Edgar Filing: BEAZER HOMES USA INC

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BZH-9.30.14 10K Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________________________________________

FORM 10-K

_____________________________________________________________



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

For the fiscal year ended September 30, 2014



¨	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 Securities		Exchanges on Which Registered
Common Stock, $.001 par value per share		New York Stock Exchange
Series A Junior Participating Preferred Stock Purchase Rights		New York Stock Exchange
7.50% Tangible Equity Units		New 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 x

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 x

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 x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check One):



Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant (26,721,886 shares) as of March 31, 2014, based on the closing sale price per share as reported by the New York Stock Exchange on such date, was $536,575,471.



Class		Outstanding at November 11, 2014
Common Stock, $0.001 par value		27,167,178

DOCUMENTS INCORPORATED BY REFERENCE



	Part of 10-K where incorporated
Portions of the registrant’s Proxy Statement for the 2015 Annual Meeting of Stockholders	III

BEAZER HOMES USA, INC.

FORM 10-K

INDEX



Introduction
Forward Looking Statements	1
PART I.
Item 1. Business	2
Item 1A. Risk Factors	12
Item 1B. Unresolved Staff Comments	18
Item 2. Properties	18
Item 3. Legal Proceedings	18
Item 4. Mine Safety Disclosures	19
PART II.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6. Selected Financial Data	22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	38
Item 8. Financial Statements and Supplementary Data	39
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	81
Item 9A. Controls and Procedures	81
Item 9B. Other Information	82
PART III.
Item 10. Directors, Executive Officers, and Corporate Governance	82
Item 11. Executive Compensation	83
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	83
Item 13. Certain Relationships and Related Transactions, and Director Independence	83
Item 14. Principal Accountant Fees and Services	83
PART IV.
Item 15. Exhibits and Financial Statement Schedules	83
SIGNATURES	89

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 contains forward-looking statements. These forward-looking statements represent our expectations or beliefs concerning future events, and it is possible that the results described in this annual report will not be achieved. These forward-looking statements can generally be identified by the use of statements that include words such as “estimate,” “project,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “goal,” “target” or other similar words or phrases. All forward-looking statements are based upon information available to us on the date of this annual report.

These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, among other things, the matters discussed in this annual report in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Additional information about factors that could lead to material changes in performance is contained in Part I, Item 1A— Risk Factors. These factors are not intended to be an all-encompassing 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 availability and cost of land and the risks associated with the future value of our inventory such as additional asset impairment charges or writedowns;


•	economic changes nationally or in local markets, including changes in consumer confidence, declines in employment levels, inflation and increases in the quantity and decreases in the price of new homes and resale homes in the market;


•	the cyclical nature of the homebuilding industry and a potential deterioration in homebuilding industry conditions;


•	estimates related to homes to be delivered in the future (backlog) are imprecise as they are subject to various cancellation risks which cannot be fully controlled;


•	shortages of or increased prices for labor, land or raw materials used in housing production;


•	our cost of and ability to access capital and otherwise meet our ongoing liquidity needs including the impact of any downgrades of our credit ratings or reductions in our tangible net worth or liquidity levels;


•	our ability to comply with covenants in our debt agreements or satisfy such obligations through repayment or refinancing;


•	a substantial increase in mortgage interest rates, increased disruption in the availability of mortgage financing, a change in tax laws regarding the deductibility of mortgage interest, or an increased number of foreclosures;


•	increased competition or delays in reacting to changing consumer preference in home design;


•	factors affecting margins such as decreased land values underlying land option agreements, increased land development costs on communities under development or delays or difficulties in implementing initiatives to reduce production and overhead cost structure;


•	estimates related to the potential recoverability of our deferred tax assets;


•	potential delays or increased costs in obtaining necessary permits as a result of changes to, or complying with, laws, regulations, or governmental policies and possible penalties for failure to comply with such laws, regulations and governmental policies;


•	the results of litigation or government proceedings and fulfillment of the obligations in the consent orders with governmental authorities and other settlement agreements;


•	the impact of construction defect and home warranty claims;


•	the cost and availability of insurance and surety bonds;


•	the performance of our unconsolidated entities and our unconsolidated entity partners;


•	delays in land development or home construction resulting from adverse weather conditions;


•	the impact of information technology failures or data security breaches;


•	effects of changes in accounting policies, standards, guidelines or principles; or


•	terrorist acts, acts of war and other factors over which the Company has little or no control.

Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all such factors.

PART I

Item 1. Business

We are a geographically diversified homebuilder with active operations in 16 states within three geographic regions in the United States: West, East and Southeast. Our homes are designed to appeal to homeowners at various price points across various demographic segments and are generally offered for sale in advance of their construction. Our objective is to provide our customers with homes that incorporate exceptional value and quality while seeking to maximize our return on invested capital over the course of a housing cycle.

Our principal executive offices are located at 1000 Abernathy Road, Suite 260, Atlanta, Georgia 30328, telephone (770) 829-3700. We also provide information about our active communities through our Internet website located at www.beazer.com. Information on our website is not a part of and shall not be deemed incorporated by reference in this report.

Industry Overview and Current Market Conditions

The sale of new homes has been and will likely remain a large industry in the United States for four primary reasons: historical growth in both population and households, demographic patterns that indicate an increased likelihood of home ownership as age and income increase, job creation within geographic markets that necessitate new home construction and consumer demand for home features that can be more easily provided in a new home than an existing home.

In any year, the demand for new homes is closely tied to job growth, the availability and cost of mortgage financing, the supply of new and existing homes for sale and, importantly, consumer confidence. Consumer confidence is perhaps the most important of these demand variables and is the hardest one to predict accurately because it is a function of, among other things, consumers' views of their employment and income prospects, recent and likely future home price trends, localized new and existing home inventory, the level of current and near-term interest and mortgage rates, the availability of consumer credit, valuations in stock and bond markets and other geopolitical factors. In general, high levels of employment, significant affordability and low new home and resale home inventories contribute to a strong and growing homebuilding market environment.

We believe that the homebuilding industry is in the early stages of a long-term, multi-year recovery. Solid traffic levels in our new home models and sales centers along with favorable market fundamentals and demographics provide confidence that the homebuilding sales environment will continue to improve.

In November 2013, we introduced our multi-year “2B-10” Plan to reach $2 billion in revenue with a 10% Adjusted EBITDA margin. We expect the attainment of these objectives to involve improvements in 5 key metrics including:


•	Sales per community per month,


•	Active community count,


•	Average selling price,


•	Homebuilding gross margin, and


•	Cost leverage as measured by selling, general and administrative expenses as a percentage of total revenue.

During fiscal 2014, we made significant progress on several of our “2B-10” metrics and expect to make further improvements during fiscal 2015.

Long-Term Business Strategy

We have developed a long-term business strategy which focuses on the following elements in order to provide a wide range of homebuyers with quality homes while maximizing returns on our invested capital over the course of a housing cycle:

Geographic Diversification in Growth Markets. We compete in a large number of geographically diverse markets in an attempt 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 selection of markets based on both aggregate demographic information and our own operating results. We use the results of these reviews to re-allocate our investments to those markets where we believe we can maximize our profitability and return on capital over the next several years.

Diversity of Product Offerings. Our product strategy further entails addressing the needs of an increasingly diverse profile of home buyers. Within each of our markets we determine the profile of buyers we hope to address and design neighborhoods and homes with the specific needs of those buyers in mind. Depending on the market, we attempt to address one or more of the following categories of home buyers: entry-level, move-up or retirement-oriented. Within these buyer groups, we have developed detailed targeted buyer profiles based on demographic and psychographic data including information about their marital and family status,

employment, age, affluence, special interests, media consumption and distance moved. Recognizing that our customers want to choose certain components of their new home, we offer a limited number of structural options on most homes, as well as the use of design studios in most of our markets. These design studios allow the customer to select certain non-structural options for their homes such as cabinetry, flooring, fixtures, appliances and wall coverings.

Differentiated Process. Our strategy has three specific tenets: energy efficiency, personalization and lender choice. We engineer our homes for energy-efficiency, cost savings and comfort. Using the ENERGYSTAR ^TM standards as our minimum performance criteria, our homes reduce the impact on the environment while decreasing our homebuyers' annual operating costs. In response to consumers' desire to reflect their personal preferences and lifestyle in their homes, we continue to evolve our floor plans based on market opportunity and demand. We create base plans that meet most homebuyers' needs but also give the homebuyer the flexibility to change how the home lives through choices in structural and design options. To address the homebuyers' perceived challenge of securing a mortgage, we facilitate the process by making available a small number of preferred lenders who offer a comprehensive set of mortgage products, competitive rates and outstanding customer service.

Consistent Use of National Brand. Our homebuilding and marketing activities are conducted under the name of Beazer Homes in each of our markets. We believe that the Beazer Homes® trademark has significant value and is an important factor in the marketing of our homebuilding activities and business. We utilize a single brand name across our markets in order to better leverage our national and local marketing activities. Using a single brand has allowed us to execute successful national marketing campaigns and online marketing practices.

Operational Scale Efficiencies. Beyond marketing advantages, we attempt to create both national and local scale efficiencies as a result of the scope of our operations. On a national basis we are able to achieve volume purchasing advantages in certain product categories, share best practices in construction, marketing, planning and design among our markets, respond to telephonic and online customer inquiries and leverage our fixed costs in ways that improve profitability. On a local level, while we are not generally the largest builder within our markets, we do attempt to be a major participant within our selected submarkets and targeted buyer profiles. There are further design, construction and cost advantages associated with having strong market positions within particular markets.

Balanced Land Policies. We seek to maximize our return on capital by carefully managing our investment in land. To reduce the risks associated with investments in land, we sometimes use options to control land. We may acquire lots from various development and land banking entities pursuant to purchase and option agreements. We generally do not speculate in land which does not have the benefit of entitlements providing basic development rights to the owner.

Reportable Business Segments

In our homebuilding operations, we design, sell and build single-family and multi-family homes in the following geographic regions which are presented as reportable segments.




