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3: EX-31.2 Certification -- §302 - SOA'02 HTML 27K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 24K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 24K
11: R1 Cover Page HTML 77K
12: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 116K
13: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 45K
(Parenthetical)
14: R4 Condensed Consolidated Statements of Operations HTML 133K
(Unaudited)
15: R5 Condensed Consolidated Statements of Stockholders' HTML 94K
Equity (Unaudited)
16: R6 Condensed Consolidated Statements of Cash Flows HTML 109K
(Unaudited)
17: R7 Description of Business HTML 26K
18: R8 Basis of Presentation and Summary of Significant HTML 51K
Accounting Policies
19: R9 Supplemental Cash Flow Information HTML 45K
20: R10 Investments in Unconsolidated Entities HTML 44K
21: R11 Owned Inventory HTML 113K
22: R12 Interest HTML 41K
23: R13 Borrowings HTML 63K
24: R14 Operating Leases HTML 46K
25: R15 Contingencies HTML 51K
26: R16 Fair Value Measurements HTML 61K
27: R17 Income Taxes HTML 30K
28: R18 Stock-based Compensation HTML 55K
29: R19 Earnings Per Share HTML 72K
30: R20 Other Liabilities HTML 36K
31: R21 Segment Information HTML 104K
32: R22 Discontinued Operations HTML 45K
33: R23 Basis of Presentation and Summary of Significant HTML 54K
Accounting Policies (Policies)
34: R24 Basis of Presentation and Summary of Significant HTML 37K
Accounting Policies (Tables)
35: R25 Supplemental Cash Flow Information (Tables) HTML 44K
36: R26 Investments in Unconsolidated Entities (Tables) HTML 38K
37: R27 Owned Inventory (Tables) HTML 105K
38: R28 Interest (Tables) HTML 41K
39: R29 Borrowings (Tables) HTML 54K
40: R30 Operating Leases (Tables) HTML 47K
41: R31 Contingencies (Tables) HTML 41K
42: R32 Fair Value Measurements (Tables) HTML 59K
43: R33 Stock-based Compensation (Tables) HTML 54K
44: R34 Earnings Per Share (Tables) HTML 73K
45: R35 Other Liabilities (Tables) HTML 35K
46: R36 Segment Information (Tables) HTML 97K
47: R37 Discontinued Operations (Tables) HTML 47K
48: R38 Description of Business (Details) HTML 26K
49: R39 Basis of Presentation and Summary of Significant HTML 37K
Accounting Policies - Share Repurchase Program
(Details)
50: R40 Basis of Presentation and Summary of Significant HTML 38K
Accounting Policies - Revenue Recognition
(Details)
51: R41 Supplemental Cash Flow Information - Supplemental HTML 50K
Disclosure of Non-cash Activity (Details)
52: R42 Investments in Unconsolidated Entities - Equity HTML 41K
and Outstanding Borrowings of Unconsolidated
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53: R43 Investments in Unconsolidated Entities - Narrative HTML 33K
(Details)
54: R44 Owned Inventory - Schedule of Inventory (Details) HTML 38K
55: R45 Owned Inventory - Narrative (Details) HTML 45K
56: R46 Owned Inventory - Total Owned Inventory by Segment HTML 44K
(Details)
57: R47 Owned Inventory - Inventory Impairments and HTML 37K
Abandonment Charges, by Reportable Segment
(Details)
58: R48 Owned Inventory - Summary of Interests in Lot HTML 27K
Option Agreements (Details)
59: R49 Interest - Schedule of Capitalized Interest HTML 33K
(Details)
60: R50 Borrowings - Schedule of Long-term Debt (Details) HTML 54K
61: R51 Borrowings - Narrative (Details) HTML 110K
62: R52 Borrowings - Debt Redemption (Details) HTML 63K
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Undiscounted Cash Flows (Details)
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66: R56 Contingencies - Litigation and Other Matters HTML 32K
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68: R58 Fair Value Measurements - Fair Value Assets HTML 40K
Measured on a Non-recurring Basis (Details)
69: R59 Fair Value Measurements - Carrying Values and HTML 36K
Estimated Fair Values of Other Financial Assets
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70: R60 Income Taxes - Narrative (Details) HTML 29K
71: R61 Stock-based Compensation - Summary of Stock-Based HTML 25K
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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 12 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. iYes☒ No ¨
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). iYes☒ No ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer
☐
iAccelerated
filer
☒
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
Number
of shares of common stock outstanding as of July 25, 2022: i31,275,185
Accounts
receivable (net of allowance of $i284 and $i290, respectively)
i25,137
i25,685
Income
tax receivable
i9,929
i9,929
Owned
inventory
i1,858,851
i1,501,602
Investments
in unconsolidated entities
i897
i4,464
Deferred
tax assets, net
i179,038
i204,766
Property
and equipment, net
i24,971
i22,885
Operating
lease right-of-use assets
i10,641
i12,344
Goodwill
i11,376
i11,376
Other
assets
i15,759
i11,616
Total
assets
$
i2,218,400
$
i2,078,810
LIABILITIES
AND STOCKHOLDERS’ EQUITY
Trade accounts payable
$
i145,864
$
i133,391
Operating
lease liabilities
i12,155
i14,154
Other
liabilities
i155,176
i152,351
Total
debt (net of debt issuance costs of $i7,752 and $i8,983, respectively)
i1,049,078
i1,054,030
Total
liabilities
i1,362,273
i1,353,926
Stockholders’
equity:
Preferred stock (par value ii0.01/ per
share, ii5,000,000/ shares authorized,
iino/ shares issued)
i—
i—
Common
stock (par value ii0.001/ per share, ii63,000,000/
shares authorized, ii31,275,185/ issued and outstanding
and ii31,294,198/ issued and outstanding, respectively)
i31
i31
Paid-in
capital
i863,520
i866,158
Accumulated
deficit
(i7,424)
(i141,305)
Total
stockholders’ equity
i856,127
i724,884
Total
liabilities and stockholders’ equity
$
i2,218,400
$
i2,078,810
See
accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) iDescription
of Business
Beazer Homes USA, Inc. (“we,”“us,”“our,”“Beazer,”“Beazer Homes” and the “Company”) is a geographically diversified homebuilder with active operations in i13 states within ithree
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, 2021 (2021 Annual Report).
(2) iBasis
of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited condensed 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. The unaudited condensed consolidated financial statements do not include all of the information and disclosures required by GAAP for complete financial statements. As such, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the
Company's 2021 Annual Report. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation have been included in the accompanying unaudited condensed consolidated financial statements. The results of the Company's consolidated operations presented herein for the three and nine months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full fiscal year due to seasonal variations in our operations and other factors.
i
Basis
of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Beazer Homes USA, Inc. and its consolidated subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. Our net income is equivalent to our comprehensive income, so we have not presented a separate statement of comprehensive income.
In the past, we have discontinued homebuilding operations in various markets. Results from certain of these exited markets are reported as discontinued operations in the accompanying unaudited condensed consolidated statements of operations for all periods presented (see Note 16 for a further discussion of our discontinued operations).
The preparation of financial statements in conformity with GAAP requires management to make informed estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying
notes. Accordingly, actual results could differ from these estimates.
i
Share Repurchase Program
In May 2022, the Company's Board of Directors approved a new share repurchase program that authorizes the Company to repurchase up to $i50.0 million
of its outstanding common stock. This newly authorized program replaced the prior share repurchase program authorized in the first quarter of fiscal 2019 of up to $i50.0 million of common stock repurchases, pursuant to which $i12.0 million
of the capacity remained prior to the replacement of the program. As part of this new program, the Company repurchased i175 thousand shares of its common stock for $i2.5
million at an average price per share of $i14.47 during the three months ended June 30, 2022 through open market transactions. iNo
share repurchases were made during fiscal year 2021. All shares have been retired upon repurchase.
The aggregate reduction to stockholders’ equity related to share repurchases during the nine months ended June 30, 2022 was $i2.5 million. As of June 30, 2022, the remaining availability of the new share repurchase program
was $i47.5 million.
We recognize revenue upon the transfer of promised goods to our customers in an amount that reflects the consideration to which we expect to be entitled by applying the following five-step process specified in ASC Topic 606, Revenue from Contracts with Customers.
•Recognize
revenue when the performance obligations are met
i
The following table presents our total revenue disaggregated by revenue stream:
Three
Months Ended
Nine Months Ended
June 30,
June 30,
in thousands
2022
2021
2022
2021
Homebuilding revenue
$
i523,229
$
i566,930
$
i1,477,166
$
i1,538,576
Land
sales and other revenue
i3,437
i4,002
i12,155
i10,784
Total
revenue (a)
$
i526,666
$
i570,932
$
i1,489,321
$
i1,549,360
(a)
Please see Note 15 for total revenue disaggregated by reportable segment.
/
Homebuilding revenue
Homebuilding revenue is reported net of any discounts and incentives and is generally recognized when title to and possession of the home are transferred to the buyer at the closing date. The performance obligation to deliver the home is generally satisfied in less than one year from the original contract date. Home sale contract assets consist of cash from home closings held by title companies in escrow for our benefit, typically for less than five days, and are considered
accounts receivable. Contract liabilities include customer deposits related to sold but undelivered homes and totaled $i44.1 million and $i28.5
million as of June 30, 2022 and September 30, 2021, respectively. Of the customer liabilities outstanding as of September 30, 2021, $i5.4 million and $i23.1 million
was recognized in revenue during the three and nine months ended June 30, 2022 upon closing of the related homes.
Land sales and other revenue
Land sales revenue relates to land that does not fit within our homebuilding programs and strategic plans. Land sales typically require cash consideration on the closing date, which is generally when performance obligations are satisfied. We also provide title examinations for our homebuyers in certain markets. Revenues associated with our title operations are recognized as closing services are rendered and title insurance policies are issued, both of which generally occur as each home is closed.
i
Recent
Accounting Pronouncements
Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04). ASU 2020-04 provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. This guidance is effective beginning on March 12, 2020, and all entities may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the effect of adopting the new guidance on its consolidated financial statements and related disclosures.
The
following table presents supplemental disclosure of non-cash and cash activity as well as a reconciliation of total cash balances between the condensed consolidated balance sheets and condensed consolidated statements of cash flows for the periods presented:
Nine Months Ended
June 30,
in thousands
2022
2021
Supplemental
disclosure of non-cash activity:
Increase
in operating lease right-of-use assets (a)
$
i811
$
i2,649
Increase
in operating lease liabilities (a)
$
i811
$
i2,649
Derecognition
of investment in unconsolidated entities (b)
$
i3,641
$
i—
Supplemental
disclosure of cash activity:
Interest payments
$
i60,052
$
i63,878
Income
tax payments
$
i3,783
$
i2,297
Tax
refunds received
$
i—
$
i49
Reconciliation
of cash, cash equivalents, and restricted cash:
Cash and cash equivalents
$
ii42,039/
$
i358,334
Restricted
cash
ii39,762/
i24,690
Total
cash, cash equivalents, and restricted cash shown in the statement of cash flows
$
i81,801
$
i383,024
(a)
Represents leases renewed or additional leases commenced during the nine months ended June 30, 2022 and June 30, 2021.
/
(b) Represents the derecognition of investment in unconsolidated entities associated with the carrying value of previously held interest in Imagine Homes upon the acquisition of substantially all of the assets of Imagine Homes during the quarter ended June 30, 2022. Refer to Note 4 for further discussion.
