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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 June 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 August 10, 2000, 5,171,277 shares of Meritage Corporation common stock
were outstanding.
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MERITAGE CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999......................................... 3
Consolidated Statements of Earnings for the Three and
Six Month Periods ended June 30, 2000 and 1999............ 4
Consolidated Statements of Cash Flows for the Six
Month Periods ended June 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................... 14
SIGNATURES............................................................. S-1
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
------------- -------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 9,458,651 $ 13,422,016
Real estate under development 200,586,220 171,012,405
Deposits on real estate under option or contract 17,491,489 15,699,609
Receivables 1,543,645 1,643,187
Deferred tax asset 834,375 698,634
Goodwill 18,208,069 18,741,625
Property and equipment, net 4,480,562 4,040,134
Other assets 1,412,621 1,301,286
------------- -------------
Total Assets $ 254,015,632 $ 226,558,896
============= =============
LIABILITIES
Accounts payable and accrued liabilities $ 38,246,068 $ 41,950,761
Home sale deposits 12,316,004 8,261,000
Notes payable 101,753,499 85,936,601
------------- -------------
Total Liabilities 152,315,571 136,148,362
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share; 50,000,000
Shares authorized; issued and outstanding -
5,606,862
Shares at June 30, 2000, and 5,474,906 shares at
December 31, 1999 56,069 54,749
Additional paid-in capital 100,985,745 100,406,745
Accumulated earnings (deficit) 5,195,358 (8,148,535)
Less cost of shares held in treasury (414,685 shares at
June 30, 2000, and 186,000 shares at December 31,
1999) (4,537,111) (1,902,425)
------------- -------------
Total Stockholders' Equity 101,700,061 90,410,534
------------- -------------
Total Liabilities and Stockholders' Equity $ 254,015,632 $ 226,558,896
============= =============
See accompanying notes to condensed consolidated financial statements
3
MERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
Home sales revenue $ 120,802,671 $ 76,646,871 $ 212,455,331 $ 127,953,068
Land sales revenue 899,406 74,900 1,656,917 154,800
------------- ------------- ------------- -------------
121,702,077 76,721,771 214,112,248 128,107,868
Cost of home sales (96,393,849) (60,810,073) (171,350,198) (102,132,361)
Cost of land sales (789,267) (34,500) (1,470,472) (69,000)
------------- ------------- ------------- -------------
(97,183,116) (60,844,573) (172,820,670) (102,201,361)
Home sales gross profit 24,408,822 15,836,798 41,105,133 25,820,707
Land sales gross profit 110,139 40,400 186,445 85,800
------------- ------------- ------------- -------------
24,518,961 15,877,198 41,291,578 25,906,507
Commissions and other sales costs (6,457,926) (4,492,042) (12,236,486) (7,907,859)
General and administrative expense (4,846,778) (3,678,297) (8,848,739) (6,824,344)
Interest expense (2,999) (1,844) (4,521) (2,679)
Other income, net 421,385 629,489 953,656 947,921
------------- ------------- ------------- -------------
Earnings before income taxes 13,632,643 8,334,504 21,155,488 12,119,546
Income taxes (5,059,633) (3,793,701) (7,811,595) (5,253,701)
------------- ------------- ------------- -------------
Net earnings $ 8,573,010 $ 4,540,803 $ 13,343,893 $ 6,865,845
============= ============= ============= =============
Basic earnings per share $ 1.62 $ .83 $ 2.52 $ 1.26
============= ============= ============= =============
Diluted earnings per share $ 1.50 $ .75 $ 2.31 $ 1.14
============= ============= ============= =============
See accompanying notes to condensed consolidated financial statements.
