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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9977
MERITAGE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland 86-0611231
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
6613 North Scottsdale Road, Suite 200
Scottsdale, Arizona 85250
(Address of Principal Executive Offices) (Zip Code)
(480) 998-8700
(Registrant's Telephone Number, Including Area Code)
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 [X] No [ ].
As of October 10, 2000, 4,827,209 shares of Meritage Corporation common stock
were outstanding.
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<PAGE>
MERITAGE CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999........................ 3
Condensed Consolidated Statements of Earnings for the Three
and Nine Month Periods ended September 30, 2000 and 1999........ 4
Condensed Consolidated Statements of Cash Flows for the Nine
Month Periods ended September 30, 2000 and 1999................. 5
Notes to Condensed Consolidated Financial Statements............ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................. 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK..................................................... 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................ 14
SIGNATURES ................................................................. S-1
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MERITAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------- ---------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 1,578 $ 13,422
Real estate under development 222,464 171,012
Deposits on real estate under option or contract 19,094 15,700
Receivables 1,619 1,643
Deferred tax asset 670 699
Goodwill 17,941 18,742
Property and equipment, net 4,727 4,040
Other assets 1,676 1,301
--------- ---------
Total Assets $ 269,769 $ 226,559
========= =========
LIABILITIES
Accounts payable and accrued liabilities $ 44,248 $ 41,950
Customer deposits on sales contracts 12,561 8,261
Notes payable 106,567 85,937
--------- ---------
Total Liabilities 163,376 136,148
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share; 50,000,000
Shares authorized; issued and outstanding -
5,612,362 shares at September 30, 2000, and
5,474,906 shares at December 31, 1999 56 55
Additional paid-in capital 101,043 100,407
Accumulated earnings (deficit) 15,704 (8,149)
Less cost of shares held in treasury (785,153
shares at September 30, 2000, and 186,000 shares
at December 31, 1999) (10,410) (1,902)
--------- ---------
Total Stockholders' Equity 106,393 90,411
--------- ---------
Total Liabilities and Stockholders' Equity $ 269,769 $ 226,559
========= =========
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
MERITAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Home sales revenue $ 134,464 $ 76,786 $ 346,919 $ 204,584
Land sales revenue 944 0 2,601 155
--------- --------- --------- ---------
135,408 76,786 349,520 204,739
Cost of home sales (105,574) (62,232) (276,924) (164,295)
Cost of land sales (851) 0 (2,321) (69)
--------- --------- --------- ---------
(106,425) (62,232) (279,245) (164,364)
Home sales gross profit 28,890 14,554 69,995 40,289
Land sales gross profit 93 0 280 86
--------- --------- --------- ---------
28,983 14,554 70,275 40,375
Commissions and other sales costs (7,291) (4,572) (19,528) (12,480)
General and administrative expense (5,363) (3,531) (14,212) (10,356)
Interest expense (2) (2) (6) (4)
Other income, net 319 362 1,273 1,395
--------- --------- --------- ---------
Earnings before income taxes 16,646 6,811 37,802 18,930
Income taxes (6,137) (2,784) (13,949) (8,037)
--------- --------- --------- ---------
Net earnings $ 10,509 $ 4,027 $ 23,853 $ 10,893
========= ========= ========= =========
Basic earnings per share $ 2.06 $ .74 $ 4.57 $ 2.00
========= ========= ========= =========
Diluted earnings per share $ 1.85 $ .67 $ 4.15 $ 1.80
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
MERITAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 23,853 $ 10,893
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,320 1,608
Stock option compensation expense 73 445
Decrease in deferred tax asset 28 6,363
Increase in real estate under development (51,452) (75,393)
Increase in deposits on real estate under option or contract (3,394) (6,327)
(Increase) decrease in receivables and other assets (350) 39
Increase in accounts payable and accrued liabilities 7,455 1,639
Increase in customer deposits on sales contracts 4,300 2,511
--------- ---------
Net cash used in operating activities (17,167) (58,222)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for merger/acquisition (5,158) (6,967)
Purchases of property and equipment (2,206) (2,273)
--------- ---------
Net cash used in investing activities (7,364) (9,240)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 318,723 213,469
Repayment of borrowings (298,093) (154,940)
Purchase of treasury shares (8,507) (113)
Proceeds from employee stock options exercised 564 495
--------- ---------
Net cash provided by financing activities 12,687 58,911
--------- ---------
Net decrease in cash and cash equivalents (11,844) (8,551)
Cash and cash equivalents at beginning of period 13,422 12,387
--------- ---------
Cash and cash equivalents at end of period $ 1,578 $ 3,836
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
We develop, construct and sell new high-quality, single-family homes in the
semi-custom luxury, move-up and entry-level markets. We operate in the
Dallas/Fort Worth, Austin and Houston, Texas markets as Legacy Homes, in the
Phoenix and Tucson, Arizona metropolitan markets under the Monterey Homes and
Meritage Homes of Arizona brand names, and in the San Francisco Bay and
Sacramento, California markets as Meritage Homes of Northern California.
