SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-9977
MONTEREY HOMES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland 86-0611231
(State or Other Jurisdiction) (I.R.S. Employer
of Incorporation or Organization) Identification No.)
6613 North Scottsdale Road, Suite 200 85250
Scottsdale, Arizona (Zip Code)
(Address of Principal Executive Offices)
(602) 998-8700
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No .
--- ---
As of May 9, 1997; 4,580,611 shares of Monterey Homes Corporation common stock
were outstanding.
<PAGE>
MONTEREY HOMES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996.................................... 3
Consolidated Statements of Earnings for the three
months ended March 31, 1997 and 1996................. 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996........... 5
Notes to Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 10
PART II. OTHER INFORMATION
Items 1-5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K..................... 14
SIGNATURES ..................................................... S.1
2
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................... $ 6,964,580 $ 15,567,918
Short-term investments .................................. 319,732 4,696,495
Real estate loans and other receivables ................. 2,304,066 2,623,502
Real estate under development (Notes 2 & 4) ............. 46,003,850 35,991,142
Option deposits ......................................... 1,690,991 546,000
Residual interests ...................................... 3,817,410 3,909,090
Other assets ............................................ 804,811 940,095
Deferred tax asset ...................................... 6,783,000 6,783,000
Goodwill (Note 5) ....................................... 1,741,444 1,763,488
------------ ------------
$ 70,429,884 $ 72,820,730
============ ============
LIABILITIES
Accounts payable and accrued liabilities ................ $ 6,468,167 $ 10,569,872
Home sale deposits ...................................... 6,708,704 4,763,518
Notes payable (Note 3) .................................. 29,846,248 30,542,276
============ ============
Total Liabilities ............................. 43,023,119 45,875,666
------------ ------------
STOCKHOLDERS' EQUITY (Note 5)
Common stock, par value $.01 per share; 50,000,000 shares
authorized; issued and outstanding - 4,580,611 shares 45,806 45,806
Additional paid-in capital .............................. 92,817,021 92,643,658
Accumulated deficit ..................................... (65,045,779) (65,334,117)
Treasury stock - 53,046 shares .......................... (410,283) (410,283)
------------ ------------
Total Stockholders' Equity .................... 27,406,765 26,945,064
------------ ------------
$ 70,429,884 $ 72,820,730
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended March 31,
1997 1996
----------- -----------
REVENUES
Home sales (Notes 1 and 5) ...........................$12,572,837 $ --
Residual interest and real estate loan interest income 359,294 438,082
Other income ......................................... 175,316 196,613
----------- -----------
13,107,447 634,695
COSTS AND EXPENSES
Cost of home sales (Notes 1 and 5) ................... 10,946,502 --
Commissions and other sales costs (Notes 1 and 5) .... 755,048 --
General, administrative and other .................... 1,091,686 388,073
Interest ............................................. -- 162,289
----------- -----------
12,793,236 550,362
Income before income tax expense ..................... 314,211 84,333
Income tax expense ................................... 25,873 --
----------- -----------
Net Income ......................................$ 288,338 $ 84,333
=========== ===========
Earnings per share ...................................$ 0.06 $ 0.03
=========== ===========
Weighted average common shares outstanding ........... 4,671,173 3,273,118
=========== ===========
See accompanying notes to consolidated financial statements.
