UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2018~~2019



¨☐	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

Meritage Homes ~~Corporation~~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)~~IRS Employer Identification No.)

~~(480)~~

8800 E. Raintree Drive, Suite 300, Scottsdale, Arizona85260

(Address of Principal Executive Offices) (Zip Code)

(480) 515-8100

(Registrant’s telephone number, including area code)

N/A

(Former Name, Former Address and ~~Formal~~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. Yesý ☒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). Yesý☒ 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 ý

☒

Common shares outstanding as of July 26, ~~2018: 40,649,453~~2019: 38,281,242

MERITAGE HOMES CORPORATION

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, ~~2018~~2019

TABLE OF CONTENTS




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Unaudited Consolidated Balance Sheets as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018	3

Unaudited Consolidated Income Statements for the Three and Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018	4

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018	5

Notes to Unaudited Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2324

Item 3. Quantitative and Qualitative Disclosures About Market Risk	39

~~Item 4. Controls and Procedures~~	39

~~PART II. OTHER INFORMATION~~

~~Item 1. Legal Proceedings~~	40

Item ~~1A. Risk Factors~~4. Controls and Procedures	40

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	41

Item 1A. Risk Factors	41

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4041

Items 3-5. Not Applicable

Item 6. Exhibits	41

~~SIGNATURES~~	42

~~INDEX OF EXHIBITS~~SIGNATURES	4243

INDEX OF EXHIBITS	43

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MERITAGE HOMES CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)



	June 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Assets
Cash and cash equivalents	$	169,426	$	170,746	$	407,427	$	311,466
Other receivables	78,395		79,317		82,057		77,285
Real estate	2,870,047		2,731,380		2,735,883		2,742,621
Real estate not owned	38,864		38,864
Deposits on real estate under option or contract	48,880		59,945		46,320		51,410
Investments in unconsolidated entities	16,639		17,068		7,555		17,480
Property and equipment, net	52,122		33,631		54,157		54,596
Deferred tax asset	36,294		35,162		25,170		26,465
Prepaids, other assets and goodwill	84,227		85,145		108,307		84,156
Total assets	$	3,394,894	$	3,251,258	$	3,466,876	$	3,365,479
Liabilities
Accounts payable	$	154,819	$	140,516	$	141,194	$	128,169
Accrued liabilities	173,770		181,076		187,411		177,862
Home sale deposits	37,130		34,059		32,249		28,636
Liabilities related to real estate not owned	34,978		34,978
Loans payable and other borrowings	16,552		17,354		12,224		14,773
Senior notes, net	1,294,705		1,266,450		1,295,698		1,295,284
Total liabilities	1,711,954		1,674,433		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, 2018 and December 31, 2017	—		—
Common stock, par value $0.01. Authorized 125,000,000 shares; issued 40,649,453 and 40,330,741 shares at June 30, 2018 and December 31, 2017, respectively	406		403
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	593,561		584,578		502,884		501,781
Retained earnings	1,088,973		991,844		1,294,833		1,218,593
Total stockholders’ equity	1,682,940		1,576,825		1,798,100		1,720,755
Total liabilities and stockholders’ equity	$	3,394,894	$	3,251,258	$	3,466,876	$	3,365,479

See accompanying notes to unaudited consolidated financial statements

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,							Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017				2019			2018			2019			2018
Homebuilding:
Home closing revenue	$	872,383		$	797,780		$	1,600,915		$	1,458,397			$	863,053		$	872,383		$	1,561,703		$	1,600,915
Land closing revenue	5,112			4,198			19,144			16,353				1,557			5,112			11,052			19,144
Total closing revenue	877,495			801,978			1,620,059			1,474,750				864,610			877,495			1,572,755			1,620,059
Cost of home closings	(712,868		)	(656,870		)	(1,317,070		)	(1,210,219		)		(703,935		)	(712,868		)	(1,286,123		)	(1,317,070		)
Cost of land closings	(5,799		)	(4,198		)	(21,041		)	(13,858		)		(3,299		)	(5,799		)	(12,428		)	(21,041		)
Total cost of closings	(718,667		)	(661,068		)	(1,338,111		)	(1,224,077		)		(707,234		)	(718,667		)	(1,298,551		)	(1,338,111		)
Home closing gross profit	159,515			140,910			283,845			248,178				159,118			159,515			275,580			283,845
Land closing gross (loss)/profit	(687		)	—			(1,897		)	2,495
Land closing gross loss														(1,742		)	(687		)	(1,376		)	(1,897		)
Total closing gross profit	158,828			140,910			281,948			250,673				157,376			158,828			274,204			281,948
Financial Services:
Revenue	3,870			3,649			6,918			6,593				4,160			3,870			7,388			6,918
Expense	(1,693		)	(1,551		)	(3,177		)	(2,930		)		(1,720		)	(1,693		)	(3,224		)	(3,177		)
Earnings from financial services unconsolidated entities and other, net	3,474			3,459			6,130			6,184				3,591			3,474			6,569			6,130
Financial services profit	5,651			5,557			9,871			9,847				6,031			5,651			10,733			9,871
Commissions and other sales costs	(60,823		)	(54,701		)	(113,575		)	(103,021		)		(60,125		)	(60,823		)	(112,680		)	(113,575		)
General and administrative expenses	(34,205		)	(29,591		)	(65,098		)	(59,213		)		(34,779		)	(34,205		)	(68,345		)	(65,098		)
(Loss)/earnings from other unconsolidated entities, net	(156		)	570			(202		)	943
Interest expense	(44		)	(1,620		)	(180		)	(2,445		)		(3,197		)	(44		)	(7,282		)	(180		)
Other income, net	1,934			2,080			7,305			3,190				2,368			1,778			3,414			7,103
Earnings before income taxes	71,185			63,205			120,069			99,974				67,674			71,185			100,044			120,069
Provision for income taxes	(17,347		)	(21,625		)	(22,357		)	(34,822		)		(16,846		)	(17,347		)	(23,804		)	(22,357		)
Net earnings	$	53,838		$	41,580		$	97,712		$	65,152		��	$	50,828		$	53,838		$	76,240		$	97,712
Earnings per common share:
Basic	$	1.32		$	1.03		$	2.41		$	1.62			$	1.33		$	1.32		$	2.00		$	2.41
Diluted	$	1.31		$	0.98		$	2.37		$	1.54			$	1.31		$	1.31		$	1.97		$	2.37
Weighted average number of shares:
Basic	40,647			40,317			40,568			40,248				38,266			40,647			38,136			40,568
Diluted	41,164			42,781			41,193			42,836				38,889			41,164			38,789			41,193

See accompanying notes to unaudited consolidated financial statements

MERITAGE HOMES CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Six Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2019			2018
Cash flows from operating activities:
Net earnings	$	97,712		$	65,152		$	76,240		$	97,712
Adjustments to reconcile net earnings to net cash used in operating activities:
Adjustments to reconcile net earnings to net cash provided by/(used in) operating activities:
Depreciation and amortization	12,608			7,872			12,381			12,608
Stock-based compensation	8,976			5,785			10,062			8,976
Equity in earnings from unconsolidated entities	(5,978		)	(7,127		)	(5,828		)	(5,978		)
Distributions of earnings from unconsolidated entities	6,834			6,712			8,508			6,834
Other	2,407			10			4,305			2,407
Changes in assets and liabilities:
Increase in real estate	(155,809		)	(211,384		)
Decrease/(increase) in real estate							5,439			(155,809		)
Decrease in deposits on real estate under option or contract	11,093			9,308			5,096			11,093
Decrease/(increase) in other receivables, prepaids and other assets	1,634			(9,428		)
Increase/(decrease) in accounts payable and accrued liabilities	6,997			(5,497		)
(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	3,071			7,849			3,613			3,071
Net cash used in operating activities	(10,455		)	(130,748		)
Net cash provided by/(used in) operating activities							113,349			(10,455		)
Cash flows from investing activities:
Investments in unconsolidated entities	(417		)	(408		)	(1,112		)	(417		)
Distributions of capital from unconsolidated entities	—			1,250			7,250			—
Purchases of property and equipment	(15,726		)	(8,322		)	(12,132		)	(15,726		)
Proceeds from sales of property and equipment	92			86			192			92
Maturities/sales of investments and securities	1,065			1,258			566			1,065
Payments to purchase investments and securities	(1,065		)	(1,258		)	(566		)	(1,065		)
Net cash used in investing activities	(16,051		)	(7,394		)	(5,802		)	(16,051		)
Cash flows from financing activities:
Repayment of Credit Facility, net	—			(15,000		)
Repayment of loans payable and other borrowings	(2,499		)	(5,725		)	(2,629		)	(2,499		)
Repayment of senior notes and senior convertible notes	(175,000		)	(52,098		)
Repayment of senior notes							—			(175,000		)
Proceeds from issuance of senior notes	206,000			300,000			—			206,000
Payment of debt issuance costs	(3,315		)	(3,998		)	—			(3,315		)
Net cash provided by financing activities	25,186			223,179
Net (decrease)/increase in cash and cash equivalents	(1,320		)	85,037
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	170,746			131,702			311,466			170,746
Cash and cash equivalents, end of period	$	169,426		$	216,739		$	407,427		$	169,426

See Supplemental Disclosure of Cash Flow Information in Note ~~13.~~14.

See accompanying notes to unaudited consolidated financial statements

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 ~~to homebuyers~~ primarily ~~focused on~~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 ~~and marketing~~ 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 ~~some markets.~~close-out stages. At June 30, ~~2018~~2019, we were actively selling homes in ~~253~~254 communities, with base prices ranging from approximately ~~$179,000~~$185,000 to $~~1,311,000~~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, ~~2017.~~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 ~~(consisting only of normal recurring entries),~~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 $~~56.4~~52.7 million and ~~$107.1~~$76.1 million are included in cash and cash equivalents at June 30, ~~2018~~2019 and December 31, ~~2017,~~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, ~~and home construction that benefit the entire community,~~ less impairments, if any. Land and development costs are typically allocated and transferred to homes ~~under construction~~ 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 ~~the~~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 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 ~~$48.9~~$46.3 million and ~~$59.9~~$51.4 million as of June 30, ~~2018~~2019 and December 31, ~~2017,~~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. ASC 350 states that an entity may first assess qualitative factors~~ 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.~~base, although our participation in such ventures is currently very limited. See Note 45 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.

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

As of
June 30, 2018 December 31, 2017
Outstanding
Estimated work
remaining to
complete
Outstanding
Estimated work
remaining to
complete
Sureties:
Sureties related to owned projects and lots under contract $ 345,297
$ 160,981
$ 296,387
$ 120,320
Total Sureties $ 345,297
$ 160,981
$ 296,387
$ 120,320
Letters of Credit (“LOCs”):
LOCs for land development 74,254
N/A
70,922
N/A
LOCs for general corporate operations 3,750
N/A
3,750
N/A
Total LOCs $ 78,004
N/A
$ 74,672
N/A

Accrued Liabilities. Accrued liabilities at June 30, ~~2018~~2019 and December 31, ~~2017~~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.

As of
June 30, 2018 December 31, 2017
Accruals related to real estate development and construction activities $ 65,468
$ 53,522
Payroll and other benefits 39,559
58,186
Accrued interest 13,404
15,369
Accrued taxes 15,218
14,067
Warranty reserves 23,659

23,328
Other accruals 16,462
16,604
Total $ 173,770
$ 181,076
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 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.

~~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 typically during the first one to 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 also 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, 2018 and December 31, 2017 reflected in the table below are case-specific reserves for three warranty matters related to (1) alleged stucco defects in Florida; (2) a potentially faulty solar component in various locations provided by a bankrupt manufacturer; and (3) a foundation design 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,
2018 2017 2018 2017
Balance, beginning of period $ 23,812
$ 22,477
$ 23,328
$ 22,660
Additions to reserve from new home deliveries 4,146
4,310
7,553
8,125
Warranty claims (4,299 ) (3,167 ) (7,222 ) (7,165 )
Adjustments to pre-existing reserves —
—
—
—
Balance, end of period $ 23,659

$ 23,620
$ 23,659
$ 23,620

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.

We have received claims related to stucco installation from homeowners in certain Florida communities and we established reserves to cover our anticipated exposure related to the repairs based on the information available to us as of June 30, 2018. Our review of the stucco related matter 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, 2018, 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.

Recent Accounting Pronouncements.

In ~~January 2017,~~August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. ~~2017-04,~~2018-15, Intangibles - Goodwill and Other ~~(Topic 350), Simplifying the~~- Internal-Use Software (Subtopic 350-40): Customer's Accounting for ~~Goodwill Impairment~~ ("Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract ("ASU ~~2017-04"~~2018-15"), which ~~simplifies~~aligns the ~~accounting~~requirements for ~~goodwill impairments by eliminating~~capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the ~~second step of the goodwill impairment test. Under the new guidance, an impairment loss will reflect the amount by which the carrying amount of a reporting unit exceeds its fair value, not~~requirements for capitalizing implementation costs incurred to ~~exceed the carrying amount of goodwill.~~develop or obtain internal-use software. ASU ~~2017-04~~2018-15 is effective for us beginning January 1, ~~2020, with early adoption permitted. We~~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 ~~elected to early adopt ASU 2017-04 effective January 1, 2018 and it did not have a material impact~~ on our financial ~~statements.~~statement disclosures.

In August ~~2016,~~2018, the FASB issued ASU No. ~~2016-15,~~ ~~Statement~~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 ~~Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~ ("fair value measurements. ASU 2016-15"). ASU 2016-15 adds and clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows, reducing the existing diversity in practice that has resulted from the lack of consistent principles on this topic. ASU 2016-15 was2018-13 is effective for us beginning January 1, ~~2018. A~~2020. Certain disclosures are required to be applied on a retrospective ~~transition method was required~~basis and others on ~~adoption and~~a prospective basis. Although we do not anticipate it ~~did not~~to be material, we are currently evaluating the impact adopting this guidance will have ~~a material impact~~ on our financial statement ~~of cash flows.~~disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02")~~, which amends~~. ASU 2016-02 amended the ~~existing~~previous accounting standards for lease accounting ~~including requiring~~and resulted in the requirement that lessees to recognize ~~most~~ leases with lease terms of greater than twelve months on their balance sheets. ASU 2016-02 will be effective for us beginning January 1, 2019. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an

~~option to use certain transition relief. We are currently evaluating the impact adopting this guidance will have on our financial statements.~~

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606),~~ (“ASU 2014-09”). ASU 2014-09 requires entities to recognize revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted ASU ~~2014-09~~2016-02 on January 1, ~~2018~~2019 using a modified retrospective ~~method.~~

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 ~~2014-09 did not have an impact~~2016-02 resulted in a gross up on ~~the amount or timing~~our consolidated balance sheet for right-of-use ("ROU") assets and lease liabilities of ~~our homebuilding revenues, although forfeited customer deposits, typically an immaterial amount on an annual basis, that were previously~~$20.5 million and $28.7 million, respectively, as of January 1, 2019. Our ROU assets are included in ~~Other income, net~~the Prepaids, other assets and goodwill line item and the corresponding lease obligations are ~~reported as Home closing revenue~~included in the Accrued liabilities line item on our consolidated ~~statements of operations effective January 1, 2018. Additionally, as a result of the~~balance sheet. The adoption of ASU 2014-09, there was an immaterial adjustment to our opening balance of Retained earnings with respect to the timing of expenses resulting from ceasing the capitalization of certain selling costs we incur as part of the selling process. The majority of these previously capitalized costs were allocated to either Real estate or Property and equipment, net on our opening 2018 consolidated balance sheet, with an immaterial amount recognized as a cumulative effect adjustment to the opening balance of retained earnings.

~~As of and for the three and six months ended June 30, 2018 the adoption of ASU 2014-09 did not have a material~~2016-02 had no impact on our balance sheet, net earnings, stockholders' equity or our statement of cash flows. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.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

As of
June 30, 2018 December 31, 2017
Homes under contract under construction ⁽¹⁾
$ 715,373
$ 566,474
Unsold homes, completed and under construction ⁽¹⁾
562,435
516,577
Model homes ⁽¹⁾
138,441
142,026
Finished home sites and home sites under development ⁽²⁾
1,453,798
1,506,303
Total $ 2,870,047

$ 2,731,380


(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 ~~may~~ have chosen not to currently develop certain land holdings as they typically represent a portion or phases of a larger land parcel that we plan to build out over several years. 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

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Capitalized interest, beginning of period $ 81,828
$ 70,885
$ 78,564
$ 68,196
Interest incurred 21,374
19,280
42,243
37,175
Interest expensed (44 ) (1,620 ) (180 ) (2,445 )
Interest amortized to cost of home and land closings (18,715 ) (16,218 ) (36,184 ) (30,599 )
Capitalized interest, end of period $ 84,443
$ 72,327
$ 84,443
$ 72,327

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

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, ~~2018~~2019 (dollars in thousands):


	Projected Number of Lots	Purchase Price		Option/ Earnest Money Deposits–Cash			Projected Number of Lots	Purchase Price		Option/ Earnest Money Deposits–Cash
Purchase and option contracts recorded on balance sheet as Real estate not owned	228	$	38,864	$	3,886		—	$	—	$	—
Option contracts — non-refundable deposits, committed (1)	2,907	219,491		26,432			3,385	229,577		25,388
Purchase contracts — non-refundable deposits, committed (1)	5,854	229,643		18,353			6,971	277,899		16,089
Purchase and option contracts —refundable deposits, committed	866	33,091		1,021			1,410	63,085		1,370
Total committed	9,855	521,089		49,692			11,766	570,561		42,847
Purchase and option contracts — refundable deposits, uncommitted (2)	10,728	271,343		3,074			10,213	316,618		3,473
Total lots under contract or option	20,583	$	792,432	$	52,766		21,979	$	887,179	$	46,320
Total purchase and option contracts not recorded on balance sheet (3)	20,355	$	753,568	$	48,880	(4)	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, ~~2018.~~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~~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

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

NOTE 45 - 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 ~~critical to the success~~a primary source of ~~our homebuilding operations.~~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, ~~2018~~2019, we had ~~three~~two active equity-method land ~~ventures.~~ventures with limited operations.

