SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM  10-Q

 

ý   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2004

 

or

 

o   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)

 

 

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 ý   No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).              Yes ý   No o

 

As of May 6, 2004, 13,162,420 shares of Meritage Corporation common stock were outstanding.

 

 

MERITAGE CORPORATION

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2004

 

TABLE OF CONTENTS

 

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of March 31, 2004 (unaudited) and December 31, 2003
	Consolidated Statements of Earnings for the Three Months ended March 31, 2004 and 2003 (unaudited)
	Consolidated Statements of Cash Flows for the Three Months ended March 31, 2004 and 2003 (unaudited)
	Notes to Consolidated Financial Statements (unaudited)
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II.	OTHER INFORMATION
Items 1, 3-5.	Not Applicable
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Item 6.	Exhibits and Reports on Form 8-K
SIGNATURES

 

2

 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

MERITAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		(Unaudited) March 31, 2004			December 31, 2003
		(in thousands, except share data)
Assets
Cash and cash equivalents		$	11,690		$	4,799
Real estate		696,375			678,011
Consolidated real estate not owned		32,303			18,572
Deposits on real estate under option or contract		109,994			105,870
Receivables, net		9,638			8,716
Deferred tax asset, net		1,443			1,204
Goodwill		87,800			75,645
Property and equipment, net		25,708			23,669
Prepaid expenses and other assets		17,470			14,525
Investments in unconsolidated entities		27,991			23,528
Total assets		$	1,020,412		$	954,539
Liabilities
Accounts payable		$	76,453		$	80,737
Accrued liabilities		61,181			67,411
Home sale deposits		28,709			25,352
Liabilities related to consolidated real estate not owned		31,480			17,653
Loans payable		94,000			63,500
Senior notes		287,721			287,991
Total liabilities		579,544			542,644
Stockholders’ Equity
Common stock, par value $0.01.  50,000,000 shares  authorized; 15,585,873 and 15,479,558 shares issued  at March 31, 2004 and December 31, 2003, respectively		156			155
Additional paid-in capital		204,731			202,678
Retained earnings		269,534			242,615
Treasury stock at cost, 2,302,226 shares at March 31, 2004 and December 31, 2003		(33,553		)	(33, 553		)
Total stockholders’ equity		440,868			411,895
Total liabilities and stockholders’ equity		$	1,020,412		$	954,539

 

See accompanying notes to consolidated financial statements

 

3

 

MERITAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 

		Three Months Ended March 31,
		2004			2003
		(in thousands, except per share data)
Home closing revenue		$	423,502		$	283,410
Cost of home closings		(340,339		)	(227,056		)
Home closing gross profit		83,163			56,354
Commissions and other sales costs		(25,833		)	(19,745		)
General and administrative costs		(16,056		)	(12,212		)
Other income, net		2,189			1,209
Earnings before income taxes		43,463			25,606
Income taxes		(16,544		)	(9,833		)
Net earnings		$	26,919		$	15,773
Weighted average number of shares:
Basic		13,234			13,041
Diluted		14,052			13,683
Net earnings per common share:
Basic		$	2.03		$	1.21
Diluted		$	1.92		$	1.15

 

See accompanying notes to consolidated financial statements

 

4

 

MERITAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Three Months Ended March 31,
		2004			2003
		(in thousands)
Cash flows from operating activities:
Net earnings		$	26,919		$	15,773
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		2,747			1,717
Increase in deferred tax asset		(239		)	—
Tax benefit from stock option exercises		900			—
Equity in earnings of unconsolidated entities		(434		)	(505		)
Net increase in liabilities over assets not owned		96			––
Changes in assets and liabilities, net of effect of  acquisition in 2004:
Increase in real estate		(6,597		)	(58,308		)
Increase in deposits on real estate under option or contract		(2,254		)	(9,906		)
(Increase) decrease in receivables and prepaid expenses and other assets		(3,527		)	2,968
(Decrease) increase in accounts payable and accrued liabilities		(12,218		)	15,429
Increase in home sale deposits		3,269			3,396
Net cash provided by (used in) operating activities		8,662			(29,436		)
Cash flows from investing activities:
Investments in unconsolidated entities		(4,945		)	(1,202		)
Distributions from unconsolidated entities		916			565
Purchases of property and equipment		(4,286		)	(2,355		)
Cash paid for acquisition		(24,091		)	—
Increase in goodwill		(1,015		)	(255		)
Net cash used in investing activities		(33,421		)	(3,247		)
Cash flows from financing activities:
Proceeds from loans payable		466,800			227,835
Repayments of loans payable		(436,300		)	(226,312		)
Proceeds from issuance of senior notes		—			51,625
Purchase of treasury stock		—			(5,180		)
Proceeds from stock option exercises		1,150			77
Net cash provided by financing activities		31,650			48,045
Net increase in cash and cash equivalents		6,891			15,362
Cash and cash equivalents, beginning of period		4,799			6,600
Cash and cash equivalents, end of period		$	11,690		$	21,962

 

See Supplemented disclosure of cash flow information at Note 8.

See accompanying notes to consolidated financial statements

 

5

 

MERITAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004 AND 2003

(Unaudited)

 

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

 

Business.  Meritage Corporation is a leading designer and builder of single-family homes in the rapidly growing Sunbelt states of Texas, Arizona, California and Nevada, based on the number of homes closed.  We focus on providing a broad range of first-time, move-up and luxury homes to our targeted customer base.  We have operated in Arizona since 1985, in Texas since 1987, in California since 1989 and in Nevada since 2002.  We entered the Inland Empire market of Southern California in January 2004 with our acquisition of Citation Homes of Southern California (Citation) (See Note 5).

