Company Quick10K Filing
LGI Homes
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 25 $1,815
10-Q 2019-11-05 Quarter: 2019-09-30
10-Q 2019-08-06 Quarter: 2019-06-30
10-Q 2019-05-07 Quarter: 2019-03-31
10-K 2019-02-26 Annual: 2018-12-31
10-Q 2018-11-06 Quarter: 2018-09-30
10-Q 2018-08-07 Quarter: 2018-06-30
10-Q 2018-05-08 Quarter: 2018-03-31
10-K 2018-02-27 Annual: 2017-12-31
10-Q 2017-11-07 Quarter: 2017-09-30
10-Q 2017-08-08 Quarter: 2017-06-30
10-Q 2017-05-09 Quarter: 2017-03-31
10-K 2017-03-07 Annual: 2016-12-31
10-Q 2016-11-08 Quarter: 2016-09-30
10-Q 2016-08-09 Quarter: 2016-06-30
10-Q 2016-05-10 Quarter: 2016-03-31
10-K 2016-03-09 Annual: 2015-12-31
10-Q 2015-11-04 Quarter: 2015-09-30
10-Q 2015-08-05 Quarter: 2015-06-30
10-Q 2015-05-07 Quarter: 2015-03-31
10-K 2015-03-13 Annual: 2014-12-31
10-Q 2014-11-12 Quarter: 2014-09-30
10-Q 2014-08-12 Quarter: 2014-06-30
10-Q 2014-05-15 Quarter: 2014-03-31
10-K 2014-03-31 Annual: 2013-12-31
10-Q 2013-12-19 Quarter: 2013-09-30
8-K 2019-12-06 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-11-05 Earnings, Regulation FD, Exhibits
8-K 2019-08-06 Earnings, Regulation FD, Exhibits
8-K 2019-05-07 Earnings, Regulation FD, Exhibits
8-K 2019-05-02 Shareholder Vote
8-K 2019-02-26 Earnings, Regulation FD, Exhibits
8-K 2019-01-03 Officers, Exhibits
8-K 2018-11-16 Officers, Exhibits
8-K 2018-11-09 Other Events, Exhibits
8-K 2018-11-06 Earnings, Regulation FD, Exhibits
8-K 2018-10-23 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-07 Earnings, Regulation FD, Exhibits
8-K 2018-07-06 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-06-29 Enter Agreement, Other Events, Exhibits
8-K 2018-06-21 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-06-21 Regulation FD, Other Events, Exhibits
8-K 2018-05-29 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-08 Earnings, Regulation FD, Exhibits
8-K 2018-05-03 Shareholder Vote
8-K 2018-02-27 Earnings, Regulation FD, Exhibits
LGIH 2019-09-30
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 6. Exhibits
EX-31.1 a093019ex311.htm
EX-31.2 a093019ex312.htm
EX-32.1 a093019ex321.htm
EX-32.2 a093019ex322.htm

LGI Homes Earnings 2019-09-30

LGIH 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
KBH 2,374 4,920 2,725 4,407 246 262 319 2,195 6% 6.9 5%
TMHC 2,134 5,178 2,775 4,685 822 237 353 4,028 18% 11.4 5%
MDC 2,040 3,086 1,425 882 0 203 288 2,569 0% 8.9 7%
MTH 2,023 3,467 1,669 0 0 206 298 1,615 5.4 6%
LGIH 1,815 1,486 761 1,555 379 145 215 1,777 24% 8.3 10%
IBP 1,657 916 710 1,416 393 60 136 2,018 28% 14.9 7%
TPH 1,610 3,878 1,791 3,101 235 191 283 1,438 8% 5.1 5%
SKY 1,486 722 290 1,410 266 -40 -2 1,392 19% -683.3 -6%
CVCO 1,440 756 206 980 215 70 98 1,227 22% 12.5 9%
WGO 1,177 1,083 480 1,991 308 110 189 1,439 15% 7.6 10%

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2019
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                       to                      .
Commission file number 001-36126      

LGI HOMES, INC.

(Exact name of registrant as specified in its charter)

Delaware
 
46-3088013
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
1450 Lake Robbins Drive,
Suite 430,
The Woodlands,
Texas
 
77380
(Address of principal executive offices)
 
(Zip code)
 
 
(281)
362-8998
 
(Registrants Telephone Number, Including Area Code)
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
LGIH
 
NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company


 
 
Emerging growth company
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  

As of November 1, 2019, there were 22,949,956 shares of the registrant’s common stock, par value $0.01 per share, outstanding.


Table of Contents

TABLE OF CONTENTS
   



 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 


3

Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LGI HOMES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
 
 
 
September 30,
 
December 31,
 
 
2019
 
2018
ASSETS
 

 
 
Cash and cash equivalents
 
$
37,030

 
$
46,624

Accounts receivable
 
45,431

 
42,836

Real estate inventory
 
1,480,629

 
1,228,256

Pre-acquisition costs and deposits
 
40,137

 
45,752

Property and equipment, net
 
1,631

 
1,432

Other assets
 
16,528

 
15,765

Deferred tax assets, net
 
2,789

 
2,790

Goodwill and intangible assets, net
 
12,018

 
12,018

Total assets
 
$
1,636,193

 
$
1,395,473

 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
Accounts payable
 
$
29,004

 
$
9,241

Accrued expenses and other liabilities
 
78,778

 
76,555

Notes payable
 
751,364

 
653,734

Total liabilities
 
859,146

 
739,530

 
 
 
 
 
COMMITMENTS AND CONTINGENCIES
 

 

EQUITY
 
 
 
 
Common stock, par value $0.01, 250,000,000 shares authorized, 23,988,956 shares issued and 22,949,956 shares outstanding as of September 30, 2019 and 23,746,385 shares issued and 22,707,385 shares outstanding as of December 31, 2018
 
240

 
237

Additional paid-in capital
 
249,351

 
241,988

Retained earnings
 
545,512

 
431,774

Treasury stock, at cost, 1,039,000 shares
 
(18,056
)
 
(18,056
)
Total equity
 
777,047

 
655,943

Total liabilities and equity
 
$
1,636,193

 
$
1,395,473








See accompanying notes to the consolidated financial statements.

