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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________________________ 
FORM 10-Q
_____________________________________________________________
 
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 31, 20172019
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-12822
_____________________________________________________________ 
BEAZER HOMES USA, INC.
(Exact name of registrant as specified in its charter)
 _____________________________________________________________ 
DELAWARE 58-2086934
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1000 Abernathy Road, Suite 260,
Atlanta, Georgia
 30328
(Address of principal executive offices) (Zip Code)

(770) 829-3700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par valueBZHNew York Stock Exchange
 _____________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.    YES  x    NO  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer¨Accelerated filerx
Non-accelerated filer¨o(Do not check if a smaller reporting company)
Smaller reporting company¨oEmerging growth company¨
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  ¨    NO  x
ClassOutstanding as of February 1, 2018
Common Stock, $0.001 par value33,618,155
Number of shares of common stock outstanding as of January 28, 2020: 31,384,758

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BEAZER HOMES USA, INC.
FORM 10-Q
INDEXTABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
2
Item 1. Financial Statements
2
Unaudited Condensed Consolidated Balance Sheets as of December 31, 20172019 and September 30, 20172019 (Unaudited)
2
Unaudited Condensed Consolidated Statements of Income (Loss) and Unaudited Comprehensive Income (Loss), Three Months EndedOperations for the three months ended December 31, 20172019 and 20162018 (Unaudited)
3
Unaudited Condensed Consolidated Statements of Cash Flows, Three Months EndedStockholders' Equity for the three months ended December 31, 20172019 and 20162018 (Unaudited)
4
Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2019 and 2018 (Unaudited)
5
Notes to Unaudited Condensed Consolidated Financial Statements
56
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
2830
Item 3. Quantitative and Qualitative Disclosures About Market Risk
43
Item 4. Controls and Procedures
43
PART II. OTHER INFORMATION
4344
Item 1. Legal Proceedings
4344
Item 1A. Risk Factors
4344
Item 6. Exhibits
44
SIGNATURES
45

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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)(Unaudited)
 
December 31,
2017		 September 30,
2017
in thousands (except share and per share data)December 31,
2019		 September 30,
2019
ASSETS      
Cash and cash equivalents$177,812
 $292,147
$41,277
 $106,741
Restricted cash12,082
 12,462
18,759
 16,053
Accounts receivable (net of allowance of $329 and $330, respectively)31,804
 36,323
Accounts receivable (net of allowance of $313 and $304, respectively)19,439
 26,395
Income tax receivable88
 88
4,612
 4,935
Owned inventory1,626,721
 1,542,807
1,574,280
 1,504,248
Investments in unconsolidated entities4,277
 3,994
3,930
 3,962
Deferred tax assets, net200,101
 307,896
247,382
 246,957
Property and equipment, net18,742
 17,566
26,623
 27,421
Operating lease right-of-use assets12,975
 —
Goodwill11,376
 11,376
Other assets6,355
 7,712
7,451
 9,556
Total assets$2,077,982
 $2,220,995
$1,968,104
 $1,957,644
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Trade accounts payable$97,535
 $103,484
$110,153
 $131,152
Operating lease liabilities15,158
 —
Other liabilities103,157
 107,659
95,451
 109,429
Total debt (net of premium of $3,220 and $3,413, respectively, and debt issuance costs of $16,545 and $14,800, respectively)1,324,509
 1,327,412
Total debt (net of debt issuance costs of $12,080 and $12,470, respectively)1,208,062
 1,178,309
Total liabilities1,525,201
 1,538,555
1,428,824
 1,418,890
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, 63,000,000 shares authorized, 33,596,091 issued and outstanding and 33,515,768 issued and outstanding, respectively)34
 34
Preferred stock (par value $0.01 per share, 5,000,000 shares authorized, no shares issued)—
 —
Common stock (par value $0.001 per share, 63,000,000 shares authorized, 31,383,068 issued and outstanding and 30,933,110 issued and outstanding, respectively)31
 31
Paid-in capital874,351
 873,063
852,055
 854,275
Accumulated deficit(321,604) (190,657)(312,806) (315,552)
Total stockholders’ equity552,781
 682,440
539,280
 538,754
Total liabilities and stockholders’ equity$2,077,982
 $2,220,995
$1,968,104
 $1,957,644

See Notesaccompanying notes to Unaudited Condensed Consolidated Financial Statements.condensed consolidated financial statements.

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BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND UNAUDITED COMPREHENSIVE INCOME (LOSS)OPERATIONS
(In thousands, except per share data)(Unaudited)
 
Three Months EndedThree Months Ended 
December 31,December 31, 
2017 2016
in thousands (except per share data)2019 2018 
Total revenue$372,489
 $339,241
$417,804
 $402,040
 
Home construction and land sales expenses311,660
 285,578
354,667
 340,378
 
Inventory impairments and abandonments—
 1,007
 
Gross profit60,829
 53,663
63,137
 60,655
 
Commissions14,356
 13,323
16,065
 15,737
 
General and administrative expenses37,285
 36,388
39,699
 38,642
 
Depreciation and amortization2,507
 2,677
3,427
 2,770
 
Operating income6,681
 1,275
3,946
 3,506
 
Equity in (loss) income of unconsolidated entities(101) 22
Loss on extinguishment of debt(25,904) —
Equity in loss of unconsolidated entities(13) (64) 
Other expense, net(3,145) (5,196)(1,340) (42) 
Loss from continuing operations before income taxes(22,469) (3,899)
Expense (benefit) from income taxes108,106
 (2,540)
Loss from continuing operations(130,575) (1,359)
Income from continuing operations before income taxes2,593
 3,400
 
Benefit from income taxes(211) (3,922) 
Income from continuing operations2,804
 7,322
 
Loss from discontinued operations, net of tax(372) (70)(58) (11) 
Net loss and comprehensive loss$(130,947) $(1,429)
Net income$2,746
 $7,311
 
Weighted average number of shares:       
Basic and diluted32,055
 31,893
Basic and diluted loss per share:   
Basic29,746
 31,801
 
Diluted30,138
 32,055
 
Basic income per share:    
Continuing operations$(4.07) $(0.04)$0.09
 $0.23
 
Discontinued operations(0.01) —
—
 —
 
Total$(4.08) $(0.04)$0.09
 $0.23
 
Diluted income per share:    
Continuing operations$0.09
 $0.23
 
Discontinued operations—
 —
 
Total$0.09
 $0.23
 

See Notesaccompanying notes to Unaudited Condensed Consolidated Financial Statements.condensed consolidated financial statements.














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

 Three Months Ended December 31, 2019
 Common Stock Paid-in Capital Accumulated Deficit  
in thousandsShares Amount   Total
Balance as of September 30, 201930,933
 $31
 $854,275
 $(315,552) $538,754
Net income and comprehensive loss—
 —
 —
 2,746
 2,746
Amortization of nonvested stock awards—
 —
 2,311
 —
 2,311
Exercises of stock options47
 —
 173
 —
 173
Shares issued under employee stock plans, net574
 —
 —
 —
 —
Forfeiture and other settlements of restricted stock(1) —
 (2,058) —
 (2,058)
Common stock redeemed for tax liability(170) —
 (2,646) —
 (2,646)
Balance as of December 31, 201931,383
 $31
 $852,055
 $(312,806) $539,280


 Three Months Ended December 31, 2018
 Common Stock Paid-in Capital Accumulated Deficit  
in thousandsShares Amount   Total
Balance as of September 30, 201833,522
 $34
 $880,025
 $(236,032) $644,027
Net income and comprehensive income—
 —
 —
 7,311
 7,311
Amortization of nonvested stock awards—
 —
 2,114
 —
 2,114
Exercises of stock options1
 —
 7
 —
 7
Shares issued under employee stock plans, net910
 —
 —
 —
 —
Forfeiture of restricted stock(28) —
 —
 —
 —
Common stock redeemed for tax liability(176) —
 (1,850) —
 (1,850)
Share repurchases(1,554) (1) (16,499) —
 (16,500)
Balance as of December 31, 201832,675
 $33
 $863,797
 $(228,721) $635,109

See accompanying notes to condensed consolidated financial statements.
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BEAZER HOMES USA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months EndedThree Months Ended
December 31,December 31,
2017 2016
in thousands2019 2018
Cash flows from operating activities:      
Net loss$(130,947) $(1,429)
Net income$2,746
 $7,311
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation and amortization2,507
 2,677
3,427
 2,770
Stock-based compensation expense2,610
 2,176
2,311
 2,114
Inventory impairments and abandonments450
 —
—
 1,007
Deferred and other income tax expense (benefit)107,795
 (2,707)
Write-off of deposit on legacy land investment—
 2,700
Deferred and other income tax benefit(228) (4,070)
Gain on sale of fixed assets(65) (46)(63) (35)
Change in allowance for doubtful accounts(1) (4)9
 —
Equity in loss (income) of unconsolidated entities88
 (22)
Equity in loss of unconsolidated entities13
 65
Cash distributions of income from unconsolidated entities50
 6
—
 320
Non-cash loss on extinguishment of debt3,173
 —
Changes in operating assets and liabilities:      
Decrease in accounts receivable4,520
 1,433
6,947
 5,298
Decrease in income tax receivable—
 4
303
 —
Increase in inventory(83,205) (39,543)(68,999) (29,722)
Decrease in other assets1,252
 1,906
1,978
 1,430
Decrease in trade accounts payable(5,949) (17,444)(20,999) (26,568)
Decrease in other liabilities(4,502) (12,541)(11,975) (14,610)
Net cash used in operating activities(102,224) (62,834)(84,530) (54,690)
Cash flows from investing activities:      
Capital expenditures(3,702) (2,874)(2,632) (6,354)
Proceeds from sale of fixed assets84
 46
66
 54
Investments in unconsolidated entities(421) (1,397)
Return of capital from unconsolidated entities—
 1,621
19
 —
Net cash used in investing activities(4,039) (2,604)(2,547) (6,300)
Cash flows from financing activities:      
Repayment of debt(401,481) (2,525)(1,150) (1,479)
Proceeds from issuance of new debt400,000
 —
Repayment of borrowings from credit facility(95,000) (75,000)
Borrowings from credit facility125,000
 100,000
Debt issuance costs(5,649) (340)—
 (400)
Other financing activities(1,322) (387)
Net cash used in financing activities(8,452) (3,252)
Decrease in cash, cash equivalents and restricted cash(114,715) (68,690)
Cash, cash equivalents and restricted cash at beginning of period304,609
 243,276
Cash, cash equivalents and restricted cash at end of period$189,894
 $174,586
Repurchase of common stock—
 (16,500)
Tax payments for stock-based compensation awards(2,646) (1,850)
Stock option exercises and other financing activities(1,885) 7
Net cash provided by financing activities24,319
 4,778
Decrease in cash, cash equivalents, and restricted cash(62,758) (56,212)
Cash, cash equivalents, and restricted cash at beginning of period122,794
 153,248
Cash, cash equivalents, and restricted cash at end of period$60,036
 $97,036

See Notesaccompanying notes to Unaudited Condensed Consolidated Financial Statements.condensed consolidated financial statements.
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BEAZER HOMES USA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)
(1) Description of Business
Beazer Homes USA, Inc. (“we,” “us,” “our,” “Beazer,” “Beazer Homes” and the “Company”) is a geographically diversified homebuilder with active operations in 13 states within three geographic regions in the United States: the West, East, and Southeast. Unless the context indicates otherwise, the terms “we,” “us,” “our,” “Beazer,” “Beazer Homes” and the “Company” used in this Quarterly Report on Form 10-Q refer to Beazer Homes USA, Inc. and its subsidiaries.
Our homes are designed to appeal to homeowners at different price points across various demographic segments and are generally offered for sale in advance of their construction. Our objective is to provide our customers with homes that incorporate exceptional value and quality, while seeking to maximize our return on invested capital over the course of a housing cycle.
For an additional description of our business, refer to Item 1 within our Annual Report on Form 10-K for the fiscal year ended September 30, 2017 (20172019 (2019 Annual Report).
(2) Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. SuchThe unaudited condensed consolidated financial statements do not include all of the information and disclosures required by GAAP for complete financial statements. As such, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2019 Annual Report. In ourthe opinion of management, all adjustments, (consisting primarilyconsisting of normal recurring adjustments)adjustments, necessary for a fair presentation have been included in the accompanying unaudited condensed consolidated financial statements. The results of ourthe Company's consolidated operations presented herein for the three months ended December 31, 20172019 are not necessarily indicative of the results to be expected for the full fiscal year due to seasonal variations in our operations and other factors. For further information and a discussion of our significant accounting policies other than those discussed below, refer to Note 2 to the audited consolidated financial statements within our 2017 Annual Report.
Basis of Consolidation. TheseConsolidation
The accompanying unaudited condensed consolidated financial statements presentinclude the consolidated balance sheet, income (loss), comprehensive income (loss)accounts of Beazer Homes USA, Inc. and cash flows of the Company, including its consolidated subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. Our net income (loss) is equivalent to our comprehensive income (loss), so we have not presented a separate statement of comprehensive income (loss).
In the past, we have discontinued homebuilding operations in various markets. Results from certain of these exited markets are reported as discontinued operations in the accompanying unaudited condensed consolidated statements of income (loss)operations for all periods presented (see Note 1617 for a further discussion of our discontinued operations).
We evaluated events that occurred after the balance sheet date but before these financial statements were issued for accounting treatment and disclosure.
Our fiscal 2018year 2020 began on October 1, 20172019 and ends on September 30, 2018.2020. Our fiscal 2017year 2019 began on October 1, 20162018 and ended on September 30, 2017.2019.
Use of Estimates.Estimates
The preparation of financial statements in conformity with GAAP requires management to make informed estimates and judgments that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Accordingly, actual results could differ from these estimates.
Share Repurchase Program
During the first quarter of fiscal 2019, the Company's Board of Directors approved a share repurchase program that authorizes the Company to repurchase up to $50.0 million of its outstanding common stock. As part of this program, the Company repurchased common stock during fiscal 2019 through open market transactions, 10b5-1 plans, and accelerated share repurchase (ASR) agreements.
All shares have been retired upon repurchase during fiscal 2019. The aggregate reduction to stockholders’ equity related to share repurchases during the fiscal year ended September 30, 2019 was $34.6 million. The Company made no share repurchases during the three months ended December 31, 2019. As of December 31, 2019, the remaining availability of the share repurchase program was $15.4 million.
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Inventory Valuation. We assess our inventoryValuation
Inventory assets are assessed for recoverability no less than quarterly for recoverability in accordance with the policies described in Notes 2 and 5 to the audited consolidated financial statements within our 20172019 Annual Report. Our homebuildingHomebuilding inventories that are accounted for as held for development (projects in progress) 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. For those communities that 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. We record land held for sale at the lower of the carrying value or fair value less costs to sell.
Recent Accounting Pronouncements.Revenue Recognition
Revenue from Contracts with Customers. In May 2014,We recognize revenue upon the Financialtransfer of promised goods to our customers in an amount that reflects the consideration to which we expect to be entitled by applying the following five-step process specified in Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Codification Topic 606.
Identify the contract(s) with a customer
Identify the performance obligations
Determine the transaction price
Allocate the transaction price
Recognize revenue when the performance obligations are met
The following table presents our total revenue disaggregated by revenue stream:
 Three Months Ended
 December 31,
in thousands2019 2018
Homebuilding revenue$417,399
 $400,982
Land sales and other revenue405
 1,058
Total revenue (a)
$417,804
 $402,040
(a) Please see Note 15 for total revenue disaggregated by reportable segment.
Homebuilding revenue
Homebuilding revenue is reported net of any discounts and incentives and is generally recognized when title to and possession of the home are transferred to the buyer at the closing date. The performance obligation to deliver the home is generally satisfied in less than one year from the original contract date. Home sale contract assets consist of cash from home closings held in escrow for our benefit, typically for less than five days, and are considered deposits in-transit and classified as cash. Contract liabilities include customer deposits related to sold but undelivered homes and totaled 13.9 million and 11.5 million as of December 31, 2019 and September 30, 2019, respectively. Of the customer liabilities outstanding as of September 30, 2019, $6.1 million was recognized in revenue during the three months ended December 31, 2019 upon closing of the related homes, and $0.2 million was refunded to or forfeited by the buyer. The remaining balance of $5.2 million remains included within customer deposits as of December 31, 2019.
Land sales and other revenue
Land sales revenue relates to land that does not fit within our homebuilding programs and strategic plans. Land sales typically require cash consideration on the closing date, which is generally when performance obligations are satisfied. In some periods, we also have other revenue related to broker fees as well as fees received for general contractor services that we perform on behalf of third parties. Revenue from Contracts with Customers (ASU 2014-09). ASU 2014-09 requires entities tofor broker and general contractor services are typically immaterial and are generally recognized as performance obligations are satisfied.
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recognize revenue at an amount that the entity expects to be entitled to upon transferring control of goods or services to a customer, as opposed to when risks and rewards transfer to a customer under the existing revenue recognition guidance. In August 2015, the FASB issued ASU 2015-14 to defer the effective date of ASU 2014-09 for one year, which makes the guidance effective for the Company's first fiscal year beginning after December 15, 2017. Additionally, the FASB is permitting entities to early adopt the standard, which allows for either full retrospective or modified retrospective methods of adoption, for reporting periods beginning after December 15, 2016. We have been involved in industry-specific discussions with the FASB on the treatment of certain items related to our business. However, due to the nature of our operations, we expect to identify similar performance obligations under ASU 2014-09 compared with the deliverables and separate units of account we have identified under existing accounting standards. As a result, we expect the timing of our revenues to remain generally the same. Nonetheless, we expect our revenue-related disclosures to change. We expect to adopt the provisions of ASU 2014-09 effective October 1, 2018.Recent Accounting Pronouncements
Leases. In February 2016, the FASB issued ASUOn October 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (ASU 2016-02) and related amendments, collectively codified in ASC 842, Leases (ASC 842). ASU 2016-02ASC 842 requires lessees to record most leases on their balance sheets. The timing and classification of lease-related expenses for lessees will depend on whether a lease is determined to be an operating lease or a finance lease using updated criteria within ASU 2016-02. Operating leases will result in straight-line expense (similar to current operating leases), while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Regardless of lease type, the lessee willsheets by recognize a right-of-use asset, representing the right to use the identified asset during the lease term, and a relatedcorresponding lease liability, representing the present value of the lease payments over the lease term. Lessor accounting will be largely similar to that under the current leaseprevious accounting rules. The guidance within ASU 2016-02 will be effective for the Company's first fiscal year beginning after December 15, 2018, with early adoption permitted. ASU 2016-02 must be adopted using a modified retrospective approach, which requires application of the standard at the beginning of the earliest comparative period presented, with certain optional practical expedients. ASU 2016-02ASC 842 also requires significantly enhanced disclosures around an entity's leases and the related accounting. As part of our adoption of ASC 842, we applied a modified retrospective approach, whereby prior year financial statements were not recast. We continuealso elected the package of transition practical expedients, which allowed us to evaluatenot reassess (1) whether any expired or existing contracts are or contain leases, (2) the impactlease classification for any expired or existing leases, and (3) the initial direct costs for any existing leases. In addition, we elected the practical expedient that allows lessees to account for lease and non-lease components together as a single component for all leases. Upon adoption of ASU 2016-02ASC 842, we recorded net operating lease right-of-use (ROU) assets of 13.9 million and operating lease liabilities of 16.0 million. Existing prepaid rent and accrued rent were recorded as an offset to the gross operating lease ROU assets. The adoption of ASC 842 did not have any impact on our consolidated financial statements. However, a large majorityretained earnings. See Note 8 for additional discussion of our leases are for office space, which we have determined will be treated as operating leases under ASU 2016-02. As such, we anticipate recording a right-of-use asset and related lease liability for these leases, but we do not expect our expense recognition pattern to change. Therefore, we do not anticipate any significant change to our statements of income or cash flows as a result of adopting ASU 2016-02.leases.
Statement of Cash Flows. Fair Value Measurements.In November 2016,August 2018, the FASB issued ASU 2016-18,2018-13, Statement of Cash FlowFair Value Measurement (Topic 820) - Restricted Cash Disclosure Framework(ASU 2016-18) (ASU 2018-13). ASU 2016-18 requires that an entity's statement of cash flows explainThe updated guidance improves the change during the period in that entity's total cash and cash equivalents, including amounts generally described as restricted cash or restricted cash equivalents. Therefore, changes in restricted cash and restricted cash equivalents will no longer be shown as specific line items within the statement of cash flows. Additionally, an entity is to reconcile its cash and cash equivalents as per its balance sheet to the cash and cash equivalent balances presented in its statement of cash flows.disclosure requirements for fair value measurements. The Company early adopted theupdated guidance within ASU 2016-18 as of September 30, 2017. Therefore, changes in our restricted cash balances are no longer shown in our statements of cash flows, as these balances are included in the beginning and ending cash balances in our statements of cash flows.
The following table presents the changes to our unaudited consolidated statements of cash flows as of December 31, 2016 due to the adoption of ASU 2016-18:
(In thousands) Three Months Ended December 31, 2016
Consolidated Statements of Cash Flows:  
    Net cash used in investing activities (as originally reported) $(4,162)
    Movements in restricted cash 1,558
    Net cash used in investing activities (as re-casted) $(2,604)
Business Combinations. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01). ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years beginning after December 15, 2017, with early2019 and interim periods within those fiscal years. Early adoption is permitted for transactionsany removed or modified disclosures. We are currently assessing the impact of adopting the updated provisions.
Internal-Use Software. In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (ASU 2018-15). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that have not been reported in previously issued financial statements.is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new guidance will be effective for public companies for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company early adopted thisis currently evaluating the effect that the new guidance as of December 31, 2017, and applied it to applicable transactions occurring during this period.
Income Taxes. In December 2017, the Securities and Exchange Commission Staff issued SAB 118, which provides guidancewill have on accounting for the income tax effects of the Tax Cuts and Jobs Act (Tax Act). SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In
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accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in theits consolidated financial statements and should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The Company adopted the guidance of SAB 118 as of December 31, 2017. Refer to Note 10 for additional information on the Tax Act and the impact to our financial statements.related disclosures.
(3) Supplemental Cash Flow Information
The following table presents supplemental disclosure of non-cash and cash activity as well as a reconciliation of total cash balances between the condensed consolidated balance sheets and condensed consolidated statements of cash flows for the periods presented:
Three Months EndedThree Months Ended
December 31,December 31,
(In thousands)2017 2016
in thousands2019 2018
Supplemental disclosure of non-cash activity:      
Non-cash land acquisitions (a)
$—
 $5,197
Land acquisitions for debt—
 5,555
Beginning operating lease right-of-use asset (ASC 842 adoption)$13,895
 —
Beginning operating lease right-of-use liability (ASC 842 adoption)16,028
 —
Supplemental disclosure of cash activity:
 
   
Interest payments$10,766
 $11,824
$15,954
 $13,986
Income tax payments—
 178
—
 121
Tax refunds received39
 4
303
 1,148
Reconciliation of cash, cash equivalents and restricted cash:   
Reconciliation of cash, cash equivalents, and restricted cash:   
Cash and cash equivalents$177,812
 $158,623
$41,277
 $84,399
Restricted cash12,082
 15,963
18,759
 12,637
Total cash, cash equivalents and restricted cash shown in the statement of cash flows$189,894
 $174,586
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows$60,036
 $97,036
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(a) For the three months ended December 31, 2016, non-cash land acquisitions were comprised of lot takedowns from one of our unconsolidated land development joint ventures.

