NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business
Beazer Homes USA, Inc. (“we,” “us,” “our,” “Beazer,” “Beazer Homes” and the “Company”) is a geographically diversified homebuilder with active operations in
13
states within
three
geographic regions in the United States: the West, East and Southeast. Our homes are designed to appeal to homeowners at different price points across various demographic segments, and are generally offered for sale in advance of their construction. Our objective is to provide our customers with homes that incorporate exceptional value and quality, while seeking to maximize our return on invested capital over the course of a housing cycle.
(2) Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), and present the consolidated financial position, income, comprehensive income, stockholders' equity, and cash flows of Beazer Homes USA, Inc. and its consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Our net loss is equivalent to our comprehensive loss, so we have not presented a separate statement of comprehensive loss.
In the past, we have discontinued homebuilding operations in various markets. Results from certain of these exited markets are reported as discontinued operations in the accompanying consolidated statements of operations for all periods presented (see Note 20 for a further discussion of our discontinued operations).
Our fiscal year
2018
began on October 1, 2017 and ended on
September 30, 2018
. Our fiscal year
2017
began on October 1, 2016 and ended on
September 30, 2017
. Our fiscal year 2016 began on October 1, 2015 and ended on
September 30, 2016
.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make informed estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Accordingly, actual results could differ from these estimates.
Business Combinations
The Company accounts for acquisitions in accordance with ASC 805, Business Combinations, by allocating the purchase price of the business to the various assets acquired and liabilities assumed at their respective fair values. Any excess of the purchase price over the estimated fair value of the identifiable net assets acquired is recorded as goodwill. While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill, are recorded in the reporting period in which the adjustment amounts are determined. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in our results of operations in the reporting period such adjustments are made. Significant judgment is often required in estimating the fair value of assets acquired, particularly inventory and intangible assets. These estimates and assumptions are based on historical experience, information obtained from the management of the acquired companies, and the Company’s judgment about the significant assumptions that market participants would use when determining fair value.
On July 13, 2018, the Company acquired substantially all of the assets, operations, and certain assumed liabilities of Venture Homes ("Venture"), a leading private homebuilder in the Atlanta market, for a purchase price of
$60.6 million
, net of cash acquired. As of September 30, 2018, $
57.3
million of the purchase price had been paid, net of cash acquired, with the remaining $
3.3
million due during the first quarter of fiscal 2019. The acquired assets consisted of more than
1,100
total owned or controlled lots within
27
single-family communities in the greater Atlanta metropolitan area. The acquired lots included a backlog of
48
homes and
6
model homes. The acquired assets and liabilities were recorded at their estimated fair values and resulted in inventory of
$56.0 million
, goodwill and other intangible assets of
$9.8 million
, and other assets of
$0.6 million
as well as accounts payable of
$5.5 million
and other liabilities of
$0.2 million
. The acquisition of Venture Homes was not material to our results of operations or financial condition.
The purchase price accounting reflected above is preliminary and is based on estimates and assumptions that are subject to change within the measurement period, which is generally up to one year from the acquisition date pursuant to ASC 805. The purchase price allocation of Venture Homes is provisional pending completion of the fair value analysis of acquired assets and assumed liabilities.
Acquired inventories consisted of both acquired land and work in process inventories. We determined the estimate of fair value for acquired land inventory with the assistance of a third-party appraiser using, as applicable, a discounted cash flow approach for the development, marketing, and sale of each community acquired and a market approach based on comparable sales of finished lots. Significant valuation assumptions included future per lot land development, direct construction, and overhead costs as well as average sales prices and absorption rates. We estimated the fair value of acquired work in process inventories based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete development and selling activities. As of the acquisition date, the stage of production ranged from recently started lots to fully completed single family residences.
Cash and Cash Equivalents and Restricted Cash
We consider highly liquid investments with maturities of three months or less when acquired to be cash equivalents. As of
September 30, 2018
, the majority of our cash and cash equivalents were invested in highly marketable securities, or were on deposit with major banks. These assets were valued at par and had no withdrawal restrictions. The underlying investments of these funds were U.S. Government and U.S. Government Agency obligations or high-quality marketable securities. Restricted cash includes cash restricted by state law or a contractual requirement, including cash collateral for our outstanding cash-secured letters of credit (refer to Note 8).
Accounts Receivable
Accounts receivable include escrow deposits to be received from title companies associated with closed homes, receivables from municipalities related to the development of utilities or other infrastructure, insurance recovery receivables, rebates to be received from our suppliers and other miscellaneous receivables. Generally, we receive cash from title companies within a few days of the home being closed. We regularly review our receivable balances for collectiblity and record an allowance against any receivable for which collectiblity is deemed to be uncertain.
Inventory
Owned inventory consists solely of residential real estate developments. Interest, real estate taxes and development costs are capitalized in inventory during the development and construction period. Construction and land costs are comprised of direct and allocated costs, such as for amenities and estimated costs for future warranties. Land, land improvements and other common costs are typically allocated to individual residential lots on a pro-rata basis, and the costs of residential lots are transferred to homes under construction when home construction begins. Land not owned under option agreements, if outstanding, represents the value of land under option agreements with a variable interest entity (VIE) where the Company is deemed to be the primary beneficiary of the VIE. VIEs are entities in which (1) equity investors do not have a controlling financial interest and/or (2) the entity is unable to finance its activities without additional subordinated financial support from other parties (refer to section below entitled “Land Not Owned Under Option Agreements” for a further discussion of VIEs). In addition, when our deposits and pre-acquisition development costs exceed certain thresholds, we record the remaining purchase price of the lots as consolidated inventory not owned and obligations related to consolidated inventory not owned on our consolidated balance sheets. Refer to Note 5 for a further discussion and detail of our inventory balance.
Inventory Valuation - Projects in Progress
Our homebuilding inventories that are accounted for as held for development (projects in progress) include land and home construction assets grouped together as communities. Homebuilding inventories held for development are stated at cost (including direct construction costs, capitalized indirect costs, capitalized interest and real estate taxes) unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. We assess these assets no less than quarterly for recoverability. Generally, upon the commencement of land development activities, it may take
three
to
five years
(depending on, among other things, the size of the community and its sales pace) to fully develop, sell, construct and close all the homes in a typical community. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If the expected undiscounted cash flows generated are expected to be less than its carrying amount, an impairment charge is recorded to write down the carrying amount of such asset to its estimated fair value based on discounted cash flows.
When conducting our community level review for the recoverability of our homebuilding inventory related to projects in progress, we establish a quarterly “watch list” of communities that carry profit margins in backlog or in our forecast that are below a minimum threshold of profitability, as well as recent closings that have gross margins less than a specified threshold. In our experience, this threshold represents a level of profitability that may be an indicator of conditions that would require an asset impairment, but does not necessitate that such an impairment is warranted without additional analysis. Each community is first evaluated qualitatively to determine if there are temporary factors driving the low profitability levels. Following our qualitative evaluation, communities with more than
ten
homes remaining to close are subjected to substantial additional financial and operational analyses and review that consider the competitive environment and other factors contributing to profit margins below our watch list threshold. For communities where the current competitive and market dynamics indicate that these factors may be other than temporary, which may call into question the recoverability of our investment, a formal impairment analysis is performed. The formal impairment analysis consists of both qualitative competitive market analyses and a quantitative analysis reflecting market and asset specific information.
Our qualitative competitive market analyses include site visits to new home communities of our competitors and written community-level competitive assessments. A competitive assessment consists of a comparison of our specific community with its competitor communities, considering square footage of homes offered, amenities offered within the homes and the communities, location, transportation availability and school districts, among other relevant attributes. In addition, we review the pace of monthly home sales of our competitor communities in relation to our specific community. We also review other factors, such as the target buyer and the macro-economic characteristics that impact the performance of our asset, including unemployment and the availability of mortgage financing, among other things. Based on this qualitative competitive market analysis, adjustments to our sales prices may be required in order to make our communities competitive. We incorporate these adjusted prices in our quantitative analysis for the specific community.
The quantitative analyses compare the projected future undiscounted cash flows for each such community with its current carrying value. This undiscounted cash flow analysis requires important assumptions regarding the location and mix of house plans to be sold, current and future home sale prices and incentives for each plan, current and future construction costs for each plan and the pace of monthly sales to occur today and into the future.
There is uncertainty associated with preparing the undiscounted cash flow analyses because future market conditions will almost certainly be different, either better or worse, than current conditions. The single most important input to the cash flow analysis is current and future home sales prices for a specific community. The risk of over or under-stating any of the important cash flow variables, including home prices, is greater with longer-lived communities and within markets that have historically experienced greater home price volatility. In an effort to address these risks, we consider some home price and construction cost appreciation in future years for certain communities that are expected to be selling for more than three years and/or if the market has typically exhibited high levels of price volatility. Absent these assumptions on cost and sales price appreciation, we believe the long-term cash flow analysis would be unrealistic and would serve to artificially improve expected future profitability. Finally, we also ensure that the monthly sales absorptions, including historical seasonal differences of our communities and those of our competitors, used in our undiscounted cash flow analyses are realistic, consider our development schedules and relate to those achieved by our competitors for the specific communities.
If the aggregate undiscounted cash flows from our quantitative analyses are in excess of the carrying value, the asset is considered to be recoverable and is not impaired. If the aggregate undiscounted cash flows are less than the carrying or book value, we perform a discounted cash flow analysis to determine the fair value of the community. The fair value of the community is estimated using the present value of the estimated future cash flows using discount rates commensurate with the risk associated with the underlying community assets. The discount rate used may be different for each community. The factors considered when determining an appropriate discount rate for a community include, among others: (1) community specific factors such as the number of lots in the community, the status of land development in the community and the competitive factors influencing the sales performance of the community and (2) overall market factors such as employment levels, consumer confidence and the existing supply of new and used homes for sale. If the determined fair value is less than the carrying value of the specific asset, the asset is considered not recoverable and is written down to its fair value. The carrying value of assets in communities that were previously impaired and continue to be classified as projects in progress is not increased for future estimates of increases in fair value in future reporting periods. However, market deterioration that exceeds our initial estimates may lead us to incur impairment charges on previously impaired homebuilding assets, in addition to homebuilding assets not currently impaired but for which indicators of impairment may arise if markets deteriorate.
Asset Valuation - Land Held for Future Development
For those communities that have been idled (land held for future development), all applicable carrying costs, such as interest and real estate taxes, are expensed as incurred, and the inventory is stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable, such as the future enactment of a development plan or the occurrence of outside events. We evaluate the potential plans for each community in land held for future development if changes in facts and circumstances occur that would give rise to a more detailed analysis for a change in the status of a community.
Asset Valuation - Land Held for Sale
We record assets held for sale at the lower of the asset's carrying value or fair value less costs to sell. The following criteria are used to determine if land is held for sale:
•
management has the authority and commits to a plan to sell the land;
•
the land is available for immediate sale in its present condition;
•
there is an active program to locate a buyer and the plan to sell the property has been initiated;
•
the sale of the land is probable within one year;
•
the property is being actively marketed at a reasonable sale price relative to its current fair value; and
•
it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made.
Additionally, in certain circumstances, such as a change in strategy, management will re-evaluate the best use of an asset that is currently being accounted for as held for development. In such instances, management will review, among other things, the current and projected competitive circumstances of the community, including the level of supply of new and used inventory, the level of sales absorptions by us and our competition, the level of sales incentives required and the number of owned lots remaining in the community. If, based on this review, we believe that the best use of the asset is the sale of all or a portion of the asset in its current condition, then all or portions of the community are accounted for as held for sale if the foregoing criteria have been met as of the end of the applicable reporting period.
In determining the fair value of the assets less cost to sell, we consider factors including current sales prices for comparable assets in the area, recent market analysis studies, appraisals, any recent legitimate offers and listing prices of similar properties. If the estimated fair value less cost to sell of an asset is less than its current carrying value, the asset is written down to its estimated fair value less cost to sell.
Land Not Owned Under Option Agreements
In addition to purchasing land directly, we utilize lot option agreements that enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise our lot option. The majority of our lot option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land for the right to acquire lots during a specified period of time at a specified price. Purchase of the properties under these agreements is contingent upon satisfaction of certain requirements by us and the sellers. Under lot option contracts, our liability is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts incurred. If the Company cancels a lot option agreement, it would result in a write-off of the related deposits and pre-acquisition costs, but would not expose the Company to the overall risks or losses of the applicable entity we are purchasing from.
In accordance with GAAP, if the entity holding the land under option is a VIE, the Company's deposit represents a variable interest in that entity. To determine whether we are the primary beneficiary of the VIE, we are first required to evaluate whether we have the ability to control the activities of the VIE that most significantly impact its economic performance. Such activities include, but are not limited to, (1) the ability to determine the budget and scope of land development work, if any; (2) the ability to control financing decisions for the VIE; (3) the ability to acquire additional land into the VIE or dispose of land in the VIE not under contract with Beazer; and (4) the ability to change or amend the existing option contract with the VIE. If we are not determined to control such activities, we are not considered the primary beneficiary of the VIE and thus do not consolidate the VIE. If we do have the ability to control such activities, we will continue our analysis by determining if we are expected to absorb a potentially significant amount of the VIE's losses or, if no party absorbs the majority of such losses, if we will benefit from potentially a significant amount of the VIE's expected gains.
If we are the primary beneficiary of the VIE, we will consolidate the VIE even though creditors of the VIE have no recourse against the Company. For those we consolidate, we record the remaining contractual purchase price under the applicable lot option agreement, net of cash deposits already paid, to land not owned under option agreements with an offsetting increase to obligations related to land not owned under option agreements on our consolidated balance sheets. Also, to reflect the total purchase price of this inventory on a consolidated basis, we present the related option deposits as land not owned under option agreement. Consolidation of these VIEs has no impact on the Company’s statements of operations or cash flows.
Investments in Unconsolidated Entities
We participate in a number of joint ventures and other investments in which we have less than a controlling interest. We enter into the majority of these investments with land developers, other homebuilders and financial partners to acquire attractive land positions, to manage our risk profile and to leverage our capital base. The land positions are developed into finished lots for sale to the unconsolidated entity’s members or other third parties. We recognize our share of equity in income (loss) and profits (losses) from the sale of lots to other buyers. Our share of profits from lots we purchase from the unconsolidated entities is deferred and treated as a reduction of the cost of the land purchased from the unconsolidated entity. Such profits are subsequently recognized at the time the home closes and title passes to the homebuyer. We evaluate our investments in unconsolidated entities for impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the value of our investment in the unconsolidated entity has occurred that is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying value over its estimated fair value. Our unconsolidated entities typically obtain secured acquisition, development and construction financing. We account for our interest in unconsolidated entities under the equity method. For additional discussion of these entities, refer to Note 4.
Property and Equipment
Our property and equipment is recorded at cost. Depreciation is computed on a straight-line basis based on estimated useful lives as follows:
|
|
|
|
Asset Class
|
|
Useful Lives
|
Information systems
|
|
Lesser of estimated useful life of the asset or 5 years
|
Furniture, fixtures and computer and office equipment
|
|
3 - 7 years
|
Model and sales office improvements
|
|
Lesser of estimated useful life of the asset or estimated life of the community
|
Leasehold improvements
|
|
Lesser of the lease term or the estimated useful life of the asset
|
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets from the businesses that we acquire. Goodwill will be evaluated for impairment annually during the fourth quarter of each year, or more frequently if impairment indicators are present or changes in circumstances suggest that impairment may exist. For reporting units with goodwill, we assess goodwill for impairment by comparing the carrying value of the reporting unit to its estimated fair value. The Company's entire goodwill balance as of September 30, 2018 is related to the Venture acquisition and resides within our Southeast reportable segment.
Other Assets
Our other assets principally include prepaid expenses and assets related to our deferred compensation plan (refer to Note 15 for a discussion of our deferred compensation plan).
Other Liabilities
Our other liabilities principally include accrued warranty expense, accrued interest on our outstanding borrowings, customer deposits, income tax liabilities and other accruals related to our operations. Refer to Note 12 for a detail of our other liabilities.
Income Taxes
Our provision for income taxes is comprised of taxes that are currently payable and deferred taxes that relate to temporary differences between financial reporting carrying values and tax bases of assets and liabilities. Deferred tax assets and liabilities result from deductible or taxable amounts in future years when such assets and liabilities are recovered or settled, and are measured using the enacted tax rates and laws that are expected to be in effect when the assets and liabilities are recovered or settled. We include any estimated interest and penalties on tax related matters in income taxes payable. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than
50%
likely of being realized. Changes in recognition of measurement are recorded in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits in income tax expense.
For a discussion of our evaluation of and accounting for valuation allowances, refer to Note 13.
Revenue Recognition and Classification of Costs
Revenue and related profit are recognized by us at the time of the closing of a sale, when title to and possession of the property, as well as risk of loss, are transferred to the buyer.
Sales discounts and incentives include items such as cash discounts, discounts on options included in the home, option upgrades (such as upgrades for cabinetry, countertops and flooring) and seller-paid financing or closing costs. In addition, from time to time, we may also provide homebuyers with retail gift certificates and/or other nominal retail merchandise. All sales incentives other than cash discounts are recognized as a cost of selling the home and are included in home construction expense in our consolidated statements of operations. Cash discounts are accounted for as a reduction in the sales price of the home, thereby decreasing the amount of revenue we recognize on that closing.
