e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended September 30, 2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number:
001-12822
BEAZER HOMES USA,
INC.
(Exact name of Registrant as
specified in its charter)
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Delaware
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58-2086934
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1000 Abernathy Road, Suite 1200, Atlanta, Georgia
30328
(Address of principal
executive offices) (Zip code)
(770) 829-3700
(Registrants telephone
number including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Securities
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Exchanges on Which Registered
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Common Stock, $.001 par value per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer (as defined in Rule 405 of the Securities
Act) Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definition of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the registrants Common Stock
held by non-affiliates of the registrant
(62,188,862 shares) as of March 31, 2010, based on the
closing sale price per share as reported by the New York Stock
Exchange on such date, was $282,337,433.
The number of shares outstanding of the registrants Common
Stock as of November 3, 2010 was 75,669,381.
DOCUMENTS
INCORPORATED BY REFERENCE
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Part of 10-K
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Where Incorporated
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Portions of the registrants Proxy Statement for the 2010
Annual Meeting of Stockholders
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III
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BEAZER
HOMES USA, INC.
FORM 10-K
INDEX
2
References to we, us, our,
Beazer, Beazer Homes, and the
Company in this annual report on
Form 10-K
refer to Beazer Homes USA, Inc.
FORWARD-LOOKING
STATEMENTS
This Annual Report on
Form 10-K
contains forward-looking statements. These forward-looking
statements represent our expectations or beliefs concerning
future events, and it is possible that the results described in
this annual report will not be achieved. These forward-looking
statements can generally be identified by the use of statements
that include words such as estimate,
project, believe, expect,
anticipate, intend, plan,
foresee, likely, will,
goal, target or other similar words or
phrases. All forward-looking statements are based upon
information available to us on the date of this annual report.
These forward-looking statements are subject to risks,
uncertainties and other factors, many of which are outside of
our control, that could cause actual results to differ
materially from the results discussed in the forward-looking
statements, including, among other things, the matters discussed
in this annual report in the section captioned
Managements Discussion and Analysis of Financial
Condition and Results of Operations. Additional
information about factors that could lead to material changes in
performance is contained in Part I, Item 1A−
Risk Factors. Such factors may include:
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the final outcome of various putative class action lawsuits,
multi-party suits and similar proceedings as well as the results
of any other litigation or government proceedings and
fulfillment of the obligations in the Deferred Prosecution
Agreement and consent orders with governmental authorities and
other settlement agreements;
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additional asset impairment charges or writedowns;
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economic changes nationally or in local markets, including
changes in consumer confidence, declines in employment levels,
volatility of mortgage interest rates and inflation;
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continued or increased downturn in the homebuilding industry;
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estimates related to homes to be delivered in the future
(backlog) are imprecise as they are subject to various
cancellation risks which cannot be fully controlled;
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continued or increased disruption in the availability of
mortgage financing or number of foreclosures in the market;
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our cost of and ability to access capital and otherwise meet our
ongoing liquidity needs including the impact of any downgrades
of our credit ratings or reductions in our tangible net worth or
liquidity levels;
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potential inability to comply with covenants in our debt
agreements or satisfy such obligations through repayment or
refinancing;
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increased competition or delays in reacting to changing consumer
preference in home design;
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shortages of or increased prices for labor, land or raw
materials used in housing production;
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factors affecting margins such as decreased land values
underlying land option agreements, increased land development
costs on communities under development or delays or difficulties
in implementing initiatives to reduce production and overhead
cost structure;
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the performance of our joint ventures and our joint venture
partners;
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the impact of construction defect and home warranty claims
including those related to possible installation of drywall
imported from China;
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the cost and availability of insurance and surety bonds;
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delays in land development or home construction resulting from
adverse weather conditions;
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potential delays or increased costs in obtaining necessary
permits as a result of changes to, or complying with, laws,
regulations, or governmental policies and possible penalties for
failure to comply with such laws, regulations and governmental
policies;
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effects of changes in accounting policies, standards, guidelines
or principles; or
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terrorist acts, acts of war and other factors over which the
Company has little or no control.
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Any forward-looking statement speaks only as of the date on
which such statement is made, and, except as required by law, we
undertake no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not
possible for management to predict all such factors.
4
PART I
We are a geographically diversified homebuilder with active
operations in 15 states. Our homes are designed to appeal
to homeowners at various 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 time.
Our principal executive offices are located at 1000 Abernathy
Road, Suite 1200, Atlanta, Georgia 30328, telephone
(770) 829-3700.
We also provide information about our active communities through
our Internet website located at
http://www.beazer.com.
Information on our website is not a part of and shall not be
deemed incorporated by reference in this report.
Industry
Overview and Current Market Conditions
The sale of new homes has been and will likely remain a large
industry in the United States for four primary reasons:
historical growth in both population and households, demographic
patterns that indicate an increased likelihood of home ownership
as age and income increase, job creation within geographic
markets that necessitate new home construction and consumer
demand for home features that can be more easily provided in a
new home than an existing home.
In any year, the demand for new homes is closely tied to job
growth, the availability and cost of mortgage financing, the
supply of new and existing homes for sale and, importantly,
consumer confidence. Consumer confidence is perhaps the most
important of these demand variables and is the hardest one to
predict accurately because it is a function of, among other
things, consumers views of their employment and income
prospects, recent and likely future home price trends, localized
new and existing home inventory, the level of current and
near-term interest and mortgage rates, the availability of
consumer credit, valuations in stock and bond markets, and other
geopolitical factors. Moreover, because the purchase of a home
represents many buyers largest single financial
commitment, it is often also associated with significant
emotional considerations.
The supply of new homes within specific geographic markets
consists of both new homes built pursuant to pre-sale
arrangements and speculative homes (frequently referred to as
spec homes) built by home builders prior to their
sale. The ratio of pre-sold to spec homes differs both by
geographic market and over time within individual markets based
on a wide variety of factors, including the availability of land
and lots, access to construction financing, the availability and
cost of construction labor and materials, the inventory of
existing homes for sale and job growth characteristics. Consumer
preferences also play a role. In rapidly growing markets
characterized by relatively few available new homes, presale
homes are very common. In markets characterized by a significant
supply of newly built and existing homes, spec homes tend to
represent a larger portion of new home sales as builders attempt
to reduce their inventories of completed homes.
In general, high levels of employment, low mortgage interest
rates and low new home and resale inventories contribute to a
strong and growing homebuilding market environment. Conversely,
rising or continued high levels of unemployment, higher interest
rates and larger new and existing home inventories generally
lead to weak industry conditions.
While we believe that long-term fundamentals for new home
construction remain intact, the homebuilding environment has
suffered extensively during the recession of the past several
years. Beginning in mid-fiscal 2006 and continuing into fiscal
2010, the homebuilding environment deteriorated against a
backdrop of macroeconomic recession, declining consumer
confidence and significant tightening in the availability of
home mortgage credit. Throughout this period, most housing
markets across the United States suffered from an oversupply of
new and resale home inventory, reduced levels of consumer demand
for new homes, high cancellation rates, aggressive home sale
price and buyer incentive competition among homebuilders, and a
growing supply of foreclosed homes typically offered at
substantially reduced prices. In addition, due initially to
market disruptions resulting from the deterioration in the
credit quality of loans originated to non-prime and subprime
borrowers and also due to steadily increasing unemployment, the
credit markets and the mortgage industry experienced a period of
disruption
5
characterized by bankruptcy, financial institution failure,
consolidation and an unprecedented level of intervention by the
United States federal government. This mortgage crisis led to
reduced availability for mortgage products and reduced investor
demand for mortgage loans and mortgage-backed securities. These
developments severely impacted consumer confidence and demand
for our homes. Although we have recently begun to see signs that
certain of these negative market trends may be moderating at
both local and national levels, key macroeconomic indicators
remain soft or mixed. The supply of new and resale homes in the
marketplace has decreased recently, but it is still excessive
for the current level of consumer demand and is challenged by an
increased number of foreclosed homes offered at substantially
reduced prices. These pressures in the marketplace have resulted
in the use of increased sales incentives and price reductions in
an effort to generate sales and reduce inventory levels by us
and many of our competitors.
In an effort to provide relief to homebuyers and stabilize the
housing industry, the federal government enacted several laws:
(1) The Housing and Economic Recovery Act of 2008 (HERA) in
July 2008, (2) The Emergency Economic Stabilization Act of
2008 (EESA) in October 2008 and (3) The First Time
Homebuyer Tax Credit (FTHBTC) in February 2009.
Among other things, HERA provided for a temporary first-time
home buyer tax credit for purchases made through July 1,
2009; reforms of Fannie Mae and Freddie Mac, including
adjustments to the conforming loan limits; modernization and
expansion of the FHA, including an increase to 3.5% in the
minimum down payment required for FHA loans; and the elimination
of seller-funded down payment assistance programs for FHA loans
approved after September 30, 2008. Certain provisions of
HERA, such as the elimination of the down payment assistance
programs and the increase in minimum down payments, have
adversely impacted the ability of potential homebuyers to afford
to purchase a new home or obtain financing. The down payment
assistance programs were utilized for a number of our home
closings prior to fiscal 2009.
EESA authorized up to $700 billion in new spending
authority for the United States Secretary of the Treasury (the
Secretary) to purchase, manage and ultimately dispose of
troubled assets. The provisions of this law include an expansion
of the Hope for Homeowners Program. This program allows the
Secretary to use loan guarantees and credit enhancements so that
mortgage loans can be modified to prevent foreclosures. Also,
the Secretary can consent to term extensions, rate-reductions
and principal write-downs. Federal agencies that own mortgage
loans are directed to seek modifications prior to foreclosures.
FTHBTC enables homebuyers who have not owned a home in the past
three years, subject to certain income limits, to receive a tax
credit of 10% of the purchase price of a home up to a maximum of
$8,000. In November 2009, this tax credit was extended by
Congress to June 2010 and the new law increased the annual
income limits for qualification. In addition, the new law also
added a $6,500 tax credit for qualified existing homeowners who
elect to purchase a new home. Certain states also enacted laws
which enabled certain homebuyers to receive additional state tax
credits. Availability of these tax credits appears to have
incentivized certain homebuyers to purchase homes during the
second half of fiscal 2009 and through June 30, 2010
although it is not possible to quantify the precise impact.
In spite of these government actions, we, like many other
homebuilders, have experienced a material reduction in revenues
and margins and have incurred significant net losses in fiscal
2008 through 2010. These net losses were driven primarily by
asset impairment and lot option abandonment charges incurred in
fiscal 2008, 2009 and 2010. Please see
Managements Discussion and Analysis of Results of
Operations and Financial Condition for additional
information.
We have responded to this challenging environment with a
disciplined approach to the business with continued reductions
in direct construction costs, overhead expenses and land
spending. We have entered into an exclusive preferred lender
relationship with a national mortgage provider. This exclusive
relationship offers our homebuyers the option of a simplified
financing process while enabling us to focus on our core
competency of homebuilding. We limited our supply of unsold
homes under construction and focused on the generation of cash
from our existing inventory supply and preservation of cash on
hand as we attempted to align our land supply and inventory
levels to current expectations for home closings.
6
During fiscal 2010, we continued to focus on cash generation
from the sale of existing inventory supply as we introduced
additional sales incentives and reduced sales prices in certain
situations in order to move this inventory. We also reevaluated
pricing and incentives offered in select communities in response
to local market conditions to generate sales on to-be-built
inventory. Certain of these changes resulted in adjustments to
our inventory valuations.
We continually review each of our markets in order to refine our
overall investment strategy and to optimize capital and resource
allocations in an effort to enhance our financial position and
to increase shareholder value. This review entails an evaluation
of both external market factors and our position in each market
and over time has resulted in the decision to expand our market
presence in certain of our markets and to discontinue
homebuilding operations in other markets. As of
September 30, 2010, we have substantially concluded our
homebuilding operations in Jacksonville, Florida and
Albuquerque, New Mexico, but we remain committed to our
remaining customer care responsibilities (primarily
warranty-related) and will continue to market a limited number
of our remaining land positions for sale. While the underlying
basis for exiting each market was different, in each instance we
concluded we could better serve shareholder interests by
re-allocating the capital employed in these markets. The results
of operations of all of the homebuilding markets we have exited
over the past few years are reported as discontinued operations
in our Consolidated Statements of Operations.
Long-Term
Business Strategy
We have developed a long-term business strategy which focuses on
the following elements in order to provide a wide range of
homebuyers with quality homes while maximizing returns on our
invested capital over the course of a housing cycle:
Geographic Diversification in Growth
Markets. We compete in a large number of
geographically diverse markets in an attempt to reduce our
exposure to any particular regional economy. Within these
markets, we build homes in a variety of new home communities. We
continually review our selection of markets based on both
aggregate demographic information and our own operating results.
We use the results of these reviews to re-allocate our
investments to those markets where we believe we can maximize
our profitability and return on capital over the next several
years.
Differentiated Product. Our product strategy
is to design and build high performance homes that are more
enjoyable, more desirable and more affordable. Our eSMART homes
are engineered for energy-efficiency, cost savings and comfort.
Our eSMART initiative represents a comprehensive program focused
on environmental stewardship which seeks to make energy saving,
water conservation and improved air quality components standard
in all of our homes. These energy efficient homes minimize the
impact on the environment while reducing our homebuyers
annual operating costs. During fiscal 2010, we introduced two
additional eSMART options to accelerate the performance of our
homes and further increase operating savings to our homebuyers -
eSMART Plus and eSMART Green (a certified and tested green
home). Through our
SMARTDESIGNtm
concept, we have adapted our floor plans to make them more
livable by arranging spaces to progress logically from public to
private areas. We also offer upgrade packages that give our
homebuyers the option to personalize their home with built-in
closet systems, laundry centers, multi-purpose kitchen islands
and more.
Diversity of Product Offerings. Our product
strategy further entails addressing the needs of an increasingly
diverse profile of home buyers. Within each of our markets we
determine the profile of buyers we hope to address and design
neighborhoods and homes with the specific needs of those buyers
in mind. Depending on the market, we attempt to address one or
more of the following types of home buyers: entry-level,
move-up or
retirement-oriented. Within these buyer groups, we have
developed detailed targeted buyer profiles based on demographic
and psychographic data including information about their marital
and family status, employment, age, affluence, special
interests, media consumption and distance moved. Recognizing
that our customers want to choose certain components of their
new home, we offer limited customization through the use of
design studios in most of our markets. These design studios
allow the customer to select certain non-structural options for
their homes such as cabinetry, flooring, fixtures, appliances
and wall coverings.
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Consistent Use of National Brand. Our
homebuilding and marketing activities are conducted under the
name of Beazer Homes in each of our markets. We utilize a single
brand name across our markets in order to better leverage our
national and local marketing activities. Using a single brand
has allowed us to execute successful national marketing
campaigns and online marketing practices.
Operational Scale Efficiencies. Beyond
marketing advantages, we attempt to create both national and
local scale efficiencies as a result of the scope of our
operations. On a national basis we are able to achieve volume
purchasing advantages in certain product categories, share best
practices in construction, marketing, planning and design among
our markets, respond to telephonic and electronic customer
inquiries and leverage our fixed costs in ways that improve
profitability. On a local level, while we are not generally the
largest builder within our markets, we do attempt to be a major
participant within our selected submarkets and targeted buyer
profiles. There are further design, construction and cost
advantages associated with having strong market positions within
particular markets.
Balanced Land Policies. We seek to maximize
our return on capital by carefully managing our investment in
land. To reduce the risks associated with investments in land,
we often use options to control land. We generally do not
speculate in land which does not have the benefit of
entitlements providing basic development rights to the owner.
Reportable
Business Segments
We design, sell and build single-family and multi-family homes
in the following geographic regions which are presented as
reportable segments. As of September 30, 2010, we have
substantially exited our homebuilding operations in
Jacksonville, Florida and Albuquerque, New Mexico. These markets
are now reported as discontinued operations in our Consolidated
Statements of Operations. As of September 30, 2010, we have
sold or discontinued all of our title services operations which
were historically included in our Financial Services reportable
segment. The historical results of our title services operations
are now reported as discontinued operations in our Consolidated
Statements of Operations.
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Segment/State
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Market(s) / Year
Entered
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West:
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Arizona
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Phoenix (1993)
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California
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Los Angeles County (1993), Orange County (1993), Riverside and
San Bernardino Counties (1993), San Diego County
(1992), Ventura County (1993), Sacramento (1993), Kern County
(2005)
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Nevada
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Las Vegas (1993)
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Texas
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Dallas/Ft. Worth (1995), Houston (1995)
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East:
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Indiana
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Indianapolis (2002)
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Maryland/Delaware
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Baltimore (1998), Metro-Washington, D.C. (1998), Delaware
(2003)
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New Jersey/Pennsylvania
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Central and Southern New Jersey (1998), Bucks County, PA (1998)
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Tennessee
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Nashville (1987)
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Virginia
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Fairfax County (1998), Loudoun County (1998), Prince William
County (1998)
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Southeast:
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Florida
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Tampa/St. Petersburg (1996), Orlando (1997), Sarasota (2005),
Tallahassee (2006), Panama City (2008)
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Georgia
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Atlanta (1985), Savannah (2005)
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North Carolina
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Raleigh/Durham (1992)
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South Carolina
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Charleston (1987), Myrtle Beach (2002)
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Seasonal
and Quarterly Variability
Our homebuilding operating cycle generally reflects higher
levels of new home order activity in the second and third fiscal
quarters and increased closings in the third and fourth fiscal
quarters. However, during periods of an economic downturn in the
industry such as we have experienced in recent years, decreased
revenues and closings as compared to prior periods including
prior quarters, will typically reduce seasonal patterns.
Specifically, the expiration of the $8,000 First-time Homebuyer
Tax Credit on June 30, 2010 incentivized homebuyers to
purchase homes during the first half of fiscal 2010. This
resulted in a change to our typical seasonal variations, as we
experienced increased closings in our third quarter as compared
to our fourth quarter of fiscal 2010.
Markets
and Product Description
We evaluate a number of factors in determining which geographic
markets to enter as well as which consumer segments to target
with our homebuilding activities. We attempt to anticipate
changes in economic and real estate conditions by evaluating
such statistical information as the historical and projected
growth of the population; the number of new jobs created or
projected to be created; the number of housing starts in
previous periods; building lot availability and price; housing
inventory; level of competition; and home sale absorption rates.
We generally seek to differentiate ourselves from our
competition in a particular market with respect to customer
service, product type, and design and construction quality. We
maintain the flexibility to alter our product mix within a given
market, depending on market conditions. In determining our
product mix, we consider demographic trends, demand for a
particular type of product, consumer preferences, margins,
timing and the economic strength of the market. Although some of
our homes are priced at the upper end of the market, and we
offer a selection of amenities and home customization options,
we generally do not build custom homes. We attempt
to maximize efficiency by using standardized design plans
whenever possible. In all of our home offerings,
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we attempt to maximize customer satisfaction by incorporating
quality and energy-efficient materials, distinctive design
features, convenient locations and competitive prices.
Specifically, our eSMART homes represent a comprehensive program
focused on environmental stewardship which seeks to make energy
saving, water conservation and improved air quality components
standard in all of our homes. These energy efficient homes
minimize the impact on the environment while reducing our
homebuyers annual operating costs.
During fiscal year 2010, the average sales price of our homes
closed related to continuing operations was approximately
$221,700. The following table summarizes certain operating
information of our reportable homebuilding segments and our
discontinued homebuilding operations as of and for the years
ended September 30, 2010, 2009 and 2008. Please see
Managements Discussion and Analysis of Results of
Operations and Financial Condition for additional
information.
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2010
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2009
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2008
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Number of
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Average
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Number of
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Average
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Number of
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Average
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Homes
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Closing
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Homes
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Closing
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Homes
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Closing
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Closed
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Price
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Closed
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Price
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Closed
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Price
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($ In 000s)
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West
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1,777
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$
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203.0
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1,883
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$
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216.5
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2,688
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$
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241.9
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East
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1,729
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258.5
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1,432
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260.8
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2,136
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287.6
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Southeast
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1,007
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191.6
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881
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212.5
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1,546
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229.8
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Continuing Operations
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4,513
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$
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221.7
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4,196
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$
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230.8
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6,370
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$
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254.3
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
132
|
|
|
$
|
212.3
|
|
|
|
192
|
|
|
$
|
242.8
|
|
|
|
1,322
|
|
|
$
|
221.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
Units in
|
|
|
Dollar Value
|
|
|
Units in
|
|
|
Dollar Value
|
|
|
Units in
|
|
|
Dollar Value
|
|
|
|
Backlog
|
|
|
in Backlog
|
|
|
Backlog
|
|
|
in Backlog
|
|
|
Backlog
|
|
|
in Backlog
|
|
|
|
($ In 000s)
|
|
|
West
|
|
|
269
|
|
|
$
|
55,167
|
|
|
|
431
|
|
|
$
|
88,883
|
|
|
|
521
|
|
|
$
|
120,275
|
|
East
|
|
|
366
|
|
|
|
102,186
|
|
|
|
532
|
|
|
|
143,887
|
|
|
|
455
|
|
|
|
125,195
|
|
Southeast
|
|
|
145
|
|
|
|
28,800
|
|
|
|
208
|
|
|
|
42,520
|
|
|
|
314
|
|
|
|
69,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
780
|
|
|
$
|
186,153
|
|
|
|
1,171
|
|
|
$
|
275,290
|
|
|
|
1,290
|
|
|
$
|
315,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
16
|
|
|
$
|
2,921
|
|
|
|
22
|
|
|
$
|
5,477
|
|
|
|
68
|
|
|
$
|
16,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
Operations
We perform all or most of the following functions at our
corporate office:
|
|
|
|
|
evaluate and select geographic markets;
|
|
|
|
allocate capital resources to particular markets for land
acquisitions;
|
|
|
|
maintain and develop relationships with lenders and capital
markets to create access to financial resources;
|
|
|
|
plan and design homes and community projects;
|
|
|
|
operate and manage information systems and technology support
operations; and
|
|
|
|
monitor the operations of our subsidiaries and divisions.
|
We allocate capital resources necessary for new investments in a
manner consistent with our overall business strategy. We will
vary the capital allocation based on market conditions, results
of operations and other factors. Capital commitments are
determined through consultation among selected executive and
operational personnel, who play an important role in ensuring
that new investments are consistent with our strategy.
Centralized financial controls are also maintained through the
standardization of accounting and financial policies and
procedures.
10
Field
Operations
The development and construction of each new home community is
managed by our operating divisions, each of which is generally
led by a market leader who, in turn, reports directly to our
Chief Executive Officer. At the development stage, a manager
(who may be assigned to several communities and reports to the
market leader of the division) supervises development of
buildable lots. Together with our operating divisions, our field
teams are equipped with the skills to complete the functions of
identification of land acquisition opportunities, land
entitlement, land development, home construction, marketing,
sales and warranty service. The accounting, accounts payable,
billing and purchasing functions of our field operations are
concentrated in three regional accounting centers.
Land
Acquisition and Development
Generally, the land we acquire is purchased only after necessary
entitlements have been obtained so that we have the right to
begin development or construction as market conditions dictate.
During much of the downturn in the homebuilding industry, we
made very few significant land acquisitions; however, we have
continued to consider attractive opportunities as they arise. We
expect to continue to consider land acquisition opportunities as
the market improves and particularly in markets where our land
bank has been depleted. In a very small number of situations, we
will purchase property without all necessary entitlements where
we perceive an opportunity to build on such property in a manner
consistent with our strategy. The term entitlements
refers to subdivision approvals, development agreements,
tentative maps or recorded plats, depending on the jurisdiction
within which the land is located. Entitlements generally give a
developer the right to obtain building permits upon compliance
with conditions that are usually within the developers
control. Although entitlements are ordinarily obtained prior to
the purchase of land, we are still required to obtain a variety
of other governmental approvals and permits during the
development process.
We select our land for development based upon a variety of
factors, including:
|
|
|
|
|
internal and external demographic and marketing studies;
|
|
|
|
suitability for development during the time period of one to
five years from the beginning of the development process to the
last closing;
|
|
|
|
financial review as to the feasibility of the proposed project,
including profit margins and returns on capital employed;
|
|
|
|
the ability to secure governmental approvals and entitlements;
|
|
|
|
environmental and legal due diligence;
|
|
|
|
competition in the area;
|
|
|
|
proximity to local traffic corridors and amenities; and
|
|
|
|
managements judgment as to the real estate market and
economic trends and our experience in a particular market.
|
We generally purchase land or obtain an option to purchase land,
which, in either case, requires certain site improvements prior
to construction. Where required, we then undertake or, in the
case of land under option, the grantor of the option then
undertakes, the development activities (through contractual
arrangements with local developers), which include site planning
and engineering, as well as constructing road, sewer, water,
utilities, drainage and recreational facilities and other
amenities. When available in certain markets, we also buy
finished lots that are ready for construction.
We strive to develop a design and marketing concept for each of
our communities, which include determination of size, style and
price range of the homes, layout of streets, layout of
individual lots and overall community design. The product line
offered in a particular new home community depends upon many
factors, including the housing generally available in the area,
the needs of a particular market and our cost of lots in the new
home community. We are, however, often able to use standardized
home design plans.
11
Option Contracts. We acquire certain lots by
means of option contracts. Option contracts generally require
the payment of a cash deposit or issuance of a letter of credit
for the right to acquire lots during a specified period of time
at a fixed or variable price.
Under option contracts, purchase of the properties is contingent
upon satisfaction of certain requirements by us and the sellers.
Our liability under option contracts is generally limited to
forfeiture of the non-refundable deposits, letters of credit and
other non-refundable amounts incurred, which aggregated
approximately $38.7 million at September 30, 2010. At
September 30, 2010, future amounts under option contracts
aggregated approximately $221.3 million, net of cash
deposits.
The following table sets forth, by reportable segment, land
controlled by us as of September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lots Owned
|
|
|
Total Lots
|
|
|
|
|
|
|
Homes Under
|
|
|
Finished
|
|
|
Lots for Current
|
|
|
Lots for Future
|
|
|
Land Held
|
|
|
Total Lots
|
|
|
Under
|
|
|
Total Lots
|
|
West
|
|
Construction(1)
|
|
|
Lots
|
|
|
Development
|
|
|
Development
|
|
|
for Sale
|
|
|
Owned
|
|
|
Contract
|
|
|
Controlled
|
|
|
Arizona
|
|
|
129
|
|
|
|
971
|
|
|
|
118
|
|
|
|
650
|
|
|
|
1
|
|
|
|
1,869
|
|
|
|
176
|
|
|
|
2,045
|
|
California
|
|
|
136
|
|
|
|
181
|
|
|
|
478
|
|
|
|
3,792
|
|
|
|
91
|
|
|
|
4,678
|
|
|
|
33
|
|
|
|
4,711
|
|
Nevada
|
|
|
118
|
|
|
|
800
|
|
|
|
659
|
|
|
|
248
|
|
|
|
|
|
|
|
1,825
|
|
|
|
820
|
|
|
|
2,645
|
|
Texas
|
|
|
303
|
|
|
|
910
|
|
|
|
993
|
|
|
|
|
|
|
|
|
|
|
|
2,206
|
|
|
|
1,117
|
|
|
|
3,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total West
|
|
|
686
|
|
|
|
2,862
|
|
|
|
2,248
|
|
|
|
4,690
|
|
|
|
92
|
|
|
|
10,578
|
|
|
|
2,146
|
|
|
|
12,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indiana
|
|
|
193
|
|
|
|
641
|
|
|
|
1,471
|
|
|
|
|
|
|
|
250
|
|
|
|
2,555
|
|
|
|
443
|
|
|
|
2,998
|
|
Maryland
|
|
|
247
|
|
|
|
466
|
|
|
|
863
|
|
|
|
806
|
|
|
|
|
|
|
|
2,382
|
|
|
|
60
|
|
|
|
2,442
|
|
New Jersey
|
|
|
41
|
|
|
|
73
|
|
|
|
457
|
|
|
|
152
|
|
|
|
|
|
|
|
723
|
|
|
|
376
|
|
|
|
1,099
|
|
Tennessee
|
|
|
65
|
|
|
|
297
|
|
|
|
1,030
|
|
|
|
|
|
|
|
|
|
|
|
1,392
|
|
|
|
275
|
|
|
|
1,667
|
|
Virginia
|
|
|
44
|
|
|
|
73
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
321
|
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total East
|
|
|
590
|
|
|
|
1,550
|
|
|
|
3,954
|
|
|
|
958
|
|
|
|
250
|
|
|
|
7,302
|
|
|
|
1,475
|
|
|
|
8,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Georgia
|
|
|
8
|
|
|
|
127
|
|
|
|
105
|
|
|
|
88
|
|
|
|
|
|
|
|
328
|
|
|
|
84
|
|
|
|
412
|
|
Florida
|
|
|
164
|
|
|
|
536
|
|
|
|
1,076
|
|
|
|
308
|
|
|
|
30
|
|
|
|
2,114
|
|
|
|
1,036
|
|
|
|
3,150
|
|
North Carolina
|
|
|
47
|
|
|
|
194
|
|
|
|
151
|
|
|
|
21
|
|
|
|
|
|
|
|
413
|
|
|
|
62
|
|
|
|
475
|
|
South Carolina
|
|
|
104
|
|
|
|
812
|
|
|
|
685
|
|
|
|
80
|
|
|
|
|
|
|
|
1,681
|
|
|
|
1,017
|
|
|
|
2,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Southeast
|
|
|
323
|
|
|
|
1,669
|
|
|
|
2,017
|
|
|
|
497
|
|
|
|
30
|
|
|
|
4,536
|
|
|
|
2,199
|
|
|
|
6,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
726
|
|
|
|
760
|
|
|
|
|
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,633
|
|
|
|
6,081
|
|
|
|
8,219
|
|
|
|
6,145
|
|
|
|
1,098
|
|
|
|
23,176
|
|
|
|
5,820
|
|
|
|
28,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The category Homes Under Construction represents
lots upon which construction of a home has commenced. |
The following table sets forth, by reportable segment, land held
for development, land held for future development and land held
for sale as of September 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Held for
|
|
|
|
|
|
|
Land Held for
|
|
|
Future
|
|
|
Land Held
|
|
|
|
Development
|
|
|
Development
|
|
|
for Sale
|
|
|
West
|
|
$
|
173,404
|
|
|
$
|
311,472
|
|
|
$
|
5,273
|
|
East
|
|
|
172,519
|
|
|
|
47,381
|
|
|
|
1,376
|
|
Southeast
|
|
|
98,139
|
|
|
|
24,036
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
29,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
444,062
|
|
|
$
|
382,889
|
|
|
$
|
36,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Ventures. We participate in land
development joint ventures in which Beazer Homes has less than a
controlling interest. We enter into joint ventures in order to
acquire attractive land positions, to manage our risk profile
and to leverage our capital base. Our joint ventures are
typically entered into with developers, other
12
homebuilders and financial partners to develop finished lots for
sale to the joint ventures members and other third
parties. Over the past few years for economic and strategic
reasons, we have concluded our investment in a number of joint
ventures.
Our joint ventures typically obtain secured acquisition,
development and construction financing. At September 30,
2010, our unconsolidated joint ventures had borrowings
outstanding totaling $394.3 million of which
$327.9 million related to one joint venture in which we are
a 2.58% partner. Under the terms of the agreement, our repayment
guarantee related to the outstanding debt of this joint venture
is approximately $15.1 million. In some instances, Beazer
Homes and our joint venture partners have provided varying
levels of guarantees of debt of our unconsolidated joint
ventures. At September 30, 2010, these guarantees included,
for certain joint ventures, construction completion guarantees,
loan to value maintenance agreements, repayment guarantees and
environmental indemnities (see Note 3 to the Consolidated
Financial Statements for additional information).
Construction
We typically act as the general contractor for the construction
of our new home communities. Our project development operations
are controlled by our operating divisions, whose employees
supervise the construction of each new home community,
coordinate the activities of subcontractors and suppliers,
subject their work to quality and cost controls and assure
compliance with zoning and building codes. We specify that
quality, durable materials be used in the construction of our
homes. Our subcontractors follow design plans prepared by
architects and engineers who are retained or directly employed
by us and whose designs are geared to the local market. A
majority of our home plans are prepared in our corporate office,
allowing us to ensure the quality of the plans we build as well
as to enable us to reduce direct costs through our value
engineering efforts.
Subcontractors typically are retained on a
project-by-project
basis to complete construction at a fixed price. Agreements with
our subcontractors and materials suppliers are generally entered
into after competitive bidding. In connection with this
competitive bid process, we obtain information from prospective
subcontractors and vendors with respect to their financial
condition and ability to perform their agreements with us. We do
not maintain significant inventories of construction materials,
except for materials being utilized for homes under
construction. We have numerous suppliers of raw materials and
services used in our business, and such materials and services
have been, and continue to be, available. Material prices may
fluctuate, however, due to various factors, including demand or
supply shortages, which may be beyond the control of our
vendors. Whenever possible, we enter into regional and national
supply contracts with certain of our vendors. We believe that
our relationships with our suppliers and subcontractors are good.
Construction time for our homes depends on the availability of
labor, materials and supplies, product type and location. Homes
are designed to promote efficient use of space and materials,
and to minimize construction costs and time. In all of our
markets, construction of a home is typically completed within
three to six months following commencement of construction. At
September 30, 2010, excluding models, we had 1,393 homes at
various stages of completion of which 588 were under contract
and included in backlog at such date and 805 homes (423 were
completed and 382 under construction) were not under a sales
contract, either because the construction of the home was begun
without a sales contract or because the original sales contract
had been cancelled.
Warranty
Program
For certain homes sold through March 31, 2004 (and in
certain markets through July 31, 2004), we self-insured our
warranty obligations through our wholly owned risk retention
group. We continue to maintain reserves to cover potential
claims on homes covered under this warranty program. Beginning
with homes sold on or after April 1, 2004 (August 1,
2004 in certain markets), our warranties are issued,
administered and insured, subject to applicable self-insured
retentions, by independent third parties. We currently provide a
limited warranty (ranging from one to two years) covering
workmanship and materials per our defined performance quality
standards. In addition, we provide a limited warranty (generally
ranging from a minimum of five years up to the period covered by
the applicable statute of repose) covering only certain defined
construction defects. We also provide a defined structural
warranty with single-family homes and townhomes in certain
states.
13
Since we subcontract our homebuilding work to subcontractors
whose contracts generally include an indemnity obligation and a
requirement that certain minimum insurance requirements be met,
including providing us with a certificate of insurance prior to
receiving payments for their work, many claims relating to
workmanship and materials are the primary responsibility of our
subcontractors.
In addition, we maintain third-party insurance, subject to
applicable self-insured retentions, for most construction
defects that we encounter in the normal course of business. We
believe that our warranty and litigation accruals and
third-party insurance are adequate to cover the ultimate
resolution of our potential liabilities associated with known
and anticipated warranty and construction defect related claims
and litigation. Please see Managements Discussion
and Analysis of Results of Operations and Financial
Condition and Note 13, Contingencies
to the Consolidated Financial Statements for additional
information.
There can be no assurance, however, that the terms and
limitations of the limited warranty will be effective against
claims made by the homebuyers, that we will be able to renew our
insurance coverage or renew it at reasonable rates, that we will
not be liable for damages, the cost of repairs,
and/or the
expense of litigation surrounding possible construction defects,
soil subsidence or building related claims or that claims will
not arise out of events or circumstances not covered by
insurance
and/or not
subject to effective indemnification agreements with our
subcontractors.
Marketing
and Sales
We make extensive use of online and traditional advertising
vehicles and other promotional activities, including our
Internet website
(http://www.beazer.com),
real estate listing sites, search engine marketing, mass-media
advertisements, brochures, direct marketing, directional
billboards and the placement of strategically located signboards
in the immediate areas of our developments.
We normally build, decorate, furnish and landscape model homes
for each community and maintain
on-site
sales offices. At September 30, 2010, we maintained 248
model homes, of which 240 were owned and 8 were leased from
third parties pursuant to sale and leaseback agreements. We
believe that model homes play a particularly important role in
our marketing efforts.
We generally sell our homes through commissioned new home sales
counselors (who typically work from the sales offices located in
the model homes used in the subdivision) as well as through
independent brokers. Our personnel are available to assist
prospective homebuyers by providing them with floor plans, price
information, tours of model homes, and a detailed explanation of
eSMART and the associated savings opportunities. The selection
of interior features is a principal component of our marketing
and sales efforts. Sales personnel are trained by us and
participate in a structured training program to be updated on
sales techniques, product enhancements, competitive products in
the area, the availability of financing, construction schedules,
marketing and advertising plans and Company policies including
compliance, which management believes results in a sales force
with extensive knowledge of our operating policies and housing
products. Our policy also provides that sales personnel be
licensed real estate agents where required by law. Depending on
market conditions, we also at times begin construction on a
number of homes for which no signed sales contract exists. The
use of an inventory of such homes satisfies the requirements of
relocated personnel, first time buyers and of independent
brokers, who often represent customers who require a completed
home within 60 days. We sometimes use various sales
incentives in order to attract homebuyers. The use of incentives
depends largely on local economic and competitive market
conditions.
During fiscal 2009, we established a national new home contact
center within our existing leased premises in Phoenix, Arizona.
This contact center responds to telephonic and electronic
(email) inquiries from prospective home buyers by providing any
required information and then scheduling an appointment with a
new home sales counselor in one of our new home communities.
Customer
Financing
Through January 31, 2008, Beazer Mortgage Corporation
(Beazer Mortgage) financed certain of our mortgage lending
activities with borrowings under its warehouse line of credit or
from general corporate funds prior to selling the loans and
their servicing rights shortly after origination to third-party
investors. Beazer Mortgage provided
14
qualified homebuyers numerous financing options, including
conventional, FHA and Veterans Administration (VA)
financing programs. Effective February 1, 2008, we exited
the mortgage origination business and entered into an exclusive
preferred lender arrangement with a national, third-party
mortgage provider. The operating results of Beazer Mortgage are
included in loss from discontinued operations, net of tax in the
Consolidated Statements of Operations for all periods presented.
See Item 3 Legal Proceedings for discussion of
the investigations and litigation related to our mortgage
origination business.
Up until September 30, 2010, we offered title insurance
services to our homebuyers in several of our markets. Effective
September 30, 2010, we have sold or discontinued all of our
title services operations. The operating results of our title
services operations which were previously reported in our
Financial Services Segment are included in loss from
discontinued operations, net of tax in the Consolidated
Statements of Operations for all periods presented.
Competition
The development and sale of residential properties is highly
competitive and fragmented, particularly in the current weak
housing environment. We compete for residential sales on the
basis of a number of interrelated factors, including location,
reputation, amenities, design, quality and price, with numerous
large and small homebuilders, including some homebuilders with
nationwide operations and greater financial resources
and/or lower
costs than us. We also compete for residential sales with
individual resales of existing homes (including a growing number
of foreclosed homes offered at substantially reduced prices),
available rental housing and, to a lesser extent, resales of
condominiums. In recent months, short sales (a transaction in
which the sellers mortgage lender agrees to accept a
payoff of less than the balance due on the loan) and
foreclosures have become a sizable portion of the existing home
market.
We utilize our experience within our geographic markets and
breadth of product line to vary our regional product offerings
to reflect changing market conditions. We strive to respond to
market conditions and to capitalize on the opportunities for
advantageous land acquisitions in desirable locations. To
further strengthen our competitive position, we rely on quality
design, construction and service to provide customers with a
higher measure of home.
Government
Regulation and Environmental Matters
Generally, our land is purchased with entitlements, giving us
the right to obtain building permits upon compliance with
specified conditions, which generally are within our control.
The length of time necessary to obtain such permits and
approvals affects the carrying costs of unimproved property
acquired for the purpose of development and construction. In
addition, the continued effectiveness of permits already granted
is subject to factors such as changes in policies, rules and
regulations and their interpretation and application. Many
governmental authorities have imposed impact fees as a means of
defraying the cost of providing certain governmental services to
developing areas. To date, the governmental approval processes
discussed above have not had a material adverse effect on our
development activities, and indeed all homebuilders in a given
market face the same fees and restrictions. There can be no
assurance, however, that these and other restrictions will not
adversely affect us in the future.
We may also be subject to periodic delays or may be precluded
entirely from developing communities due to building
moratoriums, slow-growth or no-growth
initiatives or building permit allocation ordinances which could
be implemented in the future in the states and markets in which
we operate. Substantially all of our land is entitled and,
therefore, the moratoriums generally would only adversely affect
us if they arose from health, safety and welfare issues such as
insufficient water or sewage facilities. Local and state
governments also have broad discretion regarding the imposition
of development fees for communities in their jurisdictions.
These fees are normally established, however, when we receive
recorded final maps and building permits. We are also subject to
a variety of local, state and federal statutes, ordinances,
rules and regulations concerning the protection of health and
the environment. These laws may result in delays, cause us to
incur substantial compliance and other costs, and prohibit or
severely restrict development in certain environmentally
sensitive regions or areas.
In order to provide homes to homebuyers qualifying for
FHA-insured or VA-guaranteed mortgages, we must construct homes
in compliance with FHA and VA regulations. Our title
subsidiaries are subject to various licensing requirements and
real estate laws and regulations in the states in which they do
business. These laws and regulations
15
include provisions regarding operating procedures, investments,
lending and privacy disclosures, forms of policies and premiums.
In some states, we are required to be registered as a licensed
contractor and comply with applicable rules and regulations.
Also, in various states, our new home counselors are required to
be licensed real estate agents and to comply with the laws and
regulations applicable to real estate agents.
Failure to comply with any of these laws or regulations could
result in loss of licensing and a restriction of our business
activities in the applicable jurisdiction.
Bonds and
Other Obligations
In connection with the development of our communities, we are
frequently required to provide letters of credit and
performance, maintenance and other bonds in support of our
related obligations with respect to such developments. The
amount of such obligations outstanding at any time varies in
accordance with our pending development activities. In the event
any such bonds or letters of credit are drawn upon, we would be
obligated to reimburse the issuer of such bonds or letters of
credit. At September 30, 2010 we had approximately
$37.9 million and $184.7 million of outstanding
letters of credit and performance bonds, respectively, primarily
related to our obligations to local governments to construct
roads and other improvements in various developments. This
includes outstanding letters of credit of approximately
$3.7 million related to our land option contracts.
Employees
and Subcontractors
At September 30, 2010, we employed 883 persons, of
whom 275 were sales and marketing personnel and 186 were
involved in construction. Although none of our employees are
covered by collective bargaining agreements, certain of the
subcontractors engaged by us are represented by labor unions or
are subject to collective bargaining arrangements. We believe
that our relations with our employees and subcontractors are
good.
Available
Information
Our Internet website address is www.beazer.com. Our annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
section 13(a) or 15(d) of the Exchange Act are available
free of charge through our website as soon as reasonably
practicable after we electronically file with or furnish them to
the Securities and Exchange Commission (SEC) and are available
in print to any stockholder who requests a printed copy. The
public may also read and copy any materials that we file with
the SEC at the SECs Public Reference Room at
100 F Street N.E., Washington, D.C. 20549. You
may obtain information on the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330.
Additionally, the SEC maintains a website that contains reports,
proxy statements, information statements and other information
regarding issuers, including us, that file electronically with
the SEC at www.sec.gov.
In addition, many of our corporate governance documents are
available on our website at www.beazer.com. Specifically, our
Audit, Finance, Compensation and Nominating/Corporate Governance
Committee Charters, our Corporate Governance Guidelines and Code
of Business Conduct and Ethics are available. Each of these
documents is available in print to any stockholder who
requests it.
The content on our website is available for information purposes
only and is not a part of and shall not be deemed incorporated
by reference in this report.
The homebuilding industry has been experiencing a severe
downturn that may continue for an indefinite period and continue
to adversely affect our business, results of operations and
stockholders equity.
