Company Quick10K Filing
Meritage Homes
Price70.20 EPS6
Shares39 P/E12
MCap2,743 P/FCF16
Net Debt-455 EBIT276
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-01
10-K 2019-12-31 Filed 2020-02-18
10-Q 2019-09-30 Filed 2019-10-28
10-Q 2019-06-30 Filed 2019-07-29
10-Q 2019-03-31 Filed 2019-04-29
10-K 2018-12-31 Filed 2019-02-15
10-Q 2018-09-30 Filed 2018-10-29
10-Q 2018-06-30 Filed 2018-07-30
10-Q 2018-03-31 Filed 2018-04-30
10-K 2017-12-31 Filed 2018-02-12
10-Q 2017-09-30 Filed 2017-10-30
10-Q 2017-06-30 Filed 2017-08-03
10-Q 2017-03-31 Filed 2017-05-01
10-K 2016-12-31 Filed 2017-02-17
10-Q 2016-09-30 Filed 2016-10-28
10-Q 2016-06-30 Filed 2016-08-01
10-Q 2016-03-31 Filed 2016-05-02
10-K 2015-12-31 Filed 2016-02-17
10-Q 2015-09-30 Filed 2015-10-30
10-Q 2015-06-30 Filed 2015-07-31
10-Q 2015-03-31 Filed 2015-05-01
10-K 2014-12-31 Filed 2015-02-17
10-Q 2014-09-30 Filed 2014-10-31
10-Q 2014-06-30 Filed 2014-07-31
10-Q 2014-03-31 Filed 2014-05-01
10-K 2013-12-31 Filed 2014-02-19
10-Q 2013-09-30 Filed 2013-11-01
10-Q 2013-06-30 Filed 2013-08-01
10-Q 2013-03-31 Filed 2013-05-02
10-K 2012-12-31 Filed 2013-02-22
10-Q 2012-09-30 Filed 2012-10-31
10-Q 2012-06-30 Filed 2012-08-01
10-Q 2012-03-31 Filed 2012-05-03
10-K 2011-12-31 Filed 2012-02-24
10-Q 2011-09-30 Filed 2011-11-01
10-Q 2011-06-30 Filed 2011-08-02
10-Q 2011-03-31 Filed 2011-05-03
10-K 2010-12-31 Filed 2011-02-28
10-Q 2010-09-30 Filed 2010-11-04
10-Q 2010-06-30 Filed 2010-08-04
10-Q 2010-03-31 Filed 2010-05-06
10-K 2009-12-31 Filed 2010-03-05
8-K 2020-05-21 Shareholder Vote, Exhibits
8-K 2020-05-18 Other Events, Exhibits
8-K 2020-04-28 Earnings, Exhibits
8-K 2020-04-06 Earnings, Exhibits
8-K 2020-03-09 Officers, Exhibits
8-K 2020-02-11 Officers, Exhibits
8-K 2020-01-29 Earnings, Exhibits
8-K 2019-10-22 Earnings, Exhibits
8-K 2019-07-24 Earnings, Exhibits
8-K 2019-07-12 Officers, Exhibits
8-K 2019-06-27 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-06-14 Officers, Exhibits
8-K 2019-05-17 Shareholder Vote
8-K 2019-05-16 Officers
8-K 2019-04-23 Earnings, Exhibits
8-K 2019-03-04 Other Events, Exhibits
8-K 2019-02-13 Other Events
8-K 2019-02-12 Officers, Exhibits
8-K 2019-01-30 Earnings, Exhibits
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-06-28 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-17 Officers, Shareholder Vote
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-03-21 Officers, Exhibits
8-K 2018-03-16 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-03-01 Other Events, Exhibits
8-K 2018-02-01 Earnings, Exhibits
8-K 2018-01-25 Enter Agreement, Off-BS Arrangement

MTH 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1 - Organization and Basis of Presentation
Note 2 - Real Estate and Capitalized Interest
Note 3 - Variable Interest Entities and Consolidated Real Estate Not Owned
Note 4 - Investments in Unconsolidated Entities
Note 5 - Loans Payable and Other Borrowings
Note 6 - Senior Notes, Net
Note 7 - Fair Value Disclosures
Note 8 - Earnings per Share
Note 9 - Acquisitions and Goodwill
Note 10 - Stockholders' Equity
Note 11 - Stock Based and Deferred Compensation
Note 12 - Income Taxes
Note 13 - Supplemental Disclosure of Cash Flow Information
Note 14 - Operating and Reporting Segments
Note 15 - Commitments and Contingencies
Note 16 - Subsequent Events
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 1.Legal Proceedings
Item 1A.Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 mth2020-033110qex311.htm
EX-31.2 mth2020-033110qex312.htm
EX-32.1 mth2020-033110qex321.htm

