Retirement Plan and Incentive Awards

401(k) Retirement Plan. We sponsor a 401(k) plan (the Plan). Substantially all employees are eligible for participation in the Plan after completing one calendar month of service with us. Participants may defer and contribute to the Plan from 1% to 80% of their salary with certain limitations on highly compensated individuals. We match 50% of the first 6% of the participant's contributions. The participant's contributions vest 100% immediately, while our contributions vest over five years. Our total contributions for the fiscal years ended September 30, 2013, 2012 and 2011 were approximately $1.1 million, $1.3 million and $1.5 million, respectively. During fiscal 2013, 2012 and 2011, participants forfeited $0.5 million, $0.3 million and $0.2 million, respectively, of unvested matching contributions.

Deferred Compensation Plan. During fiscal 2002, we adopted the Beazer Homes USA, Inc. Deferred Compensation Plan (the DCP Plan). The DCP Plan is a non-qualified deferred compensation plan for a select group of executives and highly compensated employees. The DCP Plan allows the executives to defer current compensation on a pre-tax basis to a future year, up until termination of employment. The objectives of the DCP Plan are to assist executives with financial planning and capital accumulation and to provide the Company with a method of attracting, rewarding, and retaining executives. Participation in the DCP Plan is voluntary. Beazer Homes may voluntarily make a contribution to the participants' DCP accounts. Deferred compensation assets of $0.7 million and $1.1 million and deferred compensation liabilities of $2.3 million and $2.4 million as of September 30, 2013, and 2012, respectively, are included in other assets and other liabilities on the accompanying Consolidated Balance Sheets. The decrease in the deferred compensation assets and liabilities between fiscal 2012 and fiscal 2013 relates to employee elections to withdraw funds from the plan, forfeitures of matching contributions related to terminated employees and market losses on investments held within the plan. For the years ended September 30, 2013, 2012 and 2011, Beazer Homes contributed approximately $215,000, $205,000 and $197,000, respectively, to the DCP Plan.

Stock Incentive Plans. During fiscal 2010, we adopted the 2010 Stock Incentive Plan (the 2010 Plan) because our 1999 Stock Incentive Plan (the 1999 Plan) had expired. At September 30, 2013, we had reserved approximately 0.9 million shares of common stock for issuance under our various stock incentive plans, of which approximately 0.3 million shares are available for future grants.

Stock Option and SSAR Awards. We have issued various stock option and SSAR awards to officers and key employees under both the 2010 Plan and the 1999 Plan. Stock options have an exercise price equal to the fair market value of the common stock on the grant date, vest three years after the date of grant and may be exercised thereafter until their expiration, subject to forfeiture upon termination of employment as provided in the applicable plan. Under certain conditions of retirement, eligible participants may receive a partial vesting of stock options. Stock options granted prior to fiscal 2004, generally expire on the tenth anniversary from the date such options were granted. Beginning in fiscal 2004, newly granted stock options expire on the seventh or eighth anniversary from the date such options were granted. SSARs generally vest three years after the date of grant, have an exercise price equal to the fair market value of the common stock on the date of grant and are subject to forfeiture upon termination of employment as provided in the applicable plan. Under certain conditions of retirement, eligible participants may receive a partial vesting of SSARs. For the fiscal years ended September 30, 2013, 2012 and 2011, non-cash stock-based compensation expense for stock options and SSARs, included in G&A expenses, was $0.9 million, $1.5 million and $3.4 million, respectively.

The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model. We used the following weighted-average assumptions for options granted::



	2013			2012			2011
Expected life of options	5.0 years			5.0 years			4.8 years
Expected volatility	46.15		%	44.77		%	51.70		%
Expected discrete dividends	—			—			—
Weighted average risk-free interest rate	0.63		%	0.90		%	1.22		%
Weighted average fair value	$	5.48		$	4.30		$	10.50

We considered historic returns of our stock and the implied volatility of our publicly-traded options in determining expected volatility. We assumed no dividends would be paid since our Board of Directors has suspended payment of dividends indefinitely and payment of dividends is restricted under our Senior Note covenants. 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 September 30, 2013, our SSARs/stock options outstanding had an intrinsic value of $1.5 million. The intrinsic value of SSARs/stock options vested and expected to vest in the future was $1.5 million. The SSARs/stock options vested and expected to vest in the future had a weighted average expected life of 2.6 years. The aggregate intrinsic value of exercisable SSARs/stock options as of September 30, 2013 was approximately $0.3 million.