4

Table of Contents


LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)

 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Home sales revenues
 
$
483,081

 
$
380,369

 
$
1,232,505

 
$
1,079,240

 
 
 
 
 
 
 
 
 
Cost of sales
 
366,431

 
283,035

 
938,240

 
802,882

Selling expenses
 
33,485

 
27,890

 
94,166

 
80,140

General and administrative
 
19,140

 
17,794

 
56,558

 
51,536

   Operating income
 
64,025

 
51,650

 
143,541

 
144,682

Loss on extinguishment of debt
 

 
3,058

 
169

 
3,599

Other income, net
 
(707
)
 
(399
)
 
(3,589
)
 
(1,806
)
Net income before income taxes
 
64,732

 
48,991

 
146,961

 
142,889

Income tax provision
 
15,383

 
11,268

 
33,223

 
30,256

Net income
 
$
49,349

 
$
37,723

 
$
113,738

 
$
112,633

Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
2.15

 
$
1.66

 
$
4.97

 
$
5.07

Diluted
 
$
1.93

 
$
1.52

 
$
4.49

 
$
4.57

 
 

 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
22,939,907

 
22,658,457

 
22,870,948

 
22,236,018

Diluted
 
25,521,946

 
24,896,569

 
25,329,461

 
24,642,882




















See accompanying notes to the consolidated financial statements.

5

Table of Contents


LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share data)

 
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Treasury Stock
 
Total Equity
 
 
Shares
 
Amount
BALANCE—December 31, 2018
 
23,746,385

 
$
237

 
$
241,988

 
$
431,774

 
$
(18,056
)
 
$
655,943

Net income
 

 

 

 
18,334

 

 
18,334

Issuance of restricted stock units in settlement of accrued bonuses
 

 

 
217

 

 

 
217

Compensation expense for equity awards
 

 

 
1,783

 

 

 
1,783

Stock issued under employee incentive plans
 
218,345

 
2

 
647

 

 

 
649

BALANCE— March 31, 2019
 
23,964,730

 
$
239

 
$
244,635

 
$
450,108

 
$
(18,056
)
 
$
676,926

Net income
 

 

 

 
46,055

 

 
46,055

Compensation expense for equity awards
 

 

 
1,639

 

 

 
1,639

Stock issued under employee incentive plans
 
14,153

 
1

 
614

 

 

 
615

BALANCE— June 30, 2019
 
23,978,883

 
$
240

 
$
246,888

 
$
496,163

 
$
(18,056
)
 
$
725,235

Net income
 

 

 

 
49,349

 

 
49,349

Compensation expense for equity awards
 

 

 
1,759

 

 

 
1,759

Stock issued under employee incentive plans
 
10,073

 

 
704

 

 

 
704

BALANCE— September 30, 2019
 
23,988,956

 
$
240

 
$
249,351

 
$
545,512

 
$
(18,056
)
 
$
777,047



See accompanying notes to the consolidated financial statements.



6

Table of Contents


LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share data)


 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Treasury Stock
 
Total Equity
 
 
Shares
 
Amount
BALANCE—December 31, 2017
 
22,845,580

 
$
228

 
$
229,680

 
$
276,488

 
$
(16,550
)
 
$
489,846

Net income
 

 

 

 
27,302

 

 
27,302

Issuance of shares in settlement of Convertible Notes
 
486,679

 
5

 
(475
)
 

 

 
(470
)
Issuance of restricted stock units in settlement of accrued bonuses
 

 

 
181

 

 

 
181

Compensation expense for equity awards
 

 

 
1,351

 

 

 
1,351

Stock issued under employee incentive plans
 
282,887

 
3

 
697

 

 

 
700

BALANCE— March 31, 2018
 
23,615,146

 
$
236

 
$
231,434

 
$
303,790

 
$
(16,550
)
 
$
518,910

Net income
 

 

 

 
47,608

 

 
47,608

Compensation expense for equity awards
 

 

 
1,419

 

 

 
1,419

Stock issued under employee incentive plans
 
17,845

 

 
745

 

 

 
745

BALANCE— June 30, 2018
 
23,632,991

 
$
236

 
$
233,598

 
$
351,398

 
$
(16,550
)
 
$
568,682

Net income
 

 

 

 
37,723

 

 
37,723

Issuance of shares, Wynn Homes Acquisition
 
70,746

 
1

 
3,999

 

 

 
4,000

Compensation expense for equity awards
 

 

 
1,402

 

 

 
1,402

Stock issued under employee incentive plans
 
13,416

 

 
612

 

 

 
612

BALANCE— September 30, 2018
 
23,717,153

 
$
237

 
$
239,611

 
$
389,121

 
$
(16,550
)
 
$
612,419



See accompanying notes to the consolidated financial statements.

