prosecution agreement (DPA), the Company’s liability for each of the fiscal years after 2010 through a portion of fiscal 2014 (unless extended as previously described in our 2009 Form 10-K) will be equal to
4%
of the Company’s adjusted EBITDA (as defined in the DPA). The total amount of such obligations will be dependent on several factors; however, the maximum liability under the DPA and other settlement agreements discussed above will not exceed
$55.0 million
, of which
$16.6 million
has been paid as of September 30, 2013 and an additional
$3.6 million
has been recorded as a liability at September 30, 2013. Positive adjusted EBITDA in future years will require us to incur additional expense in the future.
In 2006, we received two Administrative Orders issued by the New Jersey Department of Environmental Protection. The Orders allege certain violations of wetlands disturbance permits and assess proposed fines of
$630,000
and
$678,000
, respectively. We have met with the Department to discuss their concerns on the two affected communities and have requested hearings on both matters. Although we believe that we have significant defenses to the alleged violations, we have reached a settlement with the Department, through an Administrative Consent Order, for an amount that is not material to our consolidated financial position or results of operations.
We and certain of our subsidiaries have been named as defendants in various claims, complaints and other legal actions, most relating to construction defects, moisture intrusion and product liability. Certain of the liabilities resulting from these actions are covered in whole or part by insurance. In our opinion, based on our current assessment, the ultimate resolution of these matters will not have a material adverse effect on our financial condition, results of operations or cash flows.
We have accrued
$19.9 million
and
$19.4 million
in other liabilities related to litigation and other matters, excluding warranty, as of
September 30, 2013
and
2012
, respectively.
We had outstanding letters of credit and performance bonds of approximately
$25.2 million
and
$160.3 million
, respectively, at
September 30, 2013
related principally to our obligations to local governments to construct roads and other improvements in various developments. We have no outstanding letters of credit relating to our land option contracts as of
September 30, 2013
.
(10) Fair Value Measurements
As of
September 30, 2013
, we had no assets or liabilities in our consolidated balance sheets that were required to be measured at fair value on a recurring basis. Certain of our assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value may not be recovered. We use a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities; Level 2 – Inputs other than quoted prices included in Level 1 that are observable either directly or indirectly through corroboration with market data; Level 3 – Unobservable inputs that reflect our own estimates about the assumptions market participants would use in pricing the asset or liability.
As previously disclosed, we review our long-lived assets, including inventory for recoverability when factors that indicate an impairment may exist, but no less than quarterly. Fair value is based on estimated cash flows discounted for market risks associated
with the long-lived assets. The fair values of our investments in unconsolidated entities are determined primarily using a discounted cash flow model to value the underlying net assets of the respective entities. During the
fiscal year
ended
September 30, 2013
, including discontinued operations, we recorded impairments for development projects in process of
$59,000
, land held for sale impairments of
$2.1 million
, and impairments of unconsolidated entity investments of
$181,000
. During the
fiscal year
ended
September 30, 2012
, including discontinued operations, we recorded impairments for development projects in process of
$9.5 million
, land held for sale impairments of
$0.8 million
, and impairments of unconsolidated entity investments of
$36,000
. See Notes 1, 3 and 4 for additional information related to the fair value accounting for the assets listed below. Determining which hierarchical level an asset or liability falls within requires significant judgment. We evaluate our hierarchy disclosures each quarter.
The following table presents our assets measured at fair value on a non-recurring basis for each hierarchy level and represents only those assets whose carrying values were adjusted to fair value during the
fiscal year
ended
September 30, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Year Ended September 30, 2013
|
|
|
|
|
|
|
|
Development projects in progress
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Land held for sale
|
—
|
|
|
—
|
|
|
4,072
|
|
|
4,072
|
|
Year Ended September 30, 2012
|
|
|
|
|
|
|
|
Development projects in progress
|
—
|
|
|
—
|
|
|
20,857
|
|
|
20,857
|
|
Land held for sale
|
—
|
|
|
—
|
|
|
1,973
|
|
|
1,973
|
|
The fair value of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, other liabilities, cash secured loans and other secured notes payable approximate their carrying amounts due to the short maturity of these assets and liabilities.
Obligations related to land not owned under option agreements approximate fair value. The carrying values and estimated fair values of other financial assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2013
|
|
As of September 30, 2012
|
(In thousands)
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
Senior Notes
|
$
|
1,416,860
|
|
|
$
|
1,469,904
|
|
|
$
|
1,201,067
|
|
|
$
|
1,228,745
|
|
Mandatory Convertible Subordinated Notes
|
—
|
|
|
—
|
|
|
9,402
|
|
|
7,465
|
|
Junior Subordinated Notes
|
53,670
|
|
|
53,670
|
|
|
51,603
|
|
|
51,603
|
|
|
$
|
1,470,530
|
|
|
$
|
1,523,574
|
|
|
$
|
1,262,072
|
|
|
$
|
1,287,813
|
|
The estimated fair values shown above for our publicly held Senior Notes and Mandatory Convertible Subordinated Notes have been determined using quoted market rates (Level 2). Since there is no trading market for our junior subordinated notes, the fair value of these notes is estimated by discounting scheduled cash flows through maturity (Level 3). The discount rate is estimated using market rates currently being offered on loans with similar terms and credit quality. Judgment is required in interpreting market data to develop these estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange.
(11) Leases
We are obligated under various noncancelable operating leases for office facilities, model homes and equipment. Rental expense under these agreements, which is included in general and administrative expenses, amounted to approximately
$4.9 million
,
$5.9 million
and
$11.0 million
for the fiscal years ended
September 30, 2013
,
2012
and
2011
, respectively. This rental expense excludes expense related to our discontinued operations. As of
September 30, 2013
, future minimum lease payments under noncancelable operating lease agreements are as follows:
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
|
2014
|
$
|
3,212
|
|
2015
|
2,843
|
|
2016
|
2,068
|
|
2017
|
1,074
|
|
2018
|
233
|
|
Thereafter
|
—
|
|
Total
|
$
|
9,430
|
|
(12) Stockholders' Equity
On October 11, 2012, the Company executed a one-for-five reverse stock split. All historical share and per share information reflects this transaction. During the fiscal year ended September 30, 2013, the Company's stockholders approved management's recommendation to reduce authorized shares from
100 million
to
63 million
.
Preferred Stock.
We currently have no shares of preferred stock outstanding.
Common Stock Transactions.
During the fiscal year ended September 30, 2012, we exchanged
2.8 million
shares of our common stock for
2.8 million
of our 2010 TEUs (
94%
of the original issuance). The remaining 2010 TEUs were exchanged for
156,975
shares of common stock in August 2013. In March 2012, we also exchanged
2.2 million
shares of our common stock for
$48.1 million
of our Mandatory Convertible Subordinated Notes. The remaining
$9.4 million
of Mandatory Convertible Subordinated Notes were converted to
408,790
shares of common stock in January 2013.
