What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-25 compared with 2020-02-25 · 238 added, 167 removed, 522 unchanged (44% of the section changed)

16 unchanged sentences

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

5 unchanged sentences

Land development costs

Description of the Matter

At December 31, 2019, the Company’s cost of sales was approximately $1.4 billion, which includes construction costs of each closed home and allocable land acquisition and land development costs, capitalized interest, and other related costs.

Description of the Matter At December 31, 2020, the Company’s cost of sales was approximately $1.8 billion, which includes construction costs of each closed home and allocable land acquisition and land development costs, capitalized interest, and other related costs.

As discussed in Note 2 to the consolidated financial statements, land development costs that are not specifically identifiable to a home are allocated on a pro rata basis.

6 unchanged sentences

Specifically, the land development cost estimate is sensitive to significant management assumptions, including the project’s schedule, estimated cost of labor and potential reimbursements.

How We Addressed the Matter in Our Audit

We obtained an understanding and tested the design and operating effectiveness of the Company's process and controls over its land development cost measurement and allocation to unsold lots and homes, including controls over management's review of the estimated costs to complete.

To test the Company's land development cost measurement and allocation to unsold lots and homes, our audit procedures included, among others, testing the significant assumptions used to develop the estimated costs to complete of the land development budgets and testing the completeness and accuracy of the underlying data and allocation calculation.

How We Addressed the Matter in Our Audit We obtained an understanding and tested the design and operating effectiveness of the Company's process and controls over its land development cost measurement and allocation to unsold lots and homes, including controls over management's review of the estimated costs to complete.

To test the Company's land development cost measurement and allocation to unsold lots and homes, our audit procedures included, among others, testing the significant assumptions used to develop the estimated costs to complete the land development projects and testing the completeness and accuracy of the underlying data and allocation calculation.

For example, we compared the estimated land development costs to actual costs of similar communities developed by the Company;

agreed the estimated development costs and cost reimbursements to supporting documentation, including underlying contracts;

and performed observational procedures to understand the completeness of development activities included in the budgets.

and performed observational procedures to understand the completeness of development activities included in the estimated land development costs.

In addition, we performed lookback analyses to historical actual costs to assess management’s ability to estimate and performed sensitivity analyses of the significant assumptions to evaluate the changes in total costs of land development that would result from changes in these assumptions.

11 unchanged sentences

Property and equipment, net 3,618 1,632

Other assets 44,882 16,241

Deferred tax assets, net 6,986 4,621

Goodwill 12,018 12,018

Total assets $ 1,826,087 $ 1,666,115

LIABILITIES AND EQUITY

7 unchanged sentences

Retained earnings 934,277 610,382

Treasury stock, at cost 1,039,000 shares

Treasury stock, at cost, 1,757,993 shares and 1,039,000 shares, respectively

( 66,137 ) ( 18,056 )

Total equity 1,139,005 845,193

Total liabilities and equity $ 1,826,087 $ 1,666,115

4 unchanged sentences

For the Year Ended December 31,

2020 2019 2018

Home sales revenues $ 2,367,929 $ 1,838,154 $ 1,504,400

7 unchanged sentences

Income tax provision 43,954 53,224 43,812

Net income $ 323,895 $ 178,608 $ 155,286

Earnings per share:

Basic $ 12.89 $ 7.70 $ 6.89

Diluted $ 12.76 $ 7.02 $ 6.24

Weighted average shares outstanding:

Basic 25,135,077 23,191,595 22,551,762

Diluted 25,380,560 25,430,841 24,892,274

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(In thousands, except share data)

Additional Paid-In Capital

Retained Earnings

Treasury Stock

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

Shares Amount

BALANCE—December 31, 2017 22,845,580 $ 228 $ 229,680 $ 276,488 $ ( 16,550 ) $ 489,846

Issuance of shares, net of offering costs

Net income — — — 155,286 — 155,286

Issuance of shares in settlement of Convertible Notes 486,679 5 ( 482 ) — — ( 477 )

Issuance of shares, Wynn Homes Acquisition 70,746 1 3,999 — — 4,000

Repurchase of shares — — — — ( 1,506 ) ( 1,506 )

Issuance of restricted stock units in settlement of accrued bonuses — — 181 — — 181

2 unchanged sentences

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

Net income — — — 178,608 — 178,608

Issuance of shares in settlement of Convertible Notes 2,381,751 24 ( 24 ) — — —

Issuance of shares, Wynn Homes Acquisition

Repurchase of shares

Issuance of restricted stock units in settlement of accrued bonuses — — 217 — — 217

2 unchanged sentences

BALANCE—December 31, 2019 26,398,409 $ 264 $ 252,603 $ 610,382 $ ( 18,056 ) $ 845,193

Issuance of shares in settlement of Convertible Notes

Net income — — — 323,895 — 323,895

Repurchase of shares — — — — ( 48,081 ) ( 48,081 )

Issuance of restricted stock units in settlement of accrued bonuses — — 222 — — 222

7 unchanged sentences

For the Year Ended December 31,

2020 2019 2018

Cash flows from operating activities:

Adjustments to reconcile net income to net cash used in operating activities:

