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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission File Number 1-9977
MERITAGE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland 86-0611231
(State or Other Jurisdiction (IRS 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)
Securities registered pursuant to Section 12(b) of the Act
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At March 15, 2001 the aggregate market value of common stock held by
non-affiliates of the Registrant was $55,588,139. For purposes of this
computation, all executive officers and directors of the Registrant have been
deemed to be affiliates.
The number of shares outstanding of the Registrant's common stock on March 15,
2001 was 5,941,202.
DOCUMENTS INCORPORATED BY REFERENCE
Portions from the Registrant's Proxy Statement relating to the Annual Meeting of
Stockholders to be held on May 9, 2001 have been incorporated by reference into
Part III, Items 10, 11, 12 and 13.
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TABLE OF CONTENTS
PAGE NO.
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PART I
Item 1. Business....................................................... 3
Item 2. Properties..................................................... 10
Item 3. Legal Proceedings.............................................. 10
Item 4. Submission of Matters to a Vote of Security Holders............ 10
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters............................................ 11
Item 6. Selected Financial Data........................................ 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 20
Item 8. Financial Statements and Supplementary Data.................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................... 35
PART III
Item 10. Directors and Executive Officers of the Registrant............. 36
Item 11. Executive Compensation......................................... 36
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................. 36
Item 13. Certain Relationships and Related Transactions................. 36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................... 37
SIGNATURES................................................................ S-1
2
PART I
ITEM 1. BUSINESS
HISTORY OF THE COMPANY
Meritage Corporation designs, constructs and sells single-family homes
ranging from entry-level to semi-custom luxury. We currently operate in three
large and growing Sunbelt states: Texas, Arizona and California. At December 31,
2000, we were actively selling homes in 56 communities. Information about our
active communities is provided through our Internet web site at
www.meritagecorp.com.
We were formed in 1988 as a real estate investment trust ("REIT") and
operated under the name of Homeplex Mortgage Investments Corporation. Homeplex
invested in mortgage-related assets and selected real estate loans. On December
31, 1996, the Company acquired by merger the homebuilding operations of various
entities using the Monterey Homes name (the "merger"). Following the merger we
changed our name to Monterey Homes Corporation, focused on our homebuilding
operations and began to diversify our geographic scope and product mix through
internal growth and acquisitions. In this regard, on July 1, 1997, we combined
with Legacy Homes, a group of entities with homebuilding operations in Texas
since 1988. In July 1998, we acquired Sterling Communities, a homebuilder in
Northern California. With shareholder approval, Meritage Corporation became our
new corporate name in September 1998. Operations continue in Texas under the
Legacy Homes name, in Arizona as Monterey Homes and Meritage Homes of Arizona,
and in Northern California as Meritage Homes.
BUSINESS STRATEGY
We seek to distinguish ourselves from other production homebuilders and to
respond rapidly to changing market conditions through a business strategy
focused on the following:
SUPERIOR DESIGN AND QUALITY. We believe we maximize customer satisfaction
by offering homes that are built with quality materials and craftsmanship,
exhibit distinctive design features and are situated in premium locations. We
believe that we generally offer higher caliber homes in their defined price
range or category compared to those built by our competitors.
HIGHEST LEVEL OF SERVICE. We are committed to achieving the highest level
of customer satisfaction as an integral part of our competitive strategy. During
the sales process our experienced sales personnel keep customers informed of
their home's construction progress. After delivery, our customer care
departments respond to any questions or warranty matters a customer may have.
PRODUCT BREADTH. We design our homes to appeal to a wide variety of
consumers. In Texas, we target entry-level and move-up buyers, offering homes at
prices that reflect the production efficiencies of a high-volume tract builder.
In Arizona, we focus on the luxury market, which is characterized by unique
communities and distinctive luxury homes, and the move-up homebuyers' market. We
are continuing our expansion into the first and second-time move-up segments of
the Arizona market to increase our share of the overall housing market in the
Phoenix and Tucson metropolitan areas. In Northern California, we focus on
building quality first and second-time move-up homes. We believe this product
breadth and geographical diversity helps to reduce exposure to variable economic
cycles, which enhances our growth potential.
CONSERVATIVE LAND ACQUISITION POLICY. We seek to maximize our return on
capital employed by practicing a conservative land acquisition policy that
minimizes risks associated with land investment. We accomplish this by:
* focusing on development sites where we expect to have less than a
three-year lot inventory;
* generally purchasing land subject to complete entitlement, including
zoning and utility services; and
3
* controlling lots on a non-recourse, rolling option basis where we have
the right, but not the obligation, to buy lots at predetermined prices
based on a takedown schedule that reflects anticipated home closings.
We generally do not speculate in raw land held for investment.
COST MANAGEMENT. Throughout our history, we have focused on controlling
costs and minimizing overhead, and consider this a key factor in maintaining
profitability. Management seeks to reduce costs by:
* using subcontractors to carry out home construction and site
improvement on a fixed-price basis;
* obtaining favorable pricing from subcontractors through long-term
relationships and large volume jobs;
* reducing interest carry by minimizing our inventory of unsold or
speculative homes and shortening the home construction cycle;
* generally beginning construction on a home under contract only after a
satisfactory down payment and/or receipt of mortgage approval has been
received from the buyer;
* minimizing overhead by centralizing certain administrative activities;
and
* maintaining management information systems to allow the monitoring of
homebuilding production, scheduling and budgeting.
DECENTRALIZED OPERATING STRUCTURE WITH EXPERIENCED DIVISION MANAGERS. We
rely upon the expertise of divisional managers, each with significant experience
in the homebuilding industry, to serve the needs of our regional markets.
Corporate-level management provides centralized control for risk elements such
as land acquisition approval, financing, cash management, capital allocation and
risk management.
EXPANSION IN NEW AND EXISTING MARKETS. Depending on market conditions, we
may explore expansion opportunities in new or existing geographic areas where we
see an ability to exploit a competitive advantage. Expansion may take place
through strategic acquisitions of existing homebuilders, through start-up
operations or through internal growth.
MARKETS AND PRODUCTS
We operate in the Dallas/Fort Worth, Austin and Houston, Texas markets
using the Legacy Homes brand name, in the Phoenix, Scottsdale and Tucson,
Arizona markets as Monterey Homes and Meritage Homes and in the San Francisco
Bay and Sacramento, California markets as Meritage Homes. We believe that these
areas represent attractive homebuilding markets with opportunities for long-term
growth. We also believe that our operations in certain markets, such as
Dallas/Fort Worth, Phoenix and Scottsdale, are well established and that we have
developed a reputation for building distinctive quality homes within the market
segments served by these communities.
Our homes range from entry-level to semi-custom luxury, with base prices
ranging from $100,000 to $775,000. A summary of activity by market and product
type follows (dollars in thousands):
Average Units in Dollar Value Number of
Number of Homes Closing Backlog at of Backlog at Home Sites Active
Closed in 2000 Price Year End Year End Remaining(1) Communities
-------------- ----- -------- -------- ------------ -----------
Texas - Move-up 922 $ 184 471 $ 86,222 2,918 16
Texas - Entry-level 317 142 224 33,342 1,258 9
Arizona - Luxury 231 449 157 77,651 319 10
Arizona - Move-up 392 183 187 37,560 1,390 14
California - Move-up 365 343 207 75,126 1,321 7
----- ----- ----- -------- ----- ---
Total Company 2,227 $ 231 1,246 $309,901 7,206 56
===== ===== ===== ======== ===== ===
(1) "Home Sites Remaining" is the number of homes that could be built both on
the remaining lots available for sale and land to be developed into lots as
estimated by management.
4
LAND ACQUISITION AND DEVELOPMENT
We typically purchase land only after necessary entitlements have been
obtained so that development or construction may begin as market conditions
dictate. The term "entitlements" refers to development agreements, tentative
maps or recorded plats, depending on the jurisdiction within which the land is
located. Entitlements generally give the developer the right to obtain building
permits upon compliance with conditions that are ordinarily within the
developer's control. Even though entitlements are usually obtained before land
is purchased, we are still required to secure a variety of other governmental
approvals and permits during development. The process of obtaining such
approvals and permits can substantially delay the development process. For this
reason, we may consider purchasing unentitled property in the future when we can
do so in a manner consistent with our business strategy.
We select land for development based upon a variety of factors, including:
* internal and external demographic and marketing studies;
* project suitability, which is generally a development with fewer than
150 lots;
* suitability for development generally within a one to three year time
period from the beginning of the development process to the delivery
of the last home;
* financial review as to the feasibility of the proposed project,
including projected profit margins, return on capital employed, and
the capital payback period;
* the ability to secure governmental approvals and entitlements;
* results of environmental and legal due diligence;
* proximity to local traffic corridors and amenities; and
* management's judgment as to the real estate market, economic trends,
and experience in a particular market.
We occasionally purchase larger properties consisting of 200 to 500 lots or
more if the situation presents an attractive profit potential and acceptable
risk limitations.
We acquire land through purchases and rolling option contracts. Purchases
are financed through traditional bank financing or working capital. Rolling
options allow us to control lots and land through a third party who owns or buys
the property on which we plan to build homes. We enter into option contracts
with the third party to purchase finished lots as home construction begins.
These contracts are generally non-recourse and require non-refundable deposits
of 2% to 15% of the sales price. We acquire a majority of our land through
rolling option contracts. At December 31, 2000, we had approximately $24.3
million in deposits on real estate under option or contract.
Once we have acquired land, we generally initiate development through
contractual agreements with subcontractors. These activities include site
planning and engineering, as well as constructing road, sewer, water, utilities,
drainage, recreation facilities and other refinements. We often build homes in
master planned communities with home sites that are along or near a major
amenity, such as a golf course.
We develop a design and marketing concept for each project, which includes
determination of size, style and price range of homes, street layout, size and
layout of individual lots, and overall community design. The product line
offered in a particular project depends upon many factors, including the housing
generally available in the area, the needs of a particular market, and our lot
costs for the project.
Occasionally we use partnerships or joint ventures to purchase and develop
land where these arrangements are necessary to acquire the property or appear to
be otherwise economically advantageous.
5
The following table presents information regarding land owned or land under
contract or option by market as of December 31, 2000:
LAND UNDER CONTRACT
LAND OWNED (1) OR OPTION (1)
------------------------------------- --------------------------------
LOTS UNDER LOTS HELD FOR LOTS UNDER
FINISHED DEVELOPMENT DEVELOPMENT FINISHED DEVELOPMENT
LOTS (ESTIMATED) (ESTIMATED) LOTS (ESTIMATED) TOTAL
-------- ----------- ----------- -------- ----------- -----
TEXAS:
Dallas/Ft. Worth Area 698 900 -- 249 1,299 3,146
Austin Area 19 -- -- 40 500 559
Houston Area 166 -- -- -- 364 530
----- ----- ----- ----- ----- -----
Total Texas 883 900 -- 289 2,163 4,235
----- ----- ----- ----- ----- -----
ARIZONA:
Phoenix Area 203 238 -- 402 411 1,254
Tucson Area 182 -- -- 160 232 574
----- ----- ----- ----- ----- -----
Total Arizona 385 238 -- 562 643 1,828
----- ----- ----- ----- ----- -----
CALIFORNIA:
Sacramento Area 34 -- -- 188 476 698
San Francisco Bay Area 34 -- 77 130 456 697
----- ----- ----- ----- ----- -----
Total California 68 -- 77 318 932 1,395
----- ----- ----- ----- ----- -----
TOTAL COMPANY 1,336 1,138 77 1,169 3,738 7,458
===== ===== ===== ===== ===== =====
(1) Excludes lots with finished homes or homes under construction.