As of June 30, ~~2018~~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, ~~2018~~2019 and December 31, ~~2017~~2018 was ~~$1.6~~$1.0 million and ~~$2.2~~$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

As of
June 30, 2018 December 31, 2017
Assets:
Cash $ 8,441
$ 8,942
Real estate 57,553
55,552
Other assets 3,451
4,323
Total assets $ 69,445
$ 68,817
Liabilities and equity:
Accounts payable and other liabilities $ 6,492
$ 7,516
Notes and mortgages payable 26,572
25,194
Equity of:
Meritage ⁽¹⁾
14,736
14,521
Other 21,645
21,586
Total liabilities and equity $ 69,445
$ 68,817


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenue	$	9,982		$	13,430		$	17,314		$	21,029		$	10,846		$	9,982		$	19,844		$	17,314
Costs and expenses	(3,408		)	(6,106		)	(7,343		)	(10,586		)	(3,599		)	(3,408		)	(9,715		)	(7,343		)
Net earnings of unconsolidated entities	$	6,574		$	7,324		$	9,971		$	10,443		$	7,247		$	6,574		$	10,129		$	9,971
Meritage’s share of pre-tax earnings ^{(1) (2)}	$	3,368		$	4,068		$	5,978		$	7,250		$	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 ~~(Loss)/earnings from other unconsolidated entities,~~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 ~~$16.6~~$7.6 million and ~~$17.1~~$17.5 million as

of June 30, ~~2018~~2019 and December 31, ~~2017,~~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 56 — LOANS PAYABLE AND OTHER BORROWINGS

Loans payable and other borrowings consist of the following (in thousands):


	As of				As of
	June 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Other borrowings, real estate notes payable ⁽¹⁾	$	16,552	$	17,354	$	12,224	$	14,773
$780 million unsecured revolving credit facility with interest approximating LIBOR (approximately 2.09% at June 30, 2018) plus 1.75% or Prime (5.00% at June 30, 2018) plus 0.75%	—		—
$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	$	16,552	$	17,354	$	12,224	$	14,773


(1)	Reflects balance of non-recourse non-interest bearing notes payable in connection with land ~~purchases, with interest rates ranging from 0% to 8%.~~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 ~~2018~~2019 the ~~aggregate commitment~~Credit Facility was ~~increased to $780.0 million, and~~amended, extending the maturity date ~~extended~~ to July ~~2022.~~2023, along with minor administrative changes. The Credit Facility's aggregate commitment is $780.0 million with an accordion feature ~~was also refreshed~~ permitting the size of the facility to increase to a maximum of $880.0 ~~million.~~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, ~~2018 and~~2019 or December 31, ~~2017.~~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 ~~in gross borrowings and repayments. During the three months ended June 30, 2017 we had $85.0 million~~ of gross borrowings and ~~$145.0 million of repayments. During the six months ended June 30, 2017, we had $245.0 million of gross borrowings and $260.0 million of~~ repayments. As of June 30, ~~2018,~~2019, we had outstanding letters of credit issued under the Credit Facility totaling ~~$78.0~~$55.6 million, leaving ~~$702.0~~$724.4 million available under the Credit Facility to be drawn.

NOTE 67 — 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

As of
June 30, 2018 December 31, 2017
4.50% senior notes due 2018 $ —
$ 175,000
7.15% senior notes due 2020. At June 30, 2018 and December 31, 2017 there was approximately $995 and $1,280 in net unamortized premium, respectively. 300,995
301,280
7.00% senior notes due 2022 300,000
300,000
6.00% senior notes due 2025. At June 30, 2018 there was approximately $5,727 in net unamortized premium. ⁽¹⁾
405,727
200,000
5.125% senior notes due 2027 300,000
300,000
Net debt issuance costs (12,017 ) (9,830 )
Total $ 1,294,705
$ 1,266,450


~~(1)~~	~~$200.0 million of the total $400.0 million 6.00% Senior Notes due 2025 outstanding at December 31, 2017 was issued at par and had no unamortized premium.~~

In March 2018, the Company completed an offering of $200.0 million aggregate principal amount of 6.00% Senior Notes due 2025 (the "Additional Notes"). The Additional Notes were issued as an add-on to the existing $200.0 million of 6.00% Senior Notes due 2025 that were issued in June 2015 which resulted in a combined $400.0 million aggregate principal amount of 6.00% Senior Notes due 2025 outstanding as of June 30, 2018. The Additional Notes were issued at a premium of 103% of the principal amount and the net proceeds were used to repay outstanding borrowings under the Credit Facility, which included borrowings used for the redemption of the Company's $175.0 million of 4.50% Senior Notes that were due to mature on March 1, 2018.

The 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, ~~2018.~~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

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 78 — 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

As of
June 30, 2018 December 31, 2017

Aggregate
Principal

Estimated Fair
Value

Aggregate
Principal

Estimated Fair
Value
4.50% senior notes N/A
N/A
$ 175,000
$ 175,228
7.15% senior notes $ 300,000
$ 317,250
$ 300,000
$ 326,250
7.00% senior notes $ 300,000
$ 323,250
$ 300,000
$ 337,500
6.00% senior notes $ 400,000
$ 405,000
$ 200,000
$ 214,000
5.125% senior notes $ 300,000
$ 277,500
$ 300,000
$ 305,250

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.

NOTE 89 — 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

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Basic weighted average number of shares outstanding 40,647
40,317
40,568
40,248
Effect of dilutive securities:
Convertible debt ⁽¹⁾
—
1,991
—
2,083
Unvested restricted stock 517
473
625
505
Diluted average shares outstanding 41,164
42,781
41,193
42,836
Net earnings as reported $ 53,838
$ 41,580
$ 97,712
$ 65,152
Interest attributable to Convertible Notes, net of income taxes ⁽¹⁾
—
354
—
739
Net earnings for diluted earnings per share $ 53,838
$ 41,934
$ 97,712
$ 65,891
Basic earnings per share $ 1.32
$ 1.03
$ 2.41
$ 1.62
Diluted earnings per share ⁽¹⁾
$ 1.31
$ 0.98
$ 2.37
$ 1.54
Antidilutive stock not included in the calculation of diluted earnings per share 1
59
1
2


~~(1)~~	~~In accordance with ASC 260-10,~~ ~~Earnings Per Share~~, ("ASC 260-10") we calculate the dilutive effect of convertible securities using the "if-converted" method based on the number of days our Convertible Notes were outstanding during the period. All of the Convertible Notes were retired in the second half of 2017.

NOTE 910 — ACQUISITIONS AND GOODWILL

Goodwill. ~~Over the past several~~ 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 ~~are~~were recorded in accordance with ASC 805, Business ~~Combination~~sCombinations, 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

West Central East Financial Services Corporate Total
Balance at December 31, 2017 $ —
$ —
$ 32,962
$ —
$ —
$ 32,962
Additions —
—
—
—
—
—
Impairments —
—
—
—
—
—
Balance at June 30, 2018 $ —
$ —
$ 32,962
$ —
$ —
$ 32,962

NOTE 1011 — STOCKHOLDERS’ EQUITY

A summary of changes in stockholders’ equity is presented below (in thousands):

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 ⁽¹⁾
—
—
—
(583 ) (583 )
Net earnings —
—
—
97,712
97,712
Exercise/vesting of stock-based awards 318
3
(3 ) —
—
Stock-based compensation expense —
—
8,986
—
8,986
Balance at June 30, 2018 40,649
$ 406
$ 593,561
$ 1,088,973
$ 1,682,940



~~(1)~~	~~Refer to Note 1 for additional information related to the adoption of ASU 2014-09.~~



	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
Stock-based compensation expense	—	—		3,770			—			3,770
Issuance of stock	17	—		—			—			—
Balance at June 30, 2018	40,649	$	406	$	593,561		$	1,088,973		$	1,682,940

Six Months Ended June 30, 2017
(In thousands)

Number of
Shares

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings
Total
Balance at December 31, 2016 40,031
$ 400
$ 572,506
$ 848,589
$ 1,421,495
Net earnings —
—
—
65,152
65,152
Exercise/vesting of stock-based awards 289
3
(3 ) —
—
Stock-based compensation expense —
—
5,792
—
5,792
Balance at June 30, 2017 40,320
$ 403
$ 578,295
$ 913,741
$ 1,492,439

NOTE 1112 — STOCK BASED AND DEFERRED COMPENSATION

We have ~~two stock-based~~a stock compensation ~~plans, the Amended and Restated 2006 Stock Incentive Plan (the “2006 Plan”) and~~plan, the Meritage Homes Corporation 2018 Stock Incentive Plan (the “2018 Plan"), ~~collectively the "Stock Plans". The 2006 Plan was approved by our Board of Directors and adopted in 2006 and has been amended or restated from time to time. The 2018 Plan~~that was approved by our Board of Directors and our stockholders and adopted in May 2018. The 2018 ~~authorizing 1,250,000 shares for issuance. Both plans are~~Plan is administered by our Board of Directors and ~~allow~~allows for the grant of stock appreciation rights, restricted stock awards, restricted stock units, performance share awards and performance-based awards in addition to non-qualified and incentive stock options. Effective May 2019, our prior stock compensation plan, the Amended and Restated 2006 Stock Incentive Plan (the “2006 Plan”) expired, and all available shares from expired, terminated, or forfeited awards that remained under the 2006 Plan and prior plans were available for grant under the 2018 Plan. The ~~Stock Plans authorize~~2018 Plan authorizes awards to officers, key employees, non-employee directors and consultants. The ~~2006~~2018 Plan authorizes ~~5,350,000~~6,600,000 shares of ~~common~~ stock to be awarded, of which ~~643,793~~1,521,162 shares remain available for grant at June 30, ~~2018. Upon expiration of the 2006 Plan in May~~ 2019 any available shares from expired, terminated or forfeited awards that remain under the 2006 Plan and prior plans will be available for grant under the 2018 Plan. The 2018 Plan has 1,250,000 shares available for grant at ~~June 30, 2018~~. We believe that such awards provide a means of performance-based compensation to attract and retain qualified employees and better align the interests of our employees with those of our stockholders. Non-vested stock awards are usually granted with a five-year ratable vesting period for employees and with a three-year cliff vesting for both non-vested stock and performance-based awards granted to ~~certain~~ senior executive officers and non-employee directors.

Compensation cost related to time-based restricted stock awards is measured as of the closing price on the date of grant and is expensed, less forfeitures, on a straight-line basis over the vesting period of the award. Compensation cost related to performance-based restricted stock awards is also measured as of the closing price on the date of grant but is expensed in accordance with ASC 718-10-25-20, Compensation – Stock Compensation ("ASC 718"), which requires an assessment of probability of attainment of the performance target. As our performance targets are dependent on performance over a specified measurement period, once we determine that the performance target outcome is probable, the cumulative expense is recorded immediately with the remaining expense recorded on a straight-line basis through the end of the award vesting period. For the three and six months ended June 30, 2018, stock compensation increased as compared to prior year partially due to a change in the compensation structure for certain executives to all performance-based equity grants. A portion of the performance-based restricted stock awards granted to our executive officers contain market conditions as defined by ASC 718. The guidance in ASC 718 requires that compensation expense for stock awards with market conditions be expensed based on a derived grant date fair value and expensed over the service period. We engage a third party to perform a valuation analysis on the awards containing market conditions and our associated expense with those awards is based on the derived fair value from that analysis and is being expensed straight-line over the service period of the awards. Below is a summary of compensation expense and stock award activity (dollars in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Stock-based compensation expense	$	4,201	$	3,767	$	10,062	$	8,976
Non-vested shares granted	4,500		—		382,014		306,164
Performance-based non-vested shares granted	—		—		94,152		157,637
Restricted stock awards vested (includes performance-based awards)	2,600		17,137		402,923		318,712

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Stock-based compensation expense $ 3,767
$ 2,490
$ 8,976
$ 5,785
Non-vested shares granted —
—
306,164
416,500
Performance-based non-vested shares granted —
—
157,637
154,120
Restricted stock awards vested (includes performance-based awards) 17,137
6,190
318,712
289,764

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


	As of				As of
	June 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Unrecognized stock-based compensation cost	$	25,155	$	18,439	$	26,182	$	24,954
Weighted average years expense recognition period	2.71		2.48		2.67		2.24
Total equity awards outstanding ⁽¹⁾	1,331,946		1,269,657		1,310,653		1,301,745


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

We also offer a non-qualified deferred compensation plan ("deferred compensation plan") to highly compensated employees in order to allow them additional pre-tax income deferrals above and beyond the limits that qualified plans, such as 401(k) plans, impose on highly compensated employees. We do not currently offer a contribution match on the deferred compensation plan. All contributions to the plan to date have been funded by the employees and, therefore, we have no associated expense related to the deferred compensation plan for the three and six months ended June 30, ~~2018~~2019 or ~~2017,~~2018, other than minor administrative costs.

NOTE 1213 — INCOME TAXES

Components of the income tax provision are as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Federal	$	13,926	$	14,425	$	19,668	$	17,371
State	2,920		2,922		4,136		4,986
Total	$	16,846	$	17,347	$	23,804	$	22,357

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Federal $ 14,425
$ 19,215
$ 17,371
$ 30,788
State 2,922
2,410
4,986
4,034
Total $ 17,347
$ 21,625
$ 22,357
$ 34,822

The effective tax rate for the three and six months ended June 30, 2019 was 24.9% and 23.8%, respectively, and for the three and six months ended June 30, 2018 was 24.4% and 18.6%, ~~respectively, and for the three and six months ended June 30, 2017 was 34.2% and 34.8%,~~ respectively. The lower 2018 ~~effective tax rates reflect lower corporate tax rates as a result of the Tax Cuts and Jobs Act of 2017 (the "Tax Act") passed in December 2017 and the lower year-to-date~~ rate ~~also~~ reflects the impact from the President signing the Bipartisan Budget Act of 2018 in February 2018, which included a retroactive extension of the Internal Revenue Code ("IRC") §45L new energy efficient homes credit that had previously expired in 2016. This extension provision ~~provides~~provided for a single year extension of energy tax credits for homes sold in 2017 that ~~meet~~met the qualification criteria. UnderASC ~~740,~~740-10 Income Taxes ("ASC 740"), the effects of these tax credits were required to be recorded in 2018, based on the date of enactment, regardless of the retroactive ~~treatment. Our~~treatment, resulting in a $6.3 million reduction of the federal tax ~~rate for 2017 does not include~~provision in 2018. In the first half of 2019, we recorded a minor tax benefit from our efforts to capture additional energy credits ~~but was favorably impacted by the homebuilding manufacturing deduction, which was eliminated~~from 2016 and 2017. We also recorded a tax benefit from equity-based compensation for 2018 under the Tax Act. We anticipate that with the completion of our 2017 income tax returns, future guidance and additional information and interpretations with respect to the Tax Act will cause us to further adjust the provisional amounts recorded as of December 31, 2017. In accordance with SEC Staff Accounting Bulletin No. 118, we will record such adjustmentsawards vested in the ~~period that relevant guidance or additional information becomes available and~~first half of 2019. These tax benefits had a favorable impact on our ~~analysis is completed.~~2019 effective tax rate.

At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we have no unrecognized tax benefits. We believe that our current income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change. Our policy is to accrue interest and penalties on unrecognized tax benefits and include them in federal income tax expense.

We determine our deferred tax assets and liabilities in accordance with ASC ~~740-10,~~ ~~Income Taxes~~.740. We evaluate our deferred tax assets, including the benefit from net operating losses ("NOLs"), by jurisdiction to determine if a valuation allowance is required. Companies must assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency and severity of cumulative losses, forecasts of future profitability, the length of statutory carry forward periods, experiences with operating losses and experiences of utilizing tax credit carry forwards and tax planning alternatives. We have no valuation allowance on our deferred tax assets and NOL carryovers at June 30, ~~2018.~~2019.

At June 30, ~~2018,~~2019, we had no remaining federal NOL carry forward or un-utilized federal tax credits. At June 30, ~~2018,~~2019 and December 31, ~~2017~~2018, we had tax benefits for state NOL carry forwards of ~~$1.8~~$1.0 million, net of federal benefit, that begin to expire in 2028.

