Washington, D.C. 20549
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2020
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                       to                      .
Commission file number 001-36126      


(Exact name of registrant as specified in its charter)

(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1450 Lake Robbins Drive,Suite 430, The Woodlands,Texas77380
(Address of principal executive offices)(Zip code)
(Registrants Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareLGIHNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company

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

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

As of July 31, 2020, there were 25,089,151 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

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(In thousands, except share data)
 June 30,December 31,
Cash and cash equivalents$49,102  $38,345  
Accounts receivable58,230  56,390  
Real estate inventory1,458,258  1,499,624  
Pre-acquisition costs and deposits30,761  37,244  
Property and equipment, net1,876  1,632  
Other assets22,443  16,241  
Deferred tax assets, net3,687  4,621  
Goodwill and intangible assets, net12,018  12,018  
Total assets$1,636,375  $1,666,115  
Accounts payable$15,410  $12,495  
Accrued expenses and other liabilities114,202  117,868  
Notes payable587,981  690,559  
Total liabilities717,593  820,922  
Common stock, par value $0.01, 250,000,000 shares authorized, 26,695,179 shares issued and 25,089,151 shares outstanding as of June 30, 2020 and 26,398,409 shares issued and 25,359,409 shares outstanding as of December 31, 2019
267  264  
Additional paid-in capital259,061  252,603  
Retained earnings708,845  610,382  
Treasury stock, at cost, 1,606,028 shares and 1,039,000 shares, respectively
(49,391) (18,056) 
Total equity918,782  845,193  
Total liabilities and equity$1,636,375  $1,666,115  

See accompanying notes to the consolidated financial statements.

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(In thousands, except share and per share data)

 Three Months Ended June 30,Six Months Ended June 30,
Home sales revenues$481,602  $461,830  $936,329  $749,424  
Cost of sales363,629  350,519  711,792  571,809  
Selling expenses29,960  33,890  62,723  60,681  
General and administrative20,179  18,980  40,102  37,418  
   Operating income67,834  58,441  121,712  79,516  
Loss on extinguishment of debt  169    169  
Other income, net(763) (2,263) (1,774) (2,882) 
Net income before income taxes68,597  60,535  123,486  82,229  
Income tax provision12,973  14,480  25,023  17,840  
Net income$55,624  $46,055  $98,463  $64,389  
Earnings per share:
Basic$2.22  $2.01  $3.91  $2.82  
Diluted$2.21  $1.82  $3.88  $2.55  
Weighted average shares outstanding:
Basic25,074,826  22,926,156  25,198,952  22,835,920  
Diluted25,153,076  25,357,396  25,366,106  25,226,062  

See accompanying notes to the consolidated financial statements.

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(In thousands, except share data)

Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockTotal Equity
BALANCE—December 31, 201926,398,409  $264  $252,603  $610,382  $(18,056) $845,193  
Net income—  —  —  42,839  —  42,839  
Issuance of restricted stock units in settlement of accrued bonuses—  —  222  —  —  222  
Stock repurchase—  —  —  —  (31,335) (31,335) 
Compensation expense for equity awards—  —  1,853  —  —  1,853  
Stock issued under employee incentive plans282,065  2  831  —  —  833  
BALANCE— March 31, 202026,680,474  $266  $255,509  $653,221  $(49,391) $859,605  
Net income—  —  —  55,624  —  55,624  
Compensation expense for equity awards—  —  2,613  —  —  2,613  
Stock issued under employee incentive plans14,705  1  939  —  —  940  
BALANCE— June 30, 202026,695,179  $267  $259,061  $708,845  $(49,391) $918,782  

Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockTotal Equity
BALANCE—December 31, 201823,746,385  $237  $241,988  $431,774  $(18,056) $655,943  
Net income—  —  —  18,334  —  18,334  
Issuance of restricted stock units in settlement of accrued bonuses—  —  217  —  —  217  
Compensation expense for equity awards—  —  1,783  —  —  1,783  
Stock issued under employee incentive plans218,345  2  647  —  —  649  
BALANCE— March 31, 201923,964,730  $239  $244,635  $450,108  $(18,056) $676,926  
Net income—  —  —  46,055  —  46,055  
Compensation expense for equity awards—  —  1,639  —  —  1,639  
Stock issued under employee incentive plans14,153  1  614  —  —  615  
BALANCE— June 30, 201923,978,883  $240  $246,888  $496,163  $(18,056) $725,235  

See accompanying notes to the consolidated financial statements.