4
MERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
---------------------------------
2000 1999
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 13,343,893 $ 6,865,845
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,524,233 1,009,513
(Increase) decrease in deferred tax asset (135,741) 4,552,837
Stock option compensation expense 73,254 296,658
Increase in real estate under development (29,573,815) (42,433,135)
Increase in deposits on real estate under option or contract (1,791,880) (4,388,322)
Decrease in receivables and other assets 252,788 437,135
Increase (decrease) in accounts payable and accrued liabilities 1,690,178 (2,309,513)
Increase in home sale deposits 4,055,004 3,526,024
------------- -------------
Net cash used in operating activities (10,562,086) (32,442,958)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for merger/acquisition (5,158,006) (6,966,890)
Purchases of property and equipment (1,431,105) (1,713,715)
------------- -------------
Net cash used in investing activities (6,589,111) (8,680,605)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 196,000,554 128,447,739
Repayment of borrowings (180,183,656) (92,986,476)
Purchase of treasury shares (2,634,686) (112,962)
Stock options exercised 5,620 472,681
------------- -------------
Net cash provided by financing activities 13,187,832 35,820,982
------------- -------------
Net decrease in cash and cash equivalents (3,963,365) (5,302,581)
Cash and cash equivalents at beginning of period 13,422,016 12,386,806
------------- -------------
Cash and cash equivalents at end of period $ 9,458,651 $ 7,084,225
============= =============
See accompanying notes to condensed consolidated financial statements
5
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
The components of real estate under development follow (in thousands):
June 30, December 31,
2000 1999
----------- -----------
Homes under contract, in production $ 102,862 $ 71,987
Finished home sites and home sites under development 68,722 63,610
Model homes and homes held for resale 22,965 31,797
Land held for development 6,037 3,618
----------- -----------
$ 200,586 $ 171,012
=========== ===========
We have included 108 pre-sold homes with a dollar cost of approximately
$21.5 million, purchased from two other Arizona builders, in real estate under
development and in quarter-end sales backlog, but have not included them as
sales contracts written during the quarter.
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):
Quarter Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
Beginning unamortized capitalized interest $ 4,274 $ 2,260 $ 3,971 $ 1,982
Interest capitalized 2,774 1,510 4,642 2,599
Amortized in cost of home and land sales (2,137) (1,117) (3,702) (1,928)
------- ------- ------- -------
Ending unamortized capitalized interest $ 4,911 $ 2,653 $ 4,911 $ 2,653
======= ======= ======= =======
Interest incurred $ 2,777 $ 1,512 $ 4,647 $ 2,602
Interest capitalized (2,774) (1,510) (4,642) (2,599)
------- ------- ------- -------
Interest expensed $ 3 $ 2 $ 5 $ 3
======= ======= ======= =======
6
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 3 - NOTES PAYABLE
Notes payable consist of the following (in thousands):
June 30, December 31,
2000 1999
--------- ---------
$100 million bank revolving construction line of
credit, interest payable monthly approximating
prime (9.5% at June 30, 2000) or LIBOR (30 day
LIBOR 6.6% at June 30, 2000), plus 1.75% payable
December 31, 2001, secured by first deeds of
trust on real estate................................ $ 62,320 $ 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 August 31, 2000, secured
by first deeds of trust on real estate.............. 21,321 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 land... 3,093 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................................................. 19 26
--------- ---------
Total ........................................... $ 101,753 $ 85,937
========= =========
7
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 4 - EARNINGS PER SHARE
A summary of the reconciliation from basic earnings per share to diluted
earnings per share for the three and six months ended June 30, 2000 and 1999
follows (in thousands, except per share amounts):
Quarter Ended Six Months Ended
June 30, June 30,
----------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
Net earnings $ 8,573 $ 4,541 $13,344 $ 6,866
Basic EPS - Weighted average shares
outstanding 5,287 5,456 5,287 5,441
------- ------- ------- -------
Basic earnings per share $ 1.62 $ .83 $ 2.52 $ 1.26
======= ======= ======= =======
Basic EPS - Weighted average shares
outstanding 5,287 5,456 5,287 5,441
Effect of dilutive securities:
Contingent shares and warrants -- 70 37 77
Stock options 439 494 451 519
------- ------- ------- -------
Dilutive EPS - Weighted average shares
outstanding 5,726 6,020 5,775 6,037
------- ------- ------- -------
Diluted earnings per share $ 1.50 $ .75 $ 2.31 $ 1.14
======= ======= ======= =======
Antidilutive stock options not included
in diluted EPS 277 291 278 287
======= ======= ======= =======
NOTE 5 - INCOME TAXES
Components of income tax expense are (in thousands):
Quarter Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
Current taxes:
Federal $ 4,520 $ 157 $ 6,939 $ 240
State 657 296 1,009 459
------- ------- ------- -------
5,177 453 7,948 699
------- ------- ------- -------
Deferred taxes:
Federal (105) 3,254 (122) 4,467
State (12) 87 (14) 88
------- ------- ------- -------
(117) 3,341 (136) 4,555
------- ------- ------- -------
Total $ 5,060 $ 3,794 $ 7,812 $ 5,254
======= ======= ======= =======
8
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.