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LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
 
Nine Months Ended September 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net income
 
$
113,738

 
$
112,633

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
487

 
543

Loss on extinguishment of debt
 
169

 
3,588

Loss on disposal of assets
 

 
6

Compensation expense for equity awards
 
5,181

 
4,172

Deferred income taxes
 
2

 
(1,784
)
Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
(2,594
)
 
13,327

Real estate inventory
 
(249,921
)
 
(194,387
)
Pre-acquisition costs and deposits
 
5,615

 
(19,938
)
Other assets
 
5,655

 
3,347

Accounts payable
 
19,763

 
5,871

Accrued expenses and other liabilities
 
(2,254
)
 
(29,394
)
Net cash used in operating activities
 
(104,159
)
 
(102,016
)
Cash flows from investing activities:
 
 
 
 
Purchases of property and equipment
 
(541
)
 
(395
)
Investment in unconsolidated entity
 
(1,059
)
 

Payment for business acquisition
 

 
(73,829
)
Net cash used in investing activities
 
(1,600
)
 
(74,224
)
Cash flows from financing activities:
 
 
 
 
Proceeds from notes payable
 
180,067

 
537,717

Payments on notes payable
 
(83,800
)
 
(386,238
)
Loan issuance costs
 
(2,067
)
 
(6,690
)
Proceeds from sale of stock, net of offering expenses
 
1,965

 
2,057

Payment for offering costs
 

 
(76
)
Payment for earnout obligation
 

 
(132
)
Net cash provided by financing activities
 
96,165

 
146,638

Net decrease in cash and cash equivalents
 
(9,594
)
 
(29,602
)
Cash and cash equivalents, beginning of period
 
46,624

 
67,571

Cash and cash equivalents, end of period
 
$
37,030

 
$
37,969








See accompanying notes to the consolidated financial statements.

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LGI HOMES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.     ORGANIZATION AND BASIS OF PRESENTATION
Organization and Description of the Business
LGI Homes, Inc., a Delaware corporation (the “Company”, “us,” “we,” or “our”), is engaged in the development of communities and the design, construction and sale of new homes in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada and West Virginia.
Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. The accompanying unaudited consolidated financial statements include all adjustments that are of a normal recurring nature and necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year.
The accompanying unaudited financial statements as of September 30, 2019, and for the three and nine months ended September 30, 2019 and 2018, include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and these differences could have a significant impact on the financial statements.
Recently Adopted Accounting Standards
On January 1, 2019, we adopted the Financial Accounting Standards Board (the “FASB”) Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which amends the existing standards for lease accounting, requiring lessees to recognize most leases on their balance sheets and disclose key information about leasing arrangements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than one year. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
We adopted the new standard with a modified retrospective transition approach, so financial information is not updated for periods prior to January 1, 2019. Pursuant to the adoption of the new standard, we elected the practical expedients upon transition that do not require us to reassess existing contracts to determine if they contain leases under the new definition of a lease, or to reassess historical lease classification or initial direct costs. We also elected the practical expedient to not separate lease and non-lease components for new leases after adoption of the new standard.
The adoption of Topic 842 is accounted for as a change in accounting principle in conformity with FASB Accounting Standards Codification (“ASC”) 250, “Accounting Changes and Error Corrections.” As a result of the adoption, the most significant changes are related to the recognition of new ROU assets and lease liabilities of $5.4 million as of January 1, 2019 on the balance sheet for office operating leases. The Company's existing material leases are all considered operating leases under the new leasing standard and as a result, no adjustment to retained earnings was required.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”), which requires entities that are customers in cloud computing arrangements to defer implementation costs if they would be capitalized by the entity in software licensing arrangements under the internal-use software guidance. The guidance may be applied retrospectively or prospectively to implementation costs incurred after the date of adoption. ASU 2018-15 is effective for us beginning January 1, 2020. We are currently evaluating the impact that this standard will have on our financial statements.

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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 modifies the disclosure requirements of fair value measurements. ASU 2018-13 is effective for us beginning January 1, 2020. Certain disclosures are required to be applied on a retrospective basis and others on a prospective basis. We do not expect ASU 2018-13 to have a material impact on our financial statements.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment” (“ASU 2017-04”), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for us beginning January 1, 2020, with early adoption permitted, and applied prospectively. We do not expect ASU 2017-04 to have a material impact on our financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments from an “incurred loss” approach to a new “expected credit loss” methodology. ASU 2016-13 is effective for us beginning January 1, 2020, with early adoption permitted. We are currently evaluating the impact that this standard will have on our financial statements.
2.     REVENUES
Revenue Recognition
Revenues from home sales are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenues from home sales are recorded at the time each home sale is closed, title and possession are transferred to the customer and we have no significant continuing involvement with the home. Home sales discounts and incentives granted to customers, which are related to the customers’ closing costs that we pay on the customers’ behalf, are recorded as a reduction of revenue in our consolidated financial statements of operations.
The following table presents our home sales revenues disaggregated by revenue stream (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Retail home sales revenues
 
$
457,124

 
$
353,594

 
$
1,182,039

 
$
1,017,952

Other
 
25,957

 
26,775

 
50,466

 
61,288

Total home sales revenues
 
$
483,081

 
$
380,369

 
$
1,232,505

 
$
1,079,240


The following table presents our home sales revenues disaggregated by geography, based on our determined reportable segments in Note 13 (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Central
 
