BEAZER HOMES USA INC - Quarter Report: 2011 March (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

		For the Quarterly Period Ended March 31, 2011

o		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		(I.R.S. employer
incorporation or organization)		Identification no.)

1000 Abernathy Road, Suite 1200, Atlanta, Georgia 30328
(Address of principal executive offices) (Zip Code)

(770) 829-3700
(Registrant’s telephone number, including area code)

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 twelve 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          þ           NO          o

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          o          NO          o

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 o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a 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          o          NO          þ

Class		Outstanding at April 29, 2011
Common Stock, $0.001 par value		76,188,642 shares

 

 

References to “we,” “us,” “our,” “Beazer”, “Beazer Homes” and the “Company” in this quarterly report on Form 10-Q refer to Beazer Homes USA, Inc.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 quarterly 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 quarterly 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 quarterly 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 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2010. 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 final outcome of various putative class action lawsuits, multi-party suits and similar proceedings as well as the results of any other litigation or government proceedings and fulfillment of the obligations in the Deferred Prosecution Agreement and consent orders with governmental authorities and other settlement agreements;
	•		additional asset impairment charges or writedowns;
	•		economic changes nationally or in local markets, including changes in consumer confidence, declines in employment levels, volatility of mortgage interest rates and inflation;
	•		the effect of changes in lending guidelines and regulations and the uncertain availability of mortgage financing;
	•		a slower economic rebound than anticipated, coupled with persistently high unemployment and additional foreclosures;
	•		continued or increased downturn in the homebuilding industry;
	•		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;
	•		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;
	•		potential inability to comply with covenants in our debt agreements, or satisfy such obligations through repayment or refinancing;
	•		increased competition or delays in reacting to changing consumer preference in home design;
	•		shortages of or increased prices for labor, land or raw materials used in housing production;
	•		factors affecting margins such as decreased land values underlying lot option agreements, increased land development costs on communities under development or delays or difficulties in implementing initiatives to reduce production and overhead cost structure;
	•		the performance of our joint ventures and our joint venture partners;
	•		the impact of construction defect and home warranty claims including those related to possible installation of drywall imported from China;
	•		the cost and availability of insurance and surety bonds;
	•		delays in land development or home construction resulting from adverse weather conditions;
	•		potential delays or increased costs in obtaining necessary permits and possible penalties for failure to comply with laws, regulations and governmental policies;
	•		potential exposure related to additional repurchase claims on mortgages and loans originated by Beazer Mortgage Corporation;
	•		estimates related to the potential recoverability of our deferred tax assets;
	•		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.

BEAZER HOMES USA, INC.
FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION			4
Item 1. Financial Statements			4
Unaudited Condensed Consolidated Balance Sheets, March 31, 2011 and September 30, 2010			4
Unaudited Condensed Consolidated Statements of Operations, Three and Six Months Ended March 31, 2011 and 2010			5
Unaudited Condensed Consolidated Statements of Cash Flows, Six Months Ended March 31, 2011 and 2010			6
Notes to Unaudited Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 3. Quantitative and Qualitative Disclosures about Market Risk			45
Item 4. Controls and Procedures			45
PART II. OTHER INFORMATION			46
Item 1. Legal Proceedings			46
Item 6. Exhibits			48
SIGNATURES			48
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements

BEAZER HOMES USA, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

		March 31,				September 30,
		2011				2010
ASSETS
Cash and cash equivalents		$	382,196			$	537,121
Restricted cash			71,018				39,200
Accounts receivable (net of allowance of $3,550 and $3,567, respectively)			34,236				32,647
Income tax receivable			2,823				7,684
Inventory
Owned inventory			1,233,428				1,153,703
Land not owned under option agreements			35,458				49,958
Total inventory			1,268,886				1,203,661
Investments in unconsolidated joint ventures			9,305				8,721
Deferred tax assets, net			7,864				7,779
Property, plant and equipment, net			25,010				23,995
Other assets			52,020				42,094
Total assets		$	1,853,358			$	1,902,902
LIABILITIES AND STOCKHOLDERS’ EQUITY
Trade accounts payable		$	39,199			$	53,418
Other liabilities			211,878				210,170
Obligations related to land not owned under option agreements			19,693				30,666
Total debt (net of discounts of $25,220 and $23,617, respectively)			1,286,696				1,211,547
Total liabilities			1,557,466				1,505,801
Stockholders’ equity:
Preferred stock (par value $.01 per share, 5,000,000 shares authorized, no shares issued)			—				—
Common stock (par value $0.001 per share, 180,000,000 shares authorized, 76,261,416 and 75,669,381 issued and outstanding, respectively)			76				76
Paid-in capital			619,966				618,612
Accumulated deficit			(324,150	)			(221,587	)
Total stockholders’ equity			295,892				397,101
Total liabilities and stockholders’ equity		$	1,853,358			$	1,902,902

See Notes to Unaudited Condensed Consolidated Financial Statements.

BEAZER HOMES USA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
Total revenue		$	127,503			$	192,455			$	237,802			$	405,528
Home construction and land sales expenses			110,891				157,591				209,116				343,735
Inventory impairments and option contract abandonments			17,853				9,986				18,539				18,536
Gross (loss) profit			(1,241	)			24,878				10,147				43,257
Selling, general and administrative expenses			41,663				43,875				79,461				88,741
Depreciation and amortization			2,075				2,681				3,988				5,957
Operating loss			(44,979	)			(21,678	)			(73,302	)			(51,441	)
Equity in income (loss) of unconsolidated joint ventures			71				(8,779	)			309				(8,809	)
(Loss) gain on extinguishment of debt			(102	)			52,946				(3,004	)			52,946
Other expense, net			(11,465	)			(18,033	)			(29,531	)			(37,559	)
(Loss) income from continuing operations before income taxes			(56,475	)			4,456				(105,528	)			(44,863	)
Benefit from income taxes			(2,426	)			(1,699	)			(3,019	)			(95,525	)
(Loss) income from continuing operations			(54,049	)			6,155				(102,509	)			50,662
Income (loss) from discontinued operations, net of tax			294				(857	)			(54	)			2,635
Net (loss) income		$	(53,755	)		$	5,298			$	(102,563	)		$	53,297
Weighted average number of shares:
Basic			73,930				58,314				73,904				48,463
Diluted			73,930				69,147				73,904				56,933
(Loss) earnings per share:
Basic (loss) earnings per share from continuing operations		$	(0.73	)		$	0.11			$	(1.39	)		$	1.05
Basic earnings (loss) per share from discontinued operations		$	—			$	(0.02	)		$	—			$	0.05
Basic (loss) earnings per share		$	(0.73	)		$	0.09			$	(1.39	)		$	1.10
Diluted (loss) earnings per share from continuing operations		$	(0.73	)		$	0.10			$	(1.39	)		$	0.94
Diluted earnings (loss) per share from discontinued operations		$	—			$	(0.01	)		$	—			$	0.05
Diluted (loss) earnings per share		$	(0.73	)		$	0.09			$	(1.39	)		$	0.99

See Notes to Unaudited Condensed Consolidated Financial Statements.

BEAZER HOMES USA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Six Months Ended
		March 31,
		2011				2010
Cash flows from operating activities:
Net (loss) income		$	(102,563	)		$	53,297
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization			4,091				6,171
Stock-based compensation expense			5,304				5,433
Inventory impairments and option contract abandonments			18,781				19,156
Impairment of future land purchase right			4,036				—
Deferred income tax benefit			(85	)			(250	)
Provision for doubtful accounts			(17	)			(3,768	)
Excess tax benefit from equity-based compensation			3,584				2,057
Equity in loss of unconsolidated joint ventures			40				11,553
Cash distributions of income from unconsolidated joint ventures			37				75
Loss (gain) on extinguishment of debt			2,168				(52,946	)
Changes in operating assets and liabilities:
Increase in accounts receivable			(1,572	)			(1,471	)
Decrease in income tax receivable			4,861				1,159
Increase in inventory			(94,490	)			(13,675	)
Decrease in other assets			3,769				10,308
(Decrease) increase in trade accounts payable			(14,219	)			1,214
Decrease in other liabilities			(19,964	)			(17,909	)
Other changes			(473	)			1,878
Net cash (used in) provided by operating activities			(186,712	)			22,282
Cash flows from investing activities:
Capital expenditures			(5,001	)			(3,379	)
Investments in unconsolidated joint ventures			(1,431	)			(4,862	)
Increases in restricted cash			(34,082	)			(22,963	)
Decreases in restricted cash			2,264				29,170
Net cash used in investing activities			(38,250	)			(2,034	)
Cash flows from financing activities:
Repayment of debt			(200,164	)			(152,417	)
Proceeds from issuance of new debt			246,388				—
Proceeds from issuance of cash secured loan			32,591				—
Debt issuance costs			(5,130	)			(3,912	)
Common stock redeemed			(64	)			(134	)
Common stock issued			—				97,901
Issuance of Mandatory Convertible Subordinated Notes			—				57,500
Excess tax benefit from equity-based compensation			(3,584	)			(2,057	)
Net cash provided by (used in) financing activities			70,037				(3,119	)
(Decrease) increase in cash and cash equivalents			(154,925	)			17,129
Cash and cash equivalents at beginning of period			537,121				507,339
Cash and cash equivalents at end of period		$	382,196			$	524,468

See Notes to Unaudited Condensed Consolidated Financial Statements.