(4) Investments in Unconsolidated Entities
Unconsolidated Entities
As of December 31, 20172019, wethe Company participated in certain joint ventures and otherhad investments in unconsolidated entities in which Beazerit had less than a controlling interest. The following table presents ourthe Company's investment in these unconsolidated entities as well as the total equity and outstanding borrowings of these unconsolidated entities as of December 31, 20172019 and September 30, 20172019:
(In thousands)December 31, 2017 September 30, 2017
Beazer’s investment in unconsolidated entities$4,277
 $3,994
in thousandsDecember 31, 2019 September 30, 2019
Investment in unconsolidated entities$3,930
 $3,962
Total equity of unconsolidated entities10,152
 11,811
8,501
 9,969
Total outstanding borrowings of unconsolidated entities16,460
 15,797
12,618
 12,658
Our equityEquity in (loss) income from unconsolidated entity activities included in income from continuing operations is as follows for the periods presented:
 Three Months Ended
 December 31,
(In thousands)2017 2016
Equity in (loss) income of unconsolidated entities$(101) $22
 Three Months Ended
 December 31,
in thousands2019 2018
Equity in loss of unconsolidated entities$(13) $(64)
For the three months ended December 31, 20172019 and 2016,2018, there were no impairments related to our investments in these unconsolidated entities.
Guarantees. Guarantees
Historically, ourthe Company's joint ventures typically obtainobtained secured acquisition, development, and construction financing,financing. In addition, the Company and Beazer and ourits joint venture partners had provided varying levels of guarantees of debt and other debt-related obligations for these unconsolidated entities. However, as of December 31, 20172019 and September 30, 2017, we2019, the Company had no outstanding guarantees or other debt-related obligations related to our investments in unconsolidated entities.
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WeThe Company and ourits joint venture partners generally provide unsecured environmental indemnities to land development joint venture project lenders. These indemnities obligate usthe Company to reimburse the project lenders for claims related to environmental matters for which they are held responsible. During the three months ended December 31, 20172019 and 2016, we were2018, the Company was not required to make any payments related to environmental indemnities.
In assessing the need to record a liability for the contingent aspect of these guarantees, we consider ourthe Company considers its historical experience in being required to perform under the guarantees, the fair value of the collateral underlying these guarantees, and the financial condition of the applicable unconsolidated entities. In addition, we monitor the fair value of the collateral of these unconsolidated entities is monitored to ensure that the related borrowings do not exceed the specified percentage of the value of the property securing the borrowings. We have notAs of December 31, 2019, no liability was recorded a liability for the contingent aspects of any guarantees that wewere determined wereto be reasonably possible but not probable.
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(5) Inventory
The components of our owned inventory are as follows as of December 31, 20172019 and September 30, 2017:2019:
(In thousands)December 31, 2017 September 30, 2017
in thousandsDecember 31, 2019 September 30, 2019
Homes under construction$461,185
 $419,312
$580,580
 $507,542
Development projects in progress830,827
 785,777
732,380
 738,201
Land held for future development97,166
 112,565
28,531
 28,531
Land held for sale19,258
 17,759
11,443
 12,662
Capitalized interest144,847
 139,203
137,010
 136,565
Model homes73,438
 68,191
84,336
 80,747
Total owned inventory$1,626,721
 $1,542,807
$1,574,280
 $1,504,248

Homes under construction include homes substantially finished and ready for delivery and homes in various stages of construction, including the cost of the underlying lot. We had 167267 (with a cost of $54.3$90.2 million) and 171238 (with a cost of $52.6 million)$82.2 million) substantially completed homes that were not subject to a sales contract (spec homes) as of December 31, 20172019 and September 30, 2017,2019, respectively.
Development projects in progress consist principally of land acquisition, land development and other common costs. These land improvement costs.related costs are allocated to individual lots on a pro-rata basis, and the lot costs are transferred to homes under construction when home construction begins for the respective lots. Certain of the fully developed lots in this category are reserved by a customer deposit or sales contract.
Land held for future development consists of communities for which construction and development activities are expected to occur in the future or have been idled and are stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. All applicable interest and real estate taxes on land held for future development are expensed as incurred.
Land held for sale includes land and lots that do not fit within our homebuilding programs and strategic plans in certain markets, and land is classified as suchheld for sale once certain criteria isare met (refer to Note 2 to the audited consolidated financial statements within our 2017 Annual Report)2). These assets are recorded at the lower of the carrying value or fair value less costs to sell.
The amount of interest we are able to capitalize is dependent upondepends on our qualified inventory balance, which considers the status of our inventory holdings. Our qualified inventory balance includes the majority of our homes under construction and development projects in progress but excludes land held for future development and land held for sale (see Note 6 for additional information on capitalized interest).
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Total owned inventory by reportable segment is presented by category in the table below as of December 31, 20172019 and September 30, 2017:2019:
(In thousands)
Projects in
Progress (a)
 Land Held for Future Development 
Land Held
for Sale
 
Total Owned
Inventory
December 31, 2017       
in thousands
Projects in
Progress (a)
 Land Held for Future Development Land Held for Sale 
Total Owned
Inventory
December 31, 2019       
West Segment$712,742
 $71,647
 $7,445
 $791,834
$733,525
 $3,483
 $4,235
 $741,243
East Segment271,224
 14,561
 10,679
 296,464
270,930
 14,077
 3,810
 288,817
Southeast Segment (b)
329,589
 10,958
 1,110
 341,657
333,623
 10,971
 3,398
 347,992
Corporate and unallocated (c)(b)
196,742

—
 24
 196,766
196,228

—
 —
 196,228
Total$1,510,297
 $97,166
 $19,258
 $1,626,721
$1,534,306
 $28,531
 $11,443
 $1,574,280
September 30, 2017       
September 30, 2019       
West Segment$673,828
 $87,231
 $3,848
 $764,907
$723,094
 $3,483
 $5,160
 $731,737
East Segment250,002
 14,391
 11,578
 275,971
228,937
 14,077
 4,104
 247,118
Southeast Segment301,268
 10,943
 1,233
 313,444
318,737
 10,971
 3,398
 333,106
Corporate and unallocated (c)(b)
187,385
 —
 1,100
 188,485
192,287
 —
 —
 192,287
Total$1,412,483
 $112,565
 $17,759
 $1,542,807
$1,463,055
 $28,531
 $12,662
 $1,504,248
(a) Projects in progress include homes under construction, development projects in progress, capitalized interest, and model homeshome categories from the preceding table.
(b)In December 2017, we acquired more than 450 lots spread across four new home communities in Raleigh and three in Myrtle Beach in the Southeast segment from Bill Clark Homes. The transaction value was approximately $29.0 million and the assets were reported in the Southeast segment.
(c) Projects in progress amount includes capitalized interest and indirect costs that are maintained within our Corporate and unallocated segment. Land held for sale amount includes parcels held by our discontinued operations.
Inventory Impairments.Impairments
When conducting our community level review for the recoverability of our inventory related to projects in progress, we establish a quarterly “watch list” comprised of communities that carry grossprofit margins in backlog andor in our forecast that are below a minimum threshold of profitability, as well as recent closings that have gross margins less than a specificspecified threshold. Each community is first evaluated qualitatively to determine if there are temporary factors driving the low profitability levels. Following our qualitative evaluation, communities with more than ten homes remaining to close are subjected to substantial additional financial and operational analyses and review that considerconsiders the competitive environment and other factors contributing to gross margins below our watch list threshold. 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. For certain communities, we determined that it ismay be prudent to reduce sales prices or further increase sales incentives in response to a variety of factors, including competitive market conditions in those specific submarkets for the product and locations of these communities. For communities where the current competitive and market dynamics indicate that these factorsassets may not be other than temporary, which may call into question the recoverability of our investment,recoverable, a formal impairment analysis is performed. The formal impairment analysis consists of both qualitative competitive marketconsiderations and quantitative analyses and a quantitative analysis reflecting market and asset specific information. Market deterioration that exceeds our initial estimates may lead us to incur impairment charges on previously impaired homebuilding assets, in addition to homebuilding assets not currently impaired but for which indicators
As of impairment may arise if markets deteriorate.
For the quarter ended December 31, 2017,2019, there were twofour communities on our quarterly watch list, one in the West segment and the other in the Southeast segment.list. However, none of these communities required further analysis to be performed after considering certain quantitative and qualitative factors. For the quarter ended
As of December 31, 2016,2018, there were eightfour communities on our quarterly watch list seven in our West segment and one in our East segment. However, none of these communitiesthat required further impairment analysis to be performed after considering the number of lots remaining in each community and certain other qualitative factors. This additional analysis led to a $1 million impairment charge for one of these communities, principally due to a reduction in price that is other than temporary based on competitive and market dynamics.
Impairments on land held for sale generally represent write downs of these properties to net realizable value less estimated costs to sell, and are based on current market conditions and our review of recent comparable transactions. Our assumptions aboutrelated to land sales prices require significant judgment because the real estate market is highly sensitive to changes in economic conditions. We calculate the estimated fair value of land held for sale based on current market conditions, and assumptions made by management, which mayour estimates of sale prices could differ materiallysignificantly from actual results and may result in additional impairments if market conditions deteriorate.
results.
From time-to-time, we also determine that the proper course of action with respect to a community is to not exercise an option and to write off the deposit securing the option takedown and the related pre-acquisition costs, as applicable. In determining
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whether to abandon lots or lot option contracts, our evaluation is primarily based upon the expected cash flows from the property. Additionally, in certain limited instances, we are forced to abandon lots due to environmental, permitting or other regulatory issues that do not allow us to build on those lots. If we intend to abandon or walk away from a property, we record a charge to earnings for the deposit amount and any related capitalized costs in the period such decision is made. Abandonment charges generally relate to our decision to abandon lots or not exercise certain option contracts that are not projected to produce adequate results, no longer
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fit with our long-term strategic plan or, in limited circumstances, are not suitable for building due to environmentalregulatory or regulatoryenvironmental restrictions that are enacted.
The following table presents our total impairment and abandonment charges for the period presented:
 Three Months Ended December 31,
(In thousands)2017
Discontinued Operations: 
Land Held for Sale$450
Total impairment and abandonment charges$450
We did not have any land held for sale inventory impairments, nor did we have any abandonment charges, during the three months ended December 31, 2016.
Lot Option Agreements and Variable Interest Entities (VIEs). (VIE)
As previously discussed, we also have access to land inventory through lot option contracts, 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. The 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 specified price. Under lot option contracts, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers. Our liability under option contracts is generally limited to forfeiture of the non-refundable deposits, letters of credit, and other non-refundable amounts incurred. We expect to exercise, subject to market conditions and seller satisfaction of contract terms, most of our remaining option contracts. Various factors, some of which are beyond our control, such as market conditions, weather conditions, and the timing of the completion of development activities, will have a significant impact on the timing of option exercises or whether lot options will be exercised at all.
The following table provides a summary of our interests in lot option agreements as of December 31, 20172019 and September 30, 2017:2019:
(In thousands)
Deposits &
Non-refundable
Pre-acquisition
Costs Incurred
 
Remaining
Obligation
As of December 31, 2017   
Unconsolidated lot option agreements$92,864
 $380,378
As of September 30, 2017   
Unconsolidated lot option agreements$91,854
 $408,300
in thousands
Deposits &
Non-refundable
Pre-acquisition
Costs Incurred
 