Estimated future warranty costs are charged to home construction expense in the period when the revenues from home closings are recognized. Such estimated warranty costs generally range from
0.3%
to
1.3%
of total revenue recognized for each home closed. Additional warranty costs are charged to home construction expense as necessary based on management's estimate of the costs to remediate existing claims. See Note 9 for a more detailed discussion of warranty costs and related reserves.
Advertising costs related to continuing operations of
$17.6 million
,
$17.5 million
, and
$19.2 million
for our fiscal years
2018
,
2017
and
2016
, respectively, were expensed as incurred and were included in general and administrative (G&A) expenses.
Fair Value Measurements
Certain of our assets are required to be recorded at fair value on a recurring basis; the fair value of our deferred compensation plan assets are based on market-corroborated inputs (level 2). Certain of our assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value may not be recovered (level 3). For example, we review our long-lived assets, including inventory, for recoverability when factors indicate an impairment may exist, but no less than quarterly. Fair value is based on estimated cash flows discounted for market risks associated with the long-lived assets. The fair value of certain of our financial instruments approximates their carrying amounts due to the short maturity of these assets and liabilities or the variable interest rates on such obligations. The fair value of our publicly-held debt is generally estimated based on quoted bid prices for these instruments (level 2). Certain of our other financial instruments are estimated by discounting scheduled cash flows through maturity or using market rates currently being offered on loans with similar terms and credit quality. The fair value of our investments in unconsolidated entities is determined primarily using a discounted cash flow model to value the underlying net assets of the respective entities. See Note 10 for additional discussion of our fair value measurements.
Stock-Based Compensation
We use the Black-Scholes model to value our stock option grants. Other stock-based awards with only performance conditions granted to employees are valued based on the market price of the common stock on the date of the grant. Stock-based awards with market conditions granted to employees are valued using the Monte Carlo valuation method. Any portion of our stock-based awards that can be settled in cash is initially valued based on the market price of the underlying common stock on the date of the grant, and is adjusted to fair value until vested and recorded as a liability on our consolidated balance sheets. On the date of grant, we estimate forfeitures in calculating the expense related to stock-based compensation. In addition, we reflect the benefits of tax deductions in excess of recognized compensation cost as an operating cash outflow. Compensation cost arising from all stock-based compensation awards is recognized as expense using the straight-line method over the vesting period and is included in G&A in our consolidated statements of operations. See Note 16 for additional discussion of our stock-based compensation.
Recent Accounting Pronouncements
Revenue from Contracts with Customers.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09,
Revenue from Contracts with Customers
(ASU 2014-09)
.
ASU 2014-09 requires entities to recognize revenue at an amount that the entity expects to be entitled to upon transferring control of goods or services to a customer, as opposed to when risks and rewards transfer to a customer under the existing revenue recognition guidance. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers” (“ASU 2015-14”), which delays the effective date of ASU 2014-09 by one year. ASU 2014-09, as amended by ASU 2015-14, is effective for us for fiscal annual and interim periods beginning October 1, 2018, and, at that time, we expect to adopt the new standard under the modified retrospective approach. We have substantially completed our evaluation of the impact of adopting the new revenue standard. Based on our assessment, we do not expect the adoption of ASU 2014-09 to have a material impact on our financial statements. In addition, we do not expect significant changes to our business processes, systems, or internal controls as a result of adopting the standard.
Leases.
In February 2016, the FASB issued ASU 2016-02,
Leases
(ASU 2016-02). ASU 2016-02 requires lessees to record most leases on their balance sheets. The timing and classification of lease-related expenses for lessees will depend on whether a lease is determined to be an operating lease or a finance lease using updated criteria within ASU 2016-02. Operating leases will result in straight-line expense (similar to current operating leases), while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Regardless of lease type, the lessee will recognize a right-of-use asset, representing the right to use the identified asset during the lease term, and a related lease liability, representing the present value of the lease payments over the lease term. Lessor accounting will be largely similar to that under the current lease accounting rules. ASU 2016-02 also requires significantly enhanced disclosures around an entity's leases and the related accounting. The guidance within ASU 2016-02 will be effective for the Company's fiscal year beginning October 1, 2019, with early adoption permitted. In July 2018, the FASB issued ASU 2018-11,
Leases - Targeted Improvements
(ASU 2018-11), which provides an optional transition method to apply the requirements of the new lease standard through a cumulative-effect adjustment in the period of adoption. The Company expects to adopt the standard on October 1, 2019 using the optional transition method. We continue to evaluate the impact of ASU 2016-02 on our consolidated financial statements. However, a large majority of our leases are for office space, which we have determined will be treated as operating leases under ASU 2016-02. As such, we anticipate recording a right-of-use asset and related lease liability for these leases, but we do not expect our expense recognition pattern to change. Therefore, we do not anticipate any significant change to our statements of operations or cash flows as a result of adopting ASU 2016-02.
Business Combinations.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
(ASU 2017-01). ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for transactions that have not been reported in previously issued financial statements. The Company early adopted this guidance as of December 31, 2017 and applied it to applicable transactions occurring during this period.
Intangibles - Goodwill and Other.
In January 2017, the FASB issued ASU 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
(“ASU 2017-04”). ASU 2017-04 eliminates Step 2 from the goodwill impairment test. This change will allow an entity to avoid calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination, thus reducing the cost and complexity of evaluating goodwill for impairment. This amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted, and applied prospectively. We do not believe the adoption of ASU 2017-04 will have a material impact on our consolidated financial statements and disclosures.
Income Taxes.
In December 2017, the Securities and Exchange Commission Staff issued SAB 118, which provides guidance on accounting for the income tax effects of the Tax Cuts and Jobs Act (Tax Act). SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements and should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The Company adopted the guidance of SAB 118 as of December 31, 2017. As of September 30, 2018, we have completed our analysis of the impacts of the Tax Act under SAB 118 with immaterial differences to our provisional amounts previously recorded. Refer to Note 13 for additional information on the Tax Act and the impact to our financial statements.
Fair Value Measurements.
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820) - Disclosure Framework
(ASU 2018-13). The updated guidance improves the disclosure requirements for fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. We are currently assessing the impact of adopting the updated provisions.
Internal Use Software.
In August 2018, the FASB issued ASU 2018-15,
Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
(ASU 2018-15). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new guidance will be effective for public companies for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect that the new guidance will have on its consolidated financial statements and related disclosures.
(3) Supplemental Cash Flow Information
The following table presents supplemental disclosure of non-cash and cash activity as well as a reconciliation of our total cash balances between our consolidated balance sheets and our consolidated statements of cash flows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Supplemental disclosure of non-cash activity:
|
|
|
|
|
|
Non-cash land acquisitions
(a)
|
$
|
—
|
|
|
$
|
14,651
|
|
|
$
|
8,265
|
|
Supplemental disclosure of cash activity:
|
|
|
|
|
|
Interest payments
(b)
|
$
|
95,857
|
|
|
$
|
100,125
|
|
|
$
|
131,730
|
|
Income tax payments
|
607
|
|
|
1,616
|
|
|
1,420
|
|
Tax refunds received
|
162
|
|
|
351
|
|
|
201
|
|
Reconciliation of cash, cash equivalents and restricted cash:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
139,805
|
|
|
$
|
292,147
|
|
|
$
|
228,871
|
|
Restricted cash
|
13,443
|
|
|
12,462
|
|
|
14,405
|
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
|
$
|
153,248
|
|
|
$
|
304,609
|
|
|
$
|
243,276
|
|
(a)
For the fiscal year ended
September 30, 2018
, we did not have any non-cash land acquisitions. For the fiscal year ended September 30, 2017, non-cash land acquisitions were comprised of
$6.3 million
related to non-cash seller financing and
$8.4 million
in lot takedowns from one of our unconsolidated land development joint ventures. For the fiscal year ended September 30, 2016, non-cash land acquisitions were comprised of lot takedowns from one of our unconsolidated land development joint ventures.
(b)
Elevated interest payments made during our fiscal 2016 were due to early redemption of certain of our outstanding debt obligations; refer to Note 8.
(4) Investments in Unconsolidated Entities
Unconsolidated Entities
As of
September 30, 2018
, the Company participated in certain joint ventures and had investments in unconsolidated entities in which it had less than a controlling interest. The following table presents the Company's investment in these unconsolidated entities as well as the total equity and outstanding borrowings of these unconsolidated entities as of
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2018
|
|
September 30, 2017
|
Beazer’s investment in unconsolidated entities
|
$
|
4,035
|
|
|
$
|
3,994
|
|
Total equity of unconsolidated entities
|
10,113
|
|
|
11,811
|
|
Total outstanding borrowings of unconsolidated entities
|
12,266
|
|
|
15,797
|
|
Equity in income from unconsolidated entity activities included in income from continuing operations is as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Income from unconsolidated entity activity
|
$
|
375
|
|
|
$
|
371
|
|
|
$
|
131
|
|
Impairment of unconsolidated entity investment
|
(341
|
)
|
|
—
|
|
|
—
|
|
Total equity in income of unconsolidated entities
|
$
|
34
|
|
|
$
|
371
|
|
|
$
|
131
|
|
For the fiscal year ended September 30, 2018, we recorded a
$0.3 million
impairment charge in the consolidated statements of operations related to an investment in an unconsolidated entity. No impairments for unconsolidated entities were recorded during the fiscal years ended September 30, 2017 and 2016.
Guarantees.
Historically, the Company's joint ventures typically obtained secured acquisition, development, and construction financing. In addition, the Company and its joint venture partners provided varying levels of guarantees of debt and other debt-related obligations for these unconsolidated entities. However, as of
September 30, 2018
and
September 30, 2017
, we had
no
outstanding guarantees or other debt-related obligations related to our investments in unconsolidated entities.
The Company and its joint venture partners generally provide unsecured environmental indemnities to land development joint venture project lenders. These indemnities obligate the Company to reimburse the project lenders for claims related to environmental matters for which they are held responsible. During our
fiscal years ended
September 30, 2018
and
2017
, the Company was not required to make any payments related to environmental indemnities.
In assessing the need to record a liability for these these guarantees, the Company considers its historical experience in being required to perform under the guarantees, the fair value of the collateral underlying these guarantees, and the financial condition of the applicable unconsolidated entities. In addition, the fair value of the collateral of unconsolidated entities is monitored to ensure that the related borrowings do not exceed the specified percentage of the value of the property securing the borrowings. As of
September 30, 2018
, no liability was recorded for the contingent aspects of any guarantees that were determined to be reasonably possible but not probable.
(5) Inventory
The components of our owned inventory are as follows as of
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2018
|
|
September 30, 2017
|
Homes under construction
|
$
|
476,752
|
|
|
$
|
419,312
|
|
Development projects in progress
|
907,793
|
|
|
785,777
|
|
Land held for future development
|
83,173
|
|
|
112,565
|
|
Land held for sale
|
7,781
|
|
|
17,759
|
|
Capitalized interest
|
144,645
|
|
|
139,203
|
|
Model homes
|
72,140
|
|
|
68,191
|
|
Total owned inventory
|
$
|
1,692,284
|
|
|
$
|
1,542,807
|
|
Homes under construction include homes substantially finished and ready for delivery and homes in various stages of construction, including the cost of the underlying lot. We had
240
(with a cost of
$84.8 million
) and
171
(with a cost of
$52.6 million
) substantially completed homes that were not subject to a sales contract (spec homes) as of
September 30, 2018
and
2017
, respectively.
Development projects in progress consist principally of land and land improvement costs. Certain of the fully developed lots in this category are reserved by a customer deposit or sales contract. Land held for future development consists of communities for which construction and development activities are expected to occur in the future or have been idled and are stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. All applicable interest and real estate taxes on land held for future development are expensed as incurred. Land held for sale includes land and lots that do not fit within our homebuilding programs and strategic plans in certain markets, and land is classified as held for sale once certain criteria are met (refer to Note 2). These assets are recorded at the lower of the carrying value or fair value less costs to sell.
The amount of interest we are able to capitalize depends on our qualified inventory balance, which considers the status of our inventory holdings. Our qualified inventory balance includes the majority of our homes under construction and development projects in progress but excludes land held for future development and land held for sale (see Note 6 for additional information on capitalized interest).
Total owned inventory by reportable segment is presented in the table below as of
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Projects in
Progress
(a)
|
|
Land Held for Future
Development
|
|
Land Held
for Sale
|
|
Total Owned
Inventory
|
September 30, 2018
|
|
|
|
|
|
|
|
West Segment
|
$
|
763,453
|
|
|
$
|
58,125
|
|
|
$
|
—
|
|
|
$
|
821,578
|
|
East Segment
|
280,761
|
|
|
14,077
|
|
|
4,580
|
|
|
299,418
|
|
Southeast Segment
|
358,126
|
|
|
10,971
|
|
|
3,177
|
|
|
372,274
|
|
Corporate and unallocated
(b)
|
198,990
|
|
|
—
|
|
|
24
|
|
|
199,014
|
|
Total
|
$
|
1,601,330
|
|
|
$
|
83,173
|
|
|
$
|
7,781
|
|
|
$
|
1,692,284
|
|
September 30, 2017
|
|
|
|
|
|
|
|
West Segment
|
$
|
673,828
|
|
|
$
|
87,231
|
|
|
$
|
3,848
|
|
|
$
|
764,907
|
|
East Segment
|
250,002
|
|
|
14,391
|
|
|
11,578
|
|
|
275,971
|
|
Southeast Segment
|
301,268
|
|
|
10,943
|
|
|
1,233
|
|
|
313,444
|
|
Corporate and unallocated
(b)
|
187,385
|
|
|
—
|
|
|
1,100
|
|
|
188,485
|
|
Total
|
$
|
1,412,483
|
|
|
$
|
112,565
|
|
|
$
|
17,759
|
|
|
$
|
1,542,807
|
|
(a)
Projects in progress include homes under construction, development projects in progress, capitalized interest, and model home categories from the preceding table.
(b)
Projects in progress amount includes capitalized interest and indirect costs that are maintained within our Corporate and unallocated segment. Land held for sale amount includes parcels held by our discontinued operations.
Inventory Impairments
When conducting our community level review for the recoverability of inventory related to projects in progress, we establish a quarterly “watch list” comprised of communities that carry profit margins in backlog and in our forecast that are below a minimum threshold of profitability. We also include in our watch list communities with recent closings that have gross margins less than a specific threshold. Each community is first evaluated qualitatively to determine if there are temporary factors driving the low profitability levels. Following our qualitative evaluation, communities with more than
ten
homes remaining to close are subjected to substantial additional financial and operational analysis and review that considers the competitive environment and other factors contributing to gross margins below our watch list threshold. Our assumptions about future home sales prices and absorption rates require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions. For certain communities, we determined that it is prudent to reduce sales prices or further increase sales incentives in response to a variety of factors, including competitive market conditions in those specific submarkets for the product and locations of these communities. For communities where the current competitive and market dynamics indicate that these factors may be other than temporary, which may call into question the recoverability of our investment, a formal impairment analysis is performed. The formal impairment analysis consists of both qualitative competitive market analyses and a quantitative analysis reflecting market and asset specific information. Market deterioration that exceeds our initial estimates may lead us to incur impairment charges on previously impaired homebuilding assets, in addition to homebuilding assets not currently impaired but for which indicators of impairment may arise if markets deteriorate.
For the year ended
September 30, 2018
, there were
four
communities that were included in our watch list that required further analysis to be performed after considering the number of lots remaining in each community and certain other qualitative factors. This additional analysis led to an impairment charge of
$1.0 million
for
one
of these communities, principally due to a reduction in price taken that is other than temporary based on current competitive and market dynamics. For the year ended
September 30, 2017
, there were
two
communities on our watch list that required further analysis. This additional analysis led to an impairment charge of
$1.7 million
for
one
of these communities, principally due to a reduction in price taken at each community that is other than temporary based on current competitive and market dynamics.
The table below summarizes the results of our undiscounted cash flow analyses by reportable segment, where applicable, for the periods ended September 30,
2018
and
2017
(the years that such analyses were required):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
Undiscounted Cash Flow Analyses Prepared
|
Segment
(a)
|
Number of
Communities
on Watch List
(b)
|
|
Number of
Communities
(c)
|
|
Pre-analysis
Book Value
(BV)
|
|
Aggregate Undiscounted Cash Flow as a % of BV
(d)
|
Year Ended September 30, 2018
|
|
|
|
|
|
|
|
West
|
2
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
%
|
Southeast
|
2
|
|
|
2
|
|
|
4,360
|
|
|
99.0
|
%
|
Corporate and unallocated
(e)
|
—
|
|
|
—
|
|
|
1,307
|
|
|
N/A
(f)
|
|
Total
|
4
|
|
|
2
|
|
|
$
|
5,667
|
|
|
|
Year Ended September 30, 2017
|
|
|
|
|
|
|
|
West
|
4
|
|
|
2
|
|
|
$
|
15,801
|
|
|
94.4
|
%
|
Southeast
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
Corporate and unallocated
(e)
|
—
|
|
|
—
|
|
|
3,337
|
|
|
N/A
(f)
|
|
Total
|
6
|
|
|
2
|
|
|
$
|
19,138
|
|
|
|
(a)
We have elected to aggregate our disclosure at the reportable segment level because we believe this level of disclosure is most meaningful to the readers of our financial statements.