BEAZER HOMES USA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of Beazer Homes USA, Inc. (Beazer Homes or the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Such financial statements do not include all of the information and disclosures required by GAAP for complete financial statements. In our opinion, all adjustments (consisting solely of normal recurring accruals) necessary for a fair presentation have been included in the accompanying financial statements. For further information and a discussion of our significant accounting policies other than as discussed below, refer to our audited consolidated financial statements appearing in the Beazer Homes’ Annual Report on Form 10-K for the fiscal year ended September 30, 2010 (the 2010 Annual Report). Results from our mortgage origination business, our title insurance services and our exit markets are reported as discontinued operations in the accompanying unaudited condensed consolidated statements of operations for all periods presented (see Note 13 for further discussion of our Discontinued Operations). We evaluated events that occurred after the balance sheet date but before the financial statements were issued or were available to be issued for accounting treatment and disclosure in accordance with Accounting Standards Codification, Subsequent Events (ASC 855).

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.

We conduct a review of the recoverability of our homebuilding inventories held for development at the community level as factors indicate that an impairment may exist. Events and circumstances that might indicate impairment include, but are not limited to, (1) adverse trends in new orders, (2) higher than anticipated cancellations, (3) declining margins which might result from the need to offer incentives to new homebuyers to drive sales or price reductions or other actions taken by our competitors, (4) economic factors specific to the markets in which we operate, including fluctuations in employment levels, population growth, or levels of new and resale homes for sale in the marketplace and (5) a decline in the availability of credit across all industries. The nature of the specific assets being analyzed for impairment requires specific assumptions and estimates based on its location, product type, target buyer, competition, and macro-economic characteristics that impact the fair value of our assets, such as unemployment and availability of mortgage financing, among other things.

As a result, we evaluate, among other things, the following information for each community:

	•		Actual “Net Contribution Margin” (defined as homebuilding revenues less homebuilding costs and direct selling expenses) for homes closed in the current fiscal quarter, fiscal year to date and prior two fiscal quarters. 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. Direct selling expenses included commission, closing costs, and amortization related to model home furnishings and improvements;
	•		Projected Net Contribution Margin for homes in backlog;
	•		Actual and trending new orders and cancellation rates;
	•		Actual and trending base home sales prices and sales incentives for home sales that occurred in the prior two fiscal quarters that remain in backlog at the end of the fiscal quarter and expected future homes sales prices and sales incentives and absorption over the expected remaining life of the community;
	•		A comparison of our community to our competition to include, among other things, an analysis of various product offerings including the size and style of the homes currently offered for sale, community amenity levels, availability of lots in our community and our competition’s, desirability and uniqueness of our community and other market factors; and
	•		Other events that may indicate that the carrying value may not be recoverable.

In determining the recoverability of the carrying value of the assets of a community that we have evaluated as requiring a test for impairment, significant quantitative and qualitative assumptions are made relative to the future home sales prices, sales incentives, direct and indirect costs of home construction and land development and the pace of new home orders. In addition, these assumptions are dependent upon the specific market conditions and competitive factors for each specific community and may differ greatly between communities within the same market and communities in different markets. Our estimates are made using information available at the date of the recoverability test, however, as facts and circumstances may change in future reporting periods, our estimates of recoverability are subject to change.

For assets in communities for which the undiscounted future cash flows are less than the carrying value, the carrying value of that community is written down to its then estimated fair value based on discounted cash flows. The carrying value of assets in communities that were previously impaired and continue to be classified as held for development is not written up for future estimates of increases in fair value in future reporting periods. 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 the market continues to deteriorate.

The fair value of the homebuilding inventory held for development 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. The assumptions used in our discounted cash flow models are specific to each community tested for impairment. We have assumed limited market improvements in some communities beginning in fiscal 2011 and continuing improvement in these communities in subsequent years. We have assumed the remaining communities would have limited market improvements beginning in either fiscal 2012 or fiscal 2013.

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 historical 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. We calculated the estimated fair values of inventory held for development that were evaluated for impairment based on current market conditions and assumptions made by management relative to future results. Because our projected cash flows are significantly impacted by changes in market conditions, it is reasonably possible that actual results could differ materially from our estimates and result in additional impairments.

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 considered 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 continue to deteriorate.

Land Not Owned Under Option Agreements. In addition to purchasing land directly, we utilize lot option agreements which generally enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise our lot option. A majority of our lot option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land for the right to acquire lots during a specified period of time at a certain price. Under lot option contracts, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers. Under lot option contracts our liability is generally limited to forfeiture of the non-refundable deposits, letters of credit and other non-refundable amounts incurred.

Under ASC 810 Consolidation, if the entity holding the land under option is a VIE, the Company’s deposit represents a variable interest in that entity. If the Company is determined to be the primary beneficiary of the VIE, then we are required to consolidate the VIE, though creditors of the VIE have no recourse against the Company. In recent years, the Company has canceled a significant number of lot option agreements, which has resulted in significant write-offs of the related deposits and pre-acquisition costs but has not exposed the Company to the overall risks or losses of the applicable VIEs.

In June 2009, the FASB revised its guidance regarding the determination of a primary beneficiary of a VIE. The revisions to ASC 810 were effective for the Company as of October 1, 2010. The amendments to ASC 810 replace the prior quantitative computations for determining which entity, if any, is the primary beneficiary of the VIE. The revision also increased the disclosures required about a reporting entity’s involvement with VIEs.

Under the revised provision of ASC 810, to determine whether we are the primary beneficiary of the VIE we are first required to evaluate whether we have the ability to control the activities of the VIE that most significantly impact its economic performance. Such activities include, but are not limited to, the ability to determine the budget and scope of land development work, if any; the ability to control financing decisions for the VIE; the ability to acquire additional land into the VIE or dispose of land in the VIE not under contract with Beazer; and the ability to change or amend the existing option contract with the VIE. If we are not determined to control such activities, we are not considered the primary beneficiary of the VIE and thus do not consolidate the VIE under ASC 810. If we do have the ability to control such activities, we will continue our analysis by determining if we are expected to absorb a potentially significant amount of the VIE’s losses or, if no party absorbs the majority of such losses, if we will benefit from potentially a significant amount of the VIE’s expected gains. If we are the primary beneficiary of the VIE, we will consolidate the VIE and reflect such assets and liabilities as land not owned under option agreements in our balance sheets. For VIEs we are required to consolidate, we record the remaining contractual purchase price under the applicable lot option agreement to land not owned under option agreements with an offsetting increase to obligations related to land not owned under option agreements. Also, to reflect the purchase price of this inventory consolidated, we reclassified the related option deposits from land under development to land not owned under option agreement in the accompanying consolidated balance sheets. Consolidation of these VIEs has no impact on the Company’s results of operations or cash flows.

We adopted the revised provisions of ASC 810 on October 1, 2010. For certain VIEs we determined that under the revised provisions, we do not control the activities of the VIE that most significantly impact its economic performance and, therefore, we are not the primary beneficiary of the VIE. In addition, we reviewed our non-VIE lot option agreements pursuant to ASC 470-40, Product Financing Arrangements. As a result, we deconsolidated land under four lot option agreements which reduced Land Not Owned Under Option Agreements and Obligations Related to Land Not Owned Under Options Agreements by $12.9 million.

The following provides a summary of our interests in lot option agreements as of March 31, 2011 (in thousands):

		Deposits & Non-
		refundable								Land Not Owned -
		Preacquisition				Remaining				Under Option
		Costs Incurred				Obligation				Agreements
Consolidated VIEs		$	13,895			$	12,164			$	26,059
Other consolidated lot option agreements (a)			1,870				7,529				9,399
Unconsolidated lot option agreements			23,936				237,438				—
Total lot option agreements		$	39,701			$	257,131			$	35,458

Stock-Based Compensation. Compensation cost arising from nonvested stock awards granted to employees is recognized as an expense using the straight-line method over the vesting period. As of March 31, 2011 and September 30, 2010, there was $9.5 million and $10.0 million, respectively, of total unrecognized compensation cost related to nonvested stock awards included in paid-in capital. The cost remaining at March 31, 2011 is expected to be recognized over a weighted average period of 2.2 years. For the three months ended March 31, 2011, our total stock-based compensation, included in selling, general and administrative expenses (SG&A), was approximately $2.4 million ($1.5 million net of tax). For the six months ended March 31, 2011, our total stock-based compensation expense was approximately $5.3 million ($3.5 million net of tax).

Activity relating to nonvested stock awards for the three and six months ended March 31, 2011 is as follows:

		Three Months Ended								Six Months Ended
		March 31, 2011								March 31, 2011
						Weighted Average								Weighted Average
						Grant Date Fair								Grant Date Fair
		Shares				Value				Shares				Value
Beginning of period			2,482,885			$	10.29				1,839,987			$	14.41
Granted			—				—				729,265				4.73
Vested			(37,921	)			68.56				(124,056	)			56.46
Returned (a)			(52,509	)			68.56				(52,509	)			68.56
Forfeited			(58,095	)			47.64				(58,327	)			47.47
End of period			2,334,360			$	7.11				2,334,360			$	7.11

In addition, during the six months ended March 31, 2011 and 2010, employees surrendered 15,080 and 27,310 shares, respectively, to us in payment of minimum tax obligations upon the vesting of stock awards under our stock incentive plans. We valued the stock at the market price on the date of surrender, for an aggregate value of approximately $64,000 and $134,000 for the six months ended March 31, 2011 and 2010, respectively.