CONSTRUCTION
We are the general contractor for our projects and typically hire
subcontractors on a project-by-project or reasonable geographic proximity basis
to complete construction at a fixed price. We usually enter into agreements with
subcontractors and materials suppliers after receiving competitive bids on an
individual basis. We obtain information from prospective subcontractors and
suppliers with respect to their financial condition and ability to perform their
agreements before formal bidding begins. Occasionally, we enter into longer-term
contracts with subcontractors and suppliers if management can obtain more
favorable terms. Our project managers and field superintendents, who coordinate
and supervise the activities of subcontractors and suppliers, subject the work
to quality and cost controls, and assure compliance with zoning and building
codes.
We specify that quality, durable materials be used in construction of our
homes and we do not maintain significant inventories of construction materials,
except for work in process materials for homes under construction. When
possible, management negotiates price and volume discounts with manufacturers
and suppliers on behalf of its subcontractors to take advantage of production
volume. Usually, access to our principal subcontracting trades, materials and
supplies is readily available in each of our markets. Prices for these goods and
services may fluctuate due to various factors, including supply and demand
shortages that may be beyond the control of our vendors. We believe that our
relationships with suppliers and subcontractors are good.
6
We generally build and sell homes in clusters or phases within a project,
which management believes creates efficiencies in land development and
construction, and improves customer satisfaction by reducing the number of
vacant lots surrounding a completed home. A typical Meritage home is completed
within four to ten months from the start of construction, depending upon home
size and complexity. Schedules may vary depending on the availability of labor,
materials and supplies, product type, location and weather. Our homes are
usually designed to promote efficient use of space and materials, and to
minimize construction costs and time.
MARKETING AND SALES
We believe that we have an established reputation for developing high
quality homes, which helps generate interest in each new project. We also use
advertising and other promotional activities, including magazine and newspaper
advertisements, brochures, direct mail, and the placement of strategically
located signs in the immediate areas of our developments.
We use furnished model homes as tools in demonstrating the competitive
advantages of our home designs and various features to prospective homebuyers.
We generally employ or contract with interior designers who are responsible for
creating an attractive model home for each product line within a project. We
generally build between one and four model homes for each active community,
depending upon the number of homes to be built in the project and the products
to be offered. Typically, we sell our model homes and lease them back from
buyers who purchased the homes for investment purposes or who do not intend to
move in immediately. A summary of model homes owned or leased at December 31,
2000 follows:
MODEL HOMES MODEL HOMES MONTHLY LEASE MODELS UNDER
OWNED LEASED BACK AMOUNT CONSTRUCTION
----- ----------- ------ ------------
Texas 30 -- -- 10
Arizona 5 43 $128,100 13
California 6 18 61,200 6
--- --- -------- ---
Total 41 61 $189,300 29
=== === ======== ===
Our homes generally are sold by full-time, commissioned employees who
typically work from a sales office located in the model homes for each project.
Our goal is to ensure that the sales force has extensive knowledge of our
operating policies and housing products. To achieve this goal, we train our
sales personnel and conduct periodic meetings to update them on sales
techniques, competitive products in the area, financing availability,
construction schedules, marketing and advertising plans, and the available
product lines, pricing, options, and warranties offered. Sales personnel are
licensed real estate agents where required by law. Independent brokers also sell
our homes, and are usually paid a sales commission based on the price of the
home.
Occasionally we offer various sales incentives, such as landscaping and
certain interior home improvements, to attract buyers. The use and type of
incentives depends largely on economic and competitive market conditions.
BACKLOG
Most of our home sales are made under standard sales contracts signed
before construction of the home begins. The contracts require substantial cash
deposits and are usually subject to certain contingencies such as the buyer's
ability to qualify for financing. Homes covered by such sales contracts but not
yet closed are considered "backlog". We do not recognize revenue on homes in
backlog until the home is delivered to a third-party homebuyer and other
criteria for sale and profit recognition are met. We sometimes build homes in a
community before obtaining a sales contract, however, these homes are excluded
from backlog until a sales contract is signed. We believe we will deliver almost
all homes in backlog at December 31, 2000 to customers during 2001.
7
Our backlog increased to 1,246 units with a value of $309.9 million at
December 31, 2000 from 885 units with a value of $199.4 million at December 31,
1999. These increases are primarily due to additional communities that opened
for sale in 2000, along with strong home sales in 2000, in all of our markets.
CUSTOMER FINANCING
We attempt to help qualified homebuyers who require financing to obtain
loans from mortgage lenders that offer a variety of financing options. We
provide mortgage-banking services in our Dallas/Fort Worth markets through a
100% owned mortgage lending company, Texas Home Mortgage Corporation, which
originates loans on behalf of third party lenders. In Phoenix and Tucson we
provide mortgage services through MTH Mortgage, LLC, a joint venture with an
independent mortgage banking company. In our other markets we use unaffiliated
preferred mortgage lenders. We may pay a portion of the closing costs and
discount mortgage points to assist homebuyers with financing. Since many
customers use long-term mortgage financing to purchase homes, adverse economic
conditions, unemployment increases and high mortgage interest rates may deter or
reduce the number of potential homebuyers.
CUSTOMER RELATIONS, QUALITY CONTROL AND WARRANTY PROGRAMS
We believe that positive customer relations and an adherence to stringent
quality control standards are fundamental to continued success, and that our
commitment to buyer satisfaction and quality control has significantly
contributed to our reputation as a high quality builder.
A Meritage project manager or project superintendent, and a customer
relations representative generally oversee compliance with quality control
standards for each development. These representatives allocate responsibility
to:
* oversee home construction;
* oversee subcontractor and supplier performance;
* review the progress of each home and conduct formal inspections as
specific stages of construction are completed; and
* regularly update buyers on the progress their homes.
We generally provide a one-year limited warranty on workmanship and
building materials with each home. Subcontractors usually provide an indemnity
and a certificate of insurance before they begin work, therefore claims relating
to workmanship and materials are generally the subcontractors' primary
responsibility. Reserves for future warranty costs are established based on
historical experience within each division or region, and are recorded when the
homes are delivered. Reserves range from 3/10 of one per cent to 3/4 of one
percent of a home's sale price. To date, these reserves have been sufficient to
cover warranty repairs.
COMPETITION AND MARKET FACTORS
The development and sale of residential property is a highly competitive
industry. We compete for sales in each of our markets with national, regional,
and local developers and homebuilders, existing home resales, and to a lesser
extent, condominiums and available rental housing. Some competitor homebuilders
have significantly greater financial resources and/or lower costs than we do.
Competition among both small and large residential homebuilders is based on a
number of interrelated factors, including location, reputation, amenities,
design, quality and price. We believe that we compare favorably to other
homebuilders in the markets in which we operate due to our:
* experience within our geographic markets which allows us to develop
and offer new products;
* ability to reflect and adapt to changing market conditions;
* ability, from a capital and resource perspective, to respond to market
conditions;
* ability to capitalize on opportunities to acquire land on favorable
terms; and
* reputation for outstanding service and quality products.
8
The homebuilding industry is cyclical and is affected by consumer
confidence levels, job availability, general economic conditions, and interest
rates. Other factors affecting the homebuilding industry and demand for new
homes are changes in costs associated with home ownership such as increases in
property taxes and energy costs, changes in consumer preferences, demographic
trends, availability of and changes in mortgage financing programs, and the
availability and cost of land and building materials. Any slowing in new home
sales would increase competition among homebuilders in our market areas. There
is no assurance that we will be able to compete successfully against other
homebuilders in our current markets in a more competitive business environment
resulting from a slowdown in home sales or that such increased competition will
not have a material adverse affect on our business and operating results.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
We purchase most of our land with entitlements, providing for zoning and
utility services to project sites and giving us the right to obtain building
permits. Construction may begin almost immediately upon compliance with
specified conditions, which generally are within our control. The time needed to
obtain such approvals and permits affects the carrying costs of unimproved
property acquired for development and construction. The continued effectiveness
of permits already granted is subject to factors such as changes in policies,
rules and regulations, and their interpretation and application. To date, the
government approval processes discussed above have not had a material adverse
effect on our development activities, though there is no assurance that these
and other restrictions will not adversely affect future operations.
Local and state governments have broad discretion regarding the imposition
of development fees for projects under their jurisdictions. These fees are
normally established when we receive recorded maps and building permits.
Occasionally, communities impose construction moratoriums. Because most of our
land is entitled, construction moratoriums generally would affect us initially
if they arose from health, safety, and welfare issues, such as insufficient
water, electric or sewage facilities. We could become subject to delays or may
be precluded entirely from developing communities due to building moratoriums,
"slow growth" initiatives or building permit allocation ordinances, which could
be implemented in the future.
We are also subject to a variety of local, state, and federal statutes,
ordinances, rules and regulations concerning the protection of health and the
environment. In some markets, we are subject to environmentally sensitive land
ordinances that mandate open space areas with public elements in housing
developments, and prevent development on hillsides, wetlands and other protected
areas. We must also comply with flood plain restrictions, desert wash areas,
native plant regulations, endangered species acts and view restrictions. These
and similar laws may result in delays, cause substantial compliance and other
costs, and prohibit or severely restrict development in certain environmentally
sensitive regions or areas. To date, compliance with such ordinances has not
materially affected our operations, though no assurance is given that such a
material adverse effect will not occur in the future.
We usually will condition our obligation to purchase property on, among
other things, an environmental review of the land. To date, we have not incurred
any unanticipated liabilities relating to the removal of unknown toxic wastes or
other environmental matters. However, there is no assurance that we will not
incur material liabilities in the future relating to toxic waste removal or
other environmental matters affecting land currently or previously owned.
BONDS AND OTHER OBLIGATIONS
We obtain letters of credit and performance, maintenance, and other bonds
in support of our related obligations with respect to the development of our
projects. The amount of these obligations outstanding at any time varies in
accordance with pending development activities. In the event the bonds or
letters are drawn upon, we would be obligated to reimburse the issuer of the
9
bond or letter of credit. At December 31, 2000 there were approximately $5.7
million in outstanding letters of credit and $29.1 million in performance bonds
for such purposes. We do not believe that any of these bonds or letters of
credit are likely to be drawn upon.
EMPLOYEES AND SUBCONTRACTORS
At December 31, 2000, we had 360 employees, including 78 in management and
administration, 81 in sales and marketing, and 201 in construction operations.
Our employees are not unionized, and we believe that employee relations are
good. We act solely as a general contractor and all construction operations are
conducted through project managers and field superintendents who manage third
party subcontractors. We use independent contractors for construction,
architectural and advertising services, and believe that our relations with
subcontractors and independent contractors are good.