$
193,860

 
$
151,673

 
$
507,951

 
$
441,138

Northwest
 
92,242

 
72,485

 
207,492

 
214,891

Southeast
 
91,452

 
73,507

 
221,686

 
178,984

Florida
 
44,084

 
38,750

 
121,183

 
136,211

West
 
61,443

 
43,954

 
174,193

 
108,016

Total home sales revenues
 
$
483,081

 
$
380,369

 
$
1,232,505

 
$
1,079,240


Home Sales Revenues
We generate revenues primarily by delivering move-in ready entry-level and move-up spec homes sold under our LGI Homes brand and our luxury series spec homes sold under our Terrata Homes brand.
Retail homes sold under both our LGI Homes brand and Terrata Homes brand focus on providing move-in ready homes with standardized features within favorable markets that meet certain demographic and economic conditions. Our LGI Homes brand primarily markets to entry-level or first-time homebuyers, while our Terrata Homes brand primarily markets to move-up homebuyers.

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Our other revenues are composed of our wholesale home sales under our LGI Homes brand and Terrata Homes brand in existing markets. Wholesale homes are primarily sold under a bulk sales agreement and focus on providing move-in ready homes with standardized features to real estate investors that will ultimately use the single-family homes as rental properties.
Performance Obligations
Our contracts with customers include a single performance obligation to transfer a completed home to the customer. We generally determine selling price per home on the expected cost plus margin. Our contracts contain no significant financing terms as customers who finance do so through a third party. Performance obligations are satisfied at a moment in time when the home is complete and control of the asset is transferred to the customer at closing. Home sales proceeds are generally received from the title company within a few business days after closing.
Sales and broker commissions are incremental costs incurred to obtain a contract with a customer that would not have been incurred if the contract had not been obtained. Sales and broker commissions are expensed upon fulfillment of a home closing. Advertising costs are costs to obtain a contract that would have been incurred regardless of whether the contract was obtained and are recognized as an expense when incurred. Sales and broker commissions and advertising costs are recorded within sales and marketing expense presented in our consolidated statements of operations as selling expenses.
3.     REAL ESTATE INVENTORY
Our real estate inventory consists of the following (in thousands):
 
 
September 30,
 
December 31,
 
 
2019
 
2018
Land, land under development and finished lots
 
$
831,448

 
$
736,402

Information centers
 
26,857

 
21,179

Homes in progress
 
371,838

 
149,506

Completed homes
 
250,486

 
321,169

Total real estate inventory
 
$
1,480,629

 
$
1,228,256


Inventory is stated at cost unless the carrying amount is determined not to be recoverable, in which case the affected inventory is written down to fair value.
Land, development and other project costs, including interest and property taxes incurred during development and home construction and net of expected reimbursements of development costs, are capitalized to real estate inventory. Land development and other common costs that benefit the entire community, including field construction supervision and related direct overhead, are allocated to individual lots or homes, as appropriate. The costs of lots are transferred to homes in progress when home construction begins. Home construction costs and related carrying charges are allocated to the cost of individual homes using the specific identification method. Costs that are not specifically identifiable to a home are allocated on a pro rata basis, which we believe approximates the costs that would be determined using an allocation method based on relative sales values since the individual lots or homes within a community are similar in value. Inventory costs for completed homes are expensed to cost of sales as homes are closed. Changes to estimated total development costs subsequent to initial home closings in a community are generally allocated to the remaining unsold lots and homes in the community on a pro rata basis.
The life cycle of a community generally ranges from two to five years, commencing with the acquisition of land, continuing through the land development phase and concluding with the construction and sale of homes. A constructed home is used as the community information center during the life of the community and then sold. Actual individual community lives will vary based on the size of the community, the sales absorption rate and whether the property was purchased as raw land or finished lots.
Interest and financing costs incurred under our debt obligations, as more fully discussed in Note 5, are capitalized to qualifying real estate projects under development and homes under construction.

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4.     ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued and other liabilities consist of the following (in thousands):
 
 
September 30,
 
December 31,
 
 
2019
 
2018
Retentions and development payable
 
$
23,334

 
$
18,899

Accrued compensation, bonuses and benefits
 
14,933

 
14,263

Accrued interest
 
7,039

 
12,339

Taxes payable
 
7,803

 
10,773

Inventory related obligations
 
6,377

 
7,041

Lease Liability
 
5,360

 

Warranty reserve
 
3,200

 
2,950

Other
 
10,732

 
10,290

Total accrued expenses and other liabilities
 
$
78,778

 
$
76,555


Inventory Related Obligations
We own lots in certain communities in Arizona, Florida and Texas that have Community Development Districts or similar utility and infrastructure development special assessment programs that allocate a fixed amount of debt service associated with development activities to each lot. This obligation for infrastructure development is attached to the land, which is typically payable over a 30-year period and is ultimately assumed by the homebuyer when home sales are closed. Such obligations represent a non-cash cost of the lots.
Estimated Warranty Reserve
We typically provide homebuyers with a one-year warranty on the house and a ten-year limited warranty for major defects in structural elements such as framing components and foundation systems.
Changes to our warranty accrual are as follows (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Warranty reserves, beginning of period
 
$
3,050

 
$
2,800

 
$
2,950

 
$
2,450

Warranty provision
 
1,602

 
1,240

 
3,576

 
2,923

Warranty expenditures
 
(1,452
)
 
(1,190
)
 
(3,326
)
 