(b)
Number of communities in this column excludes communities that are closing out and have less than
ten
closings remaining.
(c)
Number of communities in this column is lower than the number of communities on our watch list because it excludes communities due to certain qualitative considerations that would imply that the low profitability levels are temporary in nature.
(d)
An aggregate undiscounted cash flow as a percentage of book value under 100% would indicate a possible impairment and is consistent with our "watch list" methodology.
(e)
Amount represents capitalized interest and indirects balance related to the communities for which an undiscounted cash flow analysis was prepared. Capitalized interest and indirects are maintained within our Corporate and unallocated segment.
(f)
N/A - not applicable.
The following table presents, by reportable segment, details of the impairment charges taken on projects in progress for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
Results of Discounted Cash Flow Analyses Prepared
|
Segment
|
# of
Communities
Impaired
|
|
# of Lots
Impaired
|
|
Impairment
Charge
|
|
Estimated Fair
Value of
Impaired
Inventory at time of Impairment
|
Year Ended September 30, 2018
|
Southeast
|
1
|
|
|
25
|
|
|
$
|
793
|
|
|
$
|
1,312
|
|
Corporate and unallocated
(a)
|
—
|
|
|
—
|
|
|
212
|
|
|
—
|
|
Total
|
1
|
|
|
25
|
|
|
$
|
1,005
|
|
|
$
|
1,312
|
|
Year Ended September 30, 2017
|
West
|
1
|
|
|
46
|
|
|
$
|
1,625
|
|
|
$
|
3,791
|
|
Corporate and unallocated
(a)
|
—
|
|
|
—
|
|
|
68
|
|
|
—
|
|
Total
|
1
|
|
|
46
|
|
|
$
|
1,693
|
|
|
$
|
3,791
|
|
Year Ended September 30, 2016
|
|
|
|
West
|
2
|
|
|
213
|
|
|
$
|
6,729
|
|
|
$
|
16,345
|
|
East
|
1
|
|
|
78
|
|
|
5,894
|
|
|
18,073
|
|
Corporate and unallocated
(a)
|
—
|
|
|
—
|
|
|
1,101
|
|
|
—
|
|
Total
|
3
|
|
|
291
|
|
|
$
|
13,724
|
|
|
$
|
34,418
|
|
(a)
Amount represents capitalized interest and indirects balance that was impaired. Capitalized interest and indirects are maintained within our Corporate and unallocated segment.
The following table presents the ranges or values of significant quantitative unobservable inputs we used in determining the fair value of the communities we impaired during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
Unobservable Inputs
|
|
2018
|
|
2017
|
Average selling price
(in thousands)
|
|
$
|
356
|
|
|
$
|
405
|
|
Closings per community per month
|
|
1 - 6
|
|
|
1 - 4
|
|
Discount rate
|
|
15.11
|
%
|
|
12.83%
|
|
Impairments on land held for sale generally represent write downs of these properties to net realizable value, less estimated costs to sell, and are based on current market conditions and our review of recent comparable transactions. Our assumptions about land sales prices require significant judgment because the real estate market is highly sensitive to changes in economic conditions. We calculate the estimated fair value of land held for sale based on current market conditions and assumptions made by management, which may differ materially from actual results and may result in additional impairments if market conditions deteriorate.
From time to time, we also determine that the proper course of action with respect to a community is to not exercise an option and to write-off the deposit securing the option takedown and the related pre-acquisition costs, as applicable. In determining whether to abandon lots or lot option contracts, our evaluation is primarily based upon the expected cash flows from the property. Additionally, in certain limited instances, we are forced to abandon lots due to permitting or other regulatory issues that do not allow us to build on those lots. If we intend to abandon or walk away from a property, we record a charge to earnings for the deposit amount and any related capitalized costs in the period such decision is made. Abandonment charges generally relate to our decision to abandon lots or not exercise certain option contracts that are not projected to produce adequate results, no longer fit with our long-term strategic plan or, in limited circumstances, are not suitable for building due to regulatory or environmental restrictions that are enacted.
The following table presents, by reportable segment, our total impairment and abandonment charges for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Projects in Progress:
|
|
|
|
|
|
West
|
$
|
—
|
|
|
$
|
1,625
|
|
|
$
|
6,729
|
|
East
|
—
|
|
|
—
|
|
|
5,894
|
|
Southeast
|
793
|
|
|
—
|
|
|
—
|
|
Corporate and unallocated
(a)
|
212
|
|
|
68
|
|
|
1,101
|
|
Total impairment charges on projects in progress
|
$
|
1,005
|
|
|
$
|
1,693
|
|
|
$
|
13,724
|
|
Land Held for Sale:
|
|
|
|
|
|
West
|
$
|
—
|
|
|
$
|
94
|
|
|
$
|
119
|
|
East
|
168
|
|
|
470
|
|
|
280
|
|
Southeast
|
3,218
|
|
|
—
|
|
|
371
|
|
Corporate and unallocated
(a)
|
2,108
|
|
|
—
|
|
|
—
|
|
Total impairment charges on land held for sale
|
$
|
5,494
|
|
|
$
|
564
|
|
|
$
|
770
|
|
Abandonments:
|
|
|
|
|
|
East
|
$
|
—
|
|
|
$
|
188
|
|
|
$
|
—
|
|
Southeast
|
—
|
|
|
—
|
|
|
788
|
|
Total abandonments charges
|
$
|
—
|
|
|
$
|
188
|
|
|
$
|
788
|
|
Total continuing operations
|
$
|
6,499
|
|
|
$
|
2,445
|
|
|
$
|
15,282
|
|
Discontinued Operations:
|
|
|
|
|
|
Land Held for Sale
|
$
|
450
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total discontinued operations
|
$
|
450
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total impairment and abandonment charges
|
$
|
6,949
|
|
|
$
|
2,445
|
|
|
$
|
15,282
|
|
(a)
Amount represents capitalized interest and indirects balance that was impaired. Capitalized interest and indirects are maintained within our Corporate and unallocated segment.
Lot Option Agreements and Variable Interest Entities (VIE)
As previously discussed, we also have access to land inventory through lot option contracts, which generally enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise our lot option. The majority of our lot option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land for the right to acquire lots during a specified period of time at a specified price. Under lot option contracts, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers. Our liability under option contracts is generally limited to forfeiture of the non-refundable deposits, letters of credit, and other non-refundable amounts incurred. We expect to exercise, subject to market conditions and seller satisfaction of contract terms, most of our remaining option contracts. Various factors, some of which are beyond our control, such as market conditions, weather conditions, and the timing of the completion of development activities, will have a significant impact on the timing of option exercises or whether lot options will be exercised at all.
The following table provides a summary of our interests in lot option agreements as of
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
Deposits &
Non-refundable
Preacquisition
Costs Incurred
|
|
Remaining
Obligation
|
As of September 30, 2018
|
|
|
|
Unconsolidated lot option agreements
|
$
|
72,191
|
|
|
$
|
383,150
|
|
As of September 30, 2017
|
|
|
|
Unconsolidated lot option agreements
|
$
|
91,854
|
|
|
$
|
408,300
|
|
(6) Interest
Our ability to capitalize interest incurred during the
fiscal years
ended
September 30, 2018
,
2017
, and
2016
was limited by our inventory eligible for capitalization. The following table presents certain information regarding interest for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Capitalized interest in inventory, beginning of period
|
$
|
139,203
|
|
|
$
|
138,108
|
|
|
$
|
123,457
|
|
Interest incurred
|
103,880
|
|
|
105,551
|
|
|
119,360
|
|
Capitalized interest impaired
|
(1,961
|
)
|
|
(56
|
)
|
|
(710
|
)
|
Interest expense not qualified for capitalization and included as other expense
(a)
|
(5,325
|
)
|
|
(15,636
|
)
|
|
(25,388
|
)
|
Capitalized interest amortized to home construction and land sales expenses
(b)
|
(91,152
|
)
|
|
(88,764
|
)
|
|
(78,611
|
)
|
Capitalized interest in inventory, end of period
|
$
|
144,645
|
|
|
$
|
139,203
|
|
|
$
|
138,108
|
|
(a)
The amount of interest we are able to capitalize is dependent upon our qualified inventory balance, which considers the status of our inventory holdings. Our qualified inventory balance includes the majority of our homes under construction and development projects in progress, but excludes land held for future development and land held for sale.
(b)
Capitalized interest amortized to home construction and land sale expenses varies based on the number of homes closed during the period and land sales, if any, as well as other factors.
(7) Property and Equipment
The following table presents our property and equipment as of
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2018
|
|
September 30, 2017
|
Model furnishings and sales office improvements
|
$
|
28,311
|
|
|
$
|
28,589
|
|
Information systems
|
13,183
|
|
|
14,326
|
|
Furniture, fixtures and office equipment
|
9,332
|
|
|
10,971
|
|
Leasehold improvements
|
4,388
|
|
|
3,698
|
|
Property and equipment, gross
|
55,214
|
|
|
57,584
|
|
Less: Accumulated Depreciation
|
(34,371
|
)
|
|
(40,018
|
)
|
Property and equipment, net
|
$
|
20,843
|
|
|
$
|
17,566
|
|
(8) Borrowings
As of
September 30, 2018
and
September 30, 2017
, we had the following debt, net of premium/discounts and unamortized debt issuance costs:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Maturity Date
|
|
September 30, 2018
|
|
September 30, 2017
|
5 3/4% Senior Notes
|
June 2019
|
|
$
|
—
|
|
|
$
|
321,393
|
|
8 3/4% Senior Notes
|
March 2022
|
|
500,000
|
|
|
500,000
|
|
7 1/4% Senior Notes
|
February 2023
|
|
24,834
|
|
|
199,834
|
|
6 3/4% Senior Notes
|
March 2025
|
|
250,000
|
|
|
250,000
|
|
5 7/8% Senior Notes
|
October 2027
|
|
400,000
|
|
|
—
|
|
Unamortized debt premium, net
|
|
|
2,640
|
|
|
3,413
|
|
Unamortized debt issuance costs
|
|
|
(14,336
|
)
|
|
(14,800
|
)
|
Total Senior Notes, net
|
|
|
1,163,138
|
|
|
1,259,840
|
|
Junior Subordinated Notes (net of unamortized accretion of $36,770 and $38,837, respectively)
|
July 2036
|
|
64,003
|
|
|
61,937
|
|
Other Secured Notes Payable
|
Various Dates
|
|
4,113
|
|
|
5,635
|
|
Total debt, net
|
|
|
$
|
1,231,254
|
|
|
$
|
1,327,412
|
|
As of
September 30, 2018
, the future maturities of our borrowings were as follows:
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
(In thousands)
|
|
2019
|
$
|
4,087
|
|
2020
|
—
|
|
2021
|
—
|
|
2022
|
500,000
|
|
2023
|
24,834
|
|
Thereafter
|
750,773
|
|
Total
|
$
|
1,279,694
|
|
Secured Revolving Credit Facility
The Secured Revolving Credit Facility (the Facility) provides working capital and letter of credit capacity. In October 2017, a Fourth Amendment to the Facility was executed. The Fourth Amendment (1) extends the termination date of the Facility from February 15, 2019 to February 15, 2020; (2) increases the maximum aggregate amount of commitments under the Facility (including borrowings and letters of credit) from
$180.0 million
to
$200.0 million
; and (3) includes a condition that allows the Facility to be increased by an additional
$50.0 million
to
$250.0 million
, subject to the approval of any lenders providing any such increase. The aggregate collateral ratio (as defined by the underlying Credit Agreement) remained at
4.00
to
1.00
and the after-acquired exclusionary condition (also as defined by the underlying Credit Agreement) remained at
$800.0 million
. The Facility continues to be with
three
lenders.
The Facility allows us to issue letters of credit against the undrawn capacity. Subject to our option to cash collateralize our obligations under the Facility upon certain conditions, our obligations under the Facility are secured by liens on substantially all of our personal property and a significant portion of our owned real property. We also pledged approximately
$951.5 million
of inventory assets to the Facility to collateralize potential future borrowings or letters of credit (in addition to the letters of credit already issued under the Facility). As of
September 30, 2018
, no borrowings and no letters of credit were outstanding under the Facility, resulting in a remaining capacity of
$200.0 million
. As of September 30, 2017, no borrowings were outstanding under the Facility; however,
$34.7 million
in letters of credit were outstanding, resulting in a remaining capacity of
$145.3 million
The Facility contains certain covenants, including negative covenants and financial maintenance covenants, with which we are required to comply. As of
September 30, 2018
, we were in compliance with all such covenants.
In October 2018, the Company executed a Fifth Amendment to the Facility, extending the termination date of the Facility from February 15, 2020 to February 15, 2021 and increasing the maximum aggregate amount of commitments under the Facility, including borrowings and letters of credit, from
$200.0 million
to
$210.0 million
. For a further discussion of the Fifth Amendment, refer to Note 22.
Letter of Credit Facilities
We have entered into stand-alone, cash-secured letter of credit agreements with banks to maintain our pre-existing letters of credit and to provide for the issuance of new letters of credit (in addition to the letters of credit issued under the Facility). As of
September 30, 2018
and
September 30, 2017
, we had letters of credit outstanding under these additional facilities of
$10.4 million
and
$10.8 million
, respectively, all of which were secured by cash collateral in restricted accounts. The Company may enter into additional arrangements to provide additional letter of credit capacity.
In May 2018, the Company entered into a reimbursement agreement, which provides for the issuance of performance letters of credit, and an unsecured credit agreement that provides for the issuance of up to
$50.0 million
of standby letters of credit to backstop the Company's obligations under the reimbursement agreement (collectively, the "Bilateral Facility"). The Bilateral Facility will terminate on June 10, 2021. As of
September 30, 2018
, the total stated amount of performance letters of credit issued under the reimbursement agreement was
$27.7 million
(and the stated amount of the backstop standby letter of credit issued under the credit agreement was
$30.0 million
). The Company may enter into additional arrangements to provide greater letter of credit capacity.
Senior Notes
Our Senior Notes are unsecured obligations ranking pari passu with all other existing and future senior indebtedness. Substantially all of our significant subsidiaries are full and unconditional guarantors of the Senior Notes and are jointly and severally liable for obligations under the Senior Notes and the Facility. Each guarantor subsidiary is a
100%
owned subsidiary of Beazer Homes. See Note 19 for further information.
All unsecured Senior Notes rank equally in right of payment with all of our existing and future senior unsecured obligations, senior to all of the Company's existing and future subordinated indebtedness and effectively subordinated to the Company's existing and future secured indebtedness, including indebtedness under the Facility, if outstanding, to the extent of the value of the assets securing such indebtedness. The unsecured Senior Notes and related guarantees are structurally subordinated to all indebtedness and other liabilities of all of the Company's subsidiaries that do not guarantee these notes, but are fully and unconditionally guaranteed jointly and severally on a senior basis by the Company's wholly-owned subsidiaries party to each applicable indenture.
The Company's Senior Notes are issued under indentures that contain certain restrictive covenants which, among other things, restrict our ability to pay dividends, repurchase our common stock, incur certain types of additional indebtedness and to make certain investments. Compliance with our Senior Note covenants does not significantly impact our operations. We were in compliance with the covenants contained in the indentures of all of our Senior Notes as of
September 30, 2018
.
In September 2018, we redeemed our outstanding
5.75%
unsecured Senior Notes due June 2019 for
$98.2 million
using cash on hand, resulting in a loss on extinguishment of debt of
$1.9 million
, of which
$0.1 million
was a non-cash write-off of debt issuance and discount costs and
$1.8 million
was debt extinguishment costs. As a result, the Company terminated, cancelled, and discharged all of its obligations under the 2019 Notes. The retirement of the 2019 and 2027 Notes in fiscal 2018 resulted in an aggregate loss on extinguishment of debt of
$27.8 million
for the year ended September 30, 2018.
In October 2017, we issued and sold
$400.0 million
aggregate principal amount of
5.875%
unsecured Senior Notes due October 2027 at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers (the 2027 Notes). Interest on the 2027 Notes is payable semi-annually, beginning on April 15, 2018. The 2027 Notes will mature on October 15, 2027. We may redeem the 2027 Notes at any time prior to October 15, 2022, in whole or in part, at a redemption price equal to
100%
of the principal amount of the notes to be redeemed, together with accrued and unpaid interest to, but excluding, the redemption date, plus a customary make-whole premium. In addition, on or prior to October 15, 2022, we may redeem up to
35%
of the aggregate principal amount of the 2027 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to
105.875%
of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at least
65%
of the aggregate principal amount of the 2027 Notes originally issued remains outstanding immediately after such redemption. The covenants related to the 2027 Notes are consistent with our other senior notes.
During the first quarter of fiscal 2018, the proceeds of the 2027 Notes, as well as
$34.5 million
cash on hand, were used to redeem
$225.0 million
of our
5.75%
unsecured Senior Notes due 2019 and
$175.0 million
of our
7.25%
unsecured Senior Notes due 2023, resulting in a loss on extinguishment of debt of
$25.9 million
, of which
$3.2 million
was a non-cash write-off of debt issuance and discount costs.