STOCK REPURCHASE PROGRAM
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
common stock. The amount was increased to $20 million in July of 2000. As of
December 31, 2000, 811,963 shares had been repurchased for an aggregate price of
approximately $11.0 million.
ITEM 2. PROPERTIES
We lease approximately 12,000 square feet of office space in Scottsdale,
Arizona and a 13,000 square foot office in Plano Texas, which serve as our
corporate offices. The Scottsdale lease expires in August 2004. The Plano lease
expires in May 2002 and the building is leased from a company owned beneficially
by one of our Co-Chairmen. Management believes lease rates are competitive with
rates for comparable space in the area and terms of the lease are similar to
those we could obtain in an arm's length transaction. In addition, we lease
approximately 14,300 square feet of space for our operating divisions under
leases expiring between October 2001 and July 2005.
We also lease 61 model homes at a total monthly lease amount of $189,300.
The leases are for terms ranging from three months to 36 months, with various
renewal options.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various routine legal proceedings incidental to our
business. Management believes that none of these matters, some of which are
covered by insurance, will have a material adverse impact upon our financial
condition if decided against us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did not submit any matters to a vote of shareholders during the fourth
quarter of 2000.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
GENERAL
Our common stock is publicly traded on the New York Stock Exchange ("NYSE")
under the symbol "MTH". The high and low closing sales prices of the common
stock for the periods indicated, as reported by the NYSE, follow:
2000 1999
------------------- -------------------
HIGH LOW HIGH LOW
------ ------ ------ ------
First Quarter $11.38 $ 8.88 $15.69 $11.00
Second Quarter $11.88 $10.00 $13.50 $10.94
Third Quarter $18.25 $10.69 $13.25 $10.69
Fourth Quarter $38.06 $18.25 $12.00 $ 9.94
On March 15, 2001, the closing sales price of the common stock as reported
by the NYSE was $28.90 per share. At that date, there were approximately 290
owners of record. There are approximately 2,500 beneficial owners of common
stock.
The transfer agent for our common stock is Mellon Investor Services LLC, 85
Challenger Road, Ridgefield Park, NJ 07660.
We did not declare cash dividends in 2000, 1999 or 1998, nor do we intend
to declare cash dividends in the foreseeable future. Earnings will be retained
to finance the continuing development of the business. Future cash dividends, if
any, will depend upon our financial condition, results of operations and capital
requirements, as well as other factors considered relevant by our Board of
Directors.
FACTORS THAT MAY AFFECT FUTURE STOCK PERFORMANCE
The performance of our common stock depends upon several factors, including
those listed below and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Factors That May Affect Future Results and
Financial Condition."
The market price of our common stock could be subject to significant
fluctuations in response to certain factors, such as variations in anticipated
or actual results of our operations or that of other homebuilding companies,
changes in conditions affecting the general economy, widespread industry trends
and analysts' reports, changes in interest rates, as well as other factors
unrelated to our operating results.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical consolidated financial
data for each of the years in the five-year period ended December 31, 2000. The
data for all years are derived from our Consolidated Financial Statements
audited by KPMG LLP, independent auditors. For additional information, see the
Consolidated Financial Statements included elsewhere in this Annual Report on
Form 10-K. The following table should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and the Results of Operations.
These historical results may not be indicative of future results.
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HISTORICAL CONSOLIDATED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------
2000 1999 1998(3) 1997(4) 1996
--------- --------- --------- --------- ---------
INCOME STATEMENT DATA:
Home and land sales revenue $ 520,467 $ 341,786 $ 257,113 $ 149,630 N/A
Cost of home and land sales (415,649) (277,287) (205,188) (124,594)
--------- --------- --------- ---------
Gross profit 104,818 64,499 51,925 25,036
Earnings from mortgage assets and other income(6) 1,847 2,065 5,982 5,435 $ 2,244
Interest expense (8) (6) (461) (165) (238)
Commissions and other sales costs and general and
administrative expenses (49,895) (34,343) (24,925) (15,107) (1,684)
Minority interest in net income of consolidated joint
ventures -- -- (2,021) -- --
--------- --------- --------- --------- ---------
Earnings before income taxes and extraordinary loss 56,762 32,215 30,500 15,199 322
Income taxes(1) (21,000) (13,270) (6,497) (962) (26)
Extraordinary loss(2) -- -- -- -- (149)
--------- --------- --------- --------- ---------
Net earnings $ 35,762 $ 18,945 $ 24,003 $ 14,237 $ 147
========= ========= ========= ========= =========
Earnings per diluted share before effect of extraordinary
loss $ 6.26 $ 3.14 $ 3.92 $ 2.68 $ .09
Extraordinary loss per diluted share (2) -- -- -- -- (.05)
--------- --------- --------- --------- ---------
Diluted earnings per share $ 6.26 $ 3.14 $ 3.92 $ 2.68 $ .04
========= ========= ========= ========= =========
Cash dividends per share $ N/A $ N/A $ N/A $ N/A $ .06
========= ========= ========= ========= =========
2000 1999 1998 1997 1996(5)
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Real estate under development $ 211,307 $ 171,012 $ 104,759 $ 63,955 $ 35,991
Residual interests -- -- -- 1,422 3,909
Total assets 267,075 226,559 152,250 96,633 72,821
Notes payable 86,152 85,937 37,205 22,892 30,542
Total liabilities 145,976 136,148 79,971 50,268 45,876
Stockholders' equity 121,099 90,411 72,279 46,365 26,945
(1) Due to the use of our net operating loss carryforward (NOL), we paid
limited income taxes during 1997 and 1998, until the NOL was fully
utilized. During 1996 we qualified and elected to be treated as a REIT
under federal tax laws and we were not subject to federal income tax on
that portion of our taxable income that was distributed to stockholders in
or with respect to that year.
(2) Reflects extraordinary loss from early extinguishment of long-term debt.
(3) Includes the accounts of Meritage Homes of Northern California from July 1,
1998, the acquisition date.
(4) Includes the accounts of Legacy Homes from July 1, 1997, the combination
date.
(5) Reflects the merger consummated on December 31, 1996.
(6) Earnings from mortgage assets is not applicable for 1999 and 2000.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information regarding the
results of operations of Meritage Corporation and its subsidiaries for the years
ended December 31, 2000, 1999, and 1998. Total results include those of the
California operations from July 1, 1998. All material balances and transactions
between Meritage and its 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 set forth below are not necessarily indicative of those to be
expected in the future. In this regard, we expect that our results for 2001 will
be affected by a general softening in the economy.
HOME SALES REVENUE, SALES CONTRACTS AND NET SALES BACKLOG
The operating data provided below shows operating and financial data
regarding our homebuilding activities.
YEARS ENDED DECEMBER 31,
($ IN THOUSANDS)
--------------------------------------
HOME SALES REVENUE 2000 1999 1998
-------- -------- --------
TOTAL
Dollars $515,428 $334,007 $255,985
Homes closed 2,227 1,643 1,291
Average sales price $ 231.4 $ 203.3 $ 198.3
TEXAS
Dollars $214,472 $174,850 $130,860
Homes closed 1,239 1,135 932
Average sales price $ 173.1 $ 154.1 $ 140.4
ARIZONA
Dollars $175,674 $120,909 $105,942
Homes closed 623 400 317
Average sales price $ 282.0 $ 302.3 $ 334.2
CALIFORNIA
Dollars $125,282 $ 38,248 $ 19,183
Homes closed 365 108 42
Average sales price $ 343.2 $ 354.1 $ 456.7
SALES CONTRACTS
TOTAL
Dollars $604,444 $388,158 $283,746
Homes ordered 2,480 1,840 1,466
Average sales price $ 243.7 $ 211.0 $ 193.6
TEXAS
Dollars $240,054 $191,655 $166,020
Homes ordered 1,368 1,198 1,131
Average sales price $ 175.5 $ 160.0 $ 146.8
ARIZONA
Dollars $196,567 $127,408 $115,375
Homes ordered 643 436 329
Average sales price $ 305.7 $ 292.2 $ 350.7
CALIFORNIA
Dollars $167,823 $ 69,095 $ 2,351
Homes ordered 469 206 6
Average sales price $ 357.8 $ 335.4 $ 391.8
13
YEARS ENDED DECEMBER 31,
($ IN THOUSANDS)
--------------------------------------
NET SALES BACKLOG 2000 1999 1998
-------- -------- --------
TOTAL
Dollars $309,901 $199,445 $145,294
Homes in backlog 1,246 885 688
Average sales price $ 248.7 225.4 211.2
TEXAS
Dollars $119,564 $ 93,983 $ 77,178
Homes in backlog 695 566 503
Average sales price $ 172.0 $ 166.0 $ 153.4
ARIZONA
Dollars $115,211 $ 72,878 $ 66,379
Homes in backlog 344 216 180
Average sales price $ 334.9 $ 337.4 $ 368.8
CALIFORNIA
Dollars $ 75,126 $ 32,584 $ 1,737
Homes in backlog 207 103 5
Average sales price $ 362.9 $ 316.3 $ 347.4
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
HOME SALES REVENUE. Home sales revenue is the product of homes closed
during the period and the average sales price per home. 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, as well as the
expansion of our operations in Northern California and in our mid-priced
Meritage Phoenix division in Arizona. The decreases in average home sales prices
in Arizona and Northern California for the year 2000 reflect a change in our
product mix, as we are now selling more mid-priced homes than in 1999.
SALES CONTRACTS. Sales contracts for any period represent the number of
homes ordered by customers (net of homes canceled) multiplied by the average
sales price per home ordered. 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 approximating 23%
of gross sales. Total sales contracts increased in 2000 compared to 1999 due
mainly to the expansion of our operations in Northern California and our
mid-priced Meritage Phoenix division in Arizona, along with continued economic
strength of our operating markets during the year.
NET SALES BACKLOG. Backlog represents net sales contracts that have not
closed. Total dollar backlog at December 31, 2000 increased 55% over the 1999
amount due to an increase in the number of homes in backlog and increased sales
prices in most of our markets. Homes in backlog at December 31, 2000 increased
41% over the same period in the prior year. These increases resulted from
expansion of our operations in Northern California, and in our mid-priced
Meritage Phoenix division in Arizona, along with the continued strength of the
housing markets in which we operate during the year.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
HOME SALES REVENUE. The increase in revenue and number of homes closed in
1999 compared to 1998 resulted mainly from the inclusion of the Northern
California operations for the full year and continued growth in our Texas and
Arizona operations.
SALES CONTRACTS. Total sales contracts increased in 1999 compared to 1998
due to the expansion into Northern California, and continued growth in our Texas
and Arizona operations.
14
NET SALES BACKLOG. 1999 total dollar backlog increased 37% over the prior
year due to a corresponding increase in homes in backlog. The number of homes in
the 1999 backlog increased 29% over the prior year due mainly to the increase in
net orders resulting from expansion into Northern California and continued
growth in our Texas and Arizona operations. Our backlog also increased somewhat
due to extended construction times, which caused longer periods between the time
sales contracts were taken and home deliveries were made.
