Meritage Homes CORP - Quarter Report: 2011 September (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

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

Commission File Number 1-9977

MERITAGE HOMES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Maryland (State or Other Jurisdiction of Incorporation or Organization)		86-0611231 (I.R.S. Employer Identification No.)
17851 North 85th Street, Suite 300 Scottsdale, Arizona (Address of Principal Executive Offices)		85255 (Zip Code)

(480) 515-8100
(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 þ No o

Indicate by a checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by a checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Common shares outstanding as of October 31, 2011: 32,433,571

 

 

MERITAGE HOMES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2011

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Unaudited Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010			3
Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010			4
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010			5
Notes to Unaudited Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk			40
Item 4. Controls and Procedures			40
PART II. OTHER INFORMATION			41
Item 1. Legal Proceedings			41
Item 1A. Risk Factors			43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 3. Not Applicable
Item 4. Removed and Reserved
Item 5. Not Applicable
Item 6. Exhibits			44
SIGNATURES			45
INDEX OF EXHIBITS			45
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1.		Financial Statements

MERITAGE HOMES CORPORATION AND SUBSIDIARIES

		September 30,				December 31,
		2011				2010
Assets:
Cash and cash equivalents		$	157,104			$	103,953
Investments and securities			188,996				299,345
Restricted cash			11,109				9,344
Other receivables			19,617				20,835
Real estate			798,057				738,928
Real estate not owned			1,398				866
Deposits on real estate under option or contract			13,318				10,359
Investments in unconsolidated entities			10,783				10,987
Property and equipment, net			14,750				14,602
Intangibles, net			1,516				2,143
Prepaid expenses and other assets			16,895				13,576
Total assets		$	1,233,543			$	1,224,938
Liabilities:
Accounts payable		$	38,903			$	23,589
Accrued liabilities			79,348				87,811
Home sale deposits			10,033				6,897
Liabilities related to real estate not owned			1,298				866
Senior and senior subordinated notes			606,252				605,780
Total liabilities			735,834				724,943
Stockholders’ Equity:
Preferred stock, par value $0.01. Authorized 10,000,000 shares; none issued and outstanding at September 30, 2011 and December 31, 2010			0				0
Common stock, par value $0.01. Authorized 125,000,000 shares; issued 40,316,487 and 40,030,136 shares at September 30, 2011 and December 31, 2010, respectively			403				400
Additional paid-in capital			475,863				468,820
Retained earnings			210,216				219,548
Treasury stock at cost, 7,891,250 shares at September 30, 2011 and December 31, 2010			(188,773	)			(188,773	)
Total stockholders’ equity			497,709				499,995
Total liabilities and stockholders’ equity		$	1,233,543			$	1,224,938

See accompanying notes to consolidated financial statements

MERITAGE HOMES CORPORATION AND SUBSIDIARIES

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Home closing revenue		$	217,534			$	233,803			$	615,154			$	725,790
Land closing revenue			0				0				100				1,222
Total closing revenue			217,534				233,803				615,254				727,012
Cost of home closings			(178,544	)			(190,562	)			(504,943	)			(590,809	)
Cost of land closings			0				0				(91	)			(964	)
Real estate impairments			(920	)			(680	)			(2,174	)			(1,526	)
Land impairment			(127	)			0				(127	)			0
Total cost of closings and impairments			(179,591	)			(191,242	)			(507,335	)			(593,299	)
Home closing gross profit			38,070				42,561				108,037				133,455
Land closing gross (loss)/profit			(127	)			0				(118	)			258
Total closing gross profit			37,943				42,561				107,919				133,713
Commissions and other sales costs			(19,708	)			(19,624	)			(53,876	)			(58,452	)
General and administrative expenses			(16,466	)			(15,678	)			(46,582	)			(47,100	)
Earnings from unconsolidated entities, net			1,797				1,243				3,931				3,832
Interest expense			(7,517	)			(8,425	)			(23,036	)			(25,273	)
Other income, net			876				654				2,872				4,637
Loss on extinguishment of debt			0				0				0				(3,454	)
(Loss)/income before income taxes			(3,075	)			731				(8,772	)			7,903
(Provision for)/benefit from income taxes			(160	)			488				(560	)			142
Net (loss)/income		$	(3,235	)		$	1,219			$	(9,332	)		$	8,045
(Loss)/income per common share:
Basic		$	(0.10	)		$	0.04			$	(0.29	)		$	0.25
Diluted			(0.10	)			0.04				(0.29	)			0.25
Weighted average number of shares:
Basic			32,417				32,095				32,358				32,038
Diluted			32,417				32,297				32,358				32,277

See accompanying notes to consolidated financial statements

MERITAGE HOMES CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Nine Months Ended
		September 30,
		2011				2010
Cash flows from operating activities:
Net (loss)/income		$	(9,332	)		$	8,045
Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities:
Depreciation and amortization			5,267				6,139
Real-estate-related impairments			2,301				1,526
Stock-based compensation			5,215				4,062
Loss on early extinguishment of debt, net of transaction costs			0				3,454
Equity in earnings from unconsolidated entities			(3,931	)			(3,832	)
Distributions of earnings from unconsolidated entities			4,609				5,236
Other operating expenses			371				(266	)
Changes in assets and liabilities:
Increase in real estate			(60,785	)			(70,883	)
Increase in deposits on real estate under option or contract			(3,061	)			(1,038	)
(Increase)/decrease in receivables and prepaid expenses and other assets			(1,797	)			96,638
Increase/(decrease) in accounts payable and accrued liabilities			6,794				(9,256	)
Increase/(decrease) in home sale deposits			3,136				(1,662	)
Net cash (used in)/provided by operating activities			(51,213	)			38,163
Cash flows from investing activities:
Investments in unconsolidated entities			(427	)			(546	)
Distributions of capital from unconsolidated entities			10				152
Purchases of property and equipment			(5,429	)			(5,039	)
Proceeds from sales of property and equipment			40				65
Maturities of investments and securities			324,000				100,220
Payments to purchase investments and securities			(213,896	)			(240,716	)
(Increase)/decrease in restricted cash			(1,765	)			7,400
Net cash provided by/(used in) investing activities			102,533				(138,464	)
Cash flows from financing activities:
Repayments of senior notes			0				(197,543	)
Proceeds from issuance of senior notes			0				195,134
Debt issuance costs			0				(3,067	)
Proceeds from stock option exercises			1,831				1,770
Net cash provided by/(used in) financing activities			1,831				(3,706	)
Net increase/(decrease) in cash and cash equivalents			53,151				(104,007	)
Cash and cash equivalents at beginning of period			103,953				249,331
Cash and cash equivalents at end of period		$	157,104			$	145,324