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(In thousands)
Six Months Ended June 30,
Cash flows from operating activities:
Net income$98,463  $64,389  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization317  326  
Loss on extinguishment of debt  169  
Compensation expense for equity awards4,466  3,422  
Deferred income taxes934  775  
Changes in assets and liabilities:
Accounts receivable(1,839) (371) 
Real estate inventory41,735  (99,671) 
Pre-acquisition costs and deposits6,483  (239) 
Other assets(5,077) 5,936  
Accounts payable2,915  13,321  
Accrued expenses and other liabilities(2,325) (6,950) 
Net cash provided by (used in) operating activities146,072  (18,893) 
Cash flows from investing activities:
Purchases of property and equipment(560) (323) 
Investment in unconsolidated entity(1,125)   
Net cash used in investing activities(1,685) (323) 
Cash flows from financing activities:
Proceeds from notes payable133,019  79,750  
Payments on notes payable(235,000) (68,800) 
Loan issuance costs(2,084) (2,067) 
Proceeds from sale of stock, net of offering expenses1,770  1,264  
Stock repurchase(31,335)   
Net cash provided by (used in) financing activities(133,630) 10,147  
Net increase (decrease) in cash and cash equivalents10,757  (9,069) 
Cash and cash equivalents, beginning of period38,345  46,624  
Cash and cash equivalents, end of period$49,102  $37,555  

See accompanying notes to the consolidated financial statements.

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Organization and Description of the Business
LGI Homes, Inc., a Delaware corporation (the “Company”, “we,” “us,” or “our”), is engaged in the development of communities and the design, construction and sale of new homes in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia and Virginia.
Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The accompanying unaudited consolidated financial statements include all adjustments that are of a normal recurring nature and necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year.
The accompanying unaudited financial statements as of June 30, 2020, and for the three and six months ended June 30, 2020 and 2019, include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and these differences could have a significant impact on the financial statements.
On March 11, 2020, the World Health Organization declared the current outbreak of the novel strain of coronavirus (“COVID-19”) to be a global pandemic, and on March 13, 2020, the United States declared a national emergency. In response to these declarations and the rapid spread of COVID-19, federal, state and local governments have imposed varying degrees of restrictions on business and social activities to contain COVID-19, including business shutdowns and closures, travel restrictions, quarantines, curfews, shelter-in-place orders and “stay-at-home” orders in certain of our markets. State and local authorities have also implemented multi-step policies with the goal of re-opening. However, certain jurisdictions have begun re-opening only to return to restrictions in the face of increases in new COVID-19 cases. We have experienced resulting disruptions to our business operations, as these restrictions have significantly impacted many sectors of the economy, with businesses curtailing or ceasing normal operations. In March 2020, certain markets in which we do business temporarily stopped our construction of homes. Beginning in April 2020, we resumed construction of homes in those markets. Although we continued to build and sell homes in all of our markets, the pace of sales declined and we experienced an increase in the rate of contract cancellations. Since May 2020, the pace of sales has rebounded and we have experienced increased demand in our markets. The ultimate impacts of COVID-19 and related mitigation efforts will depend on future developments, including, but not limited to, the duration and geographic spread of COVID-19, the impact of government actions designed to prevent the spread of COVID-19, the development of effective treatments, actions taken by customers, subcontractors, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume. While we cannot reasonably estimate the length or severity of this pandemic, an extended economic slowdown in the United States could materially impact our consolidated financial statements in 2020 and beyond.
Recently Adopted Accounting Standards
On January 1, 2020, we adopted the Financial Accounting Standards Board (the “FASB”) Accounting Standards Update (“ASU”) No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”), which requires entities that are customers in cloud computing arrangements to defer implementation costs if they would be capitalized by the entity in software licensing arrangements under the internal-use software guidance. The guidance may be applied

