10-K 1 bzh-20220930.htm 10-K bzh-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________________________ 
FORM 10-K
_____________________________________________________________ 
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 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


Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  ¨ No  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes  ¨ No  
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 (§ 232.405 of this chapter) 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” and “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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES      NO  ☒
The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant as of March 31, 2022, based on the closing sale price per share as reported by the New York Stock Exchange on such date, was $460,369,020.
Class Outstanding at November 7, 2022
Common Stock, $0.001 par value 30,880,138

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the registrant’s 2022 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K to the extent stated herein. The Proxy Statement will be filed within 120 days of the registrant’s fiscal year ended September 30, 2022.





BEAZER HOMES USA, INC.
TABLE OF CONTENTS
 




References to “we,” “us,” “our,” “Beazer,” “Beazer Homes” and the “Company” in this Annual Report on Form 10-K refer to Beazer Homes USA, Inc.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (Form 10-K) contains forward-looking statements. These forward-looking statements represent our expectations or beliefs concerning future events or results, and it is possible that such events or results described in this Form 10-K will not occur or be achieved. These forward-looking statements can generally be identified by the use of statements that include words such as "outlook," "may," "will," "strategy," "believe," "expect," "anticipate," "intend," "plan,"
"foresee," "likely," "goal," "target," "estimate," "project," "initial" or other similar words or phrases.
These forward-looking statements involve risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, among other things, the matters discussed in this Form 10-K in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Additional information about factors that could lead to material changes is contained in Part I, Item 1A Risk Factors of this Form 10-K. These factors are not intended to be an all-inclusive list of risks and uncertainties that may affect the operations, performance, development and results of our business, but instead are the risks that we currently perceive as potentially being material. Such factors may include:
the cyclical nature of the homebuilding industry and further deterioration in homebuilding industry conditions;
continued increases in mortgage interest rates and reduced availability of mortgage financing due to, among other factors, recent and likely continued actions by the Federal Reserve to address sharp increases in inflation;
other economic changes nationally and in local markets, including changes in consumer confidence, wage levels, declines in employment levels, and an increase in the number of foreclosures, each of which is outside our control and affects the affordability of, and demand for, the homes we sell;
continued supply chain challenges negatively impacting our homebuilding production, including shortages of raw materials and other critical components such as windows, doors, and appliances;
continued shortages of or increased costs for labor used in housing production, and the level of quality and craftsmanship provided by such labor;
inaccurate estimates related to homes to be delivered in the future (backlog), as they are subject to various cancellation risks that cannot be fully controlled;
potential negative impacts of the COVID-19 pandemic, which, in addition to exacerbating each of the risks listed above and below, may include a significant decrease in demand for our homes or consumer confidence generally with respect to purchasing a home, an inability to sell and build homes in a typical manner or at all, increased costs or decreased supply of building materials, including lumber, or the availability of subcontractors, housing inspectors, and other third-parties we rely on to support our operations, and recognizing charges in future periods, which may be material, for goodwill impairments, inventory impairments and/or land option agreement abandonments;
factors affecting margins, such as increased sales incentives and mortgage rate buy down programs; decreased revenues; decreased land values underlying land option agreements; increased land development costs in communities under development or delays or difficulties in implementing initiatives to reduce our production and overhead cost structure; not being able to pass on cost increases through pricing increases;
the availability and cost of land and the risks associated with the future value of our inventory, such as asset impairment charges we took on select California assets during the second quarter of fiscal 2019;
our ability to raise debt and/or equity capital, due to factors such as limitations in the capital markets (including market volatility) or adverse credit market conditions, and our ability to otherwise meet our ongoing liquidity needs (which could cause us to fail to meet the terms of our covenants and other requirements under our various debt instruments and therefore trigger an acceleration of a significant portion or all of our outstanding debt obligations), including the impact of any downgrades of our credit ratings or reduction in our liquidity levels;
market perceptions regarding any capital raising initiatives we may undertake (including future issuances of equity or debt capital);
changes in tax laws or otherwise regarding the deductibility of mortgage interest expenses and real estate taxes;
increased competition or delays in reacting to changing consumer preferences in home design;
natural disasters or other related events that could result in delays in land development or home construction, increase our costs or decrease demand in the impacted areas;
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the potential recoverability of our deferred tax assets;
increases in corporate tax rates;
potential delays or increased costs in obtaining necessary permits as a result of changes to, or complying with, laws, regulations or governmental policies, and possible penalties for failure to comply with such laws, regulations or governmental policies, including those related to the environment;
the results of litigation or government proceedings and fulfillment of any related obligations;
the impact of construction defect and home warranty claims;
the cost and availability of insurance and surety bonds, as well as the sufficiency of these instruments to cover potential losses incurred;
the impact of information technology failures, cybersecurity issues or data security breaches;
the impact of governmental regulations on homebuilding in key markets, such as regulations limiting the availability of water;
the success of our ESG initiatives, including our ability to meet our goal that every home we build will be Net Zero Energy Ready by 2025 as well as the success of any other related partnerships or pilot programs we may enter into in order to increase the energy efficiency of our homes and prepare for a Net Zero future; and
terrorist acts, protests and civil unrest, political uncertainty, acts of war or other factors over which the Company has no control.
Any forward-looking statement, including any statement expressing confidence regarding future outcomes, speaks only as of the date on which such statement is made and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible to predict all such factors.
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PART I
Item 1. Business
We are 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 extraordinary value and quality, at affordable prices, while seeking to maximize our return on invested capital over the course of a housing cycle.
Beazer Homes USA, Inc. was incorporated in Delaware in 1993. Our principal executive offices are located at 1000 Abernathy Road, Suite 260, Atlanta, Georgia 30328, and our main telephone number is (770) 829-3700. We also provide information about our company, including active communities, through our Internet website located at www.beazer.com. Information on our website is not a part of this Form 10-K and shall not be deemed incorporated by reference.
Business Strategy
We continue to execute against our long-term balanced growth strategy, which we define as the expansion of earnings at a faster rate than our revenue growth, supported by a less-leveraged and return-driven capital structure. This strategy provides us with the flexibility to reduce leverage and increase return of capital, or increase investment in land and other operating assets in response to changing market conditions.
We remain committed to this strategy, which is designed to increase shareholder value by improving our return on assets while reducing operational risk and debt. Our objectives at the beginning of fiscal 2022 included growing our lot position through land spending and increased use of lot option agreements, improving profitability while reducing our total debt below $1.0 billion, delivering extraordinary customer experience, and encouraging employee well-being. We have successfully achieved our goals as following:
As of September 30, 2022, our land position included 25,170 controlled lots, up 14.5% from 21,987 a year ago. Through expansion of our use of lot option agreements, 54.6% of our total active lots were under option agreements as of September 30, 2022 compared to 46.6% a year ago.
For fiscal 2022, we recorded net income of $220.7 million, or $7.17 per diluted share, compared to net income of $122.0 million, or $4.01 per diluted share, for fiscal 2021. Adjusted EBITDA was $370.1 million in fiscal 2022, compared to $262.7 million in the prior year, an increase of $107.4 million, or 40.9%. Over the past five years, we have achieved a compound annual growth rate (CAGR) of 15.7% for Adjusted EBITDA.
We have successfully reached our deleveraging goal of reducing total debt to below $1.0 billion. During fiscal 2022, we repurchased $24.4 million of our Senior Notes and retired our Senior Unsecured Term Loan by repaying the final $50.0 million. As of September 30, 2022, we had outstanding debt of $983.4 million. During fiscal 2022, we also repurchased $8.2 million of outstanding common stock.
In April 2022, Beazer Homes was ranked first among construction companies in Newsweek's inaugural list of America's Most Trusted Companies 2022, which were identified based on an independent survey of approximately 50,000 U.S. residents who rated companies they knew from the perspective of customers, investors and employees. This award demonstrated recognition for our efforts to create and sustain a strong reputation among employees, shareholders, customers and other partners.
For fiscal 2023, our objectives include investing strategically in our land position, upholding operating margin, activating new communities, reducing cycle time, and delivering extraordinary customer experience.
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Differentiating Beazer Homes
We know that our buyers have many choices when purchasing a home. To help us become a builder of choice, we have identified the following three strategic pillars that differentiate Beazer's homes from both resale homes and other newly built homes:
Mortgage Choice – Most of our buyers need to arrange financing in order to purchase a new home. Unlike many of our major competitors, we have no ownership or other interest in a mortgage company, which allows us to partner with our customers to help them get the most competitive interest rates, fees and service levels available. For every Beazer community, we identify Choice Lenders, who are selected for their ability to provide a comprehensive array of products and programs, meet our high customer service standards and willingness to compete to earn our customer’s business. We then provide our customers with an industry-leading online comparison tool that helps them easily compare multiple mortgage offers side-by-side.
Choice Plans® – Every family lives in their home differently, which is why we created Choice Plans. Choice Plans provide our buyers with more floor plan flexibility at no additional cost. For example, buyers of to-be-built homes can typically choose between two different configurations in the kitchen/great room and in the primary bedroom/bathroom at no additional cost. Offering these pre-designed floor plan alternatives allows us to offer fewer different plans, which improves efficiency and reduce costs while creating living areas that match an individual buyer's lifestyle.
Surprising Performance – We place an emphasis on building high-quality homes and delivering outstanding customer experience. All Beazer homes are designed and built to provide Surprising Performance, which means more quality, comfort, and savings. We deliver these benefits through our people, materials, and process. Some examples of these benefits are as follows:
Our homes are built to the latest ENERGY STAR® standards, and we provide buyers with an energy rating for their home, completed by a qualified third-party rating company. Used homes typically have a HERS® index score (on a scale in which a lower score is better) of 130. As of September 30, 2022, the average new Beazer home has a gross HERS® index score of 54.
Beazer is the first national builder to publicly commit to ensuring that by the end of 2025 every home we build will be Net Zero Energy Ready, which means that every home will meet the requirements of both the Environmental Protection Agency’s ENERGY STAR program and the U.S. Department of Energy’s Zero Energy Ready Home program, and have a gross HERS® index score (before any benefit of renewable energy production) of 45 or less. With a Net Zero Energy Ready home, homeowners will be able to achieve net zero energy consumption by attaching a properly sized renewable energy system.
In fiscal 2022, we began designing and building to Indoor airPLUS standards. A program of the U.S. Environmental Protection Agency, homes built to earn the Indoor airPLUS qualification have features to reduce mold, moisture, carbon monoxide, toxic chemicals and more.
Each new Beazer home also comes equipped with powerful technologies, including Category 6 ethernet wiring (Cat6), a centralized network panel and immediate internet connectivity via a LTE Wi-Fi router.
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Reportable Business Segments
Our active homebuilding operations consist of the design, sale, and construction of single-family and multi-family homes in the following geographic regions, which represent our reportable segments:
Segment/State Market(s)
West:  
Arizona Phoenix
California Placer County, Riverside County, Sacramento County, San Diego County, Tulare County
Nevada Las Vegas
Texas Dallas/Ft. Worth, Houston, San Antonio
East:  
Indiana Indianapolis
Maryland/Delaware Anne Arundel County, Baltimore County, Howard County, Sussex County
Tennessee Nashville
Virginia Fairfax County, Loudoun County, Prince William County, Stafford County
Southeast:  
Florida Orlando, Tampa
Georgia Atlanta, Savannah
North Carolina Raleigh/Durham
South Carolina Charleston, Myrtle Beach
The following tables summarize certain operating information of our reportable segments, including number of homes closed, the average selling price (ASP) for the periods presented, and units and dollar value in backlog as of September 30, 2022, 2021 and 2020. Refer to “Management's Discussion and Analysis of Results of Operations and Financial Condition” in Item 7 of this Form 10-K for additional information.
Fiscal Year Ended September 30,
202220212020
($ in thousands)ClosingsAverage Selling PriceClosingsAverage Selling PriceClosingsAverage Selling Price
West2,833 $468.7 2,945 $377.0 3,206 $368.2 
East1,080 514.4 1,185 477.6 1,045 455.7 
Southeast843 497.2 1,157 390.2 1,241 370.8 
Total Company4,756 $484.1 5,287 $402.4 5,492 $385.5 
As of September 30,
202220212020
Units in BacklogDollar Value in Backlog (in millions)Units in BacklogDollar Value in Backlog (in millions)Units in BacklogDollar Value in Backlog (in millions)
West1,257 $711.6 1,653 $736.0 1,365 $493.7 
East410 223.7 611 302.0 624 301.1 
Southeast424 209.6 522 246.0 520 200.5 
Total Company2,091 $1,144.9 2,786 $1,284.0 2,509 $995.3 
ASP in backlog (in thousands)$547.5 $460.9 $396.7 
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Markets and Product Description
We evaluate a number of factors in determining which geographic markets to enter and remain in as well as which consumer segments to target with our homebuilding activities. We compete in 17 geographic markets across the United States in part to reduce our exposure to any particular regional economy. Within these markets, we build homes in a variety of new home communities. We continually review our 17 markets based on aggregate demographic information, land prices and availability, competitive dynamics, and our own operating results. We use the results of these reviews to re-allocate our investments generally to those markets where we believe we can maximize our profitability and return on capital.
We maintain the flexibility to alter our product mix within a given market, depending on market conditions. In determining our product mix, we consider demographic trends, demand for a particular type of product, product affordability, consumer preferences, land availability, margins, timing, and the economic strength of the market. Depending on the market, we attempt to address one or more of the following categories of home buyers: entry-level, move-up, or 55+. Within these buyer groups, we have developed detailed targeted buyer profiles based on demographic and psychographic data, including information about marital and family status, employment, age, affluence, special interests, media consumption, and distance moved. Although we offer a selection of amenities and home customization options, we generally do not build “custom homes.” In all of our home offerings, we attempt to increase customer satisfaction by incorporating quality and energy-efficient materials, distinctive design features, convenient locations, and competitive prices.
Gatherings In 2016, Gatherings® by Beazer Homes was officially introduced across several markets within Beazer's geographic footprint through age restricted condominiums. We strive to provide extraordinary value, a strong commitment to customer service, and a quality, lower-maintenance home for those seeking a 55+ lifestyle. In addition to condominiums, the Gatherings® brand also includes town homes, villas, duets, and single-family homes. Our Dallas, Houston, Las Vegas, Maryland, Atlanta, and Orlando markets are actively selling Gatherings homes, while development is currently underway in Virginia and additional sites in Maryland. As of September 30, 2022, we have approved communities representing 714 potential future sales, and we have sold 456 Gatherings branded homes since 2016.
Marketing and Sales
We make extensive use of digital and traditional marketing vehicles and other promotional activities, including our website (www.beazer.com), real estate listing sites, digital advertising (including search engine marketing and display advertising), social media, video, brochures, direct marketing, and out-of-home advertising (including billboards and signage) located in the immediate areas of our developments, as well as additional activities. In connection with these marketing vehicles, we have registered or applied for registration of trademarks and Internet domain names, including Beazer Homes®, Gatherings®, and Choice Plans®, for use in our business.
In response to the changing needs of consumers, our sales operations continue to improve our virtual sales tools to connect with our customers online, including a 24/7 chatbot feature, self-guided tours to allow homebuyers to tour models privately, safely, and outside of normal business hours, and self-service appointments to help customers schedule an appointment with ease and speed.
Our practice is to build, decorate, furnish, and landscape model homes for each community we build and maintain on-site sales offices. As of September 30, 2022, we maintained and owned 215 model homes. We believe that model homes play a particularly important role in our selling efforts, and we are continuously innovating within our model homes to provide a unique, memorable, and hands-on experience, including digital kiosks, interactive site maps/plans, interactive magnetic floor plan boards, interactive cutaway homes, interactive Surprising Performance rooms, signage, and more. The selection of interior features is also a principal component of our marketing and sales efforts.
Our homes are customarily sold through commissioned new home sales counselors (who work from sales offices located in the model homes used in the community) as well as through independent brokers. Our new home counselors are available to assist prospective homebuyers by providing them with floor plans, pricing information, tours of model homes, the community's unique selling proposition, detailed explanations of our differentiators as discussed above, and associated savings opportunities. Sales personnel are trained internally through a structured training program focused on sales techniques, product familiarity, competitive products in the area, construction schedules, and Company policies around compliance, which management believes results in a sales force with extensive knowledge of our operating policies and housing products. Sales personnel must be licensed real estate agents where required by law.
We sometimes use various sales incentives in order to attract homebuyers. The use of incentives depends largely on local economic and competitive market conditions.
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Depending on market conditions, we also at times begin construction on a number of homes for which no signed sales contract exists, known as “speculative” or “spec” homes. This speculative inventory satisfies demand by providing near ready or move-in ready homes targeted at relocated personnel and others who require a completed home within a shorter timeframe.
Operational Overview
Corporate Operations
We perform the following functions at our corporate office to promote standardization and operational excellence:
evaluate and select geographic markets;
allocate capital resources for land acquisitions;
maintain and develop relationships with lenders and capital markets to create and maintain access to financial resources;
maintain and develop relationships with national product vendors;
perform various centralized functions including accounting, finance, purchasing, legal, risk, planning/design, and marketing activities to support our field operations;
operate and manage information systems and technology support operations; and
monitor the operations of our divisions and partners.
We allocate capital resources in a manner consistent with our overall business strategy. We will vary our capital allocation based on market conditions, results of operations, and other factors. Capital commitments are determined through consultation among executive and operational personnel who play an important role in ensuring that new investments are consistent with our strategy. Financial controls are also maintained through the centralization and standardization of accounting and finance activities, policies, and procedures.
Field Operations
The development and construction of each of our communities is managed by our operating divisions, each of which is led by a regional market leader and/or an area president who reports to our Chief Executive Officer. Within our operating divisions, our field teams are equipped with the skills needed to complete the functions of land acquisition, land entitlement, land development, home construction, local marketing, sales, warranty service, and certain purchasing and planning/design functions. However, the accounting and accounts payable functions of our field operations are concentrated in our national accounting center, which we consider to be part of our corporate operations.
Land Acquisition and Development
Generally, the land we acquire is purchased only after necessary entitlements have been obtained so that we have the right to begin development or construction as market conditions dictate. The term “entitlements” refers to subdivision approvals, development agreements, tentative maps, or recorded plats, depending on the jurisdiction in which the land is located. Entitlements generally give a developer the right to obtain building permits upon compliance with conditions that are usually within the developer's control. Although entitlements are ordinarily obtained prior to the purchase of land, we are still required to obtain a variety of other governmental approvals and permits during the development process. In limited circumstances, we will purchase property without all necessary entitlements where we have identified an opportunity to build on such property in a manner consistent with our strategy.
We select land for purchase based upon a variety of factors, including:
internal and external demographic and marketing studies;
suitability for development during the time period of one to five years from the beginning of the development process to the last closing;
financial review as to the feasibility of the proposed project, including profit margins and returns on capital employed;
the ability to secure governmental approvals and entitlements;
environmental and legal due diligence;
competition in the area;
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proximity to local traffic corridors, job centers, and other amenities; and
management's judgment of the real estate market and economic trends and our experience in a particular market.
We generally purchase land or obtain an option to purchase land, which, in either case, requires certain site improvements prior to home construction. Where required, we then undertake, or the grantor of the option then undertakes in the case of land under option, the development activities (through contractual arrangements with local developers, general contractors, and/or subcontractors), which include site planning and engineering as well as constructing roads, water, sewer, and utility infrastructures, drainage and recreational facilities, and other amenities. In some transactions, land bankers take title to the land at closing subject to agreements which obligate us to perform all development activities (which may be reimbursed by the land bankers) with respect to the land and provide us with an option to purchase the finished lots. When available in certain markets, we also buy finished lots that are ready for home construction. During our fiscal 2022 and 2021, we continued to pursue land acquisition opportunities and develop our land positions, spending approximately $418.5 million and $440.8 million, respectively, for land acquisition and $155.1 million and $154.7 million, respectively, for land development.
Option Agreements
We acquire certain lots by means of option agreements from various sellers and developers, including land banking entities. Option agreements generally require the payment of a cash deposit or issuance of a letter of credit or surety bond for the right to acquire lots during a specified period of time at a fixed or variable price.
Under option agreements, purchase of the underlying properties is contingent upon satisfaction of certain requirements by us and the sellers. Our liability under option agreements is generally limited to forfeiture of the non-refundable deposits, letters of credit or surety bonds, and other non-refundable amounts incurred, which totaled approximately $142.4 million as of September 30, 2022. The total remaining purchase price, net of cash deposits, committed under all land option agreements was $827.6 million as of September 30, 2022.
We expect to exercise, subject to market conditions and seller satisfaction of contract terms, substantially all of our option agreements. 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.
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The following table summarizes land controlled by us by reportable segment as of September 30, 2022:
Lots Owned
Lots with Homes Under Construction (a)
Finished LotsLots Under DevelopmentLots Held for Future DevelopmentLots Held for SaleTotal Lots OwnedTotal Lots Under ContractTotal Lots Controlled
West
Arizona280 59 296 — — 635 767 1,402 
California333 90 757 — 59 1,239 657 1,896 
Nevada162 232 400 66 — 860 859 1,719 
Texas996 1,129 1,637 — 408 4,170 5,231 9,401 
Total West1,771 1,510 3,090 66 467 6,904 7,514 14,418 
East
Indiana134 133 171 — — 438 589 1,027 
Maryland/Delaware187 373 207 — — 767 1,081 1,848 
New Jersey— — — 117 — 117 — 117 
Tennessee149 114 467 — — 730 1,473 2,203 
Virginia42 157 — — — 199 309 508 
Total East512 777 845 117 — 2,251 3,452 5,703 