 

We operate in Texas as Legacy Homes, Monterey Homes and Hammonds Homes, in Arizona as Monterey Homes, Meritage Homes and Hancock Communities, in California as Meritage Homes and Citation Homes of Southern California and in Nevada as Perma-Bilt Homes.  At March 31, 2004, we were actively selling homes in 129 communities, with base prices ranging from $98,000 to $730,000.  We have four primary business segments: Texas, Arizona, California and Nevada.  Note 9 to these consolidated financial statements provides information regarding our reporting segments.

 

Basis of Presentation.  The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, and include the accounts of Meritage Corporation and those of our consolidated subsidiaries. Intercompany balances and transactions have been eliminated in consolidation and certain prior year amounts have been reclassified to be consistent with current financial statement presentation.  In our opinion, these unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly 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 or for any future periods.  These financial statements should be read in conjunction with our consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2003.

 

Stock-Based Compensation.  At March 31, 2004, we had a stock-based employee compensation plan under which officers, key employees, non-employee directors and consultants may be granted options to purchase shares of our authorized but unissued common stock.  We apply the intrinsic value-based method of accounting prescribed in Accounting Principles Board (“APB”) Opinion No. 25 “Accounting for Stock Issued to Employees”, as allowed by SFAS No. 123 “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.”  Under this method, compensation expense is recorded on the date of the grant only if the market price of the underlying stock on the date of the grant was greater than the exercise price.  SFAS No. 123 established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans.  As allowed by SFAS No. 123, we continue to apply the intrinsic value-based method of accounting described above, and have adopted the disclosure requirements of SFAS No. 123.  We have not issued options with exercise prices below the market value on the date of the grant; therefore, we have not recognized compensation expense for our stock-based plan.  Had compensation cost for this plan been determined pursuant to SFAS No. 123, our net earnings and earnings per share would have been reduced to the following pro forma amounts.  For the purpose of this disclosure, the value of the options is estimated by applying a Black-Scholes option pricing model and amortized to expense over the options’ vesting periods.

 

6

 

 

*Deduct: Total stock-based compensation expense determined under the fair value method for awards, net of related tax effects.

 

The fair value for options granted in the first quarter of 2004 and 2003 was established at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions.

 

 

We have generally granted options only to employees and non-employee directors.  To date, the amount of compensation expense recorded in association with granting options to other individuals has not been material.

 

Common Stock Repurchase. In August 2002, our Board of Directors authorized the expenditure of up to $32 million, with an increase of $26.8 million approved in January 2004, to repurchase shares of our common stock.  No date for completing the program has been determined, but we may purchase shares subject to applicable securities laws, and at times and in amounts as management deems appropriate.  By March 31, 2004, we had repurchased 664,300 shares of our common stock under the August 2002 program at an average price of $33.61 per share.  We did not repurchase any shares under this program in the first quarter of 2004.

 

Off-Balance Sheet Arrangements.  We often acquire finished building lots at market prices from various development entities under fixed price purchase agreements.  This lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and land development.  Under these purchase agreements, we are usually required to make deposits in the form of cash or letter of credit, which may be forfeited if we fail to perform under the agreement.  At March 31, 2004, we had entered into purchase agreements with an aggregate purchase price of approximately $1.3 billion, by making deposits of approximately $110.8 million in the form of cash and approximately $30.6 million in letters of credit.

 

7

 

We also 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 depending on the stage and level of our development activities.  In the event the letters of credit or bonds are drawn upon, we would be obligated to reimburse the issuer of the letter of credit or bond.  At March 31, 2004, we had approximately $10.9 million in outstanding letters of credit and guarantees and $143.0 million in performance bonds for such purposes.  We believe it is unlikely that any of these letter of credit or bonds will be drawn upon.

 

Warranty Reserves.  We have certain obligations related to post-construction warranties and defects related to homes closed.  At March 31, 2004, we had approximately $10.0 million accrued for various warranty claims, which is recorded in accrued liabilities on the accompanying consolidated balance sheet.  Our reserves are estimated based on the number of homes closed, historical data and trends with respect to similar geographic areas and product types.  We periodically review the adequacy of our warranty reserves, and believe they are sufficient to cover potential costs for materials and labor related to post-construction warranties and defects.  A summary of changes in our warranty reserves follows (in thousands):

 

 

Recent Accounting Pronouncements.  Recently, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (FIN 46R), which governs whether certain transactions should be accounted for as on- or off-balance sheet transactions.  Our adoption of FIN 46R has affected our accounting methods and the way we conduct our land acquisition activities.  We have the right to acquire a substantial amount of lot inventory through rolling options and purchase agreements with third parties and, to a lesser extent, joint ventures.  Historically, our rolling options and similar contractual arrangements to acquire lot inventory have not been reflected on our balance sheet.

 

Based upon current interpretations of FIN 46R, in connection with substantially all of our land purchase transactions, we must obtain certifications from sellers that the property we have contracted to acquire represents less than half of the fair value of the total assets held by the seller.  If we cannot obtain such a certification, we are then required to obtain confidential financial information from the seller about the seller’s ownership structure, financing sources, its other assets and liabilities, and its general business and operations.  This information would be used to evaluate whether the selling entity should be consolidated into our financial statements based upon tests designed to determine if we have a majority economic (even if not legal) interest in the entity and, if so, determine how the seller’s assets and liabilities are to be consolidated into our financial statements.

 

Although land-banking and purchase arrangements entered into prior to December 31, 2003 are exempt from these information requirements, provided exhaustive efforts have been made to obtain such information, land transactions entered into in the first quarter of 2004 and forward must satisfy these standards.  For transactions entered into prior to 2004, we have made exhaustive efforts to obtain relevant information and we will continue to make similar efforts in future periods as required.