Meritage Homes Earnings 2020-03-31

Balance SheetIncome StatementCash Flow


Washington, D.C. 20549
 FORM 10-Q 
(Mark One)
For the quarterly period ended March 31, 2020
For the transition period from                 to                
Commission File Number 1-9977
Meritage Homes Corporation
(Exact Name of Registrant as Specified in its Charter)
Maryland 86-0611231
(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.)
8800 E. Raintree Drive, Suite 300, Scottsdale, Arizona 85260
(Address of Principal Executive Offices) (Zip Code)
(480) 515-8100
(Registrant’s telephone number, including area code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock $.01 par valueMTHNew York Stock Exchange
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 a checkmark whether the registrant has submitted electronically every Interactive Date 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerýAccelerated filer
Non-accelerated filerSmaller 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 a checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Common shares outstanding as of April 29, 2020: 37,597,457

Items 3-5. Not Applicable



Item 1.        Financial Statements

(in thousands, except share amounts)
 March 31, 2020December 31, 2019
Cash and cash equivalents$797,321  $319,466  
Other receivables82,170  88,492  
Real estate2,789,790  2,744,361  
Deposits on real estate under option or contract54,167  50,901  
Investments in unconsolidated entities3,279  4,443  
Property and equipment, net49,180  50,606  
Deferred tax asset25,810  25,917  
Prepaids, other assets and goodwill112,739  114,063  
Total assets$3,914,456  $3,398,249  
Accounts payable$163,060  $155,024  
Accrued liabilities216,334  226,008  
Home sale deposits26,102  24,246  
Loans payable and other borrowings521,867  22,876  
Senior notes, net996,327  996,105  
Total liabilities1,923,690  1,424,259  
Stockholders’ Equity
Preferred stock, par value $0.01. Authorized 10,000,000 shares; none issued and outstanding at March 31, 2020 and December 31, 2019
Common stock, par value $0.01. Authorized 125,000,000 shares; 37,597,457 and 38,199,111 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
376  382  
Additional paid-in capital450,982  505,352  
Retained earnings1,539,408  1,468,256  
Total stockholders’ equity1,990,766  1,973,990  
Total liabilities and stockholders’ equity$3,914,456  $3,398,249  
See accompanying notes to unaudited consolidated financial statements


(in thousands, except per share amounts)
Three Months Ended March 31,
Home closing revenue$890,417  $698,650  
Land closing revenue10,596  9,495  
Total closing revenue901,013  708,145  
Cost of home closings(712,057) (582,188) 
Cost of land closings(10,213) (9,129) 
Total cost of closings(722,270) (591,317) 
Home closing gross profit178,360  116,462  
Land closing gross profit383  366  
Total closing gross profit178,743  116,828  
Financial Services:
Revenue3,912  3,228  
Expense(1,735) (1,504) 
Earnings from financial services unconsolidated entities and other, net
661  2,978  
Financial services profit2,838  4,702  
Commissions and other sales costs(61,173) (52,555) 
General and administrative expenses(34,170) (33,566) 
Interest expense(16) (4,085) 
Other income, net611  1,046  
Earnings before income taxes86,833  32,370  
Provision for income taxes(15,681) (6,958) 
Net earnings$71,152  $25,412  
Earnings per common share:
Basic$1.87  $0.66  
Diluted$1.83  $0.65  
Weighted average number of shares:
Basic38,085  38,215  
Diluted38,817  38,849  
See accompanying notes to unaudited consolidated financial statements