At June 30, ~~2018,~~2019, we have income taxes payable of ~~$8.2~~$3.8 million, which primarily consists of current federal and state tax accruals, net of estimated tax payments and tax credits. This amount is recorded in Accrued liabilities on the accompanying unaudited balance sheet at June 30, ~~2018.~~2019.

We conduct business and are subject to tax in the U.S. and several states. With few exceptions, we are no longer subject to U.S. federal, state, or local income tax examinations by taxing authorities for years prior to ~~2013.~~2014. We have one state income tax examination ~~of multiple years under audit~~being conducted at this time and do not expect it to have a material outcome.

The tax benefits from NOLs, built-in losses, and tax credits would be materially reduced or potentially eliminated if we experience an “ownership change” as defined under IRC §382. Based on our analysis performed as of June 30, 2019 we do not believe that we have experienced an ownership change. As a protective measure, our stockholders held a Special Meeting of Stockholders on February 16, 2009 and approved an amendment to our Articles of Incorporation that restricts certain transfers of our common stock. The amendment is intended to help us avoid an unintended ownership change and thereby preserve the value of any tax benefit for future utilization.

NOTE 1314 — SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

The following table presents certain supplemental cash flow information (in thousands):



	Six Months Ended June 30,
	2019		2018
Interest capitalized, net	$	6,179	$	4,602
Income taxes paid	$	16,536	$	22,353
Non-cash operating activities:
Real estate acquired through notes payable	$	23	$	1,697

Six Months Ended June 30,
2018 2017
Interest capitalized, net $ 4,602
$ 161
Income taxes paid $ 22,353
$ 34,426
Non-cash operating activities:
Real estate not owned increase $ —
$ 9,987
Real estate acquired through notes payable $ 1,697
$ 5,786

NOTE 1415 — OPERATING AND REPORTING SEGMENTS

We operate with two principal business segments: homebuilding and financial services. As defined in ASC 280-10, Segment Reporting, we have nine homebuilding operating segments. The homebuilding segments are engaged in the business of acquiring and developing land, constructing homes, marketing and selling those homes and providing warranty and customer services. We aggregate our homebuilding operating segments into reporting segments based on similar long-term economic characteristics and geographical proximity. Our current reportable homebuilding segments are as follows:



	West:	Arizona, California and Colorado
	Central:	Texas
	East:	Florida, Georgia, North Carolina, South Carolina and Tennessee

Management’s evaluation of segment performance is based on segment operating income, which we define as home and land closing revenues less cost of home and land closings, commissions and other sales costs, land development and other land sales costs and other costs incurred by or allocated to each segment, including impairments. Each reportable segment follows the same accounting policies described in Note 1, “Organization and Basis of Presentation.” Operating results for each segment may not be indicative of the results for such segment had it been an independent, stand-alone entity for the periods presented.

The following segment information is in thousands:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Homebuilding revenue ⁽¹⁾:
West	$	351,647		$	369,574		$	668,875		$	681,378		$	299,002		$	351,647		$	571,968		$	668,875
Central	260,106			225,679			451,976			400,510			290,532			260,106			482,138			451,976
East	265,742			206,725			499,208			392,862			275,076			265,742			518,649			499,208
Consolidated total	$	877,495		$	801,978		$	1,620,059		$	1,474,750		$	864,610		$	877,495		$	1,572,755		$	1,620,059
Homebuilding segment operating income:
West	$	33,062		$	35,131		$	54,183		$	59,143		$	24,074		$	33,062		$	42,382		$	54,183
Central	25,576			23,230			39,843			37,120			28,480			25,576			40,816			39,843
East	14,564			5,285			25,923			7,721			19,216			14,564			28,909			25,923
Total homebuilding segment operating income	73,202			63,646			119,949			103,984			71,770			73,202			112,107			119,949
Financial services segment profit	5,651			5,557			9,871			9,847			6,031			5,651			10,733			9,871
Corporate and unallocated costs ⁽²⁾	(9,402		)	(7,028		)	(16,674		)	(15,545		)	(9,298		)	(9,402		)	(18,928		)	(16,674		)
(Loss)/earnings from other unconsolidated entities, net	(156		)	570			(202		)	943
Interest expense	(44		)	(1,620		)	(180		)	(2,445		)	(3,197		)	(44		)	(7,282		)	(180		)
Other income, net ⁽³⁾	1,934			2,080			7,305			3,190			2,368			1,778			3,414			7,103
Net earnings before income taxes	$	71,185		$	63,205		$	120,069		$	99,974		$	67,674		$	71,185		$	100,044		$	120,069


(1)	Homebuilding revenue includes the following land closing revenue, by segment, as outlined in the table below:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Land closing revenue:
West	$	30	$	1,935	$	30	$	14,390
Central	693		762		693		887
East	834		2,415		10,329		3,867
Total	$	1,557	$	5,112	$	11,052	$	19,144

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Land closing revenue:
West $ 1,935
$ —
$ 14,390
$ 11,800
Central 762
—
887
122
East 2,415
4,198
3,867
4,431
Total $ 5,112
$ 4,198
$ 19,144
$ 16,353


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


(3)	For the six months ended June 30, 2018, Other income, net includes a favorable $4.8 million legal settlement from long-standing litigation related to a previous joint venture in Nevada.


	At June 30, 2018																At June 30, 2019
	West			Central			East			Financial Services		Corporate and Unallocated			Total		West			Central			East			Financial Services		Corporate and Unallocated			Total
Deposits on real estate under option or contract	$	11,790		$	15,512		$	21,578		$	—	$	—		$	48,880	$	8,724		$	13,383		$	24,213		$	—	$	—		$	46,320
Real estate	1,235,184			739,853			895,010			—		—			2,870,047		1,177,788			698,204			859,891			—		—			2,735,883
Investments in unconsolidated entities	8,073			6,974			—			—		1,592			16,639		235			6,353			—			—		967			7,555
Other assets	58,486		(1)	104,174		(2)	117,332		(3)	741		178,595		(4)	459,328		58,691		(1)	114,132		(2)	81,866		(3)	708		421,721		(4)	677,118
Total assets	$	1,313,533		$	866,513		$	1,033,920		$	741	$	180,187		$	3,394,894	$	1,245,438		$	832,072		$	965,970		$	708	$	422,688		$	3,466,876


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


(2)	Balance consists primarily of development reimbursements from local municipalities and cash.


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


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



	At December 31, 2018
	West			Central			East			Financial Services		Corporate and Unallocated			Total
Deposits on real estate under option or contract	$	7,514		$	13,870		$	30,026		$	—	$	—		$	51,410
Real estate	1,188,975			679,422			874,224			—		—			2,742,621
Investments in unconsolidated entities	8,320			6,396			—			—		2,764			17,480
Other assets	51,115		(1)	117,150		(2)	85,869		(3)	1,013		298,821		(4)	553,968
Total assets	$	1,255,924		$	816,838		$	990,119		$	1,013	$	301,585		$	3,365,479


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


(2)	Balance consists primarily of development reimbursements from local municipalities and cash.


(3)	Balance consists primarily of ~~real estate not owned,~~ goodwill (see Note 9)10), cash and property and equipment.


(4)	Balance consists primarily of ~~cash and our deferred tax asset.~~cash.

At December 31, 2017
West Central East Financial Services
Corporate and
Unallocated
Total
Deposits on real estate under option or contract $ 15,557
$ 21,309
$ 23,079
$ —
$ —
$ 59,945
Real estate 1,174,285
700,460
856,635
—
—
2,731,380
Investments in unconsolidated entities 7,833
6,999
—
—
2,236
17,068
Other assets 58,470
(1) 110,173
(2) 144,681
(3) 1,249
128,292
(4) 442,865
Total assets $ 1,256,145
$ 838,941
$ 1,024,395
$ 1,249
$ 130,528
$ 3,251,258


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


~~(2)~~	~~Balance consists primarily of development reimbursements from local municipalities and cash.~~


~~(3)~~	~~Balance consists primarily of real estate not owned, cash, and goodwill (see Note 9).~~


~~(4)~~	~~Balance consists primarily of cash and our deferred tax asset.~~

NOTE 1516 — COMMITMENTS AND CONTINGENCIES

We are involved in various routine legal and regulatory proceedings, including, without limitation, warranty claims and litigation and arbitration proceedings alleging construction defects. In general, the proceedings are incidental to our business, and most exposure is subject to and should be covered by warranty and indemnity obligations of our consultants and subcontractors. Additionally, some such claims are also covered by insurance. With respect to the majority of pending litigation matters, our ultimate legal and financial responsibility, if any, cannot be estimated with certainty and, in most cases, any potential losses related to these matters are not considered probable. Historically, most disputes regarding warranty claims are resolved prior to litigation. We believe there are no pending legal or warranty matters as of June 30, 2019 that could have a material adverse impact upon our consolidated financial condition, results of operations or cash flows that have not been sufficiently reserved.

As discussed in Note 1 under the heading “Warranty Reserves”, we have case specific reserves within our ~~$23.7~~$20.9 million of total warranty reserves related to a foundation design and performance matter affecting a single community in Texas. In addition to the repairs required to be made to homes within that community, we have been named as a defendant in several lawsuits filed by homeowners in that community. As of June 30, ~~2018,~~2019, the claim we made for this matter under our general liability insurance ~~policy~~policies has initially been denied, which we ~~vehemently~~ disagree with and have disputed with our insurance carrier. We regularly review our reserves, and adjust them, as necessary to reflect changes as more information becomes available. As of June 30, ~~2018,~~2019, taking into account sources of potential future recovery from the contractors involved with the design and construction ~~design~~ of ~~the~~these homes and their insurers as well as from our general liability insurer, we believe our reserves are sufficient to cover repairs and related claims.

Also included within our case specific reserves are reserves for alleged stucco defects in homes in certain Florida communities we developed prior to 2016. We are involved in legal proceedings relating to such stucco defects. Our review of these stucco related matters is ongoing and our estimate of and reserve for 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 and thus our related reserves. As of June 30, 2019, after considering potential recoveries from the contractors involved and their insurers and the potential recovery under our general liability insurance policies, we believe our reserves are sufficient to cover the existing stucco related repairs and claims.

Special Note of Caution Regarding Forward-Looking Statements

In passing the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Congress encouraged public companies to make “forward-looking statements” by creating a safe-harbor to protect companies from securities law liability in connection with forward-looking statements. We intend to qualify both our written and oral forward-looking statements for protection under the PSLRA.

The words “believe,” “expect,” “anticipate,” “forecast,” “plan,” “intend,” "may," "will," "should," "could," “estimate,” “project” and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. All statements we make other than statements of historical fact are forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of ~~1934.~~1934 (the "Exchange Act"). Forward-looking statements in this Quarterly Report include: statements concerning trends and economic factors in the homebuilding industry in general, and our markets and results specifically; our operating strategy and initiatives, including our strategy to expand the number of communities that target the first-time ~~buyer segment;~~and first move-up buyers; demand and pricing trends in the short-term throughout our geographies; that we may opportunistically repurchase our debt and equity securities; the benefits of our land acquisition strategy and structures, including the use and the benefits of option contracts and joint ventures; that we expect to redeploy cash generated from operations to acquire and develop lot positions; our expectation that existing guarantees, letters of credit and performance and surety bonds will not be drawn on; the adequacy of our insurance coverage and warranty reserves; the expected outcome of legal proceedings we are involved in and the sufficiency of our reserves relating thereto; the sufficiency of our liquidity and capital resources to support our business strategy; our ability and willingness to acquire land under option or contract; our strategy and trends and expectations concerning sales prices, sales pace, closings, orders, cancellations, material and labor costs for land development and home construction, gross margins, gross profit, revenues, net earnings, operating leverage, backlog and backlog conversion, land prices, changes in and location of active communities, and the amount, type and timing of new community openings; seasonality; our future cash needs; the impact of new accounting standards; that we may seek to raise additional debt and equity capital; ~~and~~ our intentions regarding the payment of dividends and the use of derivative contracts; our perceptions about the importance of joint ventures to our business; and the impact of changes in interest rates.

Important factors that could cause actual results to differ materially from those in forward-looking statements, and that could negatively affect our business include, but are not limited to, the following: changes in interest rates and the availability and pricing of residential mortgages; legislation related to tariffs; the availability and cost of finished lots and undeveloped land; shortages in the availability and cost of labor; changes in interest rates and the availability and pricing of residential mortgages; changes in tax laws that adversely impact us or our homebuyers; inflation in the cost of materials used to develop communities and construct homes; the success of strategic initiatives; the ability of our potential buyers to sell their existing homes; ~~cancellation rates;~~inflation in the cost of materials used to develop communities and construct homes; the adverse effect of slow absorption rates; ~~slowing in the growth of first-time homebuyers; competition;~~ impairments of our real estate inventory; cancellation rates; competition; changes in tax laws that adversely impact us or our homebuyers; a change to the feasibility of projects under option or contract that could result in the write-down or write-off of earnest ~~money~~ or option deposits; our potential exposure to and impacts from natural disasters or severe weather conditions; home warranty and construction defect claims; failures in health and safety performance; our success in prevailing on contested tax positions; our ability to obtain performance and surety bonds in connection with our development work; the loss of key personnel; failure to comply with laws and regulations; our limited geographic diversification; fluctuations in quarterly operating results; our level of indebtedness; our ability to obtain financing if our credit ratings are downgraded; our ability to successfully integrate acquired companies and achieve anticipated benefits from these acquisitions; our compliance with government regulations; the effect of legislative and other governmental actions, orders, policies or initiatives that impact housing, labor availability, construction, mortgage availability, our access to capital, the cost of capital or the economy in general, or other initiatives that seek to restrain growth of new housing construction or similar measures; legislation relating to energy and climate change; the replication of our energy-efficient technologies by our competitors; our exposure to information technology failures and security breaches; negative publicity that affects our reputation; and other factors identified in documents filed by the Company with the Securities and Exchange Commission, including those set forth in this Form 10-Q and our Form 10-K for the year ended December 31, ~~2017~~2018 under the caption "Risk Factors," which can be found on our website.

Forward-looking statements express expectations of future events. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties that could cause actual events or results to differ materially from those projected. Due to these inherent uncertainties, the investment community is urged not to place undue reliance on forward-looking statements. In addition, we disclaim and undertake no obligations to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to projections over time, except as required by law.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview and Outlook

The ~~housing market has remained healthy during~~second quarter of 2019 reflected continued positive home buying sentiment and solid home buying activity for the ~~first six months~~homebuilding industry, particularly for those offering homes at affordable price points, as buyers have responded to the historically low interest rates and the growing availability of ~~2018 as a solid~~affordable home offerings. We believe the demand experienced in the extended spring selling season reflects the sustained positive macroeconomic factors in the economy ~~assisted by~~with low unemployment levels and wage ~~growth and a shortage~~growth. With the meaningful number of millennials in the ~~supply of homes, particularly at entry-level price points, has overcome concerns from potential impacts of rising interest rates~~home buying market and ~~stock market volatility. We~~the desire to downsize in the baby boomer generation, we believe ~~that these factors will continue to create a positive~~ demand ~~environment~~ for ~~our sector, particularly among the first-time homebuyer segment where lower-priced homes continue to offer~~ affordable ~~solutions for home buyers.~~

~~The desire for~~ new homes ~~continues~~will outpace demand for other product offerings. Accordingly, homebuilders with attractive, lower price-point product in desirable locations should be poised to ~~be strong across most of our markets, especially~~capture this demand for ~~our entry-level LiVE.NOW.~~^® ~~communities that target first-time or move-down homebuyers looking for a lower~~nicely appointed but reasonably priced ~~product.~~ homes, as buyers in this environment are primarily motivated by affordability.

We continue to demonstrate our commitment to the first-time and first move-up buyer through our land acquisitions and focus on delivering affordable homes through simplification. We also remain committed to our key strategic initiatives such as home closing gross margin improvement, selling, general and administrative cost control and community count ~~growth that we~~stability, all of which are benefiting from our strategic product switch and simplification initiatives. We believe the successful execution of these initiatives will position us to continue to improve profitability ~~with~~as we realize the benefits of our ~~focus on the~~transition. We have made considerable progress as approximately 85% of our active communities are targeted to first-time and first move-up ~~buyer. First-time~~buyers and those buyers represented ~~nearly half~~approximately 90% of our orders in the second quarter of ~~2018 and we~~2019. We expect ~~that growth~~ to continue to deliver on our operational initiatives as we are opening an ~~increased~~increasing number of communities that target first-time or first move-up buyers We believe this strategy will allow us to achieve higher orders pace, higher gross margins and better opportunities to leverage our overhead costs as we build and sell to the ~~first-time buyer segment. Our entry-level product is also attracting move-down buyers with select floor plans and price points that appeal to an age-targeted audience.~~largest segments of the home buying population.

