What changed in this filing

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Item 1. Financial Statements

2021-07-30 compared with 2021-04-30 · 121 added, 96 removed, 567 unchanged (28% of the section changed)

3 unchanged sentences

(in thousands, except share amounts)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Cash and cash equivalents $ 684,374 $ 745,621

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Authorized 10,000,000 shares;

none issued and outstanding at March 31, 2021 and December 31, 2020

none issued and outstanding at June 30, 2021 and December 31, 2020

Common stock, par value $ 0.01 .

Authorized 125,000,000 shares;

37,846,856 and 37,512,127 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

37,646,856 and 37,512,127 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 436,805 455,762

6 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended March 31,

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

2021 2020 2021 2020

Homebuilding:

6 unchanged sentences

Home closing gross profit 345,301 220,696 611,956 399,056

Land closing gross profit 547 383

Land closing gross (loss)/profit ( 332 ) ( 1,448 ) 215 ( 1,065 )

Total closing gross profit 344,969 219,248 612,171 397,991

3 unchanged sentences

Earnings from financial services unconsolidated entities and other, net

1,317 1,069 2,497 1,730

Financial services profit 4,615 3,789 8,375 6,627

3 unchanged sentences

Other income, net 1,377 1,514 2,175 2,125

Loss on early extinguishment of debt ( 18,188 ) — ( 18,188 ) —

Earnings before income taxes 215,651 115,862 381,628 202,695

11 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

3 unchanged sentences

Stock-based compensation 8,590 9,594

Loss on early extinguishment of debt 18,188 —

Equity in earnings from unconsolidated entities ( 1,807 ) ( 1,691 )

2 unchanged sentences

Changes in assets and liabilities:

Increase in real estate ( 193,395 ) ( 45,207 )

Increase in deposits on real estate under option or contract ( 4,821 ) ( 3,266 )

(Increase)/decrease in real estate ( 469,733 ) 9,655

(Increase)/decrease in deposits on real estate under option or contract ( 14,863 ) 2,225

(Increase)/decrease in other receivables, prepaids and other assets ( 36,390 ) 3,469

Increase/(decrease) in accounts payable and accrued liabilities 38,743 ( 1,956 )

Increase in home sale deposits 5,899 1,856

Increase in accounts payable and accrued liabilities 26,532 34,772

Increase/(decrease) in home sale deposits 8,884 ( 999 )

Net cash (used in)/provided by operating activities ( 143,472 ) 237,445

8 unchanged sentences

Cash flows from financing activities:

Proceeds from Credit Facility, net — 500,000

Repayment of loans payable and other borrowings ( 5,758 ) ( 2,389 )

Repayment of senior notes ( 317,690 ) —

Proceeds from issuance of senior notes 450,000 —

Payment of debt issuance costs ( 6,102 ) —

Repurchase of shares ( 27,546 ) ( 60,813 )

Net cash (used in)/provided by financing activities ( 10,332 ) 438,178

Net cash provided by/(used in) financing activities 92,904 ( 63,202 )

Net (decrease)/increase in cash and cash equivalents ( 61,247 ) 165,156

8 unchanged sentences

Meritage Homes is a leading designer and builder of single-family homes.

We primarily build in historically high-growth regions of the United States and offer a variety of homes that are designed for entry-level and first move-up buyers.

We primarily build in historically high-growth regions of the United States and offer a variety of homes that are designed for the entry-level and first move-up buyers.

We have homebuilding operations in three regions:

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(“Meritage Insurance"), our wholly-owned insurance broker, works in collaboration with insurance companies nationwide to offer homeowners insurance and other insurance products to our homebuyers.

Our financial services operations also provide mortgage loans to our homebuyers indirectly through an unconsolidated joint venture.

Our financial services operations also provide mortgage services to our homebuyers through an unconsolidated joint venture.

We commenced our homebuilding operations in 1985 through our predecessor company known as Monterey Homes.

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Our homebuilding activities are conducted under the name of Meritage Homes in each of our homebuilding markets.

At March 31, 2021, we were actively selling homes in 203 communities, with base prices ranging from approximately $ 203,000 to $ 931,000 .

