Company Quick10K Filing
Quick10K
Meritage Homes
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$52.37 38 $2,000
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
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 2019-02-13 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
MU Micron Technology 43,460
WES Western Gas Partners 13,020
DK Delek US Holdings 2,830
GLNG Golar Lng 1,890
WABC Westamerica Bancorporation 1,710
GNTY Guaranty Bancshares 333
EDTXU EdtechX Holdings Acquisition 80
CLRI Cleartronic 0
OPCO Ourpets 0
BLSP Blue Sphere 0
MTH 2019-06-30
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 - Leases
Note 5 - Investments in Unconsolidated Entities
Note 6 - Loans Payable and Other Borrowings
Note 7 - Senior Notes, Net
Note 8 - Fair Value Disclosures
Note 9 - Earnings per Share
Note 10 - Acquisitions and Goodwill
Note 11 - Stockholders' Equity
Note 12 - Stock Based and Deferred Compensation
Note 13 - Income Taxes
Note 14 - Supplemental Disclosure of Cash Flow Information
Note 15 - Operating and Reporting Segments
Note 16 - Commitments and Contingencies
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-4.1 mth2019-063010qexhibit41.htm
EX-4.2 mth2019-063010qexhibit42.htm
EX-4.3 mth2019-063010qexhibit43.htm
EX-4.4 mth2019-063010qexhibit44.htm
EX-31.1 mth2019-063010qexhibit311.htm
EX-31.2 mth2019-063010qexhibit312.htm
EX-32.1 mth2019-063010qexhibit321.htm

Meritage Homes Earnings 2019-06-30

MTH 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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 June 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 1-9977
 mhlogo1linetaga12.jpg
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)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
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  
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 $.01 par value
MTH
New York Stock Exchange
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 filer
ý
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 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 July 26, 2019: 38,281,242




MERITAGE HOMES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2019
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Items 3-5. Not Applicable
 
 
 
 
 


2







PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements

MERITAGE HOMES CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
 
 
 
 
 
 
 
June 30, 2019
 
December 31, 2018
Assets
 
 
 
 
Cash and cash equivalents
 
$
407,427

 
$
311,466

Other receivables
 
82,057

 
77,285

Real estate
 
2,735,883


2,742,621

Deposits on real estate under option or contract
 
46,320

 
51,410

Investments in unconsolidated entities
 
7,555

 
17,480

Property and equipment, net
 
54,157

 
54,596

Deferred tax asset
 
25,170

 
26,465

Prepaids, other assets and goodwill
 
108,307

 
84,156

Total assets
 
$
3,466,876

 
$
3,365,479

Liabilities
 
 
 
 
Accounts payable
 
$
141,194

 
$
128,169

Accrued liabilities
 
187,411


177,862

Home sale deposits
 
32,249

 
28,636

Loans payable and other borrowings
 
12,224

 
14,773

Senior notes, net
 
1,295,698

 
1,295,284

Total liabilities
 
1,668,776

 
1,644,724

Stockholders’ Equity
 
 
 
 
Preferred stock, par value $0.01. Authorized 10,000,000 shares; none issued and outstanding at June 30, 2019 and December 31, 2018
 

 

Common stock, par value $0.01. Authorized 125,000,000 shares; 38,266,742 and 38,072,659 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
 
383

 
381

Additional paid-in capital
 
502,884

 
501,781

Retained earnings
 
1,294,833

 
1,218,593

Total stockholders’ equity
 
1,798,100

 
1,720,755

Total liabilities and stockholders’ equity
 
$
3,466,876

 
$
3,365,479

See accompanying notes to unaudited consolidated financial statements



3



MERITAGE HOMES CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Homebuilding:
 
 
 
 
 
 
 
 
Home closing revenue
 
$
863,053

 
$
872,383

 
$
1,561,703

 
$
1,600,915

Land closing revenue
 
1,557

 
5,112

 
11,052

 
19,144

Total closing revenue
 
864,610

 
877,495

 
1,572,755

 
1,620,059

Cost of home closings
 
(703,935
)
 
(712,868
)
 
(1,286,123
)
 
(1,317,070
)
Cost of land closings
 
(3,299
)
 
(5,799
)
 
(12,428
)
 
(21,041
)
Total cost of closings
 
(707,234
)
 
