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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-9977
MERITAGE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland 86-0611231
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6613 North Scottsdale Road, Suite 200
Scottsdale, Arizona 85250
(Address of Principal Executive Offices) (Zip Code)
(480) 998-8700
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ].
As of May 1, 2001, 6,108,249 shares of Meritage Corporation common stock were
outstanding.
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MERITAGE CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of March 31, 2001 and
December 31, 2000.......................................... 3
Consolidated Statements of Earnings for the Three
Months ended March 31, 2001 and 2000....................... 4
Consolidated Statements of Cash Flows for the
Three Months ended March 31, 2001 and 2000................. 5
Notes to Consolidated Financial Statements................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................ 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK................................................ 13
PART II. OTHER INFORMATION
ITEMS 1-3. NOT APPLICABLE............................................. 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 14
ITEM 5. OTHER INFORMATION.......................................... 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................... 15
SIGNATURES ............................................................. S-1
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000
--------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Cash and cash equivalents $ 6,359 $ 4,397
Real estate under development 233,446 211,307
Deposits on real estate under option or contract 28,776 24,251
Other receivables 2,673 2,179
Deferred tax asset 526 543
Goodwill 17,408 17,675
Property and equipment, net 5,016 4,717
Other assets 1,244 2,006
--------- ---------
Total Assets $ 295,448 $ 267,075
========= =========
LIABILITIES
Accounts payable and accrued liabilities $ 36,692 $ 48,907
Home sale deposits 13,121 10,917
Notes payable 116,928 86,152
--------- ---------
Total Liabilities 166,741 145,976
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 50,000,000 shares
authorized, 5,941,202 shares at March 31, 2001, and
5,922,822 shares at December 31, 2000, issued and outstanding 59 59
Additional paid-in capital 102,745 102,526
Retained earnings 36,919 29,530
Treasury stock at cost, 811,963 shares at March 31, 2001
and December 31, 2000 (11,016) (11,016)
--------- ---------
Total Stockholders' Equity 128,707 121,099
--------- ---------
Total Liabilities and Stockholders' Equity $ 295,448 $ 267,075
========= =========
See accompanying notes to consolidated financial statements
3
MERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
--------------------------------
2001 2000
--------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
Home sales revenue $ 116,113 $ 91,653
Land sales revenue 593 757
--------- ---------
116,706 92,410
Cost of home sales (92,579) (74,956)
Cost of land sales (531) (681)
--------- ---------
(93,110) (75,637)
Home sales gross profit 23,534 16,697
Land sales gross profit 62 76
--------- ---------
23,596 16,773
Commissions and other sales costs (7,013) (5,779)
General and administrative expense (4,935) (4,002)
Interest expense (1) (1)
Other income, net 534 532
--------- ---------
Earnings before income taxes 12,181 7,523
Income taxes (4,792) (2,752)
--------- ---------
Net earnings $ 7,389 $ 4,771
========= =========
Basic earnings per share $ 1.44 $ .90
========= =========
Diluted earnings per share $ 1.28 $ .82
========= =========
See accompanying notes to consolidated financial statements
4
MERITAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
--------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,389 $ 4,771
Adjustments to reconcile net earnings to net
cash used in by operating activities:
Depreciation and amortization 766 694
Decrease (increase) in deferred tax asset 16 (19)
Stock option compensation expense -- 58
Increase in real estate under development (22,139) (12,929)
Increase in deposits on real estate under option or contract (4,525) (2,713)
Decrease (increase) in other receivables and other assets 268 (2,060)
Decrease in accounts payable and accrued liabilities (12,214) (5,603)
Increase in home sale deposits 2,204 1,841
--------- ---------
Net cash used in operating activities (28,235) (15,960)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for merger/acquisition -- (5,158)
Purchases of property and equipment (798) (476)
-------- -- --------
Net cash used in investing activities (798) (5,634)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 116,572 97,251
Repayment of borrowings (85,795) (83,110)
Purchase of treasury shares -- (584)
Stock options exercised 218 --
--------- ---------
Net cash provided by financing activities 30,995 13,557
--------- ---------
Net increase (decrease) in cash and cash equivalents 1,962 (8,037)
Cash and cash equivalents at beginning of period 4,397 13,422
--------- ---------
Cash and cash equivalents at end of period $ 6,359 $ 5,385
========= =========
See accompanying notes to consolidated financial statements
5
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
We develop, construct and sell new high-quality, single-family homes in the
semi-custom luxury, move-up and entry-level markets. We operate in the
Dallas/Fort Worth, Austin and Houston, Texas markets as Legacy Homes, in the
Phoenix/Scottsdale and Tucson, Arizona markets as Monterey Homes and Meritage
Homes, and in the San Francisco Bay and Sacramento, California markets as
Meritage Homes.
