Form 10-Q BEAZER HOMES USA INC For: Mar 31

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________________________________________

FORM 10-Q

_____________________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-12822

_____________________________________________________________

BEAZER HOMES USA, INC.

(Exact name of registrant as specified in its charter)

_____________________________________________________________


Delaware						58-2086934
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


1000 Abernathy Road, Suite 260, Atlanta, Georgia						30328
(Address of principal executive offices)						(Zip Code)

(770) 829-3700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	BZH	New York Stock Exchange

_____________________________________________________________

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. Yes ☒ 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). Yes ☒ 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

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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 ☐ No ☒

Number of shares of common stock outstanding as of April 25, 2022: 31,457,627

Table of Contents

BEAZER HOMES USA, INC.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION			2
Item 1. Financial Statements			2
Condensed Consolidated Balance Sheets as of March 31, 2022 and September 30, 2021 (Unaudited)			2
Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2022 and 2021 (Unaudited)			3
Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended March 31, 2022 and 2021 (Unaudited)			4
Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2022 and 2021 (Unaudited)			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3. Quantitative and Qualitative Disclosures About Market Risk			44
Item 4. Controls and Procedures			44
Item 5. Other Information			45

PART II. OTHER INFORMATION			45
Item 1. Legal Proceedings			45
Item 1A. Risk Factors			45
Item 6. Exhibits			45

SIGNATURES			46

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BEAZER HOMES USA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


in thousands (except share and per share data)	March 31, 2022		September 30, 2021
ASSETS
Cash and cash equivalents	$	163,905	$	246,715
Restricted cash	33,343		27,428
Accounts receivable (net of allowance of $290 and $290, respectively)	24,289		25,685
Income tax receivable	9,866		9,929

Owned inventory	1,676,972		1,501,602


Investments in unconsolidated entities	4,667		4,464
Deferred tax assets, net	190,876		204,766
Property and equipment, net	23,168		22,885
Operating lease right-of-use assets	11,301		12,344
Goodwill	11,376		11,376
Other assets	10,241		11,616
Total assets	$	2,160,004	$	2,078,810
LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable	$	147,257	$	133,391
Operating lease liabilities	12,912		14,154
Other liabilities	147,583		152,351

Total debt (net of debt issuance costs of $8,151 and $8,983, respectively)	1,049,895		1,054,030
Total liabilities	1,357,647		1,353,926
Stockholders’ equity:
Preferred stock (par value $0.01 per share, 5,000,000 shares authorized, no shares issued)	—		—
Common stock (par value $0.001 per share, 63,000,000 shares authorized, 31,457,627 issued and outstanding and 31,294,198 issued and outstanding, respectively)	31		31
Paid-in capital	864,074		866,158
Accumulated deficit	(61,748)		(141,305)

Total stockholders’ equity	802,357		724,884
Total liabilities and stockholders’ equity	$	2,160,004	$	2,078,810

See accompanying notes to condensed consolidated financial statements.

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BEAZER HOMES USA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended				Six Months Ended
	March 31,				March 31,
in thousands (except per share data)	2022		2021		2022		2021
Total revenue	$	508,506	$	549,889	$	962,655	$	978,428
Home construction and land sales expenses	387,821		451,963		744,570		804,744
Inventory impairments and abandonments	935		—		935		465
Gross profit	119,750		97,926		217,150		173,219
Commissions	16,578		20,884		32,391		37,391
General and administrative expenses	45,530		39,741		83,297		77,717
Depreciation and amortization	3,031		3,683		5,912		6,805


Operating income	54,611		33,618		95,550		51,306
Equity in income of unconsolidated entities	163		186		451		111
Loss on extinguishment of debt, net	(164)		(563)		(164)		(563)
Other income (expense), net	140		(894)		271		(2,346)
Income from continuing operations before income taxes	54,750		32,347		96,108		48,508
Expense from income taxes	10,072		7,704		16,535		11,829
Income from continuing operations	44,678		24,643		79,573		36,679
Loss from discontinued operations, net of tax	(6)		(115)		(16)		(154)
Net income	$	44,672	$	24,528	$	79,557	$	36,525
Weighted-average number of shares:
Basic	30,594		29,953		30,464		29,862
Diluted	30,823		30,215		30,772		30,150

Basic income (loss) per share:
Continuing operations	$	1.46	$	0.82	$	2.61	$	1.23
Discontinued operations	—		—		—		(0.01)
Total	$	1.46	$	0.82	$	2.61	$	1.22
Diluted income (loss) per share:
Continuing operations	$	1.45	$	0.81	$	2.59	$	1.22
Discontinued operations	—		—		—		(0.01)
Total	$	1.45	$	0.81	$	2.59	$	1.21

See accompanying notes to condensed consolidated financial statements.