The fair value of each option/stock-based stock appreciation right (SSAR) grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following table summarizes stock options and SSARs outstanding as of March 31, 2011, as well as activity during the three and six months then ended:

		Three Months Ended								Six Months Ended
		March 31, 2011								March 31, 2011
						Weighted-								Weighted-
						Average								Average
		Shares				Exercise Price				Shares				Exercise Price
Outstanding at beginning of period			3,307,619			$	18.73				2,578,354			$	22.69
Granted			—				—				729,265				4.73
Expired			(1,614	)			32.96				(1,614	)			32.96
Forfeited			(20,171	)			5.25				(20,171	)			5.25
Outstanding at end of period			3,285,834			$	18.80				3,285,834			$	18.80
Exercisable at end of period			958,644			$	46.94				958,644			$	46.94
Vested or expected to vest in the future			3,137,110			$	19.47				3,137,110			$	19.47

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. We used the following assumptions for our options granted during the six months ended March 31, 2011:

Expected life of options			4.8 years
Expected volatility			51.7	%
Expected discrete dividends			—
Weighted average risk-free interest rate			1.20	%
Weighted average fair value		$	2.11

The expected volatility is based on the historic returns of our stock and the implied volatility of our publicly-traded options. We assumed no dividends would be paid since our Board of Directors has suspended payment of dividends indefinitely. The risk-free interest rate is based on the term structure of interest rates at the time of the option grant and we have relied upon a combination of the observed exercise behavior of our prior grants with similar characteristics, the vesting schedule of the current grants, and an index of peer companies with similar grant characteristics to determine the expected life of the options.

The intrinsic value of a stock option/SSAR is the amount by which the market value of the underlying stock exceeds the exercise price of the option/SSAR. At March 31, 2011, the aggregate intrinsic value of SSARs/stock options outstanding was approximately $0.4 million. The aggregate intrinsic value of SSARs/stock options vested and expected to vest in the future was approximately $0.4 million and had a weighted average expected life of 2.9 years. The aggregate intrinsic value of exercisable SSARs/stock options was approximately $0.1 million.

During the first quarter of fiscal 2010, certain executive officers and directors elected to relinquish 465,933 vested and outstanding options that had exercise prices above $20 per share in order to provide additional shares for use in the Company’s January 2010 public stock offering.

Other Liabilities. Other liabilities include the following:

		March 31,				September 30,
(In thousands)		2011				2010
Income tax liabilities		$	55,019			$	53,508
Accrued warranty expenses			18,699				25,821
Accrued interest			39,643				35,477
Accrued and deferred compensation			20,391				31,474
Customer deposits			6,851				3,678
Other			71,275				60,212
Total		$	211,878			$	210,170

(2) Supplemental Cash Flow Information

		Six Months Ended
		March 31,
(In thousands)		2011				2010
Supplemental disclosure of non-cash activity:
Decrease in obligations related to land not owned under option agreements		$	(10,973	)		$	(3,870	)
Increase in repayment guarantee obligation			17,220				—
Non-cash land acquisitions			770				211
Issuance of stock under deferred bonus stock plans			3,258				2,158
Supplemental disclosure of cash activity:
Interest payments			55,642				48,814
Income tax payments			211				149
Tax refunds received			3,940				102,065

(3) Investments in Unconsolidated Joint Ventures

As of March 31, 2011, we participated in certain land development joint ventures in which Beazer Homes had less than a controlling interest. The following table presents our investment in our unconsolidated joint ventures, the total equity and outstanding borrowings of these joint ventures, and our guarantees of these borrowings, as of March 31, 2011 and September 30, 2010:

		March 31,				September 30,
(In thousands)		2011				2010
Beazer’s investment in joint ventures		$	9,305			$	8,721
Total equity of joint ventures			302,139				298,418
Total outstanding borrowings of joint ventures			396,330				394,301
Beazer’s estimate of its maximum exposure to our repayment guarantees			17,916				15,789

The increase in our investment in unconsolidated joint ventures from September 30, 2010 to March 31, 2011 relates primarily to additional investments of $1.4 million offset by distributions of earnings in cash and lots totaling $0.8 million. For the three and six months ended March 31, 2011 and 2010, our income (loss) from joint venture activities, the impairments of our investments in certain of our unconsolidated joint ventures, and the overall equity in income (loss) of unconsolidated joint ventures is as follows:

		Three Months Ended								Six Months Ended
		March 31,								March 31,
(In thousands)		2011				2010				2011				2010
Continuing operations:
Income (loss) from joint venture activity		$	71			$	(26	)		$	401			$	(56	)
Impairment of joint venture investment			—				(8,753	)			(92	)			(8,753	)
Equity in income (loss) of unconsolidated joint ventures		$	71			$	(8,779	)		$	309			$	(8,809	)
Reported in income (loss) from discontinued operations, net of tax:
Loss from joint venture activity		$	(17	)		$	—			$	(17	)		$	—
Impairment of joint venture investment			(157	)			—				(332	)			(2,744	)
Equity in loss of unconsolidated joint ventures — discontinued operations		$	(174	)		$	—			$	(349	)		$	(2,744	)

The aggregate debt of the unconsolidated joint ventures was $396.3 million and $394.3 million at March 31, 2011 and September 30, 2010, respectively. At March 31, 2011, total borrowings outstanding include $327.9 million related to one joint venture in which we are a 2.58% partner.

South Edge LLC, one of our joint ventures is in default under its debt obligations. During fiscal 2008, the administrative agent for the lenders to this joint venture, in which we have a 2.58% investment, notified the joint venture members that it believed the joint venture was in default of certain joint venture loan agreements as a result of certain of the joint venture members not complying with all aspects of the joint ventures’ applicable agreements, including failure of the joint venture members to acquire specified parcels of land, resulting in a payment default. In December 2008, the lenders filed individual lawsuits against some of the joint venture members and certain of those members’ parent companies (including the Company), seeking to recover damages under completion guarantees, among other claims. Due to discussions with our other joint venture members and based on the Company’s revised estimates regarding the realizability of our investment, the Company impaired our equity interest of $8.8 million in this joint venture during the second quarter of fiscal 2010. In addition, one member of the joint venture filed an arbitration proceeding against the remaining members related to the plaintiff-member’s allegations that the other members failed to perform under the applicable membership agreements. The arbitration panel issued its decision on July 6, 2010. The arbitration award was confirmed by the United States District Court and is now on appeal to the United States Court of Appeals for the Ninth Circuit. The Company does not believe that its proportional share of the arbitration proceeding award is considered material to our consolidated financial position or results of operations (see Note 9 for additional information regarding these legal actions). The Company has recorded an accrual for such matter.

On December 9, 2010, three lenders filed an involuntary bankruptcy petition against the joint venture. On February 3, 2011, the bankruptcy court granted this petition and the motion for appointment of a trustee. As a result of this ruling, we expect the lenders to the joint venture to attempt to enforce the repayment guaranty under the debt agreement. The joint venture has appealed the involuntary bankruptcy ruling. The Company’s estimate of our portion of this repayment guaranty as provided for under the original debt agreement would be $14.5 million plus certain interest and fees. However, the Company may also be required to repay a portion of the outstanding debt under the repayment guarantee that is related to certain non-performing members of the joint venture. We are evaluating our defenses to a claim under the repayment guaranty. Any payments pursuant to the repayment guaranty would reduce the amount of the debt owed by South Edge LLC and would give each payor lien rights against or title to its share of the property currently owned by the joint venture. In addition to the repayment guaranty to the lenders, we, as a member of the joint venture, continue to have obligations for infrastructure and other development costs as provided for in the joint venture agreement. At this time, these costs cannot be quantified due to, among other things, uncertainty over the future development configuration of the project and the related costs, market conditions, uncertainty over the remaining infrastructure deposits and previously filed bankruptcies of other joint venture members.

The Company and certain of the joint venture members (the “remaining members”) have initiated settlement discussions with the lenders. Based on discussions to date, we anticipate that our obligation will be increased to cover a portion of the repayment guarantee obligations related to non-performing members. As a result, during the quarter ended March 31, 2011, we accrued an additional $2.1 million for a total accrual of $17.2 million as of March 31, 2011 related to our estimated obligation under the repayment guaranty. As previously discussed, the Company will ultimately obtain land in exchange for satisfaction of our repayment guarantee obligations. At the current time, there are uncertainties with respect to the location and density of the land we would receive, the products we would build on such land and the estimated selling prices of such homes. Considering the various potential scenarios and the current and expected market conditions in the Las Vegas area, we determined that the value of our future land purchase rights was approximately $13.2 million and recognized a $4.0 million impairment on such future land purchase rights during the quarter ended March 31, 2011. We have recorded $13.2 million to Other Assets as of March 31, 2011 representing our future land purchase rights from the ultimate payment of this repayment guaranty. Because there are uncertainties with respect to the value of the lien rights or title to our share of the underlying property, we may be required to record adjustments to the carrying value of these recognized Other Assets in future periods as better information becomes available.

Our joint ventures typically obtain secured acquisition, development and construction financing. Generally Beazer and our joint venture partners provide varying levels of guarantees of debt and other obligations for our unconsolidated joint ventures. At March 31, 2011, these guarantees included, for certain joint ventures, construction completion guarantees, repayment guarantees and environmental indemnities.