OTHER OPERATING INFORMATION
YEARS ENDED DECEMBER 31,
($ IN THOUSANDS)
----------------------------------
HOME SALES GROSS PROFIT 2000 1999 1998
--------- -------- --------
Dollars $104,225 $63,810 $51,576
Percent of home sales revenue 20.2% 19.1% 20.1%
COMMISSIONS AND OTHER SALES COSTS
Dollars $ 28,680 $19,243 $14,292
Percent of home sales revenue 5.6% 5.8% 5.6%
GENERAL AND ADMINISTRATIVE COSTS
Dollars $ 21,215 $15,100 $10,632
Percent of total revenue 4.1% 4.4% 4.1%
INCOME TAXES
Dollars $ 21,000 $13,269 $ 6,497
Percent of income before taxes 37.0% 41.2% 21.3%
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
HOME SALES GROSS PROFIT. Gross profit equals home sales revenue, net of
housing cost of sales, which include developed lot costs, home construction
costs, amortization of common community costs (such as the cost of model complex
and architectural, legal and zoning costs), interest, sales tax, warranty,
construction overhead and closing costs. The dollar increase in gross profit for
the year ended December 31, 2000 is attributable to the increase in number of
homes closed and continued growth in all of our markets. The gross profit
percentage increase in 2000 resulted from home pricing increases in many of our
communities due to a continued strong homebuilding market and due to decreases
in some of our material costs resulting from purchasing efficiencies. However,
land prices continue to increase, and along with a softening economy, may result
in somewhat lower margins in 2001.
COMMISSIONS AND OTHER SALES COSTS. Commissions and other sales costs, such
as advertising and sales office expenses, were approximately $28.7 million, or
5.6% of home sales revenue, in 2000, as compared to approximately $19.2 million,
or 5.8% of home sales revenue in 1999. The decrease in these expenses as a
percentage of home sales revenue reflects greater efficiency related to revenue
growth.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were approximately $21.2 million, or 4.1% of total revenue in 2000, as compared
to approximately $15.1 million, or 4.4% of total revenue in 1999. The higher
expense as a percentage of revenue in 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 increase in income taxes to $21.0 million for the year
ended December 31, 2000 from $13.3 million in the prior year resulted from an
increase in pre-tax income, partially offset by a slightly lower effective tax
rate. The tax benefit associated with the exercise of employee stock options
reduced taxes currently payable by approximately $1.9 million for the year ended
December 31, 2000. This amount was credited to paid in capital.
15
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
HOME SALES GROSS PROFIT. The dollar increase in gross profit for the twelve
months ended December 31, 1999 is attributable to the increase in number of
homes closed due to the inclusion of California operations for the full year,
and continued growth in our Texas and Arizona operations. The gross profit
percentage decreased in 1999 due to somewhat lower profit margins in our Texas
operations and a change in the Arizona housing mix, reflecting a greater
proportion of move-up home closings, which typically have lower gross profit
margins than our luxury homes.
COMMISSIONS AND OTHER SALES COSTS. Commissions and other sales costs, such
as advertising and sales office expenses, were approximately $19.2 million, or
5.8% of home sales revenue, in 1999, as compared to approximately $14.3 million,
or 5.6% of home sales revenue in 1998. The slight increase in these expenses as
a percentage of home sales revenues was caused to some extent by an increase in
the number of new communities that opened for sales in 1999, which resulted in
greater start-up expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were approximately $15.1 million, or 4.4% of total revenue in 1999, as compared
to approximately $10.6 million, or 4.1% of total revenue in 1998. Operating
costs associated with our expansions in Northern California primarily caused
this increase.
INCOME TAXES. The increase in income taxes to $13.3 million for the year
ended December 31, 1999 from $6.5 million in the prior year resulted from an
increase in pre-tax income and a higher effective tax rate. The lower 1998
effective tax rate was caused by utilization of our net operating loss
carryforward.
EARNINGS FROM MORTGAGE ASSETS AND OTHER INCOME. The overall decline in
earnings from mortgage assets and other income in 1999 reflected the sale of our
remaining mortgage securities in 1998. Other income includes mortgage company
income, which increased in 1999 over 1998.
MINORITY INTEREST. The minority interest recorded in 1998 is due to our
acquisition of Sterling Communities, which included two 50% owned limited
partnership interests which Meritage controlled. We recorded the minority
interest partners' share of net income as an expense. The limited partnerships'
operations were concluded in the fourth quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our principal uses of working capital are land purchases, lot development
and home construction. We use a combination of borrowings and funds generated by
operations to meet our working capital requirements.
Cash flow for each of our communities depends on the status of the
development cycle, and can differ substantially from reported earnings. Early
stages of development or expansion require significant cash outlays for land
acquisitions, plat and other approvals, and construction of model homes, roads,
certain utilities, general landscaping and other amenities. Because these costs
are capitalized, income reported for financial statement purposes during those
early stages may significantly exceed cash flow. Later, cash flow can
significantly exceed earnings reported for financial statement purposes, as cost
of sales includes charges for substantial amounts of previously expended costs.
At December 31, 2000 we had short-term secured revolving construction loans
and acquisition and development facilities totaling $170.7 million of which
approximately $71 million was outstanding. An additional $53.5 million of
unborrowed funds supported by approved collateral were available under our
credit facilities at that date. Borrowings under the credit facilities are
subject to our inventory collateral position and a number of other conditions,
including minimum net worth, debt to equity and debt coverage compliance
requirements. We also have $15 million outstanding in unsecured, senior
subordinated notes due September 15, 2005, which were issued in October 1998.
16
Management believes that the current borrowing capacity, cash on hand at
December 31, 2000 and anticipated cash flows from operations are sufficient to
meet liquidity needs for the foreseeable future. There is no assurance, however,
that future cash flows 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 credit agreements.
SEASONALITY
We historically have closed more homes in the second half of the fiscal
year than in the first half, due in part to the slightly seasonal nature of the
market for our semi-custom luxury and move-up products. Management expects this
seasonal trend to continue, though it may vary as operations continue to expand.
NEW ACCOUNTING STANDARDS
In June 1998 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
established standards for the accounting and reporting for all derivative
instruments and hedging activities. This statement requires that all derivatives
are recognized as assets or liabilities in the balance sheet and measured at
fair value, and that recognition of gains and losses are required on hedging
instruments based on changes in fair value or the earnings effect of forecasted
transactions. This new standard, as amended by SFAS No. 137 and No. 138, is
effective beginning January 1, 2001. This pronouncement will not have a material
impact on our consolidated financial statements.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," (SAB
No. 101) which summarizes the SEC staff's views in applying accounting
principles generally accepted in the United States of America to revenue
recognition in financial statements. SAB No. 101 was amended by SAB No. 101A and
No. 101B in March and June, 2000, respectively, to delay the implementations
date of SAB No. 101 until no later than the fourth fiscal quarter of fiscal
years beginning after December 16, 1999. We have adopted the provisions of SAB
No. 101 and the adoption did not have a material effect on the consolidated
financial statements.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - An Interpretation of APB
Opinion No. 25." The Interpretation clarifies the application of APB Opinion No.
25 in certain situations, as defined. The Interpretation was effective July 1,
2000, but covers certain events having occurred after December 15, 1998. We have
adopted this Interpretation and the adoption did not have a material impact on
our consolidated financial statements.
FACTORS THAT MAY AFFECT OUR FUTURE RESULTS AND FINANCIAL CONDITION
Future operating results and financial condition depend on our ability to
successfully design, develop, construct and sell homes that satisfy dynamic
customer demand patterns. Inherent in this process are factors that we must
successfully manage to achieve favorable future operating results and financial
condition. These operating and financial conditions, along with many other
factors, could affect the price of our common stock. Potential risks and
uncertainties that could affect future operating results and financial condition
could include the factors discussed below.
HOMEBUILDING INDUSTRY FACTORS. The homebuilding industry is cyclical and is
significantly affected by changes in economic and other conditions, such as
employment levels, availability of financing, interest rates, and consumer
confidence. Although management believes that many of our customers
(particularly purchasers of luxury and move-up homes) tend to be less
price-sensitive than generally is the case for other homebuilders, such
uncertainties could adversely affect our performance. Homebuilders are also
subject to various risks, many of which are outside their control, including
delays in construction schedules, cost overruns, changes in governmental
17
regulations, increases in real estate taxes and other local government fees, and
availability and cost of land, materials, and labor. Although the principal raw
materials used in the homebuilding industry generally are available from a
variety of sources, the materials are subject to periodic price fluctuations.
There is no assurance that the occurrence or continuation of any of the above
items will not have a material adverse effect on our business.
The homebuilding industry is subject to the potential for significant
variability and fluctuations in real estate values, as evidenced by the changes
in real estate prices in recent years in Texas, Arizona and Northern California.
Although we believe that our projects are currently reflected on our balance
sheet at appropriate values, there is no assurance that write-downs of some or
all of our projects will not occur if market conditions deteriorate, or that
such write-downs will not be material in amount.
FLUCTUATIONS IN OPERATING RESULTS. We historically have experienced, and
expect to continue to experience, variability in home sales and net earnings on
a quarterly basis. As a result of such variability, our historical performance
may not be a meaningful indicator of future results. Factors that contribute to
this variability include:
* timing of home deliveries and land sales;
* the ability to continue the acquisition of additional land or options
to acquire additional land on acceptable terms;
* conditions of the real estate market in areas where we operate and the
general economy;
* the cyclical nature of the homebuilding industry, changes in
prevailing interest rates and the availability of mortgage financing;
* costs or shortages of materials and labor; and
* delays in construction schedules due to strikes, adverse weather, acts
of God, and the availability of subcontractors or governmental
restrictions.
INTEREST RATES AND MORTGAGE FINANCING. We believe that many of our move-up
and luxury home customers have been less sensitive to interest rate fluctuations
than other homebuyers. However, most of our buyers finance their home purchase
through third-party lenders providing mortgage financing. In general, housing
demand is adversely affected by increases in interest rates and housing costs,
and the unavailability of mortgage financing. If mortgage interest rates
increase and the ability of prospective buyers to finance home purchases is
consequently affected adversely, home sales, gross margins and net income may
also be adversely impacted and the impact may be material. Our homebuilding
activities depend upon the availability and costs of mortgage financing for
buyers of homes owned by potential customers so those customers ("move-up
buyers") can sell their homes and purchase a Meritage home. Any limitations or
restrictions of financing availability could adversely affect home sales.
Changes in federal income tax laws may also affect demand for new homes. Various
proposals have been publicly discussed to limit mortgage interest deductions and
to eliminate or limit tax-free rollover treatment provided under current law
where the proceeds of the sale of a principal residence are reinvested in a new
principal residence. Enactment of such proposals may have an adverse effect on
the homebuilding industry in general, and on demand for our products in
particular. No prediction can be made whether any such proposals will be enacted
and, if enacted, the particular form such laws would take.
INFLATION. Meritage, as well as other homebuilders, may be adversely
affected during periods of high inflation, mainly because of higher land and
construction costs. Also, higher mortgage interest rates may significantly
affect the affordability of permanent mortgage financing to prospective buyers.