See supplemental disclosures of cash flow information at Note 9.

See accompanying notes to consolidated financial statements

MERITAGE HOMES CORPORATION AND SUBSIDIARIES

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

Organization. Meritage Homes is a leading designer and builder of single-family detached and attached homes in the historically high-growth regions of the western and southern United States based on the number of home closings. We offer first-time, move-up, active adult and luxury homes to our targeted customer base. We have operations in three regions: West, Central and East, which are comprised of seven states: Arizona, Texas, California, Nevada, Colorado, Florida and North Carolina. In April 2011, we announced our entry into Raleigh-Durham, North Carolina, and we began our sales operations there in the fourth quarter of 2011. Through our predecessors, we commenced our homebuilding operations in 1985. Meritage Homes Corporation was incorporated in 1988 in the State of Maryland.

Our homebuilding and marketing activities are conducted under the name of Meritage Homes in each of our markets, although we also operate under the name of Monterey Homes in Arizona and Texas. At September 30, 2011, we were actively selling homes in 149 communities, with base prices ranging from approximately $103,000 to $663,000.

Basis of Presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2010. The consolidated financial statements include the accounts of Meritage Homes Corporation and those of our consolidated subsidiaries, partnerships and other entities in which we have a controlling financial interest, and of variable interest entities (see Note 3) in which we are deemed the primary beneficiary (collectively, “us”, “we”, “our” and “the Company”). Intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying financial statements include all adjustments necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year.

Restricted Cash. Restricted cash consists of amounts held in restricted accounts as collateral for our letter of credit arrangements. The aggregate capacity of these secured letters of credit is approximately $40 million. Our restricted cash accounts invest in money market accounts and United States Government securities, totaling $11.1 million and $9.3 million at September 30, 2011 and December 31, 2010, respectively.

Investments and Securities. Our investments and securities are comprised of both treasury securities and deposits with banks that are FDIC-insured and secured by treasury-backed investments. All of our investments are classified as held-to-maturity and are recorded at amortized cost as we have both the ability and intent to hold them until their respective maturities. The contractual lives of these investments are greater than 3 months. The amortized cost of the investments approximates fair value.

Real Estate. Real estate is stated at cost unless the asset is determined to be impaired, at which point the inventory is written down to fair value as required by Accounting Standards Codification (“ASC”) Subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). Inventory includes the costs of land acquisition, land development, home construction, capitalized interest, real estate taxes, direct overhead costs incurred during development and home construction that benefit the entire community and impairments, if any. Land and development costs are typically allocated and transferred to homes under construction when construction begins. Home construction costs are accumulated on a per-home basis. Cost of home closings includes the specific construction costs of the home and all related land acquisition, land development and other common costs (both incurred and estimated to be incurred) that are allocated based upon the total number of homes expected to be closed in each community or phase. Any changes to the estimated total development costs of a community or phase are allocated to the remaining homes in the community or phase. When a home closes, we may have incurred costs for goods and services that have not yet been paid. Therefore, an accrual to capture such obligations is recorded in connection with the home closing and charged directly to cost of sales.

Typically, a community’s life cycle ranges from two to five years, commencing with the acquisition of the land continuing through the land development phase and concluding with the sale, construction and closing of the homes. Actual community lives will vary based on the size of the community, the sales absorption rate and whether the land purchased was raw or finished lots. Master-planned communities encompassing several phases and super-block land parcels may have significantly longer lives and projects involving smaller finished lot purchases may be significantly shorter.

All of our land inventory and related real estate assets are reviewed for recoverability quarterly, as our inventory is considered “long-lived” in accordance with GAAP. Impairment charges are recorded to write down an asset to its estimated fair value if the undiscounted cash flows expected to be generated by the asset are lower than its carrying amount. Our determination of fair value is based on projections and estimates. Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions. Our analysis is completed on a quarterly basis with each community or land parcel evaluated individually. For those assets deemed to be impaired, the impairment recognized is measured as the amount by which the assets’ carrying amount exceeds their fair value. The impairment of a community is allocated to each lot on a straight-line basis.

Existing and continuing communities. When projections for the remaining income expected to be earned from existing communities are no longer positive, the underlying real estate assets are deemed not fully recoverable, and further analysis is performed to determine the required impairment. The fair value of the community’s assets is determined using either a discounted cash flow model for projects we intend to build out or a market-based approach for projects to be sold. Impairments are charged to cost of home closings in the period during which it is determined that the fair value is less than the assets’ carrying amount. If a market-based approach is used, we determine fair value based on recent comparable purchase and sale activity in the local market, adjusted for known variances as determined by our knowledge of the region and general real estate expertise. If a discounted cash flow approach is used, we compute our fair value based on a proprietary model. Our key estimates in deriving fair value under our cash flow model are (i) home selling prices in the community adjusted for current and expected sales discounts and incentives, (ii) costs related to the community — both land development and home construction — including costs spent to date and budgeted remaining costs to spend, (iii) projected sales absorption rates, reflecting any product mix change strategies implemented to stimulate the sales pace and expected cancellation rates, (iv) alternative land uses including disposition of all or a portion of the land owned and (v) our discount rate, which is currently 14-16% and varies based on the perceived risk inherent in the community’s other cash flow assumptions. These assumptions vary widely across different communities and geographies and are largely dependent on local market conditions. Community-level factors that may impact our key estimates include:

•

The presence and significance of local competitors, including their offered product type, comparable lot size, and competitive actions;

•

Economic and related demographic conditions for the population of the surrounding community;

•

Desirability of the particular community, including unique amenities or other favorable or unfavorable attributes; and

•

Existing home inventory supplies, including foreclosures and short sales.