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retrospectively or prospectively to implementation costs incurred after the date of adoption. The adoption of ASU 2018-15 did not have a material effect on our consolidated financial statements or disclosures.
On January 1, 2020, we adopted the FASB ASU No. 2018-13, “Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which modifies the disclosure requirements of fair value measurements. ASU 2018-13 is effective for us beginning January 1, 2020. Certain disclosures are required to be applied on a retrospective basis and others on a prospective basis. The adoption of ASU 2018-13 did not have a material effect on our consolidated financial statements or disclosures.
On January 1, 2020, we adopted the FASB ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment” (“ASU 2017-04”), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for us beginning January 1, 2020, with early adoption permitted, and applied prospectively. The adoption of ASU 2017-04 did not have a material effect on our consolidated financial statements or disclosures.
On January 1, 2020, we adopted the FASB ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments from an “incurred loss” approach to a new “expected credit loss” methodology. ASU 2016-13 is effective for us beginning January 1, 2020, with early adoption permitted. The adoption of ASU 2016-13 did not have a material effect on our consolidated financial statements or disclosures.
Revenue Recognition
Revenues from home sales are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenues from home sales are recorded at the time each home sale is closed, title and possession are transferred to the customer and we have no significant continuing involvement with the home. Home sales discounts and incentives granted to customers, which are related to the customers’ closing costs that we pay on the customers’ behalf, are recorded as a reduction of revenue in our consolidated financial statements of operations.
The following table presents our home sales revenues disaggregated by revenue stream (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
Retail home sales revenues$443,507  $443,450  $853,909  $724,915  
Other38,095  18,380  82,420  24,509  
Total home sales revenues$481,602  $461,830  $936,329  $749,424  
The following table presents our home sales revenues disaggregated by geography, based on our determined reportable segments in Note 13 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
Central$167,924  $189,894  $333,699  $314,091  
Southeast128,577  77,820  217,024  130,234  
Northwest56,369  78,996  158,317  115,250  
West60,592  66,933  119,077  112,750  
Florida68,140  48,187  108,212  77,099  
Total home sales revenues$481,602  $461,830  $936,329  $749,424  
Home Sales Revenues
We generate revenues primarily by delivering move-in ready entry-level and move-up spec homes sold under our LGI Homes brand and our luxury series spec homes sold under our Terrata Homes brand.
Retail homes sold under both our LGI Homes brand and Terrata Homes brand focus on providing move-in ready homes with standardized features within favorable markets that meet certain demographic and economic conditions. Our LGI Homes

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brand primarily markets to entry-level or first-time homebuyers, while our Terrata Homes brand primarily markets to move-up homebuyers.
Our other revenues are composed of our wholesale home sales under our LGI Homes brand in existing markets. Wholesale homes are primarily sold under a bulk sales agreement and focus on providing move-in ready homes with standardized features to real estate investors that will ultimately use the single-family homes as rental properties.
Performance Obligations
Our contracts with customers include a single performance obligation to transfer a completed home to the customer. We generally determine selling price per home on the expected cost plus margin. Our contracts contain no significant financing terms as customers who finance do so through a third party. Performance obligations are satisfied at a moment in time when the home is complete and control of the asset is transferred to the customer at closing. Home sales proceeds are generally received from the title company within a few business days after closing.
Sales and broker commissions are incremental costs incurred to obtain a contract with a customer that would not have been incurred if the contract had not been obtained. Sales and broker commissions are expensed upon fulfillment of a home closing. Advertising costs are costs to obtain a contract that would have been incurred regardless of whether the contract was obtained and are recognized as an expense when incurred. Sales and broker commissions and advertising costs are recorded within sales and marketing expense presented in our consolidated statements of operations as selling expenses.
Our real estate inventory consists of the following (in thousands):
June 30,December 31,
Land, land under development and finished lots$944,151  $912,651  
Information centers29,387  26,959  
Homes in progress233,246  234,470  
Completed homes251,474  325,544  
Total real estate inventory$1,458,258  $1,499,624  
Inventory is stated at cost unless the carrying amount is determined not to be recoverable, in which case the affected inventory is written down to fair value.
Land, development and other project costs, including interest and property taxes incurred during development and home construction, net of expected reimbursable development costs, are capitalized to real estate inventory. Land development and other common costs that benefit the entire community, including field construction supervision and related direct overhead, are allocated to individual lots or homes, as appropriate. The costs of lots are transferred to homes in progress when home construction begins. Home construction costs and related carrying charges are allocated to the cost of individual homes using the specific identification method. Costs that are not specifically identifiable to a home are allocated on a pro rata basis, which we believe approximates the costs that would be determined using an allocation method based on relative sales values since the individual lots or homes within a community are similar in value. Inventory costs for completed homes are expensed to cost of sales as homes are closed. Changes to estimated total development costs subsequent to initial home closings in a community are generally allocated to the remaining unsold lots and homes in the community on a pro rata basis.
The life cycle of a community generally ranges from two to five years, commencing with the acquisition of land, continuing through the land development phase and concluding with the construction and sale of homes. A constructed home is used as the community information center during the life of the community and then sold. Actual individual community lives will vary based on the size of the community, the sales absorption rate and whether the property was purchased as raw land or finished lots.
Interest and financing costs incurred under our debt obligations, as more fully discussed in Note 5, are capitalized to qualifying real estate projects under development and homes under construction.