Remaining
Obligation
As of December 31, 2019   
Unconsolidated lot option agreements$74,836
 $386,762
As of September 30, 2019   
Unconsolidated lot option agreements$78,202
 $389,705
(6) Interest
Our ability to capitalize interest incurredInterest capitalized during the three months ended December 31, 20172019 and 20162018 was limited by ourthe balance of inventory eligible for capitalization. The following table presents certain information regarding interest for the periods presented:
 Three Months Ended December 31,
(In thousands)2017 2016
Capitalized interest in inventory, beginning of period$139,203
 $138,108
Interest incurred25,555
 27,087
Interest expense not qualified for capitalization and included as other expense (a)
(3,435) (5,252)
Capitalized interest amortized to home construction and land sales expenses (b)
(16,476) (15,644)
Capitalized interest in inventory, end of period$144,847
 $144,299
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 Three Months Ended December 31,
in thousands2019 2018
Capitalized interest in inventory, beginning of period$136,565
 $144,645
Interest incurred21,556
 24,921
Capitalized interest impaired—
 (115)
Interest expense not qualified for capitalization and included as other expense (a)
(1,442) (242)
Capitalized interest amortized to home construction and land sales expenses (b)
(19,669) (17,323)
Capitalized interest in inventory, end of period$137,010
 $151,886
(a) The amount of interest we are able to capitalize is dependent upon ourcapitalized depends on the qualified inventory balance, which considers the status of ourthe Company's inventory holdings. OurThe qualified inventory balance includes the majority of our homes under construction and development projects in progress but excludes land held for future development and land held for sale.
(b) Capitalized interest amortized to home construction and land salesales expenses varies based on the number of homes closed during the period and land sales, if any, as well as other factors.
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(7) Borrowings
As of December 31, 2017 and September 30, 2017, we had the followingThe Company's debt, net of premiums/discounts and unamortized debt issuance costs:costs consisted of the following as of December 31, 2019 and September 30, 2019:
(In thousands)Maturity Date December 31, 2017 September 30, 2017
5 3/4% Senior NotesJune 2019 $96,393
 $321,393
8 3/4% Senior NotesMarch 2022 500,000
 500,000
7 1/4% Senior NotesFebruary 2023 24,834
 199,834
6 3/4% Senior NotesMarch 2025 250,000
 250,000
5 7/8% Senior NotesOctober 2027 400,000
 —
Unamortized debt premium, net  3,220
 3,413
Unamortized debt issuance costs  (16,545) (14,800)
Total Senior Notes, net  1,257,902
 1,259,840
Junior Subordinated Notes (net of unamortized accretion of $38,320 and $38,837, respectively)July 2036 62,453
 61,937
Other Secured Notes payableVarious Dates 4,154
 5,635
Total debt, net  $1,324,509
 $1,327,412
in thousandsFinal Maturity Date December 31, 2019 September 30, 2019
Senior Unsecured Term Loan (Term Loan)September 2022 $150,000
 $150,000
6 3/4% Senior Notes (2025 Notes)March 2025 229,555
 229,555
5 7/8% Senior Notes (2027 Notes)October 2027 394,000
 394,000
7 1/4% Senior Notes (2029 Notes)October 2029 350,000
 350,000
Unamortized debt issuance costs  (12,080) (12,470)
Total Senior Notes, net  1,111,475
 1,111,085
Junior Subordinated Notes (net of unamortized accretion of $34,186 and $34,703, respectively)July 2036 66,587
 66,070
Revolving Credit FacilityFebruary 2022 30,000
 —
Other Secured Notes payableVarious Dates —
 1,154
Total debt, net  $1,208,062
 $1,178,309
Secured Revolving Credit Facility. OurFacility
The Secured Revolving Credit Facility (the Facility) provides us with working capital and letter of credit capacity. In October 2017, we executed a Fourth Amendment to the Facility. The Fourth Amendment (1) extends the termination datecapacity of the Facility from February 15, 2019 to February 15, 2020; (2) increases the maximum aggregate amount of commitments under the Facility (including borrowings and letters of credit) from $180.0$250.0 million to $200.0 million; and (3) includes a condition that allows the Facility to be increased by an additional $50 million to $250 million, subject to the approval of any lenders providing any such increase. The aggregate collateral ratio (as defined by the underlying Credit Agreement) remained at 4.00 to 1.00 and the after-acquired exclusionary condition (also as defined by the underlying Credit Agreement) remained at $800.0 million. The Facility continues to be with threefour lenders. For additional discussion of the Facility, refer to Note 8 to the audited consolidated financial statements within our 20172019 Annual Report.
As of December 31, 20172019, $30.0 million of borrowings and September 30, 2017, we had no borrowingsletters of credit were outstanding under the Facility, but had $34.2 millionresulting in a remaining capacity of $220.0 million. As of September 30, 2019, no borrowings and $34.7 million inno letters of credit were outstanding respectively, leaving us with $165.8 million and $145.3 million in remaining capacity, respectively.under the Facility. The Facility containsrequires compliance with certain covenants, including negative covenants and financial maintenance covenants, with which we are required to comply.covenants. As of December 31, 2017, we were2019, the Company was in compliance with all such covenants.
Senior Unsecured Term Loan
On September 9, 2019, the Company entered into a term loan agreement, which provides for a Senior Unsecured Term Loan (the Term Loan) in an aggregate principal amount of up to $150.0 million. The Term Loan will (1) mature in September 2022, with $50.0 million annual repayment installments in September 2020 and September 2021; (2) bears interest at a fixed rate of 4.875%; and (3) includes an option to prepay, subject to certain conditions and the payment of certain premiums. The Term Loan contains covenants generally consistent with the covenants contained in the Facility. As of December 31, 2019, the Company was in compliance with all such covenants.
Letter of Credit Facilities. We haveFacilities
The Company has 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 (in addition to the letters of credit issued under the Facility). As of December 31, 20172019 and September 30, 2017, we2019, the Company had letters of credit outstanding under these additional facilities of $10.7$16.6 million and $10.8$14.1 million, respectively, all of which were secured by cash collateral in restricted accounts. The Company may enter into additional arrangements to provide furtheradditional letter of credit capacity.
In May 2018, the Company entered into a reimbursement agreement, which provides for the issuance of performance letters of credit, and an unsecured credit agreement that provides for the issuance of up to $50.0 million of standby letters of credit to backstop the Company's obligations under the reimbursement agreement (collectively, the "Bilateral Facility"). The Bilateral Facility will terminate on June 10, 2021. As of December 31, 2019, the total stated amount of performance letters of credit issued under the reimbursement agreement was $33.8 million (and the stated amount of the backstop standby letter of credit issued under the credit agreement was $40.0 million). The Company may enter into additional arrangements to provide greater letter of credit capacity.
Senior Notes. OurNotes
The Company's Senior Notes are unsecured obligations ranking pari passu with all other existing and future senior indebtedness. Substantially all of ourthe Company's significant subsidiaries are full and unconditional guarantors of the Senior Notes and are jointly
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and severally liable for obligations under the Senior Notes and the Facility. Each guarantor subsidiary is a 100% owned subsidiary of Beazer Homes. See Note 1516 for further information.
All unsecured Senior Notes rank equally in right of payment with all of our existing and future senior unsecured obligations, senior to all of the Company's existing and future subordinated indebtedness and effectively subordinated to the Company's existing and future secured indebtedness, including indebtedness under the Facility, if outstanding, to the extent of the value of the assets securing such indebtedness. The unsecured Senior Notes and related guarantees are structurally subordinated to all indebtedness and other liabilities of all of the Company's subsidiaries that do not guarantee these notes but are fully and unconditionally guaranteed jointly and severally on a senior basis by the Company's wholly-owned subsidiaries party to each applicable indenture.
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The Company's Senior Notes are issued under indentures that contain certain restrictive covenants which, among other things, restrict our ability to pay dividends, repurchase our common stock, incur certain types of additional indebtedness, and to make certain investments. Compliance with ourthe Senior Note covenants does not significantly impact ourthe Company's operations. We wereThe Company is in compliance with the covenants contained in the indentures of all of ourits Senior Notes as of December 31, 2017.
In October 2017, we issued and sold $400.0 million aggregate principal amount of 5.875% unsecured Senior Notes due October 2027 at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers (the 2027 Notes). Interest on the 2027 Notes is payable semi-annually, beginning on April 15, 2018. The 2027 Notes will mature on October 15, 2027. We may redeem the 2027 Notes at any time prior to October 15, 2022, in whole or in part, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, together with accrued and unpaid interest to, but excluding, the redemption date, plus a customary make-whole premium. In addition, on or prior to October 15, 2022, we may redeem up to 35% of the aggregate principal amount of the 2027 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to 105.875% of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at least 65% of the aggregate principal amount of the 2027 Notes originally issued remains outstanding immediately after such redemption. Upon the occurrence of certain specified changes of control, the holders of the 2027 Notes will have the right to require us to purchase all or a part of the notes at a repurchase price equal to 101% of their principal amount, plus accrued and unpaid interest to, but excluding, the repurchase date. The covenants related to the 2027 Notes are consistent with our other senior notes.
The proceeds of the 2027 Notes, as well as $34.5 million cash on hand, were used to redeem $225.0 million of our 5.75% unsecured Senior Notes due 2019 and $175.0 million of our 7.25% unsecured Senior Notes due 2023, resulting in a loss on extinguishment of debt of $25.9 million, of which $3.2 million was a non-cash write-off of debt issuance and discount costs.
In March 2017, we issued and sold $250 million aggregate principal amount of 6.75% unsecured Senior Notes due March 2025 at par (before underwriting and other issuance costs) through a private placement to qualified institutional buyers (the 2025 Notes). Interest on the 2025 Notes is payable semi-annually, beginning on September 15, 2017. The 2025 Notes will mature on March 15, 2025. We may redeem the 2025 Notes at any time prior to March 15, 2020, in whole or in part, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, together with accrued and unpaid interest to, but excluding, the redemption date, plus a customary make-whole premium. In addition, on or prior to March 15, 2020, we may redeem up to 35% of the aggregate principal amount of the 2025 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to 106.75% of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at least 65% of the aggregate principal amount of the 2025 Notes originally issued remains outstanding immediately after such redemption. Upon the occurrence of certain specified changes of control, the holders of the 2025 Notes will have the right to require us to purchase all or a part of the notes at a repurchase price equal to 101% of their principal amount, plus accrued and unpaid interest to, but excluding, the repurchase date. The covenants related to the 2025 Notes are consistent with our other senior notes.2019.
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For additional redemption features, refer to the table below that summarizes the redemption terms forof our Senior Notes:
Senior Note Description Issuance Date Maturity Date Redemption Terms
5 3/4% Senior NotesApril 2014June 2019Callable at any time before March 15, 2019, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium; on or after March 15, 2019, callable at 100% of the principal amount plus, in each case, accrued and unpaid interest
8 3/4% Senior NotesSeptember 2016March 2022Callable at any time prior to March 15, 2019, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium; on or after March 15, 2019, callable at a redemption price equal to 104.375% of the principal amount; on or after March 15, 2020, callable at a redemption price equal to 102.188% of the principal amount; on or after March 15, 2021, callable at a redemption price equal to 100% of the principal amount plus, in each case, accrued and unpaid interest
7 1/4% Senior NotesFebruary 2013February 2023Callable at any time prior to February 1, 2018, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium; on or after February 1, 2018, callable at a redemption price equal to 103.625% of the principal amount; on or after February 1, 2019, callable at a redemption price equal to 102.41% of the principal amount; on or after February 1, 2020, callable at a redemption price equal to 101.208% of the principal amount; on or after February 1, 2021, callable at 100% of the principal amount plus, in each case, accrued and unpaid interest
6 3/4% Senior Notes March 2017 March 2025On or prior to March 15, 2020, we may redeem up to 35% of the aggregate principal amount of the 2025 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to 106.75% of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at least 65% of the aggregate principal amount of the 2025 Notes originally issued remains outstanding immediately after such redemption.
 Callable at any time prior to March 15, 2020, in whole or in part, at a redemption price equal to 100%100.000% of the principal amount, plus a customary make-whole premium; on or after March 15, 2020, callable at a redemption price equal to 105.063% of the principal amount; on or after March 15, 2021, callable at a redemption price equal to 103.375% of the principal amount; on or after March 15, 2022, callable at a redemption price equal to 101.688% of the principal amount; on or after March 15, 2023, callable at a redemption price equal to 100.000% of the principal amount, plus, in each case, accrued and unpaid interestinterest.
5 7/8% Senior Notes October 2017 October 2027 On or prior to October 15, 2022, we may redeem up to 35% of the aggregate principal amount of the 2027 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to 105.875% of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at least 65% of the aggregate principal amount of the 2027 Notes originally issued remains outstanding immediately after such redemption.
Callable at any time prior to October 15, 2022, in whole or in part, at a redemption price equal to 100.000% of the principal amount, plus a customary make-whole premium; on or after October 15, 2022, callable at a redemption price equal to 102.938% of the principal amount; on or after October 15, 2023, callable at a redemption price equal to 101.958% of the principal amount; on or after October 15, 2024, callable at a redemption price equal to 100.979% of the principal amount; on or after October 15, 2025, callable at a redemption price equal to 100.000% of the principal amount, plus, in each case, accrued and unpaid interest.
7 1/4% Senior NotesSeptember 2019October 2029On or prior to October 15, 2022, we may redeem up to 35% of the aggregate principal amount of the 2029 Notes with the net cash proceeds of certain equity offerings at a redemption price equal to 107.250% of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided at least 65% of the aggregate principal amount of the 2029 Notes originally issued remains outstanding immediately after such redemption.
Callable at any time prior to October 15, 2024, in whole or in part, at a redemption price equal to 100% of the principal amount, plus a customary make-whole premium; on or after October 15, 2022,2024, callable at a redemption price equal to 102.938%103.625% of the principal amount; on or after October 15, 2023,2025, callable at a redemption price equal to 101.958%102.417% of the principal amount; on or after October 15, 2024,2026, callable at a redemption price equal to 100.979%101.208% of the principal amount; on or after October 15, 2025,2027, callable at a redemption price equal to 100.000% of the principal amount, plus, in each case, accrued and unpaid interestinterest.
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Junior Subordinated Notes. OurNotes
The Company's unsecured junior subordinated notes (Junior Subordinated Notes) mature on July 30, 2036. The Junior Subordinated Notes are redeemable at par and paid interest at a fixed rate of 7.987% for the first ten years ending July 30, 2016. The securities now have a floating interest rate as defined in the Junior Subordinated Notes Indenture, which was a weighted-average of 4.12%4.39% as of December 31, 2017 (because the rate on the portion of the Junior Subordinated Notes that was modified, as discussed subsequently, is subject to a floor).2019. The obligations relating to these notes are subordinated to the Facility and the Senior Notes. In January 2010, wethe Company modified the terms of $75.0 million of these notes and recorded them at their then estimated fair value. Over the remaining life of the Junior Subordinated Notes, we will increase their carrying value until this carrying value equals the face value of the notes. As of December 31, 2017,2019, the unamortized accretion was $38.3$34.2 million and will be amortized over the remaining life of the notes. As of December 31, 2017, we were2019, the Company was in compliance with all covenants under ourthe Junior Subordinated Notes.
Other Secured Notes Payable. WePayable
The Company periodically acquireacquires land through the issuance of notes payable. As of December 31, 2017 and September 30, 2017, we2019, the Company had outstanding secured notes payable of $4.2$1.2 million, and $5.6 million, respectively, primarily related to land acquisitions. These secured notes payable related to land acquisitions have varying expiration dates between 2018 and 2019, and have a weighted-average fixed interest rate of 1.56% as ofDuring the three months ended December 31, 2017. These2019, we redeemed the remaining balance outstanding on these land acquisition related notes payable.
(8) Operating Leases
The Company leases certain office space and equipment under operating leases for use in our operations. We recognize operating lease expense on a straight-line basis over the lease term. Certain of our lease agreements include one or more options to renew. The exercise of lease renewal options is generally at our discretion. Variable lease expense primarily relates to maintenance and other monthly expense that do not depend on an index or rate.
We determine if an arrangement is a lease at contract inception. Lease and non-lease components are secured byaccounted for as a single component for all leases. Operating lease ROU assets and liabilities are recognized at the real estate tolease commencement date based on the present value of the future lease payments over the expected lease term, which they relate.includes optional renewal periods if we determine it is reasonably certain that the option will be exercised. As our leases do not provide an implicit rate, the discount rate used in the present value calculation represents our incremental borrowing rate determined using information available at the commencement date.
Operating lease expense is included as a component of general and administrative expenses in our condensed consolidated statements of operations. For the three months ended December 31, 2019, we recorded operating lease expense of $1.2 million. Cash payments on lease liabilities during the three months ended December 31, 2019 totaled $1.1 million. Sublease income and variable lease expenses are de minimis.
At December 31, 2019, weighted-average remaining lease term and discount rate were as follows:
Weighted-average remaining lease term4.4 years
Weighted-average discount rate4.94%
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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,following is a covenant default can be cured by repaymentmaturity analysis of the indebtedness.annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of December 31, 2019:
Fiscal Years Ending September 30, 
in thousands 
2020 (a)
$3,474
20214,217
20223,378
20232,560
20241,435
Thereafter1,838
Total lease payments (b)
$16,902
Less: Imputed interest$1,744
Total operating lease liabilities$15,158
(a) Remaining lease payments are for the period beginning January 1, 2020 through September 30, 2020.
(b) Lease payments excludes $4.0 million legally binding minimum lease payments for an office lease signed but not yet commenced at December 31, 2019. The related ROU asset and operating lease liability are not reflected on the Company’s condensed consolidated balance sheet as of December 31, 2019.
At September 30, 2019, under ASC 840, Leases (“ASC 840”), the future minimum rental commitments totaled $20.1 million under non-cancelable operating leases as follows: 2020 - $4.7 million; 2021 - $4.5 million; 2022 - $3.6 million; 2023 - $2.9 million; 2024 - $1.8 million; and $2.6 million thereafter.
(8)(9) Contingencies
Beazer Homes and certain of its subsidiaries have been and continue to be named as defendants in various construction defect claims, complaints, and other legal actions. The Company is subject to the possibility of loss contingencies related to these defects as well as others arising from its business. In determining loss contingencies, we consider the likelihood of loss as well asand our ability to reasonably estimate the amount of such loss or liability.loss. An estimated loss is recorded when it is considered probable that a liability has been incurred and the amount of loss can be reasonably estimated.
Warranty Reserves.Reserves
We currently provide a limited warranty (rangingranging from one to two years) years covering workmanship and materials per our defined performance quality standards. In addition, we provide a limited warranty for up to ten years covering only certain defined structural element failures.
Our homebuilding work is performed by subcontractors thatwho typically must agree to indemnify us with regard to their work and provide us with certificates of insurance demonstrating that they have met our insurance requirements and that we arehave named us as an additional insured under their policies. Therefore, many claims relating to workmanship and materials that result in warranty spending are the primary responsibility of these subcontractors. In addition, we maintain insurance coverage related to our construction efforts that can result in recoveries of warranty and construction defect costs above certain specified limits.
Our warrantyWarranty reserves are included in other liabilities on ourwithin the condensed consolidated balance sheets, and the provision for warranty accruals is included in home construction expenses in ourthe condensed consolidated statements of income. We record reservesoperations. Reserves covering anticipated warranty expenseexpenses are recorded for each home we close.closed. Management reviewsassesses the adequacy of warranty reserves each reporting period based on historical experience and management’s estimate of the expected costs to remediate the claims, and adjusts these provisions accordingly.potential claims. Our review includes a quarterly analysis of the historical data and trends in warranty expense by operating division. AnSuch analysis by division allows us to consider market specificconsiders 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, ourthe analysis also contemplates the existence of any non-recurring or community-specific warranty-related matters that might not be included in our historical data and trends. While we adjust our estimated warranty liabilities are adjusted each reporting period tobased on the extent required as a resultresults of our quarterly analyses, historical data and trendswe may not accurately predict actual warranty costs, which could lead to a significant changechanges in the reserve.
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Changes in our warranty reserves are as follows for the periods presented:
Three Months EndedThree Months Ended 
December 31,December 31, 
(In thousands)2017 2016
in thousands2019 2018 
Balance at beginning of period$18,091
 $39,131
$13,388
 $15,331
 
Accruals for warranties issued (a)
4,212
 2,658
1,665
 2,305
 
Changes in liability related to warranties existing in prior periods (b)
(2,296) 5,392
67
 (1,874) 
Payments made (b)
(4,191) (14,872)(2,474) (2,330) 
Balance at end of period$15,816
 $32,309
$12,646
 $13,432
 
(a) Accruals for warranties issued are a function of the number of home closings in the period, the selling prices of the homes closed, and the rates of accrual per home estimated as a percentage of the selling price of the home.
(b) Changes in liability related to warranties existing and payments made are elevated due to charges and subsequent payments related to water intrusion issues in certain of our communities located in Florida (refer to separate discussion below).
Florida Water Intrusion Issues
In the latter portion of fiscal 2014, we began to experience an increase in calls from homeowners reporting stucco and water intrusion issues in certain of our communities in Florida (the Florida stucco issues). Through December 31, 2017, we cumulatively recorded charges related to these issues of $85.2 million.
During the three months ended December 31, 2017, we reduced our warranty reserve related to the Florida stucco issues by $0.4 million, compared to an increase of $4.6 million in the prior year. As of December 31, 2017, 709 homes have been identified as likely to require repairs, of which 664 homes have been repaired. We anticipate the majority of the remaining repairs in our Florida communities will be completed during fiscal 2018. We made payments related to the Florida stucco issues of $1.1 million during the three months ended December 31, 2017, including payments on fully repaired homes, as well as payments on homes for which
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remediation is not yet complete, bringing the remaining accrual related to this issue to $3.2 million as of December 31, 2017, which is included in our overall warranty liability detailed above. As of December 31, 2017, the cost to repair the homes in the impacted communities, where it is not deemed likely to require repairs and, therefore, no reserve has been established, would be approximately $2.5 million if the current cost estimates were applied to these additional homes. For additional information related to the Florida stucco issues, refer to Note 9 of the notes to the consolidated financial statements in our 2017 Annual Report.
Insurance Recoveries
The Company has insurance policies that provide for the reimbursement of certain warranty costs incurred by us above a specified thresholdthresholds for each period covered. We have surpassed these thresholds for certain policy years, particularly those that cover most of the homes impacted by the Florida stucco issues discussed above. As such, beginning with the first quarter of our fiscal 2015, we expect a substantial majority of additional costs incurred for warranty work on homes within these policy years to be reimbursed by our insurers.
We adjust our insurance receivable balance each quarter to reflect our estimate of future costs to be incurred, as well as amounts received from our insurers. These adjustments were a decrease of $0.2 million during the three months ended December 31, 2017 to reflect the amount that we deem probable of receiving. The changes to our insurance receivable fully offset the current three month period movements in our reserve related to the Florida stucco issues. For the three months ended December 31, 2016, $3.9 million was recorded in insurance recoveries. Through December 31, 2017, receivables recorded related to the Florida stucco issues cumulatively total $82.8 million.
Amounts recorded for anticipated insurance recoveries are reflected within ourthe condensed consolidated statements of income as a reduction of our home construction expenses, and associated amountsexpenses. Amounts not yet received from our insurer are recorded on a gross basis, i.e., not net ofwithout any reduction for the associated warranty expense, as a receivable within accounts receivable on our condensed consolidated balance sheets.
Amounts still to be recovered under our insurance policies will vary based on whether expected additional warranty costs are actually incurred for periods for which our threshold has already been met. As a result, we anticipate the balance of our established receivable for insurance recoveries to fluctuate for potential future reimbursements, as well as the amounts ultimately owed to us from our insurers.
Litigation
From time-to-time, we receive claims from institutions that have acquired mortgages originated by our subsidiary, Beazer Mortgage Corporation (BMC), demanding damages or indemnity or that we repurchase such mortgages. BMC stopped originating mortgages in 2008. We have been able to resolve these claims for no cost or for amounts that are not material to our consolidated financial statements. We cannot rule out the potential for additional mortgage loan repurchase or indemnity claims in the future from other investors. At this time, we do not believe that the exposure related to any such claims would be material to our consolidated financial condition, results of operations or cash flows. As of December 31, 2017, no liability has been recorded for any additional claims related to this matter, as such exposure is not both probable and reasonably estimable.
In the normal course of business, we are subject to various lawsuits. We cannot predict or determine the timing or final outcome of these lawsuits or the effect that any adverse findings or determinations in pending lawsuits may have on us. In addition, an estimate of possible loss or range of loss, if any, cannot presently be made with respect to certain of these pending matters. An unfavorable determination in any of the pending lawsuits could result in the payment by us of substantial monetary damages whichthat may not be fully covered by insurance. Further, the legal costs associated with the lawsuits and the amount of time required to be spent by management and our Board of Directors on these matters, even if we are ultimately successful, could have a material adverse effect on our financial condition, results of operations, or cash flows.
Claims Related to Inventory Impairment Charges. During the quarter ended March 31, 2019, we recognized inventory impairment charges related to 15 communities in California, all of which were previously land held for future development assets. Related to these inventory impairment charges, on June 5, 2019, a putative class action lawsuit was filed against Beazer Homes USA, Inc. and certain of our officers in the U.S. District Court for the Southern District of New York. The proposed class consisted of all persons and entities that acquired our securities between August 1, 2014 and May 2, 2019. On October 18, 2019, the plaintiffs filed a notice of voluntary dismissal of this case, and the Court subsequently entered an order dismissing the case.
Beginning June 25, 2019, several shareholder derivative lawsuits relating to the same inventory impairment charges discussed above were filed against Beazer Homes USA, Inc., certain of our officers and members of our Board of Directors in the U.S. District Court for the Northern District of Georgia. The plaintiffs in these cases allege breaches of fiduciary duty, unjust enrichment and violations of the federal securities laws. The plaintiffs seek, among other things, monetary damages, disgorgement of profits and attorneys’ and experts’ fees, but do not specify any specific amounts. We believe the allegations are without merit and intend to vigorously defend against the claims. However, because the outcome of these legal proceedings cannot be predicted with certainty, we have determined that the amount of any possible losses or range of possible losses in connection with these matters is not reasonably estimable.
Other Matters
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 in 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 an accrual of $4.0$3.5 million and $3.9$3.4 million in other liabilities on our condensed consolidated balance sheets forrelated to litigation and relatedother matters, excluding warranty, as of December 31, 20172019 and September 30, 2017,2019, respectively.
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We had outstanding letters of credit and performance bonds of approximately $44.9$50.4 million and $229.3$276.1 million, respectively, as of December 31, 2017,2019, related principally to our obligations to local governments to construct roads and other improvements in various developments.
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(9)(10) Fair Value Measurements
As of the dates presented, we had assets on our condensed consolidated balance sheets that were required to be measured at fair value on a recurring or non-recurring basis. 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; and
Level 3 – Unobservable inputs that reflect our own estimates about the assumptions market participants would use in pricing the asset or liability.
Certain of our assets are required to be recorded at fair value on a recurring basis. The fair value of our deferred compensation plan assets is based on market-corroborated inputs (Level 2).
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 of these assets may not be recovered. We review our long-lived assets, including inventory, for recoverability when factors indicate an impairment may exist, but no less than quarterly. Fair value ofon assets deemed to be impaired is determined based upon the type of asset being evaluated. The fairFair value of our owned inventory assets, when required to be calculated, is further discussed within Notes 2 and 5. The fair value of our investments in unconsolidated entities is determined primarily using a discounted cash flow model to value the underlying net assets of the respective entities. Due to the substantial use of unobservable inputs in valuing the assets on a non-recurring basis, they are classified within Level 3.
During the three months ended December 31, 2019, we recognized no impairments on development projects in progress or land held for sale compared to $1.0 million impairments on development projects in progress and no impairments on land held for sale during the three months ended December 31, 2018.
Determining within which hierarchical level an asset or liability falls within requires significant judgment. We evaluate our hierarchy disclosures each quarter.
The following table presents the period-end balances of our assets measured at fair value on a recurring basis and the impairment-date fair value of certain assets measured at fair value on a non-recurring basis for each hierarchy level. These balances represent only those assets whose carrying values were adjusted to fair value during the periods presented:
(In thousands)Level 1 Level 2 Level 3 Total
Three Months Ended December 31, 2017       
in thousandsLevel 1 Level 2 Level 3 Total
As of December 31, 2019       
Deferred compensation plan assets (a)
$—
 $1,357
 $—
 $1,357
$—
 $2,136
 $—
 $2,136
Land held for sale (b)
—
 —
 642
 642
Three Months Ended December 31, 2016       
Deferred compensation plan assets (a)
$—
 $1,006
 $—
 $1,006
As of September 30, 2017       
As of September 30, 2019       
Deferred compensation plan assets (a)
$—
 $1,114
 $—
 $1,114
$—
 $1,970
 $—
 $1,970
Development projects in progress (b)
—
 —
 3,791
 3,791
—
 —
 84,982
(c) 
84,982
Land held for sale (b)
—
 —
 325
 325
—
 —
 5,207
(c) 
5,207
(a) Measured at fair value on a recurring basis.
(b) Measured at fair value on a non-recurring basis.basis, including the capitalized interest and indirect costs related to the asset.
(c) Amount represents the impairment-date fair value of the development projects in progress and land held for sale assets that were impaired during the period indicated.
The fair value of our cash and cash equivalents, restricted cash, accounts receivable, trade accounts payable, other liabilities, amounts due under the Facility (if outstanding), and other secured notes payable approximate their carrying amounts due to the short maturity of these assets and liabilities. When outstanding, obligations related to land not owned under option agreements approximate fair value.
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The following table presents the carrying value and estimated fair value of certain of our other financial liabilities as of December 31, 20172019 and September 30, 2017:2019:
 As of December 31, 2017 As of September 30, 2017
 (In thousands)
Carrying
Amount (a)
 Fair Value 
Carrying
Amount (a)
 Fair Value
Senior Notes (b)
$1,257,902
 $1,338,675
 $1,259,840
 $1,355,657
Junior Subordinated Notes62,453
 62,453
 61,937
 61,937
 $1,320,355
 $1,401,128
 $1,321,777
 $1,417,594
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 As of December 31, 2019 As of September 30, 2019
in thousands
Carrying
Amount (a)
 Fair Value 
Carrying
Amount (a)
 Fair Value
Senior Notes (b)
$1,111,475
 $1,167,303
 $1,111,085
 $1,115,011
Junior Subordinated Notes (c)
66,587
 66,587
 66,070
 66,070
Total$1,178,062
 $1,233,890
 $1,177,155
 $1,181,081
(a) Carrying amounts are net of unamortized debt premium/premiums/discounts, debt issuance costs, or accretion.
(b) The estimated fair value for our publicly-held Senior Notes has been determined using quoted market rates (Level 2).
(c) Since there is no trading market for our Junior Subordinated Notes, the fair value of these notes is estimated by discounting scheduled cash flows through maturity (level 3). 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.
(10)(11) Income Taxes
Income Tax Provision.Provision
OurThe Company's income tax provision for quarterly interim periods is based on an estimated annual effective income tax rate calculated separately from the effect of significant, infrequent, or unusual items. OurThe total income tax provision, including discontinued operations, was a tax expensebenefit of $108.0$0.2 million for the three months ended December 31, 2017,2019, compared to an income tax benefit of $2.6$3.9 million for the three months ended December 31, 2016. Our2018. The current fiscal year income tax expensebenefit was primarilysubstantially driven by (1) the remeasurementcompletion of our deferredwork necessary to claim an additional $0.7 million in tax assets as a result ofcredits related to prior fiscal years (2) the enactment of the Tax Cuts and Jobs Act (Tax Act) during the quarter; and (2) several discrete tax expenses, including the impactsimpact related to our stock-based compensation expense as a result of current period activity; both partially offset by (3) the loss incurredincome from continuing operations. The tax benefit for the three months ended December 31, 20162018 was primarily driven by our loss from continuing operations and(1) the Company's completion of work necessary to claim an additional $1.2$5.3 million in tax credits which were recorded in ourrelated to prior fiscal 2017 butyears; partially offset by (2) income from continuing operations; and (3) the discrete impact related to our fiscal 2016.stock-based compensation expense.
Deferred Tax Assets and Liabilities. The Tax ActLiabilities
As of December 31, 2019, the net deferred tax asset is comprehensivecomprised of various tax reform legislationattributes that was enacted by the U.S. government on December 22, 2017. The Tax Act includes significant changes to the Internal Revenue Code, including a reductioninclude $4.6 million of minimum tax credit carryforwards. Beginning in the corporate tax rate from 35% to 21%. Additionally, the Tax Act establishes new laws that will impact our fiscal 2019, including, but not limitedthe Company started making cash refund claims for significant portions of these credits due to eliminating the corporateelimination of the alternative minimum tax (AMT), changes to how existing AMT credits can be realized, and imposing new limitations on the deductibility of certain executive compensation.
In connection with our initial analysis ofin the Tax Act's impacts,Cuts and in accordance with the guidance in SAB 118, we recorded a discrete net tax expense of $112.6 million in the period ending December 31, 2017. This net expense is primarily related to the corporate tax rate reduction and the associated remeasurement of our deferred tax assets. While we have recorded a provisional tax expense of $112.6 million based on reasonable estimates of the impact for the reduction in the corporate tax rate, our estimate may be affected by additional analyses related to the Tax Act and temporary differences that will reverse during our fiscal 2018 and subsequent tax years.Jobs Act.
The Company continues to evaluate its deferred tax assets each period to determine if a valuation allowance is required based on whether it is more likely than not that some portion of these deferred tax assets will not be realized. As of September 30, 2017 and again as of December 31, 2017, we2019, management concluded that it is more likely than not that a substantial portion of our deferred tax assets will be realized. As part of our analysis, we considered both the positive and negative factors that impact our profitability and whether those factors would lead to a change in the estimate of our deferred tax assets that may be realized in the future. Although the Tax Act may result in changes to our taxable income in the future, we do not anticipate these changes would be significant enough to result in a change in our estimate when taken into account with all our factors. As of December 31, 2017, ourOur conclusions on the valuation allowance and Internal Revenue Code Section 382 limitations related to our deferred tax assets remain consistent with the determinations we made during the period ended September 30, 2017,2019, and such conclusions are based on similar company specific and industry factors to those discussed in Note 13 to the audited consolidated financial statements within our 20172019 Annual Report.
(11) Stock-based Compensation
Our total stock-based compensation expense is included in G&A expenses in our consolidated statements of income. A summary of the expense related to stock-based compensation by award type is as follows for the periods presented:
  Three Months Ended December 31,
(In thousands) 2017 2016
Stock options expense $60
 $107
Restricted stock awards expense 2,550
 2,069
Before tax stock-based compensation expense 2,610
 2,176
Tax benefit (662) (774)
After tax stock-based compensation expense $1,948
 $1,402
During the three months ended December 31, 2017 and 2016, employees surrendered 62,231 shares and 30,018 shares, respectively, to us in payment of minimum tax obligations upon the vesting of stock awards under our stock incentive plans. We valued this stock at the market price on the date of surrender, for an aggregate value of approximately $1.3 million and $0.4 million for the three months ended December 31, 2017 and 2016, respectively.
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(12) Stock-based Compensation
Stock-based compensation expense is included in general and administrative expenses in the condensed consolidated statements of operations. We recognized $2.3 million and $2.1 million of stock-based compensation expense related to stock options and restricted stock awards for the three months ended December 31, 2019 and December 31, 2018, respectively.
Stock Options. The fair valueOptions
Following is a summary of each stock option granted is estimated onactivity for the date of grant using the Black-Scholes option-pricing model (Black-Scholes Model). The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price. As of three months ended December 31, 2017, the intrinsic value of our stock options outstanding, vested and expected to vest and exercisable were $2.9 million, $2.9 million and $1.9 million, respectively. 2019:
 Three Months Ended
 December 31, 2019
 Shares Weighted Average
Exercise Price
Outstanding at beginning of period523,754
 $14.34
Granted—
 —
Exercised(123,367) 11.08
Cancelled(100) 15.47
Outstanding at end of period400,287
 $15.35
Exercisable at end of period363,931
 $15.64
Vested or expected to vest in the future398,358
 $15.38
As of December 31, 20172019 and September 30, 2017, there were $0.4 million and $0.3 million, respectively, of2019, total unrecognized compensation cost related to nonvestedunvested stock options.options was $0.1 million and $0.1 million, respectively. The remaining cost remaining as of December 31, 20172019 is expected to be recognized over a weighted-average period of 2.00.95 years.