(2,523
)
Warranty reserves, end of period
 
$
3,200

 
$
2,850

 
$
3,200

 
$
2,850


5.     NOTES PAYABLE
Revolving Credit Agreement
On May 6, 2019, we entered into that certain Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent. The Credit Agreement has substantially similar terms and provisions to our third amended and restated credit agreement entered into in May 2018 with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “2018 Credit Agreement”) but, among other things, provides for, a revolving credit facility of $550.0 million, which can be increased at our request by up to $100.0 million if the lenders make additional commitments, subject to the terms and conditions of the Credit Agreement.
The Credit Agreement matures on May 31, 2022. Before each anniversary of the Credit Agreement, we may request a one-year extension of the maturity date. The Credit Agreement is guaranteed by each of our subsidiaries that have gross assets of $0.5 million or more. As of September 30, 2019, the borrowing base under the Credit Agreement was $920.0 million, of which borrowings, including the Convertible Notes (as defined below) and the Senior Notes (as defined below), of $760.3 million were outstanding, $13.2 million of letters of credit were outstanding and $145.1 million was available to borrow under the Credit Agreement, net of deferred purchase price obligations.
Interest is paid monthly on borrowings under the Credit Agreement at LIBOR plus 2.50%. The Credit Agreement applicable margin for LIBOR loans ranges from 2.35% to 2.75% based on our leverage ratio. At September 30, 2019, LIBOR was 2.04%.

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The Credit Agreement contains various financial covenants, including a minimum tangible net worth, a leverage ratio, a minimum liquidity amount and an EBITDA to interest expense ratio. The Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments. At September 30, 2019, we were in compliance with all of the covenants contained in the Credit Agreement.
Convertible Notes
We issued $85.0 million aggregate principal amount of our 4.25% Convertible Notes due 2019 (the “Convertible Notes”) in November 2014 pursuant to an exemption from the registration requirements afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The Convertible Notes mature on November 15, 2019. Interest on the Convertible Notes is payable semi-annually in arrears on May 15 and November 15 of each year at a rate of 4.25%. When the Convertible Notes were issued, the fair value of $76.5 million was recorded to notes payable. $5.5 million of the remaining proceeds was recorded to additional paid in capital to reflect the equity component and the remaining $3.0 million was recorded as a deferred tax liability. The carrying amount of the Convertible Notes is being accreted to face value over the term to maturity. As of September 30, 2019, we have $70.0 million aggregate principal amount of Convertible Notes outstanding.
Prior to May 15, 2019, the Convertible Notes were convertible only upon satisfaction of any of the specified conversion events. On or after May 15, 2019 and until the close of business on November 14, 2019 (the business day immediately preceding the stated maturity date of the Convertible Notes), the holders of the Convertible Notes can convert their Convertible Notes at any time at their option. With respect to the conversion of the Convertible Notes (i) between the date of this Quarterly Report on Form 10-Q and the maturity date of the Convertible Notes and (ii) on such maturity date, we have elected to settle the conversion of the Convertible Notes using a combination of cash (to pay the principal amount) and shares of our common stock. The initial conversion rate of the Convertible Notes is 46.4792 shares of our common stock for each $1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately $21.52 per share of our common stock. The conversion rate is subject to adjustments upon the occurrence of certain specified events.
On July 6, 2018, concurrently with the offering of the Senior Notes, we entered into that certain First Supplemental Indenture, dated as of July 6, 2018, among us, our subsidiaries that guarantee our obligations under the 2018 Credit Agreement (the “Subsidiary Guarantors”) and Wilmington Trust, National Association, as trustee, which supplements the indenture governing the Convertible Notes, pursuant to which (i) the subordination provisions in the indenture governing the Convertible Notes were eliminated, (ii) each Subsidiary Guarantor agreed (A) to, concurrently with the issuance of the Senior Notes, fully and unconditionally guarantee the Convertible Notes to the same extent that such Subsidiary Guarantor is guaranteeing the Senior Notes and (B) that such Subsidiary Guarantor’s guarantee of the Convertible Notes ranks equally with such Subsidiary Guarantor’s guarantee of the Senior Notes and (iii) the Company agreed to not, directly or indirectly, incur any indebtedness in the form of, or otherwise become liable in respect of, any notes or other debt securities issued pursuant to an indenture or note purchase agreement (including the Senior Notes) unless such indebtedness is equal with or contractually subordinated to the Convertible Notes in right of payment.
Senior Notes Offering
On July 6, 2018, we issued $300.0 million aggregate principal amount of the Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S under the Securities Act. Interest on the Senior Notes accrues at a rate of 6.875% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2019, and the Senior Notes mature on July 15, 2026. Terms of the Senior Notes are governed by an indenture and supplemental indenture, each dated as of July 6, 2018, among us, the Subsidiary Guarantors and Wilmington Trust, National Association, as trustee.
We received net proceeds from the offering of the Senior Notes of approximately $296.2 million, after deducting the initial purchasers’ discounts of $2.3 million and commissions and offering expenses of $1.5 million. The net proceeds from the offering were used to repay a portion of the borrowings under the 2018 Credit Agreement.