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Accrued and other liabilities consist of the following (in thousands):
June 30,December 31,
Taxes payable$35,306  $28,679  
Real estate inventory development and construction payable31,273  35,870  
Accrued compensation, bonuses and benefits12,488  16,748  
Accrued interest10,593  11,361  
Inventory related obligations6,690  7,808  
Lease liability5,545  5,645  
Warranty reserve3,950  3,500  
Other8,357  8,257  
Total accrued expenses and other liabilities$114,202  $117,868  
Inventory Related Obligations
We own lots in certain communities in Arizona, Florida and Texas that have Community Development Districts or similar utility and infrastructure development special assessment programs that allocate a fixed amount of debt service associated with development activities to each lot. This obligation for infrastructure development is attached to the land, which is typically payable over a 30-year period and is ultimately assumed by the homebuyer when home sales are closed. Such obligations represent a non-cash cost of the lots.
Estimated Warranty Reserve
We typically provide homebuyers with a one-year warranty on the house and a ten-year limited warranty for major defects in structural elements such as framing components and foundation systems.
Changes to our warranty accrual are as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
Warranty reserves, beginning of period$3,750  $3,000  $3,500  $2,950  
Warranty provision1,404  879  2,824  1,974  
Warranty expenditures(1,204) (829) (2,374) (1,874) 
Warranty reserves, end of period$3,950  $3,050  $3,950  $3,050  

Revolving Credit Agreement
On April 30, 2020, we entered into the Second Amendment to Fourth Amended and Restated Credit Agreement (the “Second Amendment”), which amends the Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended by the Lender Addition and Acknowledgement Agreement and First Amendment to Fourth Amended and Restated Credit Agreement, dated as of December 6, 2019, the “2019 Credit Agreement” and, together with the Second Amendment, the “Credit Agreement”), with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent. In the Second Amendment, lenders with $520.0 million, or 80%, of the $650.0 million of commitments under the 2019 Credit Agreement, agreed to extend the maturity of their commitments to May 31, 2023, with the remaining lenders retaining their existing maturity of May 31, 2022. The Second Amendment also reduced the minimum EBITDA to interest expense ratio from 2.50 to 1.75, increased the sublimit for letters of credit to $40.0 million and established a London Interbank Offered Rate (“LIBOR”) floor of 0.70%. The Credit Agreement otherwise has substantially similar terms and provisions to the 2019 Credit Agreement and continues to provide for a $650.0 million revolving credit facility, which can be increased at the request of the Company by up to $100.0 million, subject to the terms and conditions of the Credit Agreement.
The Credit Agreement matures on May 31, 2023 with respect to 80% of the commitments thereunder and on May 31, 2022 with respect to 20% of the commitments thereunder. Before each anniversary of the Credit Agreement, we may request a one-year extension of its maturity date. The Credit Agreement is guaranteed by each of our subsidiaries that have gross assets equal to or greater than $0.5 million. The borrowings and letters of credit outstanding under the Credit Agreement, together