(in thousands)
 Three Months Ended March 31,
Cash flows from operating activities:
Net earnings$71,152  $25,412  
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization7,011  5,832  
Stock-based compensation6,437  5,861  
Equity in earnings from unconsolidated entities (684) (2,174) 
Distributions of earnings from unconsolidated entities849  3,996  
Other164  1,827  
Changes in assets and liabilities:
Increase in real estate(45,207) (1,753) 
(Increase)/decrease in deposits on real estate under option or contract(3,266) 6,583  
Decrease/(increase) in other receivables, prepaids and other assets7,557  (1,654) 
Decrease in accounts payable and accrued liabilities(1,956) (12,211) 
Increase in home sale deposits1,856  535  
Net cash provided by operating activities43,913  32,254  
Cash flows from investing activities:
Investments in unconsolidated entities(1) (1,110) 
Distributions of capital from unconsolidated entities1,000    
Purchases of property and equipment(5,331) (5,240) 
Proceeds from sales of property and equipment96  74  
Maturities/sales of investments and securities83  566  
Payments to purchase investments and securities(83) (566) 
Net cash used in investing activities(4,236) (6,276) 
Cash flows from financing activities:
Proceeds from Credit Facility, net500,000    
Repayment of loans payable and other borrowings(1,009) (988) 
Repurchase of shares(60,813) (8,957) 
Net cash provided by/(used in) financing activities438,178  (9,945) 
Net increase in cash and cash equivalents477,855  16,033  
Cash and cash equivalents, beginning of period319,466  311,466  
Cash and cash equivalents, end of period$797,321  $327,499  
See Supplemental Disclosure of Cash Flow Information in Note 13.
See accompanying notes to unaudited consolidated financial statements



Organization. Meritage Homes is a leading designer and builder of single-family homes. We primarily build in historically high-growth regions of the United States and offer a variety of homes that are designed to appeal primarily to first-time and first move-up buyers. We have homebuilding operations in three regions: West, Central and East, which are comprised of nine states: Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina and Tennessee. We also operate a wholly-owned title company, Carefree Title Agency, Inc. ("Carefree Title"). Carefree Title's core business includes title insurance and closing/settlement services we offer to our homebuyers. Beginning in the fourth quarter of 2019, we commenced operations of wholly owned Meritage Homes Insurance Agency, Inc. (“Meritage Insurance”). Meritage Insurance works in collaboration with insurance companies nationwide to offer homeowners insurance and other insurance products to our homebuyers. We commenced our homebuilding operations in 1985 through our predecessor company known as Monterey Homes. Meritage Homes Corporation was incorporated in the state of Maryland in 1988 under the name of Homeplex Mortgage Investments Corporation and was merged with Monterey Homes in 1996, at which time our name was changed to Monterey Homes Corporation and later ultimately to Meritage Homes Corporation.
Our homebuilding activities are conducted under the name of Meritage Homes in each of our homebuilding markets. In limited cases, we also offer luxury homes under the brand name of Monterey Homes that are currently in close-out stages. At March 31, 2020, we were actively selling homes in 241 communities, with base prices ranging from approximately $195,000 to $1,286,000.
Basis of Presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“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 in our Annual Report on Form 10-K for the year ended December 31, 2019. The unaudited consolidated financial statements include the accounts of Meritage Homes Corporation and those of our consolidated subsidiaries, partnerships and other entities in which we have a controlling financial interest, and of variable interest entities (see Note 3) in which we are deemed the primary beneficiary (collectively, “us”, “we”, “our” and “the Company”). Intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited consolidated financial statements include all normal and recurring adjustments that are considered 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 fiscal year.
Cash and Cash Equivalents. Liquid investments with an initial maturity of three months or less are classified as cash equivalents. Amounts in transit from title companies or closing agents for home closings of approximately $43.0 million and $54.5 million are included in cash and cash equivalents at March 31, 2020 and December 31, 2019, respectively.
Real Estate. Real estate is stated at cost unless the asset is determined to be impaired, at which point the inventory is written down to fair value as required by Accounting Standards Codification (“ASC”) 360-10, Property, Plant and Equipment (“ASC 360-10”). Inventory includes the costs of land acquisition, land development, home construction, capitalized interest, real estate taxes, and capitalized direct overhead costs incurred during development, less impairments, if any. Land and development costs are typically allocated and transferred to homes when home construction begins. Home construction costs are accumulated on a per-home basis, while selling and marketing costs are expensed as incurred. Cost of home closings includes the specific construction costs of the home and all related allocated land acquisition, land development and other common costs (both incurred and estimated to be incurred) that are allocated based upon the total number of homes expected to be closed in each community or phase. Any changes to the estimated total development costs of a community or phase are allocated to the remaining homes in that community or phase. When a home closes, we may have incurred costs for goods and services that have not yet been paid. An accrued liability to capture such obligations is recorded in connection with the home closing and charged directly to Cost of home closings.
We rely on certain estimates to determine our construction and land development costs. Construction and land costs are comprised of direct and allocated costs, including estimated future costs. 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. It is possible that actual results could differ from budgeted amounts for various reasons, including construction and weather delays, labor or material shortages, increases in costs that have not yet been committed, changes in governmental requirements, or other