As of June 30, 2022, the Company participated in certain joint ventures and had investments in unconsolidated entities in which it had less than a controlling interest. iThe
following table presents the Company's investment in these unconsolidated entities as well as the total equity and outstanding borrowings of these unconsolidated entities as of June 30, 2022 and September 30, 2021:
Total
outstanding borrowings of unconsolidated entities
$
i—
$
i12,708
On
May 20, 2022, the Company acquired substantially all of the assets of Imagine Homes, a private San Antonio-based homebuilder. For the past 16 years, Beazer has held a one-third ownership stake in Imagine Homes, recorded as an investment in unconsolidated entities on the condensed consolidated balance sheet. The transaction was deemed an asset acquisition under the guidance of ASC Topic 805-50, Business Combinations - Related Issues. The Company accounted for the asset acquisition following the cost accumulation model, whereby the sum of the carrying value of the previously held interest, additional consideration paid and transaction costs was allocated to the acquired assets on a relative
fair value basis. The reduction in balances of the Company's investment in unconsolidated entities, total equity and outstanding borrowings of unconsolidated entities during the quarter ended June 30, 2022 reflects the Imagine Homes transaction.
Equity in income from unconsolidated entity activities included in income from continuing operations is as follows for the periods presented:
Three Months Ended
Nine
Months Ended
June 30,
June 30,
in thousands
2022
2021
2022
2021
Equity in income of unconsolidated entities
$
ii3/
$
ii313/
$
ii454/
$
ii424/
For
the nine months ended June 30, 2022 and 2021, there were iino/
impairments related to investments in unconsolidated entities.
Guarantees
Historically, the Company's joint ventures typically obtained secured acquisition, development, and construction financing. In addition, the Company and its joint venture partners provided varying levels of guarantees of debt and other debt-related obligations for these unconsolidated entities. However, as of June 30, 2022 and September 30, 2021, the Company had iino/
outstanding guarantees or other debt-related obligations related to our investments in unconsolidated entities.
The Company and its joint venture partners generally provide unsecured environmental indemnities to land development joint venture project lenders. These indemnities obligate the Company to reimburse the project lenders for claims related to environmental matters for which they are held responsible. During the three and nine months ended June 30, 2022 and 2021, the Company was not required to make any payments related to environmental indemnities.
In
assessing the need to record a liability for these guarantees, the Company considers its historical experience in being required to perform under the guarantees, the fair value of the collateral underlying these guarantees, and the financial condition of the applicable unconsolidated entities. In addition, the fair value of the collateral of unconsolidated entities is monitored to ensure that the related borrowings do not exceed the specified percentage of the value of the property securing the borrowings. As of June 30, 2022, no liability was recorded for the contingent aspects of any guarantees that were determined to be reasonably possible but not probable.
Homes
under construction include homes substantially finished and ready for delivery and homes in various stages of construction, including costs of the underlying lot, direct construction costs and capitalized indirect costs. As of June 30, 2022, we had i3,656 homes under construction, including i936
spec homes totaling $i212.8 million (i881 in-process spec homes totaling $i191.0 million,
and i55 finished spec homes totaling $i21.8 million). As of September 30, 2021, we had
i2,912 homes under construction, including i576 spec homes totaling $i116.4 million
(i542 in-process spec units totaling $i105.2 million, and i34
finished spec units totaling $i11.2 million).
Land under development consists principally of land acquisition, land development and other common costs. These land related costs are allocated to individual lots on a pro-rata basis, and the lot costs are transferred to homes under construction when home construction begins for the respective lots. 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 carrying costs, such as interest and real estate taxes, are expensed as incurred.
Land held for sale includes land and lots that do not fit within our homebuilding programs and strategic plans in certain markets, and land is classified as held for sale once certain criteria are met (refer to Note 2 to the audited consolidated financial statements within our 2021 Annual Report). These assets are recorded at the lower of the carrying value or fair value less costs to sell (net realizable value).
The amount of interest we are able to capitalize
depends on our qualified inventory balance, which considers the status of our inventory holdings. Our qualified inventory balance includes the majority of our homes under construction and land under development but excludes land held for future development and land held for sale (see Note 6 for additional information on capitalized interest).
(a)
Projects in progress include homes under construction, land under development, capitalized interest, and model home categories from the preceding table.
/
(b) Projects in progress amount includes capitalized interest and indirect costs that are maintained within our Corporate and unallocated segment.
Inventory Impairments
Inventory assets are assessed for recoverability periodically in accordance with the policies described in Notes 2 and 5 to the audited consolidated financial statements within our 2021 Annual Report.
i
The
following table presents, by reportable segment, our total impairment and abandonment charges for the periods presented:
Three
Months Ended June 30,
Nine Months Ended June 30,
in thousands
2022
2021
2022
2021
Land
Held for Sale:
West
$
i—
$
i—
$
i440
$
i—
Total
impairment charges on land held for sale
$
i—
$
i—
$
i440
$
i—
Abandonments:
West
$
i—
$
i—
$
i12
$
i—
East
i—
i
i—
i465
Southeast
i—
i231
i483
i231
Total
abandonments charges
$
i—
$
i231
$
i495
$
i696
Total
impairment and abandonment charges
$
i—
$
i231
$
i935
$
i696
/
Projects
in Progress Impairments
Projects in progress inventory includes homes under construction and land under development grouped together as communities. Projects in progress are stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable.
We assess our projects in progress inventory for indicators of impairment at the community level on a quarterly basis. If indicators of impairment are present for a community with more than iten
homes remaining to close, we perform a recoverability test by comparing the expected undiscounted cash flows for the community to its carrying value. If the aggregate undiscounted cash flows are in excess of the carrying value, the asset is considered to be recoverable and is not impaired. If the carrying value exceeds the aggregate undiscounted cash flows, we perform a discounted cash flow analysis to determine the fair value of the community, and impairment charges are recorded if the fair value of the community's inventory is less than its carrying value.
iiiiNo///
project in progress impairments were recognized during the three and nine months ended June 30, 2022 and 2021, respectively.
Land Held for Sale Impairments`
We evaluate the net realizable value of a land held for sale asset when indicators of impairment are present. Impairments on land held for sale generally represent write downs of these properties to net realizable value based on sales contracts, letters of intent, current market conditions, and recent comparable land sale transactions, as applicable. Absent an executed sales contract, our assumptions related
to land sales prices require significant judgment because the real estate market is highly sensitive to changes in economic conditions, and our estimates of sale prices could differ significantly from actual results.
iNo land held for sale impairments were recognized during the three months ended June 30, 2022. We recognized $i0.4
million land held for sale impairments during the nine months ended June 30, 2022 related to one held for sale community in the West segment. iiNo/
land held for sale impairments were recognized during the three and nine months ended June 30, 2021.
Abandonments
From time-to-time, we may determine 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. Additionally, in certain limited instances, we are forced to abandon lots due to seller non-performance, or permitting or other regulatory issues that do not allow us to build on those lots. If we intend to abandon or walk away from a property, we record an abandonment charge to earnings for the deposit amount and any related
capitalized costs in the period such decision is made.
iNo abandonment charges were recognized during the three months ended June 30, 2022. We recognized $i0.5 million
abandonment charges during the nine months ended June 30, 2022 related to one under contract deal in the West segment and one under contract deal in the Southeast segment that we decided to terminate. During the three and nine months ended June 30, 2021, we recognized $i0.2 million
and $i0.7 million abandonment charges, respectively, related to under contract deals that we decided to terminate in the East and Southeast segments.
Lot Option Agreements
In addition to purchasing land directly, we utilize lot option agreements that enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities
until we have determined whether to exercise our lot option. The majority of our lot option agreements 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 at a specified price. Purchase of the properties under these agreements is contingent upon satisfaction of certain requirements by us and the sellers. Under lot option agreements, our liability is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts incurred. If the Company cancels a lot option agreement, it would result in a write-off of the related deposits and pre-acquisition costs, but would not expose the Company to the overall risks or losses of the applicable
entity we are purchasing from. 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.
i
The
following table provides a summary of our interests in lot option agreements as of June 30, 2022 and September 30, 2021:
Interest
capitalized during the three and nine months ended June 30, 2022 and 2021 was limited by the balance of inventory eligible for capitalization. iThe following table presents certain information regarding interest for the periods presented:
Three
Months Ended June 30,
Nine Months Ended June 30,
in thousands
2022
2021
2022
2021
Capitalized interest in inventory, beginning of period
$
i112,686
$
i113,414
$
i106,985
$
i119,659
Interest
incurred
i18,728
i19,270
i55,292
i58,517
Interest
expense not qualified for capitalization and included as other expense (a)
i—
(i212)
i—
(i2,781)
Capitalized
interest amortized to home construction and land sales expenses (b)
(i15,679)
(i22,529)
(i46,542)
(i65,452)
Capitalized
interest in inventory, end of period
$
i115,735
$
i109,943
$
i115,735
$
i109,943
(a)
The amount of interest capitalized depends on the qualified inventory balance, which considers the status of the Company's inventory holdings. Qualified inventory balance includes the majority of homes under construction and land under development but excludes land held for future development and land held for sale.
(b) Capitalized interest amortized to home construction and land sales expenses varies based on the number of homes closed during the period and land sales, if any, as well as other factors.
Junior
Subordinated Notes (net of unamortized accretion of $i29,020 and $i30,570, respectively)
July
2036
i71,753
i70,203
Revolving
Credit Facility
February 2024
i—
i—
Total
debt, net
$
i1,049,078
$
i1,054,030
/
Secured
Revolving Credit Facility
The Secured Revolving Credit Facility (the Facility) provides working capital and letter of credit capacity of $i250.0 million. The Facility is currently with ifour
lenders. For additional discussion of the Facility, refer to Note 8 to the audited consolidated financial statements within our 2021 Annual Report.
As of June 30, 2022 and September 30, 2021, iino/
borrowings were outstanding under the Facility. As of June 30, 2022, we had letters of credit outstanding of $i1.8 million under the Facility, resulting in a remaining capacity of $i248.2
million. We had ino letters of credit outstanding under the Facility as of September 30, 2021. The Facility requires compliance with certain covenants, including negative covenants and financial covenants. As of June 30, 2022, the Company believes it was in compliance with all such covenants.
Senior Unsecured Term Loan
On September 9, 2019, the Company entered into a term loan agreement, which provides for a Senior Unsecured Term Loan (the Term Loan). The principal balance as of June 30, 2022 was $i50.0 million. The Term Loan (1) will mature in September 2022, with the remaining $i50.0
million annual repayment installment due in September 2022; (2) bears interest at a fixed rate of i4.875%; and (3) includes an option to prepay, subject to certain conditions and the payment of certain premiums. The Term Loan contains covenants generally consistent with the covenants contained in the Facility. As of June 30, 2022, the Company believes it was in compliance with all such covenants.
The Company has entered into stand-alone, cash-secured letter of credit agreements with banks to maintain pre-existing letters of credit and to provide for the issuance of new letters of credit (in addition to the letters of credit issued under the Facility). As of June 30, 2022 and September 30, 2021, the Company had letters of credit outstanding under these additional facilities of $i28.8
million and $i21.8 million, respectively, all of which were secured by cash collateral in restricted accounts totaling $i31.5 million
and $i22.3 million, respectively. The Company may enter into additional arrangements to provide additional letter of credit capacity.
Senior Notes
The Company's Senior Notes are unsecured obligations ranking pari passu with all other existing and future senior indebtedness.
Substantially all of the Company's 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 i100% owned subsidiary of Beazer Homes.
All unsecured Senior Notes rank equally in right of payment with all existing and future senior
unsecured obligations, senior to all of the Company's existing and future subordinated indebtedness and effectively subordinated to the Company's existing and future secured indebtedness, including indebtedness under the Facility, if outstanding, to the extent of the value of the assets securing such indebtedness. The unsecured Senior Notes and related guarantees are structurally subordinated to all indebtedness and other liabilities of all of the Company's subsidiaries that do not guarantee these notes but are fully and unconditionally guaranteed jointly and severally on a senior basis by the
Company's wholly-owned subsidiaries party to each applicable indenture.