Net income $ 323,895 $ 178,608 $ 155,286

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 710 643 711

Loss on extinguishment of debt — 169 3,588

Loss on disposal of assets

Loss (gain) on disposal of assets ( 4 ) 37 6

Compensation expense for equity awards 13,517 7,539 5,937

4 unchanged sentences

Pre-acquisition costs and deposits 32 8,507 ( 18,853 )

Other assets ( 25,686 ) 6,228 ( 1,398 )

Accounts payable 1,181 3,254 ( 2,779 )

Accrued expenses and other liabilities 20,655 35,117 ( 25,703 )

Net cash used in operating activities

Net cash provided by (used in) operating activities 202,158 ( 41,934 ) ( 116,723 )

Cash flows from investing activities:

Purchases of property and equipment

Purchases of property and equipment, net ( 2,692 ) ( 734 ) ( 475 )

Investment in unconsolidated entity ( 2,956 ) ( 1,059 ) —

9 unchanged sentences

Payment for earnout obligation — — ( 132 )

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net cash provided by (used in) financing activities ( 198,913 ) 35,448 170,714

Net decrease in cash and cash equivalents ( 2,403 ) ( 8,279 ) ( 20,947 )

Cash and cash equivalents, beginning of year 38,345 46,624 67,571

6 unchanged sentences

LGI Homes, Inc., a Delaware corporation (the “Company”, “we,” “us,” or “our”), is headquartered in The Woodlands, Texas.

We engage in the design, construction and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia and Virginia.

On August 2, 2018, we acquired certain homebuilding assets owned by Crosswind Properties, LLC, Wynn Construction, Inc., Crosswind Development, Inc., Crosswind Investments, Inc.

5 unchanged sentences

The acquisition was accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”).

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 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 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.

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, at that time 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 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 availability and timely distribution 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 2021 and beyond.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

4 unchanged sentences

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates, and these differences could have a significant impact on the financial statements.

The significant accounting estimates include real estate inventory and cost of sales, impairment of real estate inventory and property and equipment, goodwill, warranty reserves, the fair value of the convertible debt, loss contingencies, incentive compensation expense, and income taxes.

Actual results

could differ from those estimates, and these differences could have a significant impact on the financial statements.

The significant accounting estimates include real estate inventory and cost of sales, impairment of real estate inventory and property and equipment, warranty reserves, loss contingencies, incentive compensation expense, and income taxes.

Cash and Cash Equivalents and Concentration of Credit Risk

7 unchanged sentences

Inventory is stated at cost unless the carrying amount is determined not to be recoverable, in which case the affected inventory is written down to fair value.

Land, development and other project costs, including interest and property taxes incurred during development and home construction and net of expected reimbursements of development costs, are capitalized to real estate inventory.

Land, development and other project costs, including interest and property taxes incurred during development and home construction, net of expected reimbursable development costs, are capitalized to real estate inventory.

Land development and other common costs that benefit the entire community, including field construction supervision and related direct overhead, are allocated to individual lots or homes, as appropriate.

The costs of lots are assigned to homes in progress when home construction begins.

The costs of lots are transferred to homes in progress when home construction begins.

Home construction costs and related carrying charges are allocated to the cost of individual homes using the specific identification method.

Costs that are not specifically identifiable to a home are allocated on a pro rata basis, which we believe

approximates the costs that would be determined using an allocation method based on relative sales values since the individual lots or homes within a community are similar in value.

Costs that are not specifically identifiable to a home are allocated on a pro rata basis, which we believe approximates the costs that would be determined using an allocation method based on relative sales values since the individual lots or homes within a community are similar in value.

Inventory costs for completed homes are expensed to cost of sales as homes are closed.

17 unchanged sentences

Upon execution of the purchase, these deposits are applied to the acquisition price of the land and recorded as a cost component of the land in real estate inventory.

To the extent that any deposits are nonrefundable and the associated land acquisition process is terminated or no longer determined probable, the deposit and related pre-acquisition costs are charged to general and administrative expenses.

To the extent that any deposits are nonrefundable and the associated land acquisition process is terminated or no longer determined probable, the deposit and related pre-acquisition costs

are charged to general and administrative expenses.

Management reviews the likelihood of the acquisition of contracted lots in conjunction with its periodic real estate impairment analysis.

8 unchanged sentences

Deferred loan costs represent debt issuance costs related to a recognized debt liability and are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability.

Other assets consist primarily of prepaid insurance, prepaid expenses, security deposits, and right-of-use (“ROU”) assets.

Other assets consist primarily of prepaid insurance, prepaid expenses, security deposits, right-of-use (“ROU”) assets, municipal utility district reimbursements, and income tax receivables related to the federal energy efficient homes tax credit.

Our prepaid insurance and prepaid expenses were $ 6.5 million and $ 7.8 million as of December 31, 2020 and 2019, respectively.

Property and Equipment, Net

Property, building, equipment and leasehold improvements are stated at cost, less accumulated depreciation.

Property, building, software, computer equipment and leasehold improvements are stated at cost, less accumulated depreciation.

Depreciation expense is recorded in general and administrative expenses.

13 unchanged sentences

In the event we buy land from this entity we intend to defer the recognition of profits from such activities until the time we ultimately sell the related land.

We evaluate our investment in the unconsolidated entity for recoverability in accordance with ASC Topic 323, Investments - Equity Method and Joint Ventures (“ASC 323”).

We evaluate our investment in the unconsolidated entity for recoverability in accordance with ASC Topic 323, Investments - Equity Method and Joint Ventures .