Inflation also increases our cost of financing, materials and labor. We attempt
to pass cost increases on to our customers through higher sales prices. To date,
inflation has not had a material adverse effect on our results of operations;
however, there is no assurance that inflation will not have a material adverse
effect on our future operating results.
COMPETITION. The single-family residential housing industry is highly
competitive. Homebuilders vie for desirable properties, financing, raw
materials, and skilled labor. We also compete for residential home sales with
other developers and individual resales of existing homes. Competitors include
large homebuilding organizations, some of which have greater financial resources
than the Company, and smaller homebuilders, which may have lower costs.
Competition is expected to continue and become more intense, and there may be
new entrants in the markets in which we currently operate and in markets we may
enter in the future.
18
LACK OF GEOGRAPHIC DIVERSIFICATION. We have operations in Texas, Arizona
and Northern California. Failure to be more geographically diversified could
have an adverse effect on the Company if the homebuilding business in our
current markets should decline, since there may not be a balancing opportunity
in a stronger market in other geographic regions.
ADDITIONAL FINANCING; LIMITATIONS. The homebuilding industry is capital
intensive and requires significant up-front expenditures to acquire land and
begin development. Accordingly, we incur substantial indebtedness to finance our
homebuilding activities. At December 31, 2000, our debt totaled approximately
$86.2 million. We may be required to seek additional capital in the form of
equity or debt financing from a variety of potential sources, including bank
financing and securities offerings. Also, lenders are increasingly requiring
developers to invest significant amounts of equity in a project both in
connection with origination of new loans as well as the extension of existing
loans. If we cannot obtain sufficient capital to fund our planned capital or
other expenditures, new projects may be delayed or abandoned, which could result
in a reduction in home sales and may adversely affect operating results. There
is no assurance that additional debt or equity financing will be available in
the future or on acceptable terms.
The terms and conditions of our current indebtedness limit the amount and
types of indebtedness that we can incur. We must comply with numerous operating
and financial maintenance covenants and there is no assurance that we will be
able to maintain compliance with these financial and other covenants. Failure to
comply with the covenants would result in default and resulting cross defaults
under our other indebtedness, and could induce acceleration of all indebtedness,
which would have a material adverse affect on the Company.
GOVERNMENT REGULATIONS; ENVIRONMENTAL CONDITIONS. We are subject to local,
state, and federal statutes and rules regulating certain developmental matters,
as well as building and site design. We are subject to various fees and charges
of governmental authorities designed to defray the cost of providing certain
governmental services and improvements. We may be subject to additional costs
and delays or may be precluded entirely from building projects because of "no
growth" or "slow growth" initiatives, building permit ordinances, building
moratoriums, or similar government regulations that could be imposed in the
future due to health, safety, welfare, or environmental concerns. We must also
obtain licenses, permits, and approvals from government agencies to engage in
certain activities, the granting or receipt of which are beyond our control.
Meritage and its competitors are also subject to a variety of local, state,
and federal statutes, ordinances, rules and regulations concerning the
protection of health and the environment. Environmental laws or permit
restrictions may result in project delays, may cause substantial compliance and
other costs and may prohibit or severely restrict development in certain
environmentally sensitive regions or geographic areas. Environmental regulations
can also have an adverse impact on the availability and price of certain raw
materials such as lumber.
RECENT AND FUTURE EXPANSION. We may continue to consider growth or
expansion of our operations in our current markets in other areas of the
country. The magnitude, timing and nature of any future expansion will depend on
a number of factors, including suitable acquisition candidates, the negotiation
of acceptable terms, our financial capabilities, and general economic and
business conditions. New acquisitions may result in the incurrence of additional
debt and/or amortization of expenses related to goodwill and intangible assets
that could adversely affect our profitability, or result in potentially dilutive
issuances of equity securities. Acquisitions also involve numerous risks,
including difficulties in the assimilation of the acquired company's operations,
the diversion of management's attention from other business concerns, risks of
entering markets in which we have had limited or no direct experience and the
potential loss of key employees of the acquired company. There can be no
assurance that we will be able to expand into new or existing markets on a
profitable basis.
DEPENDENCE ON KEY PERSONNEL. Our success is largely dependent on the
continuing services of certain key employees, and the ability to attract new
personnel required for our favorable development. Although we have entered into
employment agreements with various key officers, loss of their services could
have a material adverse affect on our business.
19
DEPENDENCE ON SUBCONTRACTORS. We conduct our business only as a general
contractor in connection with the design, development and construction of our
communities. Virtually all architectural and construction work is performed by
subcontractors. As a consequence, we are dependent upon the continued
availability and satisfactory performance by unaffiliated third parties for the
design and construction of our homes. There is no assurance that there will be
sufficient availability and satisfactory performance by unaffiliated third-party
subcontractors. Inadequate subcontractor resources could have a material adverse
affect on our business.
SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the
"PLSRA") Congress encouraged public companies to make "forward looking
statements" by creating a safe harbor to protect companies from securities law
liability in connection with forward-looking statements. Meritage intends to
qualify both its written and oral forward-looking statements for protection
under the PLSRA.
In general, "forward-looking statements" can be identified by use of words
such as "expect," "believe," "estimate," "project," "forecast," "anticipate,"
"plan" and similar expressions. In this report, forward looking statements
address such matters but are not limited to, projections of revenues, income or
loss, capital expenditures, plans for future operations, financing needs, the
impact of changes in interest rates, plans relating to our new products or
services, potential real property acquisition, and new or planned development
projects, as well as assumptions related to the foregoing. Important factors
currently known to management that could cause actual results to differ
materially from those in forward-looking statements include, but are not limited
to, those factors described above under the caption "Factors That May Affect Our
Future Results and Financial Condition" and other statements in this Form 10-K,
including the Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking statements express expectations of future events. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties would could cause actual
events or results to differ materially from those projected. Due to these
inherent uncertainties, the investment community is urged not to place undue
reliance on forward looking statements. In addition, Meritage undertakes no
obligations to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of anticipated events or changes to projections over
time.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Meritage does not enter into financial instruments for trading purposes,
though we do have other financial instruments in the form of notes payable and
senior debt. 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.
The interest rate on our senior debt is at a fixed rate.
For example, based on our average bank borrowings of $81.1 million during
2000, if the interest rate indices on which our bank borrowing rates are based
were to increase 100 basis points in 2001, interest incurred would increase and
cash flows would decrease in 2001 by $811,000. A portion of the increased
interest would be expensed as a period cost in 2001, while the balance would be
capitalized to real estate under development and be expensed as a cost of home
sales in 2001 and future years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements as of December 31, 2000 and 1999 and
for each of the years in the three-year period ended December 31, 2000, together
with related notes and the report of KPMG LLP, independent auditors, are on the
following pages. Other required financial information is more fully described in
Item 14.
20
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Meritage Corporation
We have audited the accompanying consolidated balance sheets of Meritage
Corporation and subsidiaries (the Company) as of December 31, 2000 and 1999 and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly in all material respects, the financial position of Meritage
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
Phoenix, Arizona
February 8, 2001
21
MERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------------------
2000 1999
--------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Cash and cash equivalents $ 4,397 $ 13,422
Real estate under development 211,307 171,012
Deposits on real estate under option or contract 24,251 15,700
Other receivables 2,179 1,643
Deferred tax asset 543 699
Goodwill 17,675 18,742
Property and equipment, net 4,717 4,040
Other assets 2,006 1,301
--------- ---------
Total Assets $ 267,075 $ 226,559
========= =========
LIABILITIES
Accounts payable and accrued liabilities $ 48,907 $ 41,951
Home sale deposits 10,917 8,261
Notes payable 86,152 85,936
--------- ---------
Total Liabilities 145,976 136,148
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares authorized,
5,922,822 shares at December 31, 2000 and 5,474,906
shares at December 31, 1999, issued and outstanding 59 55
Additional paid-in capital 102,526 100,407
Retained earnings (accumulated deficit) 29,530 (8,149)
Treasury stock at cost, 811,963 and 186,000 shares at
December 31, 2000 and 1999, respectively (11,016) (1,902)
--------- ---------
Total Stockholders' Equity 121,099 90,411
--------- ---------
Total Liabilities and Stockholders' Equity $ 267,075 $ 226,559
========= =========
See accompanying notes to consolidated financial statements
22
MERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Home sales revenue $ 515,428 $ 334,007 $ 255,985
Land sales revenue 5,039 7,779 1,128
--------- --------- ---------
520,467 341,786 257,113
Cost of home sales (411,203) (270,197) (204,409)
Cost of land sales (4,446) (7,090) (779)
--------- --------- ---------
(415,649) (277,287) (205,188)
Home sales gross profit 104,225 63,810 51,576
Land sales gross profit 593 689 349
--------- --------- ---------
104,818 64,499 51,925
Commissions and other sales costs (28,680) (19,243) (14,292)
General and administrative expenses (21,215) (15,100) (10,632)
Interest expense (8) (6) (462)
Other income, net 1,847 2,064 751
Earnings from mortgage assets -- -- 5,231
Minority interest in net income of
consolidated joint ventures -- -- (2,021)
--------- --------- ---------
Earnings before income taxes 56,762 32,215 30,500
Income taxes (21,000) (13,269) (6,497)
--------- --------- ---------
Net earnings $ 35,762 $ 18,945 $ 24,003
========= ========= =========
Basic earnings per share $ 6.92 $ 3.49 $ 4.51
========= ========= =========
Diluted earnings per share $ 6.26 $ 3.14 $ 3.92
========= ========= =========
See accompanying notes to consolidated financial statements
23
MERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------------------------------
RETAINED
ADDITIONAL EARNINGS/
NUMBER OF COMMON PAID-IN (ACCUMULATED TREASURY
SHARES STOCK CAPITAL DEFICIT) STOCK TOTAL
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
Balance at December 31, 1997 5,255 $ 53 $ 97,819 $(51,097) $ (410) $ 46,365
Net earnings -- -- -- 24,003 -- 24,003
Exercise of stock options 44 -- 514 -- -- 514
Contingent and warrant shares issued 89 1 (1) -- -- --
Stock option and contingent stock compensation
expenses -- -- 1,398 -- -- 1,398
Retirement of treasury stock (53) (1) (410) -- 410 (1)
----- ---- -------- -------- -------- --------
Balance at December 31, 1998 5,335 53 99,320 (27,094) -- 72,279
Net earnings -- -- -- 18,945 -- 18,945
Exercise of stock options 51 1 495 -- -- 496
Contingent shares issued 89 1 (1) -- -- --
Stock option and contingent stock compensation
expenses -- -- 593 -- -- 593
Purchase of treasury stock -- -- -- -- (1,902) (1,902)
----- ---- -------- -------- -------- --------
Balance at December 31, 1999 5,475 55 100,407 (8,149) (1,902) 90,411
Net earnings -- -- -- 35,762 -- 35,762
Tax benefit from stock option exercise -- -- -- 1,917 -- 1,917
Exercise of stock options 359 3 2,047 -- -- 2,050
Contingent shares issued 89 1 (1) -- -- --
Stock option and contingent stock compensation
expenses -- -- 73 -- -- 73
Purchase of treasury stock -- -- -- -- (9,114) (9,114)
----- ---- -------- -------- -------- --------
Balance at December 31, 2000 5,923 $ 59 $102,526 $ 29,530 $(11,016) $121,099
===== ==== ======== ======== ======== ========
See accompanying notes to consolidated financial statements
24
MERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
--------- --------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 35,762 $ 18,945 $ 24,003
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 3,407 2,528 1,637
Minority interest in net income of consolidated joint ventures -- -- 2,021
Deferred tax expense 156 6,236 4,969
Tax benefit from stock option exercise 1,917 -- --
Stock option compensation expense 73 593 1,398
Gain on sales of residual interests -- -- (5,180)
Increase in real estate under development (40,295) (66,254) (32,046)
Increase in deposits on real estate under option or contract (8,551) (8,361) (3,578)
(Increase) decrease in other receivables and other assets (1,241) 680 (1,775)
Increase in accounts payable and accrued liabilities 12,368 9,571 4,375
Increase (decrease) in home sale deposits 2,656 (326) 1,810
--------- --------- ---------
Net cash provided by (used in) operating activities 6,252 (36,387) (2,366)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in merger/acquisition -- -- 785
Cash paid for merger/acquisition (5,158) (6,967) (9,744)
Purchases of property and equipment (3,017) (2,935) (1,569)
Proceeds from sales of residual interest -- -- 6,600
--------- --------- ---------
Net cash used in investing activities (8,175) (9,902) (3,928)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 447,269 273,824 174,446
Repayment of borrowings (447,054) (225,093) (164,524)
Purchase of treasury shares (9,114) (1,902) --
Stock options exercised 1,797 495 514
--------- --------- ---------
Net cash (used in) provided by financing activities (7,102) 47,324 10,436
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (9,025) 1,035 4,142
Cash and cash equivalents at beginning of year 13,422 12,387 8,245
--------- --------- ---------
Cash and cash equivalents at end of year $ 4,397 $ 13,422 $ 12,387
========= ========= =========
Supplemental information:
Cash paid for interest $ 8,403 $ 5,873 $ 3,997
Cash paid for income taxes $ 18,786 $ 5,423 $ 2,333
See accompanying notes to consolidated financial statements
25
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
BUSINESS. Meritage Corporation develops, constructs and sells new high quality,
single-family homes in the semi-custom luxury, move-up and entry-level markets.
