FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended Commission file number 0-19633
ENGLE HOMES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2214791
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
123 N.W. 13th Street
Boca Raton, Florida 33432
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code)(561) 391-4012
NONE
(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 report(s), and (2) has been subject to filing requirements
for the past 90 days.
YES x NO
Number of shares of common stock outstanding as of July 31, 1996: 6,929,200
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
ENGLE HOMES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<CAPTION>
July 31, October 31,
1996 1995
Unaudited
<S> <C> <C>
ASSETS
CASH
Unrestricted $ 2,350 $ 2,967
Restricted 9,599 4,257
PROCEEDS DUE FROM CLOSINGS 7,993 6,176
INVENTORIES AND PROPERTIES HELD FOR
DEVELOPMENT OR SALE 210,030 196,788
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES 1,649 1,876
PROPERTY AND EQUIPMENT, net 3,312 16,435
OTHER ASSETS 17,970 10,646
GOODWILL 6,048 6,300
MORTGAGE LOANS HELD FOR SALE 12,639 6,473
--------- ---------
TOTAL ASSETS $ 271,590 $ 251,918
========= =========
LIABILITIES
ACCOUNTS PAYABLE $ 11,128 $ 8,595
ACCRUED EXPENSES 6,159 5,113
DEPOSITS, primarily for residential homes
contracted to be sold 14,496 9,219
BORROWINGS 77,603 77,454
SENIOR NOTES PAYABLE (including $5,390 to
related parties) 40,000 40,000
CONVERTIBLE SUBORDINATED NOTES 30,000 30,000
DEFERRED INCOME TAX 958 958
FINANCIAL SERVICES BORROWINGS 12,639 6,473
--------- ---------
TOTAL LIABILITIES $ 192,983 $ 177,812
--------- ---------
SHAREHOLDERS' EQUITY
PREFERRED STOCK, $.01 par, share authorized
1,000,000, none issued
COMMON STOCK, $.01 par, shares authorized
25,000,000; issued and outstanding 6,929,200 69 69
ADDITIONAL PAID-IN CAPITAL 48,523 48,523
RETAINED EARNINGS 30,015 25,514
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 78,607 74,106
--------- ---------
$ 271,590 $ 251,918
========= =========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
2
<TABLE>
ENGLE HOMES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES
Sales of homes $ 83,458 $ 57,801 $ 202,191 $ 158,195
Sales of land 4,218 5,816 16,875 10,227
Rent and other 337 448 1,239 1,191
Financial services income 546 471 1,250 628
-------- -------- --------- ---------
88,559 64,536 221,555 170,241
-------- -------- --------- ---------
COSTS AND EXPENSES
Cost of sales - homes
Land and construction 72,171 50,330 175,014 136,749
Cost of sales - land
Land and improvements 3,737 4,836 14,909 8,405
Selling, marketing, general and
administrative 7,948 5,790 20,756 16,312
Depreciation and amortization 713 875 2,276 2,654
-------- -------- --------- ---------
84,569 61,831 212,955 164,120
-------- -------- --------- ---------
INCOME BEFORE TAX 3,990 2,705 8,600 6,121
Provision for income taxes 1,516 1,028 3,268 2,326
-------- -------- --------- ---------
NET INCOME $ 2,474 $ 1,677 $ 5,332 $ 3,795
======== ======== ========= =========
Net income per share
Primary $ 0.35 $ 0.24 $ 0.75 $ 0.54
======== ======== ========= =========
Fully diluted $ 0.30 $ 0.21 $ 0.66 $ 0.49
======== ======== ========= =========
Shares used in earnings per share
calculations
Primary 7,120 7,017 7,120 6,974
Fully diluted 9,263 9,163 9,263 9,117
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
ENGLE HOMES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity
For the Nine Months Ended July 31, 1996
(Unaudited)
(In thousands)
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
Amounts at October 31,
1995 6,929 $ 69 $ 48,523 $ 25,514 $ 74,106
Net Income for the
Nine Months Ended
July 31, 1996 5,332 5,332
Dividends to
Shareholders (831) (831)
------ ------ ---------- --------- ---------
Amounts at
July 31, 1996 6,929 $ 69 $ 48,523 $ 30,015 $ 78,607
====== ====== ========== ========= =========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
<TABLE>
ENGLE HOMES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<CAPTION>
NINE MONTHS ENDED