The Company's Senior Notes are issued under indentures that contain certain restrictive covenants which, among other things, restrict our ability to pay dividends, repurchase our common stock, incur certain types of additional indebtedness, and make certain investments. Compliance with the Senior Note covenants does not significantly impact the Company's operations. The
Company believes it was in compliance with the covenants contained in the indentures of all of its Senior Notes as of June 30, 2022.
During the three months ended June 30, 2022, we repurchased $i1.7 million of our outstanding 2025 Notes using cash on hand, resulting in a gain on extinguishment of debt of $i0.1 million.
During
the nine months ended June 30, 2022, we repurchased $i6.0 million of our outstanding 2027 Notes and $i1.7 million
of our outstanding 2025 Notes using cash on hand, resulting in a loss on extinguishment of debt of $i0.1 million.
For
additional redemption features, refer to the table below that summarizes the redemption terms of our Senior Notes:
Senior Note Description
Issuance Date
Maturity Date
Redemption Terms
ii6.750/% Senior
Notes
March 2017
March 2025
Callable at any time prior to March 15, 2020, in whole or in part, at a redemption price equal to i100.000% of the principal amount, plus a customary make-whole premium; on or after March
15, 2020, callable at a redemption price equal to i105.063% of the principal amount; on or after March 15, 2021, callable at a redemption price equal to i103.375%
of the principal amount; on or after March 15, 2022, callable at a redemption price equal to i101.688% of the principal amount; on or after March 15, 2023, callable at a redemption price equal to i100.000%
of the principal amount, plus, in each case, accrued and unpaid interest.
ii5.875/% Senior
Notes
October 2017
October 2027
Callable at any time prior to October 15, 2022, in whole or in part, at a redemption price equal to i100.000% of the principal amount, plus a customary make-whole premium; on or after October
15, 2022, callable at a redemption price equal to i102.938% of the principal amount; on or after October 15, 2023, callable at a redemption price equal to i101.958%
of the principal amount; on or after October 15, 2024, callable at a redemption price equal to i100.979% of the principal amount; on or after October 15, 2025, callable at a redemption price equal to i100.000%
of the principal amount, plus, in each case, accrued and unpaid interest.
ii7.250/%
Senior Notes
September 2019
October 2029
On or prior to October 15, 2022, we may redeem up to i35% of the aggregate principal amount of the 2029 Notes with the net cash proceeds of
certain equity offerings at a redemption price equal to i107.250% of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at least i65%
of the aggregate principal amount of the 2029 Notes originally issued remains outstanding immediately after such redemption.
Callable at any time prior to October 15, 2024, in whole or in part, at a redemption price equal to i100.000% of the principal amount, plus a customary make-whole premium; on or after October
15, 2024, callable at a redemption price equal to i103.625% of the principal amount; on or after October 15, 2025, callable at a redemption price equal to i102.417%
of the principal amount; on or after October 15, 2026, callable at a redemption price equal to i101.208% of the principal amount; on or after October 15, 2027, callable at a redemption price equal to i100.000%
of the principal amount, plus, in each case, accrued and unpaid interest.
The
Company's unsecured junior subordinated notes (Junior Subordinated Notes) mature on July 30, 2036 and have an aggregate principal balance of $i100.8 million as of June 30, 2022. The securities have a floating interest rate as defined in the Junior Subordinated Notes Indentures, which was a weighted-average of i4.12%
as of June 30, 2022. The obligations relating to these notes are subordinated to the Facility and the Senior Notes. In January 2010, the Company restructured $i75.0 million of these notes and recorded them at their then estimated fair value. Over the remaining life of the restructured notes, we will increase their carrying value until this carrying value equals the face value of the notes. As of June 30,
2022, the unamortized accretion was $i29.0 million and will be amortized over the remaining life of the restructured notes. The remaining $i25.8 million of these notes
are subject to the terms of the original agreement, have a floating interest rate equal to three-month LIBOR plus i2.45% per annum, resetting quarterly, and are redeemable in whole or in part at par value. The material terms of the $i75.0
million restructured notes are identical to the terms of the original agreement except that the floating interest rate is subject to a floor of i4.25% and a cap of i9.25%. In addition, beginning on June
1, 2012, the Company has the option to redeem the $i75.0 million principal balance in whole or in part at i75%
of par value; beginning on June 1, 2022, the redemption price will increase by i1.785% annually. As of June 30, 2022, the Company believes it was in compliance with all covenants under the Junior Subordinated Notes.
(8) iOperating
Leases
The Company leases certain office space and equipment under operating leases for use in our operations. We recognize operating lease expense on a straight-line basis over the lease term. Certain of our lease agreements include one or more options to renew. The exercise of lease renewal options is generally at our discretion. Variable lease expense primarily relates to maintenance and other monthly expense that do not depend on an index or rate.
We determine if an arrangement is a lease at contract inception. Lease and non-lease components are accounted for as a single component for all leases. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the
present value of the future lease payments over the expected lease term, which includes optional renewal periods if we determine it is reasonably certain that the option will be exercised. As our leases do not provide an implicit rate, the discount rate used in the present value calculation represents our incremental borrowing rate determined using information available at the commencement date.
Operating lease expense is included as a component of general and administrative expenses in our condensed consolidated statements of operations. Sublease income and variable lease expenses are de minimis. iFor
the three and nine months ended June 30, 2022 and 2021, operating lease expense and cash payments on lease liabilities were as follows:
Three Months Ended June 30,
Nine Months Ended June 30,
in thousands
2022
2021
2022
2021
Operating
lease expense
$
i986
$
i1,075
$
i2,964
$
i3,248
Cash
payments on lease liabilities
$
i1,083
$
i1,161
$
i3,259
$
i3,679
At
June 30, 2022 and 2021, the weighted-average remaining lease term and discount rate were as follows:
The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of June 30, 2022:
(b) Lease payments excludes $i10.3 million
legally binding minimum lease payments for an office lease signed but not yet commenced. The related ROU asset and operating lease liability are not reflected on the Company's condensed consolidated balance sheet as of June 30, 2022.
/
(9) iContingencies
Beazer
Homes and certain of its subsidiaries have been and continue to be named as defendants in various construction defect claims, complaints, and other legal actions. The Company is subject to the possibility of loss contingencies related to these defects as well as others arising from its business. In determining loss contingencies, we consider the likelihood of loss and our ability to reasonably estimate the amount of such loss. An estimated loss is recorded when it is considered probable that a liability has been incurred and the amount of loss can be reasonably estimated.
Warranty Reserves
We currently provide a limited warranty ranging from one to itwo
years covering workmanship and materials per our defined quality standards. In addition, we provide a limited warranty for up to iten years covering only certain defined structural element failures.
Our homebuilding work is performed by subcontractors who typically must agree to indemnify us with regard to their work and provide certificates of insurance demonstrating that they have met our insurance requirements and have named us as an additional insured under their policies. Therefore, many claims relating to workmanship and materials that result in warranty spending are the primary responsibility
of these subcontractors.
Warranty reserves are included in other liabilities within the condensed consolidated balance sheets, and the provision for warranty accruals is included in home construction expenses in the condensed consolidated statements of operations. Reserves covering anticipated warranty expenses are recorded for each home closed. Management assesses the adequacy of warranty reserves each reporting period based on historical experience and the expected costs to remediate potential claims. Our review includes a quarterly analysis of the historical data and trends in warranty expense by division. An analysis by division allows us to consider market-specific factors such as warranty experience, the number of home closings, the prices of homes, product mix, and other data in estimating warranty reserves. In addition, the analysis also contemplates the existence of any non-recurring or community-specific warranty-related
matters that might not be included in historical data and trends that may need to be separately estimated based on management's judgment of the ultimate cost of repair for that specific issue. While estimated warranty liabilities are adjusted each reporting period based on the results of our quarterly analyses, we may not accurately predict actual warranty costs, which could lead to significant changes in the reserve.
In addition, we maintain third-party insurance, subject to applicable self-insured retentions, for most construction defects that we encounter in the normal course of business. We believe that our warranty and litigation
accruals and third-party insurance are adequate to cover the ultimate resolution of our potential liabilities associated with known and anticipated warranty and construction defect related claims and litigation. However, there can be no assurance that the terms and limitations of the limited warranty will be effective against claims made by homebuyers; that we will be able to renew our insurance coverage or renew it at reasonable rates; that we will not be liable for damages, the cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence, or building related claims; or that claims will not arise out of events or circumstances not covered by insurance and/or not subject to effective indemnification agreements with our subcontractors.
i
Changes
in warranty reserves are as follows for the periods presented:
Three Months Ended
Nine Months Ended
June 30,
June
30,
in thousands
2022
2021
2022
2021
Balance at beginning of period
$
i12,681
$
i12,421
$
i12,931
$
i13,052
Accruals
for warranties issued (a)
i2,842
i2,921
i8,025
i7,958
Net
changes in liability related to warranties existing in prior periods
i536
(i294)
i558
i26
Payments
made
(i3,039)
(i2,702)
(i8,494)
(i8,690)
Balance
at end of period
$
i13,020
$
i12,346
$
i13,020
$
i12,346
(a)
Accruals for warranties issued are a function of the number of home closings in the period, the selling prices of the homes closed, and the rates of accrual per home estimated as a percentage of the selling price of the home.
/
Insurance Recoveries
The Company has insurance policies that provide for the reimbursement of certain warranty costs incurred above specified thresholds for each period covered. Amounts recorded for anticipated insurance recoveries are reflected within the condensed consolidated statements of income as a reduction of home construction expenses. Amounts not yet received from our insurer are recorded on a gross basis, without
any reduction for the associated warranty expense, within accounts receivable on our condensed consolidated balance sheets.
Litigation
In the normal course of business, we and certain of our subsidiaries are subject to various lawsuits and 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.
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 that may not be fully covered by insurance. Further, the legal costs associated with the lawsuits and the amount of time required to be spent by management and our Board of Directors on these matters, even if we are ultimately successful, could have a material adverse effect on our financial condition, results of operations, or cash flows.
We have an accrual of $i8.7
million and $i8.3 million in other liabilities on our condensed consolidated balance sheets related to litigation matters as of June 30, 2022 and September 30, 2021, respectively.
Surety Bonds and Letters of Credit
We had outstanding letters of credit and surety bonds of $i30.6
million and $i272.5 million, respectively, as of June 30, 2022, related principally to our obligations to local governments to construct roads and other improvements in various developments.
(10) iFair
Value Measurements
i
As of the dates presented, we had assets on our condensed consolidated balance sheets that were required to be measured at fair value on a recurring or non-recurring basis. We use a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value as follows:
•Level 1 – Quoted prices in active markets for identical assets or liabilities;
•Level 2 – Inputs other than quoted prices included in Level 1 that are observable either directly or indirectly through corroboration with market data; and
•Level 3 – Unobservable inputs that reflect our own estimates about the assumptions market participants would use in pricing the asset or liability.
Certain of our assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value of these assets may not be recovered. We review our long-lived assets, including inventory, for recoverability when factors indicate an impairment may exist, but no less than quarterly. Fair value on assets deemed to be impaired is determined based upon the type of asset being evaluated. Fair value
of our owned inventory assets, when required to be calculated, is further discussed within Note 5. Due to the substantial use of unobservable inputs in valuing the assets on a non-recurring basis, they are classified within Level 3.
iiNo/
impairments on projects in progress or land held for sale were recognized during the three months ended June 30, 2022. During the nine months ended June 30, 2022, we recognized $i0.4 million impairments on land held for sale. iiiiNo///
impairments on projects in progress or land held for sale were recognized during the three and nine months ended June 30, 2021.
Determining within which hierarchical level an asset or liability falls requires significant judgment. We evaluate our hierarchy disclosures each quarter. iThe following table presents the period-end balances of assets measured at fair
value on a recurring basis and the impairment-date fair value of certain assets measured at fair value on a non-recurring basis for each hierarchy level. These balances represent only those assets whose carrying values were adjusted to fair value during the periods presented:
(a)
Measured at fair value on a recurring basis using market-corroborated inputs.