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of Meritage Corporation and its subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation and certain prior period
amounts have been reclassified to be consistent with current financial statement
presentation. In the opinion of management, the unaudited condensed consolidated
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary to fairly present our financial position and
results of operations for the periods presented. The results of operations for
any interim period are not necessarily indicative of results to be expected for
a full fiscal year.
NOTE 2 - REAL ESTATE UNDER DEVELOPMENT AND CAPITALIZED INTEREST
Real estate under development consisted of the following (in thousands):
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------- --------
Homes under contract, in production $110,654 $ 71,987
Finished home sites and home sites under development 82,370 63,610
Model homes and homes held for resale 24,392 31,797
Land held for development 5,048 3,618
-------- --------
$222,464 $171,012
======== ========
We capitalize certain interest costs incurred during development and
construction. Capitalized interest is allocated to real estate under development
and charged to cost of sales when the property is delivered. Summaries of
interest capitalized and interest expensed follow (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Beginning unamortized capitalized interest $ 4,911 $ 2,653 $ 3,971 $ 1,982
Interest capitalized 2,975 1,942 7,617 4,541
Amortized in cost of home and land sales (2,203) (1,118) (5,905) (3,046)
------- ------- ------- -------
Ending unamortized capitalized interest $ 5,683 $ 3,477 $ 5,683 $ 3,477
======= ======= ======= =======
Interest incurred $ 2,977 $ 1,944 $ 7,623 $ 4,545
Interest capitalized (2,975) (1,942) (7,617) (4,541)
------- ------- ------- -------
Interest expensed $ 2 $ 2 $ 6 $ 4
======= ======= ======= =======
</TABLE>
6
<PAGE>
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 3 - NOTES PAYABLE
Notes payable consist of the following (in thousands):
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------- -------
$100 million bank revolving construction line of
credit, interest payable monthly approximating
prime (9.5% at September 30, 2000) or LIBOR (90
day LIBOR 6.8% at September 30, 2000), plus
1.75% payable December 31, 2001, secured by
first deeds of trust on real estate $ 71,807 $36,180
$65 million bank revolving construction line of
credit, interest payable monthly approximating
prime or LIBOR plus 2.0%, payable at the earlier
of close of escrow, maturity date of individual
homes within the line or July 31, 2001, secured
by first deeds of trust on real estate 16,164 26,104
$15 million unsecured bank revolving line of credit,
interest payable monthly at prime, matured
January 17, 2000 -- 6,000
Acquisition and development credit facilities and
seller carry back financing totaling $5.7
million, interest payable monthly, ranging from
prime to prime plus .25% or at a fixed 10% per
annum rate; payable at the earlier of funding of
construction financing or the maturity date of
the individual projects, secured by first deeds
of trust on real estate 3,580 2,627
Senior unsecured notes, maturing September 15,
2005, annual interest of 9.10% payable quarterly,
principal payable in three equal installments on
September 15, 2003, 2004 and 2005 15,000 15,000
Other 16 26
-------- -------
Total $106,567 $85,937
======== =======
7
<PAGE>
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 4 - EARNINGS PER SHARE INFORMATION
A summary of the reconciliation from basic earnings per share to diluted
earnings per share for the three and nine months ended September 30, 2000 and
1999 follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
2000 1999 2000 1999
------- ------ ------- -------
<S> <C> <C> <C> <C>
Net earnings $10,509 $4,027 $23,853 $10,893
Basic EPS - Weighted average shares outstanding 5,097 5,463 5,224 5,448
------- ------ ------- -------