(718,667
)
 
(1,298,551
)
 
(1,338,111
)
Home closing gross profit
 
159,118

 
159,515

 
275,580

 
283,845

Land closing gross loss
 
(1,742
)
 
(687
)
 
(1,376
)
 
(1,897
)
Total closing gross profit
 
157,376

 
158,828

 
274,204

 
281,948

Financial Services:
 
 
 
 
 
 
 
 
Revenue
 
4,160

 
3,870

 
7,388

 
6,918

Expense
 
(1,720
)
 
(1,693
)
 
(3,224
)
 
(3,177
)
Earnings from financial services unconsolidated entities and other, net
 
3,591

 
3,474

 
6,569

 
6,130

Financial services profit
 
6,031

 
5,651

 
10,733

 
9,871

Commissions and other sales costs
 
(60,125
)
 
(60,823
)
 
(112,680
)
 
(113,575
)
General and administrative expenses
 
(34,779
)
 
(34,205
)
 
(68,345
)
 
(65,098
)
Interest expense
 
(3,197
)
 
(44
)
 
(7,282
)
 
(180
)
Other income, net
 
2,368

 
1,778

 
3,414

 
7,103

Earnings before income taxes
 
67,674

 
71,185

 
100,044

 
120,069

Provision for income taxes
 
(16,846
)
 
(17,347
)
 
(23,804
)
 
(22,357
)
Net earnings
 
$
50,828

 
$
53,838

 
$
76,240

 
$
97,712

Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
1.33

 
$
1.32

 
$
2.00

 
$
2.41

Diluted
 
$
1.31

 
$
1.31

 
$
1.97

 
$
2.37

Weighted average number of shares:
 
 
 
 
 
 
 
 
Basic
 
38,266

 
40,647

 
38,136

 
40,568

Diluted
 
38,889

 
41,164

 
38,789

 
41,193

See accompanying notes to unaudited consolidated financial statements



4




MERITAGE HOMES CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
 
Six Months Ended June 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net earnings
 
$
76,240

 
$
97,712

Adjustments to reconcile net earnings to net cash provided by/(used in) operating activities:
 
 
 
 
Depreciation and amortization
 
12,381

 
12,608

Stock-based compensation
 
10,062

 
8,976

Equity in earnings from unconsolidated entities
 
(5,828
)
 
(5,978
)
Distributions of earnings from unconsolidated entities
 
8,508

 
6,834

Other
 
4,305

 
2,407

Changes in assets and liabilities:
 
 
 
 
Decrease/(increase) in real estate
 
5,439

 
(155,809
)
Decrease in deposits on real estate under option or contract
 
5,096

 
11,093

(Increase)/decrease in other receivables, prepaids and other assets
 
(28
)
 
1,634

(Decrease)/increase in accounts payable and accrued liabilities
 
(6,439
)
 
6,997

Increase in home sale deposits
 
3,613

 
3,071

Net cash provided by/(used in) operating activities
 
113,349

 
(10,455
)
Cash flows from investing activities:
 
 
 
 
Investments in unconsolidated entities
 
(1,112
)
 
(417
)
Distributions of capital from unconsolidated entities
 
7,250

 

Purchases of property and equipment
 
(12,132
)
 
(15,726
)
Proceeds from sales of property and equipment
 
192

 
92

Maturities/sales of investments and securities
 
566

 
1,065

Payments to purchase investments and securities
 
(566
)
 
(1,065
)
Net cash used in investing activities
 
(5,802
)
 
(16,051
)
Cash flows from financing activities:
 
 
 
 
Repayment of loans payable and other borrowings
 
(2,629
)
 
(2,499
)
Repayment of senior notes
 

 
(175,000
)
Proceeds from issuance of senior notes
 

 
206,000

Payment of debt issuance costs
 

 
(3,315
)
Repurchase of shares
 
(8,957
)
 

Net cash (used in)/provided by financing activities
 
(11,586
)
 
25,186

Net increase/(decrease) in cash and cash equivalents
 
95,961

 
(1,320
)
Cash and cash equivalents, beginning of period
 
311,466

 
170,746

Cash and cash equivalents, end of period
 
$
407,427

 
$
169,426

See Supplemental Disclosure of Cash Flow Information in Note 14.
See accompanying notes to unaudited consolidated financial statements


5




MERITAGE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION
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. Through our predecessors, we commenced our homebuilding operations in 1985. Meritage Homes Corporation was incorporated in 1988 in the state of Maryland.
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 June 30, 2019, we were actively selling homes in 254 communities, with base prices ranging from approximately $185,000 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, 2018. The 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 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 $52.7 million and $76.1 million are included in cash and cash equivalents at June 30, 2019 and December 31, 2018, 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.