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Notes payable consist of the following (in thousands):
 
 
September 30, 2019
 
December 31, 2018
Notes payable under the Credit Agreement ($550.0 million revolving credit facility at September 30, 2019) maturing on May 31, 2022; interest paid monthly at LIBOR plus 2.50%; net of debt issuance costs of approximately $4.6 million and $3.7 million at September 30, 2019 and December 31, 2018, respectively
 
$
385,735

 
$
290,131

4.25% Convertible Notes due November 15, 2019; interest paid semi-annually at 4.25%; net of debt issuance costs of approximately $0.1 million and $0.4 million at September 30, 2019 and December 31, 2018, respectively; and approximately $0.2 million and $1.3 million in unamortized discount at September 30, 2019 and December 31, 2018, respectively
 
69,768

 
68,251

6.875% Senior Notes due July 15, 2026; interest paid semi-annually at 6.875%; net of debt issuance costs of approximately $2.3 million and $2.5 at September 30, 2019 and December 31, 2018, respectively; and approximately $1.8 million and $2.1 million in unamortized discount at September 30, 2019 and December 31, 2018, respectively
 
295,861

 
295,352

Total notes payable
 
$
751,364

 
$
653,734


Capitalized Interest
Interest activity, including other financing costs, for notes payable for the periods presented is as follows (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Interest incurred
 
$
10,600

 
$
10,823

 
$
34,125

 
$
26,803

Less: Amounts capitalized
 
(10,600
)
 
(10,823
)
 
(34,125
)
 
(26,803
)
Interest expense
 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
Cash paid for interest
 
$
14,673

 
$
4,517

 
$
35,705

 
$
17,786


Included in interest incurred was amortization of deferred financing costs for notes payable and amortization of Convertible Notes and Senior Notes discounts of $1.1 million and $1.3 million for the three months ended September 30, 2019 and 2018, respectively, and $3.2 million and $3.5 million for the nine months ended September 30, 2019 and 2018, respectively.
6.     INCOME TAXES
We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The statute of limitations with regards to our federal income tax filings is three years. The statute of limitations for our state tax jurisdictions is three to four years depending on the jurisdiction. In the normal course of business, we are subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income taxes. We do not expect the outcome of any audit to have a material effect on our consolidated financial statements; however, audit outcomes and the timing of audit adjustments are subject to significant uncertainty.
For the nine months ended September 30, 2019, our effective tax rate of 22.6% is higher than the Federal statutory rate primarily as a result of the deductions related to non-deductible salaries related to Section 162(m) of the Internal Revenue Code of 1986, as amended, and an increase in rate for state income taxes, net of the federal benefit payments, offset by the deductions in excess of compensation cost (“windfalls”) for share-based payments.
Income taxes paid were $14.7 million and $12.8 million for the three months ended September 30, 2019 and 2018, respectively. Income taxes paid were $36.3 million and $76.5 million for the nine months ended September 30, 2019 and 2018, respectively.
7.     EQUITY
Shelf Registration Statement
We have an effective shelf registration statement on Form S-3 (Registration No. 333-227012), registering the offering and sale of an indeterminate amount of debt securities, guarantees of debt securities, preferred stock, common stock, warrants, depositary shares, purchase contracts and units that include any of these securities, that was filed on August 24, 2018 with the Securities and Exchange Commission.

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8.     EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Numerator (in thousands):
 
 
 
 
 
 
 
 
Net Income (Numerator for basic and dilutive earnings per share)
 
$
49,349

 
$
37,723

 
$
113,738

 
$
112,633

Denominator:
 
 
 
 
 
 
 
 
       Basic weighted average shares outstanding
 
22,939,907

 
22,658,457

 
22,870,948

 
22,236,018

       Effect of dilutive securities:
 
 
 
 
 
 
 
 
Convertible Notes - treasury stock method
 
2,336,017

 
1,978,770

 
2,223,443

 
2,128,854

         Stock-based compensation units
 
246,022

 
259,342

 
235,070

 
278,010

       Diluted weighted average shares outstanding
 
25,521,946

 
24,896,569

 
25,329,461

 
24,642,882

 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
2.15

 
$
1.66

 
$
4.97

 
$
5.07

Diluted earnings per share
 
$
1.93

 
$
1.52

 
$
4.49

 
$
4.57

Antidilutive non-vested restricted stock units excluded from calculation of diluted earnings per share
 
926

 
2,245

 
3,013

 
9,744


In accordance with ASC 260-10, Earnings Per Share, we calculated the dilutive effect of the Convertible Notes using the treasury stock method, since we have elected to settle the principal amount of the outstanding Convertible Notes in cash. Under the treasury stock method, the Convertible Notes have a dilutive impact on diluted earnings per share to the extent that the average market price of our common stock for a reporting period exceeds the conversion price of $21.52 per share. During the three and nine months ended September 30, 2019 and 2018, the average market price of our common stock exceeded the conversion price of $21.52 per share.

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9.    STOCK-BASED COMPENSATION
Non-performance Based Restricted Stock Units
The following table summarizes the activity of our time-vested restricted stock units (“RSUs”):
 
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
 
Shares
 
Weighted Average Grant Date Fair Value
 
Shares
 
Weighted Average Grant Date Fair Value
Beginning balance
 
171,055

 
$
39.04

 
175,100

 
$
27.66

   Granted
 
49,836

 
$
57.49

 
40,844

 
$
63.30

   Vested
 
(42,823
)
 
$
22.27

 
(36,486
)
 
$
15.70

   Forfeited
 
(12,733
)
 
$
47.21

 
(5,941
)
 