Restricted Stock Awards
During the three months ended December 31, 2017, we2019, the Company issued 23,680time-based restricted stock options, each for one share of the Company's stock. These stock options typicallyawards that vest ratably over three years on each anniversary from the grant date of grant, or two years from the date of grant if issued under the Employee Stock Option Program (EOP; refer to Note 16 of the notes to the consolidated financial statements in our 2017 Annual Report). We used the following assumptions for stock options granted, which derived the weighted average fair value shown, for the period presented:
  Three Months Ended
  December 31, 2017
Expected life of options 5.0 years
Expected volatility 44.71%
Expected dividends —
Weighted average risk-free interest rate 2.06%
Weighted average fair value $8.49
We 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 granted. 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.
Activity related to stock options for the periods presented is as follows:
 Three Months Ended
 December 31, 2017
 Shares Weighted Average
Exercise Price
Outstanding at beginning of period593,753
 $14.76
Granted23,680
 20.46
Exercised(1,666) 7.56
Expired(56,967) 23.65
Forfeited(2,641) 13.87
Outstanding at end of period556,159
 $14.11
Exercisable at end of period435,432
 $14.81
Vested or expected to vest in the future554,381
 $14.11
Restricted Stock Awards. The fair value of each restricted stock award with any market conditions is estimated on the date of grant using the Monte Carlo valuation method. The fair value of any restricted stock awards without market conditions is based on the market price of the Company's common stock on the date of grant. If applicable, the cash-settled component of any awards granted to employees is accounted for as a liability, which is adjusted to fair value each reporting period until vested.
Compensation cost arising from restricted stock awards granted to employees is recognized as an expense using the straight-line method over the vesting period. As of December 31, 2017 and September 30, 2017, there was $14.7 million and $8.8 million, respectively, of total unrecognized compensation cost related to nonvested restricted stock awards. The cost remaining as of December 31, 2017 is expected to be recognized over a weighted average period of 2.0 years.
We issued two types of restricted stock awards during the three months ended December 31, 2017 as follows: (1) performance-based restricted stock awards with a payout based onsubject to the Company'sachievement of performance and certain market conditions; and (2) time-basedconditions over a three-year period.
Following is a summary of restricted stock awards. Each award type is discussed further below.
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Performance-Based Restricted Stock Awards. Duringactivity for the three months ended December 31, 2017, we issued 144,746 shares2019:
 Three Months Ended December 31, 2019
 Performance-Based Restricted Shares Time-Based Restricted Shares Total Restricted Shares
Beginning of period778,814
 611,607
 1,390,421
Granted260,131
 313,829
 573,960
Vested(242,921) (289,648) (532,569)
Forfeited—
 (1,202) (1,202)
End of period796,024
 634,586
 1,430,610
Each of our performance-based restricted stock (2018 Performance Shares) to our executive officers and certain other employees with market conditions. The 2018 Performance Shares are structured to be awarded based on the Company's performance under three pre-determined financial metrics at the end of the three-year performance period. After determining the number of shares earned based on these financial metrics, which can range from 0% to 175% of the targeted number of shares, the award will be subject to further upward or downward adjustment by as much as 20% based on the Company's relative total shareholder return (TSR) compared against the S&P Homebuilders Select Industry Index during the three-year performance period. The 2018 Performance Shares were valued using the Monte Carlo valuation model due to the existence of the TSR market condition and had an estimated fair value of $22.40 per share on the date of grant.
A Monte Carlo valuation model requires the following inputs: (1) the expected dividend yield on the underlying stock; (2) the expected price volatility of the underlying stock; (3) the risk-free interest rate for the period corresponding with the expected term of the award; and (4) the fair value of the underlying stock. For the Company and each member of the peer group, the following inputs were used in the Monte Carlo valuation model to determine the fair value as of the grant date for the 2018 Performance Shares: 0% dividend yield for the Company; expected price volatility ranging from 21.1% to 50.0%; and a risk-free interest rate of 1.81%. The methodology used to determine these assumptions is similar to the Black-Scholes Model; however, the expected term is determined by the model in the Monte Carlo simulation.
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. Any 2018 Performance SharesOur performance stock award plans provide that any performance shares earned in excess of the target number of 144,746performance shares issued may be settled in cash or additional shares at the discretion of the Compensation Committee of our Board of Directors. Any portion of these that do not vest atCommittee. During the end of the period will be forfeited.
Time-Based Restricted Stock Awards. During three months ended December 31, 2017,2019, we also issued 189,372cash settled 135,337 shares of time-based restricted stock (Restricted Shares) to our directors, executive officers and certain other employees. The Restricted Shares granted to our non-employee directors vestearned above target level based on the one-year anniversaryperformance level achieved under our 2017 performance-based award plan. The cash payment totaled $2.1 million, which was reflected as a reduction to paid-in capital in the accompanying condensed consolidated statements of stockholders' equity. We have not cash settled any such performance-based awards in the datepast, and we have no current plans to cash settle any additional performance-based restricted shares in the future.
As of grant, while the Restricted Shares grantedDecember 31, 2019 and September 30, 2019, total unrecognized compensation cost related to our executive officers and other employees vest ratably on each anniversary over three years from the date of grant.
Activity relating tounvested restricted stock awards for thewas $16.0 million and $9.0 million, respectively. The remaining cost as of December 31, 2019 is expected to be recognized over a weighted average period presented is as follows:of 2.15 years.
Table of Contents
 Three Months Ended December 31, 2017
 Performance-Based Restricted Stock Time-Based Restricted Stock Total Restricted Stock
 Shares Weighted Average
Grant Date Fair Value		 Shares Weighted Average
Grant Date Fair Value		 Shares Weighted Average
Grant Date Fair Value
Beginning of period668,766
 $15.72
 872,181
 $16.47
 1,540,947
 $16.14
Granted144,746
 22.40
 189,372
 20.46
 334,118
 21.30
Vested—
 —
 (225,332) 14.01
 (225,332) 14.01
Forfeited(185,601) 19.03
 (8,144) 16.49
 (193,745) 18.92
End of period627,911
 $16.28
 828,077
 $18.06
 1,455,988
 $17.29

(12)(13) Earnings Per Share
Basic income (loss) per share is calculated by dividing net income (loss) by the weighted-average number of shares outstanding during the period. Diluted income (loss) per share adjusts the basic income (loss) per share for the effects of any potentially dilutive instruments, onlysecurities in periods in which the Company has net income and such effects are dilutive under the treasury stock method. Basic
Following is a summary of the components of basic and diluted income (loss) per share is calculated using unrounded numbers.for the periods presented:
 Three Months Ended December 31,
in thousands, except per share data2019 2018
Numerator:   
Income from continuing operations$2,804
 $7,322
Loss from discontinued operations, net of tax(58) (11)
Net income$2,746
 $7,311
    
Denominator:   
Basic weighted-average shares29,746
 31,801
Dilutive effect of restricted stock awards353
 243
Dilutive effect of stock options39
 11
Diluted weighted-average shares (a)
30,138
 32,055
    
Basic income per share:   
Continuing operations$0.09
 $0.23
Discontinued operations—
 —
Total$0.09
 $0.23
    
Diluted income per share:   
Continuing operations$0.09
 $0.23
Discontinued operations—
 —
Total$0.09
 $0.23
(a)The Company reported a net loss for both the three months ended December 31, 2017 and December 31, 2016, accordingly, for these respective periods, all common stock equivalentsfollowing potentially dilutive shares were excluded from the computation of diluted loss per share because inclusion would have resulted in anti-dilution. For the three months ended December 31, 2017 and December 31, 2016, respectively, 1.4 million and 1.5 million shares related to nonvested stock-based compensation awards were excluded from our calculation of diluted income per share as a result of their anti-dilutive effect.
 Three Months Ended December 31,
in thousands2019 2018
Stock options210,509
 493
Time-based restricted stock—
 195
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(13)(14) Other Liabilities
Our otherOther liabilities include the following as of December 31, 20172019 and September 30, 2017:2019:
(In thousands)December 31, 2017 September 30, 2017
in thousandsDecember 31, 2019 September 30, 2019
Accrued bonus and deferred compensation$22,254
 $36,237
Accrued interest$24,653
 $11,024
17,328
 12,767
Accrued bonus and deferred compensation16,638
 36,753
Customer deposits13,910
 11,539
Accrued warranty expense15,816
 18,091
12,646
 13,388
Customer deposits13,837
 11,704
Litigation accrual3,970
 3,899
3,462
 3,420
Income tax liabilities1,033
 811
825
 648
Other27,210
 25,377
25,026
 31,430
Total other liabilities$103,157
 $107,659
Total$95,451
 $109,429
(14)(15) Segment Information
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We currently operate in 13 states that are grouped into three homebuilding segments based on geography. Revenues from our homebuilding segments are derived from the sale of homes that we construct and from land and lot sales. Our reportable segments have been determined on a basis that is used internally by management for evaluating segment performance and resource allocations. We have considered the applicable aggregation criteria and have combined our homebuilding operations into three reportable segments as follows:
West: Arizona, California, Nevada, and Texas
East: Delaware, Indiana, Maryland, New Jersey(a), Tennessee, and Virginia
Southeast: Florida, Georgia, North Carolina, and South Carolina
(a) During our fiscal 2015, we made the decision that we would not continue to reinvest in new homebuilding assets in our New Jersey division; therefore, it is no longer considered an active operation. However, it is included in this listing because the segment information below continues to include New Jersey.
Management’s evaluation of segment performance is based on segment operating income. Operating income for our homebuilding segments is defined as homebuilding and land salesales and other revenuesrevenue less home construction, land development, and land sales expense, commission expense, depreciation and amortization, and certain G&A expenses that are incurred by or allocated to our homebuilding segments. The accounting policies of our segments are those described in Note 2 to the consolidated financial statements within our 20172019 Annual Report.
The following tables contain our revenue, operating income, and depreciation and amortization by segment for the periods presented:
Three Months EndedThree Months Ended
December 31,December 31,
(In thousands)2017 2016
in thousands2019 2018
Revenue      
West$177,971
 $171,749
$254,398
 $208,944
East88,853
 84,159
78,040
 88,746
Southeast105,665
 83,333
85,366
 104,350
Total revenue$372,489
 $339,241
$417,804
 $402,040

 Three Months Ended
 December 31,
in thousands2019 2018
Operating income (a)
   
West$30,331
 $24,261
East5,321
 5,395
Southeast3,156
 1,380
Segment total38,808
 31,036
Corporate and unallocated (b)
(34,862) (27,530)
Total operating income$3,946
 $3,506
 Three Months Ended
 December 31,
in thousands2019 2018
Depreciation and amortization   
West$1,808
 $1,278
East554
 538
Southeast540
 610
Segment total2,902
 2,426
Corporate and unallocated (b)
525
 344
Total depreciation and amortization$3,427
 $2,770
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 Three Months Ended
 December 31,
(In thousands)2017 2016
Operating income (a)
   
West$21,110
 $21,015
East (b)
7,396
 1,557
Southeast6,910
 5,015
Segment total35,416
 27,587
Corporate and unallocated (c)
(28,735) (26,312)
Total operating income$6,681
 $1,275

 Three Months Ended
 December 31,
(In thousands)2017 2016
Depreciation and amortization   
West$1,256
 $1,248
East439
 529
Southeast579
 466
Segment total2,274
 2,243
Corporate and unallocated (c)
233
 434
Total depreciation and amortization$2,507
 $2,677
(a) Operating income is impacted by impairment and abandonment charges incurred during the periods presented (see Note 5).
(b) Operating income for our East segment for the three months ended December 31, 2016 was impacted by a charge to G&A of $2.7 million related to the write-off of a deposit on a legacy investment in a development site that we deemed uncollectible.
(c) Corporate and unallocated operating loss includes amortization of capitalized interest;interest, movement in capitalized indirects;indirect costs, expenses related to numerous shared services functions that benefit all segments but are not allocated to the operating segments reported above, including information technology, treasury, corporate finance, legal, branding and national marketing;marketing, and certain other amounts that are not allocated to our operating segments.
Corporate and unallocated depreciation and amortization represents depreciation and amortization related to assets held by our corporate functions that benefit all segments.
The following table contains ourpresents capital expenditures by segment for the periods presented:
 Three Months Ended
 December 31,
(In thousands)2017 2016
Capital Expenditures   
West$1,776
 $1,184
East595
 771
Southeast743
 618
Corporate and unallocated588
 301
Total capital expenditures$3,702
 $2,874
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 Three Months Ended
 December 31,
in thousands2019 2018
Capital Expenditures   
West$1,484
 $2,651
East452
 762
Southeast516
 859
Corporate and unallocated180
 2,082
Total capital expenditures$2,632
 $6,354
The following table contains our asset balancepresents assets by segment as of December 31, 20172019 and September 30, 2017:2019:
(In thousands)December 31, 2017 September 30, 2017
in thousandsDecember 31, 2019 September 30, 2019
Assets      
West$810,232
 $779,964
$764,868
 $751,110
East303,429
 298,532
298,389
 286,340
Southeast354,659
 331,618
368,332
 359,431
Corporate and unallocated (a)
609,662
 810,881
536,515
 560,763
Total assets$2,077,982
 $2,220,995
$1,968,104
 $1,957,644
(a) Primarily consists of cash and cash equivalents, restricted cash, deferred taxes, capitalized interest and indirectsindirect costs, and other items that are not allocated to the segments.
(15)(16) Supplemental Guarantor Information
As discussed in Note 7, ourthe Company's obligations to pay principal, premium, if any, and interest under certain debt agreements are guaranteed on a joint and several basis by substantially all of ourthe Company's subsidiaries. CertainSome of ourthe immaterial subsidiaries do not guarantee ourthe Senior Notes or the Facility. The guarantees are full and unconditional, and the guarantor subsidiaries are 100% owned by Beazer Homes USA, Inc. The following unaudited financial information presents the line items of ourthe Company's unaudited condensed consolidated financial statements separated by amounts related to the parent issuer, guarantor subsidiaries, non-guarantor subsidiaries, and consolidating adjustments as of or for the periods presented.