Southeast
Florida130 241 104 — — 475 935 1,410 
Georgia155 202 353 — — 710 320 1,030 
North Carolina76 51 294 21 — 442 358 800 
South Carolina259 443 272 68 34 1,076 733 1,809 
Total Southeast620 937 1,023 89 34 2,703 2,346 5,049 
Total2,903 3,224 4,958 272 501 11,858 13,312 25,170 
(a) This category represents lots upon which construction of a home has commenced, including model homes.
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The following table summarizes the dollar value of our land under development, land held for future development, and land held for sale by reportable segment as of September 30, 2022:
in thousandsLand Under DevelopmentLand Held for Future DevelopmentLand Held for Sale
West$429,491 $3,483 $14,998 
East171,900 10,888 — 
Southeast129,791 5,508 676 
Corporate and unallocated (a)
— — 
Total$731,190 $19,879 $15,674 
Construction
We typically act as the general contractor for the construction of our new home communities. Our project development activities are controlled by our operating divisions whose employees supervise the construction of each new home community by coordinating the activities of independent subcontractors and suppliers, subjecting their work to quality and cost controls and ensuring compliance with zoning and building codes. We specify that quality, durable materials be used in the construction of our homes. Our subcontractors follow design plans prepared by architects and engineers who are retained or directly employed by us and whose designs are geared to the local market and staying current with changing home design trends as well as expanding our focus on engineering without sacrificing value for our customers.
Agreements with our subcontractors and materials suppliers are generally entered into after a competitive bidding process during which we obtain information from prospective subcontractors and vendors with respect to their financial condition and ability to perform their agreements with us in accordance with the specifications we provide. Subcontractors typically are retained on a project-by-project basis to complete construction at a fixed price. We do not maintain significant inventories of construction materials, except for materials being utilized for homes under construction. We have numerous suppliers of raw materials and services used in our business. While such materials and services generally have been and continue to be available, from time to time, supply chain disruptions may occur due to material and labor shortages, such as the widespread supply chain disruptions we experienced throughout fiscal 2022. In addition, material prices may fluctuate due to various factors, including demand or supply shortages and the price of certain commodities, which may be beyond the control of us or our vendors. When it is economically advantageous, we enter into regional and national supply contracts with certain of our vendors. We believe that we maintain positive and productive relationships with our suppliers and subcontractors.
Warranty Program
We currently provide a limited warranty ranging from one to two years covering workmanship and materials per our defined 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.
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. Please see Note 9 of notes to the consolidated financial statements in this Form 10-K for additional information.
Customer Financing
As previously mentioned, we do not provide mortgage origination services. Unlike many of our peers, we have no ownership interest in any lender and are able to promote competition among lenders on behalf of our customers through our Mortgage Choice program. Approximately 92% of our fiscal 2022 customers elected to finance a portion of their home purchase.
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Competition
The development and sale of residential properties is highly competitive and fragmented. We compete for residential sales on the basis of a number of interrelated factors, including location, reputation, amenities, design, quality, and price with numerous large and small homebuilders, including many homebuilders with nationwide operations and greater financial resources and/or lower costs than us. We also compete for residential sales with individual resales of existing homes and available rental housing.
We utilize our experience within our geographic markets and the breadth of our product line to vary regional product offerings to reflect changing market conditions. We strive to respond to market conditions and to capitalize on the opportunities for advantageous land acquisitions in desirable locations. Our product offerings strive to provide extraordinary value at an affordable price with intentional focus on Millennials and Baby Boomers because they are the two largest demographic groups of potential home buyers.
Seasonal and Quarterly Variability
Our homebuilding operating cycle historically has reflected escalating new order activity in the second and third fiscal quarters and increased closings in the third and fourth fiscal quarters. However, these seasonal patterns may be impacted or reduced by a variety of factors, including periods of economic downturn, which result in decreased revenues and closings.
Government Regulation and Environmental Matters
We are subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning zoning, building, design, constructions, the availability of water, and matters concerning the protection of health, safety and the environment. These laws may result in delays, cause us to incur substantial compliance and other costs, and prohibit or severely restrict development in certain environmentally sensitive regions or areas. Any delay or refusal from government agencies to grant us necessary licenses, permits and approvals could have an adverse effect on our financial condition and results of operations.
As part of our due diligence process for land acquisitions, we often use third-party environmental consultants to investigate potential environmental risks, and we require disclosures, representations and warranties from land sellers regarding environmental risks. We also take steps prior to our acquisition of the land to gain reasonable assurance as to the precise scope of any remediation work required and the costs associated with removal, site restoration and/or monitoring. To the extent contamination or other environmental issues have occurred in the past, we will attempt to recover restoration costs from third parties, such as the generators of hazardous waste, land sellers or others in the prior chain of title and/or their insurers.
In order to provide homes to homebuyers qualifying for Federal Housing Administration (FHA)-insured or Veterans Affairs (VA)-guaranteed mortgages, we must construct homes in compliance with FHA and VA regulations. These laws and regulations include provisions regarding operating procedures, investments, lending, and privacy disclosures and premiums.
In some states, we are required to be registered as a licensed contractor and comply with applicable rules and regulations. Also, in various states, our new home counselors are required to be licensed real estate agents and to comply with the laws and regulations applicable to real estate agents.
Failure to comply with any of these laws or regulations, where applicable, could result in loss of licensing and a restriction of our business activities in the applicable jurisdiction.
Human Capital Resources
As of September 30, 2022, we employed 1,129 persons, of whom 272 were sales and marketing personnel and 294 were construction personnel. Although none of our employees are covered by collective bargaining agreements, at times certain of the independent subcontractors engaged by us may be represented by labor unions or may be subject to collective bargaining arrangements.
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A safe and healthy working environment for our employees at every level of our organization is our highest priority. This begins with our health and safety audit system, which is designed to assist our employees in locating resources tailored for their specific employment responsibilities. We also conduct various safety-related inspections and training programs, such as daily visual inspections of our jobsites, weekly written safety inspections and bi-weekly “toolbox” talks with our trade partners. We have also increased our focus on employee wellness by expanding our program options to include a number of webinars, online classes, and virtual support groups. Upon the onset of the COVID-19 pandemic, we established a cross-functional taskforce and deployed enhanced IT resources to facilitate new processes and procedures to keep our teams informed with the most up to date information and create new work protocols to ensure the continued safety and health of our stakeholders, as well as the continuation of our business operations.
We believe that our employees are critical to our continued growth and success, and competition for qualified personnel is intense across our footprint. To remain competitive, we continue to focus on attracting and retaining qualified employees and providing them with comprehensive training and continuous development. In addition, we center our employee experience on engagement and work-life balance by offering a broad range of company-paid benefits and compensation packages, such as a 12-week parental leave and flexible time off program (with no accrual or maximum time away from work).
We are also committed to building an inclusive culture in which everyone feels welcome, respected, safe and valued. As we continue to progress in this area, we are reaching across all facets of our functional and operational areas. For example, in 2020, we implemented an ongoing inclusion and diversity learning program that is completed quarterly by every employee. As of September 30, 2022, women made up approximately 40.7% of our workforce and 31.5% of our managerial employees, with ethnic and racial minorities making up approximately 23.7% of our workforce and 15.2% of our managerial employees.
Charitable Giving
Across our Company, our team members are committed to supporting causes that make a difference. From local service activities to Company-wide initiatives, giving back is a central element of our culture, championed by passionate employees and embraced by partners who share our commitment to have a positive impact on the communities we serve. As part of our ongoing commitment to strengthen the communities we serve, we created a wholly-owned title insurance agency, Charity Title Agency. Charity Title Agency donates 100% of its net profits to charity. During the year ended September 30, 2022, Charity Title Agency made $1.5 million charitable contributions to Beazer Charity Foundation, our Company's philanthropic arm. Beazer Charity Foundation is a non-profit entity that provides donations to unrelated national and local non-profits and is managed by current employees of the Company.
Available Information
Our Internet website address is www.beazer.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act are available free of charge through our website as soon as reasonably practicable after we electronically file with or furnish them to the Securities and Exchange Commission (SEC), and are available in print to any stockholder who requests a printed copy. The public may also read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Furthermore, the SEC maintains a website that contains reports, proxy statements, information statements and other information regarding issuers, including us, that file electronically with the SEC at www.sec.gov.
In addition, many of our corporate governance documents are available on our website at www.beazer.com. Specifically, our Audit, Finance, Compensation, and Nominating/Corporate Governance Committee Charters, our Corporate Governance Guidelines and Code of Business Conduct and Ethics are available. Each of these documents is also available in print to any stockholder who requests it.
The content on our website is available for information purposes only and is not a part of and shall not be deemed incorporated by reference in this Form 10-K.
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Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as other information in this Form 10-K, before deciding whether to invest in shares of our common stock. The occurrence of any of the events described below could harm our business, financial condition, results of operations, and growth prospects. In such an event, the trading price of our common stock may decline, and you may lose all or part of your investment.
Business and Market Risks
A number of conditions that affect demand for the homes we sell are outside of our control. Many of these conditions, such as interest rates, inflation, employment levels, wage levels and governmental actions also impact consumer confidence, upon which our business is highly dependent.
Changes in national and regional economic conditions, as well as local economic conditions where we conduct our operations, may result in more caution on the part of homebuyers and, consequently, fewer home purchases. While housing market conditions remained robust and demand remained strong during the first half of fiscal 2022, during the second half of fiscal 2022, housing demand weakened due to a sharp increase in mortgage rates, the substantial increase in home prices experienced over the past two years, significant inflation in the broader economy, stock market volatility, and other macro-economic conditions, which have negatively impacted buyer sentiment and behavior. These economic uncertainties are out of our control and affect buyer sentiment and behavior, as well as the affordability of, and demand for, the homes we sell. These conditions also impact consumer confidence, upon which our business is highly dependent. Adverse changes in any of these conditions could decrease demand and pricing for our homes or result in customer cancellations of pending contracts, which could adversely affect the number of home sales we make or reduce home prices, either of which could result in a decrease in our revenues and earnings and adversely affect our financial condition and results of operations.
During periods of downturn in the homebuilding industry, housing markets across the United States may experience an oversupply of both new and resale home inventory, an increase in foreclosures, reduced levels of consumer demand for new homes, increased cancellation rates, aggressive price competition among homebuilders, and increased incentives for home sales. In the event of a downturn, we would likely experience a material reduction in revenues and margins and our financial condition as well as our results of operations could be adversely affected.
Because almost all of our customers require mortgage financing, increases in interest rates would likely negatively affect the affordability of the homes we sell. In addition, reductions in mortgage availability or increases in the effective costs of owning a home could prevent our customers from buying our homes and adversely affect our business and financial results.
Substantially all of the purchasers of our homes finance their acquisition with mortgage financing. Over the past year, the Federal Reserve raised interest rates multiple times in response to concerns about inflation and economic uncertainties, and it may raise them again. Increases in interest rates increase the costs of owning a home and have adversely affected the purchasing power of consumers and lower demand for the homes we sell, which could result in a decrease in our revenues and earnings and adversely affect our financial condition.
The availability of mortgage financing is significantly influenced by governmental entities such as the Federal Housing Administration, Veteran’s Administration, and Government National Mortgage Association and government-sponsored enterprises known as Fannie Mae and Freddie Mac. If these or other lenders’ borrowing standards are tightened and/or the federal government were to reduce or eliminate these mortgage loan programs (including due to any failure of lawmakers to agree on a budget or appropriation legislation to fund relevant programs or operations), it would likely make it more difficult for our customers to obtain acceptable financing, which would, in turn, adversely affect our business, financial condition and results of operations.
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Mortgage interest expense and real estate taxes represent significant costs of homeownership. Therefore, when there are changes in federal or state income tax laws that eliminate or substantially limit the income tax deductions relating to these expenses, the after-tax costs of owning a new home can increase significantly. For example, the Tax Cuts and Jobs Act, which was enacted in December 2017, includes provisions that impose significant limitations with respect to these income tax deductions. Under this legislation, through the end of 2025, the annual deduction for real estate property taxes and state and local income or sales taxes has been limited to a combined amount of $10,000 ($5,000 in the case of a separate return filed by a married individual). In addition, through the end of 2025, the deduction for mortgage interest will generally only be available with respect to acquisition indebtedness that does not exceed $750,000 ($375,000 in the case of a separate return filed by a married individual). There also continues to be meaningful discussion around certain proposed tax legislation contemplated by the Biden administration, including increasing the U.S. corporate tax rate, as well as long standing discussions within the Organization for Economic Co-operation and Development (“OECD”). It is unclear at this time which of these proposals, if any, may be enacted and how these various provisions will interact on a local, country and global scale. We believe changes such as these adversely impact or, in case of the proposed tax legislation, could adversely impact the demand for and sales prices of homes in certain markets, including parts of California, Maryland, and Virginia, and therefore could adversely affect our business, financial condition and results of operations.
If we are unsuccessful in competing against our competitors, our market share could decline or our growth could be impeded and, as a result, our financial condition and results of operations could suffer.
Competition in the homebuilding industry is intense, and there are relatively low barriers to entry into our business. Increased competition could hurt our business, as it could prevent us from acquiring attractive parcels of land on which to build homes or make such acquisitions more expensive, hinder our market share expansion and lead to pricing pressures on our homes that may adversely impact our margins and revenues. If we are unable to successfully compete, our financial results could suffer and our ability to service our debt could be adversely affected. Our competitors may independently develop land and construct housing units that are superior or substantially similar to our products. Furthermore, many of our competitors have substantially greater financial resources, less leverage, and lower costs of funds and operations than we do. Many of these competitors also have longstanding relationships with subcontractors and suppliers in the markets in which we operate. We currently build in several of the top markets in the nation and, therefore, we expect to continue to face additional competition from new entrants into our markets.
Our business could be materially and adversely disrupted by an epidemic or pandemic (such as COVID-19), or similar public threat, or fear of such an event, and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it.
An epidemic, pandemic, or similar serious public health issue, and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, and/or along with any associated economic and/or social instability or distress, have a material adverse impact on our consolidated financial statements.
For example, our business and operations were significantly impacted by the COVID-19 pandemic and the corresponding actions taken by governmental authorities. While general economic conditions have improved and our operations have since normalized, we are uncertain of the potential full magnitude or duration of the business and economic impacts from the unprecedented public health effort to contain and combat the spread of COVID-19, which include, among other things, significant volatility in financial markets and a sharp decrease in the value of equity securities, including our common stock.
If COVID-19 or another public health emergency were to reemerge, we could again experience material disruptions in our operating environment, impairing our ability to sell and build homes in a typical manner, as occurred in during our 2020 fiscal year, or at all, due to, among other things, increased costs or decreased supply of building materials, reduced availability of subcontractors, employees, and other talent, as a result of infections or recommended self-quarantining, or governmental mandates to direct production activities to support public health efforts. This could result in our recognizing charges in future periods, which may be material, for inventory impairments or land option agreement abandonments, or both, related to our inventory assets.
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Should the adverse impacts described above (or others that are currently unknown) occur, whether individually or collectively, we would expect to experience, among other things, decreases in our net new orders, home closings, average selling prices, revenues, and profitability, and such impacts could be material to our consolidated financial statements. Along with an increase in cancellations of home purchase contracts, if there are prolonged government restrictions on our business and our customers, and/or an extended economic recession, we could be unable to produce revenues and cash flows sufficient to conduct our business; meet the terms of our covenants and other requirements under the Secured Revolving Credit Facility, our senior notes, and the related indenture, and/or mortgages and land contracts due to land sellers and other loans; service our outstanding debt. Such a circumstance could, among other things, exhaust our available liquidity (and ability to access liquidity sources) and/or trigger an acceleration to pay a significant portion or all of our then-outstanding debt obligations, which we may be unable to do.
The market value of our land and/or homes may decline, leading to impairments or other charges and reduced profitability.
We regularly acquire land for replacement and expansion of our land inventory within our existing and new markets. The market value of land, building lots and housing inventories can fluctuate significantly as a result of changing market conditions. While we employ measures to manage inventory risk, we may not be able to adequately insulate our operations from a severe drop in inventory values. As a result, we may incur impairment charges or have to sell land at a loss. For example, during the second quarter of fiscal 2019, we recognized impairments of $110.0 million on projects in progress and $38.6 million on land held for sale. In addition, when market conditions are such that land values are not appreciating, option agreements previously entered into may become less desirable, at which time we may elect to forgo deposits and pre-acquisition costs and terminate the agreements, which could result in abandonment charges. Material impairment charges, abandonment charges or other write-downs of assets could adversely affect our financial condition and results of operations.
Negative publicity or poor relations with the residents of our communities could negatively impact sales, which could cause our revenues or results of operations to decline.
Unfavorable media related to our industry, company, brands, marketing, personnel, operations, business performance, or prospects may affect our stock price and the performance of our business, regardless of its accuracy or inaccuracy. Our success in maintaining, extending and expanding our brand image depends on our ability to adapt to a rapidly changing media environment. Adverse publicity or negative commentary on social media outlets could hurt operating results, as consumers might avoid or protest brands that receive bad press or negative reviews. Negative publicity may result in a decrease in our operating results. In addition, residents of communities we develop may look to us to resolve issues or disputes that may arise in connection with the operation or development of their communities. Efforts made by us to resolve these issues or disputes could be deemed unsatisfactory by the affected residents, and subsequent actions by these residents could adversely affect sales or our reputation.
Operational, Legal and Regulatory Risks
Inflation may adversely affect us by increasing costs beyond what we can recover through price increases.
Inflation can adversely affect us by increasing costs of land, materials, and labor. In addition, inflation is often accompanied by higher interest rates. In an inflationary environment, depending on homebuilding industry and other economic conditions, we may be unable to raise home prices enough to keep up with the rate of inflation, which would reduce our profit margins. Given the inflation rates in fiscal year 2022, we have experienced, and continue to experience, increases in the prices of land, labor, and materials.
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An increase in cancellation rates will negatively impact our business and could lead to imprecise estimates related to homes to be delivered in the future (backlog).
Our backlog reflects the number and value of homes for which we have entered into a sales contract with a customer but have not yet delivered the home. Although these sales contracts typically require a cash deposit and do not make the sale contingent on the sale of the customer's existing home, in some cases a customer may cancel the contract and receive a complete or partial refund of the deposit as a result of local laws or as a matter of our business practices. If industry or economic conditions deteriorate or if mortgage financing becomes less accessible, more homebuyers may have an incentive to cancel their contracts with us, even where they might be entitled to no refund or only a partial refund, rather than complete the purchase. For example, the cancellation rate increased significantly from the low teens in the first half of the fiscal year to 17.0% in fiscal third quarter and 32.8% in fiscal fourth quarter, resulting in a cancellation rate for the year ended September 30, 2022 was 17.6%, up from 11.1% in the prior year. Significant cancellations have had, and could have, a material adverse effect on our business as a result of lost sales revenue and the accumulation of unsold housing inventory. It is important to note that both backlog and cancellation metrics are operational, rather than accounting data, and should be used only as a general gauge to evaluate our performance. There is an inherent imprecision in these metrics based on an evaluation of qualitative factors during the transaction cycle.
Supply shortages and other risks related to the demand for skilled labor and building materials could increase costs, delay deliveries and could adversely affect our financial condition and results of operations.
The residential construction industry experiences price fluctuations and shortages in labor and materials from time to time. Shortages in labor can be due to shortages in qualified trades people, changes in immigration laws and trends in labor migration, lack of availability of adequate utility infrastructure and services, or our need to rely on local subcontractors who may not be adequately capitalized or insured. Shortages of materials can be due to certain disruptions, such as natural disasters, civil or political unrest and conflicts (such as the ongoing conflict between Russia and Ukraine), trade disputes, difficulties in production or delivery or health issues like the COVID-19 pandemic. Labor and material shortages can be more severe during periods of strong demand for housing or during periods in which the markets where we operate experience natural disasters such as hurricanes or flooding as discussed more fully below. Pricing for labor and materials can be affected by the factors discussed above, changes in energy prices, and various other national, regional, and local economic and political factors. For example, government imposed tariffs and trade regulations on imported building supplies have, and in the future could have, significant impacts on the cost to construct our homes. Such measures limit our ability to control costs, which if we are not able to successfully offset such increased costs through higher sales prices, could adversely affect our margins on the homes we build.