4
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................ $ 288,338 $ 84,333
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Increase in real estate under development .......... (10,012,708) --
Depreciation and amortization ...................... 195,407 19,300
Amortization of residual interests ................. 91,680 472,388
Increase in other assets ........................... (895,999) (179,023)
Decrease in accounts payable and accrued liabilities (1,962,189) (94,385)
------------ ------------
Net cash provided by (used in) operating activities (12,295,471) 302,613
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal payments received on real estate loans .......... 384,000 498,330
Real estate loans funded .................................. (178,272) (50,000)
(Increase) decrease in short-term investments ............. 4,376,763 (113,040)
Decrease in funds held by Trustee ......................... -- 388,813
------------ ------------
Net cash provided by investing activities ......... 4,582,491 724,103
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings ................................................ 4,797,651 --
Repayment of borrowings ................................... (5,493,679) (991,000)
Distributions to stockholders ............................. (194,330) (291,496)
------------ ------------
Net cash used in financing activities ............. (890,358) (1,282,496)
------------ ------------
Net decrease in cash and cash equivalents ................. (8,603,338) (255,780)
Cash and cash equivalents at beginning of period .......... 15,567,918 3,347,243
------------ ------------
Cash and cash equivalents at end of period ................ $ 6,964,580 $ 3,091,463
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 and 1996
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Monterey Homes Corporation (previously Homeplex Mortgage Investments
Corporation), the Company, commenced operations in July 1988. Prior to the
Merger (see Note 5), the Company's main line of business was investing in
mortgage certificates securing collateralized mortgage obligations (CMOs),
interests relating to mortgage participation certificates (MPCs) (collectively
residual interests) and loans secured by real estate.
Since January 1, 1997, the operation of the Company has focused on
homebuilding, and the combined entities intend to continue with Monterey Homes'
building operations as its main line of business. These operations are currently
conducted primarily in the Phoenix, Scottsdale and Tucson, Arizona markets.
Basis of Presentation
The consolidated financial statements include the accounts of
Monterey Homes Corporation and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain prior period amounts have been reclassified to be consistent with
current financial statement presentation. In the opinion of Management, the
unaudited consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary to fairly present 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.
Upon consummation of the Merger a one-for-three reverse stock split
of the Company's issued and outstanding common stock, $.01 par value per share,
was effected. Except as otherwise indicated, the share information contained
herein reflects the one-for-three reverse stock split.
NOTE 2 - REAL ESTATE UNDER DEVELOPMENT
The components of real estate under development at March 31, 1997 and
December 31, 1996 are as follows:
(Unaudited)
March 31, December 31,
1997 1996
----------- -----------
Homes in production .................... $25,245,383 $22,839,500
Finished lots and lots under development 20,758,467 13,151,642
----------- -----------
$46,003,850 $35,991,142
=========== ===========
NOTE 3 - NOTES PAYABLE
Notes payable consist of the following at March 31, 1997 and December
31, 1996:
<TABLE>
<CAPTION>
(Unaudited)
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Construction line of credit to bank, interest payable
monthly approximating prime (8.5% at March
31, 1997) plus .25%, payable at the earlier of close
of escrow or maturity date of individual homes
within the line or June 19, 2000 ................. $10,458,076 $ 7,251,958
</TABLE>
6
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 And 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Guidance line of credit to bank for acquisition and development interest
payable monthly approximating prime plus .5%, payable at the earlier of
funding of construction financing, the maturity date of indivi-
dual projects within the line or June 19, 2000 ........................... 7,276,638 9,628,993
Short-term credit facility to bank maturing in August 1997, annual interest
of prime plus .5%, principal payments of $500,000 plus interest payable
monthly with remaining principal and interest payable at
maturity date ............................................................ 4,052,500 5,552,500
Senior subordinated notes payable, maturing October 15, 2001, annual interest
of 13%, payable semi-annually, principal payable at maturity date with
a put to the Company at June 30, 1998, unsecured ......................... 8,000,000 8,000,000
Other ....................................................................... 59,034 108,825
----------- -----------
Total .................................................................... $29,846,248 $30,542,276
=========== ===========
</TABLE>
A provision of the senior subordinated bond indenture provides the
bondholders with the option, at June 30, 1998, to require the Company to buy
back the bonds at 101% of face value. Approximately $2,800,000 of the bonds are
held equally by the Co-Chief Executive Officers of the Company.