Summary Company Results

~~Our second~~Second quarter ~~2018~~2019 results ~~delivered on several of our key strategic initiatives, with~~reflect growth in our entry-level business ~~growing~~and improved closings and orders ~~pace in our markets and performance gains reflected in our improved home closing gross margins, most notably in our East region.~~volume compared to the prior year quarter. Total home closing revenue was ~~$872.4~~$863.1 million for the three months ended June 30, ~~2018, an~~2019, with a 5.3% increase in the number of ~~$74.6 million~~homes closed over the ~~corresponding~~ prior year ~~period,~~period. Home closing revenue decreased $9.3 million compared to the second quarter of 2018 due to ~~233 additional homes closed.~~a $24,800 decrease in average sales price resulting from our shift in focus to the first-time and first move-up buyer. The ~~increase~~decrease in home closing revenue ~~and 60-basis-point improvement in~~was partially offset by slightly higher year-over-year home closing gross margin ~~provided $18.6 million~~resulting in ~~additional~~relatively flat home closing gross profit of $159.1 million which combined with a ~~$1.6~~$3.2 million ~~decrease~~increase in interest expense ~~and a lower income tax provision,~~ contributed to ~~$53.8 million~~a 5.6% decline in net income of $50.8 million for the three months ended June 30, ~~2018, a 29.5% improvement over the $41.6~~2019 versus $53.8 million in the ~~corresponding 2017 period.~~second quarter of 2018. We also incurred a $1.7 million charge taken in the second quarter of 2019 to sell one community that no longer fits our current strategy. Second quarter ~~2018~~2019 results reflect a ~~lower~~marginally higher provision for income taxes ~~due to a lower effective tax rate~~ of 24.9% versus 24.4% ~~versus 34.2%~~ in ~~2017 as a result~~the second quarter of ~~the Tax Act signed into law in December 2017, which resulted in a lower corporate tax rate.~~2018. Similar to the second quarter, year-to-date results reflect ~~$142.5~~a $39.2 million decrease in ~~additional~~ home closing revenue and ~~$35.7~~an $8.3 million ~~higher~~decrease in home closing gross profit versus the six months ended June 30, ~~2017. Higher~~2018, resulting entirely from a decline in average sales prices as the number of homes closed increased 4.0%. Lower gross profit combined with a ~~$4.1~~$3.7 million ~~increase~~decrease in Other income, net and ~~lower~~higher year-over-year interest expense led to net income of ~~$97.7~~$76.2 million for the six months ended June 30, ~~2018~~2019 compared to ~~$65.2~~$97.7 million for the ~~2017~~2018 period. Other income, net was favorably impacted in the first half of 2018 as a result of receiving a $4.8 million litigation settlement with no comparable event in the first half of 2019.

~~On a consolidated basis, we~~We experienced ~~year over year~~year-over-year growth in both closings and orders ~~both in units and value,~~ for the three and six months ended June 30, ~~2018~~2019 over the prior year. For the three and six months ended June 30, 2019, order units improved by 21.6% and 14.3%, respectively, to 2,735 and 5,265. We ended the second quarter of ~~2018~~2019 with ~~3,619~~3,680 homes in backlog valued at $1.5 billion, ~~5.6%~~a 1.7% increase in units and ~~5.5% improvements, respectively,~~a decline of 3.4% in value over June 30, ~~2017. The growth in year-over-year backlog is the result of a 7.5% improvement in year-to-date orders at June 30,~~ 2018, ~~compared to the prior year, as our~~reflecting lower average sales price on homes in backlog was down slightly stemming from our pivot to entry-level product. The percentage of actively selling communities that target to the first-time buyer grew to 34.0% in the second quarter of 2018, as compared to 24.5% in the prior year second quarter.prices.

Company Positioning

We believe that the investments in our new communities, particularly those designed for the first-time and first move-up homebuyer, and industry-leading innovation in our energy-efficient product offerings and automation create a differentiated strategy that has aided us in our ~~growth~~success in the ~~highly competitive~~highly-competitive new home market.

Our focus includes the following strategic initiatives:

~~Expanding the number of LiVE.NOW~~® ~~communities that target the growing first-time homebuyer segment;~~


•	Expanding the number of LiVE.NOW^® communities that target the growing first-time homebuyer;

Improving the overall customer experience, most recently through a simplification of the customer ~~purchase~~sale and construction processes and option selection ~~processes;~~process for move-up buyers at Studio M;

~~Enhancing~~Demonstrating our ~~website~~commitment to innovation through a new fully-automated and ~~sales offices through investments in technology. As of June 30, 2018 all of~~secured digital loan pre-approval process available on our LiVE.NOW communities feature interactive tools offering homebuyers the ability to search for available homes with their desired home features and based on their preferred availability or move-in dates;website;


•	Enhancing our website and sales offices through investments in technology. All of our LiVE.NOW^® communities feature interactive technology tools offering homebuyers the ability to electronically search for available homes with their desired home features and based on their preferred availability or move-in dates;

Improving our home closing gross ~~margin~~profit by growing revenue while managing costs, allowing us to better leverage our overhead; and

Actively ~~acquire~~ and ~~develop~~strategically acquiring and developing land in ~~key~~our markets in order to maintain and grow our lot supply and active community ~~count; and~~

count.

In order to maintain focus on growing our business, we also remain committed to the following:

Increasing orders and order pace through the use of our consumer and market research to ensure that we build homes that offer our buyers their desired features and amenities;

Expanding market share in our smaller markets;

~~Continuing to innovate and promote our energy efficiency program and our M.Connected~~® ~~Automation Suite to create differentiation for the Meritage brand;~~


•	Continuing to innovate and promote our energy efficiency program and our M.Connected^® Automation Suite to create differentiation for the Meritage brand;

Managing construction efficiencies and ~~cost increases~~costs through national and regional vendor relationships with a focus on quality construction and warranty management;

~~Generating additional working capital~~Carefully managing our liquidity and ~~maintaining adequate liquidity,~~a strong balance sheet, as we ended the quarter with $407.4 million in cash and cash equivalents and with a 42.1% debt-to-capital ratio and a 33.4% net debt-to-capital ratio;

Maximizing returns to our shareholders, most recently through ~~a $200 million add-on to~~ our ~~existing $200.0 million of 6.00% Senior Notes due 2025 and through~~share repurchase program executed in the ~~expansion and extension of our Credit Facility;~~previous three quarters; and

Promoting a positive environment for our employees with market-competitive benefits in order to develop and motivate them and to minimize ~~turnover.~~

turnover and to maximize recruitment efforts.

Critical Accounting Policies

The accounting policies we deem most critical to us and that involve the most difficult, subjective or complex judgments include revenue recognition, valuation of real estate, goodwill, warranty reserves and valuation of deferred tax assets and warranty reserves as well as the calculation of compensation cost relating to share-based payments. Other than the adoption of ASU 2014-09, as described in Note 1 in the accompanying unaudited consolidated financial statements, thereassets. There have been no significant changes to our critical accounting policies during the six months ended June 30, ~~2018~~2019 compared to those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our ~~2017~~2018 Annual Report on Form 10-K.

Home Closing Revenue, Home Orders and Order Backlog

The composition of our closings, home orders and backlog is constantly changing and is based on a changing mix of communities with various price points between periods as new projects open and existing projects wind down. Further, individual homes within a community can range significantly in price due to differing square footage, option selections, lot sizes and quality and location of lots (e.g. cul-de-sac, view lots, greenbelt lots). These variations result in a lack of meaningful comparability between our home orders, closings and backlog due to the changing mix between periods. The tables on the following pages present operating and financial data that we consider most critical to managing our operations (dollars in thousands):

Three Months Ended June 30, Quarter over Quarter
2018 2017 Change $ Change %
Home Closing Revenue
Total
Dollars $ 872,383
$ 797,780
$ 74,603
9.4 %
Homes closed 2,139
1,906
233
12.2 %
Average sales price $ 407.8
$ 418.6
$ (10.7 ) (2.6 )%
West Region
Arizona
Dollars $ 118,272
$ 141,015
$ (22,743 ) (16.1 )%
Homes closed 366
419
(53 ) (12.6 )%
Average sales price $ 323.1
$ 336.6
$ (13.4 ) (4.0 )%
California
Dollars $ 142,019
$ 140,270
$ 1,749
1.2 %
Homes closed 206
231
(25 ) (10.8 )%
Average sales price $ 689.4
$ 607.2
$ 82.2
13.5 %
Colorado
Dollars $ 89,421
$ 88,289
$ 1,132
1.3 %
Homes closed 162
154
8
5.2 %
Average sales price $ 552.0
$ 573.3
$ (21.3 ) (3.7 )%
West Region Totals
Dollars $ 349,712
$ 369,574
$ (19,862 ) (5.4 )%
Homes closed 734
804
(70 ) (8.7 )%
Average sales price $ 476.4
$ 459.7
$ 16.8
3.6 %
Central Region - Texas
Central Region Totals
Dollars $ 259,344
$ 225,679
$ 33,665
14.9 %
Homes closed 741
610
131
21.5 %
Average sales price $ 350.0
$ 370.0
$ (20.0 ) (5.4 )%
East Region
Florida
Dollars $ 110,467
$ 82,448
$ 28,019
34.0 %
Homes closed 252
187
65
34.8 %
Average sales price $ 438.4
$ 440.9
$ (2.5 ) (0.6 )%
Georgia
Dollars $ 34,835
$ 25,366
$ 9,469
37.3 %
Homes closed 104
73
31
42.5 %
Average sales price $ 335.0
$ 347.5
$ (12.5 ) (3.6 )%
North Carolina
Dollars $ 77,075
$ 59,560
$ 17,515
29.4 %
Homes closed 195
132
63
47.7 %
Average sales price $ 395.3
$ 451.2
$ (56.0 ) (12.4 )%
South Carolina
Dollars $ 26,885
$ 23,866
$ 3,019
12.6 %
Homes closed 76
70
6
8.6 %
Average sales price $ 353.8
$ 340.9
$ 12.8
3.8 %
Tennessee
Dollars $ 14,065
$ 11,287
$ 2,778
24.6 %
Homes closed 37
30
7
23.3 %
Average sales price $ 380.1
$ 376.2
$ 3.9
1.0 %
East Region Totals
Dollars $ 263,327
$ 202,527
$ 60,800
30.0 %
Homes closed 664
492
172
35.0 %
Average sales price $ 396.6
$ 411.6
$ (15.1 ) (3.7 )%


	Six Months Ended June 30,				Quarter over Quarter					Three Months Ended June 30,				Quarter over Quarter
	2018		2017		Chg $			Chg %		2019		2018		Change $			Change %
Home Closing Revenue
Total
Dollars	$	1,600,915	$	1,458,397	$	142,518		9.8	%	$	863,053	$	872,383	$	(9,330	)	(1.1	)%
Homes closed	3,864		3,487		377			10.8	%	2,253		2,139		114			5.3	%
Average sales price	$	414.3	$	418.2	$	(3.9	)	(0.9	)%	$	383.1	$	407.8	$	(24.8	)	(6.1	)%
West Region
Arizona
Dollars	$	209,268	$	241,565	$	(32,297	)	(13.4	)%	$	125,388	$	118,272	$	7,116		6.0	%
Homes closed	641		715		(74		)	(10.3	)%	389		366		23			6.3	%
Average sales price	$	326.5	$	337.9	$	(11.4	)	(3.4	)%	$	322.3	$	323.1	$	(0.8	)	(0.3	)%
California
Dollars	$	301,410	$	272,364	$	29,046		10.7	%	$	83,454	$	142,019	$	(58,565	)	(41.2	)%
Homes closed	437		441		(4		)	(0.9	)%	132		206		(74		)	(35.9	)%
Average sales price	$	689.7	$	617.6	$	72.1		11.7	%	$	632.2	$	689.4	$	(57.2	)	(8.3	)%
Colorado
Dollars	$	143,807	$	155,649	$	(11,842	)	(7.6	)%	$	90,130	$	89,421	$	709		0.8	%
Homes closed	256		282		(26		)	(9.2	)%	169		162		7			4.3	%
Average sales price	$	561.7	$	551.9	$	9.8		1.8	%	$	533.3	$	552.0	$	(18.7	)	(3.4	)%
West Region Totals
Dollars	$	654,485	$	669,578	$	(15,093	)	(2.3	)%	$	298,972	$	349,712	$	(50,740	)	(14.5	)%
Homes closed	1,334		1,438		(104		)	(7.2	)%	690		734		(44		)	(6.0	)%
Average sales price	$	490.6	$	465.6	$	25.0		5.4	%	$	433.3	$	476.4	$	(43.2	)	(9.1	)%
Central Region - Texas
Central Region Totals
Dollars	$	451,089	$	400,388	$	50,701		12.7	%	$	289,839	$	259,344	$	30,495		11.8	%
Homes closed	1,283		1,105		178			16.1	%	823		741		82			11.1	%
Average sales price	$	351.6	$	362.3	$	(10.8	)	(3.0	)%	$	352.2	$	350.0	$	2.2		0.6	%
East Region
Florida
Dollars	$	223,254	$	148,022	$	75,232		50.8	%	$	111,736	$	110,467	$	1,269		1.1	%
Homes closed	512		333		179			53.8	%	281		252		29			11.5	%
Average sales price	$	436.0	$	444.5	$	(8.5	)	(1.9	)%	$	397.6	$	438.4	$	(40.7	)	(9.3	)%
Georgia
Dollars	$	59,808	$	45,841	$	13,967		30.5	%	$	43,317	$	34,835	$	8,482		24.3	%
Homes closed	177		128		49			38.3	%	122		104		18			17.3	%
Average sales price	$	337.9	$	358.1	$	(20.2	)	(5.6	)%	$	355.1	$	335.0	$	20.1		6.0	%
North Carolina
Dollars	$	127,748	$	116,467	$	11,281		9.7	%	$	70,629	$	77,075	$	(6,446	)	(8.4	)%
Homes closed	323		263		60			22.8	%	196		195		1			0.5	%
Average sales price	$	395.5	$	442.8	$	(47.3	)	(10.7	)%	$	360.4	$	395.3	$	(34.9	)	(8.8	)%
South Carolina
Dollars	$	49,006	$	49,921	$	(915	)	(1.8	)%	$	23,163	$	26,885	$	(3,722	)	(13.8	)%
Homes closed	142		143		(1		)	(0.7	)%	70		76		(6		)	(7.9	)%
Average sales price	$	345.1	$	349.1	$	(4.0	)	(1.1	)%	$	330.9	$	353.8	$	(22.9	)	(6.5	)%
Tennessee
Dollars	$	35,525	$	28,180	$	7,345		26.1	%	$	25,397	$	14,065	$	11,332		80.6	%
Homes closed	93		77		16			20.8	%	71		37		34			91.9	%
Average sales price	$	382.0	$	366.0	$	16.0		4.4	%	$	357.7	$	380.1	$	(22.4	)	(5.9	)%
East Region Totals
Dollars	$	495,341	$	388,431	$	106,910		27.5	%	$	274,242	$	263,327	$	10,915		4.1	%
Homes closed	1,247		944		303			32.1	%	740		664		76			11.4	%
Average sales price	$	397.2	$	411.5	$	(14.2	)	(3.5	)%	$	370.6	$	396.6	$	(26.0	)	(6.6	)%