In March 2017, we issued and sold
$250.0 million
aggregate principal amount of
6.75%
unsecured Senior Notes due March 2025 at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers (the 2025 Notes). Interest on the 2025 Notes is payable semi-annually, beginning on September 15, 2017. The 2025 Notes will mature on March 15, 2025. We may redeem the 2025 Notes at any time prior to March 15, 2020, in whole or in part, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, together with accrued and unpaid interest to, but excluding, the redemption date, plus a customary make-whole premium. In addition, on or prior to March 15, 2020, we may redeem up to
35%
of the aggregate principal amount of the 2025 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to
106.75%
of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at least
65%
of the aggregate principal amount of the 2025 Notes originally issued remains outstanding immediately after such redemption. Upon the occurrence of certain specified changes of control, the holders of the 2025 Notes will have the right to require us to purchase all or a part of the notes at a repurchase price equal to
101%
of their principal amount, plus accrued and unpaid interest to, but excluding, the repurchase date. The covenants related to the 2025 Notes are consistent with our other senior notes.
During fiscal
2017
, we redeemed our Senior Notes due 2021 and the remaining balance on our term loan, mainly by utilizing the proceeds received from the 2025 Notes issued during the current fiscal year, which is discussed above, as well as cash on hand. This debt repurchase activity resulted in a loss on extinguishment of debt of
$15.6 million
for the year ended
September 30, 2017
.
For additional redemption features, refer to the table below that summarizes the redemption terms for our Senior Notes:
|
|
|
|
|
|
|
|
Senior Note Description
|
|
Issuance Date
|
|
Maturity Date
|
|
Redemption Terms
|
8 3/4% Senior Notes
|
|
September 2016
|
|
March 2022
|
|
Callable at any time prior to March 15, 2019, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium; on or after March 15, 2019, callable at a redemption price equal to 104.375% of the principal amount; on or after March 15, 2020, callable at a redemption price equal to 102.188% of the principal amount; on or after March 15, 2021, callable at a redemption price equal to 100% of the principal amount plus, in each case, accrued and unpaid interest
|
7 1/4% Senior Notes
|
|
February 2013
|
|
February 2023
|
|
Callable at any time on or after February 1, 2018 at a redemption price equal to 103.625% of the principal amount; on or after February 1, 2019, callable at a redemption price equal to 102.417% of the principal amount; on or after February 1, 2020, callable at a redemption price equal to 101.208% of the principal amount; on or after February 1, 2021, callable at 100% of the principal amount plus, in each case, accrued and unpaid interest
|
6 3/4% Senior Notes
|
|
March 2017
|
|
March 2025
|
|
Callable at any time prior to March 15, 2020, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium; on or after March 15, 2020, callable at a redemption price equal to 105.063% of the principal amount; on or after March 15, 2021, callable at a redemption price equal to 103.375% of the principal amount; on or after March 15, 2022, callable at a redemption price equal to 101.688% of the principal amount; on or after March 15, 2023, callable at a redemption price equal to 100% of the principal amount, plus, in each case, accrued and unpaid interest
|
5 7/8% Senior Notes
|
|
October 2017
|
|
October 2027
|
|
Callable at any time prior to October 15, 2022, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium; on or after October 15, 2022, callable at a redemption price equal to 102.938% of the principal amount; on or after October 15, 2023, callable at a redemption price equal to 101.958% of the principal amount; on or after October 15, 2024, callable at a redemption price equal to 100.979% of the principal amount; on or after October 15, 2025, callable at a redemption price equal to 100% of the principal amount, plus, in each case, accrued and unpaid interest
|
Junior Subordinated Notes
Our unsecured junior subordinated notes (Junior Subordinated Notes) mature on July 30, 2036. The Junior Subordinated Notes are redeemable at par and paid interest at a fixed rate of
7.987%
for the first
ten years
ending July 30, 2016. The securities now have a floating interest rate as defined in the Junior Subordinated Notes Indenture, which was a weighted-average of
4.79%
as of
September 30, 2018
(because the rate on the portion of the Junior Subordinated Notes that was modified, as discussed below, is subject to a floor). The obligations relating to these notes are subordinated to the Facility and the Senior Notes. In January 2010, we modified the terms of
$75.0 million
of these notes and recorded them at their then estimated fair value. Over the remaining life of the Junior Subordinated Notes, we will increase their carrying value until this carrying value equals the face value of the notes. As of
September 30, 2018
, the unamortized accretion was
$36.8 million
and will be amortized over the remaining life of the notes. As of
September 30, 2018
, we were in compliance with all covenants under our Junior Subordinated Notes.
Other Secured Notes Payable
We periodically acquire land through the issuance of notes payable. As of
September 30, 2018
and
September 30, 2017
, we had outstanding notes payable of
$4.1 million
and
$5.6 million
, respectively, primarily related to land acquisitions. These secured notes payable have varying expiration dates in 2019, have a weighted-average fixed interest rate of
1.56%
as of
September 30, 2018
and are secured by the real estate to which they relate.
The agreements governing these other secured notes payable contain various affirmative and negative covenants. There can be no assurance that we will be able to obtain any future waivers or amendments that may become necessary without significant additional cost or at all. In each instance, however, a covenant default can be cured by repayment of the indebtedness.
(9) Contingencies
Beazer Homes and certain of its subsidiaries have been and continue to be named as defendants in various construction defect claims, complaints, and other legal actions. The Company is subject to the possibility of loss contingencies related to these defects as well as others arising from its business. In determining loss contingencies, we consider the likelihood of loss and our ability to reasonably estimate the amount of such loss. An estimated loss is recorded when it is considered probable that a liability has been incurred and the amount of loss can be reasonably estimated.
Warranty Reserves
We currently provide a limited warranty ranging from
one
to
two years
covering workmanship and materials per our defined quality standards. In addition, we provide a limited warranty for up to
ten
years covering only certain defined structural element failures.
Our homebuilding work is performed by subcontractors who typically must agree to indemnify us with regard to their work and provide certificates of insurance demonstrating that they have met our insurance requirements and have named us as an additional insured under their policies. Therefore, many claims relating to workmanship and materials that result in warranty spending are the primary responsibility of these subcontractors. In addition, we maintain insurance coverage related to our construction efforts that can result in recoveries of warranty and construction defect costs above certain specified limits.
Warranty reserves are included in other liabilities within the consolidated balance sheets, and the provision for warranty accruals is included in home construction expenses in the consolidated statements of operations. Reserves covering anticipated warranty expenses are recorded for each home closed. Management assesses the adequacy of warranty reserves each reporting period based on historical experience and the expected costs to remediate potential claims. Our review includes a quarterly analysis of the historical data and trends in warranty expense by division. Such analysis considers market specific factors such as warranty experience, the number of home closings, the prices of homes, product mix, and other data in estimating warranty reserves. In addition, the analysis also contemplates the existence of any non-recurring or community-specific warranty-related matters that might not be included in historical data and trends. While estimated warranty liabilities are adjusted each reporting period based on the results of our quarterly analyses, we may not accurately predict actual warranty costs, which could lead to significant changes in the reserve.
Changes in warranty reserves are as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
18,091
|
|
|
$
|
39,131
|
|
|
$
|
27,681
|
|
Accruals for warranties issued
(a)
|
13,755
|
|
|
14,215
|
|
|
13,835
|
|
Changes in liability related to warranties existing in prior periods
(b)
|
(2,401
|
)
|
|
4,807
|
|
|
53,109
|
|
Payments made
(b)
|
(14,114
|
)
|
|
(40,062
|
)
|
|
(55,494
|
)
|
Balance at end of period
|
$
|
15,331
|
|
|
$
|
18,091
|
|
|
$
|
39,131
|
|
(a)
Accruals for warranties issued are a function of the number of home closings in the period, the selling prices of the homes closed and the rates of accrual per home estimated as a percentage of the selling price of the home.
(b)
Changes in liability related to warranties existing and payments made in all periods are elevated in 2017 and 2016 due to charges and subsequent payments related to water intrusion issues in certain of our communities located in Florida (refer to separate discussion below).
Florida Water Intrusion Issues
In the latter portion of our fiscal 2014, we began to experience an increase in calls from homeowners reporting stucco and water intrusion issues in certain of our communities in Florida (the Florida stucco issues). Through
September 30, 2018
, we cumulatively recorded charges related to these issues of
$85.0 million
.
Warranty reserves related to the Florida stucco issues decreased during the current fiscal year by
$0.6 million
but increased by
$5.2 million
during the prior year. As of
September 30, 2018
,
707
homes have been identified as likely to require repairs, of which
685
homes have been repaired. We made payments related to the Florida stucco issues of
$2.4 million
during the current fiscal year. This amount included payments on fully repaired homes and homes for which remediation is not yet complete, bringing the remaining accrual related to this issue to
$1.7 million
as of
September 30, 2018
compared to
$4.7 million
as of
September 30, 2017
. These accruals are included in the overall warranty liabilities detailed above.
Our assessment of the Florida stucco issues is ongoing. As a result, we anticipate that the ultimate magnitude of our liability may change as additional information is obtained. Certain visual and other inspections of the homes that could be subject to defect often do not reveal the severity or extent of the defects, which can only be discovered once we receive a homeowner call and begin repairs. The current fiscal year charges were impacted by additional insurance recoveries; for a discussion of the amounts we have already recovered or anticipate recovering from our insurers, refer to the “Insurance Recoveries” section below.
In addition, we believe that we will also recover a portion of such repair costs from sources other than our own insurer, including the subcontractors involved with the construction of these homes and their insurers; however, no amounts related to subcontractor recoveries have been recorded in our consolidated financial statements as of
September 30, 2018
. Any amounts recovered from our subcontractors related to homes closed during policy years for which we have exceeded the deductible in our insurance policies would be remitted to our insurers, while recoveries in other policy years would be retained by us.
Insurance Recoveries
The Company has insurance policies that provide for the reimbursement of certain warranty costs incurred above a specified threshold for each period covered. We have surpassed these thresholds for certain policy years, particularly those that cover most of the homes impacted by the water intrusion issues discussed above. As such, beginning with the first quarter of fiscal 2015, we expect a substantial majority of additional costs for warranty work on homes within these policy years to be reimbursed by our insurers. For two policy years, our exposure has exceeded the insurance claim limit for one division under our first layer of coverage; however, we are claiming and recovering additional amounts under our excess insurance coverage.
Warranty expense beyond the thresholds set in our insurance policies was recorded related to homes impacted by the Florida stucco issues as well as other various warranty issues that are in excess of our insurance thresholds. We adjust our insurance receivable balance each quarter to reflect our estimate of future costs to be incurred subject to recoveries from insurers. Insurance receivables decreased by
$0.2 million
during fiscal 2018 and increased by
$4.8 million
in fiscal
2017
to reflect the amounts deemed probable of receiving. The changes to our insurance receivables offset the current fiscal year movements in our reserve related to the Florida stucco issues. The recoveries recorded during fiscal 2016 were
$3.6 million
greater than the underlying expense related to the Florida stucco issues, as we began to recover more costs than initially anticipated. The remaining insurance recovery amount for the year ended September 30, 2016 beyond the Florida stucco issues related to expenditures for warranty issues that were individually immaterial but were also in excess of our insurance thresholds.
Amounts recorded for anticipated insurance recoveries are reflected within consolidated statements of operations as a reduction of home construction expenses. Amounts not yet received from our insurer were recorded on a gross basis, without any reduction for the associated warranty expense, within accounts receivable within the consolidated balance sheets.
Amounts still to be recovered under our insurance policies will vary based on whether expected additional warranty costs are actually incurred for periods for which our threshold has already been met. As a result, we anticipate the balance of our established receivable for insurance recoveries to fluctuate for potential future reimbursements as well as the amounts ultimately owed to us from our insurer.
Additionally, we entered into agreements with our third-party insurer during fiscal 2016 to resolve certain issues related to the extent of our insurance coverage for multiple policy years. These agreements resulted in our recognition of
$15.5 million
in further insurance recoveries (in addition to those discussed above), which was recorded within our consolidated statements of operations as a reduction of our home construction expenses.
Litigation
From time to time, we receive claims from institutions that have acquired mortgages originated by our subsidiary, Beazer Mortgage Corporation (BMC), demanding damages or indemnity or that we repurchase such mortgages. BMC stopped originating mortgages in 2008. We have been able to resolve these claims for no cost or for amounts that are not material to our consolidated financial statements. At present there are no such claims outstanding; however, we cannot rule out the potential for additional mortgage loan repurchase or indemnity claims in the future. At this time, we do not believe that the exposure related to any such claims would be material to our consolidated financial condition, results of operations, or cash flows.
As of
September 30, 2018
, no liability has been recorded for any such additional claims as such exposure is not both probable and reasonably estimable.
In the normal course of business, we are subject to various lawsuits. We cannot predict or determine the timing or final outcome of these lawsuits or the effect that any adverse findings or determinations in pending lawsuits may have on us. In addition, an estimate of possible loss or range of loss, if any, cannot presently be made with respect to certain of these pending matters. An unfavorable determination in any of the pending lawsuits could result in the payment by us of substantial monetary damages, which may not be fully covered by insurance. Further, the legal costs associated with the lawsuits and the amount of time required to be spent by management and our Board of Directors on these matters, even if we are ultimately successful, could have a material adverse effect on our financial condition, results of operations, or cash flows.
Other Matters
We and certain of our subsidiaries have been named as defendants in various claims, complaints, and other legal actions, most relating to construction defects, moisture intrusion, and product liability. Certain of the liabilities resulting from these actions are covered in whole or part by insurance. In our opinion, based on our current assessment, the ultimate resolution of these matters will not have a material adverse effect on our financial condition, results of operations, or cash flows.
We have an accrual of
$3.7 million
and
$3.9 million
in other liabilities on our consolidated balance sheets related to litigation and other matters, excluding warranty, as of
September 30, 2018
and
2017
, respectively.
We had outstanding letters of credit and performance bonds of approximately
$38.1 million
and
$237.8 million
, respectively, as of
September 30, 2018
, related principally to our obligations to local governments to construct roads and other improvements in various developments.
(10) Fair Value Measurements
As of the dates presented, we had assets on our consolidated balance sheets that were required to be measured at fair value on a recurring or non-recurring basis. We use a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value as follows:
|
|
•
|
Level 1 – Quoted prices in active markets for identical assets or liabilities;
|
|
|
•
|
Level 2 – Inputs other than quoted prices included in Level 1 that are observable either directly or indirectly through corroboration with market data; and
|
|
|
•
|
Level 3 – Unobservable inputs that reflect our own estimates about the assumptions market participants would use in pricing the asset or liability.
|
Certain of our assets are required to be recorded at fair value on a recurring basis. The fair value of our deferred compensation plan assets is based on market-corroborated inputs (Level 2).
Certain of our assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value of these assets may not be recovered. We review our long-lived assets, including inventory, for recoverability when factors indicate an impairment may exist, but no less than quarterly. Fair value on assets deemed to be impaired is determined based upon the type of asset being evaluated. Fair value of our owned inventory assets, when required to be calculated, is further discussed within Notes 2 and 5. The fair value of our investments in unconsolidated entities is determined primarily using a discounted cash flow model to value the underlying net assets of the respective entities. Due to the substantial use of unobservable inputs in valuing the assets on a non-recurring basis, they are classified within Level 3.
During the fiscal year ended
September 30, 2018
, we recorded
$1.0 million
in impairments on projects in process, impairments on land held for sale of
$5.9 million
, and impairments on an investment in an unconsolidated entity of
$0.3 million
. During the fiscal year ended
September 30, 2017
, we recorded impairments on projects in process of
$1.7 million
and impairments related to land held for sale of
$0.6 million
. During the fiscal year ended
September 30, 2016
, we recorded impairments on projects in process of
$13.7 million
and impairments related to land held for sale of
$0.8 million
.
Determining within which hierarchical level an asset or liability falls requires significant judgment. We evaluate our hierarchy disclosures each quarter.
The following table presents the period-end balances of our assets measured at fair value on a recurring basis and the impairment-date fair value of certain assets measured at fair value on a non-recurring basis for each hierarchy level. These balances represent only those assets whose carrying values were adjusted to fair value during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Year Ended September 30, 2018
|
|
|
|
|
|
|
|
Deferred compensation plan assets
(a)
|
$
|
—
|
|
|
$
|
1,578
|
|
|
$
|
—
|
|
|
$
|
1,578
|
|
Development projects in progress
(b)
|
—
|
|
|
—
|
|
|
1,312
|
|
(c)
|
1,312
|
|
Land held for sale
(b)
|
—
|
|
|
—
|
|
|
1,724
|
|
(c)
|
1,724
|
|
Unconsolidated entity investments
(b)
|
—
|
|
|
—
|
|
|
80
|
|
|
80
|
|
Year Ended September 30, 2017
|
|
|
|
|
|
|
|
Deferred compensation plan assets
(a)
|
$
|
—
|
|
|
$
|
1,114
|
|
|
$
|
—
|
|
|
$
|
1,114
|
|
Development projects in progress
(b)
|
—
|
|
|
—
|
|
|
3,791
|
|
(c)
|
3,791
|
|
Land held for sale
(b)
|
—
|
|
|
—
|
|
|
325
|
|
(c)
|
325
|
|
Year Ended September 30, 2016
|
|
|
|
|
|
|
|
Deferred compensation plan assets
(a)
|
$
|
—
|
|
|
$
|
765
|
|
|
$
|
—
|
|
|
$
|
765
|
|
Development projects in progress
(b)
|
—
|
|
|
—
|
|
|
34,418
|
|
(c)
|
34,418
|
|
Land held for sale
(b)
|
—
|
|
|
—
|
|
|
19,973
|
|
|
19,973
|
|
(a)
Measured at fair value on a recurring basis.