NOTE 4 - CAPITALIZED INTEREST
The Company capitalizes interest costs incurred on homes in production
and lots under development. This capitalized interest is allocated to unsold
lots, and included in cost of home sales in the accompanying statements of
earnings when the units are delivered. The following tables summarize interest
capitalized and interest expensed (dollars in thousands):
Quarter Ended March 31,
-----------------------
1997 1996
------ ------
Beginning unamortized capitalized interest $ -- $ N/A
Interest capitalized ..................... 692 N/A
Amortized - cost of home sales ........... (93) N/A
----- ------
Ending unamortized capitalized interest .. $ 599 N/A
===== ======
Interest incurred ........................ $ 692 $ 162
Interest capitalized ..................... 692 N/A
----- ------
Interest expensed ........................ $ -- $ 162
===== ======
Had the Merger not occurred, interest capitalized by the Monterey
Entities would have been $692,000 and $832,000 for the three months ended March
31, 1997 and 1996, respectively. Interest amortized through cost of home sales
would have been $532,000 and $430,000 for the same periods, respectively.
7
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 And 1996
NOTE 5 - HOMEPLEX / MONTEREY MERGER
On December 23, 1996, the stockholders of Homeplex Mortgage Investments
Corporation, now known as Monterey Homes Corporation (the "Company"), approved
the Merger (the "Merger") of Monterey Homes Construction II, Inc. and Monterey
Homes Arizona II, Inc., both Arizona corporations (collectively, the "Monterey
Entities" or "Monterey"), with and into the Company. The Merger was effective on
December 31, 1996, and the Company will focus on homebuilding as its primary
business. Also, ongoing operations of the Company will be managed by the two
previous stockholders of Monterey, who at the time of the Merger, became
Co-Chief Executive Officers with one serving as Chairman and the other as
President. At consummation of the Merger, 1,288,726 new shares of common stock,
$.01 par value per share, were issued equally to the Co-Chief Executive
Officers.
Monterey, in connection with an $8,000,000 subordinated debt private
placement that occurred during October 1994, issued warrants to the bondholders
to purchase approximately 16.48% of Monterey. Accordingly, of the 1,288,726
shares issued in the Merger, 212,398 are held by the Company on behalf of the
Co-Chief Executive Officers, to be delivered to the warrantholders upon payment
of the warrant exercise price to the Co-Chief Executive Officers. Upon
expiration of the warrants, any of the remaining 212,398 will be delivered to
the Co-Chief Executive Officers.
In addition, up to 266,667 shares of contingent stock will be issued
equally to the Co-Chief Executive Officers provided that certain stock trading
price thresholds are met and that the Officer is still an employee of the
Company at the time of issuance. The price thresholds are $5.25, $7.50 and
$10.50 for dates after the first, second and third anniversaries of the Merger,
respectively, and the prices must be maintained for 20 consecutive trading days.
The number of contingent shares issued would be 44,943, 88,889 and 88,889,
respectively. Included in the above mentioned 266,667 contingent shares are
43,947 shares (approximately 16.48%) issuable to the Company's warrantholders,
upon exercise of the warrants. Such shares are not subject to meeting certain
stock trading price thresholds or employment of the Co-Chief Executive Officers.
Upon expiration of unexercised warrants, any of the remaining 43,947 contingent
shares will be issued to the Co-Chief Executive Officers.
The total consideration paid by the Company for the net assets of
Monterey Homes was $9,323,353. This amount included 1,288,726 shares of the
Company's common stock valued at $8,544,256 and $779,097 of transaction costs.
The purchase method of accounting was used by the Company, and the purchase
price was allocated among the Monterey net assets based on their estimated fair
market value at the date of acquisition, resulting in goodwill of $1,763,488
which will be amortized over 20 years.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company as if the Merger had occurred
at January 1, 1996, with pro forma adjustments together with related income tax
effects. The pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations that would
actually have resulted had the combination been in effect on the date indicated.