Segment/State		Market(s)/Year Entered

Homebuilding - West:
Arizona		Phoenix (1993)
California		Los Angeles County (1993), Orange County (1993), Riverside and San Bernardino Counties (1993), San Diego County (1992), Ventura County (1993), Sacramento (1993), Kern County (2005)
Nevada		Las Vegas (1993)
Texas		Dallas/Ft. Worth (1995), Houston (1995)
Homebuilding - East:
Indiana		Indianapolis (2002)
Maryland/Delaware		Baltimore (1998), Metro-Washington, D.C. (1998), Delaware (2003)
New Jersey/Pennsylvania/New York		Central and Southern New Jersey (1998), Bucks County, PA (1998), Orange County, NY (2011)
Tennessee		Nashville (1987)
Virginia		Fairfax County (1998), Loudoun County (1998), Prince William County (1998)
Homebuilding - Southeast:
Florida		Tampa/St. Petersburg (1996), Orlando (1997)
Georgia		Atlanta (1985), Savannah (2005)
North Carolina		Raleigh/Durham (1992)
South Carolina		Charleston (1987), Myrtle Beach (2002)

The results of operations of all of the homebuilding markets we have exited are reported as discontinued operations in our Consolidated Statements of Operations.

Seasonal and Quarterly Variability

Our homebuilding operating cycle generally reflects higher levels of new home order activity in the second and third fiscal quarters and increased closings in the third and fourth fiscal quarters. However, during periods of an economic downturn in the industry such as we have experienced in recent years, decreased revenues and closings as compared to prior periods including prior quarters, will typically reduce seasonal patterns.

Markets and Product Description

We evaluate a number of factors in determining which geographic markets to enter as well as which consumer segments to target with our homebuilding activities. We attempt to anticipate changes in economic and real estate conditions by evaluating such statistical information as the historical and projected growth of the population; the number of new jobs created or projected to be created; the number of housing starts in previous periods; building lot availability and price; housing inventory; level of competition; and home sale absorption rates.

We generally seek to differentiate ourselves from our competition in a particular market with respect to customer service, product type, incorporating energy efficient features, and design and construction quality. 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, consumer preferences, margins, timing and the economic strength of the market. Although some of our homes are priced at the upper end of the market, and we offer a selection of amenities and home customization options, we generally do not build “custom homes.” We attempt to maximize efficiency by using standardized design plans whenever possible. In all of our home offerings, we attempt to maximize customer satisfaction by incorporating quality and energy-efficient materials, distinctive design features, convenient locations and competitive prices.

The following table summarizes certain operating information of our reportable homebuilding segments and our discontinued homebuilding operations as of and for the fiscal years ended September 30, 2014, 2013 and 2012. Please see “Management's Discussion and Analysis of Results of Operations and Financial Condition” in Item 7 below for additional information.



	2014			2013			2012
($ in thousands)	Number of Homes Closed	Average Closing Price		Number of Homes Closed	Average Closing Price		Number of Homes Closed	Average Closing Price
West	1,996	$	269.1	2,277	$	238.7	1,883	$	205.3
East	1,600	328.4		1,629	296.2		1,506	266.8
Southeast	1,355	256.3		1,150	220.2		1,039	199.9
Continuing Operations	4,951	$	284.8	5,056	$	253.0	4,428	$	224.9
Discontinued Operations	—	$	—	—	$	—	19	$	219.6



	September 30, 2014			September 30, 2013			September 30, 2012
($ in thousands)	Units in Backlog	Dollar Value in Backlog		Units in Backlog	Dollar Value in Backlog		Units in Backlog	Dollar Value in Backlog
West	557	$	154,946	738	$	200,532	839	$	184,754
East	600	208,182		661	210,066		747	223,050
Southeast	533	152,748		494	117,544		337	71,276
Continuing Operations	1,690	$	515,876	1,893	$	528,142	1,923	$	479,080
Discontinued Operations	—	$	—	—	$	—	—	$	—
ASP in backlog (in thousands)		$	305.3		$	279.0		$	249.1

Corporate Operations

We perform all or most of the following functions at our corporate office:


•	evaluate and select geographic markets;


•	allocate capital resources to particular markets for land acquisitions;


•	maintain and develop relationships with lenders and capital markets to create access to financial resources;


•	maintain and develop relationships with national product vendors;


•	operate and manage information systems and technology support operations; and


•	monitor the operations of our subsidiaries and divisions.

We allocate capital resources necessary for new investments in a manner consistent with our overall business strategy. We will vary the capital allocation based on market conditions, results of operations and other factors. Capital commitments are determined through consultation among selected executive and operational personnel, who play an important role in ensuring that new investments are consistent with our strategy. Centralized financial controls are also maintained through the standardization of accounting and financial policies and procedures.

Field Operations

The development and construction of each new home community is managed by our operating divisions, each of which is generally led by a market leader who, in most instances, reports directly to our Chief Executive Officer. Together with our operating divisions, our field teams are equipped with the skills to complete the functions of identification of land acquisition opportunities, land entitlement, land development, home construction, marketing, sales, warranty service and certain purchasing and planning/design functions. The accounting and accounts payable functions of our field operations are concentrated in our national accounting center.

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.

In a very small number of situations, we will purchase property without all necessary entitlements where we perceive an opportunity to build on such property in a manner consistent with our strategy. The term “entitlements” refers to subdivision approvals, development agreements, tentative maps or recorded plats, depending on the jurisdiction within 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.

We select our land for development 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;


•	proximity to local traffic corridors and 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 construction. Where required, we then undertake or, in the case of land under option, the grantor of the option then undertakes, the development activities (through contractual arrangements with local developers), which include site planning and engineering, as well as constructing road, sewer, water, utilities, drainage and recreational facilities and other amenities. When available in certain markets, we also buy finished lots that are ready for construction. During fiscal years 2014 and 2013, we aggressively pursued land acquisition opportunities in an effort to increase our number of active communities, spending approximately $551 million and $475 million, respectively, for land acquisition and development. As a result, our active community count at September 30, 2014 grew to 155 from 134 a year ago.

We strive to develop a design and marketing concept for each of our communities, which includes determination of size, style and price range of the homes, layout of streets, layout of individual lots and overall community design. The product line offered in a particular new home community depends upon many factors, including the housing generally available in the area, the needs of a particular market and our cost of lots in the new home community. We are, however, often able to use standardized home design plans.

Option Contracts

We acquire certain lots by means of option contracts from various sellers including land banking entities. Option contracts generally require the payment of a cash deposit or issuance of a letter of credit for the right to acquire lots during a specified period of time at a fixed or variable price.

Under option contracts, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers. Our liability under option contracts is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts incurred, which aggregated approximately $43.5 million at September 30, 2014. At September 30, 2014, future amounts under option contracts aggregated approximately $420.5 million, net of cash deposits.

The following table sets forth, by reportable segment, land controlled by us as of September 30, 2014:



	Lots Owned
	Homes Under Construction (1)	Finished Lots	Lots Under Development	Lots Held for Future Development	Land Held for Sale	Total Lots Owned	Total Lots Under Contract	Total Lots Controlled
West
Arizona	96	439	482	46	1	1,064	—	1,064
California	86	59	1,234	3,241	44	4,664	54	4,718
Nevada	54	497	496	791	—	1,838	—	1,838
Texas	421	709	2,290	—	216	3,636	2,249	5,885
Total West	657	1,704	4,502	4,078	261	11,202	2,303	13,505
East
Indiana	164	381	809	—	100	1,454	—	1,454
Maryland	190	352	960	462	282	2,246	1,714	3,960
New Jersey	71	—	190	116	—	377	—	377
Tennessee	74	74	712	—	101	961	402	1,363
Virginia	54	127	215	—	—	396	193	589
Total East	553	934	2,886	578	483	5,434	2,309	7,743
Southeast
Georgia	18	94	569	—	—	681	123	804
Florida	224	692	885	33	116	1,950	700	2,650
North Carolina	73	143	63	21	—	300	497	797
South Carolina	156	341	1,717	68	1	2,283	241	2,524
Total Southeast	471	1,270	3,234	122	117	5,214	1,561	6,775
Discontinued Operations	—	—	—	—	164	164	—	164
Total	1,681	3,908	10,622	4,778	1,025	22,014	6,173	28,187

(1) The category "Homes Under Construction" represents lots upon which construction of a home has commenced, including model homes.

The following table sets forth, by reportable segment, land held for development, land held for future development and land held for sale as of September 30, 2014:



(In thousands)	Land Under Development		Land Held for Future Development		Land Held for Sale

West	$	358,448	$	260,898	$	10,026
East	236,271		29,239		34,530
Southeast	192,049		10,911		4,821
Discontinued Operations	—		—		2,295
Total	$	786,768	$	301,048	$	51,672

Investments in Marketable Securities and Unconsolidated Entities

We have an equity investment in American Homes 4 Rent (AMH) resulting from the sale of our interest in Beazer Pre-Owned Rental Homes, a real estate investment trust (REIT) founded by the Company. We account for this investment as a marketable security.

We also participate in a number of joint ventures and other investments in which we have less than a controlling interest. We enter into the majority of these investments 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 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.

Our unconsolidated entities periodically obtain secured acquisition and development financing. At September 30, 2014, our unconsolidated entities had borrowings outstanding totaling $11.3 million. In the past, we and our partners have provided varying levels of guarantees of debt or other obligations for our unconsolidated entities. As of September 30, 2014, we have no repayment guarantees outstanding related to the debt of our unconsolidated entities. See Note 3 to the consolidated financial statements for further information.

Our consolidated balance sheets include investments in marketable securities and unconsolidated entities totaling $38.3 million and $45.0 million at September 30, 2014 and September 30, 2013, respectively.

Construction

We typically act as the general contractor for the construction of our new home communities. Our project development operations are controlled by our operating divisions, whose employees supervise the construction of each new home community, coordinate the activities of subcontractors and suppliers, subject their work to quality and cost controls and assure 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. Our home plans are created in a collaborative effort with industry leading architectural firms, allowing us to stay current in our home designs with changing trends, as well as to expand our focus on value engineering without losing design value to our customers.

Subcontractors typically are retained on a project-by-project basis to complete construction at a fixed price. Agreements with our subcontractors and materials suppliers are generally entered into after competitive bidding. In connection with this competitive bid process, we obtain information from prospective subcontractors and vendors with respect to their financial condition and ability to perform their agreements with us. 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, and such materials and services have been, and continue to be, available. Material prices may fluctuate, however, due to various factors, including demand or supply shortages, which may be beyond the control of our vendors. Whenever possible, we enter into regional and national supply contracts with certain of our vendors. We believe that our relationships with our suppliers and subcontractors are good.