These local circumstances may significantly impact our assumptions and the resulting computation of fair value and are, therefore, closely evaluated by our division personnel in their creation of the discounted cash flow models. The models are also evaluated by regional and corporate personnel for consistency and integration, as decisions that affect pricing or absorption at one community may have resulting consequences for neighboring communities. We typically do not project market improvements in our discounted cash flow models, but may do so in limited circumstances in the latter years of a long-lived community. In certain cases, we may elect to stop development and/or marketing of an existing community (mothball) if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow market conditions to improve. The decision may be based on financial and/or operational metrics. If we decide to mothball a project, we will impair it to its fair value as discussed above and then cease future development and/or marketing activity until such a time when management believes that market conditions have improved and economic performance is maximized. Quarterly, we review all communities, including mothballed communities, for potential impairments.

Option deposits and pre-acquisition costs. We also evaluate assets associated with future communities for impairments on a quarterly basis. Using similar techniques described in the Existing and continuing communities section above, we determine if the contribution margins to be generated by our future communities are acceptable to us. If the projections indicate that a community is still meeting our internal investment guidelines and is generating a profit, those assets are determined to be fully recoverable and no impairments are required. In cases where we decide to abandon a project, we will fully impair all assets related to such project and will expense and accrue any additional costs that we are contractually obligated to incur. In certain circumstances, we may elect to continue with a project because it is expected to generate positive cash flows, even though it may not be generating an accounting profit, or due to other strategic factors. In such cases, we will impair our pre-acquisition costs and deposits, as necessary, and record an impairment to bring the carrying value to fair value. Refer to Note 2 of these consolidated financial statements for further information regarding our impairments.

Deposits. Deposits paid related to land options and contracts to purchase land are capitalized when incurred and classified as Deposits on real estate under option or contract until the related land is purchased. Deposits are reclassified to a component of real estate at the time the deposit is used to offset the acquisition price of the lots based on the terms of the underlying agreements. To the extent they are non-refundable, deposits are charged to expense if the land acquisition is terminated or no longer considered probable. As our exposure associated with these non-refundable deposits is usually limited to the deposit amount, since the acquisition contracts typically do not require specific performance, we do not consider the options a contractual obligation to purchase the land. The review of the likelihood of the acquisition of contracted lots is completed quarterly in conjunction with the real estate impairment analysis noted above and therefore, if impaired, the deposits are recorded at the lower of cost or fair value. Our deposits were $13.3 million and $10.4 million as of September 30, 2011 and December 31, 2010, respectively.

Off-Balance-Sheet Arrangements — Joint Ventures. Historically, we have participated in land development joint ventures as a means of accessing larger parcels of land and lot positions, expanding our market opportunities, managing our risk profile and leveraging our capital base; however, in recent years, such ventures have not been a significant avenue for us to access lots. We currently have only two such active ventures. We also participate in six mortgage and title business joint ventures. The mortgage joint ventures are engaged in, or invest in mortgage companies that engage in, mortgage brokerage activities, and they originate and provide services to both our customers and other homebuyers.

In connection with our land development joint ventures, we may also provide certain types of guarantees to associated lenders and municipalities. These guarantees can be classified into two categories: (i) Repayment Guarantees and (ii) Completion Guarantees, described in more detail below (in thousands). Additionally, we have classified a guarantee related to our minority ownership in the South Edge joint venture separately, as the venture’s lender group has presented us with a demand letter for such guarantee.

		At September 30, 2011				At December 31, 2010
Repayment guarantees		$	410			$	733
Completion guarantees (1)			0				0
South Edge guarantee (2)			13,243				11,758
Total guarantees		$	13,653			$	12,491

Repayment Guarantees. We and/or our land development joint venture partners occasionally provide limited repayment guarantees on a pro rata basis on the debt of land development joint ventures. If such a guarantee were ever to be called or triggered, the maximum exposure to Meritage would generally be only our pro-rata share of the amount of debt outstanding that was in excess of the fair value of the underlying land securing the debt. Our share of these limited pro rata repayment guarantees as of September 30, 2011 and December 31, 2010 is presented in the table above. See Note 11 of these consolidated financial statements for further information regarding our repayment guarantees.

Completion Guarantees. If there is development work to be completed, we and our joint venture partners are also typically obligated to the project lender(s) to complete construction of the land development improvements if the joint venture does not perform the required development. Provided we and the other joint venture partners are in compliance with these completion obligations, the project lenders are generally obligated to fund these improvements through any financing commitments available under the applicable joint venture development and construction loans. In addition, we and our joint venture partners have from time to time provided unsecured indemnities to joint venture project lenders. These indemnities generally obligate us to reimburse the project lenders only for claims and losses related to matters for which such lenders are held responsible and our exposure under these indemnities is limited to specific matters such as environmental claims. A part of our project acquisition due diligence process is to determine potential environmental risks, we generally obtain, or the joint venture entity generally obtains, an independent environmental review. We had no such guarantees as of September 30, 2011 or December 31, 2010.