In assessing the need to record a liability for the contingent aspect of these guarantees, we consider our historical experience in being required to perform under the guarantees, the fair value of the collateral underlying these guarantees and the financial condition of the applicable unconsolidated joint ventures. In addition, we monitor the fair value of the collateral of these unconsolidated joint ventures to ensure that the related borrowings do not exceed the specified percentage of the value of the property securing the borrowings. As of March 31, 2011, we have estimated that the Company’s exposure for the contingent aspect of the guarantees related to our

unconsolidated joint ventures was from $0 to $17.9 million. We have recorded $17.2 million as of March 31, 2011 for guarantees we determined were probable and reasonably estimable, but we have not recorded a liability for the contingent aspects of any guarantees that we determined were reasonably possible but not probable.

Construction Completion Guarantees

We and our joint venture partners may be obligated to the project lenders to complete land development improvements and the construction of planned homes if the joint venture does not perform the required development. Provided the joint venture and the partners are not in default under any loan provisions, the project lenders typically are obligated to fund these improvements through any financing commitments available under the applicable loans. A majority of these construction completion guarantees are joint and several with our partners. In those cases, we generally have a reimbursement arrangement with our partner which provides that neither party is responsible for more than its proportionate share of the guarantee. However, if our joint venture partner does not have adequate financial resources to meet its obligations under such reimbursement arrangement, we may be liable for more than our proportionate share, up to our maximum exposure, which is the full amount covered by the relevant joint and several guarantee. The guarantees cover a specific scope of work, which may range from an individual development phase to the completion of the entire project. As of March 31, 2011, we have a completion guarantee related to one joint venture loan which also has a repayment guarantee associated with it. No accrual has been recorded, as losses, if any, related to construction completion guarantees are both not probable and not reasonably estimable.

Loan-to-Value Maintenance Agreements

As of March 31, 2011 and September 30, 2010, we do not have any obligations related to LTV guarantees. We and our joint venture partners may provide credit enhancements to acquisition, development and construction borrowings in the form of loan-to-value maintenance agreements, which can limit the amount of additional funding provided by the lenders or require repayment of the borrowings to the extent such borrowings plus construction completion costs exceed a specified percentage of the value of the property securing the borrowings. The agreements generally require periodic reappraisals of the underlying property value. To the extent that the underlying property gets reappraised, the amount of the exposure under the loan-to value-maintenance (LTV) guarantee would be adjusted accordingly and any such change could be significant. In certain cases, we may be required to make a re-balancing payment following a reappraisal in order to reduce the applicable loan-to-value ratio to the required level. During the first quarter of fiscal 2010, the Company and its joint venture partner reached an agreement with the lender of a joint venture to release the LTV guarantee and extend the related loan maturity up to two years in exchange for a loan repayment of $7.4 million. The Company invested an additional $3.9 million in the joint venture to facilitate this repayment during fiscal 2010.

Repayment Guarantees

We and our joint venture partners have repayment guarantees related to certain joint ventures’ borrowings. These repayment guarantees require the repayment of all or a portion of the debt of the unconsolidated joint venture only in the event the joint venture defaults on its obligations under the borrowing or in some cases only in the event the joint venture files for bankruptcy. Our estimate of Beazer’s maximum exposure to our repayment guarantees related to the outstanding debt of its unconsolidated joint ventures was $17.9 million and $15.8 million at March 31, 2011 and September 30, 2010, respectively. As of March 31, 2011, $17.2 million has been recorded in Other Liabilities.

Environmental Indemnities

Additionally, we and our joint venture partners generally provide unsecured environmental indemnities to joint venture project lenders. In each case, we have performed due diligence on potential environmental risks. These indemnities obligate us to reimburse the project lenders for claims related to environmental matters for which they are held responsible. For the three and six months ended March 31, 2011 and 2010, we were not required to make any payments related to environmental indemnities. No accrual has been recorded, as losses, if any, related to environmental indemnities are both not probable and not reasonably estimable

(4) Inventory

		March 31,				September 30,
(In thousands)		2011				2010
Homes under construction		$	246,964			$	210,104
Development projects in progress			478,303				444,062
Land held for future development			376,949				382,889
Land held for sale			37,496				36,259
Capitalized interest			47,624				36,884
Pre-owned homes and deposits			372				—
Model homes			45,720				43,505
Total owned inventory		$	1,233,428			$	1,153,703

Homes under construction includes homes finished and ready for delivery and homes in various stages of construction. We had 332 ($56.2 million) and 423 ($71.5 million) completed homes that were not subject to a sales contract (spec homes) at March 31, 2011 and September 30, 2010, respectively. Development projects in progress consist principally of land and land improvement costs. Certain of the fully developed lots in this category are reserved by a deposit or sales contract. Land held for future development consists of communities for which construction and development activities are expected to occur in the future or have been idled and are stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. All applicable interest and real estate taxes on land held for future development are expensed as incurred. Land held for sale as of March 31, 2011 principally included land held for sale in the markets we have decided to exit including Colorado, Jacksonville, Florida and Charlotte, North Carolina. Pre-owned homes and deposits are recently built, previously owned homes acquired or under contract to be acquired by our Pre-Owned Homes Division. These homes are within select communities in markets in which the Company currently operates and will be repaired, rented to consumers and eventually resold.

Total owned inventory, by reportable segment, is set forth in the table below (in thousands):

		March 31, 2011																September 30, 2010
		Projects in				Held for Future				Land Held				Total Owned				Projects in				Held for Future				Land Held				Total Owned
		Progress				Development				for Sale				Inventory				Progress				Development				for Sale				Inventory
West Segment		$	310,688			$	311,134			$	3,419			$	625,241			$	281,912			$	311,472			$	5,273			$	598,657
East Segment			298,579				41,780				4,900				345,259				269,210				47,381				1,376				317,967
Southeast Segment			135,362				24,035				—				159,397				121,509				24,036				—				145,545
Pre-owned Segment			372				—				—				372				—				—				—				—
Unallocated			68,649				—				—				68,649				53,157				—				—				53,157
Discontinued Operations			5,333				—				29,177				34,510				8,767				—				29,610				38,377
Total		$	818,983			$	376,949			$	37,496			$	1,233,428			$	734,555			$	382,889			$	36,259			$	1,153,703

Inventory Impairments. The following tables set forth, by reportable homebuilding segment, the inventory impairments and lot option abandonment charges recorded (in thousands):

		Three Months Ended March 31,								Six Months Ended March 31,
		2011				2010				2011				2010
Development projects and homes in process (Held for Development)
West		$	15,884			$	4,398			$	15,985			$	6,945
East			120				1,201				229				2,118
Southeast			104				3,785				152				6,927
Unallocated			1,608				592				1,608				1,472
Subtotal		$	17,716			$	9,976			$	17,974			$	17,462
Land Held for Sale
West		$	—			$	—			$	(51	)		$	1,061
East			—				—				—				—
Southeast			(42	)			—				169				—
Subtotal		$	(42	)		$	—			$	118			$	1,061
Lot Option Abandonments
West		$	41			$	7			$	84			$	7
East			43				—				133				1
Southeast			95				3				230				5
Subtotal		$	179			$	10			$	447			$	13
Continuing Operations		$	17,853			$	9,986			$	18,539			$	18,536
Discontinued Operations
Held for Development		$	7			$	181			$	185			$	458
Land Held for Sale			—				109				57				159
Lot Option Abandonments			—				3				—				3
Subtotal		$	7			$	293			$	242			$	620
Total Company		$	17,860			$	10,279			$	18,781			$	19,156

The inventory held for development that was impaired during the three months ended March 31, 2011 and 2010 was based on our estimated discounted cash flow impairment calculations, the methodology for which is discussed in Note 1. The fiscal 2011 impairments of our held for development inventory primarily resulted from discrete changes in our revenue and absorption estimates for certain communities due to pricing reductions in response to recent competitor actions and local market conditions. The fair value below represents the fair value immediately after a community’s impairment, or the last impairment taken for communities impaired multiple times ($ in thousands):

		March 31,				March 31,
		2011				2010
Discount Rate — low			13	%			14	%
Discount Rate — high			15	%			17	%
Continuing operations
Communities impaired			7				13
Lots impaired			730				525
Estimated fair value		$	29,244			$	25,975
Discontinued operations
Communities impaired			0				1
Lots impaired			0				12
Estimated fair value		$	0			$	1,832

During these periods, for certain communities we determined that it was prudent to reduce sales prices or further increase sales incentives in response to factors including competitive market conditions in those specific submarkets for the product and locations of these communities. 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, the change in sales prices and changes in absorption estimates led to additional impairments in certain communities during the three months ended March 31, 2011 and 2010. In future periods, we may again determine that it is prudent to reduce sales prices, further increase sales incentives or reduce absorption rates which may lead to additional impairments, which could be material.

The impairments on land held for sale above represent further write downs of these properties to net realizable value, less estimated costs to sell and are as a result of challenging market conditions and our review of recent comparable transactions. The negative impairments for the three and six months ended March 31, 2011 are due to adjustments to accruals for estimated selling costs related to either our strategic decision to develop a previously held-for-sale land position or revised estimates based on pending sales transactions.

Lot Option Contract Abandonments. We have determined the proper course of action with respect to a number of communities within each homebuilding segment was to abandon the remaining lots under option and to write-off the deposits securing the option takedowns, as well as preacquisition costs. In determining whether to abandon a lot option contract, we evaluate the lot option primarily based upon the expected cash flows from the property that is the subject of the option. If we intend to abandon or walk-away from a lot option contract, we record a charge to earnings in the period such decision is made for the deposit amount and any related capitalized costs associated with the lot option contract. We recorded lot option abandonment charges during the three and six months ended March 31, 2011 and 2010 as indicated in the table above. The abandonment charges relate to our decision to abandon certain option contracts that no longer fit in our long-term strategic plan.