6



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 inventory 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 $46.3 million and $51.4 million as of June 30, 2019 and December 31, 2018, 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.
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 5 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 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 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.

7



The table below outlines our surety bond and letter of credit obligations (in thousands):
 
As of
 
June 30, 2019
 
December 31, 2018
 
Outstanding
 
Estimated work
remaining to
complete
 
Outstanding
 
Estimated work
remaining to
complete
Sureties:
 
 
 
 
 
 
 
Sureties related to owned projects and lots under contract
$
359,509

 
$
166,692

 
$
339,221

 
$
133,662

Total Sureties
$
359,509

 
$
166,692

 
$
339,221

 
$
133,662

Letters of Credit (“LOCs”):
 
 
 
 
 
 
 
LOCs for land development
51,858

 
N/A

 
70,287

 
N/A

LOCs for general corporate operations
3,750

 
N/A

 
3,750

 
N/A

Total LOCs
$
55,608

 
N/A

 
$
74,037

 
N/A


Accrued Liabilities. Accrued liabilities at June 30, 2019 and December 31, 2018 consisted of the following (in thousands):
 
 
As of
 
 
June 30, 2019
 
December 31, 2018
Accruals related to real estate development and construction activities
 
$
60,533

 
$
54,589

Payroll and other benefits
 
39,393

 
60,209

Accrued interest
 
13,303

 
13,296

Accrued taxes
 
9,813

 
7,548

Warranty reserves
 
20,927


24,552

Lease liability (1)
 
34,227

 

Other accruals
 
9,215

 
17,668

Total
 
$
187,411

 
$
177,862


(1)
Refer to Note 4 for additional information related to our leases.
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 subsequent to 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. Included in the warranty reserve balances at June 30, 2019 and December 31, 2018 reflected in the table below are case-specific reserves for two warranty matters related to (1) alleged stucco defects in Florida; and (2) a foundation design and performance matter affecting a single community in Texas.
A summary of changes in our warranty reserves follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Balance, beginning of period
$
23,213

 
$
23,812

 
$
24,552

 
$
23,328

Additions to reserve from new home deliveries
3,888

 
4,146

 
7,275

 
7,553

Warranty claims
(6,174
)
 
(4,299
)
 
(10,900
)
 
(7,222
)
Adjustments to pre-existing reserves

 

 

 

Balance, end of period
$
20,927


$
23,659

 
$
20,927

 
$
23,659


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

8



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.
We have received claims related to stucco installation from homeowners in certain Florida communities and based on the information available to us we have established reserves to cover our anticipated net exposure related to these claims. Our review of these stucco related matters is ongoing and our estimate of future costs of repairs is based on our judgment, various assumptions and internal data. Due to the degree of judgment and the potential for variability in our underlying assumptions and data, as we obtain additional information, we may revise our estimate. As of June 30, 2019, after taking into account potential recovery under our general liability insurance policies and potential recoveries from the contractors involved and their insurers, we believe our reserves are sufficient to cover the repairs related to the existing stucco claims. Additionally, we have received claims related to a foundation design and performance matter affecting a single community in Texas requiring repairs to be made to homes within that community. A significant amount of the identified repairs have been made, however, repair efforts are ongoing and our estimate of costs to resolve this matter are updated regularly as progress is made. As of June 30, 2019, taking into account sources of future potential recovery from contractors involved with the design and construction of the homes and their insurers as well as from our general liability insurer, we believe our reserves are sufficient to cover repairs and related claims. See Note 16 in the accompanying unaudited consolidated financial statements for additional information regarding both of these matters.
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 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. ASU 2018-15 is effective for us beginning January 1, 2020. ASU 2018-15 is required to be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Although we do not anticipate it to be material, we are currently evaluating the impact adopting this guidance will have 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 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. Although we do not anticipate it to be material, we are currently evaluating the impact adopting this guidance will have on our financial statement disclosures.