Surety Bonds. We and our joint venture partners also indemnify third party surety providers with respect to performance bonds issued on behalf of certain of our joint ventures. If a joint venture does not perform its obligations, the surety bond could be called. If these surety bonds are called and the joint venture fails to reimburse the surety, we and our joint venture partners would be obligated to make such payments. These surety indemnity arrangements are generally joint and several obligations with our joint venture partners. Although a majority of the required work may have been performed, these bonds are typically not released until all development specifications have been met. None of these bonds have been called to date and we believe it is unlikely that any of these bonds will be called or if called, that any such amounts would be material to us. See the table below for detail of our surety bonds.

The joint venture obligations, guarantees and indemnities discussed above are generally provided by us or one or more of our subsidiaries. In joint ventures involving other homebuilders or developers, support for these obligations is generally provided by the parent companies of the joint venture partners. In connection with our periodic real estate impairment reviews, we may accrue for any such commitments where we believe our obligation to pay is probable and can be reasonably estimated. In such situations, our accrual would represent the portion of the total joint venture obligation related to our relative ownership percentage. We continue to monitor these matters and reserve for these obligations if and when they become probable and can be reasonably estimated. Except as noted below and in Note 11 to these consolidated financial statements, as of September 30, 2011 and December 31, 2010, we did not have any such reserves.

See Note 11 regarding outstanding litigation for one of our joint ventures and corresponding reserves.

Off-Balance-Sheet Arrangements — Other. We often acquire lots from various development entities pursuant to option and purchase agreements. The purchase price typically approximates the market price at the date the contract is executed (with possible future escalators).

We provide letters of credit and performance, maintenance and other bonds in support of our related obligations with respect to option deposits and the development of our projects and other corporate purposes. Letters of credit to guarantee our performance of certain development and construction activities are generally posted in lieu of cash deposits on our option contracts. The amount of these obligations outstanding at any time varies depending on the stage and level of our development activities. In the event a letter of credit or bond is drawn upon, we would be obligated to reimburse the issuer. We believe it is unlikely that any significant amounts of these letters of credit or bonds will be drawn upon. The table below outlines our letter of credit and surety bond obligations (in thousands):

		September 30, 2011								December 31, 2010
						Estimated work								Estimated work
						remaining to								remaining to
		Outstanding				complete				Outstanding				complete
Sureties:
Sureties related to joint ventures		$	1,594			$	32			$	1,594			$	32
Sureties related to owned projects and lots under contract			57,334				32,715				57,399				26,968
Total sureties		$	58,928			$	32,747			$	58,993			$	27,000
Letters of Credit (“LOCs”):
LOCs for land development			4,587				N/A				2,488				N/A
LOCs for general corporate operations			6,460				N/A				6,460				N/A
Total LOCs		$	11,047				N/A			$	8,948				N/A

Accrued Liabilities. Accrued liabilities consist of the following (in thousands):

		At				At
		September 30, 2011				December 31, 2010
Accruals related to real estate development and construction activities		$	11,038			$	10,689
Payroll and other benefits			11,176				12,146
Accrued taxes			3,296				2,820
Warranty reserves			26,075				29,265
Other accruals			27,763				32,891
Total		$	79,348			$	87,811

Warranty Reserves. We provide home purchasers with limited warranties against certain building defects and have certain obligations related to those post-construction warranties for closed homes. With the assistance of an actuary, we have estimated these reserves based on the number of home closings and historical data and trends for our communities. We also use industry averages with respect to similar product types and geographic areas in markets where our experience is not robust enough to facilitate a meaningful conclusion. We regularly review our warranty reserves and adjust them, as necessary, to reflect changes in trends as information becomes available. A summary of changes in our warranty reserves follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Balance, beginning of period		$	25,929			$	31,197			$	29,265			$	33,541
Additions to reserve from new home deliveries			1,825				1,742				4,673				5,434
Warranty claims			(2,474	)			(2,758	)			(8,269	)			(8,717	)
Adjustments to pre-existing reserves			795				(269	)			406				(346	)
Balance, end of period		$	26,075			$	29,912			$	26,075				29,912

Warranty reserves are included in accrued liabilities on the accompanying consolidated balance sheets, and additions and adjustments to the reserves are included in cost of home closings within the accompanying consolidated statements of operations. These reserves are intended to cover costs associated with our contractual and statutory warranty obligations, which include, among other items, claims involving defective workmanship and materials. We believe that our total reserves, coupled with our contractual relationships and rights with our trades and the general liability insurance we maintain, are sufficient to cover our general warranty obligations. However, as unanticipated changes in legal, weather, environmental or other conditions could have an impact on our actual warranty costs, future costs could differ significantly from our estimates.

During the first quarter of 2009, we became aware that a limited number of the homes we constructed were exhibiting symptoms typical of defective Chinese drywall. Defective Chinese drywall is an industry-wide issue that has affected many homebuilders. As of September 30, 2011, we have confirmed that approximately 100 homes we built in 2005 and 2006 were constructed using defective Chinese drywall installed by subcontractors. Of those homes, approximately 90 are located in Florida and the remaining homes are located in the Houston, Texas area. We are continuing to conduct investigations to determine if other Texas and/or Florida homes are impacted, although it currently appears at this time that additional exposure is limited. As of September 30, 2011, we have completed the repair of approximately 80 homes and are in the process of repairing approximately 4 additional homes. We are continuing to seek the necessary authorizations to repair the remaining homes. The warranty reserves we have recorded as of September 30, 2011 include reserves that we believe are sufficient to complete our repair of the remaining affected homes and the resulting damage related to defective Chinese drywall. If our continuing investigations reveal other homes containing defective Chinese drywall, it may be necessary to increase our warranty reserves. We have received reimbursement for a good portion of the costs we have incurred or expect to incur related to defective Chinese drywall from a manufacturer and supplier of the defective drywall and from our general liability insurance carrier, and we continue to seek reimbursement of the remainder of such costs as well as the costs we expect to incur in the future related to defective Chinese drywall.