(b) Measured at fair value on a non-recurring basis, refer to Note 5 for further discussion.
(c) Amount represents the impairment-date fair value of the land held for sale assets that were impaired during the period indicated.
The fair value of cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, other liabilities, and amounts due under the Facility (if outstanding) approximate their carrying amounts due to the short maturity of these assets and liabilities. When outstanding, obligations related to land not owned under option agreements approximate fair value.
i
The
following table presents the carrying value and estimated fair value of certain other financial liabilities as of June 30, 2022 and September 30, 2021:
(a) Carrying
amounts are net of unamortized debt issuance costs or accretion.
(b) The estimated fair value for our publicly-held Senior Notes and the Term Loan have been determined using quoted market rates (Level 2).
(c) 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.
The Company'sincome tax provision for quarterly interim periods is based on an estimated annual effective income tax rate calculated separately from the effect of significant, infrequent, or unusual items. Income tax expense from continuing
operations was $i13.2 million and $i29.7 million for the three and nine months ended June 30, 2022, compared to $i10.8
million and $i22.6 million for the three and nine months ended June 30, 2021. Income tax expense for the nine months ended June 30, 2022 was substantially driven by (1) income from continuing operations, partially offset by (2) the completion of work necessary to claim an additional $i8.9 million
in energy efficiency tax credits related to homes closed in prior fiscal years, and (3) the discrete impact related to stock-based compensation expense as a result of current period activity. Income tax expense for the nine months ended June 30, 2021 was substantially driven by (1) income from continuing operations, partially offset by (2) the discrete impact related to the closing of a state tax audit, and (3) the discrete impact related to stock-based compensation expense as a result of current period activity.
Deferred Tax Assets and Liabilities
The Company continues to evaluate its deferred tax assets each period to determine if a valuation allowance is required based on whether it is more likely
than not that some portion of these deferred tax assets will not be realized. As of June 30, 2022, management concluded that it is more likely than not that a substantial portion of our deferred tax assets will be realized. As part of our analysis, we considered both positive and negative factors that impact profitability and whether those factors would lead to a change in the estimate of our deferred tax assets that may be realized in the future. At this time, our conclusions on the valuation allowance and Internal Revenue Code Section 382 limitations related to our deferred tax assets remain consistent with the determinations we made during the period ended September 30, 2021, and such conclusions are based on similar company specific and industry factors to those discussed in Note 13 to the audited consolidated financial statements within our 2021 Annual Report.
Stock-based compensation expense is included in general and administrative expenses in the condensed consolidated statements of operations. iFollowing
is a summary of stock-based compensation expense related to stock options and restricted stock awards for the three and nine months ended June 30, 2022 and 2021, respectively.
Three Months Ended
Nine Months
Ended
June 30,
June 30,
in thousands
2022
2021
2022
2021
Stock-based compensation expense
$
i1,983
$
i3,194
$
i6,515
$
i9,254
Stock
Options
i
Following is a summary of stock option activity for the nine months ended June 30, 2022:
As
of both June 30, 2022 and September 30, 2021, there was less than $ii0.1/
million of total unrecognized compensation costs related to unvested stock options. The costs remaining as of June 30, 2022 are expected to be recognized over a weighted-average period of i1.69 years.
Restricted Stock Awards
During the nine months ended June 30,
2022, the Company issued time-based and performance-based restricted stock awards. The time-based restricted shares granted to our non-employee directors vest on the first anniversary of the grant, while the time-based restricted shares granted to our executive officers and other employees generally vest ratably over two to ithree years from the date of grant. Performance-based restricted share awards vest subject
to the achievement of performance and market conditions over a ithree-year performance period.
i
Following
is a summary of restricted stock activity for the nine months ended June 30, 2022:
(a) Each
of our performance shares represent a contingent right to receive one share of the Company's common stock if vesting is satisfied at the end of the ithree-year performance period. Our performance stock award plans provide that any performance shares earned in excess of the target number of performance shares issued may be settled in cash or additional shares at the discretion of the Compensation Committee. In November 2021, we issued i177,759
shares earned above target level based on the performance level achieved under the fiscal 2019 performance-based award plan.
As of June 30, 2022 and September 30, 2021, total unrecognized compensation costs related to unvested restricted stock awards was $i8.6
million and $i7.2 million, respectively. The costs remaining as of June 30, 2022 are expected to be recognized over a weighted average period of i1.74
years.
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 (loss) per share adjusts the basic income (loss) per share for the effects of any potentially dilutive securities in periods in which the Company has net income and such effects are dilutive under the treasury stock method.
i
Following is a summary of the components of basic and diluted income
per share for the periods presented:
Three Months Ended June 30,
Nine Months Ended June 30,
in thousands (except per share data)
2022
2021
2022
2021
Numerator:
Income
from continuing operations
$
ii54,312/
$
i37,142
$
i133,885
$
i73,821
Income
(loss) from discontinued operations, net of tax
i12
(i7)
(i4)
(i161)
Net
income
$
i54,324
$
i37,135
$
i133,881
$
i73,660
Denominator:
Basic
weighted-average shares
i30,512
i30,022
i30,480
i29,915
Dilutive
effect of restricted stock awards
i354
i517
i319
i352
Dilutive
effect of stock options
i6
i23
i7
i25
Diluted
weighted-average shares (a)
i30,872
i30,562
i30,806
i30,292
Basic
income (loss) per share:
Continuing operations
$
i1.78
$
i1.24
$
i4.39
$
i2.47
Discontinued
operations
i—
i—
i—
(i0.01)
Total
$
i1.78
$
i1.24
$
i4.39
$
i2.46
Diluted
income (loss) per share:
Continuing operations
$
i1.76
$
i1.22
$
i4.35
$
i2.44
Discontinued
operations
i—
i—
i—
(i0.01)
Total
$
i1.76
$
i1.22
$
i4.35
$
i2.43
/
(a)
The following potentially dilutive shares were excluded from the calculation of diluted income (loss) per share as a result of their anti-dilutive effect.
We currently operate in i13 states
that are grouped into ithree homebuilding segments based on geography. Revenues from our homebuilding segments are derived from the sale of homes that we construct and from land and lot sales. Our reportable segments have been determined on a basis that is used internally by management for evaluating segment performance and resource allocations. We have considered the applicable aggregation criteria and have combined our homebuilding operations into ithree
reportable segments as follows:
West: Arizona, California, Nevada, and Texas(a)
East: Delaware, Indiana, Maryland, New Jersey(b), Tennessee, and Virginia
Southeast: Florida, Georgia, North Carolina, and South Carolina
(a) On May 20, 2022, we acquired substantially all of the assets of Imagine Homes, a private San Antonio-based homebuilder. The results of our San Antonio operations are reported herein within our West reportable segment.
(b) During our fiscal 2015, we made the decision that we would not continue to reinvest
in new homebuilding assets in our New Jersey division; therefore, it is no longer considered an active operation. However, it is included in this listing because the segment information below continues to include New Jersey.
Management’s evaluation of segment performance is based on segment operating income. Operating income for our homebuilding segments is defined as homebuilding and land sales and other revenue less home construction, land development, and land sales expense, commission expense, depreciation and amortization, and certain G&A expenses that are incurred by or allocated to our homebuilding segments. The accounting policies of our segments are those described in Note 2 to the consolidated financial statements within our 2021 Annual Report.
i
The
following tables contain our revenue, operating income, and depreciation and amortization by segment for the periods presented:
Three Months Ended
Nine Months Ended
June 30,
June
30,
in thousands
2022
2021
2022
2021
Revenue
West
$
i324,679
$
i297,073
$
i885,837
$
i812,673
East
i112,519
i162,156
i359,623
i413,691
Southeast
i89,468
i111,703
i243,861
i322,996
Total
revenue
$
i526,666
$
i570,932
$
i1,489,321
$
i1,549,360
Three Months Ended
Nine Months Ended
June 30,
June 30,
in thousands
2022
2021
2022
2021
Operating
income
West
$
i65,106
$
i52,295
$
i165,933
$
i128,086
East
i20,935
i27,437
i64,866
i61,254
Southeast
i14,476
i14,981
i32,683
i40,363
Segment
total
i100,517
i94,713
i263,482
i229,703
Corporate
and unallocated (a)
(i33,278)
(i46,020)
(i100,693)
(i129,704)
Total
operating income
$
i67,239
$
i48,693
$
i162,789
$
i99,999
(a)
Corporate and unallocated operating loss includes amortization of capitalized interest, movement in capitalized indirect costs, expenses related to numerous shared services functions that benefit all segments but are not allocated to the operating segments reported above, including information technology, treasury, corporate finance, legal, branding and national marketing, and other amounts that are not allocated to our operating segments.
(a)
Corporate and unallocated depreciation and amortization represents depreciation and amortization related to assets held by our corporate functions that benefit all segments.
The following table presents capital expenditures by segment for the periods presented:
(a)
Primarily consists of cash and cash equivalents, restricted cash, deferred taxes, capitalized interest and indirect costs, and other items that are not allocated to the segments.
(16) iDiscontinued Operations
We continually review each of our markets in order to refine our overall investment strategy and to
optimize capital and resource allocations in an effort to enhance our financial position and to increase stockholder value. This review entails an evaluation of both external market factors and our position in each market and over time has resulted in the decision to discontinue certain of our homebuilding operations.
We have classified the results of operations of our discontinued operations separately in the accompanying condensed consolidated statements of operations for all periods presented. There were no material assets or liabilities related to our discontinued operations as of June 30,
2022 or September 30, 2021. Discontinued operations were not segregated in the condensed consolidated statements of cash flows. Therefore, amounts for certain captions in the condensed consolidated statements of cash flows will not agree with the respective data in the condensed consolidated statements of operations. iThe results of our discontinued operations
in the condensed consolidated statements of operations for the periods presented were as follows:
Three Months Ended
Nine Months Ended
June 30,
June
30,
in thousands
2022
2021
2022
2021
Home construction and land sales expenses
$
i—
$
i—
$
(i5)
$
i119
Gross
profit (loss)
i—
i—
i5
(i119)
General
and administrative expenses
(i14)
i10
i11
i88
Income
(loss) from discontinued operations before income taxes
i14
(i10)
(i6)
(i207)
Expense
(benefit) from income taxes
i2
(i3)
(i2)
(i46)
Income
(loss) from discontinued operations, net of tax
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview and Outlook
Market Conditions
During the first half of fiscal 2022, housing market conditions remained robust and demand remained strong despite the geopolitical environment and increasing affordability concerns. However, in the third quarter of fiscal 2022, demand started to moderate due to a sharp increase in mortgage rates, the substantial increase in home prices experienced over the past 18 months, significant inflation in the broader economy, stock market volatility, and other macro-economic conditions, which have negatively impacted buyer sentiment and behavior. While these factors may continue to impact demand for our homes in
the future, over the long-term, we believe that the housing market will remain healthy driven by a demographic shift towards homeownership amplified by the COVID-19 pandemic and a multimillion unit housing deficit that has accumulated over the past decade.
Given the current environment, we remain focused on executing our consumer positioning strategy of delivering extraordinary value at an affordable price. Our strategy to deliver value is embedded in our three pillars, all of which are centered around affordability: (1) our Mortgage Choice platform which eliminates the typical mortgage subsidiary middleman and allows us to partner with our customers to help them get the most competitive interest rates, fees, and service levels available; (2) our Choice PlansTM which allow customers to select from a list of structural options at no additional cost; and (3) the Surprising Performance
our homes are designed to deliver as they are all built to meet or exceed the latest ENERGY STAR® standards and reduce home energy costs.