We were formed in 1988 as a real estate investment trust ("REIT") that
invested in mortgage-related assets and real estate loans. On December 31, 1996,
the Company acquired by merger the homebuilding operations of various entities
operating under the Monterey Homes name, and has phased out the mortgage-related
operations. Monterey has been building homes in Arizona for over 15 years,
specializing in move-up and semi-custom luxury homes.
As part of our strategy to diversify operations, on July 1, 1997, we
combined with Legacy Homes, a group of entities with homebuilding operations in
Texas. Legacy has been in business since 1988, and designs, builds and sells
entry-level and move-up homes. On July 1, 1998 we acquired Sterling Communities,
now Meritage Homes of Northern California, which has homebuilding operations in
the San Francisco Bay and Sacramento metropolitan areas, and targets move-up
homebuyers. In September 1998, with shareholder approval, Meritage Corporation
became our new corporate name.
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of Meritage Corporation and its subsidiaries ("Meritage" or "the
Company"). Intercompany balances and transactions have been eliminated in
consolidation and certain prior period amounts have been reclassified to be
consistent with current period financial statement presentation. Financial
results include the operations of Meritage Homes of Northern California from
July 1, 1998.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS. We consider short-term investments in liquid debt
instruments with an initial maturity of three months or less to be cash
equivalents. Amounts in transit from title companies for home closings of
approximately $5.5 million and $1.6 million are included in cash at December 31,
2000 and 1999, respectively.
REAL ESTATE UNDER DEVELOPMENT. Real estate under development consists of raw
land, lots under development, homes under construction and completed homes. This
inventory is carried at cost unless such costs would not be recovered from the
cash flows generated by future disposition. In this case, amounts are carried at
estimated fair value less disposal costs. Costs capitalized include direct
construction costs for homes, development period interest and certain common
costs that benefit the entire community. Common costs are allocated on a
community-by-community basis to residential lots based on the number of lots to
be built in the community, which approximates the relative sales value method.
Deposits paid related to land options and contracts to purchase land are
capitalized when incurred and classified as deposits on real estate under option
or contract until the related land is purchased. The deposits are then
transferred to real estate under development.
COST OF HOME SALES. Cost of home sales includes land acquisition and development
costs, direct home construction costs, development period interest and closing
costs and an allocation of common costs.
REVENUE RECOGNITION AND CLASSIFICATION OF COSTS. Revenues and profits from sales
of residential real estate and related activities are recognized when closings
have occurred, the buyer has made a minimum down payment and other criteria for
sale and profit recognition are satisfied.
26
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Estimated future warranty costs are charged to cost of sales in the period
when the revenues from the related home closings are recognized. These estimated
warranty costs generally range from .3% to .75% of the home's sales price. To
date, the reserve has been sufficient to cover warranty costs incurred.
PROPERTY AND EQUIPMENT. Property and equipment is stated at cost less
accumulated depreciation. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets, which range from three to
seven years. Accumulated depreciation was approximately $5.4 million and $3.5
million at December 31, 2000 and 1999, respectively. Maintenance and repair
costs are expensed as incurred.
GOODWILL. Goodwill represents the excess of purchase price over fair value of
net assets acquired and is being amortized on a straight-line basis over a
20-year period. Accumulated amortization was approximately $2.8 million at
December 31, 2000 and $1.8 million at December 31, 1999. Management periodically
evaluates the businesses to which the goodwill relates to determine if the
carrying value of goodwill has been impaired. The amount of goodwill impairment,
if any, is measured based on projected discounted future operating cash flows
using a discount rate reflecting our average cost of funds. No goodwill
impairment was recorded in the accompanying statements of earnings.
RESIDUAL INTERESTS. During 1998, we owned residual interests in collateralized
mortgage obligations (CMOs) and in mortgage participation certificates (MPCs)
(collectively residual interests). We used the prospective net level yield
method, in which interest is recorded at cost and amortized over the life of the
related CMO or MPC issuance, to account for the residual interests. During 1998
we sold our remaining residual interests for a gain and generated interest
income from these assets prior to sale totaling approximately $5.2 million.
INCOME TAXES. We account for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
Under the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to
taxable income in future years and are subsequently adjusted for changes in the
rates. The effect on deferred tax assets and liabilities of a change in tax
rates is a charge or credit to deferred tax expense in the period of enactment.
EARNINGS PER SHARE. We compute basic earnings per share by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding during the year. Diluted earnings per share reflects the potential
dilution that could occur if securities or contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in our earnings.
USE OF ESTIMATES. The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions relating to amounts
reported in the financial statements and accompanying notes. Actual results
could differ materially from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts of our short-term
financial instruments are reasonable approximations of fair value. Our notes
payable carry interest rates that are variable and/or comparable to current
market rates based on the nature of the loans, their terms and remaining
maturity, and therefore are stated at approximate fair value. Considerable
judgment is required in interpreting market data to develop estimates of fair
value. Accordingly, these fair value estimates are subjective and not
necessarily indicative of the amounts we would pay or receive in actual market
transactions.
27
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
STOCK OPTION PLANS. We have elected to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion (APB) No. 25 as allowed by SFAS No. 123 "Accounting for Stock-Based
Compensation". As such, compensation expense would be recorded on the date of
the grant only if the market price of the stock underlying the grant was greater
than the exercise price. The pro forma disclosures that are required by SFAS No.
123 are presented in Note 6.
SEGMENT INFORMATION. Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments for an Enterprise and Related Information" was
issued in June 1997. SFAS No. 131 establishes standards for the way that public
companies report selected information about operating segments in financial
reports issued to stockholders. We have adopted the provisions of SFAS No. 131,
which caused no significant impact on our definitions of our operating segments
and related disclosures.
NOTE 3 - REAL ESTATE UNDER DEVELOPMENT AND CAPITALIZED INTEREST
Real estate under development at December 31 includes (in thousands):
2000 1999
-------- --------
Homes under contract, in production $ 92,881 $ 71,987
Finished lots and lots under development 88,266 63,610
Model homes and homes held for resale 26,937 31,797
Land held for development 3,223 3,618
-------- --------
$211,307 $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 home sales when the property is delivered. Summaries of
interest capitalized and interest expensed follow (in thousands):
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999
-------- --------
Beginning unamortized capitalized interest $ 3,971 $ 1,982
Interest capitalized 10,626 7,025
Amortization to cost of home sales (9,171) (5,036)
-------- --------
Ending unamortized capitalized interest $ 5,426 $ 3,971
======== ========
Interest incurred $ 10,634 $ 7,031
Interest capitalized (10,626) (7,025)
-------- --------
Interest expense $ 8 $ 6
======== ========
Under option contracts with specific performance, purchase of the
properties is dependent upon the completion of certain requirements by us and
the sellers. At December 31, 2000, we had approximately 785 lots with an
aggregate purchase price of approximately $24.5 million under option contracts
with specific performance.
28
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 4 - NOTES PAYABLE
Notes payable at December 31 consists of the following (in thousands):
2000 1999
---- ----
$100 million bank revolving construction line of credit, interest payable
monthly approximating prime (9.5% at December 31, 2000) or LIBOR plus 1.75%
(at rates ranging from 8.320% to 8.553% at December 31, 2000) payable at the
earlier of close of escrow, maturity date of individual homes within the line
or over a 24 month period beginning on January 1, 2002, secured by first
deeds of trust on real estate $ 50,354 $ 37,411
$65 million bank revolving construction line of credit, interest payable monthly
approximating prime or LIBOR (30 day LIBOR 6.565% at December 31, 2000) 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 17,269 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 3,516 1,396
Senior unsecured notes, maturing September 15, 2005, annual interest of 9.1%
payable quarterly, principal payable in three equal installments on September
15, 2003, 2004 and 2005 15,000 15,000
Other 13 26
---------- ----------
Total $ 86,152 $ 85,937
========== ==========
The bank credit facilities and senior unsecured notes contain covenants
which require certain levels of tangible net worth, the maintenance of certain
minimum financial ratios, place limitations on the payment of dividends and
limit incurrence of indebtedness, asset dispositions and creations of liens,
among other items. As of December 31, 2000 and throughout the year, we were in
compliance with these covenants.
On October 2, 1998, we issued $15 million in 9.1% Senior Unsecured Notes
due September 1, 2005 in a private placement to accredited investors under
Section 4(2) of the Securities Act of 1934. Placement agents for this issue were
paid a fee of 2.75% of the face amounts of the notes. The notes were sold at par
to four entities controlled by Massachusetts Mutual Life Insurance Company. The
proceeds of the issue were used to pay down existing indebtedness.