Recently Issued Accounting Pronouncements. In May 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-04, which amended ASC 820, Fair Value Measurements (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the disclosure requirements. ASU 2011-04 will be effective for us beginning January 1, 2012. The adoption of ASU 2011-04 is not expected to have a material effect on our consolidated financial statements or disclosures.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. ASU 2011-05 will be effective for us beginning January 1, 2012. The adoption of ASU 2011-05 is not expected to have a material effect on our consolidated financial statements or disclosures.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”), which amends the guidance in ASC 350-20, Intangibles — Goodwill and Other — Goodwill. ASU 2011-08 provides entities with the option of performing a qualitative assessment before calculating the fair value of the reporting unit when testing goodwill for impairment. If the fair value of the reporting unit is determined, based on qualitative factors, to be more likely than not less than the carrying amount of the reporting unit, the entities are required to perform a two-step goodwill impairment test. ASU 2011-08 will be effective for us beginning January 1, 2012. The adoption of ASU 2011-08 is not expected to have a material effect on our consolidated financial statements or disclosures.

NOTE 2 — REAL ESTATE AND CAPITALIZED INTEREST

Real estate consists of the following (in thousands):

		At				At
		September 30, 2011				December 31, 2010
Homes under contract under construction (1)		$	123,347			$	96,844
Unsold homes, completed and under construction (1)			85,346				86,869
Model homes (1)			46,472				36,966
Finished home sites and home sites under development			473,807				454,718
Land held for development or sale (2)			69,085				63,531
		$	798,057			$	738,928

As previously noted, in accordance with ASC 360-10, each of our land inventory and related real estate assets is reviewed for recoverability when impairment indicators are present as our inventory is considered “long-lived” in accordance with GAAP. Due to the current economic environment, we evaluate all of our real estate assets for impairment on a quarterly basis. ASC 360-10 requires impairment charges to be recorded if the fair value of such assets is less than their carrying amounts. Our determination of fair value is based on projections and estimates. We also evaluate alternative product offerings in communities where impairment indicators are present and other strategies for the land exist, such as selling or holding the land for sale. Based on these reviews of all our communities, we recorded the following real-estate and joint-venture impairment charges during the three- and nine-month periods ended September 30, 2011 and 2010 (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Terminated option/purchase contracts and related pre-acquisition costs:
West		$	0			$	0			$	0			$	0
Central			98				0				100				0
East			0				0				0				0
Total		$	98			$	0			$	100			$	0
Real estate inventory impairments (1):
West		$	295			$	38			$	552			$	131
Central			468				597				1,235				1,350
East			59				45				287				45
Total		$	822			$	680			$	2,074			$	1,526
Impairments of joint venture investments:
West		$	0			$	112			$	0			$	112
Central			0				0				0				0
East			0				0				0				0
Total		$	0			$	112			$	0			$	112
Impairments of land held for sale:
West		$	0			$	0			$	0			$	0
Central			127				0				127				0
East			0				0				0				0
Total		$	127			$	0			$	127			$	0
Total impairments:
West		$	295			$	150			$	552			$	243
Central			693				597				1,462				1,350
East			59				45				287				45
Total		$	1,047			$	792			$	2,301			$	1,638

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Individual home impairments (in thousands):
West		$	166			$	38			$	423			$	131
Central			239				597				695				1,300
East			59				45				287				45
Total		$	464			$	680			$	1,405			$	1,476

The tables below reflect the number of communities with real estate inventory impairments for the three- and nine-month periods ended September 30, 2011 and 2010 (excluding home-specific impairments and associated charges as noted above) and the fair value of these communities as of September 30, 2011 (dollars in thousands).

		Three Months Ended September 30, 2011
		Number of
		Communities								Fair Value of Communities Impaired
		Impaired				Impairment Charges				(Carrying Value less Impairments)
West			1			$	129			$	2,501
Central			4				229				6,894
East			0				0				N/A
Total			5			$	358			$	9,395

		Nine Months Ended September 30, 2011
		Number of
		Communities								Fair Value of Communities Impaired
		Impaired				Impairment Charges				(Carrying Value less Impairments)
West			1			$	129			$	2,501
Central			6				540				13,721
East			0				0				N/A
Total			7			$	669			$	16,222

		Three Months Ended September 30, 2010
		Number of
		Communities								Fair Value of Communities Impaired
		Impaired				Impairment Charges				(Carrying Value less Impairments)
West			0			$	0			$	N/A
Central			0				0				N/A
East			0				0				N/A
Total			0			$	0			$	N/A

		Nine Months Ended September 30, 2010
		Number of
		Communities								Fair Value of Communities Impaired
		Impaired				Impairment Charges				(Carrying Value less Impairments)
West			0			$	0			$	N/A
Central			1				50				88
East			0				0				N/A
Total			1			$	50			$	88

Subject to sufficient qualifying assets, we capitalize interest incurred in connection with the development and construction of real estate. Completed homes and land not actively under development do not qualify for interest capitalization. Capitalized interest is allocated to real estate when incurred and charged to cost of closings when the related property is delivered. To the extent our debt exceeds our qualified assets base, we expense a proportionate share of the interest incurred. A summary of our capitalized interest is as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Capitalized interest, beginning of period		$	13,205			$	12,437			$	11,679			$	14,187
Interest incurred			10,848				10,848				32,545				32,593
Interest expensed			(7,517	)			(8,425	)			(23,036	)			(25,273	)
Interest amortized to cost of home, land closings and impairments			(2,421	)			(3,183	)			(7,073	)			(9,830	)
Capitalized interest, end of period (1)		$	14,115			$	11,677			$	14,115			$	11,677

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

We enter into option and purchase agreements for land or lots as part of the normal course of business. These option and purchase agreements enable us to acquire properties at one or multiple future dates at pre-determined prices. We believe these acquisition structures reduce our financial risk associated with land acquisitions and holdings and allow us to better maximize our cash position.