	Three Months Ended June 30,				Quarter over Quarter					Six Months Ended June 30,				Quarter over Quarter
	2018		2017		Change $			Change %		2019		2018		Chg $			Chg %
Home Orders ⁽¹⁾
Home Closing Revenue
Total
Dollars	$	917,996	$	878,718	$	39,278		4.5	%	$	1,561,703	$	1,600,915	$	(39,212	)	(2.4	)%
Homes ordered	2,250		2,153		97			4.5	%
Homes closed										4,018		3,864		154			4.0	%
Average sales price	$	408.0	$	408.1	$	(0.1	)	—	%	$	388.7	$	414.3	$	(25.6	)	(6.2	)%
West Region
Arizona
Dollars	$	135,717	$	129,870	$	5,847		4.5	%	$	223,842	$	209,268	$	14,574		7.0	%
Homes ordered	416		397		19			4.8	%
Homes closed										686		641		45			7.0	%
Average sales price	$	326.2	$	327.1	$	(0.9	)	(0.3	)%	$	326.3	$	326.5	$	(0.2	)	(0.1	)%
California
Dollars	$	131,699	$	162,597	$	(30,898	)	(19.0	)%	$	169,291	$	301,410	$	(132,119	)	(43.8	)%
Homes ordered	190		274		(84		)	(30.7	)%
Homes closed										264		437		(173		)	(39.6	)%
Average sales price	$	693.2	$	593.4	$	99.7		16.8	%	$	641.3	$	689.7	$	(48.5	)	(7.0	)%
Colorado
Dollars	$	89,818	$	76,978	$	12,840		16.7	%	$	178,805	$	143,807	$	34,998		24.3	%
Homes ordered	166		133		33			24.8	%
Homes closed										338		256		82			32.0	%
Average sales price	$	541.1	$	578.8	$	(37.7	)	(6.5	)%	$	529.0	$	561.7	$	(32.7	)	(5.8	)%
West Region Totals
Dollars	$	357,234	$	369,445	$	(12,211	)	(3.3	)%	$	571,938	$	654,485	$	(82,547	)	(12.6	)%
Homes ordered	772		804		(32		)	(4.0	)%
Homes closed										1,288		1,334		(46		)	(3.4	)%
Average sales price	$	462.7	$	459.5	$	3.2		0.7	%	$	444.1	$	490.6	$	(46.6	)	(9.5	)%
Central Region - Texas
Central Region Totals
Dollars	$	277,556	$	254,642	$	22,914		9.0	%	$	481,445	$	451,089	$	30,356		6.7	%
Homes ordered	766		714		52			7.3	%
Homes closed										1,366		1,283		83			6.5	%
Average sales price	$	362.3	$	356.6	$	5.7		1.6	%	$	352.4	$	351.6	$	0.9		0.2	%
East Region
Florida
Dollars	$	136,534	$	120,951	$	15,583		12.9	%	$	202,560	$	223,254	$	(20,694	)	(9.3	)%
Homes ordered	320		283		37			13.1	%
Homes closed										507		512		(5		)	(1.0	)%
Average sales price	$	426.7	$	427.4	$	(0.7	)	(0.2	)%	$	399.5	$	436.0	$	(36.5	)	(8.4	)%
Georgia
Dollars	$	41,964	$	32,865	$	9,099		27.7	%	$	85,456	$	59,808	$	25,648		42.9	%
Homes ordered	109		99		10			10.1	%
Homes closed										241		177		64			36.2	%
Average sales price	$	385.0	$	332.0	$	53.0		16.0	%	$	354.6	$	337.9	$	16.7		4.9	%
North Carolina
Dollars	$	54,704	$	61,375	$	(6,671	)	(10.9	)%	$	127,170	$	127,748	$	(578	)	(0.5	)%
Homes ordered	143		143		—			—	%
Homes closed										352		323		29			9.0	%
Average sales price	$	382.5	$	429.2	$	(46.7	)	(10.9	)%	$	361.3	$	395.5	$	(34.2	)	(8.7	)%
South Carolina
Dollars	$	30,652	$	22,840	$	7,812		34.2	%	$	42,745	$	49,006	$	(6,261	)	(12.8	)%
Homes ordered	88		66		22			33.3	%
Homes closed										127		142		(15		)	(10.6	)%
Average sales price	$	348.3	$	346.1	$	2.3		0.7	%	$	336.6	$	345.1	$	(8.5	)	(2.5	)%
Tennessee
Dollars	$	19,352	$	16,600	$	2,752		16.6	%	$	50,389	$	35,525	$	14,864		41.8	%
Homes ordered	52		44		8			18.2	%
Homes closed										137		93		44			47.3	%
Average sales price	$	372.2	$	377.3	$	(5.1	)	(1.4	)%	$	367.8	$	382.0	$	(14.2	)	(3.7	)%
East Region Totals
Dollars	$	283,206	$	254,631	$	28,575		11.2	%	$	508,320	$	495,341	$	12,979		2.6	%
Homes ordered	712		635		77			12.1	%
Homes closed										1,364		1,247		117			9.4	%
Average sales price	$	397.8	$	401.0	$	(3.2	)	(0.8	)%	$	372.7	$	397.2	$	(24.6	)	(6.2	)%



	Three Months Ended June 30,				Quarter over Quarter
	2019		2018		Change $			Change %
Home Orders ⁽¹⁾
Total
Dollars	$	1,043,995	$	917,996	$	125,999		13.7	%
Homes ordered	2,735		2,250		485			21.6	%
Average sales price	$	381.7	$	408.0	$	(26.3	)	(6.4	)%
West Region
Arizona
Dollars	$	188,215	$	135,717	$	52,498		38.7	%
Homes ordered	582		416		166			39.9	%
Average sales price	$	323.4	$	326.2	$	(2.8	)	(0.9	)%
California
Dollars	$	135,519	$	131,699	$	3,820		2.9	%
Homes ordered	207		190		17			8.9	%
Average sales price	$	654.7	$	693.2	$	(38.5	)	(5.6	)%
Colorado
Dollars	$	110,314	$	89,818	$	20,496		22.8	%
Homes ordered	220		166		54			32.5	%
Average sales price	$	501.4	$	541.1	$	(39.6	)	(7.3	)%
West Region Totals
Dollars	$	434,048	$	357,234	$	76,814		21.5	%
Homes ordered	1,009		772		237			30.7	%
Average sales price	$	430.2	$	462.7	$	(32.6	)	(7.0	)%
Central Region - Texas
Central Region Totals
Dollars	$	275,380	$	277,556	$	(2,176	)	(0.8	)%
Homes ordered	827		766		61			8.0	%
Average sales price	$	333.0	$	362.3	$	(29.4	)	(8.1	)%
East Region
Florida
Dollars	$	131,958	$	136,534	$	(4,576	)	(3.4	)%
Homes ordered	331		320		11			3.4	%
Average sales price	$	398.7	$	426.7	$	(28.0	)	(6.6	)%
Georgia
Dollars	$	51,977	$	41,964	$	10,013		23.9	%
Homes ordered	149		109		40			36.7	%
Average sales price	$	348.8	$	385.0	$	(36.2	)	(9.4	)%
North Carolina
Dollars	$	89,571	$	54,704	$	34,867		63.7	%
Homes ordered	240		143		97			67.8	%
Average sales price	$	373.2	$	382.5	$	(9.3	)	(2.4	)%
South Carolina
Dollars	$	22,806	$	30,652	$	(7,846	)	(25.6	)%
Homes ordered	69		88		(19		)	(21.6	)%
Average sales price	$	330.5	$	348.3	$	(17.8	)	(5.1	)%
Tennessee
Dollars	$	38,255	$	19,352	$	18,903		97.7	%
Homes ordered	110		52		58			111.5	%
Average sales price	$	347.8	$	372.2	$	(24.4	)	(6.6	)%
East Region Totals
Dollars	$	334,567	$	283,206	$	51,361		18.1	%
Homes ordered	899		712		187			26.3	%
Average sales price	$	372.2	$	397.8	$	(25.6	)	(6.4	)%


(1)	Home orders for any period represent the aggregate sales price of all homes ordered, net of cancellations. We do not include orders contingent upon the sale of a customer’s existing home as a sales contract until the contingency is removed.


	Six Months Ended June 30,				Quarter over Quarter					Six Months Ended June 30,				Quarter over Quarter
	2018		2017		Chg $			Chg %		2019		2018		Chg $			Chg %
Home Orders ⁽¹⁾
Total
Dollars	$	1,880,792	$	1,771,421	$	109,371		6.2	%	$	2,020,974	$	1,880,792	$	140,182		7.5	%
Homes ordered	4,608		4,288		320			7.5	%	5,265		4,608		657			14.3	%
Average sales price	$	408.2	$	413.1	$	(5.0	)	(1.2	)%	$	383.9	$	408.2	$	(24.3	)	(6.0	)%
West Region
Arizona
Dollars	$	288,878	$	263,702	$	25,176		9.5	%	$	333,613	$	288,878	$	44,735		15.5	%
Homes ordered	875		800		75			9.4	%	1,039		875		164			18.7	%
Average sales price	$	330.1	$	329.6	$	0.5		0.2	%	$	321.1	$	330.1	$	(9.1	)	(2.7	)%
California
Dollars	$	292,097	$	356,355	$	(64,258	)	(18.0	)%	$	243,993	$	292,097	$	(48,104	)	(16.5	)%
Homes ordered	409		602		(193		)	(32.1	)%	374		409		(35		)	(8.6	)%
Average sales price	$	714.2	$	592.0	$	122.2		20.6	%	$	652.4	$	714.2	$	(61.8	)	(8.7	)%
Colorado
Dollars	$	186,913	$	159,073	$	27,840		17.5	%	$	215,562	$	186,913	$	28,649		15.3	%
Homes ordered	341		276		65			23.6	%	424		341		83			24.3	%
Average sales price	$	548.1	$	576.4	$	(28.2	)	(4.9	)%	$	508.4	$	548.1	$	(39.7	)	(7.2	)%
West Region Totals
Dollars	$	767,888	$	779,130	$	(11,242	)	(1.4	)%	$	793,168	$	767,888	$	25,280		3.3	%
Homes ordered	1,625		1,678		(53		)	(3.2	)%	1,837		1,625		212			13.0	%
Average sales price	$	472.5	$	464.3	$	8.2		1.8	%	$	431.8	$	472.5	$	(40.8	)	(8.6	)%
Central Region - Texas
Central Region Totals
Dollars	$	557,059	$	506,415	$	50,644		10.0	%	$	581,645	$	557,059	$	24,586		4.4	%
Homes ordered	1,575		1,407		168			11.9	%	1,697		1,575		122			7.7	%
Average sales price	$	353.7	$	359.9	$	(6.2	)	(1.7	)%	$	342.7	$	353.7	$	(10.9	)	(3.1	)%
East Region
Florida
Dollars	$	249,204	$	222,511	$	26,693		12.0	%	$	258,032	$	249,204	$	8,828		3.5	%
Homes ordered	583		522		61			11.7	%	632		583		49			8.4	%
Average sales price	$	427.5	$	426.3	$	1.2		0.3	%	$	408.3	$	427.5	$	(19.2	)	(4.5	)%
Georgia
Dollars	$	92,834	$	55,267	$	37,567		68.0	%	$	102,204	$	92,834	$	9,370		10.1	%
Homes ordered	257		168		89			53.0	%	293		257		36			14.0	%
Average sales price	$	361.2	$	329.0	$	32.3		9.8	%	$	348.8	$	361.2	$	(12.4	)	(3.4	)%
North Carolina
Dollars	$	116,189	$	127,707	$	(11,518	)	(9.0	)%	$	172,556	$	116,189	$	56,367		48.5	%
Homes ordered	300		293		7			2.4	%	470		300		170			56.7	%
Average sales price	$	387.3	$	435.9	$	(48.6	)	(11.1	)%	$	367.1	$	387.3	$	(20.2	)	(5.2	)%
South Carolina
Dollars	$	59,326	$	48,378	$	10,948		22.6	%	$	48,020	$	59,326	$	(11,306	)	(19.1	)%
Homes ordered	168		138		30			21.7	%	150		168		(18		)	(10.7	)%
Average sales price	$	353.1	$	350.6	$	2.6		0.7	%	$	320.1	$	353.1	$	(33.0	)	(9.3	)%
Tennessee
Dollars	$	38,292	$	32,013	$	6,279		19.6	%	$	65,349	$	38,292	$	27,057		70.7	%
Homes ordered	100		82		18			22.0	%	186		100		86			86.0	%
Average sales price	$	382.9	$	390.4	$	(7.5	)	(1.9	)%	$	351.3	$	382.9	$	(31.6	)	(8.2	)%
East Region Totals
Dollars	$	555,845	$	485,876	$	69,969		14.4	%	$	646,161	$	555,845	$	90,316		16.2	%
Homes ordered	1,408		1,203		205			17.0	%	1,731		1,408		323			22.9	%
Average sales price	$	394.8	$	403.9	$	(9.1	)	(2.3	)%	$	373.3	$	394.8	$	(21.5	)	(5.4	)%


	Three Months Ended June 30,				Three Months Ended June 30,
	2018		2017		2019		2018
	Ending	Average	Ending	Average	Ending	Average	Ending	Average
Active Communities
Total	253	253.0	257	256.5	254	257.0	253	253.0
West Region
Arizona	40	38.5	39	40.5	40	37.0	40	38.5
California	15	15.0	26	27.5	20	20.5	15	15.0
Colorado	19	18.0	10	10.0	21	22.0	19	18.0
West Region Totals	74	71.5	75	78.0	81	79.5	74	71.5
Central Region - Texas
Central Region Totals	90	93.5	92	88.5	73	78.5	90	93.5
East Region
Florida	30	29.0	30	31.0	36	34.0	30	29.0
Georgia	20	20.5	19	18.0	21	20.0	20	20.5
North Carolina	20	20.0	20	19.0	23	24.0	20	20.0
South Carolina	11	11.5	14	14.5	9	10.0	11	11.5
Tennessee	8	7.0	7	7.5	11	11.0	8	7.0
East Region Totals	89	88.0	90	90.0	100	99.0	89	88.0


	Six Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2019		2018
	Ending	Average	Ending	Average	Ending	Average	Ending	Average
Active Communities
Total	253	248.5	257	250.0	254	263.0	253	248.5
West Region
Arizona	40	39.0	39	40.5	40	40.0	40	39.0
California	15	17.5	26	27.0	20	18.5	15	17.5
Colorado	19	15.0	10	10.0	21	20.5	19	15.0
West Region Totals	74	71.5	75	77.5	81	79.0	74	71.5
Central Region - Texas
Central Region Totals	90	91.0	92	86.0	73	84.0	90	91.0
East Region
Florida	30	29.0	30	28.5	36	33.5	30	29.0
Georgia	20	19.5	19	18.0	21	21.5	20	19.5
North Carolina	20	18.5	20	18.5	23	24.0	20	18.5
South Carolina	11	12.0	14	14.5	9	10.5	11	12.0
Tennessee	8	7.0	7	7.0	11	10.5	8	7.0
East Region Totals	89	86.0	90	86.5	100	100.0	89	86.0


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Cancellation Rates ⁽¹⁾
Total	12	%	13	%	13	%	13	%	12	%	12	%	12	%	13	%
West Region
Arizona	12	%	12	%	12	%	13	%	10	%	12	%	10	%	12	%
California	12	%	15	%	16	%	13	%	14	%	12	%	14	%	16	%
Colorado	13	%	8	%	10	%	10	%	11	%	13	%	9	%	10	%
West Region Totals	12	%	13	%	13	%	12	%	11	%	12	%	11	%	13	%
Central Region - Texas
Central Region Totals	13	%	15	%	15	%	14	%	16	%	13	%	15	%	15	%
East Region
Florida	9	%	11	%	10	%	12	%	9	%	9	%	9	%	10	%
Georgia	22	%	18	%	16	%	18	%	18	%	22	%	15	%	16	%
North Carolina	12	%	9	%	14	%	8	%	8	%	12	%	9	%	14	%
South Carolina	10	%	14	%	10	%	11	%	15	%	10	%	18	%	10	%
Tennessee	7	%	8	%	5	%	13	%	6	%	7	%	7	%	5	%
East Region Totals	12	%	12	%	12	%	12	%	10	%	12	%	11	%	12	%


(1)	Cancellation rates are computed as the number of canceled units for the period divided by the gross sales units for the same period.


	At June 30,				Quarter over Quarter					At June 30,				Quarter over Quarter
	2018		2017		Change $			Change %		2019		2018		Change $			Change %
Order Backlog ⁽¹⁾
Total
Dollars	$	1,528,756	$	1,448,782	$	79,974		5.5	%	$	1,477,007	$	1,528,756	$	(51,749	)	(3.4	)%
Homes in backlog	3,619		3,428		191			5.6	%	3,680		3,619		61			1.7	%
Average sales price	$	422.4	$	422.6	$	(0.2	)	—	%	$	401.4	$	422.4	$	(21.1	)	(5.0	)%
West Region
Arizona
Dollars	$	199,508	$	183,480	$	16,028		8.7	%	$	243,449	$	199,508	$	43,941		22.0	%
Homes in backlog	560		529		31			5.9	%	696		560		136			24.3	%
Average sales price	$	356.3	$	346.8	$	9.4		2.7	%	$	349.8	$	356.3	$	(6.5	)	(1.8	)%
California
Dollars	$	213,761	$	237,629	$	(23,868	)	(10.0	)%	$	141,196	$	213,761	$	(72,565	)	(33.9	)%
Homes in backlog	290		392		(102		)	(26.0	)%	201		290		(89		)	(30.7	)%
Average sales price	$	737.1	$	606.2	$	130.9		21.6	%	$	702.5	$	737.1	$	(34.6	)	(4.7	)%
Colorado
Dollars	$	158,019	$	157,508	$	511		0.3	%	$	140,304	$	158,019	$	(17,715	)	(11.2	)%
Homes in backlog	284		267		17			6.4	%	271		284		(13		)	(4.6	)%
Average sales price	$	556.4	$	589.9	$	(33.5	)	(5.7	)%	$	517.7	$	556.4	$	(38.7	)	(7.0	)%
West Region Totals
Dollars	$	571,288	$	578,617	$	(7,329	)	(1.3	)%	$	524,949	$	571,288	$	(46,339	)	(8.1	)%
Homes in backlog	1,134		1,188		(54		)	(4.5	)%	1,168		1,134		34			3.0	%
Average sales price	$	503.8	$	487.1	$	16.7		3.4	%	$	449.4	$	503.8	$	(54.3	)	(10.8	)%
Central Region - Texas
Central Region Totals
Dollars	$	489,106	$	460,761	$	28,345		6.2	%	$	473,968	$	489,106	$	(15,138	)	(3.1	)%
Homes in backlog	1,312		1,233		79			6.4	%	1,312		1,312		—			—	%
Average sales price	$	372.8	$	373.7	$	(0.9	)	(0.2	)%	$	361.3	$	372.8	$	(11.5	)	(3.1	)%
East Region
Florida
Dollars	$	222,653	$	190,943	$	31,710		16.6	%	$	220,544	$	222,653	$	(2,109	)	(0.9	)%
Homes in backlog	517		442		75			17.0	%	497		517		(20		)	(3.9	)%
Average sales price	$	430.7	$	432.0	$	(1.3	)	(0.3	)%	$	443.8	$	430.7	$	13.1		3.0	%
Georgia
Dollars	$	83,505	$	42,789	$	40,716		95.2	%	$	63,158	$	83,505	$	(20,347	)	(24.4	)%
Homes in backlog	231		131		100			76.3	%	175		231		(56		)	(24.2	)%
Average sales price	$	361.5	$	326.6	$	34.9		10.7	%	$	360.9	$	361.5	$	(0.6	)	(0.2	)%
North Carolina
Dollars	$	85,273	$	98,492	$	(13,219	)	(13.4	)%	$	112,808	$	85,273	$	27,535		32.3	%
Homes in backlog	220		223		(3		)	(1.3	)%	295		220		75			34.1	%
Average sales price	$	387.6	$	441.7	$	(54.1	)	(12.2	)%	$	382.4	$	387.6	$	(5.2	)	(1.3	)%
South Carolina
Dollars	$	45,805	$	39,093	$	6,712		17.2	%	$	37,672	$	45,805	$	(8,133	)	(17.8	)%
Homes in backlog	125		111		14			12.6	%	112		125		(13		)	(10.4	)%
Average sales price	$	366.4	$	352.2	$	14.3		4.0	%	$	336.4	$	366.4	$	(30.1	)	(8.2	)%
Tennessee
Dollars	$	31,126	$	38,087	$	(6,961	)	(18.3	)%	$	43,908	$	31,126	$	12,782		41.1	%
Homes in backlog	80		100		(20		)	(20.0	)%	121		80		41			51.3	%
Average sales price	$	389.1	$	380.9	$	8.2		2.2	%	$	362.9	$	389.1	$	(26.2	)	(6.7	)%
East Region Totals
Dollars	$	468,362	$	409,404	$	58,958		14.4	%	$	478,090	$	468,362	$	9,728		2.1	%
Homes in backlog	1,173		1,007		166			16.5	%	1,200		1,173		27			2.3	%
Average sales price	$	399.3	$	406.6	$	(7.3	)	(1.8	)%	$	398.4	$	399.3	$	(0.9	)	(0.2	)%


(1)	Our backlog represents net sales that have not closed.