We are focused on making the necessary adjustments to continue adapting to the changing environment. For instance, our sales process involves almost constant analysis of competitive market data, including pricing, features and incentives, which enables us to refine our offerings on a timely basis in response to market shifts and to best position each of our communities. In relation to land acquisition, we are seeking price discounts or other improvements in deal terms on many of our pending land transactions. In addition, we are incorporating higher than current mortgage rates, lower sales pace and higher sales incentive in our underwriting assumptions in anticipation of a more challenging sales environment.
Like
many other homebuilders, we continue to experience production challenges due to supply chain disruptions and tightness in labor markets. These disruptions have resulted in elongated construction cycle times and decreased backlog conversion. We have been proactively working with our trade partners to address these delays.
Balanced Growth Strategy
We continue to execute against our balanced growth strategy, which we define as the expansion of earnings at a faster rate than our revenue growth, supported by a less-leveraged capital structure. This strategy provides us with flexibility to reduce leverage, increase investment in land and other operating assets, or repurchase shares in response to changing market conditions. Our priorities for fiscal 2022 continue to include growing our lot position by increasing our use of land option agreements,
improve profitability while reducing our total debt below $1.0 billion, deliver an extraordinary customer experience, encourage employee well-being, and execute on our Environmental, Social, and Governance (ESG) initiatives
Overview of Results for Our Fiscal Third Quarter
The following is a summary of our performance against certain key operating and financial metrics during the quarter ended June 30, 2022:
•During the quarter ended June 30, 2022, sales per community per month was 2.5 compared to 3.2 in the prior year quarter, and our net new orders were 925, down 22.9% from 1,199 in the prior year quarter. Sales per community per month was
3.1 and 4.0 for the trailing 12 months ended June 30, 2022 and 2021, respectively. The decrease in sales pace is a reflection of the previously discussed unfavorable macro-economic factors impacting homebuyers. As we navigate the changing environment, our focus will be balancing sales pace, incentives and price adjustments to maximize return on capital over time.
•As of June 30, 2022, our land position includes 24,899 controlled lots, up 26.0% from 19,761 as of June 30, 2021. Excluding land held for future development and land held for sale lots, we controlled 24,132 active lots, up 25.2%
from the prior year quarter. As of June 30, 2022, we had 12,571 lots, or 52.1% of our total active lots, under option contracts as compared to 9,263 lots, or 48.1% of our total active lots, under option contracts as of June 30, 2021.
•Aggregated dollar value of homes in backlog as of June 30,
2022 was $1,588.0 million, up 17.2% compared to the prior year quarter. We ended the quarter with 3,003 homes in backlog, down 3.9% compared to the prior year quarter. Benefiting from pricing power in most markets, the average selling price (ASP) in backlog as of June 30, 2022 rose to $528.8 thousand, up 22.0% versus the prior year quarter.
•Our ASP for homes closed during the quarter ended June 30, 2022 was $501.7 thousand, up 21.9% from $411.4 thousand in the prior year quarter. The year-over-year increase in ASP on closings was impacted primarily by price appreciation due to strong demand and limited supply of homes. On average, we anticipate that our ASP
will continue to increase in the near-term as indicated by the ASP for homes in backlog as of June 30, 2022. However, higher mortgage interest rates and softening demand may temper ASP growth in the future.
•Homebuilding gross margin for the quarter ended June 30, 2022 was 25.1%, up from 20.2% in the prior year quarter. Homebuilding gross margin excluding impairments, abandonments, and interest for the quarter ended June 30, 2022 was 28.1%, up from 24.2% in the prior year quarter. Our homebuilding gross margin has been driven by a favorable pricing environment, although moderated demand may temper gross margin in
the future.
•Cancellation rate for the quarter ended June 30, 2022 was 17.0%, up from 10.9% in the prior year quarter. Although cancellation rates increased during the current year quarter due to the previously discussed unfavorable macro-economic factors, our cancellation rates remained well within our historical normal range and only represented approximately 6.0% of the fiscal 2022 third quarter beginning backlog.
•SG&A for the quarter ended June 30, 2022 was 11.8% of total revenue, up from 11.1% a year earlier. The increase in SG&A as a
percentage of total revenue was primarily due to decreased closings and revenue as a result of construction cycle time extension. The dollar amount of SG&A decreased by $1.1 million, or 1.7%, compared to the prior year quarter primarily due to decreased commissions expense. We remain focused on improving overhead cost management in relation to our revenue growth.
Seasonal and Quarterly Variability
Our homebuilding operating cycle historically has reflected escalating new order activity in the second and third fiscal quarters and increased closings in the third and fourth fiscal quarters. However, these seasonal patterns may be impacted or reduced due to a variety of factors. Accordingly, our financial results for
the three and nine months ended June 30, 2022 may not be indicative of our full year results.
The following table summarizes certain key income statement metrics for the periods presented:
Three
Months Ended
Nine Months Ended
June 30,
June 30,
$ in thousands
2022
2021
2022
2021
Revenue:
Homebuilding
$
523,229
$
566,930
$
1,477,166
$
1,538,576
Land
sales and other
3,437
4,002
12,155
10,784
Total
$
526,666
$
570,932
$
1,489,321
$
1,549,360
Gross
profit:
Homebuilding
$
131,549
$
114,710
$
344,255
$
287,003
Land sales and other
916
813
5,360
1,739
Total
$
132,465
$
115,523
$
349,615
$
288,742
Gross
margin:
Homebuilding (a)
25.1
%
20.2
%
23.3
%
18.7
%
Land sales and other
26.7
%
20.3
%
44.1
%
16.1
%
Total
25.2
%
20.2
%
23.5
%
18.6
%
Commissions
$
16,277
$
20,955
$
48,668
$
58,346
General
and administrative expenses (G&A)
$
45,760
$
42,186
$
129,057
$
119,903
SG&A (commissions plus G&A) as a percentage of total revenue
11.8
%
11.1
%
11.9
%
11.5
%
G&A
as a percentage of total revenue
8.7
%
7.4
%
8.7
%
7.7
%
Depreciation and amortization
$
3,189
$
3,689
$
9,101
$
10,494
Operating
income
$
67,239
$
48,693
$
162,789
$
99,999
Operating income as a percentage of total revenue
12.8
%
8.5
%
10.9
%
6.5
%
Effective
tax rate (b)
19.5
%
22.5
%
18.1
%
23.5
%
Inventory impairments and abandonments
$
—
$
231
$
935
$
696
Gain
(loss) on extinguishment of debt, net
$
86
$
(1,050)
$
(78)
$
(1,613)
(a) Excluding impairments, abandonments, and interest amortized to cost of sales, homebuilding gross margin was 28.1% and 24.2% for the three months ended June 30, 2022 and 2021,
respectively, and 26.5% and 22.9% for the nine months ended June 30, 2022 and 2021, respectively. Please see "Homebuilding Gross Profit and Gross Margin" section below for a reconciliation of homebuilding gross profit and the related gross margin excluding impairments and abandonments and interest amortized to cost of sales to homebuilding gross profit and gross margin, the most directly comparable GAAP measure.
(b) Calculated as tax expense for the period divided by income from continuing operations. Due to a variety of factors, including the impact of discrete tax items on our effective tax rate, our income tax expense is not always directly correlated to
the amount of pre-tax income for the associated periods. For the three and nine months ended June 30, 2022, our effective tax rate was impacted by, among other factors, $2.7 million and $8.9 million of energy efficiency tax credits claimed, respectively, compared to less than $0.1 million of such credits claimed during the three and nine months ended June 30, 2021.
EBITDA: Reconciliation of Net
Income to Adjusted EBITDA
Reconciliation of Adjusted EBITDA to total company net income, the most directly comparable GAAP measure, is provided for each period discussed below. Management believes that Adjusted EBITDA assists investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies' respective capitalization, tax position, and level of impairments. These EBITDA measures should not be considered alternatives to net income determined in accordance with GAAP as an indicator of operating performance.
The following table reconciles our net income to Adjusted EBITDA for the periods presented:
Three
Months Ended June 30,
Nine Months Ended June 30,
LTM Ended June 30, (a)
in thousands
2022
2021
22 vs 21
2022
2021
22 vs 21
2022
2021
22
vs 21
Net income
$
54,324
$
37,135
$
17,189
$
133,881
$
73,660
$
60,221
$
182,242
$
97,338
$
84,904
Expense
from income taxes
13,152
10,801
2,351
29,683
22,587
7,096
28,597
31,351
(2,754)
Interest
amortized to home construction and land sales expenses and capitalized interest impaired
15,679
22,529
(6,850)
46,542
65,452
(18,910)
68,380
96,179
(27,799)
Interest
expense not qualified for capitalization
—
212
(212)
—
2,781
(2,781)
—
4,876
(4,876)
EBIT
83,155
70,677
12,478
210,106
164,480
45,626
279,219
229,744
49,475
Depreciation
and amortization
3,189
3,689
(500)
9,101
10,494
(1,393)
12,583
15,300
(2,717)
EBITDA
86,344
74,366
11,978
219,207
174,974
44,233
291,802
245,044
46,758
Stock-based
compensation expense
1,983
3,194
(1,211)
6,515
9,254
(2,739)
9,428
14,421
(4,993)
(Gain)
loss on extinguishment of debt
(86)
1,050
(1,136)
78
1,613
(1,535)
490
1,613
(1,123)
Inventory
impairments and abandonments (b)
—
231
(231)
935
696
239
1,092
1,333
(241)
Restructuring
and severance expenses
—
—
—
—
(10)
10
—
(54)
54
Litigation
settlement in discontinued operations
—
—
—
—
120
(120)
—
1,380
(1,380)
Adjusted
EBITDA
$
88,241
$
78,841
$
9,400
$
226,735
$
186,647
$
40,088
$
302,812
$
263,737
$
39,075
(a)
"LTM" indicates amounts for the trailing 12 months.
(b) In periods during which we impaired certain of our inventory assets, capitalized interest that is impaired is included in the line above titled "Interest amortized to home construction and land sales expenses and capitalized interest impaired."
The following table summarizes new orders and cancellation rates by reportable segment for the periods presented:
Three
Months Ended June 30,
New Orders, net
Cancellation Rates
2022
2021
22 vs 21
2022
2021
West
576
715
(19.4)
%
16.8
%
11.4
%
East
192
263
(27.0)
%
17.6
%
11.1
%
Southeast
157
221
(29.0)
%
17.4
%
8.7
%
Total
925
1,199
(22.9)
%
17.0
%
10.9
%
Nine
Months Ended June 30,
New Orders, net
Cancellation Rates
2022
2021
22 vs 21
2022
2021
West
2,063
2,613
(21.0)
%
13.7
%
11.6
%
East
712
940
(24.3)
%
13.4
%
10.7
%
Southeast
582
942
(38.2)
%
12.9
%
9.6
%
Total
3,357
4,495
(25.3)
%
13.5
%
11.0
%
Net
new orders for the quarter ended June 30, 2022 decreased to 925, down 22.9% from the quarter ended June 30, 2021. Net new orders for the nine months ended June 30, 2022 decreased to 3,357, down 25.3% from the nine months ended June 30, 2021. For the quarter ended June 30, 2022, the decrease in net new orders compared to the prior year quarter was driven by a 22.9% decrease in sales pace from 3.2 sales per community per month in the prior year quarter to 2.5, while average active community count remained flat year-over-year. The decreases in sales pace and increases in cancellation rates across reportable segments
were primarily driven by the sharp increase in mortgage rates as well as the other unfavorable macro-economic factors previously discussed. Although cancellation rates were up, our cancellation rates remained within our historical normal range and only represents approximately 6.0% of our fiscal 2022 third quarter beginning backlog.