If we determine that a loss in the value of the investment is other than temporary, we write down the investment to its estimated fair value.

2 unchanged sentences

Goodwill and Intangible Assets

The excess of the purchase price of a business acquisition over the net fair value of assets acquired and liabilities assumed is capitalized as goodwill in accordance with ASC Topic 805, Business Combinations .

The excess of the purchase price of a business acquisition over the net fair value of assets acquired and liabilities assumed is capitalized as goodwill in accordance with ASC 805, Business Combinations .

Goodwill and intangible assets that do not have finite lives are not amortized, but are assessed for impairment at least annually or more frequently if certain impairment indicators are present.

The $ 12.0 million of goodwill is related to the reorganization transactions completed in connection with the initial public offering of our common stock in November 2013.

In applying the goodwill impairment test, we have the option to perform a qualitative test (also known as “Step 0”) or a two-step quantitative test (consisting of “Step 1” and “Step 2”).

Under the Step 0 test, we first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting units is less than their carrying value.

Qualitative factors may include, but are not limited to, economic conditions, industry and market considerations, cost factors, overall financial performance of the reporting unit and other entity and reporting unit specific events.

If after assessing these qualitative factors, we determine it is “more-likely-than-not” that the fair value of the reporting unit is less than the carrying value, then performing the two-step quantitative test is necessary.

Annually, we performed a Step 0 analysis and determined that it is not “more likely than not” that the fair values of the reporting units were less than their carrying amounts.

In applying the goodwill impairment test, we have the option to perform a qualitative test.

Under the optional qualitative test, we first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting units is less than their carrying value.

Qualitative factors may include,

but are not limited to, economic conditions, industry and market considerations, cost factors, overall financial performance of the reporting unit and other entity and reporting unit specific events.

Annually, we have performed a qualitative analysis and determined that it is not “more likely than not” that the fair values of the reporting units were less than their carrying amounts.

No goodwill impairment charges were recorded in 2020, 2019 and 2018.

4 unchanged sentences

Customer Deposits

Customer deposits are received upon signing a purchase contract and are generally $ 1,000 .

Customer deposits are received upon signing a purchase contract and are typically $ 1,000 to $ 5,000 .

Deposits are generally refundable if the customer is unable to obtain financing.

Forfeited buyer deposits related to home sales are recognized in other income in the period in which it is determined that the buyer will not complete the purchase of the property and the deposit is nonrefundable to the buyer.

Revenues from home sales are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

In accordance with ASC Topic 606, Revenue from Contracts with Customers , revenues from home sales are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Revenues from home sales are recorded at the time each home sale is closed, title and possession are transferred to the customer and we have no significant continuing involvement with the home.

6 unchanged sentences

Advertising Costs

Advertising and direct mail costs are expensed as incurred.

Advertising and direct mail costs were $ 20.2 million , $ 17.6 million and $ 15.2 million for the years ended December 31, 2019 , 2018 , and 2017 , respectively.

Advertising costs are expensed as incurred.

Advertising costs were $ 10.7 million, $ 20.2 million and $ 17.6 million for the years ended December 31, 2020, 2019, and 2018, respectively.

We are a taxable entity subject to federal and state taxes.

9 unchanged sentences

Diluted earnings per share is based on the weighted average number of shares of common stock and dilutive securities outstanding.

In accordance with ASC 260-10, Earnings Per Share , we calculated the dilutive effect of our 4.25% Convertible Notes due 2019 (the “Convertible Notes”) using the treasury stock method through the maturity date of the Convertible Notes, since we had the intent and ability to settle the principal amount of the outstanding Convertible Notes in cash.

Under the treasury stock method, the Convertible Notes had a dilutive impact on diluted earnings per share to the extent that the average market price of our common stock for a reporting period exceeded the conversion price of $ 21.52 per share.The Convertible Notes matured on November 15, 2019, resulting in the issuance of 2,381,751 shares of our common stock.

In accordance with ASC 260-10, Earnings Per Share , we calculated the dilutive effect of our 4.25 % Convertible Notes due 2019 (the “Convertible Notes”) using the treasury stock method, since we had the intent and ability to settle the principal amount of

the outstanding Convertible Notes in cash.

The Convertible Notes matured and were repaid in full on November 15, 2019.

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.

Diluted earnings per share excludes all dilutive potential shares of common stock if their effect is antidilutive.

5 unchanged sentences

Recently Adopted Accounting Standards

On January 1, 2019, we adopted the Financial Accounting Standards Board (the “FASB”) Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which amends the existing standards for lease accounting, requiring lessees to recognize most leases on their balance sheets and disclose key information about leasing arrangements.

The new standard establishes an ROU model that requires a lessee to recognize an ROU asset and lease liability on the balance sheet for all leases with a term longer than one year.

Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

We adopted the new standard with a modified retrospective transition approach, so financial information is not updated for periods prior to January 1, 2019.

Pursuant to the adoption of the new standard, we elected the practical expedients upon transition that do not require us to reassess existing contracts to determine if they contain leases under the new definition of a lease, or to reassess historical lease classification or initial direct costs.

We also elected the practical expedient to not separate lease and non-lease components for new leases after adoption of the new standard.