Our long-term success depends on our ability to acquire finished lots and undeveloped land suitable for residential homebuilding at reasonable prices, in accordance with our land investment criteria.
The homebuilding industry is highly competitive for suitable land and the risk inherent in purchasing and developing land increases as consumer demand for housing increases. The availability of finished and partially finished developed lots and undeveloped land for purchase that meet our investment criteria depends on a number of factors outside our control, including land availability in general, competition with other homebuilders and land buyers, inflation in land prices, zoning, allowable housing density, the ability to obtain building permits, and other regulatory requirements. Should suitable lots or land become less available, the number of homes we may be able to build and sell could be reduced, and the cost of land could increase, perhaps substantially, which could adversely impact our financial condition and results of operations.
As competition for suitable land increases, the cost of acquiring both finished and undeveloped lots and the cost of developing owned land could rise, and the availability of suitable land at acceptable prices may decline, which could adversely impact our financial results. The availability of suitable land assets could also affect the success of our land acquisition strategy and ultimately our long-term strategic goals by impacting our ability to increase the number of actively selling communities, grow our revenues and margins and achieve or maintain profitability.
Reduced numbers of home sales extend the time it takes us to recover land purchase and property development costs, negatively impacting profitability and our results of operations.
We incur many costs even before we begin to build homes in a community. Depending on the stage of development a land parcel is in when we acquire it, these may include costs of preparing land, finishing and entitling lots, installing roads, sewers, water systems, and other utilities, taxes, and other costs related to ownership of the land on which we plan to build homes. If the rate at which we sell and deliver homes slows, or if we delay the opening of new home communities, we may incur additional pre-construction costs, and it may take longer for us to recover our costs, which could adversely affect our profitability and results of operations.
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We could experience a reduction in home sales and revenues due to our inability to acquire and develop land for our communities if we are unable to obtain reasonably priced financing.
The homebuilding industry is capital intensive and homebuilding requires significant up-front expenditures to acquire land and to begin development. Accordingly, we incur substantial indebtedness to finance our homebuilding activities. If internally generated funds are not sufficient, we would seek additional capital in the form of equity or debt financing from a variety of potential sources, including additional bank financing and/or securities offerings. The amount and types of indebtedness that we may incur are limited by the terms of our existing debt. In addition, the availability of borrowed funds, especially for land acquisition and construction financing, may be greatly reduced nationally, and the lending community may require increased amounts of equity to be invested in a project by borrowers in connection with both new loans and the extension of existing loans. The credit and capital markets have continued to experience significant volatility. If we are required to seek additional financing to fund our operations, the volatility in these markets may restrict our flexibility to access such financing. If we are not successful in obtaining sufficient capital to fund our planned capital and other expenditures, we may be unable to acquire land for our housing developments, thereby limiting our anticipated growth and community count. Additionally, if we cannot obtain additional financing to fund the purchase of land under our option agreements, we may incur contractual penalties and fees.
Natural disasters and other related events could result in delays in land development or home construction, increase our costs or decrease demand in the impacted areas.
The climates and geology of many of the states in which we operate, including California, Florida, Georgia, North Carolina, South Carolina, Tennessee, Texas and certain mid-Atlantic states, present increased risks of natural disasters. To the extent that hurricanes, tornadoes, severe storms, heavy or prolonged precipitation, earthquakes, droughts, floods, wildfires or other natural disasters or similar events occur, our homes under construction or our building lots in such states could be damaged or destroyed, which may result in losses exceeding our insurance coverage. For example, in fiscal 2017 and 2018, Hurricanes Harvey, Irma and Florence disrupted our operations in Texas, Florida, North Carolina and South Carolina, which resulted in temporary reductions in sales and closings. In fiscal 2022, Hurricane Ian disrupted our operations in Florida, which resulted in temporary reductions in sales and closings. Natural disasters can also lead to increased competition for subcontractors, which can delay our progress even after the event has concluded. Additionally, and as discussed above, increased competition for skilled labor can lead to cost overruns, as we may have to incentivize the impacted region’s limited trade base to work on our homes. Finally, natural disasters and other related events may also temporarily impact demand, as buyers are not as willing to shop for new homes during or after the event. These risks could adversely affect our business, financial condition, and results of operations.
We may incur additional operating expenses or longer construction cycle times due to compliance programs or fines, penalties and remediation costs pertaining to environmental regulations within our markets. Additionally, any violations of such regulations could harm our reputation, thereby negatively impacting our financial condition and results of operations.
We are subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. The particular environmental laws that apply to any given community vary greatly according to the location of the community site, the site's environmental conditions and the present and former use of the site. Environmental laws may result in delays, may cause us to implement time consuming and expensive compliance programs and may prohibit or severely restrict development in certain environmentally sensitive regions or areas. From time to time, the United States Environmental Protection Agency (EPA) and similar federal or state agencies review homebuilders' compliance with environmental laws and may levy fines and penalties for failure to strictly comply with applicable environmental laws or impose additional requirements for future compliance as a result of past failures. Any such actions taken with respect to us may increase our costs or harm our reputation. Further, we expect that increasingly stringent requirements will be imposed on homebuilders in the future. Environmental regulations can also have an adverse impact on the availability and price of certain raw materials such as lumber. Our communities in California are especially susceptible to restrictive government regulations and environmental laws, particularly surrounding water usage due to continuing drought conditions within that region.
In addition, there is a growing concern from advocacy groups and the general public that the emissions of greenhouse gases and other human activities have caused, or will cause, significant changes in weather patterns and temperatures and the frequency and severity of natural disasters. Government mandates, standards and regulations enacted in response to these projected climate change impacts could result in restrictions on land development in certain areas or increased energy, transportation, and raw material costs that may adversely affect our financial condition and results of operations.
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We are subject to extensive government regulation, which could cause us to incur significant liabilities or restrict our business activities.
Regulatory requirements could cause us to incur significant liabilities and operating expenses and could restrict our business activities. We are subject to local, state and federal statutes and rules regulating, among other things, certain developmental matters, building and site design, the availability of water and matters concerning the protection of health, safety and the environment. Our operating costs may be increased by governmental regulations, such as building permit allocation ordinances and impact and other fees and taxes, which may be imposed to defray the cost of providing certain governmental services and improvements. Other governmental regulations, such as building moratoriums and “no growth” or “slow growth” initiatives, which may be adopted in communities that have developed rapidly, may cause delays in new home communities or otherwise restrict our business activities, resulting in reductions in our revenues. Any delay or refusal from government agencies to grant us necessary licenses, permits and approvals could have an adverse effect on our financial condition and results of operations.
We may be subject to significant potential liabilities as a result of construction defect, product liability and warranty claims made against us.
As a homebuilder, we have been, and continue to be, subject to construction defect, product liability and home warranty claims, including moisture intrusion and related claims, arising in the ordinary course of business. These claims are common to the homebuilding industry and can be costly.
With respect to certain general liability exposures, including construction defect claims, product liability claims and related claims, assessment of claims and the related liability and reserve estimation process is highly judgmental due to the complex nature of these exposures and unique circumstances of each claim. Furthermore, once claims are asserted for construction defects, it can be difficult to determine the extent to which the assertion of these claims will expand geographically. Although we have obtained insurance for construction defect claims, such policies may not be available or adequate to cover liability for damages, the cost of repairs and/or the expense of litigation. Current and future claims may arise out of events or circumstances not covered by insurance and not subject to effective indemnification agreements with our subcontractors.
At any given time, we may be the subject of civil litigation that could require us to pay substantial damages or could otherwise have a material adverse effect on us.
While no current material lawsuits are pending, we may be subject to civil litigation regarding claims made by homebuyers. We cannot predict or determine the timing or final outcome of such lawsuits, or the effect that any adverse determinations the lawsuits may have on us. An unfavorable determination in any of the lawsuits could result in the payment by us of substantial monetary damages that may not be covered by insurance. Further, the legal costs associated with the lawsuits and the amount of time required to be spent by management and the Board of Directors on these matters, even if we are ultimately successful, could have a material adverse effect on our business, financial condition and results of operations. In addition to expenses incurred to defend the Company in these matters, under Delaware law and our bylaws, we may have an obligation to indemnify our current and former officers and directors in relation to these matters. We have obligations to advance legal fees and expenses to directors and certain officers.
Our insurance carriers may seek to rescind or deny coverage with respect to such lawsuits, or we may not have sufficient coverage under our insurance policies. If the insurance companies are successful in rescinding or denying coverage, or if we do not have sufficient coverage under our policies, our business, financial condition and results of operations could be materially adversely affected.
Our operating expenses could increase if we are required to pay higher insurance premiums or litigation costs for various claims, which could negatively impact our financial condition and results of operations. Additionally, our insurance policies may not offset our entire expense due to limitation in coverages, amounts payable under the policies or other related restrictions.
The costs of insuring against construction defect, product liability and director and officer claims are substantial. Increasingly in recent years, lawsuits (including class action lawsuits) have been filed against builders, asserting claims of personal injury and property damage. Our insurance may not cover all of the claims, including personal injury claims, or such coverage may become prohibitively expensive. If we are not able to obtain adequate insurance against these claims, we may experience losses that could negatively impact our financial condition and results of operations, as well as our cash flows.
Historically, builders have recovered from subcontractors and their insurance carriers a significant portion of the construction defect liabilities and costs of defense that the builders have incurred. However, insurance coverage available to subcontractors for construction defects is becoming increasingly expensive and the scope of coverage is restricted. If we cannot effectively recover from our subcontractors or their carriers, we may suffer even greater losses.
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A builder's ability to recover against any available insurance policy depends upon the continued solvency and financial strength of the insurance carrier that issued the policy. Many of the states in which we build homes have lengthy statutes of limitations and/or repose applicable to claims for construction defects. To the extent that any carrier providing insurance coverage to us or our subcontractors becomes insolvent or experiences financial difficulty in the future, we may be unable to recover on those policies, thereby negatively impacting our financial condition and results of operations.
We are dependent on the services of certain key employees and the loss of their services could hurt our business.
Our future success depends upon our ability to attract, train and retain skilled personnel, including officers and directors. If we are unable to retain our key employees or attract, train or retain other skilled personnel in the future, it could hinder our business strategy and impose additional costs of identifying and training new individuals. Competition for qualified personnel in all of our operating markets, as well as within our corporate operations, is intense.
Global economic and political instability and conflicts, such as the conflict between Russia and Ukraine, could adversely affect our business, financial condition or results of operations.
Our business could be adversely affected by unstable economic and political conditions within the United States and foreign jurisdictions and geopolitical conflicts, such as the conflict between Russia and Ukraine. While we do not have any customer or direct supplier relationships in either country, the current military conflict, and related sanctions, as well as export controls or actions that may be initiated by nations (e.g., potential cyberattacks, disruption of energy flows, etc.) and other potential uncertainties could adversely affect our supply chain by causing shortages or increases in costs for materials necessary to construct homes and/or increases to the price of gasoline and other fuels. In addition, such events could cause higher interest rates, inflation or general economic uncertainty, which could negatively impact our business partners, employees or customers, or otherwise adversely impact our business.
Terrorist attacks or acts of war against the United States or increased domestic or international instability could have an adverse effect on our operations.
Adverse developments in the war on terrorism, terrorist attacks against the United States or any outbreak or escalation of hostilities between the United States and/or any foreign power may cause disruption to the economy, our Company, our employees and our customers, which could negatively impact our financial condition and results of operations.
Information technology failures, cybersecurity breaches or data security breaches could harm our business.
We use information technology and other computer resources to perform important operational and marketing activities and to maintain our business records. Certain of these resources are provided to us and/or maintained by third-party service providers pursuant to agreements that specify certain security and service level standards. Our computer systems, including our back-up systems and portable electronic devices, and those of our third-party providers, are subject to damage or interruption from power outages, computer and telecommunication failures, computer viruses, security breaches including malware and phishing, cyberattacks, natural disasters, usage errors by our employees or contractors, and other related risks. As part of our normal business activities, we collect and store certain confidential information, including information about employees, homebuyers, customers, vendors and suppliers. This information is entitled to protection under a number of regulatory regimes. We share some of this information with third parties who assist us with certain aspects of our business. A significant and extended disruption of or breach of security related to our computer systems and back-up systems may result in business disruption, damage our reputation and cause us to lose customers, sales and revenue, result in the unintended misappropriation of proprietary, personal and confidential information, and require us to incur significant expense to remediate or otherwise resolve these issues including financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation with potentially large costs and other competitive disadvantages. While, to date, we have not had a significant cybersecurity breach or attack that had a material impact on our business or results of operations, there can be no assurance that our efforts to maintain the security and integrity of these types of IT networks and related systems will be effective or that attempted security breaches or disruptions would not be successful or damaging.
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Financial and Liquidity Risks
Our access to capital and our ability to obtain additional financing could be affected by any downgrade of our credit ratings, as well as limitations in the capital markets or adverse credit market conditions.
The Company's credit rating and ratings on our senior notes and our current credit condition affect, among other things, our ability to access new capital, especially debt. Negative changes in these ratings may result in more stringent covenants and higher interest rates under the terms of any new debt. If our credit ratings are lowered or rating agencies issue adverse commentaries in the future, it could have a material adverse effect on our business, financial condition, results of operations and liquidity. In particular, a weakening of our financial condition, including a significant increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, result in a credit rating downgrade or change in outlook, or otherwise increase our cost of borrowing.
Our Senior Notes, Secured Revolving Credit Facility, Senior Unsecured Revolving Credit Facility, letter of credit facilities and certain other debt impose significant restrictions and obligations on us. Restrictions on our ability to borrow could adversely affect our liquidity. In addition, our substantial indebtedness could adversely affect our financial condition, limit our growth and make it more difficult for us to satisfy our debt obligations.
Our senior notes, revolving credit facilities, letter of credit facilities and certain other debt impose certain restrictions and obligations on us. Under certain of these instruments, we must comply with defined covenants that limit our ability to, among other things, incur additional indebtedness, engage in certain asset sales, make certain types of restricted payments, engage in transactions with affiliates and create liens on our assets. Failure to comply with certain of these covenants could result in an event of default under the applicable instrument. Any such event of default could negatively impact other covenants or lead to cross defaults under certain of our other debt agreements. There can be no assurance that we will be able to obtain any waivers or amendments that may become necessary in the event of a future default situation without significant additional cost or at all.
Our substantial indebtedness could have important consequences to us and the holders of our securities, including, among other things:
causing us to be unable to satisfy our obligations under our debt agreements;
causing us to pay higher interest rates upon refinancing indebtedness if interest rates rise;
making us more vulnerable to adverse general economic and industry conditions;
making it difficult to fund future working capital, land purchases, acquisitions, capital expenditures, share repurchases, general corporate or other activities; and
causing us to be limited in our flexibility in planning for, or reacting to, changes in our business.
In addition, subject to the restrictions of our existing debt instruments, we may incur additional indebtedness. If new debt is added to our current debt levels, the related risks that we now face could intensify. Our growth plans and our ability to make payments of principal or interest on, or to refinance, our indebtedness will depend on our future operating performance and our ability to enter into additional debt and/or equity financings. If we are unable to generate sufficient cash flows in the future to service our debt, we may be required to refinance all or a portion of our existing debt, to sell assets or to obtain additional financing. We may not be able to do any of the foregoing on terms acceptable to us, if at all.
The tax benefits of our pre-ownership change net operating loss carryforwards and built-in losses were substantially limited since we experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code, and portions of our deferred income tax asset have been written off since they were not fully realizable. Any subsequent ownership change, should it occur, could have a further impact on these tax attributes.
Section 382 of the Internal Revenue Code contains rules that limit the ability of a company that undergoes an “ownership change,” which is generally defined as any change in ownership of more than 50% of its common stock over a three-year period, to utilize its net operating loss carryforwards, tax credits and certain built-in losses or deductions, as of the ownership change date, that are recognized during the five-year period after the ownership change. These rules generally operate by focusing on changes in the ownership among shareholders owning, directly or indirectly, 5% or more of the company's common stock (including changes involving a shareholder becoming a 5% shareholder) or any change in ownership arising from a new issuance of stock or share repurchases by the company.
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We currently have an immaterial amount of "built-in losses" in our assets, i.e., an excess tax basis over current fair market value, which may result in tax losses as such assets are sold. Those "built-in losses" could become significant in the future if market conditions worsen and our inventory is impaired. Net operating losses and tax credits generally may be carried forward for a 20-year period to offset future earnings and reduce our federal income tax liability. Any net operating losses created during or after our fiscal 2019 may be carried forward indefinitely; however, the loss can only be utilized to offset 80% of taxable income generated in a tax year. Built-in losses, if and when recognized, generally will result in tax losses that may then be deducted or carried forward. However, we experienced an “ownership change” under Section 382 as of January 12, 2010. As a result of this previous “ownership change” for purposes of Section 382, our ability to use certain net operating loss carryforwards, tax credits and built-in losses or deductions in existence prior to the ownership change was limited by Section 382. We cannot predict or control the occurrence or timing of another ownership change in the future. If another ownership change were to occur, the limitations imposed by Section 382 could result in a material amount of our net operating loss carryforwards and tax credits expiring unused and, therefore, significantly impair the future value of our deferred tax assets.
Our certificate of incorporation prohibits certain transfers of our common stock that could result in an ownership change. In addition, we are party to a rights agreement intended to act as a deterrent to any person desiring to acquire 4.95% or more of our common stock. In February 2022, our stockholders approved an extension of these protective provisions in our certificate of incorporation and the rights agreement, which as a result are scheduled to expire on November 2025. Any extension of these protective provisions and our entry into a new rights agreement will require additional approval by our stockholders. We cannot guarantee that the requisite stockholder approvals will be obtained. In addition, neither the protective provisions nor the rights agreement offer a complete solution, and an ownership change may occur even if the protective provisions of our charter are extended and a new rights agreement is approved upon expiration. The protective provisions of our certificate of incorporation may not be enforceable against all stockholders and may not prevent all stock transfers that have the potential to cause a Section 382 ownership shift, and the rights agreement may deter, but ultimately may not block all transfers of our common stock that might result in an ownership change.
The realization of all or a portion of our deferred income tax assets (including net operating loss carryforwards and tax credits) is dependent upon the generation of future income during the statutory carryforward periods. Our inability to utilize our limited pre-ownership change net operating loss carryforwards, tax credits and recognized built-in losses or deductions, or the occurrence of a future ownership change and resulting additional limitations to these tax attributes, could have a material adverse effect on our financial condition, results of operations, and cash flows.
Inefficient or ineffective allocation of capital could adversely affect our operating results and/or stockholder value.
Our goal is to allocate capital to maximize our overall long-term returns. This includes spending on capital projects, such as developing strategic businesses (e.g., the launch of our Gatherings® business in 2016 to meet the needs of the growing 55 plus segment) and acquiring other homebuilders with the potential to strengthen our industry position. In addition, from time to time we may engage in bond repurchases to reduce our indebtedness and return value to our stockholders through share repurchases. If we do not properly allocate our capital, we may fail to produce optimal financial results and we may experience a reduction in stockholder value, including increased volatility in our stock price.
Risk Relating to an Investment in our Common Stock
Our stock price is volatile and could decline.
The securities markets in general and our common stock in particular have experienced significant price and volume volatility over the past several years. The market price and volume of our common stock may continue to experience significant fluctuations due not only to general stock market conditions, but also to a change in sentiment in the market regarding our industry, operations or business prospects. The price and volume volatility of our common stock may be affected by:
factors influencing home purchases, such as higher interest rates and availability of home mortgage loans, credit criteria applicable to prospective borrowers, ability to sell existing residences and homebuyer sentiment in general;
the operating and securities price performance of companies that investors consider comparable to us;
operating results that vary from the expectations of securities analysts and investors;
announcements of strategic developments, acquisitions and other material events by us or our competitors; and
changes in global financial markets and global economies and general market conditions, such as inflation, interest rates, commodity and equity prices and the value of financial assets.
21