The following table summarizes stock options and SSARs outstanding as of September 30 and activity during the fiscal years ended September 30:



	2013				2012				2011
	Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding at beginning of period	429,973		$	40.80	375,248		$	48.85	515,671		$	113.45
Granted	160,651		13.56		109,507		10.80		150,853		23.45
Exercised	(681	)	10.80		—		—		—		—
Expired	(22,914	)	47.65		(10,948	)	82.51		(148,393	)	270.10
Forfeited	(6,245	)	17.93		(43,834	)	24.13		(142,883	)	25.45
Outstanding at end of period	560,784		$	33.01	429,973		$	40.80	375,248		$	48.85
Exercisable at end of period	310,120		$	48.73	247,588		$	58.61	163,076		$	64.65
Vested or expected to vest in the future	558,519		$	33.09	428,597		$	40.88	367,693		$	49.30

The following table summarizes information about stock options and SSARs outstanding and exercisable at September 30, 2013:



	Stock Options/SSARs Outstanding				Stock Options/SSARs Exercisable
Range of Exercise Price	Number Outstanding	Weighted Average Contractual Remaining Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Contractual Remaining Life (Years)	Weighted Average Exercise Price

$1 - $20	357,297	5.74	$	14.26	127,739	3.82	$	17.18
$21 - $75	148,271	3.85	26.47		127,165	3.77	26.95
$76 - $150	—	—	—		—	—	—
$151 - $220	55,216	0.57	171.87		55,216	0.57	171.87
$1 - $220	560,784	4.73	$	33.01	310,120	3.22	$	48.73

Nonvested Stock Awards: 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 September 30, 2013 and September 30, 2012, there was $1.0 million and $2.1 million, respectively, of total unrecognized compensation cost related to nonvested stock awards included in paid-in capital. The cost remaining at September 30, 2013 is expected to be recognized over a weighted average period of 1.2 years.

Compensation expense for the nonvested restricted stock awards totaled $2.0 million, $2.6 million and $3.8 million for the fiscal years ended September 30, 2013, 2012 and 2011, respectively.

During the fiscal year ended September 30, 2013, we issued 31,532 shares of performance-based restricted stock (Performance Shares) to our executive officers and certain corporate employees. Each Performance Share represents a contingent right to receive one share of the Company’s common stock if vesting is satisfied at the end of the three-year performance period. The number of shares that will vest at the end of the three-year performance period will depend upon the level to which the following two performance criteria are achieved 1) Beazer’s total shareholder return (TSR) relative to a group of peer companies and 2) the compound annual growth rate (CAGR) during the three-year performance period of Beazer common stock. The target number of Performance Shares that vest may be increased by up to 50% based on the level of achievement of the above criteria as defined in the award agreement. Payment for Performance Shares in excess of the target number (31,532) will be settled in cash. Any portion of the Performance Shares that do not vest at the end of the period will be forfeited. The grants of the performance-based, nonvested stock were valued using the Monte Carlo valuation method and had an estimated fair value of $5.02 per share, a portion of which is attributable to the potential cash-settled liability aspect of the grant which is included in Other Liabilities.

A Monte Carlo simulation model requires the following inputs: 1) expected dividend yield on the underlying stock, 2) expected price volatility of the underlying stock, 3) risk-free interest rate for the period corresponding with the expected term of the award and 4) fair value of the underlying stock. For the Company and each member of the peer group, the following inputs were used, as applicable, in the Monte Carlo simulation model to determine the fair value as of the grant date for the Performance Shares: 0% dividend yield for the Company, expected price volatility ranging from 35.6% to 60.4% and a risk-free interest rate of 0.34%. The methodology used to determine these assumptions is similar to that for the Black-Scholes Model used for stock option grants discussed above; however the expected term is determined by the model in the Monte Carlo simulation.

Activity relating to nonvested stock awards, including the Performance Shares for the fiscal years ended September 30, 2013, 2012 and 2011 is as follows:



	Year Ended September 30, 2013				Year Ended September 30, 2012				Year Ended September 30, 2011
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Beginning of period	323,335		$	19.61	288,079		$	33.85	367,997		$	72.05
Granted	99,413		10.95		179,913		7.19		150,853		23.45
Vested	(126,124	)	27.59		(88,497	)	34.20		(82,740	)	104.70
Returned (a)	—		—		—		—		(10,502	)	342.80
Forfeited	(16,208	)	30.57		(56,160	)	29.97		(137,529	)	58.50
End of period	280,416		$	12.32	323,335		$	19.61	288,079		$	33.85

(a) Our former Chief Executive Offer returned 10,502 shares of unvested restricted stock in accordance with his consent agreement with the Securities and Exchange Commission.