unanticipated issues encountered during construction and development and other factors beyond our control. To address uncertainty in these budgets, we assess, update and revise project budgets on a regular basis, utilizing the most current information available to estimate home construction and land development costs.
Typically, a community's life cycle ranges from three to five years, commencing with the acquisition of the land, continuing through the land development phase, if applicable, and concluding with the sale, construction and closing of the homes. Actual community lives will vary based on the size of the community, the sales absorption rate and whether the land purchased was raw, partially-developed or in finished status. Master-planned communities encompassing several phases and super-block land parcels may have significantly longer lives and projects involving smaller finished lot purchases may be shorter.
All of our land inventory and related real estate assets are reviewed for recoverability, as our inventory is considered “long-lived” in accordance with GAAP. Impairment charges are recorded to write down an asset to its estimated fair value if the undiscounted cash flows expected to be generated by the asset are lower than its carrying amount. 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. Such an analysis is conducted if there is an indication of a decline in value of our land and real estate assets. If an impairment of a community is required, the impairment charges are allocated to each lot on a straight-line basis.
Deposits. Deposits paid for land options and purchase contracts are recorded and classified as Deposits on real estate under option or contract until the related land is purchased. Deposits are reclassified as a component of Real estate at the time the deposit is applied to the acquisition price of the land based on the terms of the underlying agreements. To the extent they are non-refundable, deposits are charged to expense if the land acquisition contract 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 the non-refundable deposits and any ancillary capitalized costs. Our Deposits on real estate under option or contract were $54.2 million and $50.9 million as of March 31, 2020 and December 31, 2019, respectively.
Goodwill. 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. 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 and labor costs, 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, impairment testing in accordance with ASC 350 would be initiated. We continually evaluate our qualitative inputs to assess whether events and circumstances have occurred that indicate the goodwill balance may not be recoverable. See Note 9 for additional information on our goodwill balance.
Leases. We lease certain office space and equipment for use in our operations. We assess each of these contracts to determine whether the arrangement contains a lease as defined by ASC 842, Leases ("ASC 842"). In order to meet the definition of a lease under ASC 842, the contractual arrangement must convey to us the right to control the use of an identifiable asset for a period of time in exchange for consideration. Leases that meet the criteria of ASC 842 are recorded on our consolidated balance sheet as right-of-use ("ROU") assets and lease liabilities. ROU assets are classified within Prepaids, other assets and goodwill on our consolidated balance sheet, while ROU liabilities are classified within Accrued liabilities on our consolidated balance sheet.
The table below outlines our ROU assets and lease liabilities (in thousands):
As of
March 31, 2020December 31, 2019
ROU assets$25,102  $26,332  
Lease liabilities32,740  34,231  
Off-Balance Sheet Arrangements - Joint Ventures. We may participate in land development joint ventures as a means of accessing larger parcels of land and lot positions, expanding our market opportunities, managing our risk profile and leveraging our capital base, although our participation in such ventures is currently very limited. See Note 4 for additional discussion of our investments in unconsolidated entities.
Off-Balance Sheet Arrangements - Other. In the normal course of business, we may acquire lots from various development entities pursuant to option and purchase agreements. The purchase price generally approximates the market price

