================================================================================ 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. ================================================================================ 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