Based on the provisions of the relevant accounting guidance, we have concluded that when we enter into an option or purchase agreement to acquire land or lots from an entity, a variable interest entity, or “VIE”, may be created. We evaluate all option and purchase agreements for land to determine whether they are a VIE. ASC 810, Consolidations, requires that for each VIE, we assess whether we are the primary beneficiary and, if we are, we consolidate the VIE in our financial statements and reflect such assets and liabilities as “Real estate not owned.” The liabilities related to consolidated VIEs are excluded from our debt covenant calculations. At September 30, 2011 and December 31, 2010, we had $1.4 million and $866,000, respectively, of assets identified as “Real estate not owned”. In order to assess if we are the primary beneficiary, we must first determine if we have the ability to control the activities of the VIE that most significantly impact its economic performance. Such activities include, but are not limited to, the ability to determine the budget and scope of land development work, if any; the ability to control financing decisions for the VIE; the ability to acquire additional land into the VIE or dispose of land in the VIE not under contract with Meritage; and the ability to change or amend the existing option contract with the VIE. If we are not determined to control such activities, we are not considered the primary beneficiary of the VIE. If we do have the ability to control such activities, we will continue our analysis by determining if we are also expected to absorb a potentially significant amount of the VIE’s losses or, if no party absorbs the majority of such losses, if we will benefit from a potentially significant amount of the VIE’s expected gains.

In substantially all cases, creditors of the entities with which we have option agreements have no recourse against us and the maximum exposure to loss in our option agreements is limited to non-refundable option deposits and any capitalized pre-acquisition costs. If we are the land developer, we are also at risk for items over budget related to land development on property we have under option. In these cases, we have typically contracted to complete development at a fixed market cost on behalf of the land owner and any budget savings or shortfalls are borne by us. Some of our option deposits may be refundable to us if certain contractual conditions are not performed by the party selling the lots.

The table below presents a summary of our lots under option or contract at September 30, 2011 (dollars in thousands):

										Option/Earnest
		Number of				Purchase				Money Deposits
		Lots				Price				Cash
Option contracts recorded on balance sheet as Real estate not owned			30			$	1,398			$	100
Option contracts not recorded on balance sheet — non-refundable deposits, committed (1)			1,590				71,007				9,748
Purchase contracts not recorded on balance sheet — non-refundable deposits, committed (1)			529				34,850				2,450
Purchase contracts not recorded on balance sheet — refundable deposits, committed			511				21,662				740
Total committed (on and off balance sheet)			2,660				128,917				13,038
Purchase contracts not recorded on balance sheet — refundable deposits, uncommitted (2)			1,257				40,645				380
Total uncommitted			1,257				40,645				380
Total lots under option or contracts			3,917				169,562				13,418
Total option contracts not recorded on balance sheet			3,887			$	168,164			$	13,318	(3)

Generally, our options to purchase lots remain effective as long as we purchase a pre-established minimum number of lots periodically, as determined by the respective agreement. In nearly all of our option contracts, we have the right not to exercise our option to purchase the lots and forfeit our deposit without further consequences other than termination of the option contract. Accordingly, we do not consider the lot purchase price to be a firm contractual obligation. Although the pre-established number is typically structured to approximate our expected rate of home construction starts, during a weakened homebuilding market, as we have recently been experiencing, we may purchase lots at an absorption level that exceeds our sales and home starts pace to meet the pre-established minimum number of lots. Alternatively, we may try to restructure our original contract to include terms that more accurately reflect our revised sales pace expectations.

NOTE 4 — SENIOR AND SENIOR SUBORDINATED NOTES

Senior and senior subordinated notes consist of the following (in thousands):

		At				At
		September 30, 2011				December 31, 2010
6.25% senior notes due 2015. At September 30, 2011 and December 31, 2010, there was approximately $487 and $594 in unamortized discount, respectively		$	284,513			$	284,406
7.731% senior subordinated notes due 2017			125,875				125,875
7.15% senior notes due 2020. At September 30, 2011 and December 31, 2010, there was approximately $4,136 and $4,501 in unamortized discount, respectively			195,864				195,499
		$	606,252			$	605,780

The indentures for our 6.25% senior notes and 7.731% senior subordinated notes contain covenants that require maintenance of certain minimum financial ratios, place limitations on investments we can make and 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 quarter ended September 30, 2011, we believe we were in compliance with our covenants. The indenture for our 7.15% senior notes contains covenants including, among others, limitations on the amount of secured debt we may incur, and limitations on sale and leaseback transactions and mergers. The covenants contained in the 7.15% senior notes are generally no more restrictive, and in many cases less restrictive, than the covenants contained in the indentures for the 6.25% senior notes and 7.731% senior subordinated notes.

Obligations to pay principal and interest on the senior and senior subordinated notes are guaranteed by all of our wholly-owned subsidiaries (collectively, the “Guarantor Subsidiaries”), each of which is directly or indirectly 100% owned by Meritage Homes Corporation. Such guarantees are full and unconditional, and joint and several. We do not provide separate financial statements of the Guarantor Subsidiaries because Meritage (the parent company) and the guarantor subsidiaries comprise the significant majority of our assets and operations, and the non-guarantor subsidiaries, if any, individually and in the aggregate, are minor, in both assets and operations. There are no significant restrictions on the ability of the Company or any Guarantor Subsidiary to obtain funds from their respective subsidiaries, as applicable, by dividend or loan.