Table of Contents

Beazer Homes USA, Inc.
Unaudited Condensed Consolidating Balance Sheet Information
December 31, 20172019
(In thousands)(Unaudited)
 
Beazer Homes
USA, Inc.		 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Consolidating
Adjustments		 Consolidated
Beazer Homes
USA, Inc.
in thousandsBeazer Homes
USA, Inc.		 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Consolidating
Adjustments		 Consolidated
Beazer Homes
USA, Inc.
ASSETS                  
Cash and cash equivalents$180,282
 $3,047
 $730
 $(6,247) $177,812
$35,258
 $6,007
 $12
 $—
 $41,277
Restricted cash10,941
 1,141
 —
 —
 12,082
17,847
 912
 —
 —
 18,759
Accounts receivable (net of allowance of $329)—
 31,804
 —
 —
 31,804
Accounts receivable (net of allowance of $313)—
 19,439
 —
 —
 19,439
Income tax receivable88
 —
 —
 —
 88
4,612
 —
 —
 —
 4,612
Owned inventory—
 1,626,721
 —
 —
 1,626,721
—
 1,574,280
 —
 —
 1,574,280
Investments in unconsolidated entities773
 3,504
 —
 —
 4,277
773
 3,157
 —
 —
 3,930
Deferred tax assets, net200,101
 —
 —
 —
 200,101
247,382
 —
 —
 —
 247,382
Property and equipment, net—
 18,742
 —
 —
 18,742
—
 26,623
 —
 —
 26,623
Operating lease right-of-use assets—
 12,975
 —
 —
 12,975
Investments in subsidiaries710,741
 —
 —
 (710,741) —
711,246
 —
 —
 (711,246) —
Intercompany796,658
 —
 2,331
 (798,989) —
748,246
 —
 1,676
 (749,922) —
Goodwill—
 11,376
 —
 —
 11,376
Other assets908
 5,447
 —
 —
 6,355
1,098
 6,353
 —
 —
 7,451
Total assets$1,900,492
 $1,690,406
 $3,061
 $(1,515,977) $2,077,982
$1,766,462
 $1,661,122
 $1,688
 $(1,461,168) $1,968,104
LIABILITIES AND STOCKHOLDERS’ EQUITY                  
Trade accounts payable$—
 $97,535
 $—
 $—
 $97,535
$—
 $110,153
 $—
 $—
 $110,153
Operating lease liabilities—
 15,158
 $—
 $—
 $15,158
Other liabilities25,025
 77,882
 250
 —
 103,157
17,444
 77,991
 16
 —
 95,451
Intercompany2,331
 802,905
 —
 (805,236) —
1,676
 748,246
 —
 (749,922) —
Total debt (net of premium and debt issuance costs)1,320,355
 4,154
 —
 —
 1,324,509
1,208,062
 —
 —
 —
 1,208,062
Total liabilities1,347,711
 982,476
 250
 (805,236) 1,525,201
1,227,182
 951,548
 16
 (749,922) 1,428,824
Stockholders’ equity552,781
 707,930
 2,811
 (710,741) 552,781
539,280
 709,574
 1,672
 (711,246) 539,280
Total liabilities and stockholders’ equity$1,900,492
 $1,690,406
 $3,061
 $(1,515,977) $2,077,982
$1,766,462
 $1,661,122
 $1,688
 $(1,461,168) $1,968,104
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Beazer Homes USA, Inc.
Unaudited Condensed Consolidating Balance Sheet Information
September 30, 20172019
(In thousands)(Unaudited)

Beazer Homes
USA, Inc.		 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Consolidating
Adjustments		 Consolidated
Beazer Homes
USA, Inc.
in thousandsBeazer Homes
USA, Inc.		 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Consolidating
Adjustments		 Consolidated
Beazer Homes
USA, Inc.
ASSETS                  
Cash and cash equivalents$283,191
 $15,393
 $724
 $(7,161) $292,147
$70,617
 $36,115
 $9
 $—
 $106,741
Restricted cash11,001
 1,461
 —
 —
 12,462
14,847
 1,206
 —
 —
 16,053
Accounts receivable (net of allowance of $330)—
 36,322
 1
 —
 36,323
Accounts receivable (net of allowance of $304)—
 26,394
 1
 —
 26,395
Income tax receivable88
 —
 —
 —
 88
4,935
 —
 —
 —
 4,935
Owned inventory—
 1,542,807
 —
 —
 1,542,807
—
 1,504,248
 —
 —
 1,504,248
Investments in unconsolidated entities773
 3,221
 —
 —
 3,994
773
 3,189
 —
 —
 3,962
Deferred tax assets, net307,896
 —
 —
 —
 307,896
246,957
 —
 —
 —
 246,957
Property and equipment, net—
 17,566
 —
 —
 17,566
—
 27,421
 —
 —
 27,421
Investments in subsidiaries808,067
 —
 —
 (808,067) —
636,791
 —
 —
 (636,791) —
Intercompany606,168
 —
 2,337
 (608,505) —
753,769
 —
 1,680
 (755,449) —
Goodwill—
 11,376
 —
 —
 11,376
Other assets599
 7,098
 15
 —
 7,712
1,235
 8,317
 4
 —
 9,556
Total assets$2,017,783
 $1,623,868
 $3,077
 $(1,423,733) $2,220,995
$1,729,924
 $1,618,266
 $1,694
 $(1,392,240) $1,957,644
LIABILITIES AND STOCKHOLDERS’ EQUITY                  
Trade accounts payable$—
 $103,484
 $—
 $—
 $103,484
$—
 $131,152
 $—
 $—
 $131,152
Other liabilities11,229
 96,189
 241
 —
 107,659
12,335
 97,081
 13
 —
 109,429
Intercompany2,337
 613,329
 —
 (615,666) —
1,680
 753,769
 —
 (755,449) —
Total debt (net of premium and debt issuance costs)1,321,777
 5,635
 —
 —
 1,327,412
1,177,155
 1,154
 —
 —
 1,178,309
Total liabilities1,335,343
 818,637
 241
 (615,666) 1,538,555
1,191,170
 983,156
 13
 (755,449)��1,418,890
Stockholders’ equity682,440
 805,231
 2,836
 (808,067) 682,440
538,754
 635,110
 1,681
 (636,791) 538,754
Total liabilities and stockholders’ equity$2,017,783
 $1,623,868
 $3,077
 $(1,423,733) $2,220,995
$1,729,924
 $1,618,266
 $1,694
 $(1,392,240) $1,957,644


Beazer Homes USA, Inc.
Condensed Consolidating Statements of Operations
(Unaudited)
in thousandsBeazer Homes
USA, Inc.		 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Consolidating
Adjustments		 Consolidated
Beazer Homes
USA, Inc.
Three Months Ended December 31, 2019         
Total revenue$—
 $417,804
 $—
 $—
 $417,804
Home construction and land sales expenses19,669
 334,998
 —
 —
 354,667
Gross (loss) profit(19,669) 82,806
 —
 —
 63,137
Commissions—
 16,065
 —
 —
 16,065
General and administrative expenses—
 39,699
 —
 —
 39,699
Depreciation and amortization—
 3,427
 —
 —
 3,427
Operating (loss) income(19,669) 23,615
 —
 —
 3,946
Equity in income of unconsolidated entities—
 (13) —
 —
 (13)
Other (expense) income, net(1,442) 102
 —
 —
 (1,340)
(Loss) income from continuing operations before income taxes(21,111) 23,704
 —
 —
 2,593
(Benefit) expense from income taxes(1,900) 1,689
 —
 —
 (211)
Equity in income of subsidiaries22,015
 —
 —
 (22,015) —
Income from continuing operations2,804
 22,015
 —
 (22,015) 2,804
Loss from discontinued operations, net of tax—
 (49) (9) —
 (58)
Equity in loss of subsidiaries from discontinued operations(58) —
 —
 58
 —
Net income (loss)$2,746
 $21,966
 $(9) $(21,957) $2,746
          
in thousandsBeazer Homes
USA, Inc.		 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Consolidating
Adjustments		 Consolidated
Beazer Homes
USA, Inc.
Three Months Ended December 31, 2018         
Total revenue$—
 $402,040
 $115
 $(115) $402,040
Home construction and land sales expenses17,323
 323,170
 —
 (115) 340,378
Inventory impairments and abandonments115
 892
 —
 —
 1,007
Gross (loss) profit(17,438) 77,978
 115
 —
 60,655
Commissions—
 15,737
 —
 —
 15,737
General and administrative expenses—
 38,646
 (4) —
 38,642
Depreciation and amortization—
 2,770
 —
 —
 2,770
Operating (loss) income(17,438) 20,825
 119
 —
 3,506
Equity in income of unconsolidated entities—
 (64) —
 —
 (64)
Other (expense) income, net(242) 204
 (4) —
 (42)
(Loss) income from continuing operations before income taxes(17,680) 20,965
 115
 —
 3,400
Expense (benefit) from income taxes20,385
 (24,336) 29
 —
 (3,922)
Equity in income of subsidiaries45,387
 —
 —
 (45,387) —
Income from continuing operations7,322
 45,301
 86
 (45,387) 7,322
Loss from discontinued operations, net of tax—
 (7) (4) —
 (11)
Equity in loss of subsidiaries from discontinued operations(11) —
 —
 11
 —
Net income$7,311
 $45,294
 $82
 $(45,376) $7,311



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Beazer Homes USA, Inc.
Condensed Consolidating Statements of Cash Flow Information
(Unaudited)
in thousandsBeazer Homes
USA, Inc.		 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Consolidating
Adjustments		 Consolidated
Beazer Homes
USA, Inc.
Three Months Ended December 31, 2019         
Net cash used in operating activities$(35,926) $(48,490) $(114) $—
 $(84,530)
Cash flows from investing activities:         
Capital expenditures—
 (2,632) —
 —
 (2,632)
Proceeds from sale of fixed assets—
 66
 —
 —
 66
Return of capital from unconsolidated entities—
 19
 —
 —
 19
Advances to/from subsidiaries(21,906) —
 117
 21,789
 —
Net cash (used in) provided by investing activities(21,906) (2,547) 117
 21,789
 (2,547)
Cash flows from financing activities:         
Repayment of debt—
 (1,150) —
 —
 (1,150)
Repayment of borrowings from credit facility(95,000) —
 —
 —
 (95,000)
Borrowings from credit facility125,000
 —
 —
 —
 125,000
Tax payments for stock-based compensation awards(2,646) —
 —
 —
 (2,646)
Stock option exercises and other financing activities(1,885) —
 —
 —
 (1,885)
Advances to/from subsidiaries—
 21,789
 —
 (21,789) —
Net cash provided by financing activities25,469
 20,639
 —
 (21,789) 24,319
Decrease in cash, cash equivalents, and restricted cash(32,363) (30,398) 3
 —
 (62,758)
Cash, cash equivalents, and restricted cash at beginning of period85,464
 37,321
 9
 —
 122,794
Cash, cash equivalents, and restricted cash at end of period$53,101
 $6,923
 $12
 $—
 $60,036
          
in thousandsBeazer Homes
USA, Inc.		 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Consolidating
Adjustments		 Consolidated
Beazer Homes
USA, Inc.
Three Months Ended December 31, 2018         
Net cash used in operating activities$(31,908) $(22,756) $(26) $—
 $(54,690)
Cash flows from investing activities:         
Capital expenditures—
 (6,354) —
 —
 (6,354)
Proceeds from sale of fixed assets—
 54
 —
 —
 54
Return of capital from unconsolidated entities532
 —
 (532) —
 —
Advances to/from subsidiaries21,204
 —
 —
 (21,204) —
Net cash provided by (used in) investing activities21,736
 (6,300) (532) (21,204) (6,300)
Cash flows from financing activities:         
Repayment of debt(11) (1,468) —
 —
 (1,479)
Proceeds from issuance of new debt—
 —
 —
 —
 —
Borrowings from credit facility100,000
 —
 —
 —
 100,000
Repurchase of common stock(16,500) —
 —
 —
 (16,500)
Repayment of borrowings from credit facility(75,000) —
 —
 —
 (75,000)
Debt issuance costs(400) —
 —
 —
 (400)
Tax payments for stock-based compensation awards(1,850) —
 —
 —
 (1,850)
Stock option exercises and other financing activities7
 —
 —
 —
 7
Advances to/from subsidiaries—
 (21,204) —
 21,204
 —
Net cash provided by (used in) financing activities6,246
 (22,672) —
 21,204
 4,778
Decrease in cash, cash equivalents, and restricted cash(3,926) (51,728) (558) —
 (56,212)
Cash, cash equivalents, and restricted cash at beginning of period104,796
 47,877
 575
 —
 153,248
Cash, cash equivalents, and restricted cash at end of period$100,870
 $(3,851) $17
 $—
 $97,036
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Beazer Homes USA, Inc.
Unaudited Consolidating Statements of Income (Loss) and Unaudited Comprehensive Income (Loss)
(In thousands)
 Beazer Homes
USA, Inc.		 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Consolidating
Adjustments		 Consolidated
Beazer Homes
USA, Inc.
Three Months Ended December 31, 2017         
Total revenue$—
 $372,489
 $14
 $(14) $372,489
Home construction and land sales expenses16,468
 295,206
 —
 (14) 311,660
Gross (loss) profit(16,468) 77,283
 14
 —
 60,829
Commissions—
 14,356
 —
 —
 14,356
General and administrative expenses—
 37,244
 41
 —
 37,285
Depreciation and amortization—
 2,507
 —
 —
 2,507
Operating (loss) income(16,468) 23,176
 (27) —
 6,681
Equity in loss of unconsolidated entities—
 (101) —
 —
 (101)
Loss on extinguishment of debt(25,904) —
 —
 —
 (25,904)
Other (expense) income, net(3,435) 296
 (6) —
 (3,145)
(Loss) income before income taxes(45,807) 23,371
 (33) —
 (22,469)
(Benefit) expense from income taxes(12,185) 120,303
 (12) —
 108,106
Equity in income of subsidiaries(96,953) —
 —
 96,953
 —
Loss from continuing operations(130,575) (96,932) (21) 96,953
 (130,575)
Loss from discontinued operations—
 (369) (3) —
 (372)
Equity in loss of subsidiaries from discontinued operations(372) —
 —
 372
 —
Net loss and comprehensive loss$(130,947) $(97,301) $(24) $97,325
 $(130,947)
          
 Beazer Homes
USA, Inc.		 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Consolidating
Adjustments		 Consolidated
Beazer Homes
USA, Inc.
Three Months Ended December 31, 2016         
Total revenue$—
 $339,241
 $36
 $(36) $339,241
Home construction and land sales expenses15,644
 269,970
 —
 (36) 285,578
Gross (loss) profit(15,644) 69,271
 36
 —
 53,663
Commissions—
 13,323
 —
 —
 13,323
General and administrative expenses—
 36,365
 23
 —
 36,388
Depreciation and amortization—
 2,677
 —
 —
 2,677
Operating (loss) income(15,644) 16,906
 13
 —
 1,275
Equity in income of unconsolidated entities—
 22
 —
 —
 22
Other (expense) income, net(5,252) 57
 (1) —
 (5,196)
(Loss) income before income taxes(20,896) 16,985
 12
 —
 (3,899)
(Benefit) expense from income taxes(7,569) 5,025
 4
 —
 (2,540)
Equity in income of subsidiaries11,968
 —
 —
 (11,968) —
(Loss) income from continuing operations(1,359) 11,960
 8
 (11,968) (1,359)
Loss from discontinued operations(70) —
 —
 —
 (70)
Equity in loss of subsidiaries from discontinued operations—
 (67) (3) 70
 —
Net (loss) income and comprehensive (loss) income$(1,429) $11,893
 $5
 $(11,898) $(1,429)

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Beazer Homes USA, Inc.
Unaudited Condensed Consolidating Statements of Cash Flow Information
(In thousands)
 Beazer Homes
USA, Inc.		 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Consolidating
Adjustments		 Consolidated
Beazer Homes
USA, Inc.
Three Months Ended December 31, 2017         
Net cash provided by (used in) operating activities$91,465
 $(193,721) $32
 $—
 $(102,224)
Cash flows from investing activities:         
Capital expenditures—
 (3,702) —
 —
 (3,702)
Proceeds from sale of fixed assets—
 84
 —
 —
 84
Investments in unconsolidated entities—
 (421) —
 —
 (421)
Advances to/from subsidiaries(187,451) —
 (26) 187,477
 —
Net cash used in investing activities(187,451) (4,039) (26) 187,477
 (4,039)
Cash flows from financing activities:         
Repayment of debt(400,012) (1,469) —
 —
 (401,481)
Proceeds from issuance of new debt400,000
 —
 —
 —
 400,000
Debt issuance costs(5,649) —
 —
 —
 (5,649)
Advances to/from subsidiaries—
 186,563
 —
 (186,563) —
Other financing activities(1,322) —
 —
 —
 (1,322)
Net cash (used in) provided by financing activities(6,983) 185,094
 —
 (186,563) (8,452)
(Decrease) increase in cash, cash equivalents and restricted cash(102,969) (12,666) 6
 914
 (114,715)
Cash, cash equivalents and restricted cash at beginning of period294,192
 16,854
 724
 (7,161) 304,609
Cash, cash equivalents and restricted cash at end of period$191,223
 $4,188
 $730
 $(6,247) $189,894
          
 Beazer Homes
USA, Inc.		 Guarantor
Subsidiaries		 Non-Guarantor
Subsidiaries		 Consolidating
Adjustments		 Consolidated
Beazer Homes
USA, Inc.
Three Months Ended December 31, 2016         
Net cash used in operating activities$(2,902) $(59,928) $(4) $—
 $(62,834)
Cash flows from investing activities:         
Capital expenditures—
 (2,874) —
 —
 (2,874)
Proceeds from sale of fixed assets—
 46
 —
 —
 46
Investments in unconsolidated entities—
 (1,397) —
 —
 (1,397)
Return of capital from unconsolidated entities—
 1,621
 —
 —
 1,621
Advances to/from subsidiaries(50,314) —
 —
 50,314
 —
Net cash used in investing activities(50,314) (2,604) —
 50,314
 (2,604)
Cash flows from financing activities:         
Repayment of debt—
 (2,525) —
 —
 (2,525)
Debt issuance costs(340) —
 —
 —
 (340)
Advances to/from subsidiaries—
 52,224
 (2) (52,222) —
Other financing activities(387) —
 —
 —
 (387)
Net cash (used in) provided by financing activities(727) 49,699
 (2) (52,222) (3,252)
Decrease in cash, cash equivalents and restricted cash(53,943) (12,833) (6) (1,908) (68,690)
Cash, cash equivalents and restricted cash at beginning of period228,513
 18,404
 859
 (4,500) 243,276
Cash, cash equivalents and restricted cash at end of period$174,570
 $5,571
 $853
 $(6,408) $174,586
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(16)(17) Discontinued Operations
We continually review each of our markets in order to refine our overall investment strategy and to optimize capital and resource allocations in an effort to enhance our financial position and to increase stockholder value. This review entails an evaluation of both external market factors and our position in each market and over time has resulted in the decision to discontinue certain of our homebuilding operations. During our fiscal 2015, we made the decision that we would not continue to reinvest in new homebuilding assets in our New Jersey division; therefore, it is no longer considered an active operation. However, the results of our New Jersey division are not included in the discontinued operations information shown below.
We have classified the results of operations of our discontinued operations separately in the accompanying unaudited condensed consolidated statements of incomeoperations for all periods presented. There were no material assets or liabilities related to theseour discontinued operations as of December 31, 20172019 or September 30, 20172019. Discontinued operations were not segregated in the unaudited condensed consolidated statements of cash flows. Therefore, amounts for certain captions in the unaudited condensed consolidated statements of cash flows will not agree with the respective data in the unaudited condensed consolidated statements of income.operations. The results of our discontinued operations in the unaudited condensed consolidated statements of incomeoperations for the periods presented were as follows:
 Three Months Ended
 December 31,
(In thousands)2017 2016
Total revenue$625
 $—
Home construction and land sales expenses667
 78
Inventory impairments and lot option abandonments450
 —
Gross loss(492) (78)
General and administrative expenses16
 31
Operating loss(508) (109)
Equity in income of unconsolidated entities12
 —
Other expense, net(3) —
Loss from discontinued operations before income taxes(499) (109)
Benefit from income taxes(127) (39)
Loss from discontinued operations, net of tax$(372) $(70)