 

8

 

We have contacted property owners that in the first quarter of 2004 entered into contractual arrangements to sell us property, and we were able to obtain the relevant certifications and information to satisfy these standards.  In the future, to the extent we are unable to obtain relevant information from sellers, we anticipate that we would either purchase the lots and land subject to these option agreements, cancel these option agreements and write off any earnest money or option deposits related to them, or sell and assign our interest in these option agreements to an independent third party.  We believe that the impact on our business and financial position of either purchasing the lots and land subject to these option agreements or canceling these option agreements would not be material, and we intend to limit most of our transactions to sellers than can supply the necessary certifications or required financial information to us.  Refer to Note 3 for further discussion of variable interest entities and consolidated real estate not owned.

 

NOTE 2 – REAL ESTATE AND CAPITALIZED INTEREST

 

Real estate consists of the following (in thousands):

 

		March 31, 2004			December 31, 2003
Homes under contract under construction		$	312,596		$	281,931
Finished home sites		174,502			166,456
Home sites under development		103,457			97,141
Unsold homes completed and under construction		64,144			96,576
Model homes		26,766			22,170
Land held for development		14,910			13,737
		$	696,375		$	678,011

 

We capitalize all development period interest costs incurred in connection with the development and construction of real estate. Capitalized interest is allocated to real estate when incurred and charged to cost of home closings when the related property is closed. Summaries of interest incurred and interest capitalized follow (in thousands):

 

		Three Months Ended March 31,
		2004			2003
Capitalized interest, beginning of period		$	13,074		$	8,781
Interest incurred and capitalized		8,191			5,662
Amortization to cost of home and land closings		(6,682		)	(4,031		)
Capitalized interest, end of period		$	14,583		$	10,412

 

NOTE 3 – VARIABLE INTEREST ENTITIES AND CONSOLIDATED REAL ESTATE NOT OWNED

 

Variable Interest Entities

 

Pursuant to FIN 46R, a variable interest entity, or VIE, is created when (i) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or (ii) equity holders either (a) lack direct or indirect ability to make decisions about the entity, (b) are not obligated to absorb expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity if they occur.

 

9

 

Based on the provisions of FIN 46R, we have concluded that when we enter into option or purchase agreements to acquire land or lots from an entity and pay a non-refundable deposit, a VIE is created because we are deemed to have provided subordinated financial support, which refers to variable interests that will absorb some or all of an entity’s expected losses if they occur.  For each VIE created, where the fair value of the land or lots under contract are not more than half of the total fair value of the entity’s assets, we are considered to have a variable interest in specified assets only and not the entity.  For each VIE created, where the fair value of the land or lots under contract are more than half of the total fair value of the entity’s assets, then we compute expected losses and residual returns based on the probability of future cash flows as outlined in FIN 46R.  If we are deemed to be the primary beneficiary of the VIE, because we are obligated to absorb the majority of the expected losses or receive the majority of the residual returns, we will consolidate the VIE in our consolidated financial statements.

 

FIN 46R was effective immediately for VIEs created after January 31, 2003.  We adopted FIN 46R upon its issuance.  Entities created before December 31, 2003, and for which sufficient information to apply the provisions of FIN 46R cannot be obtained, are not subject to the interpretation so long as exhaustive efforts have been and continue to be made to obtain the information.

 

As of March 31, 2004, we consolidated the estimated fair value of VIEs where we were determined to be the primary beneficiary, in the amount of $16.0 million.

 

We have not consolidated any VIEs for entities created before December 31, 2003 where we have been unable to obtain the necessary information to perform the required evaluations.  For all of these entities, we have made exhaustive efforts to obtain this information from the land seller.  For those VIEs for which we were unable to obtain sufficient information to implement FIN 46R, our maximum exposure to loss is limited to the total of our option deposits on those contracts, which was approximately $19.0 million at March 31, 2004.

 

We do not have any ownership interest in the VIEs that hold the lots and land under option or contract, and accordingly, generally do not have legal or other access to the VIE’s books or records.  Therefore, it is not possible in some cases for us to accurately determine the underlying capital structure of the VIEs.  In such cases, we will need to structure our transactions differently than we have in the past, and will need to limit transactions to sellers that meet certain requirements, which could impact our ability to buy land. Creditors, if any, of these VIEs have no recourse against Meritage.

 

Not all of our option agreements are determined to be VIEs, and the maximum exposure to loss in these options (as with all of our options) is limited to our option deposit.  In some cases, our option deposits are refundable if certain contractual conditions are not performed by the party selling the lots.

 

The table below presents a summary of our lots under option at March 31, 2004 (dollars in thousands):

 

										Option/Earnest Money Deposits
		# of Lots		Fair Value			Purchase Price			Cash			Letters of Credit
Specific performance options *		375		$	16,317		$	16,317		$	823		—
Options recorded on balance sheet **		129		15,986			17,254			—			$	1,866
Total options recorded on balance sheet **		504		32,303			33,571			823			1,866
Options/purchase contracts not  recorded on balance sheet – non-refundable deposits **		25,602		—			1,123,613			104,494			28,774
Options/purchase contracts not  recorded on balance sheet – refundable deposits ***		4,807		—			122,938			5,500			—
Total options not recorded on  balance sheet		30,409		—			1,246,551			109,994			28,744
Total lots under option		30,913		$	32,303		$	1,280,122		$	110,817		$	30,640

 

10

 

Note:  Except for our specific performance options, none of our option agreements require us to purchase lots.  Our option to purchase lots remains effective so long as we purchase a pre-established minimum number of lots each month or quarter, as determined by the agreement.  The pre-established number of lots typically is structured to approximate our expected rate of home orders.

 

*  Fair value of specific performance options approximates purchase price due to the short-lived nature of the options.

**  Deposits are non-refundable except if certain contractual conditions are not performed by the selling party.

***  Deposits are refundable at our sole discretion.

 

Consolidated Real Estate Not Owned.