We expect to exercise, subject to market conditions, most of our remaining option contracts. Various factors, some of which are beyond our control, such as market conditions, weather conditions and the timing of the completion of development activities, will have a significant impact on the timing of option exercises or whether lot options will be exercised.

Our ability to capitalize all interest incurred during the three and six months ended March 31, 2011 and 2010 has been limited by our inventory eligible for capitalization. The following table sets forth certain information regarding interest (in thousands):

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
Capitalized interest in inventory, beginning of period		$	43,433			$	38,970			$	36,884			$	38,338
Interest incurred			32,937				32,236				65,303				65,416
Capitalized interest impaired			(1,409	)			(464	)			(1,409	)			(1,096	)
Interest expense not qualified for capitalization and included as other expense			(19,058	)			(19,565	)			(37,981	)			(40,097	)
Capitalized interest amortized to house construction and land sales expenses			(8,279	)			(10,070	)			(15,173	)			(21,454	)
Capitalized interest in inventory, end of period		$	47,624			$	41,107			$	47,624			$	41,107

Basic and diluted earnings per share are calculated as follows (in thousands, except per share amounts):

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
(Loss) income from continuing operations		$	(54,049	)		$	6,155			$	(102,509	)		$	50,662
Income (loss) from discontinued operations, net of tax			294				(857	)			(54	)			2,635
Net (loss) income		$	(53,755	)		$	5,298			$	(102,563	)		$	53,297
Weighted average number of shares outstanding — basic			73,930				58,314				73,904				48,463
Basic (loss) earnings per share from continuing operations		$	(0.73	)		$	0.11			$	(1.39	)		$	1.05
Basic earnings (loss) per share from discontinued operations		$	—			$	(0.02	)		$	—			$	0.05
Basic (loss) earnings per share		$	(0.73	)		$	0.09			$	(1.39	)		$	1.10
Diluted:
Interest on convertible debt -net of taxes		$	—			$	660			$	—			$	3,008
(Loss) income from continuing operations for diluted EPS		$	(54,049	)		$	6,815			$	(102,509	)		$	53,670
Income (loss) from discontinued operations, net of tax for diluted EPS			294				(857	)			(54	)			2,635
(Loss) income for diluted EPS		$	(53,755	)		$	5,958			$	(102,563	)		$	56,305
Weighted average number of shares outstanding — basic			73,930				58,314				73,904				48,463
Effect of dilutive securities:
Shares issuable upon conversion of convertible debt			—				10,833				—				8,470
Weighted average number of shares outstanding — diluted			73,930				69,147				73,904				56,933
Diluted (loss) earnings per share from continuing operations		$	(0.73	)		$	0.10			$	(1.39	)		$	0.94
Diluted earnings (loss) per share from discontinued operations		$	—			$	(0.01	)		$	—			$	0.05
Diluted (loss) earnings per share		$	(0.73	)		$	0.09			$	(1.39	)		$	0.99

In computing diluted loss per share for the three and six months ended March 31, 2011, 25,408,740 common shares issuable upon conversion of our Mandatory Convertible Subordinated Notes and Tangible Equity Unit prepaid stock purchase contracts were excluded from the computation of diluted loss per share as a result of their anti-dilutive effect. Also, in computing diluted loss per share for the three and six months ended March 31, 2011, all common stock equivalents from employee compensation awards were excluded from the computation of diluted loss per share as a result of their anti-dilutive effect. In computing diluted earnings per share for the three and six months ended March 31 2010, options/SSARs to purchase 1.6 million and 1.8 million shares of common stock, respectively, were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive.

During the three and six months ended March 31, 2011 and 2010, we did not repurchase any shares in the open market. Any future stock repurchases as allowed by our debt covenants must be approved by the Company’s Board of Directors or its Finance Committee.

At March 31, 2011 and September 30, 2010, we had the following long-term debt (in thousands):

				March 31,				September 30,
		Maturity Date		2011				2010
Secured Revolving Credit Facility		August 2011		$	—			$	—
6 1/2% Senior Notes		November 2013			—				164,473
6 7/8% Senior Notes		July 2015			184,454				209,454
8 1/8% Senior Notes		June 2016			172,879				180,879
12% Senior Secured Notes		October 2017			250,000				250,000
9 1/8% Senior Notes		June 2018			300,000				300,000
9 1/8% Senior Notes		May 2019			250,000				—
TEU Senior Amortizing Notes		August 2013			12,367				14,594
Unamortized debt discounts					(25,220	)			(23,617	)
Total Senior Notes, net					1,144,480				1,095,783
Mandatory Convertible Subordinated Notes		January 2013			57,500				57,500
Junior subordinated notes		July 2036			48,503				47,470
Cash Secured Loan		November 2017			32,591				—
Other secured notes payable		Various Dates			3,622				10,794
Total debt, net				$	1,286,696			$	1,211,547

Secured Revolving Credit Facility —On August 5, 2009, we entered into an amendment to our Secured Revolving Credit Facility that reduced the size of the facility to $22 million. The Secured Revolving Credit Facility is provided by one lender. The Secured Revolving Credit Facility provides for future working capital and letter of credit needs collateralized by either cash or assets of the Company at our option, based on certain conditions and covenant compliance. As of March 31, 2011, we have elected to cash collateralize all letters of credit; however, we have pledged approximately $949.4 million of inventory assets to our Senior Secured Revolving Credit Facility to collateralize potential future borrowings or letters of credit. The Secured Revolving Credit Facility contains certain covenants, including negative covenants and financial maintenance covenants, with which we are required to comply. Subject to our option to cash collateralize our obligations under the Secured Revolving Credit Facility upon certain conditions, our obligations under the Secured Revolving Credit Facility are secured by liens on substantially all of our personal property and a significant portion of our owned real properties. There were no outstanding borrowings under the Secured Revolving Credit Facility as of March 31, 2011 or September 30, 2010.

We have entered into stand-alone, cash-secured letter of credit agreements with banks to maintain our pre-existing letters of credit and to provide for the issuance of new letters of credit. The letter of credit arrangements combined with our Senior Secured Revolving Credit Facility provide a total letter of credit capacity of approximately $92.2 million. As of March 31, 2011 and September 30, 2010, we have secured letters of credit using cash collateral in restricted accounts totaling $38.0 million and $38.8 million, respectively. The Company may enter into additional arrangements to provide additional letter of credit capacity.

Senior Notes - The majority of our Senior Notes are unsecured or secured obligations ranking pari passu with all other existing and future senior indebtedness. Substantially all of our significant subsidiaries are full and unconditional guarantors of the Senior Notes and are jointly and severally liable for obligations under the Senior Notes and the Secured Revolving Credit Facility. Each guarantor subsidiary is a 100% owned subsidiary of Beazer Homes.

The indentures under which the Senior Notes were issued contain certain restrictive covenants, including limitations on payment of dividends. At March 31, 2011, under the most restrictive covenants of each indenture, no portion of our retained earnings was available for cash dividends or for share repurchases. The indentures provide that, in the event of defined changes in control or if our consolidated tangible net worth falls below a specified level or in certain circumstances upon a sale of assets, we are required to offer to repurchase certain specified amounts of outstanding Senior Notes. Specifically, certain indentures require us to offer to purchase 10% of the original amount of the Senior Notes at par if our consolidated tangible net worth (defined as stockholders’ equity less intangible assets) is less than $85 million at the end of any two consecutive fiscal quarters. If triggered and fully subscribed, this could result in our having to purchase $62.5 million of notes, based on the original amounts of the applicable notes; however, this amount may be reduced by

certain Senior Note repurchases (potentially at less than par) made after the triggering date. As of March 31, 2011, our consolidated tangible net worth was $245.8 million.

On January 8, 2010, we redeemed our 8 5/8% Senior Notes due 2011 at par totaling $127.3 million. This redemption resulted in a loss on debt extinguishment of $0.9 million due primarily to the acceleration of debt discount and issuance costs. In May 2010, we redeemed our 8 3/8% Senior Notes due 2012 at par for a total of $303.6 million. This redemption resulted in a loss on debt extinguishment of $2.9 million, which included the acceleration of debt issuance cost amortization. In addition, during the fiscal year ended September 30, 2010, we redeemed for cash all of the outstanding Convertible Senior Notes for a total of $155.5 million. The redemption resulted in a loss on debt extinguishment of $6.2 million, which included the acceleration of debt issuance cost amortization.

On September 11, 2009, we issued and sold $250 million aggregate principal amount of our 12% Senior Secured Notes due 2017 (Senior Secured Notes) through a private placement. The Senior Secured Notes were issued at a price of 89.5% of their face amount (before underwriting and other issuance costs). Interest on the Senior Secured Notes is payable semi-annually in cash in arrears. During the quarter ended March 31, 2010, we completed an offer to exchange substantially all of the $250 million 12% Senior Secured Notes due 2017 (the Senior Secured Notes), which were registered under the Securities Act of 1933. The Senior Secured Notes were issued under an indenture, dated as of September 11, 2009. The indenture contains covenants which, subject to certain exceptions, limit the ability of the Company and its restricted subsidiaries 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. Upon a change of control, as defined, the indenture requires us to make an offer to repurchase the Senior Secured Notes at 101% of their principal amount, plus accrued and unpaid interest. If we sell certain assets and do not reinvest the net proceeds in compliance with the indenture, then we must use the net proceeds to offer to repurchase the Senior Secured Notes at 100% of their principal amount, plus accrued and unpaid interest. After October 15, 2012, we may redeem some or all of the Senior Secured Notes at redemption prices set forth in the indenture. The Senior Secured Notes are secured on a second priority basis by, subject to exceptions specified in the related agreements, substantially all of the tangible and intangible assets of the Company as defined.