The adoption of Topic 842 is accounted for as a change in accounting principle in conformity with FASB ASC 250, “Accounting Changes and Error Corrections.” As a result of the adoption, the most significant changes are related to the recognition of new

ROU assets and lease liabilities of $ 5.4 million as of January 1, 2019 on the balance sheet for office operating leases.

The Company's existing material leases are all considered operating leases under the new leasing standard and as a result, no adjustment to retained earnings was required.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU No.

On January 1, 2020, we adopted the Financial Accounting Standards Board (the “FASB”) Accounting Standards Update (“ASU”) No.

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”), 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.

ASU 2018-15 was effective for us beginning January 1, 2020.

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

ASU 2018-15 is effective for us beginning January 1, 2020.

We are currently evaluating the impact that this standard will have on our financial statements.

In August 2018, the FASB issued ASU No.

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

On January 1, 2020, we adopted the FASB ASU No.

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.

We do not expect ASU 2018-13 to have a material impact on our financial statements.

In January 2017, the FASB issued ASU No.

The adoption of ASU 2018-13 did not have a material effect on our consolidated financial statements or disclosures.

On January 1, 2020, we adopted the FASB ASU No.

2017-04, “Intangibles - Goodwill and Other (Topic 350):

1 unchanged sentence

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.

We do not expect ASU 2017-04 to have a material impact on our financial statements.

In June 2016, the FASB issued ASU No.

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.

On January 1, 2020, we adopted the FASB ASU No.

2016-13, “ Financial Instruments - Credit Losses (Topic 326):

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.

We are currently evaluating the impact that this standard will have on our financial statements.

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.

Revenue Recognition

4 unchanged sentences

For the Year Ended December 31,

2020 2019 2018

Retail home sales revenues $ 2,191,301 $ 1,714,277 $ 1,394,475

Wholesale home sales revenues 176,628 123,877 109,925

Total home sales revenues $ 2,367,929 $ 1,838,154 $ 1,504,400

The following table presents our home sales revenues disaggregated by geography, based on our determined operating segments in Note 15 (in thousands):

The following table presents our home sales revenues disaggregated by geography, based on our determined reportable segments in Note 15 (in thousands):

For the Year Ended December 31,

2020 2019 2018

Central $ 850,375 $ 724,981 $ 623,751

Southeast 559,226 347,817 271,073

Northwest 389,523 304,294 277,567

West 286,130 271,186 151,059

Florida 282,675 189,876 180,950

Home sales revenues $ 2,367,929 $ 1,838,154 $ 1,504,400

2 unchanged sentences

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 luxury Terrata Homes brand primarily markets to move-up homebuyers.

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.

20 unchanged sentences

Property and equipment consist of the following (in thousands):

Computer equipment

Asset Life 2020 2019

Computer software and equipment 2 - 5

$ 3,152 $ 1,395

Machinery and equipment 5

8 unchanged sentences

Taxes payable $ 26,181 $ 28,679

Retentions and development payable

Real estate inventory development and construction payable 29,938 35,870

Accrued compensation, bonuses and benefits 28,579 16,748

3 unchanged sentences

Warranty reserve 5,350 3,500

Contract deposits 17,151 2,502

Other 7,154 5,755

Total accrued expenses and other liabilities $ 135,008 $ 117,868

Inventory Related Obligations

We own lots in certain communities in Arizona, Florida, and Texas that have Community Development Districts (“CDD”) or similar utility and infrastructure development special assessment programs that allocate a fixed amount of debt service associated with development activities to each lot.

This obligation for infrastructure development is attached to the land, is typically payable over a 30 -year period, and is ultimately assumed by the homebuyer when home sales are closed.

We own lots in certain communities in Arizona, Florida, and Texas that have Community Development Districts or similar utility and infrastructure development special assessment programs that allocate a fixed amount of debt service associated with development activities to each lot.

This obligation for infrastructure development is attached to the land, which is typically payable over a 30-year period, and is ultimately assumed by the homebuyer when home sales are closed.

Such obligations represent a non-cash cost of the lots.

At December 31, 2019 and 2018 , we had CDD and other utility development obligations of approximately $ 7.8 million and $ 7.0 million , respectively.

Estimated Warranty Reserve

1 unchanged sentence

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

2020 2019 2018

Warranty reserves, beginning of period $ 3,500 $ 2,950 $ 2,450

4 unchanged sentences

Revolving Credit Agreement

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

The 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 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 with certain lenders and Wells Fargo Bank, National Association, as an increasing lender and administrative agent, whereby the aggregate revolving commitments under the Credit Agreement increased by $ 100.0 million from $ 550.0 million to $ 650.0 million in accordance with the relevant provisions of the Credit Agreement.

The Credit Agreement matures on May 31, 2022 .

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

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, 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.

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 %.

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 87 % of the commitments thereunder and on May 31, 2022 with respect to 13 % 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.

As of December 31, 2019 , the borrowing base under the Credit Agreement was $ 940.1 million , of which borrowings, including our 6.875 % Senior Notes due 2026 (the “Senior Notes”), of $ 699.6 million were outstanding, $ 11.6 million of letters of credit were outstanding and $ 228.0 million was available to borrow under the Credit Agreement, net of deferred purchase price obligations.

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 December 31, 2020, the borrowing base under the Credit Agreement was $ 949.6 million, of which borrowings, including the Senior Notes, of $ 546.6 million were outstanding, $ 10.5 million of letters of credit were outstanding and $ 392.5 million was available to borrow under the Credit Agreement.

