What changed in this filing

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Item 1. Financial Statements

2020-08-04 compared with 2020-05-05 · 113 added, 93 removed, 375 unchanged (35% of the section changed)

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(In thousands, except share data)

March 31, December 31,

June 30, December 31,

Cash and cash equivalents $ 49,102 $ 38,345

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COMMITMENTS AND CONTINGENCIES

Common stock, par value $ 0.01 , 250,000,000 shares authorized, 26,680,474 shares issued and 25,074,446 shares outstanding as of March 31, 2020 and 26,398,409 shares issued and 25,359,409 shares outstanding as of December 31, 2019

Common stock, par value $ 0.01 , 250,000,000 shares authorized, 26,695,179 shares issued and 25,089,151 shares outstanding as of June 30, 2020 and 26,398,409 shares issued and 25,359,409 shares outstanding as of December 31, 2019

Additional paid-in capital 259,061 252,603

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(In thousands, except share and per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Home sales revenues $ 481,602 $ 461,830 $ 936,329 $ 749,424

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Operating income 67,834 58,441 121,712 79,516

Loss on extinguishment of debt — 169 — 169

Other income, net ( 763 ) ( 2,263 ) ( 1,774 ) ( 2,882 )

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BALANCE— March 31, 2020 26,680,474 $ 266 $ 255,509 $ 653,221 $ ( 49,391 ) $ 859,605

Net income — — — 55,624 — 55,624

Compensation expense for equity awards — — 2,613 — — 2,613

Stock issued under employee incentive plans 14,705 1 939 — — 940

BALANCE— June 30, 2020 26,695,179 $ 267 $ 259,061 $ 708,845 $ ( 49,391 ) $ 918,782

Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Equity

Shares Amount

BALANCE—December 31, 2018 23,746,385 $ 237 $ 241,988 $ 431,774 $ ( 18,056 ) $ 655,943

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BALANCE— March 31, 2019 23,964,730 $ 239 $ 244,635 $ 450,108 $ ( 18,056 ) $ 676,926

Net income — — — 46,055 — 46,055

Compensation expense for equity awards — — 1,639 — — 1,639

Stock issued under employee incentive plans 14,153 1 614 — — 615

BALANCE— June 30, 2019 23,978,883 $ 240 $ 246,888 $ 496,163 $ ( 18,056 ) $ 725,235

See accompanying notes to the consolidated financial statements.

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(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

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Depreciation and amortization 317 326

Loss on extinguishment of debt — 169

Compensation expense for equity awards 4,466 3,422

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Payments on notes payable ( 235,000 ) ( 68,800 )

Loan issuance costs ( 2,084 ) ( 2,067 )

Proceeds from sale of stock, net of offering expenses 1,770 1,264

Stock repurchase ( 31,335 ) —

Net cash provided by financing activities 22,626 21,849

Net cash provided by (used in) financing activities ( 133,630 ) 10,147

Net increase (decrease) in cash and cash equivalents 10,757 ( 9,069 )

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Results for interim periods are not necessarily indicative of results to be expected for the full year.

The accompanying unaudited financial statements as of March 31, 2020, and for the three months ended March 31, 2020 and 2019, include the accounts of the Company and its subsidiaries.

The accompanying unaudited financial statements as of June 30, 2020, and for the three and six months ended June 30, 2020 and 2019, include the accounts of the Company and its subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

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On March 11, 2020, the World Health Organization declared the current outbreak of the novel strain of coronavirus (“COVID-19”) to be a global pandemic, and on March 13, 2020, the United States declared a national emergency.

In response to these declarations and the rapid spread of COVID-19, federal, state and local governments have imposed varying degrees of restrictions on business and social activities to contain COVID-19, including quarantine and “stay-at-home” or “shelter-in-place” orders in certain of our markets.

In response to these declarations and the rapid spread of COVID-19, federal, state and local governments have imposed varying degrees of restrictions on business and social activities to contain COVID-19, including business shutdowns and closures, travel restrictions, quarantines, curfews, shelter-in-place orders and “stay-at-home” orders in certain of our markets.

State and local authorities have also implemented multi-step policies with the goal of re-opening.

However, certain jurisdictions have begun re-opening only to return to restrictions in the face of increases in new COVID-19 cases.

We have experienced resulting disruptions to our business operations, as these restrictions have significantly impacted many sectors of the economy, with businesses curtailing or ceasing normal operations.

