Meritage Homes Reports Fourth Quarter and Full Year 2009 Results

FOURTH QUARTER 2009 SELECTED RESULTS:

• Reported net income of $43M or $1.35 per diluted share, including $39M of pre-tax real estate-related impairments and a net tax benefit of $90M, compared to net loss of $79M or ($2.58) per diluted share in 2008, which included $110M of impairments and a $30M net tax benefit
• Expecting a $93M tax refund in early 2010 due to carry back of net operating losses
• Increased net sales orders to 621 homes, 24% over 2008, with approximately 50% higher sales per community

FULL YEAR 2009 SELECTED RESULTS:

• Reported net loss of $66M or ($2.12) per diluted share, including $129M of pre-tax real estate-related impairments and a net tax benefit of $88M, compared to net loss of $292M or ($9.95) per diluted share in 2008, which included $265M of impairment charges and a $16M net tax expense
• Increased cash by $185M during the year, ended with $391M cash and short-term investments, and no short-term debt
• Reduced net debt/capital ratio to 31% after retiring $24M debt which resulted in a $9M gain
• Contracted for more than 4,000 new lower-priced lots with a total purchase price of approximately $150M

SCOTTSDALE, Ariz., Jan. 26, 2010 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH), a leading U.S. homebuilder, today announced fourth quarter results for the period ended December 31, 2009.

FOURTH QUARTER OPERATING RESULTS

Meritage reported a net profit for the fourth quarter of 2009 of $43 million or $1.35 per diluted share, including $39 million of pre-tax real estate-related impairments and a net tax benefit of $90 million. The net tax benefit recorded in the fourth quarter of 2009 was the result of tax legislation enacted in November 2009 that allowed net operating losses to be carried back up to five years to offset prior years' taxable income. As a result of carrying back 2009 losses to offset taxes paid previously, Meritage expects to collect a $93 million tax refund in early 2010. The Company reported a net loss of $79 million or ($2.58) per diluted share in the fourth quarter of 2008, which included $110 million of pre-tax charges due to real estate-related and other impairments and a $30 million net tax benefit.

"We sold several non-strategic properties near the end of 2009 that were not needed to execute our current business plan, with the added benefit of harvesting substantial tax benefits from previous impairments incurred on those properties," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "Assuming a stable to improving homebuilding environment in 2010, we believe that our risk of any further significant impairments is minimal."

Fourth quarter home closing revenue declined 28% year over year, as the Company had 14% fewer active communities in 2009 and 19% fewer homes closed, coupled with a 10% lower average closing price of approximately $233,000 in the fourth quarter of 2009, compared to approximately $260,000 in the fourth quarter of 2008. The lower average closing price reflects a higher percentage of closings from homes in lower-priced communities such as Meritage's new Simply Smart™ series of more affordable homes, as well as general price declines from the previous year.

Meritage generated total closing gross profit on homes and land of $3 million in the fourth quarter 2009 compared to a $48 million loss on closings in 2008. Home closing gross profit was reduced by $25 million due to impairments. It was also reduced by a $3 million charge to increase the accrual for estimated warranty expenses related to remediation of allegedly defective Chinese drywall in Ft. Myers, Florida, bringing the total reserve to $6 million, which management believes should fully reserve for the affected homes. Excluding impairments, gross margins on home closings climbed to 14.9% in the fourth quarter 2009, or 16.0% before the Chinese drywall charge, compared to 14.3% in the prior year's fourth quarter. In addition, impairments on land sold or held for sale totaled $14 million in the fourth quarter 2009 as compared to $23 million in 2008, substantially all of which related to land sales.

"Our gross margins continued to improve due to our success in reducing construction costs, combined with lower incentives and greater closing volume in our newer communities, where we are building more cost-efficient homes on lower-cost lots," said Mr. Hilton. "We are excited about our new series of Simply Smart™ homes, which we announced last week, designed especially for renters and first time or first move-up buyers. As we close out older communities and ramp up sales in our new communities built on the lower-cost lots we've acquired, we expect to return to more normal margins and profitability."