On July 16, 2012, we concurrently closed on our underwritten public offerings of
4.4 million
shares of Beazer common stock and
4.6 million
7.5% tangible equity units (TEUs) and received net proceeds of
$171.4 million
from these two offerings, after underwriting discounts, commissions and transaction expenses. Each TEU is comprised of a prepaid stock purchase contract and a senior amortizing note due July 15, 2015 (see Note 7 for discussion of the amortizing notes) which are legally separable and detachable. The prepaid stock purchase contracts will convert to Beazer Homes stock on July 15, 2015 based on the applicable settlement factor, as defined in the offering agreement, which will be between
1.40746
shares per unit and
1.72414
shares per unit. We have accounted for the prepaid stock purchase contracts as equity and recorded
$88.4 million
, the initial fair value of these contracts, based on the relative fair value method net of underwriting fees and other transaction costs, as additional paid in capital.
Common Stock Repurchases.
During fiscal
2013
,
2012
and
2011
, we did not repurchase any shares in the open market. Any future stock repurchases as allowed by our debt covenants must be approved by the Company's Board of Directors or its Finance Committee.
During fiscal
2013
,
2012
and
2011
,
6,147
,
9,156
and
10,440
shares, respectively, were surrendered to us by employees in payment of minimum tax obligations upon the vesting of restricted stock and restricted stock units under our stock incentive plans. We valued the stock at the market price on the date of surrender, for an aggregate value of approximately
$121,000
in fiscal
2013
,
$126,000
in fiscal
2012
and
$170,000
in fiscal
2011
.
Dividends.
The indentures under which our senior notes were issued contain certain restrictive covenants, including limitations on payment of dividends. At
September 30, 2013
, under the most restrictive covenants of each indenture, none of our retained earnings was available for cash dividends. Hence, there were no dividends paid in fiscal
2013
,
2012
and
2011
.
Section 382 Rights Agreement.
In February 2011, the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation creating a protective amendment (the "Protective Amendment") designed to preserve the value of certain tax assets associated with net operating loss carryforwards under Section 382 of the Internal Revenue Code of 1986 and approved a Section 382 Rights Agreement adopted by our Board of Directors. These instruments were intended to act as deterrents to any person or group, together with its affiliates and associates, being or becoming the beneficial owner of
4.95%
or more of the Company’s common stock and were scheduled to expire on November 12, 2013. In February 2013, the Company’s stockholders approved an extension of the Protective Amendment through November 12, 2016 and approved a new Section 382 Rights Agreement adopted by our Board of Directors which will become effective upon the expiration of the prior agreement.
(13) Retirement Plan and Incentive Awards
401(k) Retirement Plan.
We sponsor a 401(k) plan (the Plan). Substantially all employees are eligible for participation in the Plan after completing one calendar month of service with us. Participants may defer and contribute to the Plan from
1%
to
80%
of their salary with certain limitations on highly compensated individuals. We match
50%
of the first
6%
of the participant's contributions. The participant's contributions vest
100%
immediately, while our contributions vest over five years. Our total contributions for the fiscal years ended
September 30, 2013
,
2012
and
2011
were approximately
$1.1 million
,
$1.3 million
and
$1.5 million
, respectively. During fiscal
2013
,
2012
and
2011
, participants forfeited
$0.5 million
,
$0.3 million
and
$0.2 million
, respectively, of unvested matching contributions.
Deferred Compensation Plan.
During fiscal 2002, we adopted the Beazer Homes USA, Inc. Deferred Compensation Plan (the DCP Plan). The DCP Plan is a non-qualified deferred compensation plan for a select group of executives and highly compensated employees. The DCP Plan allows the executives to defer current compensation on a pre-tax basis to a future year, up until termination of employment. The objectives of the DCP Plan 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 Plan is voluntary. Beazer Homes may voluntarily make a contribution to the participants' DCP accounts. Deferred compensation assets of
$0.7 million
and
$1.1 million
and deferred compensation liabilities of
$2.3 million
and
$2.4 million
as of
September 30, 2013
, and
2012
, respectively, are included in other assets and other liabilities on the accompanying Consolidated Balance Sheets. The decrease in the deferred compensation assets and liabilities between fiscal
2012
and fiscal
2013
relates to employee elections to withdraw funds from the plan, forfeitures of matching contributions related to terminated employees and market losses on investments held within the plan. For the years ended
September 30, 2013
,
2012
and
2011
, Beazer Homes contributed approximately
$215,000
,
$205,000
and
$197,000
, respectively, to the DCP Plan.
Stock Incentive Plans
.
During fiscal 2010, we adopted the 2010 Stock Incentive Plan (the 2010 Plan) because our 1999 Stock Incentive Plan (the 1999 Plan) had expired. At
September 30, 2013
, we had reserved approximately
0.9 million
shares of common stock for issuance under our various stock incentive plans, of which approximately
0.3 million
shares are available for future grants.
Stock Option and SSAR Awards.
We have issued various stock option and SSAR awards to officers and key employees under both 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 granted prior to fiscal 2004, generally expire on the tenth anniversary from the date such options were granted. Beginning in fiscal 2004, newly granted stock options expire on the seventh or eighth anniversary from the date such options were granted. SSARs generally vest three years after the date of grant, have an exercise price equal to the fair market value of the common stock on the date of grant and are 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 SSARs. For the fiscal years ended
September 30, 2013
,
2012
and
2011
, non-cash stock-based compensation expense for stock options and SSARs, included in G&A expenses, was
$0.9 million
,
$1.5 million
and
$3.4 million
, respectively.
The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model. We used the following weighted-average assumptions for options granted::
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
Expected life of options
|
5.0 years
|
|
|
5.0 years
|
|
|
4.8 years
|
|
Expected volatility
|
46.15
|
%
|
|
44.77
|
%
|
|
51.70
|
%
|
Expected discrete dividends
|
—
|
|
|
—
|
|
|
—
|
|
Weighted average risk-free interest rate
|
0.63
|
%
|
|
0.90
|
%
|
|
1.22
|
%
|
Weighted average fair value
|
$
|
5.48
|
|
|
$
|
4.30
|
|
|
$
|
10.50
|
|
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 and we have 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.
The intrinsic value of a stock option/SSAR is the amount by which the market value of the underlying stock exceeds the exercise price of the option/SSAR. At
September 30, 2013
, our SSARs/stock options outstanding had an intrinsic value of
$1.5 million
. The intrinsic value of SSARs/stock options vested and expected to vest in the future was
$1.5 million
. The SSARs/stock options vested and expected to vest in the future had a weighted average expected life of
2.6 years
. The aggregate intrinsic value of exercisable SSARs/stock options as of
September 30, 2013
was approximately
$0.3 million
.