Operating Results

Companywide. In the second quarter of 2019, home closing volume improved by 5.3% to 2,253 closings valued at $863.1 million compared to 2,139 closings valued at $872.4 million in the corresponding prior year period. The increase in closings year-over-year was driven by improved backlog conversion due to selling and closing more speculative inventory homes in the second quarter of 2019 compared to the prior year, as we entered the quarter with a lower number of homes in backlog compared to 2018. Home closing revenue ~~increased~~decreased by ~~9.4%~~1.1% due entirely to ~~$872.4 million from 2,139 closings for the three months ended June 30, 2018 compared to $797.8 million from 1,906 closings during the same quarter of the prior year, driven by~~ a ~~12.2% increase in closing volume partially offset by a 2.6% decrease~~$24,800 reduction in average sales ~~price. Average sales prices on home closings are beginning to decline with~~price, reflective of a higher percentage of entry-level homes in our closing mix ~~that is offsetting average sales price increases in some markets.~~related to our strategic transition to first-time and first move-up homebuyers. Home ~~orders also~~order volume improved by ~~4.5%~~21.6% to 2,735 homes valued at $1.0 billion in the second quarter of 2019 as compared to 2,250 homes valued at $918.0 million in the second quarter of ~~2018 as compared~~2018. The improvement in orders was due to ~~2,153 homes valued at $878.7 million~~a 19.1% increase in ~~the second quarter of 2017. Order improvement was driven by our company-wide~~year-over-year orders pace ~~growing by 6.0% to 8.9~~at 10.6 homes ordered per average ~~community in the second quarter of 2018 compared to 8.4 in the comparable 2017 quarter.~~active community. We ended the quarter with ~~253~~254 actively selling communities, ~~consistent~~essentially flat with the ~~first quarter of 2018, but a slight decline year-over-year.~~prior year.

For the six months ended June 30, ~~2018,~~2019, home closing units ~~and revenue~~ grew by ~~377~~154 units, ~~and $142.5 million for ending~~although home closing revenue ~~of $1.6 billion~~declined by $39.2 million on ~~3,864 closings, 9.8% and 10.8% higher than the six month period in 2017, respectively.~~4,018 closings. Orders also increased by ~~320~~657 units and ~~$109.4~~$140.2 million to ~~4,608~~5,265 orders valued at ~~$1.9~~$2.0 billion for the six months ended June 30, ~~2018,~~2019, 14.3% and 7.5% ~~and 6.2%~~ increases, respectively. Similar to second quarter results, demand for our affordable entry-level homes drove the increase in orders, as we experienced an 8.1% higher orders pace than in 2018. We ended the quarter with ~~3,619~~3,680 homes in backlog valued at $1.5 billion, ~~reflecting an $80.0 million,~~compared to 3,619 units valued at $1.5 billion at June 30, 2018. Despite the 61 unit, or ~~5.5%,~~1.7% increase ~~from the second quarter of 2017~~in backlog units, backlog value declined 3.4%, driven entirely by ~~volume as~~lower average sales prices ~~are beginning to temper~~ as ~~we shift toward~~our backlog is comprised of a higher percentage of entry-level homes ~~in backlog.~~than the prior year.

West. ~~During the second quarter of 2018, the~~The West Region closed ~~734~~690 homes and generated ~~$349.7~~$299.0 million in home closing revenue in the second quarter of 2019 compared to ~~804~~734 homes and ~~$369.6~~$349.7 million in the second quarter of ~~2017.~~2018. The decrease in home closing revenue is due partially to ~~a 8.7%~~the 6.0% decline in volume coupled with the $43,200 decrease ~~in homes closed, partially offset by a 3.6% increase~~ in average sales price. The reduction in closing volume ~~reflected 8.3%~~was related to California which entered the quarter with 58.8% lower backlog stemming from fewer communities open ~~on average during~~entering the ~~second quarter of 2018 compared to 2017. Despite a strong shift to first-time buyers~~year and slower orders pace in the ~~Region, the higher~~first and second quarters of 2019. The decline was partially offset by year-over-year increases in closing volume in Colorado and Arizona. The decline in average sales price was driven by a combination of entry-level product contributing more meaningfully to the closing mix in the second quarter of ~~2018 is~~2019 compared to prior year and the ~~result~~lessened impact of ~~a larger percentage of closings from several high-priced communities~~California in ~~California contributing to~~ the Region's closing mix, ~~compared to~~where average sales prices are historically higher than the ~~prior year.~~other states in the Region. The Region ended the second quarter of ~~2018~~2019 with 1,009 orders valued at $434.0 million versus 772 orders valued at $357.2 million ~~versus 804 homes valued at $369.4 million~~ in the second quarter of ~~2017. Orders per average community~~2018, with order improvements recorded in every state in the ~~West Region improved~~Region. The 30.7% improvement in order volume was primarily driven by ~~4.9% partially offsetting~~Arizona where a 45.4% higher orders pace compared to the ~~impact~~prior year contributed more than two-thirds of the ~~decline~~237 unit growth in ~~community count. Strong~~orders for the Region. Over 70% of our communities in Arizona are designed to appeal to first-time or first move-up buyers and we believe the high demand ~~has resulted in many communities selling out faster than anticipated driving~~we are experiencing is directly attributable to the ~~decline in community count, particularly in California.~~product offerings we have designed for these buyers. We opened 1413 communities throughout the Region in the second quarter of ~~2018~~2019 and we anticipate ~~opening 20 new communities~~even more West Region community openings in the ~~next several quarters, with~~latter half of ~~those~~the year, the majority of which will be targeted toward the first-time homebuyer. The Region ended the quarter with 1,168 homes in backlog valued at $0.5 billion, a 3.0% increase in units and an 8.1% decline in value from the prior year.

Year-to-date results in the West Region were similar to ~~that~~those of the second ~~quarter of 2018.~~quarter. The number and value of homes closed versus prior year declined by ~~7.2%~~3.4% and ~~2.3%~~12.6%, respectively, ~~partially offset by~~with a ~~5.4% increase~~9.5% decrease in average sales price. Orders for the Region ~~declined 3.2%~~improved 13.0% year-to-date which resulted in ~~a 1.4% decline in~~3.3% higher order ~~value, partially offset by a $8,200 increase in average sales price.~~value. Orders pace improved by ~~4.6%~~2.6% and the average number of actively selling communities improved by 10.5% in the Region for the six months ended June 30, 2018, however both closings and orders were impacted by a 7.7% decline in average community count. The Region ended the quarter with 1,134 homes in backlog valued at $571.3 million, 4.5% and 1.3% declines from prior year, respectively, offset slightly by a $16,700 increase in average sales price.2019.

Central. In the second quarter of ~~2018,~~2019, the Central Region, made up of our Texas markets, closed ~~741~~823 homes and generated ~~$259.3~~$289.8 million in home closing revenue, ~~improvements of 21.5%~~up 11.1% and ~~14.9%~~11.8%, respectively, ~~leading to year-over-year~~from prior year results of 741 homes and $259.3 million of home closing ~~revenue growth~~revenue. While average sales prices in individual markets within the Region are declining as a result of ~~$33.7 million.~~our focus on first-time and first move-up buyers, average sales prices on closings overall in the Region were up slightly, by approximately $2,000, as a result of generally higher priced markets contributing more closing units than in the prior year period. Orders grew by 8.0% while order value was relatively flat due to the decline in average sales prices reflecting our transition to entry-level and first move-up homes. The Region ended the second quarter of 2019 with ~~766 orders~~827 units ordered valued at ~~$277.6~~$275.4 million compared to ~~714~~766 units valued at ~~$254.6~~$277.6 million in the prior year ~~7.3% and 9.0% increases, respectively. We continue to see solid demand trends in the Central Region, evidenced by the year-over-year growth in orders~~quarter. Order volume improved in the second quarter of ~~2018 when~~2019 due to a 28.0% increase in orders pace in the Region, more than offsetting the 16.0% decrease in average community count compared to ~~a strong second quarter in 2017.~~the prior year. The ~~improved order volume is the result of a 5.6% increase in average communities during the second quarter of 2018 and a relatively flat orders~~fast absorption pace of ~~8.2 homes per average community compared~~our communities has resulted in us selling out of communities faster than we have been able to ~~8.1 homes in the prior year quarter.~~open replacement communities. We are responding to the entry-level demand in this Region with a strong transition to first-time buyer product ~~offerings. The resulting marginal net increase~~offerings and we attribute the improved orders pace to that transition. All of the communities opened in ~~average sales price year-over-year on orders is due to lower priced entry-level product offsetting price increases~~the Region in ~~some markets. Throughout~~ the ~~remainder~~second quarter of ~~2018, we anticipate opening over 20 new communities in our Central region, the majority of which will be targeted to~~2019 are designed for the first-time or first move-up buyer.

We also saw overall improvements in the Region for the six months ended June 30, ~~2018.~~2019. Home closings and home closing revenue were up ~~16.1%~~6.5% and ~~12.7%~~6.7%, respectively, and orders and order value were up year-over-year by ~~11.9%~~7.7% and ~~10.0%~~4.4%, respectively. Orders pace ~~and average active communities~~ increased by ~~5.5% and 5.8%~~16.8%, ~~respectively,~~ helping the Region end the quarter with 1,312 ~~homes~~units in backlog, ~~valued at $489.1~~flat with ending backlog in the second quarter of 2018, although value of backlog declined to $474.0 million, ~~6.4% and 6.2% improvements~~a 3.1% decrease over the prior ~~year, respectively.~~year.

East. During the three months ended June 30, ~~2018,~~2019, the East Region ~~generated the largest increase~~delivered 740 closings and $274.2 million in home closing ~~volume and~~ revenue compared to ~~the same period in the prior year. The Region contributed~~ 664 closings and $263.3 million in home closing revenue in the ~~second quarter of 2018,~~prior year, improvements of ~~35.0%~~11.4% and ~~30.0%~~4.1%, ~~respectively, from the same period in 2017. The increase in closing volume was partially offset by a 3.7%, or $15,100, decrease in average~~respectively. Average sales price ~~resulting from our pivot to the first-time buyer segment. In~~decreased by $26,000 in the second quarter of ~~2018, orders pace~~2019 compared to prior year resulting from our transition to entry-level and first move-up product. Orders and order volume in the East Region improved by ~~14.1% compared to the 2017 second quarter with increases in the majority of our markets in the Region. This demand led to order volume~~26.3% and ~~value increasing by 12.1% and 11.2%~~18.1%, respectively, ~~compared to~~for the second quarter of ~~2017~~2019 with 899 units valued at $334.6 million compared to 712 units valued at $283.2 million ~~for~~in the ~~three months ended June 30, 2018. Simplifying our business and improving our buyers' experiences through~~prior year. The improvement in orders is primarily due to a ~~strategic shift to product and~~12.5% increase in average active communities ~~that appeal to the first-time buyer has been~~combined with a ~~key strategic focus for us and we believe our improvements are reflective of that.~~12.3% increase in orders pace.

The year-to-date results of the East Region were similar to those of the second quarter, with ~~32.1%~~9.4% and ~~27.5%~~2.6% improvements in closing volume and revenue, respectively, compared to ~~2017~~2018 providing ~~1,247~~1,364 closings and ~~$495.3~~$508.3 million in home closing revenue for the six month period ending June 30, ~~2018.~~2019. The number and value of orders also improved by ~~17.0%~~22.9% and ~~14.4%~~16.2%, respectively, due to ~~an 18.0%~~a 5.5% increase in orders pace for the six months ended June 30, ~~2018~~2019 compared to prior year. ~~These improvements contributed to a year-over-year increase~~The East Region ended the quarter with 1,200 homes in backlog ~~units and value of 16.5% and 14.4%, respectively, ending the second quarter of 2018 with~~valued at $478.1 million compared to 1,173 ~~units~~homes valued at $468.4 ~~million.~~million at June 30, 2018, 2.3% and 2.1% increases, respectively.

Land Closing Revenue and Gross ~~(Loss)/Profit~~Loss

From time to time, we may sell certain lots or land parcels to other homebuilders, developers or investors if we feel the sale will provide a greater economic benefit to us than continuing home construction or where we are looking to diversify our land positions in the specific geography. As a result of such sales, we recognized land closing revenue of ~~$5.1~~$1.6 million and ~~$4.2~~$5.1 million for the three months ending June 30, ~~2018~~2019 and ~~2017,~~2018, respectively and ~~$19.1~~$11.1 and ~~$16.4~~$19.1 million for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. We recognized ~~a loss~~land closing gross losses of $1.7 million and $0.7 million ~~as a combined result of gains and losses on various land sales throughout the country~~ in the second ~~quarter~~quarters of 2019 and 2018, ~~compared to break-even results in 2017.~~respectively. Year to date land sales in ~~2018~~2019 resulted in a ~~$1.9~~$1.4 million loss as compared to a ~~$2.5~~$1.9 million ~~gain~~loss in the prior year. Both the second quarter and year to date 2019 losses were impacted by a $1.7 million charge taken in the second quarter of 2019 to sell one community that no longer fits our entry level strategy.

Other Operating Information (dollars in thousands)


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended June 30,								Six Months Ended June 30,
	2018				2017				2018				2017				2019				2018				2019				2018
	Dollars		Percent of Home Closing Revenue		Dollars		Percent of Home Closing Revenue		Dollars		Percent of Home Closing Revenue		Dollars		Percent of Home Closing Revenue		Dollars		Percent of Home Closing Revenue		Dollars		Percent of Home Closing Revenue		Dollars		Percent of Home Closing Revenue		Dollars		Percent of Home Closing Revenue
Home Closing Gross Profit ⁽¹⁾
Total	$	159,515	18.3	%	$	140,910	17.7	%	$	283,845	17.7	%	$	248,178	17.0	%	$	159,118	18.4	%	$	159,515	18.3	%	$	275,580	17.6	%	$	283,845	17.7	%

West	$	63,630	18.2	%	$	65,962	17.8	%	$	113,835	17.4	%	$	114,467	17.1	%	$	53,504	17.9	%	$	63,630	18.2	%	$	98,899	17.3	%	$	113,835	17.4	%

Central	$	52,496	20.2	%	$	45,856	20.3	%	$	88,772	19.7	%	$	79,132	19.8	%	$	57,617	19.9	%	$	52,496	20.2	%	$	91,980	19.1	%	$	88,772	19.7	%

East	$	43,389	16.5	%	$	29,092	14.4	%	$	81,238	16.4	%	$	54,579	14.1	%	$	47,997	17.5	%	$	43,389	16.5	%	$	84,701	16.7	%	$	81,238	16.4	%

(1)

Home closing gross profit represents home closing revenue less cost of home closings, including impairments. Cost of home closings includes land and lot development costs, direct home construction costs, an allocation of common community costs (such as model complex costs and architectural, legal and zoning costs), interest, sales tax, impact fees, warranty, construction overhead and closing costs.