The table below summarizes backlog units by reportable segment as well as the aggregate dollar value and ASP of homes in backlog as of June 30, 2022 and 2021:
Aggregate
dollar value of homes in backlog (in millions)
$
1,588.0
$
1,354.6
17.2
%
ASP in backlog (in thousands)
$
528.8
$
433.6
22.0
%
Backlog
reflects the number of homes for which the Company has entered into a sales contract with a customer but has not yet delivered the home. Homes in backlog have historically been delivered within three to six months following commencement of construction. Ongoing supply chain disruptions, including the availability of certain materials and construction labor, has led to extended construction cycle times. As a result, we are experiencing increased construction cycle times by an average of two to three months across our markets compared to the prior year quarter. The aggregate dollar value of homes in backlog as of June 30, 2022 increased 17.2% compared to June 30, 2021 due to
a 22.0% increase in the ASP of homes in backlog, partially offset by a 3.9% decrease in backlog units.
Homebuilding Revenue, Average Selling Price, and Closings
The table below summarizes homebuilding revenue, ASP of our homes closed, and closings by reportable segment for the periods presented:
Three
Months Ended June 30,
Homebuilding Revenue
Average Selling Price
Closings
$ in thousands
2022
2021
22 vs 21
2022
2021
22 vs 21
2022
2021
22
vs 21
West
$
324,074
$
294,834
9.9
%
$
486.6
$
385.4
26.3
%
666
765
(12.9)
%
East
112,237
160,393
(30.0)
%
529.4
486.0
8.9
%
212
330
(35.8)
%
Southeast
86,918
111,703
(22.2)
%
526.8
394.7
33.5
%
165
283
(41.7)
%
Total
$
523,229
$
566,930
(7.7)
%
$
501.7
$
411.4
21.9
%
1,043
1,378
(24.3)
%
Nine
Months Ended June 30,
Homebuilding Revenue
Average Selling Price
Closings
$ in thousands
2022
2021
22 vs 21
2022
2021
22 vs 21
2022
2021
22
vs 21
West
$
883,453
$
805,617
9.7
%
$
456.8
$
372.3
22.7
%
1,934
2,164
(10.6)
%
East
354,948
410,350
(13.5)
%
500.6
469.5
6.6
%
709
874
(18.9)
%
Southeast
238,765
322,609
(26.0)
%
480.4
383.1
25.4
%
497
842
(41.0)
%
Total
$
1,477,166
$
1,538,576
(4.0)
%
$
470.4
$
396.5
18.6
%
3,140
3,880
(19.1)
%
For
the three and nine months ended June 30, 2022, homebuilding revenue decreased primarily as a result of a decrease in closings, partially offset by an increase in ASP.
The increase in ASP across all segments was primarily attributed to price appreciation due to strong demand, short supply of homes, and inflation. In the East segment, ASP changes were also impacted by a change in mix of closings between products and among communities within the markets as compared to the prior year period. On average, we anticipate that our ASP will continue to increase in the near-term as indicated by the ASP for homes in backlog as of June 30, 2022, although higher mortgage interest rates and softening demand may temper ASP growth in the future.
The
decrease in closings was primarily due to a decrease in backlog conversion rates as a result of longer construction cycle times compared to the prior year quarter. Among the three reportable segments, our Southeast segment has experienced the highest increase in construction cycle times by an average of 3.3 months, resulting in a significant decrease in backlog conversion rates and closings.
The following tables present
our homebuilding (HB) gross profit and gross margin by reportable segment and in total. In addition, such amounts are presented excluding inventory impairments and abandonments and interest amortized to cost of sales (COS). Homebuilding gross profit is defined as homebuilding revenue less home cost of sales (which includes land and land development costs, home construction costs, capitalized interest, indirect costs of construction, estimated warranty costs, closing costs, and inventory impairment and abandonment charges).
Reconciliation of homebuilding gross profit and the related gross margin excluding impairments and abandonments and interest amortized to cost of sales to homebuilding gross profit and gross margin, the most directly comparable GAAP measure, is provided for each period discussed below. Management believes that this information assists investors in comparing the operating characteristics of homebuilding activities
by eliminating many of the differences in companies' respective level of impairments and level of debt. These measures should not be considered alternatives to homebuilding gross profit and gross margin determined in accordance with GAAP as an indicator of operating performance.
(a)
Corporate and unallocated includes capitalized interest and capitalized indirect costs expensed to homebuilding cost of sale related to homes closed, as well as capitalized interest and capitalized indirect costs impaired in order to reflect projects in progress assets at fair value.
Our homebuilding gross profit increased by $16.8 million to $131.5 million for the three months ended June 30, 2022, compared to $114.7 million in the prior year quarter. The increase in homebuilding gross profit was primarily driven by an increase in gross margin of 490 basis points to 25.1%, partially offset by a decrease in homebuilding revenue of $43.7 million. However, as shown in the tables above,
the comparability of our gross profit and gross margin was impacted by impairment and abandonment charges which decreased by $0.2 million, and interest amortized to homebuilding cost of sales which decreased by $6.9 million period-over-period (refer to Note 5 and Note 6 of the notes to the condensed consolidated financial statements in this Form 10-Q for additional details). When excluding the impact of impairment and abandonment charges and interest amortized to homebuilding cost of sales, homebuilding gross profit increased by $9.8 million compared to the prior year quarter, while homebuilding gross margin increased by 390 basis points to 28.1%. The year-over-year improvement in gross margin for the three months ended June 30, 2022 was primarily driven by lower sales incentives and pricing increases, although moderated demand may temper gross margin expansion in the future.
West
Segment: Compared to the prior year quarter, homebuilding gross profit increased by $14.5 million due to the increase in homebuilding revenue and higher gross margin. Homebuilding gross margin, excluding impairments and abandonments, increased to 27.7%, up from 25.5% in the prior year quarter. The increase in gross margin was driven primarily by lower sales incentives and pricing increases.
East Segment: Compared to the prior year quarter, homebuilding gross profit decreased by $8.6 million due a decrease in homebuilding revenue, partially offset by higher gross margin. Homebuilding gross margin, excluding impairments and abandonments, increased to 26.4%, up from 23.9% in the prior year quarter. The increase in gross margin was driven primarily by lower sales incentives and pricing increases.
Southeast Segment:
Compared to the prior year quarter, homebuilding gross profit decreased by $3.0 million due to a decrease in homebuilding revenue, partially offset by higher gross margin. Homebuilding gross margin, excluding impairments and abandonments, increased to 25.8%, up from 22.9% in the prior year quarter. The increase in gross margin was driven primarily by lower sales incentives and pricing increases.
Our homebuilding gross profit increased by $57.3 million to $344.3 million for the nine months
ended June 30, 2022, from $287.0 million in the prior year period. The increase in gross profit was primarily driven by an increase in gross margin of 460 basis points to 23.3%, partially offset by a decrease in homebuilding revenue of $61.4 million. However, similar to the three-month period discussed above, the comparability of our gross profit and gross margin for the nine-month period was impacted by impairment and abandonment charges which decreased by $0.2 million, and interest amortized to homebuilding cost of sales which decreased by $18.7 million period-over-period (refer to Note 5 and Note 6 of the notes to the condensed consolidated financial statements in this Form 10-Q for additional details). When excluding the impact of impairment and abandonment charges and interest amortized to homebuilding cost of sales, homebuilding gross profit increased by $38.4 million compared to the prior year period, while homebuilding
gross margin increased by 360 basis points to 26.5%. The year-over-year improvement in gross margin for the nine months ended June 30, 2022 was primarily driven by lower sales incentives and pricing increases, although moderated demand due to higher mortgage interest rates and the previously discussed unfavorable macro-economic factors may temper gross margin expansion in the future.
West Segment: Compared to the prior year period, homebuilding gross profit increased by $40.8 million due to the increase in homebuilding revenue and higher gross margin. Homebuilding gross margin, excluding impairments and abandonments, increased to 26.5%, up from 24.0% in the prior year period. The increase in gross margin was driven primarily by lower sales incentives and pricing increases.
East Segment:
Compared to the prior year period, homebuilding gross profit decreased by $2.9 million due to a decrease in homebuilding revenue, partially offset by higher gross margin. Homebuilding gross margin, excluding impairments and abandonments, increased to 25.0%, up from 22.5% in the prior year period. The increase in gross margin was driven primarily by lower sales incentives and pricing increases.
Southeast Segment: Compared to the prior year period, homebuilding gross profit decreased by $14.5 million due to a decrease in homebuilding revenue, partially offset by higher gross margin. Homebuilding gross margin, excluding impairments and abandonments, increased to 23.6%, up from 21.9% in the prior year period. The increase in gross margin was driven primarily by lower sales incentives and pricing increases.
Measures of homebuilding gross profit and gross margin
after excluding inventory impairments and abandonments, interest amortized to cost of sales, and other non-recurring items are not GAAP financial measures. These measures should not be considered alternatives to homebuilding gross profit and gross margin determined in accordance with GAAP as an indicator of operating performance.
In particular, the magnitude and volatility of non-cash inventory impairment and abandonment charges for the Company and other homebuilders have been significant historically and, as such, have made financial analysis of our industry more difficult. Homebuilding metrics excluding these charges, as well as interest amortized to cost of sales and other similar presentations by analysts and other companies, are frequently used to assist investors in understanding and comparing the operating characteristics
of homebuilding activities by eliminating many of the differences in companies' respective level of impairments and levels of debt. Management believes these non-GAAP measures enable holders of our securities to better understand the cash implications of our operating performance and our ability to service our debt obligations as they currently exist and as additional indebtedness is incurred in the future. These measures are also useful internally, helping management to compare operating results and to measure cash available for discretionary spending.
In a given period, our reported gross profit is generated from both communities previously impaired and communities not previously impaired. In addition, as indicated above, certain gross profit amounts arise from recoveries of prior period costs, including warranty items that are not directly tied to communities generating revenue in the period. Home closings from communities
previously impaired would, in most instances, generate very low or negative gross margins prior to the impact of the previously recognized impairment. Gross margin for each home closing is higher for a particular community after an impairment because the carrying value of the underlying land was previously reduced to the present value of future cash flows as a result of the impairment, leading to lower cost of sales at the home closing. This improvement in gross margin resulting from one or more prior impairments is frequently referred to in the aggregate as the “impairment turn” or “flow-back” of impairments within the reporting period. The amount of this impairment turn may exceed the gross margin for an individual impaired asset if the gross margin for that asset prior to the impairment would have been negative. The extent to which this impairment turn is greater than the reported gross margin for the individual asset is related to the specific historical
cost basis of that individual asset.
The asset valuations that result from our impairment calculations are based on discounted cash flow analyses and are not derived by simply applying prospective gross margins to individual communities. As such, impaired communities may have gross margins that are somewhat higher or lower than the gross margins for unimpaired communities. The mix of home closings in any particular quarter varies to such an extent that comparisons between previously impaired and never impaired communities would not be a reliable way to ascertain profitability trends or to assess the accuracy of previous valuation estimates.
In addition, since any amount of impairment turn is tied to individual lots in specific communities, it will vary considerably from period to period. As a result of these factors, we review the impairment turn impact on gross margin on a trailing 12-month basis rather than a quarterly basis as a way of considering whether our impairment calculations are resulting in gross margins for impaired communities that are comparable to our unimpaired communities. For the trailing 12-month period ended June 30, 2022, our homebuilding gross margin was 22.2%. Excluding interest and inventory impairments and abandonments, our homebuilding gross margin for the trailing 12-month period ended June 30, 2022 was 25.6%. For the same trailing 12-month period, homebuilding
gross margin was as follows in those communities that have previously been impaired, which represented 4.8% of total closings during this period:
Homebuilding Gross Margin from previously impaired communities:
Pre-impairment turn gross margin
11.7
%
Impact of interest amortized to COS related to these communities
For a further discussion of our impairment policies, refer to Note 5 of the notes to the condensed consolidated financial statements in this Form 10-Q.