During the first quarter of 2020, certain markets in which we do business temporarily stopped our construction of homes.

As of the date of this Quarterly Report on Form 10-Q, we have resumed construction of homes in those markets.

Although we continue to build and sell homes in all of our markets, sales have slowed significantly, and sales contract cancellations have been impacted.

The ultimate impacts of COVID-19 and related mitigation efforts will depend on future developments, including, among others, the ultimate geographic spread of COVID-19, the consequences of governmental and other measures designed to prevent the spread of COVID-19, the development of effective treatments, the duration of the outbreak, actions taken by governmental authorities, customers, subcontractors, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.

In March 2020, certain markets in which we do business temporarily stopped our construction of homes.

Beginning in April 2020, we resumed construction of homes in those markets.

Although we continued to build and sell homes in all of our markets, the pace of sales declined and we experienced an increase in the rate of contract cancellations.

Since May 2020, the pace of sales has rebounded and we have experienced increased demand in our markets.

The ultimate impacts of COVID-19 and related mitigation efforts will depend on future developments, including, but not limited to, the duration and geographic spread of COVID-19, the impact of government actions designed to prevent the spread of COVID-19, the development of effective treatments, actions taken by customers, subcontractors, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.

While we cannot reasonably estimate the length or severity of this pandemic, an extended economic slowdown in the United States could materially impact our consolidated financial statements in 2020 and beyond.

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Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”), which requires entities that are customers in cloud computing arrangements to defer implementation costs if they would be capitalized by the entity in software licensing arrangements under the internal-use software guidance.

The guidance may be applied retrospectively or prospectively to implementation costs incurred after the date of adoption.

The guidance may be applied

retrospectively or prospectively to implementation costs incurred after the date of adoption.

The adoption of ASU 2018-15 did not have a material effect on our consolidated financial statements or disclosures.

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The following table presents our home sales revenues disaggregated by revenue stream (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Retail home sales revenues $ 443,507 $ 443,450 $ 853,909 $ 724,915

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The following table presents our home sales revenues disaggregated by geography, based on our determined reportable segments in Note 13 (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Central $ 167,924 $ 189,894 $ 333,699 $ 314,091

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Retail homes sold under both our LGI Homes brand and Terrata Homes brand focus on providing move-in ready homes with standardized features within favorable markets that meet certain demographic and economic conditions.

Our LGI Homes brand primarily markets to entry-level or first-time homebuyers, while our Terrata Homes brand primarily markets to move-up homebuyers.

Our other revenues are composed of our wholesale home sales under our LGI Homes brand and Terrata Homes brand in existing markets.

Our LGI Homes

brand primarily markets to entry-level or first-time homebuyers, while our Terrata Homes brand primarily markets to move-up homebuyers.

Our other revenues are composed of our wholesale home sales under our LGI Homes brand in existing markets.

Wholesale homes are primarily sold under a bulk sales agreement and focus on providing move-in ready homes with standardized features to real estate investors that will ultimately use the single-family homes as rental properties.

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Our real estate inventory consists of the following (in thousands):

March 31, December 31,

June 30, December 31,

Land, land under development and finished lots $ 944,151 $ 912,651

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Accrued and other liabilities consist of the following (in thousands):

March 31, December 31,

June 30, December 31,

Taxes payable $ 35,306 $ 28,679

Retentions and development payable 27,223 26,790

Real estate inventory development and construction payable 31,273 35,870

Accrued compensation, bonuses and benefits 12,488 16,748

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Changes to our warranty accrual are as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Warranty reserves, beginning of period $ 3,750 $ 3,000 $ 3,500 $ 2,950

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Revolving Credit Agreement

On May 6, 2019, we entered into that certain Fourth Amended and Restated Credit Agreement (as amended by the First Amendment (as defined below), the “2019 Credit Agreement”) with several financial institutions and Wells Fargo Bank, National Association, as administrative agent.

The 2019 Credit Agreement has substantially similar terms and provisions to our third amended and restated credit agreement entered into in May 2018 with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “2018 Credit Agreement”), but among other things, provides for a revolving credit facility of $ 550.0 million, which could be increased at our request by up to $ 100.0 million if the lenders make additional commitments, subject to the terms and conditions of the 2019 Credit Agreement (which was requested in December 2019).