Companywide. Home closing gross margin for the second quarter of ~~2018~~2019 improved 6010 basis points ~~over~~compared to the same prior year period, and ~~combined with higher home closing revenue, resulted~~held relatively flat at $159.1 million in ~~a $18.6~~2019 versus $159.5 million ~~increase~~ in ~~home closing gross profit.~~With improved demand and pricing power and the introduction of new, efficient product in the East region where our most notable improvements are, we have been successful in minimizing the impact of rising labor and commodity costs. Margin growth has been a key initiative for us and we have been largely successful in managing price and pace in order to improve margins while also ensuring we are competitively priced to appeal to homebuyers. Increased revenues have also enabled us to maintain or improve our leverage of construction overhead costs in most markets which has positively impacted margins.2018, despite lower revenues. For the six months ended June 30, ~~2018, home closing~~2019, gross margin ~~improved by 70~~dipped 10 basis points, largely the result of targeted incentives that were offered in the latter half of the fourth quarter of 2018 and early in the first quarter of 2019 on slow-moving move-up inventory and in highly competitive markets, the majority of which ~~increased home closing gross profit by $35.7 million over~~closed in the ~~2017 period.~~first quarter of 2019. We expect our improved backlog

conversion and simplified product offerings will continue to help improve our gross margin and gain operating leverage as we progress through the last half of the year.

West. ~~Our West Region reported higher year-over-year home~~Home closing gross margin for the West Region declined by 30 basis points to 17.9% for the second quarter of 2019 versus 18.2% in the second quarter of 2018, ~~of 18.2% compared~~and by 10 basis points to ~~17.8% in 2017 and 17.4% versus 17.1%~~17.3% for the six months ended June 30, ~~2018 and 2017, respectively. We are making concerted efforts to maximize margins~~2019 versus 17.4% for the same period in the ~~Region~~prior year. Lower home closing revenue resulting from increased incentives, particularly in California markets, and ~~have been successful with raising~~lower average sales prices ~~in certain markets~~related to ~~offset cost increases. We also have benefited from the pivot~~our shift to entry-level product ~~which simplifies~~was partially offset by construction efficiencies driven by our simplified product ~~generating construction and cost efficiencies. We anticipate continued margin improvement in~~offerings, minimizing the ~~Region as closing volume rebounds with community count growth and we are better able to leverage~~impact the incentives had on our ~~construction overhead costs.~~gross margin.

Central. The Central Region ~~produced~~provided the highest home closing gross margin in the company during the second quarter of ~~2018. Home closing gross margin~~2019 of ~~20.2%~~19.9% for the quarter ending June 30, ~~2018 was relatively flat compared to 20.3%~~2019, down 30 basis points from 20.2% in the prior year. ~~Year~~This is mainly due to ~~date,~~ the ~~Region experienced similar results with relatively flat closing~~lower average sales prices in all markets although that was partially offset by construction efficiencies driven by our simplified product offerings, minimizing the impact on our gross margin. We anticipate that as our improved orders pace translates into closings, our revenue will grow, expanding our leverage of overhead costs to improve gross margin. For the six months ended June 30, 2019, gross margin was down 60 basis points to 19.1% as compared to 19.7% for the same 2018 period. The year-over-year decline in year-to-date gross margin for the Region is primarily due to targeted incentives offered on speculative inventory homes that were ~~largely successful in maintaining pricing in alignment with labor, construction~~available to both sell and ~~land cost increases. We continue to respond to the first-time buyer demand~~close in the ~~Region and our margins are reflective~~first half of ~~the product for this segment that combines a streamlined construction process enabling cost control with the opportunity to leverage overhead costs with increased absorptions.~~2019.

East. ~~The East Region experienced a 210 basis point improvement in year-over-year home~~Home closing gross margin in the ~~three~~East Region improved 100 basis points year-over-year to 17.5% in the second quarter of 2019 versus 16.5% for the comparable 2018 period. For the six months ended June 30, ~~2018 of 16.5%~~2019, gross margin was up 30 basis points to 16.7% versus ~~14.4%~~16.4% for the comparable 2017 period. As a direct result of our strategic initiatives to improve profitability, we are experiencing margin improvement throughout the Region as communities with our new product offering begin to contribute more materially to the closing mix. In addition, closings in newer communities in our Florida markets are achieving higher margins than the communities that contributed to the closing mixsame period in the prior year. The ~~higher volume~~year-over-year improvement in gross margin for both the three and six month periods are the result of ~~closings and associated revenue in the Region helped~~more efficient plan designs with shorter construction cycle times combined with greater leverage ~~construction~~of overhead costs on higher revenue as compared to ~~further improve margins. Similar~~the prior year periods. We have fully transitioned to ~~second quarter results, year-to-date home closing gross margin also achieved significant growth, improving by 230 basis points~~our updated product and plan designs in this Region whereas prior years included larger volumes of legacy product and plan designs that were less efficient and more costly to ~~16.4% in 2018 versus 14.1% in 2017.~~build.

Financial Services Profit (in thousands)

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Financial services profit $ 5,651
$ 5,557
$ 9,871
$ 9,847



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Financial services profit	$	6,031	$	5,651	$	10,733	$	9,871

Financial services profit represents the net profit of our financial services operations, including the operating profit generated by our wholly-owned title company, Carefree Title, as well as our portion of earnings from a mortgage joint venture. Financial services profit ~~remained relatively flat~~improved year over year ~~despite a~~due to higher closing ~~volume due to a decline in the capture rate of homebuyers by our mortgage joint venture.~~volume.

Selling, General and Administrative Expenses and Other Expenses ($ in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Commissions and other sales costs
Dollars	$	(60,823	)	$	(54,701	)	$	(113,575	)	$	(103,021	)	$	(60,125	)	$	(60,823	)	$	(112,680	)	$	(113,575	)
Percent of home closing revenue	7.0		%	6.9		%	7.1		%	7.1		%	7.0		%	7.0		%	7.2		%	7.1		%
General and administrative expenses
Dollars	$	(34,205	)	$	(29,591	)	$	(65,098	)	$	(59,213	)	$	(34,779	)	$	(34,205	)	$	(68,345	)	$	(65,098	)
Percent of home closing revenue	3.9		%	3.7		%	4.1		%	4.1		%	4.0		%	3.9		%	4.4		%	4.1		%
(Loss)/earnings from other unconsolidated entities, net
Dollars	$	(156	)	$	570		$	(202	)	$	943
Interest expense
Dollars	$	(44	)	$	(1,620	)	$	(180	)	$	(2,445	)	$	(3,197	)	$	(44	)	$	(7,282	)	$	(180	)
Other income, net
Dollars	$	1,934		$	2,080		$	7,305		$	3,190		$	2,368		$	1,778		$	3,414		$	7,103
Provision for income taxes
Dollars	$	(17,347	)	$	(21,625	)	$	(22,357	)	$	(34,822	)	$	(16,846	)	$	(17,347	)	$	(23,804	)	$	(22,357	)

Commissions and Other Sales Costs. Commissions and other sales costs are comprised of internal and external commissions and related sales and marketing expenses such as advertising and sales office costs. These costs ~~increased by $6.1~~were $60.1 million for the three months ended June 30, ~~2018 versus 2017 and increased $10.6~~2019, $0.7 million lower than the prior year ~~to date as a result of increased closing volume.~~period. As a percentage of home

closing revenue, commissions and other sales costs were flat at 7.0%. For the six months ended June 30, 2019, commissions and other sales costs increased 10 basis points, but were $0.9 million lower than the corresponding prior year period. The increase as a percentage of home closing revenue is due primarily to ~~7.0% during~~higher external commissions paid in the ~~three months ended June 30, 2018 as~~first quarter of 2019 compared to the same prior year ~~period. This was due~~period, largely the result of sales campaigns in the fourth quarter of 2018 and early in 2019 to ~~a higher volume~~capture orders on our available spec inventory that were able to close in the first quarter of ~~closings with international homebuyers, which typically have a higher percentage of external brokers representing the buyers, resulting~~2019. The decline in ~~higher overall commission expense. Commissions~~commissions and other sales costs ~~as a percent of revenue remained flat at 7.1%~~in dollars compared to prior year, both for the three and six months ended June 30, ~~2018 and 2017.~~2019 is largely related to the decline in home closing revenue as a result of lower average sales prices.

General and Administrative Expenses. General and administrative expenses represent corporate and divisional overhead expenses such as salaries and bonuses, occupancy, insurance and travel expenses. For the three months ended June 30, ~~2018,~~2019, general and administrative expenses were ~~$34.2~~$34.8 million as compared to ~~$29.6~~$34.2 million for the ~~2017~~2018 period. As a percentage of home closing revenue, these costs increased 2010 basis points for the three month period ending June 30, ~~2018~~2019 to ~~3.9%~~4.0%, ~~partially~~primarily the result of recognition of stock compensation expense at June 30, 2018 for the probable achievement of performance targets for certain equity awards. There was no comparable expense for the prior year period, as our equity compensation program for certain executives was adjusted to all performance based effective in 2017.decreased leverage from lower home closing revenue. For the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, general and administrative ~~costs~~expenses were ~~flat at~~$68.3 million or 4.4% of home closing revenue, as compared to $65.1 million or 4.1% of home closing ~~revenue.~~revenue in 2018. The increase year over year both in dollars and as a percentage of revenue is largely due to the impact of $3.1 million in one-time charges related to severance costs and accelerated equity compensation costs incurred in the first half of 2019. We continually strive to optimize overhead leverage through cost control efforts at both the corporate and divisional levels.

~~(Loss)/Earnings from Other Unconsolidated Entities, Net.~~ Earnings from other unconsolidated entities, net represents our portion of pre-tax earnings/(losses) from non-financial services joint ventures. Included in this amount is both the pass through of earnings/(losses) from the joint ventures' most recently available financial statements as well as any accrued expected earnings/(losses) for the periods presented that might not have been reflected in the joint ventures' financial statements provided to us. The three and six-month periods ended June 30, 2018 reported a slight loss of $0.2 million due to general and administrative expenses in a recently formed joint venture compared to earnings of $0.6 million and $0.9 million in the respective three and six-month periods in 2017 period related to land sales recorded in our land joint ventures.

Interest Expense. Interest expense is comprised of interest incurred, but not capitalized, on our senior notes, ~~prior Convertible Notes,~~ other borrowings, and our amended and restated unsecured revolving credit facility ("Credit Facility"). Interest expense ~~decreased year over year in~~for the ~~second quarter~~three months ended June 30, 2019 totaled $3.2 million compared to $44,000 in ~~2018 compared to $1.6 million in 2017 due to a higher balance of inventory that qualifies for interest capitalization.~~the corresponding prior year period. We experienced similar ~~declines~~increases in year to date interest expense with ~~$180,000~~$7.3 million in ~~2018~~2019 compared to ~~$2.4 million~~$180,000 in the prior year. This year-over-year increase is due to less interest capitalized to assets under development resulting from more efficient turnover of inventory related to our simplified construction strategy.

Other Income, Net. Other income, net, primarily consists of (i) sublease income, (ii) interest earned on our cash and cash equivalents, ~~and~~ (iii) payments and awards related to legal ~~settlements. Beginning in 2018, forfeited homebuyer deposits are reflected in Home closing revenue resulting~~settlements and (iv) our portion of pre-tax income or loss from ~~the adoption of ASU 2014-09. These are reflected as Other income, net in 2017 results.~~non-financial services joint ventures. For the three months ended June 30, ~~2018,~~2019, Other income, net was ~~flat with the prior year at $1.9~~$2.4 million versus ~~$2.1~~$1.8 million in ~~2017.~~2018. Other income, net was favorably impacted in the second quarter of 2019 primarily from interest earned on our cash and cash equivalents. For the six months ended June 30, ~~2018,~~2019, Other income, net was ~~$7.3~~$3.4 million compared to ~~$3.2~~$7.1 million in the ~~2017~~2018 period. Other income, net was favorably impacted ~~year to date~~ in the first quarter of 2018 as a result of receiving a $4.8 million litigation settlement ~~from long-standing litigation~~ related to a previous joint venture in Nevada.

Income Taxes. Our effective tax rate was ~~24.4%~~24.9% and ~~34.2%~~24.4% for the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~18.6%~~23.8% and ~~34.8%~~18.6% for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The ~~reduced rates~~lower rate in 2018 ~~are due to lower corporate rates under tax reform. In addition, the year-to-date rate~~ was favorably impacted by the enactment of the Bipartisan Budget Act of 2018 in February 2018, which included a retroactive extension of the Internal Revenue Code §45L new energy efficient homes credit, which had previously expired in 2016. This extension provision ~~provides~~provided for a single year extension of energy tax credits for homes sold in 2017 that ~~meet~~met the qualification criteria. In accordance with ASC 740, the effects of these tax credits were recorded in the first quarter of 2018, based on the date of enactment, regardless of the retroactive treatment. ~~Our~~In the first half of 2019, we recorded a minor tax ~~rate was favorably impacted~~benefit from our efforts to capture additional energy credits from 2016 and 2017. We also recorded a tax benefit from equity-based compensation for awards vested in ~~2017 by~~ the ~~homebuilding manufacturing deduction, which was eliminated under~~first half of 2019. These tax ~~reform for 2018.~~benefits had a favorable impact on our 2019 effective tax rate.

Liquidity and Capital Resources

Overview

Our principal uses of capital in the first six months of ~~2018~~2019 were acquisition and development of new and strategic lot positions, operating expenses, home construction, repurchasing our common stock and the payment of routine liabilities. We used funds generated by operations ~~and borrowings under our Credit Facility~~ to meet our short-term working capital requirements. ~~In addition, in the first six months of 2018 we used the net proceeds of our new senior notes to pay off our maturing senior notes.~~ We remain focused on acquiring desirable land positions, generating increasing margins in our homebuilding operations and maintaining a strong balance sheet to support future needs and growth, while leveraging land options where possible.

Operating Cash Flow Activities

During the six months ended June 30, ~~2018 and June 30, 2017,~~2019, net cash provided by operating activities totaled $113.3 million versus net cash used in ~~operations totaled~~operating activities of $10.5 million ~~and $130.7 million, respectively.~~during the six months ended June 30, 2018. Operating cash flows in ~~2018~~2019 and ~~2017~~2018 benefited from cash generated by net earnings of $76.2 million and $97.7 million, ~~and $65.2 million, respectively,~~respectively. For the six months ended June 30, 2018, net earnings were offset ~~mainly~~ by ~~increases~~an increase in real estate of $155.8 million, reflecting land development and ~~$211.4 million, respectively, reflecting~~ home construction spending, ~~as we have~~whereas our real estate levels remained relatively flat in the first six months of 2019 due to our more ~~homes under construction in both backlog as well as in our spec home inventory.~~

efficient asset turns.

Investing Cash Flow Activities

During the six months ended June 30, ~~2018,~~2019, net cash used in investing activities totaled ~~$16.1~~$5.8 million as compared to ~~$7.4~~$16.1 million for the same period in ~~2017.~~2018. Cash used in investing activities in the first six months of ~~2018~~2019 and ~~2017~~2018 is mainly attributable to the purchases of property and equipment of ~~$15.7~~$12.1 million and ~~$8.3~~$15.7 million for the ~~2018~~2019 and ~~2017~~2018 periods, respectively.

For the 2019 period, this was partially offset by a final distribution from the sale of our interest in an unconsolidated entity of $7.3 million.

Financing Cash Flow Activities

During the six months ended June 30, ~~2018,~~2019, net cash used in financing activities totaled $11.6 million as compared to net cash provided by financing activities ~~totaled~~of $25.2 ~~million as compared to $223.2~~ million for the same period in ~~2017.~~2018. The net cash used in financing activities in 2019 primarily reflects repurchases of our common stock of $9.0 million. The net cash provided by financing activities in 2018 is primarily the result of ~~$202.7~~$206.0 million in net proceeds received from our 6.00% bond issuance offset partially by the $175.0 million repayment of our 4.50% senior notes. Our 2017 results were mainly attributable to $296.0 million in net proceeds received from our 5.125% bond issuance offset partially by repayments of our Credit Facility of $15.0 million and repurchases of a portion of our Convertible Senior Notes of $52.1 million.

Overview of Cash Management

Cash flows for each of our communities depend on their stage of the development cycle and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land acquisitions, zoning plat and other approvals, community and lot development, and construction of model homes, roads, utilities, landscape and other amenities. Because these costs are a component of our inventory and not recognized in our income statement ~~of operations~~ until a home closes, we incur significant cash outlays prior to recognition of earnings. In the later stages of a community, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred. From a liquidity standpoint, we are currently actively acquiring and developing lots in our markets to maintain and grow our lot supply and active community count. We ~~are also using our cash on hand and draws under our Credit Facility, as needed, to fund operations in newer markets. As we~~ have spent the last several years building a pipeline of desirable land positions to position us for growth in an improving homebuilding environment and to replenish ~~a depleted~~our supply of lots, however in recent quarters our cash ~~outlays~~generated from operations have exceeded our cash ~~generated from operations. We~~outlays. Accordingly, we expect future cash needs ~~to begin to moderate~~ and ~~for cash generated from on-going operations to support~~ our expected ~~growth.~~growth in the near term to be funded from our on-going operations.

During the six months ended June 30, ~~2018,~~2019, we closed ~~3,864~~4,018 homes, purchased about ~~5,400~~3,900 lots for ~~$223.6~~$146.1 million, spent ~~$186.6~~$162.1 million on land development and started construction on ~~4,867~~4,943 homes. We primarily purchase undeveloped land or partially-finished lots requiring development dollars in order to bring them to a finished status ready for home construction. We exercise strict controls and believe we have a prudent strategy for Company-wide cash management, including those related to cash outlays for land and inventory acquisition and development. We ended the second quarter of ~~2018~~2019 with ~~$169.4~~$407.4 million of cash and cash equivalents, ~~a slight decrease~~an increase of ~~$1.3~~$95.9 million from December 31, ~~2017.~~2018 and had no outstanding borrowings on our Credit Facility.