Construction time for our homes depends on the availability of labor, materials and supplies, product type and location. Homes are designed to promote efficient use of space and materials, and to minimize construction costs and time. In all of our markets, construction of a home is typically completed within three to six months following commencement of construction. At September 30, 2014, excluding models, we had 1,467 homes at various stages of completion of which 1,011 were under contract and included in backlog at such date and 456 homes (205 were substantially completed and 251 under construction) were not under a sales contract, either because the construction of the home was begun without a sales contract or because the original sales contract had been canceled.

Warranty Program

For certain homes sold through March 31, 2004 (and in certain markets through July 31, 2004), we self-insured our warranty obligations through our wholly-owned risk retention group. We continue to maintain reserves to cover potential claims on homes covered under this warranty program. Beginning with homes sold on or after April 1, 2004 (August 1, 2004 in certain markets), our warranties are issued, administered and insured, subject to applicable self-insured retentions, by independent third parties. We currently provide a limited warranty (ranging from one to two years) covering workmanship and materials per our defined performance quality standards. In addition, we provide a limited warranty (generally ranging from a minimum of five years up to the period covered by the applicable statute of repose) covering only certain defined construction defects. We also provide a defined structural warranty with single-family homes and townhomes in certain states.

Since we subcontract our homebuilding work to subcontractors whose contracts generally include an indemnity obligation and a requirement that certain minimum insurance requirements be met, including providing us with a certificate of insurance prior to receiving payments for their work, many claims relating to workmanship and materials are the primary responsibility of our 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. Please see “Management's Discussion and Analysis of Results of Operations and Financial Condition” and Note 9, “Contingencies” to the Consolidated Financial Statements for additional information. There can be no assurance, however, that the terms and limitations of the limited warranty will be effective against claims made by the 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.

Marketing and Sales

We make extensive use of online and traditional advertising vehicles and other promotional activities, including our Internet website (www.beazer.com), our mobile site (m.beazer.com), real estate listing sites, search engine marketing, social media, brochures, direct marketing and directional billboards located in the immediate areas of our developments. In connection with these marketing vehicles, we have registered or applied for registration of trademarks and Internet domain names, including Beazer Homes® for use in our business.

We normally build, decorate, furnish and landscape model homes for each community and maintain on-site sales offices. At September 30, 2014, we maintained and owned 214 model homes. We believe that model homes play a particularly important role in our selling efforts.

We generally sell our homes through commissioned new home sales counselors (who typically work from the sales offices located in the model homes used in the subdivision) as well as through independent brokers. Our personnel are available to assist prospective homebuyers by providing them with floor plans, price information, tours of model homes, and a detailed explanation of the energy-efficient features and associated savings opportunities. The selection of interior features is a principal component of our marketing and sales efforts. Sales personnel are trained by us and participate in a structured training program to be updated on sales techniques, product enhancements, competitive products in the area, construction schedules and Company policies including compliance, which management believes results in a sales force with extensive knowledge of our operating policies and housing products. Our policy also provides that sales personnel be licensed real estate agents where required by law. Depending on market conditions, we also at times begin construction on a number of homes for which no signed sales contract exists. The use of an inventory of such homes satisfies the requirements of relocated personnel, first time buyers and of independent brokers, who often represent customers who require a completed home within 60 days. We sometimes use various sales incentives in order to attract homebuyers. The use of incentives depends largely on local economic and competitive market conditions.

Differentiating Beazer Homes

We know that our buyers have many choices when considering their home purchases. So, to help us achieve the operational objectives we just outlined, we have identified three strategic pillars, which differentiate Beazer's homes from both used homes and other newly built homes including:

Mortgage Choices - Most of our buyers need to arrange financing in order to purchase a new home. Unlike our major competitors, we do not have an in-house mortgage company. Instead, in every Beazer community, we've identified a group of preferred lenders that provide a comprehensive product portfolio, competitive rates and fees, and outstanding customer service. We encourage those lenders to compete for our customers’ business, which is a unique program among national homebuilders and enables our customers to secure the mortgage program that best fits their needs with great service and highly competitive rates and fees.

Choice Plans - Every family lives in their home differently. That's why we created Choice Plans. These floor plans allow buyers to choose how core living areas, like the kitchen and master bathroom, are configured at no extra cost. Whether our buyers choose a downstairs office, or an expanded family room, our plans are designed for the way a buyer wants to live.

Energy Efficiency - Nearly all newly built homes afford buyers a substantial reduction in utility bills due to their modern, energy efficient construction and materials. That's a feature a used home cannot match. At Beazer, we go even further, by providing every buyer with an energy rating for their home, completed by a qualified third party rating company.

Customer Financing

We do not provide mortgage origination services. Unlike many of our peers, we have no interest in any lender and are able to promote real competition among lenders on behalf of our customers. Approximately 89% of our fiscal 2014 customers elected to finance their home purchases. See Item 3 - Legal Proceedings for discussion of the investigations and litigation related to our prior mortgage origination business (Beazer Mortgage).

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 some 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 breadth of product line to vary our 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. To further strengthen our competitive position, we rely on quality design, construction and service to provide customers with a higher measure of home.

Government Regulation and Environmental Matters

Generally, our land is purchased with entitlements, giving us the right to obtain building permits upon compliance with specified conditions, which generally are within our control. The length of time necessary to obtain such permits and approvals affects the carrying costs of unimproved property acquired for the purpose of development and construction. In addition, the continued effectiveness of permits already granted is subject to factors such as changes in policies, rules and regulations and their interpretation and application. Many governmental authorities have imposed impact fees as a means of defraying the cost of providing certain governmental services to developing areas. To date, the governmental approval processes discussed above have not had a material adverse effect on our development activities, and indeed all homebuilders in a given market face the same fees and restrictions. There can be no assurance, however, that these and other restrictions will not adversely affect us in the future.

We may also be subject to periodic delays or may be precluded entirely from developing communities due to building moratoriums, “slow-growth” or “no-growth” initiatives or building permit allocation ordinances which could be implemented in the future in the states and markets in which we operate. Substantially all of our land is entitled and, therefore, the moratoriums generally would only adversely affect us if they arose from health, safety and welfare issues such as insufficient water or sewage facilities. Local and state governments also have broad discretion regarding the imposition of development fees for communities in their jurisdictions. These fees are normally established, however, when we receive recorded final maps and building permits. We are also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health 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.

In order to provide homes to homebuyers qualifying for FHA-insured or 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, forms of policies 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 could result in loss of licensing and a restriction of our business activities in the applicable jurisdiction.

Bonds and Other Obligations

In connection with the development of our communities, we are frequently required to provide letters of credit and performance, maintenance and other bonds 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. At September 30, 2014, we had approximately $39.1 million and $221.1 million of outstanding letters of credit and performance bonds, respectively, primarily related to our obligations to local governments to construct roads and other improvements in various developments. We have no outstanding letters of credit relating to our land option contracts as of September 30, 2014.

Employees and Subcontractors

At September 30, 2014, we employed 1,027 persons, of whom 325 were sales and marketing personnel and 233 were involved in construction. Although none of our employees are covered by collective bargaining agreements, at times certain of the subcontractors engaged by us are represented by labor unions or are subject to collective bargaining arrangements. We believe that our relations with our employees and subcontractors are good.

Available Information

Our Internet website address is www.beazer.com and our mobile site is m.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 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. Additionally, 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 available in print to any stockholder who requests it.

The content on our website and mobile site is available for information purposes only and is not a part of and shall not be deemed incorporated by reference in this report.

Item 1A. Risk Factors

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 be increased, perhaps substantially, which could adversely impact our 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, which may impact our ability to increase the number of actively selling communities, to grow our revenues and margins, and to achieve or maintain profitability.

The market value of our land and/or homes may decline, leading to impairments and reduced profitability.

We regularly acquire land for replacement and expansion of 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 and the measures we employ to manage inventory risk may not be adequate to insulate our operations from a severe drop in inventory values. When market conditions are such that land values are not appreciating, previously entered into option agreements may become less desirable, at which time we may elect to forgo deposits and preacquisition costs and terminate the agreements. In a situation of adverse market conditions, we may incur impairment charges or have to sell land at a loss which would adversely affect our financial condition, results of operations and stockholders' equity and our ability to comply with certain covenants in our debt instruments linked to tangible net worth.

Our home sales and operating revenues could decline due to macro-economic and other factors outside of our control, such as changes in consumer confidence, declines in employment levels and increases in the quantity and decreases in the price of new homes and resale homes in the market.

Changes in national and regional economic conditions, as well as local economic conditions where we conduct our operations and where prospective purchasers of our homes live, may result in more caution on the part of homebuyers and, consequently, fewer home purchases. These economic uncertainties involve, among other things, conditions of supply and demand in local markets and changes in consumer confidence and income, employment levels and government regulations. These risks and uncertainties could periodically have an adverse effect on consumer demand and the pricing of our homes, which could cause our operating revenues to decline. Additional reductions in our revenues could, in turn, further negatively affect the market price of our securities.

The homebuilding industry is cyclical. A severe downturn in the industry, as recently experienced, could adversely affect our business, results of operations and stockholders' equity.

During periods of downturn in the 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 may temporarily experience a material reduction in revenues and margins. Continued weakness in the homebuilding market could adversely affect our business, results of operations and stockholders' equity as compared to prior periods and could result in additional inventory impairments in the future.

An increase in cancellation rates may negatively impact our business.

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. 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 performance. There is an inherent imprecision in these metrics based on an evaluation of qualitative factors during the transaction cycle.

We are dependent on the continued availability and satisfactory performance of our subcontractors, which, if unavailable, could have a material adverse effect on our business.

We conduct our land development and construction operations only as a general contractor. Virtually all land development and construction work is performed by unaffiliated third-party subcontractors. As a consequence, we depend on the continued availability of and satisfactory performance by these subcontractors for the development of our land and construction of our homes. There may not be sufficient availability of and satisfactory performance by these unaffiliated third-party subcontractors in the markets in which we operate. In addition, inadequate subcontractor resources could have a material adverse effect on our business.

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, assimilate and retain skilled personnel. If we are unable to retain our key employees or attract, train, assimilate 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 is intense.

Our access to capital and our ability to obtain additional financing could be affected by any downgrade of our credit ratings.

The Company's corporate credit rating and ratings on the Company's senior secured and unsecured 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, results of operations, financial condition 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, revolving credit and 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.