On December 6, 2019, we entered into a Lender Addition and Acknowledgement Agreement and First Amendment to Fourth Amended and Restated Credit Agreement (the “First Amendment”) with certain lenders and Wells Fargo Bank, National Association, as an increasing lender and administrative agent, whereby the aggregate revolving commitments under the 2019 Credit Agreement increased by $ 100.0 million from $ 550.0 million to $ 650.0 million in accordance with the relevant provisions of the 2019 Credit Agreement.

The 2019 Credit Agreement matures on May 31, 2022 .

On April 30, 2020, we entered into the Second Amendment to Fourth Amended and Restated Credit Agreement (the “Second Amendment”), which amends the Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended by the Lender Addition and Acknowledgement Agreement and First Amendment to Fourth Amended and Restated Credit Agreement, dated as of December 6, 2019, the “2019 Credit Agreement” and, together with the Second Amendment, the “Credit Agreement”), with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent.

In the Second Amendment, lenders with $ 520.0 million, or 80 %, of the $ 650.0 million of commitments under the 2019 Credit Agreement, agreed to extend the maturity of their commitments to May 31, 2023, with the remaining lenders retaining their existing maturity of May 31, 2022.

The Second Amendment also reduced the minimum EBITDA to interest expense ratio from 2.50 to 1.75, increased the sublimit for letters of credit to $ 40.0 million and established a London Interbank Offered Rate (“LIBOR”) floor of 0.70 %.

The Credit Agreement otherwise has substantially similar terms and provisions to the 2019 Credit Agreement and continues to provide for a $ 650.0 million revolving credit facility, which can be increased at the request of the Company by up to $ 100.0 million, subject to the terms and conditions of the Credit Agreement.

The Credit Agreement matures on May 31, 2023 with respect to 80 % of the commitments thereunder and on May 31, 2022 with respect to 20 % of the commitments thereunder.

Before each anniversary of the Credit Agreement, we may request a one-year extension of its maturity date.

The Credit Agreement is guaranteed by each of our subsidiaries that have gross assets equal to or greater than $ 0.5 million.

The borrowings and letters of credit outstanding under the 2019 Credit Agreement, together with the outstanding principal balance of our 6.875% Senior Notes due 2026 (the “Senior Notes”), may

not exceed the borrowing base under the 2019 Credit Agreement.

As of March 31, 2020, the borrowing base under the 2019 Credit Agreement was $ 904.8 million, of which borrowings, including the Senior Notes, of $ 752.7 million were outstanding, $ 15.0 million of letters of credit were outstanding and $ 137.1 million was available to borrow under the 2019 Credit Agreement.

Interest is paid monthly on borrowings under the 2019 Credit Agreement at the London Interbank Offered Rate (“LIBOR”) plus 2.50 %.

The borrowings and letters of credit outstanding under the Credit Agreement, together

with the outstanding principal balance of our 6.875% Senior Notes due 2026 (the “Senior Notes”), may not exceed the borrowing base under the Credit Agreement.

As of June 30, 2020, the borrowing base under the Credit Agreement was $ 899.2 million, of which borrowings, including the Senior Notes, of $ 597.6 million were outstanding, $ 18.7 million of letters of credit were outstanding and $ 282.9 million was available to borrow under the Credit Agreement.

Interest is paid monthly on borrowings under the Credit Agreement at LIBOR plus 2.50 %.

The Credit Agreement applicable margin for LIBOR loans ranges from 2.35 % to 2.75 % based on our leverage ratio.

At March 31, 2020, LIBOR was 0.92 %.

At June 30, 2020, LIBOR was 0.18 %;

however, we are subject to the 0.70 % LIBOR floor as stipulated in the Credit Agreement.

The Credit Agreement contains various financial covenants, including a minimum tangible net worth, a leverage ratio, a minimum liquidity amount and an EBITDA to interest expense ratio.

The Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments.

At March 31, 2020, we were in compliance with all of the covenants contained in the 2019 Credit Agreement.

On April 30, 2020, we entered into a Second Amendment to Fourth Amended and Restated Credit Agreement (the “Second Amendment”), which amends the 2019 Credit Agreement (as so amended, the “Credit Agreement”).

In the Second Amendment, lenders with $ 520.0 million, or 80.0 %, of the $ 650.0 million of commitments under the Credit Agreement, agreed to extend the maturity of their commitments to May 31, 2023, with the remaining lenders retaining their existing maturity.