at the date the contract is executed (with possible future escalators). See Note 3 for additional information on these off-balance sheet arrangements.
Surety Bonds and Letters of Credit. We may provide surety bonds or letters of credit in support of our obligations relating to the development of our projects and other corporate purposes. Surety bonds are generally posted in lieu of letters of credit or cash deposits. The amount of these obligations outstanding at any time varies depending on the stage and level of completion of our development activities. Bonds are generally not released until all applicable 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. We believe it is unlikely that any significant amounts of these bonds or letters of credit will be drawn upon.
The table below outlines our surety bond and letter of credit obligations (in thousands):
As of
 March 31, 2020December 31, 2019
 OutstandingEstimated work
remaining to
OutstandingEstimated work
remaining to
Sureties related to owned projects and lots under contract$402,203  $173,494  $405,017  $186,986  
Total Sureties$402,203  $173,494  $405,017  $186,986  
Letters of Credit (“LOCs”):
LOCs for land development64,889  N/A57,192  N/A
LOCs for general corporate operations3,750  N/A3,750  N/A
Total LOCs$68,639  N/A$60,942  N/A
Accrued Liabilities. Accrued liabilities at March 31, 2020 and December 31, 2019 consisted of the following (in thousands):
As of
 March 31, 2020December 31, 2019
Accruals related to real estate development and construction activities$76,330  $74,448  
Payroll and other benefits34,241  67,734  
Accrued interest24,315  8,758  
Accrued taxes13,686  8,459  
Warranty reserves22,090  22,015  
Lease liabilities32,740  34,231  
Other accruals12,932  10,363  
Total$216,334  $226,008  

Warranty Reserves. We provide home purchasers with limited warranties against certain building defects and we have certain obligations related to those post-construction warranties for closed homes. 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 the reserves for the structural warranty based on the number of homes still under warranty and historical data and trends for our communities. 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 did not adjust the warranty reserve balance in the three months ended March 31, 2020 or 2019. Included in the warranty reserve balances at March 31, 2020 and December 31, 2019 reflected in the table below are case-specific reserves for a warranty matter related to alleged stucco defects in Florida and water drainage issues in a single community in Florida. See Note 15 in the accompanying unaudited financial statements for additional information regarding these case-specific reserves.

A summary of changes in our warranty reserves follows (in thousands):
 Three Months Ended March 31,
Balance, beginning of period$22,015  $24,552  
Additions to reserve from new home deliveries3,810  3,387  
Warranty claims(3,735) (4,726) 
Adjustments to pre-existing reserves    
Balance, end of period$22,090  $23,213  
Warranty reserves are included in Accrued liabilities on the accompanying unaudited consolidated balance sheets, and additions and adjustments to the reserves, if any, are included in Cost of home closings within the accompanying unaudited consolidated income statements. These reserves are intended to cover costs associated with our contractual and statutory warranty obligations, which include, among other items, claims involving defective workmanship and materials. We believe that our total reserves, coupled with our contractual relationships and rights with our trade partners and the general liability insurance we maintain, are sufficient to cover our general warranty obligations. However, as unanticipated changes in legal, weather, environmental or other conditions could have an impact on our actual warranty costs, future costs could differ significantly from our estimates.
Revenue Recognition. In accordance with ASC 606, Revenue from Contracts with Customers, we apply the following steps in determining the timing and amount of revenue to recognize: (1) identify the contract with our customer; (2) identify the performance obligation(s) in the contract; (3) determine the transaction price; (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. 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, 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.
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, is not material. Our three sources of revenue are disaggregated by type in the accompanying unaudited consolidated income statements.
Recent Accounting Pronouncements.
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract ("ASU 2018-15"), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Entities will need to consider both the nature of the costs and the phase of development in which the implementation costs are incurred to determine whether the costs should be capitalized or expensed. ASU 2018-15 was effective for us beginning January 1, 2020 on a prospective basis to all implementation costs incurred after the date of adoption. The adoption of ASU 2018-15 did not have a material impact on our financial statement disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which eliminates, adds, and modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 was effective for us beginning January 1, 2020. As we currently only have Level 2 financial instruments, the adoption of ASU 2018-13 did not have a material impact on our financial statement disclosures.

Real estate consists of the following (in thousands):
As of
March 31, 2020December 31, 2019
Homes under contract under construction (1)
$731,747  $564,762  
Unsold homes, completed and under construction (1)
583,929  686,948  
Model homes (1)
114,951  121,340  
Finished home sites and home sites under development (2)
1,359,163  1,371,311  
Total$2,789,790  $2,744,361  