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with the outstanding principal balance of our 6.875% Senior Notes due 2026 (the “Senior Notes”), may not exceed the borrowing base under the Credit Agreement. As of June 30, 2020, the borrowing base under the Credit Agreement was $899.2 million, of which borrowings, including the Senior Notes, of $597.6 million were outstanding, $18.7 million of letters of credit were outstanding and $282.9 million was available to borrow under the Credit Agreement.
Interest is paid monthly on borrowings under the Credit Agreement at LIBOR plus 2.50%. The Credit Agreement applicable margin for LIBOR loans ranges from 2.35% to 2.75% based on our leverage ratio. At June 30, 2020, LIBOR was 0.18%; however, we are subject to the 0.70% LIBOR floor as stipulated in the Credit Agreement.
The Credit Agreement contains various financial covenants, including a minimum tangible net worth, a leverage ratio, a minimum liquidity amount and an EBITDA to interest expense ratio. The Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments. At June 30, 2020, we were in compliance with all of the covenants contained in the Credit Agreement.
Convertible Notes
On November 15, 2019, our 4.25% Convertible Notes due 2019 (the “Convertible Notes”) matured, which resulted in the principal payment of $70.0 million and the issuance of 2,381,751 shares of our common stock for the premium associated with the Convertible Notes.
Senior Notes Offering
On July 6, 2018, we issued $300.0 million aggregate principal amount of the Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S under the Securities Act. Interest on the Senior Notes accrues at a rate of 6.875% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2019, and the Senior Notes mature on July 15, 2026. Terms of the Senior Notes are governed by an Indenture and First Supplemental Indenture thereto, each dated as of July 6, 2018, and a Second Supplemental Indenture thereto, dated as of April 30, 2020, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Wilmington Trust, National Association, as trustee.
Notes payable consist of the following (in thousands):
June 30, 2020December 31, 2019
Notes payable under the Credit Agreement ($650.0 million revolving credit facility at June 30, 2020) maturing in part on May 31, 2022 and in part on May 31, 2023; interest paid monthly at LIBOR plus 2.50%; net of debt issuance costs of approximately $6.0 million and $5.0 million at June 30, 2020 and December 31, 2019, respectively
$291,623  $394,531  
6.875% Senior Notes due July 15, 2026; interest paid semi-annually at 6.875%; net of debt issuance costs of approximately $2.0 million and $2.2 million at June 30, 2020 and December 31, 2019, respectively; and approximately $1.6 million and $1.8 million in unamortized discount at June 30, 2020 and December 31, 2019, respectively
296,358  296,028  
Total notes payable$587,981  $690,559  

Capitalized Interest
Interest activity, including other financing costs, for notes payable for the periods presented is as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
Interest incurred$9,262  $12,108  $19,418  $23,525  
Less: Amounts capitalized(9,262) (12,108) (19,418) (23,525) 
Interest expense$  $  $  $  
Cash paid for interest$3,676  $6,199  $18,700  $21,032  
Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $0.7 million and $1.0 million for the three months ended June 30, 2020 and 2019, respectively, and $1.4 million and $2.1 million for the six months ended June 30, 2020 and 2019, respectively.