Basic earnings per share $ 2.06 $ .74 $ 4.57 $ 2.00
======= ====== ======= =======
Basic EPS - Weighted average shares outstanding 5,097 5,463 5,224 5,448
Effect of dilutive securities:
Contingent shares and warrants -- 70 25 83
Stock options 582 491 496 527
------- ------ ------- -------
Dilutive EPS - Weighted average shares outstanding 5,679 6,024 5,745 6,058
------- ------ ------- -------
Diluted earnings per share $ 1.85 $ .67 $ 4.15 $ 1.80
======= ====== ======= =======
Antidilutive stock options not included in diluted EPS 102 272 265 275
======= ====== ======= =======
</TABLE>
NOTE 5 - INCOME TAXES
Components of income tax expense are (in thousands):
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
2000 1999 2000 1999
------ ------- ------- ------
Current taxes:
Federal $5,263 $ 724 $12,202 $ 964
State 710 250 1,719 709
------ ------- ------- ------
5,973 974 13,921 1,673
------ ------- ------- ------
Deferred taxes:
Federal 147 1,770 25 6,236
State 17 40 3 128
------ ------- ------- ------
164 1,810 28 6,364
------ ------- ------- ------
Total $6,137 $ 2,784 $13,949 $8,037
====== ======= ======= ======
8
<PAGE>
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 6 - SEGMENT INFORMATION
We classify our operations into three primary geographic segments: Texas,
Arizona and California. These segments generate revenues through the sale of
homes to external customers. We are not dependent on any one major customer.
Operational information relating to the different business segments
follows. Certain information has not been included by segment due to the
immateriality of the amount to the segment or in total. We evaluate segment
performance based on several factors, of which the primary financial measure is
earnings before interest and taxes (EBIT). The accounting policies of the
business segments are the same as those described in Notes 1 and 2. There are no
significant transactions between segments.
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2000 1999 2000 1999
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
(in thousands)
HOME SALES REVENUE:
Texas $ 58,932 $ 43,604 $ 160,643 $ 116,399
Arizona 45,168 26,056 99,367 75,585
California 30,364 7,126 86,909 12,600
--------- -------- --------- ---------
Total $ 134,464 $ 76,786 $ 346,919 $ 204,584
========= ======== ========= =========
EBIT:
Texas $ 10,449 $ 5,790 $ 26,228 $ 15,344
Arizona 4,862 2,565 8,619 8,270
California 5,033 515 12,975 1,288
Corporate and other (1,493) (937) (4,109) (2,921)
--------- -------- --------- ---------
Total $ 18,851 $ 7,933 $ 43,713 $ 21,981
========= ======== ========= =========
AMORTIZATION OF CAPITALIZED INTEREST:
Texas $ 585 $ 445 $ 1,876 $ 1,112
Arizona 1,213 559 2,724 1,750
California 405 114 1,305 184
--------- -------- --------- ---------
Total $ 2,203 $ 1,118 $ 5,905 $ 3,046
========= ======== ========= =========
AT AT
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------- ---------
ASSETS:
Texas $ 100,809 $ 97,832
Arizona 116,596 77,195
California 49,785 43,773
Corporate 2,579 7,759
--------- ---------
Total $ 269,769 $ 226,559
========= =========
</TABLE>
NOTE 7 - RELATED PARTY TRANSACTIONS
In September 2000, the Company purchased 312,500 shares from a current
director at a cost of $5 million. These shares are held as treasury shares.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements. The
words "believe," "expect," "anticipate," and "project" and similar expressions
identify forward-looking statements, which speak only as of the date the
statement was made. Such forward-looking statements are 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. Such statements may include, but are not
limited to, projections of revenues, income or loss, capital expenditures, plans
for future operations, financing needs or plans and liquidity, the impact of
inflation, the impact of changes in interest rates, plans relating to our
products or services, potential real property acquisitions, and new or planned
development projects, as well as assumptions relating to the foregoing.