(1)Includes the allocated land and land development costs associated with each lot for these homes.
(2)Includes raw land, land held for development and land held for sale, less impairments, if any. Land held for development primarily reflects land and land development costs related to land where development activity is not currently underway but is expected to begin in the future. For these parcels, we have chosen not to currently develop certain land holdings as they typically represent a portion or phases of a larger land parcel that we plan to build out over several years. We do not capitalize interest for inactive assets, and all ongoing costs of land ownership (i.e. property taxes, homeowner association dues, etc.) are expensed as incurred.
Subject to sufficient qualifying assets, we capitalize our development period interest costs incurred in connection with our real estate development and construction activities. Capitalized interest is allocated to active real estate when incurred and charged to cost of closings when the related property is delivered. A summary of our capitalized interest is as follows (in thousands):
 Three Months Ended March 31,
Capitalized interest, beginning of period$82,014  $88,454  
Interest incurred16,535  21,443  
Interest expensed(16) (4,085) 
Interest amortized to cost of home and land closings(20,371) (16,398) 
Capitalized interest, end of period$78,162  $89,414  

We enter into purchase and option agreements for land or lots as part of the normal course of business. These purchase and option agreements enable us to acquire properties at one or multiple future dates at pre-determined prices. We believe these acquisition structures reduce our financial risk associated with land acquisitions and allow us to better leverage our balance sheet.
Based on the provisions of the relevant accounting guidance, we have concluded that when we enter into a purchase or option agreement to acquire land or lots from an entity, a variable interest entity, or “VIE”, may be created. We evaluate all purchase and option agreements for land to determine whether they are a VIE. ASC 810, Consolidation, requires that for each VIE, we assess whether we are the primary beneficiary and, if so, consolidate the VIE in our financial statements and reflect such assets and liabilities as Real estate not owned. The liabilities related to consolidated VIEs are generally excluded from our debt covenant calculations.
In order to determine if we are the primary beneficiary, we must first assess whether we have the ability to control the activities of the VIE that most significantly impact its economic performance. Such activities include, but are not limited to: the ability to determine the budget and scope of land development work, if any; the ability to control financing decisions for the VIE; the ability of the VIE to acquire additional land or dispose of land not under contract with Meritage; and the ability to change or amend the existing option contract with the VIE. If we are not determined to control such activities, we are not considered the primary beneficiary of the VIE. If we do have the ability to control such activities, we will continue our analysis to determine if we are also expected to absorb a potentially significant amount of the VIE’s losses or, if no party absorbs the majority of such losses, if we will benefit from a potentially significant amount of the VIE’s expected gains.

In substantially all cases, creditors of the entities with which we have option agreements have no recourse against us and the maximum exposure to loss in our option agreements is limited to non-refundable option deposits and any capitalized pre-acquisition costs. Often, we are at risk for items over budget related to land development on property we have under option if we are the land developer. In these cases, we have contracted to complete development at a fixed cost for subsequent purchase, but on behalf of the land owner, and any budget savings or shortfalls are typically borne by us. Some of our option deposits may be refundable to us if certain contractual conditions are not performed by the party selling the lots.
The table below presents a summary of our lots under option at March 31, 2020 (dollars in thousands): 
Projected Number
of Lots
Earnest  Money
Purchase and option contracts recorded on balance sheet as Real estate not owned  $  $  
Option contracts — non-refundable deposits, committed (1)
6,043  385,228  31,903  
Purchase contracts — non-refundable deposits, committed (1)
7,277  257,431  15,642  
Purchase and option contracts —refundable deposits, committed2,098  78,046  1,897  
Total committed 15,418  720,705  49,442  
Purchase and option contracts — refundable deposits, uncommitted (2)
14,708  437,259  4,725  
Total lots under contract or option30,126  $1,157,964  $54,167  
Total purchase and option contracts not recorded on balance sheet (3)
30,126  $1,157,964  $54,167  (4) 
(1)Deposits are non-refundable except if certain contractual conditions are not performed by the selling party.
(2)Deposits are refundable at our sole discretion. We have not completed our acquisition evaluation process and we have not internally committed to purchase these lots.
(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 on our unaudited consolidated balance sheet in Deposits on real estate under option or contract as of March 31, 2020.
Generally, our options to purchase lots remain effective so long as we purchase a pre-established minimum number of lots each month or quarter, as determined by the respective agreement. Although the pre-established number is typically structured to approximate our expected rate of home construction starts and sales absorptions, during a weakened homebuilding market, we may purchase lots at an absorption level that exceeds our sales and home starts pace in order to meet the pre-established minimum number of lots or we will work to restructure our original contract to include terms that more accurately reflect our revised orders pace expectations.
We may enter into land development joint ventures as a means of accessing larger parcels of land, expanding our market opportunities, managing our risk profile and leveraging our capital base. While purchasing land through a joint venture can be beneficial, currently we do not view joint ventures as a primary source of land acquisitions. Our joint venture partners are generally other homebuilders, land sellers or other real estate investors. We generally do not have a controlling interest in these ventures, which means our joint venture partners could cause the venture to take actions we disagree with or fail to take actions we believe should be undertaken, including the sale of the underlying property to repay debt or recoup all or part of the partners' investments. Based on the structure of each joint venture, it may or may not be consolidated into our results. As of March 31, 2020, we had one active equity-method land venture with limited operations.
As of March 31, 2020, we also participated in one mortgage joint venture, which is engaged in mortgage activities and provides services to both our homebuyers as well as other buyers. Our investment in this mortgage joint venture as of March 31, 2020 and December 31, 2019 was $0.5 million and $0.7 million, respectively.