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

1 unchanged sentence

At December 31, 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.

1 unchanged sentence

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

In connection with the issuance of the Senior Notes in July 2018, we reduced the revolving commitment under the 2018 Credit Agreement from $ 750.0 million to $ 450.0 million .

During the year ended December 31, 2018, we recognized on our consolidated statements of operations $ 3.4 million in debt extinguishment costs related to the 2018 Credit Agreement.

Convertible Notes

We issued $ 85.0 million aggregate principal amount of the Convertible Notes in November 2014 pursuant to an exemption from the registration requirements afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).

During the fourth quarter of 2017, we received notice from holders of $ 15.0 million principal amount of the Convertible Notes to convert their Convertible Notes.

The conversion of such Convertible Notes was settled in the first quarter of 2018, resulting in the issuance of 486,679 shares of our common stock, a $ 0.6 million reduction to debt discount and additional paid in capital, a $ 0.2 million loss on the extinguishment of debt and a cash payment of $ 15.0 million for the principal amount of such Convertible Notes.

On November 15, 2019, the Convertible Notes matured, which resulted in the principal payment of $ 70.0 million and the issuance of 2,381,751 shares of our common stock for the premium associated with the Convertible Notes.

Senior Notes Offering

On July 6, 2018, we issued $ 300.0 million aggregate principal amount of the Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act and to certain non-U.S.

persons in transactions outside the United States pursuant to Regulation S under the Securities Act.

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 supplemental indenture, each dated as of July 6, 2018, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Wilmington Trust, National Association, as trustee.

We received net proceeds from the offering of the Senior Notes of approximately $ 296.2 million , after deducting the initial purchasers’ discounts of $ 2.3 million and commissions and offering expenses of $ 1.5 million .

The net proceeds from the offering were used to repay a portion of the borrowings under the 2018 Credit Agreement.

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.

Convertible Notes

In November 2014, we issued $ 85.0 million aggregate principal amount of the Convertible Notes pursuant to an exemption from the registration requirements afforded by Section 4(a)(2) of the Securities Act.

Notes payable consist of the following (in thousands):

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

Notes payable under the Credit Agreement ($ 650.0 million revolving credit facility at December 31, 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 $ 4.9 million and $ 5.0 million at December 31, 2020 and December 31, 2019, respectively

$ 241,717 $ 394,531

6.875 % Senior Notes due July 15, 2026;

interest paid semi-annually at 6.875 %;

net of debt issuance costs of approximately $2.2 million and $2.5 at December 31, 2019 and December 31, 2018, respectively;

and approximately $1.8 million and $2.1 million in unamortized discount at December 31, 2019 and December 31, 2018, respectively

Convertible Notes matured November 15, 2019;

interest paid semi-annually at 4.25%;

net of debt issuance costs of approximately $ 1.9 million and $ 2.2 million at December 31, 2020 and December 31, 2019, respectively;

and approximately $ 1.4 million and $ 1.8 million in unamortized discount at December 31, 2020 and December 31, 2019, respectively

296,681 296,028

Total notes payable $ 538,398 $ 690,559

As of December 31, 2020, the annual aggregate maturities of notes payable during each of the next five fiscal years are as follows (in thousands):

Thereafter 300,000

Total notes payable 546,621

5 unchanged sentences

Year Ended December 31,

2020 2019 2018

Interest incurred $ 37,285 $ 45,555 $ 38,216

2 unchanged sentences

Cash paid for interest $ 34,924 $ 42,438 $ 23,376

Included in interest incurred was amortization of deferred financing costs for notes payable and amortization of the Convertible Notes and the Senior Notes discounts of $ 4.1 million , $ 4.6 million , and $ 4.1 million for the years ended December 31, 2019 , 2018 , and 2017 , respectively.

Included in interest incurred for the year ended December 31, 2020 was amortization of deferred financing costs for notes payable and amortization of the Senior Notes discounts of $ 2.9 million.

Included in interest incurred for the years ended December 31, 2019 and 2018 was amortization of deferred financing costs for notes payable and amortization of the Convertible Notes and Senior Notes discounts of $ 4.1 million and $ 4.6 million, respectively.

The provision for income taxes consisted of the following (in thousands):

Year ended December 31,

2020 2019 2018

Federal $ 35,207 $ 47,886 $ 39,053

State 11,112 7,169 5,483

Current tax provision 46,319 55,055 44,536

Deferred tax provision (benefit)

Federal ( 2,136 ) ( 1,637 ) ( 663 )

State ( 229 ) ( 194 ) ( 61 )

Deferred tax benefit ( 2,365 ) ( 1,831 ) ( 724 )

Total income tax provision $ 43,954 $ 53,224 $ 43,812

2 unchanged sentences

Year Ended December 31,

2020 2019 2018

Tax at federal statutory rate $ 77,248 21.0 % $ 48,685 21.0 % $ 41,816 21.0 %

State income taxes (net of federal benefit) 8,530 2.3 5,497 2.4 4,263 2.1

Domestic production activity deduction

Stock-based compensation ( 994 ) ( 0.3 ) ( 1,749 ) ( 0.8 ) ( 3,107 ) ( 1.5 )

1 unchanged sentence

Change in tax rates - deferred taxes ( 78 ) — 20 — ( 10 ) —

Federal energy efficient homes tax credits ( 11,488 ) ( 3.1 ) — — — —

Retroactive federal energy efficient homes tax

credits ( 29,703 ) ( 8.1 ) — — — —

Tax at effective rate $ 43,954 11.9 % $ 53,224 23.0 % $ 43,812 22.0 %

(1) The Tax Act (as defined below) reduced the U.S.

federal statutory rate from 35% to 21% beginning in 2018.

