BZH-6.30.15-Q3 Document
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________________________ 
FORM 10-Q
_____________________________________________________________ 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2015
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-12822
_____________________________________________________________ 
BEAZER HOMES USA, INC.
(Exact name of registrant as specified in its charter)
 _____________________________________________________________ 
DELAWARE
 
58-2086934
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
Identification no.)
1000 Abernathy Road, Suite 260,
Atlanta, Georgia
 
30328
(Address of principal executive offices)
 
(Zip Code)

(770) 829-3700
(Registrant’s telephone number, including area code)
 _____________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.    YES  x    NO  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One):
Large accelerated filer
¨
Accelerated filer
x
 
 
 
 
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x
Class
 
Outstanding at July 31, 2015
Common Stock, $0.001 par value
 
32,662,526

Table of Contents

References to “we,” “us,” “our,” “Beazer," “Beazer Homes” and the “Company” in this Quarterly Report on Form 10-Q refer to Beazer Homes USA, Inc.

FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements represent our expectations or beliefs concerning future results, and it is possible that the results described in this Form 10-Q 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 Form 10-Q.
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 Form 10-Q in the section captioned “Management’s 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 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2014. These factors are not intended to be an all-inclusive list of risks and uncertainties that may affect the operations, performance, development and results of our business, but instead are the risks that we currently perceive as potentially being material. Such factors may include:

•
continuing severe weather conditions or other related events could result in delays in land development or home construction, increase our costs or decrease demand in the impacted areas;
•
the availability and cost of land and the risks associated with the future value of our inventory such as additional asset impairment charges or writedowns;
•
economic changes nationally or in local markets, including changes in consumer confidence, declines in employment levels, inflation and increases in the quantity and decreases in the price of new homes and resale homes in the market;
•
the cyclical nature of the homebuilding industry and a potential deterioration in homebuilding industry conditions;
•
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;
•
shortages of or increased prices for labor, land or raw materials used in housing production and the level of quality and craftsmanship provided by our subcontractors;
•
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;
•
our ability to comply with covenants in our debt agreements or satisfy such obligations through repayment or refinancing;
•
a substantial increase in mortgage interest rates, increased disruption in the availability of mortgage financing, a change in tax laws regarding the deductibility of mortgage interest, or an increased number of foreclosures;
•
increased competition or delays in reacting to changing consumer preference in home design;
•
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 our production and overhead cost structure;
•
estimates related to the potential recoverability of our deferred tax assets;
•
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, including those related to the environment;
•
the results of litigation or government proceedings and fulfillment of the obligations in the consent orders with governmental authorities and other settlement agreements;
•
the impact of construction defect and home warranty claims, including water intrusion issues in Florida and New Jersey;
•
the cost and availability of insurance and surety bonds;
•
the performance of our unconsolidated entities and our unconsolidated entity partners;
•
the impact of information technology failures or data security breaches;
•
effects of changes in accounting policies, standards, guidelines or principles; or
•
terrorist acts, natural disasters, acts of war or other factors over which the Company has little or no control.
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.

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BEAZER HOMES USA, INC.
FORM 10-Q
INDEX
 


3
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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BEAZER HOMES USA, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
 
June 30,
2015
 
September 30,
2014
ASSETS
 
 
 
Cash and cash equivalents
$
128,752

 
$
324,154

Restricted cash
37,811

 
62,941

Accounts receivable (net of allowance of $1,292 and $1,245, respectively)
44,882

 
34,429

Income tax receivable
262

 
46

Inventory:
 
 
 
Owned inventory
1,822,090

 
1,557,496

Land not owned under option agreements
—


3,857

Total inventory
1,822,090

 
1,561,353

Investments in unconsolidated entities and marketable securities
11,407

 
38,341

Deferred tax assets, net
46

 
2,823

Property and equipment, net
22,683

 
18,673

Other assets
22,239

 
23,460

Total assets
$
2,090,172

 
$
2,066,220

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Trade accounts payable
$
127,063

 
$
106,237

Other liabilities
136,292

 
142,516

Obligations related to land not owned under option agreements
—

 
2,916

Total debt (net of discounts of $3,829 and $4,399, respectively)
1,554,207

 
1,535,433

Total liabilities
1,817,562

 
1,787,102

Stockholders’ equity:
 
 
 
Preferred stock (par value $.01 per share, 5,000,000 shares authorized, no shares issued)
—

 
—

Common stock (par value $0.001 per share, 63,000,000 shares authorized, 27,449,806 issued and outstanding and 27,173,421 issued and outstanding, respectively)
27

 
27

Paid-in capital
856,001

 
851,624

Accumulated deficit
(583,418
)
 
(571,257
)
Accumulated other comprehensive loss
—

 
(1,276
)
Total stockholders’ equity
272,610

 
279,118

Total liabilities and stockholders’ equity
$
2,090,172

 
$
2,066,220


See Notes to Unaudited Consolidated Financial Statements.


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BEAZER HOMES USA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND UNAUDITED COMPREHENSIVE INCOME
(in thousands, except per share data)
 
 
Three Months Ended
 
Nine Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Total revenue
$
429,438

 
$
354,671

 
$
994,561

 
$
917,862

Home construction and land sales expenses
353,081

 
283,857

 
829,073

 
739,295

Inventory impairments and option contract abandonments
249

 
2,010

 
249

 
2,921

Gross profit
76,108

 
68,804

 
165,239

 
175,646

Commissions
17,246

 
14,322

 
40,141

 
37,239

General and administrative expenses
37,669

 
35,994

 
101,837

 
97,032

Depreciation and amortization
3,497

 
3,400

 
8,619

 
9,138

Operating income
17,696

 
15,088

 
14,642

 
32,237

Equity in income (loss) of unconsolidated entities
153

 
(81
)
 
377

 
221

Loss on extinguishment of debt
—

 
(19,764
)
 
—

 
(19,917
)
Other expense, net
(5,763
)
 
(10,205
)
 
(23,670
)
 
(39,689
)
Income (loss) from continuing operations before income taxes
12,086

 
(14,962
)
 
(8,651
)
 
(27,148
)
Benefit from income taxes
(135
)
 
(1,769
)
 
(726
)
 
(1,783
)
Income (loss) from continuing operations
12,221

 
(13,193
)
 
(7,925
)
 
(25,365
)
Income (loss) from discontinued operations, net of tax
(46
)
 
838

 
(4,236
)
 
(99
)
Net income (loss)
$
12,175

 
$
(12,355
)
 
$
(12,161
)
 
$
(25,464
)
Weighted average number of shares:
 
 
 
 
 
 
 
Basic
26,482

 
26,421

 
26,473

 
25,582

Diluted
31,800

 
26,421

 
26,473

 
25,582

Basic income (loss) per share:
 
 
 
 
 
 
 
Continuing operations
$
0.46

 
$
(0.50
)
 
$
(0.30
)
 
$
(0.99
)
Discontinued operations
$
—

 
$
0.03

 
$
(0.16
)
 
$
(0.01
)
Total
$
0.46

 
$
(0.47
)
 
$
(0.46
)
 
$
(1.00
)
Diluted income (loss) per share
 
 
 
 
 
 
 
Continuing operations
$
0.38

 
$
(0.50
)
 
$
(0.30
)
 
$
(0.99
)
Discontinued operations
$
—

 
$
0.03

 
$
(0.16
)
 
$
(0.01
)
Total
$
0.38

 
$
(0.47
)
 
$
(0.46
)
 
$
(1.00
)
 
 
 
 
 
 
 
 
Consolidated Statement of Comprehensive Income (Loss)
Net income (loss)
$
12,175

 
$
(12,355
)
 
$
(12,161
)
 
$
(25,464
)
Other comprehensive income, net of income tax:
 
 
 
 
 
 
 
Change in unrealized loss related to available-for-sale securities
—

 
—

 
1,276

 
—

Comprehensive income (loss)
$
12,175

 
$
(12,355
)
 
$
(10,885
)
 
$
(25,464
)

See Notes to Unaudited Consolidated Financial Statements.


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BEAZER HOMES USA, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
Nine Months Ended
 
June 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net loss
$
(12,161
)
 
$
(25,464
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
Depreciation and amortization
8,619

 
9,138

Stock-based compensation expense
4,546

 
1,879

Inventory impairments and option contract abandonments
249

 
2,921

Deferred and other income tax (benefit) expense
(731
)
 
16

Change in allowance for doubtful accounts
47

 
(373
)
Equity in loss (income) of unconsolidated entities and marketable securities
1,453

 
(221
)
Cash distributions of income from marketable securities and unconsolidated entities
99

 
567

Loss on extinguishment of debt
—

 
2,670

Changes in operating assets and liabilities:
 
 
 
Increase in accounts receivable
(10,500
)
 
(6,284
)
Increase in income tax receivable
(216
)
 
(1,941
)
Increase in inventory
(245,169
)
 
(260,982
)
Increase in other assets
(2,287
)
 
(626
)
Increase in trade accounts payable
20,826

 
635

Decrease in other liabilities
(2,716
)
 
(11,191
)
Other changes
(199
)
 
(337
)
Net cash used in operating activities
(238,140
)
 
(289,593
)
Cash flows from investing activities:
 
 
 
Capital expenditures
(11,756
)
 
(8,984
)
Investments in unconsolidated entities
(2,651
)
 
(4,567
)
Proceeds from sale of unconsolidated entities and marketable securities
24,245

 
187

Increases in restricted cash
(3,806
)
 
(10,081
)
Decreases in restricted cash
28,936

 
1,096

Net cash provided by (used in) investing activities
34,968

 
(22,349
)
Cash flows from financing activities:
 
 
 
Repayment of debt
(11,934
)
 
(305,085
)
Proceeds from issuance of new debt
—

 
325,000

Borrowings from credit facility
50,000

 
—

Repayment of borrowings from credit facility
(30,000
)
 
—

Debt issuance costs
(126
)
 
(5,504
)
Other financing activities
(170
)
 
(446
)
Net cash provided by financing activities
7,770

 
13,965

Decrease in cash and cash equivalents
(195,402
)
 
(297,977
)
Cash and cash equivalents at beginning of period
324,154

 
504,459

Cash and cash equivalents at end of period
$
128,752

 
$
206,482


See Notes to Unaudited Consolidated Financial Statements.