Land Sales and Other Revenue and Gross Profit
Land sales relate to land and lots sold that do not fit within
our homebuilding programs and strategic plans. We also have other revenue related to title examinations provided for our homebuyers in certain markets. The following tables summarize our land sales and other revenue and related gross profit by reportable segment for the periods presented:
Land Sales
and Other Revenue
Land Sales and Other Gross Profit
Three Months Ended June 30,
Three Months Ended June 30,
in thousands
2022
2021
22 vs 21
2022
2021
22 vs 21
West
$
605
$
2,239
$
(1,634)
$
439
$
606
$
(167)
East
282
1,763
(1,481)
205
207
(2)
Southeast
2,550
—
2,550
272
—
272
Total
$
3,437
$
4,002
$
(565)
$
916
$
813
$
103
Land Sales
and Other Revenue
Land Sales and Other Gross Profit (Loss)
Nine Months Ended June 30,
Nine Months Ended June 30,
in thousands
2022
2021
22 vs 21
2022
2021
22 vs 21
West
$
2,384
$
7,056
$
(4,672)
$
932
$
1,625
$
(693)
East
4,675
3,341
1,334
3,811
349
3,462
Southeast
5,096
387
4,709
617
73
544
Corporate
and unallocated (a)
—
—
—
—
(308)
308
Total
$
12,155
$
10,784
$
1,371
$
5,360
$
1,739
$
3,621
(a)
Corporate and unallocated includes capitalized interest and capitalized indirect costs expensed to land cost of sale related to land sold, as well as capitalized interest and capitalized indirect costs impaired in order to reflect land held for sale assets at net realizable value.
To further support our efforts to improve capital efficiency, we continued to focus on closing a number of land sales in the three and nine months ended June 30, 2022 for land positions that did not fit within our strategic plans. Future land and lot sales will depend on a variety of factors, including local market conditions, individual community performance, and changing strategic plans.
The table below summarizes operating income by reportable segment for the periods presented:
Three
Months Ended June 30,
Nine Months Ended June 30,
in thousands
2022
2021
22 vs 21
2022
2021
22 vs 21
West
$
65,106
$
52,295
$
12,811
$
165,933
$
128,086
$
37,847
East
20,935
27,437
(6,502)
64,866
61,254
3,612
Southeast
14,476
14,981
(505)
32,683
40,363
(7,680)
Corporate
and unallocated (a)
(33,278)
(46,020)
12,742
(100,693)
(129,704)
29,011
Operating income
$
67,239
$
48,693
$
18,546
$
162,789
$
99,999
$
62,790
(a)
Corporate and unallocated includes amortization of capitalized interest, capitalization and amortization of indirect costs, impairment of capitalized interest and capitalized indirect costs, expenses related to numerous shared services functions that benefit all segments but are not allocated to the operating segments, and certain other amounts that are not allocated to our operating segments.
Our operating income increased by $18.5 million to $67.2 million for the three months ended June 30, 2022, compared to operating income of $48.7 million for the three months ended June 30, 2021, driven primarily by the previously discussed increase in gross profit as well as a decrease of $1.1 million, or 1.7%, in SG&A expense due to decreased commissions expense. SG&A as a percentage of total revenue increased by 70 basis points
quarter-over-quarter from 11.1% to 11.8% primarily due to decreases in closings and revenue as a result of construction cycle time extension.
Our operating income increased by $62.8 million to $162.8 million for the nine months ended June 30, 2022, compared to operating income of $100.0 million for the nine months ended June 30, 2021, driven primarily by the previously discussed increase in gross profit as well as a decrease of $0.5 million, or 0.3% in SG&A expense due to decreased commissions expense. SG&A as a percentage of total revenue increased by 40 basis points year-over-year from 11.5% to 11.9% primarily due to decreases in closings
and revenue as a result of construction cycle time extension.
West Segment: The $12.8 million increase in operating income compared to the prior year quarter was primarily due to the increase in gross profit previously discussed and lower commissions expense despite higher homebuilding revenue as we reduce our reliance on external agents given the favorable sales environment. This increase to operating income was partially offset by higher G&A expenses and higher sales and marketing expenses in the segment.
East Segment: The $6.5 million decrease in operating income compared to the prior year quarter was primarily
due to the decrease in gross profit previously discussed, higher G&A expenses, and higher sales and marketing expenses. This decrease to operating income was partially offset by lower commissions expense on lower homebuilding revenue in the segment.
Southeast Segment: The $0.5 milliondecrease in operating income compared to the prior year quarter was primarily due to the decrease in gross profit previously discussed. This decrease to operating income was partially offset by lower commissions expense on lower homebuilding revenue, lower G&A expenses, and lower sales and marketing expenses in the segment.
Corporate and Unallocated:
Our Corporate and unallocated results include amortization of capitalized interest, capitalization and amortization of indirect costs, impairment of capitalized interest and capitalized indirect costs, expenses for various shared services functions that benefit all segments but are not allocated, including information technology, treasury, corporate finance, legal, branding and national marketing, and certain other amounts that are not allocated to our operating segments. For the three months ended June 30, 2022, corporate and unallocated net expenses decreased by $12.7 million from the prior year quarter primarily due to lower amortization of capitalized interest and capitalized indirect costs to cost of sales, partially offset by higher G&A costs.
West
Segment: The $37.8 million increase in operating income compared to the prior year period was primarily due to the increase in gross profit previously discussed and lower commissions expense despite higher homebuilding revenue as we reduced our reliance on external agents given the favorable sales environment. This increase to operating income was partially offset by higher G&A expenses and higher sales and marketing expenses in the segment.
East Segment: The $3.6 million increase in operating income compared to the prior year period was primarily due to lower commissions expense
on lower homebuilding revenue. This increase to operating income was partially offset by the decrease in gross profit previously discussed, higher G&A expenses, and higher sales and marketing expenses in the segment.
Southeast Segment: The $7.7 milliondecrease in operating income compared to the prior year period was primarily due to the decrease in gross profit previously discussed. This decrease to operating income was partially offset by lower commissions expense on lower homebuilding revenue, lower G&A expenses, and lower sales and marketing expenses in the segment.
Corporate and Unallocated: For the nine months
ended June 30, 2022, corporate and unallocated net costs decreased by $29.0 million over the prior year period. The decrease was primarily due to lower amortization of capitalized interest and capitalized indirect costs to cost of sales, partially offset by higher G&A costs.
Below operating income, we had one noteworthy year-over-year fluctuations for the nine months ended June 30, 2022 compared to the prior period as follows: (1) we experienced a decline in other expense, net, primarily attributable to a year-over-year decrease in interest expense not qualified for capitalization, and (2) we recorded a loss on extinguishment of debt of $0.1 million during the current period compared to a loss of $1.6 million
in the prior year. See Note 6 and 7 of the notes to our condensed consolidated financial statements in this Form 10-Q for a further discussion of these items.
Income Taxes
Our income tax assets and liabilities and related effective tax rate are affected by various factors, the most significant of which is the valuation allowance recorded against a portion of our deferred tax assets. Due to the effect of our valuation allowance adjustments beginning in fiscal 2008, a comparison of our annual effective tax rates must consider the changes in our valuation allowance. In addition, our effective tax rate is also impacted by a variety of factors, including, but not limited to, tax credits and permanent differences. As such, our income tax expense/benefit is not always directly correlated to the amount of pre-tax income or loss for the associated periods.
We recognized income tax expense from continuing operations of $13.2 million and $29.7 million for the three and nine months ended June 30, 2022, respectively, compared to $10.8 million and $22.6 million for the three and nine months ended June 30, 2021, respectively. Income tax expense for the nine months ended June 30, 2022 was primarily driven by income tax expense on earnings from continuing operations, partially offset by the generation of additional federal tax credits and the discrete tax benefits related to stock-based compensation activity in the quarter. Income tax expense for the nine months ended June 30, 2021 was primarily driven by income tax expense on earnings from continuing operations, partially offset by the
discrete tax benefits related to stock-based compensation activity in the quarter and the resolution of a state tax audit. Refer to Note 11 of the notes to the condensed consolidated financial statements included in this Form 10-Q for further discussion of our income taxes.
Liquidity and Capital Resources
Our sources of liquidity include, but are not limited to, cash from operations, proceeds from Senior Notes, the Facility and other bank borrowings, the issuance of equity and equity-linked securities, and other external sources of funds. Our short-term and long-term liquidity depends primarily upon our level of net income, working capital management (cash, accounts receivable, accounts payable and other liabilities), and available credit facilities.
Net
changes in cash, cash equivalents, and restricted cash are as follows for the periods presented:
Nine Months Ended June 30,
in thousands
2022
2021
Cash (used in) provided by operating activities
$
(164,504)
$
78,542
Cash
used in investing activities
(10,935)
(10,011)
Cash used in financing activities
(16,903)
(28,035)
Net (decrease) increase in cash, cash equivalents, and restricted cash
Net cash used in operating activities was $164.5 million for the nine months ended June 30, 2022. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development spending. Net cash used in operating activities during the period was primarily driven by an increase in inventory of $351.4 million resulting from land acquisition, land development, and house construction spending to support continued growth. This was partially offset by cash inflows from income before income taxes of $163.6 million, which included $16.3 million of non-cash charges and and a net decrease in non-inventory working capital balances of $7.0 million.
Net cash provided
by operating activities was $78.5 million for the nine months ended June 30, 2021, primarily driven by income before income taxes of $96.2 million, which included $21.4 million of non-cash charges, and a net decrease in non-inventory working capital balances of $15.8 million, partially offset by an increase in inventory of $54.9 million resulting from land acquisition, land development, and house construction spending to support continued growth.
Investing Activities
Net cash used in investing activities for the nine months ended June 30, 2022 and June 30, 2021was $10.9 million and $10.0 million,
respectively, primarily driven in both periods by capital expenditures for model homes and information systems infrastructure.
Financing Activities
Net cash used in financing activities for the nine months ended June 30, 2022 was $16.9 million primarily driven by the repurchase of a portion of our 2025 and 2027 Senior Notes, common stock repurchases under our share repurchase program, and tax payments for stock-based compensation awards vesting.
Net cash used in financing activities for the nine months endedJune 30, 2021 was $28.0 million primarily driven by the repurchase of a portion of our 2027 Senior Notes, and tax payments for stock-based compensation awards vesting.
Financial
Position
As of June 30, 2022, our liquidity position consisted of $42.0 million in cash and cash equivalents, respectively, and $248.2 million of remaining capacity under the Facility.
While we believe we possess sufficient liquidity, we are mindful of potential short-term or seasonal requirements for enhanced liquidity that may arise to operate and grow our business. As of the date of this report, we believe we have adequate capital resources and sufficient access to external financing sources to satisfy our current and reasonably anticipated requirements for funds to conduct our operations and meet other needs in the ordinary course of our business.
During this time, we may also engage in capital markets, bank loan, project debt or other financial transactions,
including the repurchase of debt or potential new issuances of debt or equity securities to support our business needs. The amounts involved in these transactions, if any, may be material. In addition, as necessary or desirable, we may adjust or amend the terms of and/or expand the capacity of the Facility, or enter into additional letter of credit facilities, or other similar facility arrangements, in each case with the same or other financial institutions, or allow any such facilities to mature or expire.
Debt
We generally fulfill our short-term cash requirements with cash generated from our operations and available borrowings. Additionally, our Secured Revolving Credit Facility provides working capital and letter of credit capacity of $250.0 million. As of June 30, 2022 and September 30,
2021, no borrowings were outstanding under the Facility. As of June 30, 2022, we had letters of credit outstanding of $1.8 million under the Facility, resulting in a remaining capacity of $248.2 million.
We have also entered into a number of stand-alone, cash secured letter of credit agreements with banks. These combined facilities provide for letter of credit needs collateralized by either cash or assets of the Company. We currently have $28.8 million of outstanding letters of credit under these facilities, which are secured by cash collateral that is maintained in restricted accounts totaling $31.5 million.