Three Months ended March 31,
1997 1996
----------- -----------
Total revenues ............... $13,107,447 $15,405,525
Net income ................... 288,338 268,393
Net earnings per share........ $ .06 $ .06
8
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 And 1996
NOTE 6 - INCOME TAXES
Deferred tax assets of approximately $6.8 million have been recorded
in the March 31,1997 and December 31, 1996 balance sheet due to temporary
differences and carryforwards. For federal and state income tax purposes at
March 31, 1997 and at December 31, 1996, the Company had a net operating loss
carryforward of approximately $53 million that expires beginning in 2007.
Income tax expense for the three months ended March 31, 1997 was
$25,873. No income tax was recorded in the first quarter of 1996, due to the
Company's status as a real estate investment trust in that year.
9
<PAGE>
MONTEREY HOMES CORPORATION
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
------------------------------------------------------------------------
Of Operations
-------------
This Quarterly Report on Form 10-Q contains forward-looking
statements. The words "believe," "expect," "anticipate," and "project" and
similar expressions identify forward-looking statements, which speak only as of
the date the statement was made. Such forward-looking statements are within the
meaning of that term in Section 27A of the Securities Act of 1993, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements may include, but are not limited to, projections of revenues, income,
or loss, capital expenditures, plans for future operations, financing needs or
plans, the impact of inflation, the impact of changes in interest rates, plans
relating to products or services of the Company, potential real property
acquisitions, and new or planned development projects, as well as assumptions
relating to the foregoing.
Statements in Exhibit 99 to this Quarterly Report on Form 10-Q and in
the Company's Annual Report on Form 10-K, including the Notes to the
Consolidated Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," describe factors, among others,
that could contribute to or cause such differences. Additional factors that
could cause actual results to differ materially from those expressed in such
forward-looking statements are set forth in "Business" and "Market for the
Registrant's Common Stock and Related Stockholder Matters" in the Company's
Annual Report on Form 10-K.
Historical Results of Operations
Quarter ended March 31, 1997 compared to 1996:
The Company had net income of $288,338 or $.06 per share for the
first three months of 1997 compared to $84,333 or $.03 per share in 1996. Home
sales revenue, cost of home sales, commissions and other sales costs all
increased in 1997, as the Company had no homebuilding operations prior to the
Merger in December of 1996.
Residual and real estate loan interest income was less in 1997 than
in 1996 due to the decreasing residual and loan portfolio balances. The increase
in general, administrative and other costs to $1,091,686 in 1997 from $388,073
in 1996 was caused mainly by higher corporate costs, including compensation
expense that was related to the merger transaction. All interest incurred was
capitalized in 1997, with $93,000 amortized through costs of home sales, and not
expensed directly as in 1996.
Liquidity and Capital Resources
The Company uses a combination of borrowings and funds generated by
operations to meet its working capital requirements. At March 31, 1997, the
Company had $20 million in a short-term, secured, revolving construction loan
facility and $20 million in an acquisition and development guidance facility, of
which $10.5 million and $7.3 million were outstanding, respectively. The Company
also had outstanding $4.1 million at March 31, 1997, on a term loan to refinance
an existing note, as well as $8.0 million in unsecured, senior subordinated
notes due October 15, 2001 (the "Notes"), which were issued in October 1994. The
Company had available but unborrowed funds under its credit facilities of $2.1
million at March 31, 1997.
In the first quarter of 1997, the Company used $8.2 million of cash
to purchase land for future development at the Gainey Ranch site in Scottsdale,
Arizona. Subsequent to March 31, 1997, the Company added this property to its
acquisition and development guidance facility generating $4.3 million in
available but unborrowed funds.
The Indenture governing the Notes and the Company's various loan
agreements contain restrictions which could, depending on the circumstances,
affect the Company's ability to obtain additional financing in the future. If
the Company at any time is not successful in obtaining sufficient capital to
fund its then-planned development and expansion costs, some or all of its
projects may be significantly delayed or abandoned. Any such delay or
abandonment could result in cost increases or the loss of revenues and could
have a material adverse effect on the Company's results of operations and
ability to repay its indebtedness.