Certain of our secured and unsecured indebtedness and revolving credit and letter of credit facilities impose certain restrictions and obligations on us. Under certain of these instruments, we must comply with defined covenants which limit the Company's 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 assets of the Company. 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. 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;


•	making us more vulnerable to adverse general economic and industry conditions;


•	making it difficult to fund future working capital, land purchases, acquisitions, share repurchases, general corporate purposes or other purposes; and


•	causing us to be limited in our flexibility in planning for, or reacting to, changes in our business.

In addition, subject to restrictions in 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.

A substantial increase in mortgage interest rates, the unavailability of mortgage financing or a change in tax laws regarding the deductibility of mortgage interest may reduce consumer demand for our homes.

Substantially all purchasers of our homes finance their acquisition with mortgage financing. Housing demand is adversely affected by reduced availability of mortgage financing and factors that increase the upfront or monthly cost of financing a home such as increases in interest rates, insurance premiums, or limitations on mortgage interest deductibility. The recent decrease in the willingness and ability of lenders to make home mortgage loans, the tightening of lending standards and the limitation of financing product options, have made it more difficult for homebuyers to obtain acceptable financing. Any substantial increase in mortgage interest rates or unavailability of mortgage financing may adversely affect the ability of prospective first-time and move-up homebuyers to obtain financing for our homes, as well as adversely affect the ability of prospective move-up homebuyers to sell their current homes. A disruption in the credit markets and/or the curtailed availability of mortgage financing may adversely affect, our business, financial condition, results of operations and cash flows as it has in the past few years.

If we are unsuccessful in competing against our homebuilding competitors, our market share could decline or our growth could be impaired and, as a result, our financial results 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 the value of, or 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, some of our competitors have substantially greater financial resources and lower costs of funds 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.

We conduct certain of our operations through land development joint ventures with independent third parties in which we do not have a controlling interest and we can be adversely impacted by joint venture partners' failure to fulfill their obligations.

We participate in land development joint ventures (JVs) in which we have less than a controlling interest. We have entered into JVs in order to acquire attractive land positions, to manage our risk profile and to leverage our capital base. Our JVs are typically entered into with developers, other homebuilders and financial partners to develop finished lots for sale to the joint venture's members and other third parties. As a result of the deterioration of the housing market, we have written down our investment in certain of our JVs reflecting impairments of inventory held within those JVs. If these adverse market conditions continue or worsen, we may have to take further writedowns of our investments in our JVs.

Our joint venture investments are generally very illiquid both because we lack a controlling interest in the JVs and because most of our JVs are structured to require super-majority or unanimous approval of the members to sell a substantial portion of the JV's assets or for a member to receive a return of its invested capital. Our lack of a controlling interest also results in the risk that the JV will take actions that we disagree with, or fail to take actions that we desire, including actions regarding the sale of the underlying property.

Our JVs typically obtain secured acquisition, development and construction financing. Generally, we and our joint venture partners have provided varying levels of guarantees of debt or other obligations of our unconsolidated JVs. These guarantees include construction completion guarantees, repayment guarantees and environmental indemnities. We accrue for guarantees we determine are probable and reasonably estimable, but we do not record a liability for the contingent aspects of any guarantees that we determine are reasonably possible but not probable. As of September 30, 2014, we had no outstanding repayment guarantees.

We could experience a reduction in home sales and revenues or reduced cash flows 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 which 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 recently experienced significant volatility. If we are required to seek additional financing to fund our operations, continued 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.

Additionally, if we cannot obtain additional financing to fund the purchase of land under our option contracts, we may incur contractual penalties and fees.

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 few 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. In addition to the other risk factors discussed in this section, the price and volume volatility of our common stock may be affected by:


•	operating results that vary from the expectations of securities analysts and investors;


•	factors influencing home purchases, such as availability of home mortgage loans and interest rates, 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;


•	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 interest rates, commodity and equity prices and the value of financial assets.

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. As of September 30, 2014, our total debt to total capital was 84.6% and our net debt to net capital was 81.0%. 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.

The tax benefits of our pre-ownership change net operating loss carryforwards and any future recognized built-in losses in our assets will be substantially limited since we experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code and our deferred income tax asset may not be fully realizable.

We believe we have significant “built-in losses” in our assets (i.e. an excess tax basis over current fair market value) that may result in tax losses as such assets are sold. Net operating losses generally may be carried forward for a 20-year period to offset future earnings and reduce our federal income tax liability. Built-in losses, if and when recognized, generally will result in tax losses that may then be deducted or carried forward. However, because we experienced an “ownership change” under Section 382 of the Internal Revenue Code as of January 12, 2010, our ability to realize these tax benefits may be significantly limited.

Section 382 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 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.

As a result of our previous “ownership change” for purposes of Section 382, our ability to use certain of our pre-ownership change net operating loss carryforwards and recognize certain built-in losses or deductions is limited by Section 382. Based on the resulting limitation, a significant portion of our pre-ownership change net operating loss carryforwards and any future recognized built-in losses or deductions could expire before we would be able to use them. The realization of all or a portion of our deferred income tax asset (including net operating loss carryforwards) 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 and any future recognized built-in losses or deductions or the occurrence of a future ownership change and resulting additional limitations could have a material adverse effect on our financial condition, results of operations and cash flows.

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, and matters concerning the protection of health and the environment. Our operating expenses 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 which 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 operations.

We are the subject of pending civil litigation which could require us to pay substantial damages or could otherwise have a material adverse effect on us. The failure to fulfill our obligations under the HUD Agreement described below could have a material adverse effect on our operations.

On July 1, 2009, we entered into a Deferred Prosecution Agreement (the “DPA”) with the United States Attorney for the Western District of North Carolina and a separate but related agreement with the United States Department of Housing and Urban Development (HUD) and the Civil Division of the United States Department of Justice (the HUD Agreement). Under these agreements, we are obligated to make payments equal to 4% of “adjusted EBITDA” as defined in the Agreements until the first to occur of (a) September 30, 2016 or (b) the date that a cumulative $48.0 million has been paid pursuant to the DPA and the HUD Agreement. As of September 30, 2014, we have paid a cumulative $22.7 million towards these obligations, leaving a remaining maximum obligation of $25.3 million through fiscal year 2016.

In the past, we and certain of our current and former employees, officers and directors have been named as defendants in securities lawsuits and class action lawsuits. In addition, certain of our subsidiaries have been named in class action and multi-party lawsuits regarding claims made by homebuyers. While a number of these suits have been dismissed and/or settled, we cannot be assured that new claims by different plaintiffs will not be brought in the future. We cannot predict or determine the timing or final outcome of the current lawsuits or the effect that any adverse determinations in 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 which 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 certain directors and officers, and we have advanced, and may continue to advance, legal fees and expenses to certain other current and former employees.

In connection with the settlement agreement with the SEC entered into on September 24, 2008, we consented, without admitting or denying any wrongdoing, to a cease and desist order requiring future compliance with certain provisions of the federal securities laws and regulations. If we are found to be in violation of the order in the future, we may be subject to penalties and other adverse consequences as a result of the prior actions which could be material to our consolidated financial position, results of operations and liquidity.

Our insurance carriers may seek to rescind or deny coverage with respect to certain of the pending lawsuits, or we may not have sufficient coverage under such 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.

We may incur additional operating expenses due to compliance programs or fines, penalties and remediation costs pertaining to environmental regulations within our markets.

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 which apply to any given community vary greatly according to 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. 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.

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, interpretation of underlying current and future trends, assessment of claims and the related liability and reserve estimation process is highly judgmental due to the complex nature of these exposures, with each exposure exhibiting unique circumstances. 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 subject to applicable self-insurance retentions, such policies may not be available or adequate to cover liability for damages, the cost of repairs, and/or the expense of litigation surrounding current claims, and future claims may arise out of events or circumstances not covered by insurance and not subject to effective indemnification agreements with our subcontractors.

Our operating expenses could increase if we are required to pay higher insurance premiums or litigation costs for various claims, which could cause our net income to decline.

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 reduce our net income and restrict our cash flow available to service debt.

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. 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 greater losses which could decrease our net income.

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 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, and our net income may decline.

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 net 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 contracts to acquire land on acceptable terms;


•	conditions of the real estate market in areas where we operate and of the general economy;


•	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.

Information technology failures 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 those of our third-party providers, are subject to damage or interruption from power outages, computer and telecommunication failures, computer viruses, security breaches, natural disasters, usage errors by our employees or contractors, etc. A significant and extended disruption of or breach of security related to our computer systems and back-up systems may 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.

The occurrence of natural disasters could increase our operating expenses and reduce our revenues and cash flows.

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, severe storms, 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. Any of these events could increase our operating expenses, impair our cash flows and reduce our revenues, which could, in turn, negatively affect the market price of our securities.

Future terrorist attacks 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, future terrorist attacks against the United States, or any outbreak or escalation of hostilities between the United States and any foreign power, may cause disruption to the economy, our Company, our employees and our customers, which could adversely affect our revenues, operating expenses, and financial condition.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

As of September 30, 2014, we lease approximately 34,000 square feet of office space in Atlanta, Georgia to house our corporate headquarters. We also lease an aggregate of approximately 274,000 square feet of office space for our subsidiaries' operations at various locations. We have subleased approximately 41,000 square feet of our leased office space to unrelated third-parties. We own approximately 49,000 square feet of office space in Indianapolis, Indiana.

Item 3. Legal Proceedings

Litigation

As disclosed in prior SEC filings, we operated Beazer Mortgage Corporation (BMC) from 1998 through February 2008 to offer mortgage financing to buyers of our homes. BMC entered into various agreements with mortgage investors, pursuant to which BMC originated certain mortgage loans and ultimately sold these loans to investors. In general, underwriting decisions were not made by BMC but by the investors themselves or third-party service providers. From time to time we have received claims from institutions which have acquired certain of these mortgages demanding damages or indemnity arising from BMC's activities or that we repurchase such mortgages. We have been able to resolve these claims for amounts that are not material to our consolidated financial position or results of operation. We currently have an insignificant number of such claims outstanding for which we believe we have no liability. However, we cannot rule out the potential for additional mortgage loan repurchase or indemnity claims in the future from other investors, although, at this time, we do not believe that the exposure related to any such claims would be material to our consolidated financial position, cash flows or results of operations.

In the normal course of business, we are subject to various lawsuits. We cannot predict or determine the timing or final outcome of the lawsuits or the effect that any adverse findings or determinations in the 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 the above pending matters. An unfavorable determination in any of the pending lawsuits could result in the payment by us of substantial monetary damages which may not be fully covered by insurance. Further, the legal costs associated with the lawsuits and the amount of time required to be spent by management and the Board of Directors on these matters, even if we are ultimately successful, could have a material effect on our business, financial condition and results of operations.