NOTE 5 — FAIR VALUE DISCLOSURES

We account for the non-recurring fair value measurements of our non-financial assets and liabilities in accordance with ASC 820-10, Fair Value Measurement and Disclosure. This guidance defines fair value, establishes a framework for measuring fair value and addresses required disclosures about fair value measurements. This standard establishes a three-level hierarchy for fair value measurements based upon the significant inputs used to determine fair value. Observable inputs are those which are obtained from market participants external to the company while unobservable inputs are generally developed internally, utilizing management’s estimates, assumptions and specific knowledge of the assets/liabilities and related markets. The three levels are defined as follows:

•

Level 1 — Valuation is based on quoted prices in active markets for identical assets and liabilities.

•

Level 2 — Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market.

•

Level 3 — Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the company’s own estimates about the assumptions that market participants would use to value the asset or liability.

If the only observable inputs are from inactive markets or for transactions which the company evaluates as “distressed”, the use of Level 1 inputs should be modified by the company to properly address these factors, or the reliance of such inputs may be limited, with a greater weight attributed to Level 3 inputs.

A summary of our long-lived real-estate assets re-measured at fair value on September 30, 2011 and 2010 is as follows (in thousands):

						Three Months Ended								Nine Months Ended
						September 30,								September 30,
		Hierarchy				2011				2010 (2)				2011				2010
Description:
Adjusted Basis of Long-Lived Real Estate Assets (1)		Level 3				$	19,559			$	8,865			$	28,149			$	12,434
Impairments						$	1,047			$	680			$	2,301			$	1,526
Initial Basis of Long-Lived Real Estate Assets						$	20,606			$	9,545			$	30,450			$	13,960

Financial Instruments. The fair value of our fixed-rate debt is derived from quoted market prices by independent dealers and is as follows (in thousands):

		September 30, 2011								December 31, 2010
		Aggregate				Estimated				Aggregate				Estimated
		Principal				Fair Value				Principal				Fair Value
Financial Liabilities:
6.25% senior notes		$	285,000			$	271,463			$	285,000			$	285,000
7.731% senior subordinated notes		$	125,875			$	108,567			$	125,875			$	114,861
7.15% senior notes		$	200,000			$	185,000			$	200,000			$	198,500

Due to the short-term nature of other financial assets and liabilities, we consider the carrying amounts of our other short-term financial instruments to approximate fair value.

NOTE 6 — (LOSS)/EARNINGS PER SHARE

Basic and diluted (loss)/earnings per common share were calculated as follows (in thousands, except per share amounts):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Basic weighted average number of shares outstanding			32,417				32,095				32,358				32,038
Effect of dilutive securities:
Stock options and restricted stock (1)			0				202				0				239
Diluted weighted average shares outstanding			32,417				32,297				32,358				32,277
Net (loss)/income		$	(3,235	)		$	1,219			$	(9,332	)		$	8,045
Basic (loss)/income per share		$	(0.10	)		$	0.04			$	(0.29	)		$	0.25
Diluted (loss)/income per share (1)		$	(0.10	)		$	0.04			$	(0.29	)		$	0.25
Antidilutive stock options not included in the calculation of diluted income per share			1,665				1,040				1,769				737

NOTE 7 — STOCK-BASED COMPENSATION

We have two stock compensation plans, the Meritage Stock Option Plan, which was adopted in 1997 and amended from time to time (the “1997 Plan”), and the 2006 Stock Incentive Plan that was adopted in 2006 and amended from time to time (the “2006 Plan” and together with the 1997 Plan, the “Plans”). The Plans were approved by our stockholders and are administered by our Board of Directors. The provisions of the Plans are generally consistent with the exception that the 2006 Plan allows for the grant of stock appreciation rights, restricted stock awards, performance share awards and performance-based awards in addition to the non-qualified and incentive stock options allowed under the 1997 Plan.

Compensation cost related to stock-based compensation arrangements granted under the Plans are recognized on a straight-line basis over the remaining respective vesting periods. Below is a summary of compensation expense and stock award activity (dollars in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Stock-based compensation expense		$	2,114			$	1,566			$	5,215			$	4,062
Non-vested shares granted			0				1,500				357,000				315,000
Performance-based non-vested shares granted			0				0				56,250				67,500

The expense associated with the performance-based non-vested shares will only be recognized when it is determined to be probable that the target performance thresholds will be met and the shares will vest. We did not grant any stock option awards during the three and nine months ended September 30, 2011 or September 30, 2010. The following table includes additional information regarding our Plans (dollars in thousands):

		As of
		September 30, 2011				December 31, 2010
Unrecognized stock-based compensation cost		$	10,418			$	7,816
Weighted average years remaining vesting period			2.21				2.16
Total equity awards outstanding (vested and unvested shares)			1,803,167				2,000,518

The Plans authorize awards to officers, key employees, non-employee directors and consultants for up to 7,750,000 shares of common stock, of which 719,673 shares remain available for grant at September 30, 2011. We believe that such awards provide a means of performance-based compensation to attract and retain qualified employees and better align the interests of our employees with those of our stockholders. Non-vested stock awards and stock options granted in previous years are usually granted with either a three-year or five-year ratable vesting period.

NOTE 8 — INCOME TAXES

Components of the income tax (provision)/benefit are as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Federal		$	0			$	589			$	0			$	519
State			(160	)			(101	)			(560	)			(377	)
Total		$	(160	)		$	488			$	(560	)		$	142

Due to the effects of the deferred tax asset valuation allowance, federal and state tax net operating losses (“NOLs”), and changes in unrecognized tax benefits, the effective tax rates in 2011 and 2010 are not meaningful as there is no correlation between effective tax rates and the amount of pre-tax income or losses for those periods.

At September 30, 2011 and December 31, 2010, we have no unrecognized tax benefits due to the lapse of the statute of limitations and completion of audits for prior years. We believe that our current income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change. Our policy is to accrue interest and penalties on unrecognized tax benefits and include in federal income tax expense.