JULY 31,
1996 1995
<S> <C> <C>
NET CASH REQUIRED BY OPERATING
ACTIVITIES $ (11,389) $ (46,318)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net dispositions (acquisitions) of property
and equipment 11,456 (1,253)
---------- ----------
Net cash provided (required) by investing
activities 11,456 (1,253)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in borrowings 58,505 55,144
Repayment of borrowings (58,358) (9,896)
Dividends to shareholders (831) (832)
---------- ----------
Net cash (required) provided by financing
activities (684) 44,416
---------- ----------
NET DECREASE IN CASH (617) (3,155)
CASH AT BEGINNING OF PERIOD 2,967 4,763
---------- ----------
CASH AT END OF PERIOD $ 2,350 $ 1,608
========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
5
ENGLE HOMES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 1 BASIS OF PRESENTATION AND BUSINESS:
These statements do not contain all information required by generally
accepted accounting principles that are included in a full set of financial
statements. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to present
fairly the financial position of Engle Homes, Inc. and subsidiaries ("the
Company") at July 31, 1996 and results of its operations and its cash flows for
the period then ended and period ended July 31, 1995. These unaudited condensed
consolidated financial statements should be read in conjunction with the audited
financial statements and notes contained in the Company's Form 10-K for the year
ended October 31, 1995. Results of operations for this period are not
necessarily indicative of results to be expected for the full year.
Income per share has been computed using the weighted average number of
common shares outstanding. Such computations are further adjusted for fully
diluted purposes by assuming conversion of the $30,000,000 7% Convertible
Subordinated Notes (the "Convertible Subordinated Notes") and elimination of
related interest incurred during the period, resulting in an increase in net
income after taxes, of $751,000 and $287,000 for the nine months and three
months ended July 31, 1996.
Engle Homes, Inc. and subsidiaries is engaged principally in construction
and sale of residential homes and land development in Florida; Dallas, Texas;
Denver, Colorado; Raleigh, North Carolina; Virginia and Maryland. Ancillary
products and services to its residential home building include land sales to
other builders, operation of commercial properties, origination and sale of
mortgage loans, and title transfer services. The consolidated financial
statements include the accounts of the Company and all subsidiaries. All
significant intercompany balances and transactions have been eliminated in the
consolidation.
<TABLE>
NOTE 2 INVENTORIES AND PROPERTIES HELD FOR DEVELOPMENT OR SALE
(Dollars in thousands)
<CAPTION>
JULY 31, OCTOBER
1996 1995
<S> <C> <C>
Land and improvements for residential homes
under development $ 156,360 $ 151,977
Residential homes under construction 51,750 42,887
Land zoned for commercial development 1,920 1,924
--------- ---------
210,030 196,788
========= =========
Investment in unconsolidated joint venture $ 1,649 $ 1,876
========= =========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
6
<TABLE>
NOTE 3 CAPITALIZATION OF INTEREST (Dollars in thousands)
Included in inventory is the following:
<CAPTION>
For the Three Months For the Nine Months
Ended July, 31 Ended July, 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest capitalized,
beginning of period $ 16,202 $ 10,003 $ 13,092 $ 6,690
Interest incurred and 3,450 3,859 11,042 10,129
capitalized
Amortized to cost of sales (3,162) (1,637) (7,644) (4,594)
--------- --------- --------- ---------
Interest capitalized, end
of period $ 16,490 $ 12,225 $ 16,490 $ 12,225
========= ========= ========= =========
</TABLE>
NOTE 4 SHAREHOLDERS' EQUITY
On August 8, 1996, the Company declared a cash dividend of $.04 per share
to shareholders of record on September 6, 1996, which will be paid on September
27, 1996.