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of Meritage Corporation and its subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation and certain prior period
amounts have been reclassified to be consistent with current financial statement
presentation. In the opinion of management, the unaudited consolidated financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present our financial position and results of
operations for the periods presented. The results of operations for any interim
period are not necessarily indicative of results to be expected for a full
fiscal year.
NOTE 2 - REAL ESTATE UNDER DEVELOPMENT AND CAPITALIZED INTEREST
Real estate under development consisted of the following (in thousands):
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
Homes under contract, in production $ 110,898 $ 92,881
Finished lots 56,060 60,630
Lots under development 37,401 27,636
Model homes and homes held for resale 26,179 26,937
Land held for development 2,908 3,223
---------- -----------
$ 233,446 $ 211,307
========== ===========
We capitalize certain interest costs incurred during development and
construction. Capitalized interest is allocated to real estate under development
and charged to cost of sales when the property is delivered. Summaries of
interest capitalized and interest expensed follow (in thousands):
MARCH 31,
-----------------------------
2001 2000
------- -------
Beginning unamortized capitalized interest $ 5,426 $ 3,971
Interest capitalized 3,074 1,868
Amortization to cost of home sales (1,959) (1,565)
------- -------
Ending unamortized capitalized interest $ 6,541 $ 4,274
======= =======
Interest incurred $ 3,075 $ 1,870
Interest capitalized (3,074) (1,868)
------- -------
Interest expense $ 1 $ 2
======= =======
6
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 3 - NOTES PAYABLE
Notes payable consisted of the following (in thousands):
MARCH 31, DECEMBER 31,
2001 2000
-------- --------
$100 million bank revolving construction line of credit, interest
payable monthly approximating prime (8% at March 31, 2001) or
LIBOR plus 1.75% (at rates ranging from 6.810% to 7.366 % at
March 31, 2001), payable at the earlier of close of escrow,
maturity date of individual homes within the line or over a
24-month period beginning January 1, 2002, secured by first deeds
of trust on real estate $ 79,265 $ 50,354
$65 million bank revolving construction line of credit, interest
payable monthly approximating prime or LIBOR (30 day LIBOR 5.078%
at March 31, 2001) 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 19,646 17,269
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 3,008 3,516
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 9 13
-------- --------
Total $116,928 $ 86,152
======== ========
7
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 4 - EARNINGS PER SHARE
A summary of the reconciliation from basic earnings per share to diluted
earnings per share for the three months ended March 31, 2001 and 2000 follows
(in thousands, except per share amounts):
2001 2000
------ ------
Net earnings $7,389 $4,771
Basic EPS - Weighted average shares outstanding 5,123 5,287
------ ------
Basic earnings per share $ 1.44 $ .90
====== ======
Basic EPS - Weighted average shares outstanding 5,123 5,287
Effect of dilutive securities:
Contingent shares and warrants -- 73
Stock options 665 458
------ ------
Dilutive EPS - Weighted average shares outstanding 5,788 5,818
------ ------
Diluted earnings per share $ 1.28 $ .82
====== ======
Antidilutive stock options not included in diluted EPS -- 280
====== ======
NOTE 5 - INCOME TAXES
Components of income tax expense at March 31 are (in thousands):
2001 2000
------- -------
Current taxes:
Federal $ 4,017 $ 2,419
State 759 352
------- -------
4,776 2,771
------- -------
Deferred taxes:
Federal 31 (17)
State (15) (2)
------- -------
16 (19)
------- -------
Total $ 4,792 $ 2,752
======= =======
8
MERITAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 6 - SEGMENT INFORMATION
We classify our operations into three primary geographic segments: Texas,
Arizona and California. These segments generate revenues through the sale of
homes to external customers. We are not dependent on any one major customer.
Operational information relating to the different business segments
follows. Certain information has not been included by segment due to the
immateriality of the amount to the segment or in total. We evaluate segment
performance based on several factors, of which the primary financial measure is
earnings before interest and taxes (EBIT). The accounting policies of the
business segments are the same as those described in Notes 1 and 2. There are no
significant transactions between segments.