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

As of
March 31, 2020December 31, 2019
$6,793  $6,329  
Real estate
7,048  6,654  
Other assets
2,817  4,382  
Total assets$16,658  $17,365  
Liabilities and equity:
Accounts payable and other liabilities$5,497  $6,580  
Equity of:
Meritage (1)
4,691  5,678  
Other6,470  5,107  
Total liabilities and equity$16,658  $17,365  
 Three Months Ended March 31,
Revenue$6,723  $8,998  
Costs and expenses(5,863) (6,116) 
Net earnings of unconsolidated entities$860  $2,882  
Meritage’s share of pre-tax earnings (1) (2)
$687  $2,174  

(1)Balance represents Meritage’s interest, as reflected in the financial records of the respective joint ventures. 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 is recorded in Earnings from financial services unconsolidated entities and other, net and Other income, net on our unaudited 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.
Loans payable and other borrowings consist of the following (in thousands):
As of
March 31, 2020December 31, 2019
Other borrowings, real estate notes payable (1)
$21,867  $22,876  
$780.0 million unsecured revolving credit facility with interest approximating LIBOR (approximately 0.99% at March 31, 2020) plus 1.375% or Prime (3.25% at March 31, 2020) plus 0.375%
Total$521,867  $22,876  
(1)Reflects balance of non-recourse non-interest bearing notes payable in connection with land purchases.
The Company entered into an amended and restated unsecured revolving credit facility ("Credit Facility") in 2014 that has been amended from time to time. In June 2019 the Credit Facility was amended, extending the maturity date to July 2023, along with minor administrative changes. The Credit Facility's aggregate commitment is $780.0 million with an accordion feature permitting the size of the facility to increase to a maximum of $880.0 million, subject to certain conditions, including the availability of additional bank commitments. Borrowings under the Credit Facility are unsecured, but availability is subject to, among other things, a borrowing base. The Credit Facility also contains certain financial covenants, including (a) a minimum tangible net worth requirement of $1.1 billion (which amount is subject to increase over time based on subsequent earnings and

proceeds from equity offerings), and (b) a maximum leverage covenant that prohibits the leverage ratio (as defined therein) from exceeding 60%. In addition, we are required to maintain either (i) an interest coverage ratio (EBITDA to interest expense, as defined therein) of at least 1.50 to 1.00 or (ii) liquidity (as defined therein) of an amount not less than our consolidated interest incurred during the trailing 12 months. We were in compliance with all Credit Facility covenants as of March 31, 2020.
We had $500.0 million outstanding borrowings under the Credit Facility as of March 31, 2020 and $0 at December 31, 2019. During the three months ended March 31, 2020 we borrowed $500.0 million and had no repayments. There were no borrowings or repayments in the same three month period of 2019. As of March 31, 2020, we had outstanding letters of credit issued under the Credit Facility totaling $68.6 million, leaving $211.4 million available under the Credit Facility to be drawn.
Senior notes, net consist of the following (in thousands):
As of
March 31, 2020December 31, 2019
7.00% senior notes due 2022
300,000  300,000  
6.00% senior notes due 2025. At March 31, 2020 and December 31, 2019 there was approximately $4,227 and $4,432 in net unamortized premium, respectively.
404,227  404,432  
5.125% senior notes due 2027
300,000  300,000  
Net debt issuance costs(7,900) (8,327) 
Total$996,327  $996,105  
The indentures for all of our senior notes contain covenants including, among others, limitations on the amount of secured debt we may incur, and limitations on sale and leaseback transactions and mergers. We believe we are in compliance with all such covenants as of March 31, 2020.
Obligations to pay principal and interest on the senior notes are guaranteed by substantially all of our wholly-owned subsidiaries (each a “Guarantor” and, collectively, the “Guarantor Subsidiaries”), each of which is directly or indirectly 100% owned by Meritage Homes Corporation. Such guarantees are full and unconditional, and joint and several. In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the equity interests of any Guarantor then held by Meritage and its subsidiaries, then that Guarantor may be released and relieved of any obligations under its note guarantee. There are no significant restrictions on our ability or the ability of any Guarantor to obtain funds from their respective subsidiaries, as applicable, by dividend or loan. 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.
We account for non-recurring fair value measurements of our non-financial assets and liabilities in accordance with ASC 820-10 Fair Value Measurement ("ASC 820"). This guidance defines fair value, establishes a framework for measuring fair value and addresses required disclosures about fair value measurements. This standard establishes a three-level hierarchy for fair value measurements based upon the significant inputs used to determine fair value. Observable inputs are those which are obtained from market participants external to the company while unobservable inputs are generally developed internally, utilizing management’s estimates, assumptions and specific knowledge of the assets/liabilities and related markets. The three levels are defined as follows:
Level 1 — Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 — Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market.
Level 3 — Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the company’s own estimates about the assumptions that market participants would use to value the asset or liability.