The following table summarizes stock options and SSARs outstanding as of September 30 and activity during the fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
Outstanding at beginning of period
|
429,973
|
|
|
$
|
40.80
|
|
|
375,248
|
|
|
$
|
48.85
|
|
|
515,671
|
|
|
$
|
113.45
|
|
Granted
|
160,651
|
|
|
13.56
|
|
|
109,507
|
|
|
10.80
|
|
|
150,853
|
|
|
23.45
|
|
Exercised
|
(681
|
)
|
|
10.80
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Expired
|
(22,914
|
)
|
|
47.65
|
|
|
(10,948
|
)
|
|
82.51
|
|
|
(148,393
|
)
|
|
270.10
|
|
Forfeited
|
(6,245
|
)
|
|
17.93
|
|
|
(43,834
|
)
|
|
24.13
|
|
|
(142,883
|
)
|
|
25.45
|
|
Outstanding at end of period
|
560,784
|
|
|
$
|
33.01
|
|
|
429,973
|
|
|
$
|
40.80
|
|
|
375,248
|
|
|
$
|
48.85
|
|
Exercisable at end of period
|
310,120
|
|
|
$
|
48.73
|
|
|
247,588
|
|
|
$
|
58.61
|
|
|
163,076
|
|
|
$
|
64.65
|
|
Vested or expected to vest in the future
|
558,519
|
|
|
$
|
33.09
|
|
|
428,597
|
|
|
$
|
40.88
|
|
|
367,693
|
|
|
$
|
49.30
|
|
The following table summarizes information about stock options and SSARs outstanding and exercisable at
September 30, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options/SSARs Outstanding
|
|
Stock Options/SSARs 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 - $20
|
|
357,297
|
|
|
5.74
|
|
|
$
|
14.26
|
|
|
127,739
|
|
|
3.82
|
|
|
$
|
17.18
|
|
$21 - $75
|
|
148,271
|
|
|
3.85
|
|
|
26.47
|
|
|
127,165
|
|
|
3.77
|
|
|
26.95
|
|
$76 - $150
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$151 - $220
|
|
55,216
|
|
|
0.57
|
|
|
171.87
|
|
|
55,216
|
|
|
0.57
|
|
|
171.87
|
|
$1 - $220
|
|
560,784
|
|
|
4.73
|
|
|
$
|
33.01
|
|
|
310,120
|
|
|
3.22
|
|
|
$
|
48.73
|
|
Nonvested Stock Awards:
Compensation cost arising from nonvested stock awards granted to employees is recognized as an expense using the straight-line method over the vesting period. As of
September 30, 2013
and
September 30, 2012
, there was
$1.0 million
and
$2.1 million
, respectively, of total unrecognized compensation cost related to nonvested stock awards included in paid-in capital. The cost remaining at
September 30, 2013
is expected to be recognized over a weighted average period of
1.2 years.
Compensation expense for the nonvested restricted stock awards totaled
$2.0 million
,
$2.6 million
and
$3.8 million
for the fiscal years ended
September 30, 2013
,
2012
and
2011
, respectively.
During the
fiscal year
ended
September 30, 2013
, we issued
31,532
shares of performance-based restricted stock (Performance Shares) to our executive officers and certain corporate employees. 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. The number of shares that will vest at the end of the three-year performance period will depend upon the level to which the following two performance criteria are achieved 1) Beazer’s total shareholder return (TSR) relative to a group of peer companies and 2) the compound annual growth rate (CAGR) during the three-year performance period of Beazer common stock. The target number of Performance Shares that vest may be increased by up to
50%
based on the level of achievement of the above criteria as defined in the award agreement. Payment for Performance Shares in excess of the target number (
31,532
) will be settled in cash. Any portion of the Performance Shares that do not vest at the end of the period will be forfeited. The grants of the performance-based,
nonvested stock were valued using the Monte Carlo valuation method and had an estimated fair value of
$5.02
per share, a portion of which is attributable to the potential cash-settled liability aspect of the grant which is included in Other Liabilities.
A Monte Carlo simulation model requires the following inputs: 1) expected dividend yield on the underlying stock, 2) expected price volatility of the underlying stock, 3) risk-free interest rate for the period corresponding with the expected term of the award and 4) fair value of the underlying stock. For the Company and each member of the peer group, the following inputs were used, as applicable, in the Monte Carlo simulation model to determine the fair value as of the grant date for the Performance Shares:
0%
dividend yield for the Company, expected price volatility ranging from
35.6%
to
60.4%
and a risk-free interest rate of 0
.34%
. The methodology used to determine these assumptions is similar to that for the Black-Scholes Model used for stock option grants discussed above; however the expected term is determined by the model in the Monte Carlo simulation.
Activity relating to nonvested stock awards, including the Performance Shares for the
fiscal years
ended
September 30, 2013
,
2012
and
2011
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2013
|
|
Year Ended September 30, 2012
|
|
Year Ended September 30, 2011
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted
Average
Grant
Date Fair
Value
|
Beginning of period
|
323,335
|
|
|
$
|
19.61
|
|
|
288,079
|
|
|
$
|
33.85
|
|
|
367,997
|
|
|
$
|
72.05
|
|
Granted
|
99,413
|
|
|
10.95
|
|
|
179,913
|
|
|
7.19
|
|
|
150,853
|
|
|
23.45
|
|
Vested
|
(126,124
|
)
|
|
27.59
|
|
|
(88,497
|
)
|
|
34.20
|
|
|
(82,740
|
)
|
|
104.70
|
|
Returned (a)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,502
|
)
|
|
342.80
|
|
Forfeited
|
(16,208
|
)
|
|
30.57
|
|
|
(56,160
|
)
|
|
29.97
|
|
|
(137,529
|
)
|
|
58.50
|
|
End of period
|
280,416
|
|
|
$
|
12.32
|
|
|
323,335
|
|
|
$
|
19.61
|
|
|
288,079
|
|
|
$
|
33.85
|
|
(a) Our former Chief Executive Offer returned
10,502
shares of unvested restricted stock in accordance with his consent agreement with the Securities and Exchange Commission.