 Three Months Ended
 December 31,
in thousands2019 2018
Total revenue$—
 $55
Home construction and land sales expenses1
 33
Gross (loss) profit(1) 22
General and administrative expenses74
 33
Operating loss(75) (11)
Equity in loss of unconsolidated entities—
 (1)
Other expense, net—
 (1)
Loss from discontinued operations before income taxes(75) (13)
Benefit from income taxes(17) (2)
Loss from discontinued operations, net of tax$(58) $(11)
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview and Outlook
Market Conditions
In any period, theThe demand for new and existing homes is dependent on a variety of demographic and economic factors, including household formation, job and wage growth, the availability and cost ofhousehold formation, consumer confidence, mortgage financing, the supply of new and existing homes, home price affordability and, importantly, consumer confidence. These factors all fluctuate over time at both a national and a more localized market level. Additionally, changes in government policy, including tax-related issues, could have a significant impact on the demand for housing. For example, the recently enacted Tax Cuts and Jobs Act includes provisions related to the deductibility of mortgage interest and state and local taxes, which could have an impact on the overall demand for home ownership.housing affordability. In general, these factors are contributing to stable and modestly improving conditions for new home sales, but there are risks and challenges that could adversely impact our business in fiscal 2018 and beyond. On the positive side areincluding rising levels of household formation, a constrained supply of new and used homes, wage growth, strong employment conditions and mortgage rates that continue to be low by historical standards. Challenges include early signs ofstandards are contributing to improving conditions for new home sales. As conditions improve, risks and challenges that could adversely impact our business such as cost pressures and home price affordability constraints (largely driven by the historically low levels ofconcerns increase. To capitalize on market opportunities while addressing these risks, our operating strategy focuses on offering homes available for sale and still constrained level of new home construction), as well as volatility in domestic and international financial markets. Overall, we continue to believe that we are well positioned in key markets, and that the underlying fundamentals that drive home purchases are supportive.provide our customers an extraordinary value at an affordable price.
Overview of Results for Our Fiscal First Quarter
We continued toward achievingReflecting improving market conditions and our “2B-10” goalsoperating strategy, during the first quarter of fiscal 2020, we made improvements in closings, homebuilding gross profit, average selling price, sales pace, net new orders, and the execution of our balanced growth strategy. Additionally, we successfully improved our balance sheet by extending debt maturities and reducing our cash interest expense. We also activated an additional land parcel previously classified as land held for future development.
In December 2017, we acquired more than 450 lots spread across four new home communitieshomes in Raleigh and three in Myrtle Beach from Bill Clark Homes. These communities have been incorporated into the Company’s existing operations in these respective divisions and will contribute to both revenue and Adjusted EBITDA in fiscal 2018. The transaction value was approximately $29.0 million and was funded from available cash.backlog.
Profitability
For the quarter ended December 31, 2017,2019, we recorded a net lossincome from continuing operations of $130.6$2.8 million a decline of $129.2 million over the prior year quarter'scompared to net lossincome from continuing operations of $1.4 million. The following$7.3 million in the first quarter of fiscal 2018. There were certain items that impacted the comparability of our resultsnet income from continuing operations between periods: (1) we recorded a
Income tax expense of $112.6benefit from continuing operations was $0.2 million induring the current quarter primarily due to the remeasurementrecognition of our deferred$0.7 million of energy efficient homebuilding tax assetscredits, as a resultcompared to $7.3 million income tax benefit for the prior year quarter primarily driven by $5.3 million of energy efficient homebuilding tax credits recognized during the recently passed Tax Cuts and Jobs Act (seequarter. Refer to Note 10 of the notes to our unauditedthe condensed consolidated financial statements in this Form 10-Q); and (2) we recorded a $25.9 million loss on extinguishment of debt during the current quarter, compared to none in the prior year quarter.for additional details.
Looking at our underlying operating results, year-over-year closings increased by 7.1%, from 995 in the prior year quarter to 1,066 in the current quarter, and our average selling price (ASP) increased by 2.1%, from $337.8 thousand in the prior year quarter to $345.0 thousand in the current quarter. Combined, these factors resulted in a 9.4% increase in homebuilding revenue, which climbed from $336.1 million in the prior year quarter to $367.8 million in the current quarter. Our homebuilding gross margin, excludingWe recognized no inventory impairments abandonments and interest, showed year-over-year improvement to 20.9% in the current quarter from 20.5% in the prior year quarter. Commission expense was higher year-over-year due to the revenue increase, but decreased slightly as a percentage of homebuilding revenue. Finally, our general and administrative expenses (G&A) increased year-over-year by $0.9 million, but declined as a percentage of total revenue from 10.7% in the prior year quarter to 10.0% in the current quarter.
New order activity in the current quarter was 10.4% higher than the prior year quarter as we sold 1,110 units compared to 1,005 last year. Sales per community also increased year-over-year as we sold 2.4 homes per community per month in the current quarter compared to 2.2$1.0 million of inventory impairments recognized in last year’s quarter, a 10.9% increase. We ended the quarter with a backlog of 1,899 units, which represents a 1.4% decrease from the 1,926 backlog units we had as of the end of the prior year quarter. The current quarter ending backlog has an ASP of $370.9 thousand, a year-over-year increase of 7.2%, leading to a 5.7% increase in the dollar value of our backlog compared to the prior year quarter.
Debt ReductionBalanced Growth Strategy
We continue to execute against our balanced growth strategy, which we define as the expansion of earnings at a faster rate than our revenue growth, supported by a less-leveraged and Capital Efficiency
During the first quarterreturn-driven capital structure. This strategy provides us with flexibility to increase return of capital to investors, reduce leverage, or increase investment in land and other operating assets in response to changing market conditions. The following is a summary of our fiscal 2018, we successfully extended our maturitiesperformance against certain key operating and decreased future interest expense by approximately $2.1 million annually through the issuance of $400.0 million in unsecured Senior Notes due 2027. The proceeds from the issuance of the Senior Notes due 2027 were used, as well as cash on hand, to redeem $225.0 million of our Senior Notes due 2019 and $175.0 million of our Senior Notes due 2023. We anticipate redeeming the remaining $96.4 million of the Senior
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Notes due 2019 by the end offinancial metrics during the current fiscal year, as the fulfillment of our previously announced debt reduction plan. See Note 7 of the notes to our unaudited condensed consolidated financial statements in this Form 10-Q for further discussion of our outstanding borrowings.
We have employed a number of strategies to improve capital efficiency, including greater use of option contracts and land banking, acquisition of shorter duration land parcels and activation of previously land held for future development communities. As of December 31, 2017, our land held for future development balance declined by approximately $15.4 million from September 30, 2017, primarily due to the activation of a parcel for homebuilding activities.
Reaching “2B-10”
In November 2013, we introduced a multi-year “2B-10” plan, which provided a roadmap of revenue and margin metrics to achieve $2 billion in revenue with a 10% Adjusted EBITDA margin. Taken together, reaching “2B-10” would result in Adjusted EBITDA of at least $200 million. Since the plan's introduction, we have consistently noted that there are many paths to achieving our underlying goal of $200 million of Adjusted EBITDA, and we continually revisit our established ranges for each metric. We remain committed to reaching the “2B-10” objectives as soon as possible, and expect to reach them by making further improvements in each of the five key metrics embedded in the plan: (1) sales per community per month (our absorption rate); (2) ASP; (3) active community count; (4) homebuilding gross margin; and (5) cost leverage as measured by selling, general and administrative expenses (SG&A) as a percentage of total revenue.
Since introducing our “2B-10” plan, we have made significant progress toward achieving our goals, having more than doubled our revenue and our Adjusted EBITDA, with trailing twelve month Adjusted EBITDA reaching $182.7 million as of December 31, 2017, compared to $154.8 million as of December 31, 2016 and $86.3 million at the time we introduced the plan (as of September 30, 2013). Our progress on each metric is discussed in more detail below:period:
Sales per community per month was 2.4 and 2.22.5 for the quartersquarter ended December 31, 2017 and2019 compared to 2.0 for the quarter ended December 31, 2016, respectively.2018. Our strong emphasis on sales absorptions allowed us to expand the unit and dollar value of our backlog despite higher year-over-year closings and a smaller community count.closings. Sales per community per month increased to 3.0remained unchanged at 2.9 for the trailing 12 months ended December 31, 20172019 versus 2.8 a year ago and is within the competitive range established in our “2B-10” plan of 2.8 to 3.2. We continue to believe that3.2 we are among the industry leaders in sales absorption rates, and are focused on driving further increases in our sales pace moving forward.established for fiscal 2020.
Our ASP for homes closed during the quarter ended December 31, 20172019 was $345.0$375.4 thousand, up 2.1%1.4% compared to the prior year.year quarter. ASP for closings during the trailing 12 months ended December 31, 20172019 was $344.4$378.7 thousand, up 3.6%3.8% year-over-year, and our ASP in backlog as of December 31, 20172019 has risen 7.2%1.9% versus the prior year quarter to $370.9$396.4 thousand. Our targeted "2B-10" metric forThe dollar value of backlog increased by 23.4% year-over-year from $593.1 million to $732.1 million due to increases in backlog units and ASP is a range of $340.0 thousand to $350.0 thousand.in backlog.
During the current quarter ended December 31, 2019, we had an average active community count of 155, down 0.4%168, up 5.2% from the prior year quarter, andquarter. We ended the current quarter with 156166 active communities. We expect our year-over-year increase in spending on land and land development activities to lead to growth in community count going forward. We invested $141.7$146.0 million in land acquisition and land development during the current quarter compared to $103.2$121.0 million in the prior year quarter. We consistentlycontinually evaluate strategic opportunities to purchase land within our geographic footprint, balancing our desire to reduce our leverage with land acquisition strategies that minimize ourmaximize the efficiency of capital employed. Our “2B-10” target metric is an active community count range between 170 and 175.
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Homebuilding gross margin excluding impairments and abandonments and interest for the quarter ended December 31, 20172019 was 20.9%19.8%, up from 20.5%19.7% in the prior year quarter. For the trailing 12 months ended December 31, 2017,2019, this adjusted gross margin was 21.3%, which is within19.8%. With our “2B-10” target metric range of 21.0% to 22.0%. Our homebuildingimproving sales pace and strong backlog, we believe opportunities remain for gross margin has been favorably impacted this yearexpansion through maximizing revenue while reducing costs by a number of factors, includingsimplifying our efforts to reduce construction costs, improve cycle time, raise home prices where possible and, to a lesser extent, some non-recurring benefits. Working against these efforts have been increases in land costs, driven by the location and structure of our land deals, cost pressures in certain labor and material categories and community mix (including an increasing number of closings from recently activated assets formerly classified as land held for future development, which generally have lower margins).product offerings.
SG&A for the quarter ended December 31, 20172019 was 13.9%13.3% of total revenue compared to 14.7%13.5% in the prior year quarter. A $2.7 million charge was recorded within our SG&A during the prior year quarter to write off an uncollectible deposit on a legacy investment, and excluding this write-off, our SG&A as a percentage of homebuilding revenue was flat year-over-year. SG&A for the trailing 12 months ended December 31, 20172019 was 12.2%11.5% of total revenue, a decrease of 4030 basis points from the prior year. Although SG&A for the trailing 12 months remains slightly above our “2B-10” target range of 11.0% to 12.0%, we believe that revenue growth in our fiscal 2018 and beyond will allow us to attain our “2B-10” target range.
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For the trailing 12 months ended December 31, 2017,2018. The decrease in SG&A as a percentage of total revenue was due to our continued focus on improving overhead cost management in relation to our revenue was $1.9 billion, up 7.3% year-over-year. Excluding the non-recurring items detailed in the full reconciliation of our EBITDA (refer to section below entitled “EBITDA: Reconciliation of Net Income (Loss) to Adjusted EBITDA”), Adjusted EBITDA for the trailing 12 months ended December 31, 2017 increased $27.9 million, or 18.1%, to $182.7 million. We expect to continue focusing on our “2B-10” metrics during fiscal 2018, with particular emphasis on driving sales absorptions and improving our SG&A leverage.growth.
Seasonal and Quarterly Variability:Variability
Our homebuilding operating cycle generally reflects escalating new order activity in the second and third fiscal quarters and increased closings in the third and fourth fiscal quarters. Accordingly, our financial results for the three months ended December 31, 20172019 may not accurately predictbe indicative of our ultimate full year results.

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RESULTS OF CONTINUING OPERATIONS:
The following table summarizes certain key income statement metrics for the periods presented:
Three Months EndedThree Months Ended
December 31,December 31,
($ in thousands)2017 2016
Revenues:   
$ in thousands2019 2018
Revenue:   
Homebuilding$367,754
 $336,126
$417,399
 $400,982
Land sales and other4,735
 3,115
405
 1,058
Total$372,489
 $339,241
$417,804
 $402,040
Gross profit:      
Homebuilding$60,232
 $53,204
$63,108
 $60,619
Land sales and other597
 459
29
 36
Total$60,829
 $53,663
$63,137
 $60,655
Gross margin:      
Homebuilding16.4 % 15.8%15.1 % 15.1 %
Land sales and other12.6 % 14.7%7.2 % 3.4 %
Total16.3 % 15.8%15.1 % 15.1 %
Commissions$14,356
 $13,323
$16,065
 $15,737
General and administrative expenses (G&A) (a)
37,285
 36,388
$39,699
 $38,642
SG&A (commissions plus G&A) as a percentage of total revenue13.9 % 14.7%13.3 % 13.5 %
G&A as a percentage of total revenue10.0 % 10.7%9.5 % 9.6 %
Depreciation and amortization$2,507
 $2,677
$3,427
 $2,770
Operating income$6,681
 $1,275
$3,946
 $3,506
Operating income as a percentage of total revenue1.8 % 0.4%0.9 % 0.9 %
Effective Tax Rate (b)
(481.1)% 65.1%
Equity in (loss) income of unconsolidated entities$(101) $22
Loss on extinguishment of debt25,904
 —
Effective tax rate (a)
(8.1)% (115.4)%
Equity in loss of unconsolidated entities$(13) $(64)
(a) In addition to other items impacting G&A, for the three months ended December 31, 2016, this metric was impacted by a $2.7 million charge to write off a deposit on a legacy investment in a development site that we deemed uncollectible.
(b) Calculated as tax expense (benefit)benefit for the period divided by income (loss) from continuing operations. Due to the effect of a variety of factors, including the impact of discrete tax items on our effective tax rate, our income tax expense (benefit)benefit is not always directly correlated to the amount of pretaxpre-tax income (loss) for the associated periods, particularly when focusing on individual quarters.periods.

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EBITDA: Reconciliation of Net Income (Loss) to Adjusted EBITDA
Reconciliation of Adjusted EBITDA to total company net income (loss), the most directly comparable GAAP measure, is provided for each period discussed below. Management believes that Adjusted EBITDA assists investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies' respective capitalization, tax position, and level of impairments. These EBITDA measures should not be considered alternatives to net income (loss) determined in accordance with GAAP as an indicator of operating performance.
The reconciliation of Adjusted EBITDA to total company net income (loss) below differs from the prior year, as it provides a more simplified presentation of EBIT, EBITDA and Adjusted EBITDA that excludes certain non-recurring amounts recorded during the periods presented. Management believes that this presentation best reflects the operating characteristics of the Company.
The following table reconciles our net income (loss) to Adjusted EBITDA for the periods presented:
 Three Months Ended December 31, 
LTM Ended December 31, (a)
Three Months Ended December 31, 
LTM Ended December 31, (a)
(In thousands) 2017 2016 17 vs 16 2017 2016 17 vs 16
Net (loss) income $(130,947) $(1,429) $(129,518) $(97,705) $2,265
 $(99,970)
Expense (benefit) from income taxes 107,979
 (2,579) 110,558
 113,179
 13,139
 100,040
in thousands2019 2018 19 vs 18 2019 2018 19 vs 18
Net income (loss)$2,746
 $7,311
 $(4,565) $(84,085) $92,883
 $(176,968)
Benefit from income taxes(228) (3,924) 3,696
 (33,549) (17,530) (16,019)
Interest amortized to home construction and land sales expenses and capitalized interest impaired 16,476
 15,644
 832
 89,652
 81,315
 8,337
19,669
 17,438
 2,231
 111,172
 94,075
 17,097
Interest expense not qualified for capitalization 3,435
 5,252
 (1,817) 13,819
 23,208
 (9,389)1,442
 242
 1,200
 4,309
 2,132
 2,177
EBIT (3,057) 16,888
 (19,945) 118,945
 119,927
 (982)23,629
 21,067
 2,562
 (2,153) 171,560
 (173,713)
Depreciation and amortization and stock-based compensation amortization 5,117
 4,859
 258
 22,431
 21,864
 567
5,738
 4,884
 854
 26,139
 23,832
 2,307
EBITDA 2,060
 21,747
 (19,687) 141,376
 141,791
 (415)29,367
 25,951
 3,416
 23,986
 195,392
 (171,406)
Loss on extinguishment of debt 25,904
 —
 25,904
 38,534
 12,595
 25,939
—
 —
 —
 24,920
 1,935
 22,985
Inventory impairments and abandonments (b)
 450
 —
 450
 2,839
 13,216
 (10,377)—
 892
 (892) 133,819
 5,430
 128,389
Additional insurance recoveries from third-party insurer —
 —
 —
 —
 (15,500) 15,500
Write-off of deposit on legacy land investment —
 2,700
 (2,700) —
 2,700
 (2,700)
Joint venture impairment and abandonment charges—
 —
 —
 —
 341
 (341)
Adjusted EBITDA $28,414
 $24,447
 $3,967
 $182,749
 $154,802
 $27,947
$29,367
 $26,843
 $2,524
 $182,725
 $203,098
 $(20,373)
(a) “LTM” indicates amounts for the trailing 12 months.
(b) In periods during which we impaired certain of our inventory assets, capitalized interest that is impaired is included in the line above titled “Interest amortized to home construction and land sales expenses and capitalized interest impaired.”
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Homebuilding Operations Data

The following tables summarizetable summarizes new orders net and cancellation rates by reportable segment for the periods presented:
Three Months Ended December 31,Three Months Ended December 31,
New Orders, net Cancellation RatesNew Orders, net Cancellation Rates
2017 2016 17 vs 16 2017 20162019 2018 19 vs 18 2019 2018
West534
 467
 14.3% 18.5% 20.2%737
 519
 42.0% 15.6% 19.2%
East259
 228
 13.6% 23.1% 22.7%233
 201
 15.9% 14.7% 20.9%
Southeast317
 310
 2.3% 15.9% 21.5%281
 256
 9.8% 13.3% 20.0%
Total1,110
 1,005
 10.4% 18.9% 21.2%1,251
 976
 28.2% 14.9% 19.8%
Sales per community per month was 2.4 and 2.2Net new orders for the quarters ended December 31, 2017 and December 31, 2016, respectively, an increase of 10.9%, driven by our continued emphasis on sales absorptions. Our year-over-year absorptions improved in the majority of our markets, driven by our community mix and the maturation of certain communities versus the prior year quarter. Our average active communities declined slightly by 0.4% year-over-year, from 156 to 155 during the quarter ended December 31, 2017, partially offsetting our stronger absorptions and ultimately resulting in a 10.4% increase in new orders, net.
For2019 increased to 1,251, up 28.2% from the three monthsquarter ended December 31, 2017,2018. The increase in net new orders was driven by an increase in average active communities from 160 in the prior year quarter to 168, as well as increase in our absorption rate from 2.0 sales per community in the prior year quarter to 2.5 in the current quarter.
All three of our reportable segments experienced sales pace increases during the current quarter, while average active community count increased in the West but decreased in the East and Southeast. Specifically, in the West, the increase in net new orders netwas primarily due to increases in oursales pace at Dallas, Southern California and Northern California markets, combined with increases in average active communities across all West segment markets. In the East, the increase in net new orders was mainly attributable to a significant year-over-year increase in our Las Vegas market, where new order activity from former land held for future development parcels was a strong contributor to the year-over-year increase we experienced. The increase in new orders, net in our East segment for the three months ended December 31, 2017 was mainly attributable to a significant year-over-year increase in our MarylandNashville market, where we experienced increases in both sales pace. Finally,pace and average active community count year-over-year. In the year-over-yearSoutheast, the increase in net new orders net forwas attributable to sales pace increases in the three months ended December 31, 2017Atlanta, Raleigh, Orlando and Tampa markets, as well as an increase in our Southeast segment was primarily driven by ouraverage active community count in the Atlanta market, due to a strong sales performance in certain communities. In addition, our Southeast segment recorded 21 sales across our Raleigh and Myrtle Beach markets related to the assets acquired from Bill Clark Homes as of December 31, 2017.market.
The table below summarizes backlog units by reportable segment as well as the aggregate dollar value of homes in backlog and ASP forof homes in backlog as of December 31, 20172019 and December 31, 2016:2018:
As of December 31,As of December 31,
2017 2016 17 vs 162019 2018 19 vs 18
Backlog Units:          
West887
 785
 13.0 %1,025
 776
 32.1 %
East447
 455
 (1.8)%382
 294
 29.9 %
Southeast565
 686
 (17.6)%440
 455
 (3.3)%
Total1,899
 1,926
 (1.4)%1,847
 1,525
 21.1 %
Aggregate dollar value of homes in backlog (in millions)$704.4
 $666.1
 5.7 %$732.1
 $593.1
 23.4 %
ASP in backlog (in thousands)$370.9
 $345.8
 7.2 %$396.4
 $388.9
 1.9 %
Backlog reflects the number of homes for which the Company has entered into a sales contract with a customer but has not yet delivered the home. Homes in backlog are generally delivered within three to six months following commencement of construction. Backlog units as of December 31, 2017 decreased by 1.4% over the prior year due to a 7.1% improvement in our year-over-year closings. We entered the current quarter with fewer backlog units when compared to the prior year period, but, despite a lower community count, were able to grow our backlog during the quarter due to an improvement in sales absorptions of 10.9% year-over-year. Additionally, theThe aggregate dollar value of homes in backlog hasas of December 31, 2019 increased by 5.7%23.4% compared to December 31, 2018 due to a 21.1% increase in large partbacklog units in addition to a 1.9% increase in the ASP of homes in backlog. The increase in backlog units was primarily due to the continued upward trendaforementioned increase in our year-over-year ASP.
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net new orders for the three months ended December 31, 2019 compared to the same period a year ago.
Homebuilding Revenue, Average Selling Price, and Closings
The tablestable below summarizesummarizes homebuilding revenue, the ASP of our homes closed, and closings by reportable segment for the periods presented:
Three Months Ended December 31,Three Months Ended December 31,
Homebuilding Revenue Average Selling Price ClosingsHomebuilding Revenue Average Selling Price Closings
($ in thousands)2017 2016 17 vs 16 2017 2016 17 vs 16 2017 2016 17 vs 16
$ in thousands2019 2018 19 vs 18 2019 2018 19 vs 18 2019 2018 19 vs 18
West$176,556
 $171,749
 2.8% $335.7
 $336.8
 (0.3)% 526
 510
 3.1%$254,398
 $208,944
 21.8 % $366.6
 $347.7
 5.4 % 694
 601
 15.5 %
East85,688
 81,250
 5.5% 380.8
 374.4
 1.7 % 225
 217
 3.7%77,645
 87,765
 (11.5)% 404.4
 466.8
 (13.4)% 192
 188
 2.1 %
Southeast105,510
 83,127
 26.9% 335.0
 310.2
 8.0 % 315
 268
 17.5%85,356
 104,273
 (18.1)% 377.7
 354.7
 6.5 % 226
 294
 (23.1)%
Total$367,754
 $336,126
 9.4% 345.0
 337.8
 2.1 % 1,066
 995
 7.1%$417,399
 $400,982
 4.1 % $375.4
 $370.3
 1.4 % 1,112
 1,083
 2.7 %
                 