Other Matters

In 2006, we received two Administrative Orders issued by the New Jersey Department of Environmental Protection. The Orders allege certain violations of wetlands disturbance permits and assess proposed fines of $630,000 and $678,000, respectively. Although we believe that we have significant defenses to the alleged violations, we reached a settlement with the Department, through an Administrative Consent Order (the “ACO”). Pursuant to the ACO, we agreed to pay a penalty of $125,000 and donate a 35-acre parcel of land to a local soil conservation district (or make an additional $250,000 payment if the parcel cannot be conveyed). We have paid the $125,000 penalty and are in the process of completing actions that will allow us to convey the 35-acre donation parcel.

We and certain of our subsidiaries have been named as defendants in various claims, complaints and other legal actions, most relating to construction defects, moisture intrusion and product liability. Certain of the liabilities resulting from these actions are covered in whole or part by insurance. In our opinion, based on our current assessment, the ultimate resolution of these matters will not have a material adverse effect on our financial condition, results of operations or cash flows.

Item 4. Mine Safety Disclosures

Not applicable.

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 shares on the New York Stock Exchange (NYSE) under the symbol “BZH.” On November 11, 2014, the last reported sales price of the Company's common stock on the NYSE was $19.25 and we had approximately 199 stockholders of record and 27,167,178 shares of common stock outstanding. The following table sets forth, for the quarters indicated, the range of high and low trading for the Company's common stock during fiscal 2014 and 2013, adjusted, as applicable, for the Company's October 2012 1-for-5 reverse stock split.



	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr
Fiscal Year Ended September 30, 2014
High	$	24.62	$	25.34	$	21.63	$	21.33
Low	$	16.75	$	19.24	$	18.01	$	15.27
Fiscal Year Ended September 30, 2013
High	$	19.35	$	19.48	$	23.29	$	19.92
Low	$	12.89	$	14.92	$	13.91	$	15.54

Dividends

The indentures under which our senior notes were issued contain certain restrictive covenants, including limitations on payment of dividends. At September 30, 2014, under the most restrictive covenants of each indenture, none of our retained earnings was available for cash dividends or share repurchases. The Board of Directors will periodically reconsider the declaration of dividends, assuming payment of dividends is not limited under the aforementioned 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 the results of operations, the financial condition of the Company and other factors which the Board of Directors deems relevant.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information as of September 30, 2014 with respect to our shares of common stock that may be issued under our existing equity compensation plans, all of which have been approved by our stockholders:

Issuer Purchases of Equity Securities

None.

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, 2014, compared to the S&P 500 Index and the S&P 500 Homebuilding Index (for comparison to our prior year 10-K). The comparison assumes an investment in Beazer Homes' common stock and in each of the foregoing indices of $100 at September 30, 2009, and assumes that all dividends were reinvested. Stockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns.



		Fiscal Year Ended September 30,
		2010	2011	2012	2013	2014
u	Beazer Homes USA, Inc.	73.88	27.01	63.51	64.40	60.04
g	S&P 500 Index	110.16	111.42	145.07	173.13	207.30
p	S&P 500 Homebuilding Index	92.76	66.13	182.87	185.18	200.48

Item 6. Selected Financial Data



	Fiscal Year Ended September 30,
	2014			2013			2012			2011			2010
	($ in millions, except per share amounts and unit data)

Statement of Operations Data: (i)
Total revenue	$	1,464		$	1,288		$	1,006		$	742		$	991
Gross profit	263			214			105			48			84
Gross margin (i), (ii)	18.0		%	16.6		%	10.4		%	6.5		%	8.4		%
Operating income (loss)	$	56		$	27		$	(62	)	$	(132	)	$	(113	)
Income (loss) from continuing operations	35			(32		)	(136		)	(200		)	(30		)
Income (loss) per share from continuing operations - basic	1.35			(1.30		)	(7.34		)	(13.53		)	(2.47		)
Income (loss) per share from continuing operations - diluted	1.10			(1.30		)	(7.34		)	(13.53		)	(2.47		)

Balance Sheet Data (end of year) (iv):
Cash and cash equivalents and restricted cash	$	387		$	553		$	741		$	647		$	576
Inventory	1,561			1,314			1,112			1,204			1,204
Total assets	2,066			1,987			1,982			1,977			1,903
Total debt	1,535			1,512			1,498			1,489			1,212
Stockholders' equity	279			241			262			198			397

Supplemental Financial Data (iv):
Cash (used in) provided by:
Operating activities	$	(160	)	$	(175	)	$	(21	)	$	(179	)	$	70
Investing activities	(32		)	190			5			(260		)	(6		)
Financing activities	12			1			134			273			(34		)

Financial Statistics (iv):
Total debt as a percentage of total debt and stockholders' equity	84.6		%	86.3		%	85.1		%	88.2		%	75.3		%
Net debt as a percentage of net debt and stockholders' equity (iii)	81.0		%	80.4		%	74.9		%	81.5		%	62.9		%
Adjusted EBITDA from total operations (v)	$	128.3		$	86.3		$	21.8		$	(24.9	)	$	16.3
Adjusted EBITDA from total operations margin (vi)	8.8		%	6.7		%	2.2		%	(3.4		)%	1.6		%

Operating Statistics from continuing operations:
New orders, net	4,748			5,026			4,901			3,927			4,045
Closings	4,951			5,056			4,428			3,249			4,421
Average selling price on closings (in thousands)	$	284.8		$	253.0		$	224.9		$	219.4		$	222.1
Units in backlog	1,690			1,893			1,923			1,450			772
Average selling price in backlog (in thousands)	$	305.3		$	279.0		$	249.1		$	230.7		$	239.3

(i) Statement of operations data is from continuing operations. Gross profit includes inventory impairments and lot options abandonments of $8.3 million, $2.6 million, $12.2 million, $32.5 million and $49.6 million for the fiscal years ended September 30, 2014, 2013, 2012, 2011 and 2010, respectively. The aforementioned charges were primarily related to the deterioration of the homebuilding environment over the applicable years. Income (loss) from continuing operations for the fiscal years ended 2014, 2013, 2012, 2011 and 2010 also includes a (loss) gain on extinguishment of debt of $(19.9) million, $(4.6) million, $(45.1) million, $(2.9) million, and $43.9 million respectively.

(ii) Gross margin = Gross profit divided by total revenue.

(iii) Net Debt = Debt less unrestricted cash and cash equivalents and restricted cash related to the cash secured loan

(iv) Discontinued operations were not segregated in the consolidated balance sheets or consolidated statements of cash flows.

(v) Adjusted EBIT (earnings before interest, debt extinguishment charges and taxes) equals net income (loss) before (a) previously capitalized interest amortized to home construction and land sales expenses, capitalized interest impaired and interest expense not qualified for capitalization, (b) debt extinguishment charges and (c) income taxes. Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, debt extinguishment charges and impairments) is calculated by adding non-cash charges, including depreciation, amortization, inventory impairment and abandonment charges, goodwill impairments and joint venture impairment charges for the period to Adjusted EBIT. Adjusted EBIT and Adjusted EBITDA are not Generally Accepted Accounting Principles (GAAP) financial measures. Adjusted EBIT and Adjusted EBITDA should not be considered alternatives to net income determined in accordance with GAAP as an indicator of operating performance. Because some analysts and companies may not calculate Adjusted EBIT and Adjusted EBITDA in the same manner as Beazer Homes, the Adjusted EBIT and Adjusted EBITDA information presented above may not be comparable to similar presentations by others.

(vi) Adjusted EBITDA margin = Adjusted EBITDA divided by total revenue.

The magnitude and volatility of non-cash inventory impairment and abandonment charges, goodwill impairments, joint venture impairment charges and debt extinguishment charges for the Company, and for other home builders, have been significant in recent periods and, as such, have made financial analysis of our industry more difficult. Adjusted EBIT and Adjusted EBITDA, and other similar presentations by analysts and other companies, is frequently used to assist investors in understanding and comparing the operating characteristics of home building activities by eliminating many of the differences in companies' respective capitalization, tax position and level of impairments. Management believes these non-GAAP measures are an indication of the Company's baseline performance in that the measures provide a consistent means of comparing performance between periods and competitors. The Company also believes that Adjusted EBIT and Adjusted EBITDA aid investors' overall understanding of the Company's results by providing transparency for items such as inventory impairment and abandonment charges, interest amortized to home construction and land sales expenses, joint venture impairment and debt extinguishment charges. Management uses these non-GAAP measures to assist in the evaluation of the performance of our business segments, including compensation awards, and to make operating decisions. The Company has reconciled Adjusted EBIT and Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure as follows:



	Fiscal Year Ended September 30,
(In thousands)	2014			2013			2012			2011			2010

Net income (loss)	$	34,383		$	(33,868	)	$	(145,326	)	$	(204,859	)	$	(34,049	)
(Benefit from) provision for income taxes	(41,802		)	(3,684		)	(40,747		)	3,429			(133,188		)
Interest amortized to home construction and land sales expenses and capitalized interest impaired	41,065			41,246			61,227			48,289			54,556
Interest expense not qualified for capitalization	50,784			59,458			71,474			73,440			74,214
Loss (gain) on debt extinguishment	19,917			4,636			45,097			2,909			(43,901		)
Adjusted EBIT	104,347			67,788			(8,275		)	(76,792		)	(82,368		)
Depreciation and amortization and stock compensation amortization	15,866			15,642			17,573			17,878			24,774
Inventory impairments and option contract abandonments	8,062			2,650			12,514			33,458			49,526
Joint venture impairment and abandonment charges	—			181			36			594			24,328
Adjusted EBITDA	$	128,275		$	86,261		$	21,848		$	(24,862	)	$	16,260

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Executive Overview and Outlook

Executive Overview and Outlook:

Fiscal 2014 marked a very important milestone for the Company. For the first time since fiscal 2006, we reported positive net income and delivered Adjusted EBITDA that exceeded our cash interest expense. We see this as a turning point for the Company and believe that the extensive work and effort that drove our results this year have laid the foundation for further expansion in profitability in the years ahead.