Our ability to raise funds through the issuance of equity or otherwise use our common stock as consideration is impacted by the price of our common stock. A low stock price may adversely impact our ability to reduce our financial leverage, as measured by the ratio of total debt to total capital. Continued high levels of leverage or significant increases may adversely affect our credit ratings and make it more difficult for us to access additional capital. These factors may limit our ability to implement our operating and growth plans.
We experience fluctuations and variability in our operating results on a quarterly basis and, as a result, our historical performance may not be a meaningful indicator of future results.
We historically have experienced, and expect to continue to experience, variability in home sales and earnings on a quarterly basis. As a result of such variability, our historical performance may not be a meaningful indicator of future results. Our quarterly results of operations may continue to fluctuate in the future as a result of a variety of both national and local factors, including, among others:
the timing of home closings and land sales;
our ability to continue to acquire additional land or secure option agreements to acquire land on acceptable terms;
conditions of the real estate market in areas where we operate and of the general economy;
inventory impairments or other material write-downs;
raw material and labor shortages;
seasonal home buying patterns; and
other changes in operating expenses, including the cost of labor and raw materials, personnel and general economic conditions.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of September 30, 2022, we had under lease approximately 32,000 square feet of office space in Atlanta, Georgia to house our corporate headquarters. We also lease and own an aggregate of approximately 158,000 and 4,500 square feet of office space, respectively, for our divisional and other corporate operations at various locations. All facilities are in good condition, adequately utilized, and sufficient to meet our present operating needs.
Due to the nature of our business, significant amounts of property are held by us as inventory in the ordinary course of our homebuilding operations. See Note 5 of notes to the consolidated financial statements in this Form 10-K for a further discussion of our inventory.
Item 3. Legal Proceedings
Litigation
In the normal course of business, we are subject to various lawsuits. We cannot predict or determine the timing or final outcome of these lawsuits or the effect that any adverse findings or determinations in pending lawsuits may have on us. In addition, an estimate of possible loss or range of loss, if any, cannot presently be made with respect to certain of these pending matters. An unfavorable determination in any of the pending lawsuits could result in the payment by us of substantial monetary damages that may not be fully covered by insurance. Further, the legal costs associated with the lawsuits and the amount of time required to be spent by management and our Board of Directors on these matters, even if we are ultimately successful, could have a material adverse effect on our financial condition, results of operations, or cash flows.
For a discussion of our legal proceedings, see Note 9 of the notes to our consolidated financial statements in this Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
22


PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The Company lists its common stock on the New York Stock Exchange (NYSE) under the symbol “BZH.” On November 7, 2022, the last reported sales price of the Company's common stock on the NYSE was $11.21, and we had approximately 207 stockholders of record and 30,880,138 shares of common stock outstanding.
Dividends
The indentures under which our senior notes were issued contain certain restrictive covenants, including limitations on the payment of dividends. There were no dividends paid during our fiscal 2022, 2021 or 2020. The Board of Directors will periodically reconsider the declaration of dividends, assuming payment of dividends is not limited under our indentures. The reinstatement of quarterly dividends, the amount of such dividends and the form in which the dividends are paid (cash or stock) will depend upon our financial condition, results of operations, and other factors that the Board of Directors deems relevant.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information about the Company's shares of common stock that may be issued under our existing equity compensation plans as of September 30, 2022, all of which have been approved by our stockholders:
Plan CategoryNumber of Common Shares to be Issued Upon Exercise of Outstanding Options, Warrants and RightsWeighted-Average Exercise Price of Outstanding Options, Warrants and RightsNumber of Common Shares Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by stockholders27,507$14.311,487,202
Issuer Purchases of Equity Securities
The following table summarizes the Company's common stock repurchases during the fourth fiscal quarter of 2022:
PeriodTotal Number of Shares PurchasedAverage Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Program(a)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
July 1, 2022 - July 31, 2022— $— — $47,467,968 
August 1, 2022 - August 31, 2022244,957 $14.69 244,957 $43,870,670 
September 1, 2022 - September 30, 2022149,903 $13.54 149,903 $41,840,522 
(a) In May 2022, the Company's Board of Directors approved a new share repurchase program that authorizes the Company to repurchase up to $50.0 million of its outstanding common stock. As part of this new program, the Company repurchased 570 thousand shares of its common stock for $8.2 million at an average price per share of $14.33 during the year ended September 30, 2022 through open market transactions. All shares have been retired upon repurchase. The repurchase program has no expiration date.








23


Performance Graph
The following graph illustrates the cumulative total stockholder return on Beazer Homes' common stock for the last five fiscal years through September 30, 2022 as compared to the S&P 500 Index and the S&P 500 Homebuilding Index. The comparison assumes an investment of $100 at September 30, 2018 in Beazer Homes' common stock and in each of the benchmark indices specified, assumes that all dividends were reinvested, and accounts for the impact of any stock splits, where applicable. Stockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder return.
bzh-20220930_g1.jpg
Fiscal Year Ended September 30,
20182019202020212022
uBeazer Homes USA, Inc.56.03 79.51 70.44 92.05 51.60 
gS&P 500 Index117.91 122.93 141.55 184.02 155.55 
pS&P 500 Homebuilding Index96.65 125.09 168.52 189.24 154.60 
Item 6. [Reserved]