10
<PAGE>
MONTEREY HOMES CORPORATION
The cash flow for each of the Company's communities can differ
substantially from reported earnings, depending on the status of the development
cycle. The early stages of development or expansion require significant cash
outlays for, among other things, land acquisition, obtaining plat and other
approvals, construction of amenities which may include community tennis courts,
swimming pools and ramadas, model homes, roads, certain utilities and general
landscaping. Because these costs are capitalized, income reported for financial
statement purposes during a development's early stages may significantly exceed
cash flow. In later stages of development and expansion, cash flow can
significantly exceed income reported for financial statement purposes, as cost
of home sales includes charges for substantial amounts of previously expended
costs.
Pro Forma Results Of Operations for the Quarters Ended March 31, 1997
and 1996
As a result of the Merger, the primary business of the Company has
shifted from the making of real estate loans and holding residual interests to
homebuilding. Due to this change, Management believes that comparison of
operations for quarters in a prior year with the current quarter operations is
not as meaningful as the pro forma results. Accordingly, Management has prepared
proforma condensed combined operating results for the three months ended March
31, 1996, which reflect the impact of combining the pre-merger companies as
though the acquisition had taken place on January 1, 1996.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
-------- --------
Actual Pro Forma
(Dollars in thousands, except per share data)
<S> <C> <C>
Home sales revenue................................... $12,573 $14,767
Cost of home sales................................... 10,947 12,924
-------- --------
Gross profit..................................... 1,626 1,843
Selling, general and administrative.................. 1,847 2,180
-------- --------
Operating loss .................................. (221) (337)
Other income......................................... 535 638
-------- --------
Earnings before income taxes..................... 314 301
Income tax expense................................... 26 33
-------- --------
Net earnings..................................... $ 288 $ 268
======== ========
Earnings per share................................... $ .06 $ .06
======== ========
</TABLE>
The key assumptions in the pro forma results of operations relate to
the following:
(1) The transaction was consummated on January 1, 1996.
(2) Compensation expense was adjusted to add the new employees' cost
and to deduct the terminated employees' cost.
(3) The net operating loss was utilized to reduce the maximum amount
of taxable income possible.
Results of Operations
The following discussion and analysis provides information regarding
the combined financial position of the Company and its subsidiaries as of March
31, 1997 and December 31, 1996 and their results of operations for the three
months ended March 31, 1997 and pro forma operations for the three months ended
March 31, 1996. All material balances and transactions between Monterey Homes
Corporation and its subsidiaries have been eliminated. This discussion should be
read in conjunction with the Company's and Subsidiaries' Annual Report on Form
10-K for the year ended December 31, 1996. In the opinion of Management, the
unaudited interim data 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.
11
<PAGE>
MONTEREY HOMES CORPORATION
Home Sales Revenue
Home sales revenue for any period is the product of the number of
units closed during the period and the average sales price per unit. The
following table presents comparative first quarter 1997 and 1996 housing
revenues (dollars in thousands):
<TABLE>
<CAPTION>
Dollar/Unit Percentage
Quarter Ended M Increase Increase Increase
1997 1996 (Decrease) (Decrease)
---------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Dollars......................... $ 12,573 $ 14,767 ($2,194) (14.9%)
Units closed.................... 40 53 (13) (24.5%)
Average sales price............. $ 314.3 $ 278.6 $ 35.7 12.8%
</TABLE>
Home sales revenue decreased 14.9% due to 13 fewer closings during the
first quarter of 1997. The average sales price increased 12.8% due to closing
higher priced homes in 1997. In the first quarter of 1996, 23 lower priced
condominium units were closed. There were no condominium closings in the first
quarter of 1997 as this project was sold out in 1996.