(14) Segment Information
We have
three
homebuilding segments operating in
16
states. Beginning in the second quarter of fiscal 2011, through May 2, 2012, we operated our Pre-Owned Homes business in Arizona and Nevada. The results below include operating results of our Pre-Owned segment through May 2, 2012. Effective May 3, 2012, we contributed our Pre-Owned Homes business for an investment in an unconsolidated entity (see Note 3 for additional information). Revenues in our homebuilding segments are derived from the sale of homes which we construct and from land and lot sales. Revenues from our Pre-Owned segment were derived from the rental of previously owned homes purchased and improved by the Company. Our reportable segments have been determined on a basis that is used internally by management for evaluating segment performance and resource allocations. The reportable homebuilding segments and all other homebuilding operations, not required to be reported separately, include operations conducting business in the following states:
West
: Arizona, California, Nevada and Texas
East
: Delaware, Indiana, Maryland, New Jersey, New York, Pennsylvania, Tennessee (Nashville) and Virginia
Southeast
: Florida, Georgia, North Carolina (Raleigh) and South Carolina
Management’s evaluation of segment performance is based on segment operating income. Operating income for our homebuilding segments is defined as homebuilding, land sale and other revenues less home construction, land development and land sales expense, commission expense, depreciation and amortization and certain general and administrative expenses which are incurred by or allocated to our homebuilding segments. Operating income for our Pre-Owned segment was defined as rental revenues less home repairs and operating expenses, home sales expense, depreciation and amortization and certain general and administrative expenses which are incurred by or allocated to the segment. The accounting policies of our segments are those described in Note 1 above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2013
|
|
2012
|
|
2011
|
Revenue
|
|
|
|
|
|
West
|
$
|
547,636
|
|
|
$
|
391,648
|
|
|
$
|
233,133
|
|
East
|
483,685
|
|
|
402,466
|
|
|
343,826
|
|
Southeast
|
256,256
|
|
|
210,449
|
|
|
165,107
|
|
Pre-Owned
|
—
|
|
|
1,114
|
|
|
339
|
|
Continuing Operations
|
$
|
1,287,577
|
|
|
$
|
1,005,677
|
|
|
$
|
742,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2013
|
|
2012
|
|
2011
|
Operating income (loss)
|
|
|
|
|
|
West
|
$
|
59,084
|
|
|
$
|
15,147
|
|
|
$
|
(28,406
|
)
|
East
|
40,670
|
|
|
9,152
|
|
|
11,611
|
|
Southeast
|
23,030
|
|
|
14,815
|
|
|
(2,740
|
)
|
Pre-Owned
|
—
|
|
|
(229
|
)
|
|
(724
|
)
|
Segment total
|
122,784
|
|
|
38,885
|
|
|
(20,259
|
)
|
Corporate and unallocated (a)
|
(95,523
|
)
|
|
(100,943
|
)
|
|
(111,986
|
)
|
Total operating income (loss)
|
$
|
27,261
|
|
|
$
|
(62,058
|
)
|
|
$
|
(132,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2013
|
|
2012
|
|
2011
|
Depreciation and amortization
|
|
|
|
|
|
West
|
$
|
5,305
|
|
|
$
|
4,980
|
|
|
$
|
3,651
|
|
East
|
3,479
|
|
|
3,536
|
|
|
2,621
|
|
Southeast
|
1,683
|
|
|
1,710
|
|
|
885
|
|
Pre-Owned
|
—
|
|
|
330
|
|
|
69
|
|
Segment total
|
10,467
|
|
|
10,556
|
|
|
7,226
|
|
Corporate and unallocated (a)
|
2,317
|
|
|
2,954
|
|
|
3,027
|
|
Continuing Operations
|
$
|
12,784
|
|
|
$
|
13,510
|
|
|
$
|
10,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2013
|
|
2012
|
|
2011
|
Capital Expenditures
|
|
|
|
|
|
West
|
$
|
4,835
|
|
|
$
|
3,031
|
|
|
$
|
4,041
|
|
East
|
1,915
|
|
|
3,532
|
|
|
2,051
|
|
Southeast
|
1,311
|
|
|
1,814
|
|
|
1,631
|
|
Pre-Owned (b)
|
—
|
|
|
7,933
|
|
|
11,415
|
|
Corporate and unallocated
|
2,700
|
|
|
1,053
|
|
|
1,376
|
|
Consolidated total
|
$
|
10,761
|
|
|
$
|
17,363
|
|
|
$
|
20,514
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2013
|
|
September 30, 2012
|
Assets
|
|
|
|
West
|
$
|
680,346
|
|
|
$
|
618,805
|
|
East
|
369,937
|
|
|
320,404
|
|
Southeast
|
228,814
|
|
|
160,868
|
|
Corporate and unallocated (c)
|
707,692
|
|
|
882,141
|
|
Consolidated total
|
$
|
1,986,789
|
|
|
$
|
1,982,218
|
|
|
|
(a)
|
Corporate and unallocated includes amortization of capitalized interest and numerous shared services functions that benefit all segments, the costs of which are not allocated to the operating segments reported above including information technology, national sourcing and purchasing, treasury, corporate finance, legal, branding and other national marketing costs. For the
fiscal year
ended September 30, 2012, corporate and unallocated also includes an
$11 million
recovery related to old water intrusion warranty and related legal expenditures.
|
|
|
(b)
|
Capital expenditures represent the purchase of previously owned homes through May 2, 2012 and September 30, 2011, respectively.
|
|
|
(c)
|
Primarily consists of cash and cash equivalents, consolidated inventory not owned, deferred taxes, capitalized interest and other items that are not allocated to the segments.
|
(15) Supplemental Guarantor Information
As discussed in Note 7, our obligations to pay principal, premium, if any, and interest under certain debt are guaranteed on a joint and several basis by substantially all of our subsidiaries. Certain of our immaterial subsidiaries do not guarantee our Senior Notes or our Secured Revolving Credit Facility. The guarantees are full and unconditional and the guarantor subsidiaries are
100%
owned by Beazer Homes USA, Inc. We have revised the prior period presentation for intercompany amounts included in the financial statements below to be consistent with the current year presentation.
Beazer Homes USA, Inc.