In accordance with ASC 740-10, Income Taxes, we evaluate our deferred tax assets, including the benefit from NOLs, to determine if a valuation allowance is required. Companies must assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, our experience with operating losses and our experience of utilizing tax credit carryforwards and tax planning alternatives. Given the downturn in the homebuilding industry over the past several years, the degree of the economic recession, the instability and deterioration of the financial markets, and the resulting uncertainty in projections of our future taxable income, we recorded a full valuation allowance against our deferred tax assets during 2008. We continue to maintain a full non-cash valuation allowance against the entire amount of our remaining net deferred tax assets at September 30, 2011 as we have determined that the weight of the negative evidence exceeds that of the positive evidence at this time.

At September 30, 2011 and December 31, 2010, we had a valuation allowance against deferred tax assets as follows (in thousands):

		September 30, 2011				December 31, 2010
Federal		$	66,290			$	63,409
State			26,111				26,591
Total Valuation Allowance		$	92,401			$	90,000

Our future deferred tax asset realization depends on sufficient taxable income in the carryforward periods under existing tax laws. Federal NOL carryforwards may be used to offset future taxable income for 20 years and expire in 2030. State NOL carryforwards may be used to offset future taxable income for a period of time ranging from 5 to 20 years, depending on the state, and begin to expire in 2012. Deferred tax assets include both tax-effected federal and state NOL carryforwards. On an ongoing basis, we will continue to review all available evidence to determine if and when we expect to realize our deferred tax assets and NOL carryovers.

At September 30, 2011, we have income taxes payable of $2.3 million, which primarily consists of current state tax accruals as well as tax and interest amounts that we expect to pay within one year for having amended a prior-year federal tax return. This amount is recorded in accrued liabilities in the accompanying balance sheet at September 30, 2011. The federal loss carryback period is two years for our 2011 fiscal year and there is no available taxable income in the two-year carryback period for us to utilize any tax loss coming out of 2011.

We conduct business and are subject to tax in the U.S. and several states. With few exceptions, we are no longer subject to U.S. federal, state, or local income tax examinations by taxing authorities for years prior to 2006. There are no ongoing federal or state income tax audits at this time.

The tax benefits from our NOLs, built-in losses, and tax credits would be materially reduced or potentially eliminated if we experience an “ownership change” as defined under Internal Revenue Code (“IRC”) §382. Based on our analysis performed as of September 30, 2011, we do not believe that we have experienced an ownership change. As a protective measure, our stockholders held a Special Meeting of Stockholders on February 16, 2009 and approved an amendment to our Articles of Incorporation that restricts certain transfers of our common stock. The amendment helps us avoid an unintended ownership change and thereby preserve the value of our tax benefits for future utilization.

NOTE 9 — SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

The following presents certain supplemental cash flow information (in thousands):

		Nine Months Ended
		September 30,
		2011				2010
Cash paid during the period for:
Interest, net of interest capitalized		$	22,774			$	24,708
Income taxes		$	862			$	(94,640	)
Non-cash operating activities:
Real estate not owned		$	532			$	(6,422	)
Non-cash investing activities:
Distributions from unconsolidated entities		$	0			$	294

NOTE 10 — OPERATING AND REPORTING SEGMENTS

As defined in ASC 280-10, Segment Reporting, we have seven operating segments (the seven states in which we operate). These segments are engaged in the business of acquiring and developing land, constructing homes, marketing and selling those homes, and providing warranty and customer service. We aggregate our operating segments into a reporting segment based on similar long-term economic characteristics and geographical proximity. Our reporting segments are as follows:

West: California and Nevada

Central: Texas, Arizona and Colorado

East: Florida and North Carolina

Management’s evaluation of segment performance is based on segment operating income/(loss), which we define as homebuilding and land revenue less cost of home construction, commissions and other sales costs, land development and other land sales costs and other costs incurred by or allocated to each segment, including impairments. Each reportable segment follows the same accounting policies described in Note 1, “Organization and Basis of Presentation,” to the consolidated financial statements in our 2010 Annual Report on Form 10-K. Operating results for each segment may not be indicative of the results for such segment had it been an independent, stand-alone entity. The following is our segment information (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Revenue (1):
West		$	32,930			$	47,207			$	88,290			$	127,126
Central			156,935				161,658				458,623				535,682
East			27,669				24,938				68,341				64,204
Consolidated total			217,534				233,803				615,254				727,012
Operating income/(loss) (2):
West			363				3,316				(84	)			6,474
Central			5,128				6,830				17,203				32,446
East			1,721				2,874				5,962				5,989
Segment operating income			7,212				13,020				23,081				44,909
Corporate and unallocated (3)			(5,443	)			(5,761	)			(15,620	)			(16,748	)
Earnings from unconsolidated entities, net			1,797				1,243				3,931				3,832
Interest expense			(7,517	)			(8,425	)			(23,036	)			(25,273	)
Other income, net			876				654				2,872				4,637
Loss on extinguishment of debt			0				0				0				(3,454	)
(Loss)/income before income taxes		$	(3,075	)		$	731			$	(8,772	)		$	7,903

		At September 30, 2011
														Corporate and
		West				Central				East				Unallocated (1)				Total
Deposits on real estate under option or contract		$	1,849			$	10,904			$	565			$	0			$	13,318
Real estate			209,044				520,992				68,021				0				798,057
Investments in unconsolidated entities			176				10,153				13				441				10,783
Other assets			13,103				80,650				7,838				309,794				411,385
Total assets		$	224,172			$	622,699			$	76,437			$	310,235			$	1,233,543

		At December 31, 2010
														Corporate and
		West				Central				East				Unallocated (1)				Total
Deposits on real estate under option
or contract		$	50			$	9,754			$	555			$	0			$	10,359
Real estate			191,882				499,176				47,870				0				738,928
Investments in unconsolidated entities			110				10,507				29				341				10,987
Other assets			3,501				32,961				7,873				420,329				464,664
Total assets		$	195,543			$	552,398			$	56,327			$	420,670			$	1,224,938