10-Q 1 bzh-20220331.htm 10-Q bzh-20220331
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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
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-12822
_____________________________________________________________ 
BEAZER HOMES USA, INC.
(Exact name of registrant as specified in its charter)
 _____________________________________________________________ 
Delaware 58-2086934
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
1000 Abernathy Road, Suite 260, Atlanta, Georgia
 30328
(Address of principal executive offices) (Zip Code)
(770) 829-3700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par valueBZHNew 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 filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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


BEAZER HOMES USA, INC.
TABLE OF CONTENTS
 
1

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 cash33,343 27,428 
Accounts receivable (net of allowance of $290 and $290, respectively)
24,289 25,685 
Income tax receivable9,866 9,929 
Owned inventory1,676,972 1,501,602 
Investments in unconsolidated entities4,667 4,464 
Deferred tax assets, net190,876 204,766 
Property and equipment, net23,168 22,885 
Operating lease right-of-use assets11,301 12,344 
Goodwill11,376 11,376 
Other assets10,241 11,616 
Total assets$2,160,004 $2,078,810 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable$147,257 $133,391 
Operating lease liabilities12,912 14,154 
Other liabilities147,583 152,351 
Total debt (net of debt issuance costs of $8,151 and $8,983, respectively)
1,049,895 1,054,030 
Total liabilities1,357,647 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 capital864,074 866,158 
Accumulated deficit(61,748)(141,305)
Total stockholders’ equity802,357 724,884 
Total liabilities and stockholders’ equity$2,160,004 $2,078,810 
See accompanying notes to condensed consolidated financial statements.
2

BEAZER HOMES USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months EndedSix Months Ended
 March 31,March 31,
 in thousands (except per share data)2022202120222021
Total revenue$508,506 $549,889 $962,655 $978,428 
Home construction and land sales expenses387,821 451,963 744,570 804,744 
Inventory impairments and abandonments935  935 465 
Gross profit119,750 97,926 217,150 173,219 
Commissions16,578 20,884 32,391 37,391 
General and administrative expenses45,530 39,741 83,297 77,717 
Depreciation and amortization3,031 3,683 5,912 6,805 
Operating income54,611 33,618 95,550 51,306 
Equity in income of unconsolidated entities163 186 451 111 
Loss on extinguishment of debt, net(164)(563)(164)(563)
Other income (expense), net140 (894)271 (2,346)
Income from continuing operations before income taxes54,750 32,347 96,108 48,508 
Expense from income taxes10,072 7,704 16,535 11,829 
Income from continuing operations44,678 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:
Basic30,594 29,953 30,464 29,862 
Diluted30,823 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.

3

BEAZER HOMES USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

Three Months Ended March 31, 2022
Common StockPaid-in CapitalAccumulated Deficit
in thousandsSharesAmountTotal
Balance as of December 31, 202131,460 $31 $861,648 $(106,420)$755,259 
Net income and comprehensive income— — 44,672 44,672 
Stock-based compensation expense1 — 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, 202231,458 $31 $864,074 $(61,748)$802,357 
Six Months Ended March 31, 2022
Common StockPaid-in CapitalAccumulated Deficit
in thousandsSharesAmountTotal
Balance as of September 30, 202131,294 $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 exercises1 — 4 — 4 
Shares issued under employee stock plans, net517 — — — — 
Forfeiture and other settlements of restricted stock(47)— — —  
Common stock redeemed for tax liability(307)— (6,620)— (6,620)
Balance as of March 31, 202231,458 $31 $864,074 $(61,748)$802,357 
4

BEAZER HOMES USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

Three Months Ended March 31, 2021
Common StockPaid-in CapitalAccumulated Deficit
in thousandsSharesAmountTotal
Balance as of December 31, 202031,254 $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 exercises51 — 628 — 628 
Forfeiture and other settlements of restricted stock(16)— — — — 
Balance as of March 31, 202131,289 $31 $860,537 $(226,801)$633,767 

Six Months Ended March 31, 2021
Common StockPaid-in CapitalAccumulated Deficit
in thousandsSharesAmountTotal
Balance as of September 30, 202031,012 $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 exercises168 — 631 — 631 
Shares issued under employee stock plans, net411 — — — — 
Forfeiture and other settlements of restricted stock(16)—  —  
Common stock redeemed for tax liability(286)— (2,620)— (2,620)
Balance as of March 31, 202131,289 $31 $860,537 $(226,801)$633,767 
See accompanying notes to condensed consolidated financial statements.