At June 30, 2021, we were actively selling homes in 226 communities, with base prices ranging from approximately $ 229,000 to $ 869,000 .

Basis of Presentation .

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Liquid investments with an initial maturity of three months or less are classified as cash equivalents.

Amounts in transit from title companies or closing agents for home closings of approximately $ 78.0 million and $ 61.3 million are included in cash and cash equivalents at March 31, 2021 and December 31, 2020, respectively.

Amounts in transit from title companies or closing agents for home closings of approximately $ 77.0 million and $ 61.3 million are included in cash and cash equivalents at June 30, 2021 and December 31, 2020, respectively.

Real estate is stated at cost unless the community or land is determined to be impaired, at which point the inventory is written down to fair value as required by Accounting Standards Codification (“ASC”) 360-10, Property, Plant and Equipment (“ASC 360-10”) .

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Since our acquisition contracts typically do not require specific performance, we do not consider such contracts to be contractual obligations to purchase the land and our total exposure under such contracts is limited to the loss of any nonrefundable deposits and any ancillary capitalized costs.

Our Deposits on real estate under option or contract were $ 64.4 million and $ 59.5 million as of March 31, 2021 and December 31, 2020, respectively.

Our Deposits on real estate under option or contract were $ 74.4 million and $ 59.5 million as of June 30, 2021 and December 31, 2020, respectively.

In accordance with ASC 350, Intangibles, Goodwill and Other ("ASC 350"), we analyze goodwill on an annual basis (or whenever indication of impairment exists) through a qualitative assessment to determine whether it is necessary to perform a goodwill impairment test.

2 unchanged sentences

(1) macroeconomic conditions, such as a deterioration in general economic conditions, (2) industry and market considerations such as deterioration in the environment in which the entity operates, (3) cost factors such as increases in raw materials, labor costs, etc., and (4) overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings.

If the qualitative analysis determines that additional impairment testing is required, a two-step impairment testing in accordance with ASC 350 would be initiated.

If the qualitative analysis determines that additional impairment testing is required, a two-step impairment test in accordance with ASC 350 would be initiated.

We continually evaluate our qualitative inputs to assess whether events and circumstances have occurred that indicate the goodwill balance may not be recoverable.

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The table below outlines our ROU assets and lease liabilities (in thousands):

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

ROU assets $ 18,546 $ 21,624

1 unchanged sentence

Off-Balance Sheet Arrangements - Joint Ventures .

We may participate in land development joint ventures as a means of accessing larger parcels of land and lot positions, expanding our market opportunities, managing our risk profile and leveraging our capital base, although our participation in such ventures is currently very limited.

We may participate in land development joint ventures as a means of accessing larger parcels of land and lot positions, expanding our market opportunities, managing our risk profile, optimizing deal structure for the impacted parties and leveraging our capital base, although our participation in such ventures is currently very limited.

See Note 4 for additional discussion of our investments in unconsolidated entities .

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The table below outlines our surety bond and letter of credit obligations (in thousands):

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Outstanding Estimated work

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Accrued Liabilities .

Accrued liabilities at March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

March 31, 2021 December 31, 2020

Accrued liabilities at June 30, 2021 and December 31, 2020 consisted of the following (in thousands):

June 30, 2021 December 31, 2020

Accruals related to real estate development and construction activities $ 106,766 $ 92,701

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adjust them, as necessary, to reflect changes in trends as information becomes available.

Based on such reviews of warranty costs incurred, we did not adjust the warranty reserve balance in the three months ended March 31, 2021 or 2020.

Included in the warranty reserve balances at March 31, 2021 and December 31, 2020 reflected in the table below are case-specific reserves for a warranty matter related to alleged stucco defects in Florida and water drainage issues in a single community in Florida.

Based on such reviews of warranty costs incurred, we did not adjust the warranty reserve balance in the three or six months ended June 30, 2021 or 2020.

Included in the warranty reserve balances at June 30, 2021 and December 31, 2020 reflected in the table below are case-specific reserves for a warranty matter related to alleged stucco defects in certain Florida homes we constructed between 2006 and 2016 and water drainage issues in a single community in Florida.