 

At March 31, 2004, the amount of lot option contracts recorded on our balance sheet under the category “Consolidated real estate not owned” is approximately $32.3 million, of which approximately $16.3 million represents the estimated fair value of specific performance options, and the remaining $16.0 million represents the estimated fair value of consolidated VIEs.  The corresponding credit relating to these assets of $31.5 million is included under the category “Liabilities related to consolidated real estate not owned”, which is net of option deposits totaling approximately $0.8 million.

 

NOTE 4 – LOANS PAYABLE AND SENIOR NOTES

 

Loans payable consist of the following (in thousands):

 

		March 31, 2004			December 31, 2003
$400 million unsecured revolving credit facility maturing May 2007 with extension provisions, and interest payable monthly approximating prime (4.0% at March 31, 2004) or LIBOR (approximately 1.121% at March 31, 2004) plus 2.0%.		$	93,400		$	62,900
Acquisition and development seller carry back financing, interest payable at a fixed rate of 7% per annum, principal and interest payable at July 3, 2004, secured by a first deed of trust on real estate.		600			600
Total loans payable		$	94,000		$	63,500

 

At March 31, 2004, our outstanding 9.75% senior notes due 2011 totaled approximately $287.7 million, which includes $155.0 million in principal amount issued in May 2001, and add-ons of $51.4 million and $81.3 million, including unamortized premiums, issued in February 2003 and September 2003, respectively.  The add-on offerings of $50 million and $75 million in aggregate principal amount of our 9.75% senior notes were issued at prices of 103.25% and 109.0% of their face amounts to yield 9.054% and 7.642%, respectively, and together with the May 2001 offering, constitute a single series of notes.

 

11

 

The bank credit facility and senior unsecured notes contain covenants which require maintenance of certain levels of tangible net worth, compliance with certain minimum financial ratios, place limitations on the payment of dividends and redemptions of equity, and limit the incurrence of additional indebtedness, asset dispositions, mergers, certain investments and creations of liens, among other items.  As of and for the three months ended March 31, 2004, we were in compliance with these covenants.  The revolving credit facility and senior unsecured notes restrict our ability to pay dividends.

 

Obligations to pay principal and interest on the bank credit facility and senior unsecured notes are guaranteed by all of our subsidiaries, each of which is directly or indirectly 100% owned by Meritage Corporation (Guarantor Subsidiaries), other than certain minor subsidiaries (collectively, Non-Guarantor Subsidiaries).  Such guarantees are full and unconditional, and joint and several.  Separate financial statements of the Guarantor subsidiaries are not provided because Meritage Corporation (the parent company) has no independent assets or operations, the guarantees are full and unconditional and joint and several, and the Non-Guarantor Subsidiaries are, individually and in the aggregate, minor.  There are no significant restrictions on the ability of the parent company or any guarantor to obtain funds from its subsidiaries by dividend or loan.

 

NOTE 5 – ACQUISITIONS AND GOODWILL

 

Citation Homes of Southern California Acquisition.  Effective January 1, 2004, we purchased the homebuilding and related assets of Citation Homes of Southern California (“Citation”), which primarily operates in the Inland Empire region of the greater Los Angeles area.  The purchase price was approximately $24.1 million in cash, and we agreed to an earn-out of 20% of the pre-tax profits of Citation after capital charges, payable in cash over three years.  The results of Citation’s operations are included in our consolidated financial statements beginning in 2004, and are combined into our California operating segment. See Note 8 for additional information regarding our Citation acquisition.

 

Goodwill.  Goodwill represents the excess of the purchase price of our acquisitions over the fair value of the assets acquired.  The acquisition of Citation was recorded using the purchase method of accounting with the results of operations of this entity included in our consolidated financial statements as of the effective date of the acquisition.  The purchase price was allocated based on estimated fair value of the assets and liabilities at the date of the acquisition.  Intangible assets, equal to the excess purchase price over the fair value of the net assets, of $11.1 million for Citation were recorded as goodwill, which is presented on our consolidated balance sheet.  The changes in the carrying amount of goodwill for the three months ended March 31, 2004, by segment, follow (in thousands):

 

		Texas			Arizona			California			Nevada			Total
Balance at December 31, 2003		$	34,707		$	19,823		$	1,828		$	19,287		$	75,645
Goodwill acquired - Citation acquisition		—			—			11,140			—			11,140
Increase due to earn-out agreements		—			—			429			586			1,015
Balance at March 31, 2004		$	34,707		$	19,823		$	13,397		$	19,873		$	87,800

 

Under the guidelines contained in SFAS No. 142, “Goodwill and Other Intangible Assets,” in the first quarter of 2004 management performed a goodwill impairment analysis and determined that no impairment exists.

 

12

 

NOTE 6 – 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, 2004 and 2003 follows:

 

		Three Months Ended March 31,
		2004			2003
		(in thousands, except per share amounts)
Basic average number of shares outstanding		13,234			13,041
Effect of dilutive securities:
Options to acquire common stock		818			642
Diluted average shares outstanding		14,052			13,683
Antidilutive stock options not included in the calculation of diluted earnings per share		—			296
Net earnings		$	26,919		$	15,773
Basic earnings per share		$	2.03		$	1.21
Diluted earnings per share		$	1.92		$	1.15

 

NOTE 7 – INCOME TAXES

 

Components of income tax expense at March 31 are (in thousands):

 

		2004			2003
Current taxes:
Federal		$	14,861		$	8,514
State		1,922			1,319
		16,783			9,833
Deferred taxes:
Federal		(203		)	—
State		(36		)	—
		(239		)	—
Total		$	16,544		$	9,833

 

13

 

NOTE 8 – SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

The January 2004 acquisition of Citation resulted in the following changes in assets and liabilities during the first quarter of 2004:

 

Increase in real estate		$	(12,036	)
Increase in deposits on real estate under option or contract		(1,870		)
Increase in receivables and other assets		(747		)
Increase in goodwill		(11,140		)
Increase in property and equipment		(89		)
Increase in accounts payable and accrued liabilities		1,704
Increase in home sale deposits		87
Net cash paid for acquisition		$	(24,091	)

 

		2004			2003
Cash paid during the period for:
Interest		$	977		$	797
Income taxes		$	6,373		$	8,305

 

NOTE 9 – SEGMENT INFORMATION

 

We classify our operations into four primary operating segments:  Texas, Arizona, California and Nevada.  These segments generate revenue through home sales to external customers and are not dependent on any one major customer.