9



In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 amended the previous accounting standards for lease accounting and resulted in the requirement that lessees recognize leases with lease terms of greater than twelve months on their balance sheets. We adopted ASU 2016-02 on January 1, 2019 using a modified retrospective method and did not restate prior period financial statements. We elected the practical expedient package which allows us to carry forward our original assessment of whether contracts contained leases, lease classification and the initial direct costs. We also elected the practical expedient that allows lessees the option to account for lease and non-lease components together as a single component for all classes of underlying assets. The adoption of ASU 2016-02 resulted in a gross up on our consolidated balance sheet for right-of-use ("ROU") assets and lease liabilities of $20.5 million and $28.7 million, respectively, as of January 1, 2019. Our ROU assets are included in the Prepaids, other assets and goodwill line item and the corresponding lease obligations are included in the Accrued liabilities line item on our consolidated balance sheet. The adoption of ASU 2016-02 had no impact on our consolidated income statements.
NOTE 2 — REAL ESTATE AND CAPITALIZED INTEREST
Real estate consists of the following (in thousands):
 
 
As of
 
 
June 30, 2019
 
December 31, 2018
Homes under contract under construction (1)
 
$
705,157

 
$
480,143

Unsold homes, completed and under construction (1)
 
557,675

 
644,717

Model homes (1)
 
133,983

 
146,327

Finished home sites and home sites under development (2)
 
1,339,068

 
1,471,434

Total
 
$
2,735,883


$
2,742,621



(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 June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Capitalized interest, beginning of period
$
89,414

 
$
81,828

 
$
88,454

 
$
78,564

Interest incurred
21,465

 
21,374

 
42,908

 
42,243

Interest expensed
(3,197
)
 
(44
)
 
(7,282
)
 
(180
)
Interest amortized to cost of home and land closings
(19,375
)
 
(18,715
)
 
(35,773
)
 
(36,184
)
Capitalized interest, end of period
$
88,307

 
$
84,443

 
$
88,307

 
$
84,443


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

10



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 our benefit, 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 June 30, 2019 (dollars in thousands): 
 
Projected Number
of Lots
 
Purchase
Price
 
Option/
Earnest  Money
Deposits–Cash
 
Purchase and option contracts recorded on balance sheet as Real estate not owned

 
$

 
$

 
Option contracts — non-refundable deposits, committed (1)
3,385

 
229,577

 
25,388

 
Purchase contracts — non-refundable deposits, committed (1)
6,971

 
277,899

 
16,089

 
Purchase and option contracts —refundable deposits, committed
1,410

 
63,085

 
1,370

 
Total committed
11,766

 
570,561

 
42,847

 
Purchase and option contracts — refundable deposits, uncommitted (2)
10,213

 
316,618

 
3,473

 
Total lots under contract or option
21,979

 
$
887,179

 
$
46,320

 
Total purchase and option contracts not recorded on balance sheet (3)
21,979

 
$
887,179

 
$
46,320

(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 June 30, 2019.
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.
NOTE 4 - 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. We recognize lease expense for these leases on a straight-line basis over the lease term and combine lease and non-lease components for all leases. Some of our leases contain renewal options and in accordance with

11



ASC 842, our lease terms include those renewals only to the extent that they are reasonably certain to be exercised. The exercise of these lease renewal options is generally at our discretion. In accordance with ASC 842, the lease liability is equal to the present value of the remaining lease payments while the ROU asset is based on the lease liability, subject to adjustment, such as for lease incentives. Our leases do not provide a readily determinable implicit interest rate and therefore, we must estimate our incremental borrowing rate. In determining our incremental borrowing rate, we consider the lease period, market interest rates, current interest rates on our senior notes and the effects of collateralization.
Our lease population at June 30, 2019 is comprised of operating leases where we are the lessee and those leases are primarily real estate for office space for our corporate office, division offices and design centers, in addition to leases of certain equipment. As allowed by ASC 842, we adopted an accounting policy election to not record leases with lease terms of twelve months or less on the consolidated balance sheet.
Lease cost included in our consolidated income statements in General and administrative expenses and Commissions and other sales costs is in the table below (in thousands). Our short-term lease costs and sublease income are de minimis.

