What changed in this filing

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Item 1. Financial Statements

2020-11-03 compared with 2020-08-04 · 109 added, 85 removed, 403 unchanged (32% of the section changed)

3 unchanged sentences

(In thousands, except share data)

June 30, December 31,

September 30, December 31,

Cash and cash equivalents $ 46,335 $ 38,345

5 unchanged sentences

Deferred tax assets, net 5,453 4,621

Goodwill and intangible assets, net 12,018 12,018

Goodwill 12,018 12,018

Total assets $ 1,762,843 $ 1,666,115

5 unchanged sentences

COMMITMENTS AND CONTINGENCIES

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

Common stock, par value $ 0.01 , 250,000,000 shares authorized, 26,706,454 shares issued and 25,100,426 shares outstanding as of September 30, 2020 and 26,398,409 shares issued and 25,359,409 shares outstanding as of December 31, 2019

Additional paid-in capital 263,945 252,603

8 unchanged sentences

(In thousands, except share and per share data)

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

7 unchanged sentences

Net income before income taxes 77,815 64,732 201,301 146,961

Income tax provision 12,973 14,480 25,023 17,840

Income tax provision (benefit) ( 11,189 ) 15,383 13,834 33,223

Net income $ 89,004 $ 49,349 $ 187,467 $ 113,738

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

Net income — — — 89,004 — 89,004

Compensation expense for equity awards — — 3,926 — — 3,926

Stock issued under employee incentive plans 11,275 — 958 — — 958

BALANCE— September 30, 2020

26,706,454 $ 267 $ 263,945 $ 797,849 $ ( 49,391 ) $ 1,012,670

See accompanying notes to the consolidated financial statements.

LGI HOMES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

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

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

Net income — — — 49,349 — 49,349

Compensation expense for equity awards — — 1,759 — — 1,759

Stock issued under employee incentive plans 10,073 — 704 — — 704

BALANCE— September 30, 2019 23,988,956 $ 240 $ 249,351 $ 545,512 $ ( 18,056 ) $ 777,047

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

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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 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.

The accompanying unaudited financial statements as of September 30, 2020, and for the three and nine months ended September 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 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.

In response to these declarations and the rapid spread of COVID-19, federal, state and local governments 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 various sectors of the economy.

However, certain jurisdictions began re-opening only to return to restrictions in the face of increases in new COVID-19 cases, while other jurisdictions are continuing to re-open or have nearly completed the re-opening process despite increases in COVID-19 cases.

The COVID-19 outbreak may significantly worsen in the United States during the upcoming winter months, which may cause federal, state and local governments to reconsider restrictions on business and social activities.

In the event governments increase restrictions, the re-opening of the economy may be further curtailed.

We have experienced some resulting disruptions to our business operations, as these restrictions have significantly impacted, and may continue to impact, many sectors of the economy, with various businesses curtailing or ceasing normal operations and subsequently attempting to resume operations.

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

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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.

Since May 2020, the pace of sales has rebounded and we have experienced a sustained increase in 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 and availability of effective treatments and vaccines, 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.

1 unchanged sentence

2018-13, “Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which modifies the disclosure requirements of fair value measurements.

ASU 2018-13 is effective for us beginning January 1, 2020.

ASU 2018-13 was effective for us beginning January 1, 2020.

Certain disclosures are required to be applied on a retrospective basis and others on a prospective basis.

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A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

ASU 2017-04 is effective for us beginning January 1, 2020, with early adoption permitted, and applied prospectively.

ASU 2017-04 was effective for us beginning January 1, 2020, with early adoption permitted, and applied prospectively.

The adoption of ASU 2017-04 did not have a material effect on our consolidated financial statements or disclosures.

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Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments from an “incurred loss” approach to a new “expected credit loss” methodology.

ASU 2016-13 is effective for us beginning January 1, 2020, with early adoption permitted.

ASU 2016-13 was effective for us beginning January 1, 2020, with early adoption permitted.

The adoption of ASU 2016-13 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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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 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.

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

June 30, December 31,

September 30, December 31,

Land, land under development and finished lots $ 866,723 $ 912,651

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

June 30, December 31,

September 30, December 31,

Taxes payable $ 1,650 $ 28,679

5 unchanged sentences

Warranty reserve 4,150 3,500

Contract deposits 8,514 2,502

Other 7,630 5,755

7 unchanged sentences

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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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.

In the Second Amendment, certain lenders agreed to extend the maturity of their commitments, while another lender agreed to extend the maturity of its commitment subsequent to the execution of the Second Amendment.

As of September 30, 2020, lenders with $ 566.0 million, or 87 %, 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 %.

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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 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.

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 September 30, 2020, the borrowing base under the Credit Agreement was $ 949.4 million, of which borrowings, including the Senior Notes, of $ 627.6 million were outstanding, $ 15.3 million of letters of credit were outstanding and $ 306.5 million was available to borrow under the Credit Agreement.

Interest is paid monthly on borrowings under the Credit Agreement at LIBOR plus 2.35 %.

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

At June 30, 2020, LIBOR was 0.18 %;

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

At September 30, 2020, LIBOR was 0.15 %;

however, the Credit Agreement has a 0.70 % LIBOR floor.

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

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

Convertible Notes

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Notes payable consist of the following (in thousands):

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;

September 30, 2020 December 31, 2019

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

interest paid monthly at LIBOR plus 2.35 %;

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

net of debt issuance costs of approximately $ 5.5 million and $ 5.0 million at September 30, 2020 and December 31, 2019, respectively

$ 322,158 $ 394,531

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interest paid semi-annually at 6.875%;

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

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

and approximately $ 1.5 million and $ 1.8 million in unamortized discount at September 30, 2020 and December 31, 2019, respectively

296,520 296,028

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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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Cash paid for interest $ 13,122 $ 14,673 $ 31,822 $ 35,705

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.

Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $ 0.8 million and $ 1.1 million for the three months ended September 30, 2020 and 2019, respectively, and $ 2.2 million and $ 3.2 million for the nine months ended September 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 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.

For the three and nine months ended September 30, 2020, our effective tax rates of ( 14.4 )% and 6.9 %, respectively, are lower than the Federal statutory rate primarily as a result of the retroactive extension of the federal energy efficient homes tax credit that was enacted into law in December 2019, including the application of the credits to homes closed in prior open tax years.

These credits were extended to apply to homes closed through December 31, 2020.

Total benefits recognized for the federal energy efficient homes tax credit were $ 29.4 million and $ 32.9 million for the three and nine months ended September 30, 2020, respectively.

The impact of the federal energy efficient homes tax credit was partially offset by an increase in the rate for state income taxes, net of the federal benefit payments.

Income taxes paid were $ 46.6 million and $ 14.7 million for the three months ended September 30, 2020 and 2019, respectively.

Income taxes paid were $ 65.5 million and $ 36.3 million for the nine months ended September 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.

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.

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

During the nine months ended September 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 our stock repurchase program commenced.

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

On October 30, 2020, the Board approved an increase in our stock repurchase program by an additional $ 300.0 million, increasing the available authorization under the program to purchase up to $ 317.2 million of shares of our common stock as of the date of this Quarterly Report on Form 10-Q.

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.

The stock repurchase program may be modified, discontinued or suspended at any time.

Our stock repurchase program may be modified, discontinued or suspended at any time.

EARNINGS PER SHARE

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,

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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

During the three and nine months ended September 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”):

Six Months Ended June 30,

Nine Months Ended September 30,

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

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Ending balance 153,353 $ 60.65 165,335 $ 48.35

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.

We recognized $ 0.9 million and $ 0.5 million of stock-based compensation expense related to outstanding RSUs for the three months ended September 30, 2020 and 2019, respectively.

We recognized $ 2.6 million and $ 1.6 million of stock-based compensation expense related to outstanding RSUs for the nine months ended September 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.

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.

At September 30, 2020, we had unrecognized compensation cost of $ 4.2 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 1.9 years.

Performance-Based Restricted Stock Units

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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 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

The following table summarizes the activity of our PSUs for the nine months ended September 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 September 30, 2020 Weighted Average Grant Date Fair Value

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

3 unchanged sentences

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

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.

At September 30, 2020, management estimates that the recipients will receive approximately 152 %, 135 % and 161 % 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 $ 1.3 million and $ 1.1 million of total stock-based compensation expense related to outstanding PSUs for the three months ended September 30, 2020 and 2019, respectively.

We recognized $ 3.7 million and $ 3.2 million of total stock-based compensation expense related to outstanding PSUs for the nine months ended September 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 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.

At September 30, 2020, we had unrecognized compensation cost of $ 9.4 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.0 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 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.

September 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 June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020 December 31, 2019

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

September 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 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.

As of September 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.

We have a $ 0.2 million non-refundable deposit at September 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.

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

During the three months ended September 30, 2020, we entered into a land purchase contract to purchase 10 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 $ 0.8 million.

That transaction closed on October 23, 2020.

During the nine months ended September 30, 2020, we purchased 25 finished lots in Montgomery County, Texas from an affiliate of the same 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):

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Land deposits and option payments $ 32,493 $ 35,111

1 unchanged sentence

Lots under land purchase contracts 24,557 16,205

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.

As of September 30, 2020 and December 31, 2019, approximately $ 21.8 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

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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 $ 5.3 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):

ROU assets, as included in other assets on the consolidated balance sheets, were $ 5.0 million and $ 5.3 million as of September 30, 2020 and December 31, 2019, respectively.

Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $ 5.3 million and $ 5.6 million at September 30, 2020 and December 31, 2019, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 0.4 million and $ 0.3 million for the three months ended September 30, 2020 and 2019, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 1.2 million and $ 0.9 million for the nine months ended September 30, 2020 and 2019, respectively.

Cash paid for amounts included in the measurement of lease liabilities for operating leases during the nine months ended September 30, 2020 and 2019 was $ 0.7 million and $ 0.3 million, respectively.

As of September 30, 2020, the weighted-average discount rate was 5.42 % and our weighted-average remaining life was 5.6 years.

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

The table below shows the future minimum payments under non-cancelable operating leases at September 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 $ 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.

We have outstanding letters of credit and performance and surety bonds totaling $ 120.4 million (including $ 15.3 million of letters of credit issued under the Credit Agreement) and $ 108.7 million at September 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 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.

As of September 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 June 30, 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 September 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 % and 42 % of total home sales revenues for the six months ended June 30, 2020 and 2019, respectively.

The Central division is our largest division and comprised approximately 35 % and 41 % of total home sales revenues for the nine months ended September 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.

The CODMs primarily evaluate performance based on the number of homes closed, gross margin and average sales price.

The CODMs primarily evaluate performance based on the number of homes closed, gross margin and average sales price per home closed.

The seven operating segments qualify as our five reportable segments.

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Actual warranty expenses are reflected within the reportable segments.

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Central $ 678,226 $ 637,083

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Total assets $ 1,762,843 $ 1,666,115

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

(1) As of September 30, 2020, the Corporate balance consists primarily of cash, prepaid insurance, ROU assets, prepaid expenses and income tax receivables related to the federal energy efficient homes tax credit.

As of December 31, 2019, the Corporate balance consists primarily of cash, prepaid insurance, ROU assets and prepaid expenses.

SUBSEQUENT EVENT

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