7
Part 1 - Item II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
<TABLE>
The following table sets forth for the periods indicated certain items of
the Company's financial statements expressed as a percentage of the Company's
total revenues:
<CAPTION>
For the Three For the Nine
Months Months
Ended July 31, Ended July 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales of homes 94.2% 89.6% 91.3% 92.9%
Sales of land 4.8 9.0 7.6 6.0
Rent and other .4 .7 .5 .7
Financial services
income .6 .7 .6 .4
Selling, marketing,
general and
administrative expense 8.9 9.0 9.4 9.6
Net income 2.8 2.6 2.4 2.2
</TABLE>
<TABLE>
Backlog
Sales of the Company's homes are generally made pursuant to a standard
contract which requires a down payment of up to 10% of the sales price. The
contract includes a financing contingency which permits the customer to cancel
in the event mortgage financing at prevailing interest rates (including
financing arranged by the Company) is unobtainable within a specified period,
typically four to six weeks. The Company includes an undelivered home sale in
its backlog upon execution of the sales contracts and receipt of the down
payment. Revenue is recognized only upon the closing and delivery of a home.
The Company estimates that the average period between the execution of a
purchase agreement for a home and delivery is approximately six months. The
following table sets forth the Company's backlog for the periods indicated:
<CAPTION>
July 31, 1996
(dollars in thousands)
1996 1995
Units Dollars Units Dollars
<S> <C> <C> <C> <C>
South Florida 594 $ 132,900 473 $ 92,700
Orlando 182 34,900 140 26,700
Tampa 46 6,600 33 6,400
Texas 89 14,400 25 5,200
Denver 127 23,100 68 13,000
Virginia/Maryland 60 12,800 27 7,300
North Carolina 59 $ 11,600 14 2,800
----- --------- ------ --------
TOTAL 1,157 $ 236,300 780 $154,100
===== ========= ====== ========
</TABLE>
8
The increase in backlog at July 31, 1996 was due in part to improved new home
sales contract activity during the three months ended July 31, 1996 which
increased 7% to $84.8 million (430 contracts) compared to $79.0 million (398
contracts) in the comparable quarter.
Result of Operations:
Three Months Ended July 31, 1996 compared to July 31, 1995.
The Company's revenues from home sales increased approximately $25.7 million
(or 44.4%) during the three months ended July 31, 1996 as compared to the same
period in fiscal 1995, as a result of an increase in the number of homes
delivered (to 434 from 303). The average selling price of homes increased to
$192,000 from $191,000. This increase is due in part by increased homes
delivered in the Company's new divisions in Denver, CO; Dallas, TX; Raleigh, NC;
Virginia and Maryland. The cost of home sales increased approximately $21.8
million (or 43.4%) from the comparable fiscal 1995 period primarily due to the
related increase in home sales. The cost of home sales as a percentage
decreased .6% (to 86.5% from 87.1). The increase in gross margin was primarily
the result of the product mix of homes delivered. Management believes that
changes in the average selling price of homes delivered from period to period
are attributable to discrete factors at each of its subdivisions, including
product mix and premium lot availability, and cannot be predicted for future
periods with any degree of certainty.
The Company's revenues from land sales decreased approximately $1.6 million
during the three months ended July 31, 1996, as compared to the same period in
fiscal 1995, primarily as a result of lower sales of commercial land at Pembroke
Falls, a master-planned community in South Florida.
The Company's selling, marketing, general and administrative ("S,G&A")
expenses increased approximately $2.2 million (or 37.3%) during the three months
ended July 31, 1996, as compared to the corresponding fiscal 1995 period,
primarily due to selling and marketing expenses associated with an increased
number of homes delivered during the period. S,G&A expenses as a percentage of
total revenues is comparable to the three months ended July 31, 1995.
Primarily as a result of an increase in home sales revenues, net income
increased by approximately $797,000 in the three months ended July 31, 1996 from
the comparable period in fiscal 1995.
Nine Months Ended July 31, 1996 compared to July 31, 1995.
The Company's revenues from home sales increased approximately $44.0
million (or 27.8%) during the nine months ended July 31, 1996 as compared to the
same period in fiscal 1995 as a result of the increase in the number of homes
delivered (to 1053 from 837) The average selling price of homes increased to
$192,000 from $189,000. The cost of home sales increased approximately $38.3
million (or 28.0%) during the nine months ended July 31, 1996 as compared to the
same period in fiscal 1995, primarily due to the related increase in home sales.