 

Operational information relating to our 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 expense, interest amortized to cost of sales and income taxes (EBIT).  Our management believes that EBIT reflects changes in our operating results, especially changes in our net earnings, and believe it to be an effective measure of operating performance.  In addition, our management believes that EBIT is a widely accepted financial indicator used by investors and analysts to compare and analyze homebuilding companies for similar reasons.  EBIT as presented may not be comparable to similarly titled measures reported by other companies, including homebuilding companies, because not all companies calculated EBIT in an identical manner.  EBIT is not intended to represent cash flows for the period or funds available for management’s discretionary use nor has it been presented as an alternative to operating income and it should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles.  A reconciliation of reported net earnings to EBIT follows (in thousands):

 

 

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The accounting policies of our business segments are the same as those described in Note 1.  There are no significant transactions between our primary segments.

 

		Three Months Ended March 31,
		2004			2003
		(in thousands)
Home Closing Revenue:
Texas		$	157,272		$	121,503
Arizona		97,932			67,125
California		130,870			67,303
Nevada		37,428			27,479
Total		$	423,502		$	283,410
EBIT:
Arizona		10,583			4,570
Texas		$	17,344		$	13,945
California		20,159			10,923
Nevada		7,249			3,579
Corporate		(5,190)			(3,380)
Total		$	50,145		$	29,637

 

		At March 31, 2004			At December 31, 2003
		(in thousands)
Assets:
Texas		$	353,107		$	360,461
Arizona		325,406			305,370
California		248,023			189,417
Nevada		80,005			85,229
Corporate		13,871			14,062
Total		$	1,020,412		$	954,539

 

NOTE 10 – SUBSEQUENT EVENTS

 

On April 21, 2004, we completed a private placement of $130 million in aggregate principal amount of our 7% Senior Notes due 2014.  The notes were priced at 98.236% of their face amount implying a yield of 7.25%.  We used the proceeds from the offering to pay down our senior credit facility, with the remainder invested in short-term investments.

 

In April and May 2004, we repurchased 150,000 shares of our common stock under our Stock Repurchase Program authorized by our Board of Directors in August 2002.  The average price of these purchases was $69.28 per share.

 

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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,” “forecast”, “plan” and “project” and similar expressions identify forward-looking statements, which speak only as of the date the statement was made.  All statements other than forward-looking statements are within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements may include, but are not limited to, projections of revenue, income or loss, capital expenditures and backlog; plans for future operations; financing needs or plans and liquidity; the impact of changes in interest rates; plans relating to our products or services, acquisitions, and new or planned development projects; the demand for and pricing of our homes; the expected outcome of legal proceedings against us; the growth potential of the markets we operate in; the sufficiency of our capital resources to support our growth strategy; the sufficiency of our warranty reserves; the number of new communities we plan to open in Nevada during the 2^nd and 3^rd quarters of 2004; the impact of new accounting standards (particularly FIN 46R); and our ability to continue positive operating results in light of current economic and political conditions, as well as assumptions relating to the foregoing.

 

Actual events and results may differ materially from those expressed in forward-looking statements due to a number of factors.  Risks identified 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, 2003, including those under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Factors That May Affect Our Future Results and Financial Condition” describe factors, among others, that could contribute to or cause such differences.  These factors may also affect our business generally and as a result, our stock and note prices may fluctuate dramatically.

 

Overview

 

Total home closing revenue was $423.5 million for the three months ended March 31, 2004, increasing $140.1 million, or 49.4% from $283.4 million for the same period last year.  Net earnings for the first quarter of 2004 increased $11.1 million, or $70.7%, to $26.9 million from $15.8 million in the same quarter of 2003.  These increases were driven by the combined effects of higher revenues and an improved net margin.

 

In January 2004, we completed our acquisition of Citation Homes of Southern California, which provides us entry into the Los Angeles metro area market.  More recently, in April 2004 we completed a private placement of $130 million in aggregate principal amount of our 7% senior notes due 2014. The proceeds from this offering were used to pay down our credit facility and we believe provide us with long term strategic capital at an attractive cost.

 

Critical Accounting Policies

 

We have established various accounting policies which govern the application of accounting principles generally accepted in the United States of America in the preparation and presentation of our consolidated financial statements.  Our significant policies are described in Note 1 of the consolidated financial statements in our Annual Report on Form 10-K for December 31, 2003.  Certain of these policies involve significant judgments, assumptions and estimates by management that have a material impact on the carrying value of certain assets and liabilities, and revenues and costs.  The judgments, assumptions and estimates we use and believe to be critical to our business are based on historical experience, knowledge of the accounts and other factors which we believe to be reasonable under the circumstances.  We evaluate our judgments and assumptions on an on-going basis. Because of the nature of the judgments and assumptions we have made, actual results may differ from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities, and the results of our operations.

 

The accounting policies that we deem most critical to us, and involve the most difficult, subjective or complex judgments, include our estimates of costs to complete our individual projects, the ultimate recoverability (or impairment) of these costs, goodwill impairment, the likelihood of closing lots held under

 

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option or contract, the ability to determine the fair value of consolidated real estate not owned and liabilities related to such, certain estimates and assumptions related to complying with FIN 46R, and the ability to estimate expenses and accruals, including legal and warranty reserves.  Should we under or over estimate costs to complete individual projects, gross margins in a particular period could be misstated and the ultimate recoverability of costs related to a project from home sales may be uncertain.  Furthermore, non-refundable deposits paid for land options or contracts may have no economic value to us if we do not ultimately purchase the land.  Our inability to accurately estimate expenses, accruals, or an impairment of real estate or goodwill could result in charges, or income, in future periods, which relate to activities or transactions in a preceding period.  The estimates and assumptions we make relating to our implementation of FIN 46R, if not accurate, could result in us incorrectly including, or excluding, certain contractual land acquisition arrangements as variable interest entities in, or from, respectively, our consolidated financial statements.