24


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations is intended to help the reader understand our Company, business, operations and present business environment and is provided as a supplement to, and should be read together with the sections entitled “Risk Factors,” and the financial statements and the accompanying notes included elsewhere in this Form 10-K.
In addition, the statements in this discussion and analysis regarding industry outlook, our expectations regarding the performance of our business, anticipated financial results, liquidity and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Forward-Looking Statements” and in “Risk Factors” above. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Executive Overview and Outlook
Market Conditions
During the first half of fiscal 2022, housing market conditions remained robust and demand remained relatively strong despite the geopolitical environment and increasing affordability concerns due to the substantial increase in home prices over the past two years. However, during the second half of fiscal 2022, housing demand sharply weakened due to a rapid and substantial increase in mortgage rates, significant inflation in the broader economy, stock market volatility, and other macro-economic conditions, which have negatively impacted buyer sentiment and behavior. We expect these factors to continue to negatively impact demand in fiscal 2023. We believe, however, that the long-term housing market outlook remains positive, supported by a demographic shift towards homeownership, robust employment market, and a multimillion unit housing deficit that has accumulated over the past decade.
We are focused on making the necessary adjustments to adapt to the weak demand environment. For instance, our sales process involves continuous analysis of competitive market data, including pricing, features and incentives, which enables us to adjust pricing, incentives and specification levels to enhance affordability and respond to competitive dynamics and to best position each of our communities. In relation to land acquisition, we are more conservative in our underwriting of new land deals and will continue to attempt to renegotiate or terminate deals if a project no longer meets our stricter underwriting standards.
Like many other homebuilders, we continue to experience production challenges due to supply chain disruptions and tightness in labor markets. These factors have resulted in elongated construction cycle times and decreased backlog conversion. We have been proactively working with our suppliers and trade partners to address these issues and expect to see some improvements in fiscal 2023.
Balanced Growth Strategy
Fiscal 2022 represented significant progress towards the execution of our balanced growth strategy. We successfully reached our goal of reducing total debt below $1.0 billion. We believe our improvements in operating margin, land position and use of lot option agreements, together with a less-leveraged and more efficient balance sheet, have positioned us well for the headwinds we expect to encounter in fiscal 2023.
As we look to fiscal 2023, we are anticipating continuing weakness in both demand and pricing in the quarters ahead. During fiscal 2022, we made sizable improvement in our land position and share of lots controlled through option agreements. In fiscal 2023, we plan to continue to invest in land strategically and increase our use of lot option agreements to position ourselves for long-term growth, while focusing on the appropriate balance between pursuing growth opportunities, controlling risk and maintaining a strong liquidity position.
Overview of Results for Our Fiscal 2022
The following is a summary of our performance against certain key operating and financial metrics during fiscal 2022:
During the year ended September 30, 2022, sales per community per month was 2.8 compared to 3.7 in the prior year, and our net new orders were 4,061, down 27.0% from 5,564 in the prior year. The decrease in sales pace is a reflection of the previously discussed macro-economic factors adversely impacting homebuyers. As we navigate the current environment, we are focused on balancing sales pace, incentives and price adjustments to maximize return on capital over time.
25


As of September 30, 2022, our land position includes 25,170 controlled lots, up 14.5% from 21,987 as of September 30, 2021. Excluding land held for future development and land held for sale lots, we controlled 24,397 active lots, up 13.9% from the prior year. As of September 30, 2022, we had 13,312 lots, or 54.6% of our total active lots, under option agreements as compared to 9,992 lots controlled, or 46.6% of our total active lots, under option agreements as of September 30, 2021.
ASP for homes closed during the year ended September 30, 2022 was $484.1 thousand, up 20.3% from $402.4 thousand in the prior year. The year-over-year increase in ASP on closings was impacted primarily by price appreciation due to strong demand and limited supply of homes. However, higher mortgage interest rates and softening demand may temper ASP growth in the future.
Homebuilding gross margin for the fiscal year ended September 30, 2022 was 23.1%, up from 18.9% in the prior year. Homebuilding gross margin excluding impairments, abandonments, and interest for the fiscal year ended September 30, 2022 was 26.3%, up from 23.0% in the prior year. Our homebuilding gross margin has been driven by a favorable pricing environment, although softening demand may temper gross margin in the future.
Cancellation rate for the fiscal year ended September 30, 2022 was 17.6%, up from 11.1% in the prior year. Cancellation rates increased significantly during the second half of the fiscal year due to the previously discussed unfavorable macro-economic factors.
SG&A for the fiscal year ended September 30, 2022 was 10.9% of total revenue compared with 11.4% a year earlier. The decrease in SG&A as a percentage of revenue is primarily due to increased homebuilding revenue. The dollar amount of SG&A increased by $8.2 million, or 3.4%, primarily due to increased personnel expense. We remain focused on improving overhead cost management in relation to our revenue growth.
Seasonal and Quarterly Variability: Our homebuilding operating cycle historically has reflected escalating new order activity in the second and third fiscal quarters and increased closings in the third and fourth fiscal quarters. However, these seasonal patterns may be impacted or reduced by a variety of factors, including periods of economic downturn, which result in decreased revenues and closings.
The following tables present new order and closings data for the periods presented:
New Orders (Net of Cancellations)
1st Qtr2nd Qtr3rd Qtr4th QtrTotal
20221,141 1,291 925 704 4,061 
20211,442 1,854 1,199 1,069 5,564 
20201,251 1,661 1,372 2,009 6,293 
Closings
1st Qtr2nd Qtr3rd Qtr4th QtrTotal
20221,019 1,078 1,043 1,616 4,756 
20211,114 1,388 1,378 1,407 5,287 
20201,112 1,277 1,366 1,737 5,492 
26


RESULTS OF CONTINUING OPERATIONS
The following table summarizes certain key income statement metrics for the periods presented:
Fiscal Year Ended September 30,
$ in thousands202220212020
Revenue:
Homebuilding$2,302,520 $2,127,700 $2,116,910 
Land sales and other14,468 12,603 10,167 
Total$2,316,988 $2,140,303 $2,127,077 
Gross profit (loss):
Homebuilding$532,149 $401,720 $348,110 
Land sales and other5,358 2,535 (470)
Total$537,507 $404,255 $347,640 
Gross margin:
Homebuilding(a)
23.1 %18.9 %16.4 %
Land sales and other(b)
37.0 %20.1 %(4.6)%
Total23.2 %18.9 %16.3 %
Commissions$74,336 $80,125 $82,507 
General and administrative expenses (G&A)$177,320 $163,285 $170,386 
SG&A (commissions plus G&A) as a percentage of total revenue10.9 %11.4 %11.9 %
G&A as a percentage of total revenue 7.7 %7.6 %8.0 %
Depreciation and amortization$13,360 $13,976 $15,640 
Operating income$272,491 $146,869 $79,107 
Operating income as a percentage of total revenue11.8 %6.9 %3.7 %
Effective tax rate(c)
19.4 %15.0 %25.2 %
Inventory impairments and abandonments$2,963 $853 $2,903 
Gain (loss) on extinguishment of debt, net$309 $(2,025)$— 
(a) Excluding impairments, abandonments, and interest amortized to cost of sales, homebuilding gross margin was 26.3%, 23.0% and 21.0% for the fiscal years ended September 30, 2022, 2021 and 2020, respectively. Please see "Homebuilding Gross Profit and Gross Margin" section below for a reconciliation of homebuilding gross profit and the related gross margin excluding impairments and abandonments and interest amortized to cost of sales to homebuilding gross profit and gross margin, the most directly comparable GAAP measure.
(b) Calculated as land sales and other gross profit (loss) divided by land sales and other revenue.
(c) Calculated as tax expense for the period divided by income from continuing operations. Due to a variety of factors, our income tax expense is not always directly correlated to the amount of pre-tax income for the associated periods. Our effective tax rate was impacted by, among other factors, tax credits of $12.1 million, $12.1 million and $0.9 million for the fiscal years ended September 30, 2022, 2021 and 2020, respectively. Please see Note 13 of the notes to our consolidated financial statements in this Form 10-K for details of significant items that impact our effective tax rate.








27


Reconciliation of Net Income (Loss) to Adjusted EBITDA
Reconciliation of Adjusted EBITDA to total company net income (loss), the most directly comparable GAAP measure, is provided for each period discussed below. Management believes that Adjusted EBITDA assists investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies' respective capitalization, tax position, and level of impairments. These EBITDA measures should not be considered alternatives to net income (loss) determined in accordance with GAAP as an indicator of operating performance.
The following table reconciles our net income (loss) to Adjusted EBITDA for the periods presented:
Fiscal Year Ended September 30,
in thousands20222021202020192018
Net income (loss)$220,704 $122,021 $52,226 $(79,520)$(45,375)
Expense (benefit) from income taxes53,267 21,501 17,664 (37,245)94,373 
Interest amortized to home construction and land sales expenses and capitalized interest impaired72,058 87,290 95,662 108,941 93,113 
Interest expense not qualified for capitalization 2,781 8,468 3,109 5,325 
EBIT346,029 233,593 174,020 (4,715)147,436 
Depreciation and amortization13,360 13,976 15,640 14,759 13,807 
EBITDA359,389 247,569 189,660 10,044 161,243 
Stock-based compensation expense8,478 12,167 10,036 10,526 10,258 
(Gain) loss on extinguishment of debt(309)2,025 — 24,920 27,839 
Inventory impairments and abandonments(a)
2,524 853 2,111 134,711 4,988 
Litigation settlement in discontinued operations 120 1,260 — — 
Restructuring and severance expenses (10)1,317 — — 
Joint venture impairment and abandonment charges — — — 341 
Adjusted EBITDA $370,082 $262,724 $204,384 $180,201 $204,669 
(a) In periods during which we impaired certain of our inventory assets, capitalized interest that is impaired is included in the line above titled "Interest amortized to home construction and land sales expenses and capitalized interest impaired."
28


Homebuilding Operations Data
The following table summarizes new orders and cancellation rates by reportable segment for the periods presented:
 New Orders, netCancellation Rates
20222021202022 v 2121 v 20202220212020
West2,437 3,233 3,589 (24.6)%(9.9)%18.4 %12.0 %16.5 %
East879 1,172 1,328 (25.0)%(11.7)%16.2 %9.6 %14.5 %
Southeast745 1,159 1,376 (35.7)%(15.8)%16.3 %10.2 %15.1 %
Total4,061 5,564 6,293 (27.0)%(11.6)%17.6 %11.1 %15.8 %
Net new orders for the year ended September 30, 2022 decreased to 4,061, down 27.0% from the year ended September 30, 2021. The decrease in net new orders was driven primarily by a decrease in average active community count from 127 in the prior year to 120, a decrease in sales pace from 3.7 sales per community per month in the prior year to 2.8, and an increase in cancellation rates from 11.1% in the prior year to 17.6%. The decreases in sales pace and the increases in cancellation rates across reportable segments were primarily driven by the sharp increase in mortgage rates as well as the previously discussed other macro-economic factors adversely impacting homebuyers. During the second half of fiscal 2022, cancellation rates increased significantly from the low teens in the first half of the fiscal year to 17.0% in fiscal third quarter and 32.8% in fiscal fourth quarter, although when compared to beginning backlog, cancellations for fiscal third quarter and fiscal fourth quarter 2022 only represented 6.0% and 11.4% of the respective fiscal quarter's beginning backlog.
The table below summarizes backlog units by reportable segment as well as the aggregate dollar value and ASP of homes in backlog as of September 30, 2022, 2021 and 2020:
As of September 30,
 20222021202022 v 2121 v 20
Backlog Units:
West1,257 1,653 1,365 (24.0)%21.1 %
East410 611 624 (32.9)%(2.1)%
Southeast424 522 520 (18.8)%0.4 %
Total2,091 2,786 2,509 (24.9)%11.0 %
Aggregate dollar value of homes in backlog (in millions)$1,144.9 $1,284.0 $995.3 (10.8)%29.0 %
ASP in backlog (in thousands)$547.5 $460.9 $396.7 18.8 %16.2 %
Backlog reflects the number of homes for which the Company has entered into a sales contract with a customer but has not yet delivered the home. Homes in backlog have historically been delivered within three to six months following commencement of construction. Ongoing supply chain disruptions, including the availability of certain materials and construction labor, has led to extended construction cycle times. While we are beginning to see improvements, we are still experiencing increased construction cycle times by an average of two to three months across our markets compared to the prior year. The aggregate dollar value of homes in backlog as of September 30, 2022 decreased 10.8% compared to the prior year due to a 24.9% decrease in backlog units, partially offset by an 18.8% increase in the ASP of homes in backlog.
29


Homebuilding Revenue, Average Selling Price, and Closings
The table below summarizes homebuilding revenue, ASP of our homes closed, and closings by reportable segment for the periods presented:
 Homebuilding RevenueAverage Selling Price
$ in thousands20222021202022 v 2121 v 2020222021202022 v 2121 v 20
West$1,327,770 $1,110,208 $1,180,577 19.6 %(6.0)%$468.7 $377.0 $368.2 24.3 %2.4 %
East555,598 565,989 476,167 (1.8)%18.9 %514.4 477.6 455.7 7.7 %4.8 %
Southeast419,152 451,503 460,166 (7.2)%(1.9)%497.2 390.2 370.8 27.4 %5.2 %
Total$2,302,520 $2,127,700 $2,116,910 8.2 %0.5 %$484.1 $402.4 $385.5 20.3 %4.4 %
Closings
20222021202022 v 2121 v 20
West2,833 2,945 3,206 (3.8)%(8.1)%
East1,080 1,185 1,045 (8.9)%13.4 %
Southeast843 1,157 1,241 (27.1)%(6.8)%
Total4,756 5,287 5,492 (10.0)%(3.7)%
The increase in homebuilding revenue for fiscal 2022 as compared to fiscal 2021 is the result of an increase in ASP, partially offset by a decrease in closings.
The increase in ASP across all segments was primarily attributed to price appreciation due to strong demand, short supply of homes, and inflation. In the East segment, ASP changes were also impacted by a change in mix of closings between products and among communities within the markets as compared to the prior year period. On average, we anticipate that our ASP will continue to increase in the near-term as indicated by the ASP for homes in backlog as of September 30, 2022, although higher mortgage interest rates and softening demand may temper ASP growth in the future.
The decrease in closings was primarily due to a decrease in backlog conversion rates as a result of longer construction cycle times compared to the prior year. Among the three reportable segments, our Southeast segment has experienced the highest increase in construction cycle times by an average of 3.1 months, resulting in a significant decrease in backlog conversion rates and closings.