At June 30, 2020, we were in compliance with all of the covenants contained in the Credit Agreement.

Convertible Notes

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Interest on the Senior Notes accrues at a rate of 6.875 % per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2019, and the Senior Notes mature on July 15, 2026 .

Terms of the Senior Notes are governed by an Indenture and First Supplemental Indenture thereto, each dated as of July 6, 2018, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Wilmington Trust, National Association, as trustee.

Terms of the Senior Notes are governed by an Indenture and First Supplemental Indenture thereto, each dated as of July 6, 2018, and a Second Supplemental Indenture thereto, dated as of April 30, 2020, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Wilmington Trust, National Association, as trustee.

Notes payable consist of the following (in thousands):

March 31, 2020 December 31, 2019

Notes payable under the 2019 Credit Agreement ($ 650.0 million revolving credit facility at March 31, 2020) maturing on May 31, 2022;

June 30, 2020 December 31, 2019

Notes payable under the Credit Agreement ($ 650.0 million revolving credit facility at June 30, 2020) maturing in part on May 31, 2022 and in part on May 31, 2023;

interest paid monthly at LIBOR plus 2.50 %;

net of debt issuance costs of approximately $ 4.5 million and $ 5.0 million at March 31, 2020 and December 31, 2019, respectively

net of debt issuance costs of approximately $ 6.0 million and $ 5.0 million at June 30, 2020 and December 31, 2019, respectively

$ 291,623 $ 394,531

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interest paid semi-annually at 6.875%;

net of debt issuance costs of approximately $ 2.1 million and $ 2.2 million at March 31, 2020 and December 31, 2019, respectively;

and approximately $ 1.7 million and $ 1.8 million in unamortized discount at March 31, 2020 and December 31, 2019, respectively

net of debt issuance costs of approximately $ 2.0 million and $ 2.2 million at June 30, 2020 and December 31, 2019, respectively;

and approximately $ 1.6 million and $ 1.8 million in unamortized discount at June 30, 2020 and December 31, 2019, respectively

296,358 296,028

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Interest activity, including other financing costs, for notes payable for the periods presented is as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Interest incurred $ 9,262 $ 12,108 $ 19,418 $ 23,525

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Cash paid for interest $ 3,676 $ 6,199 $ 18,700 $ 21,032

Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $ 0.7 million and $ 1.1 million for the three months ended March 31, 2020 and 2019, respectively.

Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $ 0.7 million and $ 1.0 million for the three months ended June 30, 2020 and 2019, respectively, and $ 1.4 million and $ 2.1 million for the six months ended June 30, 2020 and 2019, respectively.

and state income tax returns in jurisdictions with varying statutes of limitations.

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however, audit outcomes and the timing of audit adjustments are subject to significant uncertainty.

For the three months ended March 31, 2020, our effective tax rate of 22.0 % is higher than the Federal statutory rate primarily as a result of an increase in the rate for state income taxes and expenses related to non-deductible salaries related to Section 162(m) of the Internal Revenue Code of 1986, as amended, offset by the net of the federal benefit payments, deductions in excess of compensation cost (“windfalls”) for share-based payments.

Income taxes paid were $ 18.4 million and $ 0.2 million for the three months ended March 31, 2020 and 2019, respectively.

For the three and six months ended June 30, 2020, our effective tax rates of 18.9 % and 20.3 %, respectively, are lower than the Federal statutory rate primarily as a result of the deductions in excess of compensation cost for share-based payments and a $ 3.5 million benefit recognized from the retroactive extension of the new energy efficient homes credit that was enacted into law in December 2019 offset by an increase in the rate for state income taxes, net of the federal benefit payments.

Income taxes paid were $ 0.5 million and $ 21.4 million for the three months ended June 30, 2020 and 2019, respectively.

Income taxes paid were $ 18.9 million and $ 21.6 million for the six months ended June 30, 2020 and 2019, respectively.

Shelf Registration Statement

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In November 2018, we announced that our Board of Directors (the “Board”) authorized a stock repurchase program, pursuant to which we may purchase up to $ 50.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws.

For the three months ended March 31, 2020, we repurchased 567,028 shares of our common stock for $ 31.3 million to be held as treasury stock.

A total of 606,028 shares have been repurchased since the stock repurchase program commenced.

As of March 31, 2020, we may purchase up to $ 17.2 million of shares of our common stock under our stock repurchase program.