See Note 15 for additional information regarding these case-specific reserves.

A summary of changes in our warranty reserves follows (in thousands):

Three Months Ended March 31,

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

2021 2020 2021 2020

Balance, beginning of period $ 23,767 $ 22,090 $ 23,743 $ 22,015

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Revenue from financial services includes estimated future insurance policy renewal commissions as our performance obligations are satisfied upon issuance of the initial policy with a third party broker.

The related contract assets for these estimated future renewal commissions are no t material at March 31, 2021 and December 31, 2020.

The related contract assets for these estimated future renewal commissions are no t material at June 30, 2021 and December 31, 2020.

Our three sources of revenue are disaggregated by type in the accompanying unaudited consolidated income statements.

Recent Accounting Pronouncements.

In December 2019, the Financial Accounting Standards Board issued ASU No.

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No.

2019-12, Income Taxes (Topic 740):

3 unchanged sentences

Real estate consists of the following (in thousands):

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Homes under contract under construction (1)

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(2) Includes raw land, land held for development and land held for sale, less impairments, if any.

Land held for development primarily reflects land and land development costs related to land where development activity is not currently underway but is expected to begin in the future.

Land held for development primarily represents land and land development costs related to land where development activity is not currently underway but is expected to begin in the future.

For these parcels, we have chosen not to currently develop certain land holdings as they typically represent a portion or phases of a larger land parcel that we plan to build out over several years.

1 unchanged sentence

property taxes, homeowner association dues, etc.) are expensed as incurred.

(3) Includes land held for sale of $ 45.4 million and $ 72.7 million as of March 31, 2021 and December 31, 2020, respectively.

(3) Includes land held for sale of $ 29.9 million and $ 72.7 million as of June 30, 2021 and December 31, 2020, respectively.

Subject to sufficient qualifying assets, we capitalize our development period interest costs incurred to applicable qualifying assets in connection with our real estate development and construction activities.

1 unchanged sentence

A summary of our capitalized interest is as follows (in thousands):

Three Months Ended March 31,

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

2021 2020 2021 2020

Capitalized interest, beginning of period $ 57,540 $ 78,162 $ 58,940 $ 82,014

9 unchanged sentences

Although we do not have legal title to the underlying land, if we are the primary beneficiary we are required to consolidate the VIE in our financial statements and reflect such assets and liabilities as Real estate not owned.

As a result of our analyses, we determined that as of March 31, 2021 and December 31, 2020, we were not the primary beneficiary of any VIEs from which we have acquired rights to land or lots under option contracts.

The table below presents a summary of our lots under option at March 31, 2021 (dollars in thousands):

As a result of our analyses, we determined that as of June 30, 2021 and December 31, 2020, we were not the primary beneficiary of any VIEs from which we have acquired rights to land or lots under option contracts.

The table below presents a summary of our lots under option at June 30, 2021 (dollars in thousands):

Projected Number

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(3) Except for our specific performance contracts recorded on our unaudited consolidated balance sheets as Real estate not owned (if any), none of our purchase or option contracts require us to purchase lots.

(4) Amount is reflected on our unaudited consolidated balance sheets in Deposits on real estate under option or contract as of March 31, 2021.

(4) Amount is reflected on our unaudited consolidated balance sheets in Deposits on real estate under option or contract as of June 30, 2021.

Generally, our options to purchase lots remain effective so long as we purchase a pre-established minimum number of lots each month or quarter, as determined by the respective agreement.

Although the pre-established number is typically structured to approximate our expected rate of home construction starts, during a weakened homebuilding market, we may purchase lots at an absorption level that exceeds our sales and home starts pace needed to meet the pre-established minimum number of lots or restructure our original contract to terms that more accurately reflect our revised sales pace expectations.

During a strong homebuilding market, we may accelerate our pre-established minimum purchases if allowed by the contract.

NOTE 4 - INVESTMENTS IN UNCONSOLIDATED ENTITIES

We may enter into joint ventures as a means of accessing larger parcels of land, expanding our market opportunities, managing our risk profile and leveraging our capital base.

We may enter into joint ventures as a means of accessing larger parcels of land, expanding our market opportunities, managing our risk profile, optimizing deal structure for the impacted parties and leveraging our capital base.