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BEAZER HOMES USA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Description of Business
Beazer Homes USA, Inc. (''we," "us," "our," "Beazer," "Beazer Homes" and the "Company") is a geographically diversified homebuilder with active operations in 15 states within three geographic regions in the United States: the West, East and Southeast. Our homes are designed to appeal to homeowners at different price points across various demographic segments and are generally offered for sale in advance of their construction. Our objective is to provide our customers with homes that incorporate exceptional value and quality while seeking to maximize our return on invested capital over the course of a housing cycle.
For an additional description of our business, refer to Item 1 within our Annual Report on Form 10-K for the fiscal year ended September 30, 2014 (2014 Annual Report).
(2) Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Such financial statements do not include all of the information and disclosures required by GAAP for complete financial statements. In our opinion, all adjustments (consisting primarily of normal recurring accruals) necessary for a fair presentation have been included in the accompanying financial statements. The results of our consolidated operations presented herein for the three and nine months ended June 30, 2015 are not necessarily indicative of the results to be expected for the full year due to seasonal variations in operations and other items. For further information and a discussion of our significant accounting policies other than as discussed below, refer to Note 1 to our audited consolidated financial statements within our 2014 Annual Report.
Over the past few years, we have discontinued homebuilding operations in certain of our markets. Results from our title services business and our exited markets are reported as discontinued operations in the accompanying unaudited consolidated statements of operations for all periods presented (see Note 16 for further discussion of our Discontinued Operations).
We evaluated events that occurred after the balance sheet date but before the financial statements were issued for accounting treatment and disclosure.
Basis of Consolidation. These unaudited consolidated financial statements present the consolidated financial position, income, comprehensive income and cash flows of the Company and our subsidiaries. Intercompany balances have been eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make informed estimates and judgments that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Accordingly, actual results could differ from these estimates.
Inventory Valuation. We assess our inventory assets no less than quarterly for recoverability in accordance with the policies described in Notes 1 and 4 to the consolidated financial statements in our 2014 Annual Report. 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. 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. We record assets held for sale at the lower of the carrying value or fair value less costs to sell.
Recent Accounting Pronouncements.
Revenue from Contracts with Customers. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 requires companies to recognize revenue at an amount that the entity expects to be entitled to upon transferring control of goods or services to a customer, as opposed to when risks and rewards transfer to a customer under the existing revenue recognition guidance. The FASB has deferred for one year the effective date of ASU 2014-09, which makes the guidance effective for the Company's first fiscal year beginning after December 15, 2017. Additionally, the FASB also is permitting entities to early adopt the standard, which allows for either full retrospective or modified retrospective methods of adoption, for reporting periods beginning after December 15, 2016. We are currently evaluating the impact of ASU 2014-09 on our consolidated financial statements.

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Presentation of Debt Issuance Costs. In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). ASU 2015-03 requires debt issuance costs to be presented on the balance sheet as a direct deduction from the related debt liability, similar to the presentation of debt discounts or premiums. The costs will continue to be amortized to interest expense. ASU 2015-03 requires retrospective application to all prior periods presented in the financial statements. Upon transition, an entity is required to comply with the applicable disclosures for a change in accounting principle. The guidance within ASU 2015-03 will be effective for the Company's first fiscal year beginning after December 15, 2015, but we have the option of adopting the new requirements as of an earlier date. We are evaluating the impact of ASU 2015-03, but only expect our balance sheet presentation of debt issuance costs to change as a result.
Refer to Note 9 for a discussion of our adoption of ASU 2013-11 pertaining to the presentation of an unrecognized tax benefit when a net operating loss carryforward, or similar tax loss, or a tax credit carryforward exists.
(3) Supplemental Cash Flow Information
The following table presents supplemental disclosure of non-cash and cash activity for the periods presented:
 
Nine Months Ended
 
June 30,
(In thousands)
2015
 
2014
Supplemental disclosure of non-cash activity:
 
 
 
Decrease in obligations related to land not owned under option agreements
$
(2,916
)
 
$
(1,617
)
Decrease in debt related to conversion of Mandatory Convertible Subordinated Notes and Tangible Equity Units for common stock
(1
)
 
(2,376
)
Non-cash land acquisitions (a)
12,904

 
20,207

Non-cash capital expenditure
674

 
—

Supplemental disclosure of cash activity:

 

Interest payments
99,434

 
100,040

Income tax payments
474

 
174

(a) For the nine months ended June 30, 2015, non-cash land acquisitions are comprised of $7.8 million related to non-cash seller financing and $5.1 million in lot takedowns from one of our unconsolidated land development joint ventures.
(4) Investments in Marketable Securities and Unconsolidated Entities
Marketable Securities
During the fourth quarter of fiscal 2014, the Company acquired shares of American Homes 4 Rent (AMH) in exchange for the Company's interest in a real estate investment trust (REIT). The shares represented marketable equity securities with a readily available fair value and were classified as available-for-sale securities. In March 2015, the Company sold the shares and recorded a loss of $1.8 million, which has been recorded within other expense, net in our unaudited consolidated statements of income. Changes in value prior to the second quarter of fiscal 2015 were recorded to other comprehensive loss, and then transferred to other expense, net upon sale. The proceeds received on the sale of the shares of AMH were recorded within investing activities in our unaudited consolidated statements of cash flows. Due to the valuation allowance we established for substantially all of our deferred tax assets, the sale of these securities did not have any income tax impact in any period presented.
Unconsolidated Entities
As of June 30, 2015, we participated in certain land development joint ventures and other unconsolidated entities in which we had less than a controlling interest. The following table presents our investment in these unconsolidated entities, as well as the total equity and outstanding borrowings of these unconsolidated entities as of June 30, 2015 and September 30, 2014:
(In thousands)
June 30, 2015
 
September 30, 2014
Beazer’s investment in unconsolidated entities
$
11,407

 
$
13,576

Total equity of unconsolidated entities
40,226

 
59,336

Total outstanding borrowings of unconsolidated entities
11,834

 
11,254



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For the three and nine months ended June 30, 2015 and 2014, there were no impairments related to our investments in these unconsolidated entities.
Our equity in income (loss) from unconsolidated entity activities is as follows for the periods presented:
 
Three Months Ended
 
Nine Months Ended
 
June 30,
 
June 30,
(In thousands)
2015
 
2014
 
2015
 
2014
Equity in income (loss) of unconsolidated entities
$
153

 
$
(81
)
 
$
377

 
$
221

South Edge/Inspirada
During the fiscal year ended September 30, 2014, we and the other members of the Inspirada joint venture (Inspirada) received land in exchange for our investments in Inspirada. Also during the fiscal year ended September 30, 2014, we paid $1.0 million to the joint venture related to infrastructure and development costs. In the current quarter, we paid additional amounts, bringing our remaining obligation for our portion of future infrastructure and other development costs to approximately $3.4 million.
Guarantees
Historically, Beazer and our land development joint venture partners provide varying levels of guarantees of debt and other debt-related obligations for these unconsolidated entities. However, as of June 30, 2015 and September 30, 2014, we had no outstanding guarantees or other debt-related obligations related to our investments in unconsolidated entities.
We and our joint venture partners generally provide unsecured environmental indemnities to land development joint venture project lenders. 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 three and nine months ended June 30, 2015 and 2014, we were not required to make any payments related to environmental indemnities.
In assessing the need to record a liability for the contingent aspect of these guarantees, we consider our historical experience in being required to perform under the guarantees, the fair value of the collateral underlying these guarantees and the financial condition of the applicable unconsolidated entities. In addition, we monitor the fair value of the collateral of these unconsolidated entities to ensure that the related borrowings do not exceed the specified percentage of the value of the property securing the borrowings. We have not recorded a liability for the contingent aspects of any guarantees that we determined were reasonably possible but not probable.
(5) Inventory
The components of our owned inventory are as follows as of June 30, 2015 and September 30, 2014:
(In thousands)
June 30, 2015
 