Statements in Exhibit 99 to this Quarterly Report on Form 10-Q and in our
Annual Report on Form 10-K for the year ended December 31, 1999, including the
Notes to the Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," describe factors,
among others, that could contribute to or cause such differences, which could be
material. Additional factors that could cause actual results to differ
materially from those expressed in such forward-looking statements are described
in "Business" and "Market for the Registrant's Common Stock and Related
Stockholder Matters" in our December 31, 1999 Annual Report on Form 10-K.
RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding the
results of our operations for the three and nine months ended September 30, 2000
and 1999. All material balances and transactions between us and our subsidiaries
have been eliminated. In management's opinion, the data reflects all
adjustments, consisting of only normal recurring adjustments, necessary to
fairly present our financial position and results of operations for the periods
presented. The results of operations for any interim period are not necessarily
indicative of results expected for a full fiscal year.
HOME SALES REVENUE
Home sales revenue is the product of the number of homes closed during the
period and the average sales price per home. Comparative home sales revenue for
the third quarter and first nine months of 2000 and 1999 follow (dollars in
thousands):
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, DOLLAR/UNIT PERCENTAGE SEPTEMBER 30, DOLLAR/UNIT PERCENTAGE
------------------- INCREASE INCREASE -------------------- INCREASE INCREASE
2000 1999 (DECREASE) (DECREASE) 2000 1999 (DECREASE) (DECREASE)
-------- ------- -------- ---------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total
Dollars $134,464 $76,786 $57,678 75% $346,919 $204,584 $142,335 70%
Homes closed 588 399 189 47% 1,553 1,030 523 51%
Average sales price $ 228.7 $ 192.5 $ 36.2 20% $ 223.4 $ 198.6 $ 24.8 12%
Texas
Dollars $ 58,932 $43,604 $15,328 35% $160,643 $116,399 $ 44,244 38%
Homes closed 334 283 51 18% 939 758 181 24%
Average sales price $ 176.4 $ 154.1 $ 22.4 15% $ 171.1 $ 153.6 $ 17.5 11%
Arizona
Dollars $ 45,168 $26,056 $19,112 73% $ 99,367 $ 75,585 $ 23,782 31%
Homes closed 165 97 68 70% 361 238 123 52%
Average sales price $ 273.7 $ 268.6 $ 5.1 2% $ 275.3 $ 317.6 $ (42.3) (13)%
California
Dollars $ 30,364 $ 7,126 $23,238 326% $ 86,909 $ 12,600 $ 74,309 590%
Homes closed 89 19 70 368% 253 34 219 644%
Average sales price $ 341.2 $ 375.1 $ (33.9) (9)% $ 343.5 $ 370.6 $ (27.1) (7)%
</TABLE>
10
<PAGE>
The increase in total home sales revenue and number of homes closed in 2000
compared to 1999 results mainly from strong market performance in all of our
divisions and additional closings from our expanding mid-priced market segment
in Arizona.
HOME SALES GROSS PROFIT
Gross profit is home sales revenue, net of housing cost of sales, which
include developed home site costs, home construction costs, amortization of
common community costs (such as the cost of model complexes and architectural,
legal and zoning costs), interest, sales tax, warranty, construction overhead
and closing costs. Comparative 2000 and 1999 housing gross profit follows
(dollars in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- ----------------------------------------
DOLLAR/ DOLLAR/
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
2000 1999 INCREASE INCREASE 2000 1999 INCREASE INCREASE
---- ---- -------- -------- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dollars $28,890 $14,554 $14,336 99% $69,995 $40,289 $29,706 74%
Percentage of home sales revenues 21.5% 19.0% 2.5% -- 20.2% 19.7% .5% --
</TABLE>
The dollar increase in gross profit for the three and nine months ended
September 30, 2000 over the prior year periods is attributable to the increase
in number of homes closed. The gross profit margin increased marginally in both
periods due to an increase in gross margins in Texas and California caused
mainly by home sale price increases and due to a larger number of deliveries of
high margin California homes.