While purchasing land through a joint venture can be beneficial, currently we do not view joint ventures as critical to the success of our homebuilding operations.

2 unchanged sentences

Based on the structure of each joint venture, it may or may not be consolidated into our results.

As of March 31, 2021, we had one active equity-method land venture with limited operations.

As of March 31, 2021, we also participated in one mortgage joint venture, which is engaged in mortgage activities and primarily provides services to our homebuyers.

Our investment in this mortgage joint venture as of March 31, 2021 and December 31, 2020 was $ 0.8 million and $ 1.0 million, respectively.

As of June 30, 2021, we had one active equity-method land joint venture with limited operations.

As of June 30, 2021, we also participated in one mortgage joint venture, which is engaged in mortgage activities and primarily provides services to our homebuyers.

Our investment in this mortgage joint venture as of June 30, 2021 and December 31, 2020 was $ 0.7 million and $ 1.0 million, respectively.

Summarized condensed combined financial information related to unconsolidated joint ventures that are accounted for using the equity method was as follows (in thousands):

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

$ 3,949 $ 4,656

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Total liabilities and equity $ 14,202 $ 15,519

Three Months Ended March 31,

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

2021 2020 2021 2020

Revenue $ 10,108 $ 10,550 $ 19,103 $ 17,273

2 unchanged sentences

Meritage’s share of pre-tax earnings (1) (2)

$ 1,057 $ 1,048 $ 1,807 $ 1,735

(1) Balance represents Meritage’s interest, as reflected in the financial records of the respective joint ventures.

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Loans payable and other borrowings consist of the following (in thousands):

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Other borrowings, real estate notes payable (1)

$ 19,534 $ 23,094

$ 780.0 million unsecured revolving credit facility with interest approximating LIBOR (approximately 0.11 % at March 31, 2021) plus 1.375 % or Prime ( 3.25 % at March 31, 2021) plus 0.375 %

$ 780.0 million unsecured revolving credit facility with interest approximating LIBOR (approximately 0.10 % at June 30, 2021) plus 1.375 % or Prime ( 3.25 % at June 30, 2021) plus 0.375 %

Total $ 19,534 $ 23,094

1 unchanged sentence

The Company entered into an amended and restated unsecured revolving credit facility ("Credit Facility") in 2014 that has been amended from time to time.

In December 2020, the Credit Facility was amended to extend the maturity date to December 22, 2025 and provide for the replacement of LIBOR in the event such rate is no longer available.

In December 2020, the Credit Facility was amended to extend the maturity date to December 22, 2025 and provide for the replacement of LIBOR in the event such reference rate is no longer available.

The Credit Facility's aggregate commitment is $ 780.0 million with an accordion feature permitting the size of the facility to increase to a maximum of $ 880.0 million, subject to certain conditions, including the availability of additional bank commitments.

Borrowings under the Credit

Facility are unsecured, but availability is subject to, among other things, a borrowing base.

Borrowings under the Credit Facility are unsecured, but availability is subject to, among other things, a borrowing base.

The Credit Facility also contains certain financial covenants, including (a) a minimum tangible net worth requirement of $ 1.5 billion (which amount is subject to increase over time based on subsequent earnings and proceeds from equity offerings), and (b) a maximum leverage covenant that prohibits the leverage ratio (as defined therein) from exceeding 60 %.

In addition, we are required to maintain either (i) an interest coverage ratio (EBITDA to interest expense, as defined therein) of at least 1.50 to 1.00 or (ii) liquidity (as defined therein) of an amount not less than our consolidated interest incurred during the trailing 12 months.

We were in compliance with all Credit Facility covenants as of March 31, 2021.

We had no outstanding borrowings under the Credit Facility as of March 31, 2021 and December 31, 2020.

There were no borrowings or repayments during the three months ended March 31, 2021.

During the first quarter of 2020, we borrowed $ 500.0 million and had no repayments.

As of March 31, 2021, we had outstanding letters of credit issued under the Credit Facility totaling $ 94.7 million, leaving $ 685.3 million available under the Credit Facility to be drawn.