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BEAZER HOMES USA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)



	Three Months Ended March 31, 2022
	Common Stock			Paid-in Capital		Accumulated Deficit
in thousands	Shares	Amount						Total
Balance as of December 31, 2021	31,460	$	31	$	861,648	$	(106,420)	$	755,259
Net income and comprehensive income	—	—				44,672		44,672
Stock-based compensation expense	1	—		2,424		—		2,424
Stock option exercises	—	—		4		—		4

Forfeiture and other settlements of restricted stock	(3)	—		—		—		—
Common stock redeemed for tax liability	—	—		(2)		—		(2)


Balance as of March 31, 2022	31,458	$	31	$	864,074	$	(61,748)	$	802,357


	Six Months Ended March 31, 2022
	Common Stock			Paid-in Capital		Accumulated Deficit
in thousands	Shares	Amount						Total
Balance as of September 30, 2021	31,294	$	31	$	866,158	$	(141,305)	$	724,884
Net income and comprehensive income	—	—		—		79,557		79,557
Stock-based compensation expense	—	—		4,532		—		4,532
Stock option exercises	1	—		4		—		4
Shares issued under employee stock plans, net	517	—		—		—		—
Forfeiture and other settlements of restricted stock	(47)	—		—		—		—
Common stock redeemed for tax liability	(307)	—		(6,620)		—		(6,620)


Balance as of March 31, 2022	31,458	$	31	$	864,074	$	(61,748)	$	802,357

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BEAZER HOMES USA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)



	Three Months Ended March 31, 2021
	Common Stock			Paid-in Capital		Accumulated Deficit
in thousands	Shares	Amount						Total
Balance as of December 31, 2020	31,254	$	31	$	857,360	$	(251,329)	$	606,062
Net income and comprehensive income	—	—		—		24,528		24,528
Stock-based compensation expense	—	—		2,549		—		2,549
Stock option exercises	51	—		628		—		628

Forfeiture and other settlements of restricted stock	(16)	—		—		—		—


Balance as of March 31, 2021	31,289	$	31	$	860,537	$	(226,801)	$	633,767


	Six Months Ended March 31, 2021
	Common Stock			Paid-in Capital		Accumulated Deficit
in thousands	Shares	Amount						Total
Balance as of September 30, 2020	31,012	$	31	$	856,466	$	(263,326)	$	593,171
Net income and comprehensive income	—	—		—		36,525		36,525
Stock-based compensation expense	—	—		6,060		—		6,060
Stock option exercises	168	—		631		—		631
Shares issued under employee stock plans, net	411	—		—		—		—
Forfeiture and other settlements of restricted stock	(16)	—		—		—		—
Common stock redeemed for tax liability	(286)	—		(2,620)		—		(2,620)


Balance as of March 31, 2021	31,289	$	31	$	860,537	$	(226,801)	$	633,767

See accompanying notes to condensed consolidated financial statements.

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BEAZER HOMES USA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended
	March 31,
in thousands	2022		2021
Cash flows from operating activities:
Net income	79,557		$	36,525
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	5,912		6,805
Stock-based compensation expense	4,532		6,060
Inventory impairments and abandonments	935		465

Deferred and other income tax expense	16,531		11,786

Gain on sale of fixed assets	(159)		(170)
Change in allowance for doubtful accounts	—		(60)

Equity in income of unconsolidated entities	(451)		(111)
Cash distributions of income from unconsolidated entities	248		—
Loss on extinguishment of debt, net	164		563
Changes in operating assets and liabilities:
Decrease in accounts receivable	1,396		2,719
Decrease in income tax receivable	—		49
Increase in inventory	(174,225)		(31,231)
Decrease in other assets	1,109		1,327
Increase in trade accounts payable	13,866		18,440
Decrease in other liabilities	(7,545)		(3,028)