The 2020 effective tax rate differs from the federal statutory rate primarily due to benefits associated with the federal energy efficient homes tax credits enacted into law in December 2019, partially offset by state income tax expense on current year earnings.

Income tax expense for 2020 includes a benefit of $ 41.2 million associated with the extension of federal energy efficient homes tax credits, including $ 29.7 million related to homes closed in prior open tax years.

This provision, which had previously expired in 2017, has been extended to apply to homes closed through December 31, 2021.

The 2019 effective tax rate differs from the federal statutory rate primarily due to non-deductible salaries related to Section 162(m) of the Internal Revenue Code of 1986, as amended, and state income tax expense on current year earnings offset by the deductions in excess of compensation cost (“windfalls”) for share-based payments.

The 2018 effective tax rate differs from the federal statutory rate primarily due to state income tax expense on current year earnings, partially offset by windfalls for share-based payments.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

2 unchanged sentences

Accruals and reserves $ 5,149 $ 3,035

Leases 946 1,026

Inventory 239 692

Stock-based compensation 4,347 2,892

2 unchanged sentences

Deferred tax liabilities:

Discount on Convertible Notes

Prepaids ( 1,372 ) ( 1,382 )

Leases ( 1,124 ) ( 1,219 )

Tax depreciation in excess of book depreciation ( 499 ) ( 19 )

Goodwill and other assets amortized for tax ( 738 ) ( 617 )

Other ( 18 ) —

Total deferred tax liabilities ( 3,751 ) ( 3,237 )

Total net deferred tax assets (liabilities)

Total net deferred tax assets $ 6,986 $ 4,621

All Company operations are domestic.

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

The statute of limitations with regards to our federal income tax filings is three years.

The statute of limitations with regard to our federal income tax filings is three years.

The statute of limitations for our state tax jurisdictions is three to four years depending on the jurisdiction.

2 unchanged sentences

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

On December 22, 2017, the President signed into law the U.S.

federal income tax legislation commonly referred to as the “Tax Cuts and Jobs Act” (the “Tax Act”), reducing the U.S.

federal corporate income tax rate for tax years beginning after December 31, 2017, among other changes.

Under ASC 740, Income Taxes (“ASC 740”), the effects of the Tax Act are recognized in the period that includes the date of enactment.

The effect of this change impacted our effective tax rate and reduced the value of our deferred tax assets by approximately $ 1.1 million .

We are authorized to issue 250,000,000 shares of common stock, par value $ 0.01 per share, and 5,000,000 shares of preferred stock, par value $ 0.01 per share.

1 unchanged sentence

At December 31, 2020, we had 26,741,554 shares of common stock issued and 24,983,561 shares of common stock outstanding, including 1,757,993 treasury shares of our common stock.

At December 31, 2018 , we had 23,746,385 shares of common stock issued and 22,707,385 shares of common stock outstanding, including the 1,039,000 treasury shares of our common stock purchased by us.

At December 31, 2019, we had 26,398,409 shares of common stock issued and 25,359,409 shares of common stock outstanding, including 1,039,000 treasury shares of our common stock.

4 unchanged sentences

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 year ended December 31, 2019, we did not repurchase any shares of our common stock.

On October 30, 2020, the Board approved an increase in our stock repurchase program by an additional $ 300.0 million.

For the year ended December 31, 2020, we repurchased 718,993 shares of our common stock for $ 48.1 million to be held as treasury stock.

For the year ended December 31, 2019, we did not repurchase any shares of our common stock.

For the year ended December 31, 2018, we repurchased 39,000 shares of

our common stock for $ 1.5 million to be held as treasury stock.

As of December 31, 2020, we may purchase up to $ 300.4 million of shares of our common stock under our stock repurchase program.

2 unchanged sentences

For the Year Ended December 31,

2020 2019 2018

Numerator (in thousands):

Net income (Numerator for basic and dilutive earnings per share) $ 323,895 $ 178,608 $ 155,286

Basic weighted average shares outstanding 25,135,077 23,191,595 22,551,762

8 unchanged sentences

The Convertible Notes matured and were repaid in full on November 15, 2019.

Prior to 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.

Throughout each fiscal year presented to the maturity date of the Convertible Notes, the average market price of our common stock exceeded the conversion price of $ 21.52 per share;

therefore, the calculation of diluted earnings per share for all years presented includes the effect of our common stock related to the conversion spread of the Convertible Notes.

therefore, the calculation of diluted earnings per share for all years presented prior to the maturity date includes the effect of our common stock related to the conversion spread of the Convertible Notes.