Most housing markets across the United States continue to be
characterized by an oversupply of both new and resale home
inventory, including foreclosed homes, reduced levels of
consumer demand for new homes, increased cancellation rates,
aggressive price competition among homebuilders and increased
incentives for home sales. As a
16
result of these factors, we, like many other homebuilders, have
experienced a material reduction in revenues and margins. These
challenging market conditions are expected to continue for the
foreseeable future and, in the near term, these conditions may
further deteriorate. We expect that continued weakness in the
homebuilding market would adversely affect our business, results
of operations and stockholders equity as compared to prior
periods and could result in additional inventory impairments in
the future.
During the past few years, we have experienced elevated levels
of cancellations by potential homebuyers although the level of
cancellations has improved significantly during the last few
quarters. Our backlog reflects the number and value of homes for
which we have entered into a sales contract with a customer but
have not yet delivered the home. Although these sales contracts
typically require a cash deposit and do not make the sale
contingent on the sale of the customers existing home, in
some cases a customer may cancel the contract and receive a
complete or partial refund of the deposit as a result of local
laws or as a matter of our business practices. If the current
industry downturn continues, economic conditions continue to
deteriorate or if mortgage financing becomes less accessible,
more homebuyers may have an incentive to cancel their contracts
with us, even where they might be entitled to no refund or only
a partial refund, rather than complete the purchase. Significant
cancellations have had, and could have, a material adverse
effect on our business as a result of lost sales revenue and the
accumulation of unsold housing inventory. In particular, our
cancellation rates for the fiscal quarter and fiscal year ended
September 30, 2010 were 33.0% and 25.5%, respectively. It
is important to note that both backlog and cancellation metrics
are operational, rather than accounting data, and should be used
only as a general gauge to evaluate performance. There is an
inherent imprecision in these metrics based on an evaluation of
qualitative factors during the transaction cycle.
Based on our impairment tests and consideration of the current
and expected future market conditions, we recorded inventory
impairment charges of $51.0 million and lot option
abandonment charges of $0.9 million during fiscal 2010.
During fiscal 2010, we also wrote down our investment in certain
of our joint ventures reflecting $24.3 million of
impairments of inventory held within those ventures. Future
economic or financial developments, including general interest
rate increases, poor performance in either the national economy
or individual local economies, or our ability to meet our
projections could lead to future impairments.
Our
home sales and operating revenues could decline due to
macro-economic and other factors outside of our control, such as
changes in consumer confidence, declines in employment levels
and increases in the quantity and decreases in the price of new
homes and resale homes in the market.
Changes in national and regional economic conditions, as well as
local economic conditions where we conduct our operations and
where prospective purchasers of our homes live, may result in
more caution on the part of homebuyers and, consequently, fewer
home purchases. These economic uncertainties involve, among
other things, conditions of supply and demand in local markets
and changes in consumer confidence and income, employment
levels, and government regulations. These risks and
uncertainties could periodically have an adverse effect on
consumer demand for and the pricing of our homes, which could
cause our operating revenues to decline. Additional reductions
in our revenues could, in turn, further negatively affect the
market price of our securities.
We are
the subject of pending civil litigation which could require us
to pay substantial damages or could otherwise have a material
adverse effect on us. The failure to fulfill our obligations
under the Deferred Prosecution Agreement (the DPA) with the
United States Attorney (or related agreements) and the consent
order with the SEC could have a material adverse effect on our
operations.
On July 1, 2009, we entered into the DPA with the United
States Attorney for the Western District of North Carolina and a
separate but related agreement with the United States Department
of Housing and Urban Development (HUD) and the Civil Division of
the United States Department of Justice (the HUD Agreement). As
of September 30, 2010, we have paid $5 million to HUD
pursuant to the HUD Agreement. Under the DPA, we are obligated
to make payments to a restitution fund in an amount not to
exceed $50 million. As of September 30, 2010, we have
been credited with making $10 million of such payments. In
connection with fiscal 2010, we will pay an additional
$1.0 million to such fund. Future payments to the
restitution fund will be equal to 4% of adjusted
EBITDA as defined in the DPA for the first to occur of
(x) a period of 60 months and (y) the total of
all payments to the restitution fund equaling $50 million.
In the event such payments do not equal at least
$50 million at the end of
17
60 months then, under the HUD Agreement, the obligations to
make restitution payments will continue until the first to occur
of (a) 24 months or (b) the date that
$48 million has been paid into the restitution fund. Our
obligation to make such payments could limit our ability to
invest in our business or make payments of principal or interest
on our outstanding debt. In addition, in the event we fail to
comply with our obligations under the DPA or the HUD Agreement
various federal authorities could bring criminal or civil
charges against us which could be material to our consolidated
financial position, results of operations and liquidity.
We and certain of our current and former employees, officers and
directors have been named as defendants in securities lawsuits
and class action lawsuits. In addition, certain of our
subsidiaries have been named in class action and multi-party
lawsuits regarding claims made by homebuyers. While a number of
these suits have been dismissed
and/or
settled, we cannot be assured that new claims by different
plaintiffs will not be brought in the future. We cannot predict
or determine the timing or final outcome of the current lawsuits
or the effect that any adverse determinations in the lawsuits
may have on us. An unfavorable determination in any of the
lawsuits could result in the payment by us of substantial
monetary damages which may not be covered by insurance. Further,
the legal costs associated with the lawsuits and the amount of
time required to be spent by management and the Board of
Directors on these matters, even if we are ultimately
successful, could have a material adverse effect on our
business, financial condition and results of operations. In
addition to expenses incurred to defend the Company in these
matters, under Delaware law and our bylaws, we may have an
obligation to indemnify our current and former officers and
directors in relation to these matters. We have obligations to
advance legal fees and expenses to certain directors and
officers, and we have advanced, and may continue to advance,
legal fees and expenses to certain other current and former
employees.
In connection with the settlement agreement with the SEC entered
into on September 24, 2008, we consented, without admitting
or denying any wrongdoing, to a cease and desist order requiring
future compliance with certain provisions of the federal
securities laws and regulations. If we are found to be in
violation of the order in the future, we may be subject to
penalties and other adverse consequences as a result of the
prior actions which could be material to our consolidated
financial position, results of operations and liquidity.
Our insurance carriers may seek to rescind or deny coverage with
respect to certain of the pending lawsuits, or we may not have
sufficient coverage under such policies. If the insurance
companies are successful in rescinding or denying coverage or if
we do not have sufficient coverage under our policies, our
business, financial condition and results of operations could be
materially adversely affected.
We are dependent on the services of certain key employees,
and the loss of their services could hurt our business.
Our future success depends upon our ability to attract, train,
assimilate and retain skilled personnel. If we are unable to
retain our key employees or attract, train, assimilate or retain
other skilled personnel in the future, it could hinder our
business strategy and impose additional costs of identifying and
training new individuals. Competition for qualified personnel in
all of our operating markets is intense.
Potential
future downgrades of our credit ratings could adversely affect
our access to capital and could otherwise have a material
adverse effect on us.
Over the past few years, the rating agencies had downgraded the
Companys corporate credit rating and ratings on the
Companys senior unsecured notes due to the deterioration
in our homebuilding operations, credit metrics, other
earnings-based metrics and the significant decrease in our
tangible net worth. Although the rating agencies have increased
these ratings recently, these ratings and our current credit
condition affect, among other things, our ability to access new
capital, especially debt, and negative changes in these ratings
may result in more stringent covenants and higher interest rates
under the terms of any new debt. Our credit ratings could be
further lowered or rating agencies could issue adverse
commentaries in the future, which could have a material adverse
effect on our business, results of operations, financial
condition and liquidity. In particular, a weakening of our
financial condition, including a significant increase in our
leverage or decrease in our profitability or cash flows, could
adversely affect our ability to obtain necessary funds, result
in a credit rating downgrade or change in outlook, or otherwise
increase our cost of borrowing.
18
Our
Senior Notes, revolving credit and letter of credit facilities,
and certain other debt impose significant restrictions and
obligations on us. Restrictions on our ability to borrow could
adversely affect our liquidity. In addition, our substantial
indebtedness could adversely affect our financial condition,
limit our growth and make it more difficult for us to satisfy
our debt obligations.
Certain of our secured and unsecured indebtedness and revolving
credit and letter of credit facilities impose certain
restrictions and obligations on us. Under certain of these
instruments, we must comply with defined covenants which limit
the Companys ability to, among other things, incur
additional indebtedness, engage in certain asset sales, make
certain types of restricted payments, engage in transactions
with affiliates and create liens on assets of the Company.
Failure to comply with certain of these covenants could result
in an event of default under the applicable instrument. Any such
event of default could negatively impact other covenants or lead
to cross defaults under certain of our other debt. There can be
no assurance that we will be able to obtain any waivers or
amendments that may become necessary in the event of a future
default situation without significant additional cost or at all.
As of September 30, 2010, we had total outstanding
indebtedness of approximately $1.2 billion, net of
unamortized discount of approximately $23.6 million. Our
substantial indebtedness could have important consequences to us
and the holders of our securities, including, among other things:
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causing us to be unable to satisfy our obligations under our
debt agreements;
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making us more vulnerable to adverse general economic and
industry conditions;
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making it difficult to fund future working capital, land
purchases, acquisitions, share repurchases, general corporate
purposes or other purposes; and
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causing us to be limited in our flexibility in planning for, or
reacting to, changes in our business.
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In addition, subject to restrictions in our existing debt
instruments, we may incur additional indebtedness. If new debt
is added to our current debt levels, the related risks that we
now face could intensify. Our growth plans and our ability to
make payments of principal or interest on, or to refinance, our
indebtedness, will depend on our future operating performance
and our ability to enter into additional debt
and/or
equity financings. If we are unable to generate sufficient cash
flows in the future to service our debt, we may be required to
refinance all or a portion of our existing debt, to sell assets
or to obtain additional financing. We may not be able to do any
of the foregoing on terms acceptable to us, if at all.
A
substantial increase in mortgage interest rates or
unavailability of mortgage financing may reduce consumer demand
for our homes.
Substantially all purchasers of our homes finance their
acquisition with mortgage financing. The U.S. residential
mortgage market has been impacted by the deterioration in the
credit quality of loans originated to non-prime and subprime
borrowers and an increase in mortgage foreclosure rates. These
difficulties are not expected to improve until residential real
estate inventories return to a more normal level and the
mortgage credit market stabilizes. While the ultimate outcome of
recent events cannot be predicted, they have had and may
continue to have an impact on the availability and cost of
mortgage financing to our customers. The volatility in interest
rates, the decrease in the willingness and ability of lenders to
make home mortgage loans, the tightening of lending standards
and the limitation of financing product options, have made it
more difficult for homebuyers to obtain acceptable financing.
Any substantial increase in mortgage interest rates or
unavailability of mortgage financing would adversely affect the
ability of prospective first-time and
move-up
homebuyers to obtain financing for our homes, as well as
adversely affect the ability of prospective
move-up
homebuyers to sell their current homes. This disruption in the
credit markets and the curtailed availability of mortgage
financing has adversely affected, and is expected to continue to
adversely affect, our business, financial condition, results of
operations and cash flows as compared to prior periods.
19
If we
are unsuccessful in competing against our homebuilding
competitors, our market share could decline or our growth could
be impaired and, as a result, our financial results could
suffer.
Competition in the homebuilding industry is intense, and there
are relatively low barriers to entry into our business.
Increased competition could hurt our business, as it could
prevent us from acquiring attractive parcels of land on which to
build homes or make such acquisitions more expensive, hinder our
market share expansion, and lead to pricing pressures on our
homes that may adversely impact our margins and revenues. If we
are unable to successfully compete, our financial results could
suffer and the value of, or our ability to service, our debt
could be adversely affected. Our competitors may independently
develop land and construct housing units that are superior or
substantially similar to our products. Furthermore, some of our
competitors have substantially greater financial resources and
lower costs of funds than we do. Many of these competitors also
have longstanding relationships with subcontractors and
suppliers in the markets in which we operate. We currently build
in several of the top markets in the nation and, therefore, we
expect to continue to face additional competition from new
entrants into our markets.
Our
financial condition, results of operations and
stockholders equity may be adversely affected by any
decrease in the value of our inventory, as well as by the
associated carrying costs.
We regularly acquire land for replacement and expansion of land
inventory within our existing and new markets. The risks
inherent in purchasing and developing land increase as consumer
demand for housing decreases. The market value of land, building
lots and housing inventories can fluctuate significantly as a
result of changing market conditions and the measures we employ
to manage inventory risk may not be adequate to insulate our
operations from a severe drop in inventory values. When market
conditions are such that land values are not appreciating,
previously entered into option agreements may become less
desirable, at which time we may elect to forego deposits and
preacquisition costs and terminate the agreements. In fiscal
2010, we recorded $0.9 million of lot option abandonment
charges. During fiscal 2010, as a result of the further
deterioration of the housing market, we determined that the
carrying amount of certain of our inventory assets exceeded
their estimated fair value. As a result of our analysis, during
fiscal 2010, we incurred $51.0 million of non-cash pre-tax
charges related to inventory impairments. If these adverse
market conditions continue or worsen, we may have to incur
additional inventory impairment charges which would adversely
affect our financial condition, results of operations and
stockholders equity and our ability to comply with certain
covenants in our debt instruments linked to tangible net worth.
We
conduct certain of our operations through unconsolidated joint
ventures with independent third parties in which we do not have
a controlling interest and we can be adversely impacted by joint
venture partners failure to fulfill their
obligations.
We participate in land development joint ventures (JVs) in which
we have less than a controlling interest. We have entered into
JVs in order to acquire attractive land positions, to manage our
risk profile and to leverage our capital base. Our JVs are
typically entered into with developers, other homebuilders and
financial partners to develop finished lots for sale to the
joint ventures members and other third parties. As a
result of the continued deterioration of the housing market, we
have written down our investment in certain of our JVs
reflecting impairments of inventory held within those JVs. If
these adverse market conditions continue or worsen, we may have
to take further writedowns of our investments in our JVs.
Our joint venture investments are generally very illiquid both
because we lack a controlling interest in the JVs and because
most of our JVs are structured to require super-majority or
unanimous approval of the members to sell a substantial portion
of the JVs assets or for a member to receive a return of
its invested capital. Our lack of a controlling interest also
results in the risk that the JV will take actions that we
disagree with, or fail to take actions that we desire, including
actions regarding the sale of the underlying property.
Our JVs typically obtain secured acquisition, development and
construction financing. Generally, we and our joint venture
partners have provided varying levels of guarantees of debt or
other obligations of our unconsolidated JVs. At
September 30, 2010, these guarantees included, for certain
joint ventures, construction completion guarantees,
loan-to-value
maintenance agreements, repayment guarantees and environmental
indemnities. As of September 30, 2010, one of our
unconsolidated joint ventures is in default under its debt
agreement. If all of the
20
guarantees under these debt agreements were drawn upon or
otherwise invoked, our obligations would total
$15.8 million. We cannot predict whether such events will
occur or whether such obligations will be invoked.
We may
not be able to utilize all of our deferred tax
assets.
As of September 30, 2010, we are in a cumulative loss
position based on the guidance in Statement of Financial
Accounting Standards No. 109, Accounting for Income
Taxes (ASC 740). Due to this cumulative loss position and
the lack of sufficient objective evidence regarding the
realization of our deferred tax assets in the foreseeable
future, we have recorded a valuation allowance for substantially
all of our deferred tax assets. Although we do expect the
industry to recover from the current downturn to normal profit
levels in the future, it may be necessary for us to record
additional valuation allowances in the future related to
operating losses. Additional valuation allowances could
materially increase our income tax expense, and therefore
adversely affect our results of operations and tangible net
worth in the period in which such valuation allowance is
recorded.
We
could experience a reduction in home sales and revenues or
reduced cash flows due to our inability to acquire land for our
housing developments if we are unable to obtain reasonably
priced financing to support our homebuilding
activities.
The homebuilding industry is capital intensive, and homebuilding
requires significant up-front expenditures to acquire land and
to begin development. Accordingly, we incur substantial
indebtedness to finance our homebuilding activities. If
internally generated funds are not sufficient, we would seek
additional capital in the form of equity or debt financing from
a variety of potential sources, including additional bank
financing
and/or
securities offerings. The amount and types of indebtedness which
we may incur are limited by the terms of our existing debt. In
addition, the availability of borrowed funds, especially for
land acquisition and construction financing, may be greatly
reduced nationally, and the lending community may require
increased amounts of equity to be invested in a project by
borrowers in connection with both new loans and the extension of
existing loans. The credit and capital markets have recently
experienced significant volatility. If we are required to seek
additional financing to fund our operations, continued
volatility in these markets may restrict our flexibility to
access such financing. If we are not successful in obtaining
sufficient capital to fund our planned capital and other
expenditures, we may be unable to acquire land for our housing
developments. Additionally, if we cannot obtain additional
financing to fund the purchase of land under our option
contracts, we may incur contractual penalties and fees.
Our
stock price is volatile and could further decline.
The securities markets in general and our common stock in
particular have experienced significant price and volume
volatility over the past few years. The market price and volume
of our common stock may continue to experience significant
fluctuations due not only to general stock market conditions but
also to a change in sentiment in the market regarding our
industry, operations or business prospects. In addition to the
other risk factors discussed in this section, the price and
volume volatility of our common stock may be affected by:
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operating results that vary from the expectations of securities
analysts and investors;
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factors influencing home purchases, such as availability of home
mortgage loans and interest rates, credit criteria applicable to
prospective borrowers, ability to sell existing residences, and
homebuyer sentiment in general;
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the operating and securities price performance of companies that
investors consider comparable to us;
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announcements of strategic developments, acquisitions and other
material events by us or our competitors; and
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changes in global financial markets and global economies and
general market conditions, such as interest rates, commodity and
equity prices and the value of financial assets.
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To the extent that the price of our common stock remains low or
declines, our ability to raise funds through the issuance of
equity or otherwise use our common stock as consideration will
be reduced. This, in turn, may adversely impact our ability to
reduce our financial leverage, as measured by the ratio of debt
to total capital. As of
21
September 30, 2010, our financial leverage was 75.3%.
Continued high levels of leverage or significant increases may
adversely affect our credit ratings and make it more difficult
for us to access additional capital. These factors may limit our
ability to implement our operating and growth plans.
The
tax benefits of our pre-ownership change net operating loss
carryforwards and any future recognized built-in losses in our
assets will be substantially limited since we experienced an
ownership change as defined in Section 382 of
the Internal Revenue Code.
Based on recent impairments and our current financial
performance, we generated net operating losses for fiscal 2010
and could possibly generate additional net operating losses in
future years. In addition, we believe we have significant
built-in losses in our assets (i.e. an excess tax
basis over current fair market value) that may result in tax
losses as such assets are sold. Net operating losses generally
may be carried forward for a
20-year
period to offset future earnings and reduce our federal income
tax liability. Built-in losses, if and when recognized,
generally will result in tax losses that may then be deducted or
carried forward. However, because we experienced an
ownership change under Section 382 of the
Internal Revenue Code as of January 12, 2010, our ability
to realize these tax benefits may be significantly limited.
Section 382 contains rules that limit the ability of a
company that undergoes an ownership change, which is
generally defined as any change in ownership of more than 50% of
its common stock over a three-year period, to utilize its net
operating loss carryforwards and certain built-in losses or
deductions, as of the ownership change date, that are recognized
during the five-year period after the ownership change. These
rules generally operate by focusing on changes in the ownership
among shareholders owning, directly or indirectly, 5% or more of
the companys common stock (including changes involving a
shareholder becoming a 5% shareholder) or any change in
ownership arising from a new issuance of stock or share
repurchases by the company.
As a result of our recent ownership change for
purposes of Section 382, our ability to use certain of our
pre-ownership change net operating loss carryforwards and
recognize certain built-in losses or deductions is limited by
Section 382 to an estimated maximum amount of approximately
$11.4 million ($4 million tax-effected) annually.
Based on the resulting limitation, a significant portion of our
pre-ownership change net operating loss carryforwards and any
future recognized built-in losses or deductions could expire
before we would be able to use them. Our inability to utilize
our limited pre-ownership change net operating loss
carryforwards and any future recognized built-in losses or
deductions or the occurrence of a future ownership change and
resulting additional limitations could have a material adverse
effect on our financial condition, results of operations and
cash flows.
We are
subject to extensive government regulation which could cause us
to incur significant liabilities or restrict our business
activities.
Regulatory requirements could cause us to incur significant
liabilities and operating expenses and could restrict our
business activities. We are subject to local, state and federal
statutes and rules regulating, among other things, certain
developmental matters, building and site design, and matters
concerning the protection of health and the environment. Our
operating expenses may be increased by governmental regulations
such as building permit allocation ordinances and impact and
other fees and taxes, which may be imposed to defray the cost of
providing certain governmental services and improvements. Other
governmental regulations, such as building moratoriums and
no growth or slow growth initiatives,
which may be adopted in communities which have developed
rapidly, may cause delays in new home communities or otherwise
restrict our business activities resulting in reductions in our
revenues. Any delay or refusal from government agencies to grant
us necessary licenses, permits and approvals could have an
adverse effect on our operations.
We may
incur additional operating expenses due to compliance programs
or fines, penalties and remediation costs pertaining to
environmental regulations within our markets.
We are subject to a variety of local, state and federal
statutes, ordinances, rules and regulations concerning the
protection of health and the environment. The particular
environmental laws which apply to any given community vary
greatly according to the community site, the sites
environmental conditions and the present and former use of the
site. Environmental laws may result in delays, may cause us to
implement time consuming and expensive
22
compliance programs and may prohibit or severely restrict
development in certain environmentally sensitive regions or
areas. From time to time, the United States Environmental
Protection Agency (EPA) and similar federal or state agencies
review homebuilders compliance with environmental laws and
may levy fines and penalties for failure to strictly comply with
applicable environmental laws or impose additional requirements
for future compliance as a result of past failures. Any such
actions taken with respect to us may increase our costs.
Further, we expect that increasingly stringent requirements will
be imposed on homebuilders in the future. Environmental
regulations can also have an adverse impact on the availability
and price of certain raw materials such as lumber. Our
communities in California are especially susceptible to
restrictive government regulations and environmental laws.
We may
be subject to significant potential liabilities as a result of
construction defect, product liability and warranty claims made
against us.
As a homebuilder, we have been, and continue to be, subject to
construction defect, product liability and home warranty claims,
including moisture intrusion and related claims, arising in the
ordinary course of business. These claims are common to the
homebuilding industry and can be costly.
We and certain of our subsidiaries have been, and continue to
be, named as defendants in various construction defect claims,
product liability claims, complaints and other legal actions
that include claims related to Chinese drywall and moisture
intrusion. As of September 30, 2010, our warranty reserves
include an estimate for the repair of less than 60 homes in
Florida where certain of our subcontractors installed defective
Chinese drywall in homes that were delivered during our 2006 and
2007 fiscal years. As of September 30, we have completed
repairs on approximately 52% of these homes. We are inspecting
additional homes in order to determine whether they also contain
defective Chinese drywall. The outcome of these inspections and
other potential future inspections or an unexpected increase in
repair costs may require us to increase our warranty reserve in
the future. However, the amount of additional liability, if any,
is not reasonably estimable. Furthermore, plaintiffs may in
certain of these legal proceedings seek class action status with
potential class sizes that vary from case to case. Class action
lawsuits can be costly to defend, and if we were to lose any
certified class action suit, it could result in substantial
liability for us.
With respect to certain general liability exposures, including
construction defect claims, product liability claims and
defective Chinese drywall and related claims, interpretation of
underlying current and future trends, assessment of claims and
the related liability and reserve estimation process is highly
judgmental due to the complex nature of these exposures, with
each exposure exhibiting unique circumstances. Furthermore, once
claims are asserted for construction defects, it can be
difficult to determine the extent to which the assertion of
these claims will expand geographically. Although we have
obtained insurance for construction defect claims subject to
applicable self-insurance retentions, such policies may not be
available or adequate to cover liability for damages, the cost
of repairs,
and/or the
expense of litigation surrounding current claims, and future
claims may arise out of events or circumstances not covered by
insurance and not subject to effective indemnification
agreements with our subcontractors.
Our
operating expenses could increase if we are required to pay
higher insurance premiums or litigation costs for various
claims, which could cause our net income to
decline.
The costs of insuring against construction defect, product
liability and director and officer claims are substantial.
Increasingly in recent years, lawsuits (including class action
lawsuits) have been filed against builders, asserting claims of
personal injury and property damage. Our insurance may not cover
all of the claims, including personal injury claims, or such
coverage may become prohibitively expensive. If we are not able
to obtain adequate insurance against these claims, we may
experience losses that could reduce our net income and restrict
our cash flow available to service debt.
Historically, builders have recovered from subcontractors and
their insurance carriers a significant portion of the
construction defect liabilities and costs of defense that the
builders have incurred. Insurance coverage available to
subcontractors for construction defects is becoming increasingly
expensive, and the scope of coverage is
23
restricted. If we cannot effectively recover from our
subcontractors or their carriers, we may suffer greater losses
which could decrease our net income.
A builders ability to recover against any available
insurance policy depends upon the continued solvency and
financial strength of the insurance carrier that issued the
policy. Many of the states in which we build homes have lengthy
statutes of limitations applicable to claims for construction
defects. To the extent that any carrier providing insurance
coverage to us or our subcontractors becomes insolvent or
experiences financial difficulty in the future, we may be unable
to recover on those policies, and our net income may decline.
We are
dependent on the continued availability and satisfactory
performance of our subcontractors, which, if unavailable, could
have a material adverse effect on our business.
We conduct our construction operations only as a general
contractor. Virtually all construction work is performed by
unaffiliated third-party subcontractors. As a consequence, we
depend on the continued availability of and satisfactory
performance by these subcontractors for the construction of our
homes. There may not be sufficient availability of and
satisfactory performance by these unaffiliated third-party
subcontractors in the markets in which we operate. In addition,
inadequate subcontractor resources could have a material adverse
effect on our business.
We
experience fluctuations and variability in our operating results
on a quarterly basis and, as a result, our historical
performance may not be a meaningful indicator of future
results.
Our operating results in a future quarter or quarters may fall
below expectations of securities analysts or investors and, as a
result, the market value of our common stock will fluctuate. We
historically have experienced, and expect to continue to
experience, variability in home sales and net earnings on a
quarterly basis. As a result of such variability, our historical
performance may not be a meaningful indicator of future results.
Our quarterly results of operations may continue to fluctuate in
the future as a result of a variety of both national and local
factors, including, among others:
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the timing of home closings and land sales;
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our ability to continue to acquire additional land or secure
option contracts to acquire land on acceptable terms;
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conditions of the real estate market in areas where we operate
and of the general economy;
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raw material and labor shortages;
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seasonal home buying patterns; and
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other changes in operating expenses, including the cost of labor
and raw materials, personnel and general economic conditions.
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The
occurrence of natural disasters could increase our operating
expenses and reduce our revenues and cash flows.
The climates and geology of many of the states in which we
operate, including California, Florida, Georgia, North Carolina,
South Carolina, Tennessee and Texas, present increased risks of
natural disasters. To the extent that hurricanes, severe storms,
earthquakes, droughts, floods, wildfires or other natural
disasters or similar events occur, our homes under construction
or our building lots in such states could be damaged or
destroyed, which may result in losses exceeding our insurance
coverage. Any of these events could increase our operating
expenses, impair our cash flows and reduce our revenues, which
could, in turn, negatively affect the market price of our
securities.
Future
terrorist attacks against the United States or increased
domestic or international instability could have an adverse
effect on our operations.
Adverse developments in the war on terrorism, future terrorist
attacks against the United States, or any outbreak or escalation
of hostilities between the United States and any foreign power,
including the armed conflicts
24
in Iraq and Afghanistan, may cause disruption to the economy,
our Company, our employees and our customers, which could
adversely affect our revenues, operating expenses, and financial
condition.
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Item 1B.
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Unresolved
Staff Comments
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None.
As of September 30, 2010, we lease approximately
80,000 square feet of office space in Atlanta, Georgia to
house our corporate headquarters. We also lease an aggregate of
approximately 362,000 square feet of office space for our
subsidiaries operations at various locations. We have
subleased approximately 75,000 square feet of our leased
office space to unrelated third-parties. We own approximately
49,000 square feet of office space in Indianapolis, Indiana
which we are actively marketing for sale.
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Item 3.
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Legal
Proceedings
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Litigation
ERISA Class Actions. On April 30,
2007, a putative class action complaint was filed on behalf of a
purported class consisting of present and former participants
and beneficiaries of the Beazer Homes USA, Inc. 401(k) Plan
against the Company and certain employees and directors of the
Company. The complaint alleges breach of fiduciary duties,
including those set forth in the Employee Retirement Income
Security Act (ERISA), as a result of the investment of
retirement monies held by the 401(k) Plan in common stock of
Beazer Homes at a time when participants were allegedly not
provided timely, accurate and complete information concerning
Beazer Homes. Four additional lawsuits were filed subsequently
making similar allegations and the court consolidated these five
lawsuits. The parties have reached a settlement which will be
largely funded by insurance proceeds and is subject to court
approval. Under the terms of the settlement, the lawsuit will be
dismissed with prejudice and there will be a release of all
claims. The court has preliminarily approved the settlement and
a hearing is scheduled for November 15, 2010 to consider
final approval of the settlement.
Homeowners Class Action Lawsuits and Multi-Plaintiff
Lawsuit. A putative class action was filed on
April 8, 2008 in the United States District Court for the
Middle District of North Carolina, Salisbury Division, against
Beazer Homes, U.S.A., Inc., Beazer Homes Corp. and Beazer
Mortgage Corporation. The Complaint alleges that Beazer violated
the Real Estate Settlement Practices Act (RESPA) and North
Carolina Gen. Stat.
§ 75-1.1
by (1) improperly requiring homebuyers to use Beazer-owned
mortgage and settlement services as part of a down payment
assistance program, and (2) illegally increasing the cost
of homes and settlement services sold by Beazer Homes Corp. The
purported class consists of all residents of North Carolina who
purchased a home from Beazer, using mortgage financing provided
by and through Beazer that included seller-funded down payment
assistance, between January 1, 2000 and October 11,
2007. The parties have reached an agreement to settle the
lawsuit, which will be partially funded by insurance proceeds
and is subject to court approval. Under the terms of the
settlement, the action will be dismissed with prejudice, and the
Company and all other defendants will not admit any liability.
Beazer Homes and several subsidiaries were named as defendants
in a putative class action lawsuit originally filed on
March 12, 2008, in the Superior Court of the State of
California, County of Placer. The purported class is defined as
all persons who purchased a home from the defendants or their
affiliates, with the assistance of a federally related mortgage
loan, from March 25, 1999, to the present where Security
Title Insurance Company received any money as a reinsurer
of the transaction. The complaint alleges that the defendants
violated RESPA and asserts claims under a number of state
statutes alleging that defendants engaged in a uniform and
systematic practice of giving
and/or
accepting fees and kickbacks to affiliated businesses including
affiliated
and/or
recommended title insurance companies. The complaint also
alleges a number of common law claims. Plaintiffs seek an
unspecified amount of damages under RESPA, unspecified
statutory, compensatory and punitive damages and injunctive and
declaratory relief, as well as attorneys fees and costs.
Defendants removed the action to federal court and plaintiffs
filed a Second Amended Complaint which substituted new
named-plaintiffs. The Company filed a motion to dismiss the
Second Amended Complaint, which the federal court granted in
part. The federal court dismissed the sole federal claim,
declined to rule on the state law claims, and remanded the case
to the Superior Court of Placer
25
County. The Company filed a supplemental motion to
dismiss/demurrer regarding the remaining state law claims in the
Second Amended Complaint and the state court sustained
defendants demurrer but granted the plaintiffs leave to
amend their claims. Plaintiffs thereafter filed a Third Amended
Complaint which defendants removed to federal court based on the
presence of a federal question and pursuant to the
Class Action Fairness Act and thereafter moved to dismiss.
Plaintiffs filed a motion to remand the case. The federal court
granted the plaintiffs motion and remanded the case to the
Superior Court of Placer County. The defendants filed a petition
with the U.S. Court of Appeals for the Ninth Circuit for
permission to appeal the remand order and a demurrer in state
court as to all counts of the Third Amended Complaint. The state
court granted the defendants demurrer as to the
plaintiffs breach of contract claim, but the unfair
competition claim remains. The Company filed its answer to the
Third Amended Complaint on June 11, 2010. The Company is in
the process of conducting discovery and is vigorously defending
against the action.
On June 3, 2009, a purported class action complaint was
filed by the owners of one of our homes in our Magnolia
Lakes community in Ft. Myers, Florida. The complaint
names the Company and certain distributors and suppliers of
drywall and was filed in the Circuit Court for Lee County,
Florida on behalf of the named plaintiffs and other similarly
situated owners of homes in Magnolia Lakes or alternatively in
the State of Florida. The plaintiffs allege that the Company
built their homes with defective drywall, manufactured in China,
that contains sulfur compounds that allegedly corrode certain
metals and that are allegedly capable of harming the health of
individuals. Plaintiffs allege physical and economic damages and
seek legal and equitable relief, medical monitoring and
attorneys fees. This case has been transferred to the
Eastern District of Louisiana pursuant to an order from the
United States Judicial Panel on Multidistrict Litigation. In
addition, the Company has been named in other complaints filed
in the multidistrict litigation and continues to pursue recovery
against responsible subcontractors and drywall suppliers. The
Company believes that the claims asserted in these actions are
governed by its home warranty or are without merit. Accordingly,
the Company intends to vigorously defend against this litigation.
The lender of one of our unconsolidated joint ventures filed
individual lawsuits against some of the joint venture members
and certain of those members parent companies (including
the Company), seeking to recover damages under completion
guarantees, among other claims. We intend to vigorously defend
against this legal action. We are a 2.58% member in this joint
venture (see Note 3 for additional information). An
estimate of probable loss or range of loss, if any cannot
presently be made. In addition, one member of the joint venture
filed an arbitration proceeding against the remaining members
related to the plaintiff-members allegations that the
other members failed to perform under the applicable membership
agreements. The arbitration panel issued its decision on
July 6, 2010 and denied the plaintiffs claims for
specific performance claims and awarded damages in an amount
well below the amount claimed. The Company does not believe that
its proportional share of the award is material to our
consolidated financial position or results of operations. The
plaintiff has moved to have the panels award confirmed.
Defendants have opposed the motion and have moved to vacate the
panels decision in part.
We cannot predict or determine the timing or final outcome of
the lawsuits or the effect that any adverse findings or adverse
determinations in the pending lawsuits may have on us. In
addition, an estimate of possible loss or range of loss, if any,
cannot presently be made with respect to the above pending
matters. An unfavorable determination in any of the pending
lawsuits could result in the payment by us of substantial
monetary damages which may not be fully covered by insurance.
Further, the legal costs associated with the lawsuits and the
amount of time required to be spent by management and the Board
of Directors on these matters, even if we are ultimately
successful, could have a material adverse effect on our
business, financial condition and results of operations.
Other
Matters
As disclosed in our 2009
Form 10-K,
on July 1, 2009, the Company announced that it has resolved
the criminal and civil investigations by the United States
Attorneys Office in the Western District of North Carolina
(the U.S. Attorney) and other state and federal agencies
concerning matters that were the subject of the independent
investigation, initiated in April 2007 by the Audit Committee of
the Board of Directors (the Investigation) and concluded in May
2008. Under the terms of the deferred prosecution agreement
(DPA), the Companys liability for fiscal 2010 is
$1 million and in each of the fiscal years after 2010
through a portion of fiscal 2014 (unless extended as described
in Note 13) will be equal to 4% of the Companys
adjusted EBITDA (as defined in the DPA). The total amount of
such obligations will be dependent on several factors; however,
the maximum liability under the DPA and
26
other settlement agreements discussed above will not exceed
$55.0 million of which $15 million has been paid as of
September 30, 2010.
In November 2003, Beazer Homes received a request for
information from the EPA pursuant to Section 308 of the
Clean Water Act seeking information concerning the nature and
extent of storm water discharge practices relating to certain of
our communities completed or under construction. The EPA or the
equivalent state agency has issued Administrative Orders
identifying alleged instances of noncompliance and requiring
corrective action to address the alleged deficiencies in storm
water management practices. The parties have agreed to settle
this matter and the terms are being finalized. The amount to be
paid by the Company pursuant to the settlement agreement will
not have a material adverse effect on our financial condition,
results of operation or cash flows. Beazer Homes has taken
action to comply with the requirements of each of the
Administrative Orders and is working to otherwise maintain
compliance with the requirements of the Clean Water Act.
In 2006, we received two Administrative Orders issued by the New
Jersey Department of Environmental Protection. The Orders allege
certain violations of wetlands disturbance permits. The two
Orders assess proposed fines of $630,000 and $678,000,
respectively. We have met with the Department to discuss their
concerns on the two affected communities and have requested
hearings on both matters. We believe that we have significant
defenses to the alleged violations and intend to contest the
agencys findings and the proposed fines. We are currently
pursuing settlement discussions with the Department.
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.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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None.
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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Market
Information
The Company lists its common shares on the New York Stock
Exchange (NYSE) under the symbol BZH. On
November 3, 2010, the last reported sales price of the
Companys common stock on the NYSE was $4.18. On
November 3, 2010, Beazer Homes USA, Inc. had approximately
237 stockholders of record and 75,669,381 shares of common
stock outstanding. The following table sets forth, for the
quarters indicated, the range of high and low trading for the
Companys common stock during fiscal 2010 and 2009.
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1st Qtr
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2nd Qtr
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3rd Qtr
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4th Qtr
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Fiscal Year 2010:
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High
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$
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6.06
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$
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5.44
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$
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7.08
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$
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4.69
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Low
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$
|
3.90
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$
|
3.83
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|
$
|
3.61
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$
|
3.10
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1st Qtr
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2nd Qtr
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|
3rd Qtr
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|
4th Qtr
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|
Fiscal Year 2009:
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High
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$
|
6.76
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$
|
1.71
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$
|
3.95
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$
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6.93
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Low
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$
|
1.13
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|
$
|
0.24
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$
|
0.87
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$
|
1.36
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27
Dividends
Effective November 2, 2007, the Board of Directors
suspended the payment of quarterly dividends. The Board
concluded that this action, which will allow the Company to
conserve approximately $16 million of cash on an annual
basis, was a prudent effort in light of the continued
deterioration in the housing market. The Board of Directors will
periodically reconsider the declaration of dividends. The
reinstatement of quarterly dividends, the amount of such
dividends, and the form in which the dividends are paid (cash or
stock) depends upon the results of operations, the financial
condition of the Company and other factors which the Board of
Directors deems relevant. The indentures under which our senior
notes were issued contain certain restrictive covenants,
including limitations on payment of dividends. At
September 30, 2010, under the most restrictive covenants of
each indenture, none of our retained earnings was available for
cash dividends or share repurchases.
Securities
Authorized for Issuance under Equity Compensation
Plans
The following table provides information as of
September 30, 2010 with respect to our shares of common
stock that may be issued under our existing equity compensation
plans, all of which have been approved by our stockholders:
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Number of
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Weighted
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Number of Common Shares
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Common
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Average
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Remaining Available for
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Shares to be Issued
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Exercise
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Future
|
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Upon Exercise of
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Price of
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Issuance Under Equity
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Outstanding
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Outstanding
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Compensation
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Plan Category
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(a)
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(b)
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(c)
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Equity compensation plans approved by stockholders
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2,578,354
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$
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22.69
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3,987,710
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Issuer
Purchases of Equity Securities
On November 18, 2005, as part of an acceleration of our
comprehensive plan to enhance stockholder value, our Board of
Directors authorized an increase of our stock repurchase plan to
ten million shares of our common stock. Shares may be purchased
for cash in the open market, on the NYSE or in privately
negotiated transactions. During fiscal 2010, 2009 and 2008, we
did not repurchase any shares in the open market. We have
currently suspended our repurchase program and any resumption of
such program will be at the discretion of the Board of Directors
and is unlikely in the foreseeable future.
During the quarter ended September 30, 2010,
5,634 shares, at an average price of $4.52 per share, were
surrendered to us by employees in payment of minimum tax
obligations upon the vesting of restricted stock units under our
stock incentive plans.
Performance
Graph
The following graph illustrates the cumulative total stockholder
return on Beazer Homes common stock for the last five
fiscal years through September 30, 2010, compared to the
S&P 500 Index and the S&P 500 Homebuilding Index. The
comparison assumes an investment in Beazer Homes common
stock and in each of the foregoing indices of $100 at
September 30, 2005, and assumes that all dividends were
reinvested. Stockholder returns over the indicated period are
based on historical data and should not be considered indicative
of future stockholder returns.
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
Beazer Homes USA, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
67.05
|
|
|
|
$
|
14.48
|
|
|
|
$
|
10.49
|
|
|
|
$
|
9.81
|
|
|
|
$
|
7.25
|
|
S&P 500
|
|
|
|
100.00
|
|
|
|
|
110.78
|
|
|
|
|
128.98
|
|
|
|
|
100.66
|
|
|
|
|
93.70
|
|
|
|
|
103.24
|
|
S&P Homebuilding
|
|
|
|
100.00
|
|
|
|
|
72.44
|
|
|
|
|
36.83
|
|
|
|
|
31.23
|
|
|
|
|
26.17
|
|
|
|
|
24.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 6.
|
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
($ in millions, except per share amounts)
|
|
Statement of Operations Data:(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
1,010
|
|
|
$
|
972
|
|
|
$
|
1,737
|
|
|
$
|
2,943
|
|
|
$
|
4,545
|
|
Gross profit (loss)
|
|
|
86
|
|
|
|
16
|
|
|
|
(247
|
)
|
|
|
(89
|
)
|
|
|
1,122
|
|
Gross margin(i), (ii)
|
|
|
8.5
|
%
|
|
|
1.6
|
%
|
|
|
(14.2
|
)%
|
|
|
(3.0
|
)%
|
|
|
24.7
|
%
|
Operating (loss) income
|
|
$
|
(114
|
)
|
|
$
|
(241
|
)
|
|
$
|
(618
|
)
|
|
$
|
(511
|
)
|
|
$
|
596
|
|
(Loss) income from continuing operations
|
|
|
(30
|
)
|
|
|
(176
|
)
|
|
|
(780
|
)
|
|
|
(346
|
)
|
|
|
378
|
|
EPS from continuing operations -basic
|
|
|
(0.50
|
)
|
|
|
(4.54
|
)
|
|
|
(20.23
|
)
|
|
|
(9.01
|
)
|
|
|
9.48
|
|
EPS from continuing operations -diluted
|
|
|
(0.50
|
)
|
|
|
(4.54
|
)
|
|
|
(20.23
|
)
|
|
|
(9.01
|
)
|
|
|
8.52
|
|
Dividends paid per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.40
|
|
|
|
0.40
|
|
Balance Sheet Data (end of year)(iii):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash
|
|
$
|
576
|
|
|
$
|
557
|
|
|
$
|
585
|
|
|
$
|
460
|
|
|
$
|
172
|
|
Inventory
|
|
|
1,204
|
|
|
|
1,318
|
|
|
|
1,652
|
|
|
|
2,775
|
|
|
|
3,608
|
|
Total assets
|
|
|
1,903
|
|
|
|
2,029
|
|
|
|
2,642
|
|
|
|
3,930
|
|
|
|
4,715
|
|
Total debt
|
|
|
1,212
|
|
|
|
1,509
|
|
|
|
1,747
|
|
|
|
1,857
|
|
|
|
1,956
|
|
Stockholders equity
|
|
|
397
|
|
|
|
197
|
|
|
|
375
|
|
|
|
1,324
|
|
|
|
1,730
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
($ in millions, except per share amounts)
|
|
Supplemental Financial Data (iii):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
70
|
|
|
$
|
94
|
|
|
$
|
316
|
|
|
$
|
509
|
|
|
$
|
(378
|
)
|
Investing activities
|
|
|
(6
|
)
|
|
|
(80
|
)
|
|
|
(18
|
)
|
|
|
(52
|
)
|
|
|
(105
|
)
|
Financing activities
|
|
|
(34
|
)
|
|
|
(91
|
)
|
|
|
(167
|
)
|
|
|
(171
|
)
|
|
|
353
|
|
Financial Statistics (iii):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt as a percentage of total debt and stockholders
equity
|
|
|
75.3
|
%
|
|
|
88.5
|
%
|
|
|
82.3
|
%
|
|
|
58.4
|
%
|
|
|
53.1
|
%
|
Net debt as a percentage of net debt and stockholders
equity(ii)
|
|
|
62.9
|
%
|
|
|
83.6
|
%
|
|
|
75.6
|
%
|
|
|
51.4
|
%
|
|
|
50.9
|
%
|
Adjusted EBITDA from total operations(iv)
|
|
$
|
60.2
|
|
|
$
|
108.1
|
|
|
$
|
(27.5
|
)
|
|
$
|
235.6
|
|
|
$
|
781.6
|
|
Operating Statistics from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New orders, net
|
|
|
4,122
|
|
|
|
4,077
|
|
|
|
5,158
|
|
|
|
7,957
|
|
|
|
11,272
|
|
Closings
|
|
|
4,513
|
|
|
|
4,196
|
|
|
|
6,370
|
|
|
|
9,766
|
|
|
|
15,046
|
|
Units in backlog
|
|
|
780
|
|
|
|
1,171
|
|
|
|
1,290
|
|
|
|
2,502
|
|
|
|
4,311
|
|
Average selling price (in thousands)
|
|
$
|
221.7
|
|
|
$
|
230.8
|
|
|
$
|
254.3
|
|
|
$
|
289.5
|
|
|
$
|
299.9
|
|
|
|
|
(i) |
|
Statement of operations data is from continuing operations.