September 30, 2014
Homes under construction
$
508,853

 
$
282,095

Development projects in progress
792,662

 
786,768

Land held for future development
270,619

 
301,048

Land held for sale
56,203

 
51,672

Capitalized interest
123,712

 
87,619

Model homes
70,041

 
48,294

Total owned inventory
$
1,822,090

 
$
1,557,496


Homes under construction include homes substantially finished and ready for delivery and homes in various stages of construction. We had 98 (with a cost of $29.0 million) and 205 (with a cost of $48.0 million) substantially completed homes that were not subject to a sales contract (spec homes) at June 30, 2015 and September 30, 2014, respectively. Development projects in progress consist principally of land and land improvement costs. Certain of the fully developed lots in this category are reserved by a customer deposit or sales contract. Land held for future development consists of communities for which construction and development activities are expected to occur in the future or have been idled and are stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. All applicable interest and real estate taxes on land held for future development are expensed as incurred. Land held for sale is recorded at the lower of the carrying value or fair value less costs to sell. The amount of interest we are able to capitalize is dependent upon our qualified inventory balance, which considers the status of our inventory holdings. Our qualified inventory balance includes the majority of our homes under construction and development

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projects in progress, but excludes land held for future development and land held for sale (refer to Note 6 for additional information on capitalized interest).
Total owned inventory, by reportable segment, is presented in the table below as of June 30, 2015 and September 30, 2014:
(In thousands)
Projects in
Progress (a)
 
Land Held for Future Development
 
Land Held
for Sale
 
Total Owned
Inventory
June 30, 2015
 
 
 
 
 
 
 
West Segment
$
626,772

 
$
230,481

 
$
8,268

 
$
865,521

East Segment
392,716

 
29,215

 
32,057

 
453,988

Southeast Segment
303,225

 
10,923

 
14,778

 
328,926

Corporate and unallocated
172,555

(b) 
—

 
1,100

 
173,655

Total
$
1,495,268

 
$
270,619

 
$
56,203

 
$
1,822,090

September 30, 2014
 
 
 
 
 
 
 
West Segment
$
462,508

 
$
260,898

 
$
10,026

 
$
733,432

East Segment
353,859

 
29,239

 
34,530

 
417,628

Southeast Segment
264,843

 
10,911

 
4,821

 
280,575

Corporate and unallocated
123,566

(b) 
—

 
2,295

 
125,861

Total
$
1,204,776

 
$
301,048

 
$
51,672

 
$
1,557,496

(a) Projects in progress include homes under construction, development projects in progress, capitalized interest, and model home categories from the preceding table.
(b) Includes capitalized interest and indirect costs that are maintained within our Corporate and unallocated.
 
Inventory Impairments. When conducting our community level review for the recoverability of our inventory related to projects in process, we establish a quarterly “watch list” of communities with generally more than 10 homes remaining that carry profit margins in backlog and in our forecast that are below a minimum threshold of profitability. Assets on the quarterly watch list are subject to substantial additional financial and operational analyses and review that consider the competitive environment and other factors contributing to profit margins below our watch list threshold. Our assumptions about future home sales prices and absorption rates require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions. For certain communities, we determined that it was prudent to reduce sales prices or further increase sales incentives in response to a variety of factors, including competitive market conditions in those specific submarkets for the product and locations of these communities. For communities where the current competitive and market dynamics indicate that these factors may be other than temporary, which may call into question the recoverability of our investment, a formal impairment analysis is performed. The formal impairment analysis consists of both qualitative competitive market analyses and a quantitative analysis reflecting market and asset specific information. Market deterioration that exceeds our initial estimates may lead us to incur impairment charges on previously impaired homebuilding assets in addition to homebuilding assets not currently impaired but for which indicators of impairment may arise if markets deteriorate.
For the quarter ended June 30, 2015, there were no communities on our quarterly watch list and therefore no further impairment analysis was performed. For the quarter ended June 30, 2014, four communities were on our quarterly watch list. However, after additional financial and operational review, we determined that the factors contributing to profit margins below our threshold were temporary in nature for two of these communities, and therefore these communities were not subjected to further analysis. We conducted additional quantitative tests on the remaining two communities to further test for impairment. In the end, there were no impairments recorded during the three and nine months ended June 30, 2015 or 2014 based upon the procedures we performed.

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The following table represent the results, by reportable segment, of our community level review of the recoverability of our inventory assets related to projects in progress as of June 30, 2014:
(In thousands)
 
 
Undiscounted Cash Flow Analyses Prepared
 
Segment
# of
Communities
on Watch List
 
# of
Communities
 
Pre-analysis
Book Value
(BV)
 
Aggregate
Undiscounted
Cash Flow as a
% of BV
 
Quarter Ended June 30, 2014
 
 
 
 
 
 
 
 
West
3

 
2

 
$
12,215

 
103.7
%
 
Southeast
1

 
—

 
—

 
—
%
 
Total
4

 
2

 
 
 
 
 
Impairments on land held for sale generally represent write downs of these properties to net realizable value, less estimated costs to sell, and are based on current market conditions and our review of recent comparable transactions. Our assumptions about land sales prices require significant judgment because the real estate market is highly sensitive to changes in economic conditions. We calculated the estimated fair values of land held for sale based on current market conditions and assumptions made by management, which may differ materially from actual results and may result in additional impairments if market conditions deteriorate.
From time to time, we also determine that the proper course of action with respect to a community is to not exercise an option and to write-off the deposit securing the option takedown and the related pre-acquisition costs, as applicable. In determining whether to abandon lots or lot option contracts, our evaluation is primarily based upon the expected cash flows from the property. If we intend to abandon or walk-away from the property, we record a charge to earnings in the period such decision is made for the deposit amount and any related capitalized costs. Abandonment charges generally relate to our decision to abandon lots or not exercise certain option contracts that are not projected to produce adequate results or no longer fit with our long-term strategic plan.
The following table presents, by reportable homebuilding segment, our land held for sale inventory impairments and lot option abandonment charges for the periods presented:
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
(In thousands)
2015
 
2014
 
2015
 
2014
Land Held for Sale
 
 
 
 
 
 
 
East
$
249

 
$
201

 
$
249

 
$
232

Southeast
—

 
—

 
—

 
28

Subtotal
$
249

 
$
201

 
$
249

 
$
260

Lot Option Abandonments
 
 
 
 
 
 
 
East
$
—

 
$
156

 
$
—

 
$
156

Southeast
—

 
1,653

 
—

 
2,505

Subtotal
—

 
1,809

 
—

 
2,661

Total Company
$
249

 
$
2,010

 
$
249

 
$
2,921

Lot Option Agreements and Variable Interest Entities (VIEs). As previously discussed, we also have access to land inventory through lot option contracts, which generally enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise our lot option. 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 specified price. Under lot option contracts, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers. Our liability under option contracts is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts paid. We expect to exercise, subject to market conditions and seller satisfaction of contract terms, most of our remaining option contracts. Various factors, some of which are beyond our control, such as market conditions, weather conditions and the timing of the completion of development activities, will have a significant impact on the timing of option exercises or whether lot options will be exercised at all.
We consolidated all VIEs for which we are the primary beneficiary. For those we consolidate, we record the remaining contractual purchase price under the applicable lot option agreement, net of cash deposits already paid, to land not owned under option agreements with an offsetting increase to obligations related to land not owned under option agreements on our unaudited consolidated balance sheets. Also, to reflect the total purchase price of this inventory on a consolidated basis, we present the related

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option deposits as land not owned under option agreement. Consolidation of these VIEs has no impact on the Company’s statements of income or cash flows.
The following provides a summary of our interests in lot option agreements as of June 30, 2015 and September 30, 2014:
(In thousands)
Deposits &
Non-refundable
Pre-acquisition
Costs Incurred
 
Remaining
Obligation
 
Land Not Owned
Under Option
Agreements
As of June 30, 2015
 
 
 
 
 
Unconsolidated lot option agreements
$
51,971

 
$
448,809

 
N/A (a)

Total lot option agreements
$
51,971

 
$
448,809

 
$
—

As of September 30, 2014
 
 
 
 
 
Consolidated VIEs
$
941

 
$
2,916

 
$
3,857

Unconsolidated lot option agreements
42,588

 
417,618

 
N/A

Total lot option agreements
$
43,529

 
$
420,534

 
$
3,857

(a) N/A - not applicable.
(6) Interest
Our ability to capitalize interest incurred during the three and nine months ended June 30, 2015 and 2014 was limited by our inventory eligible for capitalization. The following table presents certain information regarding interest for the periods presented:
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
(In thousands)
2015
 
2014
 
2015
 
2014
Capitalized interest in inventory, beginning of period
$
112,476

 
$
72,256

 
$
87,619

 
$
52,562

Interest incurred
30,748

 
31,678

 
91,290

 
96,577

Interest expense not qualified for capitalization and included as other expense (a)
(5,954
)
 
(10,421
)
 
(23,396
)
 
(41,112
)
Capitalized interest amortized to house construction and land sales expenses (b)
(13,558
)
 
(9,430
)
 
(31,801
)
 
(23,944
)
Capitalized interest in inventory, end of period
$
123,712

 
$
84,083

 
$
123,712

 
$
84,083

(a) The amount of interest we are able to capitalize is dependent upon our qualified inventory balance, which considers the status of our inventory holdings. Our qualified inventory balance includes the majority of our homes under construction and development projects in progress, but excludes land held for future development and land held for sale.
(b) Capitalized interest amortized to house construction and land sale expenses varies based on the number of homes closed during the period and land sales, if any, as well as other factors.
(7) Earnings Per Share
Basic income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of shares outstanding during the period. Diluted income per share adjusts the basic income per share for the effects of any potentially dilutive instruments, only in periods in which the Company has net income and such effects are dilutive under the treasury stock method. Basic and diluted income (loss) per share is calculated using unrounded numbers.
The Company reported a net loss for the three months ended June 30, 2014 and the nine months ended June 30, 2015 and 2014. Accordingly, all common stock equivalents were excluded from the computation of diluted loss per share because inclusion would have resulted in anti-dilution. For the quarter ended June 30, 2015, 1.2 million common stock equivalents were excluded from our calculation of diluted income per share as a result of their anti-dilutive effect.