5

BEAZER HOMES USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
 March 31,
in thousands20222021
Cash flows from operating activities:
Net income79,557 $36,525 
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization5,912 6,805 
Stock-based compensation expense4,532 6,060 
Inventory impairments and abandonments935 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 entities248  
Loss on extinguishment of debt, net164 563 
Changes in operating assets and liabilities:
Decrease in accounts receivable1,396 2,719 
Decrease in income tax receivable 49 
Increase in inventory(174,225)(31,231)
Decrease in other assets1,109 1,327 
Increase in trade accounts payable13,866 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 assets159 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 exercises4 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 period274,143 342,528 
Cash, cash equivalents, and restricted cash at end of period$197,248 $373,695 
See accompanying notes to condensed consolidated financial statements.
6

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 EndedSix Months Ended
March 31, March 31,
in thousands2022202120222021
Homebuilding revenue$507,208 $547,417 $953,937 $971,646 
Land sales and other revenue1,298 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 thousands20222021
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 payments2,578 143 
Tax refunds received 49 
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents$163,905 $355,533 
Restricted cash33,343 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 thousandsMarch 31, 2022September 30, 2021
Investment in unconsolidated entities$4,667 $4,464 
Total equity of unconsolidated entities7,491 7,316 
Total outstanding borrowings of unconsolidated entities15,549 12,708 
Equity in income from unconsolidated entity activities included in income from continuing operations is as follows for the periods presented:
Three Months EndedSix Months Ended
March 31, March 31,
in thousands2022202120222021
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 thousandsMarch 31, 2022September 30, 2021
Homes under construction$838,139 $648,283 
Land under development619,385 648,404 
Land held for future development19,879 19,879 
Land held for sale14,167 9,179 
Capitalized interest112,686 106,985 
Model homes72,716 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 DevelopmentLand Held for SaleTotal Owned
Inventory
March 31, 2022
West$876,616 $3,483 $11,726 $891,825 
East294,345 10,888  305,233 
Southeast301,079 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 
East264,991 10,888 584 276,463 
Southeast269,738 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 thousands2022202120222021
Land Held for Sale:
West$440 $ $440 $ 
Total impairment charges on land held for sale$440 $ $440 $ 
Abandonments:
West$12 $ $12 $ 
East  465 
Southeast483  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 thousands2022202120222021
Capitalized interest in inventory, beginning of period$110,516 $119,148 $106,985 $119,659 
Interest incurred18,253 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 thousandsMaturity DateMarch 31, 2022September 30, 2021
Senior Unsecured Term LoanSeptember 2022$50,000 $50,000 
6 3/4% Senior Notes (2025 Notes)March 2025229,555 229,555 
5 7/8% Senior Notes (2027 Notes)October 2027357,255 363,255 
7 1/4% Senior Notes (2029 Notes)October 2029350,000 350,000 
Unamortized debt issuance costs(8,151)(8,983)
Total Senior Notes, net978,659 983,827 
Junior Subordinated Notes (net of unamortized accretion of $29,536 and $30,570, respectively)
July 203671,236 70,203 
Revolving Credit FacilityFebruary 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.
15

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 DescriptionIssuance DateMaturity DateRedemption Terms
6 3/4% Senior NotesMarch 2017March 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 NotesOctober 2017October 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 NotesSeptember 2019October 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 thousands2022202120222021
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,
20222021
Weighted-average remaining lease term4.6 years5.0 years
Weighted-average discount rate4.42%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)
$2,158 
20233,719 
20242,601 
20252,257 
20261,643 
Thereafter1,928 
    Total lease payments14,306 
    Less: Imputed interest1,394 
    Total operating lease liabilities$12,912 
(a) Remaining lease payments are for the period beginning April 1, 2022 through September 30, 2022.
(9) Contingencies
Beazer Homes and certain of its subsidiaries have been and continue to be named as defendants in various construction defect claims, complaints, and other legal actions. The Company is subject to the possibility of loss contingencies related to these defects as well as others arising from its business. In determining loss contingencies, we consider the likelihood of loss and our ability to reasonably estimate the amount of such loss. An estimated loss is recorded when it is considered probable that a liability has been incurred and the amount of loss can be reasonably estimated.
Warranty Reserves
We currently provide a limited warranty ranging from one to two years covering workmanship and materials per our defined quality standards. In addition, we provide a limited warranty for up to ten years covering only certain defined structural element failures.
Our homebuilding work is performed by subcontractors who typically must agree to indemnify us with regard to their work and provide certificates of insurance demonstrating that they have met our insurance requirements and have named us as an additional insured under their policies. Therefore, many claims relating to workmanship and materials that result in warranty spending are the primary responsibility of these subcontractors.
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.