LAND SALES GROSS PROFIT
Meritage will occasionally sell land that the Company originally purchased
for development. These lots are no longer needed for use in current operations,
and are therefore considered to be excess.
COMMISSIONS AND OTHER SALES COSTS
Commissions and other sales costs, such as advertising and sales offices
expenses, were approximately $7.3 million, or 5.4% of home sales revenue for the
three months ended September 30, 2000 compared with $4.6 million, or 6.0% of
home sales revenue for the third quarter of 1999. For the first nine months of
2000, commissions and other sales costs were approximately $19.5 million, or
5.6% of home sales revenue, compared with $12.5 million, or 6.1% of home sales
revenue for the first nine months of 1999. The decrease in these expenses as a
percentage of home sales revenue was caused by controlling increases in
advertising and other marketing costs, while revenues expanded.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were approximately $5.4 million (4.0%
of revenue) in the third quarter of 2000, as compared with approximately $3.5
million (4.6% of revenue) in 1999. For the nine months ended September 30, 2000,
G&A expenses were approximately $14.2 million (4.1% of revenue), compared with
$10.4 million (5.1% of revenue) for the same period of 1999. The higher expense
as a percentage of revenue for the nine months ended September 30, 1999 includes
approximately $600,000 related to the buyout of an employment agreement of a
former managing director. Operating costs in 1999 were also higher as a
percentage of revenue due to overhead increases incurred related to our
California expansion, and the start-up of our new Meritage Division in Phoenix,
Arizona.
INCOME TAXES
The increases in income tax expense for the quarter and nine months ended
September 30, 2000 from prior year's periods were caused by higher taxable
income offset by a slightly lower effective tax rate.
SALES CONTRACTS
Sales contracts for any period represent the number of homes ordered by
customers (net of cancellations) multiplied by the average sales price per unit
ordered. Comparative 2000 and 1999 sales contracts follow (dollars in
thousands):
11
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- DOLLAR/UNIT PERCENTAGE ---------------- DOLLAR/UNIT PERCENTAGE
2000 1999 INCREASE INCREASE 2000 1999 INCREASE INCREASE
---- ---- -------- -------- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total
Dollars $173,930 $93,955 $79,975 85% $470,601 $295,969 $174,632 59%
Units ordered 731 405 326 81% 1,950 1,455 495 34%
Average sales price $ 237.9 $ 232.0 $ 5.9 3% $ 241.3 $ 203.4 $ 37.9 19%
Texas
Dollars $ 71,684 $36,562 $35,122 96% $190,166 $156,178 $ 33,988 22%
Units ordered 422 219 203 93% 1,094 996 98 10%
Average sales price $ 169.9 $ 166.9 $ 2.9 2% $ 173.8 $ 156.8 $ 17.0 11%
Arizona
Dollars $ 59,912 $39,027 $20,885 54% $148,771 $100,265 $ 48,506 48%
Units ordered 194 132 62 47% 474 344 130 38%
Average sales price $ 308.8 $ 295.7 $ 13.2 5% $ 313.9 $ 291.5 $ 22.4 8%
California
Dollars $ 42,334 $18,366 $23,968 131% $131,664 $ 39,526 $ 92,138 233%
Units Ordered 115 54 61 113% 382 115 267 232%
Average sales price $ 368.1 340.1 $ 28.0 8% $ 344.7 $ 343.7 $ 1.0 *
</TABLE>
* Represents less than one percent
We do not include sales contingent upon the sale of a customer's existing
home as a sales contract until the contingency is removed. Historically, we have
experienced a cancellation rate of approximately 25% or less of gross sales.