Quarter Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands)
HOME SALES REVENUE:
Texas $ 52,281 $ 42,461 $ 101,711 $ 72,795
Arizona 32,257 30,056 54,199 49,684
California 36,264 4,130 56,545 5,474
--------- --------- --------- ---------
Total $ 120,802 $ 76,647 $ 212,455 $ 127,953
========= ========= ========= =========
EBIT:
Texas $ 8,769 $ 5,819 $ 15,779 $ 9,554
Arizona 2,762 3,815 3,757 5,705
California 5,631 1,195 7,942 773
Corporate and other (1,389) (1,378) (2,616) (1,984)
--------- --------- --------- ---------
Total $ 15,773 $ 9,451 $ 24,862 $ 14,048
========= ========= ========= =========
AMORTIZATION OF CAPITALIZED INTEREST:
Texas $ 656 $ 367 $ 1,291 $ 667
Arizona 933 688 1,511 1,191
California 548 62 900 70
--------- --------- --------- ---------
Total $ 2,137 $ 1,117 $ 3,702 $ 1,928
========= ========= ========= =========
At At
June 30, December 31,
2000 1999
--------- ---------
ASSETS:
Texas $ 99,228 $ 97,832
Arizona 106,319 77,195
California 42,583 43,773
Corporate 5,886 7,759
--------- ---------
Total $ 254,016 $ 226,559
========= =========
9
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, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. 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, 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. 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 six months ended June 30, 2000 and
June 30, 1999. All material balances and transactions between us and our
subsidiaries have been eliminated. In managements' 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 second quarter and
first six months 2000 and 1999 home sales revenue follow (dollars in thousands):
Quarter Ended Six Months Ended
June 30, Dollar/Unit Percentage June 30, Dollar/Unit Percentage
------------------- Increase Increase ------------------- Increase Increase
2000 1999 (Decrease) (Decrease) 2000 1999 (Decrease) (Decrease)
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL
Dollars $120,802 $ 76,647 $ 44,155 58% $212,455 $127,953 $ 84,502 66%
Homes closed 525 374 151 40% 965 631 334 53%
Average sales price $ 230.1 $ 204.9 $ 25.2 12% $ 220.2 $ 202.8 $ 17.4 9%
TEXAS
Dollars $ 52,281 $ 42,461 $ 9,820 23% $101,711 $ 72,795 $ 28,916 40%
Homes closed 303 275 28 10% 605 475 130 27%
Average sales price $ 172.5 $ 154.4 $ 18.1 12% $ 168.1 $ 153.3 $ 14.8 10%
ARIZONA
Dollars $ 32,257 $ 30,056 $ 2,201 7% $ 54,199 $ 49,684 $ 4,515 9%
Homes closed 117 88 29 33% 196 141 55 39%
Average sales price $ 275.7 $ 341.5 $ (65.8) (19)% $ 276.5 $ 352.4 $ (75.9) (22%)
CALIFORNIA
Dollars $ 36,264 $ 4,130 $ 32,134 778% $ 56,545 $ 5,474 $ 51,071 933%
Homes closed 105 11 94 855% 164 15 149 993%
Average sales price $ 345.4 $ 375.5 $ (30.1) (8)% $ 344.8 $ 364.9 $ (20.1) (6)%
10
The increase in total home sales revenue and number of homes closed in 2000
compared to 1999 results mainly from our strong market performances in Texas and
California.
