UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A2
Amendment No. 2
to
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 1, 1997
--------------------------
MONTEREY HOMES CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 1-9977 86-0611231
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
6613 North Scottsdale Road, Suite 200, Scottsdale, Arizona 85250
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(Address of principal executive offices) Zip Code)
Registrant's telephone number, including area code (602) 998-8700
------------------------------
NONE
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(Former name or former address, if changed since last report.)
<PAGE>
The Current Report on Form 8-K/A2 amends the Current Report on Form
8-K/A1 filed by Monterey Homes Corporation on September 12, 1997, solely to add
certain financial statements of the business required by Item 7(a) which were
omitted from the 8-K/A1, and to correct inaccuracies in the Pro Forma Financial
Information.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements
The required financial statements of the business
acquired are attached.
(b) Pro Forma Financial Information
The corrected pro forma financial information is
attached.
(c) Exhibits
2
<PAGE>
LEGACY HOMES, LTD.
BALANCE SHEETS
December 31, 1996 and June 30, 1997
June 30, 1997
1996 (Unaudited)
---- -------------
ASSETS
Cash and cash equivalents .................. $ 3,201,007 $ 1,275,168
Due from title companies ................... 27,400 1,088,645
Advances to partners ....................... -- 650,000
Notes and other receivables ................ 957,763 206,623
Real estate under development .............. 19,903,066 18,727,774
Other assets ............................... 505,143 1,379,650
----------- -----------
$24,594,379 $23,327,860
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities ... $ 4,642,360 $ 4,950,103
Home sale deposits ......................... 720,546 941,582
Notes payable .............................. 7,838,378 17,345,628
----------- -----------
Total liabilities ........................ 13,201,284 23,237,313
----------- -----------
Partners' capital .......................... 11,393,095 90,547
----------- -----------
$24,594,379 $23,327,860
=========== ===========
See accompanying notes to financial statements
3
<PAGE>
LEGACY HOMES, LTD.
STATEMENTS OF INCOME
Six Months ended June 30, 1996 and June 30, 1997
(Unaudited)
Six Months ended June 30,
1996 1997
---- ----
Revenues ................................. $36,209,614 $39,727,991
Cost of Sales ............................ 30,843,043 32,958,779
----------- -----------
5,366,571 6,769,212
Selling, general and administrative ...... 2,760,869 1,511,996
----------- -----------
2,605,702 5,257,216
Other income ............................. 726,419 332,836
----------- -----------
Net income .................. $ 3,332,121 $ 5,590,052
=========== ===========
See accompanying notes to financial statements
4
<PAGE>
LEGACY HOMES, LTD.
STATEMENTS OF CASH FLOWS
Six Months ended June 30, 1996 and June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................................... $ 3,332,121 $ 5,590,052
Depreciation and amortization ................................. 77,651 126,353
Increase in due from title companies .......................... -- (1,061,245)
(Increase) decrease in other receivables ...................... (612,687) 247,315
(Increase) decrease in real estate under development .......... (6,108,053) 1,175,292
Increase in option deposits ................................... -- (812,281)
Increase in other assets ...................................... (6,066,460) (188,579)
Increase (decrease) in accounts payable and accrued liabilities (1,339,332) 528,779
------------ ------------
Net cash provided by (used in) operating activities ........... (10,716,760) 5,605,686
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to partners .......................................... -- (650,000)
Payment received on note receivables .......................... -- 503,825
Payments on loans ............................................. (7,808) --
------------ ------------
Net cash used in investing activities ......................... (7,808) (146,175)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings .................................................... 29,428,848 30,769,151
Repayment of borrowings ....................................... (18,889,564) (21,261,901)
Partner capital distributions ................................. -- (16,892,600)
------------ ------------
Net cash provided by (used in) financing activities ........... 10,539,284 (7,385,350)
------------ ------------
Net decrease in cash and cash equivalents ..................... (185,284) (1,925,839)
Cash and cash equivalents at beginning of period .............. 3,996,216 3,201,007
------------ ------------
Cash and cash equivalents at end of period .................... $ 3,810,932 $ 1,275,168
============ ============
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
LEGACY HOMES, LTD.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 1996 and 1997
1. Summary of Significant Account Policies
Organization and Basis of Presentation
The Partnership is primarily engaged in the construction and sale of residential
housing in Dallas/Fort Worth, Austin and Houston, Texas. The Partnership
designs, builds and sells single-family homes on finished lots which it
purchases ready for home construction or which it develops. Certain prior period
amounts have been reclassified to be consistent with current financial statement
presentation. In the opinion of management, the unaudited financial statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the Company's 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.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized at the time of the closing of a sale, when title to and
possession of the property transfers to the buyer.
Cash Equivalents
The Partnership considers all highly liquid investments with an initial maturity
of three months or less when purchased to be cash equivalents.
Real Estate Under Development
Real estate under development includes finished lots under development, homes
under construction in various stages of completion and completed homes. The
Company values its real estate under development in accordance with Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Accordingly,
amounts are carried at cost unless expected future set cash flows (undiscounted
and without interest) are less than cost and then amounts are carried at
estimated fair value less cost to sell. Costs capitalized include land and
direct construction costs for homes, development period interest and certain
common costs which benefit the entire subdivisions. Common costs are allocated
on a subdivision by subdivision basis to residential lots based on the number of
lots to be built in the subdivision, which approximates the relative sales value
method.