$
34.31

Ending balance
 
165,335

 
$
48.35

 
173,517

 
$
38.34


We recognized $0.5 million of stock-based compensation expense related to outstanding RSUs for each of the three months ended September 30, 2019 and 2018. We recognized $1.6 million and $1.5 million of stock-based compensation expense related to outstanding RSUs for the nine months ended September 30, 2019 and 2018, respectively. Generally, the RSUs cliff vest on the third anniversary of the grant date and can only be settled in shares of our common stock. At September 30, 2019, we had unrecognized compensation cost of $4.1 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.0 years.
Performance-Based Restricted Stock Units
The Compensation Committee of our Board of Directors has granted awards of Performance-Based RSUs (“PSUs”) under the Amended and Restated LGI Homes, Inc. 2013 Equity Incentive Plan to certain members of senior management based on the three-year performance cycles. The PSUs provide for shares of our common stock to be issued based on the attainment of certain performance metrics over the applicable three-year periods. The number of shares of our common stock that may be issued to the recipients for the PSUs range from 0% to 200% of the target amount depending on actual results as compared to the target performance metrics. The terms of the PSUs provide that the payouts will be capped at 100% of the target number of PSUs granted if absolute total stockholder return is negative during the performance period, regardless of EPS performance; this market condition applies for amounts recorded above target. The compensation expense associated with the PSU grants is determined using the derived grant date fair value, based on a third-party valuation analysis, and expensed over the applicable period. The PSUs vest upon the determination date for the actual results at the end of the three-year period and require that the recipients continue to be employed by us through the determination date. The PSUs can only be settled in shares of our common stock.
The following table summarizes the activity of our PSUs for the nine months ended September 30, 2019:
Period Granted
 
Performance Period
 
Target PSUs Outstanding at December 31, 2018
 
Target PSUs Granted
 
Target PSUs Vested
 
Target PSUs Forfeited
 
Target PSUs Outstanding at September 30, 2019
 
Weighted Average Grant Date Fair Value
2016
 
2016 - 2018
 
83,656

 

 
(83,656
)
 

 

 
$
21.79

2017
 
2017 - 2019
 
108,247

 

 

 
(3,477
)
 
104,770

 
$
31.64

2018
 
2018 - 2020
 
61,898

 

 

 
(1,858
)
 
60,040

 
$
64.60

2019
 
2019 - 2021
 

 
83,367

 

 
(2,125
)
 
81,242

 
$
56.49

Total
 
 
 
253,801

 
83,367

 
(83,656
)
 
(7,460
)
 
246,052

 
 

At September 30, 2019, management estimates that the recipients will receive approximately 100%, 116% and 185% of the 2019, 2018 and 2017 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics. We recognized $1.1 million and $0.9 million of total stock-based compensation expense related to outstanding PSUs for the three months ended September 30, 2019 and 2018, respectively. We recognized $3.2 million and $2.7 million of total stock-based compensation expense related to outstanding PSUs for the nine months ended September 30, 2019 and 2018, respectively. PSUs granted in 2016 vested on March 15, 2019 at 200% of the target amount, and 167,312 shares of our common stock were issued upon such vesting. At September 30, 2019, we had unrecognized

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compensation cost of $6.6 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 1.9 years.
10.    FAIR VALUE DISCLOSURES
ASC Topic 820, Fair Value Measurements (“ASC 820”), defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any. The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous. Accordingly, this exit price concept may result in a fair value that differs from the transaction price or market price of the asset or liability.
ASC 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:
Level 1 - Fair value is based on quoted prices in active markets for identical assets or liabilities.
Level 2 - Fair value is determined using significant observable inputs, generally either quoted prices in active markets for
similar assets or liabilities, or quoted prices in markets that are not active.
Level 3 - Fair value is determined using one or more significant inputs that are unobservable in active markets at the
measurement date, such as a pricing model, discounted cash flow or similar technique.
We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements may also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets. The fair value of financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate their carrying amounts due to the short-term nature of these instruments. As of September 30, 2019, our revolving credit facility’s carrying value approximates market value since it has a floating interest rate, which increases or decreases with market interest rates and our leverage ratio.
In order to determine the fair value of the Convertible Notes and the Senior Notes listed below, the future contractual cash flows are discounted at our estimate of current market rates of interest, which were determined based upon the average interest rates of similar convertible notes and senior notes within the homebuilding industry (Level 2 measurement).
The following table below shows the level and measurement of liabilities at September 30, 2019 and December 31, 2018 (in thousands):
 
 
 
 
September 30, 2019
 
December 31, 2018
 
 
Fair Value Hierarchy
 
Carrying Value
 
Estimated Fair Value (1)
 
Carrying Value
 
Estimated Fair Value (1)
Convertible Notes
 
Level 2
 
$
69,768

 
$
69,908

 
$
68,251

 
$
67,787

Senior Notes
 
Level 2
 
$
295,861

 
$
333,960

 
$
295,352

 
$
296,905

(1)
Excludes the fair value of the equity component of the Convertible Notes. See the “Convertible Notes” section within Note 5 for further details.
11.    RELATED PARTY TRANSACTIONS
Land Purchases from Affiliates
As of September 30, 2019, we have two land purchase contracts to purchase a total of 198 finished lots in Pasco County and Manatee County, Florida from affiliates of one of our directors for a total base purchase price of approximately $6.9 million. The lots will be purchased in takedowns, subject to annual price escalation ranging from 3% to 6% per annum, and may provide for additional payments to the seller at the time of sale to the homebuyer. We have a $0.5 million non-refundable deposit at September 30, 2019 related to these land purchase contracts. We purchased our first takedown of 58 lots on the Pasco County contract during the three months ended September 30, 2019 for a base purchase price of approximately $2.1 million. We anticipate the first closing on the Manatee County contract to occur in 2020.