30


Homebuilding Gross Profit and Gross Margin
The following tables present our homebuilding (HB) gross profit and gross margin by reportable segment and in total. In addition, such amounts are presented excluding inventory impairments and abandonments and interest amortized to cost of sales (COS). Homebuilding gross profit is defined as homebuilding revenue less home cost of sales (which includes land and land development costs, home construction costs, capitalized interest, indirect costs of construction, estimated warranty costs, closing costs, and inventory impairments and abandonment charges).
Reconciliation of homebuilding gross profit and the related gross margin excluding impairments and abandonments, and interest amortized to cost of sales to homebuilding gross profit and gross margin, the most directly comparable GAAP measure, is provided for each period discussed below. Management believes that this information assists investors in comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies' respective level of impairments and level of debt. These measures should not be considered alternatives to homebuilding gross profit and gross margin determined in accordance with GAAP as an indicator of operating performance.
$ in thousandsFiscal Year Ended September 30, 2022
 HB Gross
Profit (Loss)
HB Gross
Margin
Impairments &
Abandonments
(I&A)
HB Gross
Profit (Loss) excluding
I&A
HB Gross
Margin 
excluding
I&A
Interest
Amortized to COS (Interest)
HB Gross Profit (Loss) excluding I&A and
Interest
HB Gross Margin excluding I&A and Interest
West$353,370 26.6 %$289 $353,659 26.6 %$ $353,659 26.6 %
East137,937 24.8 %143 138,080 24.9 % 138,080 24.9 %
Southeast104,341 24.9 %663 105,004 25.1 % 105,004 25.1 %
Corporate & unallocated(a)
(63,499) (63,499)71,619 8,120 
Total homebuilding$532,149 23.1 %$1,095 $533,244 23.2 %$71,619 $604,863 26.3 %
$ in thousandsFiscal Year Ended September 30, 2021
 HB Gross
Profit (Loss)
HB Gross
Margin
Impairments &
Abandonments
(I&A)
HB Gross
Profit (Loss) excluding I&A
HB Gross
Margin 
excluding
I&A
Interest
Amortized to COS (Interest)
HB Gross Profit
excluding I&A and
Interest
HB Gross Margin
excluding I&A and
Interest
West$270,671 24.4 %$— $270,671 24.4 %$— $270,671 24.4 %
East125,928 22.2 %465 126,393 22.3 %— 126,393 22.3 %
Southeast98,525 21.8 %388 98,913 21.9 %— 98,913 21.9 %
Corporate & unallocated(a)
(93,404)— (93,404)87,037 (6,367)
Total homebuilding$401,720 18.9 %$853 $402,573 18.9 %$87,037 $489,610 23.0 %
$ in thousandsFiscal Year Ended September 30, 2020
 HB Gross
Profit (Loss)
HB Gross
Margin
Impairments &
Abandonments
(I&A)
HB Gross
Profit (Loss) excluding I&A
HB Gross
Margin 
excluding
I&A
Interest
Amortized to COS
(Interest)
HB Gross Profit
excluding I&A and
Interest
HB Gross Margin
excluding I&A and
Interest
West$258,675 21.9 %$923 $259,598 22.0 %$— $259,598 22.0 %
East98,446 20.7 %82 98,528 20.7 %— 98,528 20.7 %
Southeast87,935 19.1 %641 88,576 19.2 %— 88,576 19.2 %
Corporate & unallocated(a)
(96,946)— (96,946)94,844 (2,102)
Total homebuilding$348,110 16.4 %$1,646 $349,756 16.5 %$94,844 $444,600 21.0 %
(a) Corporate and unallocated includes capitalized interest and capitalized indirect costs expensed to homebuilding cost of sale related to homes closed, as well as capitalized interest and capitalized indirect costs impaired in order to reflect projects in progress assets at fair value.


31


Our homebuilding gross profit increased by $130.4 million to $532.1 million for the fiscal year ended September 30, 2022, compared to $401.7 million in the prior year. The increase in homebuilding gross profit was primarily driven by an increase in homebuilding revenue of $174.8 million and an increase in gross margin of 420 basis points to 23.1%. However, as shown in the tables above, the comparability of our gross profit and gross margin was modestly impacted by impairments and abandonment charges which increased by $0.2 million and interest amortized to homebuilding cost of sales which decreased by $15.4 million year-over-year (refer to Note 5 and Note 6 of the notes to the consolidated financial statements in this Form 10-K for additional details). When excluding the impact of impairments and abandonment charges and interest amortized to homebuilding cost of sales, homebuilding gross profit increased by $115.3 million compared to the prior year while homebuilding gross margin increased by 330 basis points to 26.3%. The year-over-year improvement in gross margin for the fiscal year ending September 30, 2022 is primarily driven by lower sales incentives and pricing increases, although softening demand may temper gross margin in the future.
West Segment: Compared to the prior fiscal year, homebuilding gross profit increased by $82.7 million due to the increase in homebuilding revenue and higher gross margin. Homebuilding gross margin, excluding impairments and abandonments, increased to 26.6%, up from 24.4% in the prior year. The increase in gross margin was driven primarily by lower sales incentives and pricing increases.
East Segment: Compared to the prior fiscal year, homebuilding gross profit increased by $12.0 million due to higher gross margin, partially offset by a decrease in homebuilding revenue. Homebuilding gross margin, excluding impairments and abandonments, increased to 24.9%, up from 22.3% in the prior year. The increase in gross margin was driven primarily by lower sales incentives and pricing increases.
Southeast Segment: Compared to the prior fiscal year, homebuilding gross profit increased by $5.8 million due to higher gross margin, partially offset by a decrease in homebuilding revenue. Homebuilding gross margin, excluding impairments and abandonments, increased to 25.1%, up from 21.9% in the prior year. The increase in gross margin was driven primarily by lower sales incentives and pricing increases.
Measures of homebuilding gross profit and gross margin after excluding inventory impairments and abandonments, interest amortized to cost of sales, and other non-recurring items are not GAAP financial measures. These measures should not be considered alternatives to homebuilding gross profit and gross margin determined in accordance with GAAP as an indicator of operating performance.
In particular, the magnitude and volatility of non-cash inventory impairments and abandonment charges for the Company and other homebuilders have been significant historically and, as such, have made financial analysis of our industry more difficult. Homebuilding metrics excluding these charges, as well as interest amortized to cost of sales and other similar presentations by analysts and other companies, are frequently used to assist investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies' respective level of impairments and levels of debt. Management believes these non-GAAP measures enable holders of our securities to better understand the cash implications of our operating performance and our ability to service our debt obligations as they currently exist and as additional indebtedness is incurred in the future. These measures are also useful internally, helping management to compare operating results and to measure cash available for discretionary spending.
In a given period, our reported gross profit is generated from both communities previously impaired and communities not previously impaired. In addition, as indicated above, certain gross profit amounts arise from recoveries of prior period costs, including warranty items that are not directly tied to communities generating revenue in the period. Home closings from communities previously impaired would, in most instances, generate very low or negative gross margins prior to the impact of the previously recognized impairment. Gross margin for each home closing is higher for a particular community after an impairment because the carrying value of the underlying land was previously reduced to the present value of future cash flows as a result of the impairment, leading to lower cost of sales at the home closing. This improvement in gross margin resulting from one or more prior impairments is frequently referred to in the aggregate as the “impairment turn” or “flow-back” of impairments within the reporting period. The amount of this impairment turn may exceed the gross margin for an individual impaired asset if the gross margin for that asset prior to the impairment would have been negative. The extent to which this impairment turn is greater than the reported gross margin for the individual asset is related to the specific historical cost basis of that individual asset.
32


The asset valuations that result from our impairment calculations are based on discounted cash flow analyses and are not derived by simply applying prospective gross margins to individual communities. As such, impaired communities may have gross margins that are somewhat higher or lower than the gross margins for unimpaired communities. The mix of home closings in any particular quarter varies to such an extent that comparisons between previously impaired and never impaired communities would not be a reliable way to ascertain profitability trends or to assess the accuracy of previous valuation estimates. In addition, since any amount of impairment turn is tied to individual lots in specific communities, it will vary considerably from period to period. As a result of these factors, we review the impairment turn impact on gross margin on a trailing 12-month basis rather than a quarterly basis as a way of considering whether our impairment calculations are resulting in gross margins for impaired communities that are comparable to our unimpaired communities. For fiscal 2022, our homebuilding gross margin was 23.1% and excluding interest and inventory impairments and abandonments, it was 26.3%. For the same period, homebuilding gross margin was as follows in those communities that have previously been impaired, which represented 3.4% of total closings during fiscal 2022:
Homebuilding Gross Margin from previously impaired communities:
Pre-impairment turn gross margin11.3 %
Impact of interest amortized to COS related to these communities2.4 %
Pre-impairment turn gross margin, excluding interest amortization13.7 %
Impact of impairment turns19.3 %
Gross margin (post impairment turns), excluding interest amortization33.0 %
For further discussion of our impairment policies, refer to Note 2 and Note 5 of the notes to consolidated financial statements in this Form 10-K.
Land Sales and Other Revenue and Gross Profit (Loss)
Land sales relate to land and lots sold that do not fit within our homebuilding programs and strategic plans. We also have other revenue related to title examinations provided for our homebuyers in certain markets. The following tables summarize our land sales and other revenue and related gross profit (loss) by reportable segment for the periods presented:
$ in thousandsLand Sales and Other Revenue
 20222021202022 v 2121 v 20
West$3,783 $8,370 $2,762 (54.8)%203.0 %
East5,149 3,846 1,457 33.9 %164.0 %
Southeast5,536 387 5,948 1,330.5 %(93.5)%
Total$14,468 $12,603 $10,167 14.8 %24.0 %
$ in thousandsLand Sales and Other Gross Profit (Loss)
 20222021202022 v 2121 v 20
West$734 $2,330 $417 (68.5)%458.8 %
East4,206 440 111 855.9 %296.4 %
Southeast984 73 200 1,247.9 %(63.5)%
Corporate and unallocated(a)
(566)(308)(1,198)(83.8)%74.3 %
Total$5,358 $2,535 $(470)111.4 %639.4 %
(a) Includes capitalized interest and capitalized indirect costs expensed to land cost of sale related to land sold, as well as capitalized interest and capitalized indirect costs impaired in order to reflect land held for sale assets at net realizable value.
To further support our efforts to improve capital efficiency, we continued to focus on closing a number of land sales for land positions that did not fit within our strategic plans. Future land and lot sales will depend on a variety of factors, including local market conditions, individual community performance, and changing strategic plans.
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Operating Income
The table below summarizes operating income by reportable segment for the periods presented:
Fiscal Year Ended September 30,
in thousands20222021202022 v 2121 v 20
West$253,961 $181,303 $161,786 $72,658 $19,517 
East102,146 84,630 56,319 17,516 28,311 
Southeast68,726 57,581 40,746 11,145 16,835 
Corporate and Unallocated(a)
(152,342)(176,645)(179,744)24,303 3,099 
Operating income$272,491 $146,869 $79,107 $125,622 $67,762 
(a) Includes amortization of capitalized interest, capitalization and amortization of indirect costs, impairment of capitalized interest and capitalized indirect costs, expenses related to numerous shared services functions that benefit all segments but are not allocated to the operating segments, and certain other amounts that are not allocated to our operating segments.
Our operating income increased by $125.6 million to $272.5 million for the year ended September 30, 2022, compared to operating income of $146.9 million for year ended September 30, 2021, primarily driven by the previously discussed increase in gross profit, partially offset by an increase in SG&A expense. The dollar amount of SG&A increased by $8.2 million, or 3.4%, primarily due to increased personnel expense. Additionally, SG&A as a percentage of total revenue decreased year-over-year by 50 basis points from 11.4% to 10.9% primarily due to the increase in homebuilding revenue.
West Segment: The $72.7 million increase in operating income compared to the prior year was primarily due to the increase in gross profit previously discussed, partially offset by higher commissions expense on higher homebuilding revenue, higher sales and marketing expenses, and higher other G&A expenses in the segment.
East Segment: The $17.5 million increase in operating income compared to the prior year was primarily due to the increase in gross profit previously discussed and lower commissions expense on lower homebuilding revenue in the segment. This increase to operating income is partially offset by higher sales and marketing expenses and higher other G&A expenses in the segment.
Southeast Segment: The $11.1 million increase in operating income compared to the prior year was primarily due to the increase in gross profit previously discussed and lower commissions expense on lower homebuilding revenue. This increase to operating income is partially offset by higher sales and marketing expenses and higher other G&A expenses in the segment.
Corporate and Unallocated: Our Corporate and unallocated results include amortization of capitalized interest, capitalization and amortization of indirect costs, impairment of capitalized interest and capitalized indirect costs, expenses for various shared services functions that benefit all segments but are not allocated, including information technology, treasury, corporate finance, legal, branding and national marketing, and certain other amounts that are not allocated to our operating segments. For the fiscal year ended September 30, 2022, corporate and unallocated net expenses decreased by $24.3 million from the prior fiscal year, primarily due to lower amortization of capitalized interest and capitalized indirect costs to cost of sales, partially offset by higher G&A costs.
Below operating income, we had two noteworthy fluctuations between fiscal 2022 and fiscal 2021 as follows: (1) we experienced an increase in other income and expense, net, as we had no interest expense not qualified for capitalization during fiscal 2022 compared to $2.8 million during fiscal 2021, and (2) we recorded a gain on extinguishment of debt of $0.3 million during fiscal 2022 compared to a loss on extinguishment of debt of $2.0 million in fiscal 2021. See Note 6 and Note 7 of the notes to our consolidated financial statements in this Form 10-K for further discussion of these items.
Income Taxes
We recognized income tax expense from continuing operations of $53.3 million for the fiscal year ended September 30, 2022, compared to income tax expense from continuing operations of $21.5 million and $18.0 million for our fiscal years ended September 30, 2021 and 2020, respectively. Income tax expense in our fiscal 2022, 2021 and 2020 primarily resulted from income generated in the fiscal year and permanent book/tax differences, partially offset by the generation of additional federal tax credits. Refer to Note 13 of the notes to the consolidated financial statements in this Form 10-K for a further discussion of our income taxes.
34