Deposits paid related to options to purchase land are capitalized and included
in option deposits until the related land is purchased. Upon purchase of the
land, the related option deposits are transferred to real estate under
development.
6
<PAGE>
Income Taxes
The Partnership is not subject to federal income taxes as its income is reported
on the partners' income tax returns. Accordingly, no provision for federal
income tax liability has been recorded in the financial statements.
2. Notes Payable
Notes payable at June 30, 1997 consisted of interim construction loans
payable by Legacy Homes, Ltd. to financial institutions under a master note
agreement. Legacy Homes, Ltd. may borrow up to $30 million at the prime interest
rate, and the obligation is secured by real estate under development and
guaranteed by the general partner. The master note agreement contains various
covenants, including net worth requirements, debt to home completion values,
liabilities to net worth ratios and restrictions on the payment of
distributions. The master note agreement is due July 31, 1998.
3. Disposition of Assets.
On May 29, 1997, the Partnership signed a definitive agreement to sell
substantially all of its assets to Monterey Homes Corporation. The transaction
became effective as of July 1, 1997.
7
<PAGE>
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 1997
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Legacy
--------------------------------
Legacy Mortgage Monterey Pro Forma
------ -------- -------- ---------
Ltd Co. Combined Historical Combined Adjustments Combined
--- --- -------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents ....... $ 1,275 $ 32 $ 1,307 $ 7,263 $ 8,570 $ (1,553) (a) $ 7,017
Real estate under development ... 18,728 18,728 45,107 63,835 -- 63,835
Real estate loan & other ........
receivables ............... 1,946 94 2,040 1,571 3,611 -- 3,611
Option deposits ................. 812 -- 812 1,319 2,131 -- 2,131
Residual interests .............. -- -- 3,856 3,856 -- 3,856
Other assets .................... 567 1 568 800 1,368 (350) (a) 1,018
Deferred tax asset .............. -- -- -- 6,783 6,783 3,621 10,404
Goodwill ........................ -- -- -- 1,719 1,719 1,519 (b) 3,238
-------- -------- -------- -------- -------- -------- --------
Total Assets $ 23,328 127 $ 23,455 $ 68,418 $ 91,873 $ 3,237 $ 95,110
======== ======== ======== ======== ======== ======== ========
Liabilities and Stockholders'
Equity
Accounts payable & accruals ..... $ 4,950 $ 20 $ 4,970 $ 7,344 $ 12,314 $ -- $ 12,314
Home sale deposits .............. 942 34 976 7,697 8,673 -- 8,673
Notes payable ................... 17,346 -- 17,346 23,839 41,185 -- 41,185
-------- -------- -------- -------- -------- -------- --------
Total Liabilities 23,238 54 23,292 38,880 62,172 -- 62,172
-------- -------- -------- -------- -------- -------- --------
Stockholders Equity
Common stock .................... -- -- -- 46 46 7 (c) 53
Additional paid-in capital ...... 90 73 163 92,990 93,153 3,230 (c) 96,383
Retained earnings (loss) ........ -- -- -- (63,088) (63,088) -- (63,088)
Treasury stock .................. -- -- -- (410) (410) -- (410)
-------- -------- -------- -------- -------- -------- --------
Total Equity 90 73 163 29,538 29,701 3,237 32,938
-------- -------- -------- -------- -------- -------- --------
Total Liabilities &
Stockholders Equity $ 23,328 $ 127 $ 23,455 $ 68,418 $ 91,873 $ 3,237 $ 95,110
======== ======== ======== ======== ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Data
8
<PAGE>
Unaudited Pro Forma Condensed Combined Income Statement
For the Year Ended December 31, 1996
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Pro Forma Historical Pro Forma Pro Forma
Monterey Legacy Combined Adjustments Combined
-------- ------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Home and land sales........... $ 87,754 $ 85,114 $ 172,868 $ -- $ 172,868
Cost of home and land sales... 75,099 67,715 142,814 1,513 (d) 144,327
----------- ----------- ----------- ------------ -----------
Gross margin.................. 12,655 17,399 30,054 (1,513) 28,541
Selling, general and admin.
expense.................... 7,777 8,550 16,327 191 (e) 16,895
275 (g)
102 (f)
Operating income 4,878 8,849 13,727 (2,081) 11,646
Other income, net............. 1,998 (248) 1,750 -- 1,750
----------- ----------- ----------- ----------- -----------
Income before income taxes.... 6,876 8,601 15,477 (2,081) 13,396
Income tax expense............ 756 756 115 (h) 871
----------- ----------- ----------- ----------- -----------
Net Income ................. $ 6,120 $ 8,601 $ 14,721 $ (2,196) $ 12,525
=========== =========== =========== =========== ===========
Net income per share: $ 2.27
===========
Weighted average common shares
outstanding 5,520,000
===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Data
9
<PAGE>
Unaudited Pro Forma Condensed Combined Income Statement
For the Six Months Ended June 30,1997
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Actual Historical Pro Forma Pro Forma
Monterey Legacy Combined Adjustments Combined
-------- ------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Home and land sales........... $ 37,117 $ 39,728 $ 76,845 $ -- $ 76,845
Cost of home and land sales... 31,829 32,959 64,788 757 (d) 65,545
----------- ----------- ----------- ------------ -----------
Gross margin.................. 5,288 6,769 12,057 (757) 11,300
Selling, general and admin.