In May 2010, we issued $300 million aggregate principal amount of 9 1/8% Senior Notes due June 15, 2018. Interest on these notes is payable semi-annually in cash in arrears, commencing on June 15, 2010. These notes are unsecured and rank equally with our unsecured indebtedness. We may, at our option, redeem the 9 1/8% Senior Notes in whole or in part at any time at specified redemption prices which include a “make whole” provision through June 15, 2014.

Also in May 2010, we issued 3 million 7.25% tangible equity units (TEUs) which were comprised of prepaid stock purchase contracts and senior amortizing notes. As these two components of the TEUs are legally separate and detachable, we have accounted for the two components as separate items for financial reporting purposes and valued them based on their relative fair value at the date of issuance. The amortizing notes are unsecured senior obligations and rank equally with all of our other unsecured indebtedness and had an aggregate initial principal amount of $15,738,000 as determined under the relative fair value method. These notes pay quarterly installments of principal and interest aggregating approximately $1.4 million per quarter through August 15, 2013, and in the aggregate, these installments will be equivalent to a 7.25% cash payment per year with respect to each $25 stated amount of the TEUs. If we elect to settle the prepaid stock purchase contracts early, we may be required to repurchase certain amortizing notes, plus accrued and unpaid interest as provided for in the TEU agreement. The related prepaid stock purchase contracts will convert to Beazer Homes’ common stock on August 15, 2013 and have been accounted for as equity in the accompanying unaudited condensed consolidated balance sheets.

In November 2010, we issued $250 million aggregate principal amount of 9 1/8% Senior Notes due May 15, 2019. Interest on these notes is payable semi-annually in cash in arrears, commencing on May 15, 2011. These notes are unsecured and rank equally with our unsecured indebtedness. We may, at our option, redeem the 9 1/8% Senior Notes in whole or in part at any time at specified redemption prices which include a “make whole” provision through May 15, 2014.

During the six months ended March 31, 2011, we redeemed or repurchased in open market transactions $197.5 million principal amount of our Senior Notes ($164.5 million of 6¹/2% Senior Notes due 2013, $25.0 million of 6 7/8% Senior Notes due 2015 and $8.0 million of 8 1/8% Senior Notes due 2016). The aggregate purchase price was $198.3 million, including accrued and unpaid interest as of the purchase date. The redemption/repurchase of the notes resulted in a $3.0 million pre-tax loss on extinguishment of debt, net of unamortized discounts and debt issuance costs related to these notes. All Senior Notes redeemed/repurchased by the Company were cancelled.

Mandatory Convertible Subordinated Notes — On January 12, 2010, we issued $57.5 million aggregate principal amount of 7 1/2% Mandatory Convertible Subordinated Notes due 2013 (the Mandatory Convertible Subordinated Notes). Interest on the Mandatory Convertible Subordinated Notes is payable quarterly in cash in arrears. Holders of the Mandatory Convertible Subordinated Notes have the right to convert their notes, in whole or in part, at any time prior to maturity, into shares of our common stock at a fixed conversion

rate of 5.4348 shares per $25 principal amount of notes. At maturity, the remaining notes will automatically convert into the Company’s common stock at a defined conversion rate which will range from 4.4547 to 5.4348 (the initial conversion rate) shares per $25 principal amount of notes based on the then current price of the common stock. The securities are subordinated to nonconvertible debt, the conversion feature is non-detachable and there are no beneficial conversion features associated with this debt. If our consolidated tangible net worth is less than $85 million as of the last day of a fiscal quarter, the Company has the right to require holders to convert all of the notes then outstanding for shares of our common stock at the maximum conversion rate.

Junior Subordinated Notes — On June 15, 2006, we completed a private placement of $103.1 million of unsecured junior subordinated notes which mature on July 30, 2036 and are redeemable at par on or after July 30, 2011 and pay a fixed rate of 7.987% for the first ten years ending July 30, 2016. Thereafter, the securities have a floating interest rate equal to three-month LIBOR plus 2.45% per annum, resetting quarterly. These notes were issued to Beazer Capital Trust I, which simultaneously issued, in a private transaction, trust preferred securities and common securities with an aggregate value of $103.1 million to fund its purchase of these notes. The transaction is treated as debt in accordance with GAAP. The obligations relating to these notes and the related securities are subordinated to the Secured Revolving Credit Facility and the Senior Notes.

On January 15, 2010, we completed an exchange of $75 million of our trust preferred securities issued by Beazer Capital Trust I for a new issue of $75 million of junior subordinated notes due July 30, 2036 issued by the Company (the New Junior Notes). The exchanged trust preferred securities and the related junior subordinated notes issued in 2006 were cancelled effective January 15, 2010. The material terms of the New Junior Notes are identical to the terms of the original trust securities except that when the New Junior Notes change from a fixed rate to a variable rate in August 2016, the variable rate is subject to a floor of 4.25% and a cap of 9.25%. In addition, the Company now has the option to redeem the New Junior Notes beginning on June 1, 2012 at 75% of par value and beginning on June 1, 2022, the redemption price of 75% of par value will increase by 1.785% per year.

The aforementioned exchange has been accounted for as an extinguishment of debt as there has been a significant modification of cash flows and, as such, the New Junior Notes were recorded at their estimated fair value at the exchange date. Over the remaining life of the New Junior Notes, we will increase their carrying value until this carrying value equals the face value of the notes. During the quarter ended March 31, 2010, we recorded a pre-tax gain on extinguishment of $53.6 million in connection with this exchange. As of March 31, 2011, the unamortized accretion was $52.3 million and will be amortized over the remaining life of the notes.

As of March 31, 2011, we were in compliance with all covenants under our Senior Notes.

Cash Secured Loans — In November 2010, we entered into two separate loan facilities for a combined total of $275 million. Borrowing under the cash secured loan facilities will replenish cash used to repay or repurchase the Company’s debt and would be considered “refinancing indebtedness” under certain of the Company’s existing indentures and debt covenants. However, because the loans are fully collateralized by cash equal to the loan amount, the loans do not provide liquidity to the Company.

The lenders of these facilities may put the outstanding loan balances to the Company at the two or four year anniversaries of the loan. The loan matures in seven years. Borrowings under the facilities are fully secured by cash held by the lender or its affiliates. This secured cash is reflected as restricted cash on our unaudited condensed consolidated balance sheet as of March 31, 2011. We borrowed $32.6 million at inception of the loans and have the right for additional borrowings within the first six months of the closing. The cash secured loan has an interest rate equivalent to LIBOR plus 0.4% per annum which is paid every three months following the effective date of each borrowing. We intend to draw down under the cash secured loans prior to May 2011 to protect refinancing capacity available under our covenant refinancing basket related to previous or future debt repayments.

Other Secured Notes Payable — We periodically acquire land through the issuance of notes payable. As of March 31, 2011 and September 30, 2010, we had outstanding notes payable of $3.6 million and $10.8 million, respectively, primarily related to land acquisitions. These notes payable expire at various times through 2013 and had fixed rates ranging from 7.3% to 9.0% at March 31, 2011. These notes are secured by the real estate to which they relate.

The agreements governing these secured notes payable contain various affirmative and negative covenants. There can be no assurance that we will be able to obtain any future waivers or amendments that may become necessary without significant additional cost or at all. In each instance, however, a covenant default can be cured by repayment of the indebtedness.

For the three and six months ended March 31, 2011, our tax benefit from continuing operations was $2.4 million and $3.0 million, respectively. The principal difference between our effective rate and the U.S. federal statutory rate for the three and six months ended March 31, 2011 relates to our valuation allowance.

During fiscal 2008, we determined that we did not meet the more likely than not standard 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.

Given the prolonged economic downturn affecting the homebuilding industry and the continued uncertainty regarding the recoverability of the remaining deferred tax assets, we continue to believe that a valuation allowance is needed for substantially all of our deferred tax assets. In future periods, the allowance could be modified based on sufficient evidence indicating that more likely than not a portion of our deferred tax assets will be realized. Changes in existing tax laws could also affect actual tax results and the valuation of deferred tax assets over time.

Further, we experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code (Section 382) 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 carryforwards (NOLs) and certain built-in losses or deductions recognized during the five-year period after the ownership change to offset future taxable income. Therefore, our ability to utilize our pre-ownership change net operating loss carryforwards and recognize certain built-in losses or deductions is limited by Section 382 to an estimated maximum amount of approximately $11.4 million ($4 million tax-effected) annually. Certain deferred tax assets are not subject to any limitation imposed by Section 382.

As of March 31, 2011, our valuation allowance was $484.2 million and we expect to continue to add to our gross deferred tax assets for anticipated NOLs that will not be limited by Section 382.

In the normal course of business, we are subject to audits by federal and state tax authorities regarding various tax liabilities. The IRS is currently conducting a routine examination of our federal income tax returns for fiscal years 2007 through 2010, and certain state taxing authorities are examining various fiscal years. The final outcome of these examinations is not yet determinable. The statute of limitations for our major tax jurisdictions remains open for examination for fiscal 2006 and subsequent years.