 

Results Of Operations

 

The following discussion and analysis of financial condition and results of operations is based our consolidated unaudited financial statements for the three months ended March 31, 2004 and 2003.  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 Closing Revenue, Sales Contracts and Net Sales Backlog

 

The data provided below presents operating and financial data regarding our homebuilding activities.

 

		Quarter Ended March 31,
		($in thousands)
Home Closing Revenue		2004			2003			% Change
Total
Dollars		$	423,502		$	283,410		49	%
Homes closed		1,569			1,136			38	%
Average sales price		$	269.9		$	249.5		8	%
Texas
Dollars		$	157,272		$	121,503		29	%
Homes closed		730			606			20	%
Average sales price		$	215.4		$	200.5		7	%
Arizona
Dollars		$	97,932		$	67,125		46	%
Homes closed		381			250			52	%
Average sales price		$	257.0		$	268.5		(4	)%
California
Dollars		$	130,870		$	67,303		94	%
Homes closed		307			158			94	%
Average sales price		$	426.3		$	426.0		0	%
Nevada
Dollars		$	37,428		$	27,479		36	%
Homes closed		151			122			24	%
Average sales price		$	247.9		$	225.2		10	%

 

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		Quarter Ended March 31,
		($in thousands)
Home Orders		2004			2003			% Change
Total
Dollars		$	591,999		$	412,864		43	%
Homes ordered		2,193			1,582			39	%
Average sales price		$	269.9		$	261.0		3	%
Texas
Dollars		$	199,857		$	161,135		24	%
Homes ordered		947			791			20	%
Average sales price		$	211.0		$	203.7		4	%
Arizona
Dollars		$	208,388		$	123,653		69	%
Homes ordered		807			447			81	%
Average sales price		258.2			$	276.6		(7	)%
California
Dollars		$	159,831		$	89,775		78	%
Homes ordered		365			180			103	%
Average sales price		$	437.9		$	498.8		(12	)%
Nevada
Dollars		$	23,923		$	38,301		(38	)%
Homes ordered		74			164			(55	)%
Average sales price		$	323.3		$	233.5		38	%
		Quarter Ended March 31,
		($in thousands)
Order Backlog		2004			2003			% Change
Total
Dollars		$	900,242		$	667,218		35	%
Homes in backlog		3,279			2,516			30	%
Average sales price		$	274.5		$	265.2		4	%
Texas
Dollars		$	284,004		$	258,531		10	%
Homes in backlog		1,336			1,270			5	%
Average sales price		$	212.6		$	203.6		4	%
Arizona
Dollars		$	348,815		$	200,683		74	%
Homes in backlog		1,258			663			90	%
Average sales price		$	277.3		$	302.7		(8	)%
California
Dollars		$	227,290		$	159,399		43	%
Homes in backlog		538			355			52	%
Average sales price		$	422.5		$	449.0		(6	)%
Nevada
Dollars		$	40,133		$	48,605		(17	)%
Homes in backlog		147			228			(36	)%
Average sales price		$	273.0		$	213.2		28	%

 

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Home Closing Revenue.  Home closing revenue in the first quarter of 2004 increased 49% over the first quarter of 2003, resulting from a 38% increase in the number of homes closed and an 8% increase in the average sales price quarter-over-quarter.  The number of closings in Texas increased 20%, as the Houston market remained strong and the Austin market continued to recover.  As we anticipated, closings in Dallas/Ft. Worth were relatively stable to last year’s first quarter.  The number of home closings was up 52% in Arizona as we benefited from the opening of several communities during the second half of 2003.  Home closings in California increased 94% overall and 58% excluding our Citation Homes acquisition which was completed in January of this year.  We benefited from a 78% increase in the number of communities in California as well as a strong housing market.  In Nevada, the number of home closings was up 24% and the average sales price of homes closed was up 10%, resulting in home closing revenue increasing 36% in Nevada over the prior year’s first quarter.

 

Home Orders.  Home orders for any period represent the aggregate sales price of all homes ordered by customers, net of cancellations.  We do not include orders contingent upon the sale of a customer’s existing home as an order until the contingency is removed.  The dollar value of home orders for the first quarter of 2004 increased 43% over the same quarter in 2003.  This increase was mostly driven by a 39% increase in the number of homes ordered, as well as a 3% increase in the average price of those homes.  In Texas, the number of orders increased 20%, primarily the result of an increase in the number of actively selling communities, to 81 from 62.  The number of homes ordered was up 81% in Arizona, as we realized the benefit of the successful introduction of new communities opened in Arizona during the second half of 2003.  The number of orders in California more than doubled during the quarter overall and increased 90% excluding the Citation Homes acquisition.  Demand was very strong in California during the first quarter of 2004.  Demand in the Nevada market was also very strong, however, the number of home orders in the first quarter of 2004 decreased 55% from the prior year’s first quarter, as we only had one actively selling community at March 31, 2004, compared to five a year earlier.  This was a result of selling out several communities earlier than anticipated and a delay in opening their replacements.  We anticipate opening six new communities in Nevada during the second and third quarters of 2004.