Gross profit (loss) includes inventory impairments and lot
options abandonments of $50.0 million, $95.2 million,
$403.4 million, $531.2 million and $28.4 million
for the fiscal years ended September 30, 2010, 2009, 2008,
2007 and 2006, respectively. Operating (loss) income also
includes goodwill impairments of $0, $16.1 million,
$48.1 million, $49.7 million and $0 for the fiscal
years ended September 30, 2010, 2009, 2008, 2007 and 2006.
The aforementioned charges were primarily related to the
deterioration of the homebuilding environment over the past few
years. Loss from continuing operations for fiscal 2010 and 2009
also include a gain on extinguishment of debt of
$43.9 million, and $144.5 million, respectively. |
|
(ii) |
|
Net Debt = Debt less unrestricted cash and cash equivalents;
Gross margin = Gross (loss) profit divided by total revenue. |
|
(iii) |
|
Discontinued operations were not segregated in the consolidated
balance sheets or statements of cash flows. |
|
(iv) |
|
A reconciliation of EBIT and Adjusted EBITDA to net (loss)
income, the most directly comparable GAAP measure, is provided
below for each period presented (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net (loss) income
|
|
$
|
(34,049
|
)
|
|
$
|
(189,383
|
)
|
|
$
|
(951,912
|
)
|
|
$
|
(411,073
|
)
|
|
$
|
368,836
|
|
(Benefit) provision for income taxes
|
|
|
(133,188
|
)
|
|
|
(9,076
|
)
|
|
|
84,763
|
|
|
|
(222,207
|
)
|
|
|
214,421
|
|
Interest amortized to home construction and land sales expenses
and capitalized interest impaired
|
|
|
54,556
|
|
|
|
58,090
|
|
|
|
126,057
|
|
|
|
139,880
|
|
|
|
95,974
|
|
Interest expense not qualified for capitalization
|
|
|
74,214
|
|
|
|
83,030
|
|
|
|
55,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT
|
|
$
|
(38,467
|
)
|
|
$
|
(57,339
|
)
|
|
$
|
(685,907
|
)
|
|
$
|
(493,400
|
)
|
|
$
|
679,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
EBIT
|
|
$
|
(38,467
|
)
|
|
$
|
(57,339
|
)
|
|
$
|
(685,907
|
)
|
|
$
|
(493,400
|
)
|
|
$
|
679,231
|
|
Depreciation and amortization and stock compensation amortization
|
|
|
24,774
|
|
|
|
30,723
|
|
|
|
40,273
|
|
|
|
44,743
|
|
|
|
58,178
|
|
Inventory impairments and option contract abandonments
|
|
|
49,526
|
|
|
|
103,751
|
|
|
|
496,833
|
|
|
|
599,514
|
|
|
|
44,175
|
|
Goodwill impairment
|
|
|
|
|
|
|
16,143
|
|
|
|
52,470
|
|
|
|
52,755
|
|
|
|
|
|
Joint venture impairment and abandonment charges
|
|
|
24,328
|
|
|
|
14,793
|
|
|
|
68,791
|
|
|
|
31,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
60,161
|
|
|
$
|
108,071
|
|
|
$
|
(27,540
|
)
|
|
$
|
235,551
|
|
|
$
|
781,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT (earnings before interest and taxes) equals net (loss)
income before (a) previously capitalized interest amortized
to home construction and land sales expenses, capitalized
interest impaired and interest expense not qualified for
capitalization and (b) income taxes. Adjusted EBITDA
(earnings before interest, taxes, depreciation, amortization and
impairments) is calculated by adding non-cash charges, including
depreciation, amortization, inventory impairment and abandonment
charges, goodwill impairments and joint venture impairment
charges for the period to EBIT. EBIT and Adjusted EBITDA are not
GAAP financial measures. EBIT and Adjusted EBITDA should not be
considered alternatives to net income determined in accordance
with GAAP as an indicator of operating performance, nor an
alternative to cash flows from operating activities determined
in accordance with GAAP as a measure of liquidity. Because some
analysts and companies may not calculate EBIT and Adjusted
EBITDA in the same manner as Beazer Homes, the EBIT and Adjusted
EBITDA information presented above may not be comparable to
similar presentations by others.
The magnitude and volatility of non-cash inventory impairment
and abandonment charges, goodwill impairments and joint venture
impairment charges for the Company, and for other home builders,
have been significant in recent periods and, as such, have made
financial analysis of our industry more difficult. Adjusted
EBITDA, and other similar presentations by analysts and other
companies, is frequently used to assist investors in
understanding and comparing the operating characteristics of
home building activities by eliminating many of the differences
in companies respective capitalization, tax position and
level of impairments. Management believes this non-GAAP measure
enables holders of our securities to better understand the cash
implications of our operating performance and our ability to
service our debt obligations as they currently exist and as
additional indebtedness is incurred in the future. The measure
is also useful internally, helping management compare operating
results and as a measure of the level of cash which may be
available for discretionary spending.
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Executive
Overview and Outlook
The macro-economic conditions experienced during Fiscal 2010
continued to present challenges that have hindered a recovery
for the homebuilding industry. Consumers enjoyed record low
interest rates for home mortgages and housing affordability
along with federal and local government incentives that have
attempted to support the housing industry. These factors
provided significant support to the industry during our second
and third fiscal quarters as we experienced significant
increases in new home orders. However, this elevated volume of
home purchases was not sustained upon the expiration of the
government incentives. Continued high unemployment levels have
caused high levels of uncertainty among employers and consumers
concerning the health of the overall economy. This uncertainty
led to a decline in home orders during our fourth fiscal quarter
that has continued into the first quarter of fiscal 2011. The
current homebuilding environment is also challenged by increased
numbers of foreclosed homes offered at substantially reduced
prices. These combined pressures in the marketplace have
resulted in the continued use of sales incentives and price
reductions by us and many of our competitors in an effort to
generate sales and reduce inventory levels. As a result, we
continued to experience inventory valuation adjustments
throughout fiscal 2010. Despite these challenges, we were able
to produce improvements in new home orders, home closings, gross
margins and profitability in fiscal 2010 as compared to fiscal
2009.
31
During fiscal 2010, we continued to improve our capitalization
while maintaining our three primary goals: generate and maintain
liquidity, reduce debt and increase shareholder net worth. We
raised $166.7 million of common equity capital,
$128.2 million of equity linked capital (Mandatory
Convertible Subordinated Notes and Tangible Equity Units) and
$300 million Senior Notes while repaying
$585.4 million of our Senior Notes.
In fiscal 2010, we recognized a tax benefit from total
operations of $133.2 million primarily resulting from
The Worker, Homeownership and Business Act of 2009 which
allowed us to carry back a portion of our fiscal 2009 federal
tax loss. This carry back claim allowed us to claim a refund of
taxes paid in prior years and to monetize a deferred tax asset
that had previously had a valuation allowance recorded against
it. The total amount of income tax refunds we received in fiscal
2010 was $135.8 million.
Throughout the homebuilding recession we have remained
disciplined in our approach to the business. We have continued
to reduce direct construction costs, overhead expenses and
controlled our land acquisition and development spending. We
remain committed to controlling our supply of unsold homes under
construction and ensuring that our inventory supply aligns with
our current demand expectations. This approach resulted in the
closure of several divisional operations during the past several
years and resulted in our decision to exit the Jacksonville,
Florida and Albuquerque, New Mexico markets during the fourth
quarter of fiscal 2010. We expect to continue this disciplined
approach to managing our business during these uncertain times
as we strive toward returning to profitability.
We will continue to focus on maintaining a significant liquidity
position as we selectively invest in the growth of the business.
We may also, from time to time, continue to seek to retire or
purchase our outstanding debt through cash purchases
and/or
exchanges for equity or other debt securities, in open market
purchases, privately negotiated transactions or otherwise. There
can be no assurances that we will be able to complete any of
these transactions in the future on favorable terms or at all.
While our visibility into the economic conditions for fiscal
2011 is limited at this time, we believe that we will continue
to benefit from increases in housing starts and improvements in
employment. Therefore, we believe the environment will improve,
perhaps slowly, and we have taken and will continue to take
steps necessary to position ourselves to participate in the
housing recovery.
We operated Beazer Mortgage Corporation (BMC) from 1998 through
February 2008 to offer mortgage financing to the buyers of our
homes. BMC entered into various agreements with mortgage
investors for the origination of mortgage loans. Underwriting
decisions were not made by BMC but by the investors or
third-party service providers. To date, we have received
requests to repurchase fewer than 100 mortgage loans from
various investors. While we have not been required to repurchase
any mortgage loans, we have established an immaterial amount as
a reserve for the repurchase of mortgage loans originated by
BMC. We cannot rule out the potential for additional mortgage
loan repurchase claims in the future, although, at this time, we
do not believe that the exposure related to any such additional
claims would be material to our consolidated financial position
or results of operation. As of September 30, 2010, no
liability has been recorded for any such additional claims as
such exposure is not both probable and reasonably estimable.
Critical
Accounting Policies
Some of our critical accounting policies require the use of
judgment in their application or require estimates of inherently
uncertain matters. Although our accounting policies are in
compliance with accounting principles generally accepted in the
United States of America (GAAP), a change in the facts and
circumstances of the underlying transactions could significantly
change the application of the accounting policies and the
resulting financial statement impact. Listed below are those
policies that we believe are critical and require the use of
complex judgment in their application.
Inventory
Valuation Held for Development
Our homebuilding inventories that are accounted for as held for
development include land and home construction assets grouped
together as communities. Homebuilding inventories held for
development are stated at cost (including direct construction
costs, capitalized indirect costs, capitalized interest and real
estate taxes)
32
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 in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS)
144, Accounting for the Impairment or Disposal of Long-Lived
Assets (ASC 360). 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. However, the impact of the
recent downturn in our business has significantly lengthened the
estimated life of many communities. Recoverability of assets is
measured by comparing the carrying amount of an asset to future
undiscounted cash flows expected to be generated by the asset.
If the expected undiscounted cash flows generated are expected
to be less than its carrying amount, an impairment charge should
be recorded to write down the carrying amount of such asset to
its estimated fair value based on discounted cash flows.
We conduct a review of the recoverability of our homebuilding
inventories held for development at the community level as
factors indicate that an impairment may exist. Events and
circumstances that might indicate impairment include, but are
not limited to, (1) adverse trends in new orders,
(2) higher than anticipated cancellations,
(3) declining margins, which might result from the need to
offer incentives to new homebuyers to drive sales or price
reductions to respond to actions taken by our competitors,
(4) economic factors specific to the markets in which we
operate, including fluctuations in employment levels, population
growth, or levels of new and resale homes for sale in the
marketplace and (5) a decline in the availability of credit
across all industries.
As a result, we evaluate, among other things, the following
information for each community:
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|
|
|
|
Actual Net Contribution Margin (defined as
homebuilding revenues less homebuilding costs and direct selling
expenses) for homes closed in the current fiscal quarter, fiscal
year to date and prior two fiscal quarters. Homebuilding costs
include land and land development costs (based upon an
allocation of such costs, including costs to complete the
development, or specific lot costs), home construction costs
(including an estimate of costs, if any, to complete home
construction), previously capitalized indirect costs
(principally for construction supervision), capitalized interest
and estimated warranty costs. Direct selling expenses include
commissions, closing costs and amortization related to model
home furnishings and improvements;
|
|
|
|
Projected Net Contribution Margin for homes in backlog;
|
|
|
|
Actual and trending new orders and cancellation rates;
|
|
|
|
Actual and trending base home sales prices and sales incentives
for home sales that occurred in the prior two fiscal quarters
that remain in backlog at the end of the fiscal quarter and
expected future homes sales prices and sales incentives and
absorption over the expected remaining life of the community;
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|
|
A comparison of our community to our competition to include,
among other things, an analysis of various product offerings
including, the size and style of the homes currently offered for
sale, community amenity levels, availability of lots in our
community and our competitions, desirability and
uniqueness of our community and other market factors; and
|
|
|
|
Other events that may indicate that the carrying value may not
be recoverable.
|
In determining the recoverability of the carrying value of the
assets of a community that we have evaluated as requiring a test
for impairment, significant quantitative and qualitative
assumptions are made relative to the future home sales prices,
sales incentives, direct and indirect costs of home construction
and land development and the pace of new home orders. In
addition, these assumptions are dependent upon the specific
market conditions and competitive factors for each specific
community and may differ greatly between communities within the
same market and communities in different markets. Our estimates
are made using information available at the date of the
recoverability test, however, as facts and circumstances may
change in future reporting periods, our estimates of
recoverability are subject to change.
For assets in communities for which the undiscounted future cash
flows are less than the carrying value, the carrying value of
that community is written down to its then estimated fair value
based on discounted cash flows. The carrying value of assets in
communities that were previously impaired and continue to be
classified as held for development is not written up for future
estimates of increases in fair value in future reporting
periods. Market deterioration that exceeds our estimates may
lead us to incur additional impairment charges on previously
impaired
33
homebuilding assets in addition to homebuilding assets not
currently impaired but for which indicators of impairment may
arise if the market continues to deteriorate.
The fair value of the homebuilding inventory held for
development is estimated using the present value of the
estimated future cash flows using discount rates commensurate
with the risk associated with the underlying community assets.
The discount rate used may be different for each community. The
factors considered when determining an appropriate discount rate
for a community include, among others: (1) community
specific factors such as the number of lots in the community,
the status of land development in the community, the competitive
factors influencing the sales performance of the community and
(2) overall market factors such as employment levels,
consumer confidence and the existing supply of new and used
homes for sale. The assumptions used in our discounted cash flow
models are specific to each community tested for impairment.
Historically, these assumptions did not include market
improvements except in limited circumstances in the latter years
of long-lived communities. Our assumptions assume limited market
improvements in some communities beginning in fiscal 2011 and
continuing improvement in these communities in subsequent years.
We assumed the remaining communities would have market
improvements beginning in fiscal 2012.
For the fiscal year ended September 30, 2010, we used
discount rates of 13.7% to 20.0% in our estimated discounted
cash flow impairment calculations. During fiscal 2010, 2009 and
2008, we recorded impairments of our inventory of approximately
$48.1 million, $78.7 million and $290.7 million,
respectively, for land under development and homes under
construction for our continuing operations. Impairments of
inventory previously held for development related to our
discontinued operations were $0.8 million,
$1.5 million and $21.9 million for fiscal 2010, 2009
and 2008, respectively.
Due to uncertainties in the estimation process, particularly
with respect to projected home sales prices and absorption
rates, the timing and amount of the estimated future cash flows
and discount rates, it is reasonably possible that actual
results could differ from the estimates used in our historical
analyses. 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. We calculated the
estimated fair values of inventory held for development that
were evaluated for impairment based on current market conditions
and assumptions made by management relative to future results.
Because our projected cash flows are significantly impacted by
changes in market conditions, it is reasonably possible that
actual results could differ materially from our estimates and
result in additional impairments.
Asset
Valuation Land Held for Future
Development
For those communities for which construction and development
activities are expected to occur in the future or have been
idled (land held for future development), all applicable
interest and real estate taxes are expensed as incurred and the
inventory is stated at cost unless facts and circumstances
indicate that the carrying value of the assets may not be
recoverable. The future enactment of a development plan or the
occurrence of events and circumstances may indicate that the
carrying amount of an asset may not be recoverable. We evaluate
the potential development plans of each community in land held
for future development if changes in facts and circumstances
occur which would give rise to a more detailed analysis for a
change in the status of a community to active status or held for
development.
Asset
Valuation Land Held for Sale
We record assets held for sale at the lower of the carrying
value or fair value less costs to sell. The following criteria
are used to determine if land is held for sale:
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|
|
|
|
management has the authority and commits to a plan to sell the
land;
|
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|
|
the land is available for immediate sale in its present
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;
|
34
|
|
|
|
|
the property is being actively marketed at a reasonable sale
price relative to its current fair value; and
|
|
|
|
it is unlikely that the plan to sell will be withdrawn or that
significant changes to the plan will be made.
|
Additionally, in certain circumstances, management will
re-evaluate the best use of an asset that is currently being
accounted for as held for development. In such instances,
management will review, among other things, the current and
projected competitive circumstances of the community, including
the level of supply of new and used inventory, the level of
sales absorptions by us and our competition, the level of sales
incentives required and the number of owned lots remaining in
the community. Based on this review, if the foregoing criteria
have been met at the end of the applicable reporting period and
we believe that the best use of the asset is the sale of all or
a portion of the asset in its current condition, then all or
portions of the community are accounted for as held for sale.
In determining the fair value of the assets less cost to sell,
we considered 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. During fiscal 2010, 2009 and 2008, we recorded inventory
impairments on land held for sale by our continuing operations
of $1.1 million, $12.5 million and $61.2 million,
respectively. Land held for sale inventory impairments related
to our discontinued operations totaled $1.0 million,
$9.4 million and $55.6 million for fiscal 2010, 2009
and 2008, respectively.
Due to uncertainties in the estimation process, it is reasonably
possible that actual results could differ from the estimates
used in our historical analyses. Our assumptions about land
sales prices require significant judgment because the current
market is highly sensitive to changes in economic conditions. We
calculated the estimated fair values of land held for sale based
on current market conditions and assumptions made by management,
which may differ materially from actual results and may result
in additional impairments if market conditions continue to
deteriorate.
Homebuilding
Revenues and Costs
Revenue from the sale of a home is generally recognized when the
closing has occurred and the risk of ownership is transferred to
the buyer. As appropriate, revenue for condominiums under
construction is recognized based on the
percentage-of-completion
method in accordance with SFAS 66, Accounting for Sales
of Real Estate (ASC 360), when certain criteria are met. All
associated homebuilding costs are charged to cost of sales in
the period when the revenues from home closings are recognized.
Homebuilding costs include land and land development costs
(based upon an allocation of such costs, including costs to
complete the development, or specific lot costs), home
construction costs (including an estimate of costs, if any, to
complete home construction), previously capitalized indirect
costs (principally for construction supervision), capitalized
interest and estimated warranty costs. Sales commissions are
included in selling, general and administrative expense when the
closing has occurred. All other costs are expensed as incurred.
Warranty
Reserves
We currently provide a limited warranty (ranging from one to two
years) covering workmanship and materials per our defined
performance quality standards. In addition, we provide a limited
warranty (generally ranging from a minimum of five years up to
the period covered by the applicable statute of repose) covering
only certain defined construction defects. We also provide a
defined structural warranty with single-family homes and
townhomes in certain states.
Since we subcontract our homebuilding work to subcontractors
whose contracts generally include an indemnity obligation and a
requirement that certain minimum insurance requirements be met,
including providing us with a certificate of insurance prior to
receiving payments for their work, claims relating to
workmanship and materials are generally the primary
responsibility of our subcontractors.
Warranty reserves are included in other liabilities in the
consolidated balance sheets. We record reserves covering our
anticipated warranty expense for each home closed. Management
reviews the adequacy of warranty reserves each reporting period,
based on historical experience and managements estimate of
the costs to remediate the claims, and adjusts these provisions
accordingly. Our review includes a quarterly analysis of the
historical data
35
and trends in warranty expense by operating segment. An analysis
by operating segment allows us to consider market specific
factors such as our warranty experience, the number of home
closings, the prices of homes, product mix and other data in
estimating our warranty reserves. In addition, our analysis also
contemplates the existence of any non-recurring or
community-specific warranty related matters that might not be
contemplated in our historical data and trends. As a result of
our analyses, we adjust our estimated warranty liabilities.
Based on historical results, we believe that our existing
estimation process is accurate and do not anticipate the process
to materially change in the future. Our estimation process for
such accruals is discussed in Note 13 to the Consolidated
Financial Statements. While we believe that our warranty
reserves at September 30, 2010 are adequate, there can be
no assurances that historical data and trends will accurately
predict our actual warranty costs or that future developments
might not lead to a significant change in the reserve.
Investments
in Unconsolidated Joint Ventures
We periodically enter into joint ventures with unrelated
developers, other homebuilders and financial partners to develop
finished lots for sale to the joint ventures members and
other third parties. We have determined that our interest in
these joint ventures should be accounted for under the equity
method. We recognize our share of profits and losses from the
sale of lots to other buyers. Our share of profits from lots
purchased by Beazer Homes from the joint ventures are deferred
and treated as a reduction of the cost of the land purchased
from the joint venture. Such profits are subsequently recognized
at the time the home closes and title passes to the homebuyer.
We evaluate our investments in unconsolidated entities for
impairment during each reporting period. A series of operating
losses of an investee or other factors may indicate that a
decrease in the value of our investment in the unconsolidated
entity has occurred which is
other-than-temporary.
The amount of impairment recognized is the excess of the
investments carrying value over its estimated fair value.
Our assumption of the joint ventures estimated fair value
is dependent on market conditions. Inventory in the joint
venture is also reviewed for potential impairment by the
unconsolidated entities. If a valuation adjustment is recorded
by an unconsolidated entity, our proportionate share of it is
reflected in our equity in income (loss) from unconsolidated
joint ventures with a corresponding decrease to our investment
in unconsolidated entities. The operating results of the
unconsolidated joint ventures are dependent on the status of the
homebuilding industry, which has historically been cyclical and
sensitive to changes in economic conditions such as interest
rates, credit availability, unemployment levels and consumer
sentiment. Changes in these economic conditions could materially
affect the projected operational results of the unconsolidated
entities. Because of these changes in economic conditions,
actual results could differ materially from managements
assumptions and may require material valuation adjustments to
our investments in unconsolidated entities to be recorded in the
future.
During fiscal 2010, 2009 and 2008, we wrote down our investment
in certain of our joint ventures reflecting $8.8 million,
$12.6 million and $45.3 million, respectively, of
impairments of inventory held within those ventures. These
charges are included in equity in loss of unconsolidated joint
ventures in the accompanying Statement of Operations for the
fiscal years ended September 30, 2010, 2009 and 2008,
respectively. In addition, for fiscal 2010, 2009 and 2008,
respectively, there were $15.5 million, $2.2 million
and $23.5 million of joint venture impairments related to
certain homebuilding operations in our discontinued operations
and, as a result, have been included in loss from discontinued
operations, net in the accompanying Statement of Operations.
While we believe that no additional impairment of our
unconsolidated joint venture investments existed as of
September 30, 2010, market deterioration or changes in
estimated future cash flows that exceeds our estimates may lead
us to incur additional impairment charges. As of
September 30, 2010, our remaining investments in
unconsolidated joint ventures totaled $8.7 million.
Income
Taxes Valuation Allowance
Judgment is required in estimating valuation allowances for
deferred tax assets. A valuation allowance is established
against a deferred tax asset if, based on the available
evidence, it is not more likely than not that such assets will
be realized. The realization of a deferred tax asset ultimately
depends on the existence of sufficient taxable income in either
the carryback or carryforward periods under tax law. We
periodically assess the need for valuation allowances for
deferred tax assets based on more-likely-than-not realization
threshold criteria. In our
36
assessment, 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, our experience with operating loss and tax
credit carryforwards not expiring unused, the Section 382
limitation on our ability to carryforward pre-ownership change
net operating losses and recognized built-in losses or
deductions, and tax planning alternatives.
Our assessment of the need for the valuation of deferred tax
assets includes assessing the likely future tax consequences of
events that have been recognized in our financial statements or
tax returns. We base our estimate of deferred tax assets and
liabilities on current tax laws and rates and, in certain cases,
business plans and other expectations about future outcomes.
Changes in existing tax laws or rates could affect actual tax
results and future business results may affect the amount of
deferred tax liabilities or the valuation of deferred tax assets
over time. Our accounting for deferred tax consequences
represents our best estimate of future events. Although it is
possible there will be changes that are not anticipated in our
current estimates, we believe it is unlikely such changes would
have a material
period-to-period
impact on our financial position or results of operations.
During fiscal 2008, we determined that it was not more likely
than not that substantially all of our deferred tax assets would
be realized and, therefore, we established a valuation allowance
of $400.6 million for substantially all of our deferred tax
assets. We have not changed our assessment regarding the
recoverability of our deferred tax assets as of
September 30, 2010 and consequently, we determined that a
valuation allowance was still warranted. As of
September 30, 2010, our deferred tax valuation allowance
was $403.8 million. Management reassesses the realizability
of the deferred tax assets each reporting period. To the extent
that our results of operations improve and deferred tax assets
become realizable, the valuation allowance will be reduced and
result in a non-cash tax benefit.
We experienced an ownership change as defined in
Section 382 of the Internal Revenue Code 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 carryforward and
certain built-in losses or deductions recognized during the
five-year period after the ownership change. Therefore, our
ability to utilize our pre-ownership change net operating loss
(NOL) carryforwards and certain recognized built-in losses or
deductions is limited by Section 382 to an estimated
maximum annual amount of approximately $11.4 million
($4 million tax-effected).
There can be no assurance that another ownership change, as
defined in the tax law, will not occur. If another
ownership change occurs, a new annual limitation on
the utilization of net operating losses would be determined as
of that date.
Seasonal
and Quarterly Variability
Our homebuilding operating cycle generally reflects escalating
new order activity in the second and third fiscal quarters and
increased closings in the third and fourth fiscal quarters.
However, beginning in the second half of fiscal 2006 and
continuing through fiscal 2010, we continued to experience
challenging conditions in most of our markets which contributed
to decreased revenues and closings as compared to prior periods
including prior quarters, thereby reducing typical seasonal
variations. In addition, the expiration of the $8,000 First time
Homebuyer Tax Credit on June 30, 2010, appears to have
incentivized certain homebuyers to purchase homes during the
first half of fiscal 2010. This resulted in a change to our
typical seasonal variations as we experienced increased closings
in our third quarter as opposed to our fourth quarter of fiscal
2010. The following chart presents certain quarterly operating
data for our continuing operations for our last twelve fiscal
quarters.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Orders (net of
cancellations)
|
|
|
|
1st Qtr
|
|
|
2nd Qtr
|
|
|
3rd Qtr
|
|
|
4th Qtr
|
|
|
Total
|
|
|
2010
|
|
|
710
|
|
|
|
1,629
|
|
|
|
1,005
|
|
|
|
778
|
|
|
|
4,122
|
|
2009
|
|
|
514
|
|
|
|
1,095
|
|
|
|
1,488
|
|
|
|
980
|
|
|
|
4,077
|
|
2008
|
|
|
988
|
|
|
|
1,662
|
|
|
|
1,549
|
|
|
|
959
|
|
|
|
5,158
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closings
|
|
|
|
1st Qtr
|
|
|
2nd Qtr
|
|
|
3rd Qtr
|
|
|
4th Qtr
|
|
|
Total
|
|
|
2010
|
|
|
935
|
|
|
|
832
|
|
|
|
1,597
|
|
|
|
1,149
|
|
|
|
4,513
|
|
2009
|
|
|
859
|
|
|
|
785
|
|
|
|
911
|
|
|
|
1,641
|
|
|
|
4,196
|
|
2008
|
|
|
1,629
|
|
|
|
1,233
|
|
|
|
1,348
|
|
|
|
2,160
|
|
|
|
6,370
|
|
RESULTS
OF CONTINUING OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
$
|
1,000,531
|
|
|
$
|
968,314
|
|
|
$
|
1,620,990
|
|
Land sales & other
|
|
|
9,310
|
|
|
|
3,389
|
|
|
|
115,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,009,841
|
|
|
$
|
971,703
|
|
|
$
|
1,736,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding
|
|
$
|
81,528
|
|
|
$
|
15,134
|
|
|
$
|
(257,013
|
)
|
Land sales & other
|
|
|
4,080
|
|
|
|
620
|
|
|
|
9,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
85,608
|
|
|
$
|
15,754
|
|
|
$
|
(247,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin homebuilding
|
|
|
8.1
|
%
|
|
|
1.6
|
%
|
|
|
(15.9
|
)%
|
Gross Margin land sales & other
|
|
|
43.8
|
%
|
|
|
18.3
|
%
|
|
|
8.3
|
%
|
Gross Margin Total
|
|
|
8.5
|
%
|
|
|
1.6
|
%
|
|
|
(14.2
|
)%
|
Selling, general and administrative (SG&A) expenses
|
|
$
|
186,556
|
|
|
$
|
222,691
|
|
|
$
|
298,274
|
|
SG&A as a% of total revenue
|
|
|
18.5
|
%
|
|
|
22.9
|
%
|
|
|
17.2
|
%
|
Depreciation and amortization
|
|
$
|
12,874
|
|
|
$
|
18,392
|
|
|
$
|
23,802
|
|
Goodwill impairment
|
|
$
|
|
|
|
$
|
16,143
|
|
|
$
|
48,105
|
|
Equity in income (loss) of unconsolidated joint ventures
from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture activities
|
|
$
|
10
|
|
|
$
|
518
|
|
|
$
|
(12,527
|
)
|
Impairments
|
|
$
|
(8,817
|
)
|
|
$
|
(12,630
|
)
|
|
$
|
(45,292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated joint ventures
|
|
$
|
(8,807
|
)
|
|
$
|
(12,112
|
)
|
|
$
|
(57,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
43,901
|
|
|
$
|
144,503
|
|
|
$
|
|
|
Items
impacting comparability between periods
The following items impact the comparability of our results of
operations between fiscal periods 2010, 2009 and 2008: inventory
impairments and abandonments, certain selling, general and
administrative costs, goodwill impairment charges, joint venture
impairment charges, and gain on extinguishment of debt. In
addition, during fiscal 2010, we exited or discontinued our
title services operations and our New Mexico and Jacksonville,
Florida markets and have reclassified the operating results of
these operations for all period presented to discontinued
operations. We have also reclassified the operating results of
our Raleigh market from the East to the Southeast segment in
alignment with the basis that is used by management for
evaluating segment performance and resource allocations.
Inventory Impairments and Abandonments. The
improvement in gross margin over the past two fiscal years was
directly related to a reduction in non-cash pre-tax inventory
impairments and option contract abandonments from
$403.4 million in fiscal 2008 to $95.2 million in
fiscal 2009 and $50.0 million in fiscal 2010. The projected
cash flows used to evaluate the fair value of inventory are
significantly impacted by changes in market conditions including
decreased sales prices, the change in sales prices and changes
in absorption estimates. The impairments
38
recorded on our held for development inventory for the fiscal
years ended September 30, 2009 and 2008, primarily resulted
from the continued decline in the homebuilding environment
across our submarkets. During fiscal 2010, although certain
markets showed improvement from the prior years, for certain
communities we determined it was prudent to reduce sales prices
or further increase sales incentives in response to factors
including competitive market conditions. In future periods, we
may again determine that it is prudent to reduce sales prices,
further increase sales incentives or reduce absorption rates
which may lead to additional impairments, which could be
material. Our impairments on land held for sale listed below are
as a result of challenging market conditions and our review of
recent comparable transactions since land held for sale is
recorded at net realizable value, less estimated costs to sell.
In addition, over the past few years, we have determined the
proper course of action with respect to a number of communities
within each homebuilding segment was to abandon the remaining
lots under option and to write-off the deposits securing the
option takedowns, as well as pre-acquisition costs. The
abandonment charges below relate to our decision to abandon
certain option contracts that no longer fit in our long-term
strategic plan and related to our prior year decision to exit
certain markets.
The following tables set forth, by reportable homebuilding
segment, the inventory impairments and lot option abandonment
charges recorded for the fiscal years ended September 30,
2010, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Development projects and homes in process (Held for Development)
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
$
|
18,056
|
|
|
$
|
42,704
|
|
|
$
|
145,710
|
|
East
|
|
|
18,703
|
|
|
|
6,383
|
|
|
|
70,152
|
|
Southeast
|
|
|
7,973
|
|
|
|
24,536
|
|
|
|
53,103
|
|
Unallocated
|
|
|
3,404
|
|
|
|
5,116
|
|
|
|
21,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
48,136
|
|
|
$
|
78,739
|
|
|
$
|
290,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Held for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
$
|
1,061
|
|
|
$
|
9,357
|
|
|
$
|
8,505
|
|
East
|
|
|
|
|
|
|
1,071
|
|
|
|
16,883
|
|
Southeast
|
|
|
|
|
|
|
2,094
|
|
|
|
35,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
1,061
|
|
|
$
|
12,522
|
|
|
$
|
61,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lot Option Abandonments
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
$
|
783
|
|
|
$
|
99
|
|
|
$
|
14,893
|
|
East
|
|
|
35
|
|
|
|
2,884
|
|
|
|
9,850
|
|
Southeast
|
|
|
21
|
|
|
|
972
|
|
|
|
26,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
839
|
|
|
$
|
3,955
|
|
|
$
|
51,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
50,036
|
|
|
$
|
95,216
|
|
|
$
|
403,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Inventory impairments related to continuing operations recorded
on a quarterly basis during fiscal 2010, the estimated fair
value of such impaired inventory at each period end, the number
of lots and number of communities impaired in each period are
set forth in the table below as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair
|
|
|
|
|
|
|
|
|
|
Inventory Impairments
|
|
|
Value of Impaired
|
|
|
|
|
|
|
|
|
|
Held for
|
|
|
Held for
|
|
|
|
|
|
Inventory at Period
|
|
|
Lots
|
|
|
Communities
|
|
Quarter Ended
|
|
Development
|
|
|
Sale
|
|
|
Total
|
|
|
End
|
|
|
Impaired
|
|
|
Impaired
|
|
|
December 31, 2009
|
|
$
|
7,486
|
|
|
$
|
1,061
|
|
|
$
|
8,547
|
|
|
$
|
13,997
|
|
|
|
379
|
|
|
|
7
|
|
March 31, 2010
|
|
|
9,976
|
|
|
|
|
|
|
|
9,976
|
|
|
|
25,975
|
|
|
|
525
|
|
|
|
13
|
|
June 30, 2010
|
|
|
4,483
|
|
|
|
|
|
|
|
4,483
|
|
|
|
5,427
|
|
|
|
131
|
|
|
|
3
|
|
September 30, 2010
|
|
|
26,191
|
|
|
|
|
|
|
|
26,191
|
|
|
|
29,313
|
|
|
|
962
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010
|
|
$
|
48,136
|
|
|
$
|
1,061
|
|
|
$
|
49,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expense
Items. Fiscal 2009 included approximately
$16 million of expense for obligations related to the
government investigations (see Note 13 to the Consolidated
Financial Statements). The decrease in SG&A expense for
fiscal 2010 as compared to fiscal 2009 is primarily due to
continued cost reductions realized as a result of our
comprehensive review of SG&A costs and the absence of the
previously mentioned $16 million fiscal 2009 expense offset
by increased selling expenses related to the increase in home
closings.
The 25.3% decrease in SG&A expense between fiscal 2008 and
2009 presented is primarily related to cost reductions realized
as a result of our comprehensive review and realignment of our
overhead structure in light of our reduced volume expectations
and lower sales commissions related to decreased revenues, and
decreased investigation-related costs and severance costs offset
partially by approximately $16 million of expense for
obligations related to the government investigations (see
Note 13 to the Consolidated Financial Statements). As of
September 30, 2009, we had reduced our overall number of
employees by 543 or 38% as compared to September 30, 2008,
or a cumulative reduction of 79% since September 30, 2006.
Fiscal 2009 and 2008 SG&A expense included
$4.5 million and $3.1 million in severance costs
related to employees who had been severed as of September 30 of
the respective year.
Fiscal 2010, 2009 and 2008 SG&A expense included
$10.2 million, $23.8 million and $31.8 million,
respectively of government investigation and investigation
support-related costs, including the $16 million obligation
recorded in fiscal 2009 and discussed above. As a percentage of
total revenue, SG&A expenses were 18.5% in fiscal 2010
(17.5% excluding the investigation-related costs), 22.9% in
fiscal 2009 (20.5% excluding the investigation-related costs)
and 17.2% in fiscal 2008 (15.3% excluding the
investigation-related costs). The change in SG&A costs as a
percentage of total revenue is primarily related to the
aforementioned investigative and severance costs and the impact
of fixed overhead expenses on reduced/increased revenues, as
applicable.
Goodwill Impairment Charges. The Company
experienced a significant decline in its market capitalization
during first quarter of fiscal 2009. As of December 31,
2008, we considered current and expected future market
conditions and recorded a pre-tax, non-cash goodwill impairment
charge of $16.1 million in the first quarter of fiscal 2009
related to our reporting units in Maryland, Houston, Texas and
Nashville, Tennessee. As a result of this impairment charge, we
have no goodwill remaining as of September 30, 2009 or
2010. In fiscal 2008, in light of continuing market weakness,
significantly reduced new orders, additional pricing pressures
and additional incentives provided to homebuyers, our
reforecasting of expected future results of operations and
increasing inventory charges, we recorded pretax, non-cash
goodwill impairment charges of $48.1 million related to our
reporting units in Arizona, New Jersey, Southern California and
Virginia. The goodwill impairment charges were based on
estimates of the fair value of the underlying assets of the
reporting units.
Joint Venture Impairment Charges. As a result
of the further deterioration of economic conditions in certain
of our markets and the settlement of guarantees under debt
obligations of certain of our unconsolidated joint ventures, we
recorded impairments in certain of our unconsolidated joint
ventures totaling $8.8 million, $12.6 million and
$45.3 million in fiscal 2010, 2009 and 2008, respectively
(see Note 3 to the Consolidated Financial Statements where
further discussed). If these adverse market conditions continue
or worsen, we may have to take
40
further impairments of our investments in these joint ventures
that may have a material adverse effect on our financial
position and results of operations.
Gain on Extinguishment of Debt. During fiscal
2010, we completed a number of financial transactions including
the repurchase of an aggregate of $585.4 million of our
outstanding Senior Notes for an aggregate purchase price of
$586.3 million, plus accrued and unpaid interest as of the
purchase date. We also completed an exchange of $75 million
of our outstanding junior unsecured notes. These transactions
resulted in a gain on extinguishment of debt of
$43.9 million, net of unamortized discounts and debt
issuance costs related to these notes. During the second half of
fiscal 2009, we voluntarily repurchased in open-market
transactions $384.8 million principal amount of our Senior
Notes. The aggregate purchase price was $247.7 million,
plus accrued and unpaid interest as of the purchase date, which
resulted in a $130.2 million pre-tax gain on extinguishment
of debt, net of unamortized discounts and debt issuance costs
related to these notes. During fiscal 2009, we also negotiated a
reduced payoff for one of our other secured notes payable
totaling $22.7 million and recorded a gain on debt
extinguishment of $14.3 million related to the repayment of
this note.
Discontinued Operations. We have classified
the results of operations of our mortgage origination services,
title services and our exit markets as discontinued operations
in the accompanying consolidated statements of operations for
all periods presented. All statement of operations information
in the table above and the management discussion and analysis
that follow exclude the results of discontinued operations.
Discontinued operations were not segregated in the Consolidated
Statements of Cash Flows or the Consolidated Balance Sheets.
Additional operating data related to discontinued operations for
the fiscal years ended September 30, 2010, 2009 and 2008 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in thousands)
|
|
|
Closings
|
|
|
132
|
|
|
|
192
|
|
|
|
1,322
|
|
New Orders
|
|
|
126
|
|
|
|
146
|
|
|
|
907
|
|
Homebuilding revenues
|
|
$
|
28,029
|
|
|
$
|
46,609
|
|
|
$
|
293,314
|
|
Land and lot sale revenues
|
|
$
|
3,277
|
|
|
$
|
3,077
|
|
|
$
|
40,064
|
|
Mortgage & title revenues
|
|
$
|
1,861
|
|
|
$
|
1,813
|
|
|
$
|
7,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
33,167
|
|
|
$
|
51,499
|
|
|
$
|
341,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 15 to the Consolidated Financial Statements for
additional information related to our discontinued operations.
Segment
Results Continuing Operations
Unit
Data by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Orders, net
|
|
Cancellation Rates
|
|
|
2010
|
|
2009
|
|
2008
|
|
10 v 09
|
|
09 v 08
|
|
2010
|
|
2009
|
|
2008
|
|
West
|
|
|
1,615
|
|
|
|
1,793
|
|
|
|
2,449
|
|
|
|
(9.9
|
)%
|
|
|
(26.8
|
)%
|
|
|
29.5
|
%
|
|
|
35.3
|
%
|
|
|
41.1
|
%
|
East
|
|
|
1,563
|
|
|
|
1,509
|
|
|
|
1,337
|
|
|
|
3.6
|
%
|
|
|
12.9
|
%
|
|
|
25.3
|
%
|
|
|
30.1
|
%
|
|
|
48.2
|
%
|
Southeast
|
|
|
944
|
|
|
|
775
|
|
|
|
1,372
|
|
|
|
21.8
|
%
|
|
|
(43.5
|
)%
|
|
|
18.1
|
%
|
|
|
24.1
|
%
|
|
|
27.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,122
|
|
|
|
4,077
|
|
|
|
5,158
|
|
|
|
1.1
|
%
|
|
|
(21.0
|
)%
|
|
|
25.5
|
%
|
|
|
31.5
|
%
|
|
|
40.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog at September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
10 v 09
|
|
|
09 v 08
|
|
|
Units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
|
269
|
|
|
|
431
|
|
|
|
521
|
|
|
|
(37.6
|
)%
|
|
|
(17.3
|
)%
|
East
|
|
|
366
|
|
|
|
532
|
|
|
|
455
|
|
|
|
(31.2
|
)%
|
|
|
16.9
|
%
|
Southeast
|
|
|
145
|
|
|
|
208
|
|
|
|
314
|
|
|
|
(30.3
|
)%
|
|
|
(33.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
780
|
|
|
|
1,171
|
|
|
|
1,290
|
|
|
|
(33.4
|
)%
|
|
|
(9.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregated $ value of homes in backlog:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ($ in millions)
|
|
$
|
186.2
|
|
|
$
|
275.3
|
|
|
$
|
315.3
|
|
|
|
(32.4
|
)%
|
|
|
(12.7
|
)%
|
Backlog reflects the number and value of homes for which the
Company has entered into a sales contract with a customer but
has not yet delivered the home.