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We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The statute of limitations with regards to our federal income tax filings is three years. The statute of limitations for our state tax jurisdictions is three to four years depending on the jurisdiction. In the normal course of business, we are subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income taxes. We do not expect the outcome of any audit to have a material effect on our consolidated financial statements; however, audit outcomes and the timing of audit adjustments are subject to significant uncertainty.
For the three and six months ended June 30, 2020, our effective tax rates of 18.9% and 20.3%, respectively, are lower than the Federal statutory rate primarily as a result of the deductions in excess of compensation cost for share-based payments and a $3.5 million benefit recognized from the retroactive extension of the new energy efficient homes credit that was enacted into law in December 2019 offset by an increase in the rate for state income taxes, net of the federal benefit payments.
Income taxes paid were $0.5 million and $21.4 million for the three months ended June 30, 2020 and 2019, respectively. Income taxes paid were $18.9 million and $21.6 million for the six months ended June 30, 2020 and 2019, respectively.
Shelf Registration Statement
We have an effective shelf registration statement on Form S-3 (Registration No. 333-227012) that was filed on August 24, 2018 with the Securities and Exchange Commission, registering the offering and sale of an indeterminate amount of debt securities, guarantees of debt securities, preferred stock, common stock, warrants, depositary shares, purchase contracts and units that include any of these securities.
Stock Repurchase Program
In November 2018, we announced that our Board of Directors (the “Board”) authorized a stock repurchase program, pursuant to which we may purchase up to $50.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws. We did not repurchase any shares of our common stock during the three months ended June 30, 2020. During the six months ended June 30, 2020, we repurchased 567,028 shares of our common stock for $31.3 million to be held as treasury stock. A total of 606,028 shares of our common stock has been repurchased since the stock repurchase program commenced. As of June 30, 2020, we may purchase up to $17.2 million of shares of our common stock under our stock repurchase program. The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements. The stock repurchase program may be modified, discontinued or suspended at any time.

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The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2020 and 2019:
Three Months Ended June 30,Six Months Ended June 30,
Numerator (in thousands):
Net Income (Numerator for basic and dilutive earnings per share)$55,624  $46,055  $98,463  $64,389  
       Basic weighted average shares outstanding25,074,826  22,926,156  25,198,952  22,835,920  
       Effect of dilutive securities:
Convertible Notes - treasury stock method  2,242,933    2,153,777  
         Stock-based compensation units78,250  188,307  167,154  236,365  
       Diluted weighted average shares outstanding25,153,076  25,357,396  25,366,106  25,226,062  
Basic earnings per share$2.22  $2.01  $3.91  $2.82  
Diluted earnings per share$2.21  $1.82  $3.88  $2.55  
Antidilutive non-vested restricted stock units excluded from calculation of diluted earnings per share2,267  1,379  9,808  11,268  
In accordance with Accounting Standards Codification (“ASC”) 260-10, Earnings Per Share, we calculated the dilutive effect of the Convertible Notes using the treasury stock method, since we had the intent and ability to settle the principal amount of the outstanding Convertible Notes in cash. The Convertible Notes matured and were repaid in full on November 15, 2019. Prior to the maturity of the Convertible Notes, we included the effect of the additional potential dilutive shares if our common stock price exceeded the conversion price of $21.52 per share under the treasury stock method. During the three and six months ended June 30, 2019, the average market price of our common stock exceeded the conversion price of $21.52 per share.
Non-performance Based Restricted Stock Units
The following table summarizes the activity of our time-vested restricted stock units (“RSUs”):
Six Months Ended June 30,
SharesWeighted Average Grant Date Fair ValueSharesWeighted Average Grant Date Fair Value
Beginning balance 162,686  $50.84  171,055  $39.04  
   Granted48,766  $61.08  48,830  $57.00  
   Vested(53,691) $32.15  (42,686) $22.22  
   Forfeited(1,400) $53.65  (6,641) $46.69  
Ending balance156,361  $60.42  170,558  $48.12  
We recognized $0.9 million and $0.6 million of stock-based compensation expense related to outstanding RSUs for the three months ended June 30, 2020 and 2019, respectively. We recognized $1.7 million and $1.1 million of stock-based compensation expense related to outstanding RSUs for the six months ended June 30, 2020 and 2019, respectively. Generally, the RSUs cliff vest on the third anniversary of the grant date and can only be settled in shares of our common stock. At