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
--------- ---------
(in thousands)
HOME SALES REVENUE:
Texas $ 55,576 $ 49,430
Arizona 33,177 21,942
California 27,360 20,281
--------- ---------
Total $ 116,113 $ 91,653
========= =========
EBIT:
Texas $ 9,530 $ 7,010
Arizona 2,204 995
California 3,133 2,311
Corporate and other (726) (1,227)
--------- ---------
Total $ 14,141 $ 9,089
========= =========
AMORTIZATION OF CAPITALIZED INTEREST:
Texas $ 583 $ 635
Arizona 981 578
California 395 352
--------- ---------
Total $ 1,959 $ 1,565
========= =========
AT MARCH 31, AT DECEMBER 31,
2001 2000
--------- ---------
(in thousands)
ASSETS:
Texas $ 110,996 $ 108,238
Arizona 122,181 102,746
California 59,921 53,723
Corporate 2,350 2,368
--------- ---------
Total $ 295,448 $ 267,075
========= =========
NOTE 7 - SUBSEQUENT EVENT
On May 7, 2001, we entered into a definitive agreement to acquire
substantially all of the homebuilding and related assets of HC Builders, Inc.
and Hancock Communities, L.L.C. (collectively, "Hancock"), subject to customary
closing conditions. The estimated purchase price, based on Hancock's March 31,
2001 balance sheet, is approximately $67.8 million in cash payable at closing,
the assumption of trade payables, accrued liabilities, customer deposits and a
note, currently estimated to be $12.3 million in the aggregate, and an earn-out
payable over three years. We have proposed to raise $150 million in senior notes
through a private placement to finance the acquisition and to repay some of our
existing indebtedness.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements. The
words "believe," "expect," "anticipate," and "project" and similar expressions
identify forward-looking statements, which speak only as of the date the
statement was made. Such forward-looking statements are within the meaning of
that term in Section 27A of the Securities Act of 1993, as amended, and Section
21E of the Securities Exchange Act of 1934. Such statements may include, but are
not limited to, projections of revenues, income or loss, capital expenditures,
plans for future operations, financing needs or plans and liquidity, the impact
of inflation, the impact of changes in interest rates, plans relating to our
products or services, acquisitions, and new or planned development projects, as
well as assumptions relating to the foregoing.
Statements in Exhibit 99.1 to this Quarterly Report on Form 10-Q and in our
Annual Report on Form 10-K for the year ended December 31, 2000, including the
Notes to the Consolidated Financial Statements, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Factors That May
Affect Our Future Results and Financial Condition," and "Special Note of Caution
Regarding Forward-Looking Statements" describe factors, among others, that could
contribute to or cause such differences from forward looking statements, which
could be material. These factors may also affect our business generally.
Additional factors that could cause actual results to differ materially from
those expressed in such forward-looking statements, and that could affect our
business generally, are set forth in "Business" and "Market for the Registrant's
Common Stock and Related Stockholder Matters" in our December 31, 2000 Annual
Report on Form 10-K.
RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding our
results of operations for the three months ended March 31, 2001 and 2000. All
material balances and transactions between us and our subsidiaries have been
eliminated. In management's opinion, the data reflects all adjustments,
consisting of only normal recurring adjustments, necessary to fairly present our
financial position and results of operations for the periods presented. The
results of operations for any interim period are not necessarily indicative of
results expected for a full fiscal year.
HOME SALES REVENUE, SALES CONTRACTS AND NET SALES BACKLOG
The data provided below shows operating and financial data regarding our
homebuilding activities.