Financial Instruments: The fair value of our fixed-rate debt is derived from quoted market prices by independent dealers (level 2 inputs as per the discussion above) and is as follows (in thousands):
As of
 March 31, 2020December 31, 2019
Estimated  Fair
Estimated  Fair
7.00% senior notes
$300,000  $292,500  $300,000  $327,390  
6.00% senior notes
$400,000  $372,000  $400,000  $449,200  
5.125% senior notes
$300,000  $271,500  $300,000  $319,500  
One of the effects of the COVID-19 pandemic has been unstable financial markets, conditions typically associated with an economic downturn. The fluctuation of the fair value in our fixed rate debt from December 31, 2019 through March 31, 2020 is indicative of this volatility. This instability and concerns about liquidity and financial stability in the high-yield market resulted in a temporary decline in the fair value of our Senior Notes. The financial markets have begun to return to more normalized levels subsequent to March 31, 2020.
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.
Basic and diluted earnings per common share were calculated as follows (in thousands, except per share amounts):
Three Months Ended March 31,
Basic weighted average number of shares outstanding38,085  38,215  
Effect of dilutive securities:
Unvested restricted stock732  634  
Diluted average shares outstanding38,817  38,849  
Net earnings$71,152  $25,412  
Basic earnings per share$1.87  $0.66  
Diluted earnings per share$1.83  $0.65  


Goodwill. In prior years, we have entered new markets through the acquisition of the homebuilding assets and operations of local/regional homebuilders in Georgia, South Carolina and Tennessee. As a result of these transactions, we recorded approximately $33.0 million of goodwill. Goodwill represents the excess of the purchase price of our acquisitions over the fair value of the net assets acquired. Our acquisitions were recorded in accordance with ASC 805, Business Combinations, and ASC 820, using the acquisition method of accounting. The purchase price for acquisitions is allocated based on estimated fair value of the assets and liabilities at the date of the acquisition. The combined excess purchase price of our acquisitions over the fair value of the net assets is classified as goodwill and is included on our consolidated balance sheet in Prepaids, other assets and goodwill. In accordance with ASC 350, we assess the recoverability of goodwill annually, or more frequently, if impairment indicators are present. In light of recent economic events resulting from the COVID-19 pandemic, we evaluated our goodwill balance as of March 31, 2020 and determined that there are no impairment indicators at this time. However, as this is a rapidly changing environment, we will continue to monitor and review for goodwill impairment indicators on an ongoing, more frequent basis as required by ASC 350.

A summary of the carrying amount of goodwill follows (in thousands):
WestCentralEastFinancial ServicesCorporateTotal
Balance at December 31, 2019$  $  $32,962  $  $  $32,962  
Balance at March 31, 2020$  $  $32,962  $  $  $32,962  

A summary of changes in stockholders’ equity is presented below (in thousands): 
 Three Months Ended March 31, 2020
 (In thousands)
 Number of
Balance at December 31, 201938,199