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The weighted-average number of common shares outstanding used to calculate basic income per share is reconciled to shares used to calculate diluted income per share as follows for the period presented.
 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
(in thousands)
 
2015
 
2014
 
2015
 
2014
Basic shares
 
26,482

 
26,421

 
26,473

 
25,582

Shares issuable upon conversion of TEUs
 
5,221

 
—

 
—

 
—

Shares issuable upon vesting/exercise of stock awards/options
 
97

 
—

 
—

 
—

   Diluted shares
 
31,800

 
26,421

 
26,473

 
25,582

As of June 30, 2015, there were approximately 3.7 million tangible equity units (TEUs) outstanding (including $1.7 million of amortizing notes). The majority of the remaining prepaid stock purchase contracts (PSPs) related to the TEUs were settled in Beazer Homes' common stock on July 15, 2015 at a rate of 1.40746 shares per TEU outstanding because our average share price during the pricing period as per the TEU agreement was greater than $17.75. This conversion required us to issue approximately 5.2 million shares of common stock to the instrument holders subsequent to June 30, 2015. Refer to Note 8 for a further discussion regarding the structure of these TEUs.

(8) Borrowings
As of June 30, 2015 and September 30, 2014, we had the following debt, net of discounts:
(In thousands)
Maturity Date
 
June 30, 2015
 
September 30, 2014
8 1/8% Senior Notes
June 2016
 
$
172,879

 
$
172,879

6 5/8% Senior Secured Notes
April 2018
 
300,000

 
300,000

9 1/8% Senior Notes
May 2019
 
235,000

 
235,000

5 3/4% Senior Notes
June 2019
 
325,000

 
325,000

7 1/2% Senior Notes
September 2021
 
200,000

 
200,000

7 1/4% Senior Notes
February 2023
 
200,000

 
200,000

TEU Senior Amortizing Notes
July 2015
 
1,712

 
6,703

Unamortized debt discounts
 
 
(3,829
)
 
(4,399
)
Total Senior Notes, net
 
 
$
1,430,762

 
$
1,435,183

Junior Subordinated Notes
July 2036
 
57,287

 
55,737

Cash Secured Loans
November 2017
 
22,368

 
22,368

Revolving Credit Facility
September 2016
 
20,000

 
—

Other secured notes payable
Various Dates
 
23,790

 
22,145

Total debt, net
 
 
$
1,554,207

 
$
1,535,433

Secured Revolving Credit Facility — Our $150 million Secured Revolving Credit Facility (the Facility) provides us with working capital and letter of credit capacity. On November 10, 2014, we executed an amendment with three of the four lenders, which extended the maturity date of the Facility by one additional year among other things. With this amendment, $130 million of the $150 million capacity will now mature in September 2016. One lender with a $20 million commitment chose not to extend its obligation, which is scheduled to mature in September 2015. The Facility allows us to issue letters of credit against the undrawn capacity. Subject to our option to cash collateralize our obligations under the Facility upon certain conditions, our obligations under the Facility are secured by liens on substantially all of our personal property and a significant portion of our owned real properties. We have also pledged approximately $1 billion of inventory assets to the Facility to collateralize potential future borrowings or letters of credit. As of June 30, 2015, we had $20.0 million and $28.3 million in borrowings and letters of credit outstanding, respectively, leaving us with $101.7 million in remaining capacity under the Facility. The Facility contains certain covenants, including negative covenants and financial maintenance covenants, with which we are required to comply. As of June 30, 2015, we were in compliance with all such covenants.
Letter of Credit Facilities — We have entered into additional 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. As of June 30, 2015 and September 30, 2014, we had letters of credit outstanding under these additional facilities of $13.2 million and $39.1 million,

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respectively, all of which are secured by cash collateral in restricted accounts. The Company may enter into additional arrangements to provide further 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 Facility. Each guarantor subsidiary is a 100% owned subsidiary of Beazer Homes.
The Company's Senior Notes are issued under indentures that contain certain restrictive covenants which, among other things, restrict our ability to pay dividends, repurchase our common stock, incur additional indebtedness and to make certain investments. Specifically, all of our Senior Notes contain covenants that restrict our ability to incur additional indebtedness unless it is refinancing indebtedness or non-recourse indebtedness. The incurrence of refinancing indebtedness and non-recourse indebtedness, as defined in the applicable indentures, is exempted from the covenant test. Compliance with our Senior Note covenants does not significantly impact our operations. We were in compliance with the covenants contained in the indentures of all of our Senior Notes as of June 30, 2015.
Our Senior Notes due 2016 (the 2016 Notes) contain the most restrictive covenants, including a consolidated tangible net worth covenant, which states that should our consolidated tangible net worth fall below $85 million for two consecutive quarters, the Company is required to make an offer to purchase 10% of the aggregate principal amount of the original 2016 Notes. If triggered and fully subscribed, this could result in our having to purchase $27.5 million of the 2016 Notes, which may be reduced by certain 2016 Note repurchases (potentially at less than par) made in the open market after the triggering date. As of June 30, 2015, our consolidated tangible net worth was $253.3 million, well in excess of the minimum covenant requirement.
In April 2014, we issued and sold $325 million aggregate principal amount of 5.75% Senior Notes due June 2019 (the June 2019 Notes) at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers. Interest on the June 2019 Notes is payable semi-annually in arrears, beginning on December 15, 2014. The June 2019 Notes will mature on June 15, 2019. Prior to maturity, we may, at our option, redeem the June 2019 Notes at any time, in whole or in part, at specified redemption prices, which also include a customary make-whole premium provision through March 15, 2019. In July 2014, we exchanged 100% of the June 2019 Notes for notes that are freely transferable and registered under the Securities Act of 1933.
The June 2019 Notes were issued on April 8, 2014 under an indenture (June 2019 Indenture) that contains covenants which, subject to certain exceptions, limit the ability of the Company and its restricted subsidiaries (as defined in the June 2019 Indenture) to, among other things, incur additional indebtedness, including secured indebtedness, and make certain types of restricted payments. The June 2019 Indenture contains customary events of default. Upon the occurrence of an event of default, payments on the June 2019 Notes may be accelerated and become immediately due and payable. Upon a change of control (as defined in the June 2019 Indenture), the June 2019 Indenture requires us to make an offer to repurchase the June 2019 Notes at 101% of their principal amount, plus accrued and unpaid interest.
We may redeem the June 2019 Notes at any time prior to March 15, 2019, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium and accrued and unpaid interest to, but excluding, the redemption date. In addition, at any time on or prior to June 15, 2017, we may redeem up to 35% of the aggregate principal amount of the June 2019 Notes with the proceeds of certain equity offerings at a redemption price equal to 105.750% of the principal amount of the June 2019 Notes plus accrued and unpaid interest, if any, to, but excluding, the date fixed for redemption, provided that at least 65% of the aggregate principal amount of the June 2019 Notes originally issued under the June 2019 Indenture remain outstanding after such redemption. On or after March 15, 2019, we may redeem some or all of the June 2019 Notes at 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
The proceeds from the June 2019 Notes were used to redeem all of our then outstanding Senior Notes due June 2018 (the June 2018 Notes), including the applicable $17.2 million make-whole premium. We recognized a loss on debt extinguishment of the June 2018 Notes of $19.8 million in the quarter ended June 30, 2014 related to the premiums paid and the write-off of unamortized debt issuance costs. The June 2018 Notes redeemed by the Company were canceled.
For a further discussion of the Senior Notes issued prior to our fiscal 2014, refer to Note 7 to our audited consolidated financial statements within our 2014 Annual Report.
All unsecured Senior Notes rank equally in right of payment with all of our existing and future senior unsecured obligations, senior to all of the Company's existing and future subordinated indebtedness and effectively subordinated to the Company's existing and future secured indebtedness, including indebtedness under the Facility and our 6.625% Senior Secured Notes due April 2018, to the extent of the value of the assets securing such indebtedness. The unsecured Senior Notes and related guarantees are structurally subordinated to all indebtedness and other liabilities of all of the Company's subsidiaries that do not guarantee these notes. The