Fiscal
2010 versus 2009
New orders, net of cancellations, for fiscal 2010 increased
slightly compared to fiscal 2009 in many of our markets driven
by increased demand due to federal and state housing credits
which expired in June 2010 and decreased cancellation rates. The
decrease in net new orders in our West segment was primarily due
to continued challenging market conditions which were
particularly pronounced in our California markets. Historically
low interest rates, increased affordability and federal and
state housing tax credits appear to have enticed more
prospective buyers to purchase a new home; however, foreclosures
are having a damaging impact on the market. In most of our
markets, appraisals continue to be negatively impacted by
foreclosure comparables which put additional pricing pressures
on all home sales and limit financing availability. The decrease
in our cancellation rates reflects the market improvement and
relative price stabilization as compared to the prior years. It
also reflects the impact of historically low interest rates and
increased affordability and the impact of federal and state
housing tax credits that enticed certain prospective buyers to
purchase a new home during fiscal 2010.
The decrease in total units in backlog and the aggregate dollar
value of homes in backlog for our continuing operations at
September 30, 2010 compared to the prior year, related
partially to the acceleration of closings into our third fiscal
quarter driven by the federal and state housing credits which
expired in June 2010. As the availability of mortgage loans
further stabilizes, the inventory of new and used homes
decreases, and consumer confidence in the economic recovery
increases, backlog should increase; however, continued reduced
levels of backlog will produce less revenue in the future which
could also result in additional asset impairment charges and
lower levels of liquidity.
Fiscal
2009 versus 2008
New orders, net for fiscal 2009 decreased as compared to the
same period fiscal 2008 driven by weaker market conditions,
including the tightening of mortgage credit availability, an
increase in home foreclosures and other economic factors that
have impacted homebuyers. For fiscal 2009, we experienced
cancellation rates of 31.5% compared to 40.2% for fiscal 2008.
These cancellation rates in both fiscal 2009 and 2008 reflect
the continued challenging market environment which includes the
inability of many potential homebuyers to sell their existing
homes and obtain affordable financing. In addition, on
July 1, 2008, we completed the sale of two large
condominium projects in Virginia, which resulted in the
cancellation of 215 orders for fiscal 2008, and the significant
increase in the cancellation rate for our East segment.
Excluding these transactions, our cancellation rates in the East
Segment and total continuing operations were 39.9% and 37.7%,
respectively, for fiscal 2008. The decrease in cancellation
rates across all markets reflects competitive pricing and a
trend in the current environment that buyers are only willing to
contract on a new home once their current home sells.
The aggregate dollar value of homes in backlog for our
continuing operations at September 30, 2009 decreased 12.7%
from the prior year, related to a decrease in the number of
homes in backlog. The decrease in the number of homes in backlog
across our West and Southeast markets is driven primarily by the
aforementioned market weakness and lower new orders.
42
Backlog declined in many of our homebuilding markets from fiscal
2009 to 2008 due primarily to lower new orders caused by a
competitive environment, increased foreclosures, the reduction
in the availability of mortgage credit for our potential
homebuyers and our decision to sell certain large projects.
Foreclosures had by far the most damaging impact on the market
during this period. Particularly in our Southeast and Nevada
markets, appraisals were negatively impacted by foreclosure
comparables which put additional pricing pressure on all home
sales and limit financing availability.
Homebuilding Revenues and Average Selling
Price. The table below summarizes homebuilding
revenues, the average selling prices of our homes and closings
by reportable segment ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding Revenues
|
|
|
Average Selling Price
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
10 v 09
|
|
|
09 v 08
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
10 v 09
|
|
|
09 v 08
|
|
|
West
|
|
$
|
360,756
|
|
|
$
|
407,639
|
|
|
$
|
651,268
|
|
|
|
(11.5
|
)%
|
|
|
(37.4
|
)%
|
|
$
|
203.0
|
|
|
$
|
216.5
|
|
|
$
|
241.9
|
|
|
|
(6.2
|
)%
|
|
|
(10.5
|
)%
|
East
|
|
|
446,862
|
|
|
|
373,498
|
|
|
|
614,408
|
|
|
|
19.6
|
%
|
|
|
(39.2
|
)%
|
|
|
258.5
|
|
|
|
260.8
|
|
|
|
287.6
|
|
|
|
(0.9
|
)%
|
|
|
(9.3
|
)%
|
Southeast
|
|
|
192,913
|
|
|
|
187,177
|
|
|
|
355,314
|
|
|
|
3.1
|
%
|
|
|
(47.3
|
)%
|
|
|
191.6
|
|
|
|
212.5
|
|
|
|
229.8
|
|
|
|
(9.8
|
)%
|
|
|
(7.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,000,531
|
|
|
$
|
968,314
|
|
|
$
|
1,620,990
|
|
|
|
3.3
|
%
|
|
|
(40.3
|
)%
|
|
$
|
221.7
|
|
|
$
|
230.8
|
|
|
$
|
254.3
|
|
|
|
(3.9
|
)%
|
|
|
(9.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closings
|
|
|
2010
|
|
2009
|
|
2008
|
|
10 v 09
|
|
09 v 08
|
|
West
|
|
|
1,777
|
|
|
|
1,883
|
|
|
|
2,688
|
|
|
|
(5.6
|
)%
|
|
|
(29.9
|
)%
|
East
|
|
|
1,729
|
|
|
|
1,432
|
|
|
|
2,136
|
|
|
|
20.7
|
%
|
|
|
(33.0
|
)%
|
Southeast
|
|
|
1,007
|
|
|
|
881
|
|
|
|
1,546
|
|
|
|
14.3
|
%
|
|
|
(43.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,513
|
|
|
|
4,196
|
|
|
|
6,370
|
|
|
|
7.6
|
%
|
|
|
(34.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2010 versus 2009
Homebuilding revenues increased slightly for the fiscal year
ended September 30, 2010 compared to the comparable period
of the prior year due to an increase in closings. This year-over
year increase in closings was offset partially by a decrease in
average selling prices (ASP). The reduction in ASP was primarily
attributable to a substantial geographic shift in closings to
those markets with the lowest ASP and a higher concentration of
entry-level homebuyers. In addition, foreclosures continue to
pose problems in many of our markets manifesting in lower
appraisals which put additional pricing pressure on all homes
for sale. As a result, we reduced sales prices in many of our
markets during fiscal 2010 in order to respond to these market
conditions. Historically low interest rates, increased
affordability and federal and state housing tax credits incented
more prospective buyers to purchase a new home and contributed
to the significant increase in our closings for the fiscal year
ended September 30, 2010.
Homebuilding revenues in our West segment decreased 11.5% for
the fiscal year ended September 30, 2010 compared to the
same period of fiscal 2009 driven by a 5.6% decrease in homes
closed and a 6.2% decrease in ASP. The decrease in ASP in our
West segment for fiscal 2010 resulted primarily from a
significant increase in the sale of entry level homes to first
time homebuyers in all of our markets, a reduction in the amount
of options and upgrades ordered along with select price declines
in markets where conditions, such as a high levels of
foreclosures and unemployment necessitated slightly lower home
prices.
For the fiscal year ended September 30, 2010, our East
segment homebuilding revenues increased by 19.6% driven by
increased closings across all of our markets in this segment.
Our Southeast segment continued to be challenged by excess
capacity in both the new home and resale markets and the high
number of foreclosures, driving decreases in ASP of 9.8% for the
fiscal year ended September 30, 2010 as compared to the
prior year. In addition, the homes closed during the fiscal year
in many of our markets were more heavily weighted toward the
entry level buyer than in the prior year.
Fiscal
2009 versus 2008
Homebuilding revenues decreased for the fiscal year ended
September 30, 2009 compared to fiscal 2008 due to decreased
closings in the majority of our markets, related to reduced
demand, excess capacity in both new and resale
43
markets (including increased foreclosures available at lower
prices) as investors continued to divest of prior home purchases
and potential homebuyers had difficulty selling their homes
and/or
obtaining financing. In addition, credit tightening in the
mortgage markets, increased unemployment and a decline in
consumer confidence in the majority of our markets further
compounded the market pressures during the fiscal year 2009.
Specifically, homebuilding revenues in the West segment
decreased for fiscal 2009 compared to fiscal 2008 due to reduced
ASP and reduced demand in the majority of the markets in this
segment resulting from deteriorating market conditions and
excess capacity in both the new home and resale markets. In
addition, credit tightening in the mortgage markets and a
decline in consumer confidence in all of our markets further
compounded the market deterioration in our Nevada, California,
Texas and Arizona markets in our West segment in fiscal 2009.
For the fiscal year ended September 30, 2009, our East
segment homebuilding revenues decreased by 39.2% driven by a
33.0% decline in closings and a 9.3% decline in average sales
prices which was particularly pronounced in our Maryland, New
Jersey, Tennessee and Virginia markets. These declines reflect
the impact of excess capacity in the resale markets, the impact
of credit tightening in the mortgage markets, competitive
pricing pressures and a decline in consumer confidence.
Our Southeast segment continued to be challenged by significant
declines in demand and excess capacity in both the new home and
resale markets and high foreclosures, especially in our Georgia
and Florida markets, driving decreases in homebuilding revenues
of 47.3% for fiscal 2009 as compared to fiscal 2008. Home
closings in the Southeast segment decreased by 43.0% from the
prior year due to deteriorating market conditions and
competitive pressures. The decrease in closings was driven by
lower demand, higher available supply of new and resale
inventory, increased competition and the tightening of credit
requirements and decreased availability of mortgage options for
potential homebuyers.
Homebuilding Gross Profit (Loss). Homebuilding
gross profit (loss) is defined as homebuilding revenues less
home cost of sales (which includes land and land development
costs, home construction costs, capitalized interest, indirect
costs of construction, estimated warranty costs, closing costs
and inventory impairment and lot option abandonment charges).
Corporate and unallocated costs include the amortization of
capitalized interest and indirect construction costs. The
following table sets forth our homebuilding gross profit (loss)
and gross margin by reportable segment and total homebuilding
gross profit (loss) and gross margin, and such amounts excluding
inventory impairments and abandonments for the fiscal years
ended September 30, 2010, 2009 and 2008 ($ in
thousands). Total homebuilding gross profit (loss) and gross
margin excluding inventory impairments and abandonments are not
GAAP financial measures. These measures should not be considered
alternatives to homebuilding gross profit (loss) determined in
accordance with GAAP as an indicator of operating performance.
The magnitude and volatility of non-cash inventory impairment
and abandonment charges for the Company, and for other home
builders, have been significant in recent periods and, as such,
have made financial analysis of our industry more difficult.
Homebuilding metrics excluding these charges, and other similar
presentations by analysts and other companies, is frequently
used to assist investors in understanding and comparing the
operating characteristics of home building activities by
eliminating many of the differences in companies
respective level of impairments. Management believes these
non-GAAP measures enable holders of our securities to better
understand the cash implications of our operating performance
and our ability to service our debt obligations as they
currently exist and as additional indebtedness is incurred in
the future. These measures are also useful internally, helping
management compare operating results and as a measure of the
level of cash which may be available for discretionary spending.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
Impairments &
|
|
|
HB Gross
|
|
|
HB Gross
|
|
|
|
HB Gross
|
|
|
HB Gross
|
|
|
Abandonments
|
|
|
Profit (Loss)
|
|
|
Margin w/o
|
|
|
|
Profit (Loss)
|
|
|
Margin
|
|
|
(I&A)
|
|
|
w/o I&A
|
|
|
I&A
|
|
|
West
|
|
$
|
52,621
|
|
|
|
14.6
|
%
|
|
$
|
19,900
|
|
|
$
|
72,521
|
|
|
|
20.1
|
%
|
East
|
|
|
54,176
|
|
|
|
12.1
|
%
|
|
|
18,738
|
|
|
|
72,914
|
|
|
|
16.3
|
%
|
Southeast
|
|
|
20,519
|
|
|
|
10.6
|
%
|
|
|
7,994
|
|
|
|
28,513
|
|
|
|
14.8
|
%
|
Corporate & unallocated
|
|
|
(45,788
|
)
|
|
|
|
|
|
|
3,404
|
|
|
|
(42,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding
|
|
$
|
81,528
|
|
|
|
8.1
|
%
|
|
$
|
50,036
|
|
|
$
|
131,564
|
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
Impairments &
|
|
|
HB Gross
|
|
|
HB Gross
|
|
|
|
HB Gross
|
|
|
HB Gross
|
|
|
Abandonments
|
|
|
Profit (Loss)
|
|
|
Margin w/o
|
|
|
|
Profit (Loss)
|
|
|
Margin
|
|
|
(I&A)
|
|
|
w/o I&A
|
|
|
I&A
|
|
|
West
|
|
$
|
28,566
|
|
|
|
7.0
|
%
|
|
$
|
52,160
|
|
|
$
|
80,726
|
|
|
|
19.8
|
%
|
East
|
|
|
45,681
|
|
|
|
12.2
|
%
|
|
|
10,338
|
|
|
|
56,019
|
|
|
|
15.0
|
%
|
Southeast
|
|
|
(1,811
|
)
|
|
|
(1.0
|
)%
|
|
|
27,602
|
|
|
|
25,791
|
|
|
|
13.8
|
%
|
Corporate & unallocated
|
|
|
(57,302
|
)
|
|
|
|
|
|
|
5,116
|
|
|
|
(52,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding
|
|
$
|
15,134
|
|
|
|
1.6
|
%
|
|
$
|
95,216
|
|
|
$
|
110,350
|
|
|
|
11.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Impairments &
|
|
|
HB Gross
|
|
|
HB Gross
|
|
|
|
HB Gross
|
|
|
HB Gross
|
|
|
Abandonments
|
|
|
Profit (Loss)
|
|
|
Margin w/o
|
|
|
|
Profit (Loss)
|
|
|
Margin
|
|
|
(I&A)
|
|
|
w/o I&A
|
|
|
I&A
|
|
|
West
|
|
$
|
(58,187
|
)
|
|
|
(8.9
|
)%
|
|
$
|
169,108
|
|
|
$
|
110,921
|
|
|
|
17.0
|
%
|
East
|
|
|
6,086
|
|
|
|
1.0
|
%
|
|
|
96,885
|
|
|
|
102,971
|
|
|
|
16.8
|
%
|
Southeast
|
|
|
(60,470
|
)
|
|
|
(17.0
|
)%
|
|
|
115,640
|
|
|
|
55,170
|
|
|
|
15.5
|
%
|
Corporate & unallocated
|
|
|
(144,442
|
)
|
|
|
|
|
|
|
21,769
|
|
|
|
(122,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding
|
|
$
|
(257,013
|
)
|
|
|
(15.9
|
)%
|
|
$
|
403,402
|
|
|
$
|
146,389
|
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2010 versus 2009
For the fiscal year ended September 30, 2010 as compared to
the prior year, the increase in gross margins across all
segments is primarily due to increased revenues, cost reductions
and lower inventory impairments and lot option abandonment
charges. Our segments realized a nominal increase in gross
margins excluding impairments as prices have begun to stabilize
in certain of our markets and we benefitted from cost
reductions. A few of our markets experienced a decrease in gross
margins excluding inventory impairments for the fiscal year
ended September 30, 2010 as compared to the prior year due
to our decision to reduce prices in certain of our communities
in order to compete with similar product for sale in the locale
and to increase the frequency of new home orders.
Fiscal
2009 versus 2008
The increase in homebuilding gross margins across all segments
is primarily due to decreases in corporate costs and inventory
impairments and lot option abandonment charges (impairments and
abandonments). Excluding impairments and abandonments,
homebuilding gross margins increased slightly in our West
segment due to continued focus on cost reduction initiatives;
whereas they decreased in our East and Southeast segments which
continued to be challenged by the further deterioration of
market conditions and an increased use of incentives. The
decrease in corporate and unallocated costs relates primarily to
1) a reduction of approximately $8 million in
investigation-related costs given the resolution of the
previously disclosed investigations despite $16 million of
expense related to our obligations under the Deferred
Prosecution Agreement (see Note 13 to the Consolidated
Financial Statements), 2) a reduction of $57.5 million
in the amortization of capitalized interest costs due to a lower
capitalizable inventory base and an increase in disallowed
interest for capitalization which is recorded as other expense,
net in the accompanying Consolidated Statements of Operations,
and 3) a reduction of $16.7 million in expenses
related to the impairment of capitalized interest and indirect
costs in connection with the reduced level of inventory
impairments in fiscal 2009 compared to fiscal 2008.
Land Sales and Other Revenues. Land sales and
other revenues relate to land and lots sold that did not fit
within our homebuilding programs and strategic plans in these
markets and net fees we received for general
45
contractor services we performed on behalf of a third party. The
table below summarizes land sales and other revenues and gross
profit (loss) by reportable segment ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Sales & Other Revenues
|
|
|
Land Sales and Other Gross Profit (Loss)
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
10 v 09
|
|
|
09 v 08
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
10 v 09
|
|
|
09 v 08
|
|
|
West
|
|
$
|
3,774
|
|
|
$
|
1,529
|
|
|
$
|
5,203
|
|
|
|
146.8
|
%
|
|
|
(70.6
|
)%
|
|
$
|
424
|
|
|
$
|
(1
|
)
|
|
$
|
2,139
|
|
|
|
n/m
|
|
|
|
(100.0
|
)%
|
East
|
|
|
4,300
|
|
|
|
1,120
|
|
|
|
107,024
|
|
|
|
283.9
|
%
|
|
|
(99.0
|
)%
|
|
|
2,421
|
|
|
|
562
|
|
|
|
7,349
|
|
|
|
330.8
|
%
|
|
|
(92.4
|
)%
|
Southeast
|
|
|
1,236
|
|
|
|
740
|
|
|
|
3,510
|
|
|
|
67.0
|
%
|
|
|
(78.9
|
)%
|
|
|
1,235
|
|
|
|
59
|
|
|
|
82
|
|
|
|
n/m
|
|
|
|
(28.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,310
|
|
|
$
|
3,389
|
|
|
$
|
115,737
|
|
|
|
174.7
|
%
|
|
|
(97.1
|
)%
|
|
$
|
4,080
|
|
|
$
|
620
|
|
|
$
|
9,570
|
|
|
|
558.1
|
%
|
|
|
(93.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2010 versus 2009
The increase in land sales and other revenue and gross profit in
fiscal 2010 from fiscal 2009 relates to our ability to dispose
of land and lots that did not fit into our strategic plans. Our
fiscal 2010 land sales and other revenue and gross profit
in our Southeast segment also include net fees received for
general contractor services we performed on behalf of a third
party.
Fiscal
2009 versus 2008
The decrease in land sales revenue and gross profit in our East
segment from fiscal 2008 is primarily related to the 2008 sale
of two condominium projects in Virginia.
Derivative Instruments and Hedging
Activities. We are exposed to fluctuations in
interest rates. From time to time, we enter into derivative
agreements to manage interest costs and hedge against risks
associated with fluctuating interest rates. As of
September 30, 2010, we were not a party to any such
derivative agreements. We do not enter into or hold derivatives
for trading or speculative purposes.
Liquidity and Capital Resources. Our sources
of liquidity include, but are not limited to, cash from
operations, proceeds from Senior Notes and other bank
borrowings, the issuance of equity and equity-linked securities
and other external sources of funds. Our short-term and
long-term liquidity depend primarily upon our level of net
income, working capital management (cash, accounts receivable,
accounts payable and other liabilities) and available credit
facilities.
During the fiscal year ended September 30, 2010, we
generated $29.8 million in cash primarily from our
operations. Our liquidity position consisted of
$537.1 million in cash and cash equivalents plus
$39.2 million of restricted cash as of September 30,
2010. We expect to maintain a significant liquidity position
during fiscal 2011, subject to changes in market conditions that
would alter our expectations for land and land development
expenditures or capital market conditions which could increase
or decrease our cash balance on a quarterly basis.
Our net cash provided by operating activities for the fiscal
year ended September 30, 2010 was $69.7 million
primarily due to reductions in inventory due to increased
closings and timing of strategic land purchases. Net cash used
in investing activities was $6.2 million for the fiscal
year ended September 30, 2010 compared to
$79.7 million and $18.4 million for the fiscal years
ended September 30, 2009 and 2008, respectively. For the
fiscal year ended September 30, 2010 our use of cash was
primarily related to investments in our property, plant and
equipment and joint ventures, $3.9 million of which was
used by one joint venture to repay outstanding debt, offset by a
net reduction in our restricted cash of $10.3 million.
Net cash used in financing activities was $33.7 million for
fiscal year ended September 30, 2010 as compared to
$91.1 million for fiscal 2009 and $167.2 million in
fiscal 2008. During fiscal 2010, we completed a
$57.5 million Mandatory Convertible Subordinated Notes
offering, two common stock offerings totaling 34,925,000 total
shares, a $300 million senior unsecured debt offering and
an offering of 3 million 7.25% Tangible Equity Units. The
net proceeds from these offerings were used to repay our
outstanding 2011 Senior Notes, 2012 Senior Notes and our 2024
Convertible Senior Notes.
As a result of our 2011 and 2012 Senior Notes and 2024
Convertible Senior Notes repayments, our next scheduled debt
payment is not until November 2013. In addition, on
January 15, 2010, we completed a partial exchange of
$75 million of our outstanding Junior Subordinated Notes.
We recorded a net gain of approximately
46
$43.9 million during fiscal year ended September 30,
2010 primarily related to the exchange of our Junior
Subordinated Notes (see Note 7 to the Consolidated
Financial Statements where further discussed).
During our fiscal 2010, we received upgrades from S&P in
our corporate credit rating to B-. Also during the fiscal year,
Moodys raised its corporate credit rating of the Company
to Caa1 and Fitch raised its corporate credit rating of the
Company to B-. These ratings and our current credit condition
affect, among other things, our ability to access new capital.
Negative changes to these ratings may result in more stringent
covenants and higher interest rates under the terms of any new
debt. Our credit ratings could be lowered or rating agencies
could issue adverse commentaries in the future, which could have
a material adverse effect on our business, results of
operations, financial condition and liquidity. In particular, a
weakening of our financial condition, including any further
increase in our leverage or decrease in our profitability or
cash flows, could adversely affect our ability to obtain
necessary funds, result in a credit rating downgrade or change
in outlook, or otherwise increase our cost of borrowing.
We fulfill our short-term cash requirements with cash generated
from our operations. There were no amounts outstanding under the
Secured Revolving Credit Facility at September 30, 2010;
however, $37.9 million is currently used for letters of
credit. We have entered into a number of stand-alone, cash
secured letter of credit agreements with banks. These facilities
will continue to provide for future working capital and letter
of credit needs collateralized by either cash or assets of the
Company at our option, based on certain conditions and covenant
compliance. As of September 30, 2010, we have secured our
letters of credit under these facilities using cash collateral
which is maintained in restricted accounts totaling
$38.8 million. In addition, we have elected to pledge
approximately $925 million of inventory assets to our
revolving credit facility. We believe that cash and cash
equivalents at September 30, 2010 of $537.1 million,
cash generated from our operations and the availability of new
debt and equity financing, if any, will be adequate to meet our
liquidity needs during fiscal 2011.
In addition to our continued focus on generation and
preservation of cash, we are also focused on increasing our
stockholders equity and reducing our leverage. In fiscal
2010, we raised $166.7 million of common equity capital,
$128.2 million of equity linked capital (Mandatory
Convertible Subordinated Notes and Tangible Equity Units) and
$300 million Senior Notes while repaying
$585.4 million of our Senior Notes. In addition, we
restructured $75 million of our subordinated indebtedness
due 2036. In addition, we received federal income tax refunds
totaling $133 million.
We may also determine in the future that we need to issue
additional new common or preferred equity. Any new issuance may
take the form of public or private offerings for cash, equity
issued to consummate acquisitions of assets or equity issued in
exchange for a portion of our outstanding debt. We may also from
time to time seek to continue to retire or purchase our
outstanding debt through cash purchases
and/or
exchanges for equity or other debt securities, in open market
purchases, privately negotiated transactions or otherwise. In
addition, any material variance from our projected operating
results or land investments, or investments in or acquisitions
of businesses, or amounts paid to fulfill obligations with
governmental entities, could require us to obtain additional
equity or debt financing. Any such equity transactions or debt
financing may be on terms less favorable or at higher costs than
our current financing sources, depending on future market
conditions and other factors including any possible downgrades
in our credit ratings or adverse commentaries issued by rating
agencies in the future. Also, there can be no assurance that we
will be able to complete any of these transactions in the future
on favorable terms or at all.
Stock Repurchases and Dividends Paid The
Company did not repurchase any shares in the open market during
fiscal 2010, 2009 or 2008. Any future stock repurchases as
allowed by our debt covenants must be approved by the
Companys Board of Directors or its Finance Committee.
On November 2, 2007, our Board of Directors suspended
payment of quarterly dividends. The Board concluded that
suspending dividends, which will allow us to conserve
approximately $16 million of cash annually, was a prudent
effort in light of the continued deterioration of the housing
market. In addition, the indentures under which our Senior Notes
were issued contain certain restrictive covenants, including
limitations on the payment of dividends. At September 30,
2010, under the most restrictive covenants of each indenture,
none of our retained earnings was available for cash dividends.
Hence, there were no dividends paid in fiscal 2010, 2009 or 2008.
47
Off-Balance Sheet Arrangements and Aggregate Contractual
Commitments. At September 30, 2010, we
controlled 28,996 lots (a
6-year
supply based on fiscal 2010 closings). We owned 80%, or 23,176
lots, and 5,820 lots, 20%, were under option contracts which
generally require the payment of cash or the posting of a letter
of credit for the right to acquire lots during a specified
period of time at a certain price. We historically have
attempted to control a portion of our land supply through
options. As a result of the flexibility that these options
provide us, upon a change in market conditions we may
renegotiate the terms of the options prior to exercise or
terminate the agreement. Under option contracts, purchase of the
properties is contingent upon satisfaction of certain
requirements by us and the sellers and our liability is
generally limited to forfeiture of the non-refundable deposits,
letters of credit and other non-refundable amounts incurred,
which aggregated approximately $38.7 million at
September 30, 2010. This amount includes non-refundable
letters of credit of approximately $3.7 million. The total
remaining purchase price, net of cash deposits, committed under
all options was $221.3 million as of September 30,
2010. When market conditions improve, we may expand our use of
option agreements to supplement our owned inventory supply.
We expect to exercise, subject to market conditions, most of our
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
land options will be exercised.
We have historically funded the exercise of land options through
a combination of operating cash flows. We expect these sources
to continue to be adequate to fund anticipated future option
exercises. Therefore, we do not anticipate that the exercise of
our land options will have a material adverse effect on our
liquidity.
We participate in a number of land development joint ventures in
which we have less than a controlling interest. We enter into
joint ventures in order to acquire attractive land positions, to
manage our risk profile and to leverage our capital base. Our
joint ventures are typically entered into with developers, other
homebuilders and financial partners to develop finished lots for
sale to the joint ventures members and other third
parties. We account for our interest in these joint ventures
under the equity method. Our consolidated balance sheets include
investments in joint ventures totaling $8.7 million and
$30.1 million at September 30, 2010 and 2009,
respectively.
Our joint ventures typically obtain secured acquisition and
development financing. At September 30, 2010, our
unconsolidated joint ventures had borrowings outstanding
totaling $394.3 million, of which $327.9 million
related to one joint venture in which we are a 2.58% partner.
Generally, we and our joint venture partners have provided
varying levels of guarantees of debt or other obligations of our
unconsolidated joint ventures. At September 30, 2010, we
had repayment guarantees of $15.8 million. One of our
unconsolidated joint ventures, in which we have a 2.58%
interest, is in default under its debt agreement at
September 30, 2010. To the extent that we are unable to
reach satisfactory resolutions, we may be called upon to perform
under our applicable guarantees. See Note 3 to the
Consolidated Financial Statements.
The following summarizes our aggregate contractual commitments
at September 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than 1
|
|
|
|
|
|
|
|
|
More than 5
|
|
Contractual Obligations
|
|
Total
|
|
|
Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
Years
|
|
|
Senior Notes, Senior Secured Notes & other notes
payable
|
|
$
|
1,230,968
|
|
|
$
|
9,307
|
|
|
$
|
15,204
|
|
|
$
|
374,575
|
|
|
$
|
831,882
|
|
Interest commitments under Senior Notes, Senior Secured
Notes & other notes payable(1)
|
|
|
787,310
|
|
|
|
104,400
|
|
|
|
197,660
|
|
|
|
181,540
|
|
|
|
303,710
|
|
Obligations related to lots under option
|
|
|
221,341
|
|
|
|
77,189
|
|
|
|
88,385
|
|
|
|
29,614
|
|
|
|
26,153
|
|
Operating leases
|
|
|
24,683
|
|
|
|
7,534
|
|
|
|
11,792
|
|
|
|
4,104
|
|
|
|
1,253
|
|
Uncertain tax positions(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,264,302
|
|
|
$
|
198,430
|
|
|
$
|
313,041
|
|
|
$
|
589,833
|
|
|
$
|
1,162,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest on variable rate obligations is based on rates
effective as of September 30, 2010. |
|
(2) |
|
Due to the uncertainty of the timing of settlement with taxing
authorities, the Company is unable to make reasonably reliable
estimates of the period of cash settlement of unrecognized tax
benefits related to uncertain |
48
|
|
|
|
|
tax positions. See Note 9 to Consolidated Financial
Statements for additional information regarding the
Companys unrecognized tax benefits as of
September 30, 2010. |
We had outstanding performance bonds of approximately
$184.7 million, at September 30, 2010 related
principally to our obligations to local governments to construct
roads and other improvements in various developments.
Recently Adopted Accounting Pronouncements. In
September 2006, the FASB issued SFAS 157, Fair Value
Measurements (ASC 820). SFAS 157 (ASC
820) provides guidance for using fair value to measure
assets and liabilities. SFAS 157 (ASC 820) applies
whenever other standards require (or permit) assets or
liabilities to be measured at fair value but does not expand the
use of fair value in any new circumstances. SFAS 157 (ASC
820) includes provisions that require expanded disclosure
of the effect on earnings for items measured using unobservable
data. In February 2008, the FASB issued FASB Staff Position
(FSP) 157-2,
Effective Date of FASB Statement No. 157 (ASC 820),
delaying the effective date of certain non-financial assets and
liabilities to fiscal periods beginning after November 15,
2008. The company adopted SFAS 157 (ASC 820) on
October 1, 2009 as discussed in Note 8.
In February 2007, the FASB issued SFAS 159, The Fair
Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (ASC 825). SFAS 159 (ASC 825) permits
companies to measure certain financial instruments and other
items at fair value. We have not elected the fair value option
applicable under SFAS 159 (ASC 825).
In December 2007, the FASB issued SFAS 141 (revised 2007),
Business Combinations (ASC 815). SFAS 141R (ASC
815) amends and clarifies the accounting guidance for the
acquirers recognition and measurement of assets acquired,
liabilities assumed and noncontrolling interests of an acquiree
in a business combination. SFAS 141R (ASC 815) is
effective for any acquisitions completed by the Company after
September 30, 2009.
In December 2007, the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated Financial
Statements an Amendment of ARB 51 (ASC 810).
SFAS 160 (ASC 810) requires that a noncontrolling
interest (formerly a minority interest) in a subsidiary be
classified as equity and the amount of consolidated net income
specifically attributable to the noncontrolling interest be
included in the consolidated financial statements. The adoption
of SFAS 160 (ASC 810) did not have a material impact
on our consolidated financial condition and results of
operations as of June 30, 2010.
In June 2008, the FASB issued FSP EITF Issue No
03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities (ASC 260).
FSP 03-6-1
(ASC 260) clarifies that non-vested share-based payment
awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating
securities and are to be included in the computation of earnings
per share under the two-class method described in SFAS 128,
Earnings per Share (ASC 260) and requires that prior
period EPS and share data be restated retrospectively for
comparability. The Company grants restricted shares under a
share-based compensation plan that qualify as participating
securities.
FSP 03-6-1
(ASC 260) was effective for the Company beginning
October 1, 2009. The adoption of this guidance did not have
a material impact on the Companys diluted earnings per
share for the periods ended June 30, 2010 and 2009.
In May 2008, the FASB issued FSP APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash Upon Conversion (Including Partial Cash
Settlement) (ASC 470). FSP APB
14-1 (ASC
470) applies to convertible debt instruments that have a
net settlement feature permitting settlement
partially or fully in cash upon conversion. FSP APB
14-1 (ASC
470) was effective for the Company beginning
October 1, 2009. Due to the fact that the Companys
convertible securities cannot be settled in cash upon
conversion, the adoption of FSP APB
14-1 (ASC
470) did not have a material impact on our consolidated
financial condition and results of operations.
Recent
Accounting Pronouncements Not Yet Adopted.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R) (ASC
810), which revises the approach to determining the primary
beneficiary of a variable interest entity (VIE) to be more
qualitative in nature and requires companies to more frequently
reassess whether they must consolidate a VIE. SFAS 167 (ASC
810) also requires enhanced disclosures to provide more
information about an enterprises
49
involvement in a variable interest entity. SFAS 167 (ASC
810) is effective for the Companys fiscal year
beginning October 1, 2010. The adoption of this standard is
expect to result in the deconsolidation of certain VIEs and is
not expected to have a material impact on our consolidated
financial condition.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We are exposed to a number of market risks in the ordinary
course of business. Our primary market risk exposure relates to
fluctuations in interest rates. We do not believe that our
exposure in this area is material to cash flows or earnings. As
of September 30, 2010, we had no variable rate debt
outstanding. The estimated fair value of our fixed rate debt at
September 30, 2010 was $1.2 billion, compared to a
carrying value of $1.2 billion. In addition, the effect of
a hypothetical one-percentage point decrease in our estimated
discount rates would increase the estimated fair value of the
fixed rate debt instruments from $1.21 billion to
$1.26 billion at September 30, 2010.
50
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Beazer
Homes USA, Inc.
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
Total revenue
|
|
$
|
1,009,841
|
|
|
$
|
971,703
|
|
|
$
|
1,736,727
|
|
Home construction and land sales expenses
|
|
|
874,197
|
|
|
|
860,733
|
|
|
|
1,580,768
|
|
Inventory impairments and option contract abandonments
|
|
|
50,036
|
|
|
|
95,216
|
|
|
|
403,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
85,608
|
|
|
|
15,754
|
|
|
|
(247,443
|
)
|
Selling, general and administrative expenses
|
|
|
186,556
|
|
|
|
222,691
|
|
|
|
298,274
|
|
Depreciation and amortization
|
|
|
12,874
|
|
|
|
18,392
|
|
|
|
23,802
|
|
Goodwill impairment
|
|
|
|
|
|
|
16,143
|
|
|
|
48,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(113,822
|
)
|
|
|
(241,472
|
)
|
|
|
(617,624
|
)
|
Equity in loss of unconsolidated joint ventures
|
|
|
(8,807
|
)
|
|
|
(12,112
|
)
|
|
|
(57,819
|
)
|
Gain on extinguishment of debt
|
|
|
43,901
|
|
|
|
144,503
|
|
|
|
|
|
Other expense, net
|
|
|
(69,543
|
)
|
|
|
(74,791
|
)
|
|
|
(35,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(148,271
|
)
|
|
|
(183,872
|
)
|
|
|
(710,848
|
)
|
(Benefit from) provision for income taxes
|
|
|
(118,355
|
)
|
|
|
(8,350
|
)
|
|
|
68,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(29,916
|
)
|
|
|
(175,522
|
)
|
|
|
(779,799
|
)
|
Loss from discontinued operations, net of tax
|
|
|
(4,133
|
)
|
|
|
(13,861
|
)
|
|
|
(172,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(34,049
|
)
|
|
$
|
(189,383
|
)
|
|
$
|
(951,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
59,801
|
|
|
|
38,688
|
|
|
|
38,549
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.50
|
)
|
|
$
|
(4.54
|
)
|
|
$
|
(20.23
|
)
|
Discontinued operations
|
|
$
|
(0.07
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(4.46
|
)
|
Total
|
|
$
|
(0.57
|
)
|
|
$
|
(4.90
|
)
|
|
$
|
(24.69
|
)
|
Cash dividends per share
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
See Notes to Consolidated Financial Statements.
51
Beazer
Homes USA, Inc.
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
537,121
|
|
|
$
|
507,339
|
|
Restricted cash
|
|
|
39,200
|
|
|
|
49,461
|
|
Accounts receivable (net of allowance of $3,567 and $7,545,
respectively)
|
|
|
32,647
|
|
|
|
28,405
|
|
Income tax receivable
|
|
|
7,684
|
|
|
|
9,922
|
|
Inventory
|
|
|
|
|
|
|
|
|
Owned inventory
|
|
|
1,153,703
|
|
|
|
1,265,441
|
|
Consolidated inventory not owned
|
|
|
49,958
|
|
|
|
53,015
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
|
1,203,661
|
|
|
|
1,318,456
|
|
Investments in unconsolidated joint ventures
|
|
|
8,721
|
|
|
|
30,124
|
|
Deferred tax assets, net
|
|
|
7,779
|
|
|
|
7,520
|
|
Property, plant and equipment, net
|
|
|
23,995
|
|
|
|
25,939
|
|
Other assets
|
|
|
42,094
|
|
|
|
52,244
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,902,902
|
|
|
$
|
2,029,410
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Trade accounts payable
|
|
$
|
53,418
|
|
|
$
|
70,285
|
|
Other liabilities
|
|
|
210,170
|
|
|
|
227,315
|
|
Obligations related to consolidated inventory not owned
|
|
|
30,666
|
|
|
|
26,356
|
|
Total debt (net of discounts of $23,617 and $27,257,
respectively)
|
|
|
1,211,547
|
|
|
|
1,508,899
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,505,801
|
|
|
|
1,832,855
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock (par value $.01 per share, 5,000,000 shares
authorized, no shares issued)
|
|
|
|
|
|
|
|
|
Common stock (par value $0.001 per share,
180,000,000 shares authorized, 75,669,381 and 43,150,472
issued and 75,669,381 and 39,793,316 outstanding, respectively)
|
|
|
76
|
|
|
|
43
|
|
Paid-in capital
|
|
|
618,612
|
|
|
|
568,019
|
|
Accumulated deficit
|
|
|
(221,587
|
)
|
|
|
(187,538
|
)
|
Treasury stock, at cost (0 and 3,357,156 shares,
respectively)
|
|
|
|
|
|
|
(183,969
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
397,101
|
|
|
|
196,555
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,902,902
|
|
|
$
|
2,029,410
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
52
Beazer
Homes USA, Inc.
Consolidated
Statement of Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Total
|
|
|
|
($ in thousands)
|
|
|
Balance, September 30, 2007
|
|
$
|
|
|
|
$
|
43
|
|
|
$
|
543,705
|
|
|
$
|
963,869
|
|
|
$
|
(183,895
|
)
|
|
$
|
1,323,722
|
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(951,912
|
)
|
|
|
|
|
|
|
(951,912
|
)
|
Amortization of nonvested stock awards
|
|
|
|
|
|
|
|
|
|
|
6,160
|
|
|
|
|
|
|
|
|
|
|
|
6,160
|
|
Amortization of stock option awards
|
|
|
|
|
|
|
|
|
|
|
6,404
|
|
|
|
|
|
|
|
|
|
|
|
6,404
|
|
Tax benefit from stock transactions
|
|
|
|
|
|
|
|
|
|
|
(1,158
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,158
|
)
|
Issuance of bonus stock (43,075 shares)
|
|
|
|
|
|
|
|
|
|
|
1,799
|
|
|
|
|
|
|
|
|
|
|
|
1,799
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,112
|
)
|
|
|
|
|
|
|
(10,112
|
)
|
Common stock redeemed (7,255 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2008
|
|
|
|
|
|
|
43
|
|
|
|
556,910
|
|
|
|
1,845
|
|
|
|
(183,947
|
)
|
|
|
374,851
|
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(189,383
|
)
|
|
|
|
|
|
|
(189,383
|
)
|
Amortization of nonvested stock awards
|
|
|
|
|
|
|
|
|
|
|
6,562
|
|
|
|
|
|
|
|
|
|
|
|
6,562
|
|
Amortization of stock option awards
|
|
|
|
|
|
|
|
|
|
|
5,277
|
|
|
|
|
|
|
|
|
|
|
|
5,277
|
|
Tax benefit from stock transactions
|
|
|
|
|
|
|
|
|
|
|
(2,273
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,273
|
)
|
Issuance of bonus stock (27,708 shares)
|
|
|
|
|
|
|
|
|
|
|
1,543
|
|
|
|
|
|
|
|
|
|
|
|
1,543
|
|
Issuance of restricted stock (544,143 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock redeemed (14,393 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009
|
|
|
|
|
|
|
43
|
|
|
|
568,019
|
|
|
|
(187,538
|
)
|
|
|
(183,969
|
)
|
|
|
196,555
|
|
Net loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,049
|
)
|
|
|
|
|
|
|
(34,049
|
)
|
Amortization of nonvested stock awards
|
|
|
|
|
|
|
|
|
|
|
5,552
|
|
|
|
|
|
|
|
|
|
|
|
5,552
|
|
Amortization of stock option awards
|
|
|
|
|
|
|
|
|
|
|
5,817
|
|
|
|
|
|
|
|
|
|
|
|
5,817
|
|
Tax benefit from stock transactions
|
|
|
|
|
|
|
|
|
|
|
(3,099
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,099
|
)
|
Issuance of bonus stock (67,358 shares)
|
|
|
|
|
|
|
|
|
|
|
2,337
|
|
|
|
|
|
|
|
|
|
|
|
2,337
|
|
Issuance of restricted stock (1,006,145 shares)
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of prepaid stock purchase contracts
|
|
|
|
|
|
|
|
|
|
|
57,429
|
|
|
|
|
|
|
|
|
|
|
|
57,429
|
|
Common stock issued (34,925,000 shares)
|
|
|
|
|
|
|
35
|
|
|
|
166,683
|
|
|
|
|
|
|
|
|
|
|
|
166,718
|
|
Common stock redeemed (32,944 shares)
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
(134
|
)
|
|
|
(159
|
)
|
Treasury stock utilized (3,384,466 shares)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(184,100
|
)
|
|
|
|
|
|
|
184,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010
|
|
$
|
|
|
|
$
|
76
|
|
|
$
|
618,612
|
|
|
$
|
(221,587
|
)
|
|
$
|
|
|
|
$
|
397,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
53
Beazer
Homes USA, Inc.