Net cash (used in) provided by operating activities	(58,130)		50,139
Cash flows from investing activities:
Capital expenditures	(6,195)		(6,514)
Proceeds from sale of fixed assets	159		170



Net cash used in investing activities	(6,036)		(6,344)
Cash flows from financing activities:
Repayment of debt	(6,113)		(10,212)




Debt issuance costs	—		(427)




Tax payments for stock-based compensation awards	(6,620)		(2,620)
Stock option exercises	4		631



Net cash used in financing activities	(12,729)		(12,628)
Net (decrease) increase in cash, cash equivalents, and restricted cash	(76,895)		31,167
Cash, cash equivalents, and restricted cash at beginning of period	274,143		342,528
Cash, cash equivalents, and restricted cash at end of period	$	197,248	$	373,695

See accompanying notes to condensed consolidated financial statements.

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BEAZER HOMES USA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Description of Business

Beazer Homes USA, Inc. (“we,” “us,” “our,” “Beazer,” “Beazer Homes” and the “Company”) is a geographically diversified homebuilder with active operations in 13 states within three geographic regions in the United States: the West, East, and Southeast.

Our homes are designed to appeal to homeowners at different price points across various demographic segments and are generally offered for sale in advance of their construction. Our objective is to provide our customers with homes that incorporate exceptional value and quality, while seeking to maximize our return on invested capital over the course of a housing cycle.

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) Basis 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 six months ended March 31, 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.

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).

Our fiscal year 2022 began on October 1, 2021 and ends on September 30, 2022. Our fiscal year 2021 began on October 1, 2020 and ended on September 30, 2021.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make informed estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Accordingly, actual results could differ from these estimates.

Share Repurchase Program

During the first quarter of fiscal 2019, the Company's Board of Directors approved a share repurchase program that authorizes the Company to repurchase up to $50.0 million of its outstanding common stock. As part of this program, the Company repurchased common stock during fiscal 2019 and 2020 through open market transactions, 10b5-1 plans, and accelerated share repurchase (ASR) agreements. All shares have been retired upon repurchase. The aggregate reduction to stockholders’ equity related to share repurchases during the fiscal year ended September 30, 2020 and September 30, 2019 was $3.3 million and $34.6 million, respectively. No share repurchases were made during fiscal year 2021 or the six months ended March 31, 2022. As of March 31, 2022, the remaining availability of the share repurchase program was $12.0 million.

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Revenue Recognition

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.

•Identify the contract(s) with a customer

•Identify the performance obligations

•Determine the transaction price

•Allocate the transaction price

•Recognize revenue when the performance obligations are met

The following table presents our total revenue disaggregated by revenue stream:


	Three Months Ended				Six Months Ended
	March 31,				March 31,
in thousands	2022		2021		2022		2021
Homebuilding revenue	$	507,208	$	547,417	$	953,937	$	971,646
Land sales and other revenue	1,298		2,472		8,718		6,782
Total revenue (a)	$	508,506	$	549,889	$	962,655	$	978,428

(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 $38.4 million and $28.5 million as of March 31, 2022 and September 30, 2021, respectively. Of the customer liabilities outstanding as of September 30, 2021, $7.5 million and $17.7 million was recognized in revenue during the three and six months ended March 31, 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.

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.

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(3) Supplemental Cash Flow Information

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:


	Six Months Ended
	March 31,
in thousands	2022		2021
Supplemental disclosure of non-cash activity:











Increase in operating lease right-of-use assets (a)	$	626	$	1,453
Increase in operating lease liabilities (a)	626		1,453
Supplemental disclosure of cash activity:
Interest payments	$	34,649	$	37,412
Income tax payments	2,578		143
Tax refunds received	—		49
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	163,905	$	355,533
Restricted cash	33,343		18,162
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	197,248	$	373,695

(a) Represents leases renewed or additional leases commenced during the six months ended March 31, 2022 and March 31, 2021.