QUARTER ENDED
MARCH 31, PERCENTAGE
-------------------- INCREASE
HOME SALES REVENUE 2001 2000 (DECREASE)
---- ---- ----------
Total
Dollars $116,113 $91,653 27%
Homes closed 516 440 17%
Average sales price $ 225.0 $ 208.3 8%
Texas
Dollars $ 55,576 $49,430 12%
Homes closed 320 302 6%
Average sales price $ 173.7 $ 163.7 6%
Arizona
Dollars $ 33,177 $21,942 51%
Homes closed 126 79 59%
Average sales price $ 263.3 $ 277.7 (5%)
California
Dollars $ 27,360 $20,281 35%
Homes closed 70 59 19%
Average sales price $ 390.9 $ 343.7 14%
10
QUARTER ENDED
MARCH 31, PERCENTAGE
-------------------- INCREASE
SALES CONTRACTS 2001 2000 (DECREASE)
---- ---- ----------
Total
Dollars $176,893 $148,900 19%
Homes ordered 740 629 18%
Average sales price $ 239.0 $ 236.7 1%
Texas
Dollars $ 73,508 $ 60,920 21%
Homes ordered 437 355 23%
Average sales price $ 168.2 $ 171.6 (2%)
Arizona
Dollars $ 67,315 $ 43,937 53%
Homes ordered 213 137 55%
Average sales price $ 316.0 $ 320.7 (1%)
California
Dollars $ 36,070 $ 44,043 (18%)
Homes ordered 90 137 (34%)
Average sales price $ 400.8 $ 321.5 25%
QUARTER ENDED
MARCH 31, PERCENTAGE
--------------------- INCREASE
NET SALES BACKLOG 2001 2000 (DECREASE)
---- ---- ----------
Total
Dollars $370,681 $256,692 44%
Homes in backlog 1,470 1,074 37%
Average sales price $ 252.2 $ 239.0 6%
Texas
Dollars $137,496 $105,473 30%
Homes in backlog 812 619 31%
Average sales price $ 169.3 $ 170.4 (1%)
Arizona
Dollars $149,349 $ 94,873 57%
Homes in backlog 431 274 57%
Average sales price $ 346.5 $ 346.3 *
California
Dollars $ 83,836 $ 56,346 49%
Homes in backlog 227 181 25%
Average sales price $ 369.3 $ 311.3 19%
* - less than 1%
11
HOME SALES REVENUE. The increase in total home sales revenue and number of
homes closed in the first three months of 2001 compared to the first three
months of 2000 results mainly from strong market performance in all of our
divisions, as well as the continued 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 for the first quarter of 2001
reflect a change in our product mix, as we are now selling more mid-priced homes
than in 2000.
SALES CONTRACTS. Sales contracts for any period represent the aggregate
sales price of all homes ordered by customers net of homes canceled. 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 the first three months of 2001 compared to 2000 due mainly to the
continued expansion of our mid-priced Meritage Phoenix division in Arizona,
along with continued economic strength of our operating markets during the
period. The decrease in sales contracts in our Northern California region for
the first quarter of 2001 is mainly attributable to faster than anticipated
sales rates during 2000 in some of our communities, which resulted in those
communities selling out of available lot inventory before replacement lot
inventory in new communities could be completed.
NET SALES BACKLOG. Backlog represents net sales contracts that have not
closed. Total dollar backlog at March 31, 2001 increased 44% over the 2000
amount due to an increase in the number of homes in backlog and increased sales
prices in most of our markets. The number of homes in backlog at March 31, 2001
increased 37% over the same date 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 operated during the period.
OTHER OPERATING INFORMATION
QUARTER ENDED
MARCH 31, PERCENTAGE
------------------ INCREASE
2001 2000 (DECREASE)
---- ---- ----------
HOME SALES GROSS PROFIT
Dollars $23,534 $16,697 40.9%
Percent of home sales revenue 20.3% 18.3% 2.0%
COMMISSIONS AND OTHER SALES COSTS
Dollars $ 7,013 $ 5,779 21.3%
Percent of home sales revenue 6.0% 6.3% (0.3%)
GENERAL AND ADMINISTRATIVE COSTS
Dollars $ 4,935 $ 4,002 23.3%
Percent of total revenue 4.2% 4.3% (0.1%)
INCOME TAXES
Dollars $ 4,792 $ 2,752 74.1%
Percent of income before taxes 39.3% 36.6% 2.7%
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 quarter ended March 31, 2001 is attributable to the increase in number of
homes closed and continued growth in all of our markets. The gross profit
percentage increase in 2001 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.
12
COMMISSIONS AND OTHER SALES COSTS. Commissions and other sales costs, such
as advertising and sales office expenses, were approximately $7.0 million, or
6.0% of home sales revenue, in 2001, as compared to approximately $5.8 million,
or 6.3% of home sales revenue in 2000. The decrease in these expenses as a
percentage of home sales revenue reflects slower growth in marketing and
advertising costs, while revenues expanded more rapidly.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were approximately $4.9 million, or 4.2% of total revenue in 2001, as compared
to approximately $4.0 million, or 4.3% of total revenue in 2000. Operating costs
in 2001 were slightly lower as a percentage of revenue in comparison to the
prior year due to overhead related to our Northern California expansion and
start-up costs for of our new Meritage division in Phoenix, Arizona during 2000.