 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Operating lease cost
$
1,486

 
$
3,263

Non-cash lease expense
$
1,353

 
$
2,521

Cash payments on lease liabilities
$
1,930

 
$
3,806

ROU assets obtained in exchange for new operating lease obligations
$
8,222

 
$
8,222

ROU assets are classified within Prepaids, other assets and goodwill on our consolidated balance sheet, while lease liabilities are classified within Accrued liabilities on our consolidated balance sheet. The following table contains additional information about our leases (dollars in thousands):

 
At June 30, 2019
ROU assets
$
25,980

Lease liabilities
$
34,227

Weighted-average remaining lease term
5.1 years

Weighted-average discount rate (incremental borrowing rate)
5.06
%


Maturities of our operating lease liabilities as of June 30, 2019 are as follows (in thousands):
Year ended December 31,
 
2019 (excluding the six months ended June 30, 2019)
$
4,148

2020
8,221

2021
7,416

2022
6,748

2023
5,935

Thereafter
6,663

Total payments
39,131

Less: imputed interest
(4,904
)
Present value of lease liabilities
$
34,227




12


NOTE 5 - INVESTMENTS IN UNCONSOLIDATED ENTITIES
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. Based on the structure of each joint venture, it may or may not be consolidated into our results. 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. As of June 30, 2019, we had two active equity-method land ventures with limited operations.
As of June 30, 2019, 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 June 30, 2019 and December 31, 2018 was $1.0 million and $2.8 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
 
June 30, 2019
 
December 31, 2018
Assets:
 
 
 
Cash
$
6,551

 
$
9,595

Real estate
14,091

 
57,631

Other assets
2,425

 
3,644

Total assets
$
23,067

 
$
70,870

Liabilities and equity:
 
 
 
Accounts payable and other liabilities
$
3,961

 
$
8,682

Notes and mortgages payable

 
26,808

Equity of:
 
 
 
Meritage (1)
6,347

 
14,472

Other
12,759

 
20,908

Total liabilities and equity
$
23,067

 
$
70,870


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
10,846

 
$
9,982

 
$
19,844

 
$
17,314

Costs and expenses
(3,599
)
 
(3,408
)
 
(9,715
)
 
(7,343
)
Net earnings of unconsolidated entities
$
7,247

 
$
6,574

 
$
10,129

 
$
9,971

Meritage’s share of pre-tax earnings (1) (2)
$
3,654

 
$
3,368

 
$
5,828

 
$
5,978


(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.
In the second quarter of 2019, we sold our interest in one inactive equity-method land venture, reducing our investment in unconsolidated entities by $7.3 million. Our total investment in all of these joint ventures is $7.6 million and $17.5 million as

13


of June 30, 2019 and December 31, 2018, respectively. We believe these ventures are in compliance with their respective debt agreements, if applicable, and such debt is non-recourse to us.
NOTE 6 — LOANS PAYABLE AND OTHER BORROWINGS
Loans payable and other borrowings consist of the following (in thousands):
 
 
As of
 
 
June 30, 2019
 
December 31, 2018
Other borrowings, real estate notes payable (1)
 
$
12,224

 
$
14,773

$780.0 million unsecured revolving credit facility with interest approximating LIBOR (approximately 2.40% at June 30, 2019) plus 1.375% or Prime (5.50% at June 30, 2019) plus 0.375%
 

 

Total
 
$
12,224

 
$
14,773

(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 June 30, 2019.
We had no outstanding borrowings under the Credit Facility as of June 30, 2019 or December 31, 2018. During the three and six months ended June 30, 2019, we had no borrowings or repayments. During the three and six months ended June 30, 2018, we had $285.0 million of gross borrowings and repayments. As of June 30, 2019, we had outstanding letters of credit issued under the Credit Facility totaling $55.6 million, leaving $724.4 million available under the Credit Facility to be drawn.
NOTE 7 — SENIOR NOTES, NET
Senior notes, net consist of the following (in thousands):
 
 
As of
 
 
June 30, 2019
 
December 31, 2018
7.15% senior notes due 2020. At June 30, 2019 and December 31, 2018 there was approximately $427 and $711 in net unamortized premium, respectively.
 