We expect to generate cash from the sale of our inventory, but we intend to redeploy most of that cash to acquire and develop strategic and well-positioned lots to grow our business. We believe that we currently have strong liquidity. Nevertheless, we may seek additional capital to strengthen our liquidity position, enable us to opportunistically acquire additional land inventory in anticipation of improving market conditions, and/or strengthen our long-term capital structure. Such additional capital may be in the form of equity or debt financing and may be from a variety of sources. There can be no assurances that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing stockholders or increase our interest costs. We may also from time to time engage in opportunistic repurchases of our common stock in open market or privately-negotiated transactions as well as repurchase our outstanding senior notes.

~~In June 2018, we entered into an amendment~~

On February 13, 2019, the Company's Board of Directors authorized a new stock repurchase program, authorizing the expenditure of up to ~~our Credit Facility, which among other things, increased the total commitments available from $625.0~~$100.0 million to ~~$780.0 million and extended~~repurchase shares of our common stock. This program followed the ~~maturity date~~completion of the ~~Credit Facility from~~$100.0 million stock repurchase program approved in July ~~2021 to July 2022. In addition,~~2018 and completed in ~~March 2018,~~ the ~~Company completed an offering~~fourth quarter of ~~$200.0 million aggregate principal amount of 6.00% Senior Notes due 2025 (the "Additional Notes").~~2018. There is no stated expiration for this program. The Additional Notes were issued as an add-on to the existing $200.0 million of 6.00% Senior Notes due 2025 that were issued in June 2015 which resulted in a combined $400.0 million aggregate principal amount of 6.00% Senior Notes due 2025 outstanding at June 30, 2018. The Additional Notes were issued at a premium of 103% of the principal amount and the net proceeds were used to repay outstanding borrowings under the Credit Facility, which included borrowings used for the redemptionrepurchases of the Company's ~~4.50% Senior Notes that were due to mature on March 1, 2018. Reference is~~shares may be made ~~to Notes 5 and 6~~ in the ~~accompanying unaudited consolidated financial statements.~~open market, in privately negotiated transactions, or otherwise. The timing and amount of repurchases, if any, will be determined by the Company's management at its discretion and be based on a variety of factors such as market price of the Company's common stock, corporate and contractual requirements, prevailing market and economic conditions and legal requirements. The share repurchase program may be modified, suspended or discontinued at any time. The Company intends to retire any shares repurchased. In the six months ended June 30, 2019, we purchased and retired 208,840 shares of our common stock at an aggregate purchase price of $9.0 million and as of June 30, 2019, $91.0 million remained available under this program.

We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management. Debt-to-capital and net debt-to-capital are calculated as follows (dollars in thousands):


	As of						As of
	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Notes payable and other borrowings	$	1,311,257		$	1,283,804		$	1,307,922		$	1,310,057
Stockholders’ equity	1,682,940			1,576,825			1,798,100			1,720,755
Total capital	$	2,994,197		$	2,860,629		$	3,106,022		$	3,030,812
Debt-to-capital ⁽¹⁾	43.8		%	44.9		%	42.1		%	43.2		%
Notes payable and other borrowings	$	1,311,257		$	1,283,804		$	1,307,922		$	1,310,057
Less: cash and cash equivalents	(169,426		)	(170,746		)	(407,427		)	(311,466		)
Net debt	1,141,831			1,113,058			900,495			998,591
Stockholders’ equity	1,682,940			1,576,825			1,798,100			1,720,755
Total net capital	$	2,824,771		$	2,689,883		$	2,698,595		$	2,719,346
Net debt-to-capital ⁽²⁾	40.4		%	41.4		%	33.4		%	36.7		%


(1)	Debt-to-capital is computed as senior notes, net and loans payable and other borrowings divided by the aggregate of total senior notes, net and loans payable and other borrowings and stockholders' equity.

(2)

Net debt-to-capital is computed as net debt divided by the aggregate of net debt and stockholders' equity. Net debt is total senior notes, net and loans payable and other borrowings, less cash and cash equivalents. The most directly comparable GAAP financial measure is the ratio of ~~debt to total capital.~~debt-to-capital. We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing.

~~Issuer Purchases of Equity Securities~~

~~On July 25, 2018,~~We have never declared cash dividends, nor do we ~~announced that~~intend to declare cash dividends in the ~~Board of Directors approved a new stock repurchase program, authorizing~~foreseeable future. We plan to retain our cash to finance the expenditure of up to $100.0 million to repurchase shares of our common stock, subject to certain price parameters. This program replaces the previously authorized program that was in place as of June 30, 2018. There is no stated expiration for this program. The repurchasescontinuing development of the ~~Company's shares may be made in the open market, in privately negotiated transactions, or otherwise. The timing~~business and ~~amount of repurchases,~~increase our liquidity. Future cash dividends, if any, will ~~be determined~~depend upon financial condition, results of operations, capital requirements, statutory requirements, compliance with certain restrictive debt covenants, as well as other factors considered relevant by ~~the Company's management at its discretion and be based on a variety~~our Board of ~~factors such as the market price of the Company's common stock, corporate and contractual~~

requirements, prevailing market and economic conditions and legal requirements. The share repurchase program may be modified, suspended or discontinued at any time. The Company intends to retire any shares repurchased.Directors.

Credit Facility Covenants

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, ~~2018.~~2019. Our actual financial covenant calculations as of June 30, ~~2018~~2019 are reflected in the table below.



Financial Covenant (dollars in thousands):	Covenant Requirement	Actual
Minimum Tangible Net Worth	> ~~$1,137,354~~$1,240,284	$~~1,642,782~~1,758,041
Leverage Ratio	< 60%	~~39%~~30%
Interest Coverage Ratio ⁽¹⁾	> 1.50	~~4.57~~4.61
Minimum Liquidity ⁽¹⁾	> ~~$84,113~~$85,943	$~~871,422~~1,131,819
Investments other than defined permitted investments	< ~~$492,835~~$527,412	$~~16,639~~7,555


(1)	We are required to meet either the Interest Coverage Ratio or Minimum Liquidity, but not both.

Off-Balance Sheet Arrangements

Reference is made to Notes 1, 3, 4,5 and 1516 in the accompanying ~~Notes~~notes to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, which are incorporated by reference herein. These Notes discuss our off-balance sheet arrangements with respect to land acquisition contracts and option agreements, and land development joint ventures, including the nature and amounts of financial obligations relating to these items. In addition, these Notes discuss the nature and amounts of certain types of commitments that arise in connection with the ordinary course of our land development and homebuilding operations, including commitments of land development joint ventures for which we might be obligated.

Seasonality

Historically, we have experienced seasonal variations in our quarterly operating results and capital requirements. We typically take orders for more homes in the first half of the fiscal year than in the second half, which creates additional working capital requirements in the second and third quarters to build our inventories to satisfy seasonally higher deliveries in the second half of the year. We expect this seasonal pattern to continue over the long term.

Recently Issued Accounting Pronouncements

See Note 1 to our unaudited consolidated financial statements included in this report for discussion of recently issued accounting standards.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Our fixed rate debt is made up primarily of $1.3 billion in principal of our senior notes. Except in limited circumstances, we do not have an obligation to prepay our fixed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair value should not have a significant impact on our fixed rate borrowings until we would be required to repay such debt and access the capital markets to issue new debt. Our Credit Facility is subject to interest rate changes as the borrowing rates are based on LIBOR or Prime (see Note 56 in the accompanying notes to the unaudited consolidated financial statements included in this Form 10-Q).

Our operations are interest rate sensitive. As overall housing demand is adversely affected by increases in interest rates, a significant increase in mortgage interest rates may negatively affect the ability of homebuyers to secure adequate financing. Higher interest rates could adversely affect our revenues, gross margins and net income and would also increase our variable rate borrowing costs. We do not enter into, or intend to enter into, derivative financial instruments for trading or speculative purposes.



Item 4.	Controls and Procedures

In order to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized and reported on a timely basis, we have developed and implemented disclosure controls and procedures. Our management, with the participation of our chief executive officer and chief financial officer, has reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in ~~Securities~~ Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this Form 10-Q (the “Evaluation Date”). Based on such evaluation, management has concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective at a reasonable assurance level in ensuring that information that is required to be disclosed in the reports we file or submit under the ~~Securities~~ Exchange Act ~~of 1934 (the “Exchange Act”)~~ is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

During the fiscal quarter covered by this Form 10-Q, there has not been any change in our internal control over financial reporting that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION



Item 1.	Legal Proceedings

We are involved in various routine legal and regulatory proceedings, including, without limitation, warranty claims and litigation and arbitration proceedings alleging construction defects. In general, the proceedings are incidental to our business, and most exposure is subject to and should be covered by warranty and indemnity obligations of our consultants and subcontractors. Additionally, some such claims are also covered by insurance. WeIn addition to our warranty reserve, we have approximately ~~$401,000~~$0.5 million of total reserves not related to ~~non-warranty~~warranty or construction defect matters. See Note 1 and Note 1516 of the accompanying unaudited consolidated financial statements for additional information related to construction defect and warranty related ~~reserves.With~~reserves. With respect to the majority of pending litigation matters, our ultimate legal and financial responsibility, if any, cannot be estimated with certainty and, in most cases, any potential losses related to these matters are not considered probable. Historically, most disputes regarding warranty claims are resolved prior to litigation.

We believe there are no pending legal or warranty matters that could have a material adverse impact upon our unaudited consolidated financial condition, results of operations or cash flows that have not been sufficiently reserved.



Item 1A.	Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed ~~below and as discussed~~ in Part I, Item IA. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, which could materially affect our business, financial condition or future results. The risks described ~~below and~~ in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may eventually prove to materially adversely affect our business, financial condition and/or operating results.

~~Legislation related to tariffs could increase the cost to construct our homes.~~

Government imposed tariffs on imported building supplies such as lumber could significantly increase the cost to construct our homes. Such cost increases limit our ability to control costs, potentially reducing margins on the homes we build if we are not able to successfully offset the increased costs through higher sales prices.



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

We have never declared cash dividends, nor do we intend to declare cash dividends in the foreseeable future. We plan to retain our cash to finance the continuing development of the business. Future cash dividends, if any, will depend upon financial condition, results of operations, capital requirements, statutory requirements, compliance with certain restrictive debt covenants, as well as other factors considered relevant by our Board of Directors.

~~As discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading "Issuer~~Issuer Purchases of Equity ~~Securities", on July 25, 2018, we announced that~~Securities

On February 13, 2019, the Board of Directors ~~approved~~authorized a new stock repurchase program, authorizing the expenditure of up to $100.0 million to repurchase shares of our common stock. This ~~new~~ program ~~replaces~~follows the ~~previously authorized~~completion of the $100.0 million stock repurchase program ~~that was~~approved in ~~place~~July 2018 and completed in the fourth quarter of 2018. There is no stated expiration for this program. The repurchases of the Company's shares may be made in the open market, in privately negotiated transactions, or otherwise. The timing and amount of repurchases, if any, will be determined by the Company's management at its discretion and be based on a variety of factors such as the market price of the Company's common stock, corporate and contractual requirements, prevailing market and economic conditions and legal requirements. The share repurchase program may be modified, suspended or discontinued at any time. As of June 30, ~~2018 (originally adopted in February 2006) under which~~2019, there was ~~$130.2~~$91.0 million available under this program to repurchase ~~shares at~~shares. There were no share repurchases during the ~~time it was replaced with the new program described above.~~three months ended June 30, 2019.



Item 6.	Exhibits



Exhibit Number	Description	Page or Method of Filing
3.1	Restated Articles of Incorporation of Meritage Homes Corporation	Incorporated by reference to Exhibit 3 of Form 8-K dated June 20, 2002

3.1.1	Amendment to Articles of Incorporation of Meritage Homes Corporation	Incorporated by reference to Exhibit 3.1 of Form 8-K dated September 15, 2004

3.1.2	Amendment to Articles of Incorporation of Meritage Homes Corporation	Incorporated by reference to Appendix A of the Proxy Statement for the Registrant's 2006 Annual Meeting of Stockholders

3.1.3	Amendment to Articles of Incorporation of Meritage Homes Corporation	Incorporated by reference to Appendix B of Proxy Statement for the Registrant's 2008 Annual Meeting of Stockholders

3.1.4	Amendment to Articles of Incorporation of Meritage Homes Corporation	Incorporated by reference to Appendix A of the Definitive Proxy Statement filed with the Securities and Exchange Commission on January 9, 2009

3.2	Amended and Restated Bylaws of Meritage Homes Corporation	Incorporated by reference to Exhibit 3.1 of Form 8-K dated May 10, 2017

10.1*4.1	~~Meritage Homes 2018 Stock Incentive Plan~~Ninth Supplemental Indenture (re 7.15% Senior Notes due 2020)	~~Incorporated by reference to Appendix A of the Proxy Statement for the Registrant's 2018 Annual Meeting of Stockholders~~Filed herewith

~~10.2~~4.2	~~Fourth Amendment to Amended and Restated Credit Agreement~~Sixth Supplemental Indenture (re 7.00% Senior Notes due 2022)	~~Incorporated by reference to Exhibit 10.1 of Form 8-K filed on June 29, 2018~~Filed herewith

4.3	First Supplemental Indenture (re 6.00% Senior Notes due 2025)	Filed herewith

4.4	First Supplemental Indenture (re 5.125% Senior Notes due 2027)	Filed herewith

31.1	Rule 13a-14(a)/15d-14(a) Certification of Steven J. Hilton, Chief Executive Officer	Filed herewith

31.2	Rule 13a-14(a)/15d-14(a) Certification of Hilla Sferruzza, Chief Financial Officer	Filed herewith

32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer	Furnished herewith

101.0	The following financial statements from the Meritage Homes Corporation Quarterly Report on Form 10-Q for the three and six months ended June 30, ~~2018~~2019 were formatted in XBRL (Extensible Business Reporting Language); (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Income Statements, (iii) Unaudited Consolidated Statements of Cash Flows, and (iv) Notes to Unaudited Consolidated Financial Statements.

* Indicates a management contract or compensation plan

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	MERITAGE HOMES CORPORATION, a Maryland Corporation

By:	/s/ HILLA SFERRUZZA
	Hilla Sferruzza Chief Financial Officer and Chief Accounting Officer (Duly Authorized Officer and Principal Financial Officer)

Date:	July ~~30, 2018~~29, 2019

INDEX OF EXHIBITS



3.1			Restated Articles of Incorporation of Meritage Homes Corporation

3.1.1			Amendment to Articles of Incorporation of Meritage Homes Corporation

3.1.2			Amendment to Articles of Incorporation of Meritage Homes Corporation

3.1.3			Amendment to Articles of Incorporation of Meritage Homes Corporation

3.1.4			Amendment to Articles of Incorporation of Meritage Homes Corporation

3.2			Amended and Restated Bylaws of Meritage Homes Corporation

~~10.1~~4.1			~~Meritage Homes 2018 Stock Incentive Plan~~Ninth Supplemental Indenture (re 7.15% Senior Notes due 2020)

~~10.2~~4.2			~~Fourth Amendment to Amended and Restated Credit Agreement~~Sixth Supplemental Indenture (re 7.00% Senior Notes due 2022)

4.3			First Supplemental Indenture (re 6.00% Senior Notes due 2025)

4.4			First Supplemental Indenture (re 5.125% Senior Notes due 2027)

31.1			Rule 13a-14(a)/15d-14(a) Certification of Steven J. Hilton, Chief Executive Officer

31.2			Rule 13a-14(a)/15d-14(a) Certification of Hilla Sferruzza, Chief Financial Officer

32.1			Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

101.0			The following financial statements from the Meritage Homes Corporation Quarterly Report on Form 10-Q for the three and six months ended June 30, ~~2018~~2019 were formatted in XBRL (Extensible Business Reporting Language); (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Income Statements, (iii) Unaudited Consolidated Statements of Cash Flows, and (iv) Notes to Unaudited Consolidated Financial Statements.

4243



	Six Months Ended June 30, 2017
	(In thousands)
	Number of Shares	Common Stock		Additional Paid-In Capital			Retained Earnings		Total
Balance at December 31, 2016	40,031	$	400	$	572,506		$	848,589	$	1,421,495
Net earnings	—	—		—			65,152		65,152
Exercise/vesting of stock-based awards	289	3		(3		)	—		—
Stock-based compensation expense	—	—		5,792			—		5,792
Balance at June 30, 2017	40,320	$	403	$	578,295		$	913,741	$	1,492,439



	At December 31, 2017
	West			Central			East			Financial Services		Corporate and Unallocated			Total
Deposits on real estate under option or contract	$	15,557		$	21,309		$	23,079		$	—	$	—		$	59,945
Real estate	1,174,285			700,460			856,635			—		—			2,731,380
Investments in unconsolidated entities	7,833			6,999			—			—		2,236			17,068
Other assets	58,470		(1)	110,173		(2)	144,681		(3)	1,249		128,292		(4)	442,865
Total assets	$	1,256,145		$	838,941		$	1,024,395		$	1,249	$	130,528		$	3,251,258