The increase in ASP for
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For the three months ended December 31, 2017 was2019, the ASP changes were impacted primarily by a change in mix of closings between geographies, products, and among communities within each individual market as compared to the prior year period. It was also positively impacted by our operational strategies as well as improved market conditionscontinued price appreciation in certain geographies. On average, we anticipate that our ASP will likely continue to increase in future quarters,the near-term as indicated by ourthe ASP for homes in backlog.backlog as of December 31, 2019.
Closings forFor the three months ended December 31, 2017 increased2019, year-over-year increases in all three segments,closings for the West segment were primarily driven driven by (1) strongattributable to our Houston and Southern California markets, which had higher units in beginning backlog for fiscal 2020 relative to the beginning of fiscal 2019. Closings in the East segment were up slightly year-over-year based on growth in our Las VegasNashville and Phoenix divisionsVirginia markets. Southeast segment closings were down year-over-year as a result of lower beginning units in backlog for fiscal 2020 relative to the West segment, where we sold a significant numberbeginning of homes in certain communities; and (2) increased closings in our Raleigh and Tampa divisions in the Southeast segment. This overall increase in closings was partially offset by a decline in closings in our Houston division in the West segment, where hurricane repair work has created labor constraints that resulted in increased construction cycle times.fiscal 2019.
Our higher ASP coupled with the overall increase in closings described above resulted in growth in homebuilding revenue that was up for the three monthsquarter ended December 31, 2017, especially in our Southeast segment, where we experienced a significant year-over-year growth in homebuilding revenue.2019 compared to the prior year quarter.
Homebuilding Gross Profit and Gross Margin
The following tables present our homebuilding (HB) gross profit and gross margin by reportable segment and in total, as well astotal. In addition, such amounts are presented excluding inventory impairments and abandonments and interest amortized to cost of sales (COS) for the periods presented.. Homebuilding gross profit is defined as homebuilding revenue less home cost of sales (which includes land and land development costs, home construction costs, capitalized interest, indirect costs of construction, estimated warranty costs, closing costs, and inventory impairment and abandonment charges).
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 Three Months Ended December 31, 2019
$ in thousands
HB Gross
Profit (Loss)
 
HB Gross
Margin
 
Impairments &
Abandonments
(I&A)
 
HB Gross
Profit (Loss) w/o
I&A
 
HB Gross
Margin w/o
I&A
 
Interest
Amortized  to
COS (Interest)
 
HB Gross Profit
w/o I&A and
Interest
 
HB Gross  Margin
w/o I&A and
Interest
West$52,109
 20.5% $—
 $52,109
 20.5% $—
 $52,109
 20.5%
East13,892
 17.9% —
 13,892
 17.9% —
 13,892
 17.9%
Southeast13,460
 15.8% —
 13,460
 15.8% —
 13,460
 15.8%
Corporate & unallocated(16,353)   —
 (16,353)   19,669
 3,316
  
Total homebuilding$63,108
 15.1% $—
 $63,108
 15.1% $19,669
 $82,777
 19.8%
                
 Three Months Ended December 31, 2018
$ in thousands
HB Gross
Profit (Loss)
 
HB Gross
Margin
 
Impairments &
Abandonments
(I&A)
 
HB Gross
Profit (Loss) w/o
I&A
 
HB Gross
Margin w/o
I&A
 
Interest
Amortized to
COS
(Interest)
 
HB Gross Profit
w/o I&A and
Interest
 
HB Gross Margin
w/o I&A and
Interest
West$43,860
 21.0% $—
 $43,860
 21.0% $—
 $43,860
 21.0%
East14,396
 16.4% —
 14,396
 16.4% —
 14,396
 16.4%
Southeast14,105
 13.5% 858
 14,963
 14.3% —
 14,963
 14.3%
Corporate & unallocated(11,742)   149
 (11,593)   17,323
 5,730
  
Total homebuilding$60,619
 15.1% $1,007
 $61,626
 15.4% $17,323
 $78,949
 19.7%
 Three Months Ended December 31, 2017
($ in thousands)
HB Gross
Profit (Loss)
 
HB Gross
Margin
 
Impairments &
Abandonments
(I&A)
 
HB Gross
Profit (Loss)w/o
I&A
 
HB Gross
Margin w/o
I&A
 
Interest
Amortized  to
COS (Interest)
 
HB Gross  Profit
w/o I&A and
Interest
 
HB Gross  Margin
w/o I&A and
Interest
West$38,082
 21.6% $—
 $38,082
 21.6% $—
 $38,082
 21.6%
East16,436
 19.2% —
 16,436
 19.2% —
 16,436
 19.2%
Southeast18,578
 17.6% —
 18,578
 17.6% —
 18,578
 17.6%
Corporate & unallocated(12,864)   —
 (12,864)   16,468
 3,604
  
Total homebuilding$60,232
 16.4% $—
 $60,232
 16.4% $16,468
 $76,700
 20.9%
                
 Three Months Ended December 31, 2016
($ in thousands)
HB Gross
Profit (Loss)
 
HB Gross
Margin
 
Impairments &
Abandonments
(I&A)
 
HB Gross
Profit (Loss) w/o
I&A
 
HB Gross
Margin w/o
I&A
 
Interest
Amortized to
COS
(Interest)
 
HB Gross Profit
w/o I&A and
Interest
 
HB Gross Margin
w/o I&A and
Interest
West$36,817
 21.4% $—
 $36,817
 21.4% $—
 $36,817
 21.4%
East13,428
 16.5% —
 13,428
 16.5% —
 13,428
 16.5%
Southeast14,577
 17.5% —
 14,577
 17.5% —
 14,577
 17.5%
Corporate & unallocated(11,618)   —
 (11,618)   15,644
 4,026
  
Total homebuilding$53,204
 15.8% $—
 $53,204
 15.8% $15,644
 $68,848
 20.5%
OurOverall homebuilding gross profit increased by $7.0$2.5 million to $60.2$63.1 million for the three months ended December 31, 2017, from $53.22019, compared to $60.6 million in the prior year quarter, due to higherquarter. The increase in homebuilding gross profit was primarily driven by an increase in homebuilding revenue (driven by higher year-over-year closings and ASP,of $16.4 million coupled with a flat homebuilding gross margin year-over-year. However, as previously discussed) and higher gross margin. However,shown in the tables above, the comparability of our gross profit and gross margin as shown in the tables above, was modestly impacted by certain items. Specifically, interest amortized to homebuilding cost of sales which increased by $0.8$2.3 million from $15.6year-over-year, and impairment and abandonment charges decreased by $1.0 million inover the prior year quarter to $16.5 million insame period. When excluding the current quarter (see Note 6impact of the notes to our unaudited condensed consolidated financial statements in this Form 10-Q). Excluding interest amortized to homebuilding cost of sales year-over-yearand impairments and abandonments, homebuilding gross profit increased by $7.9$3.8 million and ourcompared to the prior year quarter, while homebuilding gross margin improvedincreased by 4010 basis points to 20.9%19.8%.
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The year-over-year improvement in our homebuilding gross margin for the three months ended December 31, 2017, once adjusted for the item detailed above,2019 is due to a variety of factors, including: (1) the mix of closings between geographies/markets, individual communities within each market, and product type; (2) our pricing strategies, including the resulting higher margin impact on homes closed during the current quarter; (3) increased focus on managing our house costs and improving our cycle times; and (4) favorable discrete items in the current period, such as lower warranty costs. Going forward, however, our gross marginwe will continue to be impacted by several headwinds, including our activationfocus on optimizing pricing strategy through limiting sales incentives, and lowering construction costs through product simplification to drive further improvements in homebuilding gross margin.
Measures of land assets formerly classified as land held for future development, which generally have lower margins, the structure of some of our land purchase transactions, such as finished lot purchases, which tend to result in lower gross margins, and increasing land and direct homebuilding costs.
Total homebuilding gross profit and gross margin after excluding inventory impairments and abandonments, interest amortized to cost of sales, and other non-recurring items that we disclose are not GAAP financial measures. These measures should not be considered alternatives to homebuilding gross profit and gross margin determined in accordance with GAAP as an indicator of operating performance.
In particular, the magnitude and volatility of non-cash inventory impairment and abandonment charges for the Company and for other homebuilders have been significant historically and, as such, have made financial analysis of our industry more difficult. Homebuilding metrics excluding these charges, as well as interest amortized to cost of sales and other similar presentations by analysts and other companies, are frequently used to assist investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies' respective level of impairments and levels of debt. Management believes these non-GAAP measures enable holders of our securities to better understand the cash implications of our operating performance and our ability to service our debt obligations as they currently exist and as additional indebtedness is incurred in the future. These measures are also useful internally, helping management to compare operating results and to measure cash available for discretionary spending.
In a given period, our reported gross profit is generated from both communities previously impaired and communities not previously impaired. In addition, as indicated above, certain gross profit amounts arise from recoveries of prior period costs, including warranty
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items that are not directly tied to communities generating revenue in the period. Home closings from communities previously impaired would, in most instances, generate very low or negative gross margins prior to the impact of the previously recognized impairment. Gross margin for each home closing is higher for a particular community after an impairment because the carrying value of the underlying land was previously reduced to the present value of future cash flows as a result of the impairment, leading to lower cost of sales at the home closing. This improvement in gross margin resulting from one or more prior impairments is frequently referred to in the aggregate as the “impairment turn” or “flow-back” of impairments within the reporting period. The amount of this impairment turn may exceed the gross margin for an individual impaired asset if the gross margin for that asset prior to the impairment would have been negative. The extent to which this impairment turn is greater than the reported gross margin for the individual asset is related to the specific historical cost basis of that individual asset.
The asset valuations that result from our impairment calculations are based on discounted cash flow analyses and are not derived by simply applying prospective gross margins to individual communities. As such, impaired communities may have gross margins that are somewhat higher or lower than the gross margins for unimpaired communities. The mix of home closings in any particular quarter varies to such an extent that comparisons between previously impaired and never impaired communities would not be a reliable way to ascertain profitability trends or to assess the accuracy of previous valuation estimates. In addition, since any amount of impairment turn is tied to individual lots in specific communities, it will vary considerably from period to period. As a result of these factors, we review the impairment turn impact on gross margin on a trailing 12-month basis rather than a quarterly basis as a way of considering whether our impairment calculations are resulting in gross margins for impaired communities that are comparable to our unimpaired communities. For the trailing 12-month period, our homebuilding gross margin was 16.6%10.0% and excluding interest and inventory impairments and abandonments, it was 21.3%19.8%. For the same trailing 12-month period, homebuilding gross margin was as follows in those communities that have previously been impaired, which represented 9.4%10.3% of total closings during this period:
Homebuilding Gross Margin from previously impaired communities: 
Pre-impairment turn gross margin(22.61.5)%
Impact of interest amortized to COS related to these communities23.55.0 %
Pre-impairment turn gross margin, excluding interest amortization0.93.5 %
Impact of impairment turns17.115.9 %
Gross margin (post impairment turns), excluding interest amortization18.019.4 %
For a further discussion of our impairment policies seeand communities impaired during the prior year quarter, refer to Notes 2 and 5 of the notes to unauditedthe condensed consolidated financial statements in this Form 10-Q.
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Land Sales and Other RevenuesRevenue and Gross Profit (Loss)
Land sales relate to land and lots sold that diddo not fit within our homebuilding programs and strategic plans in certain markets. Other revenues included netIn some periods, we also have other revenue related to broker fees weas well as fees received for general contractor services that we performedperform on behalf of a third party and broker fees.parties. The following tables summarizetable summarizes our land sales and other revenuesrevenue and related gross profit (loss) by reportable segment for the periods presented:
Land Sales and Other Revenues Land Sales and Other Gross Profit (Loss)Land Sales and Other Revenue Land Sales and Other Gross Profit (Loss)
Three Months Ended December 31, Three Months Ended December 31,Three Months Ended December 31, Three Months Ended December 31,
(In thousands)2017 2016 17 vs 16 2017 2016 17 vs 16
in thousands2019 2018 19 vs 18 2019 2018 19 vs 18
West$1,415
 $—
 $1,415
 $363
 $278
 $85
$—
 $—
 $—
 $—
 $—
 $—
East3,165
 2,909
 256
 213
 131
 82
395
 981
 (586) 17
 40
 (23)
Southeast155
 206
 (51) 31
 50
 (19)10
 77
 (67) 12
 (4) 16
Corporate and unallocated (a)
—
 —
 —
 (10) —
 (10)
Total$4,735
 $3,115
 $1,620
 $597
 $459
 $138
$405
 $1,058
 $(653) $29
 $36
 $(7)
(a) Corporate and unallocated includes interest and indirects related to land sold that was costed off.
Although not as significant as in the prior year periods, toTo further support our efforts to reduce our leverage, we continued to focus on closing on a number of land sales in the three months ended December 31, 20172019 for land positions that did not fit within our strategic plans. We expect additional land sales to occur during the remainder of our fiscal 2018. However, futureFuture land and lot sales will depend on a variety of factors, including local market conditions, individual community performance, and changing strategic plans.
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Operating Income
The table below summarizes operating income (loss) by reportable segment for the periods presented:
Three Months Ended December 31,Three Months Ended December 31,
(In thousands)2017 2016 17 vs 16
in thousands2019 2018 19 vs 18
West$21,110
 $21,015
 $95
$30,331
 $24,261
 $6,070
East (a)
7,396
 1,557
 5,839
5,321
 5,395
 (74)
Southeast6,910
 5,015
 1,895
3,156
 1,380
 1,776
Corporate and Unallocated (b)(a)
(28,735) (26,312) (2,423)(34,862) (27,530) (7,332)
Operating income (c)(b)
$6,681
 $1,275
 $5,406
$3,946
 $3,506
 $440
(a) Operating income for our East segment for the three months ended December 31, 2016 was impacted by a charge to G&A of $2.7 million related to the write-off of a deposit on a legacy investment in a development site that we deemed uncollectible.
(b) Corporate and unallocated operating loss includes:includes amortization of capitalized interest; movement ininterest and capitalized indirects;indirect costs, expenses related to numerous shared services functions that benefit all segments but are not allocated to the operating segments;segments, and certain other amounts that are not allocated to our operating segments.
(c)(b) Operating income isfor the 2018 period presented was impacted by impairment and abandonment charges incurred during the periods presented (see Note 5 of the notes to our unaudited condensed consolidated financial statements in this Form 10-Q).
Our operating income increased by $5.4$0.4 million to $6.7$3.9 million for the three months ended December 31, 2017,2019, compared to $1.3$3.5 million for the three months ended December 31, 2016. This resulted from a $7.0 million increase2018, driven primarily by the previously discussed improvement in homebuilding gross profitmargin on homes closed during the period, partially offset by (1) higher year-over-yearincreases in SG&A costs and depreciation and amortization compared to the prior year quarter. While SG&A costs increased compared to the prior year quarter, commissions due to higher homebuilding revenue (however, commissions expense as a percentage of homebuilding revenue was down slightly by 10 basis points year-over-year); and (2) an increase in G&A (G&A as a percentage of total revenues, however, was down 70revenue each declined by 10 basis points year-over-year). The increase in G&A spend was mainly due to higher sales and marketing costs as we prepare for growth, incentive compensation increases related to the year-over-year, improvement in the business and the expansion of our active adult business under the Gatherings brand.respectively.
Below operating income, we had two noteworthy year-over-year fluctuations as follows: (1) for the three months ended December 31, 2017, we had a decline in our other expense, net mainly drivenincreased by $1.3 million primarily attributable to a reductionyear-over-year increase in our interest expensecosts not qualified to be capitalized; and (2) we recorded a loss of $25.9 million on the extinguishment of debt during the current three months versus zero in the prior year due to the management of our debt portfolio, primarily driven by redeeming a portion of our 2019 and 2023 Senior Notes (seefor capitalization. See Note 76 of the notes to our unaudited condensed consolidated financial statements in this Form 10-Q for a further discussion of these items).items.
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Income taxesTaxes
Our income tax assets and liabilities and related effective tax rate are affected by various factors, the most significant of which is the valuation allowance recorded against substantially alla portion of our deferred tax assets, which was partially released in the fourth quarter of our fiscal 2015.assets. Due to the effect of our valuation allowance adjustments beginning in fiscal 2008, a comparison of our annual effective tax rates must consider the changes in our valuation allowance. As such, our effective tax rates hadhave not been meaningful metrics, as our income tax expense/benefitbenefit/expense was not directly correlated to the amount of pretax income or loss for the associated periods. Beginning in our fiscal 2016, the Company startedbegan using an annualized effective tax rate in interim periods to determine its income tax expense/benefit,benefit/expense, which we believe more closely correlates with our periodic pretax income or loss in periods.loss. The annualized effective tax rate will continue to be impacted by discrete tax items.
Our current quarterfiscal year-to-date income tax expensebenefit was primarily driven by the remeasurementcompletion of our deferredwork necessary to claim $0.7 million in energy efficient homebuilding tax assets that resulted from the reduced federal corporate tax ratecredits related to the Tax Cuts and Jobs Act enactedclosings from prior fiscal years, partially offset by income tax expense on December 22, 2017 and, to a lesser extent, the loss in earnings from continuing operations in the current fiscal year.operations. The tax benefit for the three months ended December 31, 20162018 was primarily driven by our loss from continuing operations, offset by the Company's completion of work necessary to claim $1.2$5.3 million in tax credits which were recorded during our fiscal 2017 but related to ourclosings from prior fiscal 2016.
As discussed in our Annual Reportyears, partially offset by income tax expense on Form 10-K for the fiscal year ended September 30, 2016, we executed a restructuring effort in the first quarter of the current fiscal year that involved changes in the legal forms and tax elections for certain of our operating entities. These efforts were undertakenearnings from continuing operations. Refer to reduce our effective tax rate to an amount that is in-line with our peers, while also providing cash tax savings in jurisdictions where we no longer have significant loss carryforwards available. We expect our fiscal 2018 annualized effective tax rate, inclusive of the rate change from the Tax Cuts and Jobs Act but excluding the impact of discrete items recorded in the period, to be approximately 27%. We expect our fiscal 2019 will be approximately 24% and remain at or near that level in subsequent fiscal years.
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See Note 1011 of the notes to our unaudited condensed consolidated financial statements included in this Form 10-Q for a further discussion of our income taxes.
Three months endedMonths Ended December 31, 20172019 as compared to 20162018
West Segment: Homebuilding revenue increased 2.8%by 21.8% for the three months ended December 31, 2017 compared to the prior year quarter, primarily due to a 3.1% increase in closings (particularly in our Las Vegas and Phoenix markets, where closings grew more than 50%), slightly offset by a year-over-year decrease in ASP of 0.3%. As compared to the prior year quarter, our homebuilding gross profit increased by $1.3 million due to the increase in revenue already discussed, as well as an increase in homebuilding gross margin from 21.4% to 21.6%. Gross margin increased in the majority of our markets in the West segment, particularly in Las Vegas where our communities continue to gain momentum. The small increase in operating income resulted from the aforementioned increase in homebuilding gross profit, offset by an increase in commissions expense and G&A costs on higher homebuilding revenue.
East Segment: Homebuilding revenue increased by 5.5% for the three months ended December 31, 20172019 compared to the prior year quarter due to a 3.7%15.5% increase in closings, (particularly in our Nashville and Virginia markets,addition to a 5.4% increase in ASP. Compared to the prior year quarter, homebuilding gross profit increased by $8.2 million due to the increase in closings partially offset by a lower year-over-year activityslight decrease in our Indianapolis market) and a 1.7%gross margin from 21.0% to 20.5%. The $6.1 million increase in ASP. Asoperating income compared to the prior year quarter our homebuilding gross profit increased by $3.0 million, as well as an increase in our gross margin, from 16.5%was due to 19.2%. Thisthe previously discussed increase in gross margin was attributable to the shift of closings between markets, as well as margin improvement in the majority of the divisions in this segment, particularly in Nashville and Virgina, due to our pricing strategies resulting from favorable market conditions and community mix. The $5.8 million increase in operating income resulted from the additional gross profit, as previously discussed, as well as lowerpartially offset by higher commissions and G&A costs compared toexpenses in the prior year quarter.segment.
SoutheastEast Segment: Homebuilding revenue increaseddecreased by 26.9%11.5% for the three months ended December 31, 20172019 compared to the prior year quarter due to a 17.5%13.4% decrease in ASP, partially offset by a 2.1% increase in closings (particularly in our Raleigh and Tampa markets) and an 8.0% increase in ASP. Ourclosings. Compared to the prior year quarter, homebuilding gross profit in the Southeast segment increaseddecreased by $4.0$0.5 million due to the aforementioned climbdecline in homebuilding revenue, and a slightpartially offset by higher gross margin, which increased from 16.4% to 17.9%. The increase in gross margin from 17.5% to 17.6%, which was driven primarily by our Florida marketslower sales incentives and a shift in product and community mix year-over-year. Operating income remained relatively flat year-over-year, the slight decrease of $0.1 million was primarily due to the previously discussed decrease in gross profit, partially offset by lower commissions and G&A expenses in the segment.
Southeast Segment: Homebuilding revenue decreased by 18.1% for the three months ended December 31, 2019 compared to the prior year quarter due to a 23.1% decrease in closings, partially offset by a 6.5% increase in ASP. Compared to the prior year quarter, homebuilding gross profit decreased by $0.6 million due to the decrease in homebuilding revenue, partially offset by higher gross margin, which increased from 13.5% to 15.8%. The increase in gross margin was primarily driven by a shift in product and community mix of communitiesyear-over-year, and product type, as well as our pricing strategies resulting from favorable market conditions.a $0.9 million inventory impairment during the prior year quarter. The increase in operating income of $1.9$1.8 million resulted primarily from the higher gross profit already described,lower commissions and G&A expenses, partially offset by higher commissions on additional homebuilding revenue and higher G&A costs due to our business growththe previously discussed decrease in this region.gross profit.
Corporate and Unallocated: Our Corporate and unallocated results include:include amortization of capitalized interest; movement ininterest and capitalized indirects;indirect costs; expenses for various shared services functions that benefit all segments but are not allocated, including information technology, treasury, corporate finance, legal, branding and national marketing; and certain other amounts that are not allocated to our operating segments. For the three months ended December 31, 2017,2019, corporate and unallocated net costs increased by $2.4were up $7.3 million from the prior year quarter primarily due to (1) a year-over-yearan increase in the proportion of interest amortizedand indirect costs expensed to cost of sales of $0.8 million (see Note 6 of the notes to our unaudited condensed consolidated financial statements included in this Form 10-Q);year-over-year and (2) higher corporate costs incurred due to business growth, including costs associated with the opportunity to increase the scope of our Gatherings projects for active adults and business improvement.G&A costs.
Derivative Instruments and Hedging Activities
We are exposed to fluctuations in interest rates. From time-to-time, we may enter into derivative agreements to manage interest costs and hedge against risks associated with fluctuating interest rates. However, as of December 31, 2017, we were not a party to any such derivative agreements. We do not enter into or hold derivatives for trading or speculative purposes.
Liquidity and Capital Resources
Our sources of liquidity include, but are not limited to, (1) cash from operations; (2)operations, proceeds from Senior Notes, our Secured Revolving Credit Facility (the Facility) and other bank borrowings; (3)borrowings, the issuance of equity and equity-linked securities;securities, and (4) other external sources of funds. Our short-term and long-term liquidity depends primarily upon our level of net income, working capital management (cash, accounts receivable, accounts payable and other liabilities), and available credit facilities.
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Cash, cash equivalents, and restricted cash decreased as follows for the periods presented:
 Three Months Ended December 31,
(In thousands)2017 2016
Cash used in operating activities$(102,224) $(62,834)
Cash used in investing activities(4,039) (2,604)
Cash used in financing activities(8,452) (3,252)
Net decrease in cash, cash equivalents and restricted cash$(114,715) $(68,690)
 Three Months Ended December 31,
in thousands2019 2018
Cash used in operating activities$(84,530) $(54,690)
Cash used in investing activities(2,547) (6,300)
Cash provided by financing activities24,319
 4,778
Net decrease in cash, cash equivalents, and restricted cash$(62,758) $(56,212)
Operating Activities. Our netActivities
Net cash used in operating activities was $102.2$84.5 million for the three months ended December 31, 2017, compared2019. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development spending. Net cash used in operating activities during the period was primarily driven by an increase in inventory of $69.0 million resulting from land acquisition, land development, and house construction spending to $62.8support continued growth, and a net decrease in non-inventory working capital balances of $23.7 million, partially offset by income from continuing operations before income taxes of $2.6 million, which included $5.7 million of non-cash charges.
Net cash used in operating activities was $54.7 million for the three months ended December 31, 2016. The2018, primarily driven by an increase in inventory of $29.7 million resulting from land acquisition, land development, and house construction spending to support continued growth, and an increase in non-inventory working capital balances of $34.5 million, partially offset by income from continuing operations before income taxes of $3.4 million, which included $6.2 million of non-cash charges.
Investing Activities
Net cash used in operations was primarily attributed to the increase in our land-related spending, as well as the asset acquisitions from Bill Clark Homes, which approximated $29.0 million. We spent $141.7 million on land and land developmentinvesting activities during the three months ended December 31, 2017, of which $20.5 million related to the Bill Clark Homes acquisition, an increase of $38.5 million, or 37.3%, compared to $103.2 million in land-related spending for the three months ended December 31, 2016. The level of land2019 and land development spend, which partly drives our change in inventory, has a significant impact on our cash flows from operating activitiesDecember 31, 2018, was $2.5 million and $6.3 million, respectively, primarily driven in both periods. We expect our spend on land and land development activities to increase during the remainder of our fiscal 2018 as we continue to grow our community count.periods by capital expenditures for model homes.
Investing Activities. Financing Activities
Net cash used in investingprovided by financing activities was $4.0$24.3 million for the three months ended December 31, 2017, mainly2019 driven by capital expenditures, primarilynet borrowings under the Facility, partially offset by tax payments for model homes. stock-based compensation awards vesting, cash settlement of performance-based restricted stock, and repayment of other miscellaneous borrowings.
Net cash used in investingprovided by financing activities was $2.6$4.8 million for the three months ended December 31, 2016,2018 driven by capital expenditures, primarily for model homes, andnet borrowings under the Facility, partially offset by a return of capital fromcommon stock repurchases under our unconsolidated entities.
Financing Activities. Net cash used in financing activities was $8.5 millionshare repurchase program, tax payments for stock-based compensation awards vesting, the three months ended December 31, 2017 due to repayment of certain debt issuances (including a portion of our 2019 and 2023 Senior Notes and other miscellaneous borrowings)borrowings, and the payment of cash for debt issuance costs related to our newly issued Senior Notes due 2027 (the 2027 Notes, discussed below), offset by the proceeds from the same 2027 Notes. Net cash used in financing activities was $3.3 million for the three months ended December 31, 2016, due to payments made on secured notes payable used to acquire certain land parcels.costs.
Financial Position.Position
As of December 31, 2017,2019, our liquidity position consisted of:of the following:
$177.841.3 million in cash and cash equivalents;
$165.8220.0 million of remaining capacity under the Facility (due to the use of the Facility to secure $34.2 million in letters of credit; as discussed below, we further increased the capacity of the Facility by $20.0 million during the current quarter);Credit Facility; and
$12.118.8 million of restricted cash, the majority of which is used to secure certain stand-alone letters of credit.
While we believe we possess sufficient liquidity, we are mindful of potential short-term or seasonal requirements for enhanced liquidity that may arise to operate and grow our business. We expect to be able to meet our liquidity needs in fiscal 20182020 and to maintain a significant liquidity position, subject to changes in market conditions that would alter our expectations for land and land development expenditures or capital market transactions, which could increase or decrease our cash balance on a period-to-period basis.
Debt. During the first quarter of our fiscal 2018, we issued and sold $400.0 million aggregate principal amount of 5.875% unsecured Senior Notes due October 2027 (the 2027 Notes). We also redeemed a portion of our outstanding Senior Notes due 2019 and 2023, mainly by utilizing the proceeds received from the 2027 Notes issued, as well as cash on hand. This debt repurchase activity resulted in a loss on extinguishment of debt of $25.9 million during the three months ended December 31, 2017. See Note 7 of the notes to our unaudited condensed consolidated financial statements in this Form 10-Q for more information about our borrowings, including a description of our newly issued 2027 Notes.Debt
We generally fulfill our short-term cash requirements with cash generated from our operations and available borrowings. Additionally, we maintain the Facility, which hashad a total capacity of $200$250.0 million and an available capacity of $165.8$220.0 million as of December 31, 20172019 after considering our outstanding letters of creditborrowings backed by the Facility of $34.2$30.0 million. During the first quarterWe had no letters of our fiscal 2018, we executed a Fourth Amendment to the Facility. The Fourth Amendment (1) extends the termination date of the Facility from February 15, 2019 to February 15, 2020; (2) increases the maximum aggregate amount of commitmentscredit outstanding under the Facility (including borrowings and lettersas of credit) from $180.0 million to $200.0 million; and (3) includes a condition that allows the facility to be increased by an additional $50.0 million to $250.0 million, subject to the approval of any lenders providing any such increase.December 31, 2019.
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We have also entered into a number of stand-alone, cash secured letter of credit agreements with banks. These combined facilities provide for letter of credit needs collateralized by either cash or assets of the Company. We currently have $10.7$16.6 million of outstanding letters of credit under these facilities, (in addition to the $34.2 million outstanding letters of credit backed by the Facility), which are secured by cash collateral that is maintained in restricted accounts totaling $10.9$17.8 million.
To provide greater letter of credit capacity, the Company has also entered into a reimbursement agreement, which provides for the issuance of performance letters of credit, and an unsecured credit agreement that provides for the issuance of up to $50.0 million of standby letters of credit to backstop the Company's obligations under the reimbursement agreement (collectively, the "Bilateral Facility"). The Bilateral Facility will terminate on June 10, 2021. As of December 31, 2019, the total stated amount of performance letters of credit issued under the reimbursement agreement was $33.8 million (and the stated amount of the backstop standby letter of credit issued under the credit agreement was $40.0 million)
In the future, we may from time-to-timetime to time seek to continue to retire or purchase our outstanding debt through cash repurchases or in exchange for other debt securities, in open market purchases, privately-negotiated transactions, or otherwise. We may also may seek to expand our business through acquisition, which may be funded through cash, additional debt, or equity. In addition, any material variance from our projected operating results could require us to obtain additional equity or debt financing. There can be no assurance that we will be able to complete any of these transactions in the future on favorable terms or at all. See Note 7 of the notes to our unaudited condensed consolidated financial statements in this Form 10-Q for more information.additional details related to our borrowings.
Credit Ratings. Ratings
Our credit ratings are periodically reviewed by rating agencies. In September 2017,November 2019, Moody's reaffirmed the Company's issuer default debtcorporate family rating of B3. Moody’sB3 and stable outlook onfor the Company remains positive.Company. In August 2017,July 2019, S&P reaffirmed the Company's corporate credit rating of B-.B- and its positive outlook for the Company. In October 2017,2019, Fitch reaffirmed the Company's long-term issuer default rating of B- and revised its outlook from stable to positive.withdrew ratings for commercial reasons. These ratings and our current credit condition affect, among other things, our ability to access new capital. Negative changes to these ratings may result in more stringent covenants and higher interest rates under the terms of any new debt. Our credit ratings could be lowered, or rating agencies could issue adverse commentaries in the future, which could have a material adverse effect on our business, financial condition, results of operations, and liquidity. In particular, a weakening of our financial condition, including any further increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, could result in a credit rating downgrade or change in outlook, or could otherwise increase our cost of borrowing.
Stock Repurchases and Dividends Paid. Paid
During the first quarter of fiscal 2019, the Company's Board of Directors approved a share repurchase program that authorizes the Company to repurchase up to $50.0 million of its outstanding common stock. As part of this program, the Company repurchased common stock during fiscal 2019 through open market transactions, 10b5-1 plans, and accelerated share repurchase (ASR) agreements, totaling $34.6 million. The Company did not repurchase any shares in the open marketmade no share repurchases during the three months ended December 31, 2017 or 2016. Any future stock repurchases, to2019. As of December 31, 2019, the extent allowed by our debt covenants, must be approved byremaining availability of the Company’s Board of Directors or its Finance Committee.share repurchase program was $15.4 million.
The indentures under which our Senior Notes were issued contain certain restrictive covenants, including limitations on the payment of dividends. There were no dividends paid during the three months ended December 31, 20172019 or 2016.2018.
Off-Balance Sheet Arrangements and Aggregate Contractual Commitments.Commitments
Lot Option Contracts
We historically have attempted to control a portion of our land supply through lot option contracts. As of December 31, 2017,2019, we controlled 22,32419,742 lots. We owned 76.1%72.3%, or 16,97914,275 of these lots, and 5,345the remaining 5,467 of these lots, or 23.9%27.7%, were under option contracts with land developers and land bankers, which generally require the payment of cash or the posting of a letter of credit for the right to acquire lots during a specified period of time at a certain price. We historically have attempted to control a portion of our land supply through options. As a result of the flexibility that these options provide us, upon a change in market conditions, we may renegotiate the terms of the options prior to exercise or terminate the agreement. Under option contracts, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers, and our liability is generally limited to forfeiture of the non-refundable deposits and other non-refundable amounts incurred, which totaled approximately $92.9$74.8 million as of December 31, 2017.2019. The total remaining purchase price, net of cash deposits, committed under all options was $380.4$386.8 million as of December 31, 2017.2019. Based on market conditions and our liquidity, we may further expand our use of option agreements to supplement our owned inventory supply.
We expect to exercise, subject to market conditions and seller satisfaction of contract terms, most of our option contracts. Various factors, some of which are beyond our control, such as market conditions, weather conditions, and the timing of the completion
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of development activities, will have a significant impact on the timing of option exercises or whether lot options will be exercised at all.
We have historically funded the exercise of lot options with operating cash flows. We expect these sources to continue to be adequate to fund anticipated future option exercises. Therefore, we do not anticipate that the exercise of our lot options will have a material adverse effect on our liquidity.
Investments in Unconsolidated Entities
Occasionally, we use legal entities in which we have less than a controlling interest. We enter into the majority of these arrangements with land developers, other homebuilders, and financial partners to acquire attractive land positions, to manage our risk profile, and to leverage our capital base. The underlying land positions are developed into finished lots for sale to the unconsolidated entity’s members or other third parties. We account for our interest in unconsolidated entities under the equity method.
Historically, we and our partners have provided varying levels of guarantees of debt or other obligations of our unconsolidated entities. As of December 31, 2017,2019, we havehad no repayment guarantees outstanding related to the debt of our unconsolidated entities. See Note 4 of the notes to our unaudited condensed consolidated financial statements in this Form 10-Q for more information.
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Credit and Performance Bonds