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June 30, 2020, we had unrecognized compensation cost of $5.2 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.0 years.
Performance-Based Restricted Stock Units
The Compensation Committee of the Board has granted awards of performance-based RSUs (“PSUs”) under the Amended and Restated LGI Homes, Inc. 2013 Equity Incentive Plan to certain members of senior management based on three-year performance cycles. The PSUs provide for shares of our common stock to be issued based on the attainment of certain performance metrics over the applicable three-year periods. The number of shares of our common stock that may be issued to the recipients for the PSUs range from 0% to 200% of the target amount depending on actual results as compared to the target performance metrics. The terms of the PSUs provide that the payouts will be capped at 100% of the target number of PSUs granted if absolute total stockholder return is negative during the performance period, regardless of EPS performance; this market condition applies for amounts recorded above target. The compensation expense associated with the PSU grants is determined using the derived grant date fair value, based on a third-party valuation analysis, and expensed over the applicable period. The PSUs vest upon the determination date for the actual results at the end of the three-year period and require that the recipients continue to be employed by us through the determination date. The PSUs can only be settled in shares of our common stock.
The following table summarizes the activity of our PSUs for the six months ended June 30, 2020:
Period GrantedPerformance PeriodTarget PSUs Outstanding at December 31, 2019Target PSUs GrantedTarget PSUs VestedTarget PSUs ForfeitedTarget PSUs Outstanding at June 30, 2020Weighted Average Grant Date Fair Value
20172017 - 2019104,770  —  (104,770) —    $31.64  
20182018 - 202060,040  —  —  —  60,040  $64.60  
20192019 - 202181,242  —  —  —  81,242  $56.49  
20202020 - 202288,538  —  —  88,538  $59.81  
Total246,052  88,538  (104,770)   229,820  
At June 30, 2020, management estimates that the recipients will receive approximately 100%, 100% and 128% of the 2020, 2019 and 2018 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics. We recognized $1.5 million and $0.9 million of total stock-based compensation expense related to outstanding PSUs for the three months ended June 30, 2020 and 2019, respectively. We recognized $2.4 million and $2.1 million of total stock-based compensation expense related to outstanding PSUs for the six months ended June 30, 2020 and 2019, respectively. PSUs granted in 2017 vested on March 15, 2020 at 199% of the target amount, and 208,867 shares of our common stock were issued upon such vesting. At June 30, 2020, we had unrecognized compensation cost of $8.5 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.2 years.

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ASC Topic 820, Fair Value Measurements (“ASC 820”), defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any. The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous. Accordingly, this exit price concept may result in a fair value that differs from the transaction price or market price of the asset or liability.
ASC 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:
Level 1 - Fair value is based on quoted prices in active markets for identical assets or liabilities.
Level 2 - Fair value is determined using significant observable inputs, generally either quoted prices in active markets for
similar assets or liabilities, or quoted prices in markets that are not active.
Level 3 - Fair value is determined using one or more significant inputs that are unobservable in active markets at the
measurement date, such as a pricing model, discounted cash flow or similar technique.
We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements may also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets. The fair value of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and certain accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments. As of June 30, 2020, the Credit Agreement’s carrying value approximates market value since it has a floating interest rate, which increases or decreases with market interest rates and our leverage ratio.
In order to determine the fair value of the Senior Notes, the future contractual cash flows are discounted at our estimate of current market rates of interest, which were determined based upon the average interest rates of similar senior notes within the homebuilding industry (Level 2 measurement).
The following table below shows the level and measurement of liabilities at June 30, 2020 and December 31, 2019 (in thousands):
June 30, 2020December 31, 2019
Fair Value HierarchyCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
Senior Notes
Level 2
$296,358  $322,894  $296,028  $337,853  

Land Purchases from Affiliates
As of June 30, 2020, we have a land purchase contract to purchase a total of 110 finished lots in Pasco County, Florida from an affiliate of one of our directors for a total base purchase price of approximately $4.0 million. The lots will be purchased in takedowns, subject to a maximum price escalation of 6% per annum, and may provide for additional payments to the seller at the time of sale to the homebuyer. We have a $0.2 million non-refundable deposit at June 30, 2020 related to this land purchase contract. In August 2019, we purchased our first takedown of 58 lots under the Pasco County contract for a base purchase price of approximately $2.1 million. We did not complete any takedowns under this land purchase contract during the three months ended June 30, 2020.
During the three months ended June 30, 2020, we purchased 25 finished lots in Montgomery County, Texas from an affiliate of a family member of our chief executive officer for a total base purchase price of approximately $2.0 million.