In the future, we may from time to time seek to continue to retire or purchase our outstanding debt through cash repurchases or in exchange for other debt securities, in open market purchases, privately-negotiated transactions, or otherwise. In addition, any material variance from our projected operating results could require us to obtain additional equity or debt financing. There can be no assurance that we will be able to complete any of these transactions in the future on favorable terms or at all. See Note 7 of the notes to the condensed consolidated financial statements in this Form 10-Q for additional details related to our borrowings.
Supplemental Guarantor Information
As discussed in Note 7 of the notes to the condensed consolidated financial statements in this
Form 10-Q, the Company's obligations to pay principal and interest under certain debt agreements are guaranteed on a joint and several basis by substantially all of the Company's subsidiaries. Some of the immaterial subsidiaries do not guarantee the Senior Notes. The guarantees are full and unconditional.
The following summarized financial information is presented for Beazer Homes USA, Inc. and the guarantor subsidiaries on a combined basis after elimination of intercompany transactions between
entities in the combined group and amounts related to investments in any subsidiary that is a non-guarantor.
Our credit ratings are periodically reviewed by rating agencies. In July 2022, S&P reaffirmed the Company’s
corporate credit rating of B and the Company's positive outlook. In August 2021, Moody's upgraded the Company's issuer corporate family rating from B3 to B2 and revised the Company's outlook from positive to stable. These ratings and our current credit condition affect, among other things, our ability to access new capital. Negative changes to these ratings may result in more stringent covenants and higher interest rates under the terms of any new debt. Our credit ratings could be lowered, or rating agencies could issue adverse commentaries in the future, which could have a material adverse effect on our business, financial condition, results of operations, and liquidity. In particular, a weakening of our financial condition,
including any further increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, could result in a credit rating downgrade or change in outlook, or could otherwise increase our cost of borrowing.
Stock Repurchases and Dividends Paid
In May 2022, the Company's Board of Directors approved a new share repurchase program that authorizes the Company to repurchase up to $50.0 million of its outstanding common stock. This newly authorized program replaced the prior share repurchase program authorized in the first quarter of fiscal 2019 of up to $50.0 million of common stock repurchases, pursuant to which $12.0 million of the capacity remained prior
to the replacement of the program. As part of this new program, the Company repurchased 175 thousand shares of its common stock for $2.5 million at an average price per share of $14.47 during the three months ended June 30, 2022 through open market transactions. No share repurchases were made during fiscal year 2021. All shares have been retired upon repurchase. The aggregate reduction to stockholders’ equity related to share repurchases during the nine months ended June 30, 2022 was $2.5 million. As of June 30, 2022, the remaining availability of the new share repurchase program was $47.5 million.
The
indentures under which our Senior Notes were issued contain certain restrictive covenants, including limitations on the payment of dividends. There were no dividends paid during the three and nine months ended June 30, 2022 or 2021.
Off-Balance Sheet Arrangements and Aggregate Contractual Commitments
Lot Option Agreements
In addition to purchasing land directly, we control a portion
of our land supply through lot option agreements. In recent years, we have focused on increasing our lot option agreement usage to minimize risk as we grow our land position. As of June 30, 2022, we controlled 24,899 lots, which includes 272 lots of land held for future development and 495 lots of land held for sale. Of the total active 24,132 lots, we owned 47.9%, or 11,561 of these lots, and the remaining 12,571 of these lots, or 52.1%, were under option contracts, primarily through lot option agreements with land developers and land bankers, which generally require the payment of cash or the posting of a letter of credit for the right to acquire lots during a specified period of time at a certain price. In comparison, we controlled 9,263 lots, or 48.1% of our total active lot position,
through option contracts as of June 30, 2021. As a result of the flexibility that these options provide us, upon a change in market conditions, we may renegotiate the terms of the options prior to exercise or terminate the agreement. Under option contracts, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers, and our liability is generally limited to forfeiture of the non-refundable deposits and other non-refundable amounts incurred, which totaled approximately $137.4 million as of June 30, 2022. The total remaining purchase price, net of cash deposits, committed under all options was $819.1 million as of June 30,
2022. Based on market conditions and our liquidity, we may further expand our use of option agreements to supplement our owned inventory supply.
We expect to exercise, subject to market conditions and seller satisfaction of contract terms, most of our option contracts. Various factors, some of which are beyond our control, such as market conditions, weather conditions, and the timing of the completion of development activities, will have a significant impact on the timing of option exercises or whether lot options will be exercised at all.
We have historically funded the exercise of lot options with operating cash flows. We expect these sources to continue to be adequate to fund
anticipated future option exercises. Therefore, we do not anticipate that the exercise of our lot options will have a material adverse effect on our liquidity.
Investments in Unconsolidated Entities
Occasionally, we use legal entities in which we have less than a controlling interest. We enter into the majority of these arrangements with land developers, other homebuilders, and financial partners to acquire attractive land positions, to manage our risk profile, and to leverage our capital base. The underlying land positions are developed into finished lots for sale to the unconsolidated entity’s members or other third parties. We account for our interest in unconsolidated entities under the equity method.
Historically, we and our partners have provided varying levels of guarantees of debt or other obligations of
our unconsolidated entities. As of June 30, 2022, we had no repayment guarantees outstanding related to the debt of our unconsolidated entities. See Note 4 of the notes to the condensed consolidated financial statements in this Form 10-Q for more information.
Letters of Credit and Surety Bonds
In connection with the development of our communities, we are frequently required to provide performance, maintenance, and other bonds and letters of credit in support of our related obligations with respect to such developments. The amount of such obligations outstanding at any time varies in accordance with our pending development activities. In the event any such bonds or letters of credit are drawn upon, we would be obligated to reimburse the issuer of such bonds or letters of credit. We had
outstanding letters of credit and surety bonds of $30.6 million and $272.5 million, respectively, as of June 30, 2022, primarily related to our obligations to local governments to construct roads and other improvements in various developments.
Critical Accounting Policies and Estimates
Our critical accounting policies require the use of judgment in their application and in certain cases require estimates of inherently uncertain matters. Although our accounting policies are in compliance with accounting principles generally accepted in the United States of America (GAAP), a change in the facts and circumstances of the underlying transactions could significantly change the application of the accounting policies and the resulting financial statement impact. It is also
possible that other professionals applying reasonable judgment to the same set of facts and circumstances could reach a different conclusion. As disclosed in our 2021 Annual Report, our most critical accounting policies relate to inventory valuation of projects in progress, warranty reserves, and income tax valuation allowances. There have been no significant changes to our critical accounting policies and estimates during the nine months ended June 30, 2022 as compared to those described in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2021 Annual Report on Form 10-K.
This Quarterly Report on Form 10-Q (Form 10-Q) contains forward-looking statements. These forward-looking statements represent our expectations or beliefs concerning future events or results, and it is possible that such events or results described in this Form 10-Q will not occur or be achieved. These forward-looking statements can generally be identified by the use of statements that include words such as "outlook,""may,""will,""strategy,""believe,""expect,""anticipate,""intend,""plan,""foresee,""likely,""goal,""target,""estimate,""project,""initial" or other similar words or phrases.
These forward-looking statements involve 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 is contained in Part I, Item 1A— Risk Factors of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. 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:
•the
cyclical nature of the homebuilding industry and further deterioration in homebuilding industry conditions;
•continued increases in mortgage interest rates and reduced availability of mortgage financing due to, among other factors, recent and likely continued actions by the Federal Reserve to address sharp increases in inflation;
•other economic changes nationally and in local markets, including changes in consumer confidence, wage levels, declines in employment levels, and an increase in the number of foreclosures, each of which is outside our control and affects the affordability of, and demand for, the homes we sell;
•continued supply chain challenges negatively impacting our homebuilding production, including shortages of raw materials
and other critical components such as windows, doors, and appliances;
•continued shortages of or increased costs for labor used in housing production, and the level of quality and craftsmanship provided by such labor;
•potential negative impacts of the COVID-19 pandemic, which, in addition to exacerbating each of the risks listed above and below, may include a significant decrease in demand for our homes or consumer confidence generally with respect to purchasing a home, an inability to sell and build homes in a typical manner or at all, increased costs or decreased supply of building materials, including lumber, or the availability of subcontractors, housing inspectors, and other third-parties we rely on to support our operations, and recognizing charges in future periods, which may be material, for goodwill impairments, inventory
impairments and/or land option contract abandonments;
•factors affecting margins, such as increased sales incentives and mortgage rate buy down programs; decreased revenues; decreased land values underlying land option agreements; increased land development costs in communities under development or delays or difficulties in implementing initiatives to reduce our production and overhead cost structure; not being able to pass on cost increases through pricing increases;
•the availability and cost of land and the risks associated with the future value of our inventory, such as asset impairment charges we took on select California assets during the second quarter of fiscal 2019;
•our
ability to raise debt and/or equity capital, due to factors such as limitations in the capital markets (including market volatility) or adverse credit market conditions, and our ability to otherwise meet our ongoing liquidity needs (which could cause us to fail to meet the terms of our covenants and other requirements under our various debt instruments and therefore trigger an acceleration of a significant portion or all of our outstanding debt obligations), including the impact of any downgrades of our credit ratings or reduction in our liquidity levels;
•market perceptions regarding any capital raising initiatives we may undertake (including future issuances of equity or debt capital);
•inaccurate estimates related to homes to be delivered in the future (backlog), as they are subject to various cancellation risks that cannot be fully
controlled;
•changes in tax laws or otherwise regarding the deductibility of mortgage interest expenses and real estate taxes;
•increased competition or delays in reacting to changing consumer preferences in home design;
•natural disasters or other related events that could result in delays in land development or home construction, increase our costs or decrease demand in the impacted areas;
•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 or governmental policies, including those related to the environment;
•the results of litigation or government proceedings and fulfillment of any related obligations;
•the impact of construction defect and home warranty claims;
•the cost and availability of insurance and surety bonds, as well as the sufficiency of these instruments to cover potential losses incurred;
•the impact of information
technology failures, cybersecurity issues or data security breaches;
•the impact of governmental regulations on homebuilding in key markets, such as regulations limiting the availability of water;
•the success of our ESG initiatives, including our ability to meet our goal that every home we build will be Net Zero Energy Ready by 2025 as well as the success of any other related partnerships or pilot programs we may enter into in order to increase the energy efficiency of our homes and prepare for a Net Zero future; and
•terrorist acts, protests and civil unrest, political uncertainty, acts of war or other factors over which the Company has no control.
Any
forward-looking statement, including any statement expressing confidence regarding future outcomes, 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 to predict all such factors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a number of market risks in the ordinary course of business. Our primary market risk exposure relates to fluctuations in interest rates. We do not believe that our exposure in this area is material to our
cash flows or results of operations. As of June 30, 2022, we had variable rate debt outstanding totaling approximately $71.8 million. A one percent increase in the interest rate for these notes would result in an increase of our interest expense by approximately $1.0 million over the next twelve-month period. The estimated fair value of our fixed-rate debt as of June 30, 2022 was $819.5 million, compared to a carrying amount of $977.3 million. The effect of a hypothetical one-percentage point decrease in our estimated discount rates would increase the estimated fair value of the fixed rate debt instruments from $819.5 million to
$852.1 million as of June 30, 2022.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was performed based on criteria established in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness
of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Act). Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2022 at a reasonable assurance level.
Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of our CEO and CFO, which are required by Rule 13a-14 of the Act. This Disclosure Controls and Procedures section includes information concerning management’s evaluation of disclosure controls and procedures referred to in those certifications and should be read in conjunction with the certifications of the CEO and
CFO.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
For a discussion of our legal proceedings, see Note 9 of the notes to our condensed consolidated financial statements in this Form 10-Q.
Item 1A. Risk Factors
There have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K
for the year ended September 30, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes the Company's common stock repurchases during the third fiscal quarter of 2022:
Period
Total
Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Program
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