During the first half of fiscal 2011, there have been no material changes to the components of the Company’s total unrecognized tax benefits, including any amount which, if recognized, would affect our effective tax rate.

Beazer Homes and certain of its subsidiaries have been and continue to be named as defendants in various construction defect claims, complaints and other legal actions. The Company is subject to the possibility of loss contingencies arising in its business. In determining loss contingencies, we consider the likelihood of loss as well as the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when it is considered probable that a liability has been incurred and when the amount of loss can be reasonably estimated.

Warranty Reserves. We currently provide a limited warranty (ranging from one to two years) covering workmanship and materials per our defined 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 element warranty with single-family homes and townhomes in certain states.

Since we subcontract our homebuilding work to subcontractors who generally provide us with an indemnity and a certificate of insurance prior to receiving payments for their work, many claims relating to workmanship and materials are the primary responsibility of the subcontractors.

Warranty reserves are included in other liabilities and the provision for warranty accruals is included in home construction and land sales expenses in the unaudited condensed consolidated financial statements. We record reserves covering 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 of March 31, 2011, our warranty reserves include an estimate for the repair of less than 60 homes in Florida where certain of our subcontractors installed defective Chinese drywall in homes that were delivered during our 2006 and 2007 fiscal years. As of March 31, 2011, we have completed repairs on approximately 76% of these homes and have begun repairing a number of the remaining homes. We are inspecting additional homes in order to determine whether they also contain the defective Chinese drywall. Like most major homebuilders, we contract for many of our construction activities on a turnkey basis including the purchase and installation of drywall. With few exceptions, our contractors purchased the drywall from independent suppliers, and delivered and installed this drywall into Beazer’s homes. Much of this data is unavailable or inconclusive. Accordingly, it is difficult for the Company to determine which suppliers were used by these contractors, which suppliers provided defective Chinese drywall during the time period at issue or what amounts may have been purchased from such suppliers. As a result, it is difficult for the Company to determine which Beazer communities or particular homes had Chinese drywall installed without inspections and, the amount of additional liability, if any, is not reasonably estimable. Therefore, the outcome of inspections in process and potential future inspections or an unexpected increase in repair costs may require us to increase our warranty reserve in the future. In addition, the Company has been named as a defendant in a number of legal actions related to defective Chinese drywall (see Litigation below).

As a result of our analyses, we adjust our estimated warranty liabilities. While we believe that our warranty reserves are adequate as of March 31, 2011, historical data and trends may not accurately predict actual warranty costs or future developments could lead to a significant change in the reserve. Our warranty reserves are as follows (in thousands):

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
Balance at beginning of period		$	21,643			$	28,360			$	25,821			$	30,100
Accruals for warranties issued			940				1,457				1,814				2,763
Changes in liability related to warranties existing in prior periods			(683	)			161				(2,683	)			(48	)
Payments made			(3,201	)			(3,312	)			(6,253	)			(6,149	)
Balance at end of period		$	18,699			$	26,666			$	18,699			$	26,666

Litigation

A putative class action was filed on April 8, 2008 in the United States District Court for the Middle District of North Carolina, Salisbury Division, against Beazer Homes, U.S.A., Inc., Beazer Homes Corp. and Beazer Mortgage Corporation. The Complaint alleges that Beazer violated the Real Estate Settlement Practices Act (RESPA) and North Carolina Gen. Stat. § 75-1.1 by (1) improperly requiring homebuyers to use Beazer-owned mortgage and settlement services as part of a down payment assistance program, and (2) illegally increasing the cost of homes and settlement services sold by Beazer Homes Corp. The purported class consists of all residents of North Carolina who purchased a home from Beazer, using mortgage financing provided by and through Beazer that included seller-funded down payment assistance, between January 1, 2000 and October 11, 2007. The parties have reached an agreement to settle the lawsuit, which will be partially funded by insurance proceeds. The settlement has been preliminarily approved by the court, but remains subject to final court approval. Under the terms of the settlement, the action will be dismissed with prejudice, and the Company and all other defendants will not admit any liability. The Company has accrued a liability for such matter which is not material to the Company’s financial position or results of operations and is included in the total litigation accrual discussed below.

During fiscal 2008, the administrative agent for the lenders of one of our unconsolidated joint ventures filed individual lawsuits against some of the joint venture members and certain of those members’ parent companies (including the Company), seeking to recover damages under completion guarantees, among other claims. We intend to vigorously defend against this legal action. We are a 2.58% member in this joint venture (see Note 3 for additional information). An estimate of probable loss or range of loss, if any cannot presently be made. In addition, one member of the joint venture filed an arbitration proceeding against the remaining members related to the plaintiff-member’s allegations that the other members failed to perform under the applicable membership agreements. The arbitration panel issued its decision on July 6, 2010 and denied the plaintiff’s claims for specific performance claims and awarded damages in an amount well below the amount claimed. The Company does not believe that its proportional share of the award is material to our consolidated financial position or results of operations. The arbitration award was confirmed by the United States District Court and is now on appeal to the United States Court of Appeals for the Ninth Circuit. On December 9, 2010, three lenders filed an involuntary bankruptcy petition against the joint venture. On February 3, 2011, the bankruptcy court granted this petition and the motion for appointment of a trustee. As a result of this ruling, we expect the lenders to attempt to enforce the repayment guaranty under the debt agreement. The joint venture has appealed the grant of the involuntary bankruptcy. We are evaluating our defenses to a claim under the repayment guaranty. Given the recent bankruptcy court ruling, we have accrued $17.2 million as of March 31, 2011 related to our estimated obligation under the repayment guaranty. We have also recorded $13.2 million to Other Assets representing our future land purchase rights from the ultimate payment of the repayment guaranty. Because there are uncertainties with respect to the

value of the lien rights or title to our share of the underlying property, we may be required to record adjustments to the carrying value of these recognized Other Assets in future periods as better information becomes available.

On June 3, 2009, a purported class action complaint was filed by the owners of one of our homes in our Magnolia Lakes’ community in Ft. Myers, Florida. The complaint names the Company and certain distributors and suppliers of drywall and was filed in the Circuit Court for Lee County, Florida on behalf of the named plaintiffs and other similarly situated owners of homes in Magnolia Lakes or alternatively in the State of Florida. The plaintiffs allege that the Company built their homes with defective drywall, manufactured in China, that contains sulfur compounds that allegedly corrode certain metals and that are allegedly capable of harming the health of individuals. Plaintiffs allege physical and economic damages and seek legal and equitable relief, medical monitoring and attorney’s fees. This case has been transferred to the Eastern District of Louisiana pursuant to an order from the United States Judicial Panel on Multidistrict Litigation. In addition, the Company has been named in other multi-plaintiff complaints filed in the multidistrict litigation. We believe that the claims asserted in these actions are governed by its home warranty or are without merit. Accordingly, the Company intends to vigorously defend against these actions. Furthermore, the Company has offered to repair all Beazer homes affected by defective Chinese drywall pursuant to a repair protocol that has been adopted by the multidistrict litigation court, including those homes involved in litigation. To date, the vast majority of affected Beazer homeowners have accepted the Company’s offer to repair. The Company also continues to pursue recovery against responsible subcontractors, drywall suppliers and drywall manufacturers for its repair costs.

On December 10, 2010, a shareholder derivative suit was filed in the United States District Court for the District of Delaware against certain employees and directors of the Company. The complaint alleges that the defendants made false and misleading statements in the Company’s 2010 proxy regarding the tax deductibility of the Company’s 2010 Equity Incentive Plan. Plaintiff also alleges that defendants breached their fiduciary duties. The Company has filed a motion to dismiss the plaintiff’s claims and we await the court’s ruling.

On March 14, 2011, the Company and several subsidiaries were named as defendants in a lawsuit filed by Flagstar Bank, FSB in the Circuit Court for the County of Oakland, State of Michigan. The complaint demands approximately $5 million to recover purported losses in connection with 57 residential mortgage loan transactions under theories of breach of contract, fraud/intentional misrepresentation and other similar theories of recovery. We believe we have strong defenses to the claims on these individual loans and intend to vigorously defend the action. In addition, on April 18, 2011, BMC received a notice from another investor demanding that BMC indemnify it for losses suffered with respect to eight mortgage loan transactions largely alleging misrepresentations during the loan origination process. We are currently investigating these claims. As previously disclosed, we operated BMC from 1998 through February 2008 to offer mortgage financing to the buyers of our homes. BMC entered into various agreements with mortgage investors for the origination of mortgage loans. Underwriting decisions were not made by BMC but by the investors or third-party service providers. To date, including the mortgage loans that are the subject of the lawsuit and the demand described herein, we have received requests to repurchase fewer than 100 mortgage loans from various investors. While we have not been required to repurchase any mortgage loans, we have established an immaterial amount as a reserve for the repurchase of mortgage loans originated by BMC. We cannot rule out the potential for additional mortgage loan repurchase claims in the future, although, at this time, we do not believe that the exposure related to any such additional claims would be material to our consolidated financial position or results of operation. As of March 31, 2011, no liability has been recorded for any such additional claims as such exposure is not both probable and reasonably estimable.

On March 15, 2011, a shareholder derivative suit was filed in the Superior Court of Fulton County, State of Georgia against certain employees and directors of the Company and the Company’s compensation consultants. The complaint alleges breach of fiduciary duties involving certain decisions regarding executive compensation; specifically that compensation increases awarded to certain Company executives for the 2010 fiscal year were improper in light of the subsequent advisory vote by shareholders on the Company’s 2010 executive compensation resolution. We intend to vigorously defend against this legal action.