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(34,049
|
)
|
|
$
|
(189,383
|
)
|
|
$
|
(951,912
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13,405
|
|
|
|
18,884
|
|
|
|
27,709
|
|
Stock-based compensation expense
|
|
|
11,369
|
|
|
|
11,839
|
|
|
|
12,564
|
|
Inventory impairments and option contract abandonments
|
|
|
51,839
|
|
|
|
107,127
|
|
|
|
510,628
|
|
Goodwill impairment
|
|
|
|
|
|
|
16,143
|
|
|
|
52,470
|
|
Deferred income tax (benefit) provision
|
|
|
(259
|
)
|
|
|
12,696
|
|
|
|
260,410
|
|
Provision for doubtful accounts
|
|
|
(3,978
|
)
|
|
|
(1,370
|
)
|
|
|
8,710
|
|
Excess tax benefit from equity-based compensation
|
|
|
3,099
|
|
|
|
2,273
|
|
|
|
1,158
|
|
Equity in loss of unconsolidated joint ventures
|
|
|
24,350
|
|
|
|
14,275
|
|
|
|
81,314
|
|
Cash distributions of income from unconsolidated joint ventures
|
|
|
208
|
|
|
|
2,991
|
|
|
|
2,439
|
|
Gain on extinguishment of debt
|
|
|
(44,602
|
)
|
|
|
(148,077
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
(264
|
)
|
|
|
19,520
|
|
|
|
(7,820
|
)
|
Decrease (increase) in income tax receivable
|
|
|
2,238
|
|
|
|
163,578
|
|
|
|
(109,519
|
)
|
Decrease in inventory
|
|
|
82,504
|
|
|
|
208,371
|
|
|
|
572,746
|
|
Decrease in other assets
|
|
|
3,835
|
|
|
|
25,072
|
|
|
|
49,600
|
|
Decrease in trade accounts payable
|
|
|
(16,867
|
)
|
|
|
(20,086
|
)
|
|
|
(27,916
|
)
|
Decrease in other liabilities
|
|
|
(22,530
|
)
|
|
|
(150,260
|
)
|
|
|
(161,113
|
)
|
Other changes
|
|
|
(613
|
)
|
|
|
232
|
|
|
|
(5,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
69,685
|
|
|
|
93,825
|
|
|
|
315,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(10,849
|
)
|
|
|
(7,034
|
)
|
|
|
(10,566
|
)
|
Investments in unconsolidated joint ventures
|
|
|
(5,602
|
)
|
|
|
(25,537
|
)
|
|
|
(13,758
|
)
|
Increases in restricted cash
|
|
|
(37,439
|
)
|
|
|
(72,168
|
)
|
|
|
(109,609
|
)
|
Decreases in restricted cash
|
|
|
47,700
|
|
|
|
23,004
|
|
|
|
114,483
|
|
Distributions from unconsolidated joint ventures
|
|
|
|
|
|
|
2,054
|
|
|
|
1,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(6,190
|
)
|
|
|
(79,681
|
)
|
|
|
(18,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
|
|
(619,806
|
)
|
|
|
(305,399
|
)
|
|
|
(143,625
|
)
|
Proceeds from issuance of new debt
|
|
|
374,438
|
|
|
|
223,750
|
|
|
|
|
|
Debt issuance costs
|
|
|
(9,234
|
)
|
|
|
(7,195
|
)
|
|
|
(22,335
|
)
|
Proceeds from issuance of common stock
|
|
|
166,718
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of TEU prepaid stock purchase contracts
|
|
|
57,429
|
|
|
|
|
|
|
|
|
|
Common stock redeemed
|
|
|
(159
|
)
|
|
|
(22
|
)
|
|
|
(52
|
)
|
Excess tax benefit from equity-based compensation
|
|
|
(3,099
|
)
|
|
|
(2,273
|
)
|
|
|
(1,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(33,713
|
)
|
|
|
(91,139
|
)
|
|
|
(167,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
29,782
|
|
|
|
(76,995
|
)
|
|
|
129,997
|
|
Cash and cash equivalents at beginning of period
|
|
|
507,339
|
|
|
|
584,334
|
|
|
|
454,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
537,121
|
|
|
$
|
507,339
|
|
|
$
|
584,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
54
Beazer
Homes USA, Inc.
Notes to
Consolidated Financial Statements
|
|
(1)
|
Summary
of Significant Accounting Policies
|
Organization. Beazer Homes USA, Inc. is one of
the ten largest homebuilders in the United States, based on
number of homes closed. We are a geographically diversified
homebuilder with active operations in 15 states: Arizona,
California, Delaware, Florida, Georgia, Indiana, Maryland,
Nevada, New Jersey, North Carolina, Pennsylvania, South
Carolina, Tennessee, Texas, and Virginia. Through Beazer
Mortgage Corporation, or Beazer Mortgage, we historically
offered mortgage origination services to our homebuyers. Through
January 31, 2008, Beazer Mortgage financed certain of our
mortgage lending activities with borrowings under a warehouse
line of credit or from general corporate funds prior to selling
the loans and their servicing rights shortly after origination
to third-party investors. In addition, through
September 30, 2010, we offered title insurance services to
our homebuyers in many of our markets. Effective
February 1, 2008, we exited the mortgage origination
business and effective September 30, 2010 we exited the
title services business. Over the past few years, we have
discontinued homebuilding operations in certain of our markets.
Results from our mortgage origination business, title services
business and exit markets are reported as discontinued
operations in the accompanying Consolidated Statements of
Operations for all periods presented (see Note 15 for
further discussion of our Discontinued Operations). We evaluated
events that occurred after the balance sheet date but before the
financial statements were issued or are available to be issued
for accounting treatment and disclosure in accordance with
Accounting Standards Codification (ASC) No. 855,
Subsequent Events.
Presentation. The accompanying consolidated
financial statements include the accounts of Beazer Homes USA,
Inc. and our subsidiaries. Intercompany balances have been
eliminated in consolidation. Certain items in prior period
financial statements have been reclassified to conform to the
current presentation.
Cash and Cash Equivalents and Restricted
Cash. We consider investments with maturities of
three months or less when purchased to be cash equivalents. At
September 30, 2010, the majority of our cash and cash
equivalents were invested in high-quality money market mutual
funds or on deposit with major banks, which were valued at par
with no withdrawal restrictions. The underlying investments of
these funds were predominately U.S. Government and
U.S. Government Agency obligations. Restricted cash
includes cash restricted by state law or a contractual
requirement and, as of September 30, 2010 relates primarily
to cash collateral for our outstanding letters of credit.
Accounts Receivable. Accounts receivable
primarily consist of escrow deposits to be received from title
companies associated with closed homes. Generally, we receive
cash from title companies within a few days of the home being
closed.
Inventory. Owned inventory consists solely of
residential real estate developments. Interest, real estate
taxes and development costs are capitalized in inventory during
the development and construction period. Construction and land
costs are comprised of direct and allocated costs, including
estimated future costs for warranties and amenities. Land, land
improvements and other common costs are typically allocated to
individual residential lots on a pro-rata basis, and the costs
of residential lots are transferred to construction in progress
when home construction begins. Consolidated inventory not owned
represents the fair value of land under option agreements
consolidated pursuant to FASB Interpretation No. 46
(Revised), Consolidation of Variable Interest Entities ,
an Interpretation of ARB No. 51 (FIN 46R) (ASC 810).
FIN 46R requires us to consolidate the financial results of
a variable interest entity (VIE) if the Company is the primary
beneficiary of the VIE. VIEs are entities in which
1) equity investors do not have a controlling financial
interest
and/or
2) the entity is unable to finance its activities without
additional subordinated financial support from other parties. In
addition to lot options recorded in accordance with
FIN 46R, we evaluate lot options in accordance with the
provisions of SFAS No. 49, Product Financing
Arrangements (ASC 470). When our deposits and
pre-acquisition development costs exceed certain thresholds, we
record the remaining purchase price of the lots as consolidated
inventory not owned and obligations related to consolidated
inventory not owned in the Consolidated Balance Sheets.
55
Investments in Unconsolidated Joint
Ventures. We participate in a number of land
development joint ventures in which we have less than a
controlling interest. Our joint ventures are typically entered
into with unrelated developers, other homebuilders and financial
partners to develop finished lots for sale to the joint
ventures members and other third parties. We have
determined that our interest in these joint ventures should be
accounted for under the equity method as prescribed by
SOP 78-9,
Accounting for Investments in Real Estate Ventures. We
recognize our share of profits from the sale of lots to other
buyers. Our share of profits from lots we purchase from the
joint ventures is deferred and treated as a reduction of the
cost of the land purchased from the joint venture. 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 in accordance with APB 18, The Equity Method of
Accounting for Investments in Common Stock (ASC 323). A
series of operating losses of an investee or other factors may
indicate that a decrease in the value of our investment in the
unconsolidated entity has occurred which is
other-than-temporary.
The amount of impairment recognized is the excess of the
investments carrying value over its estimated fair value.
Our joint ventures typically obtain secured acquisition and
development financing. See Note 3, Investments in
Unconsolidated Joint Ventures.
Property, Plant and Equipment. Property, plant
and equipment is recorded at cost. Depreciation is computed on a
straight-line basis at rates based on estimated useful lives as
follows:
|
|
|
Buildings
|
|
15 30 years
|
Computer and office equipment
|
|
3 10 years
|
Information systems
|
|
Lesser of estimated useful life of the asset or 5 years
|
Furniture and fixtures
|
|
3 7 years
|
Model and sales office improvements
|
|
Lesser of estimated useful life of the asset or estimated useful
life of the community
|
Leasehold improvements
|
|
Lesser of the lease term or the estimated useful life of the
asset
|
Inventory Valuation Held for
Development. Our homebuilding inventories that
are accounted for as held for development include land and home
construction assets grouped together as communities.
Homebuilding inventories held for development are stated at cost
(including direct construction costs, capitalized indirect
costs, capitalized interest and real estate taxes) unless facts
and circumstances indicate that the carrying value of the assets
may not be recoverable. We assess these assets no less than
quarterly for recoverability in accordance with the provisions
of SFAS 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (ASC 360). 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. However, the
impact of the recent downturn in our business has significantly
lengthened the estimated life of many communities.
Recoverability of assets is measured by comparing the carrying
amount of an asset to future undiscounted cash flows expected to
be generated by the asset. If the expected undiscounted cash
flows generated are expected to be less than its carrying
amount, an impairment charge should be recorded to write down
the carrying amount of such asset to its estimated fair value
based on discounted cash flows.
We conduct a review of the recoverability of our homebuilding
inventories held for development at the community level as
factors indicate that an impairment may exist. Events and
circumstances that might indicate impairment include, but are
not limited to, (1) adverse trends in new orders,
(2) higher than anticipated cancellations,
(3) declining margins which might result from the need to
offer incentives to new homebuyers to drive sales or price
reductions in response to actions taken by our competitors,
(4) economic factors specific to the markets in which we
operate, including fluctuations in employment levels, population
growth, or levels of new and resale homes for sale in the
marketplace and (5) a decline in the availability of credit
across all industries.
As a result, we evaluate, among other things, the following
information for each community:
|
|
|
|
|
Actual Net Contribution Margin (defined as
homebuilding revenues less homebuilding costs and direct selling
expenses) for homes closed in the current fiscal quarter, fiscal
year to date and prior two fiscal
|
56
|
|
|
|
|
quarters. Homebuilding costs include land and land development
costs (based upon an allocation of such costs, including costs
to complete the development, or specific lot costs), home
construction costs (including an estimate of costs, if any, to
complete home construction), previously capitalized indirect
costs (principally for construction supervision), capitalized
interest and estimated warranty costs Direct selling expenses
include commissions, closing costs and amortization related to
model home furnishings and improvements;
|
|
|
|
|
|
Projected Net Contribution Margin for homes in backlog;
|
|
|
|
Actual and trending new orders and cancellation rates;
|
|
|
|
Actual and trending base home sales prices and sales incentives
for home sales that occurred in the prior two fiscal quarters
that remain in backlog at the end of the fiscal quarter and
expected future homes sales prices and sales incentives and
absorption over the expected remaining life of the community;
|
|
|
|
A comparison of our community to our competition to include,
among other things, an analysis of various product offerings
including, the size and style of the homes currently offered for
sale, community amenity levels, availability of lots in our
community and our competitions, desirability and
uniqueness of our community and other market factors; and
|
|
|
|
Other events that may indicate that the carrying value may not
be recoverable.
|
In determining the recoverability of the carrying value of the
assets of a community that we have evaluated as requiring a test
for impairment, significant quantitative and qualitative
assumptions are made relative to the future home sales prices,
sales incentives, direct and indirect costs of home construction
and land development and the pace of new home orders. In
addition, these assumptions are dependent upon the specific
market conditions and competitive factors for each specific
community and may differ greatly between communities within the
same market and communities in different markets. Our estimates
are made using information available at the date of the
recoverability test, however, as facts and circumstances may
change in future reporting periods, our estimates of
recoverability are subject to change.
For assets in communities for which the undiscounted future cash
flows are less than the carrying value, the carrying value of
that community is written down to its then estimated fair value
based on discounted cash flows. The carrying value of assets in
communities that were previously impaired and continue to be
classified as held for development is not written up for future
estimates of increases in fair value in future reporting
periods. Market deterioration that exceeds our estimates may
lead us to incur additional impairment charges on previously
impaired homebuilding assets in addition to homebuilding assets
not currently impaired but for which indicators of impairment
may arise if the market continues to deteriorate.
The fair value of the homebuilding inventory held for
development is estimated using the present value of the
estimated future cash flows using discount rates commensurate
with the risk associated with the underlying community assets.
The discount rate used may be different for each community. The
factors considered when determining an appropriate discount rate
for a community include, among others: (1) community
specific factors such as the number of lots in the community,
the status of land development in the community, the competitive
factors influencing the sales performance of the community and
(2) overall market factors such as employment levels,
consumer confidence and the existing supply of new and used
homes for sale. The assumptions used in our discounted cash flow
models are specific to each community tested for impairment.
Historically we did not include market improvements except in
limited circumstances in the latter years of long-lived
communities. Beginning in the fourth quarter of fiscal 2009, we
assumed limited market improvements in some communities
beginning in fiscal 2011 and continuing improvement in these
communities in subsequent years. We assumed the remaining
communities would have market improvements beginning in fiscal
2012.
Due to uncertainties in the estimation process, particularly
with respect to projected home sales prices and absorption
rates, the timing and amount of the estimated future cash flows
and discount rates, it is reasonably possible that actual
results could differ from the estimates used in our historical
analyses. 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. We calculated the
estimated fair
57
values of inventory held for development that were evaluated for
impairment based on current market conditions and assumptions
made by management relative to future results. Because our
projected cash flows are significantly impacted by changes in
market conditions, it is reasonably possible that actual results
could differ materially from our estimates and result in
additional impairments.
Asset Valuation Land Held for Future
Development. For those communities for which
construction and development activities are expected to occur in
the future or have been idled (land held for future
development), all applicable interest and real estate taxes are
expensed as incurred and the inventory is stated at cost unless
facts and circumstances indicate that the carrying value of the
assets may not be recoverable. The future enactment of a
development plan or the occurrence of events and circumstances
may indicate that the carrying amount of an asset may not be
recoverable. We evaluate the potential development plans of each
community in land held for future development if changes in
facts and circumstances occur which would give rise to a more
detailed analysis for a change in the status of a community to
active status or held for development.
Asset Valuation Land Held for
Sale. We record assets held for sale at the lower
of the carrying value or fair value less costs to sell. The
following criteria are used to determine if land is held for
sale:
|
|
|
|
|
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, management will
re-evaluate the best use of an asset that is currently being
accounted for as held for development. In such instances,
management will review, among other things, the current and
projected competitive circumstances of the community, including
the level of supply of new and used inventory, the level of
sales absorptions by us and our competition, the level of sales
incentives required and the number of owned lots remaining in
the community. If, based on this review and the foregoing
criteria have been met at the end of the applicable reporting
period, we believe that the best use of the asset is the sale of
all or a portion of the asset in its current condition, then all
or portions of the community are accounted for as held for sale.
In determining the fair value of the assets less cost to sell,
we considered factors including current sales prices for
comparable assets in the area, recent market analysis studies,
appraisals, any recent legitimate offers, and listing prices of
similar properties. If the estimated fair value less cost to
sell of an asset is less than its current carrying value, the
asset is written down to its estimated fair value less cost to
sell.
Due to uncertainties in the estimation process, it is reasonably
possible that actual results could differ from the estimates
used in our historical analyses. Our assumptions about land
sales prices require significant judgment because the current
market is highly sensitive to changes in economic conditions. We
calculated the estimated fair values of land held for sale based
on current market conditions and assumptions made by management,
which may differ materially from actual results and may result
in additional impairments if market conditions continue to
deteriorate.
Goodwill. Goodwill represents the excess of
the purchase price over the fair value of assets acquired. We
historically have tested goodwill for impairment annually as of
April 30 or more frequently if an event occurred or
circumstances indicated that the asset might be impaired. From
late fiscal 2006 through the first half of fiscal 2009, the
deterioration of the housing industry resulted in an oversupply
of inventory, reduced levels of demand, increased cancellation
rates, aggressive price competition and increased incentives for
homes sales. Based on our impairment tests and consideration of
the current and expected future market conditions, over this
time we determined that all of our goodwill was impaired. We
recorded a non-cash, pre-tax goodwill impairment of
$16.1 million in fiscal 2009. In fiscal 2008, we had
determined that the goodwill was impaired related to our
Southern California, Arizona,
58
Colorado, New Jersey and Virginia reporting units and recorded
non-cash, pre-tax goodwill impairment charges totaling
$52.5 million, of which $4.4 million has been included
in loss from discontinued operations, net of tax. The Company
has no goodwill remaining as of September 30, 2010 or 2009.
Goodwill impairment charges are reported in Corporate and
Unallocated and are not allocated to our homebuilding segments.
Goodwill balances by reporting segment as of October 1,
2008 and 2009 were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009
|
|
|
September 30,
|
|
|
|
October 1, 2008
|
|
|
Impairments
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
West
|
|
$
|
6,885
|
|
|
$
|
(6,885
|
)
|
|
$
|
|
|
East
|
|
|
9,258
|
|
|
|
(9,258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,143
|
|
|
$
|
(16,143
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets. Other assets principally include
prepaid expenses, debt issuance costs and deferred compensation
plan assets.
Income Taxes. Income taxes are accounted for
in accordance with SFAS 109, Accounting for Income Taxes
and FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes - An Interpretation of FASB
Statement No. 109 (FIN 48) (ASC 740). Under
ASC 740, the provision for income taxes is comprised of
taxes that are currently payable and deferred taxes that relate
to temporary differences between financial reporting carrying
values and tax bases of assets and liabilities. Deferred tax
assets and liabilities result from deductible or taxable amounts
in future years when such assets and liabilities are recovered
or settled and are measured using the enacted tax rates and laws
that are expected to be in effect when the assets and
liabilities are recovered or settled. We include any estimated
interest and penalties on tax related matters in income taxes
payable. We recognize the effect of income tax positions only if
those positions are more likely than not of being sustained.
Recognized income tax positions are measured at the largest
amount that is greater than 50% likely of being realized.
Changes in recognition of measurement are recorded in the period
in which the change in judgment occurs. We record interest and
penalties related to unrecognized tax benefits in income tax
expense.
Other Liabilities. Other liabilities include
the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
(In thousands)
|
|
|
Income tax liabilities
|
|
$
|
53,508
|
|
|
$
|
50,850
|
|
Accrued warranty expenses
|
|
|
25,821
|
|
|
|
30,100
|
|
Accrued interest
|
|
|
35,477
|
|
|
|
32,533
|
|
Accrued and deferred compensation
|
|
|
31,474
|
|
|
|
29,379
|
|
Customer deposits
|
|
|
3,678
|
|
|
|
5,507
|
|
Other
|
|
|
60,212
|
|
|
|
78,946
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
210,170
|
|
|
$
|
227,315
|
|
|
|
|
|
|
|
|
|
|
Income Recognition and Classification of
Costs. Revenue and related profit are generally
recognized at the time of the closing of a sale, when title to
and possession of the property are transferred to the buyer. As
appropriate, revenue for condominiums under construction is
recognized based on the
percentage-of-completion
method in accordance with SFAS 66, Accounting for Sales
of Real-Estate and Emerging Issues Task Force (EITF) Issue
No. 06-8,
Applicability of the Assessment of a Buyers Continuing
Investment under FASB Statement No. 66, Accounting for
Sales of Real Estate, for Sales of Condominiums (ASC 360),
when certain criteria are met.
We recognized loan origination fees and expenses and gains and
losses on mortgage loans when the related loans were sold to
third-party investors. Beazers policy was to sell all
mortgage loans it originates and these sales usually occurred
within 15 to 30 days of the closing of the home sale.
Effective February 1, 2008, Beazer exited the mortgage
origination business. The results of Beazer Mortgage have been
reported as discontinued operations for all periods presented
(see Note 15, Discontinued Operations).
59
Sales discounts and incentives include items such as cash
discounts, discounts on options included in the home, option
upgrades (such as upgrades for cabinetry, countertops and
flooring), and seller-paid financing or closing costs. In
addition, from time to time, we may also provide homebuyers with
retail gift certificates
and/or other
nominal retail merchandise. All sales incentives other than cash
discounts are recognized as a cost of selling the home and are
included in home construction and land sales expenses. Cash
discounts are accounted for as a reduction in the sales price of
the home.
Sales commissions are included in selling, general and
administrative expenses.
Estimated future warranty costs are charged to cost of sales in
the period when the revenues from home closings are recognized.
Such estimated warranty costs generally range from 0.5% to 1.5%
of total revenue. Additional warranty costs are charged to cost
of sales as necessary based on managements estimate of the
costs to remediate existing claims. See Note 13 for a more
detailed discussion of warranty costs and related reserves.
Advertising costs related to our continuing operations of
$11.4 million, $11.8 million and $22.9 million
for fiscal years 2010, 2009, and 2008, respectively, were
expensed as incurred and are included in selling, general and
administrative expenses. The decrease in advertising costs
relates primarily to the reduced number of communities being
marketed and our more efficient use of advertising dollars in
connection with our cost control initiatives.
Earnings Per Share (EPS). The computation of
basic earnings per common share is determined by dividing net
income applicable to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted
EPS additionally gives effect (when dilutive) to stock options,
other stock based awards and other potentially dilutive
securities. In computed diluted loss per share for the fiscal
years ended September 30, 2010, 2009 and 2008, all common
stock equivalents were excluded from the computation of diluted
loss per share as a result of their anti-dilutive effect.
Fair Value Measurements. Certain of our assets
are required to be recorded at fair value on a non-recurring
basis when events and circumstances indicate that the carrying
value may not be recovered. We review our long-lived assets,
including inventory for recoverability when factors that
indicate an impairment may exist, but no less than quarterly.
Fair value is based on estimated cash flows discounted for
market risks associated with the long-lived assets. The fair
value of certain of our financial instruments approximate their
carrying amounts due to the short maturity of these assets and
liabilities or the variable interest rates on such obligations.
The fair value of our publicly held debt is generally estimated
based on quoted bid prices for these instruments. Certain of our
other financial instruments are estimated by discounting
scheduled cash flows through maturity or using market rates
currently being offered on loans with similar terms and credit
quality. See Note 8 for additional discussion of our fair
value measurements.
Stock-Based Compensation. We use the
Black-Scholes model to value stock-settled appreciation rights
(SSARs) and stock option grants under SFAS 123R,
Share-Based Payment (ASC 718), and applied the
modified prospective method for existing grants
which required us to value the grants made prior to our adoption
of SFAS 123R under the fair value method and expense the
unvested portion over the remaining vesting period. We estimate
forfeitures in calculating the expense related to stock-based
compensation. In addition, we reflect the benefits of tax
deductions in excess of recognized compensation cost as a
financing cash inflow and an operating cash outflow. Nonvested
stock granted to employees is valued based on the market price
of the common stock on the date of the grant. Performance based,
nonvested stock granted to employees is valued using the Monte
Carlo valuation method. Cash-settled, stock-based awards granted
to employees are initially valued based on the market price of
the underlying common stock on the date of the grant and are
adjusted to fair value until vested. Stock options issued to
non-employees are valued using the Black-Scholes option pricing
model. Nonvested stock granted to non-employees is initially
valued based on the market price of the common stock on the date
of the grant and is adjusted to fair value until vested.
Compensation cost arising from nonvested stock granted to
employees, from cash-settled, stock-based employee awards and
from non-employee stock awards is recognized as expense using
the straight-line method over the vesting period. Unearned
compensation is included in paid in capital. As of
September 30, 2010 and 2009, there was $10.0 million
and $9.6 million, respectively, of total unrecognized
compensation cost related to nonvested
60
stock. The cost remaining at September 30, 2010 is expected
to be recognized over a weighted average period of
2.4 years.
For the years ended September 30, 2010, 2009, and 2008,
total non-cash stock-based compensation expense, included in
SG&A expenses, was $11.4 million ($7.6 million
net of tax), $11.8 million ($8.3 million net of tax)
and $12.3 million ($8.7 million net of tax),
respectively.
Use of Estimates. The preparation of financial
statements in conformity with generally accepted accounting
principals in the U.S (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Recently Adopted Accounting Pronouncements. In
September 2006, the FASB issued SFAS 157, Fair Value
Measurements (ASC 820). SFAS 157 (ASC
820) provides guidance for using fair value to measure
assets and liabilities. SFAS 157 (ASC 820) applies
whenever other standards require (or permit) assets or
liabilities to be measured at fair value but does not expand the
use of fair value in any new circumstances. SFAS 157 (ASC
820) includes provisions that require expanded disclosure
of the effect on earnings for items measured using unobservable
data. In February 2008, the FASB issued FASB Staff Position
(FSP) 157-2,
Effective Date of FASB Statement No. 157 (ASC 820),
delaying the effective date of certain non-financial assets and
liabilities to fiscal periods beginning after November 15,
2008. The company adopted SFAS 157 (ASC 820) on
October 1, 2009 as discussed in Note 8.
In February 2007, the FASB issued SFAS 159, The Fair
Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (ASC 825). SFAS 159 (ASC 825) permits
companies to measure certain financial instruments and other
items at fair value. We have not elected the fair value option
applicable under SFAS 159 (ASC 825).
In December 2007, the FASB issued SFAS 141 (revised 2007),
Business Combinations (ASC 815). SFAS 141R (ASC
815) amends and clarifies the accounting guidance for the
acquirers recognition and measurement of assets acquired,
liabilities assumed and noncontrolling interests of an acquiree
in a business combination. SFAS 141R (ASC 815) is
effective for any acquisitions completed by the Company after
September 30, 2009.
In December 2007, the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated Financial
Statements an Amendment of ARB 51 (ASC 810).
SFAS 160 (ASC 810) requires that a noncontrolling
interest (formerly a minority interest) in a subsidiary be
classified as equity and the amount of consolidated net income
specifically attributable to the noncontrolling interest be
included in the consolidated financial statements. The adoption
of SFAS 160 (ASC 810) did not have a material impact
on our consolidated financial condition and results of
operations as of September 30, 2010.
In June 2008, the FASB issued FSP EITF Issue No
03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities (ASC 260).
FSP 03-6-1
(ASC 260) clarifies that non-vested share-based payment
awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating
securities and are to be included in the computation of earnings
per share under the two-class method described in SFAS 128,
Earnings per Share (ASC 260) and requires that prior
period EPS and share data be restated retrospectively for
comparability. The Company grants restricted shares under a
share-based compensation plan that qualify as participating
securities.
FSP 03-6-1
(ASC 260) was effective for the Company beginning
October 1, 2009. The adoption of this guidance did not have
a material impact on the Companys diluted earnings per
share for any periods in the fiscal years ended
September 30, 2010 and 2009.
In May 2008, the FASB issued FSP APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash Upon Conversion (Including Partial Cash
Settlement) (ASC 470). FSP APB
14-1 (ASC
470) applies to convertible debt instruments that have a
net settlement feature permitting settlement
partially or fully in cash upon conversion. FSP APB
14-1 (ASC
470) was effective for the Company beginning
October 1, 2009. Due to the
61
fact that the Companys convertible securities cannot be
settled in cash upon conversion, the adoption of FSP APB
14-1 (ASC
470) did not have a material impact on our consolidated
financial condition and results of operations.
Recent Accounting Pronouncements Not Yet Adopted.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R) (ASC
810), which revises the approach to determining the primary
beneficiary of a variable interest entity (VIE) to be more
qualitative in nature and requires companies to more frequently
reassess whether they must consolidate a VIE. SFAS 167 (ASC
810) also requires enhanced disclosures to provide more
information about an enterprises involvement in a variable
interest entity. SFAS 167 (ASC 810) is effective for
the Companys fiscal year beginning October 1, 2010.
The Company expects the adoption of SFAS 167 (ASC
810) to result in the deconsolidation of certain VIEs and a
reduction in the amount of consolidated inventory not owned
reported in our consolidated financial statements and is not
expected to have a material impact on our consolidated financial
condition.
|
|
(2)
|
Supplemental
Cash Flow Information
|
We had the following cash and non-cash activity (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Supplemental disclosure of non-cash activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in obligations related to consolidated
inventory not owned
|
|
$
|
4,310
|
|
|
$
|
(44,252
|
)
|
|
$
|
(107,323
|
)
|
Non-cash land acquisitions
|
|
|
515
|
|
|
|
16,860
|
|
|
|
33,285
|
|
Issuance of stock under deferred bonus stock plans
|
|
|
2,337
|
|
|
|
1,543
|
|
|
|
1,799
|
|
Decrease in retained earnings from FIN 48 adoption
|
|
|
|
|
|
|
|
|
|
|
(10,112
|
)
|
Supplemental disclosure of cash activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments
|
|
|
113,885
|
|
|
|
129,724
|
|
|
|
133,482
|
|
Income tax payments
|
|
|
655
|
|
|
|
9,692
|
|
|
|
2,879
|
|
Tax refunds received
|
|
|
135,803
|
|
|
|
172,465
|
|
|
|
59,242
|
|
|
|
|
(3) |
|
Investments in Unconsolidated Joint Ventures |
As of September 30, 2010, we participated in certain land
development joint ventures in which Beazer Homes had less than a
controlling interest. The following table presents our
investment in our unconsolidated joint ventures, the total
equity and outstanding borrowings of these joint ventures and
our guarantees of these borrowings as of September 30, 2010
and September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Beazers investment in joint ventures
|
|
$
|
8,721
|
|
|
$
|
30,124
|
|
Total equity of joint ventures
|
|
|
94,392
|
|
|
|
328,875
|
|
Total outstanding borrowings of joint ventures
|
|
|
394,301
|
|
|
|
422,682
|
|
Beazers estimate of its maximum exposure to our
loan-to-value
maintenance guarantees
|
|
|
|
|
|
|
3,850
|
|
Beazers estimate of its maximum exposure to our repayment
guarantees
|
|
|
15,789
|
|
|
|
15,789
|
|
The decrease in our investment in unconsolidated joint ventures
from September 30, 2009 to September 30, 2010 relates
primarily to impairments offset slightly by additional
investments of $5.6 million. In addition, during fiscal
2010, together with our joint venture partners, we terminated
our involvement in two joint ventures. For the fiscal years
ended September 30, 2010, 2009 and 2008, our loss from
joint venture activities, the impairments of our
62
investments in certain of our unconsolidated joint ventures, and
the overall equity in loss of unconsolidated joint ventures is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from joint venture activity
|
|
$
|
10
|
|
|
$
|
518
|
|
|
$
|
(12,527
|
)
|
Impairment of joint venture investment
|
|
|
(8,817
|
)
|
|
|
(12,630
|
)
|
|
|
(45,292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated joint ventures
|
|
$
|
(8,807
|
)
|
|
$
|
(12,112
|
)
|
|
$
|
(57,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported in loss from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from joint venture activity
|
|
$
|
(32
|
)
|
|
$
|
|
|
|
$
|
4
|
|
Impairment of joint venture investment
|
|
|
(15,511
|
)
|
|
|
(2,163
|
)
|
|
|
(23,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated joint ventures
discontinued operations
|
|
$
|
(15,543
|
)
|
|
$
|
(2,163
|
)
|
|
$
|
(23,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate debt of the unconsolidated joint ventures was
$394.3 million and $422.7 million at
September 30, 2010 and 2009, respectively. At
September 30, 2010, total borrowings outstanding include
$327.9 million related to one joint venture in which we are
a 2.58% member. The $28.4 million reduction in total
outstanding joint venture debt during fiscal 2010 resulted
primarily from debt payments of $35.0 million in accordance
with loan agreements
and/or
negotiated settlements offset by loan draws of $6.6 million
to fund the development activities of certain joint ventures. In
December 2009, together with our joint venture partner, we
reached agreement with a lender to the joint venture to pay down
the joint ventures outstanding debt by $7.4 million.
In connection with this loan repayment, which was funded by
capital contributions from both joint venture partners, the
lender released the obligations under the related
loan-to-value
maintenance guarantees.
During the fourth quarter of fiscal 2009, one of our
unconsolidated joint ventures completed a modification of its
loan agreement with its lender, which resulted in, among other
things, an extension of its maturity, enhanced guarantees from
our joint venture partner and the release of Beazer under all
guarantees related to this joint venture. Beazer contributed
$9.7 million as an additional investment in the joint
venture as part of the loan modification. Also during the fourth
quarter of fiscal 2009, the Company and its joint venture
partners entered into agreements with a lender to repay the
notes payable of one of its unconsolidated joint ventures at a
discount. The Company contributed an additional
$4.3 million as an investment which was used to reduce the
loan balance of this joint venture. We also entered into an
agreement with a lender and our joint venture partner to
purchase the notes payable and our partners interest in
one of our unconsolidated joint ventures for a total of
$13.6 million. This joint venture is consolidated in our
financial statements as of September 30, 2009. In fiscal
2009, we also paid $3.0 million to settle our obligations
under guarantees for three ventures which we had previously
estimated at a maximum potential obligation of
$16.6 million. As part of the settlement agreements, the
lenders also cancelled $48.6 million of the outstanding
debt of these three joint ventures.
One of our joint ventures is in default under its debt
obligations. During fiscal 2008, the lender to the joint
venture, in which we have a 2.58% investment, notified the joint
venture members that it believes the joint venture is in default
of certain joint venture loan agreements as a result of certain
of the Companys joint venture members not complying with
all aspects of the joint ventures loan agreements. The
joint venture members are currently in discussions with the
lender. In December 2008, the lender filed individual lawsuits
against some of the joint venture members and certain of those
members parent companies (including the Company), seeking
to recover damages under completion guarantees, among other
claims. We intend to vigorously defend against this legal
action. The Companys share of the outstanding debt is
approximately $15.1 million at September 30, 2010.
Under the terms of the agreement, our repayment guarantee is
estimated at $15.1 million, which is only triggered in the
event of bankruptcy of the joint venture. Due to discussions
with our other joint venture members, and based on our revised
estimates regarding the realizability of our investment, we
impaired our equity interest of $8.8 million in this joint
venture during fiscal 2010. In addition, one member of the joint
venture filed an arbitration proceeding against the
63
remaining members related to the plaintiff-members
allegations that the other members failed to perform under the
applicable membership agreements. The arbitration proceeding in
this matter was held in February 2010 and the arbitration panel
issued its decision on July 6, 2010. Under the decision,
the panel denied the plaintiffs specific performance
claims and awarded damages in the amount well below the amount
claimed. The Company does not believe that its proportional
share of the award is considered material to our consolidated
financial position or results of operations. The Company has
recorded an accrual for such matter (see Note 13 for
additional information). In addition, certain of the joint
venture members have curtailed their funding of their allocable
joint venture obligations. Given the inherent uncertainties
involved in the ongoing negotiations among the joint venture
members, as of September 30, 2010, no accrual has been
recorded with respect to the unfunded amounts, as obligations to
Beazer, if any, related to these matters were not both probable
and reasonably estimable.
Our joint ventures typically obtain secured acquisition,
development and construction financing. Generally Beazer and our
joint venture partners provide varying levels of guarantees of
debt and other obligations for our unconsolidated joint
ventures. At September 30, 2010, these guarantees included,
for certain joint ventures, construction completion guarantees,
loan-to-value
maintenance agreements, repayment guarantees and environmental
indemnities.
In assessing the need to record a liability for the contingent
aspect of these guarantees in accordance with FIN 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others (ASC 400), we consider our historical experience in
being required to perform under the guarantees, the fair value
of the collateral underlying these guarantees and the financial
condition of the applicable unconsolidated joint ventures. In
addition, we monitor the fair value of the collateral of these
unconsolidated joint ventures to ensure that the related
borrowings do not exceed the specified percentage of the value
of the property securing the borrowings. We have not recorded a
liability for the contingent aspects of any guarantees that we
determined were reasonably possible but not probable.
Construction
Completion Guarantees
We and our joint venture partners may be obligated to the
project lenders to complete land development improvements and
the construction of planned homes if the joint venture does not
perform the required development. Provided the joint venture and
the partners are not in default under any loan provisions, the
project lenders typically are obligated to fund these
improvements through any financing commitments available under
the applicable loans. A majority of these construction
completion guarantees are joint and several with our partners.
In those cases, we generally have a reimbursement arrangement
with our partner which provides that neither party is
responsible for more than its proportionate share of the
guarantee. However, if our joint venture partner does not have
adequate financial resources to meet its obligations under such
reimbursement arrangement, we may be liable for more than our
proportionate share, up to our maximum exposure, which is the
full amount covered by the relevant joint and several guarantee.
The guarantees cover a specific scope of work, which may range
from an individual development phase to the completion of the
entire project. As of September 30, 2010, we have a
completion guarantee related to one joint venture loan which
also has a repayment guarantee associated with it. No accrual
has been recorded, as losses, if any, related to construction
completion guarantees are not both probable and reasonably
estimable.
Loan-to-Value
Maintenance Agreements
We and our joint venture partners may provide credit
enhancements to acquisition, development and construction
borrowings in the form of
loan-to-value
maintenance agreements, which can limit the amount of additional
funding provided by the lenders or require repayment of the
borrowings to the extent such borrowings plus construction
completion costs exceed a specified percentage of the value of
the property securing the borrowings. The agreements generally
require periodic reappraisals of the underlying property value.
To the extent that the underlying property gets reappraised, the
amount of the exposure under the loan-to value-maintenance (LTV)
guarantee would be adjusted accordingly and any such change
could be significant. In certain cases, we may be required to
make a re-balancing payment following a reappraisal in order to
reduce the applicable
loan-to-value
64
ratio to the required level. As of September 30, 2010, we
do not have any obligations related to LTV guarantees. Our
estimate of the Companys portion of LTV guarantees of the
unconsolidated joint ventures was $3.9 million at
September 30, 2009. During fiscal 2010, the Company and its
joint venture partner reached an agreement with the lender of a
joint venture to release the LTV guarantee and extend the
related loan maturity up to two years in exchange for a loan
repayment of $7.4 million. The Company invested an
additional $3.9 million in the joint venture to facilitate
this repayment during fiscal 2010.
Repayment
Guarantees
We and our joint venture partners have repayment guarantees
related to certain joint ventures borrowings. These
repayment guarantees require the repayment of all or a portion
of the debt of the unconsolidated joint venture only in the
event the joint venture defaults on its obligations under the
borrowing or in some cases only in the event the joint venture
files for bankruptcy. Our estimate of Beazers maximum
exposure to our repayment guarantees related to the outstanding
debt of its unconsolidated joint ventures was $15.8 million
at both September 30, 2010 and 2009.
Environmental
Indemnities
Additionally, we and our joint venture partners generally
provide unsecured environmental indemnities to joint venture
project lenders. In each case, we have performed due diligence
on potential environmental risks. These indemnities obligate us
to reimburse the project lenders for claims related to
environmental matters for which they are held responsible.
During the fiscal years ended September 30, 2010 and 2009,
we were not required to make any payments related to
environmental indemnities. No accrual has been recorded, as
losses, if any, related to environmental indemnities are not
both probable and reasonably estimable
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
(In thousands)
|
|
|
Homes under construction
|
|
$
|
210,104
|
|
|
$
|
219,724
|
|
Development projects in progress
|
|
|
444,062
|
|
|
|
487,457
|
|
Land held for future development
|
|
|
382,889
|
|
|
|
417,834
|
|
Land held for sale
|
|
|
36,259
|
|
|
|
42,470
|
|
Capitalized interest
|
|
|
36,884
|
|
|
|
38,338
|
|
Model homes
|
|
|
43,505
|
|
|
|
59,618
|
|
|
|
|
|
|
|
|
|
|
Total owned inventory
|
|
$
|
1,153,703
|
|
|
$
|
1,265,441
|
|
|
|
|
|
|
|
|
|
|
Homes under construction includes homes finished and ready for
delivery and homes in various stages of construction. We had 423
($71.5 million) and 270 ($46.3 million) completed
homes that were not subject to a sales contract at
September 30, 2010 and 2009, respectively (spec
homes). The increase in spec homes at September 30,
2010 was primarily due to homes started in anticipation of
increased demand related to the expiration of the federal and
state tax rebates in June 2010 that remained unsold at fiscal
year end. Development projects in progress consist principally
of land and land improvement costs. Certain of the fully
developed lots in this category are reserved by a deposit or
sales contract. Land held for future development consists of
communities for which construction and development activities
are expected to occur in the future or have been idled and are
stated at cost unless facts and circumstances indicate that the
carrying value of the assets may not be recoverable. All
applicable interest and real estate taxes on land held for
future development are expensed as incurred. During the fiscal
year 2010, we reclassified $33.5 million of land held for
future development to development projects in progress. Since
2008, the Company has made strategic decisions to re-allocate
capital employed through sales of select properties and through
the exiting of certain markets no longer viewed as strategic and
has recorded such land as held for sale. Land held for sale as
of September 30, 2010 and 2009 principally included land
held for sale in the markets we have decided to exit including
Colorado, New Mexico, Jacksonville, Florida and Charlotte, North
Carolina.
65
Total owned inventory, by reportable segment, is set forth in
the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
|
|
|
Held for
|
|
|
Land
|
|
|
Total
|
|
|
|
|
|
Held for
|
|
|
Land Held
|
|
|
Total
|
|
|
|
Projects in
|
|
|
Future
|
|
|
Held
|
|
|
Owned
|
|
|
Projects in
|
|
|
Future
|
|
|
for
|
|
|
Owned
|
|
|
|
Progress
|
|
|
Development
|
|
|
for Sale
|
|
|
Inventory
|
|
|
Progress
|
|
|
Development
|
|
|
Sale
|
|
|
Inventory
|
|
|
West Segment
|
|
$
|
281,912
|
|
|
$
|
311,472
|
|
|
$
|
5,273
|
|
|
$
|
598,657
|
|
|
$
|
276,348
|
|
|
$
|
345,050
|
|
|
$
|
8,171
|
|
|
$
|
629,569
|
|
East Segment
|
|
|
269,210
|
|
|
|
47,381
|
|
|
|
1,376
|
|
|
|
317,967
|
|
|
|
318,888
|
|
|
|
48,748
|
|
|
|
2,927
|
|
|
|
370,563
|
|
Southeast Segment
|
|
|
121,509
|
|
|
|
24,036
|
|
|
|
|
|
|
|
145,545
|
|
|
|
136,015
|
|
|
|
24,036
|
|
|
|
|
|
|
|
160,051
|
|
Unallocated
|
|
|
53,157
|
|
|
|
|
|
|
|
|
|
|
|
53,157
|
|
|
|
56,992
|
|
|
|
|
|
|
|
|
|
|
|
56,992
|
|
Discontinued Operations
|
|
|
8,767
|
|
|
|
|
|
|
|
29,610
|
|
|
|
38,377
|
|
|
|
16,894
|
|
|
|
|
|
|
|
31,372
|
|
|
|
48,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
734,555
|
|
|
$
|
382,889
|
|
|
$
|
36,259
|
|
|
$
|
1,153,703
|
|
|
$
|
805,137
|
|
|
$
|
417,834
|
|
|
$
|
42,470
|
|
|
$
|
1,265,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory located in California, the state with our largest
concentration of inventory, was $345.7 million and
$358.7 million at September 30, 2010 and 2009,
respectively.