We were in compliance with all Credit Facility covenants as of June 30, 2021.

We had no outstanding borrowings under the Credit Facility as of June 30, 2021 and December 31, 2020.

There were no borrowings or repayments during the three and six months ended June 30, 2021.

During the first quarter of 2020 we borrowed $ 500.0 million on our Credit Facility in connection with the perceived potential instability of the financial markets around the COVID-19 pandemic, which we repaid in full during the second quarter of 2020.

As of June 30, 2021, we had outstanding letters of credit issued under the Credit Facility totaling $ 74.1 million, leaving $ 705.9 million available under the Credit Facility to be drawn.

NOTE 6 — SENIOR NOTES, NET

Senior notes, net consist of the following (in thousands):

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

7.00 % senior notes due 2022

1 unchanged sentence

6.00 % senior notes due 2025.

At March 31, 2021 and December 31, 2020 there was approximately $ 3,409 and $ 3,614 in net unamortized premium, respectively.

At June 30, 2021 and December 31, 2020 there was approximately $ 3,204 and $ 3,614 in net unamortized premium, respectively.

403,204 403,614

1 unchanged sentence

300,000 300,000

3.875 % senior notes due 2029

Net debt issuance costs ( 11,270 ) ( 6,623 )

1 unchanged sentence

The indentures for all of our senior notes contain non-financial covenants including, among others, limitations on the amount of secured debt we may incur, and limitations on sale and leaseback transactions and mergers.

We were in compliance with all such covenants as of March 31, 2021.

We were in compliance with all such covenants as of June 30, 2021.

Obligations to pay principal and interest on the senior notes are guaranteed by substantially all of our wholly-owned subsidiaries (each a “Guarantor” and, collectively, the “Guarantor Subsidiaries”), each of which is directly or indirectly 100% owned by Meritage Homes Corporation.

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Subsidiaries of Meritage Homes Corporation that are non-guarantor subsidiaries are, individually and in the aggregate, minor.

See Note 16 for information related to the early redemption of our 7.00 % senior notes due 2022 (the "2022 Notes") subsequent to March 31, 2021.

In April 2021, we completed an offering of $ 450.0 million aggregate principal amount of 3.875 % Senior Notes due 2029.

We used a portion of the net proceeds from this offering to redeem all $ 300.0 million aggregate principal outstanding of our 7.00 % Senior Notes due 2022, incurring $ 18.2 million in early debt extinguishment charges in the three and six months ended June 30, 2021, reflected as Loss on early extinguishment of debt in the accompanying unaudited consolidated income statements.

NOTE 7 — FAIR VALUE DISCLOSURES

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The fair value of our fixed-rate debt is derived from quoted market prices by independent dealers (Level 2 inputs as per the discussion above) and is as follows (in thousands):

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Principal Estimated Fair

1 unchanged sentence

Principal Estimated Fair

7.00 % senior notes

7.00 % senior notes due 2022

$ — $ — $ 300,000 $ 319,758

6.00 % senior notes

6.00 % senior notes due 2025

$ 400,000 $ 456,800 $ 400,000 $ 451,913

5.125 % senior notes

5.125 % senior notes due 2027

$ 300,000 $ 337,140 $ 300,000 $ 333,328

3.875 % senior notes due 2029

$ 450,000 $ 465,750 $ — $ —

Due to the short-term nature of other financial assets and liabilities, including our Loans payable and other borrowings, we consider the carrying amounts of our other short-term financial instruments to approximate fair value.

1 unchanged sentence

Basic and diluted earnings per common share were calculated as follows (in thousands, except per share amounts):

Three Months Ended March 31,

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

2021 2020 2021 2020

Basic weighted average number of shares outstanding 37,818 37,599 37,731 37,842

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Additions — — — — — —

Balance at March 31, 2021 $ — $ — $ 32,962 $ — $ — $ 32,962

Balance at June 30, 2021 $ — $ — $ 32,962 $ — $ — $ 32,962

NOTE 10 — STOCKHOLDERS’ EQUITY

A summary of changes in stockholders’ equity is presented below (in thousands):

Three Months Ended March 31, 2021

Six Months Ended June 30, 2021

(In thousands)