WeIn connection with the development of our communities, we are frequently required to provide performance, maintenance, and other bonds and letters of credit in support of our related obligations with respect to such developments. The amount of such obligations outstanding at any time varies in accordance with our pending development activities. In the event any such bonds or letters of credit are drawn upon, we would be obligated to reimburse the issuer of such bonds or letters of credit. As of December 31, 2019, we had outstanding letters of credit and performance bonds of approximately $229.3$50.4 million as of December 31, 2017,and $276.1 million, respectively, primarily related principally to our obligations to local governments to construct roads and other improvements in various developments.
Derivative Instruments and Hedging Activities
We are exposed to fluctuations in interest rates. From time-to-time, we may enter into derivative agreements to manage interest costs and hedge against risks associated with fluctuating interest rates. However, as of December 31, 2019, we were not a party to any such derivative agreements. We do not enter into or hold derivatives for trading or speculative purposes.
Critical Accounting Policies:Policies
Our critical accounting policies require the use of judgment in their application and/orand in certain cases require estimates of inherently uncertain matters. Although our accounting policies are in compliance with accounting principles generally accepted in the United States of America (GAAP), a change in the facts and circumstances of the underlying transactions could significantly change the application of the accounting policies and the resulting financial statement impact. It is also possible that other professionals applying reasonable judgment to the same set of facts and circumstances could developreach a different conclusion. As disclosed in our 20172019 Annual Report, our most critical accounting policies relate to (1) inventory valuation (projects in progress, land held for future development, and land held for sale); (2) homebuilding revenues, revenue recognition, warranty reserves, and costs; (3) warranty reserves; and (4) income tax valuation allowances and ownership changes. Since September 30, 2017, thereThere have been no significant changes to theseour critical accounting policies.policies during the three months ended December 31, 2019 as compared to the significant accounting policies described in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2019 Annual Report on Form 10-K.
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (Form 10-Q) contains forward-looking statements. These forward-looking statements represent our expectations or beliefs concerning future events or results, and it is possible that thesuch events or results described in this Form 10-Q will not occur or 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,” "outlook," “goal,” “target” or other similar words or phrases. All forward-looking statements are based upon information available to us as of the date they are made.
These forward-looking statements are subject toinvolve risks, uncertainties and other factors, many of which are outside of our control, that could cause actual events or results to differ materially from the events or results discussed in the forward-looking statements, including, among other things, the matters discussed in this Form 10-Q 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, 2017, as well as Item 1A of this Form 10-Q.2019. These factors are not intended to be an all-inclusive list of risks and uncertainties that may affect the operations, performance, development and results of our business, but instead are the risks that we currently perceive as potentially being material. Such factors may include:
the cyclical nature of the homebuilding industry and a potential deterioration in homebuilding industry conditions;
economic changes nationally or in local markets, changes in consumer confidence, wage levels, declines in employment levels, inflation or increases in the quantity and decreases in the price of new homes and resale homes on the market;
shortages of or increased prices for labor, land or raw materials used in housing production, and the cyclical naturelevel of the homebuilding industryquality and a potential deterioration in homebuilding industry conditions;craftsmanship provided by our subcontractors;
factors affecting margins, such as decreased land values underlying land option agreements, increased land development costs onin communities under development or delays or difficulties in implementing initiatives to reduce our production and overhead cost structure;
the availability and cost of land and the risks associated with the future value of our inventory, such as additional asset impairment charges or write-downs;
shortageswe took on select California assets during the second quarter of or increased prices for labor, land or raw materials used in housing production, and the level of quality and craftsmanship provided by our subcontractors;fiscal 2019;
estimates related to homes to be delivered in the future (backlog) are imprecise, as they are subject to various cancellation risks that cannot be fully controlled;
a substantial increaseincreases in mortgage interest rates, increased disruption in the availability of mortgage financing, the recent changechanges in tax laws or otherwise regarding the deductibility of mortgage interest for tax purposesexpenses and real estate taxes or an increased number of foreclosures;
government actions, policies, programsour allocation of capital and regulations directed at or affecting the housing market (including the Tax Cuts and Jobs Act, the Dodd-Frank Act and the tax benefits associated with purchasing and owning a home);
changes in existing tax laws or enacted corporate income tax rates, including pursuant to the Tax Cuts and Jobs Act;
our cost of and ability to access capital, due to factors such as limitations in the capital markets or adverse credit market conditions, and ability to otherwise meet our ongoing liquidity needs, including the impact of any downgrades of our credit ratings or reductionsreduction in our tangible net worth or liquidity levels;
our ability to reduce our outstanding indebtedness and to comply with covenants in our debt agreements or satisfy such obligations through repayment or refinancing;
our ability to continue to execute and complete our capital allocation plans, including our share and debt repurchase programs;
increased competition or delays in reacting to changing consumer preferences in home design;
weather conditionsnatural disasters or other related events that could result in delays in land development or home construction, increase our costs or decrease demand in the impacted areas;
estimates related to the potential recoverability of our deferred tax assets;
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potential delays or increased costs in obtaining necessary permits as a result of changes to, or complying with, laws, regulations or governmental policies, and possible penalties for failure to comply with such laws, regulations or governmental policies, including those related to the environment;
the results of litigation or government proceedings and fulfillment of any related obligations;
the impact of construction defect and home warranty claims, including water intrusion issues in Florida;claims;
the cost and availability of insurance and surety bonds, as well as the sufficiency of these instruments to cover potential losses incurred;
the performance of our unconsolidated entities and our unconsolidated entity partners;
the impact of information technology failures, cybersecurity issues or data security breaches;
terrorist acts, natural disasters, acts of war or other factors over which the Company has little or no control; or
the impact on homebuilding in key markets of governmental regulations limiting the availability of water.
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Any forward-looking statement, including any statement expressing confidence regarding future outcomes, speaks only as of the date on which such statement is made and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a number of market risks in the ordinary course of business. Our primary market risk exposure relates to fluctuations in interest rates. We do not believe that our exposure in this area is material to our cash flows or results of operations. As of December 31, 2017, our Junior Subordinated Notes were our only variable-rate2019, we had variable rate debt outstanding.outstanding totaling approximately $96.6 million. A one percent increase in the interest rate for these notes would result in an increase of our interest expense by $1.0approximately $1.3 million over the next twelve-month period. The estimated fair value of our fixed-rate debt as of December 31, 20172019 was $1.34$1.17 billion, compared to a carrying value of $1.26$1.12 billion. The effect of a hypothetical one-percentage point decrease in our estimated discount rates would increase the estimated fair value of the fixed rate debt instruments from $1.34$1.17 billion to $1.41$1.24 billion as of December 31, 2017.2019.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was performed based on criteria established in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Act). Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 31, 20172019, at a reasonable assurance level.
Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of our CEO and CFO, which are required by Rule 13a-14 of the Act. This Disclosure Controls and Procedures section includes information concerning management’s evaluation of disclosure controls and procedures referred to in those certifications and as such, should be read in conjunction with the certifications of the CEO and CFO.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal controlscontrol over financial reporting during the quarter ended December 31, 20172019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION

Item 1. Legal Proceedings
For a discussion of our legal proceedings, see Note 89 of the notes to our unaudited condensed consolidated financial statements in this Form 10-Q.
Item 1A. Risk Factors
There have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K for the year ended September 30, 2017.2019.
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Item 6. Exhibits
4.1
Indenture, dated as of October 10, 2017, between the Company, the Guarantors and U.S. Bank National Association, as trustee  (incorporated herein by reference to Exhibit 4.1 of the Company’s Form 8-K filed on October 10, 2017)
4.2
Form of 5.875% Senior Note due 2027 (incorporated herein by reference to Exhibit 4.2 of the Company’s Form 8-K filed on October 10, 2017)
4.3
Registration Rights Agreement, dated as of October 10, 2017, between the Company, the Guarantors and Credit Suisse Securities (USA) LLC, as representative of the Initial Purchasers. (incorporated herein by reference to Exhibit 4.3 of the Company’s Form 8-K filed on October 10, 2017)
10.1
Fourth Amendment to the Second Amended and Restated Credit Agreement, dated as of September 24, 2012, among the Company, as borrower, the lenders party thereto, the issuers party thereto, and Credit Suisse AG, Cayman Islands Brach, as agent, as amended (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed on October 24, 2017)
10.2*
Form of 2014 Long-Term Incentive Plan Award Agreement for Performance Shares (Named Executive Officers)
10.3*
Changes to Employment Agreement dated September 18, 2014 by and between Kenneth F. Khoury and the Company (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed on January 8, 2018)
31.1
Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the Sarbanes-Oxley Act of 2002.
  
31.2
Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the Sarbanes-Oxley Act of 2002.
  
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
101
101.INS
The following financial statements from Beazer Homes USA, Inc.'s Quarterly Report on Form 10-Q for the period ended December 31, 2017, filed on February 6, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited Condensed Consolidated Statements of Income, (iii) Unaudited Condensed Consolidated Statements of Cash Flows and (iv) Notes to Unaudited Condensed Consolidated Financial Statements.
Instance Document
101.SCHXBRL Schema Document
101.CALXBRL Calculation Linkbase Document
101.LABXBRL Labels Linkbase Document
101.PREXBRL Presentation Linkbase Document
101.DEFXBRL Definition Linkbase Document
* Represents a management contract or compensatory plan or arrangement.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:February 6, 2018January 30, 2020Beazer Homes USA, Inc.
     
  By: /s/ Robert L. Salomon
   Name:Robert L. Salomon
    
Executive Vice President and
Chief Financial Officer

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