Inventory Impairments. The following tables
set forth, by reportable homebuilding segment, the inventory
impairments and lot option abandonment charges recorded for the
fiscal years ended September 30, 2010, 2009 and 2008 (in
thousands) :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Development projects and homes in process (Held for Development)
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
$
|
18,056
|
|
|
$
|
42,704
|
|
|
$
|
145,710
|
|
East
|
|
|
18,703
|
|
|
|
6,383
|
|
|
|
70,152
|
|
Southeast
|
|
|
7,973
|
|
|
|
24,536
|
|
|
|
53,103
|
|
Unallocated
|
|
|
3,404
|
|
|
|
5,116
|
|
|
|
21,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
48,136
|
|
|
$
|
78,739
|
|
|
$
|
290,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Held for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
$
|
1,061
|
|
|
$
|
9,357
|
|
|
$
|
8,505
|
|
East
|
|
|
|
|
|
|
1,071
|
|
|
|
16,883
|
|
Southeast
|
|
|
|
|
|
|
2,094
|
|
|
|
35,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
1,061
|
|
|
$
|
12,522
|
|
|
$
|
61,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lot Option Abandonments
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
$
|
783
|
|
|
$
|
99
|
|
|
$
|
14,893
|
|
East
|
|
|
35
|
|
|
|
2,884
|
|
|
|
9,850
|
|
Southeast
|
|
|
21
|
|
|
|
972
|
|
|
|
26,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
839
|
|
|
$
|
3,955
|
|
|
$
|
51,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
50,036
|
|
|
$
|
95,216
|
|
|
$
|
403,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Held for Development
|
|
$
|
781
|
|
|
$
|
1,477
|
|
|
$
|
21,888
|
|
Land Held for Sale
|
|
|
1,003
|
|
|
|
9,370
|
|
|
|
55,593
|
|
Lot Option Abandonments
|
|
|
19
|
|
|
|
1,064
|
|
|
|
29,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
1,803
|
|
|
$
|
11,911
|
|
|
$
|
107,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company
|
|
$
|
51,839
|
|
|
$
|
107,127
|
|
|
$
|
510,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
The inventory held for development that was impaired during
fiscal 2010, 2009 and 2008 was based on our estimated discounted
cash flow impairment calculations. The fair value below
represents the fair value immediately after a communitys
impairment, or the last impairment taken for communities
impaired multiple times ($ in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Discount Rate low
|
|
|
14
|
%
|
|
|
17
|
%
|
|
|
16
|
%
|
Discount Rate high
|
|
|
20
|
%
|
|
|
22
|
%
|
|
|
23
|
%
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Communities impaired
|
|
|
26
|
|
|
|
34
|
|
|
|
103
|
|
Lots impaired
|
|
|
1,855
|
|
|
|
3,361
|
|
|
|
8,838
|
|
Estimated fair value
|
|
$
|
68.3
|
|
|
$
|
103.7
|
|
|
$
|
363.7
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Communities impaired
|
|
|
3
|
|
|
|
1
|
|
|
|
37
|
|
Lots impaired
|
|
|
40
|
|
|
|
121
|
|
|
|
641
|
|
Estimated fair value
|
|
$
|
4.5
|
|
|
$
|
2.4
|
|
|
$
|
47.9
|
|
During fiscal 2009 and 2010, for certain communities we
determined it was prudent to reduce sales prices or further
increase sales incentives in response to factors including
competitive market conditions. Because the projected cash flows
used to evaluate the fair value of inventory are significantly
impacted by changes in market conditions including decreased
sales prices, the change in sales prices and changes in
absorption estimates led to additional impairments in certain
communities during the fiscal year. In future periods, we may
again determine that it is prudent to reduce sales prices,
further increase sales incentives or reduce absorption rates
which may lead to additional impairments, which could be
material. The impairments recorded on our held for development
inventory for the fiscal years ended September 30, 2010,
2009 and 2008, primarily resulted from the continued decline in
the homebuilding environment across our submarkets.
The impairments on land held for sale above represent further
write downs of these properties to net realizable value, less
estimated costs to sell and are as a result of challenging
market conditions and our review of recent comparable
transactions.
Lot Option Agreements and Abandonments. We
also have access to land inventory through lot option contracts,
which generally enable us to defer acquiring portions of
properties owned by third parties and unconsolidated entities
until we have determined whether to exercise our lot option. A
majority of our lot option contracts require a non-refundable
cash deposit or irrevocable letter of credit based on a
percentage of the purchase price of the land for the right to
acquire lots during a specified period of time at a certain
price. Under lot option contracts, purchase of the properties is
contingent upon satisfaction of certain requirements by us and
the sellers. Our liability under option contracts is generally
limited to forfeiture of the non-refundable deposits, letters of
credit and other non-refundable amounts incurred, which
aggregated approximately $38.7 million at
September 30, 2010. This amount includes non-refundable
letters of credit of approximately $3.7 million. The total
remaining purchase price, net of cash deposits, committed under
all options was $221.3 million as of September 30,
2010.
We have determined the proper course of action with respect to a
number of communities within each homebuilding segment was to
abandon the remaining lots under option and to write-off the
deposits securing the option takedowns, as well as
preacquisition costs. In determining whether to abandon a lot
option contract, we evaluate the lot option primarily based upon
the expected cash flows from the property that is the subject of
the option. If we intend to abandon or walk-away from a lot
option contract, we record a charge to earnings in the period
such decision is made for the deposit amount and any related
capitalized costs associated with the lot option contract. We
recorded lot option abandonment charges during the fiscal years
ended September 30, 2010, 2009 and 2008 as indicated in the
table above. The abandonment charges relate to our decision to
abandon certain option contracts that no longer fit in our
long-term strategic plan and related to our prior year decision
to exit certain markets.
67
We expect to exercise, subject to market conditions, 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 land options will be exercised.
Certain of our option contracts are with sellers who are deemed
to be VIEs under FIN 46R. FIN 46R defines a VIE as an
entity with insufficient equity investment to finance its
planned activities without additional financial support or an
entity in which the equity investors lack certain
characteristics of a controlling financial interest. Pursuant to
FIN 46R, an enterprise that absorbs a majority of the
expected losses or receives a majority of the expected residual
returns of a VIE is deemed to be the primary beneficiary of the
VIE and must consolidate the VIE.
We have determined that we are the primary beneficiary of
certain of these option contracts. Our risk is generally limited
to the option deposits that we pay, and creditors of the sellers
generally have no recourse to the general credit of the Company.
Although we do not have legal title to the optioned land, for
those option contracts for which we are the primary beneficiary,
we are required to consolidate the land under option at fair
value. We believe that the exercise prices of our option
contracts approximate their fair value. Our consolidated balance
sheets at September 30, 2010 and 2009 reflect consolidated
inventory not owned of $50.0 million and
$53.0 million, respectively. Obligations related to
consolidated inventory not owned totaled $30.7 million at
September 30, 2010 and $26.4 million at
September 30, 2009. The difference between the balances of
consolidated inventory not owned and obligations related to
consolidated inventory not owned represents cash deposits paid
under the option agreements. Effective October 1, 2010, the
Company will adopt the provisions of ASC 810. The adoption
of this standard is expected to result in the deconsolidation of
certain VIEs and is not expected to have a material impact on
our consolidated financial condition.
Our ability to capitalize all interest incurred during fiscal
2010, 2009 and 2008 has been limited by the reduction in our
inventory eligible for capitalization. The following table sets
forth certain information regarding interest (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Capitalized interest in inventory, beginning of year
|
|
$
|
38,338
|
|
|
$
|
45,977
|
|
|
$
|
87,560
|
|
Interest incurred
|
|
|
127,316
|
|
|
|
133,481
|
|
|
|
139,659
|
|
Capitalized interest impaired
|
|
|
(2,313
|
)
|
|
|
(3,376
|
)
|
|
|
(13,795
|
)
|
Interest expense not qualified for capitalization and included
as other expense
|
|
|
(74,214
|
)
|
|
|
(83,030
|
)
|
|
|
(55,185
|
)
|
Capitalized interest amortized to house construction and land
sales expenses
|
|
|
(52,243
|
)
|
|
|
(54,714
|
)
|
|
|
(112,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest in inventory, end of year
|
|
$
|
36,884
|
|
|
$
|
38,338
|
|
|
$
|
45,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
(6)
|
Property,
Plant and Equipment
|
Property, plant and equipment consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Building
|
|
$
|
2,378
|
|
|
$
|
2,378
|
|
Model and sales office improvements
|
|
|
43,147
|
|
|
|
57,010
|
|
Leasehold improvements
|
|
|
6,875
|
|
|
|
8,298
|
|
Computer and office equipment
|
|
|
13,306
|
|
|
|
18,709
|
|
Information systems
|
|
|
20,078
|
|
|
|
25,148
|
|
Furniture and fixtures
|
|
|
7,069
|
|
|
|
8,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,853
|
|
|
|
119,711
|
|
Less: Accumulated depreciation
|
|
|
(68,858
|
)
|
|
|
(93,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,995
|
|
|
$
|
25,939
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010 and 2009 we had the following
long-term debt (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity Date
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
Secured Revolving Credit Facility
|
|
August 2011
|
|
$
|
|
|
|
$
|
|
|
85/8% Senior
Notes
|
|
May 2011
|
|
|
|
|
|
|
127,254
|
|
83/8% Senior
Notes
|
|
April 2012
|
|
|
|
|
|
|
303,599
|
|
61/2% Senior
Notes
|
|
November 2013
|
|
|
164,473
|
|
|
|
164,473
|
|
67/8% Senior
Notes
|
|
July 2015
|
|
|
209,454
|
|
|
|
209,454
|
|
81/8% Senior
Notes
|
|
June 2016
|
|
|
180,879
|
|
|
|
180,879
|
|
12% Senior Secured Notes
|
|
October 2017
|
|
|
250,000
|
|
|
|
250,000
|
|
91/8% Senior
Notes
|
|
June 2018
|
|
|
300,000
|
|
|
|
|
|
TEU Senior Amortizing Notes
|
|
August 2013
|
|
|
14,594
|
|
|
|
|
|
45/8% Convertible
Senior Notes
|
|
June 2024
|
|
|
|
|
|
|
154,500
|
|
Unamortized debt discounts
|
|
|
|
|
(23,617
|
)
|
|
|
(27,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Senior Notes, net
|
|
|
|
|
1,095,783
|
|
|
|
1,362,902
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandatory Convertible Subordinated Notes
|
|
January 2013
|
|
|
57,500
|
|
|
|
|
|
Junior subordinated notes
|
|
July 2036
|
|
|
47,470
|
|
|
|
103,093
|
|
Other secured notes payable
|
|
Various Dates
|
|
|
10,794
|
|
|
|
12,543
|
|
Model home financing obligations
|
|
Various Dates
|
|
|
|
|
|
|
30,361
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt, net
|
|
|
|
$
|
1,211,547
|
|
|
$
|
1,508,899
|
|
|
|
|
|
|
|
|
|
|
|
|
69
As of September 30, 2010, future maturities of our
borrowings, excluding our Mandatory Convertible Subordinated
Notes which are convertible to common stock upon maturity, are
as follows (in thousands):
|
|
|
|
|
Year Ending September 30,
|
|
|
|
|
2011
|
|
$
|
9,307
|
|
2012
|
|
|
8,347
|
|
2013
|
|
|
6,857
|
|
2014
|
|
|
164,797
|
|
2015
|
|
|
209,778
|
|
Thereafter
|
|
|
831,882
|
|
|
|
|
|
|
Total
|
|
$
|
1,230,968
|
|
|
|
|
|
|
Secured Revolving Credit Facility On
August 5, 2009, we entered into an amendment to our Secured
Revolving Credit Facility that reduced the size of the facility
to $22 million. The Secured Revolving Credit Facility is
provided by one lender. The Secured Revolving Credit Facility
provides for future working capital and letter of credit needs
collateralized by either cash or assets of the Company at our
option, based on certain conditions and covenant compliance. As
of September 30, 2010, we have elected to cash
collateralize all letters of credit; however, we have pledged
approximately $925 million of inventory assets to our
Senior Secured Revolving Credit Facility to collateralize
potential future borrowings or letters of credit. The Secured
Revolving Credit Facility contains certain covenants, including
negative covenants and financial maintenance covenants, with
which we are required to comply. Subject to our option to cash
collateralize our obligations under the Secured Revolving Credit
Facility upon certain conditions, our obligations under the
Secured Revolving Credit Facility are secured by liens on
substantially all of our personal property and a significant
portion of our owned real properties. There were no outstanding
borrowings under the Secured Revolving Credit Facility as of
September 30, 2010 or 2009.
We have entered into stand-alone, cash-secured letter of credit
agreements with banks to maintain our pre-existing letters of
credit and to provide for the issuance of new letters of credit.
The letter of credit arrangements combined with our Senior
Secured Revolving Credit Facility provide a total letter of
credit capacity of approximately $82.7 million. As of
September 30, 2010 and 2009, we have secured letters of
credit using cash collateral in restricted accounts totaling
$38.8 million and $48.3 million, respectively. The
Company may enter into additional arrangements to provide
additional letter of credit capacity.
Senior Notes The majority of our Senior
Notes are unsecured or secured obligations ranking pari passu
with all other existing and future senior indebtedness.
Substantially all of our significant subsidiaries are full and
unconditional guarantors of the Senior Notes and are jointly and
severally liable for obligations under the Senior Notes and the
Secured Revolving Credit Facility. Each guarantor subsidiary is
a 100% owned subsidiary of Beazer Homes.
The indentures under which the Senior Notes were issued contain
certain restrictive covenants, including limitations on payment
of dividends. At September 30, 2010, under the most
restrictive covenants of each indenture, no portion of our
retained earnings was available for cash dividends or for share
repurchases. The indentures provide that, in the event of
defined changes in control or if our consolidated tangible net
worth falls below a specified level or in certain circumstances
upon a sale of assets, we are required to offer to repurchase
certain specified amounts of outstanding Senior Notes.
Specifically, each indenture requires us to offer to purchase
10% of each series of Senior Notes at par if our consolidated
tangible net worth (defined as stockholders equity less
intangible assets) is less than $85 million at the end of
any two consecutive fiscal quarters. If triggered and fully
subscribed, this could result in our having to purchase
$82.5 million of notes, based on the original amounts of
the applicable notes; however, this amount may be reduced by
certain Senior Note repurchases (potentially at less than par)
made after the triggering date. As of September 30, 2010,
our consolidated tangible net worth was $349.4 million.
On January 8, 2010, we redeemed our
85/8% Senior
Notes due 2011 at par totaling $127.3 million. This
redemption resulted in a loss on debt extinguishment of
$0.9 million due primarily to the acceleration of debt
70
discount and issuance costs. In May 2010, we redeemed our
83/8% Senior
Notes due 2012 at par for a total of $303.6 million. This
redemption resulted in a loss on debt extinguishment of
$2.9 million, which includes the acceleration of debt
issuance cost amortization. In addition, during the fiscal year
ended September 30, 2010, we redeemed for cash all of the
outstanding Convertible Senior Notes for a total of
$155.5 million. The redemption resulted in a loss on debt
extinguishment of $6.2 million, which includes the
acceleration of debt issuance cost amortization.
On September 11, 2009, we issued and sold $250 million
aggregate principal amount of our 12% Senior Secured Notes
due 2017 (Senior Secured Notes) through a private placement. The
Senior Secured Notes were issued at a price of 89.5% of their
face amount (before underwriting and other issuance costs).
Interest on the Senior Secured Notes is payable semi-annually in
cash in arrears, commencing April 15, 2010. During the
quarter ended March 31, 2010, we completed an offer to
exchange substantially all of the $250 million
12% Senior Secured Notes due 2017 (the Senior Secured
Notes), which were registered under the Securities Act of 1933.
The Senior Secured Notes were issued under an indenture, dated
as of September 11, 2009. The indenture contains covenants
which, subject to certain exceptions, limit the ability of the
Company and its restricted subsidiaries to, among other things,
incur additional indebtedness, engage in certain asset sales,
make certain types of restricted payments, engage in
transactions with affiliates and create liens on assets of the
Company. Upon a change of control, as defined, the indenture
requires us to make an offer to repurchase the Senior Secured
Notes at 101% of their principal amount, plus accrued and unpaid
interest. If we sell certain assets and do not reinvest the net
proceeds in compliance with the indenture, then we must use the
net proceeds to offer to repurchase the Senior Secured Notes at
100% of their principal amount, plus accrued and unpaid
interest. After October 15, 2012, we may redeem some or all
of the Senior Secured Notes at redemption prices set forth in
the indenture. The Senior Secured Notes are secured on a second
priority basis by, subject to exceptions specified in the
related agreements, substantially all of the tangible and
intangible assets of the Company as defined.
In May 2010, we issued $300 million aggregate principal
amount of
91/8% Senior
Notes due June 15, 2018. Interest on these notes is payable
semi-annually in cash in arrears, commencing on June 15,
2010. These notes are unsecured and rank equally with our
unsecured indebtedness. We may, at our option, redeem the
91/8% Senior
Notes in whole or in part at any time at specified redemption
prices which include a make whole provision through
June 15, 2014.
Also in May 2010, we issued 3 million 7.25% tangible equity
units which were comprised of prepaid stock purchase contracts
(see Note 11) and senior amortizing notes. The
amortizing notes had an aggregate initial principal amount of
$15,738,000 as determined under the relative fair value method.
These notes will pay quarterly installments of principal and
interest aggregating approximately $1.4 million per
quarter, beginning August 15, 2010 through August 15,
2013, and in the aggregate, these installments will be
equivalent to a 7.25% cash payment per year with respect to each
$25 stated amount of the TEUs. The amortizing notes will be
unsecured senior obligations and will rank equally with all of
our other unsecured indebtedness. If we elect to settle the
prepaid stock purchase contracts early, we may be required to
repurchase certain amortizing notes, plus accrued and unpaid
interest as provided for in the TEU agreement.
During the second half of fiscal 2009, we voluntarily
repurchased in open-market transactions $384.8 million
principal amount of our Senior Notes ($52.7 million of
85/8% Senior
Notes due 2011, $36.4 million of
83/8% Senior
Notes due 2012, $35.6 million of
61/2% Senior
Notes due 2013, $140.5 million of
67/8% Senior
Notes due 2015, $94.1 million of
81/8% Senior
Notes due 2016, and $25.5 million of Convertible Senior
Notes due 2024). The aggregate purchase price was
$247.7 million, plus accrued and unpaid interest as of the
purchase date. The repurchase of the notes resulted in a
$130.2 million pre-tax gain on extinguishment of debt, net
of unamortized discounts and debt issuance costs related to
these notes. Senior Notes purchased by the Company were
cancelled.
As of September 30, 2010, we were in compliance with all
covenants under our Senior Notes.
Mandatory Convertible Subordinated Notes On
January 12, 2010, we issued $57.5 million aggregate
principal amount of
71/2%
Mandatory Convertible Subordinated Notes due 2013 (the Mandatory
Convertible Subordinated Notes). Interest on the Mandatory
Convertible Subordinated Notes is payable quarterly in cash in
71
arrears, commencing April 15, 2010. Holders of the
Mandatory Convertible Subordinated Notes have the right to
convert their notes, in whole or in part, at any time prior to
maturity, into shares of our common stock at a variable
conversion rate based on the price of our stock. The conversion
rate will range from 4.4547 to 5.4348 shares per $25
principal amount of notes. On the stated maturity date, the
Mandatory Convertible Subordinated Notes, unless previously
converted, will automatically convert into shares of our common
stock, based on the conversion rate applicable on that date.
Junior Subordinated Notes On June 15,
2006, we completed a private placement of $103.1 million of
unsecured junior subordinated notes which mature on
July 30, 2036 and are redeemable at par on or after
July 30, 2011 and pay a fixed rate of 7.987% for the first
ten years ending July 30, 2016. Thereafter, the securities
have a floating interest rate equal to three-month LIBOR plus
2.45% per annum, resetting quarterly. These notes were issued to
Beazer Capital Trust I, which simultaneously issued, in a
private transaction, trust preferred securities and common
securities with an aggregate value of $103.1 million to
fund its purchase of these notes. The transaction is treated as
debt in accordance with GAAP. The obligations relating to these
notes and the related securities are subordinated to the Secured
Revolving Credit Facility and the Senior Notes.
On January 15, 2010, we completed an exchange of
$75 million of our trust preferred securities issued by
Beazer Capital Trust I for a new issue of $75 million
of junior subordinated notes due July 30, 2036 issued by
the Company (the New Junior Notes). The exchanged trust
preferred securities and the related junior subordinated notes
issued in 2006 were cancelled effective January 15, 2010.
The material terms of the New Junior Notes are identical to the
terms of the original trust securities except that when the New
Junior Notes change from a fixed rate to a variable rate in
August 2016, the variable rate is subject to a floor of 4.25%
and a cap of 9.25%. In addition, the Company now has the option
to redeem the New Junior Notes beginning on June 1, 2012 at
75% of par value and beginning on June 1, 2022, the
redemption price of 75% of par value will increase by 1.785% per
year.
The aforementioned exchange has been accounted for as an
extinguishment of debt as there has been a significant
modification of cash flows and, as such, the New Junior Notes
were recorded at their estimated fair value at the exchange
date. Over the remaining life of the New Junior Notes, we will
increase their carrying value until this carrying value equals
the face value of the notes. During the fiscal year ended
September 30, 2010, we recorded a pre-tax gain on
extinguishment of $53.6 million in connection with this
exchange. As of September 30, 2010, unamortized accretion
was $53.3 million and will be amortized over the remaining
life of the notes.
Other Secured Notes Payable We periodically
acquire land through the issuance of notes payable. As of
September 30, 2010 and 2009, we had outstanding notes
payable of $10.8 million and $12.5 million,
respectively, primarily related to land acquisitions. These
notes payable expire at various times through 2013 and had fixed
rates ranging from 7.3% to 9.0% at September 30, 2010.
These notes are secured by the real estate to which they relate.
During fiscal 2009, we negotiated a reduced payoff of two of our
secured notes payable totaling $39.2 million and recorded
gains on debt extinguishment totaling $20.1 million which
is included in gain on extinguishment of debt in the
accompanying Consolidated Statements of Operations for the
fiscal year ended September 30, 2009.
The agreements governing these secured notes payable contain
various affirmative and negative covenants. There can be no
assurance that we will be able to obtain any future waivers or
amendments that may become necessary without significant
additional cost or at all. In each instance, however, a covenant
default can be cured by repayment of the indebtedness.
Model Home Financing Obligations Due to
a continuing interest in certain model home sale-leaseback
transactions, we had recorded $30.4 million of debt as of
September 30, 2009 related to these financing
transactions in accordance with SFAS 98 (As amended),
Accounting for Leases (ASC 840). These model home
transactions incurred interest at a variable rate of one-month
LIBOR plus 450 basis points, 4.8% as of September 30,
2009. The model homes financed in these transactions were
recorded as inventory until such homes were sold to the ultimate
homebuyer and the related financing obligation was repaid. At
such time, we recognized revenue and related costs, and the
inventory associated with the model homes and the model home
financing obligations was reduced. As of September 30,
2010, there were no remaining model home financing obligations.
The sale transaction above is reflected as cash provided by
operating activities and the reduction in the model home
72
financing obligation is presented as cash used in financing
activities in the accompanying Consolidated Statements of Cash
Flows.
|
|
(8)
|
Fair
Value Measurements
|
ASC 820 Fair Value Measurement and Disclosures provides
guidance for using fair value to measure assets and liabilities
and applies whenever other standards require (or permit) assets
or liabilities to be measured at fair value but does not expand
the use of fair value in any new circumstances. ASC 820
includes provisions that require expanded disclosure of the
effect on earnings for items measured using unobservable data.
As of September 30, 2010, we had no assets or liabilities
in our Consolidated Balance Sheets that were required to be
measured at fair value on a recurring basis. Certain of our
assets are required to be recorded at fair value on a
non-recurring basis when events and circumstances indicate that
the carrying value may not be recovered. ASC 820
establishes a fair value hierarchy as follows:
Level 1 Quoted prices in active markets for
identical assets or liabilities; Level 2 Inputs
other than quoted prices included in Level 1 that are
observable either directly or indirectly through corroboration
with market data; Level 3 Unobservable inputs
that reflect our own estimates about the assumptions market
participants would use in pricing the asset or liability. The
following table presents our assets measured at fair value on a
non-recurring basis for each hierarchy level and represents only
those assets whose carrying values were adjusted to fair value
during fiscal year 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Development projects in progress
|
|
$
|
|
|
|
$
|
|
|
|
$
|
72,806
|
|
|
$
|
72,806
|
|
Land held for sale
|
|
|
|
|
|
|
|
|
|
|
2,419
|
|
|
|
2,419
|
|
As previously disclosed, we review our long-lived assets,
including inventory for recoverability when factors that
indicate an impairment may exist, but no less than quarterly.
Fair value is based on estimated cash flows discounted for
market risks associated with the long-lived assets and
represents the fair value immediately after impairment, or the
last impairment taken for communities impaired multiple times.
During the fiscal year ended September 30, 2010, we
recorded total inventory impairments of $48.9 million for
development projects in progress and total inventory impairments
for land held for sale of $2.1 million. See Notes 1
and 4 for additional information related to the fair value
accounting for the assets listed above.
The fair values of our investments in unconsolidated joint
ventures are determined primarily using a discounted cash flow
model to value the underlying net assets of the respective
entities. During the fiscal year ended September 30, 2010,
we recorded the writedown of our investment in certain of our
unconsolidated joint ventures to a fair value of $0, resulting
in impairments of $24.3 million, $15.5 million of
which is included in loss from discontinued operations, net of
tax in the accompanying Consolidated Statement of Operations
(see Note 3 for additional information related to the fair
value accounting for our unconsolidated joint ventures).
Determining which hierarchical level an asset or liability falls
within requires significant judgment. We evaluate our hierarchy
disclosures each quarter.
The fair value of our cash and cash equivalents, restricted
cash, accounts receivable, trade accounts payable, other
liabilities and other secured notes payable approximate their
carrying amounts due to the short maturity of these assets and
liabilities. Obligations related to consolidated inventory not
owned are recorded at estimated fair value. The fair value of
our model home financing obligations approximate their carrying
amounts due to the
73
variable interest rates associated with those obligations. The
carrying values and estimated fair values of other financial
assets and liabilities were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010
|
|
|
As of September 30, 2009
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Senior Notes
|
|
$
|
1,095,783
|
|
|
$
|
1,093,855
|
|
|
$
|
1,362,902
|
|
|
$
|
1,200,612
|
|
Mandatory Convertible Subordinated Notes
|
|
|
57,500
|
|
|
|
61,525
|
|
|
|
|
|
|
|
|
|
Junior Subordinated Notes
|
|
|
47,470
|
|
|
|
47,470
|
|
|
|
103,093
|
|
|
|
52,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,200,753
|
|
|
$
|
1,202,850
|
|
|
$
|
1,465,995
|
|
|
$
|
1,252,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated fair values shown above for our publicly held
Senior Notes have and Mandatory Convertible Subordinated Notes
been determined using quoted market rates. The fair value of our
publicly held junior subordinated notes is estimated by
discounting scheduled cash flows through maturity. The discount
rate is estimated using market rates currently being offered on
loans with similar terms and credit quality. Judgment is
required in interpreting market data to develop these estimates
of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that we could realize
in a current market exchange.
The (benefit) provision for income taxes from continuing
operations consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current federal
|
|
$
|
(4,528
|
)
|
|
$
|
(13,024
|
)
|
|
$
|
(139,877
|
)
|
Current state
|
|
|
65
|
|
|
|
(162
|
)
|
|
|
(3,005
|
)
|
Deferred federal
|
|
|
(114,151
|
)
|
|
|
1,459
|
|
|
|
204,601
|
|
Deferred state
|
|
|
259
|
|
|
|
3,197
|
|
|
|
7,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(118,355
|
)
|
|
$
|
(8,530
|
)
|
|
$
|
68,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The (benefit) provision for income taxes from continuing
operations differs from the amount computed by applying the
federal income tax statutory rate as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Income tax computed at statutory rate
|
|
$
|
(51,895
|
)
|
|
$
|
(64,355
|
)
|
|
$
|
(248,797
|
)
|
State income taxes, net of federal benefit
|
|
|
(5,756
|
)
|
|
|
(2,936
|
)
|
|
|
6,542
|
|
Penalties
|
|
|
|
|
|
|
5,146
|
|
|
|
|
|
Impairment of non-deductible goodwill
|
|
|
|
|
|
|
5,157
|
|
|
|
16,446
|
|
Valuation allowance
|
|
|
(63,912
|
)
|
|
|
45,128
|
|
|
|
298,080
|
|
Other, net
|
|
|
3,208
|
|
|
|
3,330
|
|
|
|
(3,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(118,355
|
)
|
|
$
|
(8,530
|
)
|
|
$
|
68,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
Deferred tax assets and liabilities are composed of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Warranty and other reserves
|
|
$
|
15,316
|
|
|
$
|
22,407
|
|
Incentive compensation
|
|
|
19,170
|
|
|
|
15,660
|
|
Property, equipment and other assets
|
|
|
2,137
|
|
|
|
4,803
|
|
Federal and state tax carryforwards
|
|
|
206,119
|
|
|
|
186,088
|
|
Inventory adjustments
|
|
|
183,235
|
|
|
|
191,119
|
|
FIN 48
|
|
|
39,279
|
|
|
|
39,083
|
|
Deferred revenue
|
|
|
|
|
|
|
132
|
|
Other
|
|
|
3,578
|
|
|
|
1,567
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
468,834
|
|
|
|
460,859
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilties:
|
|
|
|
|
|
|
|
|
Deferred revenues
|
|
|
(57,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(57,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets before valuation allowance
|
|
|
411,587
|
|
|
|
460,859
|
|
Valuation allowance
|
|
|
(403,808
|
)
|
|
|
(453,339
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
7,779
|
|
|
$
|
7,520
|
|
|
|
|
|
|
|
|
|
|
Our fiscal 2010 tax benefit from continuing operations of
$118.4 million and $14.8 million from discontinued
operations primarily resulted from The Worker, Homeownership
and Business Act of 2009 which allowed us to carry back a
portion of our fiscal 2009 federal tax loss. This carry back
claim allowed us to claim a refund of taxes paid in prior years
and to monetize a deferred tax asset that had previously had a
valuation allowance recorded against it. The difference between
the carry back claim and our tax benefit results from changes to
our estimates of future sources of taxable income and
unrecognized tax benefits. Likewise, the principal difference
between our effective rate and the U.S. federal statutory
rate relates to the carry back of our federal tax losses and
valuation allowance.
Our income tax receivable was $7.7 million and
$9.9 million as of September 30, 2010 and 2009,
respectively. This receivable relates primarily to the carry
back of losses incurred in fiscal 2008 to open tax years in
which we previously paid significant income taxes. During fiscal
2010 and 2009, we received $135.8 million and
$172.5 million of federal and state income tax refunds
related to prior tax years in which we previously paid taxes.
At September 30, 2010, we had deferred tax assets totaling
$132.0 million for federal net operating loss
carryforwards, with losses expiring between 2028 and 2030. We
also had deferred tax assets totaling $64.3 million for
state net operating loss carryforwards, with losses expiring
through 2030.
Deferred tax assets primarily represent the deferred tax
benefits arising from temporary differences between book and tax
income which will be recognized in future years as an offset
against future taxable income. In accordance with ASC 740,
we evaluate our deferred tax assets, including net operating
losses, to determine if a valuation allowance is required.
ASC 740-10
requires that companies assess whether a valuation allowance
should be established based on the consideration of all
available evidence using a more likely than not
standard. In making such judgments, significant weight is given
to evidence that can be objectively verified.
ASC 740-10
provides that a cumulative loss in recent years is significant
evidence in considering whether deferred tax assets are
realizable and also restricts the amount of reliance on
projections of future taxable income to support the recovery of
deferred tax assets. Therefore, during fiscal 2008, we
determined that we did not meet the more likely than not
standard that substantially all of our deferred tax assets would
be realized and, therefore, we established a valuation allowance
for substantially all of our deferred tax assets.
75
Given the prolonged economic downturn affecting the homebuilding
industry and the continued uncertainty regarding the
recoverability of the remaining deferred tax assets, we continue
to believe that a valuation allowance is needed for
substantially all of our deferred tax assets. In future periods,
the allowance could be modified based on sufficient evidence
indicating that more likely than not a portion of our deferred
tax assets will be realized. Changes in existing tax laws could
also affect actual tax results and the valuation of deferred tax
assets over time.
Further, we experienced an ownership change as
defined in Section 382 of the Internal Revenue Code
(Section 382) as of January 12, 2010.
Section 382 contains rules that limit the ability of a
company that undergoes an ownership change to
utilize its net operating loss carryforwards (NOLs) and certain
built-in losses or deductions recognized during the five-year
period after the ownership change to offset future taxable
income. Therefore, our ability to utilize our pre-ownership
change net operating loss carryforwards and recognize certain
built-in losses or deductions is limited by Section 382 to
an estimated maximum amount of approximately $11.4 million
($4 million tax-effected) annually. Certain deferred tax
assets are not subject to any limitation imposed by
Section 382.
Due to the Section 382 limitation and the maximum
carryforward period of our NOLs, we are unable to fully
recognize certain deferred tax assets. Accordingly, during
fiscal 2010, we reduced our gross deferred tax assets and
corresponding valuation allowance by $5.9 million. As of
June 30, 2010, we had disclosed that up to
$174.3 million of gross deferred tax assets related to
accrued losses on our inventory may have been unavailable due to
the limitation imposed by Section 382. Based on certain
economic results during fiscal 2010, we have revised our
previous estimate and, after adjusting for certain state NOLs
and other deferred tax assets which may not be recoverable, we
now estimate that up to $183.2 million of gross deferred
tax assets may be unavailable due to the limitation imposed by
Section 382. However, based on our annual assessment, our
current realization projections for our built in losses support
that only $61.2 million of our deferred tax asset is likely
to be unavailable under Section 382. As future economic
conditions unfold, we will be able to confirm that certain
deferred tax assets will not provide any future tax benefit. At
such time, we will accordingly remove any deferred tax asset and
corresponding valuation allowance.
Considering the limitation imposed by Section 382, the
table below depicts the classifications of our deferred tax
assets:
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
Subject to annual limitation
|
|
$
|
79,492
|
|
Generally not subject to annual limitation
|
|
|
206,134
|
|
Certain components likely to be subject to annual limitation
|
|
|
183,208
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
468,834
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(57,247
|
)
|
|
|
|
|
|
Net deferred tax assets before valuation allowance
|
|
|
411,587
|
|
Valuation allowance
|
|
|
(403,808
|
)
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
7,779
|
|
|
|
|
|
|
Therefore, based on the classification of which deferred tax
assets are likely to be impacted by our annual limitation, as of
September 30, 2010, we had deferred tax assets, net of
$57.2 million of deferred tax liabilities, of
$411.6 million. While the actual realization of the
deferred tax assets is difficult to predict and is dependent on
future events, as evidenced by our current valuation allowance,
we currently anticipate that between $228 million and
$350 million of these deferred tax assets may be available
even after consideration of the Section 382 imposed
limitation. Further, we expect to continue to add to our gross
deferred tax assets for anticipated NOLs that will not be
limited by Section 382.
76
As of September 30, 2010, we had $47.3 million of
gross unrecognized tax benefits, of which $4.4 million, if
recognized, would affect our effective tax rate. As of
September 30, 2009, we had $41.8 million of gross
unrecognized tax benefits, of which $5.3 million would
affect the effective rate if recognized. Additionally, we had
$6.0 million and $8.0 million of accrued interest and
penalties at September 30, 2010 and 2009, respectively. In
fiscal years 2010 and 2009, our income tax benefit included tax
related interest. Such amounts totaled $1.9 million in
fiscal 2010 and $4.8 million in fiscal 2009.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits at the beginning and end of fiscal
2010, fiscal 2009 and fiscal 2008 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
41,848
|
|
|
$
|
57,916
|
|
|
$
|
72,500
|
|
Reductions in tax positions related to current year
|
|
|
(3,435
|
)
|
|
|
(3,527
|
)
|
|
|
891
|
|
Additions for tax positions related to prior years
|
|
|
11,533
|
|
|
|
211
|
|
|
|
12,232
|
|
Reductions for tax positions of prior years
|
|
|
(289
|
)
|
|
|
(219
|
)
|
|
|
(22,440
|
)
|
Settlements with taxing authorities
|
|
|
(319
|
)
|
|
|
(8,572
|
)
|
|
|
(3,767
|
)
|
Lapse of statute of limitations
|
|
|
(2,067
|
)
|
|
|
(3,961
|
)
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
47,271
|
|
|
$
|
41,848
|
|
|
$
|
57,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the normal course of business, we are subject to audits by
federal and state tax authorities regarding various tax
liabilities. The IRS is currently conducting a routine
examination of our federal income tax returns for fiscal year
2007 through 2009, and certain state taxing authorities are
examining various fiscal years. The final outcome of these
examinations is not yet determinable and therefore the change
that could occur within our unrecognized tax benefits within the
next 12 months cannot be estimated at this time.
The statute of limitations for our major tax jurisdictions
remains open for examination for fiscal years 2006 and
subsequent years. During fiscal 2010, we completed a number of
state examinations without any material effect on our net losses.
We are obligated under various noncancelable operating leases
for office facilities, model homes and equipment. Rental expense
under these agreements, which is included in selling, general
and administrative expenses, amounted to approximately
$10.4 million, $12.2 million and $17.1 million
for the years ended September 30, 2010, 2009 and 2008,
respectively. This rental expense excludes model home
transactions accounted for as financing arrangements in
accordance with SFAS 98 as discussed in Note 7 and
expense related to our discontinued operations. As of
September 30, 2010, future minimum lease payments under
noncancelable operating lease agreements are as follows (in
thousands):
|
|
|
|
|
Year Ending September 30,
|
|
|
|
|
2011
|
|
$
|
7,534
|
|
2012
|
|
|
6,373
|
|
2013
|
|
|
5,419
|
|
2014
|
|
|
2,461
|
|
2015
|
|
|
1,643
|
|
Thereafter
|
|
|
1,253
|
|
|
|
|
|
|
Total
|
|
$
|
24,683
|
|
|
|
|
|
|
|
|
|
(11) |
|
Stockholders Equity |
Preferred Stock. We currently have no shares
of preferred stock outstanding.
77
Common
Stock Transactions
On January 12, 2010, we closed on our underwritten public
offering of 22,425,000 shares of Beazer common stock. The
Company utilized 3.4 million shares of treasury stock and
received net proceeds of $97.8 million from the offering,
after underwriting discounts, commissions and transaction
expenses.
On May 10, 2010, we concurrently closed on our underwritten
public offerings of 12.5 million shares of Beazer common
stock and 3.0 million 7.25% tangible equity units (TEUs)
and received net proceeds of $141.6 million from these two
offerings, after underwriting discounts, commissions and
transaction expenses. Each TEU is comprised of a prepaid stock
purchase contract and a senior amortizing note due
August 15, 2013 (see Note 7 for discussion of the
amortizing notes) which are legally separable and detachable.
The prepaid stock purchase contracts will convert to Beazer
Homes stock on August 15, 2013 based on the applicable
settlement factor, as defined in the offering agreement, which
will be between 3.5126 shares per unit and
4.3029 shares per unit. We have accounted for the prepaid
stock purchase contracts as equity and recorded
$57.4 million, the initial fair value of these contracts,
based on the relative fair value method, as additional paid in
capital as of September 30, 2010.
Common Stock Repurchases. During fiscal 2010,
2009 and fiscal 2008, we did not repurchase any shares in the
open market. Any future stock repurchases as allowed by our debt
covenants must be approved by the Companys Board of
Directors or its Finance Committee.
During fiscal 2010, 2009 and 2008, 32,944, 14,393 and
7,255 shares, respectively, were surrendered to us by
employees in payment of minimum tax obligations upon the vesting
of restricted stock and restricted stock units under our stock
incentive plans. We valued the stock at the market price on the
date of surrender, for an aggregate value of approximately
$160,000, or approximately $5 per share in fiscal 2010, $21,000,
or less than $2 per share in fiscal 2009 and $52,000, or
approximately $7 per share in fiscal 2008.
Dividends. Effective November 2, 2007,
our Board of Directors suspended payment of quarterly dividends.
The Board concluded that suspending dividends, which will allow
us to conserve approximately $16 million of cash annually,
was a prudent effort in light of the continued deterioration in
the housing market. In addition, the indentures under which our
senior notes were issued contain certain restrictive covenants,
including limitations on payment of dividends. At
September 30, 2010, under the most restrictive covenants of
each indenture, none of our retained earnings was available for
cash dividends. Hence, there were no dividends paid in fiscal
2010, 2009 or fiscal 2008.
|
|
(12)
|
Retirement
Plan and Incentive Awards
|
401(k) Retirement Plan. We sponsor a 401(k)
plan (the Plan). Substantially all employees are eligible for
participation in the Plan after completing one calendar month of
service with us. Participants may defer and contribute to the
Plan from 1% to 80% of their salary with certain limitations on
highly compensated individuals. We match 50% of the first 6% of
the participants contributions. The participants
contributions vest 100% immediately, while our contributions
vest over five years. Our total contributions for the fiscal
years ended September 30, 2010, 2009 and 2008 were
approximately $1.6 million, $1.1 million and
$1.7 million, respectively. During fiscal 2010, 2009 and
2008, participants forfeited $0.1 million,
$0.7 million and $1.3, million, respectively, of unvested
matching contributions.
Deferred Compensation Plan. During fiscal
2002, we adopted the Beazer Homes USA, Inc. Deferred
Compensation Plan (the DCP Plan). The DCP Plan is a
non-qualified deferred compensation plan for a select group of
executives and highly compensated employees. The DCP Plan allows
the executives to defer current compensation on a pre-tax basis
to a future year, up until termination of employment. The
objectives of the DCP Plan are to assist executives with
financial planning and capital accumulation and to provide the
Company with a method of attracting, rewarding, and retaining
executives. Participation in the DCP Plan is voluntary. Beazer
Homes may voluntarily make a contribution to the
participants DCP accounts. Deferred compensation assets of
$9.9 million and $12.7 million and deferred
compensation liabilities of $10.7 million and
$13.2 million as of September 30, 2010 and 2009,
respectively, are included in other assets and other liabilities
on the accompanying Consolidated Balance Sheets. The decrease in
the deferred compensation assets and liabilities between fiscal
2009 and fiscal 2010 relates
78
to employee elections to withdraw funds from the plan,
forfeitures of matching contributions related to terminated
employees and market losses on investments held within the plan.
For the years ended September 30, 2010, 2009 and 2008,
Beazer Homes contributed approximately $273,000, $355,000 and
$517,000, respectively, to the DCP Plan.
Stock Incentive Plans. During fiscal 2010, we
adopted the 2010 Stock Incentive Plan (the 2010 Plan) because
our 1999 Stock Incentive Plan (the 1999 Plan) had expired. At
September 30, 2010, we had reserved approximately
6.6 million shares of common stock for issuance under our
various stock incentive plans, of which approximately
4 million shares are available for future grants.
Stock Option and SSAR Awards. We have issued
various stock option and SSAR awards to officers and key
employees under both the 2010 Plan and the 1999 Plan. Stock
options have an exercise price equal to the fair market value of
the common stock on the grant date, vest three years after the
date of grant and may be exercised thereafter until their
expiration, subject to forfeiture upon termination of employment
as provided in the applicable plan. Under certain conditions of
retirement, eligible participants may receive a partial vesting
of stock options. Stock options granted prior to fiscal 2004,
generally expire on the tenth anniversary from the date such
options were granted. Beginning in fiscal 2004, newly granted
stock options expire on the seventh anniversary from the date
such options were granted. SSARs generally vest three years
after the date of grant, have an exercise price equal to the
fair market value of the common stock on the date of grant and
are subject to forfeiture upon termination of employment as
provided in the applicable plan. Under certain conditions of
retirement, eligible participants may receive a partial vesting
of SSARs.
The following table summarizes stock options and SSARs
outstanding as of September 30 and activity during the fiscal
years ended September 30:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
Fiscal Year Ended September 30,
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
2,108,914
|
|
|
$
|
33.07
|
|
|
|
1,848,995
|
|
|
$
|
45.78
|
|
|
|
2,052,379
|
|
|
$
|
45.01
|
|
Granted
|
|
|
1,006,145
|
|
|
|
5.69
|
|
|
|
671,600
|
|
|
|
3.94
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(38,794
|
)
|
|
|
18.16
|
|
|
|
(34,761
|
)
|
|
|
44.28
|
|
|
|
(111,670
|
)
|
|
|
46.55
|
|
Cancelled/exchanged
|
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|
(465,933
|
)
|
|
|
33.04
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|
|
|
(292,969
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)
|
|
|
43.05
|
|
|
|
|
|
|
|
|
|
Expired
|
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|
(31,978
|
)
|
|
|
27.51
|
|
|
|
(83,951
|
)
|
|
|
40.41
|
|
|
|
(91,714
|
)
|
|
|
27.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
2,578,354
|
|
|
$
|
22.69
|
|
|
|
2,108,914
|
|
|
$
|
33.07
|
|
|
|
1,848,995
|
|
|
$
|
45.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
770,658
|
|
|
$
|
41.59
|
|
|
|
773,869
|
|
|
$
|
40.40
|
|
|
|
704,762
|
|
|
$
|
29.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
The fair value of each grant is estimated on the date of grant
using the Black-Scholes option-pricing model based on the
following assumptions:
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|
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|
Fiscal Year Ended September 30,
|
|
2010
|
|
|
2009
|
|
|
Expected life of options
|
|
|
4.8 years
|
|
|
|
5.06 years
|
|
Expected volatility
|
|
|
50.00
|
%
|
|
|
99.49
|
%
|
Expected discrete dividends
|
|
|
|
|
|
|
|
|
Weighted average risk-free interest rate
|
|
|
2.33
|
%
|
|
|
2.75
|
%
|
Weighted average fair value
|
|
$
|
2.55
|
|
|
$
|
2.97
|
|
The expected volatility is based on the historic returns of our
stock and the implied volatility of our publicly-traded options.