Gross Profit
Gross profit equals home sales revenue, net of housing cost of sales,
which include developed lot costs, units construction costs, amortization of
common community costs (such as the cost of model complex and architectural,
legal and zoning costs), interest, sales tax, warranty, construction overhead
and closing costs. The following table presents comparative first quarter 1997
and 1996 housing gross profit (dollars in thousands):
<TABLE>
<CAPTION>
Dollar Percentage
Quarter Ended M Increase Increase Increase
1997 1996 (Decrease) (Decrease)
---------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Dollars....................... $1,626 $1,843 ($217) (11.8%)
Percent of housing revenues... 12.9% 12.5% .4% 3.2%
</TABLE>
The 11.8% decrease in dollar gross profit is a result of 13 fewer
closings in the first quarter of 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, which include
advertising, model and sales office, sales administration, commissions and
corporate overhead costs, were $1.8 million for the first quarter of 1997, as
compared to $2.2 million for the same period in 1996, a decrease of 8%. This
change was caused mainly by fewer home closings and higher administrative and
corporate costs paid in 1996 than in 1997.
Development Projects
At March 31, 1997, the Company had 14 subdivisions under various stages
of development. The Company was actively selling in 11 subdivisions, was sold
out in one subdivision, and was in various stages of preparation to open for
sales in two subdivisions. The Company owns the underlying land in seven
subdivisions subject to bank acquisition financing and the underlying land in
two subdivisions free from any acquisition financing. The lots in
12
<PAGE>
MONTEREY HOMES CORPORATION
the remaining five subdivisions are purchased from developers on a rolling
option basis. During the first quarter of 1997, the Company purchased one new
subdivision and entered into one new rolling lot option contract to increase the
lots available to the Company in one existing subdivision. Depending on market
conditions, Management may elect to make additional selective property
acquisitions throughout the remainder of the current year.
Net Orders
Net orders for any period represent the number of units ordered by
customers (net of units canceled) multiplied by the average sales price per
units ordered. The following table presents comparative first quarter 1997 and
1996 net orders (dollars in thousands):
Quarter Ended March 31, Dollar/Unit Percentage
1997 1996 Increase Increase
------- ------- -------- --------
Dollars ........... $27,868 $15,490 $12,378 79.9%
Units ordered ..... 81 59 22 37.3%
Average sales price $ 344.1 $ 262.5 $ 81.6 31.1%
The dollar volume of net orders increased by 79.9% over the 1996 first
quarter due primarily to an increase in average sales price and higher unit
sales. The increase in average sales price was caused by activity in a new
semi-custom subdivision with higher priced homes. The increase in net orders has
generally been caused by an increase in the number of subdivisions actively open
for sales to eleven in 1997 from six in 1996.
Monterey does not include sales which are contingent on the sale of the
customer's existing home as orders until the contingency is removed.
Historically, Monterey has experienced a cancellation rate of less than 16% of
gross sales.
Net Sales Backlog
Backlog represents net orders of Monterey which have not closed. The
following table presents comparative March 31, 1997 and 1996 net sales backlog
(dollars in thousands):
Quarter Ended March 31, Dollar/Unit Percentage
1997 1996 Increase Increase
------- ------- -------- --------
Dollars............ $61,224 $40,602 $20,622 50.8%
Units in Backlog... 161 150 11 7.3%
Average Sales Price $ 380.3 $ 270.7 $ 109.6 40.5%
Dollar backlog increased 50.8% over the prior year due to an increase
in units in backlog and by an increase in average sales price. Average sales
price has increased due to the sell out of lower priced Vintage Condominium
subdivision and the opening of a higher priced semi-custom subdivision. Units in
backlog have increased 7.3% over the prior year due to the increase in net
orders.
Seasonality
Monterey has historically closed more units in the second half of the
fiscal year than in the first half, due in part to the slightly seasonal nature
of the market for their semi-custom, luxury product homes. Management expects
that this seasonal trend will continue in the future, but may change slightly as
operations expand within the move-up segment of the market.