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12.     COMMITMENTS AND CONTINGENCIES
Contingencies
In the ordinary course of doing business, we are subject to claims or proceedings from time to time relating to the purchase, development and sale of real estate and homes and other aspects of our homebuilding operations. Management believes that these claims include usual obligations incurred by real estate developers and residential home builders in the normal course of business. In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.
We have provided unsecured environmental indemnities to certain lenders and other counterparties. In each case, we have performed due diligence on the potential environmental risks including obtaining an independent environmental review from outside environmental consultants. These indemnities obligate us to reimburse the guaranteed parties for damages related to environmental matters. There is no term or damage limitation on these indemnities; however, if an environmental matter arises, we may have recourse against other previous owners. In the ordinary course of doing business, we are subject to regulatory proceedings from time to time related to environmental and other matters. In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.
Land Deposits
We have land purchase contracts, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property, and obligations with respect to the land purchase contracts are generally limited to the forfeiture of the related nonrefundable cash deposits. The following is a summary of our land purchase deposits included in pre-acquisition costs and deposits (in thousands, except for lot count):
 
 
September 30, 2019
 
December 31, 2018
Land deposits and option payments
 
$
37,677

 
$
40,015

Commitments under the land purchase contracts if the purchases are consummated
 
$
550,412

 
$
776,224

Lots under land purchase contracts
 
17,044

 
22,820


As of September 30, 2019 and December 31, 2018, approximately $28.5 million and $25.2 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages, or letters of credit or guaranteed by the seller or its affiliates.
Lease Obligations
As described in the “Recently Adopted Accounting Standards” section within Note 1, as of January 1, 2019, we adopted the provisions of ASU 2016-02 and recognized lease obligations and associated ROU assets for our existing non-cancelable leases. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have non-cancelable operating leases primarily associated with our corporate and regional office facilities.  Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets, as included in other assets on the consolidated balance sheets, were $5.1 million as of September 30, 2019. Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $5.4 million as of September 30, 2019.
Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, for the three and nine months ended September 30, 2019 was $0.3 million and $0.9 million, respectively. Cash paid for amounts included in the measurement of lease liabilities for operating leases during the three and nine months ended September 30, 2019 was $0.3 million and $0.9 million, respectively. As of September 30, 2019, the weighted-average discount rate was 5.84% and our weighted-average remaining life was 7.6 years. The Company does not have any significant lease contracts that have not yet commenced at September 30, 2019.

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The table below shows the future minimum payments under non-cancelable operating leases at September 30, 2019 (in thousands):
Year Ending December 31,
 
Operating leases
2019
 
$
251

2020
 
1,004

2021
 
1,003

2022
 
851

2023
 
722

Thereafter
 
2,838

Total
 
6,669

Lease amount representing interest
 
(1,309
)
Present value of lease liabilities
 
$
5,360


Bonding and Letters of Credit    
We have outstanding letters of credit and performance and surety bonds totaling $100.8 million (including $13.2 million of letters of credit issued under the Credit Agreement) and $77.5 million at September 30, 2019 and December 31, 2018, respectively, related to our obligations for site improvements at various projects. Management does not believe that draws upon the letters of credit, surety bonds or financial guarantees if any, will have a material effect on our consolidated financial position, results of operations or cash flows.
Investment in Unconsolidated Entity
During the three months ended September 30, 2019, we became a limited partner in a real estate investment fund with a maximum $30.0 million commitment, commencing July 24, 2019. The term of the commitment is eight years and includes renewals of up to two additional years. As of September 30, 2019, we have contributed a total of $1.1 million into the unconsolidated entity for the use of investing in certain real estate transactions.

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13.     SEGMENT INFORMATION
Beginning in the fourth quarter of 2018, we changed our reportable segments to Central, Northwest, Southeast, Florida, and West. These segments reflect the way the Company evaluates its business performance and manages its operations. Prior period information has been restated for corresponding items of our segment information.
We operate one principal homebuilding business that is organized and reports by division. We have seven operating segments (our Central, Midwest, Northwest, Southeast, Mid-Atlantic, Florida, and West divisions) that we aggregate into five reportable segments at September 30, 2019: our Central, Northwest, Southeast, Florida, and West divisions. The Central division is our largest division and comprised approximately 41% of total home sales revenues for each of the nine months ended September 30, 2019 and 2018.
In accordance with ASC Topic 280, Segment Reporting, operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision-makers (“CODMs”) in deciding how to allocate resources and in assessing performance. The CODMs primarily evaluate performance based on the number of homes closed, gross margin and average sales price.
The seven operating segments qualify as our five reportable segments. In determining the most appropriate reportable segments, we consider operating segments’ economic and other characteristics, including home floor plans, average selling prices, gross margin percentage, geographical proximity, production construction processes, suppliers, subcontractors, regulatory environments, customer type and underlying demand and supply. Each operating segment follows the same accounting policies and is managed by our management team. We have no inter-segment sales, as all sales are to external customers. 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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Financial information relating to our reportable segments was as follows (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
 
Central
 
$
193,860

 
$
151,673

 
$
507,951

 
$
441,138

Northwest
 
92,242

 
72,485

 
207,492

 
214,891

Southeast
 
91,452

 
73,507

 
221,686

 
178,984

Florida
 
44,084

 
38,750

 
121,183

 
136,211