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(4) Investments in Unconsolidated Entities

Unconsolidated Entities

As of March 31, 2022, the Company participated in certain joint ventures and had investments in unconsolidated entities in which it had less than a controlling interest. The following table presents the Company's investment in these unconsolidated entities as well as the total equity and outstanding borrowings of these unconsolidated entities as of March 31, 2022 and September 30, 2021:


in thousands	March 31, 2022		September 30, 2021
Investment in unconsolidated entities	$	4,667	$	4,464
Total equity of unconsolidated entities	7,491		7,316
Total outstanding borrowings of unconsolidated entities	15,549		12,708

Equity in income from unconsolidated entity activities included in income from continuing operations is as follows for the periods presented:


	Three Months Ended				Six Months Ended
	March 31,				March 31,
in thousands	2022		2021		2022		2021

Equity in income of unconsolidated entities	$	163	$	186	$	451	$	111

For the six months ended March 31, 2022 and 2021, there were no 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 March 31, 2022 and September 30, 2021, the Company had no outstanding guarantees or other debt-related obligations related to our investments in unconsolidated entities.

The Company and its joint venture partners generally provide unsecured environmental indemnities to land development joint venture project lenders. These indemnities obligate the Company to reimburse the project lenders for claims related to environmental matters for which they are held responsible. During the three and six months ended March 31, 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 March 31, 2022, no liability was recorded for the contingent aspects of any guarantees that were determined to be reasonably possible but not probable.

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(5) Owned Inventory

The components of our owned inventory are as follows as of March 31, 2022 and September 30, 2021:


in thousands	March 31, 2022		September 30, 2021
Homes under construction	$	838,139	$	648,283
Land under development	619,385		648,404
Land held for future development	19,879		19,879
Land held for sale	14,167		9,179
Capitalized interest	112,686		106,985
Model homes	72,716		68,872
Total owned inventory	$	1,676,972	$	1,501,602

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 March 31, 2022, we had 3,568 homes under construction, including 775 spec homes totaling $157.2 million (725 in-process spec homes totaling $139.0 million, and 50 finished spec homes totaling $18.2 million). As of September 30, 2021, we had 2,912 homes under construction, including 576 spec homes totaling $116.4 million (542 in-process spec units totaling $105.2 million, and 34 finished spec units totaling $11.2 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).

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Total owned inventory by reportable segment is presented in the table below as of March 31, 2022 and September 30, 2021:


in thousands	Projects in Progress (a)		Land Held for Future Development		Land Held for Sale		Total Owned Inventory
March 31, 2022
West	$	876,616	$	3,483	$	11,726	$	891,825
East	294,345		10,888		—		305,233
Southeast	301,079		5,508		2,441		309,028
Corporate and unallocated (b)	170,886		—		—		170,886
Total	$	1,642,926	$	19,879	$	14,167	$	1,676,972
September 30, 2021
West	$	781,036	$	3,483	$	4,478	$	788,997
East	264,991		10,888		584		276,463
Southeast	269,738		5,508		4,117		279,363
Corporate and unallocated (b)	156,779		—		—		156,779
Total	$	1,472,544	$	19,879	$	9,179	$	1,501,602

(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.

The following table presents, by reportable segment, our total impairment and abandonment charges for the periods presented:



	Three Months Ended March 31,				Six Months Ended March 31,
in thousands	2022		2021		2022		2021






Land Held for Sale:
West	$	440	$	—	$	440	$	—



Total impairment charges on land held for sale	$	440	$	—	$	440	$	—
Abandonments:
West	$	12	$	—	$	12	$	—
East	—				—		465
Southeast	483		—		483		—

Total abandonments charges	$	495	$	—	$	495	$	465






Total impairment and abandonment charges	$	935	$	—	$	935	$	465

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 ten 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.

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No project in progress impairments were recognized during the three and six months ended March 31, 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.

We recognized $0.4 million land held for sale impairments during the three and six months ended March 31, 2022 related to one held for sale community in the West segment. No land held for sale impairments were recognized during the three and six months ended March 31, 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.

We recognized $0.5 million abandonment charges during the three and six months ended March 31, 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 months ended March 31, 2021, no abandonment charges were recognized. During the six months ended March 31, 2021, we recognized $0.5 million abandonment charges in the East segment related to one under contract deal that we decided to terminate.