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unsecured Senior Notes are fully and unconditionally guaranteed jointly and severally on a senior basis by the Company's wholly-owned subsidiaries party to each applicable Indenture.
Senior Notes: Tangible Equity Units — In July 2012, we issued 4.6 million 7.5% TEUs (the 2012 TEUs), which were comprised of PSPs and senior amortizing notes. As the two components of the TEUs were legally separate and detachable, we accounted for the two components as separate items for financial reporting purposes and valued them based on their relative fair value at the date of issuance. The amortizing notes were unsecured senior obligations and ranked equally with all of our other unsecured indebtedness. Outstanding notes required quarterly payments of principal and interest through maturity. The PSPs were originally accounted for as equity (additional paid in capital) at the initial fair value of these contracts based on the relative fair value method. During the fiscal year ended September 30, 2014, we exchanged 890,000 TEUs, including approximately $2.4 million of amortizing notes, for Beazer Homes' common stock. The majority of PSPs related to the 2012 TEUs were settled in Beazer Homes' common stock on July 15, 2015. See Note 7 for more information related to this exchange.
Junior Subordinated Notes — Our unsecured junior subordinated notes (Junior Subordinated Notes) in the amount of $103.1 million mature on July 30, 2036. The Junior Subordinated Notes are redeemable at par and pay interest at a fixed rate of 7.987% for the first ten years ending July 30, 2016. Thereafter, the securities have a floating interest rate as defined in the Junior Subordinated Notes Indenture. The obligations relating to these notes are subordinated to the Facility and Senior Notes. In January 2010, we modified the terms of $75.0 million of these notes and recorded them at their estimated fair value. Over the remaining life of the Junior Subordinated Notes, we will increase their carrying value until this carrying value equals the face value of the notes. As of June 30, 2015, the unamortized accretion was $43.5 million and will be amortized over the remaining life of the notes.
As of June 30, 2015, we were in compliance with all covenants under our Junior Subordinated Notes.
Cash Secured Loans — We have two separate cash secured loan facilities with $22.4 million outstanding as of June 30, 2015. Borrowing under the cash secured loan facilities will replenish cash used to repay or repurchase the Company’s debt and would be considered “refinancing indebtedness” under certain of the Company’s existing indentures and debt covenants. However, because the loans are fully collateralized by cash equal to the loan amount, the loans do not provide liquidity to the Company.
The loans mature in November 2017; however, the lenders of these facilities may put the outstanding loan balances to the Company at the two or four year anniversaries of the loans. Borrowings under the facilities are fully secured by cash held by the lender or its affiliates. This secured cash is reflected as restricted cash on our unaudited consolidated balance sheets as of June 30, 2015 and September 30, 2014. The cash secured loans have a maximum interest rate equivalent to LIBOR plus 0.4% per annum, which is paid every three months following the effective date of each borrowing.
Other Secured Notes Payable — We periodically acquire land through the issuance of notes payable. As of June 30, 2015 and September 30, 2014, we had outstanding notes payable of $23.8 million and $22.1 million, respectively, primarily related to land acquisitions. These notes payable have varying expiration dates between 2016 and 2019 and have a weighted average fixed interest rate of 4.14% as of June 30, 2015. These notes are secured by the real estate to which they relate.
The agreements governing these secured notes payable contain various affirmative and negative covenants. There can be no assurance that we will be able to obtain any future waivers or amendments that may become necessary without significant additional cost or at all. In each instance, however, a covenant default can be cured by repayment of the indebtedness.
(9) Income Taxes
In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11), to provide guidance on the presentation of unrecognized tax benefits. ASU 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward with certain limited exceptions. ASU 2013-11 was effective for annual reporting periods beginning on or after December 15, 2013 and interim periods within those annual periods. The Company adopted this guidance in the quarter ended December 31, 2014, which was the first quarter of our fiscal 2015, with no significant impact to our financial statements.
In the normal course of business, we are subject to audits by federal and state tax authorities regarding various tax liabilities. Our federal income tax returns for fiscal years 2011 through 2012 were agreed to with the IRS Appeals Office and approved by the Joint Committee on Taxation in the first quarter of our fiscal 2015. Certain state income tax returns for various fiscal years are under routine examination. The statute of limitations for our major tax jurisdictions remains open for examination for our fiscal year 2007 and subsequent years. As of June 30, 2015, it is reasonably possible that up to $3.2 million of our total uncertain tax positions will reverse within the next twelve months, primarily due to the expiration of statutes of limitation in various jurisdictions.

As of June 30, 2015 and September 30, 2014, we had $0.5 million and $0.4 million, respectively, of accrued interest and penalties related to our unrecognized tax benefits.
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 NOLs 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.
Accordingly, a portion of our $459.3 million of total gross deferred tax assets may be unavailable due to the limitation imposed by Section 382 and the maximum carryforward period of our NOLs. Previously, we provided a range of gross deferred tax assets that may be unavailable based on estimates of activity occurring in the five-year period following our “ownership change.” As of June 30, 2015, we have determined the impact and classification of these amounts, which is incorporated into the table below. The actual realization of our deferred tax assets is difficult to predict and will be dependent on future events. At such time, we will remove any applicable deferred tax asset and corresponding valuation allowance, as appropriate. Changes in existing tax laws could also affect actual tax results and the valuation of deferred tax assets.
Considering the limitation imposed by Section 382, the table below depicts the classifications of our deferred tax assets as of June 30, 2015:
(In thousands)
June 30, 2015
Deferred tax assets:
 
Subject to annual limitation
$
93,741

Generally not subject to annual limitation
365,563

Total deferred tax assets
459,304

Deferred tax liabilities
(43,496
)
Net deferred tax assets before valuation allowance
415,808

Valuation allowance
(415,762
)
Net deferred tax assets
$
46

Based upon an evaluation of all available evidence, we established a valuation allowance for substantially all of our deferred tax assets during our fiscal 2008. As of June 30, 2015, we continued our evaluation of whether the valuation allowance against our deferred tax assets was still required. We considered positive evidence, including evidence of recovery in the housing markets where we operate, the prospects of continued profitability and growth, a strong backlog and sufficient balance sheet liquidity to sustain and grow operations. Although the Company’s performance and current positioning is bringing it closer to a conclusion that a valuation allowance is no longer needed, further evidence of sustained profitability is needed to reverse all or a portion of our valuation allowance against our deferred tax assets. Therefore, based upon all available positive and negative evidence, we concluded a valuation allowance is still needed for substantially all of our gross deferred tax assets as of June 30, 2015. The Company's deferred tax asset valuation allowance was $415.8 million and $445.2 million as of June 30, 2015 and September 30, 2014, respectively. In a near future period, we expect to reduce a portion of our valuation allowance, generating a non-cash tax benefit that will have a material impact on net income and stockholders' equity, if sufficient positive evidence is present indicating that it is more likely than not that a portion of our deferred tax assets will be realized.
(10) Contingencies
Beazer Homes and certain of our 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 from its business. In determining loss contingencies, we consider the likelihood of loss as well as the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when it is considered probable that a liability has been incurred and the amount of loss can be reasonably estimated.
Warranty Reserves. We currently provide a limited warranty (ranging from one to two years) covering workmanship and materials per our defined performance quality standards. In addition, we provide a limited warranty (generally ranging from a minimum of five years up to the period covered by the applicable statute of repose) covering only certain defined construction defects. We also provide a defined structural element warranty with single-family homes and townhomes in certain states.

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Our homebuilding work is performed by subcontractors that typically must agree to indemnify us with regard to their work and provide us with certificates of insurance demonstrating that they have met our insurance requirements and that we are named as an additional insured under their policies. Therefore, many claims relating to workmanship and materials that result in warranty spending are the primary responsibility of these subcontractors. In addition, we maintain insurance coverage related to our construction efforts that can result in recoveries of warranty and construction defect costs above certain specified limits.
Our warranty reserves are included in other liabilities on our unaudited consolidated balance sheets and the provision for warranty accruals is included in home construction expenses in our unaudited consolidated statements of income. We record reserves covering anticipated warranty expense for each home we close. Management reviews the adequacy of warranty reserves each reporting period based on historical experience and management’s estimate of the costs to remediate the claims and adjusts these provisions accordingly. Our review includes a quarterly analysis of the historical data and trends in warranty expense by division. An analysis by division allows us to consider market specific factors such as our warranty experience, the number of home closings, the prices of homes, product mix and other data in estimating our warranty reserves. In addition, our analysis also contemplates the existence of any non-recurring or community-specific warranty-related matters that might not be included in our historical data and trends. While we adjust our estimated warranty liabilities each reporting period to the extent required as a result of our quarterly analyses, historical data and trends may not accurately predict actual warranty costs which could lead to a significant change in the reserve.
Changes in our warranty reserves are as follows for the periods presented:
 
Three Months Ended
 
Nine Months Ended
 
June 30,
 
June 30,
(In thousands)
2015
 
2014
 
2015
 
2014
Balance at beginning of period
$
28,794

 
$
12,561

 
$
16,084

 
$
11,663

Accruals for warranties issued (a)
2,935

 
1,517

 
6,090

 
3,687

Changes in liability related to warranties existing in prior periods (b)
7,058

 
2,459

 
27,813

 
5,682

Payments made (b)
(7,963
)
 
(2,756
)
 
(19,163
)
 