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):
Quarter Ended June 30, Six Months Ended June 30,
----------------------------------------------- -----------------------------------------------
Dollar/ Dollar/
Percentage Percentage Percentage Percentage
Increase Increase Increase Increase
2000 1999 (Decrease) (Decrease) 2000 1999 (Decrease) (Decrease)
--------- --------- --------- -------- --------- --------- --------- --------
Dollars $ 24,409 $ 15,837 $ 8,572 54% $ 41,105 $ 25,821 $ 15,284 59%
Percentage of home
sales revenues 20.2% 20.7% (.5)% -- 19.3% 20.2% (.9)% --
The dollar increase in gross profit for the three and six months ended June
30, 2000 over the prior year periods is attributable to the increase in number
of homes closed. The gross profit margin decreased somewhat in both periods due
to the increased deliveries of our new lower-priced, lower margin Arizona
products.
COMMISSIONS AND OTHER SALES COSTS
Commissions and other sales costs, such as advertising and sales offices
expenses, were approximately $6.5 million, or 5.3% of home sales revenue in the
three months ended June 30, 2000 compared with $4.5 million, or 5.9% of home
sales revenue in the second quarter of 1999. For the first six months of 2000,
commissions and other sales costs were approximately $12.2 million, or 5.8% of
home sales revenue, compared with $7.9 million, or 6.2% of home sales revenue
for the first half of 1999. The slight decrease in these expenses as a
percentage of home sales revenue was caused by holding down increases in
advertising and other marketing costs.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were approximately $4.8 million (4.0%
of revenue) in the second quarter of 2000, as compared with approximately $3.7
million (4.8% of revenue) in 1999. For the six months ended June 30, 2000, G&A
expenses were approximately $8.8 million (4.1% of revenue), compared with $6.8
million (5.3% of revenue) for the same period of 1999. The higher expense as a
percentage of revenue for the six months ended June 30, 1999 includes
approximately $600,000 related to an employment agreement buyout 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 six months ended
June 30, 2000 from prior year's periods were caused by higher taxable income
offset by a slightly lower effective tax rate.
11
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):
Quarter Ended June 30, Dollar/Unit Percentage Six Months Ended June 30, Dollar/Unit Percentage
---------------------- Increase Increase ------------------------- Increase Increase
2000 1999 (Decrease) (Decrease) 2000 1999 (Decrease) (Decrease)
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL
Dollars $147,770 $ 98,276 $ 49,494 50% $296,670 $202,014 $ 94,656 47%
Units ordered 590 495 95 19% 1,219 1,050 169 16%
Average sales price $ 250.5 $ 198.5 $ 52.0 26% $ 243.4 $ 192.4 $ 51.0 27%
TEXAS
Dollars $ 57,561 $ 55,260 $ 2,301 4% $118,481 $119,616 $ (1,135) (1)%
Units ordered 317 346 (29) (8)% 672 777 (105) (14)%
Average sales price $ 181.6 $ 160.0 $ 21.6 14% $ 176.3 $ 154.0 $ 22.3 14%
ARIZONA
Dollars $ 44,922 $ 30,246 $ 14,676 49% $ 88,859 $ 61,238 $ 27,621 45%
Units ordered 143 113 30 27% 280 212 68 32%
Average sales price $ 314.1 $ 267.7 $ 46.4 17% $ 315.4 $ 288.9 $ 26.5 9%
CALIFORNIA
Dollars $ 45,287 $ 12,770 $ 32,518 255% $ 89,330 $ 21,160 $ 68,170 322%
Units Ordered 130 36 94 261% 267 61 206 338%
Average sales price $ 348.4 $ 354.7 $ (6.3) (2)% $ 334.2 $ 346.9 $ (12.7) (4)%
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.