Consolidating Balance Sheet Information
September 30, 2013
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
499,341
|
|
|
$
|
6,324
|
|
|
$
|
1,637
|
|
|
$
|
(2,843
|
)
|
|
$
|
504,459
|
|
Restricted cash
|
47,873
|
|
|
1,105
|
|
|
—
|
|
|
—
|
|
|
48,978
|
|
Accounts receivable (net of allowance of $1,651)
|
—
|
|
|
22,339
|
|
|
3
|
|
|
—
|
|
|
22,342
|
|
Income tax receivable
|
2,813
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,813
|
|
Owned inventory
|
—
|
|
|
1,304,694
|
|
|
—
|
|
|
—
|
|
|
1,304,694
|
|
Consolidated inventory not owned
|
—
|
|
|
9,124
|
|
|
—
|
|
|
—
|
|
|
9,124
|
|
Investments in unconsolidated entities
|
773
|
|
|
44,224
|
|
|
—
|
|
|
—
|
|
|
44,997
|
|
Deferred tax assets, net
|
5,253
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,253
|
|
Property, plant and equipment, net
|
—
|
|
|
17,000
|
|
|
—
|
|
|
—
|
|
|
17,000
|
|
Investments in subsidiaries
|
123,600
|
|
|
—
|
|
|
—
|
|
|
(123,600
|
)
|
|
—
|
|
Intercompany
|
1,088,949
|
|
|
—
|
|
|
2,747
|
|
|
(1,091,696
|
)
|
|
—
|
|
Other assets
|
19,602
|
|
|
7,147
|
|
|
380
|
|
|
—
|
|
|
27,129
|
|
Total assets
|
$
|
1,788,204
|
|
|
$
|
1,411,957
|
|
|
$
|
4,767
|
|
|
$
|
(1,218,139
|
)
|
|
$
|
1,986,789
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
—
|
|
|
$
|
83,800
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
83,800
|
|
Other liabilities
|
52,009
|
|
|
92,384
|
|
|
1,230
|
|
|
—
|
|
|
145,623
|
|
Intercompany
|
2,747
|
|
|
1,091,792
|
|
|
—
|
|
|
$
|
(1,094,539
|
)
|
|
—
|
|
Obligations related to land not owned under option agreements
|
—
|
|
|
4,633
|
|
|
—
|
|
|
—
|
|
|
4,633
|
|
Total debt (net of discounts of $5,160)
|
1,492,898
|
|
|
19,285
|
|
|
—
|
|
|
—
|
|
|
1,512,183
|
|
Total liabilities
|
1,547,654
|
|
|
1,291,894
|
|
|
1,230
|
|
|
$
|
(1,094,539
|
)
|
|
1,746,239
|
|
Stockholders’ equity
|
240,550
|
|
|
120,063
|
|
|
3,537
|
|
|
(123,600
|
)
|
|
240,550
|
|
Total liabilities and stockholders’ equity
|
$
|
1,788,204
|
|
|
$
|
1,411,957
|
|
|
$
|
4,767
|
|
|
$
|
(1,218,139
|
)
|
|
$
|
1,986,789
|
|
Beazer Homes USA, Inc.
Consolidating Balance Sheet Information
September 30, 2012
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
481,394
|
|
|
$
|
8,215
|
|
|
$
|
646
|
|
|
$
|
(2,460
|
)
|
|
$
|
487,795
|
|
Restricted cash
|
252,900
|
|
|
360
|
|
|
—
|
|
|
—
|
|
|
253,260
|
|
Accounts receivable (net of allowance of $2,235)
|
—
|
|
|
24,594
|
|
|
5
|
|
|
—
|
|
|
24,599
|
|
Income tax receivable
|
6,372
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,372
|
|
Owned inventory
|
—
|
|
|
1,099,132
|
|
|
—
|
|
|
—
|
|
|
1,099,132
|
|
Consolidated inventory not owned
|
—
|
|
|
12,420
|
|
|
—
|
|
|
—
|
|
|
12,420
|
|
Investments in unconsolidated entities
|
773
|
|
|
41,305
|
|
|
—
|
|
|
—
|
|
|
42,078
|
|
Deferred tax assets, net
|
6,848
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,848
|
|
Property, plant and equipment, net
|
—
|
|
|
18,974
|
|
|
—
|
|
|
—
|
|
|
18,974
|
|
Investments in subsidiaries
|
63,120
|
|
|
—
|
|
|
—
|
|
|
(63,120
|
)
|
|
—
|
|
Intercompany
|
969,425
|
|
|
—
|
|
|
3,001
|
|
|
(972,426
|
)
|
|
—
|
|
Other assets
|
21,307
|
|
|
7,783
|
|
|
1,650
|
|
|
—
|
|
|
30,740
|
|
Total assets
|
$
|
1,802,139
|
|
|
$
|
1,212,783
|
|
|
$
|
5,302
|
|
|
$
|
(1,038,006
|
)
|
|
$
|
1,982,218
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
—
|
|
|
$
|
69,268
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
69,268
|
|
Other liabilities
|
49,354
|
|
|
96,389
|
|
|
1,975
|
|
|
—
|
|
|
147,718
|
|
Intercompany
|
1,098
|
|
|
973,788
|
|
|
—
|
|
|
(974,886
|
)
|
|
—
|
|
Obligations related to land not owned under option agreements
|
—
|
|
|
4,787
|
|
|
—
|
|
|
—
|
|
|
4,787
|
|
Total debt (net of discounts of $3,082)
|
1,489,440
|
|
|
8,758
|
|
|
—
|
|
|
—
|
|
|
1,498,198
|
|
Total liabilities
|
1,539,892
|
|
|
1,152,990
|
|
|
1,975
|
|
|
(974,886
|
)
|
|
1,719,971
|
|
Stockholders’ equity
|
262,247
|
|
|
59,793
|
|
|
3,327
|
|
|
(63,120
|
)
|
|
262,247
|
|
Total liabilities and stockholders’ equity
|
$
|
1,802,139
|
|
|
$
|
1,212,783
|
|
|
$
|
5,302
|
|
|
$
|
(1,038,006
|
)
|
|
$
|
1,982,218
|
|
Beazer Homes USA, Inc.