The Company reported full year net income of $34.9 million for fiscal 2014, which included several significant items:


•	A loss on extinguishment of debt of $19.9 million


•	An IRS appeals case was approved in our favor resulting in a cash refund and income tax benefit of $28.5 million


•	Beazer Pre-Owned Rental Homes was sold generating a gain of $6.3 million


•	Reserves for uncertain tax positions were reversed due to lapses in statutes of limitation and closing of audits during fiscal year 2014 resulting in a non-cash tax benefit of $13.9 million


•	Impairments and abandonments of $8.3 million for the fiscal year with $5.4 million occurring in the fourth quarter


•	Unexpected warranty reserves totaling $4.9 million in cost of sales during the fourth quarter

The unexpected warranty charges resulted from water intrusion issues in certain homes built in Florida and New Jersey with an average age of more than 7 years ago. The charges were recorded in cost of sales and therefore reduced all measurements of income, including gross margin, Adjusted EBITDA and income from operations. For the year ended September 30, 2014, excluding the impact of these charges, homebuilding gross margin before impairments and abandonments and interest amortized to cost of sales would have been 22.2% and Adjusted EBITDA would have been $133.2 million.

We believe that we are still in the early stages of a housing recovery that is likely to last for at least several more years. The fundamentals including favorable demographic trends, excellent affordability and employment growth all point to a stronger and more stable level of demand for new homes than the uneven levels the industry experienced during fiscal 2014. The overall shape of the recovery has been flatter than many predicted, in large part, due to continuing mortgage constraints. Even those who are qualified for a mortgage often find the process to be overwhelming and cumbersome. Until lenders are given a clear understanding of their put-back risks, we believe that some members of the new home potential buyer pool will stay on the sidelines. As a result and combined with general economic and geopolitical uncertainties, we anticipate a slower recovery than the fundamentals would otherwise suggest.

In November 2013, we introduced our plan to reach $2 billion in revenue with a 10% Adjusted EBITDA margin, which we called our “2B-10” plan. We expect to reach these objectives by making improvements on five key metrics: (1) sales per community per month (or our absorption rate), (2) active community count, (3) average selling prices, (4) homebuilding gross margins, and (5) cost leverage as measured by selling, general and administrative costs as a percentage of total revenue. During fiscal 2014, we made progress on several of these metrics and as a result grew revenue to $1.5 billion, up 13.7% year-over-year and Adjusted EBITDA to $128.3 million, up 48.7% versus fiscal 2013. Further, Adjusted EBITDA margin increased 210 basis points to 8.8% for the year ended September 30, 2014. These improvements were due to the intense focus we have placed on the operational drivers of this plan, and in part, to stronger home pricing conditions.

Specifically during fiscal 2014, our rate of sales per community per month was 2.8. Although we had hoped to have slightly higher absorption rates, given the uneven nature of demand in today’s new home sales market, we were pleased that our sales per community per month exceeded those reported by a large number of our peers.

Over the past couple of years, we significantly increased our level of land investments in an effort to grow our active community count. We purchased mostly raw and partially developed land in some of the best school districts and most active job markets in the country. After year-over-year declines in active community counts for every quarter since mid-2012, we ended fiscal 2014 with 155 active communities, which was 16% higher than a year earlier. For fiscal 2015, we expect continued year-over-year expansion in community count, which should help us achieve positive order growth for the year.

Although we have been buying land in almost all of our markets, our incremental land investments over the past couple of years have been disproportionately focused on securing attractive parcels in Texas, California, Florida and the Mid-Atlantic, which feature some of the strongest employment characteristics and school districts in the country as well as some of our higher priced product lines. This geographic mix shift, combined with some market pricing power, particularly during the spring of fiscal 2013, has led to a significant rise in our average selling price from $253 thousand last year to $285 thousand this year. In addition, we ended fiscal 2014 with an average selling price for our units in backlog of $305 thousand.

We also reported significantly improved homebuilding gross margins during fiscal 2014. For the year, our homebuilding gross margin (excluding impairments, abandonments and interest in cost of sales) improved 190 basis points to 21.9%.

Finally, our cost leverage improved slightly from fiscal 2013. Our selling, general and administrative expenses were 13.3% of total revenue for fiscal 2014, compared with 13.5% a year earlier. As we continue to grow total revenue in future quarters, we anticipate further improvement on this metric.

We expect to continue our focus on our “2B-10” metrics during fiscal 2015 with particular emphasis on growing our active community count.

Critical Accounting Policies: Some of our critical accounting policies require the use of judgment in their application or 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.

Inventory Valuation - Held for Development

Our homebuilding inventories that are accounted for as held for development include land and home construction assets grouped together as communities. Homebuilding inventories held for development are stated at cost (including direct construction costs, capitalized indirect costs, capitalized interest and real estate taxes) unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. We assess these assets no less than quarterly for recoverability. 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. However, the impact of the recent downturn in our business has significantly lengthened the estimated life of many communities. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If the expected undiscounted cash flows generated are expected to be less than its carrying amount, an impairment charge is recorded to write down the carrying amount of such asset to its estimated fair value based on discounted cash flows.

When conducting our community level review for the recoverability of our homebuilding inventories held for development, we establish a quarterly “watch list” of communities with more than 10 homes remaining that carry profit margins in backlog or in our forecast that are below a minimum threshold of profitability. In our experience, this threshold represents a level of profitability that may be an indicator of conditions which would require an asset impairment but does not guarantee that such impairment will definitively be appropriate. As such, assets on the quarterly watch list are subject to substantial additional financial and operational analyses and review that consider the competitive environment and other factors contributing to profit margins below our watch list threshold. For communities where the current competitive and market dynamics indicate that these factors may be other than temporary, which may call into question the recoverability of our investment, a formal impairment analysis is performed. The formal impairment analysis consists of both qualitative competitive market analyses and a quantitative analysis reflecting market and asset specific information.

Our qualitative competitive market analyses include site visits to competitor new home communities and written community level competitive assessments. A competitive assessment consists of a comparison of our specific community with its competitor communities, considering square footage of homes offered, amenities offered within the homes and the communities, location, transportation availability and school districts, among many factors. In addition, we review the pace of monthly home sales of our competitor communities in relation to our specific community. We also review other factors such as the target buyer and the macro-economic characteristics that impact the performance of our assets, such as unemployment and the availability of mortgage financing, among other things. Based on this qualitative competitive market analysis, adjustments to our sales prices may be required in order to make our communities competitive. We incorporate these adjusted prices in our quantitative analysis for the specific community.

The quantitative analysis compares the projected future undiscounted cash flows for each such community with its current carrying value. This undiscounted cash flow analysis requires important assumptions regarding the location and mix of house plans to be sold, current and future home sale prices and incentives for each plan, current and future construction costs for each plan, and the pace of monthly sales to occur today and into the future.

There is uncertainty associated with preparing the undiscounted cash flow analysis because future market conditions will almost certainly be different, either better or worse, than current conditions. The single most important “input” to the cash flow analysis is current and future home sales prices for a specific community. The risk of over or under-stating any of the important cash flow variables, including home prices, is greater with longer-lived communities and within markets that have historically experienced greater home price volatility. In an effort to address these risks, we consider some home price and construction cost appreciation in future years for certain communities that are expected to be selling for more than three years and/or if the market has typically exhibited high levels of price volatility. Absent these assumptions on cost and sales price appreciations, we believe the long-term cash flow analysis would be unrealistic and would serve to artificially improve expected future profitability. Finally, we also ensure that the monthly sales absorptions, including historical seasonal differences of our communities and those of our competitors, used in our undiscounted cash flow analyses are realistic, consider our development schedules and relate to those achieved by our competitors for the specific communities.

If the aggregate undiscounted cash flows from our quantitative analysis are in excess of the carrying value, the asset is considered to be recoverable and is not impaired. If the aggregate undiscounted cash flows are less than the carrying or book value, we perform a discounted cash flow analysis to determine the fair value of the community. The fair value of the community is estimated using the present value of the estimated future cash flows using discount rates commensurate with the risk associated with the underlying community assets. The discount rate used may be different for each community. The factors considered when determining an appropriate discount rate for a community include, among others: (1) community specific factors such as the number of lots in the community, the status of land development in the community, the competitive factors influencing the sales performance of the community and (2) overall market factors such as employment levels, consumer confidence and the existing supply of new and used homes for sale. If the determined fair value is less than the carrying value of the specific asset, the asset is considered not recoverable and is written down to its fair value plus the asset's share of capitalized unallocated interest and other costs. The carrying value of assets in communities that were previously impaired and continue to be classified as held for development is not increased for future estimates of increases in fair value in future reporting periods.

Due to uncertainties in the estimation process, particularly with respect to projected home sales prices and absorption rates, the timing and amount of the estimated future cash flows and discount rates, it is reasonably possible that actual results could differ from the estimates used in our impairment analyses. Our assumptions about future home sales prices and absorption rates require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions. Because the projected cash flows used to evaluate the fair value of inventory are significantly impacted by changes in market conditions including decreased sales prices, a change in sales prices or changes in absorption estimates based on current market conditions and management's assumptions relative to future results could lead to additional impairments in certain communities during any given period. Market deterioration that exceeds our estimates may lead us to incur additional impairment charges on previously impaired homebuilding assets in addition to homebuilding assets not currently impaired but for which indicators of impairment may arise if market conditions deteriorate.

Asset Valuation - Land Held for Future Development

For those communities for which construction and development activities are expected to occur in the future or have been idled (land held for future development), all applicable interest and real estate taxes are expensed as incurred and the inventory is stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. The future enactment of a development plan or the occurrence of events and circumstances may indicate that the carrying amount of an asset may not be recoverable. We evaluate the potential development plans of each community in land held for future development if changes in facts and circumstances occur which would give rise to a more detailed analysis for a change in the status of a community to active status or held for development.

Asset Valuation - Land Held for Sale

We record assets held for sale at the lower of the carrying value or fair value less costs to sell. The following criteria are used to determine if land is held for sale:

•management has the authority and commits to a plan to sell the land;

•the land is available for immediate sale in its present condition;

•there is an active program to locate a buyer and the plan to sell the property has been initiated;

•the sale of the land is probable within one year;

•the property is being actively marketed at a reasonable sale price relative to its current fair value; and

•it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made.

Additionally, in certain circumstances, management will re-evaluate the best use of an asset that is currently being accounted for as held for development. In such instances, management will review, among other things, the current and projected competitive circumstances of the community, including the level of supply of new and used inventory, the level of sales absorptions by us and our competition, the level of sales incentives required and the number of owned lots remaining in the community. If, based on this review and the foregoing criteria have been met at the end of the applicable reporting period, we believe that the best use of the asset is the sale of all or a portion of the asset in its current condition, then all or portions of the community are accounted for as held for sale.