(b)
Measured at fair value on a non-recurring basis.
(c)
Amount represents the impairment-date fair value of the development projects in progress and land held for sale assets that were impaired during the periods indicated.
The fair value of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, other liabilities, amounts due under the Facility (if outstanding), and other secured notes payable approximate their carrying amounts due to the short maturity of these assets and liabilities. When outstanding, obligations related to land not owned under option agreements approximate fair value.
The following table presents the carrying value and estimated fair value of certain of our other financial liabilities as of
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2018
|
|
As of September 30, 2017
|
(In thousands)
|
Carrying
Amount
(a)
|
|
Fair Value
|
|
Carrying
Amount
(a)
|
|
Fair Value
|
Senior Notes
(b)
|
$
|
1,163,138
|
|
|
$
|
1,096,214
|
|
|
$
|
1,259,840
|
|
|
$
|
1,355,657
|
|
Junior Subordinated Notes
|
64,003
|
|
|
64,003
|
|
|
61,937
|
|
|
61,937
|
|
Total
|
$
|
1,227,141
|
|
|
$
|
1,160,217
|
|
|
$
|
1,321,777
|
|
|
$
|
1,417,594
|
|
(a)
Carrying amounts are net of unamortized debt premium/discounts, debt issuance costs or accretion.
(b)
The estimated fair value for our publicly-held Senior Notes has been determined using quoted market rates (Level 2).
(11) Operating Leases
We are obligated under various noncancelable operating leases for our office facilities and equipment. Rental expense under these agreements, which is included in G&A in our consolidated statements of operations, amounted to approximately
$4.8 million
,
$4.9 million
, and
$4.7 million
for the fiscal years ended
September 30, 2018
,
2017
, and
2016
, respectively. This rental expense excludes expense related to our discontinued operations, which is not material in any period presented. Additionally, sublease income received in all periods presented was not material. As of
September 30, 2018
, future minimum lease payments under noncancelable operating lease agreements are as follows:
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
|
2019
|
$
|
4,624
|
|
2020
|
4,017
|
|
2021
|
3,326
|
|
2022
|
2,381
|
|
2023
|
1,643
|
|
Thereafter
|
839
|
|
Total
|
$
|
16,830
|
|
(12) Other Liabilities
Other
liabilities consisted of the following as of
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2018
|
|
September 30, 2017
|
Accrued bonus and deferred compensation
|
$
|
41,508
|
|
|
$
|
36,753
|
|
Accrued warranty expenses
|
15,331
|
|
|
18,091
|
|
Customer deposits
|
14,903
|
|
|
11,704
|
|
Accrued interest
|
14,401
|
|
|
11,024
|
|
Litigation accrual
|
3,656
|
|
|
3,899
|
|
Income tax liabilities
|
710
|
|
|
811
|
|
Other
|
35,880
|
|
|
25,377
|
|
Total
|
$
|
126,389
|
|
|
$
|
107,659
|
|
(13) Income Taxes
Our expense from income taxes from continuing operations consists of the following for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Current federal
|
$
|
57
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current state
|
512
|
|
|
859
|
|
|
595
|
|
Deferred federal
(a)
|
102,082
|
|
|
1,625
|
|
|
5,574
|
|
Deferred state
(a) (b)
|
(8,167
|
)
|
|
212
|
|
|
10,329
|
|
Total
|
$
|
94,484
|
|
|
$
|
2,696
|
|
|
$
|
16,498
|
|
(a)
Fiscal 2018 federal deferred expense is primarily driven by the remeasurement of our deferred tax asset at the newly enacted 21.0% federal tax rate, partially offset by the release of the remaining valuation allowance on our federal deferred tax assets. Fiscal 2018 state benefit is primarily driven by the release of valuation allowance in certain operating jurisdictions; refer to discussion below titled “Valuation Allowance.”
(b)
Fiscal 2016 expense includes
$8.6 million
of additional valuation allowance on our state deferred tax assets due to a number of changes to the legal forms of our operating entities. This additional valuation allowance was for states that did not have a valuation allowance release in 2018. Refer to the discussion below titled “Valuation Allowance” for additional details.
The expense from income taxes from continuing operations differs from the amount computed by applying the federal income tax statutory rate as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Income tax computed at statutory rate
|
$
|
12,112
|
|
|
$
|
12,052
|
|
|
$
|
7,596
|
|
State income taxes, net of federal benefit
|
111
|
|
|
1,287
|
|
|
4,974
|
|
Deferred rate change
|
110,071
|
|
|
—
|
|
|
(678
|
)
|
(Decrease) increase in valuation allowance - other
(a) (b) (c)
|
(27,370
|
)
|
|
(3,482
|
)
|
|
6,457
|
|
Changes for uncertain tax positions
|
598
|
|
|
(685
|
)
|
|
(40
|
)
|
Stock based compensation
|
—
|
|
|
741
|
|
|
—
|
|
Permanent differences
|
2,133
|
|
|
496
|
|
|
400
|
|
Tax credits
|
(3,174
|
)
|
|
(7,460
|
)
|
|
(2,134
|
)
|
Other, net
|
3
|
|
|
(253
|
)
|
|
(77
|
)
|
Total
|
$
|
94,484
|
|
|
$
|
2,696
|
|
|
$
|
16,498
|
|
(a)
For fiscal
2016
, amount includes
$8.6 million
of additional valuation allowance on our state deferred tax assets due to a number of changes to the legal forms of our operating entities; refer to discussion below titled “Valuation Allowance.”
(b)
For fiscal
2017
, amount includes a
$3.5 million
release of the valuation allowance on our state deferred tax assets due to changes in our state net operating loss estimates; refer to discussion below titled “Valuation Allowance.”
(c)
For fiscal
2018
, amount includes a
$27.4 million
release of the valuation allowance on our federal and state deferred tax assets; refer to discussion below titled “Valuation Allowance.” Due to our fiscal year end, our fiscal provision was calculated using a blended
24.5%
federal tax rate. The increase in permanent differences in fiscal 2018 compared to the prior fiscal year was largely driven by the limits on deductibility for executive compensation for current year incentive awards and anticipated limitations on unvested stock awards due to the enactment of the Tax Cuts and Jobs Act.
The principal differences between our effective tax rate and the U.S. federal statutory rate relate to state taxes, changes in our valuation allowance and tax credits.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of our assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant temporary differences that give rise to the net deferred tax assets are as follows as of
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2018
|
|
September 30, 2017
|
Deferred tax assets:
|
|
|
|
Federal and state tax carryforwards
|
$
|
196,702
|
|
|
$
|
293,298
|
|
Inventory adjustments
|
29,565
|
|
|
59,507
|
|
Incentive compensation
|
11,959
|
|
|
19,043
|
|
Warranty and other reserves
|
6,350
|
|
|
6,140
|
|
Property, equipment and other assets
|
2,123
|
|
|
3,247
|
|
Other
|
734
|
|
|
1,785
|
|
Uncertain tax positions
|
734
|
|
|
1,332
|
|
Total deferred tax assets
|
248,167
|
|
|
384,352
|
|
Deferred tax liabilities:
|
|
|
|
Deferred revenues
|
—
|
|
|
(11,297
|
)
|
Total deferred tax liabilities
|
—
|
|
|
(11,297
|
)
|
Net deferred tax assets before valuation allowance
|
248,167
|
|
|
373,055
|
|
Valuation allowance
(a)
|
(34,212
|
)
|
|
(65,159
|
)
|
Net deferred tax assets
|
$
|
213,955
|
|
|
$
|
307,896
|
|
(a)
For fiscal
2018
, amount includes a
$27.4 million
release of the valuation allowance on our federal and state deferred tax assets. For fiscal
2017
, amount includes a
$3.5 million
release of the valuation allowance on our state deferred tax assets due to changes in our state operating loss estimates; refer to discussion below titled “Valuation Allowance.”
The Tax Cuts and Jobs Act (Tax Act) is comprehensive tax reform legislation that was enacted by the U.S. government on December 22, 2017. The Tax Act includes significant changes to the Internal Revenue Code, including a reduction in the corporate tax rate from 35.0% to 21.0%. Due to our fiscal year end, our fiscal 2018 provision was calculated using a blended 24.5% federal tax rate. The Tax Act contained additional changes that will impact our taxable income determinations, including, but not limited to, elimination of the corporate alternative minimum tax and a mechanism for refunding existing alternative minimum tax credits, and limitations on the deductibility of certain executive compensation. Although these provisions are not applicable until our fiscal 2019, we have recognized the impacts of the reduced federal tax rate and anticipated limitations on the deductibility of executive compensation in our fiscal 2018 provision. As of September 30, 2018, we have completed our analysis of the impacts of the Tax Act under SAB 118 with immaterial differences to our provisional amounts previously recorded.
As of
September 30, 2018
, our gross deferred tax assets above included
$133.2 million
for federal net operating loss carryforwards,
$39.6 million
for state net operating loss carryforwards,
$9.6 million
for an alternative minimum tax credit and
$17.7 million
for general business credits. The net operating loss carryforwards expire at various dates through 2033, and the general business credits expire at various dates through 2038. The alternative minimum tax credit has an unlimited carryforward period. We experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code (Section 382) as of January 12, 2010. Section 382 contains rules that limit the ability of a company that undergoes an “ownership change” to utilize its net operating loss carryforwards (NOLs) and certain built-in losses or deductions recognized during the five-year period after the ownership change to offset future taxable income. Because the five-year period has expired, we have determined the actual impact and final classification of those amounts, which are properly reflected in the amounts presented above. The actual realization of our deferred tax assets is difficult to predict and is dependent on future events.
We recognized income tax expense from continuing operations of
$94.5 million
in our fiscal
2018
, compared to income tax expense from continuing operations of
$2.7 million
and
$16.5 million
in our fiscal
2017
and fiscal
2016
, respectively. The income tax expense in our fiscal
2018
primarily resulted from income in the current year and the remeasurement of our deferred tax asset at a lower 21% federal tax rate, partially offset by the additional release of valuation allowance and the generation of additional federal tax credits. The income tax expense in our fiscal
2017
primarily resulted from income in the current year, offset by the generation of federal tax credits and an additional benefit resulting from changes to our valuation allowance due to changes in our state net operating loss estimates. In fiscal
2016
, our income tax expense primarily resulted from income generated in the fiscal year, offset by the generation of federal tax credits. Due to the effects of changes in our valuation allowance on our deferred tax balance and changes in our unrecognized tax benefits, our effective tax rates in fiscal
2018
,
2017
, and
2016
are not meaningful metrics, as our income tax amounts were not directly correlated to the amount of our pretax income for those periods.
Valuation Allowance
A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the more-likely-than-not realization threshold criterion. In the assessment for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, the Company's experience with loss carryforwards not expiring unused and tax planning alternatives.
During fiscal 2016, we contemplated various tax planning strategies based on our operations profile. This planning resulted in a restructuring effort immediately following the close of our fiscal 2016, where we executed certain tax elections and a number of changes to the legal forms of our operating entities, which significantly reduced our income profile in certain state jurisdictions going forward. The restructuring reduced our effective tax rate in fiscal 2017 to an amount that is in-line with our peers, through a significant reduction in our state effective tax rate. In addition, the restructure provides cash tax savings in various jurisdictions where we no longer have significant state loss carryforwards available. In conjunction with the restructure, we also evaluated our ability to realize certain state components of our deferred tax asset. Given this change, we evaluated both positive and negative evidence, including consideration of a change in expected future taxable earnings in the separate state jurisdictions that will be impacted by the restructuring. Based on those evaluations, we recorded an additional
$8.6 million
in valuation allowance during the quarter ended September 30, 2016 for state deferred tax assets we concluded are no longer more likely than not to be realized.
During fiscal 2017, we recorded additional impacts related to our tax elections and changes in legal form as further determinations were made throughout the year. These impacts included changes to our apportionment and deferred balances by jurisdiction, as well as changes to our uncertain tax positions. As a result, we recorded a decrease of
$3.5 million
in valuation allowance during the quarter ended September 30, 2017 for changes in our expected state net operating loss utilization due to changes in our uncertain tax positions.
In fiscal 2018, we concluded that it was more likely than not that all of our federal tax attributes and additional portions of our state tax assets would be realized over their remaining recovery periods. This conclusion was based on an evaluation of all relevant evidence, both positive and negative, that would impact our ability to realize our deferred tax assets. The positive evidence included continued improvements in our pre-tax earnings profile, recent acquisitions and community count growth in future years, tax planning strategies, and increases to our future taxable income due to the enactment of the Tax Cuts and Jobs Act. The negative evidence included a number of factors within the homebuilding industry, notably recent market related impacts to costs of production, labor constraints, mortgage interest rate forecasts, and the position of the current housing cycle. We continue to maintain levels of backlog and community count to support our expectations of future profitability. During the current fiscal year, the Company completed its plan to repurchase portions of its outstanding debt, which altered its debt maturity and interest rate profile through new issuances and redemptions of prior issuances. The change in the Company's debt portfolio will create future interest expense savings that further support its estimates of future profitability. As of September 30, 2018, the Company will have to cumulatively generate approximately
$768.0 million
in pre-tax income over the course of its carryforward period to realize its deferred tax assets prior to their expiration, which, as previously discussed, is the Company's fiscal 2038.
The valuation allowance of
$34.2 million
as of
September 30, 2018
remains on various state attributes for which the Company has concluded it is not more likely than not that these attributes would be realized at that time.
Unrecognized Tax Benefits
A reconciliation of our unrecognized tax benefits is as follows for the beginning and end of each period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of year
|
$
|
3,804
|
|
|
$
|
4,541
|
|
|
$
|
4,721
|
|
Additions for (reductions in) tax positions related to current year
|
—
|
|
|
61
|
|
|
(180
|
)
|
Additions for tax positions related to prior years
|
—
|
|
|
2,611
|
|
|
—
|
|
Reductions in tax positions of prior years
|
—
|
|
|
(2,273
|
)
|
|
—
|
|
Lapse of statute of limitations
|
(310
|
)
|
|
(1,136
|
)
|
|
—
|
|
Balance at end of year
|
$
|
3,494
|
|
|
$
|
3,804
|
|
|
$
|
4,541
|
|
If we were to recognize our
$3.5 million
of gross unrecognized tax benefits remaining as of
September 30, 2018
, substantially all would impact our effective tax rate. Additionally, we had
$1.3 thousand
and
$1.4 thousand
of accrued interest and penalties as of
September 30, 2018
and
2017
, respectively. Our income tax expense includes tax-related interest.
In the normal course of business, we are subject to audits by federal and state tax authorities regarding various tax liabilities. Certain state income tax returns for various fiscal years are under routine examination. The statute of limitations for our major tax jurisdictions remains open for examination for fiscal years 2007 and subsequent years. As of
September 30, 2018
, it is reasonably possible that
$21.6 thousand
of our uncertain tax positions will reverse within the next twelve months.
(14) Stockholders' Equity
Preferred Stock
We currently have
no
shares of preferred stock outstanding.
Common Stock
As of
September 30, 2018
, we had
63,000,000
shares of common stock authorized and
33,522,046
shares both issued and outstanding.
Common Stock Repurchases
During our fiscal
2018
,
2017
, and
2016
, we did not repurchase any shares of our common stock in the open market. Any future stock repurchases, to the extent allowed by our existing debt covenants, must be approved by the Company's Board of Directors or its Finance Committee.
During our fiscal
2018
,
2017
, and
2016
,
229,191
,
32,035
, and
16,779
shares of our common stock, respectively, were surrendered to us by employees as payment of minimum tax obligations upon the vesting of restricted stock awards under our stock incentive plans. We valued the surrendered stock at the market price on the date of surrender for an aggregate value of approximately
$3.4 million
in fiscal
2018
,
$0.4 million
in fiscal
2017
, and
$0.2 million
in fiscal
2016
.
Dividends
The indentures under which our Senior Notes were issued contain certain restrictive covenants, including limitations on our payment of dividends. There were no dividends paid during our fiscal
2018
,
2017
, or
2016
.
Section 382 Rights Agreement
In February 2011, the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation (the Protective Amendment) designed to preserve the value of certain tax assets associated with NOL carryforwards under Section 382. In February 2013, the Company’s stockholders approved an extension of the term of the Protective Amendment and approved a Section 382 Rights Agreement that was adopted by our Board of Directors. These instruments are intended to act as deterrents to any person or group, together with their affiliates and associates, from being or becoming the beneficial owner of
4.95%
or more of the Company’s common stock. In February 2016, the Company’s stockholders approved an extension of the Protective Amendment to November 12, 2019 and approved a new Section 382 Rights Agreement adopted by our Board of Directors with an expiration date of November 14, 2019.
