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Item 8. Financial Statements and Supplementary Data

2022-02-16 compared with 2021-02-12 · 144 added, 174 removed, 736 unchanged (30% of the section changed)

Financial Statements and Supplementary Data

Our consolidated financial statements as of December 31, 2020 and 2019 and for each of the years in the three-year period ended December 31, 2020, together with related notes and the report of Deloitte & Touche LLP, independent registered public accounting firm, are on the following pages.

Our consolidated financial statements as of December 31, 2021 and 2020 and for each of the years in the three-year period ended December 31, 2021, together with related notes and the report of Deloitte & Touche LLP, independent registered public accounting firm (PCAOB ID:

34 ), are on the following pages.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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If an asset is deemed to be impaired, the impairment recognized is measured as the amount by which the asset’s carrying amount exceeds its fair value.

The Company’s evaluation included whether indicators of a decline in value of the Company’s land and real estate assets exist and the determination of fair value to evaluate the recoverability of real estate assets used in the undiscounted cash flows.

The Company’s evaluation included whether indicators of a decline in value of the Company’s land and real estate assets exist and the determination of value to evaluate the recoverability of real estate assets used in the undiscounted cash flows.

This evaluation requires management to make significant projections and estimates, which required a high degree of auditor judgment and an increased extent of audit effort.

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For certain communities that did not have actual recent home closings, we compared to historical home sales and closings in nearby communities taking into consideration factors such as location, size, and type of community.

In addition, we met with management to understand how recent trends in home sales and closings, and any unique factors, such as COVID-19 considerations or change in the intended use of the assets, have been considered in the Company’s evaluation of the recoverability of real estate assets.

In addition, we met with management to understand how recent trends in home sales and closings have been considered in the Company’s evaluation of the recoverability of real estate assets.

/s/ DELOITTE & TOUCHE LLP

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Real estate 3,734,408 2,778,039

Real estate not owned 8,011 —

Deposits on real estate under option or contract 90,679 59,534

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Home sale deposits 42,610 25,074

Liabilities related to real estate not owned 7,210 —

Loans payable and other borrowings 17,552 23,094

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Balance at January 1, 2019 38,073 $ 381 $ 501,781 $ 1,218,593 $ 1,720,755

Adoption of ASU 2014-09 — — — ( 583 ) ( 583 )

Net earnings — — — 249,663 249,663

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Net earnings $ 737,444 $ 423,475 $ 249,663

Adjustments to reconcile net earnings to net cash provided by operating activities:

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

Depreciation and amortization 26,245 31,052 27,923

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Equity in earnings from unconsolidated entities ( 4,657 ) ( 4,496 ) ( 11,945 )

Deferred tax asset revaluation — — ( 2,741 )

Distributions of earnings from unconsolidated entities 4,951 3,594 13,438

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(Increase)/decrease in deposits on real estate under option or contract ( 31,946 ) ( 9,477 ) 453

Decrease/(increase) in receivables, prepaids and other assets 2,130 ( 9,112 ) 3,042

Increase/(decrease) in accounts payable and accrued liabilities 88,942 42,654 ( 12,820 )

(Increase)/decrease in receivables, prepaids and other assets ( 65,114 ) 2,130 ( 9,112 )

Increase in accounts payable and accrued liabilities 76,158 88,942 42,654

Increase/(decrease) in home sale deposits 17,536 828 ( 4,390 )

Net cash provided by operating activities 530,360 346,820 262,200

Net cash (used in)/provided by operating activities ( 152,092 ) 530,360 346,820

Cash flows from investing activities:

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Repayment of loans payable and other borrowings ( 13,589 ) ( 16,379 ) ( 3,676 )

Repayment of senior notes and senior convertible notes — ( 305,620 ) ( 175,000 )

Repayment of senior notes ( 317,690 ) — ( 305,620 )

Proceeds from issuance of senior notes 450,000 — —

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Repurchase of shares ( 60,992 ) ( 69,592 ) ( 16,035 )

Net cash used in financing activities ( 85,971 ) ( 325,331 ) ( 87,953 )

Net increase in cash and cash equivalents 426,155 8,000 140,720

Net cash provided by/(used in) financing activities 51,627 ( 85,971 ) ( 325,331 )

Net (decrease)/increase in cash and cash equivalents ( 127,286 ) 426,155 8,000

Cash and cash equivalents, beginning of year 745,621 319,466 311,466

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Meritage Homes Corporation ("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 the first-time and first move-up buyers.

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

We have homebuilding operations in three regions:

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Managing our own title operations allows us greater control over the entire escrow and closing cycles in addition to generating additional revenue.

Beginning in the fourth quarter of 2019, we commenced operations of a wholly-owned insurance broker, Meritage Homes Insurance Agency (“Meritage Insurance”).

Meritage Insurance works in collaboration with insurance companies nationwide to offer homeowners' insurance and other various insurance products to our homebuyers.

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

Meritage Homes Insurance Agency (“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 provides 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.

Meritage Homes Corporation was incorporated in the state of Maryland in 1988 under the name of Homeplex Mortgage Investments Corporation and merged with Monterey Homes in 1996, at which time our name was changed to Monterey Homes Corporation and later ultimately to Meritage Homes Corporation.

Since that time, we have engaged in homebuilding and related activities and ceased to operate as a real estate investment trust.

Since that time, we have engaged in homebuilding and related activities.

Meritage Homes Corporation operates as a holding company and has no independent assets or operations.

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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 for home closings of approximately $ 61.3 million and $ 54.5 million are included in cash and cash equivalents at December 31, 2020 and 2019, 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").

Inventory includes the costs of land acquisition, land development, home construction, capitalized interest, real estate taxes, and capitalized direct overhead costs incurred during development, less impairments, if any.

Land and development costs are typically allocated and transferred to homes under construction when construction begins.

Home construction costs are accumulated on a per-home basis, while selling costs are expensed as incurred.

Cost of home closings includes the specific construction costs of the home and all related allocated land acquisition, land development and other common costs (both incurred and estimated to be incurred) and are allocated based upon the total number of homes expected to be closed in each community or phase.

Any changes to the estimated total development costs of a community or phase are allocated to the remaining homes in the community or phase.

Amounts in transit from title companies or closing agents for home closings of approximately $ 95.4 million and $ 61.3 million are included in cash and cash equivalents at December 31, 2021 and 2020, respectively.

Real estate inventory 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").

Inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real estate taxes, and direct overhead costs incurred during development and home construction that benefit the entire community, less impairments, if any.

Land and development costs are typically allocated and transferred to homes when home construction begins.

Home construction costs are accumulated on a per-home basis, while selling and marketing costs are expensed as incurred.

Cost of home closings includes the specific construction costs of the home and all related allocated land acquisition, land development and other common costs (both incurred and estimated to be incurred) that are allocated based upon the total number of homes expected to be closed in each community or phase.

Any changes to the estimated total development costs of a community or phase are allocated to the remaining homes in that community or phase.

When a home closes, we may have incurred costs for goods and services that have not yet been paid.

An accrued liability to capture such obligations is recorded in connection with the home closing and charged directly to cost of sales.

We accrue a liability to capture such obligations in connection with the home closing which is charged directly to cost of sales.

We capitalize qualifying interest to inventory during the development and construction periods.

Capitalized interest is included in cost of closings when the related inventory is closed.

Included within our real estate inventory is land held for development and land held for sale.

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.

We do not capitalize interest for these inactive assets, and all ongoing costs of land ownership (i.e.

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

We rely on certain estimates to determine our construction and land development costs.

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In determining these costs, we compile project budgets that are based on a variety of assumptions, including future construction schedules and costs to be incurred.

Actual results can differ from budgeted amounts for various reasons, including construction delays, labor or material shortages, slower absorptions, increases in costs that have not yet been committed, changes in governmental requirements, or other unanticipated

issues encountered during construction and development and other factors beyond our control.

To address uncertainty in these budgets, we assess, update and revise project budgets on a regular basis, utilizing the most current information available to estimate home construction and land development costs.

Typically, a community's life cycle ranges from three to five years , commencing with the acquisition of the land, continuing through the land development phase, if applicable, and concluding with the sale, construction and closing of the homes.

Actual community lives will vary based on the size of the community, the sales absorption rate and whether the land purchased was raw, partially-developed or in finished status.

Actual community lives will vary based on the size of the community, the orders absorption rates and whether the land purchased was raw, partially-developed or in finished status.

Master-planned communities encompassing several phases and super-block land parcels may have significantly longer lives and projects involving smaller finished lot purchases may be significantly shorter.

All of our land inventory and related real estate assets are periodically reviewed for recoverability when certain criteria are met, but at least annually, as our inventory is considered “long-lived” in accordance with GAAP.

Impairment charges are recorded to write down an asset to its estimated fair value if the undiscounted cash flows expected to be generated by the asset are lower than its carrying amount.

If the undiscounted cash flows expected to be generated by an asset are lower than its carrying amount, impairment charges are recorded to write down the asset to its estimated fair value.

Our determination of fair value is based on projections and estimates.

Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions.

Our analysis is conducted if indication of a decline in value of our land and real estate assets exist.

If an asset is deemed to be impaired, the impairment recognized is measured as the amount by which the asset's carrying amount exceeds its fair value.

We conduct an analysis if indicators of a decline in value of our land and real estate assets exists.

If an asset is deemed to be impaired, the impairment recognized is measured as the amount by which the assets' carrying amount exceeds their fair value.

The impairment of a community is allocated to each lot on a straight-line basis.

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Deposits paid related to land option and purchase contracts are recorded and classified as Deposits on real estate under option or contract until the related land is purchased.

Deposits are reclassified as a component of real estate inventory at the time the deposit is used to offset the acquisition price of the lots based on the terms of the underlying agreements.

Deposits are reclassified as a component of real estate inventory at the time the deposit is used to offset the acquisition price of the land based on the terms of the underlying agreements.

To the extent they are non-refundable, deposits are charged to expense if the land acquisition is terminated or no longer considered probable.

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 non-refundable deposits and any ancillary capitalized costs.

Our deposits were $ 59.5 million and $ 50.9 million as of December 31, 2020 and December 31, 2019, respectively.

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

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 $ 90.7 million and $ 59.5 million as of December 31, 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.

ASC 350 states that an entity may assess qualitative factors to determine whether it is necessary to perform a goodwill impairment test.

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(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, the 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.

See Note 10 for additional information related to goodwill.

See Note 10 for additional information on our goodwill assets.

Property and Equipment, net.

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• Revenue from financial services is recognized when closings have occurred and all financial services have been rendered, which generally upon the close of escrow.

Home sale contract assets consist of cash from home closings that are in transit from title companies, which are considered cash in transit and are classified as cash on our accompanying consolidated balance sheet.

See "Cash and Cash Equivalents" in this Note 1 for further information.

Contract liabilities include home sale deposit liabilities related to sold but unclosed homes, and are classified as Home sale deposits in our accompanying consolidated balance sheet.

Contract liabilities include home sale deposit liabilities related to sold but unclosed homes, and are classified as Home sale deposits in our accompanying consolidated balance sheets.

Substantially all of our home sales are scheduled to close and be recorded as revenue within one year from the date of receiving a customer deposit.

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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 not material.

The related contract assets for these estimated future renewal commissions are not material at December 31, 2021 and 2020.

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

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Direct construction costs are accumulated during the period of construction and charged to cost of closings under specific identification methods, as are closing costs.

Estimates of costs incurred or to be incurred but not paid are accrued and expensed at the time of closing.

Land development, acquisition and common costs are allocated to each lot based on the number of lots remaining to close.

Estimates of costs incurred or to be incurred but not paid are accrued and expensed at the time of closing.

Income Taxes.

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If we determine that we will not be able to realize our deferred tax assets in the future, we will record a valuation allowance, which increases the provision for income taxes.

We recognize interest and penalties related to unrecognized tax benefits within Provision for income taxes in the accompanying consolidated income statement.

We recognize interest and penalties related to unrecognized tax benefits within Provision for income taxes in the accompanying consolidated income statements.

Accrued interest and penalties are included within Accrued liabilities in the accompanying consolidated balance sheets.

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Based on such reviews of warranty costs incurred, we did not adjust the warranty reserve balance in the twelve months ended December 31, 2021 and 2020.

Included in the warranty reserve balances at December 31, 2020 and December 31, 2019 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.

See Note 16 for additional information regarding these case-specific reserves.

Included in the warranty reserve balances at December 31, 2021 and December 31, 2020 reflected in the table below are case-specific reserves for warranty matters, as discussed in Note 16.

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

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Recent Accounting Pronouncements.

In August 2018, the Financial Accounting Standards Board ("FASB") issued 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 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

Entities will need to consider both the nature of the costs and the phase of development in which the implementation costs are incurred to determine whether the costs should be capitalized or expensed.

ASU 2018-15 was effective for us beginning January 1, 2020 on a prospective basis to all implementation costs incurred after the date of adoption.

The adoption of ASU 2018-15 did not have a material impact on our financial statement disclosures.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which eliminates, adds, and modifies certain disclosure requirements for fair value measurements.

Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

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

As we currently only have Level 2 financial instruments, the adoption of ASU 2018-13 did not have a material impact on our financial statement disclosures.

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

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which simplifies the accounting for income taxes by eliminating certain exceptions within ASC Topic 740, Income Taxes , and clarifying other areas of existing guidance.

ASU 2019-12 was effective for us on January 1, 2021, and the adoption did not have a material impact on our financial statements or financial statement disclosures.

NOTE 2 — REAL ESTATE AND CAPITALIZED INTEREST

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(1) Includes the allocated land and land development costs associated with each lot for these homes.

(2) Includes raw land, land held for development and land held for sale.

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.

For these parcels, we may 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.

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

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.

We do not capitalize interest for inactive assets, and all ongoing costs of land ownership (i.e.

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We also evaluate alternative product offerings in communities where impairment indicators are present and other strategies for the land exist, such as selling or holding the land for sale.

We recorded impairment charges of approximately $ 24.9 million and $ 7.3 million for the years ended December 31, 2020 and 2019, respectively.

The majority of the impairment charges during the year ended December 31, 2020 are the result of upcoming dispositions of certain assets that no longer fit our strategy of entry-level and first move-up communities.

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

Capitalized interest is allocated to active real estate when incurred and charged to cost of closings when the related property is closed.

We recorded impairment charges of approximately $ 2.1 million, $ 24.9 million and $ 7.3 million for the years ended December 31, 2021, 2020, and 2019 respectively, primarily as a result of upcoming dispositions of certain assets that no longer fit our strategy of entry-level and first move-up communities.

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.

Capitalized interest is allocated to active real estate when incurred and charged to cost of closings when the related property is delivered.

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

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Capitalized interest, end of year (1) $ 56,253 $ 58,940 $ 82,014

(1) Approximately $ 217,000 , $ 279,000 and $ 454,000 of the capitalized interest is related to our joint venture investments and is a component of Investments in unconsolidated entities in our consolidated balance sheet as of December 31, 2020, 2019 and 2018, respectively.

(1) Approximately $ 208,000 , $ 217,000 and $ 279,000 of the capitalized interest is related to our joint venture investments and is a component of Investments in unconsolidated entities in our consolidated balance sheets as of December 31, 2021, 2020 and 2019, respectively.

NOTE 3 — VARIABLE INTEREST ENTITIES AND CONSOLIDATED REAL ESTATE NOT OWNED

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These purchase and option agreements enable us to acquire properties at one or multiple future dates at pre-determined prices.

We believe these acquisition structures reduce our financial risk associated with land acquisitions and holdings and allow us to better leverage our balance sheet.

We believe these acquisition structures allow us to better leverage our balance sheet and reduce our financial risk associated with land acquisitions.

Based on the provisions of the relevant accounting guidance, we have concluded that when we enter into an option or purchase agreement to acquire land or lots from an entity, a variable interest entity, or “VIE”, may be created.

We evaluate all option and purchase agreements and amendments for land to determine whether they are a VIE.

ASC 810, Consolidation , requires that for each VIE, we assess whether we are the primary beneficiary and, if we are, we consolidate the VIE in our financial statements and reflect such assets and liabilities as Real estate not owned.

The liabilities related to consolidated VIEs are generally excluded from our debt covenant calculations.

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Total purchase and option contracts not recorded on balance sheet (4) 52,028 $ 1,802,469 $ 90,679 (5)

(1) Real estate not owned represents a single parcel of land intended for multi-family housing that, once purchased, the Company intends to sell.

(2) Deposits are non-refundable except if certain contractual conditions are not performed by the selling party.

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

(4) Amount is reflected in our consolidated balance sheet in the line item “Deposits on real estate under option or contract” as of December 31, 2020.

(5) Amount is reflected in our consolidated balance sheets in the line item “Deposits on real estate under option or contract” as of December 31, 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 - LEASES

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Our lease population at December 31, 2021 is comprised of operating leases where we are the lessee and these leases are primarily real estate for office space for our corporate office, division offices and design centers, in addition to leases of certain equipment.

As allowed by ASC 842, we adopted an accounting policy election to not record leases with lease terms of twelve months or less on the consolidated balance sheet.

As allowed by ASC 842, we adopted an accounting policy election to not record leases with lease terms of twelve months or less on the consolidated balance sheets.

Lease cost included in our consolidated income statements in General and administrative expenses and Commissions and other sales costs is in the table below (in thousands).

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ROU assets obtained in exchange for new operating lease obligations $ 5,756 $ 1,364

ROU assets are classified within Prepaids, other assets and goodwill on our consolidated balance sheet, while lease liabilities are classified within Accrued liabilities on our consolidated balance sheet.

ROU assets are classified within Prepaids, other assets and goodwill on our consolidated balance sheets, while lease liabilities are classified within Accrued liabilities on our consolidated balance sheets.

The following table contains additional information about our leases (dollars in thousands):

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NOTE 5 - 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.

Based on the structure of these joint ventures, they may or may not be consolidated into our results.

Our joint venture partners generally are other homebuilders, land sellers or other real estate investors.

We generally do not have a controlling interest in these ventures, which means our joint venture partners could cause the venture to take actions we disagree with, or fail to take actions we believe should be undertaken, including the sale of the underlying property to repay debt or recoup all or part of the partners' investments.

As of December 31, 2020, we had one active equity-method land venture.

As of December 31, 2020, 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 December 31, 2020 and December 31, 2019 was $ 1.0 million and $ 0.7 million, respectively.

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

Based on the structure of these joint ventures, they may or may not be consolidated into our results.

As of December 31, 2021, we had two active equity-method land ventures and one mortgage joint venture, which is engaged in mortgage activities and primarily provides services to our homebuyers.

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

At December 31,

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

This balance may differ from the balance reflected in our consolidated financial statements due to the following reconciling items:

This balance may differ from the balance reported in our consolidated financial statements due to the following reconciling items:

(i) timing differences for revenue and distributions recognition, (ii) step-up basis and corresponding amortization, (iii) capitalization of interest on qualified assets, (iv) income deferrals as discussed in Note (2) below and (v) the cessation of allocation of losses from joint ventures in which we have previously written down our investment balance to zero and where we have no commitment to fund additional losses.

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Other borrowings, real estate note payable (1) $ 17,552 $ 23,094

$ 780.0 million unsecured revolving credit facility with interest approximating LIBOR (approximately 0.14 % at December 31, 2020) plus 1.375 % or Prime ( 3.25 % at December 31, 2020) plus 0.375 %

$ 780.0 million unsecured revolving credit facility

Total $ 17,552 $ 23,094

(1) Reflects balance of non-recourse non-interest bearing notes payable in connection with land purchases.

(1) Reflects balance of non-recourse notes payable in connection with land purchases.

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 2021, the Credit Facility was amended to extend the maturity date to December

22, 2026 and replace LIBOR as the benchmark interest rate with the Secured Overnight Financing Rate ("SOFR") as described below.

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 bear interest at the Company's option, at either (1) term SOFR (based on 1, 3, or 6 month interest periods, as selected by the Company) plus a 10 basis point adjustment plus an applicable margin (ranging from 125 basis points to 175 basis points (the "applicable margin")) based on the Company's leverage ratio as determined in accordance with a pricing grid, (2) the higher of (i) the prime lending rate, (ii) an overnight bank rate plus 50 basis points and (3) term SOFR (based on a 1 month interest period) plus a 10 basis point adjustment plus 1 %, in each case plus a margin ranging from 25 basis points to 75 basis points based on the Company's leverage in accordance with a pricing grid, or (iii) daily simple SOFR plus a 10 basis point adjustment plus the applicable margin.

At December 31, 2021, the interest rate on outstanding borrowings under the Credit Facility would have been 1.40 % per annum.

We are obligated to pay a fee on the undrawn portion of the Credit Facility at a rate equal to the applicable margin then in effect.

The Credit Facility also contains certain financial covenants, including (a) a minimum tangible net worth requirement of $ 1.9 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 %.

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

During the twelve months ended December 31, 2020, we had $ 500.0 million of gross borrowings and repayments.

During the twelve months ended December 31, 2019, we had $ 90.0 million of gross borrowings and repayments.

During the twelve months ended December 31, 2018, we had $ 285.0 million of gross borrowings and repayments.

During the twelve months ended December 31, 2021, we had no gross borrowings or repayments.

During the twelve months ended December 31, 2020 and 2019, we had $ 500.0 million and $ 90.0 million of gross borrowings and repayments, respectively.

As of December 31, 2021 we had outstanding letters of credit issued under the Credit Facility totaling $ 62.4 million, leaving $ 717.6 million available under the Credit Facility to be drawn.

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300,000 300,000

3.875 % senior notes due 2029

Net debt issuance costs ( 10,309 ) ( 6,623 )

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In the fourth quarter of 2019, we redeemed the 2020 Notes, incurring $ 5.6 million in charges reflected as Loss on early extinguishment of debt in the accompanying income statements.

In April 2012, we completed an offering of $ 300.0 million aggregate principal amount of 7.00 % Senior Notes due 2022.

Concurrent with this offering, we repurchased all $ 285.0 million outstanding of our 6.25 % Senior Notes due 2015.

We also repurchased the remaining aggregate principal amount of approximately $ 26.1 million of our 7.731 % Senior Subordinated Notes due 2017.

In April 2012, we completed an offering of $ 300.0 million aggregate principal amount of 7.00 % Senior Notes due 2022 (the "2022 Notes").

In June 2015, we completed an offering of $ 200.0 million aggregate principal amount of 6.00 % Senior Notes due 2025 (the "2025 Notes").

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The Additional Notes were issued as an add-on to the existing 2025 Notes that were issued in June 2015 which resulted in a combined $ 400.0 million aggregate principal amount of 6.00 % Senior Notes due 2025 outstanding as of December 31, 2021.

The Additional Notes were issued at a premium of 103 % of the principal amount and the net proceeds were used to repay outstanding borrowings under the Credit Facility, which included borrowings used for the redemption of the Company's $ 175.0 million of 4.50 % Senior Notes that were due to mature on March 1, 2018.

The Additional Notes were issued at a premium of 103 % of the principal amount.

In June 2017, we completed an offering of $ 300.0 million aggregate principal amount of 5.125 % Senior Notes due 2027 (the "2027 Notes").

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Using the proceeds from the 2027 Notes offering, we retired all $ 126.5 million of our convertible senior notes through a repurchase of $ 51.9 million in privately negotiated transactions and a redemption of the remaining $ 74.6 million through a combination of holder redemptions and an exercise of our call option at a redemption price equal to 100 % of the principal amount of the notes redeemed, plus accrued and unpaid interest.

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 the 2022 Notes, incurring $ 18.2 million in early debt extinguishment during the year ended December 31, 2021, reflected as Loss on early extinguishment of debt in the accompanying unaudited consolidated income statements.

Scheduled principal maturities of our senior and notes as of December 31, 2021 follow (in thousands):

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$ 300,000 $ 329,640 $ 300,000 $ 333,328

3.875 % senior notes

$ 450,000 $ 472,500 $ — $ —

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.

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Year Ended December 31,

Adjusted basis of long-lived real estate assets $ 46,917 $ 42,949

Impairments $ 24,852 $ 7,293

Initial basis of long-lived real estate assets $ 7,369 $ 71,769

At December 31, 2020, we remeasured these assets at fair value because of a decision to sell certain assets that are no longer aligned with our focus on first-time and first move-up homebuyers.

Impairments $ 2,115 $ 24,852

Adjusted basis of long-lived real estate assets $ 5,254 $ 46,917

At December 31, 2021 and 2020, we remeasured these assets at fair value because of a decision to sell certain assets that are no longer aligned with our strategy to focus on first-time and first move-up homebuyers.

The non-recurring fair values included in the table above represent only those assets whose carrying values were adjusted to fair value as of the respective balance sheet dates.

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Diluted average shares outstanding 38,233 38,484 38,891

Net earnings as reported $ 423,475 $ 249,663 $ 227,332

Net earnings $ 737,444 $ 423,475 $ 249,663

Basic earnings per share $ 19.61 $ 11.23 $ 6.55

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NOTE 10 — ACQUISITIONS AND GOODWILL

We have previously entered new markets through the acquisition of the homebuilding assets and operations of other homebuilders.

Our current goodwill is related to acquisitions of local/regional homebuilders in Georgia, South Carolina and Tennessee.

The acquisitions were recorded in accordance with ASC 805, Business Combination s and ASC 820, using the acquisition method of accounting.

The purchase price for the acquisitions were allocated based on estimated fair value of the assets and liabilities at the date of the acquisition.

The combined excess purchase price over the fair value of the net assets of $ 33.0 million was recorded as goodwill, which is included in our consolidated balance sheet in Prepaids, other assets and goodwill.

In accordance with ASC 350, we assess the recoverability of goodwill annually, or more frequently, if impairment triggers are present.

Our analysis concluded that our goodwill balance was not impaired.

A summary of changes in the carrying amount of goodwill follows (in thousands):

In prior years, we have entered new markets through the acquisition of the homebuilding assets and operations of local/regional homebuilders in Georgia, South Carolina and Tennessee.

As a result of these transaction, we recorded approximately $ 33.0 million of goodwill.

Goodwill represents the excess purchase price of our acquisitions over the fair value of the net assets acquired.

Our acquisitions were recorded in accordance with ASC 805, Business Combination s and ASC 820, using the acquisition method of accounting.

The purchase price for acquisitions was allocated based on estimated fair value of the assets and liabilities at the date of the acquisition.

The combined excess purchase price of our acquisitions over the fair value of the net assets is classified as goodwill and is included in our consolidated balance sheets in Prepaids, other assets and goodwill.

In accordance with ASC 350, we assess the recoverability of goodwill annually, or more frequently, if impairment indicators are present.

A summary of the carrying amount of goodwill follows (in thousands):

West Central East Financial Services Corporate Total

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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 common stock to be awarded, of which 1,308,510 shares remain available for grant at December 31, 2020.

The 2018 Plan authorizes 6,600,000 shares of stock to be awarded, of which 1,047,626 shares remain available for grant at December 31, 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 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.

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.

Summary of Nonvested (Restricted) Shares and Units Activity:

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Outstanding at December 31, 2021 692,529 $ 62.94 190,751 $ 61.68

(1) Forfeitures on time-based nonvested shares are a result of terminations of employment, while forfeitures on performance-based nonvested shares are a result of failing to attain certain goals as outlined in our executive officers' compensation agreements.

(1) Performance-based shares granted for the year ended December 31, 2019 includes 21,039 shares that were issued as a result of the performance achievement exceeding the performance targets related to grants to our executive officers for the year ended December 31, 2016.

These shares vested in March 2019.

(2) Forfeitures on time-based nonvested shares are a result of terminations of employment, while forfeitures on performance-based nonvested shares are the result of failing to attain certain goals as outlined in our executive officers' compensation agreements.

(3) Performance-based shares granted for the year ended December 31, 2020 includes 24,054 shares that were issued as a result of the performance achievement exceeding the performance targets related to grants to our executive officers for the year ended December 31, 2017.

These shares vested in February 2020.

(4) Performance-based shares granted for the year ended December 31, 2021 includes 37,425 shares that were issued as a result of the performance achievement exceeding the performance targets related to grants to our executive officers for the year ended December 31, 2018.

These shares vested in March 2021.

Performance-based shares granted for the year ended December 31, 2021 also includes 1,670 shares and 696 shares that were issued to our General Counsel, who retired on December 15, 2021, as a result of the performance achievement exceeding the performance targets related to grants to our executive officers for the years ended December 31, 2019 and 2018, respectively.

These shares vested in December 2021 in accordance with his employment agreement.

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.

Compensation cost related to performance-based restricted stock awards is also measured as of the closing price on the date of grant but is expensed in accordance with ASC 718, which requires an assessment of probability of attainment of the performance target.

As our performance targets are dependent on performance over a specified measurement period, once we determine that the performance target outcome is probable, the cumulative expense is recorded immediately with the remaining expense and

recorded on a straight-line basis through the end of the award’s vesting period.

A portion of the performance-based restricted stock awards granted contain market conditions as defined by ASC 718.

The guidance in ASC 718 requires that compensation expense for stock awards with market conditions be expensed based on a derived grant date fair value and expensed over the service period.

We engaged a third party to perform a valuation analysis on the awards containing market conditions and our associated expense with those awards is based on the derived fair value from that analysis and is being expensed straight line over the service period of the awards.

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

Compensation cost related to performance-based restricted stock awards is also measured as of the closing price on the date of grant but is expensed in accordance with ASC 718-10-25-20, Compensation - Stock Compensation ("ASC 718"), which requires an assessment of probability of attainment of the performance target.

A portion of the performance-based restricted stock awards granted to our executive officers contain market conditions as defined by ASC 718.

ASC 718 requires that compensation expense for stock awards with market conditions be expensed based on a derived grant date fair value and expensed over the service period.

We engage a third party to perform a valuation analysis on the awards containing market conditions and our associated expense with those awards is based on the derived fair value from that analysis and is being expensed straight line over the service period of the awards.

Below is a summary of compensation

expense and stock award activity (in thousands):

Years Ended December 31,

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Stock-based compensation expense $ 20,069 $ 19,995 $ 19,607

The following table includes additional information regarding our Plan (dollars in thousands):

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

At December 31,

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Total equity awards outstanding (1) 883,280 1,098,545

(1) Includes unvested restricted stock, performance-based awards (assuming 100 % payout) and restricted stock units.

(1) Includes unvested restricted stock awards, restricted stock units and performance-based awards (assuming 100 %/target payout).

We also offer a non-qualified deferred compensation plan ("deferred compensation plan") to highly compensated employees in order to allow them additional pre-tax income deferrals above and beyond the limits that qualified plans, such as 401(k) plans, impose on highly compensated employees.

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State income taxes, net of federal tax benefit 31,967 16,307 9,999

Tax Act revaluation of deferred tax balances — — ( 2,741 )

Federal tax credits ( 20,872 ) ( 16,523 ) ( 20,582 )

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The effective tax rate was 22.8 %, 20.6 %, and 17.6 % for 2021, 2020 and 2019, respectively.

The rates in all three years are due to extension of the Internal Revenue Code ("IRC") §45L new energy efficient homes credits, and additional energy tax credits obtained by qualifying more homes in open prior tax years.

The rate in 2019 also reflects the additional benefit of energy tax credit for the 2018 tax year that was realized in the 2019 tax year due to the retroactive application of the 2019 Act.

The rates in all three years reflect a benefit from the extension of the Internal Revenue Code ("IRC") §45L new energy efficient homes credits, and additional energy tax credits obtained by qualifying more homes in open prior tax years.

The rate in 2019 also includes the

additional benefit of energy tax credit for the 2018 tax year that was realized in the 2019 tax year due to the retroactive application of the 2019 Act.

Deferred tax assets and liabilities are netted on our balance sheet by tax jurisdiction.

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Accrued expenses 199 193

Net operating loss carry-forwards — 752

Other 7,836 5,498

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Companies must assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified.

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

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 December 31, 2021.

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act ("Tax Act").

Under ASC 740, the effects of new legislation are recognized in the period that includes the date of enactment.

The estimated impact on 2017 was to reduce the value of our deferred tax asset by $ 19.7 million, which was reflected in our effective tax rate reconciliation for that year.

The impact was our most reasonable estimate at that time based on our understanding of the Tax Act as it applied to our business and changed as more information became available.

At December 31, 2018, we had completed our accounting for the

income tax effects of the Tax Act on our deferred tax assets.

In accordance with SEC Staff Accounting Bulletin No.

118 and ASC 740, we revised the valuation of our 2017 deferred tax assets for the impact of the Tax Act based on completion of our 2017 income tax returns in 2018.

Accordingly, in 2018 we recorded a favorable revaluation adjustment of $ 2.7 million which was reflected in our effective tax rate reconciliation for 2018.

On February 9, 2018, the Bipartisan Budget Act of 2018 was enacted and extended the availability for the IRC §45L new energy efficient homes credit retroactively to the end of 2017.

In accordance with ASC 740, we recognized a tax benefit of $ 8.1 million in 2018 for qualifying new homes closed in 2017.

The tax effected benefit is reflected in our effective tax rate reconciliation as the benefit from federal tax credits.

In December of 2019, Congress passed the Taxpayer Certainty and Disaster Tax Relief Act of 2019 as a part of the Further Consolidated Appropriations Act, 2020 (the "2020 Act") which the President signed into law on December 20, 2019.

The 2020 Act further extended the availability of the IRC §45L new energy efficient homes credit (the "energy tax credit") through the end of 2020.

The Taxpayer Certainty and Disaster Relief Act of 2020, signed into law by the President on December 27, 2020 extended the energy tax credit through the end of 2021.

Under ASC 740, the effects of the new legislation are recognized in the period that includes the date of enactment, regardless of the retroactive benefit.

In accordance with this guidance, we recorded a tax benefit of $ 19.9 million based on our estimate for qualifying new energy efficient homes that we closed in 2018 and 2019.

The estimated tax effected benefit is reflected in our effective tax rate reconciliation as the benefit from federal tax credits.

In December of 2020, the energy tax credit was extended through the end of 2021 and we expect to recognize a benefit from this extension.

In accordance with this guidance, we recorded a tax benefit of $ 16.9 million during the year ended December 31, 2021 based on our estimate for qualifying new energy efficient homes that we closed in 2021.

The estimated tax effected benefit is reflected in our effective

tax rate reconciliation as the benefit from federal tax credits.

The energy tax credit expired at December 31, 2021, and a benefit for the year-ended December 31, 2022 can only occur with new legislation extending the credit.

Our future deferred tax asset realization depends on sufficient taxable income in the carryforward periods under existing tax laws.

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At December 31, 2021, we had no remaining un-utilized federal NOL carryforward, federal tax credits, or state NOL carryforwards.

At December 31, 2020, we have a current tax payable of $ 25.3 million, which consists of current federal and state income tax accruals net of current energy tax credits and estimated tax payments.

This amount is recorded in Accrued liabilities in the accompanying balance sheet at December 31, 2020.

At December 31, 2020, we have a current tax receivable of $ 0.7 million from amending prior year returns to claim additional energy tax credits.

This amount is recorded in Other Receivables in the accompanying balance sheet at December 31, 2020.

At December 31, 2021, we have a current tax payable of $ 23.7 million, which consists of current federal and state income tax accruals net of current energy tax credits and estimated tax payments, and is recorded in Accrued liabilities in the accompanying balance sheet.

At December 31, 2021, we have no current tax receivables.

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

and several states.

both federally and in several states.

With few exceptions, we are no longer subject to U.S.

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We have no federal or state income tax examinations being conducted at this time.

The future tax benefits from any 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.

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 December 31, 2021, we do not believe that we have experienced an ownership change.

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Interest, net of interest capitalized $ ( 249 ) $ 355 $ 10,810

Income taxes $ 84,739 $ 64,658 $ 56,350

Income taxes paid $ 221,103 $ 84,739 $ 64,658

Non-cash operating activities:

Real estate not owned increase $ 8,011 $ — $ —

Real estate acquired through notes payable $ 8,047 $ 16,597 $ 11,721

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Florida, Georgia, North Carolina, South Carolina and Tennessee

Management’s evaluation of segment performance is based on segment operating income, which we define as homebuilding and land revenues less cost of home construction, commissions and other sales costs, land development and other land sales costs and other costs incurred by or allocated to each segment, including impairments.

Management’s evaluation of segment performance is based on segment operating income, which we define as home and land closing revenues less cost of home and land closings, commissions and other sales costs, land development and other land sales costs and other costs incurred by or allocated to each segment, including impairments.

Each reportable segment follows the same accounting policies described in Note 1, “Business and Summary of Significant Accounting Policies.” Operating results for each segment may not be indicative of the results for such segment had it been an independent, stand-alone entity for the periods presented.

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Total $ 25,237 $ 17,731 $ 45,854

(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 reporting segments.

(3) For the year ended December 31, 2018, Other income, net includes a favorable $ 4.8 million legal settlement from long-standing litigation related to a previous joint venture in Nevada.

(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 December 31, 2021

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Total assets $ 1,665,148 $ 1,290,197 $ 1,243,271 $ 610 $ 608,307 $ 4,807,533

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

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

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

(4) Balance consists primarily of cash, deferred tax assets and prepaids and other assets.

(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, real estate not owned, 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.

At December 31, 2020

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Total assets $ 1,228,513 $ 952,096 $ 916,120 $ 612 $ 767,057 $ 3,864,398

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

(2) Balance consists primarily of development reimbursements from local municipalities and prepaids and other assets.

(3) Balance consists primarily of goodwill, prepaids and other assets, and property and equipment.

(4) Balance consists primarily of cash.

(1) Balance consists primarily of cash and cash equivalents 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, 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.

NOTE 16 — COMMITMENTS AND CONTINGENCIES

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

We believe there are

not any pending legal or warranty matters 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 $ 23.7 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 December 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 $ 26.3 million of total warranty reserves related to alleged stucco defects in certain homes we constructed predominantly between 2006 and 2017 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 judgment and various assumptions and estimates.

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See Note 4 for information related to our leases.

NOTE 17 — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly results for the years ended December 31, 2020 and 2019 follow (in thousands, except per share amounts):

First Second Third Fourth

Total closing revenue $ 901,013 $ 1,033,079 $ 1,138,091 $ 1,409,937

Total closing gross profit $ 178,743 $ 219,248 $ 244,077 $ 317,546

Earnings before income taxes $ 86,833 $ 115,862 $ 135,506 $ 195,365

Net earnings $ 71,152 $ 90,678 $ 109,118 $ 152,527

Per Share Data:

Basic earnings per share (1) $ 1.87 $ 2.41 $ 2.90 $ 4.06

Diluted earnings per share (1) $ 1.83 $ 2.38 $ 2.84 $ 3.97

Total closing revenue $ 708,145 $ 864,610 $ 940,880 $ 1,136,848

Total closing gross profit $ 116,828 $ 157,376 $ 186,091 $ 219,320

Earnings before income taxes $ 32,370 $ 67,674 $ 92,366 $ 110,535

Net earnings $ 25,412 $ 50,828 $ 69,809 $ 103,614

Per Share Data:

Basic earnings per share (1) $ 0.66 $ 1.33 $ 1.82 $ 2.71

Diluted earnings per share (1) $ 0.65 $ 1.31 $ 1.79 $ 2.65

(1) Due to the computation of earnings per share, the sum of the quarterly amounts may not equal the full-year results.

We typically experience seasonal variability in our quarterly operating results and capital requirements.

Historically, we sell more homes in the first half of the year, which results in more working capital requirements and home closings in the third and fourth quarters.

However, during economic downturns or times of certain government incentives, our results may not follow our historical trends.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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