STOCK-BASED COMPENSATION

4 unchanged sentences

The following table summarizes the activity of our time-vested RSUs:

Weighted Average Grant Date Fair Value

Shares Weighted Average Grant Date Fair Value

Balance at December 31, 2017 175,100 $ 27.66

Granted 54,874 $ 57.60

Vested ( 51,694 ) $ 20.79

Forfeited ( 7,225 ) $ 34.77

Balance at December 31, 2018 171,055 $ 39.04

Granted 62,512 $ 60.72

Vested ( 55,230 ) $ 26.47

Forfeited ( 15,651 ) $ 47.73

Balance at December 31, 2019 162,686 $ 50.84

Granted 56,735 $ 67.63

Vested ( 73,360 ) $ 40.77

Forfeited ( 3,323 ) $ 57.26

Balance at December 31, 2020 142,738 $ 62.54

4 unchanged sentences

Under the terms of the grant award agreements, all of the RSUs may only be settled in shares of our common stock.

We recognized $ 2.2 million , $ 2.0 million , and $ 1.3 million of stock-based compensation expense related to outstanding RSUs grants for the years ended December 31, 2019 , 2018 and 2017 , respectively.

We recognized $ 3.5 million, $ 2.2 million, and $ 2.0 million of stock-based compensation expense related to RSUs for the years ended December 31, 2020, 2019 and 2018, respectively.

At December 31, 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 1.7 years.

6 unchanged sentences

this market condition applies for amounts recorded above target.

The compensation expense associated with the grants of PSU is determined using the derived grant date fair value, based on a third-party valuation analysis, and expensed over the applicable period.

The compensation expense associated with the PSU grants is determined using the derived grant date fair value, based on a third-party valuation analysis, and expensed over the applicable period.

The PSUs vest upon the determination date for the actual results at the end of the three-year period and require that the recipients continue to be employed by us through the determination date.

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

Period Granted

Performance Period

Target PSUs Outstanding at December 31, 2018

Target PSUs Granted

Target PSUs Vested

Target PSUs Forfeited

Target PSUs Outstanding at December 31, 2019

Weighted Average Grant Date Fair Value

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

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

2018 2018 - 2020 60,040 — — — 60,040 $ 64.60

2019 2019 - 2021 81,242 — — — 81,242 $ 56.49

2020 2020 - 2022 — 88,538 — — 88,538 $ 59.81

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

At December 31, 2020, management estimates that the recipients will receive approximately 200 %, 191 %, and 200 % 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.

The 2017 - 2019 performance period grants vested and issued on March 15, 2020 at 199 % of the target number.

We recognized $ 4.8 million , $ 4.0 million , and $ 2.9 million of total stock-based compensation expense related to outstanding PSUs grants for the years ended December 31, 2019 , 2018 and 2017 , respectively.

We recognized $ 9.2 million, $ 4.8 million, and $ 4.0 million of total stock-based compensation expense related to PSUs for the years ended December 31, 2020, 2019 and 2018, respectively.

At December 31, 2020, we had unrecognized compensation cost of $ 13.8 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 1.6 years.

20 unchanged sentences

Fair value measurements may also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets.

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

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 December 31, 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 Convertible Notes and the Senior Notes listed below, 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 convertible notes and senior notes within the homebuilding industry (Level 2 measurement).

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 December 31, 2020 and 2019 (in thousands):

December 31, 2019

December 31, 2018

Fair Value Hierarchy

Carrying Value

Estimated Fair Value

Carrying Value

Estimated Fair Value (1)

Convertible Notes (2)

Excludes the fair value of the equity component of the Convertible Notes.

See the “Convertible Notes” section within Note 7 for further details.

The Convertible Notes matured on November 15, 2019 and were repaid in full on such date.

December 31, 2020 December 31, 2019

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

Senior Notes Level 2

$ 296,681 $ 340,388 $ 296,028 $ 337,853

RELATED PARTY TRANSACTIONS

Land Purchases from Affiliates

As of December 31, 2019 , 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 December 31, 2019 related to these land purchase contracts.

We purchased the first takedown of 58 lots on the Pasco County contract during the twelve months ended December 31, 2019 for a base purchase price of approximately $ 2.1 million .

We anticipate the first closing on the Manatee County contract and the second takedown on the Pasco County contract to occur in 2020 .

In 2018, we completed our commitments under a land purchase contract to purchase 106 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 $ 8.0 million .

The lots were purchased in takedowns of at least 21 lots during successive six-month periods, subject to 5 % annual price escalation and certain price protection terms.

During 2018, we purchased the final takedown of 22 lots under this land purchase contract for $ 1.8 million and a $ 100,000 non-refundable deposit related to this land purchase contract was applied to this takedown.

Home Sales to Affiliates

In 2017, we sold three homes to an affiliate of one of our directors for approximately $ 0.7 million .

As of December 31, 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 December 31, 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.

For the year ended December 31, 2020, we purchased in three separate transactions a total of 55 finished lots in Montgomery County and Travis County, Texas from an affiliate of a family member of our chief executive officer for a total base purchase price of approximately $ 4.7 million.

RETIREMENT BENEFITS

14 unchanged sentences

however, if an environmental matter arises, we may have recourse against other previous owners.

In the ordinary course of doing business, we are subject to regulatory

proceedings from time to time related to environmental and other matters.

In the ordinary course of doing business, we are subject to regulatory proceedings from time to time related to environmental and other matters.

In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.

6 unchanged sentences

Lots under land purchase contracts 26,236 16,205

As of December 31, 2019 and 2018 , approximately $ 26.3 million and $ 25.2 million , respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances and secured by mortgages or letters of credit, or guaranteed by the seller or its affiliates.