In determining the fair value of the assets less cost to sell, we consider factors including current sales prices for comparable assets in the area, recent market analysis studies, appraisals, any recent legitimate offers and listing prices of similar properties. If the

estimated fair value less cost to sell of an asset is less than its current carrying value, the asset is written down to its estimated fair value less cost to sell.

Due to uncertainties in the estimation process, it is reasonably possible that actual results could differ from the estimates used in our historical analyses. Our assumptions about land sales prices require significant judgment because the current market is highly sensitive to changes in economic conditions. We calculated the estimated fair values of land held for sale based on current market conditions and assumptions made by management, which may differ materially from actual results and may result in additional impairments if market conditions deteriorate.

Homebuilding Revenues and Costs

Revenue from the sale of a home is generally recognized when the closing has occurred and the risk of ownership is transferred to the buyer. All associated homebuilding costs are charged to cost of sales in the period when the revenues from home closings are recognized. Homebuilding costs include land and land development costs (based upon an allocation of such costs, including costs to complete the development, or specific lot costs), home construction costs (including an estimate of costs, if any, to complete home construction), previously capitalized indirect costs (principally for construction supervision), capitalized interest and estimated warranty costs. Sales commissions are recognized as expense when the closing has occurred. All other costs are expensed as incurred.

Warranty Reserves

We currently provide a limited warranty (ranging from one to two years) covering workmanship and materials per our defined performance quality standards. In addition, we provide a limited warranty (generally ranging from a minimum of five years up to the period covered by the applicable statute of repose) covering only certain defined construction defects. We also provide a defined structural warranty with single-family homes and townhomes in certain states.

Since we subcontract our homebuilding work to subcontractors whose contracts generally include an indemnity obligation and a requirement that certain minimum insurance requirements be met, including providing us with a certificate of insurance prior to receiving payments for their work, claims relating to workmanship and materials are generally the primary responsibility of our subcontractors.

Warranty reserves are included in other liabilities in the consolidated balance sheets. We record reserves covering our anticipated warranty expense for each home closed. Management reviews the adequacy of warranty reserves each reporting period, based on historical experience and management's estimate of the costs to remediate the claims, and adjusts these provisions accordingly. Our review includes a quarterly analysis of the historical data and trends in warranty expense by operating segment. An analysis by operating segment allows us to consider market specific factors such as our warranty experience, the number of home closings, the prices of homes, product mix and other data in estimating our warranty reserves. In addition, our analysis also contemplates the existence of any non-recurring or community-specific warranty related matters that might not be contemplated in our historical data and trends. As a result of our analyses, we adjust our estimated warranty liabilities. Based on historical results, we believe that our existing estimation process is accurate and do not anticipate the process to materially change in the future. Our estimation process for such accruals is discussed in Note 9 to the Consolidated Financial Statements. While we believe that our current warranty reserves are adequate, there can be no assurances that historical data and trends will accurately predict our actual warranty costs or that future developments might not lead to a significant change in the reserve.

Investments in Unconsolidated Entities

We participate in a number of joint ventures and other investments in which we have less than a controlling interest. We enter into the majority of these investments 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 land positions are developed into finished lots for sale to the unconsolidated entity’s members or other third parties. We recognize our share of equity in income (loss) and profits (losses) from the sale of lots to other buyers. Our share of profits from lots we purchase from the unconsolidated entities is deferred and treated as a reduction of the cost of the land purchased from the unconsolidated entity. Such profits are subsequently recognized at the time the home closes and title passes to the homebuyer. We evaluate our investments in unconsolidated entities for impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the value of our investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying value over its estimated fair value. Our unconsolidated entities typically obtain secured acquisition and development financing. We account for our interest in unconsolidated entities under the equity method.

See Note 3, Investments in Marketable Securities and Unconsolidated Entities.

Income Taxes - Valuation Allowance

Judgment is required in estimating valuation allowances for deferred tax assets. Deferred tax assets are reduced by a valuation allowance if an assessment of their components indicates that it is more likely than not that all or some portion of these assets will not be realized. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in either the carryback or carryforward periods under tax law. We periodically assess the need for valuation allowances for deferred tax assets based on more-likely-than-not realization threshold criteria. In our assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with operating loss and tax credit carryforwards not expiring unused, the Section 382 limitation on our ability to carryforward pre-ownership change net operating losses and recognized built-in losses or deductions, and tax planning alternatives.

Our assessment of the need for the valuation of deferred tax assets includes assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns. We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. Changes in existing tax laws or rates could affect actual tax results and future business results may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. Our accounting for deferred tax consequences represents our best estimate of future events. Although it is possible there will be changes that are not anticipated in our current estimates, we believe it is unlikely such changes would have a material period-to-period impact on our financial position or results of operations.

During fiscal 2008, we determined that it was not more likely than not that substantially all of our deferred tax assets would be realized and, therefore, we established a valuation allowance for substantially all of our deferred tax assets. As of September 30, 2014, we continued our evaluation of whether the valuation allowance against our deferred tax assets was still required. We considered positive evidence including evidence of recovery in the housing markets where we operate, the prospects of continued profitability and growth, a strong order backlog and sufficient balance sheet liquidity to sustain and grow operations. Although the Company’s performance and current positioning is bringing it closer to a conclusion that a valuation allowance is no longer needed, further evidence of sustained profitability is needed to reverse our valuation allowance against our deferred tax assets. Therefore, based upon all available positive and negative evidence, we concluded a valuation allowance is still needed for substantially all of our gross deferred tax assets at September 30, 2014. Management reassesses the realizability of the deferred tax assets each reporting period. In future periods, we may reduce all or a portion of our valuation allowance, generating a non-cash tax benefit, if sufficient positive evidence is present indicating that it is more likely than not that a portion or all of our deferred tax assets will be realized.

We experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code as of January 12, 2010. Section 382 contains rules that limit the ability of a company that undergoes an “ownership change” to utilize its net operating loss carryforward and certain built-in losses or deductions recognized during the five-year period after the ownership change. Therefore, our ability to utilize our pre-ownership change net operating loss (NOL) carryforwards and certain recognized built-in losses or deductions is limited by Section 382.

There can be no assurance that another ownership change, as defined in the tax law, will not occur. If another “ownership change” occurs, a new annual limitation on the utilization of net operating losses would be determined as of that date.

Seasonal and Quarterly Variability: Our homebuilding operating cycle generally reflects escalating new order activity in the second and third fiscal quarters and increased closings in the third and fourth fiscal quarters. However, periods of economic downturn in the homebuilding industry will typically alter seasonal patterns. The following chart presents certain quarterly operating data for our continuing operations for our last twelve fiscal quarters:



New Orders (Net of Cancellations)
	1st Qtr	2nd Qtr	3rd Qtr	4th Qtr	Total

2014	895	1,390	1,290	1,173	4,748
2013	932	1,521	1,381	1,192	5,026
2012	724	1,512	1,555	1,110	4,901

Closings
	1st Qtr	2nd Qtr	3rd Qtr	4th Qtr	Total

2014	1,038	977	1,241	1,695	4,951
2013	1,038	1,127	1,234	1,657	5,056
2012	867	844	1,109	1,608	4,428

RESULTS OF CONTINUING OPERATIONS:



	Fiscal Year Ended September 30,
($ in thousands)	2014			2013			2012
Revenues:
Homebuilding	$	1,409,880		$	1,279,212		$	996,059
Land sales and other	53,887			8,365			9,618
Total	$	1,463,767		$	1,287,577		$	1,005,677
Gross profit:
Homebuilding	$	260,746		$	212,054		$	103,105
Land sales and other	2,713			2,076			1,983
Total	$	263,459		$	214,130		$	105,088
Gross margin:
Homebuilding	18.5		%	16.6		%	10.4		%
Land sales and other	5.0		%	24.8		%	20.6		%
Total	18.0		%	16.6		%	10.4		%
Commissions	$	58,028		$	52,922		$	43,585
General and administrative (G&A) expenses:	$	136,463		$	121,163		$	110,051
G&A as a percentage of total revenue	9.3		%	9.4		%	10.9		%
Depreciation and amortization	$	13,279		$	12,784		$	13,510
Operating income (loss)	$	55,689		$	27,261		$	(62,058	)
Operating income (loss) as a percentage of total revenue	3.8		%	2.1		%	(6.2		)%
Effective Tax Rate	608.0		%	9.8		%	22.9		%
Equity in income (loss) of unconsolidated entities	$	6,545		$	(113	)	$	304
Loss on extinguishment of debt	$	(19,917	)	$	(4,636	)	$	(45,097	)

Homebuilding Operations Data



	New Orders, net							Cancellation Rates
	2014	2013	2012	14 v 13		13 v 12		2014		2013		2012
West	1,815	2,176	2,152	(16.6	)%	1.1	%	21.9	%	22.9	%	26.5	%
East	1,539	1,543	1,615	(0.3	)%	(4.5	)%	21.4	%	24.3	%	32.1	%
Southeast	1,394	1,307	1,134	6.7	%	15.3	%	20.5	%	16.7	%	20.5	%
Total	4,748	5,026	4,901	(5.5	)%	2.6	%	21.3	%	21.8	%	27.2	%

Sales per active community per month were 2.8 for the year ended September 30, 2014 compared to 2.9 for the year ended September 30, 2013, contributing to the 5.5% decline in net new orders year-over-year. During the year, we opened 73 communities and closed out of 52, leading to an active community count of 155 at September 30, 2014, compared to 134 at September 30, 2013. The decrease in new orders in the West segment was primarily driven by the close out of several communities during fiscal 2014 in advance of new community openings and by a softening homebuyer market in Las Vegas and Phoenix.



	As of September 30,
		2014		2013		2012		14 v 13		13 v 12
Backlog Units:
West		557		738		839		(24.5	)%	(12.0	)%
East		600		661		747		(9.2	)%	(11.5	)%
Southeast		533		494		337		7.9	%	46.6	%
Total		1,690		1,893		1,923		(10.7	)%	(1.6	)%
Aggregate dollar value of homes in backlog ($ in millions)		$	515.9	$	528.1	$	479.1	(2.3	)%	10.2	%
ASP in backlog (in thousands)		$	305.3	$	279.0	$	249.1	9.4	%	12.0	%

Backlog above 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. Backlog at September 30, 2014 is lower than the prior year due to the slower selling environment experienced this year as evidenced by our decline in sales per community per month in each of the last three quarters of the fiscal year compared to the prior year. We expect new orders and backlog to increase over time as our active communities increase.