13
<PAGE>
MONTEREY HOMES CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - Exhibit 27, Financial Data Schedule
- Exhibit 99, Private Securities Reform Act
of 1995 Safe Harbor Compliance Statement for
Forward-Looking Statements
(b) Reports on Form 8-K - A Current Report on Form 8-K,
dated December 31, 1996, was filed with the
Securities and Exchange Commission on January 14,
1997. This Form 8-K related to (i) the merger of two
privately-held homebuilding companies with and into
the Company and (ii) the retention of KPMG Peat
Marwick LLP to replace Ernst & Young LLP as the
Company's independent accountants. This Form 8-K was
amended on January 22, 1997 and March 6, 1997.
14
<PAGE>
MONTEREY HOMES CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
MONTEREY HOMES CORPORATION
A Maryland Corporation
May 13, 1997 By: / LARRY W. SEAY
-------------------------------------
Larry W. Seay
Vice President of Finance &
Chief Financial Officer
S.1
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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EXHIBIT 99
Private Securities Litigation Reform Act of 1995
Safe Harbor Compliance Statement for Forward-Looking Statements
In passing the Private Securities Litigation Reform Act of 1995 (the
"PSLRA"), Congress encouraged public companies to make "forward-looking
statements" by creating a safe-harbor to protect companies from securities law
liability in connection with forward-looking statements. Monterey Homes
Corporation (the "Company" or "Monterey") intends to qualify both its written
and oral forward-looking statements for protection under the PSLRA.
To qualify oral forward-looking statements for protection under the
PSLRA, a readily available written document must identify important factors that
could cause actual results to differ materially from those in the
forward-looking statements. Monterey provides the following information in
connection with its continuing effort to qualify forward-looking statements for
the safe harbor protection of the PSLRA.
Important factors currently known to management that could cause actual
results to differ materially from those in forward-looking statements include,
but are not limited to, the following: (i) changes in national and local
economic and other conditions, such as employment levels, availability of
mortgage financing, interest rates, consumer confidence, and housing demand;
(ii) risks inherent in homebuilding activities, including delays in construction
schedules, cost overruns, changes in government regulation, increases in real
estate taxes and other local government fees; (iii) changes in costs or
availability of land, materials, and labor; (iv) fluctuations in real estate
values; (v) the timing of home closings and land sales; (vi) the Company's
ability to continue to acquire additional land or options to acquire additional
land on acceptable terms; (vii) lack of geographic diversification of the
Company's operation, especially when (A) real estate analysts are predicting
that new home sales in the Phoenix, Arizona metropolitan area will slow
significantly during 1997 and 1998 and (B) new home sales in the Tucson, Arizona
metropolitan area are expected to remain relatively flat during 1997; (viii)
limited product diversification in that the Company derives most of its revenue
from sales of semi-custom luxury homes; (ix) the inability of the Company to
obtain sufficient capital on terms acceptable to the Company to fund its planned
capital and other expenditures; (x) changes in local, state and federal rules
and regulations governing real estate developing and homebuilding activities and
environmental matters, including "no growth" or "slow growth" initiatives,
building permit allocation ordinances and building moratoriums; (xi) expansion
by the Company into new markets in which the Company has no operating
experience; (xii) the inability of the Company to identify acquisition
candidates that will result in successful combinations; (xiii) the failure of
the Company to make acquisitions on terms acceptable to the Company; (xiv) the
loss of key employees of the Company, including William W. Cleverly and Steven
J. Hilton; and (xv) factors that may affect the Company's mortgage assets,
including general conditions in the financial markets, changes in prepayment
rates and changes in interest rates.
Forward-looking statements express expectations of future events. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to these
inherent uncertainties, the investment community is urged not to place undue
reliance on forward-looking statements. In addition, Monterey undertakes no
obligations to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of anticipated events or changes to projections over
time.
- ---------------------------------------
(1) "Forward-looking statements" can be identified by use of words
such as "expect," "believe," "estimate," "project," "forecast,"
"anticipate," "plan," and similar expressions.
16