29
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Scheduled maturities of notes payable as of December 31, 2000 follow (in
thousands):
YEARS ENDED
DECEMBER 31,
2001 $19,586
2002 50,354
2003 6,212
2004 5,000
2005 5,000
Thereafter --
-------
$86,152
=======
NOTE 5 - EARNINGS PER SHARE
A summary of the reconciliation from basic earnings per share to diluted
earnings per share for the years ended December 31, follows (in thousands,
except per share amounts):
2000 1999 1998
------- ------- -------
Net earnings $35,762 $18,945 $24,003
Basic EPS - Weighted average shares outstanding 5,171 5,431 5,317
------- ------- -------
Basic earnings per share $ 6.92 $ 3.49 $ 4.51
======= ======= =======
Basic EPS - Weighted average shares outstanding 5,171 5,431 5,317
Effect of dilutive securities:
Contingent shares and warrants 19 89 158
Stock options 524 512 641
------- ------- -------
Dilutive EPS - Weighted average shares outstanding 5,714 6,032 6,116
------- ------- -------
Diluted earnings per share $ 6.26 $ 3.14 $ 3.92
======= ======= =======
Antidilutive stock options not included in diluted EPS 38 279 59
======= ======= =======
NOTE 6 - STOCK OPTIONS
Our Board of Directors administers our stock option plan. The plan provides
for stock option grants to key personnel and directors, and provide a means of
performance-based compensation in order to attract and retain qualified
employees.
We apply APB Opinion No. 25 and related interpretations in accounting for
our plan. Under APB 25, if the exercise price of the Company's stock options is
equal to the market price of the underlying stock on the date of the grant, no
compensation expense is recognized.
30
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Had compensation cost for these plans been determined consistent with SFAS
No. 123, our net earnings and earnings per share would have been reduced to the
following pro forma amounts (in thousands, except for per share amounts):
2000 1999 1998
-------- -------- --------
Net earnings As reported $ 35,762 $ 18,945 $ 24,003
Pro forma 35,464 18,472 23,573
Basic earnings per share As reported 6.92 3.49 4.51
Pro forma 6.86 3.40 4.43
Diluted earnings per share As reported 6.26 3.14 3.92
Pro forma 6.21 3.06 3.85
The per share weighted average fair values of stock options granted during
2000, 1999 and 1998 were $5.67, $7.81 and $9.91, respectively, on the dates of
grant using the Black-Scholes pricing model based on the following weighted
average assumptions:
2000 1999 1998
---- ---- ----
Expected dividend yield 0% 0% .5%
Risk-free interest rate 6.71% 4.76% 5.75%
Expected volatility 47% 52% 51%
Expected life (in years) 6 6 7
THE MERITAGE PLAN
Meritage shareholders approved our current stock option plan at the 1997
Annual Shareholders Meeting. The plan authorizes grants of incentive stock
options and non-qualified stock options to our executives, directors, employees
and consultants. A total of 742,700 shares of Meritage common stock are reserved
for issuance upon exercise of stock options granted under this plan. The options
vest over periods from two to five years, are based on continued employment, and
expire five to ten years after the date of grant.
THE PRIOR PLAN
The 1988 Homeplex Mortgage Investments Corporation Stock Option Plan (the
prior plan) was in effect at the time of the merger. No new grants were issued
under this plan since the merger, and all remaining options were exercised
during December 31, 2000.
OTHER OPTIONS
In connection with the merger and Legacy combination, Mssrs. Hilton, Landon
and Cleverly each received 166,667 non-qualified stock options that vest over
three years. The exercise price of the options is $5.25 per share, which was
negotiated at the time of the transactions. Mr. Hilton's and Mr. Cleverly's
options expire in December 2002 and Mr. Landon's expire in June 2001.
An ex-member of our board of directors who served as our president and
chairman prior to the merger held 250,000 non-qualified stock options. The
options were granted in exchange for the director forgoing his annual salary and
bonus, and were approved by shareholders at the 1996 Annual Meeting. These
options were exercised in 2000 at an exercise price of $ 4.50 per share.
31
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUMMARY OF STOCK OPTION ACTIVITY:
2000 1999 1998
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- ------------- ---------- ------------- ---------- -------------
Options outstanding at beginning of year 1,173,226 $ 7.65 1,028,302 $ 6.25 1,041,480 $ 5.86
Options granted 89,800 10.43 264,500 14.74 57,500 16.54
Options exercised (359,026) 5.00 (51,076) 7.08 (43,660) 10.04
Options canceled (10,000) 12.17 (68,500) 14.39 (27,018) 7.22
---------- ------ ---------- ------ ---------- ------
Options outstanding at end of year 894,000 $ 8.73 1,173,226 $ 7.65 1,028,302 $ 6.25
========== ====== ========== ====== ========== ======
Options exercisable at end of year 587,700 801,669 613,579
Price range of options exercised $4.37 - $5.62 - $4.50 -
$14.25 $11.25 $11.25
Price range of options outstanding $5.25 - $4.50 - $4.50 -
$18.00 $17.63 $17.63
Total shares reserved at end of year 1,226,571 1,386,583 1,525,547
STOCK OPTIONS OUTSTANDING AT DECEMBER 31, 2000 WERE:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
RANGE OF EXERCISE PRICES OPTIONS CONTRACTUAL LIFE PRICE OPTIONS PRICE
- ------------------------ ------- ---------------- ----- ------- -----
$5.25 - $5.62 502,500 2.4 years $ 5.27 489,500 $ 5.26
$8.50 - $13.37 145,000 6.0 9.81 36,000 9.15
$14.25 - $18.00 246,500 1.3 15.13 62,200 15.32
------- --------- ------ ------- ------
894,000 3.7 years $ 8.73 587,700 $ 6.57
======= ========= ====== ======= ======
NOTE 7 - COMMITMENTS AND CONTINGENCIES
We are involved in legal proceedings and claims that arise in the ordinary
course of business. Management believes the amount of ultimate liability, if
any, with respect to these actions will not have a material adverse effect on
our financial position.
In the normal course of business, we provide standby letters of credit and
performance bonds issued to third parties to secure performance under various
contracts. At December 31, 2000 outstanding letters of credit were $5.7 million
and performance bonds were $29.1 million.
32
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
We lease office facilities, model homes and equipment under various
operating lease agreements. Approximate future minimum lease payments for
noncancellable operating leases as of December 31, 2000 are as follows (in
thousands):
YEAR ENDING
DECEMBER 31,
2001 $1,940
2002 795
2003 478
2004 391
2005 107
Thereafter --
------
$3,711
======
Rental expense approximated $1.6 million in 2000 and $1.1 million in 1999
and 1998. Included in these amounts are $185,600 in 2000, $415,000 in 1999 and
$380,000 in 1998 related to office facilities leased from companies owned
beneficially either by one of our Co-Chairmen or by a Co-Chairman and a
Director.
NOTE 8 - INCOME TAXES
Components of income tax expense are (in thousands):
2000 1999 1998
------- ------- -------
Current taxes:
Federal $18,255 $ 5,748 $ 561
State 2,589 1,285 967
------- ------- -------
20,844 7,033 1,528
------- ------- -------
Deferred taxes:
Federal 140 6,121 4,587
State 16 115 382
------- ------- -------
156 6,236 4,969
------- ------- -------
Total $21,000 $13,269 $ 6,497
======= ======= =======
Deferred tax assets and liabilities have been recognized in the
consolidated balance sheets due to the following temporary differences (in
thousands):
DECEMBER 31,
--------------------
2000 1999
------- -------
Warranty reserve $ 675 $ 311
Real estate and fixed asset basis differences 324 374
Stock options -- 282
Sale/leaseback gain deferred 47 154
Other 174 102
------- -------
1,220 1,223
Deductible merger/acquisition costs (677) (524)
------- -------
Net deferred tax asset $ 543 $ 699
======= =======
Management believes it is more likely than not that future operating
results will generate sufficient taxable income to realize the net deferred tax
asset.
33
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
RECONCILIATION OF EFFECTIVE INCOME TAX EXPENSE:
Income taxes differ for the years ended December 31, 2000, 1999 and 1998
from the amounts computed using the federal statutory income tax rate as a
result of the following (in thousands):
2000 1999 1998
-------- -------- --------
Expected taxes at current federal statutory income tax rate $ 19,299 $ 10,953 $ 10,678
State income taxes 1,719 890 967
Utilization of NOL -- -- (5,709)
Alternative minimum tax -- -- 561
Non-deductible merger/acquisition costs and other (18) 1,426 --
-------- -------- --------
Income tax expense $ 21,000 $ 13,269 $ 6,497
======== ======== ========
NOTE 9 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
HOME SALES BASIC EARNINGS DILUTED EARNINGS
REVENUE NET EARNINGS PER SHARE PER SHARE
------- ------------ --------- ---------
(in thousands, except per share amounts)
2000 - THREE MONTHS ENDED:
March 31 $ 91,653 $ 4,771 $ .90 $ .82
June 30 120,802 8,573 1.62 1.50
September 30 134,464 10,509 2.06 1.85
December 31 168,509 11,909 2.38 2.12
1999 - THREE MONTHS ENDED:
March 31 $ 51,306 $ 2,325 $ .43 $ .38
June 30 76,647 4,541 .83 .75
September 30 76,786 4,027 .74 .67
December 31 129,268 8,052 1.50 1.37
NOTE 10 - SEGMENT INFORMATION
We classify our operations into three primary geographic segments: Texas,
Arizona and California. These segments generate revenues through the sales of
homes to external customers. We are not dependent on any one major customer.
Operational information relating to the different business segments
follows. Information has been included for the California operations from July
1, 1998, the acquisition date. 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.
34
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEARS ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
(in thousands)
HOME SALES REVENUE:
Texas $ 214,472 $ 174,850 $ 130,860
Arizona 175,674 120,909 105,942
California 125,282 38,248 19,183
--------- --------- ---------
Total $ 515,428 $ 334,007 $ 255,985
========= ========= =========
EBIT:
Texas $ 35,082 $ 22,652 $ 18,300
Arizona 17,666 14,515 12,918
California 16,819 4,185 1,858
Corporate and other (3,626) (4,094) 1,504
--------- --------- ---------
Total $ 65,941 $ 37,258 $ 34,580
========= ========= =========
AMORTIZATION OF CAPITALIZED INTEREST:
Texas $ 2,416 $ 1,758 $ 1,143
Arizona 5,013 2,777 2,410
California 1,742 501 66
--------- --------- ---------
Total $ 9,171 $ 5,036 $ 3,619
========= ========= =========
DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
(in thousands)
ASSETS AT YEAR END:
Texas $ 108,238 $ 97,832 $ 64,448
Arizona 102,746 77,195 58,758
California 53,723 43,773 12,321
Corporate and other 2,368 7,759 16,723
--------- --------- ---------
Total $ 267,075 $ 226,559 $ 152,250
========= ========= =========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is included under the captions "Election
of Directors," "Director and Officer Information," and "Section 16(a) Beneficial
Ownership Reporting Compliance" in our Notice and Proxy Statement relating to
our 2001 Annual Meeting of Stockholders and is incorporated by reference into
this Form 10-K Report. With the exception of the foregoing information and other
information specifically incorporated by reference into this Form 10-K Report,
our 2001 Proxy Statement is not being filed as a part of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is included under the captions "Executive
Compensation," "Director Compensation" and "Employment Agreements" in our 2001
Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is included under the caption "Security
Ownership of Principal Stockholders and Management" in our 2001 Proxy Statement
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is included under the caption "Certain
Transactions and Relationships" in our 2001 Proxy Statement and is incorporated
herein by reference.