We assumed no dividends would be paid since our Board of
Directors has suspended payment of dividends indefinitely. The
risk-free interest rate is based on the term structure of
interest rates at the time of the option grant and we have
relied upon a combination of the observed exercise behavior of
our prior grants with
79
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.
At September 30, 2010, 2,302,933 SSARs/stock options were
vested or expected to vest in the future with a weighted average
exercise price of $20.55 and a weighted average expected life of
3.07 years. At September 30, 2010, the aggregate
intrinsic value of SSARs/stock options outstanding was
approximately $124,000. The aggregate intrinsic value of
SSARs/stock options vested and expected to vest in the future
was approximately $110,000 and the aggregate intrinsic value of
exercisable SSARs/stock options was approximately $41,000. The
intrinsic value of a stock option/SSAR is the amount by which
the market value of the underlying stock exceeds the exercise
price of the option/SSAR.
During the first quarter of fiscal 2010, certain executive
officers and directors elected to relinquish 465,933 vested and
outstanding options that had exercise prices above $20 per share
in order to provide additional shares for use in the
Companys January 2010 public stock offering.
On August 5, 2008, at the Companys annual meeting of
stockholders, the stockholders voted to approve amendments to
the 1999 Plan to authorize a stock option/SSAR exchange program
for eligible employees other than executive officers and
directors. On August 4, 2009 we offered to exchange stock
options/SSARs with exercise prices ranging from $26.51 to $62.02
per share for newly issued restricted shares of common stock
based on the exercise price of the eligible awards exchanged.
This exchange was structured to be a value for value exchange
and, as of the grant date, there was no incremental expense
recorded related to this exchange. Stock options/SSARs to
purchase 292,969 shares of our common stock were cancelled
and exchanged for 90,405 restricted shares of stock with a grant
price of $4.16.
The following table summarizes information about stock options
and SSARs outstanding and exercisable at September 30, 2010:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options/SSARs Outstanding
|
|
|
Stock Options/SSARs Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
Range of
|
|
|
|
|
Contractual
|
|
|
Average
|
|
|
|
|
|
Contractual
|
|
|
Average
|
|
Exercise
|
|
Number
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number
|
|
|
Remaining
|
|
|
Exercise
|
|
Prices
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Life (Years)
|
|
|
Price
|
|
|
$3 - $9
|
|
|
1,659,344
|
|
|
|
6.32
|
|
|
$
|
5.00
|
|
|
|
217,733
|
|
|
|
5.87
|
|
|
$
|
3.94
|
|
$18 - $21
|
|
|
51,003
|
|
|
|
2.27
|
|
|
|
19.67
|
|
|
|
51,003
|
|
|
|
2.27
|
|
|
|
19.67
|
|
$24 - $29
|
|
|
18,000
|
|
|
|
1.35
|
|
|
|
28.81
|
|
|
|
18,000
|
|
|
|
1.35
|
|
|
|
28.81
|
|
$30 - $39
|
|
|
269,788
|
|
|
|
3.53
|
|
|
|
34.05
|
|
|
|
93,318
|
|
|
|
3.44
|
|
|
|
34.13
|
|
$40 - $49
|
|
|
11,374
|
|
|
|
3.36
|
|
|
|
43.10
|
|
|
|
11,374
|
|
|
|
3.36
|
|
|
|
43.10
|
|
$68 - $69
|
|
|
568,845
|
|
|
|
2.34
|
|
|
|
68.56
|
|
|
|
379,230
|
|
|
|
2.34
|
|
|
|
68.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3 - $69
|
|
|
2,578,354
|
|
|
|
5.02
|
|
|
$
|
22.69
|
|
|
|
770,658
|
|
|
|
3.46
|
|
|
$
|
41.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested Stock Awards. We have made various
non-vested stock awards to officers and key employees under the
2010 Plan and the 1999 Plan. All restricted stock is awarded in
the name of the participant, who has all the rights of other
common stockholders with respect to such stock, subject to
restrictions and forfeiture provisions. Accordingly, such
nonvested stock awards are considered outstanding shares.
Restricted stock awards generally vest from three to seven years
after the date of grant. Certain restricted stock awards provide
for accelerated vesting if certain performance goals are
achieved.
In fiscal 2009 as discussed above, we exchanged certain stock
options/SSARs to purchase shares of our common stock for
restricted shares of common stock. These restricted shares will
vest 50% on the first anniversary of the exchange and 50% on the
second anniversary of the exchange. We valued these restricted
shares in accordance with SFAS 123R based on the remaining
unamortized cost of the exchanged stock options/SSARs. The
weighted average exchange price fair value of these restricted
shares was $4.16 per share. Our estimated fair value of these
restricted shares will be amortized over the applicable vesting
period.
80
Prior to fiscal 2008, participants in certain of our management
incentive compensation programs could defer a portion of their
earned annual incentive compensation under the applicable plan
pursuant to the terms of the Corporate Management Stock Purchase
Program (the CMSPP). The deferred amounts are represented by
restricted stock units, each of which represents the right to
receive one share of Beazer Homes common stock upon
vesting. Such shares are issued after a three-year vesting
period, subject to an election for further deferral by the
participant. The number of restricted stock units granted is
based on a discount to the market value of our common stock at
the time the bonus is earned. Should the participants
employment terminate during the vesting period, the deferred
incentive compensation is settled in cash or cash and stock,
depending on the cause of termination as set forth in the CMSPP
or applicable deferred compensation plan. Due to low
availability of shares at the beginning of fiscal 2008 under the
1999 Plan, from which shares under CMSPP are issued, the
Compensation Committee suspended this program until further
notice.
Activity relating to the nonvested restricted stock awards for
the fiscal year ended September 30, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Beginning of year
|
|
|
1,126,880
|
|
|
$
|
27.66
|
|
Granted
|
|
|
1,006,145
|
|
|
|
5.69
|
|
Vested
|
|
|
(201,514
|
)
|
|
|
33.21
|
|
Forfeited
|
|
|
(91,524
|
)
|
|
|
40.39
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
1,839,987
|
|
|
$
|
14.41
|
|
|
|
|
|
|
|
|
|
|
Compensation expense for the nonvested restricted stock awards
totaled $5.6 million, $6.6 million and
$6.2 million for the fiscal years ended September 30,
2010, 2009 and 2008, respectively. The weighted average
grant-date fair value of nonvested restricted stock awards
granted during the fiscal years ended September 30, 2010
and 2009, excluding shares granted in the 2009 exchange offer,
was $5.69 and $3.98, respectively.
Beazer Homes and certain of its subsidiaries have been and
continue to be named as defendants in various construction
defect claims, complaints and other legal actions. The Company
is subject to the possibility of loss contingencies arising in
its business and such contingencies are accounted for in
accordance with SFAS 5, Accounting for Contingencies
(ASC 7). In determining loss contingencies, we consider the
likelihood of loss as well as the ability to reasonably estimate
the amount of such loss or liability. An estimated loss is
recorded when it is considered probable that a liability has
been incurred and when the amount of loss can be reasonably
estimated.
Warranty Reserves. We currently provide a
limited warranty (ranging from one to two years) covering
workmanship and materials per our defined performance quality
standards. In addition, we provide a limited warranty (generally
ranging from a minimum of five years up to the period covered by
the applicable statute of repose) covering only certain defined
construction defects. We also provide a defined structural
warranty with single-family homes and townhomes in certain
states.
Since we subcontract our homebuilding work to subcontractors
whose contracts generally include an indemnity obligation and a
requirement that certain minimum insurance requirements be met,
including providing us with a certificate of insurance prior to
receiving payments for their work, many claims relating to
workmanship and materials are the primary responsibility of the
subcontractors.
Warranty reserves are included in other liabilities and the
provision for warranty accruals is included in home construction
and land sales expenses in the consolidated financial
statements. We record reserves covering anticipated warranty
expense for each home closed. Management reviews the adequacy of
warranty reserves each reporting period based on historical
experience and managements estimate of the costs to
remediate the claims and adjusts these provisions accordingly.
Our review includes a quarterly analysis of the historical data
and
81
trends in warranty expense by operating segment. An analysis by
operating segment allows us to consider market specific factors
such as our warranty experience, the number of home closings,
the prices of homes, product mix and other data in estimating
our warranty reserves. In addition, our analysis also
contemplates the existence of any non-recurring or
community-specific warranty related matters that might not be
contemplated in our historical data and trends.
As of September 30, 2010, our warranty reserves include an
estimate for the repair of less than 60 homes in Florida where
certain of our subcontractors installed defective Chinese
drywall in homes that were delivered during our 2006 and 2007
fiscal years. As of September 30, 2010, we have completed
repairs on approximately 52% of these homes and have begun
repairing a number of the remaining homes. We are inspecting
additional homes in order to determine whether they also contain
the defective Chinese drywall. The outcome of these inspections
and potential future inspections or an unexpected increase in
repair costs may require us to increase our warranty reserve in
the future. However, the amount of additional liability, if any,
is not reasonably estimable. In addition, the Company has been
named as a defendant in a number of legal actions related to
defective Chinese drywall (see Other Matters below).
As a result of our analyses, we adjust our estimated warranty
liabilities. While we believe that our warranty reserves are
adequate as of September 30, 2010, historical data and
trends may not accurately predict actual warranty costs, or
future developments could lead to a significant change in the
reserve. Our warranty reserves are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of period
|
|
$
|
30,100
|
|
|
$
|
40,822
|
|
|
$
|
57,053
|
|
Accruals for warranties issued
|
|
|
6,827
|
|
|
|
7,543
|
|
|
|
14,909
|
|
Changes in liability related to warranties existing in prior
periods
|
|
|
3,308
|
|
|
|
(3,294
|
)
|
|
|
(3,279
|
)
|
Payments made
|
|
|
(14,414
|
)
|
|
|
(14,971
|
)
|
|
|
(27,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
25,821
|
|
|
$
|
30,100
|
|
|
$
|
40,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation
ERISA Class Actions. On April 30,
2007, a putative class action complaint was filed on behalf of a
purported class consisting of present and former participants
and beneficiaries of the Beazer Homes USA, Inc. 401(k) Plan
against the Company and certain employees and directors of the
Company. The complaint alleges breach of fiduciary duties,
including those set forth in the Employee Retirement Income
Security Act (ERISA), as a result of the investment of
retirement monies held by the 401(k) Plan in common stock of
Beazer Homes at a time when participants were allegedly not
provided timely, accurate and complete information concerning
Beazer Homes. Four additional lawsuits were filed subsequently
making similar allegations and the court consolidated these five
lawsuits. The parties have reached a settlement which will be
largely funded by insurance proceeds and is subject to court
approval. Under the terms of the settlement, the lawsuit will be
dismissed with prejudice and there will be a release of all
claims. The court has preliminarily approved the settlement and
a hearing is scheduled for November 15, 2010 to consider
final approval of the settlement. The Company has accrued a
liability for such matter which is not material to the
Companys financial position or results of operations and
is included in the total litigation accrual discussed below.
Homeowners Class Action Lawsuits and Multi-Plaintiff
Lawsuit. A putative class action was filed on
April 8, 2008 in the United States District Court for the
Middle District of North Carolina, Salisbury Division, against
Beazer Homes, U.S.A., Inc., Beazer Homes Corp. and Beazer
Mortgage Corporation. The Complaint alleges that Beazer violated
the Real Estate Settlement Practices Act (RESPA) and North
Carolina Gen. Stat.
§ 75-1.1
by (1) improperly requiring homebuyers to use Beazer-owned
mortgage and settlement services as part of a down payment
assistance program, and (2) illegally increasing the cost
of homes and settlement services sold by Beazer Homes Corp. The
purported class consists of all residents of North Carolina who
purchased a home from Beazer,
82
using mortgage financing provided by and through Beazer that
included seller-funded down payment assistance, between
January 1, 2000 and October 11, 2007. The parties have
reached an agreement to settle the lawsuit, which will be
partially funded by insurance proceeds and is subject to court
approval. Under the terms of the settlement, the action will be
dismissed with prejudice, and the Company and all other
defendants will not admit any liability. The Company has accrued
a liability for such matter which is not material to the
Companys financial position or results of operations and
is included in the total litigation accrual discussed below.
Beazer Homes and several subsidiaries were named as defendants
in a putative class action lawsuit originally filed on
March 12, 2008, in the Superior Court of the State of
California, County of Placer. The purported class is defined as
all persons who purchased a home from the defendants or their
affiliates, with the assistance of a federally related mortgage
loan, from March 25, 1999, to the present where Security
Title Insurance Company received any money as a reinsurer
of the transaction. The complaint alleges that the defendants
violated RESPA and asserts claims under a number of state
statutes alleging that defendants engaged in a uniform and
systematic practice of giving
and/or
accepting fees and kickbacks to affiliated businesses including
affiliated
and/or
recommended title insurance companies. The complaint also
alleges a number of common law claims. Plaintiffs seek an
unspecified amount of damages under RESPA, unspecified
statutory, compensatory and punitive damages and injunctive and
declaratory relief, as well as attorneys fees and costs.
Defendants removed the action to federal court and plaintiffs
filed a Second Amended Complaint which substituted new
named-plaintiffs. The Company filed a motion to dismiss the
Second Amended Complaint, which the federal court granted in
part. The federal court dismissed the sole federal claim,
declined to rule on the state law claims, and remanded the case
to the Superior Court of Placer County. The Company filed a
supplemental motion to dismiss/demurrer regarding the remaining
state law claims in the Second Amended Complaint and the state
court sustained defendants demurrer but granted the
plaintiffs leave to amend their claims. Plaintiffs thereafter
filed a Third Amended Complaint which defendants removed to
federal court based on the presence of a federal question and
pursuant to the Class Action Fairness Act and thereafter
moved to dismiss. Plaintiffs filed a motion to remand the case.
The federal court granted the plaintiffs motion and
remanded the case to the Superior Court of Placer County. The
defendants filed a petition with the U.S. Court of Appeals
for the Ninth Circuit for permission to appeal the remand order
and a demurrer in state court as to all counts of the Third
Amended Complaint. The state court granted the defendants
demurrer as to the plaintiffs breach of contract claim,
but the unfair competition claim remains. The Company filed its
answer to the Third Amended Complaint on June 11, 2010. The
Company is in the process of conducting discovery and is
vigorously defending against the action. Given the inherent
uncertainties in this litigation, as of September 30, 2010,
no accrual has been recorded, as losses, if any, related to this
matter are not both probable and reasonably estimable.
On June 3, 2009, a purported class action complaint was
filed by the owners of one of our homes in our Magnolia
Lakes community in Ft. Myers, Florida. The complaint
names the Company and certain distributors and suppliers of
drywall and was filed in the Circuit Court for Lee County,
Florida on behalf of the named plaintiffs and other similarly
situated owners of homes in Magnolia Lakes or alternatively in
the State of Florida. The plaintiffs allege that the Company
built their homes with defective drywall, manufactured in China,
that contains sulfur compounds that allegedly corrode certain
metals and that are allegedly capable of harming the health of
individuals. Plaintiffs allege physical and economic damages and
seek legal and equitable relief, medical monitoring and
attorneys fees. This case has been transferred to the
Eastern District of Louisiana pursuant to an order from the
United States Judicial Panel on Multidistrict Litigation. In
addition, the Company has been named in other complaints filed
in the multidistrict litigation and continues to pursue recovery
against responsible subcontractors and drywall suppliers. The
Company believes that the claims asserted in these actions are
governed by its home warranty or are without merit. Accordingly,
the Company intends to vigorously defend against this litigation.
The lender of one of our unconsolidated joint ventures filed
individual lawsuits against some of the joint venture members
and certain of those members parent companies (including
the Company), seeking to recover damages under completion
guarantees, among other claims. We intend to vigorously defend
against this legal action. We are a 2.58% member in this joint
venture (see Note 3 for additional information). An
estimate of probable loss or range of loss, if any cannot
presently be made. In addition, one member of the joint venture
filed an arbitration proceeding against the remaining members
related to the plaintiff-members allegations that the
other members failed to perform under the applicable membership
agreements. The arbitration panel issued its decision
83
on July 6, 2010 and denied the plaintiffs claims for
specific performance claims and awarded damages in an amount
well below the amount claimed. The Company does not believe that
its proportional share of the award is material to our
consolidated financial position or results of operations. The
plaintiff has moved to have the panels award confirmed.
Defendants have opposed the motion and have moved to vacate the
panels decision in part.
We cannot predict or determine the timing or final outcome of
the lawsuits or the effect that any adverse findings or adverse
determinations in the pending lawsuits may have on us. In
addition, an estimate of possible loss or range of loss, if any,
cannot presently be made with respect to the above pending
matters. An unfavorable determination in any of the pending
lawsuits could result in the payment by us of substantial
monetary damages which may not be fully covered by insurance.
Further, the legal costs associated with the lawsuits and the
amount of time required to be spent by management and the Board
of Directors on these matters, even if we are ultimately
successful, could have a material adverse effect on our
business, financial condition and results of operations.
Other
Matters
As disclosed in our 2009
Form 10-K,
on July 1, 2009, the Company announced that it has resolved
the criminal and civil investigations by the United States
Attorneys Office in the Western District of North Carolina
(the U.S. Attorney) and other state and federal agencies
concerning matters that were the subject of the independent
investigation, initiated in April 2007 by the Audit Committee of
the Board of Directors (the Investigation) and concluded in May
2008. Under the terms of the deferred prosecution agreement
(DPA), the Companys liability for fiscal 2010 is
$1 million and in each of the fiscal years after 2010
through a portion of fiscal 2014 (unless extended as described
in the DPA) will also be equal to 4% of the Companys
adjusted EBITDA (as defined in the DPA). The total amount of
such obligations will be dependent on several factors; however,
the maximum liability under the DPA and other settlement
agreements discussed above will not exceed $55.0 million of
which $15 million has paid as of September 30, 2010.
As of September 30, 2010 and 2009, we accrued
$1.0 million and $2.0 million, respectively for future
obligations under the DPA and HUD agreements. The
$1.0 million accrued as of September 30, 2010 will be
paid shortly after the filing of this
form 10-K.
While we believe that our accrual for this liability is adequate
as of September 30, 2010, positive adjusted EBITDA results
in future years will require us to incur additional expense in
the future.
In November 2003, Beazer Homes received a request for
information from the EPA pursuant to Section 308 of the
Clean Water Act seeking information concerning the nature and
extent of storm water discharge practices relating to certain of
our communities completed or under construction. The EPA or the
equivalent state agency has issued Administrative Orders
identifying alleged instances of noncompliance and requiring
corrective action to address the alleged deficiencies in storm
water management practices. The parties have agreed to settle
this matter and the terms are being finalized. The amount to be
paid by the Company pursuant to the settlement agreement will
not have a material adverse effect on our financial condition,
results of operations or cash flows. Beazer Homes has taken
action to comply with the requirements of each of the
Administrative Orders and is working to otherwise maintain
compliance with the requirements of the Clean Water Act.
In 2006, we received two Administrative Orders issued by the New
Jersey Department of Environmental Protection. The Orders allege
certain violations of wetlands disturbance permits. The two
Orders assess proposed fines of $630,000 and $678,000,
respectively. We have met with the Department to discuss their
concerns on the two affected communities and have requested
hearings on both matters. We believe that we have significant
defenses to the alleged violations and intend to contest the
agencys findings and the proposed fines. We are currently
pursuing settlement discussions with the Department.
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.
84
We have accrued $18.0 million and $21.7 million in
other liabilities related to all of the above matters as of
September 30, 2010 and 2009, respectively.
We had outstanding letters of credit and performance bonds of
approximately $37.9 million and $184.7 million,
respectively, at September 30, 2010 related principally to
our obligations to local governments to construct roads and
other improvements in various developments. Our outstanding
letters of credit include $3.7 million relating to our land
option contracts discussed in Note 4.
We operated Beazer Mortgage Corporation (BMC) from 1998 through
February 2008 to offer mortgage financing to the buyers of our
homes. BMC entered into various agreements with mortgage
investors for the origination of mortgage loans. Underwriting
decisions were not made by BMC but by the investors or
third-party service providers. To date, we have received
requests to repurchase fewer than 100 mortgage loans from
various investors. While we have not been required to repurchase
any mortgage loans, we have established an immaterial amount as
a reserve for the repurchase of mortgage loans originated by
BMC. We cannot rule out the potential for additional mortgage
loan repurchase claims in the future, although, at this time, we
do not believe that the exposure related to any such additional
claims would be material to our consolidated financial position
or results of operation. As of September 30, 2010, no
liability has been recorded for any such additional claims as
such exposure is not both probable and reasonably estimable.
As defined in SFAS 131, Disclosures About Segments of an
Enterprise and Related Information (ASC 280), we now have
three homebuilding segments operating in 15 states.
Revenues in our homebuilding segments are derived from the sale
of homes which we construct and from land and lot sales. Our
reportable segments, described below, have been determined on a
basis that is used internally by management for evaluating
segment performance and resource allocations. In alignment
therewith, during fiscal 2010 we moved our Raleigh, North
Carolina market from our East to our Southeast segment. The
reportable homebuilding segments, and all other homebuilding
operations not required to be reported separately, include
operations conducting business in the following states:
West: Arizona, California, Nevada and Texas
|
|
|
|
East:
|
Delaware, Indiana, Maryland, New Jersey, New York, Pennsylvania,
Tennessee (Nashville) and Virginia
|
Southeast: Florida, Georgia, North Carolina
(Raleigh) and South Carolina
Managements evaluation of segment performance is based on
segment operating income, which for our homebuilding segments is
defined as homebuilding, land sale and other revenues less home
construction, land development and land sales expense,
depreciation and amortization and certain selling, general and
administrative expenses which are incurred by or allocated to
our homebuilding segments. The accounting policies of our
segments are those described in Note 1. The following
information is in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
$
|
364,530
|
|
|
$
|
409,168
|
|
|
$
|
656,471
|
|
East
|
|
|
451,162
|
|
|
|
374,618
|
|
|
|
721,432
|
|
Southeast
|
|
|
194,149
|
|
|
|
187,917
|
|
|
|
358,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
1,009,841
|
|
|
$
|
971,703
|
|
|
$
|
1,736,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
$
|
1,120
|
|
|
$
|
(31,889
|
)
|
|
$
|
(139,340
|
)
|
East
|
|
|
11,329
|
|
|
|
(2,722
|
)
|
|
|
(60,921
|
)
|
Southeast
|
|
|
(518
|
)
|
|
|
(32,151
|
)
|
|
|
(114,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
11,931
|
|
|
|
(66,762
|
)
|
|
|
(314,462
|
)
|
Corporate and unallocated(a)
|
|
|
(125,753
|
)
|
|
|
(174,710
|
)
|
|
|
(303,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss
|
|
|
(113,822
|
)
|
|
|
(241,472
|
)
|
|
|
(617,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated joint ventures
|
|
|
(8,807
|
)
|
|
|
(12,112
|
)
|
|
|
(57,819
|
)
|
Gain on extinguishment of debt
|
|
|
43,901
|
|
|
|
144,503
|
|
|
|
|
|
Other expense, net
|
|
|
(69,543
|
)
|
|
|
(74,791
|
)
|
|
|
(35,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
$
|
(148,271
|
)
|
|
$
|
(183,872
|
)
|
|
$
|
(710,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
$
|
5,161
|
|
|
$
|
6,692
|
|
|
$
|
8,626
|
|
East
|
|
|
3,665
|
|
|
|
5,468
|
|
|
|
7,247
|
|
Southeast
|
|
|
1,701
|
|
|
|
2,489
|
|
|
|
3,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
10,527
|
|
|
|
14,649
|
|
|
|
19,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and unallocated(a)
|
|
|
2,347
|
|
|
|
3,743
|
|
|
|
4,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
12,874
|
|
|
$
|
18,392
|
|
|
$
|
23,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
Assets
|
|
|
|
|
|
|
|
|
West
|
|
$
|
630,376
|
|
|
$
|
657,831
|
|
East
|
|
|
333,648
|
|
|
|
406,253
|
|
Southeast
|
|
|
169,496
|
|
|
|
184,564
|
|
Corporate and unallocated(b)
|
|
|
727,681
|
|
|
|
680,047
|
|
Discontinued operations
|
|
|
41,701
|
|
|
|
100,715
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
1,902,902
|
|
|
$
|
2,029,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
West
|
|
$
|
3,939
|
|
|
$
|
1,834
|
|
East
|
|
|
2,076
|
|
|
|
1,374
|
|
Southeast
|
|
|
864
|
|
|
|
957
|
|
Corporate and unallocated
|
|
|
3,866
|
|
|
|
2,557
|
|
Discontinued operations
|
|
|
104
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
10,849
|
|
|
$
|
7,034
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
a. |
|
Corporate and unallocated includes the amortization of
capitalized interest and numerous shared services functions that
benefit all segments, the costs of which are not allocated to
the operating segments reported above including information
technology, national sourcing and purchasing, treasury,
corporate finance, legal, branding and other national marketing
costs. Fiscal 2010 includes $10.2 million of
support-related costs related to the Companys assistance
in on-going government investigations (see Note 13). Fiscal
2009 includes $8.3 million of investigation-related costs
and approximately $16 million for obligations related to
the government investigations (see Note 13). Fiscal 2008
includes $31.8 million of investigation-related costs.
Fiscal 2009 and 2008 include $16.1 million and
$48.1 million of non-cash goodwill impairment charges to
write-off all of the goodwill allocated to certain
underperforming markets (see Note 1). |
|
b. |
|
Primarily consists of cash and cash equivalents, consolidated
inventory not owned, income tax receivable, deferred taxes, and
capitalized interest and other corporate items that are not
allocated to the segments. |
|
|
(15)
|
Discontinued
Operations
|
On February 1, 2008, we determined that we would
discontinue our mortgage origination services through BMC. As of
September 30, 2008, all of BMCs operating activities
had ceased. In February 2008, we entered into a new marketing
services arrangement with Countrywide Financial Corporation
(Countrywide), whereby the Company would market Countrywide as
the preferred mortgage provider to its customers. In addition,
during fiscal 2008, we wrote off our entire $7.1 million
investment in Homebuilders Financial Network LLC (HFN). This
write-off is included in equity in loss of unconsolidated joint
ventures in the accompanying Consolidated Statements of
Operations. HFN was a joint venture investment which was
established to provide loan processing services to mortgage
originators. We assigned our ownership interest to its joint
venture partner. Our joint venture interest in HFN was not owned
by Beazer Mortgage Corporation and, therefore, the associated
write-off is not included in the discontinued operations
information presented below.
Up until September 30, 2010, we offered title insurance
services to our homebuyers in several of our markets. Effective
September 30, 2010, we have sold or discontinued all of our
title services operations. The operating results of our title
services operations were previously reported in our Financial
Services segment.
We continually review each of our markets in order to refine our
overall investment strategy and to optimize capital and resource
allocations in an effort to enhance our financial position and
to increase shareholder value. This review entails an evaluation
of both external market factors and our position in each market
and, over time, has resulted in the decision to discontinue
certain of our homebuilding operations. During fiscal 2008 and
2009, we discontinued our homebuilding operations in Charlotte,
NC, Cincinnati/Dayton, OH, Columbia, SC, Columbus, OH,
Lexington, KY, Denver, Colorado and Fresno, CA. During the
fourth quarter of fiscal 2010, we have substantially completed
our homebuilding operations in Jacksonville, Florida and
Albuquerque, New Mexico, which were historically reported in our
Southeast and West segments, respectively.
We have classified the results of operations of our mortgage
origination services, title services and our exit markets as
discontinued operations in the accompanying consolidated
statements of operations for all periods presented. Discontinued
operations were not segregated in the consolidated balance
sheets or 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
87
Consolidated Statements of Operations for the fiscal years ended
September 30, 2010, 2009, and 2008 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Total revenue
|
|
$
|
33,167
|
|
|
$
|
51,499
|
|
|
$
|
341,053
|
|
Home construction and land sales expenses
|
|
|
27,134
|
|
|
|
42,596
|
|
|
|
305,743
|
|
Inventory impairments and lot option abandonments
|
|
|
1,803
|
|
|
|
11,911
|
|
|
|
107,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
4,230
|
|
|
|
(3,008
|
)
|
|
|
(71,916
|
)
|
Selling, general and administrative expenses
|
|
|
7,517
|
|
|
|
11,488
|
|
|
|
53,126
|
|
Depreciation and amortization
|
|
|
531
|
|
|
|
492
|
|
|
|
3,907
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
4,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,818
|
)
|
|
|
(14,988
|
)
|
|
|
(133,314
|
)
|
Equity in loss of unconsolidated joint ventures
|
|
|
(15,543
|
)
|
|
|
(2,163
|
)
|
|
|
(23,495
|
)
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
3,574
|
|
|
|
|
|
Other income (expense), net
|
|
|
395
|
|
|
|
(1,010
|
)
|
|
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes
|
|
|
(18,966
|
)
|
|
|
(14,587
|
)
|
|
|
(156,301
|
)
|
(Benefit from) provision for income taxes
|
|
|
(14,833
|
)
|
|
|
(726
|
)
|
|
|
15,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
|
$
|
(4,133
|
)
|
|
$
|
(13,861
|
)
|
|
$
|
(172,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The loss from discontinued operations for the fiscal years ended
September 30, 2010, 2009, and 2008 included approximately
$160,000, $260,000 and $3.7 million, respectively for
severance and termination benefits.
Assets and liabilities from discontinued operations at
September 30, 2010 and 2009, which relate to BMC and the
exit markets, consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
462
|
|
|
$
|
606
|
|
Accounts receivable
|
|
|
2,214
|
|
|
|
36,200
|
|
Inventory
|
|
|
38,377
|
|
|
|
48,266
|
|
Other
|
|
|
648
|
|
|
|
15,643
|
|
|
|
|
|
|
|
|
|
|
Assets of discontinued operations
|
|
$
|
41,701
|
|
|
$
|
100,715
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Trade accounts payable and other liabilities
|
|
$
|
7,903
|
|
|
$
|
10,500
|
|
Accrued warranty expenses
|
|
|
6,208
|
|
|
|
7,802
|
|
Other secured notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations
|
|
$
|
14,111
|
|
|
$
|
18,302
|
|
|
|
|
|
|
|
|
|
|
|
|
(16)
|
Supplemental
Guarantor Information
|
As discussed in Note 7, our obligations to pay principal,
premium, if any, and interest under certain debt are guaranteed
on a joint and several basis by substantially all of our
subsidiaries. Certain of our title, warranty and immaterial
subsidiaries do not guarantee our Senior Notes or our Secured
Revolving Credit Facility. The guarantees are full and
unconditional and the guarantor subsidiaries are 100% owned by
Beazer Homes USA, Inc. We have determined that separate, full
financial statements of the guarantors would not be material to
investors and, accordingly, supplemental financial information
for the guarantors is presented.
88
Beazer
Homes USA, Inc.
Consolidating
Balance Sheet Information
September 30,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Beazer Homes
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Beazer Homes
|
|
|
|
USA, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
USA, Inc.
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
530,847
|
|
|
$
|
8,343
|
|
|
$
|
200
|
|
|
$
|
(2,269
|
)
|
|
$
|
537,121
|
|
Restricted cash
|
|
|
38,781
|
|
|
|
419
|
|
|
|
|
|
|
|
|
|
|
|
39,200
|
|
Accounts receivable (net of allowance of $3,567)
|
|
|
|
|
|
|
32,632
|
|
|
|
15
|
|
|
|
|
|
|
|
32,647
|
|
Income tax receivable
|
|
|
7,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,684
|
|
Owned inventory
|
|
|
|
|
|
|
1,153,703
|
|
|
|
|
|
|
|
|
|
|
|
1,153,703
|
|
Consolidated inventory not owned
|
|
|
|
|
|
|
49,958
|
|
|
|
|
|
|
|
|
|
|
|
49,958
|
|
Investments in unconsolidated joint ventures
|
|
|
773
|
|
|
|
7,948
|
|
|
|
|
|
|
|
|
|
|
|
8,721
|
|
Deferred tax assets
|
|
|
7,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,779
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
23,995
|
|
|
|
|
|
|
|
|
|
|
|
23,995
|
|
Investments in subsidiaries
|
|
|
233,507
|
|
|
|
|
|
|
|
|
|
|
|
(233,507
|
)
|
|
|
|
|
Intercompany
|
|
|
846,471
|
|
|
|
(857,409
|
)
|
|
|
8,669
|
|
|
|
2,269
|
|
|
|
|
|
Other assets
|
|
|
20,434
|
|
|
|
17,163
|
|
|
|
4,497
|
|
|
|
|
|
|
|
42,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,686,276
|
|
|
$
|
436,752
|
|
|
$
|
13,381
|
|
|
$
|
(233,507
|
)
|
|
$
|
1,902,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Trade accounts payable
|
|
$
|
|
|
|
$
|
53,418
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
53,418
|
|
Other liabilities
|
|
|
87,354
|
|
|
|
118,534
|
|
|
|
4,282
|
|
|
|
|
|
|
|
210,170
|
|
Intercompany
|
|
|
1,068
|
|
|
|
|
|
|
|
(1,068
|
)
|
|
|
|
|
|
|
|
|
Obligations related to consolidated inventory not owned
|
|
|
|
|
|
|
30,666
|
|
|
|
|
|
|
|
|
|
|
|
30,666
|
|
Total debt (net of discounts of $23,617)
|
|
|
1,200,753
|
|
|
|
10,794
|
|
|
|
|
|
|
|
|
|
|
|
1,211,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,289,175
|
|
|
|
213,412
|
|
|
|
3,214
|
|
|
|
|
|
|
|
1,505,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
397,101
|
|
|
|
223,340
|
|
|
|
10,167
|
|
|
|
(233,507
|
)
|
|
|
397,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,686,276
|
|
|
$
|
436,752
|
|
|
$
|
13,381
|
|
|
$
|
(233,507
|
)
|
|
$
|
1,902,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
Beazer
Homes USA, Inc.
Consolidating
Balance Sheet Information
September 30,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Beazer Homes
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Beazer Homes
|
|
|
|
USA, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
USA, Inc.
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
495,692
|
|
|
$
|
11,482
|
|
|
$
|
2,915
|
|
|
$
|
(2,750
|
)
|
|
$
|
507,339
|
|
Restricted cash
|
|
|
48,326
|
|
|
|
1,135
|
|
|
|
|
|
|
|
|
|
|
|
49,461
|
|
Accounts receivable (net of allowance of $7,545)
|
|
|
|
|
|
|
28,377
|
|
|
|
28
|
|
|
|
|
|
|
|
28,405
|
|
Income tax receivable
|
|
|
9,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,922
|
|
Owned inventory
|
|
|
|
|
|
|
1,265,441
|
|
|
|
|
|
|
|
|
|
|
|
1,265,441
|
|
Consolidated inventory not owned
|
|
|
|
|
|
|
53,015
|
|
|
|
|
|
|
|
|
|
|
|
53,015
|
|
Investments in unconsolidated joint ventures
|
|
|
3,093
|
|
|
|
27,031
|
|
|
|
|
|
|
|
|
|
|
|
30,124
|
|
Deferred tax assets
|
|
|
7,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,520
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
25,939
|
|
|
|
|
|
|
|
|
|
|
|
25,939
|
|
Investments in subsidiaries
|
|
|
210,730
|
|
|
|
|
|
|
|
|
|
|
|
(210,730
|
)
|
|
|
|
|
Intercompany
|
|
|
977,956
|
|
|
|
(984,511
|
)
|
|
|
3,805
|
|
|
|
2,750
|
|
|
|
|
|
Other assets
|
|
|
26,750
|
|
|
|
22,419
|
|
|
|
3,075
|
|
|
|
|
|
|
|
52,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,779,989
|
|
|
$
|
450,328
|
|
|
$
|
9,823
|
|
|
$
|
(210,730
|
)
|
|
$
|
2,029,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Trade accounts payable
|
|
$
|
|
|
|
$
|
70,285
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
70,285
|
|
Other liabilities
|
|
|
86,717
|
|
|
|
134,655
|
|
|
|
5,943
|
|
|
|
|
|
|
|
227,315
|
|
Intercompany
|
|
|
361
|
|
|
|
|
|
|
|
(361
|
)
|
|
|
|
|
|
|
|
|
Obligations related to consolidated inventory not owned
|
|
|
|
|
|
|
26,356
|
|
|
|
|
|
|
|
|
|
|
|
26,356
|
|
Total debt (net of discounts of $27,257)
|
|
|
1,496,356
|
|
|
|
12,543
|
|
|
|
|
|
|
|
|
|
|
|
1,508,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,583,434
|
|
|
|
243,839
|
|
|
|
5,582
|
|
|
|
|
|
|
|
1,832,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
196,555
|
|
|
|
206,489
|
|
|
|
4,241
|
|
|
|
(210,730
|
)
|
|
|
196,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,779,989
|
|
|
$
|
450,328
|
|
|
$
|
9,823
|
|
|
$
|
(210,730
|
)
|
|
$
|
2,029,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
Beazer
Homes USA, Inc.
Consolidating
Statement of Operations Information
Fiscal
Year Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Beazer Homes
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Beazer Homes
|
|
|
|
USA, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
USA, Inc.
|
|
|
|
(In thousands)
|
|
|
Total revenue
|
|
$
|
|
|
|
$
|
1,008,039
|
|
|
$
|
1,802
|
|
|
$
|
|
|
|
$
|
1,009,841
|
|
Home construction and land sales expenses
|
|
|
52,243
|
|
|
|
821,954
|
|
|
|
|
|
|
|
|
|
|
|
874,197
|
|
Inventory impairments and option contract abandonments
|
|
|
2,313
|
|
|
|
47,723
|
|
|
|
|
|
|
|
|
|
|
|
50,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit
|
|
|
(54,556
|
)
|
|
|
138,362
|
|
|
|
1,802
|
|
|
|
|
|
|
|
85,608
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
186,446
|
|
|
|
110
|
|
|
|
|
|
|
|
186,556
|
|
Depreciation and amortization
|
|
|
|
|
|
|
12,874
|
|
|
|
|
|
|
|
|
|
|
|
12,874
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(54,556
|
)
|
|
|
(60,958
|
)
|
|
|
1,692
|
|
|
|
|
|
|
|
(113,822
|
)
|
Equity in loss of unconsolidated joint ventures
|
|
|
|
|
|
|
(8,807
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,807
|
)
|
Gain on extinguishment of debt
|
|
|
43,625
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
43,901
|
|
Other (expense) income, net
|
|
|
(74,214
|
)
|
|
|
4,592
|
|
|
|
79
|
|
|
|
|
|
|
|
(69,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(85,145
|
)
|
|
|
(64,897
|
)
|
|
|
1,771
|
|
|
|
|
|
|
|
(148,271
|
)
|
(Benefit from) provision for income taxes
|
|
|
(33,099
|
)
|
|
|
(85,876
|
)
|
|
|
620
|
|
|
|
|
|
|
|
(118,355
|
)
|
Equity in income of subsidiaries
|
|
|
22,130
|
|
|
|
|
|
|
|
|
|
|
|
(22,130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
|
(29,916
|
)
|
|
|
20,979
|
|
|
|
1,151
|
|
|
|
(22,130
|
)
|
|
|
(29,916
|
)
|
Net loss from discontinued operations
|
|
|
|
|
|
|
(4,128
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
(4,133
|
)
|
Equity in loss of subsidiaries
|
|
|
(4,133
|
)
|
|
|
|
|
|
|
|
|
|
|
4,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(34,049
|
)
|
|
$
|
16,851
|
|
|
$
|
1,146
|
|
|
$
|
(17,997
|
)
|
|
$
|
(34,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
Beazer
Homes USA, Inc.
Consolidating
Statement of Operations Information
Fiscal
Year Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Beazer Homes
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Beazer Homes
|
|
|
|
USA, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
USA, Inc.
|
|
|
|
(In thousands)
|
|
|
Total revenue
|
|
$
|
|
|
|
$
|
971,099
|
|
|
$
|
604
|
|
|
$
|
|
|
|
$
|
971,703
|
|
Home construction and land sales expenses
|
|
|
54,714
|
|
|
|
806,019
|
|
|
|
|
|
|
|
|
|
|
|
860,733
|
|
Inventory impairments and option contract abandonments
|
|
|
3,376
|
|
|
|
91,840
|
|
|
|
|
|
|
|
|
|
|
|
95,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit
|
|
|
(58,090
|
)
|
|
|
73,240
|
|
|
|
604
|
|
|
|
|
|
|
|
15,754
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
222,784
|
|
|
|
(93
|
)
|
|
|
|
|
|
|
222,691
|
|
Depreciation and amortization
|
|
|
|
|
|
|
18,392
|
|
|
|
|
|
|
|
|
|
|
|
18,392
|
|
Goodwill impairment
|
|
|
|
|
|
|
16,143
|
|
|
|
|
|
|
|
|
|
|
|
16,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(58,090
|
)
|
|
|
(184,079
|
)
|
|
|
697
|
|
|
|
|
|
|
|
(241,472
|
)
|
Equity in loss of unconsolidated joint ventures
|
|
|
|
|
|
|
(12,112
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,112
|
)
|
Gain on extinguishment of debt
|
|
|
130,229
|
|
|
|
14,274
|
|
|
|
|
|
|
|
|
|
|
|
144,503
|
|
Other (expense) income, net
|
|
|
(83,030
|
)
|
|
|
8,499
|
|
|
|
(260
|
)
|
|
|
|
|
|
|
(74,791
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(10,891
|
)
|
|
|
(173,418
|
)
|
|
|
437
|
|
|
|
|
|
|
|
(183,872
|
)
|
(Benefit from) provision for income taxes
|
|
|
(3,761
|
)
|
|
|
(4,742
|
)
|
|
|
153
|
|
|
|
|
|
|
|
(8,350
|
)
|
Equity in loss of subsidiaries
|
|
|
(168,392
|
)
|
|
|
|
|
|
|
|
|
|
|
168,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
|
(175,522
|
)
|
|
|
(168,676
|
)
|
|
|
284
|
|
|
|
168,392
|
|
|
|
(175,522
|
)
|
Net loss from discontinued operations
|
|
|
|
|
|
|
(13,813
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
(13,861
|
)
|
Equity in loss of subsidiaries
|
|
|
(13,861
|
)
|
|
|
|
|
|
|
|
|
|
|
13,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(189,383
|
)
|
|
$
|
(182,489
|
)
|
|
$
|
236
|
|
|
$
|
182,253
|
|
|
$
|
(189,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
Beazer
Homes USA, Inc.