Liquidity and Capital Resources
Our sources of liquidity include, but are not limited to, cash from operations, proceeds from Senior Notes, our Secured Revolving Credit Facility (the Facility) and other bank borrowings, the issuance of equity and equity-linked securities, and other external sources of funds. Our short-term and long-term liquidity depends primarily upon our level of net income, working capital management (cash, accounts receivable, accounts payable and other liabilities), and available credit facilities.
Net changes in cash, cash equivalents, and restricted cash are as follows for the periods presented:
in thousands202220212020
Cash provided by operating activities$81,074 $31,656 $289,095 
Cash used in investing activities(14,709)(14,189)(10,164)
Cash used in financing activities(88,680)(85,852)(59,197)
Net (decrease) increase in cash, cash equivalents, and restricted cash$(22,315)$(68,385)$219,734 
Operating Activities
Net cash provided by operating activities was $81.1 million for the fiscal year ended September 30, 2022. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development spending. Net cash provided by operating activities during the period was primarily driven by income before income taxes of $274.0 million, which included $24.0 million of non-cash charges, a net decrease in non-inventory working capital of $14.5 million, partially offset by an increase in inventory of $231.4 million resulting from land acquisition, land development, and house construction spending to support continued growth.
Net cash provided by operating activities was $31.7 million during the fiscal year ended September 30, 2021, primarily driven by income before income taxes of $143.5 million, which included $28.1 million of non-cash charges, a net decrease in non-inventory working capital of $7.6 million, and a decrease in inventory of $147.5 million as a result of home sales, partially offset by land acquisition, land development, and house construction spending to support continued growth.
Investing Activities
Net cash used in investing activities for the fiscal year ended September 30, 2022 and 2021 was $14.7 million and 14.2 million, respectively, primarily driven in both periods by capital expenditures for model homes and information systems infrastructure.
Financing Activities
Net cash used in financing activities was $88.7 million for the fiscal year ended September 30, 2022 primarily driven by repayment of the Senior Unsecured Term Loan (the Term Loan), repurchases of a portion of our 2025 and 2027 Senior Notes, common stock repurchases under our share repurchase program, and tax payments for stock-based compensation awards vesting.
Net cash used in financing activities was $85.9 million during the fiscal year ended September 30, 2021 primarily driven by installment payment of the Senior Unsecured Term Loan (the Term Loan), partial extinguishment of our 2027 Senior Notes, the payment of cash for debt issuance costs, and tax payments for stock-based compensation awards vesting.
Debt
We generally fulfill our short-term cash requirements with cash generated from our operations and available borrowings. Additionally, our Secured Revolving Credit Facility provides working capital and letter of credit capacity of $250.0 million. As of September 30, 2022, no borrowings were outstanding under the Facility, and after accounting for outstanding letters of credit under the Facility, there was a remaining capacity of $244.5 million.
On October 13, 2022, the Company entered into a Senior Unsecured Revolving Credit Facility (the “New Unsecured Facility”). The New Unsecured Facility replaces the Secured Revolving Credit Facility, and the Company expects to use the proceeds from the New Unsecured Facility for general corporate purposes. The New Unsecured Facility provides for a revolving credit facility with borrowing capacity up to $265.0 million. The Company also will have the right from time to time to request to increase the size of the commitments under the New Unsecured Facility by up to $135.0 million for a maximum of $400.0 million. The New Unsecured Facility terminates on October 13, 2026 (the “Termination Date”), and the Company may borrow, repay and reborrow amounts under the New Unsecured Facility until the Termination Date. See Note 8 of the notes to the consolidated financial statements in this Form 10-K for additional details related to the New Unsecured Facility.
35


We have also entered into a number of stand-alone, cash-secured letter of credit agreements with banks. These combined facilities provide for letter of credit needs collateralized by either cash or assets of the Company. We currently have $29.7 million of outstanding letters of credit under these facilities, which are secured by cash collateral that is maintained in restricted accounts totaling $31.5 million.
In the future, we may from time to time seek to continue to retire or purchase our outstanding debt through cash repurchases or in exchange for other debt securities, in open market purchases, privately-negotiated transactions, or otherwise. In addition, any material variance from our projected operating results could require us to obtain additional equity or debt financing. There can be no assurance that we will be able to complete any of these transactions in the future on favorable terms or at all. See Note 8 of the notes to the consolidated financial statements in this Form 10-K for additional details related to our borrowings.
Financial Position
As of September 30, 2022, we had $459.1 million of available liquidity, including $214.6 million in cash and cash equivalents and $244.5 million of remaining capacity under our $250.0 million Secured Revolving Credit Facility, which was subsequently replaced and expanded by the new $265.0 million Senior Unsecured Revolving Credit Facility as noted above.
While we believe we possess sufficient liquidity, we are mindful of potential short-term or seasonal requirements for enhanced liquidity that may arise to operate and grow our business. As of the date of this report, we believe we have adequate capital resources and sufficient access to external financing sources to satisfy our current and reasonably anticipated requirements for funds to conduct our operations and meet other needs in the ordinary course of our business.
At times, we may also engage in capital markets, bank loan, project debt or other financial transactions, including the repurchase of debt or potential new issuances of debt or equity securities to support our business needs. The amounts involved in these transactions, if any, may be material. In addition, as necessary or desirable, we may adjust or amend the terms of and/or expand the capacity of the Facility, or enter into additional letter of credit facilities, or other similar facility arrangements, in each case with the same or other financial institutions, or allow any such facilities to mature or expire.
Supplemental Guarantor Information
As discussed in Note 8 of the notes to the consolidated financial statements in this Form 10-K, the Company's obligations to pay principal and interest under certain debt agreements are guaranteed on a joint and several basis by substantially all of the Company's subsidiaries. Some of the immaterial subsidiaries do not guarantee the Senior Notes. The guarantees are full and unconditional.
The following summarized financial information is presented for Beazer Homes USA, Inc. and the guarantor subsidiaries on a combined basis after elimination of intercompany transactions between entities in the combined group and amounts related to investments in any subsidiary that is a non-guarantor.
As of September 30,
in thousands20222021
Due from non-guarantor subsidiary$3,145 $1,532 
Total assets$2,245,160 $2,075,518 
Total liabilities $1,312,185 $1,353,734 
Fiscal Year Ended September 30,
in thousands20222021
Total revenues$2,312,307 $2,137,976 
Gross profit$533,942 $402,646 
Income from continuing operations$219,898 $120,571 
Net income$219,884 $121,372 
36


Credit Ratings
Our credit ratings are periodically reviewed by rating agencies. In July 2022, S&P reaffirmed the Company’s corporate credit rating of B and the Company's positive outlook. In October 2022, Moody's upgraded the ratings for our senior unsecured notes from B3 to B2, reaffirmed the Company's issuer corporate family rating of B2 and returned the Company's outlook from stable to positive. These ratings and our current credit condition affect, among other things, our ability to access new capital. Negative changes to these ratings may result in more stringent covenants and higher interest rates under the terms of any new debt. Our credit ratings could be lowered, or rating agencies could issue adverse commentaries in the future, which could have a material adverse effect on our business, financial condition, results of operations, and liquidity. In particular, a weakening of our financial condition, including any further increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, could result in a credit rating downgrade or change in outlook, or could otherwise increase our cost of borrowing.
Stock Repurchases and Dividends Paid
In May 2022, the Company's Board of Directors approved a new share repurchase program that authorizes the Company to repurchase up to $50.0 million of its outstanding common stock. This newly authorized program replaced the prior share repurchase program authorized in the first quarter of fiscal 2019 of up to $50.0 million of common stock repurchases, pursuant to which $12.0 million of the capacity remained prior to the replacement of the program. As part of this new program, the Company repurchased 570 thousand shares of its common stock for $8.2 million at an average price per share of $14.33 during the year ended September 30, 2022 through open market transactions. No share repurchases were made during fiscal year 2021. During the year ended September 30, 2020, the Company repurchased approximately 362 thousand shares of its common stock for $3.3 million at an average price per share of $9.20 through open market transactions, including 10b5-1 plans. All shares have been retired upon repurchase. The aggregate reduction to stockholders’ equity related to share repurchases during the fiscal years ended September 30, 2022 and 2020 was $8.2 million and $3.3 million, respectively. As of September 30, 2022, the remaining availability of the new share repurchase program was $41.8 million. The repurchase program has no expiration date.
The indentures under which our Senior Notes were issued contain certain restrictive covenants, including limitations on our payment of dividends. There were no dividends paid during our fiscal years ended September 30, 2022, 2021 or 2020.
Off-Balance Sheet Arrangements and Aggregate Contractual Commitments
Lot Option Agreements
In addition to purchasing land directly, we control a portion of our land supply through lot option agreements. In recent years, we have focused on increasing our lot option agreement usage to minimize risk as we grow our land position. As of September 30, 2022, we controlled 25,170 lots, which includes 272 lots of land held for future development and 501 lots of land held for sale. Of the 24,397 total active lots, we owned 11,085, or 45.4%, of these lots and the remaining 13,312 of these lots, or 54.6%, were under option agreements, primarily through lot option agreements with land developers and land bankers, which generally require the payment of cash or the posting of a letter of credit or surety bond for the right to acquire lots during a specified period of time at a certain price. In comparison, we controlled 9,992 lots, or 46.6% of our total active lot position, through option agreements as of September 30, 2021. As a result of the flexibility that these options provide us, upon a change in market conditions, we may renegotiate the terms of the options prior to exercise or terminate the agreement. Under option agreements, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers, and our liability is generally limited to forfeiture of the non-refundable deposits and other non-refundable amounts incurred, which totaled approximately $142.4 million as of September 30, 2022. The total remaining purchase price, net of cash deposits, committed under all options was $827.6 million as of September 30, 2022. Subject to market conditions and our liquidity, we plan to further expand our use of option agreements to supplement our owned inventory supply.
We expect to exercise, subject to market conditions and seller satisfaction of contract terms, most of our option agreements. Various factors, some of which are beyond our control, such as market conditions, weather conditions, and the timing of the completion of development activities, will have a significant impact on the timing of option exercises or whether lot options will be exercised at all.
We have historically funded the exercise of lot options with operating cash flows. We expect these sources to continue to be adequate to fund anticipated future option exercises. Therefore, we do not anticipate that the exercise of our lot options will have a material adverse effect on our liquidity.
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Investments in Unconsolidated Entities
Occasionally, we use legal entities in which we have less than a controlling interest. We enter into the majority of these arrangements with land developers, other homebuilders, and financial partners to acquire attractive land positions, to manage our risk profile, and to leverage our capital base. The underlying land positions are developed into finished lots for sale to the unconsolidated entity’s members or other third parties. We account for our interest in unconsolidated entities under the equity method.
Historically, we and our partners have provided varying levels of guarantees of debt or other obligations of our unconsolidated entities. As of September 30, 2022, we had no repayment guarantees outstanding related to the debt of our unconsolidated entities. See Note 2 and Note 4 of the notes to the consolidated financial statements in this Form 10-K for more information.
Letters of Credit and Surety Bonds
In connection with the development of our communities, we are frequently required to provide performance, maintenance, and other bonds and letters of credit in support of our related obligations with respect to such developments. The amount of such obligations outstanding at any time varies in accordance with our pending development activities. In the event any such bonds or letters of credit are drawn upon, we would be obligated to reimburse the issuer of such bonds or letters of credit. We had outstanding letters of credit and surety bonds of $35.2 million and $279.6 million, respectively, as of September 30, 2022, primarily related to our obligations to local governments to construct roads and other improvements in various developments.
Contractual Commitments
The following table summarizes our aggregate contractual commitments as of September 30, 2022:
Payments Due by Period
in thousandsTotalLess than 1 Year1-3 Years3-5 YearsMore than 5 Years
Senior notes and junior subordinated notes(a)
$1,019,223 $— $211,195 $357,255 $450,773 
Interest commitments under senior notes and junior subordinated notes(b)
399,154 65,892 131,784 103,273 98,205 
Obligations related to lots under option827,600 386,844 368,458 61,954 10,344 
Operating leases12,357 3,799 4,987 2,345 1,226 
Uncertain tax positions(c)
— — — — — 
Total$2,258,334 $456,535 $716,424 $524,827 $560,548 
(a) For a listing of our borrowings, refer to Note 8 of the notes to the consolidated financial statements in this Form 10-K.
(b) Interest on variable rate obligations is based on rates effective as of September 30, 2022.
(c) Based on its current inventory of uncertain tax positions and tax carryforward attributes, the Company does not expect a cash settlement of unrecognized tax benefits related to uncertain tax positions in future years. See Note 13 of the notes to the consolidated financial statements in this Form 10-K for additional information regarding the Company's unrecognized tax benefits related to uncertain tax positions as of September 30, 2022.
We had outstanding letters of credit and surety bonds of $35.2 million and $279.6 million, respectively, as of September 30, 2022, primarily related to our obligations to local governments to construct roads and other improvements in various developments.
Critical Accounting Estimates
Our critical accounting policies require the use of judgment in their application and in certain cases require estimates of inherently uncertain matters. Although our accounting policies are in compliance with accounting principles generally accepted in the United States of America (GAAP), a change in the facts and circumstances of the underlying transactions could significantly change the application of the accounting policies and the resulting financial statement impact. Listed below are those policies that we believe are critical and require the use of complex judgment in their application.
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Inventory Valuation - Projects in Progress
Projects in progress inventory includes homes under construction and land under development grouped together as communities. Generally, upon the commencement of land development activities, it may take three to five years (depending on, among other things, the size of the community and its sales pace) to fully develop, sell, construct and close all the homes in a typical community. 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. We evaluate, among other things, the average sales price and margins on recent home closings, homes in backlog and expected future home sales for each community. 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. For those communities wh