36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE OR
METHOD OF
FILING
------
(a) FINANCIAL STATEMENTS AND SCHEDULES
(i) Financial Statements:
(1) Report of KPMG LLP Page 21
(2) Consolidated Financial Statements and Notes to Page 22
Consolidated Financial Statements of the Company,
including Consolidated Balance Sheets as of
December 31, 2000 and 1999 and related
Consolidated Statements of Earnings, Stockholders'
Equity and Cash Flows for each of the years in the
three-year period ended December 31, 2000
(ii) Financial Statement Schedules:
Schedules have been omitted because of the absence
of conditions under which they are required or
because the required material information is
included in the Consolidated Financial Statements
or Notes to the Consolidated Financial Statements
included herein.
(b) REPORTS ON FORM 8-K
We filed no reports on Form 8-K in the fourth quarter of 2000.
(c) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION PAGE OR METHOD OF FILING
- ------ ----------- ------------------------
2.1 Agreement and Plan of Reorganization, dated as of Incorporated by reference to Exhibit 2 of Form S-4
September 13, 1996, by and among Homeplex, the Registration Statement No. 333-15937 ("S-4
Monterey Merging Companies and the Monterey #333-15937").
Stockholders
2.2 Agreement of Purchase and Sale of Assets, dated as Incorporated by reference to Exhibit 2 of Form
of May 20, 1997, by and among Monterey, Legacy 8-K/A dated June 18, 1997.
Homes, Ltd., Legacy Enterprises, Inc., and John
and Eleanor Landon
2.3 Agreement of Purchase and Sale of Assets, dated as Incorporated by reference to Exhibit 2.2 of Form
of June 15, 1998, by and among the Company, 10-Q for the quarterly period ended June 30, 1998.
Sterling Communities, S.H. Capital, Inc., Sterling
Financial Investments, Inc. Steve Hafener, and W.
Leon Pyle
3.1 Restated Articles of Incorporation of the Company Incorporated by reference to Exhibit 3.2 of Form
10-Q for the quarterly period ended September 30,
1998.
3.2 Amendment to Articles of Incorporation Incorporated by reference to Exhibit 3.1 of Form
10-Q for the quarterly period ended September 30,
1998.
3.3 Amended and Restated Bylaws of the Company Incorporated by reference to Exhibit 3.3 of Form
S-3 #333-58793.
4.1 Specimen of Common Stock Certificate Incorporated by reference to Exhibit 4 to the Form
10-K for the year ended December 31, 1996.
37
EXHIBIT
NUMBER DESCRIPTION PAGE OR METHOD OF FILING
- ------ ----------- ------------------------
4.2 Note Purchase Agreement Incorporated by reference to Exhibit 4.1 of Form
10-Q for the quarterly period ended September 30,
1998.
10.1 $70 Million Borrowing Base Loan Agreement by and Incorporated by reference to Exhibit 10.4 to the
among the Company, Norwest Bank, Arizona, N.A. and Form 10-K for the year ended December 31, 1999.
California Bank and Trust, Dated as of September
15, 1999
10.1.1 Modification to Loan Agreement with Wells Fargo Incorporated by reference to Exhibit 10.1 to the
Bank, Arizona, N.A. and California Bank and Trust, Form 10-Q for the quarterly period ended June 30,
Dated as of May 16, 2000 2000.
10.2 $15 Million Credit Agreement by and among Meritage Incorporated by reference to Exhibit 10.23 of Form
Corporation and California Bank and Trust, Dated 10-Q for the quarterly period ended September 30,
as of September 15, 1999 1999.
10.3 Modification to Guaranty Federal Bank Loan, Dated Incorporated by reference to Exhibit 10.1 of Form
as of May 19, 1998 10-Q for the quarterly period ended June 30, 1998.
10.3.1 Modification to Guaranty Federal Bank Loan, Dated Incorporated by reference to Exhibit 10.4 to the
as of July 31, 1999 Form 10-K for the year ended December 31, 1999.
10.3.2 Modification to Guaranty Federal Bank Loan, Dated Incorporated by reference to Exhibit 10.1 of Form
as of March 29, 2000 10-Q for the quarterly period ended March 31,
2000.
10.3.3 Extension of Guaranty Federal Bank Loan, Dated as Incorporated by reference to Exhibit 10.2 of Form
of July 31, 2000 10-Q for the quarterly period ended June 30, 2000.
10.3.4 Modification to Guaranty Federal Bank Loan, Dated Incorporated by reference to Exhibit 10.1 of Form
as of July 31, 2000 10-Q for the quarterly period ended September 30,
2000.
10.4 $3.3 Million Construction Loan Agreement by and Incorporated by reference to Exhibit 10.2 of Form
between the Company and Compass Bank, Dated as of 10-Q for the quarterly period ended March 31,
February 10, 2000 2000.
10.5 Stock Option Plan* Incorporated by reference to Exhibit 10(d) of Form
10-K for the fiscal year ended December 31, 1995
("1995 Form 10-K").
10.5.1 Amendment to Stock Option Plan * Incorporated by reference to Exhibit 10(e) of 1995
Form 10-K.
10.6 Meritage Corporation Stock Option Plan * Incorporated by reference to Exhibit 10.9 to the
Form 10-K for the year ended December 31, 1996.
10.6.1 Amendment to Stock Option Plan dated December 31, Incorporated by reference to Exhibit 10.9 of
1996* Registration Statement No. 333-29737, filed on
June 20, 1997.
10.7 Meritage Corporation 1997 Stock Option Plan* Incorporated by reference to Exhibit 4.1 of
Registration Statement No. 333-37859, filed on
October 14, 1997.
10.7.1 Amended 1997 Stock Option Plan * Incorporated by reference to Exhibit 4.1 of
Registration Statement No. 333-75639 filed on
April 2, 1999.
10.7.2 Amended 1997 Stock Option Plan * Incorporated by reference to Exhibit 4.1 of
Registration Statement No. 333-39036 filed on June
12, 2000.
38
EXHIBIT
NUMBER DESCRIPTION PAGE OR METHOD OF FILING
- ------ ----------- ------------------------
10.8 Employment Agreement between the Company and Incorporated by reference to Exhibit 10.10 to the
William W. Cleverly* Form 10-K for the year ended December 31, 1996.
10.9 Separation and Consulting Agreement between the Incorporated by reference to Exhibit C of the Form
Company and William W. Cleverly* 8-K filed on March 23, 1999.
10.10 Employment Agreement between the Company and Incorporated by reference to Exhibit 10.11 to the
Steven J. Hilton* Form 10-K for the year ended December 31, 1996.
10.11 Employment Agreement between the Company and John Incorporated by reference to Exhibit C of the Form
R. Landon* 8-K filed on June 18, 1997.
10.12 Stock Option Agreement between the Company and Incorporated by reference to Exhibit 10.12 of the
William W. Cleverly* Form 10-K for the year ended December 31, 1996.
10.13 Stock Option Agreement between the Company and Incorporated by reference to Exhibit 10.13 to the
Steven J. Hilton* Form 10-K for the year ended December 31, 1996.
10.14 Stock Option Agreement between the Company and Incorporated by reference to Exhibit C of the Form
John R. Landon* 8-K filed on June 18, 1997.
10.15 Registration Rights Agreement between the Company Incorporated by reference to Exhibit 10.14 to the
and William W. Cleverly* Form 10-K for the year ended December 31, 1996.
10.16 Registration Rights Agreement between the Company Incorporated by reference to Exhibit 10.15 to the
and Steven J. Hilton* Form 10-K for the year ended December 31, 1996.
10.17 Registration Rights Agreement between the Company Incorporated by reference to Exhibit C of the Form
and John R. Landon* 8-K filed on June 18, 1997.
10.18 Escrow and Contingent Stock Agreement * Incorporated by reference to Exhibit 10.16 of the
Form 10-K for the year ended December 31, 1996.
10.19 Employment Agreement between the Company and Larry Incorporated by reference to Exhibit 10.2 of Form
W. Seay* 10-Q for the quarterly period ended June 30, 1998.
10.19.1 Amendment to Employment Agreement between the Filed herewith.
Company and Larry W. Seay*
10.20 Change of Control Agreement between the Company Incorporated by reference to Exhibit 10.3 of Form
and Steven J. Hilton* 10-Q for the quarterly period ended March 30,
2000.
10.21 Change of Control Agreement between the Company Incorporated by reference to Exhibit 10.4 of Form
and John R. Landon* 10-Q for the quarterly period ended March 30,
2000.
10.22 Change of Control Agreement between the Company Incorporated by reference to Exhibit 10.5 of Form
and Larry W. Seay* 10-Q for the quarterly period ended March 30,
2000.
10.23 Change of Control Agreement between the Company Incorporated by reference to Exhibit 10.6 of Form
and Richard T. Morgan* 10-Q for the quarterly period ended March 30,
2000.
24 Consent of KPMG LLP Filed herewith.
25 Powers of Attorney See signature page.
- ----------
* Indicates a management contract or compensation plan.
39
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-K to
be signed on its behalf by the undersigned, thereunto duly authorized, this 23rd
day of March 2001.
MERITAGE CORPORATION,
a Maryland Corporation
By /s/ STEVEN J. HILTON
-------------------------------------
Steven J. Hilton
CO-CHAIRMAN AND CHIEF EXECUTIVE OFFICER
By /s/ JOHN R. LANDON
---------------------------------------
John R. Landon
CO-CHAIRMAN AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Steven J. Hilton, John R. Landon and Larry W.
Seay, and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Form 10-K Annual Report, and to file the same, with all exhibits thereto and
other documents in connection therewith the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act of things requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as he might or could do in person hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to these requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the registrant and in the capacities and on the
dates indicated have signed this report on Form 10-K below:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ STEVEN J. HILTON Co-Chairman and March 28, 2001
- ---------------------------- Chief Executive Officer
Steven J. Hilton
/s/ JOHN R. LANDON Co-Chairman and March 28, 2001
- ---------------------------- Chief Executive Officer
John R. Landon
/s/ LARRY W. SEAY Chief Financial Officer, Vice March 28, 2001
- ---------------------------- President-Finance, Secretary
Larry W. Seay and Treasurer (Principal
Financial and Accounting Officer)
/s/ WILLIAM W. CLEVERLY Director March 28, 2001
- ----------------------------
William W. Cleverly
/s/ RAYMOND OPPEL Director March 28, 2001
- ----------------------------
Raymond Oppel
/s/ ROBERT G. SARVER Director March 28, 2001
- ----------------------------
Robert G. Sarver
/s/ C. TIMOTHY WHITE Director March 28, 2001
- ----------------------------
C. Timothy White
/s/ PETER L. AX Director March 28, 2001
- ----------------------------
Peter L. Ax
S-1