 

Order Backlog.  Backlog represents home orders that have not closed.  Total dollar backlog at March 31, 2004 increased 35% over March 31, 2003 due to a 30% increase in the number of homes in backlog and a 4% increase in the average sales price of those homes.  Unit backlog was up 90% in Arizona and 52% in California resulting from continued strong demand in those markets and the opening of new communities in the latter part of 2003.  In Texas, the number of homes in backlog was up a moderate 5%.  Unit backlog decreased 36% in Nevada as a result of the earlier than anticipated sellout of some communities there and the delay in opening their replacements.  We anticipate that unit backlog in Nevada will increase in the middle quarters of 2004 as we plan to open six new communities there during those quarters.

 

Other Operating Information

 

		Quarter Ended March 31,
		($in thousands)
		2004			2003
Home Closing Gross Profit
Dollars		$	83,163		$	56,354
Percent of home closing revenue		19.6		%	19.9		%
Commissions and Other Sales Costs
Dollars		$	25,833		$	19,745
Percent of home closing revenue		6.1		%	7.0		%
General and Administrative Costs
Dollars		$	16,056		$	12,212
Percent of total revenue		3.8		%	4.3		%
Income Taxes
Dollars		$	16,544		$	9,833
Percent of earnings before income taxes		38.1		%	38.4		%

 

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Home Closing Gross Profit.  Home closing gross profit represents home closing revenue less cost of home closings.  Cost of home closings include developed lot costs, direct home construction costs, an allocation of common community costs (such as model complex costs and architectural, legal and zoning costs), interest, sales tax, warranty, construction overhead and closing costs.  Home closing gross profit was 19.6% of home closing revenue in the first quarter of 2004, down slightly from 19.9% during the same quarter a year ago, but was up slightly to 20.1% before the impact of a $1.8 million purchase accounting adjustment related to our Citation Homes acquisition, which was included in our cost of home closings for the first quarter of this year.

 

Commissions and Other Sales Costs.  Commissions and other sales costs, such as advertising and sales office expenses, were 6.1% of home closing revenue in the first quarter of 2004, down from 7.0% in the first quarter of 2003.  This decrease was primarily the result of our ability to leverage our selling costs as home closings increased significantly over the prior year’s quarter.  Also, commissions and sales costs were higher than normal during the first quarter of 2003 due to higher marketing costs associated with opening new communities without closing homes in those communities during that quarter.

 

General and Administrative Costs.  General and administrative costs represent corporate and divisional overhead expenses such as salaries and bonuses, occupancy, insurance and travel expenses.  General and administrative costs as a percentage of total revenue for the first quarter of 2004 decreased to 3.8% from 4.3% in the first quarter of 2003.  This reduction was due to our ability to leverage our general and administrative costs as home closing revenue increased appreciably over the first quarter of 2003.

 

Income Taxes.  The increase in income taxes to $16.5 million for the quarter ended March 31, 2004 from $9.8 million in the prior year’s quarter resulted primarily from an increase in pre-tax income.

 

Liquidity and Capital Resources

 

Our principal uses of capital for the quarter ended March 31, 2004 were the acquisition of Citation Homes, operating expenses, land purchases, and the payment of various liabilities.  We use a combination of borrowings and funds generated by operations to meet our short-term working capital requirements.

 

Cash flows 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, 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 flows may significantly exceed earnings reported for financial statement purposes, as cost of sales includes charges for substantial amounts of previously expended costs.

 

In December 2003 we increased the committed balance of our unsecured credit facility by $150 million, raising the total commitment to $400 million.  The facility is with a consortium of banks, led by Guaranty Bank and Bank One, NA.  The revised agreement also lengthened the term of the facility by 18 months, extending the maturity date to May 2007, and expanded the number of banks participating in the facility from seven to ten.

 

At March 31, 2004, there was a balance of $93.4 million outstanding under our senior unsecured revolving credit facility and approximately $41.5 million was outstanding in letters of credit and guarantees that collateralize our obligations under various land purchase and other contracts.  After considering our most restrictive bank covenants, our borrowing availability under the bank credit facility was approximately $137 million at March 31, 2004, as determined by borrowing base limitations defined by our agreement with the lending banks.

 

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At March 31, 2004, our outstanding 9.75% senior notes due 2011 totaled approximately $287.7 million, which includes unamortized premiums of approximately $7.7 million.  Our annual debt service requirements for our 9.75% senior notes is $27.3 million.

 

In April 2004, we completed a private placement of $130 million in aggregate principal amount of 7% senior notes due 2014.  The proceeds from this offering were used to pay down completely our credit facility and we believe provide us with long term strategic capital at an attractive cost and increase the availability under our  unsecured credit facility.

 

We believe that our current borrowing capacity, cash on hand at March 31, 2004, and anticipated net cash flows from operations are and will be sufficient to meet liquidity needs for the foreseeable future.  We believe our future cash needs will include funds for the completion of projects that are underway, the maintenance of our day-to-day operations, and the acquisition or start-up of additional homebuilding operations, should the opportunities arise.  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 notes and by the terms of the credit agreement governing our senior unsecured credit facility.

 

Off-Balance Sheet Arrangements

 

Reference is made to Note 1 to the Notes to Consolidated  Financial  Statements  included  in this Form 10-Q.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

We are exposed to market risk primarily related to potential adverse changes in interest rates on our existing revolving credit facility.  The interest rate relative to this borrowing fluctuates with the prime and Eurodollar lending rates.  As of March 31, 2004, we had approximately $93.4 million drawn under our revolving credit facility that is subject to changes in interest rates.  An increase or decrease of 1% in interest rates would change our annual debt service payments by approximately $934,000 per year.  We do not enter into, or intend to enter into, derivative financial instruments for trading or speculative purposes.

 

Our fixed rate debt is made up primarily of our $280.0 million in principal of our 9.75% senior notes.  Except in limited circumstances, we do not have an obligation to prepay our fixed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair value should not have a significant impact on the fixed rate borrowings until we would be required to refinance such debt.