INCOME TAXES. The increase in income taxes to $4.8 million for the quarter
ended March 31, 2001 from $2.8 million in the prior year resulted from an
increase in pre-tax income, along with a slightly higher effective tax rate.
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.
At March 31, 2001, we had short-term secured revolving construction loan
and acquisition and development facilities totaling $170.7 million, of which
approximately $101.9 million was outstanding. An additional $47.8 million of
unborrowed funds supported by approved collateral were available under our
credit facilities at that date. We also have $15 million outstanding in
unsecured, senior subordinated notes due September 15, 2005, which were issued
in October 1998.
Management believes that the current borrowing capacity, cash on hand at
March 31, 2001 and anticipated cash flows from operations are sufficient to meet
liquidity needs for the foreseeable future. There is no assurance, however, that
future amounts available from our sources of liquidity will be sufficient to
meet future capital needs. The amount and types of indebtedness that we incur
may be limited by the terms of the indenture governing our senior subordinated
notes and our credit agreements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not trade in derivative financial instruments 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.
13
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Meritage's Annual Meeting of Stockholders was held on May 9, 2001. At the
Annual Meeting, the stockholders elected John R. Landon, Robert G. Sarver, C.
Timothy White and Peter L. Ax to serve as Directors for two-year terms. Steven
J. Hilton, William W. Cleverly and Raymond (Ray) Oppel continued as Directors
after the meeting. Additionally, the stockholders approved the Meritage
Corporation 2001 Executive Management Incentive Plan.
Stockholders representing 4,901,090 shares or 95.30% of the outstanding
shares were present in person or by proxy at the Annual Meeting. A tabulation
with respect to each nominee and the proposal follows:
Votes Against
Votes For or Withheld Abstain
--------- ----------- -------
Election of John R. Landon 4,817,720 83,370
Election of Robert G. Sarver 4,886,662 14,428
Election of C. Timothy White 4,877,629 23,461
Election of Peter L. Ax 4,880,499 20,591
Approval of the Meritage Corporation 2001
Executive Management Incentive Plan 4,823,273 65,936 11,881
ITEM 5. OTHER INFORMATION
On May 7, 2001, we entered into a definitive agreement to acquire
substantially all of the homebuilding and related assets of HC Builders, Inc.
and Hancock Communities, L.L.C. (collectively, "Hancock"), subject to customary
closing conditions. The estimated purchase price, based on Hancock's March 31,
2001 balance sheet, is approximately $67.8 million in cash payable at closing,
the assumption of trade payables, accrued liabilities, customer deposits and a
note, currently estimated to be $12.3 million in the aggregate, and an earn-out
payable over three years. We have proposed to raise $150 million in senior notes
through a private placement to finance the acquisition and to repay some of our
existing indebtedness.
The Hancock acquisition involves a number of uncertainties, including: the
risk that the transaction will not close; and if closed, the risks that the
businesses will not be integrated successfully; that the market and financial
synergies anticipated from the acquisition may not be fully realized or may take
longer to realize than expected; that the acquisition will not be accretive to
earnings within the time period estimated by management, or at all; that
unanticipated expenses and liabilities may be incurred; that the combined
companies will lose key employees or suppliers; that the financing to conclude
the transaction will not be available on terms acceptable to us or at all; and
that if obtained, will substantially increase our leverage ratios and will
include covenants that restrict our business activities. In addition, the
combined company will be subject to the homebuilding and other risks referenced
in the introductory paragraph of Part I, Item 2, above, including those set
forth in Exhibit 99.1 hereto.
THE SENIOR NOTES REFERENCED HEREIN HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION OR AN APPLICABLE
EXEMPTION FROM REGISTRATION REQUIREMENTS. THIS QUARTERLY REPORT DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE NOTES OR
ANY OTHER SECURITIES.
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT PAGE OR
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
99.1 Private Securities Reform Act of 1995 Filed herewith
Safe Harbor Compliance Statement for
Forward-Looking Statements
(b) REPORTS ON FORM 8-K
On May 10th, 2001, we filed a report on Form 8-K describing our anticipated
acquistion of the homebuilding assets of Hancock Communities.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly cause this report on Form 10-Q to
be signed on its behalf by the undersigned, thereunto duly authorized, this 10th
day of May, 2001.
MERITAGE CORPORATION,
a Maryland Corporation
By /s/ Larry W. Seay
--------------------------------------------------
Larry W. Seay
Chief Financial Officer and Vice President-Finance
(Principal Financial Officer and Duly Authorized
Officer)
S-1