Consolidating Statement of Operations Information
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
Fiscal Year Ended September 30, 2013
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
—
|
|
|
$
|
1,287,577
|
|
|
$
|
736
|
|
|
$
|
(736
|
)
|
|
$
|
1,287,577
|
|
Home construction and land sales expenses
|
41,246
|
|
|
1,030,304
|
|
|
—
|
|
|
(736
|
)
|
|
1,070,814
|
|
Inventory impairments and option contract abandonments
|
—
|
|
|
2,633
|
|
|
—
|
|
|
—
|
|
|
2,633
|
|
Gross (loss) profit
|
(41,246
|
)
|
|
254,640
|
|
|
736
|
|
|
—
|
|
|
214,130
|
|
Commissions
|
—
|
|
|
52,922
|
|
|
—
|
|
|
—
|
|
|
52,922
|
|
General and administrative expenses
|
—
|
|
|
121,035
|
|
|
128
|
|
|
—
|
|
|
121,163
|
|
Depreciation and amortization
|
—
|
|
|
12,784
|
|
|
—
|
|
|
—
|
|
|
12,784
|
|
Operating (loss) income
|
(41,246
|
)
|
|
67,899
|
|
|
608
|
|
|
—
|
|
|
27,261
|
|
Equity in loss of unconsolidated entities
|
—
|
|
|
(113
|
)
|
|
—
|
|
|
—
|
|
|
(113
|
)
|
Loss on extinguishment of debt
|
(4,636
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,636
|
)
|
Other (expense) income, net
|
(59,458
|
)
|
|
1,278
|
|
|
15
|
|
|
—
|
|
|
(58,165
|
)
|
(Loss) income before income taxes
|
(105,340
|
)
|
|
69,064
|
|
|
623
|
|
|
—
|
|
|
(35,653
|
)
|
(Benefit from) provision for income taxes
|
(10,765
|
)
|
|
7,058
|
|
|
218
|
|
|
—
|
|
|
(3,489
|
)
|
Equity in loss of subsidiaries
|
62,411
|
|
|
—
|
|
|
—
|
|
|
(62,411
|
)
|
|
—
|
|
(Loss) income from continuing operations
|
(32,164
|
)
|
|
62,006
|
|
|
405
|
|
|
(62,411
|
)
|
|
(32,164
|
)
|
Loss from discontinued operations
|
—
|
|
|
(1,736
|
)
|
|
32
|
|
|
—
|
|
|
(1,704
|
)
|
Equity in loss of subsidiaries
|
(1,704
|
)
|
|
—
|
|
|
—
|
|
|
1,704
|
|
|
—
|
|
Net (loss) income
|
$
|
(33,868
|
)
|
|
$
|
60,270
|
|
|
$
|
437
|
|
|
$
|
(60,707
|
)
|
|
$
|
(33,868
|
)
|
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
Fiscal Year Ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
—
|
|
|
$
|
1,005,677
|
|
|
$
|
941
|
|
|
$
|
(941
|
)
|
|
$
|
1,005,677
|
|
Home construction and land sales expenses
|
60,952
|
|
|
828,368
|
|
|
—
|
|
|
(941
|
)
|
|
888,379
|
|
Inventory impairments and option contract abandonments
|
275
|
|
|
11,935
|
|
|
—
|
|
|
—
|
|
|
12,210
|
|
Gross (loss) profit
|
(61,227
|
)
|
|
165,374
|
|
|
941
|
|
|
—
|
|
|
105,088
|
|
Commissions
|
—
|
|
|
43,585
|
|
|
—
|
|
|
—
|
|
|
43,585
|
|
General and administrative expenses
|
—
|
|
|
109,937
|
|
|
114
|
|
|
—
|
|
|
110,051
|
|
Depreciation and amortization
|
—
|
|
|
13,510
|
|
|
—
|
|
|
—
|
|
|
13,510
|
|
Operating (loss) income
|
(61,227
|
)
|
|
(1,658
|
)
|
|
827
|
|
|
—
|
|
|
(62,058
|
)
|
Equity in loss of unconsolidated entities
|
—
|
|
|
304
|
|
|
—
|
|
|
—
|
|
|
304
|
|
Loss on extinguishment of debt
|
(45,097
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(45,097
|
)
|
Other (expense) income, net
|
(71,474
|
)
|
|
2,328
|
|
|
27
|
|
|
—
|
|
|
(69,119
|
)
|
(Loss) income before income taxes
|
(177,798
|
)
|
|
974
|
|
|
854
|
|
|
—
|
|
|
(175,970
|
)
|
(Benefit from) provision for income taxes
|
(68,026
|
)
|
|
27,380
|
|
|
299
|
|
|
—
|
|
|
(40,347
|
)
|
Equity in loss of subsidiaries
|
(25,851
|
)
|
|
—
|
|
|
—
|
|
|
25,851
|
|
|
—
|
|
(Loss) income from continuing operations
|
(135,623
|
)
|
|
(26,406
|
)
|
|
555
|
|
|
25,851
|
|
|
(135,623
|
)
|
Loss from discontinued operations
|
—
|
|
|
(9,695
|
)
|
|
(8
|
)
|
|
—
|
|
|
(9,703
|
)
|
Equity in loss of subsidiaries
|
(9,703
|
)
|
|
—
|
|
|
—
|
|
|
9,703
|
|
|
—
|
|
Net (loss) income
|
$
|
(145,326
|
)
|
|
$
|
(36,101
|
)
|
|
$
|
547
|
|
|
$
|
35,554
|
|
|
$
|
(145,326
|
)
|
Beazer Homes USA, Inc.
Consolidating Statement of Operations Information
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
Fiscal Year Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
—
|
|
|
$
|
742,405
|
|
|
$
|
1,102
|
|
|
$
|
(1,102
|
)
|
|
$
|
742,405
|
|
Home construction and land sales expenses
|
46,382
|
|
|
616,571
|
|
|
—
|
|
|
(1,102
|
)
|
|
661,851
|
|
Inventory impairments and option contract abandonments
|
1,907
|
|
|
30,552
|
|
|
—
|
|
|
—
|
|
|
32,459
|
|
Gross (loss) profit
|
(48,289
|
)
|
|
95,282
|
|
|
1,102
|
|
|
—
|
|
|
48,095
|
|
Commissions
|
—
|
|
|
32,711
|
|
|
—
|
|
|
—
|
|
|
32,711
|
|
General and administrative expenses
|
—
|
|
|
137,261
|
|
|
115
|
|
|
—
|
|
|
137,376
|
|
Depreciation and amortization
|
—
|
|
|
10,253
|
|
|
—
|
|
|
—
|
|
|
10,253
|
|
Operating (loss) income
|
(48,289
|
)
|
|
(84,943
|
)
|
|
987
|
|
|
—
|
|
|
(132,245
|
)
|
Equity in income of unconsolidated entities
|
—
|
|
|
560
|
|
|
—
|
|
|
—
|
|
|
560
|
|
Loss on extinguishment of debt
|
(2,909
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,909
|
)
|
Other (expense) income, net
|
(73,440
|
)
|
|
11,145
|
|
|
71
|
|
|
—
|
|
|
(62,224
|
)
|
(Loss) income before income taxes
|
(124,638
|
)
|
|
(73,238
|
)
|
|
1,058
|
|
|
—
|
|
|
(196,818
|
)
|
(Benefit from) provision for income taxes
|
(46,540
|
)
|
|
49,536
|
|
|
370
|
|
|
—
|
|
|
3,366
|
|
Equity in loss of subsidiaries
|
(122,086
|
)
|
|
—
|
|
|
—
|
|
|
122,086
|
|
|
—
|
|
(Loss) income from continuing operations
|
(200,184
|
)
|
|
(122,774
|
)
|
|
688
|
|
|
122,086
|
|
|
(200,184
|
)
|
Loss from discontinued operations
|
—
|
|
|
(4,672
|
)
|
|
(3
|
)
|
|
—
|
|
|
(4,675
|
)
|
Equity in loss of subsidiaries
|
(4,675
|
)
|
|
—
|
|
|
—
|
|
|
4,675
|
|
|
—
|
|
Net (loss) income
|
$
|
(204,859
|
)
|
|
$
|
(127,446
|
)
|
|
$
|
685
|
|
|
$
|
126,761
|
|
|
$
|
(204,859
|
)
|
Beazer Homes USA, Inc.