We did no t repurchase any shares of our common stock during the three months ended June 30, 2020.

During the six months ended June 30, 2020, we repurchased 567,028 shares of our common stock for $ 31.3 million to be held as treasury stock.

A total of 606,028 shares of our common stock has been repurchased since the stock repurchase program commenced.

As of June 30, 2020, we may purchase up to $ 17.2 million of shares of our common stock under our stock repurchase program.

The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements.

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EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2020 and 2019:

Three Months Ended March 31,

The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Numerator (in thousands):

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Prior to the maturity of the Convertible Notes, we included the effect of the additional potential dilutive shares if our common stock price exceeded the conversion price of $ 21.52 per share under the treasury stock method.

During the three months ended March 31, 2019, the average market price of our common stock exceeded the conversion price of $ 21.52 per share.

During the three and six months ended June 30, 2019, the average market price of our common stock exceeded the conversion price of $ 21.52 per share.

STOCK-BASED COMPENSATION

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The following table summarizes the activity of our time-vested restricted stock units (“RSUs”):

Three Months Ended March 31,

Six Months Ended June 30,

Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value

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Ending balance 156,361 $ 60.42 170,558 $ 48.12

We recognized $ 0.8 million and $ 0.5 million of stock-based compensation expense related to outstanding RSUs for the three months ended March 31, 2020 and 2019, respectively.

We recognized $ 0.9 million and $ 0.6 million of stock-based compensation expense related to outstanding RSUs for the three months ended June 30, 2020 and 2019, respectively.

We recognized $ 1.7 million and $ 1.1 million of stock-based compensation expense related to outstanding RSUs for the six months ended June 30, 2020 and 2019, respectively.

Generally, the RSUs cliff vest on the third anniversary of the grant date and can only be settled in shares of our common stock.

At March 31, 2020, we had unrecognized compensation cost of $ 5.9 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.1 years.

June 30, 2020, we had unrecognized compensation cost of $ 5.2 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.0 years.

Performance-Based Restricted Stock Units

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The number of shares of our common stock that may be issued to the recipients for the PSUs range from 0 % to 200 % of the target amount depending on actual results as compared to the target performance metrics.

The terms of the PSUs provide that the payouts will be capped at 100 % of the target number of PSUs

granted if absolute total stockholder return is negative during the performance period, regardless of EPS performance;

The terms of the PSUs provide that the payouts will be capped at 100 % of the target number of PSUs granted if absolute total stockholder return is negative during the performance period, regardless of EPS performance;

this market condition applies for amounts recorded above target.

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The PSUs can only be settled in shares of our common stock.

The following table summarizes the activity of our PSUs for the three months ended March 31, 2020:

Period Granted Performance Period Target PSUs Outstanding at December 31, 2019 Target PSUs Granted Target PSUs Vested Target PSUs Forfeited Target PSUs Outstanding at March 31, 2020 Weighted Average Grant Date Fair Value

The following table summarizes the activity of our PSUs for the six months ended June 30, 2020:

Period Granted Performance Period Target PSUs Outstanding at December 31, 2019 Target PSUs Granted Target PSUs Vested Target PSUs Forfeited Target PSUs Outstanding at June 30, 2020 Weighted Average Grant Date Fair Value

2017 2017 - 2019 104,770 — ( 104,770 ) — — $ 31.64

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Total 246,052 88,538 ( 104,770 ) — 229,820

At March 31, 2020, management estimates that the recipients will receive approximately 100 %, 89 % and 113 % of the 2020, 2019 and 2018 target number of PSUs, respectively, at the end of the applicable three -year performance cycle based on projected performance compared to the target performance metrics.

We recognized $ 0.9 million and $ 1.2 million of total stock-based compensation expense related to outstanding PSUs for the three months ended March 31, 2020 and 2019, respectively.

At June 30, 2020, management estimates that the recipients will receive approximately 100 %, 100 % and 128 % of the 2020, 2019 and 2018 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics.

We recognized $ 1.5 million and $0.9 million of total stock-based compensation expense related to outstanding PSUs for the three months ended June 30, 2020 and 2019, respectively.

We recognized $ 2.4 million and $ 2.1 million of total stock-based compensation expense related to outstanding PSUs for the six months ended June 30, 2020 and 2019, respectively.

PSUs granted in 2017 vested on March 15, 2020 at 199 % of the target amount, and 208,867 shares of our common stock were issued upon such vesting.