NET SALES BACKLOG
Backlog represents net sales contracts that have not closed. Comparative
June 30, 2000 and 1999 net sales backlog follows (dollars in thousands):
At June 30, Dollar/Unit Percentage
--------------------- Increase Increase
2000 1999 (Decrease) (Decrease)
-------- -------- -------- --------
TOTAL
Dollars $305,100 $219,355 $ 85,745 39%
Homes in backlog 1,247 1,107 140 13%
Average sales price $ 244.7 $ 198.2 $ 46.5 23%
TEXAS
Dollars $110,753 $123,999 $(13,246) (11)%
Homes in backlog 633 805 (172) (21)%
Average sales price $ 175.0 $ 154.0 $ 21.0 14%
ARIZONA
Dollars $128,978 $ 77,933 $ 51,045 65%
Homes in backlog 408 251 157 63%
Average sales price $ 316.1 $ 310.5 $ 5.6 2%
CALIFORNIA
Dollars $ 65,369 $ 17,423 $ 47,946 275%
Homes in backlog 206 51 155 304%
Average sales price $ 317.3 $ 341.6 $ (24.3) (7)%
12
Total dollar backlog at June 30, 2000 increased 39% over the 1999 amount
due to a corresponding increase in homes in backlog. Units in backlog at June
30, 2000 increased 13% 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, the purchase of 108 pre-sold homes from two
Arizona builders (see Note 2) 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 June 30, 2000 we had short-term secured revolving construction loan and
acquisition and development facilities totaling $169.5 million, of which
approximately $86.7 million was outstanding. An additional $41.0 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 September 15, 2005, which were issued
in October 1998.
In May 1999, we announced a stock repurchase program in which our Board of
Directors approved the buyback of up to $6 million of outstanding Meritage
stock. This amount was increased to $10 million at the first quarter, 2000 board
meeting. As of June 30, 2000, 414,685 shares had been repurchased for an
aggregate price of approximately $4.5 million.
Management believes that the current borrowing capacity, cash on hand at
June 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 trade in derivative financial instruments and at June 30, 2000
had no significant derivative financial instruments. We do 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.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 10, 2000, we held our Annual Meeting of Shareholders, at which
Steven J. Hilton, William W. Cleverly and Raymond Oppel were
re-elected as Class I Directors to serve for a two-year term which
expires at our Annual Meeting of Shareholders in 2002. Voting results
for these nominees are summarized as follows:
VOTES VOTES
FOR WITHHELD
--------- --------
Steven J. Hilton 5,053,432 17,903
William W. Cleverly 5,053,549 17,786
Raymond Oppel 5,054,065 17,270
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Additionally, the Shareholders approved an amendment to the Meritage Corporation
Stock Option Plan which increases the number of shares of common stock
authorized for issuance thereunder from 475,000 to 775,000 shares, and raises
the number of shares that may be issued to any one person under the plan from
50,000 to 100,000. Voting results are as follows:
APPROVAL OF AMENDMENT TO
STOCK OPTION PLAN
-----------------
Shares For 2,655,150
Shares Against 834,296
Shares Abstained 14,392
Shares Not Voted By Brokers 1,567,497
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 Wells Filed herewith
Fargo Bank, Arizona, N.A. and California
Bank & Trust, Dated as of May 16, 2000
10.2 Extension of Guaranty Federal Bank Loan, Filed herewith
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 June 30,
2000.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly cause this report on Form 10-Q to
be signed on its behalf by the undersigned, thereunto duly authorized, this 11th
day of August 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