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, 2013
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
$
|
(89,306
|
)
|
|
$
|
(86,300
|
)
|
|
$
|
964
|
|
|
$
|
—
|
|
|
$
|
(174,642
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(10,761
|
)
|
|
—
|
|
|
—
|
|
|
(10,761
|
)
|
Investments in unconsolidated entities
|
—
|
|
|
(3,879
|
)
|
|
—
|
|
|
—
|
|
|
(3,879
|
)
|
Return of capital from unconsolidated entities
|
—
|
|
|
510
|
|
|
—
|
|
|
—
|
|
|
510
|
|
Increases in restricted cash
|
(3,460
|
)
|
|
(1,330
|
)
|
|
—
|
|
|
—
|
|
|
(4,790
|
)
|
Decreases in restricted cash
|
208,487
|
|
|
585
|
|
|
—
|
|
|
—
|
|
|
209,072
|
|
Net cash provided by (used in) investing activities
|
205,027
|
|
|
(14,875
|
)
|
|
—
|
|
|
—
|
|
|
190,152
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
(184,250
|
)
|
|
(473
|
)
|
|
—
|
|
|
—
|
|
|
(184,723
|
)
|
Proceeds from issuance of new debt
|
397,082
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
397,082
|
|
Repayment of cash secured loans
|
(205,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(205,000
|
)
|
Debt issuance costs
|
(5,548
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,548
|
)
|
Settlement of unconsolidated entity debt obligations
|
—
|
|
|
(500
|
)
|
|
—
|
|
|
—
|
|
|
(500
|
)
|
Payments for other financing activities
|
(157
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(157
|
)
|
Advances to/from subsidiaries
|
(99,901
|
)
|
|
100,257
|
|
|
27
|
|
|
(383
|
)
|
|
—
|
|
Net cash (used in) provided by financing activities
|
(97,774
|
)
|
|
99,284
|
|
|
27
|
|
|
(383
|
)
|
|
1,154
|
|
Increased (decrease) in cash and cash equivalents
|
17,947
|
|
|
(1,891
|
)
|
|
991
|
|
|
(383
|
)
|
|
16,664
|
|
Cash and cash equivalents at beginning of period
|
481,394
|
|
|
8,215
|
|
|
646
|
|
|
(2,460
|
)
|
|
487,795
|
|
Cash and cash equivalents at end of period
|
$
|
499,341
|
|
|
$
|
6,324
|
|
|
$
|
1,637
|
|
|
$
|
(2,843
|
)
|
|
$
|
504,459
|
|
Beazer Homes USA, Inc.
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, 2012
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
$
|
(110,429
|
)
|
|
$
|
88,806
|
|
|
$
|
778
|
|
|
$
|
—
|
|
|
$
|
(20,845
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(17,363
|
)
|
|
—
|
|
|
—
|
|
|
(17,363
|
)
|
Investments in unconsolidated entities
|
—
|
|
|
(2,407
|
)
|
|
—
|
|
|
—
|
|
|
(2,407
|
)
|
Return of capital from unconsolidated entities
|
—
|
|
|
610
|
|
|
—
|
|
|
—
|
|
|
610
|
|
Increases in restricted cash
|
(2,100
|
)
|
|
(1,160
|
)
|
|
—
|
|
|
—
|
|
|
(3,260
|
)
|
Decreases in restricted cash
|
25,919
|
|
|
1,139
|
|
|
—
|
|
|
—
|
|
|
27,058
|
|
Net cash provided by (used in) investing activities
|
23,819
|
|
|
(19,181
|
)
|
|
—
|
|
|
—
|
|
|
4,638
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
(289,063
|
)
|
|
(1,324
|
)
|
|
—
|
|
|
—
|
|
|
(290,387
|
)
|
Proceeds from issuance of new debt
|
300,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
300,000
|
|
Repayment of cash secured loans
|
(20,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,000
|
)
|
Debt issuance costs
|
(10,845
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,845
|
)
|
Proceeds from issuance of common stock
|
60,340
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60,340
|
|
Proceeds from issuance of TEU prepaid stock purchase contracts, net
|
88,361
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
88,361
|
|
Proceeds from issuance of TEU amortizing notes
|
23,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,500
|
|
Settlement of unconsolidated entity debt obligations
|
(15,862
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,862
|
)
|
Payments for other financing activities
|
(1,508
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,508
|
)
|
Dividends paid
|
2,300
|
|
|
—
|
|
|
(2,300
|
)
|
|
—
|
|
|
—
|
|
Advances to/from subsidiaries
|
70,058
|
|
|
(70,574
|
)
|
|
1,750
|
|
|
(1,234
|
)
|
|
—
|
|
Net cash provided by (used in) financing activities
|
207,281
|
|
|
(71,898
|
)
|
|
(550
|
)
|
|
(1,234
|
)
|
|
133,599
|
|
Increase (decrease) in cash and cash equivalents
|
120,671
|
|
|
(2,273
|
)
|
|
228
|
|
|
(1,234
|
)
|
|
117,392
|
|
Cash and cash equivalents at beginning of period
|
360,723
|
|
|
10,488
|
|
|
418
|
|
|
(1,226
|
)
|
|
370,403
|
|
Cash and cash equivalents at end of period
|
$
|
481,394
|
|
|
$
|
8,215
|
|
|
$
|
646
|
|
|
$
|
(2,460
|
)
|
|
$
|
487,795
|
|
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
Fiscal Year Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
$
|
(53,850
|
)
|
|
$
|
(126,090
|
)
|
|
$
|
1,004
|
|
|
$
|
—
|
|
|
$
|
(178,936
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(20,514
|
)
|
|
—
|
|
|
—
|
|
|
(20,514
|
)
|
Investments in unconsolidated entities
|
—
|
|
|
(1,924
|
)
|
|
—
|
|
|
—
|
|
|
(1,924
|
)
|
Increases in restricted cash
|
(249,728
|
)
|
|
(1,111
|
)
|
|
—
|
|
|
—
|
|
|
(250,839
|
)
|
Decreases in restricted cash
|
11,832
|
|
|
1,149
|
|
|
—
|
|
|
—
|
|
|
12,981
|
|
Net cash used in investing activities
|
(237,896
|
)
|
|
(22,400
|
)
|
|
—
|
|
|
—
|
|
|
(260,296
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
(214,005
|
)
|
|
(1,371
|
)
|
|
—
|
|
|
—
|
|
|
(215,376
|
)
|
Proceeds from issuance of new debt
|
246,387
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
246,387
|
|
Proceeds from issuance of cash secured loans
|
247,368
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
247,368
|
|
Debt issuance costs
|
(5,172
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,172
|
)
|
Payments for other financing activities
|
(693
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(693
|
)
|
Dividends paid
|
850
|
|
|
—
|
|
|
(850
|
)
|
|
—
|
|
|
—
|
|
Advances to/from subsidiaries
|
(153,113
|
)
|
|
152,006
|
|
|
64
|
|
|
1,043
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
121,622
|
|
|
150,635
|
|
|
(786
|
)
|
|
1,043
|
|
|
272,514
|
|
(Decrease) increase in cash and cash equivalents
|
(170,124
|
)
|
|
2,145
|
|
|
218
|
|
|
1,043
|
|
|
(166,718
|
)
|
Cash and cash equivalents at beginning of period
|
530,847
|
|
|
8,343
|
|
|
200
|
|
|
(2,269
|
)
|
|
537,121
|
|
Cash and cash equivalents at end of period
|
$
|
360,723
|
|
|
$
|
10,488
|
|
|
$
|
418
|
|
|
$
|
(1,226
|
)
|
|
$
|
370,403
|
|
(16) 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.