(7,251
)
Balance at end of period
$
30,824

 
$
13,781

 
$
30,824

 
$
13,781

(a) Accruals for warranties issued is a function of the number of home closings in the period, the average selling prices of the homes closed and the rates of accrual per home estimated as a percentage of the selling price of the home. The increase in the amount of accrual in the current three-month and nine-month periods compared to the comparable prior-year periods is due to an increase in the average selling prices of homes closed in the respective periods, as well as increases in certain divisions' accrual rates.
(b) Changes in liability related to warranties existing in prior periods and payments made increased in the current three-month and nine-month periods primarily due to charges and subsequent payments related to water intrusion issues in certain of our communities located in Florida. Refer to separate discussion of these issues below.
Florida and New Jersey Water Intrusion Issues
In the latter portion of fiscal 2014, we experienced an increase in calls from homeowners reporting stucco and water intrusion issues in certain of our communities in Florida and New Jersey. Through June 30, 2015, we have cumulatively recorded $28.9 million in charges related to these issues, of which $28.3 million related to communities in Florida and $0.6 million related to one community in New Jersey. Refer to discussion below for further detail.
Florida. The issues in Florida (the Florida stucco issues) relate to stucco installation in several communities. Through September 30, 2014, we had identified a total of 135 homes that we believed were likely to require more than minor repairs and recorded an associated warranty charge of $4.3 million. We had resolved repairs on 11 of those homes resulting in payments of $0.3 million. We consider warranty-related repairs for homes to be resolved when all repairs are complete and all repair costs are fully paid. As of September 30, 2014, our warranty liability included $4.0 million for the amount of estimated repair costs for the remaining 124 homes, as well as an estimate of repair costs for homes that were likely to be identified in the future. At that time, we believed the issues were isolated to a limited number of specific house plans in several specific communities.
Throughout fiscal 2015, with many homeowners seeing an increased level of warranty-related activities occurring in their communities, the number of stucco and water-related warranty calls in Florida increased significantly. This led us to expand the scope of our inspections, including to homes and communities from which no warranty calls had been received. This enhanced review, together with our growing experience repairing homes previously identified, resulted in us determining that more homes and communities in Florida were likely to be adversely affected. Based on all of these activities and our resulting analysis, we recorded additional warranty expense of $6.1 million and $24.0 million during the three and nine months ended June 30, 2015, respectively, related to the Florida stucco issues.

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As of June 30, 2015, 486 homes have been identified likely to require repairs, of which 116 homes have been repaired. We made payments related to the Florida stucco issues of $4.5 million and $9.2 million for the three and nine months ended June 30, 2015, respectively. After considering repair costs already paid, the remaining accrual to cover outstanding payments and potential repair costs for homes impacted by the Florida stucco issues is $18.8 million as of June 30, 2015, which is included in our overall warranty liability detailed above.
Our assessment of the Florida stucco issues is ongoing. As a result, we anticipate that our assessment as to the ultimate magnitude of our liability may change as additional information is obtained. We believe that we will recover a portion of our repair costs related to the Florida stucco issues from various sources, including the subcontractors involved with the construction of these homes and their insurers; however, no amounts related to subcontractor recoveries have been recorded in our unaudited consolidated financial statements as of June 30, 2015.
New Jersey. The water intrusion issues in New Jersey related to flashing and stone installation in one specific community. These homes had an average age of eight years. No new homes were identified in New Jersey during the first nine months of fiscal 2015. As of June 30, 2015, we believe the remaining warranty liability for New Jersey is sufficient to cover the probable cost of the repair effort remaining to resolve the issues in that community and is not material.
Insurance Recoveries
The Company has entered into contracts with a third-party insurance provider which allow for the recovery of certain warranty costs incurred by us above a specified threshold for each period covered. Due to the significant costs we have incurred related to the Florida stucco issues, as well as other warranty issues that arise in the ordinary course of our homebuilding business which have not been separately discussed, we have surpassed these thresholds for certain contract years. As such, we expect additional costs incurred in the current quarter and in future periods for further warranty work on homes within these contract years to be reimbursed by our insurer.
Warranty expense beyond the thresholds set in our insurance contracts was recorded related to homes impacted by the Florida stucco issues, as well as other various warranty issues, resulting in our recording of $7.3 million and $13.0 million in insurance recoveries during the three and nine months ended June 30, 2015, respectively, that we deem to be probable of receiving. Of these expected recovery amounts, $6.1 million and $10.4 million for the three and nine months ended June 30, 2015, respectively, is associated with the incremental expense from the Florida stucco issues, while the remainder relates to expenditures for other warranty issues that are also in excess of our insurance thresholds. Amounts recorded for anticipated insurance recoveries are reflected within our unaudited consolidated statement of income as a reduction of our current quarter home construction expenses, and have been recorded on a gross basis as a receivable within accounts receivable on our unaudited consolidated balance sheet as of June 30, 2015. In July 2015, we received our first reimbursement from our insurance provider as payment under our policies.
Amounts to be recovered under our insurance plans will vary based on whether additional warranty costs are incurred for periods for which our threshold has already been met. As a result, we anticipate the balance of our established receivable for insurance recoveries to fluctuate for potential future reimbursements, as well as the payments ultimately received from our insurer.
Litigation
In the normal course of business, we are subject to various lawsuits. We cannot predict or determine the timing or final outcome of these lawsuits or the effect that any adverse findings or determinations in pending lawsuits may have on us. In addition, an estimate of possible loss or range of loss, if any, cannot presently be made with respect to certain of these pending matters. An unfavorable determination in any of the pending lawsuits could result in the payment by us of substantial monetary damages, which may not be fully covered by insurance. Further, the legal costs associated with the lawsuits and the amount of time required to be spent by management and the Board of Directors on these matters, even if we are ultimately successful, could have a material adverse effect on our financial condition, results of operations or cash flows.
Other Matters
On July 1, 2009, we entered into a Deferred Prosecution Agreement and associated Bill of Information (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 (the HUD Agreement) and the Civil Division of the United States Department of Justice. We have satisfied our obligations under the DPA and in July 2014 the United States District Court for the Western Division of North Carolina dismissed the Bill of Information. However, under these agreements, we are obligated to make payments equal to 4% of “adjusted EBITDA,” as defined in the agreements, until the earlier of (a) September 30, 2016 or (b) the date that a cumulative $48.0 million has been paid pursuant to the DPA and the HUD Agreement. As of June 30, 2015, we have paid a cumulative $22.7 million related to the DPA and the HUD Agreement. Additionally, we have a liability of $4.6 million recorded

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on our unaudited consolidated balance sheet as of June 30, 2015 related to the DPA and the HUD agreement, $1.7 million and $2.5 million of which were accrued for during the three and nine months ended June 30, 2015, respectively.
We and certain of our subsidiaries have been named as defendants in various claims, complaints and other legal actions, most relating to construction defects, moisture intrusion and product liability. Certain of the liabilities resulting from these actions are covered in whole or in part by insurance. In our opinion, based on our current assessment, the ultimate resolution of these matters, excluding the Florida stucco issues previously discussed, will not have a material adverse effect on our financial condition, results of operations or cash flows.
We have accrued $11.9 million and $13.4 million in other liabilities on our unaudited consolidated balance sheets related to litigation and other matters, excluding warranty, as of June 30, 2015 and September 30, 2014, respectively.
We had outstanding letters of credit and performance bonds of approximately $41.5 million and $217.4 million, respectively, as of June 30, 2015, related principally to our obligations to local governments to construct roads and other improvements in various developments. We have an immaterial amount of outstanding letters of credit relating to our land option contracts as of June 30, 2015.
(11) Fair Value Measurements
As of June 30, 2015, we had assets on our unaudited consolidated balance sheet that were required to be measured at fair value on a recurring or non-recurring basis. We use a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value as follows:
•
Level 1 – Quoted prices in active markets for identical assets or liabilities;
•
Level 2 – Inputs other than quoted prices included in Level 1 that are observable either directly or indirectly through corroboration with market data; and
•
Level 3 – Unobservable inputs that reflect our own estimates about the assumptions market participants would use in pricing the asset or liability.
Certain of our assets are required to be recorded at fair value on a recurring basis. The fair value of our deferred compensation plan assets are based on market-corroborated inputs and have therefore been classified as Level 2.
Certain of our assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value of these assets may not be recovered. We review our long-lived assets, including inventory, for recoverability when factors indicate impairment may exist, but no less than quarterly. Fair value is based on estimated cash flows discounted for market risks associated with the long-lived assets. The fair values of our investments in unconsolidated entities are determined primarily using a discounted cash flow model to value the underlying net assets of the respective entities.
See Notes 2 and 5 for additional information related to the fair value accounting for the assets listed below. Determining which hierarchical level an asset or liability falls within requires significant judgment. We evaluate our hierarchy disclosures each quarter.
The following table presents our assets measured at fair value on a recurring and non-recurring basis for each hierarchy level and represents only those assets whose carrying values were adjusted to fair value during the nine months ended June 30, 2015 and 2014:
(In thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Nine Months Ended June 30, 2015
 
 
 
 
 
 
 
Deferred compensation plan assets (a)
$
—

 
$
618

 
$
—

 
$
618

Land held for sale (b)
—

 
—

 
1,148

 
1,148

Nine Months Ended June 30, 2014
 
 
 
 
 
 
 
Deferred compensation plan assets (a)
$
—

 
$
463

 
$
—

 
$
463

Land held for sale (b)
—

 
—

 
6,730

 
6,730

(a) Measured at fair value on a recurring basis.
(b) Measured at fair value on a non-recurring basis.
The fair value of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, other liabilities, cash secured loans, amounts due under the Facility, and other secured notes payable approximate their carrying amounts due to the short maturity of these assets and liabilities.
If outstanding, obligations related to land not owned under option agreements approximate fair value. The following table presents the carrying values and estimated fair values of our other financial liabilities as of June 30, 2015 and September 30, 2014:

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(In thousands)
As of June 30, 2015
 
As of September 30, 2014
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Senior Notes
$
1,430,762