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.

The following table provides a summary of our interests in lot option agreements as of March 31, 2022 and September 30, 2021:


in thousands	Deposits & Non-refundable Pre-acquisition Costs Incurred (a)		Remaining Obligation, Net of Deposits
As of March 31, 2022


Unconsolidated lot option agreements	$	131,971	$	772,584

As of September 30, 2021


Unconsolidated lot option agreements	$	114,688	$	676,149

(a) Amount is included as a component of land under development within our owned inventory in the condensed consolidated balance sheet.

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(6) Interest

Interest capitalized during the three and six months ended March 31, 2022 and 2021 was limited by the balance of inventory eligible for capitalization. The following table presents certain information regarding interest for the periods presented:


	Three Months Ended March 31,				Six Months Ended March 31,
in thousands	2022		2021		2022		2021
Capitalized interest in inventory, beginning of period	$	110,516	$	119,148	$	106,985	$	119,659
Interest incurred	18,253		19,345		36,564		39,247

Interest expense not qualified for capitalization and included as other expense (a)	—		(969)		—		(2,569)
Capitalized interest amortized to home construction and land sales expenses (b)	(16,083)		(24,110)		(30,863)		(42,923)
Capitalized interest in inventory, end of period	$	112,686	$	113,414	$	112,686	$	113,414

(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.

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(7) Borrowings

The Company's debt, net of unamortized debt issuance costs consisted of the following as of March 31, 2022 and September 30, 2021:


in thousands	Maturity Date	March 31, 2022		September 30, 2021
Senior Unsecured Term Loan	September 2022	$	50,000	$	50,000
6 3/4% Senior Notes (2025 Notes)	March 2025	229,555		229,555
5 7/8% Senior Notes (2027 Notes)	October 2027	357,255		363,255
7 1/4% Senior Notes (2029 Notes)	October 2029	350,000		350,000


Unamortized debt issuance costs		(8,151)		(8,983)
Total Senior Notes, net		978,659		983,827
Junior Subordinated Notes (net of unamortized accretion of $29,536 and $30,570, respectively)	July 2036	71,236		70,203

Revolving Credit Facility	February 2024	—		—

Total debt, net		$	1,049,895	$	1,054,030

Secured Revolving Credit Facility

The Secured Revolving Credit Facility (the Facility) provides working capital and letter of credit capacity of $250.0 million. The Facility is currently with four lenders. For additional discussion of the Facility, refer to Note 8 to the audited consolidated financial statements within our 2021 Annual Report.

As of March 31, 2022 and September 30, 2021, no borrowings and no letters of credit were outstanding under the Facility, resulting in a remaining capacity of $250.0 million. The Facility requires compliance with certain covenants, including negative covenants and financial covenants. As of March 31, 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 March 31, 2022 was $50.0 million. The Term Loan (1) will mature in September 2022, with the remaining $50.0 million annual repayment installment due in September 2022; (2) bears interest at a fixed rate of 4.875%; 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 March 31, 2022, the Company believes it was in compliance with all such covenants.

Letter of Credit Facilities

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 March 31, 2022 and September 30, 2021, the Company had letters of credit outstanding under these additional facilities of $26.4 million and $21.8 million, respectively, all of which were secured by cash collateral in restricted accounts totaling $26.1 million and $22.3 million, respectively. The Company may enter into additional arrangements to provide additional letter of credit capacity.

In May 2018, the Company entered into a reimbursement agreement, which provides for the issuance of performance letters of credit, and an unsecured credit agreement that provides for the issuance of up to $50.0 million of standby letters of credit to backstop the Company's obligations under the reimbursement agreement (collectively, the "Bilateral Facility"). The Bilateral Facility will terminate on June 10, 2022. As of March 31, 2022, the total stated amount of performance letters of credit issued under the reimbursement agreement was $8.2 million (and the stated amount of the backstop standby letter of credit issued under the credit agreement was $40.0 million). The Company may enter into additional arrangements to provide greater 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 100% owned subsidiary of Beazer Homes.

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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 March 31, 2022.

During the three and six months ended March 31, 2022, we repurchased $6.0 million of our outstanding 2027 Notes using cash on hand, resulting in a loss on extinguishment of debt of $0.2 million.