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Balance at March 31, 2021 37,847 $ 378 $ 452,741 $ 2,023,574 $ 2,476,693

Three Months Ended March 31, 2020

Net earnings — — — 167,389 167,389

Stock-based compensation expense — — 3,223 — 3,223

Share repurchases ( 200 ) ( 2 ) ( 19,159 ) — ( 19,161 )

Balance at June 30, 2021 37,647 $ 376 $ 436,805 $ 2,190,963 $ 2,628,144

Six Months Ended June 30, 2020

(In thousands)

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Balance at March 31, 2020 37,597 $ 376 $ 450,982 $ 1,539,408 $ 1,990,766

Net earnings — — — 90,678 90,678

Stock-based compensation expense — — 3,157 — 3,157

Issuance of stock 6 1 ( 1 ) — —

Balance at June 30, 2020 37,603 $ 377 $ 454,138 $ 1,630,086 $ 2,084,601

NOTE 11 — STOCK BASED AND DEFERRED COMPENSATION

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The 2018 Plan authorizes awards to officers, key employees, non-employee directors and consultants.

The 2018 Plan authorizes 6,600,000 shares of stock to be awarded, of which 996,271 shares remain available for grant at March 31, 2021.

The 2018 Plan authorizes 6,600,000 shares of stock to be awarded, of which 1,029,153 shares remain available for grant at June 30, 2021.

We believe that such awards provide a means of performance-based compensation to attract and retain qualified employees and better align the interests of our employees with those of our stockholders.

Non-vested stock awards are usually granted with a five-year ratable vesting period for employees, a three-year cliff vesting for both non-vested stock and performance-based awards granted to senior executive officers and either a three-year cliff vesting or one-year cliff vesting for non-employee directors, dependent on their start date.

Non-vested stock awards are usually granted with a five-year ratable vesting period for employees, a three-year cliff vesting for both non-vested stock and performance-based awards granted to senior executive officers and either a three-year cliff vesting or one-year vesting for non-employee directors, dependent on their start date.

Compensation cost related to time-based restricted stock awards is measured as of the closing price on the date of grant and is expensed, less forfeitures, on a straight-line basis over the vesting period of the award.

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Below is a summary of compensation expense and stock award activity (dollars in thousands):

Three Months Ended March 31,

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

2021 2020 2021 2020

Stock-based compensation expense $ 3,223 $ 3,157 $ 8,590 $ 9,594

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The following table includes additional information regarding our stock compensation plan (dollars in thousands):

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Unrecognized stock-based compensation cost $ 35,022 $ 22,687

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We do not currently offer a contribution match on the deferred compensation plan.

All contributions to the plan to date have been funded by the employees and, therefore, we have no associated expense related to the deferred compensation plan for the three months ended March 31, 2021 or 2020, other than minor administrative costs.

All contributions to the plan to date have been funded by the employees and, therefore, we have no associated expense related to the deferred compensation plan for the three or six months ended June 30, 2021 or 2020, other than minor administrative costs.

NOTE 12 — INCOME TAXES

Components of the income tax provision are as follows (in thousands):

Three Months Ended March 31,

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

2021 2020 2021 2020

Federal $ 38,713 $ 20,528 $ 67,826 $ 32,902

1 unchanged sentence

Total $ 48,262 $ 25,184 $ 82,396 $ 40,865

The effective tax rate for the three months ended March 31, 2021 and March 31, 2020 was 20.6 % and 18.1 %, respectively.

The tax rate for the three months ended March 31, 2021 and March 31, 2020 reflects credits earned under Internal Revenue Code ("IRC") §45L new energy efficient homes credit, which was enacted into law under the Taxpayer Certainty and Disaster Tax Relief Act of 2019 and subsequently extended through the end of 2021 by enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2020.

The tax rate at March 31, 2021 also reflects higher non-deductible senior executive officer stock-based compensation.

At March 31, 2021 and December 31, 2020, we have no unrecognized tax benefits.

The effective tax rate for the three and six months ended June 30, 2021 was 22.4 % and 21.6 %, and for the three and six months ended June 30, 2020 was 21.7 % and 20.2 %, respectively.

The tax rate for the three and six months ended June 30, 2021 reflects credits earned under the Internal Revenue Code ("IRC") §45L new energy efficient homes credit, which was enacted into law under the Taxpayer Certainty and Disaster Tax Relief Act of 2019 and subsequently extended through the end of 2021 by enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2020.

The tax rate at June 30, 2021 also reflects higher non-deductible senior executive officer stock-based compensation.

At June 30, 2021 and December 31, 2020, we have no unrecognized tax benefits.

We believe that our current income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change.

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This assessment considers, among other matters, the nature, frequency and severity of cumulative losses, forecasts of future profitability, the length of statutory carry forward periods, experiences with operating losses and experiences of utilizing tax credit carry forwards and tax planning alternatives.

We have no valuation allowance on our deferred tax assets and no NOL carryovers at March 31, 2021.

At March 31, 2021, we have income taxes payable of $ 56.4 million and income taxes receivable of $ 0.7 million.

We have no valuation allowance on our deferred tax assets or NOL carryovers at June 30, 2021.

At June 30, 2021, we have income taxes payable of $ 21.0 million and income taxes receivable of $ 0.7 million.

The income taxes payable primarily consists of current federal and state tax accruals, net of current energy tax credits and estimated tax payments.

This amount is recorded in Accrued liabilities on the accompanying unaudited consolidated balance sheets at March 31, 2021.

The income taxes receivable primarily consists of additional energy tax credits claimed by amending prior year tax returns and is recorded in Other receivables on the accompanying unaudited consolidated balance sheets at March 31, 2021.

This amount is recorded in Accrued liabilities on the accompanying unaudited consolidated balance sheets at June 30, 2021.

We conduct business and are subject to tax in the U.S.

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The future tax benefits from NOLs, built-in losses, and tax credits would be materially reduced or potentially eliminated if we experience an “ownership change” as defined under IRC §382.

Based on our analysis performed as of March 31, 2021 we do not believe that we have experienced an ownership change.

Based on our analysis performed as of June 30, 2021 we do not believe that we have experienced an ownership change.

As a protective measure, our stockholders held a Special Meeting of Stockholders on February 16, 2009 and approved an amendment to our Articles of Incorporation that restricts certain transfers of our common stock.

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The following table presents certain supplemental cash flow information (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Cash paid during the year for:

Interest, net of interest capitalized $ 227 $ 1,089

Income taxes $ 2 $ —

Income taxes paid $ 83,127 $ —

Non-cash operating activities:

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The following segment information is in thousands:

Three Months Ended March 31,

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

2021 2020 2021 2020

Homebuilding revenue (1) :

13 unchanged sentences

Other income, net 1,377 1,514 2,175 2,125

Loss on early extinguishment of debt ( 18,188 ) — ( 18,188 ) —

Net earnings before income taxes $ 215,651 $ 115,862 $ 381,628 $ 202,695

(1) Homebuilding revenue includes the following land closing revenue, by segment, as outlined in the table below:

Three Months Ended March 31,

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

2021 2020 2021 2020

Land closing revenue:

1 unchanged sentence

Central — 382 3,799 4,600

East — 650 — 2,510

Total $ 12,956 $ 1,488 $ 16,755 $ 12,084

(2) Balance consists primarily of corporate costs and numerous shared service functions such as finance and treasury that are not allocated to the homebuilding or financial services reporting segments.

At March 31, 2021

At June 30, 2021

West Central East Financial Services Corporate and

5 unchanged sentences

Total assets $ 1,482,355 $ 1,132,762 $ 1,011,868 $ 641 $ 693,927 $ 4,321,553

(1) Balance consists primarily of cash and cash equivalents and property and equipment .

(1) Balance consists primarily of cash and cash equivalents, development reimbursements from local municipalities and property and equipment .

(2) Balance consists primarily of cash and cash equivalents, development reimbursements from local municipalities and prepaid expenses and other assets.

(3) Balance consists primarily of cash and cash equivalents, goodwill (see Note 9), prepaid expenses and other assets and property and equipment.

(3) Balance consists primarily of cash and cash equivalents, goodwill, prepaid expenses and other assets and property and equipment.