At March 31, 2020, we had unrecognized compensation cost of $ 9.3 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.4 years.

At June 30, 2020, we had unrecognized compensation cost of $ 8.5 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.2 years.

FAIR VALUE DISCLOSURES

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The fair value of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and certain accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments.

As of March 31, 2020, the 2019 Credit Agreement’s carrying value approximates market value since it has a floating interest rate, which increases or decreases with market interest rates and our leverage ratio.

As of June 30, 2020, the Credit Agreement’s carrying value approximates market value since it has a floating interest rate, which increases or decreases with market interest rates and our leverage ratio.

In order to determine the fair value of the Senior Notes, the future contractual cash flows are discounted at our estimate of current market rates of interest, which were determined based upon the average interest rates of similar senior notes within the homebuilding industry (Level 2 measurement).

The following table below shows the level and measurement of liabilities at March 31, 2020 and December 31, 2019 (in thousands):

March 31, 2020 December 31, 2019

The following table below shows the level and measurement of liabilities at June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 December 31, 2019

Fair Value Hierarchy Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value

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Land Purchases from Affiliates

As of March 31, 2020, we have two land purchase contracts to purchase a total of 198 finished lots in Pasco County and Manatee County, Florida from affiliates of one of our directors for a total base purchase price of approximately $ 6.9 million.

The lots will be purchased in takedowns, subject to annual price escalation ranging from 3 % to 6 % per annum, and may provide for additional payments to the seller at the time of sale to the homebuyer.

We have a $ 0.5 million non-refundable deposit at March 31, 2020 related to these land purchase contracts.

In August 2019, we purchased our first takedown of 58 lots on the Pasco County contract for a base purchase price of approximately $ 2.1 million.

We did not experience any takedowns concerning these two land purchase contracts during the three months ended March 31, 2020 and 2019.

We anticipate the first closing on the Manatee County contract to occur in the second half of 2020.

During the three months ended March 31, 2020, we entered into a land purchase contract to purchase 25 finished lots in Montgomery County, Texas from an affiliate of a family member of our chief executive officer for a total base purchase price of approximately $ 2.0 million.

We anticipate the closing on the Montgomery County contract to occur in the second quarter of 2020.

As of June 30, 2020, we have a land purchase contract to purchase a total of 110 finished lots in Pasco County, Florida from an affiliate of one of our directors for a total base purchase price of approximately $ 4.0 million.

The lots will be purchased in takedowns, subject to a maximum price escalation of 6 % per annum, and may provide for additional payments to the seller at the time of sale to the homebuyer.

We have a $ 0.2 million non-refundable deposit at June 30, 2020 related to this land purchase contract.

In August 2019, we purchased our first takedown of 58 lots under the Pasco County contract for a base purchase price of approximately $ 2.1 million.

We did not complete any takedowns under this land purchase contract during the three months ended June 30, 2020.

During the three months ended June 30, 2020, we purchased 25 finished lots in Montgomery County, Texas from an affiliate of a family member of our chief executive officer for a total base purchase price of approximately $ 2.0 million.

COMMITMENTS AND CONTINGENCIES

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The following is a summary of our land purchase deposits included in pre-acquisition costs and deposits (in thousands, except for lot count):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Land deposits and option payments $ 28,790 $ 35,111

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Lots under land purchase contracts 12,519 16,205

As of March 31, 2020 and December 31, 2019, approximately $ 25.1 million and $ 26.3 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.

As of June 30, 2020 and December 31, 2019, approximately $ 20.4 million and $ 26.3 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.

Lease Obligations

We recognize lease obligations and associated ROU assets for our existing non-cancelable leases.

We recognize lease obligations and associated right-of-use (“ROU”) assets for our existing non-cancelable leases.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

ROU assets, as included in other assets on the consolidated balance sheets, were $ 5.2 million and $ 5.3 million at March 31, 2020 and December 31, 2019, respectively.

Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $ 5.4 million and $ 5.6 million at March 31, 2020 and December 31, 2019, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, for the three months ended March 31, 2020 and 2019 was $ 0.4 million and $ 0.3 million, respectively.

Cash paid for amounts included in the measurement of lease liabilities for operating leases during the three months ended March 31, 2020 and 2019 was $ 0.4 million and $ 0.3 million, respectively.

As of March 31, 2020, the weighted-average discount rate was 5.47 % and our weighted-average remaining life was 7.0 years.