Fourth quarter 2009 general and administrative expenses of $21 million include $9 million related to legal accruals for ongoing litigation, discretionary performance awards and lease abandonments, which make comparability to prior quarters difficult. Including these items, total G&A increased to 7.4% of total revenue in 2009 compared to 3.9% in 2008. Excluding these items, general and administrative expenses were 4.2% of fourth quarter 2009 total revenue. Commissions and other sales costs decreased 35% year over year and declined as a percentage of total revenue to 8.1% from 8.9% in 2008. The reduction was due to savings in marketing and advertising costs after centralization of these functions, and lower model operating costs resulting from smaller model complexes.

FULL YEAR OPERATING RESULTS

Meritage reported a net loss for the full year of 2009 of $66 million or ($2.12) per share. In addition to the special charges noted for the fourth quarter, the net loss included $129 million in pre-tax real estate-related impairment charges, $3 million write-off of capitalized fees related to the reduction and ultimate termination of the Company's credit facility, a $9 million gain on extinguishment of debt, and a net tax benefit of $88 million. By comparison, the 2008 net loss of $292 million or ($9.95) per diluted share included $265 million of pre-tax impairment charges, $10 million benefit from a successful legal settlement, and a $16 million net tax expense which includes a $106 million deferred tax asset valuation allowance.

SALES

Fourth quarter 2009 net orders increased by 24% year-over-year to 621 sales, compared to 500 in 2008, primarily due to gains of 50% in Texas and 19% in California. In addition to continued low mortgage rates and historically high affordability, the gains reflect an improvement in Meritage's fourth quarter company-wide order cancellation rate to 30% in 2009 from 56% in 2008. Sales were lower than the third quarter due to normal seasonality and the last-minute extension of a federal home buyer tax credit originally scheduled to terminate on November 30, which is widely thought to have reduced the sense of urgency for buyers to purchase a home in the latter portion of the quarter.

"With November's extension and expansion of the home buyer tax credit for contracts signed before April 30, 2010, we are optimistic that this incentive will benefit our 2010 spring selling season by encouraging more people to buy a new home before the extended tax credit expires," said Mr. Hilton.

With 14% fewer active communities at December 31, 2009, the average sales per community increased by approximately 50% to 3.9 in the fourth quarter of 2009 from 2.6 in the same period last year. Management expects the Company's sales pace to continue to increase as more new communities are opened to replace those communities closing out, and as its markets continue to stabilize and begin to improve.

Meritage's backlog of orders was 15% lower in number and value at the end of the fourth quarter of 2009 compared to 2008, due to accelerated closings driven by the original November 30 expiration of the home buyers' tax credit, as well as the Company's success in reducing cycle times, which has caused backlog to close more quickly.

BALANCE SHEET

Meritage generated $184 million positive cash flow from operations for the full year 2009, after using $182 million of cash to purchase approximately 4,700 lots during the year. The Company ended the year with $391 million in cash and cash equivalents, restricted cash and short-term investments, an increase of $185 million over the year-end 2008 total. After retiring $24 million of debt in exchange for equity during 2009, the Company's net debt to total capital ratio was 31% at December 31, 2009, compared to 45% at December 31, 2008. Meritage also terminated its unused credit facility in 2009.

"We continued to acquire new communities where we believe we can earn near-normal margins and generate attractive returns with the least risk from foreclosures, rising inventories or falling prices," said Mr. Hilton. "We contracted for more than 1,000 additional lots in the fourth quarter, bringing our total lots put under contract during 2009 to more than 4,000, for a total purchase price of approximately $150 million. Based on our market research, we believe we have acquired lots at very attractive prices that should help us return to profitability in 2010."

At December 31, 2009, Meritage's total 12,906 lots under control represented about 3.2 years lot supply based on trailing twelve months closings, with approximately 77% of total lots owned. By comparison, the Company controlled 15,802 lots at December 31, 2008, with 55% of total lots owned.

In addition to the $93 million tax refund which we're expecting to receive in early 2010, Meritage has total cumulative deferred tax assets of $93 million ($68 million federal and $25 million state) or $2.91 per share as of December 31, 2009, which have been fully reserved and therefore not shown on the balance sheet, but are available to offset future income taxes.