Consolidating
Statement of Operations Information
Fiscal
Year Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Beazer Homes
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Beazer Homes
|
|
|
|
USA, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
USA, Inc.
|
|
|
|
(In thousands)
|
|
|
Total revenue
|
|
$
|
|
|
|
$
|
1,736,102
|
|
|
$
|
625
|
|
|
$
|
|
|
|
$
|
1,736,727
|
|
Home construction and land sales expenses
|
|
|
112,262
|
|
|
|
1,468,506
|
|
|
|
|
|
|
|
|
|
|
|
1,580,768
|
|
Inventory impairments and option contract abandonments
|
|
|
13,795
|
|
|
|
389,607
|
|
|
|
|
|
|
|
|
|
|
|
403,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit
|
|
|
(126,057
|
)
|
|
|
(122,011
|
)
|
|
|
625
|
|
|
|
|
|
|
|
(247,443
|
)
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
298,156
|
|
|
|
118
|
|
|
|
|
|
|
|
298,274
|
|
Depreciation and amortization
|
|
|
|
|
|
|
23,802
|
|
|
|
|
|
|
|
|
|
|
|
23,802
|
|
Goodwill impairment
|
|
|
|
|
|
|
48,105
|
|
|
|
|
|
|
|
|
|
|
|
48,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(126,057
|
)
|
|
|
(492,074
|
)
|
|
|
507
|
|
|
|
|
|
|
|
(617,624
|
)
|
Equity in loss of unconsolidated joint ventures
|
|
|
|
|
|
|
(57,819
|
)
|
|
|
|
|
|
|
|
|
|
|
(57,819
|
)
|
Other (expense) income, net
|
|
|
(55,185
|
)
|
|
|
19,700
|
|
|
|
80
|
|
|
|
|
|
|
|
(35,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(181,242
|
)
|
|
|
(530,193
|
)
|
|
|
587
|
|
|
|
|
|
|
|
(710,848
|
)
|
(Benefit from) provision for income taxes
|
|
|
(67,567
|
)
|
|
|
136,312
|
|
|
|
206
|
|
|
|
|
|
|
|
68,951
|
|
Equity in loss of subsidiaries
|
|
|
(666,124
|
)
|
|
|
|
|
|
|
|
|
|
|
666,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
|
(779,799
|
)
|
|
|
(666,505
|
)
|
|
|
381
|
|
|
|
666,124
|
|
|
|
(779,799
|
)
|
Net loss from discontinued operations
|
|
|
|
|
|
|
(172,028
|
)
|
|
|
(85
|
)
|
|
|
|
|
|
|
(172,113
|
)
|
Equity in loss of subsidiaries
|
|
|
(172,113
|
)
|
|
|
|
|
|
|
|
|
|
|
172,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(951,912
|
)
|
|
$
|
(838,533
|
)
|
|
$
|
296
|
|
|
$
|
838,237
|
|
|
$
|
(951,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
Beazer
Homes USA, Inc.
Consolidating
Statement of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Beazer Homes
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Beazer Homes
|
|
Fiscal Year Ended September 30, 2010
|
|
USA, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
USA, Inc.
|
|
|
|
(In thousands)
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(88,344
|
)
|
|
$
|
159,953
|
|
|
$
|
(1,924
|
)
|
|
$
|
|
|
|
$
|
69,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(10,849
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,849
|
)
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
(5,602
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,602
|
)
|
Increases in restricted cash
|
|
|
(36,345
|
)
|
|
|
(1,094
|
)
|
|
|
|
|
|
|
|
|
|
|
(37,439
|
)
|
Decreases in restricted cash
|
|
|
46,477
|
|
|
|
1,223
|
|
|
|
|
|
|
|
|
|
|
|
47,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
10,132
|
|
|
|
(16,322
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
|
|
(616,858
|
)
|
|
|
(2,948
|
)
|
|
|
|
|
|
|
|
|
|
|
(619,806
|
)
|
Proceeds from issuance of new debt
|
|
|
373,238
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
374,438
|
|
Debt issuance costs
|
|
|
(9,234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,234
|
)
|
Proceeds from issuance of common stock
|
|
|
166,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,718
|
|
Proceeds from issuance of TEU prepaid stock purchase contracts
|
|
|
57,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,429
|
|
Common stock redeemed
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(159
|
)
|
Excess tax benefit from equity-based compensation
|
|
|
(3,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,099
|
)
|
Advances to/from subsidiaries
|
|
|
145,332
|
|
|
|
(145,022
|
)
|
|
|
(791
|
)
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
113,367
|
|
|
|
(146,770
|
)
|
|
|
(791
|
)
|
|
|
481
|
|
|
|
(33,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
35,155
|
|
|
|
(3,139
|
)
|
|
|
(2,715
|
)
|
|
|
481
|
|
|
|
29,782
|
|
Cash and cash equivalents at beginning of period
|
|
|
495,692
|
|
|
|
11,482
|
|
|
|
2,915
|
|
|
|
(2,750
|
)
|
|
|
507,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
530,847
|
|
|
$
|
8,343
|
|
|
$
|
200
|
|
|
$
|
(2,269
|
)
|
|
$
|
537,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
Beazer
Homes USA, Inc.
Consolidating
Statement of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Beazer Homes
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Beazer Homes
|
|
Fiscal Year Ended September 30, 2009
|
|
USA, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
USA, Inc.
|
|
|
|
(In thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
29,731
|
|
|
$
|
60,587
|
|
|
$
|
3,507
|
|
|
$
|
|
|
|
$
|
93,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(7,034
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,034
|
)
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
(25,537
|
)
|
|
|
|
|
|
|
|
|
|
|
(25,537
|
)
|
Increases in restricted cash
|
|
|
(70,776
|
)
|
|
|
(1,392
|
)
|
|
|
|
|
|
|
|
|
|
|
(72,168
|
)
|
Decreases in restricted cash
|
|
|
22,450
|
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
23,004
|
|
Distributions from unconsolidated joint ventures
|
|
|
|
|
|
|
2,054
|
|
|
|
|
|
|
|
|
|
|
|
2,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(48,326
|
)
|
|
|
(31,355
|
)
|
|
|
|
|
|
|
|
|
|
|
(79,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
|
|
(284,153
|
)
|
|
|
(21,246
|
)
|
|
|
|
|
|
|
|
|
|
|
(305,399
|
)
|
Proceeds from debt issuance
|
|
|
223,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223,750
|
|
Debt issuance costs
|
|
|
(7,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,195
|
)
|
Common stock redeemed
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
Tax benefit from stock transactions
|
|
|
(2,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,273
|
)
|
Advances to/from subsidiaries
|
|
|
8,324
|
|
|
|
(11,310
|
)
|
|
|
(597
|
)
|
|
|
3,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(61,569
|
)
|
|
|
(32,556
|
)
|
|
|
(597
|
)
|
|
|
3,583
|
|
|
|
(91,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents
|
|
|
(80,164
|
)
|
|
|
(3,324
|
)
|
|
|
2,910
|
|
|
|
3,583
|
|
|
|
(76,995
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
575,856
|
|
|
|
14,806
|
|
|
|
5
|
|
|
|
(6,333
|
)
|
|
|
584,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
495,692
|
|
|
$
|
11,482
|
|
|
$
|
2,915
|
|
|
$
|
(2,750
|
)
|
|
$
|
507,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
Beazer
Homes USA, Inc.
Consolidating Statement of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Beazer Homes
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Beazer Homes
|
|
Fiscal Year Ended September 30, 2008
|
|
USA, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
USA, Inc.
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
51,886
|
|
|
$
|
264,388
|
|
|
$
|
(707
|
)
|
|
$
|
|
|
|
$
|
315,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(10,568
|
)
|
|
|
2
|
|
|
|
|
|
|
|
(10,566
|
)
|
Investments in unconsolidated joint ventures
|
|
|
|
|
|
|
(13,758
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,758
|
)
|
Increases in restricted cash
|
|
|
|
|
|
|
(109,609
|
)
|
|
|
|
|
|
|
|
|
|
|
(109,609
|
)
|
Decreases in restricted cash
|
|
|
|
|
|
|
114,483
|
|
|
|
|
|
|
|
|
|
|
|
114,483
|
|
Distributions from unconsolidated joint ventures
|
|
|
|
|
|
|
1,050
|
|
|
|
|
|
|
|
|
|
|
|
1,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
|
|
(18,402
|
)
|
|
|
2
|
|
|
|
|
|
|
|
(18,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
|
|
(42,885
|
)
|
|
|
(100,740
|
)
|
|
|
|
|
|
|
|
|
|
|
(143,625
|
)
|
Debt issuance costs
|
|
|
(22,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,335
|
)
|
Common stock redeemed
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
Tax benefit from stock transactions
|
|
|
(1,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,158
|
)
|
Advances to/from subsidiaries
|
|
|
143,104
|
|
|
|
(140,140
|
)
|
|
|
(849
|
)
|
|
|
(2,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
76,674
|
|
|
|
(240,880
|
)
|
|
|
(849
|
)
|
|
|
(2,115
|
)
|
|
|
(167,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents
|
|
|
128,560
|
|
|
|
5,106
|
|
|
|
(1,554
|
)
|
|
|
(2,115
|
)
|
|
|
129,997
|
|
Cash and cash equivalents at beginning of period
|
|
|
447,296
|
|
|
|
9,700
|
|
|
|
1,559
|
|
|
|
(4,218
|
)
|
|
|
454,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
575,856
|
|
|
$
|
14,806
|
|
|
$
|
5
|
|
|
$
|
(6,333
|
)
|
|
$
|
584,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Beazer Homes USA, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of
Beazer Homes USA, Inc. and subsidiaries (the
Company) as of September 30, 2010 and 2009, and
the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended September 30, 2010. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Beazer Homes USA, Inc. and subsidiaries as of September 30,
2010 and 2009, and the results of their operations and their
cash flows for each of the three years in the period ended
September 30, 2010, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
September 30, 2010, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated November 5, 2010 expressed
and unqualified opinion on the Companys internal control
over financial reporting.
/s/ Deloitte &
Touche LLP
Atlanta, Georgia
November 5, 2010
97
REPORT OF
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
To the Board of Directors and Stockholders of
Beazer Homes USA, Inc.:
Atlanta, Georgia
We have audited the internal control over financial reporting of
Beazer Homes USA, Inc. and subsidiaries (the
Company) as of September 30, 2010, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
Companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the Companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America (generally accepted accounting principles).
A companys internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the Companys assets that could have a
material effect on the financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of September 30, 2010, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Beazer Homes USA, Inc. and
subsidiaries as of September 30, 2010 and 2009, and the
related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended September 30, 2010 and our report
dated November 5, 2010 expressed an unqualified opinion on
those financial statements.
/s/ Deloitte &
Touche LLP
Atlanta, Georgia
November 5, 2010
98
Quarterly
Financial Data
Summarized quarterly financial information (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
December 31
|
|
March 31
|
|
June 30
|
|
September 30
|
|
|
(In thousands, except per share data)
|
|
Fiscal 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
213,073
|
|
|
$
|
192,455
|
|
|
$
|
329,539
|
|
|
$
|
274,774
|
|
Gross profit(a)
|
|
|
18,379
|
|
|
|
24,878
|
|
|
|
37,800
|
|
|
|
4,551
|
|
Operatingloss
|
|
|
(29,763
|
)
|
|
|
(21,678
|
)
|
|
|
(19,169
|
)
|
|
|
(43,212
|
)
|
Net income (loss) from continuing operations(c)
|
|
|
44,507
|
|
|
|
6,155
|
|
|
|
(23,153
|
)
|
|
|
(57,425
|
)
|
Basic EPS from continuing operations
|
|
$
|
1.15
|
|
|
$
|
0.11
|
|
|
$
|
(0.34
|
)
|
|
$
|
(0.78
|
)
|
Diluted EPS from continuing operations
|
|
$
|
1.09
|
|
|
$
|
0.10
|
|
|
$
|
(0.34
|
)
|
|
$
|
(0.78
|
)
|
Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
209,626
|
|
|
$
|
181,212
|
|
|
$
|
215,280
|
|
|
$
|
365,585
|
|
Gross profit (loss)(a)
|
|
|
10,526
|
|
|
|
(21,786
|
)
|
|
|
4,558
|
|
|
|
22,456
|
|
Good willim pairment(b)
|
|
|
16,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(61,374
|
)
|
|
|
(91,115
|
)
|
|
|
(48,674
|
)
|
|
|
(40,309
|
)
|
Net (loss) income from continuing operations(c)
|
|
|
(77,921
|
)
|
|
|
(106,965
|
)
|
|
|
(24,145
|
)
|
|
|
33,509
|
|
Basic EPS from continuing operations
|
|
$
|
(2.02
|
)
|
|
$
|
(2.77
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
0.86
|
|
Diluted EPS from continuing operations
|
|
$
|
(2.02
|
)
|
|
$
|
(2.77
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
0.83
|
|
|
|
|
(a) |
|
Gross profit (loss) in fiscal 2010 and 2009 includes inventory
impairment and option contract abandonments as follows: |
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010
|
|
|
Fiscal 2009
|
|
|
|
(In thousands)
|
|
|
1st Quarter
|
|
$
|
8,550
|
|
|
$
|
12,365
|
|
2nd Quarter
|
|
|
9,986
|
|
|
|
41,251
|
|
3rd Quarter
|
|
|
5,019
|
|
|
|
11,713
|
|
4th Quarter
|
|
|
26,481
|
|
|
|
29,887
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,036
|
|
|
$
|
95,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
|
In the first quarter of fiscal 2009, the Company recognized
non-cash goodwill impairment charges to write off all of its
remaining goodwill. |
|
(c) |
|
Net loss from continuing operations in fiscal 2010 and 2009
include gain (loss) on extinguishment of debt (as follows). The
first quarter of fiscal 2010 also included a tax benefit relate
to The Worker, Homeownership and Business Act of 2009 (see
Note 9 to the Consolidated Financial Statements). |
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010
|
|
|
Fiscal 2009
|
|
|
|
(In thousands)
|
|
|
1st Quarter
|
|
$
|
|
|
|
$
|
|
|
2nd Quarter
|
|
|
52,946
|
|
|
|
|
|
3rd Quarter
|
|
|
(9,045
|
)
|
|
|
55,214
|
|
4th Quarter
|
|
|
|
|
|
|
89,289
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,901
|
|
|
$
|
144,503
|
|
|
|
|
|
|
|
|
|
|
99
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
Management, under the supervision and with the participation of
its Chief Executive Officer (CEO) and Chief Financial Officer
(CFO), evaluated the effectiveness of the Companys
disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
promulgated under the Act), as of the end of period covered by
this report. Management concluded that, as of September 30,
2010, the Companys disclosure controls and procedures were
effective.
Attached as exhibits to this Annual Report on
Form 10-K
are certifications of our CEO and CFO, which are required by
Rule 13a-14
of the Act. This Disclosure Controls and Procedures section
includes information concerning managements evaluation of
disclosure controls and procedures referred to in those
certifications and, as such, should be read in conjunction with
the certifications of the CEO and CFO.
Managements
Report on Internal Control over Financial
Reporting
Beazer Homes USA, Inc.s management is responsible for
establishing and maintaining adequate internal control over
financial reporting. Pursuant to the rules and regulations of
the Securities and Exchange Commission, internal control over
financial reporting is a process designed by, or under the
supervision of, the Companys principal executive and
principal financial officer and effected by Beazer Homes USA,
Inc.s board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:
|
|
|
|
|
Pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
|
Management performed an assessment of the effectiveness of the
Companys internal control over financial reporting as of
September 30, 2010, utilizing the criteria described in the
Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The objective of this assessment was
to determine whether the Companys internal control over
financial reporting was effective as of September 30, 2010.
Based on this assessment, management has determined that the
Companys internal control over financial reporting was
effective as of September 30, 2010. The effectiveness of
our internal control over financial reporting as of
September 30, 2010 has been audited by Deloitte &
Touche LLP, our independent registered public accounting firm,
as stated in their report, which is included in
Part II Item 8 Financial
Statements and Supplementary Data.
Changes
in Internal Control over Financial Reporting
There have been no changes in the Companys internal
control over financial reporting during the fiscal year ended
September 30, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
100
Inherent
Limitations over Internal Controls
Our system of controls is designed to provide reasonable, not
absolute, assurance regarding the reliability and integrity of
accounting and financial reporting. Management does not expect
that our disclosure controls and procedures or our internal
control over financial reporting will prevent or detect all
errors and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system
will be met. These inherent limitations include the following:
|
|
|
|
|
Judgments in decision-making can be faulty, and control and
process breakdowns can occur because of simple errors or
mistakes.
|
|
|
|
Controls can be circumvented by individuals, acting alone or in
collusion with each other, or by management override.
|
|
|
|
The design of any system of controls is based in part on certain
assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions.
|
|
|
|
Over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with
associated policies or procedures.
|
|
|
|
The design of a control system must reflect the fact that
resources are constrained, and the benefits of controls must be
considered relative to their costs.
|
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been
detected.
|
|
Item 9B.
|
Other
Information
|
On November 4, 2010, the Board of Directors, upon the
recommendation of the Nominating/Corporate Governance Committee,
adopted certain amendments to the Companys By-Laws. These
amendments are reflected in the Companys Fourth Amended
and Restated By-Laws filed as Exhibit 3.3 hereto.
The amendments add a provision that allows for a plurality vote
for alternatives with respect to the frequency of the
stockholders vote on a non-binding resolution regarding the
Companys executive compensation program (Article I,
Section 5).
The amendments also modify, among other things, the advance
notice procedures stockholders must satisfy in order to nominate
directors for election or to conduct business at an annual
meeting of stockholders (Article I, Section 7 and
Article II, Section 14). The revised procedures
include enhanced documentary and other disclosure requirements,
including new disclosure requirements relating to the beneficial
ownership of derivatives and debt obligations relating to the
Company.
The amendments further delete a provision relating to the powers
of the Chairman of the Board (Article IV,
Section 4(a)), as that provision also appears and currently
remains in Article II, Section 2(a). In addition, the
amendments permit an Assistant Secretary of the Corporation to
undertake certain responsibilities at the direction of the
Secretary of the Corporation (Article II, Section 9
and Article IV, Section 4).
The amendments to the By-Laws took effect on November 4,
2010. The foregoing summary of the amendments to the
Companys By-laws does not purport to be complete and is
subject to, and qualified in its entirety by, the full text of
the Companys Fourth Amended and Restated By-laws, which is
incorporated herein by reference.
101
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Except as set forth below, the information required by this item
is incorporated by reference to our proxy statement for our 2011
annual meeting of stockholders, which is expected to be filed on
or before December 22, 2010.
Executive
Officer Business Experience
IAN J. MCCARTHY. Mr. McCarthy, 57, is the
President and Chief Executive Officer of Beazer Homes and has
served as a director of Beazer Homes since the IPO.
Mr. McCarthy has served as President of predecessors of
Beazer Homes since January 1991 and was responsible for all
United States residential homebuilding operations in that
capacity. During the period May 1981 to January 1991,
Mr. McCarthy was employed in Hong Kong and Thailand,
becoming a director of Beazer Far East and from January 1980 to
May 1981 was employed by Kier, Ltd., a company engaged in the
United Kingdom construction industry which became an indirect,
wholly owned subsidiary of Beazer PLC. Mr. McCarthy is a
Chartered Civil Engineer with a Bachelor of Science degree from
The City University, London. Mr. McCarthy currently serves
as a member of the Board of Directors of HomeAid America and of
Builder Homesite, Inc. He was inducted into the California
Building Industry Hall of Fame in 2004, the first non-California
resident to receive this honor.
ALLAN P. MERRILL. Mr. Merrill, 44, joined
us in May 2007 as Executive Vice President and Chief Financial
Officer. Mr. Merrill was previously with Move, Inc. where
he served as Executive Vice President of Corporate Development
and Strategy beginning in October 2001. From April 2000 to
October 2001, Mr. Merrill was president of Homebuilder.com,
a division of Move, Inc. Mr. Merrill joined Move, Inc.
following a
13-year
tenure with the investment banking firm UBS (and its predecessor
Dillon, Read & Co.), where he was a managing director
and served most recently as co-head of the Global Resources
Group, overseeing the construction and building materials,
chemicals, forest products, mining and energy industry groups.
Mr. Merrill is a member of the Policy Advisory Board of the
Joint Center for Housing Studies at Harvard University and the
Homebuilding Community Foundation. He is a graduate of the
University of Pennsylvania, Wharton School with a Bachelor of
Science in Economics.
KENNETH F. KHOURY. Mr. Khoury, 59, joined
us in January 2009 as Executive Vice President and General
Counsel. Mr. Khoury was previously Executive Vice President
and General Counsel of Delta Air Lines from September 2006 to
November 2008. Practicing law for over 30 years,
Mr. Khourys career has included both private practice
and extensive in-house counsel experience. Prior to Delta Air
Lines, Mr. Khoury was Senior Vice President and General
Counsel of Weyerhaeuser Corporation and spent 15 years with
Georgia-Pacific Corporation, where he served as Vice President
and Deputy General Counsel. He also spent six years at law firm
White & Case in New York. He received a Bachelor of
Arts degree from Rutgers College and a Juris Doctor from Fordham
University School of Law.
ROBERT L. SALOMON. Mr. Salomon, 50,
joined us in February 2008 as Senior Vice President and Chief
Accounting Officer and Controller. Mr. Salomon was
previously with the homebuilding company Ashton Woods Homes
where he served as Chief Financial Officer and Treasurer since
1998. Previously, he served with homebuilder MDC Holdings, Inc.
in financial management roles of increasing responsibility over
a 6 year period. A Certified Public Accountant,
Mr. Salomon has 26 years of financial management
experience, 18 of which have been in the homebuilding industry.
Mr. Salomon is a member of the American Institute of
Certified Public Accountants and a graduate of the University of
Iowa with a Bachelor of Business Administration.
Code of
Ethics
Beazer Homes has adopted a Code of Business Conduct and Ethics
for its senior financial officers, which applies to its
principal financial officer and controller, other senior
financial officers and Chief Executive Officer. The full text of
the Code of Business Conduct and Ethics can be found on the
Companys website, www.beazer.com. If at any time there is
an amendment or waiver of any provision of our Code of Business
Conduct and Ethics that is required to be disclosed, information
regarding such amendment or waiver will be published on our
website.
102
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is incorporated by
reference to our proxy statement for our 2011 annual meeting of
stockholders, which is expected to be filed on or before
December 22, 2010.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information relating to securities authorized for issuance
under equity compensation plans is set forth above in
Item 5 Market for Registrants Common
Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities. All of the other information required by this
item is incorporated by reference to our proxy statement for our
2011 annual meeting of stockholders, which is expected to be
filed on or before December 22, 2010.
|
|
Item 13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
The information required by this item is incorporated by
reference to our proxy statement for our 2011 annual meeting of
stockholders, which is expected to be filed on or before
December 22, 2010.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item is incorporated by
reference to our proxy statement for our 2011 annual meeting of
stockholders, which is expected to be filed on or before
December 22, 2010.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
The following documents are filed as part of this Annual Report
on
Form 10-K.
|
|
(a)
|
1.
Financial Statements
|
|
|
|
|
|
|
|
Page
|
|
|
Herein
|
|
|
|
|
51
|
|
|
|
|
52
|
|
|
|
|
53
|
|
|
|
|
54
|
|
|
|
|
55
|
|
|
|
2.
|
Financial
Statement Schedules
|
None required.
Unless otherwise noted, all exhibits were filed under File
No. 001-12822
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Exhibit Description
|
|
|
3
|
.1
|
|
|
|
Amended and Restated Certificate of Incorporation of the
Company incorporated herein by reference to
Exhibit 3.1 of the Companys
Form 10-K
filed on December 2, 2008
|
|
3
|
.2
|
|
|
|
Certificate of Amendment to the Amended and Restated Certificate
of Incorporation as of April 13, 2010
incorporated herein by reference to Exhibit 3.1 of the
Companys
Form 10-Q
filed May 3, 2010
|
|
3
|
.3
|
|
|
|
Fourth Amended and Restated Bylaws of the Company
|
103
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Exhibit Description
|
|
|
4
|
.1
|
|
|
|
Second Supplemental Indenture dated as of November 13, 2003
among Beazer, the Guarantors party thereto and U.S. Bank
Trust National Association, as trustee, related to the
Companys 6
1/2% Senior
Notes due 2013 incorporated herein by reference to
Exhibit 4.11 of the Companys
Form 10-K
for the year ended September 30, 2003
|
|
4
|
.2
|
|
|
|
Form of
61/2% Senior
Notes due 2013 incorporated herein by reference to
Exhibit 4.12 of the Companys
Form 10-K
for the year ended September 30, 2003
|
|
4
|
.3
|
|
|
|
Form of
61/2% Senior
Notes due 2015 incorporated herein by reference to
Exhibit 4.2 of the Companys
Form 8-K
filed on June 13, 2005
|
|
4
|
.4
|
|
|
|
Form of Fifth Supplemental Indenture, dated as of June 8,
2005, by and among Beazer, the Subsidiary Guarantors party
thereto and U.S. Bank National Association, as
trustee incorporated herein by reference to
Exhibit 4.1 of the Companys
Form 8-K
filed on June 13, 2005
|
|
4
|
.5
|
|
|
|
Sixth Supplemental Indenture, dated as of January 9, 2006,
to the Trust Indenture dated as of May 21,
2001 incorporated herein by reference to
Exhibit 99.1 of the Companys
Form 8-K
filed on January 17, 2006
|
|
4
|
.6
|
|
|
|
Seventh Supplement Indenture, dated as of January 9, 2006,
to the Trust Indenture dated as of April 17,
2002 incorporated herein by reference to
Exhibit 99.2 of the Companys
Form 8-K
filed on January 17, 2006
|
|
4
|
.7
|
|
|
|
Form of Senior Note due 2016 incorporated herein by
reference to Exhibit 4.2 of the Companys
Form 8-K
filed on June 8, 2006
|
|
4
|
.8
|
|
|
|
Form of Eighth Supplemental Indenture, dated June 6, 2006,
by and among Beazer Homes USA, Inc., the guarantors named
therein and UBS Securities LLC, Citigroup Global Markets Inc.,
J.P. Morgan Securities, Inc., Wachovia Capital Markets,
LLC, Deutsche Bank Securities Inc., BNP Paribas Securities Corp.
and Greenwich Capital Markets incorporated herein by
reference to Exhibit 4.1 of the Companys
Form 8-K
filed on June 8, 2006
|
|
4
|
.9
|
|
|
|
Form of Junior Subordinated indenture between Beazer Homes USA,
Inc., JPMorgan Chase Bank, National Association, dated
June 15, 2006 incorporated herein by reference
to Exhibit 4.1 of the Companys
Form 8-K
filed on June 21, 2006
|
|
4
|
.10
|
|
|
|
Form of the Amended and Restated Trust Agreement among
Beazer Homes USA, Inc., JPMorgan Chase Bank, National
Association, Chase Bank USA, National Association and certain
individuals named therein as Administrative Trustees, dated
June 15, 2006 incorporated herein by reference
to Exhibit 4.2 of the Companys
Form 8-K
filed on June 21, 2006
|
|
4
|
.11
|
|
|
|
Seventh Supplemental Indenture, dated October 26, 2007,
amending and supplementing the Indenture, dated May 21,
2001, among the Company, US Bank National Association, as
trustee, and the subsidiary guarantors party thereto
incorporated herein by reference to Exhibit 10.2 of the
Companys
Form 8-K
filed on October 30, 2007
|
|
4
|
.12
|
|
|
|
Ninth Supplemental Indenture, dated October 26, 2007,
amending and supplementing the Indenture, dated April 17,
2002, among the Company, US Bank National Association, as
trustee, and the subsidiary guarantors party thereto
incorporated herein by reference to Exhibit 10.3 of the
Companys
Form 8-K
filed on October 30, 2007
|
|
4
|
.13
|
|
|
|
Third Supplemental Indenture, dated October 26, 2007,
amending and supplementing the Indenture, dated June 8,
2004, among the Company, SunTrust Bank, as trustee, and the
subsidiary guarantors party thereto incorporated
herein by reference to Exhibit 10.4 of the Companys
Form 8-K
filed on October 30, 2007
|
|
4
|
.14
|
|
|
|
Form of Indenture, dated as of September 11, 2009, by and
among Beazer Homes USA, Inc., the subsidiary guarantors party
thereto, U.S. Bank National Association, as trustee, and
Wilmington Trust FSB, as notes collateral agent
incorporated herein by reference to Exhibit 4.1 of the
Companys
Form 8-K
filed on September 11, 2009
|
|
4
|
.15
|
|
|
|
Form of Senior Secured Note due 2017 incorporated
herein by reference to incorporated herein by reference to the
Companys Registration Statement on
Form S-4
/A filed on February 23, 2010
|
104
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Exhibit Description
|
|
|
4
|
.16
|
|
|
|
Form of Registration Rights Agreement, dated September 11,
2009, by and among Beazer Homes USA, Inc., the guarantors party
thereto, Citigroup Global Markets Inc. and Moelis &
Company LLC incorporated herein by reference to
Exhibit 4.3 of the Companys
Form 8-K
filed on September 11, 2009
|
|
4
|
.17
|
|
|
|
Indenture dated January 12, 2010 between Beazer Homes USA,
Inc. and the U.S. Bank National Association
incorporated herein by reference to Exhibit 4.1 of the
Companys
Form 8-K
filed on January 12, 2010
|
|
4
|
.18
|
|
|
|
First Supplemental Indenture dated January 12, 2010 between
Beazer Homes USA, Inc. and the U.S. Bank National
Association incorporated herein by reference to
Exhibit 4.2 of the Companys
Form 8-K
filed on January 12, 2010
|
|
4
|
.19
|
|
|
|
Form of
71/2%
Mandatory Convertible Notes due 2013 incorporated
herein by reference to Exhibit 4.3 of the Companys
Form 8-K
filed on January 12, 2010
|
|
4
|
.20
|
|
|
|
Form of Tangible Equity Unit, Form of Purchase Contract and
Purchase Contract Agreement, dated May 10, 2010, between
Beazer Homes USA, Inc. and U.S. Bank National
Association incorporated herein by reference to
Exhibit 4.1 of the Companys
Form 8-K
filed on May 10, 2010
|
|
4
|
.21
|
|
|
|
Form of Amortizing Note and Twelfth Supplemental Indenture,
dated May 10, 2010, between Beazer Homes USA, Inc. and U.S.
Bank National Association incorporated herein by
reference to Exhibit 4.4 of the Companys
Form 8-K
filed on May 10, 2010
|
|
4
|
.22
|
|
|
|
Form of Senior Note due 2018 and Thirteenth Supplemental
Indenture, dated May 20, 2010, among Beazer Homes USA,
Inc., the subsidiary guarantors party thereto and U.S. Bank
National Association, as trustee incorporate herein
by reference to Exhibit 4.1 of the Companys
Form 8-K
filed on May 20, 2010
|
|
4
|
.23
|
|
|
|
First Supplemental Indenture, dated October 27, 2010, among
Beazer Homes USA, Inc., the subsidiary guarantors signatory
thereto and U.S. Bank National Association, as trustee
|
|
10
|
.1*
|
|
|
|
Amended and Restated 1994 Stock Incentive Plan
incorporated herein by reference to Exhibit 10.1 of the
Companys
Form 10-K
for the year ended September 30, 2005
|
|
10
|
.2*
|
|
|
|
Non-Employee Director Stock Option Plan incorporated
herein by reference to Exhibit 10.2 of the Companys
Form 10-K
for the year ended September 30, 2001
|
|
10
|
.3*
|
|
|
|
Amended and Restated 1999 Stock Incentive Plan
incorporated herein by reference to Exhibit 10.2 of the
Companys
Form 8-K
filed on August 8, 2008
|
|
10
|
.4*
|
|
|
|
Second Amended and Restated Corporate Management Stock Purchase
Program incorporated herein by reference to
Exhibit 10.5 of the Companys
Form 10-K
for the year ended September 30, 2007
|
|
10
|
.5*
|
|
|
|
Director Stock Purchase Program incorporated herein
by reference to Exhibit 10.7 of the Companys
Form 10-K
for the year ended September 30, 2004
|
|
10
|
.6*
|
|
|
|
Form of Stock Option and Restricted Stock Award
Agreement incorporated herein by reference to
Exhibit 10.8 of the Companys
Form 10-K
for the year ended September 30, 2004
|
|
10
|
.7*
|
|
|
|
Form of Stock Option Award Agreement incorporated
herein by reference to Exhibit 10.9 of the Companys
Form 10-K
for the year ended September 30, 2004
|
|
10
|
.8*
|
|
|
|
Amended and Restated Employment Agreement of Ian J. McCarthy
dated as of September 1, 2004 incorporated
herein by reference to Exhibit 10.01 of the Companys
Form 8-K
filed on September 1, 2004
|
|
10
|
.9*
|
|
|
|
First Amendment to Amended and Restated Employment Agreement of
Ian J. McCarthy dated as of February 3, 2006
incorporated herein by reference to Exhibit 10.11 of the
Companys
Form 10-Q
for the quarter ended March 31, 2006
|
|
10
|
.10*
|
|
|
|
Second Amendment to Amended and Restated Employment Agreement of
Ian J. McCarthy dated as of December 31, 2008
incorporated herein by reference to Exhibit 10.31 of the
Companys
Form 10-Q
for the quarter ended December 31, 2008
|
|
10
|
.11*
|
|
|
|
Amended and Restated Employment Agreement of Michael H. Furlow
dated as of August 6, 2009 incorporated herein
by reference to Exhibit 10.3 of the Companys
Form 10-Q
for the quarter ended June 30, 2009
|
105
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Exhibit Description
|
|
|
10
|
.12*
|
|
|
|
Employment Agreement effective May 1, 2007 for Allan P.
Merrill incorporated herein by reference to
Exhibit 10.01 of the Companys
Form 8-K
filed on April 24, 2007
|
|
10
|
.13*
|
|
|
|
First Amendment to Employment Agreement effective
December 31, 2008 for Allan P. Merrill - incorporated
herein by reference to Exhibit 10.5 of the Companys
Form 10-Q
for the quarter ended December 31, 2008
|
|
10
|
.14*
|
|
|
|
Amended and Restated Supplemental Employment Agreement of Ian J.
McCarthy dated as of February 3, 2006
incorporated herein by reference to Exhibit 10.1of the
Companys
Form 10-Q
for the quarter ended March 31, 2006
|
|
10
|
.15*
|
|
|
|
First Amendment to Amended and Restated Supplemental Employment
Agreement of Ian J. McCarthy effective December 31,
2008 incorporated herein by reference to
Exhibit 10.6 of the Companys
Form 10-Q
for the quarter ended December 31, 2008
|
|
10
|
.16*
|
|
|
|
Amended and Restated Supplemental Employment Agreement of
Michael H. Furlow dated as of August 6, 2009
incorporated herein by reference to Exhibit 10.4 of the
Companys
Form 10-Q
for the quarter ended June 30, 2009
|
|
10
|
.17*
|
|
|
|
Change of Control Employment Agreement effective May 1,
2007 for Allan P. Merrill incorporated herein by
reference to Exhibit 10.02 of the Companys
Form 8-K
filed on April 24, 2007
|
|
10
|
.18*
|
|
|
|
First Amendment to Change of Control Employment Agreement
effective December 31, 2008 for Allan P.
Merrill incorporated herein by reference to
Exhibit 10.8 of the Companys
Form 10-Q
for the quarter ended December 31, 2008
|
|
10
|
.19*
|
|
|
|
Change of Control Agreement for Robert L. Salomon effective
February 29, 2008
|
|
10
|
.20*
|
|
|
|
Employment Letter for Kenneth F. Khoury effective
January 5, 2009 incorporated herein by
reference to Exhibit 10.1 of the Companys
Form 10-Q
for the quarter ended December 31, 2008
|
|
10
|
.21*
|
|
|
|
Change of Control Agreement for Kenneth F. Khoury effective
December 5, 2008 incorporated herein by
reference to Exhibit 10.2 of the Companys
Form 10-Q
for the quarter ended December 31, 2008
|
|
10
|
.22*
|
|
|
|
Form of Performance Shares Award Agreement dated as of
February 2, 2006 incorporated herein by
reference to Exhibit 10.18 of the Companys
Form 10-Q
for the quarter ended March 31, 2006
|
|
10
|
.23*
|
|
|
|
Form of Award Agreement dated as of February 2,
2006 incorporated herein by reference to
Exhibit 10.19 of the Companys
Form 10-Q
for the quarter ended March 31, 2006 (File
No. 001-12822)
|
|
10
|
.24*
|
|
|
|
2005 Executive Value Created Incentive Plan
incorporated herein by reference to Exhibit 10.1 of the
Companys
Form 8-K
filed on February 9, 2005
|
|
10
|
.25*
|
|
|
|
Form of Indemnification Agreement incorporated
herein by reference to Exhibit 10.1 of the Companys
Form 8-K
filed on July 1, 2008
|
|
10
|
.26
|
|
|
|
Credit Agreement dated as of July 25, 2007 between the
Company, the lenders thereto, and Wachovia Bank, National
Association, as Agent, BNP Paribas, The Royal Bank of Scotland,
and Guaranty Bank, as Documentation Agents, Regions Bank, as
Senior Managing Agent, and JPMorgan Chase Bank, as Managing
Agent incorporated herein by reference to
Exhibit 10.1 of the Companys
Form 8-K
filed on July 26, 2007
|
|
10
|
.27
|
|
|
|
Waiver and First Amendment, dated as of October 10, 2007,
to and under the Credit Agreement, dated as of July 25,
2007, among the Company, the lenders thereto and Wachovia Bank,
National Association, as Agent incorporated herein
by reference to Exhibit 10.1 of the Companys
Form 8-K
filed on October 11, 2007
|
|
10
|
.28
|
|
|
|
Second Amendment, dated October 26, 2007, to and under the
Credit Agreement, dated as of July 25, 2007, among the
Company, the lenders thereto and Wachovia Bank, National
Association, as Agent incorporated herein by
reference to Exhibit 10.1 of the Companys
Form 8-K
filed on October 30, 2007
|
|
10
|
.29
|
|
|
|
Third Amendment, dated as of August 7, 2008, to and under
the Credit Agreement, dated as of July 25, 2007, among the
Company, the lenders thereto and Wachovia Bank, National
Association, as Agent incorporated herein by
reference to Exhibit 10.1 of the Companys
Form 8-K
filed on August 8, 2008
|
106
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Exhibit Description
|
|
|
10
|
.30
|
|
|
|
Fourth Amendment, dated as of July 31, 2009, to and under
the Credit Agreement, dated as of July 25, 2007, among the
Company, the lenders thereto and Wachovia Bank, National
Association, as Agent incorporated herein by
reference to Exhibit 10.1 of the Companys
Form 10-Q
for the quarter ended June 30, 2009
|
|
10
|
.31
|
|
|
|
Amended and Restated Credit Agreement, dated August 5,
2009, between the Company, the lenders and issuers thereto and
CITIBANK, N.A., as Swing Line Lender and Agent
incorporated herein by reference to Exhibit 10.2 of the
Companys
Form 10-Q
for the quarter ended June 30, 2009
|
|
10
|
.32*
|
|
|
|
2008 Beazer Homes USA, Inc. Deferred Compensation Plan, adopted
effective January 1, 2008 incorporated herein
by reference to Exhibit 10.27 of the Companys
Form 10-K
for the fiscal year ended September 30, 2007
|
|
10
|
.33*
|
|
|
|
Discretionary Employee Bonus Plan incorporated
herein by reference to Exhibit 10.28 of the Companys
Form 10-K
for the fiscal year ended September 30, 2007
|
|
10
|
.34
|
|
|
|
2010 Equity Plan incorporated herein by reference to
Exhibit 10.1 of the Companys
Form 10-Q
for the period ended March 31, 2010
|
|
10
|
.35
|
|
|
|
Form of 2010 Equity Incentive Plan Employee Award Agreement for
Option and Restricted Stock Awards incorporated
herein by reference to Exhibit 10.1 of the Companys
Form 10-Q
for the quarter ended June 30, 2010
|
|
10
|
.36
|
|
|
|
Form of 2010 Equity Incentive Plan Director Award Agreement for
Option and Restricted Stock Awards incorporated
herein by reference to Exhibit 10.1 of the Companys
Form 10-Q
for the quarter ended June 30, 2010
|
|
10
|
.37
|
|
|
|
Exchange Agreement among Beazer Homes USA, Inc. and Taberna
Preferred Funding V, Ltd., Taberna Preferred Funding VII,
Ltd. and Taberna Preferred Funding VIII, Ltd. dated as of
January 15, 2010 incorporated herein by
reference to Exhibit 10.1 of the Companys
Form 8-K
dated January 21, 2010
|
|
10
|
.38
|
|
|
|
Junior Subordinated Indenture between Beazer Homes USA, Inc. and
Wilmington Trust Company, as trustee, dated as of
January 15, 2010 incorporated herein by
reference to Exhibit 10.2 of the Companys
Form 8-K
dated January 21, 2010
|
|
21
|
|
|
|
|
Subsidiaries of the Company
|
|
23
|
|
|
|
|
Consent of Deloitte & Touche LLP
|
|
31
|
.1
|
|
|
|
Certification pursuant to 17 CFR 240.13a-14 promulgated
under Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
|
|
Certification pursuant to 17 CFR 240.13a-14 promulgated
under Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
|
32
|
.2
|
|
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
|
|
|
* |
|
Represents a management contract or compensatory plan or
arrangement |
107
Reference is made to Item 15(a)3 above. The following is a
list of exhibits, included in item 15(a)3 above, that are
filed concurrently with this report.
|
|
|
|
|
3.3
|
|
|
|
Fourth Amended and Restated Bylaws of the Company
|
4.23
|
|
|
|
First Supplemental Indenture, dated October 27, 2010, among
Beazer Homes USA, Inc., the subsidiary guarantors signatory
thereto and U.S. Bank National Association, as trustee
|
10.19
|
|
|
|
Change of Control Agreement for Robert L. Salomon effective
February 29, 2008
|
21
|
|
|
|
Subsidiaries of the Company
|
23
|
|
|
|
Consent of Deloitte & Touche LLP
|
31.1
|
|
|
|
Certification pursuant to 17 CFR 240.13a-14 promulgated
under Section 302 of the Sarbanes-Oxley Act of 2002
|
31.2
|
|
|
|
Certification pursuant to 17 CFR 240.13a-14 promulgated
under Section 302 of the Sarbanes-Oxley Act of 2002
|
32.1
|
|
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
32.2
|
|
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
|
|
(d)
|
Financial
Statement Schedules
|
Reference is made to Item 15(a)2 above.
108
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
|
|
|
Beazer Homes USA, Inc.
|
|
|
|
|
|
Date: November 5, 2010
|
|
By:
|
|
/s/ Ian
J. McCarthy
|
|
|
|
|
Name: Ian
J. McCarthy
Title: President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Date November 5, 2010
|
|
By:
|
|
/s/ Brian
C. Beazer
|
|
|
|
|
Brian
C. Beazer, Director and Non-Executive Chairman of the Board
|
|
|
|
|
|
Date November 5, 2010
|
|
By:
|
|
/s/ Ian
J. McCarthy
|
|
|
|
|
Ian
J. McCarthy, Director, President
and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
|
|
Date November 5, 2010
|
|
By:
|
|
/s/ Laurent
Alpert
|
|
|
|
|
Laurent
Alpert, Director
|
|
|
|
|
|
Date November 5, 2010
|
|
By:
|
|
/s/ Peter
G. Leemputte
|
|
|
|
|
Peter
G. Leemputte, Director
|
|
|
|
|
|
Date November 5, 2010
|
|
By:
|
|
/s/ Norma
Provencio
|
|
|
|
|
Norma
Provencio, Director
|
|
|
|
|
|
Date November 5, 2010
|
|
By:
|
|
/s/ Larry
T. Solari
|
|
|
|
|
Larry
T. Solari, Director
|
|
|
|
|
|
Date November 5, 2010
|
|
By:
|
|
/s/ Stephen
P. Zelnak
|
|
|
|
|
Stephen
P. Zelnak, Jr., Director
|
|
|
|
|
|
Date November 5, 2010
|
|
By:
|
|
/s/ Allan
P. Merrill
|
|
|
|
|
Allan
P. Merrill, Executive Vice
President and Chief Financial
Officer (Principal Financial Officer)
|
|
|
|
|
|
Date November 5, 2010
|
|
By:
|
|
/s/ Robert
L. Salomon
|
|
|
|
|
Robert
Salomo, Senior Vice
President, Chief Accounting Officer
and Controller (Principal Accounting Officer)
|
109