(4) Balance consists primarily of cash and cash equivalents, deferred tax assets and prepaid expenses and other assets.

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Historically, most disputes regarding warranty claims are resolved prior to litigation.

We believe there are no pending legal or warranty matters as of March 31, 2021 that could have a material adverse impact upon our consolidated financial condition, results of operations or cash flows that have not been sufficiently reserved.

As discussed in Note 1 under the heading “Warranty Reserves”, we have case specific reserves within our $ 23.8 million of total warranty reserves related to alleged stucco defects in homes in certain Florida communities we developed between 2006 and 2016 and for water drainage issues in a single community in Florida that we developed in 2016.

We believe there are no pending legal or warranty matters as of June 30, 2021 that could have a material adverse impact upon our consolidated financial condition, results of operations or cash flows that have not been sufficiently reserved.

As discussed in Note 1 under the heading “Warranty Reserves”, we have case specific reserves within our $ 25.1 million of total warranty reserves related to alleged stucco defects in certain Florida homes we constructed between 2006 and 2016 and for water drainage issues in a single community in Florida that we developed in 2016.

Our review and handling of these two matters is ongoing and our estimate of and reserves for resolving these matters is based on internal data, our judgement and various assumptions and estimates.

Due to the degree of judgment and the potential for variability in our underlying assumptions and data, as we obtain additional information, we may revise our estimates and thus our related reserves.

As of March 31, 2021, after considering potential recoveries from the consultants and contractors involved and their insurers and the potential recovery under our general liability insurance policies, we believe our reserves are sufficient to cover the above mentioned matters.

As of June 30, 2021, after considering potential recoveries from the consultants and contractors involved and their insurers and the potential recovery under our general liability insurance policies, we believe our reserves are sufficient to cover the above mentioned matters.

See Note 1 for information related to our warranty obligations.

NOTE 16 — SUBSEQUENT EVENTS

In April 2021, we completed an offering of $ 450.0 million aggregate principal amount of 3.875 % senior notes due 2029 issued at par.

The proceeds were used to repurchase all $ 300.0 million aggregate principal amount outstanding of our 2022 Notes with the remaining proceeds to be used for general corporate purposes.

As a result of the early redemption of the 2022 Notes, we expect to record a loss on early extinguishment of debt of approximately $ 18.2 million in the second quarter of 2021.

Special Note of Caution Regarding Forward-Looking Statements

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Forward-looking statements in this Quarterly Report include:

statements concerning our expectations for our financial results, business, operations, and the economy and society in general ;

statements concerning our expectations for our financial results, business, operations, housing demand and the economy and society in general ;

trends and economic factors in the homebuilding industry in general, and our markets and results specifically, including the impact thereon of COVID-19;

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our ability and willingness to acquire land under option or contract;

our strategy and trends and expectations concerning sales prices, sales pace, closings, orders, cancellations, land investments and spend, material and labor costs for land development and home construction, gross margins, gross profit, revenues, net earnings, operating leverage, backlog and backlog conversion, land prices, changes in and location of active communities, and the amount, type and timing of new community openings;

our strategy and trends and expectations concerning sales prices, sales pace, closings, orders, cancellations, land investments and spend, material and labor costs for land development and home construction, gross margins, gross profit, revenues, general and administrative expenses, net earnings, operating leverage, backlog and backlog conversion, land prices, changes in and location of active communities, and the amount, type and timing of new community openings;

our future cash needs;

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inflation in the cost of materials used to develop communities and construct homes;

supply chain constraints;

our ability to obtain performance and surety bonds in connection with our development work;

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disruptions to our business by COVID-19, fear of a similar event, and measures that federal, state and local governments and/or health authorities implement to address it;

and other factors identified in documents filed by the Company with the Securities and Exchange Commission, including those set forth in our Form 10-K for the year ended December 31, 2020 under the caption "Risk Factors."

and other factors identified in documents filed by the Company with the Securities and Exchange Commission, including those set forth in this Form 10-Q and our Form 10-K for the year ended December 31, 2020 under the caption "Risk Factors."

Forward-looking statements express expectations of future events.

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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