(15) Retirement and Deferred Compensation Plans
401(k) Retirement Plan
We sponsor a defined-contribution plan that is a tax-qualified retirement plan under section 401(k) of the Internal Revenue Code (the Plan). Substantially all employees are eligible for participation in the Plan after completing one calendar month of service. Participants may defer and contribute from
1%
to
80%
of their salary to the Plan, with certain limitations on highly compensated individuals. We match
50%
of the first
6%
of the participant's contributions. The participant's contributions vest immediately, while the Company's contributions vest over
five years
. Our total contributions for the fiscal years ended
September 30, 2018
,
2017
, and
2016
were approximately
$3.3 million
,
$3.0 million
, and
$2.6 million
, respectively. During fiscal
2018
,
2017
, and
2016
, participants forfeited
$0.7 million
,
$0.6 million
, and
$0.4 million
, respectively, of unvested matching contributions.
Deferred Compensation Plan
The Beazer Homes USA, Inc. Deferred Compensation Plan (the DCP) is a non-qualified deferred compensation plan for a select group of executives and highly compensated employees. The DCP allows the executives to defer current compensation on a pre-tax basis to a future year, until termination of employment. The objectives of the DCP are to assist executives with financial planning and capital accumulation and to provide the Company with a method of attracting, rewarding and retaining executives. Participation in the DCP is voluntary. Beazer Homes may voluntarily make a contribution to the participants' DCP accounts. Deferred compensation assets of
$1.6 million
and
$1.1 million
and deferred compensation liabilities of
$4.6 million
and
$3.8 million
as of
September 30, 2018
, and
2017
, respectively, are included in other assets and other liabilities on our consolidated balance sheets, and are recorded at fair value. For the years ended
September 30, 2018
,
2017
, and
2016
, we contributed approximately
$0.2 million
,
$0.3 million
, and
$0.2 million
, respectively, to the DCP in the form of voluntary contributions.
(16) Stock-Based Compensation
During fiscal 2014, we adopted, and our stockholders approved, the 2014 Beazer Homes USA, Inc. Long-Term Incentive Plan (the 2014 Plan). Following adoption of the 2014 Plan, shares available for grant under our 2010 Equity Incentive Plan (the 2010 Plan) remain available for grant in accordance with the terms of that plan. However, there are no more shares available for future issuance under our Amended and Restated 1999 Stock Incentive Plan (the 1999 Plan). We issue new shares upon the exercise of stock options and the vesting of restricted stock awards. In cases of forfeitures and shares returned to us for taxes, those shares are returned to the share pool for future issuance. As of
September 30, 2018
, we had approximately
2.6 million
shares of common stock for issuance under our various equity incentive plans, of which approximately
2.1 million
shares are available for future grants.
Our total stock-based compensation expense is included in G&A expenses in our consolidated statements of operations and recognized using the straight-line method over the vesting period. A summary of the expense related to stock-based compensation by award type is as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Stock options expense
|
$
|
225
|
|
|
$
|
274
|
|
|
$
|
534
|
|
Restricted stock awards expense
|
10,033
|
|
|
7,885
|
|
|
7,425
|
|
Before tax stock-based compensation expense
|
10,258
|
|
|
8,159
|
|
|
7,959
|
|
Tax benefit
|
(2,622
|
)
|
|
(2,917
|
)
|
|
(2,832
|
)
|
After tax stock-based compensation expense
|
$
|
7,636
|
|
|
$
|
5,242
|
|
|
$
|
5,127
|
|
Stock Options
We have issued stock options to officers and key employees under the 2014 Plan, the 2010 Plan, and the 1999 Plan. Stock options have an exercise price equal to the fair market value of the common stock on the grant date, vest
three
years after the date of grant, and may be exercised thereafter until their expiration, subject to forfeiture upon termination of employment as provided in the applicable plan. Under certain conditions of retirement, eligible participants may receive a partial vesting of stock options. Stock options generally expire on the seventh or eighth anniversary from the date such options were granted, depending on the terms of the award.
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model (Black-Scholes Model). As of
September 30, 2018
, the intrinsic value of our stock options outstanding, vested and expected to vest, vested and exercisable were
$0.1 million
,
$0.1 million
, and
$0.1 million
, respectively. As of
September 30, 2018
and
September 30, 2017
, there was
$0.2 million
and
$0.3 million
, respectively, of total unrecognized compensation cost related to unvested stock options. The cost remaining as of
September 30, 2018
is expected to be recognized over a weighted-average period of
1.8 years
.
During fiscal 2016, the Compensation Committee of our Board of Directors approved the Employee Stock Option Program (EOP). This program is available to all full-time employees, other than our senior leadership team, and is designed to enable employees to share in potential price appreciation of the Company's stock. The EOP matches stock purchases made by eligible employees meeting certain conditions with an option to purchase an additional share of the Company's shares on a one-to-one basis. The exercise price of the options granted is equal to the closing price of the Company's stock on the day the underlying stock is purchased. The options will vest on the second anniversary of the date of grant but are forfeited if (1) the eligible employee no longer works for the Company or (2) the underlying shares are sold before the two-year vesting period is over. The total number of options available under the EOP is limited to
100,000
, of which
3,950
options were granted through the end of fiscal
2018
.
During the year ended
September 30, 2018
, we issued
25,230
stock options, including those issued under the EOP, each for one share of the Company's stock. These stock options typically vest ratably over
three
years from the date of grant, or
two
years from the date of grant if issued under the EOP. We used the following valuation assumptions for stock options granted for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
2018
|
|
2017
|
|
2016
|
Expected life of options
|
5.0 years
|
|
|
5.4 years
|
|
|
4.9 years
|
|
Expected volatility
|
44.71
|
%
|
|
50.10
|
%
|
|
46.49
|
%
|
Expected dividends
|
—
|
|
|
—
|
|
|
—
|
|
Weighted-average risk-free interest rate
|
2.10
|
%
|
|
1.85
|
%
|
|
1.36
|
%
|
Weighted-average fair value
|
$
|
8.30
|
|
|
$
|
5.83
|
|
|
$
|
4.03
|
|
We relied upon a combination of the observed exercise behavior of our prior grants with similar characteristics, the vesting schedule of the current grants, and an index of peer companies with similar grant characteristics to determine the expected life of the options granted. We considered historic returns of our stock and the implied volatility of our publicly-traded options in determining expected volatility. We assumed no dividends would be paid since our Board of Directors has suspended payment of dividends indefinitely and payment of dividends is restricted under our Senior Note covenants. The risk-free interest rate is based on the term structure of interest rates at the time of the option grant.
Activity related to stock options for the periods presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
Outstanding at beginning of period
|
593,753
|
|
|
$
|
14.76
|
|
|
672,669
|
|
|
$
|
16.49
|
|
|
643,907
|
|
|
$
|
18.13
|
|
Granted
|
25,230
|
|
|
19.99
|
|
|
29,410
|
|
|
12.50
|
|
|
125,449
|
|
|
9.19
|
|
Exercised
|
(8,411
|
)
|
|
7.52
|
|
|
(2,313
|
)
|
|
10.80
|
|
|
—
|
|
|
—
|
|
Expired
|
(61,967
|
)
|
|
23.19
|
|
|
(84,976
|
)
|
|
28.45
|
|
|
(86,606
|
)
|
|
19.70
|
|
Cancelled
|
—
|
|
|
—
|
|
|
(480
|
)
|
|
23.65
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(15,553
|
)
|
|
10.46
|
|
|
(20,557
|
)
|
|
11.97
|
|
|
(10,081
|
)
|
|
10.98
|
|
Outstanding at end of period
|
533,052
|
|
|
$
|
14.26
|
|
|
593,753
|
|
|
$
|
14.76
|
|
|
672,669
|
|
|
$
|
16.49
|
|
Exercisable at end of period
|
479,538
|
|
|
$
|
14.03
|
|
|
476,606
|
|
|
$
|
15.91
|
|
|
503,594
|
|
|
$
|
17.76
|
|
Vested or expected to vest in the future
|
533,052
|
|
|
$
|
14.26
|
|
|
585,186
|
|
|
$
|
14.83
|
|
|
672,669
|
|
|
$
|
16.49
|
|
The following table summarizes information about stock options outstanding and exercisable as of
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding
|
|
Stock Options Exercisable
|
Range of Exercise Price
|
Number Outstanding
|
|
Weighted-Average Contractual Remaining Life (Years)
|
|
Weighted-Average Exercise Price
|
|
Number Exercisable
|
|
Weighted-Average Contractual Remaining Life (Years)
|
|
Weighted-Average Exercise Price
|
$1 - $10
|
152,004
|
|
|
2.6
|
|
$
|
9.77
|
|
|
152,004
|
|
|
2.6
|
|
$
|
9.77
|
|
$11 - $15
|
207,451
|
|
|
3.2
|
|
13.33
|
|
|
177,617
|
|
|
2.7
|
|
13.37
|
|
$16 - $20
|
173,597
|
|
|
3.7
|
|
19.30
|
|
|
149,917
|
|
|
3.1
|
|
19.12
|
|
$1 - $20
|
533,052
|
|
|
3.2
|
|
$
|
14.26
|
|
|
479,538
|
|
|
2.8
|
|
$
|
14.03
|
|
Information pertaining to the intrinsic value of options exercised and the fair market value of options that vested is below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Intrinsic value of options exercised
|
$
|
76
|
|
|
$
|
13
|
|
|
$
|
—
|
|
Fair market value of options vested
|
$
|
296
|
|
|
$
|
482
|
|
|
$
|
681
|
|
Restricted Stock Awards
The fair value of each restricted stock award with market conditions is estimated on the date of grant using the Monte Carlo valuation method. The fair value of restricted stock awards without market conditions is based on the market price of the Company's common stock on the date of grant. If applicable, the cash-settled component of any awards granted to employees is accounted for as a liability, which is adjusted to fair value each reporting period until vested.
Compensation cost arising from restricted stock awards granted to employees is recognized as an expense using the straight-line method over the vesting period. As of
September 30, 2018
and
September 30, 2017
, there was
$8.8 million
and
$8.8 million
, respectively, of total unrecognized compensation cost related to unvested restricted stock awards. The cost remaining as of
September 30, 2018
is expected to be recognized over a weighted-average period of
1.8 years
.
We have issued restricted stock awards to officers and key employees under both the 2014 Plan and the 2010 Plan. During fiscal
2018
, we issued time-based restricted stock awards and performance-based restricted stock awards with a payout subject to certain performance and market conditions. Each award type is discussed below.
Performance-Based Restricted Stock Awards
During the year ended
September 30, 2018
, we issued
165,085
shares of performance-based restricted stock (2018 Performance Shares) to our executive officers and certain other employees that also have market conditions. The 2018 Performance Shares are structured to be awarded based on the Company's performance under three pre-determined financial metrics at the end of the three-year performance period. After determining the number of shares earned based on the financial metrics, which can range from
0%
to
175%
of the targeted number of shares, the award will be subject to further upward or downward adjustment by as much as
20%
based on the Company's relative total shareholder return (TSR) compared against the S&P Homebuilders Select Industry Index during the three-year performance period. The 2018 Performance Shares were valued using the Monte Carlo valuation model due to the existence of the TSR market condition and had an estimated fair value of
$22.40
per share on the date of grant.
A Monte Carlo valuation model requires the following inputs: (1) the expected dividend yield on the underlying stock; (2) the expected price volatility of the underlying stock; (3) the risk-free interest rate for the period corresponding with the expected term of the award; and (4) the fair value of the underlying stock. For the Company and each member of the peer group, the following inputs were used, as applicable, in the Monte Carlo valuation model to determine the fair value as of the grant date for performance-based restricted stock granted in each of the fiscal years ended. The methodology used to determine these assumptions is similar to the Black-Scholes Model; however, the expected term is determined by the model in the Monte Carlo simulation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
2018
|
|
2017
|
|
2016
|
Expected volatility
|
21.1% - 61.2%
|
|
|
32.6% - 66.0%
|
|
|
29.9% - 151.2%
|
|
Risk-free interest rate
|
1.81
|
%
|
|
1.30
|
%
|
|
1.21
|
%
|
Dividend yield
|
—
|
|
|
—
|
|
|
—
|
|
Grant-date stock price
|
$
|
20.50
|
|
|
$
|
12.51
|
|
|
$
|
14.24
|
|
Each performance share represents a contingent right to receive one share of the Company's common stock if vesting is satisfied at the end of the
three
-year performance period. Any 2018 Performance Shares earned in excess of the target number of
165,085
may be settled in cash or additional shares at the discretion of the Compensation Committee. Any portion of these shares that do not vest at the end of the period will be forfeited.
The performance criteria of the 2016 Performance Share grant was satisfied as of September 30, 2018. Based on the actual performance level achieved,
309,843
performance-based restricted stock awards from the 2016 Performance Share grant will cliff vest at the end of the
three
-year vesting period on November 23, 2018. Of the total
$4.8 million
compensation cost related to these awards, we have recognized
$1.3 million
,
$2.3 million
, and
$1.0 million
during the fiscal years ended September 30, 2018, 2017, and 2016, respectively. The remaining
$0.2 million
of unrecognized compensation cost will be recognized in the first quarter of fiscal 2019.
Time-Based Restricted Stock Awards
During the year ended
September 30, 2018
, we also issued
277,165
shares of time-based restricted stock (Restricted Shares) to our directors, executive officers, and certain other employees. Restricted Shares are valued based on the market price of the Company's common stock on the date of the grant. The Restricted Shares granted to our non-employee directors vest on the first anniversary of the grant, while the Restricted Shares granted to our executive officers and other employees generally vest ratably over three years from the date of grant.
Activity relating to all restricted stock awards for the periods presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2018
|
|
Performance-Based
|
|
Time-Based
|
|
Total
|
|
Shares
|
|
Weighted-
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted-
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted-
Average
Grant
Date Fair
Value
|
Beginning of period
|
668,766
|
|
|
$
|
15.72
|
|
|
872,181
|
|
|
$
|
16.47
|
|
|
1,540,947
|
|
|
$
|
16.15
|
|
Granted
|
165,085
|
|
|
22.40
|
|
|
277,165
|
|
|
18.98
|
|
|
442,250
|
|
|
20.26
|
|
Vested
|
—
|
|
|
—
|
|
|
(690,922
|
)
|
|
17.38
|
|
|
(690,922
|
)
|
|
17.38
|
|
Forfeited
|
(189,066
|
)
|
|
18.98
|
|
|
(26,641
|
)
|
|
17.02
|
|
|
(215,707
|
)
|
|
18.74
|
|
End of period
|
644,785
|
|
|
$
|
16.47
|
|
|
431,783
|
|
|
$
|
16.60
|
|
|
1,076,568
|
|
|
$
|
16.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2017
|
|
Performance-Based
|
|
Time-Based
|
|
Total
|
|
Shares
|
|
Weighted-
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted-
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted-
Average
Grant
Date Fair
Value
|
Beginning of period
|
448,693
|
|
|
$
|
16.71
|
|
|
807,124
|
|
|
$
|
17.52
|
|
|
1,255,817
|
|
|
$
|
17.23
|
|
Granted
|
263,696
|
|
|
13.60
|
|
|
271,855
|
|
|
12.50
|
|
|
535,551
|
|
|
13.04
|
|
Vested
|
—
|
|
|
—
|
|
|
(189,029
|
)
|
|
15.52
|
|
|
(189,029
|
)
|
|
15.52
|
|
Forfeited
|
(43,623
|
)
|
|
13.11
|
|
|
(17,769
|
)
|
|
14.08
|
|
|
(61,392
|
)
|
|
13.39
|
|
End of period
|
668,766
|
|
|
$
|
15.72
|
|
|
872,181
|
|
|
$
|
16.47
|
|
|
1,540,947
|
|
|
$
|
16.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2016
|
|
Performance-Based
|
|
Time-Based
|
|
Total
|
|
Shares
|
|
Weighted-
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted-
Average
Grant
Date Fair
Value
|
|
Shares
|
|
Weighted-
Average
Grant
Date Fair
Value
|
Beginning of period
|
252,022
|
|
|
$
|
16.34
|
|
|
704,261
|
|
|
$
|
18.97
|
|
|
956,283
|
|
|
$
|
18.27
|
|
Granted
|
231,624
|
|
|
15.43
|
|
|
259,819
|
|
|
14.04
|
|
|
491,443
|
|
|
14.69
|
|
Vested
|
—
|
|
|
—
|
|
|
(127,993
|
)
|
|
18.58
|
|
|
(127,993
|
)
|
|
18.58
|
|
Forfeited
|
(34,953
|
)
|
|
5.51
|
|
|
(28,963
|
)
|
|
16.78
|
|
|
(63,916
|
)
|
|
10.62
|
|
End of period
|
448,693
|
|
|
$
|
16.71
|
|
|
807,124
|
|
|
$
|
17.52
|
|
|
1,255,817
|
|
|
$
|
17.23
|
|
(17) Earnings Per Share
Basic (loss) income per share is calculated by dividing net (loss) income by the weighted-average number of shares outstanding during the period. Diluted (loss) income per share adjusts the basic (loss) income per share for the effects of any potentially dilutive securities in periods in which the Company has net income and such effects are dilutive under the treasury stock method.