 
$
1,454,719

 
$
1,435,183

 
$
1,462,899

Junior Subordinated Notes
57,287

 
57,287

 
55,736

 
55,736

 
$
1,488,049

 
$
1,512,006

 
$
1,490,919

 
$
1,518,635

The estimated fair value shown above for our publicly-held Senior Notes has been determined using quoted market rates (Level 2). Since there is no trading market for our Junior Subordinated Notes, the fair value of these notes is estimated by discounting scheduled cash flows through maturity (Level 3). The discount rate is estimated using market rates currently being offered on loans with similar terms and credit quality. Judgment is required in interpreting market data to develop these estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange.
(12) Stock-based Compensation
For the three and nine months ended June 30, 2015, our total stock-based compensation included in general and administrative expenses (G&A) in our unaudited consolidated statements of income was approximately $1.6 million ($1.2 million net of tax) and $4.6 million ($3.4 million net of tax), respectively. The fair value of each stock option and stock-settled appreciation rights (SSARs) granted is estimated on the date of grant using the Black-Scholes option-pricing model (Black-Scholes Model). The fair value of each performance-based stock grant is estimated on the date of grant using the Monte Carlo valuation method. The cash-settled component of any awards granted to employees are accounted for as a liability award and the liability is adjusted to fair value each reporting period until vested. Non-performance based stock is valued based on the market price of the common stock on the date of the grant.
During the nine months ended June 30, 2015 and 2014, employees surrendered 10,302 and 23,602 shares, respectively, to us in payment of minimum tax obligations upon the vesting of stock awards under our stock incentive plans. We valued the stock at the market price on the date of surrender, for an aggregate value of approximately $192,000 and $450,000 for the nine months ended June 30, 2015 and 2014, respectively.
Stock Options: The intrinsic value of a stock option/SSAR is the amount by which the market value of the underlying stock exceeds the exercise price. As of June 30, 2015, our stock options/SSARs outstanding had an intrinsic value of $2.1 million. The stock options/SSARs vested and expected to vest in the future had a weighted average expected life of 2.2 years. The aggregate intrinsic value of exercisable stock options/SSARs as of June 30, 2015 was $1.7 million.
Activity related to stock options/SSARs for the periods presented is as follows:
 
Three Months Ended
 
Nine Months Ended
 
June 30, 2015
 
June 30, 2015
 
Shares
 
Weighted-
Average
Exercise
Price
 
Shares
 
Weighted-
Average
Exercise
Price
Outstanding at beginning of period
646,630

 
$
18.12

 
650,233

 
$
18.12

Exercised
(753
)
 
12.07

 
(1,209
)
 
12.07

Forfeited
(815
)
 
17.81

 
(3,962
)
 
19.81

Outstanding at end of period
645,062

 
$
18.13

 
645,062

 
$
18.13

Exercisable at end of period
491,699

 
$
18.40

 
491,699

 
$
18.40

Vested or expected to vest in the future
645,032

 
$
18.13

 
645,032

 
$
18.13

Stock Awards: Compensation cost arising from stock awards granted to employees is recognized as an expense within G&A expenses in our unaudited consolidated statements of income using the straight-line method over the vesting period. As of June 30, 2015 and September 30, 2014, there was $13.2 million and $10.0 million, respectively, of total unrecognized compensation cost related to nonvested stock awards included in paid-in capital. The cost remaining at June 30, 2015 is expected to be recognized over a weighted average period of 2.7 years.
During the nine months ended June 30, 2015, we issued 201,157 shares of performance-based restricted stock (Performance Shares) to our executive officers and certain other corporate employees. The first type of Performance Shares granted requires a total shareholder return (TSR) that compares favorably against an 11-member peer group measured at the end of a three-year performance

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period (TSR Performance Shares). The number of TSR Performance Shares that actually vest will range from 0% to 150% of the target number, based on the Company’s TSR ranking relative to its peer group during the three-year performance period. TSR calculations for the Company and the peer group companies are based on the average closing price of the Company’s common stock on the NYSE for the 20 trading days immediately preceding (i) the start of the performance period (October 1, 2014) and (ii) the end of the performance period (September 30, 2017). The grants of the TSR Performance Shares were valued using the Monte Carlo valuation model and had an estimated fair value of $19.90 per share.
A Monte Carlo valuation model requires the following inputs: (1) the expected dividend yield on the underlying stock; (2) the expected price volatility of the underlying stock; (3) the risk-free interest rate for the period corresponding with the expected term of the award; and (4) the fair value of the underlying stock. For the Company and each member of the peer group, the following inputs were used, as applicable, in the Monte Carlo valuation model to determine the fair value as of the grant date for the TSR Performance Shares: 0% dividend yield for the Company, expected price volatility ranging from 29.0% to 185.8% and a risk-free interest rate of 0.94%. The methodology used to determine these assumptions is similar to the Black-Scholes Model; however, the expected term is determined by the model in the Monte Carlo simulation.
The second type of Performance Shares granted are structured to require absolute performance measured by the Company’s fiscal year 2017 pre-tax income (PTI), defined as the Company’s income from continuing operations before taxes and excluding impairments and abandonments, bond losses and such other non-recurring items as the Compensation Committee of our Board of Directors may approve (PTI Performance Shares). The PTI Performance Shares will vest in 2017, subject to determination of the Company’s actual pre-tax income performance. The PTI Performance Shares will be fully earned at a target pre-tax income level, with a 50% payout at the threshold level of pre-tax income and a 200% payout at the maximum level of pre-tax income. Once the threshold 2017 pre-tax income performance level is achieved, to the extent the actual 2017 pre-tax income performance is between the threshold and target performance levels, or between the target and maximum performance levels, linear interpolation between the award opportunity percentages will be applied to determine the actual payout.
Performance Shares in excess of the target number (201,157) may be settled in cash or additional shares at the discretion of the Compensation Committee. Any portion of the Performance Shares that do not vest at the end of the period will be forfeited.
Activity relating to stock awards, including the Performance Shares, for the periods presented is as follows:
 
Three Months Ended
 
Nine Months Ended
 
June 30, 2015
 
June 30, 2015
 
Shares
 
Weighted
Average
Grant
Date Fair
Value
 
Shares
 
Weighted
Average
Grant
Date Fair
Value
Beginning of period
953,608

 
$
18.29

 
746,567

 
$
15.76

Granted
19,322

 
17.85

 
410,192

 
19.01

Vested
(1,641
)
 
18.27

 
(64,719
)
 
15.96

Forfeited
(7,059
)
 
18.97

 
(127,810
)
 
7.09

End of period
964,230

 
$
18.28

 
964,230

 
$
18.28



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(13) Other Liabilities
Other liabilities include the following as of June 30, 2015 and September 30, 2014:
(In thousands)
June 30, 2015
 
September 30, 2014
Accrued warranty expense
$
30,824

 
$
16,084

Accrued interest
20,671

 
34,645

Customer deposits
19,662

 
11,977

Accrued bonuses and deferred comp
17,138

 
24,270

Litigation accrual
11,888

 
13,401

Income tax liabilities
2,112

 
5,576

Other
33,997

 
36,563

Total
$
136,292

 
$
142,516


(14) Segment Information
We currently operate in 15 states which are grouped into three homebuilding segments based on geography. Revenues in our homebuilding segments are derived from the sale of homes which we construct and from land and lot sales. Our reportable segments have been determined on a basis that is used internally by management for evaluating segment performance and resource allocations. We have considered the applicable aggregation criteria, and have combined our homebuilding operations into the three reportable segments as follows:
West: Arizona, California, Nevada and Texas
East: Delaware, Indiana, Maryland, New Jersey, Pennsylvania, Tennessee (Nashville) and Virginia
Southeast: Florida, Georgia, North Carolina (Raleigh) and South Carolina
Management’s evaluation of segment performance is based on segment operating income. Operating income for our homebuilding segments is defined as homebuilding, land sale and other revenues less home construction, land development and land sale expense, commission expense, depreciation and amortization and certain G&A expenses which are incurred by or allocated to our homebuilding segments. The accounting policies of our segments are described in Note 1 to our consolidated financial statements in our 2014 Annual Report.
The following tables contain our revenue, operating income (loss) and depreciation and amortization by segment for the periods presented:
 
Three Months Ended
 
Nine Months Ended
 
June 30,
 
June 30,
(In thousands)
2015
 
2014
 
2015
 
2014
Revenue
 
 
 
 
 
 
 
West
$
149,129

 
$
136,906

 
$
351,975

 
$
381,368

East
155,160

 
128,358

 
363,152

 
319,313

Southeast
125,149

 
89,407

 
279,434

 
217,181

Total revenue
$
429,438

 
$
354,671

 
$
994,561

 
$
917,862



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Three Months Ended
 
Nine Months Ended
 
June 30,
 
June 30,
(In thousands)
2015
 
2014
 
2015
 
2014
Operating income
 
 
 
 
 
 
 
West
$
16,246

 
$
18,754

 
$
33,628

 
$
48,854

East
15,344

 
10,438

 
28,457

 
21,667

Southeast
14,382

 
8,235

 
15,200

 
18,025

Segment total
45,972

 
37,427

 
77,285

 
88,546

Corporate and unallocated (a)
(28,276
)
 
(22,339
)
 
(62,643
)
 