As of December 31, 2020 and 2019, approximately $ 24.0 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

As described in the “Recently Adopted Accounting Standards” section within Note 2 , as of January 1, 2019, we adopted the provisions of ASU 2016-02 and recognized lease obligations and associated ROU assets for our existing non-cancelable leases.

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

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

5 unchanged sentences

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 as of December 31, 2019 .

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

ROU assets, as included in other assets on the consolidated balance sheets, were $ 4.9 million and $ 5.3 million as of December 31, 2020 and 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 as of December 31, 2020 and 2019, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, totaled $ 1.6 million, $ 1.3 million and $ 1.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Cash paid for amounts included in the measurement of lease liabilities for operating leases during the year ended December 31, 2019 was $ 1.3 million .

Cash paid for amounts included in the measurement of lease liabilities for operating leases during the years ended December 31, 2020 and 2019 was $ 1.4 million and $ 1.3 million, respectively.

As of December 31, 2020, the weighted-average discount rate was 5.32 % and our weighted-average remaining life was 5.1 years.

1 unchanged sentence

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

Year Ending December 31,

Operating leases

Year Ending December 31, Operating leases

Thereafter 1,770

Lease amount representing interest ( 1,003 )

1 unchanged sentence

Bonding and Letters of Credit

We have outstanding letters of credit and performance and surety bonds totaling $ 108.7 million (including $ 11.6 million of letters of credit issued under the Credit Agreement) and $ 77.5 million at December 31, 2019 and 2018 , respectively, related to our obligations for site improvements at various projects.

We have outstanding letters of credit and performance and surety bonds totaling $ 143.8 million (including $ 10.5 million of letters of credit issued under the Credit Agreement) and $ 108.7 million (including $ 11.6 million of letters of credit issued under the Credit Agreement) at December 31, 2020 and 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.

Investment in Unconsolidated Entity

We became a limited partner in a real estate investment fund with a maximum $ 30.0 million commitment, commencing July 24, 2019.

In July 2019, we entered into a real estate investment fund as a limited partner with a maximum $ 30.0 million commitment.

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

For the year ended December 31, 2019 , we have contributed a total of $ 1.1 million into the unconsolidated entity for the use of investing in certain real estate transactions.

As of December 31, 2020 and 2019, we have a total investment of $ 3.9 million and $ 1.1 million, respectively, within other assets on the balance sheet.

Contributions into the unconsolidated entity are used by the entity to invest in certain real estate transactions.

SEGMENT INFORMATION

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

We have seven operating segments that we aggregate into five reportable segments at December 31, 2019 :

our Central, Northwest, Southeast, Florida, and West reportable segments.

The Central reportable segment is our largest reportable segment and comprised approximately 39.4 % , 41.5 % and 42.4 % of total home sales revenues for the years ended December 31, 2019 , 2018 and 2017 , respectively.

We have seven operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West and Florida divisions) that we aggregate into five reportable segments at December 31, 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 35.9 %, 39.4 % and 41.5 % of total home sales revenues for the years ended December 31, 2020, 2019 and 2018, 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.

5 unchanged sentences

For the Year Ended December 31,

2020 2019 2018

Central $ 850,375 $ 724,981 $ 623,751

Southeast 559,226 347,817 271,073

Northwest 389,523 304,294 277,567

West 286,130 271,186 151,059

Florida 282,675 189,876 180,950

Total home sales revenues $ 2,367,929 $ 1,838,154 $ 1,504,400

Net income (loss) before income taxes:

Central $ 154,772 $ 117,350 $ 104,625

Southeast 79,394 30,316 29,078

Northwest 71,256 46,863 40,906

West 35,847 28,504 13,595

Florida 32,550 16,012 21,341

Corporate (1)

( 5,970 ) ( 7,213 ) ( 10,447 )

Total net income (loss) before income taxes $ 367,849 $ 231,832 $ 199,098

1 unchanged sentence

Actual warranty expenses are reflected within the reportable segments.

Central $ 708,087 $ 637,083

Southeast 401,725 410,944

Northwest 252,098 221,132

West 228,186 193,545

Florida 157,169 149,877

Corporate (1)

78,822 53,534

Total assets $ 1,826,087 $ 1,666,115

(1) As of December 31, 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.

As of December 31, 2018, the Corporate balance consists primarily of cash, prepaid insurance and prepaid expenses.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly results are as follows (in thousands, except per share data):

Quarter Second

Quarter Third

Quarter Fourth

2020 2020 2020 2020

Total home sales revenues $ 454,727 $ 481,602 $ 534,202 $ 897,398

Gross margin 106,564 117,973 135,231 243,329

Income before income taxes 54,889 68,597 77,815 166,548

Net income 42,839 55,624 89,004 136,428

Basic earnings per share 1.69 2.22 3.55 5.45

Diluted earnings per share 1.67 2.21 3.52 5.34

Third Quarter

Quarter Second

Quarter Third Quarter Fourth

2019 2019 2019 2019

Total home sales revenues $ 287,594 $ 461,830 $ 483,081 $ 605,649

Gross margin 66,304 111,311 116,650 142,214

Income before income taxes 21,694 60,535 64,732 84,871

Net income 18,334 46,055 49,349 64,870

Basic earnings per share 0.81 2.01 2.15 2.69

4 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data