Following is a summary of the components of basic and diluted (loss) income per share for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands, except per share data)
|
|
2018
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$
|
(45,046
|
)
|
|
$
|
31,953
|
|
|
$
|
5,205
|
|
Loss from discontinued operations, net of tax
|
|
(329
|
)
|
|
(140
|
)
|
|
(512
|
)
|
Net (loss) income
|
|
$
|
(45,375
|
)
|
|
$
|
31,813
|
|
|
$
|
4,693
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Basic weighted-average shares
|
|
32,141
|
|
|
31,952
|
|
|
31,798
|
|
Dilutive effect of restricted stock awards
|
|
—
|
|
|
433
|
|
|
5
|
|
Dilutive effect of stock options
|
|
—
|
|
|
41
|
|
|
—
|
|
Diluted weighted-average shares
(1)
|
|
32,141
|
|
|
32,426
|
|
|
31,803
|
|
|
|
|
|
|
|
|
Basic (loss) income per share:
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.40
|
)
|
|
$
|
1.00
|
|
|
$
|
0.16
|
|
Discontinued operations
|
|
(0.01
|
)
|
|
—
|
|
|
(0.01
|
)
|
Total
|
|
$
|
(1.41
|
)
|
|
$
|
1.00
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
Diluted (loss) income per share:
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.40
|
)
|
|
$
|
0.99
|
|
|
$
|
0.16
|
|
Discontinued operations
|
|
(0.01
|
)
|
|
—
|
|
|
(0.01
|
)
|
Total
|
|
$
|
(1.41
|
)
|
|
$
|
0.99
|
|
|
$
|
0.15
|
|
(1)
The following potentially dilutive shares were excluded from the calculation of diluted (loss) income per share as a result of their anti-dilutive effect. Due to the reported net loss for the year ended September 30, 2018, all common stock equivalents were excluded from the computation of diluted loss per share for fiscal year 2018 because inclusion would have resulted in anti-dilution.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
|
2018
|
|
2017
|
|
2016
|
Stock options
|
|
533
|
|
|
319
|
|
|
693
|
|
Time-based restricted stock
|
|
432
|
|
|
—
|
|
|
770
|
|
Performance-based restricted stock
|
|
645
|
|
|
—
|
|
|
—
|
|
(18) Segment Information
We currently operate in
13
states that are grouped into
three
homebuilding segments based on geography. Revenues from our homebuilding segments are derived from the sale of homes that we construct and from land and lot sales. Our reportable segments have been determined on a basis that is used internally by management for evaluating segment performance and resource allocations. We have considered the applicable aggregation criteria, and have combined our homebuilding operations into
three
reportable segments as follows:
West
: Arizona, California, Nevada, and Texas
East
: Delaware, Indiana, Maryland, New Jersey
(a)
, Tennessee, and Virginia
Southeast
: Florida, Georgia, North Carolina, and South Carolina
(a)
During our fiscal 2015, we made the decision that we would not continue to reinvest in new homebuilding assets in our New Jersey division; therefore, it is no longer considered an active operation. However, it is included in this listing because the segment information below continues to include New Jersey.
Management’s evaluation of segment performance is based on segment operating income. Operating income for our homebuilding segments is defined as homebuilding and land sale and other revenues less home construction, land development and land sales expense, commission expense, depreciation and amortization, and certain G&A expenses that are incurred by or allocated to our homebuilding segments. The accounting policies of our segments are those described in Note 2.
The following tables contain our revenue, operating income, and depreciation and amortization by segment for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Revenue
|
|
|
|
|
|
West
|
$
|
1,014,803
|
|
|
$
|
853,230
|
|
|
$
|
827,907
|
|
East
|
524,563
|
|
|
551,422
|
|
|
526,949
|
|
Southeast
|
567,767
|
|
|
511,626
|
|
|
467,258
|
|
Total revenue
|
$
|
2,107,133
|
|
|
$
|
1,916,278
|
|
|
$
|
1,822,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Operating income
(a)
|
|
|
|
|
|
West
|
$
|
142,310
|
|
|
$
|
110,600
|
|
|
$
|
99,835
|
|
East
(b)
|
57,372
|
|
|
58,191
|
|
|
42,205
|
|
Southeast
(c)
|
45,950
|
|
|
53,905
|
|
|
49,250
|
|
Segment total
|
245,632
|
|
|
222,696
|
|
|
191,290
|
|
Corporate and unallocated
(d)
|
(164,084
|
)
|
|
(160,558
|
)
|
|
(131,965
|
)
|
Total operating income
|
$
|
81,548
|
|
|
$
|
62,138
|
|
|
$
|
59,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Depreciation and amortization
|
|
|
|
|
|
West
|
$
|
7,062
|
|
|
$
|
7,207
|
|
|
$
|
6,086
|
|
East
|
2,619
|
|
|
2,927
|
|
|
3,173
|
|
Southeast
|
3,053
|
|
|
2,564
|
|
|
2,451
|
|
Segment total
|
12,734
|
|
|
12,698
|
|
|
11,710
|
|
Corporate and unallocated
(d)
|
1,073
|
|
|
1,311
|
|
|
2,084
|
|
Total depreciation and amortization
|
$
|
13,807
|
|
|
$
|
14,009
|
|
|
$
|
13,794
|
|
(a)
Operating income is impacted by impairment and abandonment charges incurred during the periods presented (see Note 5).
(b)
Operating income for our East segment for the year ended
September 30, 2017
was impacted by a charge to G&A of
$2.7 million
related to the write-off of a deposit on a legacy investment in a development site that we deemed uncollectible.
(c)
Operating income for our Southeast segment for the year ended September 30, 2016 was impacted by unexpected warranty costs related to the Florida stucco issues, net of expected insurance recoveries. This impact was a credit of
$3.6 million
in fiscal 2016.
(d)
Corporate and unallocated operating loss includes amortization of capitalized interest and capitalized indirects; expenses related to numerous shared services functions that benefit all segments but are not allocated to the operating segments reported above, including information technology, treasury, corporate finance, legal, branding and national marketing; and certain other amounts that are not allocated to our operating segments. For the year ended September 30, 2016, the Corporate and unallocated operating loss includes a
$15.5 million
reduction in home construction expenses resulting from an agreement entered into during the current fiscal year with our third-party insurer to resolve certain issues related to the extent of our insurance coverage (refer to Note 9).
Corporate and unallocated depreciation and amortization represents depreciation and amortization related to assets held by corporate functions that benefit all segments.
The following table contains our capital expenditures by segment for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Capital Expenditures
|
|
|
|
|
|
West
|
$
|
8,152
|
|
|
$
|
7,086
|
|
|
$
|
6,570
|
|
East
|
2,234
|
|
|
2,474
|
|
|
2,441
|
|
Southeast
|
3,112
|
|
|
2,539
|
|
|
2,747
|
|
Corporate and unallocated
|
3,522
|
|
|
341
|
|
|
461
|
|
Total capital expenditures
|
$
|
17,020
|
|
|
$
|
12,440
|
|
|
$
|
12,219
|
|
The following table contains our asset balance by segment as of
September 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2018
|
|
September 30, 2017
|
Assets
|
|
|
|
West
|
$
|
835,230
|
|
|
$
|
779,964
|
|
East
|
335,474
|
|
|
298,532
|
|
Southeast
|
414,685
|
|
|
331,618
|
|
Corporate and unallocated
(a)
|
542,713
|
|
|
810,881
|
|
Total assets
|
$
|
2,128,102
|
|
|
$
|
2,220,995
|
|
(a)
Primarily consists of cash and cash equivalents, restricted cash, deferred taxes, capitalized interest and indirects and other items that are not allocated to the segments.
(19) Supplemental Guarantor Information
As discussed in Note 8, the Company's obligations to pay principal, premium, if any, and interest under certain debt agreements are guaranteed on a joint and several basis by substantially all of its subsidiaries. Some immaterial subsidiaries do not guarantee the Senior Notes. The guarantees are full and unconditional and the guarantor subsidiaries are
100%
owned by Beazer Homes USA, Inc. The following financial information presents the line items of the Company's consolidated financial statements separated by amounts related to the parent issuer, guarantor subsidiaries, non-guarantor subsidiaries, and consolidating adjustments as of or for the periods presented.
Beazer Homes USA, Inc.
Condensed Consolidating Balance Sheet Information
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
93,875
|
|
|
$
|
45,355
|
|
|
$
|
575
|
|
|
$
|
—
|
|
|
$
|
139,805
|
|
Restricted cash
|
10,921
|
|
|
2,522
|
|
|
—
|
|
|
—
|
|
|
13,443
|
|
Accounts receivable (net of allowance of $378)
|
—
|
|
|
24,647
|
|
|
—
|
|
|
—
|
|
|
24,647
|
|
Income tax receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Owned inventory
|
—
|
|
|
1,692,284
|
|
|
—
|
|
|
—
|
|
|
1,692,284
|
|
Investments in unconsolidated entities
|
773
|
|
|
3,262
|
|
|
—
|
|
|
—
|
|
|
4,035
|
|
Deferred tax assets, net
|
213,955
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
213,955
|
|
Property and equipment, net
|
—
|
|
|
20,843
|
|
|
—
|
|
|
—
|
|
|
20,843
|
|
Investments in subsidiaries
|
645,086
|
|
|
—
|
|
|
—
|
|
|
(645,086
|
)
|
|
—
|
|
Intercompany
|
922,525
|
|
|
—
|
|
|
2,304
|
|
|
(924,829
|
)
|
|
—
|
|
Goodwill and other intangible assets, net
|
—
|
|
|
9,751
|
|
|
—
|
|
|
—
|
|
|
9,751
|
|
Other assets
|
694
|
|
|
8,626
|
|
|
19
|
|
|
—
|
|
|
9,339
|
|
Total assets
|
$
|
1,887,829
|
|
|
$
|
1,807,290
|
|
|
$
|
2,898
|
|
|
$
|
(1,569,915
|
)
|
|
$
|
2,128,102
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
—
|
|
|
$
|
126,432
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
126,432
|
|
Other liabilities
|
14,357
|
|
|
111,906
|
|
|
126
|
|
|
—
|
|
|
126,389
|
|
Intercompany
|
2,304
|
|
|
922,525
|
|
|
—
|
|
|
(924,829
|
)
|
|
—
|
|
Total debt (net of premium/discount and debt issuance costs)
|
1,227,141
|
|
|
4,113
|
|
|
—
|
|
|
—
|
|
|
1,231,254
|
|
Total liabilities
|
1,243,802
|
|
|
1,164,976
|
|
|
126
|
|
|
(924,829
|
)
|
|
1,484,075
|
|
Stockholders’ equity
|
644,027
|
|
|
642,314
|
|
|
2,772
|
|
|
(645,086
|
)
|
|
644,027
|
|
Total liabilities and stockholders’ equity
|
$
|
1,887,829
|
|
|
$
|
1,807,290
|
|
|
$
|
2,898
|
|
|
$
|
(1,569,915
|
)
|
|
$
|
2,128,102
|
|
Beazer Homes USA, Inc.
Condensed Consolidating Balance Sheet Information
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
283,191
|
|
|
$
|
15,393
|
|
|
$
|
724
|
|
|
$
|
(7,161
|
)
|
|
$
|
292,147
|
|
Restricted cash
|
11,001
|
|
|
1,461
|
|
|
—
|
|
|
—
|
|
|
12,462
|
|
Accounts receivable (net of allowance of $330)
|
—
|
|
|
36,322
|
|
|
1
|
|
|
—
|
|
|
36,323
|
|
Income tax receivable
|
88
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
88
|
|
Owned inventory
|
—
|
|
|
1,542,807
|
|
|
—
|
|
|
—
|
|
|
1,542,807
|
|
Investments in unconsolidated entities
|
773
|
|
|
3,221
|
|
|
—
|
|
|
—
|
|
|
3,994
|
|
Deferred tax assets, net
|
307,896
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
307,896
|
|
Property and equipment, net
|
—
|
|
|
17,566
|
|
|
—
|
|
|
—
|
|
|
17,566
|
|
Investments in subsidiaries
|
808,067
|
|
|
—
|
|
|
—
|
|
|
(808,067
|
)
|
|
—
|
|
Intercompany
|
606,168
|
|
|
—
|
|
|
2,337
|
|
|
(608,505
|
)
|
|
—
|
|
Other assets
|
599
|
|
|
7,098
|
|
|
15
|
|
|
—
|
|
|
7,712
|
|
Total assets
|
$
|
2,017,783
|
|
|
$
|
1,623,868
|
|
|
$
|
3,077
|
|
|
$
|
(1,423,733
|
)
|
|
$
|
2,220,995
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
$
|
—
|
|
|
$
|
103,484
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
103,484
|
|
Other liabilities
|
11,229
|
|
|
96,189
|
|
|
241
|
|
|
—
|
|
|
107,659
|
|
Intercompany
|
2,337
|
|
|
613,329
|
|
|
—
|
|
|
(615,666
|
)
|
|
—
|
|
Total debt (net of discount and debt issuance costs)
|
1,321,777
|
|
|
5,635
|
|
|
—
|
|
|
—
|
|
|
1,327,412
|
|
Total liabilities
|
1,335,343
|
|
|
818,637
|
|
|
241
|
|
|
(615,666
|
)
|
|
1,538,555
|
|
Stockholders’ equity
|
682,440
|
|
|
805,231
|
|
|
2,836
|
|
|
(808,067
|
)
|
|
682,440
|
|
Total liabilities and stockholders’ equity
|
$
|
2,017,783
|
|
|
$
|
1,623,868
|
|
|
$
|
3,077
|
|
|
$
|
(1,423,733
|
)
|
|
$
|
2,220,995
|
|
Beazer Homes USA, Inc.
Consolidating Statements 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, 2018
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
—
|
|
|
$
|
2,107,133
|
|
|
$
|
83
|
|
|
$
|
(83
|
)
|
|
$
|
2,107,133
|
|
Home construction and land sales expenses
|
91,132
|
|
|
1,664,570
|
|
|
—
|
|
|
(83
|
)
|
|
1,755,619
|
|
Inventory impairments and abandonments
|
1,961
|
|
|
4,538
|
|
|
—
|
|
|
—
|
|
|
6,499
|
|
Gross (loss) profit
|
(93,093
|
)
|
|
438,025
|
|
|
83
|
|
|
—
|
|
|
345,015
|
|
Commissions
|
—
|
|
|
81,002
|
|
|
—
|
|
|
—
|
|
|
81,002
|
|
General and administrative expenses
|
—
|
|
|
168,536
|
|
|
122
|
|
|
—
|
|
|
168,658
|
|
Depreciation and amortization
|
—
|
|
|
13,807
|
|
|
—
|
|
|
—
|
|
|
13,807
|
|
Operating (loss) income
|
(93,093
|
)
|
|
174,680
|
|
|
(39
|
)
|
|
—
|
|
|
81,548
|
|
Equity in income of unconsolidated entities
|
—
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
34
|
|
Loss on extinguishment of debt
|
(27,839
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(27,839
|
)
|
Other (expense) income, net
|
(5,323
|
)
|
|
1,046
|
|
|
(28
|
)
|
|
—
|
|
|
(4,305
|
)
|
(Loss) income before income taxes
|
(126,255
|
)
|
|
175,760
|
|
|
(67
|
)
|
|
—
|
|
|
49,438
|
|
(Benefit) expense from income taxes
|
(93,714
|
)
|
|
188,217
|
|
|
(19
|
)
|
|
—
|
|
|
94,484
|
|
Equity in loss of subsidiaries
|
(12,505
|
)
|
|
—
|
|
|
—
|
|
|
12,505
|
|
|
—
|
|
Loss from continuing operations
|
(45,046
|
)
|
|
(12,457
|
)
|
|
(48
|
)
|
|
12,505
|
|
|
(45,046
|
)
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(312
|
)
|
|
(17
|
)
|
|
—
|
|
|
(329
|
)
|
Equity in loss of subsidiaries
|
(329
|
)
|
|
—
|
|
|
—
|
|
|
329
|
|
|
—
|
|
Net loss
|
$
|
(45,375
|
)
|
|
$
|
(12,769
|
)
|
|
$
|
(65
|
)
|
|
$
|
12,834
|
|
|
$
|
(45,375
|
)
|
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
Fiscal Year Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
—
|
|
|
$
|
1,916,278
|
|
|
$
|
107
|
|
|
$
|
(107
|
)
|
|
$
|
1,916,278
|
|
Home construction and land sales expenses
|
88,764
|
|
|
1,512,312
|
|
|
—
|
|
|
(107
|
)
|
|
1,600,969
|
|
Inventory impairments and abandonments
|
56
|
|
|
2,389
|
|
|
—
|
|
|
—
|
|
|
2,445
|
|
Gross (loss) profit
|
(88,820
|
)
|
|
401,577
|
|
|
107
|
|
|
—
|
|
|
312,864
|
|
Commissions
|
—
|
|
|
74,811
|
|
|
—
|
|
|
—
|
|
|
74,811
|
|
General and administrative expenses
|
—
|
|
|
161,804
|
|
|
102
|
|
|
—
|
|
|
161,906
|
|
Depreciation and amortization
|
—
|
|
|
14,009
|
|
|
—
|
|
|
—
|
|
|
14,009
|
|
Operating (loss) income
|
(88,820
|
)
|
|
150,953
|
|
|
5
|
|
|
—
|
|
|
62,138
|
|
Equity in income of unconsolidated entities
|
—
|
|
|
371
|
|
|
—
|
|
|
—
|
|
|
371
|
|
Loss on extinguishment of debt
|
(12,630
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,630
|
)
|
Other (expense) income, net
|
(15,635
|
)
|
|
429
|
|
|
(24
|
)
|
|
—
|
|
|
(15,230
|
)
|
(Loss) income before income taxes
|
(117,085
|
)
|
|
151,753
|
|
|
(19
|
)
|
|
—
|
|
|
34,649
|
|
(Benefit) expense from income taxes
|
(42,564
|
)
|
|
45,266
|
|
|
(6
|
)
|
|
—
|
|
|
2,696
|
|
Equity in income of subsidiaries
|
106,474
|
|
|
—
|
|
|
—
|
|
|
(106,474
|
)
|
|
—
|
|
Income (loss) from continuing operations
|
31,953
|
|
|
106,487
|
|
|
(13
|
)
|
|
(106,474
|
)
|
|
31,953
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(115
|
)
|
|
(25
|
)
|
|
—
|
|
|
(140
|
)
|
Equity in loss of subsidiaries
|
(140
|
)
|
|
—
|
|
|
—
|
|
|
140
|
|
|
—
|
|
Net income (loss)
|
$
|
31,813
|
|
|
$
|
106,372
|
|
|
$
|
(38
|
)
|
|
$
|
(106,334
|
)
|
|
$
|
31,813
|
|
Beazer Homes USA, Inc.