(56,309
)
Total operating income
$
17,696

 
$
15,088

 
$
14,642

 
$
32,237


 
Three Months Ended
 
Nine Months Ended
 
June 30,
 
June 30,
(In thousands)
2015
 
2014
 
2015
 
2014
Depreciation and amortization
 
 
 
 
 
 
 
West
$
1,267

 
$
1,427

 
$
3,299

 
$
4,113

East
900

 
890

 
2,094

 
2,138

Southeast
793

 
521

 
1,817

 
1,270

Segment total
2,960

 
2,838

 
7,210

 
7,521

Corporate and unallocated (a)
537

 
562

 
1,409

 
1,617

Depreciation and amortization - continuing operations
$
3,497

 
$
3,400

 
$
8,619

 
$
9,138

(a) Corporate and unallocated operating loss includes amortization of capitalized interest and expenses related to numerous shared services functions including information technology, treasury, corporate finance, legal, branding and other national marketing costs that benefit all segments, the costs of which are not allocated to the operating segments reported above. Corporate and unallocated depreciation and amortization represents depreciation and amortization related to assets held by corporate functions that benefit all segments.
The following table contains our capital expenditures by segment for the periods presented:
 
Nine Months Ended
 
June 30,
(In thousands)
2015
 
2014
Capital Expenditures
 
 
 
West
$
4,959

 
$
3,891

East
2,996

 
1,827

Southeast
2,653

 
1,498

Corporate and unallocated
1,822

 
1,768

Total capital expenditures
$
12,430

 
$
8,984

The following table contains our asset balance by segment as of June 30, 2015 and September 30, 2014:
(In thousands)
June 30, 2015
 
September 30, 2014
Assets
 
 
 
West
$
884,235

 
$
756,575

East
470,189

 
433,032

Southeast
355,729

 
299,215

Corporate and unallocated (a)
380,019

 
577,398

Total assets
$
2,090,172

 
$
2,066,220

(a) Primarily consists of cash and cash equivalents, restricted cash, consolidated inventory not owned, deferred taxes, capitalized interest and other items that are not allocated to the segments.

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(15) Supplemental Guarantor Information
As discussed in Note 8, our obligations to pay principal, premium, if any, and interest under certain debt issuances are guaranteed on a joint and several basis by substantially all of our subsidiaries. Certain of our immaterial subsidiaries do not guarantee our Senior Notes or the Facility. The guarantees are full and unconditional and the guarantor subsidiaries are 100% owned by Beazer Homes USA, Inc. The following unaudited financial information presents the line items of our unaudited consolidated financial statements separated by amounts related to our parent company, guarantor subsidiaries, non-guarantor subsidiaries, and consolidating adjustments as of or for the periods presented.


Beazer Homes USA, Inc.
Unaudited Consolidating Balance Sheet Information
June 30, 2015
(In thousands)
 
 
Beazer Homes
USA, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Beazer Homes
USA, Inc.
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
112,142

 
$
17,881

 
$
970

 
$
(2,241
)
 
$
128,752

Restricted cash
36,221

 
1,590

 
—

 
—

 
37,811

Accounts receivable (net of allowance of $1,292)
—

 
44,878

 
4

 
—

 
44,882

Income tax receivable
262

 
—

 
—

 
—

 
262

Owned inventory
—

 
1,822,090

 
—

 
—

 
1,822,090

Investments in unconsolidated entities and marketable securities
773

 
10,634

 
—

 
—

 
11,407

Deferred tax assets, net
46

 
—

 
—

 
—

 
46

Property and equipment, net
—

 
22,683

 
—

 
—

 
22,683

Investments in subsidiaries
275,514

 
—

 
—

 
(275,514
)
 
—

Intercompany
1,385,184

 
—

 
2,381

 
(1,387,565
)
 
—

Other assets
13,643

 
8,506

 
90

 
—

 
22,239

Total assets
$
1,823,785

 
$
1,928,262

 
$
3,445

 
$
(1,665,320
)
 
$
2,090,172

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Trade accounts payable
$
—

 
$
127,063

 
$
—

 
$
—

 
$
127,063

Other liabilities
20,758

 
114,924

 
610

 
—

 
136,292

Intercompany
—

 
1,389,806

 
—

 
(1,389,806
)
 
—

Total debt (net of discounts of $3,829)
1,530,417

 
23,790

 
—

 
—

 
1,554,207

Total liabilities
1,551,175

 
1,655,583

 
610

 
(1,389,806
)
 
1,817,562

Stockholders’ equity
272,610

 
272,679

 
2,835

 
(275,514
)
 
272,610

Total liabilities and stockholders’ equity
$
1,823,785

 
$
1,928,262

 
$
3,445

 
$
(1,665,320
)
 
$
2,090,172


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Table of Contents

Beazer Homes USA, Inc.
Unaudited Consolidating Balance Sheet Information
September 30, 2014
(In thousands)

 
Beazer Homes
USA, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Beazer Homes
USA, Inc.
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
301,980

 
$
22,034

 
$
1,614

 
$
(1,474
)
 
$
324,154

Restricted cash
61,945

 
996

 
—

 
—

 
62,941

Accounts receivable (net of allowance of $1,245)
—

 
34,428

 
1

 
—

 
34,429

Income tax receivable
46

 
—

 
—

 
—

 
46

Owned inventory
—

 
1,557,496

 
—

 
—

 
1,557,496

Consolidated inventory not owned
—

 
3,857

 
—

 
—

 
3,857

Investments in marketable securities and unconsolidated entities
773

 
37,568

 
—

 
—

 
38,341

Deferred tax assets, net
2,823

 
—

 
—

 
—

 
2,823

Property and equipment, net
—

 
18,673

 
—

 
—

 
18,673

Investments in subsidiaries
253,540

 
—

 
—

 
(253,540
)
 
—

Intercompany
1,195,349

 
—

 
2,405

 
(1,197,754
)
 
—

Other assets
17,226

 
6,144

 
90

 
—

 
23,460

Total assets
$
1,833,682

 
$
1,681,196

 
$
4,110

 
$
(1,452,768
)
 
$
2,066,220

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Trade accounts payable
$
—

 
$
106,237

 
$
—

 
$
—

 
$
106,237

Other liabilities
38,871

 
102,833

 
812

 
—

 
142,516

Intercompany
2,405

 
1,196,823

 
—

 
(1,199,228
)
 
—

Obligations related to land not owned under option agreements
—

 
2,916

 
—

 
—

 
2,916

Total debt (net of discounts of $4,399)
1,513,288

 
22,145

 
—

 
—

 
1,535,433

Total liabilities
1,554,564

 
1,430,954

 
812

 
(1,199,228
)
 
1,787,102

Stockholders’ equity
279,118

 
250,242

 
3,298

 
(253,540
)
 
279,118

Total liabilities and stockholders’ equity
$
1,833,682

 
$
1,681,196

 
$
4,110

 
$
(1,452,768
)
 
$
2,066,220




24
Table of Contents

Beazer Homes USA, Inc.
Unaudited Consolidating Statements of Income and Unaudited Comprehensive Income
(In thousands)
 
Beazer Homes
USA, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Beazer Homes
USA, Inc.
Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
Total revenue
$
—

 
$
429,438

 
$
33

 
$
(33
)
 
$
429,438

Home construction and land sales expenses
13,548

 
339,566

 
—

 
(33
)
 
353,081

Inventory impairments and option contract abandonments
—

 
249

 
—

 
—

 
249

Gross (loss) profit
(13,548
)
 
89,623

 
33

 
—

 
76,108

Commissions
—

 
17,246

 
—

 
—

 
17,246

General and administrative expenses
—

 
37,641

 
28

 
—

 
37,669

Depreciation and amortization
—

 
3,497

 
—

 
—

 
3,497

Operating (loss) income
(13,548
)
 
31,239

 
5

 
—

 
17,696

Equity in income of unconsolidated entities
—

 
153

 
—

 
—

 
153

Other (expense) income, net
(5,955
)
 
193

 
(1
)
 
—

 
(5,763
)
(Loss) income before income taxes
(19,503
)
 
31,585

 
4

 
—

 
12,086

(Benefit from) provision for income taxes
(7,204
)
 
7,067

 
2

 
—

 
(135
)
Equity in income of subsidiaries
24,520

 
—

 
—

 
(24,520
)
 
—

Income (loss) from continuing operations
12,221

 
24,518

 
2

 
(24,520
)
 
12,221

Loss from discontinued operations
—

 
(43
)
 
(3
)
 
—

 
(46
)
Equity in loss of subsidiaries from discontinued operations
(46
)
 
—

 
—

 
46

 
—

Net income (loss) and comprehensive income (loss)
$
12,175

 
$
24,475

 
$
(1
)
 
$
(24,474
)
 
$
12,175

 
 
 
 
 
 
 
 
 
 
 
Beazer Homes
USA, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Beazer Homes
USA, Inc.
Three Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
Total revenue
$
—

 
$
354,671

 
$
100

 
$
(100
)
 
$
354,671

Home construction and land sales expenses
9,430

 
274,527

 
—

 
(100
)
 
283,857

Inventory impairments and option contract abandonments
—

 
2,010

 
—

 
—

 
2,010

Gross (loss) profit
(9,430
)
 
78,134

 
100

 
—

 
68,804

Commissions
—

 
14,322