SUMMARY

"We undertook a number of strategic initiatives last year to enhance virtually every area of the company, and I'm very pleased with our progress," said Mr. Hilton. "Based on what we've already accomplished and our on-going plans, I believe we have not only positioned the Company for a return to profitability in 2010, but have also permanently improved our competitiveness. We have significantly reduced our construction costs and overhead, and expect to realize further gains through a managed process of continuous improvement in our operations. We have built a robust market research function that we believe gives us a strategic advantage in underwriting lot acquisitions and pricing our homes, through a better understanding of the competitive landscape for both resale and new homes, as well as home buyer trends in our markets. We have introduced our Simply Smart series of new home designs targeting the first time and first move-up market, competing successfully with both new and existing homes, and offering Meritage quality at very affordable prices. We have expanded our green building initiative to become the first public homebuilder to meet Energy Star qualifications in every home we start in 2010. And most recently, we have rolled out our 99-day guaranteed delivery program in selected communities, offering "Your home. Your way. In 99 days – guaranteed," allowing home buyers to enjoy all the benefits of purchasing a new built-to-order home over a used one, without the long construction period previously associated with building a new home."

 "I have never been more confident in our people and our abilities than I am today, and I believe our future is bright," said Mr. Hilton. "While we face a number of uncertainties, including the sustainability of an economic recovery, high unemployment, the risk of inflation, and potential fiscal and public policy actions by our government, we have also seen many signs of stabilization and even improvement in certain of our markets that make me optimistic. I believe the potential for positive outcomes significantly outweighs the negatives at this point, and I eagerly anticipate the further successes we plan to achieve in 2010."

CONFERENCE CALL

Management will host a conference call to discuss these results on January 27, 2010 at 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time.) The call will be webcast by Business-to-Investor, Inc. (B2i), with an accompanying slideshow on the "Investor Relations" page of the Company's web site at http://investors.meritagehomes.com. For telephone participants, the dial-in number is 877-485-3104 with a passcode of "Meritage". Participants are encouraged to dial in five minutes before the call begins. A replay of the call will be available after 11:30 p.m. ET, through February 28, 2010 on the website noted above, or by dialing 877-660-6853, and referencing passcode 341594.

About Meritage Homes Corporation

The year 2010 marks the 25th Anniversary of Meritage Homes Corporation, the 9th largest homebuilder in the U.S. based on homes closed. Meritage offers a variety of homes across the Southern and Western states designed to appeal to a wide range of home buyers, including first-time, move-up, luxury and active adult buyers, with base prices starting from under $100,000. As of December 31, 2009, the Company had 153 actively selling communities in 12 metropolitan areas including Houston, Dallas/Ft. Worth, Austin, San Antonio, Phoenix/Scottsdale, Tucson, Las Vegas, Denver, Orlando, and the East Bay/Central Valley and Inland Empire of California. Meritage Homes and its predecessor companies have delivered more than 65,000 homes since the Company was founded in 1985.

Meritage Homes is listed on the NYSE under the symbol MTH.

For more information about the Company, visit http://investors.meritagehomes.com

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This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include: Meritage's expectations of returning to profitability in 2010; that the pace of sales per community and margins will improve as new communities are opened, and as markets stabilize and improve; expected tax refunds in 2010; risk of future impairments; the anticipated impact on 2010 sales of the home buyer tax credit program; perceptions about the value of land acquisitions in 2009; statements about Meritage's future competitive position and the benefits anticipated from the Company's continuous improvement process and market research function; and intentions to acquire additional communities through the balance of 2010. Such statements are based upon the current beliefs and expectations of Company management and current market conditions, which are subject to significant risks and uncertainties as set forth in our Form 10-K for the year ended December 31, 2008 under the caption "Risk Factors," and updated in our subsequent Quarterly Reports on Form 10-Q. As a result of these and other factors, actual results may differ from those set forth in the forward-looking statements and the Company's stock and note prices may fluctuate dramatically. The Company makes no commitment, and disclaims any duty, to update or revise any forward-looking statements to reflect future events or changes in these expectations.