We do not have any significant lease contracts that have not yet commenced at March 31, 2020.

The table below shows the future minimum payments under non-cancelable operating leases at March 31, 2020 (in thousands):

ROU assets, as included in other assets on the consolidated balance sheets, were $ 5.3 million at each of June 30, 2020 and December 31, 2019.

Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $ 5.5 million and $ 5.6 million at June 30, 2020 and December 31, 2019, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 0.3 million for both the three months ended June 30, 2020 and 2019.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 0.7 million and $ 0.6 million for the six months ended June 30, 2020 and 2019, respectively.

Cash paid for amounts included in the measurement of lease liabilities for operating leases during the six months ended June 30, 2020 and 2019 was $ 0.7 million and $ 0.6 million, respectively.

As of June 30, 2020, the weighted-average discount rate was 5.40 % and our weighted-average remaining life was 5.8 years.

We do not have any significant lease contracts that have not yet commenced at June 30, 2020.

The table below shows the future minimum payments under non-cancelable operating leases at June 30, 2020 (in thousands):

Year Ending December 31, Operating leases

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Bonding and Letters of Credit

We have outstanding letters of credit and performance and surety bonds totaling $ 118.5 million (including $ 15.0 million of letters of credit issued under the 2019 Credit Agreement) and $ 108.7 million at March 31, 2020 and December 31, 2019, respectively, related to our obligations for site improvements at various projects.

We have outstanding letters of credit and performance and surety bonds totaling $ 120.0 million (including $ 18.7 million of letters of credit issued under the Credit Agreement) and $ 108.7 million at June 30, 2020 and December 31, 2019, respectively, related to our obligations for site improvements at various projects.

Management does not believe that draws upon the letters of credit, surety bonds or financial guarantees if any, will have a material effect on our consolidated financial position, results of operations or cash flows.

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The term of the commitment is eight years and includes renewals of up to two additional years.

As of March 31, 2020 and December 31, 2019, we have a total of $ 2.1 million and $ 1.1 million, respectively, within other assets on the balance sheet.

As of June 30, 2020 and December 31, 2019, we have a total of $ 2.1 million and $ 1.1 million, respectively, within other assets on the balance sheet.

Contributions into the unconsolidated entity are for the use of investing in certain real estate transactions.

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We operate one principal homebuilding business that is organized and reports by division.

We have seven operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West, and Florida divisions) that we aggregate into five reportable segments at March 31, 2020:

We have seven operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West, and Florida divisions) that we aggregate into five reportable segments at June 30, 2020:

our Central, Southeast, Northwest, West, and Florida divisions.

These segments reflect the way the Company evaluates its business performance and manages its operations.

The Central division is our largest division and comprised approximately 36 % of total home sales revenues for the three months ended March 31, 2020.

The Central division is our largest division and comprised approximately 36 % and 42 % of total home sales revenues for the six months ended June 30, 2020 and 2019, respectively.

In accordance with ASC Topic 280, Segment Reporting , operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision-makers (“CODMs”) in deciding how to allocate resources and in assessing performance.

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Financial information relating to our reportable segments was as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Central $ 167,924 $ 189,894 $ 333,699 $ 314,091

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Actual warranty expenses are reflected within the reportable segments.

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Central $ 622,190 $ 637,083

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Total assets $ 1,636,375 $ 1,666,115

(1) As of March 31, 2020 and December 31, 2019 , the Corporate balance consists primarily of cash, prepaid insurance, ROU assets and prepaid expenses.

SUBSEQUENT EVENTS

Amendment to 2019 Credit Agreement .

On April 30, 2020, we entered into the Second Amendment, which amended the 2019 Credit Agreement, as more fully discussed in Note 5 .

Additional Subsidiary Guarantors.

On April 30, 2020, we and our subsidiaries that guarantee our obligations under the Credit Agreement entered into a Second Supplemental Indenture to that certain Indenture, dated as of July 6, 2018, with Wilmington Trust, National Association, as trustee, pursuant to which the Company’s wholly owned subsidiaries, LGI Homes – Pennsylvania, LLC and LGI Homes – Utah, LLC, issued a full and unconditional guarantee of the Senior Notes.

(1) As of June 30, 2020 and December 31, 2019, the Corporate balance consists primarily of cash, prepaid insurance, ROU assets and prepaid expenses.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements