What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-14 compared with 2023-02-15 · 116 added, 97 removed, 763 unchanged (22% of the section changed)

48 unchanged sentences

Real estate 4,721,291 4,358,263

Real estate not owned — 8,011

Deposits on real estate under option or contract 111,364 76,729

7 unchanged sentences

Home sale deposits 36,605 37,961

Liabilities related to real estate not owned — 7,210

Loans payable and other borrowings 13,526 7,057

31 unchanged sentences

Expense ( 12,128 ) ( 11,133 ) ( 9,182 )

Earnings from financial services unconsolidated entities and other, net 5,951 6,009 5,088

(Loss)/earnings from financial services unconsolidated entities and other, net ( 656 ) 5,951 6,009

Financial services profit 12,466 18,294 18,034

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Equity award compensation expense — — 22,511 — 22,511

Dividends declared ($ 1.08 per share)

— — — ( 39,534 ) ( 39,534 )

Share repurchases ( 437 ) ( 5 ) ( 59,431 ) — ( 59,436 )

17 unchanged sentences

Increase in real estate ( 357,408 ) ( 624,522 ) ( 948,055 )

Decrease/(increase) in deposits on real estate under option or contract 10,463 ( 31,946 ) ( 9,477 )

(Increase)/decrease in receivables, prepaids and other assets ( 102,950 ) ( 65,114 ) 2,130

(Increase)/decrease in deposits on real estate under option or contract ( 36,140 ) 10,463 ( 31,946 )

Increase in receivables, prepaids and other assets ( 64,169 ) ( 102,950 ) ( 65,114 )

Increase in accounts payable and accrued liabilities 22,609 76,985 76,158

14 unchanged sentences

Payment of debt issuance costs — — ( 6,102 )

Dividends paid ( 39,534 ) — —

Repurchase of shares ( 59,067 ) ( 109,303 ) ( 60,992 )

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West, Central and East, which are comprised of ten states:

Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina, Tennessee, and Utah.

Arizona, California, Colorado, Utah, Texas, Florida, Georgia, North Carolina, South Carolina, and Tennessee.

These three regions are our principal homebuilding reporting segments.

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Carefree Title Agency, Inc.

("Carefree Title"), our wholly-owned title company, provides title insurance and closing/settlement services to our homebuyers.

("Carefree Title"), our wholly-owned title company, provides title insurance and closing/settlement services to our homebuyers in certain states.

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

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.

Meritage Homes Insurance Agency, Inc.

(“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 operation also provides mortgage services to our homebuyers through an unconsolidated joint venture.

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

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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.

Real estate 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.

Home construction costs are accumulated on a per-home basis, while commissions and other sales 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.

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

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

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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, absorptions that differ from our expectations, increases in costs that have not yet been committed, changes in governmental requirements, or other unanticipated issues, including weather, encountered during construction and development and other factors beyond our control.

Actual results can differ from budgeted amounts for various reasons, including construction delays, labor or material shortages, sales orders absorptions that differ from our expectations, increases in costs that have not yet been contracted, changes in governmental requirements, or other unanticipated issues, encountered during construction and development and other factors beyond our control, including weather.

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.

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If indicators of potential impairment exist and 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.

The impairment of a community is allocated to each remaining lot in the community on a straight-line basis and is recognized in Cost of home closings in the period in which the impairment is determined.

The impairment of a community is allocated to each remaining unstarted lot in the community on a straight-line basis and is recognized in Cost of home closings in the period in which the impairment is determined.

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.

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, although if financial metrics improve, we do not reverse impairments once recorded.

See Note 2 for additional information related to Real estate and impairments.

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To the extent they are non-refundable, deposits are expensed to Cost of home closings 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 on real estate under option or contract were $ 76.7 million and $ 90.7 million as of December 31, 2022 and December 31, 2021, respectively.

Our Deposits on real estate under option or contract were $ 111.4 million and $ 76.7 million as of December 31, 2023 and 2022, respectively.

See Note 3 for additional information related to Deposits on real estate under option or contract.

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.

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Such qualitative factors include:

(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.

(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 test in accordance with ASC 350 would be initiated.

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Property and Equipment, net.

Property and equipment, net consists of computer and office equipment, model home furnishings and capitalized sales office costs.

Property and equipment, net consists primarily of computer and office equipment, model home furnishings and capitalized sales office costs.

Depreciation is generally calculated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years .

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Deferred Costs.

At December 31, 2022 and 2021, deferred costs representing debt issuance costs related to our revolving credit facility of approximately $ 3.8 million and $ 3.6 million, net of accumulated amortization, are recorded on our consolidated balance sheets within Prepaids, other assets and goodwill.

The costs are primarily amortized to interest expense using the straight line method which approximates the effective interest method.

At December 31, 2023 and 2022, deferred costs representing debt issuance costs related to our revolving credit facility of approximately $ 5.3 million and $ 3.8 million, respectively, net of accumulated amortization, are recorded on our consolidated balance sheets within Prepaids, other assets and goodwill.

The costs are amortized to Interest expense using the straight line method which approximates the effective interest method.

See Note 7 for additional information related to net debt issuance costs associated with our senior notes.

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We use the equity method of accounting for investments in unconsolidated entities over which we exercise significant influence but do not have a controlling interest.

Under the equity method, our share of the unconsolidated entities’ pre-tax earnings or loss is included in Other (expense)/income net, or Earnings from financial services unconsolidated entities and other, net, in our consolidated income statements.

Under the equity method, our share of the unconsolidated entities’ pre-tax earnings or loss is included in Other income, net, or (Loss)/earnings from financial services unconsolidated entities and other, net, in our consolidated income statements.

We use the cost method of accounting for investments in unconsolidated entities over which we do not have significant influence, if any.

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(4) allocate the transaction price to the performance obligations in the contract, if applicable;

and (5) recognize revenue when (or as) we satisfy the performance obligation.

The performance obligation and subsequent revenue recognition for our three sources of revenue are outlined below:

• Revenue from closings of residential real estate is recognized when closings have occurred, the risks and rewards of ownership are transferred to the buyer, and we have no continuing involvement with the property, which is generally upon the close of escrow.

and (5) recognize revenue when (or as) we satisfy the performance obligations.

The performance obligations and subsequent revenue recognition for our three sources of revenue are outlined below:

• Revenue from home closings is recognized when closings have occurred, the risks and rewards of ownership are transferred to the buyer, and we have no continuing involvement with the property, which is generally upon the close of escrow.

Revenue is reported net of any discounts and incentives.

• Revenue from land sales is recognized when a significant down payment is received, title passes and collectability of the receivable is reasonably assured, and we have no continuing involvement with the property, which is generally upon the close of escrow.

• Revenue from land closings is recognized when a significant down payment is received, title passes and collectability of the receivable, if any, is reasonably assured, and we have no continuing involvement with the property, which is generally upon the close of escrow.

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

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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.

Revenue expected to be recognized in any future year related to remaining performance obligations (if any) and contract liabilities expected to be recognized as revenue, excluding revenue pertaining to contracts that have an original expected duration of one year or less, are not material.

Home closing and land closing revenue expected to be recognized in any future year related to remaining performance obligations (if any) and the associated contract liabilities expected to be recognized as revenue, excluding revenue pertaining to contracts that have an original expected duration of one year or less, are not material.

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.

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Advertising Costs.

We expense advertising costs as they are incurred.

We expense advertising costs to Commissions and other sales costs as they are incurred.

Advertising expense was approximately $ 15.1 million, $ 12.1 million and $ 8.2 million in fiscal 2023, 2022 and 2021, respectively.

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Awards with either a graded or cliff vesting are expensed on a straight-line basis over the life of the award.

Stock-based compensation expense is included in General and administrative expense.

See Note 11 for additional information on stock-based compensation.

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In the normal course of business, we may acquire lots from various development entities pursuant to purchase and option agreements.

The purchase price generally approximates the market price at the date the contract is executed (with possible future escalators) and may have staggered purchase schedules.

The purchase price generally approximates the market price at the date the contract is executed (with possible future escalators) and the acquisition of the land is typically staggered.

See Note 3 for additional information on these off-balance sheet arrangements.

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The amount of these obligations outstanding at any time varies depending on the stage and level of our development activities.

Bonds are generally not wholly released until all development activities under the bond are complete.

Surety bonds are generally not wholly released until all development activities under the bond are complete.

In the event a bond or letter of credit is drawn upon, we would be obligated to reimburse the issuer for any amounts advanced under the bond or letter of credit.

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The specific terms and conditions of these limited warranties vary by state, but overall the nature of the warranties include a complete workmanship and materials warranty for the first year after the close of the home, a major mechanical warranty for two years after the close of the home and a structural warranty that typically extends up to 10 years after the close of the home.

With the assistance of an actuary, we have estimated these reserves for the structural warranty based on the number of homes still under warranty and historical data and trends for our communities.

With the assistance of an actuary, we have estimated these reserves for the structural warranty based on the number of homes still under warranty and historical data and trends for our geographies.

We may use industry data with respect to similar product types and geographic areas in markets where our experience is incomplete to draw a meaningful conclusion.

We regularly review our warranty reserves and adjust them, as necessary, to reflect changes in trends as information becomes available.

Based on such reviews of warranty costs incurred, we recorded an adjustment to our reserve balance of $ 10.9 million in the twelve months ended December 31, 2022, primarily related to specific case reserves, as discussed in Note 16.

No adjustment was recorded to the warranty reserve balance during the twelve months ended December 31, 2021.

Based on such reviews of warranty costs incurred, we did not adjust the warranty reserve balance in the year ended December 31, 2023.

We recorded an adjustment to our reserve balance of $10.9 million in the year ended December 31, 2022, primarily related to specific case reserves as discussed in Note 16.

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

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Balance, end of year $ 37,360 $ 35,575

(1) Net of recoveries in 2022 for costs incurred over several prior years on a foundation design and performance matter that affected a single community in Texas.

(1) Includes recoveries in 2022 for costs incurred over several prior years on a foundation design and performance matter that affected a single community in Texas.

Warranty reserves are included in Accrued liabilities on the accompanying consolidated balance sheets, and additions and adjustments to the reserves are included in Cost of home closings within the accompanying consolidated income statements.

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We believe that our total reserves, coupled with our contractual relationships and rights with our trades and the insurance we and our trades maintain, are sufficient to cover our general warranty obligations.

However, unanticipated changes in legal, weather, environmental or other conditions could have an impact on our actual warranty costs, and future costs could differ significantly from our estimates.

However, unanticipated changes in regulatory, legislative, weather, environmental or other conditions could have an impact on our actual warranty costs, and future costs could differ significantly from our estimates.

Recent Accounting Pronouncements.

There are no recent accounting pronouncements that are expected to have a material impact on our financial statements or financial statement disclosures .

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which aligns interim segment disclosure requirements with existing annual requirements and includes updates to segment reporting, most notably through enhanced disclosures about significant segment expenses and various Chief Operating Decision Maker ("CODM")-related disclosures.

ASU 2023-07 is effective for our annual report covering the fiscal year beginning January 1, 2024, and for our interim reports beginning January 1, 2025.

ASU 2023-07 is required to be applied retrospectively to all prior periods presented in the financial statements.

We are currently evaluating the impact adopting this guidance will have on our financial statement disclosures.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures ("ASU 2023-09"), which modifies the disclosure requirements primarily related to the effective tax rate reconciliation and income taxes paid by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction.

ASU 2023-09 is effective for us beginning January 1, 2025 and may be applied either retrospectively or prospectively.

We are currently evaluating the impact adopting this guidance will have on our financial statement disclosures.

NOTE 2 — REAL ESTATE AND CAPITALIZED INTEREST

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In communities where impairment indicators are present, we may also evaluate alternative product offerings or other strategies for the land, such as pausing development, selling, or holding the land for sale.

We recorded impairment charges of approximately $ 0.2 million, $ 2.1 million and $ 24.9 million for the years ended December 31, 2022, 2021 and 2020, respectively, primarily as a result of dispositions of certain assets that no longer fit our strategy of entry-level and first move-up communities.

We recorded nominal impairment charges for the years ended December 31, 2023 and 2022, and $ 2.1 million for the year ended December 31, 2021, 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.

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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.

In accordance with ASC 810, Consolidation , we evaluate all purchase and option agreements for land to determine whether they are a VIE, and if so, whether we are the primary beneficiary.

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 its assets and liabilities as Real estate not owned and Liabilities related to real estate not owned, respectively.

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(3) 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 sheets in the line item “Deposits on real estate under option or contract” as of December 31, 2022.

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.

(4) Amount is reflected in our consolidated balance sheets in Deposits on real estate under option or contract as of December 31, 2023.

Generally, our options to purchase lots remain effective so long as we purchase a pre-established minimum number of lots on a pre-determined schedule in accordance with each 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 expected orders and home starts pace to meet the pre-established minimum number of lots or restructure our original contract to terms that more accurately reflect our revised orders pace expectations.

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$ 3,546 $ 3,389

28,395 17,965

Total assets $ 38,455 $ 33,007

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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.

(2) Our share of pre-tax earnings/(loss) from our mortgage joint venture is recorded in Earnings from financial services unconsolidated entities and other, net on the accompanying consolidated income statements.

Our share of pre-tax earnings/(loss) from all other joint ventures is recorded in Other (expense)/income, net, on the accompanying consolidated income statements and excludes joint venture profit related to lots we purchased from the joint ventures, if any.

(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.

(2) Our share of pre-tax (loss)/earnings from our mortgage joint venture is recorded in (Loss)/earnings from financial services unconsolidated entities and other, net on the accompanying consolidated income statements.

Our share of pre-tax (loss)/earnings from all other joint ventures is recorded in Other income, net, on the accompanying consolidated income statements and excludes joint venture profit related to lots we purchased from the joint ventures, if any.

Such profit is deferred until homes are delivered by us and title passes to a homebuyer.

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

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.

In June 2023, the Credit Facility was amended to increase the facility size to $ 835.0 million, extend the maturity date to June 2, 2028, amend the accordion feature to permit the facility to increase by up to fifty percent of the facility size, increase the letter of credit sublimit up to the maximum size of the facility, eliminate the

liquidity and interest coverage covenant and adjust certain covenant basket amounts.

The Credit Facility's aggregate commitment is $ 835.0 million with an accordion feature permitting the size of the facility to increase to a maximum of $ 1.3 billion, subject to certain conditions, including the availability of additional bank commitments.

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 ("Prime"), (ii) an overnight bank rate plus 50 basis points and (iii) 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 (3) daily simple SOFR plus a 10 basis point adjustment plus the applicable margin.

At December 31, 2022, the interest rate on outstanding borrowings under the Credit Facility would have been 5.71 % per annum, calculated in accordance with option (1) discussed previously and using the 1 month term SOFR.

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.

At December 31, 2023, the interest rate on outstanding borrowings under the Credit Facility would have been 6.70 % per annum, calculated in accordance with option (1) noted above and using the 1 month term SOFR.

We are obligated to pay a fee on the undrawn portion of the Credit Facility at a rate determined by a tiered fee matrix based on our leverage ratio.

The Credit Facility also contains certain financial covenants, including (a) a minimum tangible net worth requirement of $ 2.8 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 December 31, 2023.

We had no outstanding borrowings under the Credit Facility as of December 31, 2022 and December 31, 2021.

During the twelve months ended December 31, 2022, we had $ 40.0 million gross borrowings and repayments.

During the twelve months ended December 31, 2021 we had no borrowings and repayments, and during the twelve months ended December 31, 2020 we had $ 500.0 million of gross borrowings and repayments.

We had no outstanding borrowings under the Credit Facility as of December 31, 2023 and 2022.

During the year ended December 31, 2023, we had no borrowings or repayments under the Credit Facility.

During the year ended December 31, 2022 we had $40.0 million of gross borrowings and repayments, and during the year ended December 31, 2021 we had no borrowings or repayments.

As of December 31, 2023 we had outstanding letters of credit issued under the Credit Facility totaling $ 61.3 million, leaving $ 773.7 million available under the Credit Facility to be drawn.

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Total $ 994,689 $ 1,143,590

(1) $ 200.0 million of the total $ 400.0 million of 6.00 % Senior Notes due 2025 outstanding at December 31, 2022 was issued at par and had no unamortized premium.

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.

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We do not provide separate financial statements of the Guarantor Subsidiaries because Meritage (the parent company) has no independent assets or operations and the guarantees are full and unconditional and joint and several.

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

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

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 consolidated income statements.

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

The 2025 Notes were issued at par, and the proceeds were used for general corporate obligations and future land spend.

Subsidiaries of Meritage Homes Corporation that are non-guarantor subsidiaries are, individually and in the aggregate, minor, and the assets, liabilities and results of operations of Meritage Homes Corporation and the Guarantor Subsidiaries on a combined basis are not materially different than corresponding amounts in the consolidated financial statements.

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

The Original 2025 Notes were issued at par.

In March 2018, the Company completed an offering of $ 200.0 million aggregate principal amount of additional 2025 Notes (the "Additional Notes").

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, 2022.

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

The Additional Notes were issued as an add-on to the Original 2025 Notes at a premium of 103 % of the principal amount, resulting in a combined $ 400.0

million aggregate principal amount of 6.00 % Senior Notes due 2025 (collectively, the "2025 Notes").

In September 2023, we partially redeemed $150.0 million of the 2025 Notes, incurring $0.9 million in early debt extinguishment charges during the year ended December 31, 2023, reflected as Loss on early extinguishment of debt in the accompanying consolidated income statements.

After the partial redemption, the 2025 Notes have $250.0 million in remaining principal outstanding.

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 then outstanding 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 (the "2029 Notes").

We used a portion of the net proceeds from this offering to redeem all $300.0 million aggregate principal then outstanding of other senior notes, incurring a loss on early debt extinguishment of $18.2 million during the year ended December 31, 2021, reflected as Loss on early extinguishment of debt in the accompanying consolidated income statements.

Scheduled principal maturities of our senior notes as of December 31, 2023 follow (in thousands):

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$ 450,000 $ 411,750 $ 450,000 $ 380,610

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.

Other financial assets and liabilities, including our Loans payable and other borrowings, are generally shorter term in nature and the longer term balances are not material to our consolidated balance sheet.

Therefore, we consider the carrying amounts of our other financial assets and liabilities to approximate fair value.

Non-Financial Instruments :

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NOTE 9 — EARNINGS PER SHARE;

STOCKHOLDERS' EQUITY

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

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Diluted earnings per share $ 19.93 $ 26.74 $ 19.29

During the year ended December 31, 2023, our Board of Directors approved, and we paid, a quarterly cash dividend on common stock of $ 0.27 per share.

Quarterly dividends declared and paid during the year ended December 31, 2023 totaled $ 1.08 per share.

There were no such transactions in the year ended December 31, 2022.

The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022.

During the year ended December 31, 2023, we reflected the applicable excise tax in Additional paid-in capital as part of the cost basis of the stock repurchased and recorded a corresponding liability for the excise taxes payable in Accrued liabilities on the accompanying consolidated balance sheets.

NOTE 10 — ACQUISITIONS AND GOODWILL

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was approved by our Board of Directors and our stockholders and adopted in May 2018.

The 2018 Plan is administered by our

Board of Directors and allows for the grant of stock appreciation rights, restricted stock awards, restricted stock units,

performance share awards and performance-based awards in addition to non-qualified and incentive stock options.

In May 2023, the Board of Directors and stockholders approved an amendment to the 2018 Plan to increase the number of shares available for issuance by 800,000.

The 2018 Plan is administered by our Board of Directors and allows for the grant of stock appreciation rights, restricted stock awards, restricted stock units, performance share awards and performance-based awards in addition to non-qualified and incentive stock options.

All available shares from expired, terminated, or forfeited awards that remained under prior plans were merged into and became available for grant under the 2018 Plan.

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The 2018 Plan authorizes 7,400,000 shares of stock to be awarded, of which 1,340,233 shares remain available for grant at December 31, 2023.

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.

We believe that such awards provide a means of long-term 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 restricted 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.

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(1) Performance-based shares granted and earned/released 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 February 2020.

(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 and earned/released 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.

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

(3) Performance-based shares granted and earned/released for the year ended December 31, 2022 includes 37,146 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, 2019.

These shares vested in March 2022.

(4) Performance-based shares granted and earned/released for the year ended December 31, 2023 includes 26,167 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, 2020.

These shares vested in February 2023.

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 718-10-25-20, Compensation - Stock Compensation ("ASC 718"), which requires an assessment of probability of attainment of the performance target.

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

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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 expensed straight-line over the service period of the awards.

Below is a summary of stock-based

compensation expense and stock award activity (in thousands):

Below is a summary of stock-based compensation expense and stock award activity (in

Years Ended December 31,

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Total equity awards outstanding (1) 703,415 803,769

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

(1) Includes unvested 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.

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 years ended December 31, 2022, 2021 and 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 years ended December 31, 2023, 2022 or 2021, other than minor administrative costs.

NOTE 12 — INCOME TAXES

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

Net overall deferred tax assets for all jurisdictions are grouped and included as a separate asset.

Net overall deferred tax assets for all

jurisdictions are grouped and included as a separate asset.

Net overall deferred tax liabilities for all jurisdictions are grouped and included in Accrued liabilities.