300,427

 
300,711

7.00% senior notes due 2022
 
300,000

 
300,000

6.00% senior notes due 2025. At June 30, 2019 and December 31, 2018 there was approximately $4,909 and $5,318 in net unamortized premium, respectively.
 
404,909

 
405,318

5.125% senior notes due 2027
 
300,000

 
300,000

Net debt issuance costs
 
(9,638
)
 
(10,745
)
Total
 
$
1,295,698

 
$
1,295,284


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 June 30, 2019.
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

14



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.
NOTE 8 — FAIR VALUE DISCLOSURES
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
 
 
June 30, 2019
 
December 31, 2018
 
 
Aggregate
Principal
 
Estimated  Fair
Value
 
Aggregate
Principal
 
Estimated  Fair
Value
7.15% senior notes
 
$
300,000

 
$
309,000

 
$
300,000

 
$
307,500

7.00% senior notes
 
$
300,000

 
$
326,250

 
$
300,000

 
$
309,750

6.00% senior notes
 
$
400,000

 
$
428,000

 
$
400,000

 
$
379,520

5.125% senior notes
 
$
300,000

 
$
300,750

 
$
300,000

 
$
255,750


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

15



NOTE 9 — EARNINGS PER SHARE
Basic and diluted earnings per common share were calculated as follows (in thousands, except per share amounts):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Basic weighted average number of shares outstanding
38,266

 
40,647

 
38,136

 
40,568

Effect of dilutive securities:
 
 
 
 
 
 
 
Unvested restricted stock
623

 
517

 
653

 
625

Diluted average shares outstanding
38,889

 
41,164

 
38,789

 
41,193

Net earnings
$
50,828

 
$
53,838

 
$
76,240

 
$
97,712

Basic earnings per share
$
1.33

 
$
1.32

 
$
2.00

 
$
2.41

Diluted earnings per share
$
1.31

 
$
1.31

 
$
1.97

 
$
2.37

Antidilutive stock not included in the calculation of diluted earnings per share
1

 
1

 

 
1


 

NOTE 10 — ACQUISITIONS AND GOODWILL
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.

A summary of the carrying amount of goodwill follows (in thousands):    
 
West
 
Central
 
East
 
Financial Services
 
Corporate
 
Total
Balance at December 31, 2018
$

 
$

 
$
32,962

 
$

 
$

 
$
32,962

Additions

 

 

 

 

 

Balance at June 30, 2019
$

 
$

 
$
32,962

 
$

 
$

 
$
32,962



16



NOTE 11 — STOCKHOLDERS’ EQUITY
A summary of changes in stockholders’ equity is presented below (in thousands): 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2019
 
 
(In thousands)
 
 
Number of
Shares
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Total
Balance at December 31, 2018
 
38,073

 
$
381

 
$
501,781

 
$
1,218,593

 
$
1,720,755

Net earnings
 

 

 

 
25,412

 
25,412

Stock-based compensation expense
 

 

 
5,861

 

 
5,861

Issuance of stock
 
400

 
4

 
(4
)
 

 

Share repurchases
 
(209
)
 
(2
)
 
(8,955
)
 

 
(8,957
)
Balance at March 31, 2019
 
38,264

 
383

 
498,683

 
1,244,005

 
1,743,071

Net earnings
 

 

 

 
50,828

 
50,828

Stock-based compensation expense
 

 

 
4,201

 

 
4,201

Issuance of stock
 
3

 

 

 

 

Share repurchases
 

 

 

 

 

Balance at June 30, 2019
 
38,267

 
$
383

 
$
502,884

 
$
1,294,833

 
$
1,798,100


 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018
 
 
(In thousands)
 
 
Number of
Shares
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Total
Balance at December 31, 2017
 
40,331

 
$
403

 
$
584,578

 
$
991,844

 
$
1,576,825

Adoption of ASU 2014-09
 

 

 

 
(583
)
 
(583
)
Net earnings
 

 

 

 
43,874

 
43,874

Stock-based compensation expense
 

 

 
5,216

 

 
5,216

Issuance of stock
 
301

 
3

 
(3
)
 

 

Balance at March 31, 2018
 
40,632

 
406

 
589,791

 
1,035,135

 
1,625,332

Net earnings
 

 

 

 
53,838

 
53,838