expense.................... 4,274 1,512 5,786 70 (e) 6,017
138 (g)
23 (g)
Operating income 1,014 5,257 6,271 (988) 5,283
Other income, net............. 1,456 333 1,789 0 1,789
----------- ----------- ----------- ----------- -----------
Income before income taxes.... 2,470 5,590 8,060 (988) 7,072
Income tax expense............ 224 224 236 (h) 460
----------- ----------- ----------- ----------- -----------
Net Income ................. $ 2,246 $ 5,590 $ 7,836 $ (1,224) $ 6,612
=========== ============ =========== ============ ===========
Net income per share: $ $1.20
===========
Weighted average common shares
outstanding 5,520,000
===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Data
10
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Data
1. Overview. The Unaudited Pro Forma Condensed Combined Income
Statements are presented as if the acquisition of the assets of Legacy Homes,
Ltd. and Legacy Enterprises, Inc. by a subsidiary of Monterey Homes Corporation
(the "Legacy Acquisition") and the merger of Monterey Mortgage Acquisition Corp.
into Texas Home Mortgage Corporation (the "Merger") occurred on January 1, 1996.
The Legacy Acquisition and the Merger shall be collectively referred to as the
"Legacy Transaction". The Unaudited Pro Forma Condensed Combined Balance Sheet
is presented assuming the combination occurred on June 30, 1997.
The combination is recorded as a purchase in accordance with generally
accepted accounting principles and, accordingly, the assets and liabilities of
the acquired entity (Legacy) are presented at their estimated fair values as of
that date.
Pursuant to the Employment Agreement with John Landon, he will be
granted options to purchase 166,667 shares of Monterey Homes Common Stock at an
exercise price of $5.25, which will vest over the three years following the
acquisition and expire June 30, 2001. The value of the options are considered
compensation expense for the combined entity which will be recognized over the
three-year vesting period.
The historical financial information for Monterey Homes Corporation
("Monterey") is derived from the audited consolidated financial statements of
Monterey as of and for the year ended December 31, 1996, and the unaudited
consolidated financial statements of Monterey as of and for the six months ended
June 30, 1997. The historical financial information for Legacy is derived from
the audited financial statements of Legacy Homes, Ltd. and Texas Home Mortgage
Corporation, as of and for the year ended December 31, 1996, and the unaudited
financial statements of the respective entities as of and for the six months
ended June 30,1997. Legacy Enterprises, Inc., had no assets, liabilities or
operations for the relevant time period.
The pro forma information does not purport to present the financial
position or results of operations of Monterey and Legacy had the Legacy
Transaction, the distribution to the partners of Legacy Homes, Ltd. that reduced
its book value, and other events assumed therein occurred on the dates
specified, nor is it necessarily indicative of the results of operations of
Monterey and Legacy, as they may be in the future or as they may have been had
the Legacy Transaction and other such events been consummated on the dates
shown. The Unaudited Pro Forma Condensed Combined Financial Data should be read
in conjunction with the Agreement of Purchase and Sale of Assets dated May 29,
1997 between Monterey, Legacy and John and Eleanor Landon, and the audited and
unaudited historical financial statements and notes thereto of Monterey and
Legacy included elsewhere in this Form 8-K/A.
2). Pro Forma Condensed Combined Balance Sheet Adjustments at June 30,
1997.
a) To record payment for Legacy Homes, transfer of cash and
$350,000 in transaction costs.
b) To record goodwill and the increase in the deferred tax asset
associated with the Legacy Transaction.
11
<PAGE>
c) To record the effects of issuance of Monterey Common Stock to
Legacy and additional paid-in capital resulting from the
Legacy Transaction.
3). Pro Forma Condensed Combined Income Statement Adjustments for the
Year Ended December 31, 1996 and the Six Month Period Ended June
30, 1997.
d) To record interest expense related to an additional $17.8M
borrowing incurred in connection with the Legacy Transaction.
e) To record amortization of goodwill, which is being amortized
over 20 years.
f) To record compensation expense incurred in connection with the
issuance of options to purchase 166,667 shares of Monterey
Common Stock, to John Landon. Compensation expense is
recognized over the three year graded vesting period.
g) To adjust for additional compensation expense expected to be
incurred as specified in the Employment Agreement with Mr.
Landon.
h) To record the amount of income taxes, which has been
estimated at 6.5% of income before income taxes.
12
<PAGE>
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 hereunto duly authorized.
October 29, 1997
Monterey Homes Corporation
By: /s/ Larry W. Seay
-------------------------------------
Larry W. Seay
Vice President of Finance and
Chief Financial Officer
13