Total sales contracts increased in 2000 compared to 1999 due mainly to the
expansion into California and the start-up of our mid-priced Meritage Phoenix
division, along with continued economic strength in our operating markets,
particularly Texas.
NET SALES BACKLOG
Backlog represents net sales contracts that have not closed. Comparative
September 30, 2000 and 1999 net sales backlog follows (dollars in thousands):
AT SEPTEMBER 30, DOLLAR/UNIT PERCENTAGE
---------------- INCREASE INCREASE
2000 1999 (DECREASE) (DECREASE)
---- ---- ---------- ----------
Total
Dollars $344,566 $236,524 $108,042 46%
Homes in backlog 1,390 1,113 277 25%
Average sales price $ 247.9 $ 212.5 $ 35.4 17%
Texas
Dollars $123,505 $116,957 $ 6,548 6%
Homes in backlog 721 741 (20) (3)%
Average sales price $ 171.3 $ 157.8 $ 13.5 9%
Arizona
Dollars $143,722 $ 90,904 $ 52,818 58%
Homes in backlog 437 286 151 53%
Average sales price $ 328.9 $ 317.8 $ 11.0 4%
California
Dollars $ 77,339 $ 28,663 $ 48,676 170%
Homes in backlog 232 86 146 170%
Average sales price $ 333.4 $ 333.3 $ .1 *
* Represents less than one percent
12
<PAGE>
Total dollar backlog at September 30, 2000 increased 46% over the 1999
amount due to an increase in the number of homes in backlog and increased sales
prices in most of our markets. Units in backlog at September 30, 2000 increased
25% over the same period in the prior year due to the increase in net orders
caused by expansion into California, the start-up of our new Meritage Phoenix
division and strong housing markets in which we operate.
LIQUIDITY AND CAPITAL RESOURCES
Our principal uses of working capital are land purchases, home site
development and home construction. We use a combination of borrowings and funds
generated by operations to meet our working capital requirements.
At September 30, 2000 we had short-term secured revolving construction loan
and acquisition and development facilities totaling $170.7 million, of which
approximately $90.3 million was outstanding. An additional $49 million of
unborrowed funds supported by approved collateral were available under our
credit facilities at that date. We also have $15 million outstanding in
unsecured, senior subordinated notes due in three equal installments, September
15, 2003, 2004 and 2005, which were issued in October 1998.
In May 1999, our Board of Directors authorized the buyback of up to $6
million of outstanding Meritage stock. This amount was increased to $20 million
at subsequent board meetings. As of September 30, 2000, approximately 785,000
shares had been repurchased for an aggregate price of approximately $10.4
million, including 312,500 shares purchased from a current director in the third
quarter, 2000, at a cost of $5 million.
We believe that the current borrowing capacity, cash on hand at September
30, 2000 and anticipated cash flows from operations are sufficient to meet our
liquidity needs for the foreseeable future. There is no assurance, however, that
future amounts available from our sources of liquidity will be sufficient to
meet future capital needs. The amount and types of indebtedness that we incur
may be limited by the terms of the indenture governing our senior subordinated
notes and our credit agreements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have or trade in derivative financial instruments. We have other
financial instruments in the form of notes payable and senior debt, which are at
fixed interest rates. Our lines of credit and credit facilities are at variable
interest rates and are subject to market risk in the form of interest rate
fluctuations.
13
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT PAGE OR
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
10.1 Modification to Loan Agreement with Guaranty Filed herewith
Federal Bank, Dated as of July 31, 2000
27 Financial Data Schedule Filed herewith
99 Private Securities Reform Act of 1995 Safe Filed herewith
Harbor Compliance Statement for Forward-Looking
Statements
(b) REPORTS ON FORM 8-K
No reports on form 8-K were filed during the quarter ended
September 30, 2000.
14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized, this 14th day of November 2000.
MERITAGE CORPORATION,
a Maryland Corporation
By /s/ LARRY W.SEAY
--------------------------------------------------
Larry W. Seay
Chief Financial Officer and Vice President-Finance
(Principal Financial Officer and Duly Authorized
Officer)
S-1