Homebuilding Revenues, Average Selling Price (ASP) and Closings



	Homebuilding Revenues										Average Selling Price
($ in thousands)	2014		2013		2012		14 v 13		13 v 12		2014		2013		2012		14 v 13		13 v 12
West	$	537,149	$	543,524	$	386,544	(1.2	)%	40.6	%	$	269.1	$	238.7	$	205.3	12.7	%	16.3	%
East	525,439		482,468		401,814		8.9	%	20.1	%	328.4		296.2		266.8		10.9	%	11.0	%
Southeast	347,292		253,220		207,701		37.2	%	21.9	%	256.3		220.2		199.9		16.4	%	10.2	%
Total	$	1,409,880	$	1,279,212	$	996,059	10.2	%	28.4	%	$	284.8	$	253.0	$	224.9	12.6	%	12.5	%



	Closings
	2014	2013	2012	14 v 13		13 v 12
West	1,996	2,277	1,883	(12.3	)%	20.9	%
East	1,600	1,629	1,506	(1.8	)%	8.2	%
Southeast	1,355	1,150	1,039	17.8	%	10.7	%
Total	4,951	5,056	4,428	(2.1	)%	14.2	%

Generally, improved operational strategies, product and geographic mix and market conditions in certain of our markets enhanced our ability to generate higher ASP over the past year. This higher ASP drove our increase in homebuilding revenues for fiscal 2014 as compared to the prior year. During fiscal 2013, we were able to increase prices or reduce incentives in response to robust demand and improved market conditions in the majority of our markets in our West segment. These conditions in a majority of our West markets have moderated over the past few quarters.

We anticipate that our average ASP will continue to increase in future quarters as indicated by our increase in ASP for homes in

backlog and continued product and geographic mix shift toward higher priced markets. We also anticipate that our closings in future quarters will increase as our number of active communities increases.

Homebuilding Gross Profit

The following table sets forth our homebuilding gross profit and gross margin by reportable segment and total homebuilding gross profit and gross margin, and such amounts excluding inventory impairments and abandonments and interest amortized to cost of sales for the fiscal years ended September 30, 2014, 2013 and 2012. Homebuilding gross profit is defined as homebuilding revenues less home cost of sales (which includes land and land development costs, home construction costs, capitalized interest, indirect costs of construction, estimated warranty costs, closing costs and inventory impairment and lot option abandonment charges).



($ in thousands)	Fiscal Year Ended September 30, 2014
	HB Gross Profit (Loss)			HB Gross Margin		Impairments & Abandonments (I&A)		HB Gross Profit w/o I&A			HB Gross Margin w/o I&A		Interest Amortized to HB COS		HB Gross Profit w/o I&A and Interest		HB Gross Margin w/o I&A and Interest
West	$	120,048		22.3	%	$	4,948	$	124,996		23.3	%	$	—	$	124,996	23.3	%
East	99,400			18.9	%	463		99,863			19.0	%	—		99,863		19.0	%
Southeast	66,743			19.2	%	2,523		69,266			19.9	%	—		69,266		19.9	%
Corporate & unallocated	(25,445		)			373		(25,072		)			39,255		14,183
Total homebuilding	$	260,746		18.5	%	$	8,307	$	269,053		19.1	%	$	39,255	$	308,308	21.9	%

($ in thousands)	Fiscal Year Ended September 30, 2013
	HB Gross Profit (Loss)			HB Gross Margin		Impairments & Abandonments (I&A)		HB Gross Profit w/o I&A			HB Gross Margin w/o I&A		Interest Amortized to HB COS		HB Gross Profit w/o I&A and Interest		HB Gross Margin w/o I&A and Interest
West	$	114,813		21.1	%	$	378	$	115,191		21.2	%	$	—	$	115,191	21.2	%
East	87,081			18.0	%	156		87,237			18.1	%	—		87,237		18.1	%
Southeast	48,260			19.1	%	2,099		50,359			19.9	%	—		50,359		19.9	%
Corporate & unallocated	(38,100		)			—		(38,100		)			41,246		3,146
Total homebuilding	$	212,054		16.6	%	$	2,633	$	214,687		16.8	%	$	41,246	$	255,933	20.0	%

($ in thousands)	Fiscal Year Ended September 30, 2012
	HB Gross Profit (Loss)			HB Gross Margin		Impairments & Abandonments (I&A)		HB Gross Profit w/o I&A			HB Gross Margin w/o I&A		Interest Amortized to HB COS		HB Gross Profit w/o I&A and Interest		HB Gross Margin w/o I&A and Interest
West	$	60,829		15.7	%	$	4,203	$	65,032		16.8	%	$	—	$	65,032	16.8	%
East	52,870			13.2	%	5,736		58,606			14.6	%	—		58,606		14.6	%
Southeast	38,294			18.4	%	1,796		40,090			19.3	%	—		40,090		19.3	%
Corporate & unallocated	(48,888		)			475		(48,413		)			60,952		12,539
Total homebuilding	$	103,105		10.4	%	$	12,210	$	115,315		11.6	%	$	60,952	$	176,267	17.7	%

Our overall homebuilding gross profit increased to $260.7 million for the fiscal year ended September 30, 2014 from $212.1 million in the prior year. The increase was primarily due to the $130.7 million increase in homebuilding revenues including a 12.6% increase in ASP, partially offset by a $5.7 million increase in impairments and abandonments and $4.9 million of unexpected warranty costs recorded in the fourth quarter of fiscal 2014. These warranty costs related to water intrusion problems in homes in certain of our communities located in Florida and New Jersey, with an average age in excess of 7 years.

The issues in Florida related to water intrusion problems arising from stucco installation on specific home elevations in several communities. The water intrusion issues in New Jersey related to flashing and stone installation in one specific community. We consider these charges to be unexpected in nature and are not expected to be recurring. The unexpected warranty charges were included in cost of sales and therefore reduced all measurements of income, including gross margin, Adjusted EBITDA and income from operations. For the year ended September 30, 2014, excluding the impact of the unexpected warranty charges, gross margin before impairments and abandonments and interest amortized to cost of sales would have been 22.2%, Adjusted EBITDA would have been $133.2 million and income from operations would have been $28.4 million.

Corporate and unallocated gross profit for the year ended September 30, 2014 included an increase in the capitalization of indirect spending relative to the increase in inventory during the year as well as the reduction in certain reserves related to product liability issues not allocated to our operating segments.

For the fiscal year ended September 20, 2013, our overall homebuilding gross profit increased by $108.9 million compared to fiscal year 2012. The increase was mainly related to a $283.2 million increase in homebuilding revenues including a 12.5% increase in ASP, a $9.6 million decrease in impairments and abandonments and a $19.7 million decrease in interest amortized to cost of sales, offset partially by increases in material and labor costs. This increase for the fiscal year ended September 30, 2013 was offset partially by an $11 million insurance recovery recognized in the prior year related to previously recorded water intrusion related expenditures.

Total homebuilding gross profit and gross margin excluding inventory impairments and abandonments and interest amortized to cost of sales are not GAAP financial measures. These measures should not be considered alternatives to homebuilding gross profit determined in accordance with GAAP as an indicator of operating performance. The magnitude and volatility of non-cash inventory impairment and abandonment charges for the Company, and for other home builders, have been significant in recent periods and, as such, have made financial analysis of our industry more difficult. Homebuilding metrics excluding these charges, and other similar presentations by analysts and other companies, are frequently used to assist investors in understanding and comparing the operating characteristics of home building 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 compare operating results and as a measure of the level of cash which may be available for discretionary spending.

In a given period, our reported gross margins arise from both communities previously impaired and communities not previously impaired. In addition, as indicated above, certain gross margin 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 margins at each home closing are higher for a particular community after an impairment because the carrying value of the underlying land was previously reduced to the present value of future cash flows as a result of the impairment, leading to lower cost of sales at the home closing. This improvement in gross margin resulting from one or more prior impairments is frequently referred to in the aggregate as the “impairment turn” or “flow-back” of impairments within the reporting period. The amount of this impairment turn may exceed the gross margin for an individual impaired asset if the gross margin for that asset prior to the impairment would have been negative. The extent to which this impairment turn is greater than the reported gross margin for the individual asset is related to the specific historical cost basis of that individual asset.

The asset valuations which 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 margin 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 margins 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 2014, the homebuilding gross margin from our continuing operations was 18.5% and excluding interest and inventory impairments, it was 21.9%. For the same period, homebuilding gross margins were as follows in those communities that have previously been impaired:



Homebuilding Gross Margin from previously impaired communities:
Pre-impairment turn gross margin	(1.0	)%
Impact of interest amortized to COS related to these communities	3.3	%
Pre-impairment turn gross margin, excluding interest amortization	2.3	%
Impact of impairment turns	18.1	%
Gross margin (post impairment turns), excluding interest	20.4	%

These previously impaired communities represented 16% of our closings in fiscal 2014. As these communities continue to close out, we expect the impact on our overall homebuilding gross margin to be further reduced.

The estimated fair value of our impaired inventory, the number of lots and number of communities impaired in each period are set forth in the table below as follows:



($ in thousands)	Estimated Fair Value of Impaired Inventory at Period End						Lots Impaired			Communities Impaired
Quarter Ended	2014		2013		2012		2014	2013	2012	2014	2013	2012
September 30	$	14,379	$	—	$	—	180	—	—	2	—	—
June 30	$	—	$	—	$	11,187	—	—	170	—	—	3
March 31	$	—	$	—	$	3,292	—	—	25	—	—	1
December 31	$	—	$	—	$	6,377	—	—	51	—	—	1

Land Sales and Other Revenues and Gross Profit

Land sales relate to land and lots sold that did not fit within our homebuilding programs and strategic plans in these markets. Other revenues include net fees we received for general contractor services we performed on behalf of a third party and broker fees and, in the fiscal year ended September 30, 2012, rental revenues earned by our former Beazer Pre-Owned Rental Homes (Pre-Owned) operations. N/M in the table below indicates the percentage "not meaningful."

(In thousands)

Land Sales and Other Revenues

2014

2013

2012

14 v 13

13 v 12

West