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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

6 3/4% Senior Notes

March 2017

March 2025

Callable at any time prior to March 15, 2020, in whole or in part, at a redemption price equal to 100.000% of the principal amount, plus a customary make-whole premium; on or after March 15, 2020, callable at a redemption price equal to 105.063% of the principal amount; on or after March 15, 2021, callable at a redemption price equal to 103.375% of the principal amount; on or after March 15, 2022, callable at a redemption price equal to 101.688% of the principal amount; on or after March 15, 2023, callable at a redemption price equal to 100.000% of the principal amount, plus, in each case, accrued and unpaid interest.

5 7/8% Senior Notes

October 2017

October 2027

On or prior to October 15, 2022, we may redeem up to 35% of the aggregate principal amount of the 2027 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to 105.875% of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at least 65% of the aggregate principal amount of the 2027 Notes originally issued remains outstanding immediately after such redemption.

Callable at any time prior to October 15, 2022, in whole or in part, at a redemption price equal to 100.000% of the principal amount, plus a customary make-whole premium; on or after October 15, 2022, callable at a redemption price equal to 102.938% of the principal amount; on or after October 15, 2023, callable at a redemption price equal to 101.958% of the principal amount; on or after October 15, 2024, callable at a redemption price equal to 100.979% of the principal amount; on or after October 15, 2025, callable at a redemption price equal to 100.000% of the principal amount, plus, in each case, accrued and unpaid interest.

7 1/4% Senior Notes

September 2019

October 2029

On or prior to October 15, 2022, we may redeem up to 35% of the aggregate principal amount of the 2029 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to 107.250% of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at least 65% of the aggregate principal amount of the 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 100.000% of the principal amount, plus a customary make-whole premium; on or after October 15, 2024, callable at a redemption price equal to 103.625% of the principal amount; on or after October 15, 2025, callable at a redemption price equal to 102.417% of the principal amount; on or after October 15, 2026, callable at a redemption price equal to 101.208% of the principal amount; on or after October 15, 2027, callable at a redemption price equal to 100.000% of the principal amount, plus, in each case, accrued and unpaid interest.

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Junior Subordinated Notes

The Company's unsecured junior subordinated notes (Junior Subordinated Notes) mature on July 30, 2036 and have an aggregate principal balance of $100.8 million as of March 31, 2022. The securities have a floating interest rate as defined in the Junior Subordinated Notes Indentures, which was a weighted-average of 3.87% as of March 31, 2022. The obligations relating to these notes are subordinated to the Facility and the Senior Notes. In January 2010, the Company restructured $75.0 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 March 31, 2022, the unamortized accretion was $29.5 million and will be amortized over the remaining life of the restructured notes. The remaining $25.8 million of these notes are subject to the terms of the original agreement, have a floating interest rate equal to three-month LIBOR plus 2.45% per annum, resetting quarterly, and are redeemable in whole or in part at par value. The material terms of the $75.0 million restructured notes are identical to the terms of the original agreement except that the floating interest rate is subject to a floor of 4.25% and a cap of 9.25%. In addition, beginning on June 1, 2012, the Company has the option to redeem the $75.0 million principal balance in whole or in part at 75% of par value; beginning on June 1, 2022, the redemption price will increase by 1.785% annually. As of March 31, 2022, the Company believes it was in compliance with all covenants under the Junior Subordinated Notes.

(8) Operating 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. For the three and six months ended March 31, 2022 and 2021, operating lease expense and cash payments on lease liabilities were as follows:


	Three Months Ended March 31,				Six Months Ended March 31,
in thousands	2022		2021		2022		2021
Operating lease expense	$	979	$	1,085	$	1,978	$	2,173
Cash payments on lease liabilities	$	1,090	$	1,167	$	2,176	$	2,519

At March 31, 2022 and 2021, the weighted-average remaining lease term and discount rate were as follows:


	As of March 31,
	2022	2021
Weighted-average remaining lease term	4.6 years	5.0 years
Weighted-average discount rate	4.42%	4.76%

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The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of March 31, 2022:


Fiscal Years Ending September 30,
in thousands
2022 (a)