At December 31, 2023, we have a net deferred tax asset of $ 47.6 million.

We also have net deferred tax liabilities of $ 7.4 million.

We also have other net deferred tax liabilities of $ 8.0 million.

Deferred tax assets and liabilities are comprised of timing differences (in thousands) as follows:

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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 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, 2022.

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 NOLs and experiences of utilizing tax credit carry forwards and tax planning alternatives.

We have no NOLs or credit carryovers, and determined that no valuation allowance on our deferred tax assets is necessary at December 31, 2023.

The Taxpayer Certainty and Disaster Relief Act of 2020 extended IRC §45L energy efficient homes credit (the "energy tax credit") through the end of 2021.

On August 16, 2022, the Inflation Reduction Act of 2022 ("the IRA") retroactively extended the energy tax credit to homes delivered from January 1, 2022 through December 31, 2032.

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 $ 18.9 million during the year ended December 31, 2022, based on our estimate for qualifying new energy efficient homes that we closed in the year.

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

The IRA also modifies the energy standards required to qualify for the tax credit and increases the per-home credit amount starting in 2023, creates a 15% corporate alternative minimum tax on certain profits and creates a 1% excise tax on

stock repurchases.

These provisions will be effective for us on January 1, 2023, and we do not expect them to have a material impact on our consolidated financial statements.

On August 16, 2022, the Inflation Reduction Act of 2022 (the "IRA") retroactively extended the energy tax credit to homes delivered from January 1, 2022 through December 31, 2032, modified the energy standards required to qualify for the tax credit and increased the per-home credit amount starting in 2023.

In accordance with these regulations, we recorded a tax benefit of $ 22.7 million, $ 18.9 million, and $ 16.9 million during the years ended December 31, 2023, 2022 and 2021, respectively, based on our estimate for qualifying new energy efficient homes that we closed in those years.

The IRA also created a 15% corporate alternative minimum tax on certain profits and creates a 1% excise tax on stock repurchases.

These provisions were effective for us on January 1, 2023 and did not have a material impact on our financial statements.

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

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federal, state, or local income tax examinations by taxing authorities for years prior to 2019.

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

We have one state income tax examination covering various years pending resolution at this time.

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.

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We aggregate our homebuilding operating segments into reporting segments based on similar long-term economic characteristics and geographical proximity.

Our current reportable homebuilding segments are as follows:

Our three reportable homebuilding segments are as follows:

Arizona, California, Colorado and Utah

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Total $ 56,229 $ 61,229 $ 25,237

(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.

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

At December 31, 2023

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Total assets $ 1,861,803 $ 1,543,666 $ 1,920,099 $ 1,889 $ 1,025,677 $ 6,353,134

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

(1) Balance consists primarily of cash and cash equivalents, receivables from title companies or closing agents and property and equipment, net.

(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.

(3) Balance consists primarily of cash and cash equivalents, goodwill (see Note 10), prepaid expenses and other assets and property and equipment, net.

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

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Total assets $ 1,896,855 $ 1,551,783 $ 1,469,751 $ 1,536 $ 852,176 $ 5,772,101

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

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

(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.

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

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

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Additionally, some such claims are also covered by insurance.

With respect to the majority of pending litigation matters, our ultimate legal and financial responsibility, if any, cannot be estimated with certainty and, in most cases, any potential losses related to these matters are not considered probable.

With respect to the majority of pending litigation matters, our ultimate legal and financial responsibility, if any, cannot be estimated with certainty and, in most cases, any potential material losses related to these matters are not considered probable.

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

We believe there are no pending legal or warranty matters as of December 31, 2023 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 $ 35.6 million of total warranty reserves related to alleged stucco defects in certain homes we constructed predominantly between 2006 and 2017 and HVAC condensation issues for homes constructed and delivered in 2021 and the first half of 2022.

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

As discussed in Note 1 under the heading “Warranty Reserves”, we have case specific reserves within our $ 37.4 million of total warranty reserves related to alleged stucco defects in certain homes we constructed predominantly between 2006 and 2017 and HVAC condensation issues in limited geographies for homes constructed and delivered in 2021 and the first half of 2022.

Our review and management of these matters is ongoing and our estimate of and reserves for resolving them is based on internal data, historical experience, our judgment 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 estimate and thus our related reserves.

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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-K

Item 8. Financial Statements and Supplementary Data