We have separately classified the results of operations of our discontinued operations in the accompanying consolidated statements of operations for all periods presented. There were no material assets or liabilities related to our discontinued operations as of
September 30, 2013
or
September 30, 2012
. Discontinued operations were not segregated in the consolidated statements of cash flows. Therefore, amounts for certain captions in the consolidated statements of cash flows will not agree with the respective data in the consolidated statements of operations. The results of our discontinued operations in the consolidated statements of operations for the
fiscal years
ended
September 30, 2013
,
2012
and
2011
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
|
2013
|
|
2012
|
|
2011
|
Total revenue
|
|
$
|
288
|
|
|
$
|
6,029
|
|
|
$
|
42,806
|
|
Home construction and land sales expenses
|
|
(319
|
)
|
|
6,057
|
|
|
38,157
|
|
Inventory impairments and lot option abandonments
|
|
17
|
|
|
579
|
|
|
2,906
|
|
Gross profit (loss)
|
|
590
|
|
|
(607
|
)
|
|
1,743
|
|
Commissions
|
|
—
|
|
|
217
|
|
|
1,167
|
|
General and administrative expenses (a)
|
|
2,566
|
|
|
9,206
|
|
|
4,270
|
|
Depreciation and amortization
|
|
—
|
|
|
35
|
|
|
455
|
|
Operating loss
|
|
(1,976
|
)
|
|
(10,065
|
)
|
|
(4,149
|
)
|
Other income (loss), net
|
|
77
|
|
|
(38
|
)
|
|
(463
|
)
|
Loss from discontinued operations before income taxes
|
|
(1,899
|
)
|
|
(10,103
|
)
|
|
(4,612
|
)
|
(Benefit from) provision for income taxes
|
|
(195
|
)
|
|
(400
|
)
|
|
63
|
|
Loss from discontinued operations, net of tax
|
|
$
|
(1,704
|
)
|
|
$
|
(9,703
|
)
|
|
$
|
(4,675
|
)
|
|
|
(a)
|
General and administrative expenses for the
fiscal year
ended September 30, 2012 primarily includes expense for the wind-down of our NW Florida operations, legal fees and potential liability related to outstanding litigation and other matters in Denver, Colorado and legal fees and other expenses related to BMC's settlement agreements related to our prior mortgage operations.
|
(17) Selected Quarterly Financial Data (Unaudited)
Summarized quarterly financial information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
Quarter Ended
|
Fiscal 2013
|
|
December 31
|
|
March 31
|
|
June 30
|
|
September 30
|
Total revenue
|
|
$
|
246,902
|
|
|
$
|
287,902
|
|
|
$
|
314,439
|
|
|
$
|
438,334
|
|
Gross profit (a)
|
|
36,084
|
|
|
43,885
|
|
|
54,115
|
|
|
80,046
|
|
Operating (loss) income
|
|
(3,601
|
)
|
|
311
|
|
|
8,472
|
|
|
22,079
|
|
Net (loss) income from continuing operations (b)
|
|
(18,939
|
)
|
|
(19,111
|
)
|
|
(5,442
|
)
|
|
11,328
|
|
Basic EPS from continuing operations
|
|
$
|
(0.78
|
)
|
|
$
|
(0.78
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.46
|
|
Diluted EPS from continuing operations
|
|
$
|
(0.78
|
)
|
|
$
|
(0.78
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2012
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
188,548
|
|
|
$
|
191,643
|
|
|
$
|
254,555
|
|
|
$
|
370,931
|
|
Gross profit (a)
|
|
22,269
|
|
|
20,190
|
|
|
21,231
|
|
|
41,398
|
|
Operating loss
|
|
(16,699
|
)
|
|
(17,694
|
)
|
|
(21,155
|
)
|
|
(6,510
|
)
|
Net income (loss) from continuing operations (b)
|
|
698
|
|
|
(37,866
|
)
|
|
(38,056
|
)
|
|
(60,399
|
)
|
Basic EPS from continuing operations
|
|
$
|
0.05
|
|
|
$
|
(2.41
|
)
|
|
$
|
(1.92
|
)
|
|
$
|
(2.57
|
)
|
Diluted EPS from continuing operations
|
|
$
|
0.04
|
|
|
$
|
(2.41
|
)
|
|
$
|
(1.92
|
)
|
|
$
|
(2.57
|
)
|
|
|
(a)
|
Gross profit in fiscal
2013
and
2012
includes inventory impairment and option contract abandonments as follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Fiscal 2013
|
|
Fiscal 2012
|
1st Quarter
|
|
$
|
204
|
|
|
$
|
3,503
|
|
2nd Quarter
|
|
2,025
|
|
|
1,170
|
|
3rd Quarter
|
|
—
|
|
|
5,819
|
|
4th Quarter
|
|
404
|
|
|
1,718
|
|
|
|
$
|
2,633
|
|
|
$
|
12,210
|
|
|
|
(b)
|
Net (loss) income from continuing operations in fiscal
2013
and
2012
includes loss on extinguishment of debt (as follows).
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Fiscal 2013
|
|
Fiscal 2012
|
1st Quarter
|
|
$
|
—
|
|
|
$
|
—
|
|
2nd Quarter
|
|
(3,638
|
)
|
|
(2,747
|
)
|
3rd Quarter
|
|
—
|
|
|
—
|
|
4th Quarter
|
|
(998
|
)
|
|
(42,350
|
)
|
|
|
$
|
(4,636
|
)
|
|
$
|
(45,097
|
)
|