We cannot predict or determine the timing or final outcome of the lawsuits or the effect that any adverse findings or adverse 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 adverse effect on our business, financial condition and results of operations.

Other Matters

As disclosed in our 2009 Form 10-K, on July 1, 2009, the Company announced that it has resolved the criminal and civil investigations by the United States Attorney’s Office in the Western District of North Carolina (the U.S. Attorney) and other state and federal agencies

concerning matters that were the subject of the independent investigation, initiated in April 2007 by the Audit Committee of the Board of Directors (the Investigation) and concluded in May 2008. Under the terms of a deferred prosecution agreement (DPA), the Company’s liability for fiscal 2011 and each of the fiscal years after 2010 through a portion of fiscal 2014 (unless extended as previously described in our 2009 Form 10-K) will also be equal to 4% of the Company’s adjusted EBITDA (as defined in the DPA). The total amount of such obligations will be dependent on several factors; however, the maximum liability under the DPA and other settlement agreements discussed above will not exceed $55.0 million of which $16 million has been paid as of March 31, 2011. As of September 30, 2010, we had accrued approximately $1 million for future obligations under the DPA and HUD agreements which was paid in November 2010. Based on our projections of adjusted EBITDA for the remainder of fiscal 2011, we have accrued less than $1 million related to these future obligations as of March 31, 2011. We believe that our accrual for this liability is appropriate as of March 31, 2011, however, positive adjusted EBITDA in future years will require us to incur additional expense in the future.

In November 2003, Beazer Homes received a request for information from the EPA pursuant to Section 308 of the Clean Water Act seeking information concerning the nature and extent of storm water discharge practices relating to certain of our communities completed or under construction. The EPA or the equivalent state agency has issued Administrative Orders identifying alleged instances of noncompliance and requiring corrective action to address the alleged deficiencies in storm water management practices. The parties have agreed to settle this matter and have executed a Consent Decree which received court approval on February 10, 2011. The terms of the Consent Decree constitute a final judgment and the Company did not admit any liability. Pursuant to the terms of the Consent Decree, the Company paid a civil penalty during the quarter which is not material to the Company’s financial position or results of operations. The Company has established and implemented a comprehensive stormwater management program to ensure compliance with the Clean Water Act, similar state regulations and the terms of the Consent Decree itself.

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. The two Orders assess proposed fines of $630,000 and $678,000, respectively. We have met with the Department to discuss their concerns on the two affected communities and have requested hearings on both matters. We believe that we have significant defenses to the alleged violations and intend to contest the agency’s findings and the proposed fines. We are currently pursuing settlement discussions with the Department.

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.

We have accrued $15.9 million and $18.0 million in other liabilities related to all of the above matters as of March 31, 2011 and September 30, 2010, respectively.

We had outstanding letters of credit and performance bonds of approximately $37.4 million and $181.3 million, respectively, at March 31, 2011 related principally to our obligations to local governments to construct roads and other improvements in various developments. Our outstanding letters of credit at March 31, 2011 include $3.7 million relating to our lot option contracts discussed in Note 1.

As of March 31, 2011, we had no assets or liabilities in our unaudited condensed consolidated balance sheets that were required to be measured at fair value on a recurring basis. Certain of our assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value may not be recovered. We use a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value as follows: Level 1 — Quoted prices in active markets for identical assets or liabilities; Level 2 — Inputs other than quoted prices included in Level 1 that are observable either directly or indirectly through corroboration with market data; Level 3 — Unobservable inputs that reflect our own estimates about the assumptions market participants would use in pricing the asset or liability. The following table presents our assets measured at fair value on a non-recurring basis for each hierarchy level and represents only those assets whose carrying values were adjusted to fair value during the six months ended March 31, 2011 and 2010 (in thousands):

		Level 1				Level 2				Level 3				Total
Six Months Ended March 31, 2011:
Development projects in progress			—				—				29,244				29,244
Land held for sale			—				—				—				—
Right to purchase land			—				—				13,184				13,184
Joint venture investments			—				—				—				—
Six Months Ended March 31, 2010:
Development projects in progress			—				—				43,315				43,315
Land held for sale			—				—				2,039				2,039
Joint venture investments			—				—				4,060				4,060

As previously disclosed, we review our long-lived assets, including inventory for recoverability when factors that indicate an impairment may exist, but no less than quarterly. Fair value is based on estimated cash flows discounted for market risks associated with the long-lived assets. The fair values of our investments in unconsolidated joint ventures are determined primarily using a discounted cash flow model to value the underlying net assets of the respective entities. During the six months ended March 31, 2011, we recorded total impairments, including discontinued operations, of $18.2 million, $0.2 million and $0.4 million for development projects in progress, land held for sale and joint venture investments, respectively. During the six months ended March 31, 2010, we recorded total impairments, including discontinued operations, of $17.9 million, $1.2 million and $11.5 million for development projects in progress, land held for sale, and joint venture investments, respectively. See Notes 1, 3 and 4 for additional information related to the fair value accounting for the assets listed above.

Determining which hierarchical level an asset or liability falls within requires significant judgment. We evaluate our hierarchy disclosures each quarter.

The fair value of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, other liabilities, cash secured loan and other secured notes payable approximate their carrying amounts due to the short maturity of these assets and liabilities. Obligations related to land not owned under option agreements are recorded at estimated fair value. The carrying values and estimated fair values of other financial assets and liabilities were as follows:

		As of March 31, 2011								As of September 30, 2010
		Carrying								Carrying
		Amount				Fair Value				Amount				Fair Value
Senior Notes		$	1,144,480			$	1,210,548			$	1,095,783			$	1,093,855
Mandatory Convertible Subordinated Notes			57,500				55,407				57,500				61,525
Junior Subordinated Notes			48,503				48,503				47,470				47,470
		$	1,250,483			$	1,314,458			$	1,200,753			$	1,202,850

The estimated fair values shown above for our publicly held Senior Notes and Mandatory Convertible Subordinated Notes have been determined using quoted market rates. The fair value of our publicly held junior subordinated notes is estimated by discounting scheduled cash flows through maturity. The discount rate is estimated using market rates currently being offered on loans with similar terms and credit quality. Judgment is required in interpreting market data to develop these estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange.

We have three homebuilding segments operating in 16 states and beginning in the second quarter of fiscal 2011, we have introduced our Pre-Owned Homes division in Arizona. Revenues in our homebuilding segments are derived from the sale of homes which we construct and from land and lot sales. Revenues from our Pre-Owned segment are derived from the rental and ultimate sale of previously owned homes purchased and improved by the Company. Our reportable segments have been determined on a basis that is used internally by management for evaluating segment performance and resource allocations. In alignment therewith, during the fourth quarter of fiscal year 2010, we moved our Raleigh, North Carolina market from our East segment to our Southeast segment. The reportable homebuilding segments and all other homebuilding operations, not required to be reported separately, include operations conducting business in the following states:

West: Arizona, California, Nevada and Texas

East: Delaware, Indiana, Maryland, New Jersey, New York, Pennsylvania, Tennessee (Nashville) and Virginia

Southeast: Florida, Georgia, North Carolina (Raleigh), and South Carolina

Management’s evaluation of segment performance is based on segment operating income. Operating income for our homebuilding segments is defined as homebuilding, land sale and other revenues less home construction, land development and land sales expense, depreciation and amortization and certain selling, general and administrative expenses which are incurred by or allocated to our homebuilding segments. Operating income for our Pre-Owned segment is defined as rental and home sale revenues less home repairs and operating expenses, home sales expense, depreciation and amortization and certain selling, general and administrative expenses which are incurred by or allocated to the segment. The accounting policies of our segments are those described in Note 1 and Note 1 to our 2010 Annual Report. The following information is in thousands:

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
Revenue
West		$	36,791			$	80,770			$	76,339			$	166,563
East			58,418				80,165				108,632				168,968
Southeast			32,294				31,520				52,831				69,997
Pre-Owned			—				—				—				—
Continuing Operations		$	127,503			$	192,455			$	237,802			$	405,528

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
Operating loss
West		$	(22,853	)		$	761			$	(26,025	)		$	3,642
East			(503	)			5,528				(443	)			10,309
Southeast			23				(6,393	)			(1,272	)			(5,925	)
Pre-Owned			(243	)			—				(243	)			—
Segment total			(23,576	)			(104	)			(27,983	)			8,026
Corporate and unallocated (a)			(21,403	)			(21,574	)			(45,319	)			(59,467	)
Total operating loss			(44,979	)			(21,678	)			(73,302	)			(51,441	)
Equity in income (loss) of unconsolidated joint ventures			71				(8,779	)			309				(8,809	)
(Loss) gain on extinguishment of debt			(102	)			52,946				(3,004	)			52,946
Other expense, net			(11,465	)			(18,033	)			(29,531	)			(37,559	)
(Loss) income from continuing operations before income taxes		$	(56,475	)		$	4,456			$	(105,528	)		$	(44,863	)

		Three Months Ended								Six Months Ended
		March 31,								March 31,
		2011				2010				2011				2010
Depreciation and amortization
West		$	570			$	1,217			$	1,122			$	2,444
East			470				560				973				1,600
Southeast			145				348				272				751
Pre-Owned			1				—				1				—
Segment total			1,186				2,125				2,368				4,795
Corporate and unallocated (a)			889				556				1,620				1,162
Continuing Operations		$	2,075			$	2,681			$	3,988			$	5,957