 

Our operations are interest rate sensitive.  As overall housing demand is adversely affected by increases in interest rates, a significant increase in mortgage interest rates may negatively affect the ability of homebuyers to secure adequate financing.  Higher interest rates could adversely affect our revenues, gross margins and net income and would also increase our variable rate borrowing costs.

 

Item 4.  Controls and Procedures

 

In order to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized and reported on a timely basis, we have developed and implemented disclosure controls and procedures.  Our management with the participation of our co-chief executive officers and chief financial officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this Form 10-Q (the “Evaluation Date”).  Based on such evaluation, these officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective in timely alerting them to material information relating to Meritage (and our consolidated subsidiaries) required to be included in our periodic SEC fillings.  During the period covered by this Form 10-Q, there have not been any changes in our internal control over financial

 

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reporting that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 2.                                   Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

 

In August 2002, our Board of Directors authorized the expenditure of up to $32 million with an increase of $26.8 million, approved in January 2004, to repurchase shares of our common stock.  No date for completing the program has been determined, but we will purchase shares subject to applicable securities laws, and at times and in amounts as management deems appropriate.  By March 31, 2004, we had repurchased 664,300 shares of our common stock under the August 2002 program at an average price of $33.61 per share.

 

We did not purchase any shares under this program in the first quarter of 2004.

 

Item 6.                                   Exhibits and Reports on Form 8-K

 

(a)  Exhibits

 

Exhibit Number		Description		Page or Method of Filing
4.1		Indenture dated April 21, 2004, by and among the Company, the Guarantors named therein and Wells Fargo Bank, N.A.		Filed herewith
10.1		Third Amendment to Credit Agreement, dated April 20, 2004, by and among the Company, Guaranty Bank, Fleet National Bank, Bank One, NA and the other lenders thereto		Filed herewith
10.2		Deferred Bonus Agreement - 2003 Award Year, between the Company and Larry W. Seay*		Filed herewith
10.3		Deferred Bonus Agreement - 2003 Award Year, between the Company and Richard T. Morgan*		Filed herewith
10.4		Amendment to Employment Agreements between the Company and Steven J. Hilton and John R. Landon*		Filed herewith
10.5		Amendment to Employment Agreement between the Company and Larry W. Seay*		Filed herewith
31.1		Rule 13a-14(a)/15(d)-14(a) Certificate of Steven J. Hilton, Co-Chief Executive Officer		Filed herewith
31.2		Rule 13a-14(a)/15(d)-14(a) Certificate of John R. Landon, Co-Chief Executive Officer		Filed herewith
31.3		Rule 13a-14(a)/15(d)-14(a) Certificate of Larry W. Seay, Co-Chief Executive Officer		Filed herewith
32.1		Section 1350 Certification of Steven J. Hilton, Co-Chairman and Co-Chief Executive Officer		Filed herewith
32.2		Section 1350 Certification of John R. Landon, Co-Chairman and Co-Chief Executive Officer		Filed herewith
32.3		Section 1350 Certification of Larry W. Seay, Chief Financial Officer		Filed herewith
99.1		Private Securities Reform Act of 1995 Safe Harbor Compliance Statement for Forward-Looking Statements		Filed herewith

 

* Indicates a management contract or compensation plan

 

Reports on Form 8-K

 

(1)          On April 7, 2004 we filed a Current Report on Form 8-K for the purpose of furnishing a press release related to the announcement of Meritage’s first quarter 2004 new orders, closings and backlog.

 

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(2)          On April 21, 2004 we filed a Current Report on Form 8-K for the purpose of furnishing a press release related to the announcement of Meritage’s first quarter 2004 earnings and other results.

 

(3)          On April 21, 2004 we filed a Current Report on Form 8-K announcing that we had completed a private placement of $130 million in aggregate principal amount of our 7% senior notes due 2014.

 

(4)          On April 23, 2004 we filed a Current Report on Form 8-K for the purpose of providing additional detail to the external audit fee information disclosed in our proxy statement for our 2004 Annual Meeting of Stockholders.

 

INDEX OF EXHIBITS

 

4.1		Indenture dated April 21, 2004, by and among the Company, the Guarantors named therein and Wells Fargo Bank, N.A.
10.1		Third Amendment to Credit Agreement, dated April 20, 2004, by and among the Company, Guaranty Bank, Fleet National Bank, Bank One, NA and the other lenders thereto
10.2		Deferred Bonus Agreement - 2003 Award Year, between the Company and Larry W. Seay*
10.3		Deferred Bonus Agreement - 2003 Award Year, between the Company and Richard T. Morgan*
10.4		Amendment to Employment Agreements between the Company and Steven J. Hilton and John R. Landon*
10.5		Amendment to Employment Agreement between the Company and Larry W. Seay*
31.1		Rule 13a-14(a)/15(d)-14(a) Certificate of Steven J. Hilton, Co-Chief Executive Officer
31.2		Rule 13a-14(a)/15(d)-14(a) Certificate of John R. Landon, Co-Chief Executive Officer
31.3		Rule 13a-14(a)/15(d)-14(a) Certificate of Larry W. Seay, Co-Chief Executive Officer
32.1		Section 1350 Certification of Steven J. Hilton, Co-Chairman and Co-Chief Executive Officer
32.2		Section 1350 Certification of John R. Landon, Co-Chairman and Co-Chief Executive Officer
32.3		Section 1350 Certification of Larry W. Seay, Chief Financial Officer
99.1		Private Securities Reform Act of 1995 Safe Harbor Compliance Statement for Forward-Looking Statements

 

* Indicates a management contract or compensation plan

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 10th day of May, 2004.

 

 

	MERITAGE CORPORATION,
	a Maryland Corporation
	By	/s/    LARRY W. SEAY
		Larry W. Seay
		Chief Financial Officer and Vice President-Finance
		(Principal Financial Officer)
	By	/s/    VICKI L. BIGGS
		Vicki L. Biggs
		Vice President-Controller (Principal Accounting Officer)

 

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