Consolidating Statements 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, 2016
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
—
|
|
|
$
|
1,822,114
|
|
|
$
|
156
|
|
|
$
|
(156
|
)
|
|
$
|
1,822,114
|
|
Home construction and land sales expenses
|
77,941
|
|
|
1,431,840
|
|
|
—
|
|
|
(156
|
)
|
|
1,509,625
|
|
Inventory impairments and abandonments
|
710
|
|
|
14,572
|
|
|
—
|
|
|
—
|
|
|
15,282
|
|
Gross (loss) profit
|
(78,651
|
)
|
|
375,702
|
|
|
156
|
|
|
—
|
|
|
297,207
|
|
Commissions
|
—
|
|
|
70,460
|
|
|
—
|
|
|
—
|
|
|
70,460
|
|
General and administrative expenses
|
—
|
|
|
153,524
|
|
|
104
|
|
|
—
|
|
|
153,628
|
|
Depreciation and amortization
|
—
|
|
|
13,794
|
|
|
—
|
|
|
—
|
|
|
13,794
|
|
Operating (loss) income
|
(78,651
|
)
|
|
137,924
|
|
|
52
|
|
|
—
|
|
|
59,325
|
|
Equity in income of unconsolidated entities
|
—
|
|
|
131
|
|
|
—
|
|
|
—
|
|
|
131
|
|
Loss on extinguishment of debt
|
(13,423
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,423
|
)
|
Other (expense) income, net
|
(25,388
|
)
|
|
1,061
|
|
|
(3
|
)
|
|
—
|
|
|
(24,330
|
)
|
(Loss) income before income taxes
|
(117,462
|
)
|
|
139,116
|
|
|
49
|
|
|
—
|
|
|
21,703
|
|
(Benefit) expense from income taxes
|
(70,126
|
)
|
|
86,605
|
|
|
19
|
|
|
—
|
|
|
16,498
|
|
Equity in income of subsidiaries
|
52,541
|
|
|
—
|
|
|
—
|
|
|
(52,541
|
)
|
|
—
|
|
Income from continuing operations
|
5,205
|
|
|
52,511
|
|
|
30
|
|
|
(52,541
|
)
|
|
5,205
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(503
|
)
|
|
(9
|
)
|
|
—
|
|
|
(512
|
)
|
Equity in loss of subsidiaries
|
(512
|
)
|
|
—
|
|
|
—
|
|
|
512
|
|
|
—
|
|
Net income
|
$
|
4,693
|
|
|
$
|
52,008
|
|
|
$
|
21
|
|
|
$
|
(52,029
|
)
|
|
$
|
4,693
|
|
Beazer Homes USA, Inc.
Condensed Consolidating Statements of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
Fiscal Year Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
$
|
(25,713
|
)
|
|
$
|
56,153
|
|
|
$
|
(152
|
)
|
|
$
|
—
|
|
|
$
|
30,288
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(17,020
|
)
|
|
—
|
|
|
—
|
|
|
(17,020
|
)
|
Proceeds from sale of fixed assets
|
—
|
|
|
370
|
|
|
—
|
|
|
—
|
|
|
370
|
|
Cash used for business acquisition, net of cash acquired
|
—
|
|
|
(57,253
|
)
|
|
—
|
|
|
—
|
|
|
(57,253
|
)
|
Investments in unconsolidated entities
|
—
|
|
|
(421
|
)
|
|
—
|
|
|
—
|
|
|
(421
|
)
|
Return of capital from unconsolidated entities
|
—
|
|
|
176
|
|
|
—
|
|
|
—
|
|
|
176
|
|
Advances to/from subsidiaries
|
(56,182
|
)
|
|
—
|
|
|
3
|
|
|
56,179
|
|
|
—
|
|
Net cash (used in) provided by investing activities
|
(56,182
|
)
|
|
(74,148
|
)
|
|
3
|
|
|
56,179
|
|
|
(74,148
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
(497,915
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(497,915
|
)
|
Proceeds from issuance of new debt
|
400,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
400,000
|
|
Repayment of borrowing from credit facility
|
(225,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(225,000
|
)
|
Borrowing from credit facility
|
225,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
225,000
|
|
Debt issuance costs
|
(6,272
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,272
|
)
|
Other financing activities
|
(3,314
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,314
|
)
|
Advances to/from subsidiaries
|
—
|
|
|
49,018
|
|
|
—
|
|
|
(49,018
|
)
|
|
—
|
|
Net cash (used in) provided by financing activities
|
(107,501
|
)
|
|
49,018
|
|
|
—
|
|
|
(49,018
|
)
|
|
(107,501
|
)
|
(Decrease) increase in cash and cash equivalents
|
(189,396
|
)
|
|
31,023
|
|
|
(149
|
)
|
|
7,161
|
|
|
(151,361
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
294,191
|
|
|
16,855
|
|
|
724
|
|
|
(7,161
|
)
|
|
304,609
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
104,795
|
|
|
$
|
47,878
|
|
|
$
|
575
|
|
|
$
|
—
|
|
|
$
|
153,248
|
|
Beazer Homes USA, Inc.
Condensed Consolidating Statements of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
Beazer Homes
USA, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
Beazer Homes
USA, Inc.
|
Fiscal Year Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
$
|
(74,046
|
)
|
|
$
|
170,129
|
|
|
$
|
(174
|
)
|
|
$
|
—
|
|
|
$
|
95,909
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(12,440
|
)
|
|
—
|
|
|
—
|
|
|
(12,440
|
)
|
Proceeds from sale of fixed assets
|
—
|
|
|
297
|
|
|
—
|
|
|
—
|
|
|
297
|
|
Investments in unconsolidated entities
|
—
|
|
|
(3,261
|
)
|
|
—
|
|
|
—
|
|
|
(3,261
|
)
|
Return of capital from unconsolidated entities
|
—
|
|
|
1,621
|
|
|
—
|
|
|
—
|
|
|
1,621
|
|
Advances to/from subsidiaries
|
148,081
|
|
|
—
|
|
|
39
|
|
|
(148,120
|
)
|
|
—
|
|
Net cash provided by (used in) investing activities
|
148,081
|
|
|
(13,783
|
)
|
|
39
|
|
|
(148,120
|
)
|
|
(13,783
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
(253,046
|
)
|
|
(12,437
|
)
|
|
—
|
|
|
—
|
|
|
(265,483
|
)
|
Proceeds from issuance of new debt
|
250,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250,000
|
|
Repayment of borrowing from credit facility
|
(25,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,000
|
)
|
Borrowing from credit facility
|
25,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,000
|
|
Debt issuance costs
|
(4,919
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,919
|
)
|
Other financing activities
|
(391
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(391
|
)
|
Advances to/from subsidiaries
|
—
|
|
|
(145,459
|
)
|
|
|
|
145,459
|
|
|
—
|
|
Net cash used in financing activities
|
(8,356
|
)
|
|
(157,896
|
)
|
|
—
|
|
|
145,459
|
|
|
(20,793
|
)
|
Increase (decrease) in cash and cash equivalents
|
65,679
|
|
|
(1,550
|
)
|
|
(135
|
)
|
|
(2,661
|
)
|
|
61,333
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
228,512
|
|
|
18,405
|
|
|
859
|
|
|
(4,500
|
)
|
|
243,276
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
294,191
|
|
|
$
|
16,855
|
|
|
$
|
724
|
|
|
$
|
(7,161
|
)
|
|
$
|
304,609
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
$
|
(56,218
|
)
|
|
$
|
219,401
|
|
|
$
|
(158
|
)
|
|
$
|
—
|
|
|
$
|
163,025
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(12,219
|
)
|
|
—
|
|
|
—
|
|
|
(12,219
|
)
|
Proceeds from sale of fixed assets
|
—
|
|
|
2,624
|
|
|
—
|
|
|
—
|
|
|
2,624
|
|
Investments in unconsolidated entities
|
—
|
|
|
(4,241
|
)
|
|
—
|
|
|
—
|
|
|
(4,241
|
)
|
Return of capital from unconsolidated entities
|
—
|
|
|
1,142
|
|
|
—
|
|
|
—
|
|
|
1,142
|
|
Advances to/from subsidiaries
|
203,690
|
|
|
—
|
|
|
11
|
|
|
(203,701
|
)
|
|
—
|
|
Net cash provided by (used in) investing activities
|
203,690
|
|
|
(12,694
|
)
|
|
11
|
|
|
(203,701
|
)
|
|
(12,694
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
(819,044
|
)
|
|
(9,177
|
)
|
|
—
|
|
|
—
|
|
|
(828,221
|
)
|
Proceeds from issuance of new debt
|
642,150
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
642,150
|
|
Borrowing from credit facility
|
90,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
90,000
|
|
Repayment of borrowing from credit facility
|
(90,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(90,000
|
)
|
Debt issuance costs
|
(11,246
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,246
|
)
|
Other financing activities
|
(222
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(222
|
)
|
Advances to/from subsidiaries
|
—
|
|
|
(202,393
|
)
|
|
—
|
|
|
202,393
|
|
|
—
|
|
Net cash used in financing activities
|
(188,362
|
)
|
|
(211,570
|
)
|
|
—
|
|
|
202,393
|
|
|
(197,539
|
)
|
Decrease in cash and cash equivalents
|
(40,890
|
)
|
|
(4,863
|
)
|
|
(147
|
)
|
|
(1,308
|
)
|
|
(47,208
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
269,402
|
|
|
23,268
|
|
|
1,006
|
|
|
(3,192
|
)
|
|
290,484
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
228,512
|
|
|
$
|
18,405
|
|
|
$
|
859
|
|
|
$
|
(4,500
|
)
|
|
$
|
243,276
|
|
(20) Discontinued Operations
We continually review each of our markets in order to refine our overall investment strategy and to optimize capital and resource allocations in an effort to enhance our financial position and to increase stockholder value. This review entails an evaluation of both external market factors and our position in each market, and over time has resulted in the decision to discontinue certain of our homebuilding operations. During our fiscal 2015, we made the decision that we would not continue to reinvest in new homebuilding assets in our New Jersey division; therefore, it is no longer considered an active operation. However, the results of our New Jersey division are not included in the discontinued operations information shown below.
We have classified the results of operations of our discontinued operations separately in the accompanying consolidated statements of operations for all periods presented. There were no material assets or liabilities related to our discontinued operations as of
September 30, 2018
or
September 30, 2017
. Discontinued operations were not segregated in the consolidated statements of cash flows. Therefore, amounts for certain captions in the consolidated statements of cash flows will not agree with the respective data in the consolidated statements of operations. The results of our discontinued operations in the consolidated statements of operations for the periods presented were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
(In thousands)
|
2018
|
|
2017
|
|
2016
|
Total revenue
|
$
|
633
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Home construction and land sales expenses
|
612
|
|
|
72
|
|
|
668
|
|
Inventory impairments and abandonments
|
450
|
|
|
—
|
|
|
—
|
|
Gross loss
|
(429
|
)
|
|
(72
|
)
|
|
(668
|
)
|
General and administrative expenses
|
101
|
|
|
169
|
|
|
137
|
|
Operating loss
|
(530
|
)
|
|
(241
|
)
|
|
(805
|
)
|
Equity in income of unconsolidated entities
|
93
|
|
|
31
|
|
|
12
|
|
Other (expense) income, net
|
(4
|
)
|
|
(5
|
)
|
|
6
|
|
Loss from discontinued operations before income taxes
|
(441
|
)
|
|
(215
|
)
|
|
(787
|
)
|
Benefit from income taxes
|
(112
|
)
|
|
(75
|
)
|
|
(275
|
)
|
Loss from discontinued operations, net of tax
|
$
|
(329
|
)
|
|
$
|
(140
|
)
|
|
$
|
(512
|
)
|
(21) Selected Quarterly Financial Data (Unaudited)
Selected summarized quarterly financial information is as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
Quarter Ended
|
Fiscal 2018
|
December 31
|
|
March 31
|
|
June 30
|
|
September 30
|
Total revenue
|
$
|
372,489
|
|
|
$
|
455,178
|
|
|
$
|
511,521
|
|
|
$
|
767,945
|
|
Gross profit
(a)
|
60,829
|
|
|
75,077
|
|
|
83,244
|
|
|
125,865
|
|
Operating income
|
6,681
|
|
|
13,825
|
|
|
17,580
|
|
|
43,462
|
|
Net (loss) income from continuing operations
(b)
|
(130,575
|
)
|
|
11,616
|
|
|
13,429
|
|
|
60,484
|
|
Basic EPS from continuing operations
(c)
|
$
|
(4.07
|
)
|
|
$
|
0.36
|
|
|
$
|
0.42
|
|
|
$
|
1.88
|
|
Diluted EPS from continuing operations
(c)
|
$
|
(4.07
|
)
|
|
$
|
0.36
|
|
|
$
|
0.41
|
|
|
$
|
1.83
|
|
|
|
|
|
|
|
|
|
Fiscal 2017
|
|
|
|
|
|
|
|
Total revenue
|
$
|
339,241
|
|
|
$
|
425,468
|
|
|
$
|
478,588
|
|
|
$
|
672,981
|
|
Gross profit
(a)
|
53,663
|
|
|
67,398
|
|
|
78,443
|
|
|
113,360
|
|
Operating income
|
1,275
|
|
|
7,511
|
|
|
15,569
|
|
|
37,783
|
|
Net (loss) income from continuing operations
(b)
|
(1,359
|
)
|
|
(7,495
|
)
|
|
7,114
|
|
|
33,693
|
|
Basic EPS from continuing operations
(c)
|
$
|
(0.04
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
0.22
|
|
|
$
|
1.05
|
|
Diluted EPS from continuing operations
(c)
|
$
|
(0.04
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
0.22
|
|
|
$
|
1.03
|
|
|
|
(a)
|
Gross profit in fiscal
2018
and
2017
includes inventory impairment and abandonments as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Fiscal 2018
|
|
Fiscal 2017
|
1st Quarter
|
$
|
—
|
|
|
$
|
—
|
|
2nd Quarter
|
—
|
|
|
282
|
|
3rd Quarter
|
168
|
|
|
470
|
|
4th Quarter
|
6,331
|
|
|
1,693
|
|
|
$
|
6,499
|
|
|
$
|
2,445
|
|
(b)
Net (loss) income from continuing operations in fiscal
2018
and
2017
includes (loss) gain on extinguishment of debt as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
Fiscal 2018
|
|
Fiscal 2017
|
1st Quarter
|
$
|
(25,904
|
)
|
|
$
|
—
|
|
2nd Quarter
|
—
|
|
|
(15,563
|
)
|
3rd Quarter
|
—
|
|
|
—
|
|
4th Quarter
|
(1,935
|
)
|
|
2,933
|
|
|
$
|
(27,839
|
)
|
|
$
|
(12,630
|
)
|
(c)
Amounts shown above for EPS for the quarterly periods are calculated separately from the full fiscal year amounts. Accordingly, quarterly amounts will not add to the respective annual amount.
(22) Subsequent Events
On October 1, 2018, the Company executed a Fifth Amendment to the Facility. The Fifth Amendment extended the termination date of the Facility from February 15, 2020 to February 15, 2021, increased the maximum aggregate amount of commitments under the Facility (including borrowings and letters of credit) from
$200.0 million
to
$210.0 million
, and reduced the applicable margin by
50
basis points at each level.
On November 7, 2018, the Company’s Board of Directors approved a share repurchase program that authorizes the Company to repurchase up to
$50.0 million
of its outstanding common stock. Under the share repurchase program, the Company intends to initially purchase approximately
$16.5 million
of its outstanding shares pursuant to an accelerated share repurchase program (ASR). Upon completion of the ASR, the Company may execute the remaining portion of its repurchase program from time to time on the open-market, through privately negotiated transactions, or otherwise. Repurchases of such shares may be made under a Rule 10b5-1 plan, which would permit repurchases when the Company might otherwise be precluded from doing so under insider trading laws. The timing and amount of repurchase transactions is subject to the Company’s discretion and will depend on a variety of factors, including market and business conditions, compliance with the Company’s debt agreements, and other considerations. The Company expects to fund repurchases under the share repurchase program with cash on hand and cash generated from operations. Once the ASR has been completed, the Company is not obligated to acquire any particular number of shares remaining under its repurchase program and the program may be suspended or discontinued at any time.