Cost of home sales as a percentage of home sales revenues for the nine months
ended July 31, 1996 increased .1% (to 86.5% from 86.4%). The increase in gross
margin was primarily the result of the product mix of homes delivered.
Management believes that changes in the average selling price of homes delivered
from period to period are attributable to discrete factors at each of its
subdivisions, including product mix and premium lot availability, and cannot be
predicted for future periods with any degree of certainty.
The Company's revenues from land sales increased approximately $6.6 million
during nine month period ended July 31, 1996 from the comparable fiscal 1995
period, primarily as a result of commercial land sales at Pembroke Falls, a
master-planned community in South Florida.
9
The Company's selling, marketing, general and administrative ("S,G&A")
expenses increased approximately $4.4 million (or 27.2%) during the nine months
ended July 31, 1996, as compared to the corresponding fiscal 1995 period,
primarily due to selling and marketing expenses associated with an increased
number of homes delivered during the period. S,G&A expenses as a percentage of
total revenues is comparable to the nine months ended July 31, 1995.
Primarily as a result of an increase in home and land sales revenues and
financial services income, which include Preferred Home Mortgage Company and
Universal Land Title, Inc., net income increased by approximately $1.5 million
for the nine month ended July 31, 1996 from the comparable period in fiscal
1995.
Liquidity and Capital Resources
General. The Company's financing needs depend upon its construction volume,
asset turnover and land acquisitions. Prior to the Company's initial public
offering, the Company's most significant source of funds had been acquisition,
development and revolving construction loans provided by financial institutions
and seller financing for land purchases. In January 1992, the Company completed
an initial public offering of its Common Stock and received net proceeds of
approximately $27.3 million. The net proceeds were used primarily for the
repayment of debt, land acquisitions and a dividend to then-existing
shareholders. In February 1993, the Company issued an aggregate of $30.0
million principal amount of 7% Convertible Subordinated Notes due 2003, and
received net proceeds of approximately $28.7 million. Approximately $8.4
million of such proceeds were used to repay certain land acquisition and
construction loans, and the balance was used for general corporate purposes,
including working capital, land acquisition and development.
In March 1994, the Company sold, in a private placement, $40.0 million
principal amount of 11.75% Senior Notes due 2000. The net proceeds of
approximately $38.6 million from this private debt placement were used to repay
a $10.0 million loan from Alec Engelstein, the Company's Chairman of the Board,
President and Chief Executive Officer, and repay a portion of approximately
$15.0 million of other borrowings under existing credit facilities, all of which
borrowings had been incurred in connection with the Pembroke Falls land
purchase. The balance of the proceeds were used for general corporate purposes,
including working capital, land acquisition and development.
At July 31, 1996, the Company had outstanding borrrowings of approximately
$147.6 million and aggregate available funds of approximately $27.2 million
pursuant to various construction related borrowing arrangements. The Company
believes that funds generated from operations and expected borrowing
availability under existing and future bank credit facilities will be sufficient
to fund the Company's working capital requirements through at least fiscal 1996
with the exception of major land acquisitions. Major land acquisitions, such as
the Company's purchase of Pembroke Falls, are expected to be at lease partially
financed with additional equity or debt financing.
At July 31, 1996, the Company also had outstanding borrowings of
approximately $12.6 million pursuant to a credit line to service origination of
mortgage loans and aggregate available funds of approximately $15.2 million
under such line.
Land Acquisition and Construction Financing. The Company is continually
exploring opportunities to purchase parcels of land for its homebuilding
operations and is, at any given time, in various stages of proposing, making
offers for, and negotiating the acquisition of various parcels, whether outright
or through options.
10
The Company has increased its land development activities due to Pembroke
Falls and anticipated demand. The Company expects to pursue additional land
acquisition and development opportunities in the future. However, the Company's
ability to undertake significant additional projects is expected to depend in
part upon the availability of financing on satisfactory terms. Numerous
financial institutions have adopted more stringent lending policies, often as a
result of regulatory agency measures. Consequently, the availability of
borrowed funds, especially for the acquisition of land, has been reduced and
lenders are now requiring increased equity commitments by borrowers in
connection with both new loans and the extension of existing loans. To date,
the Company has not had any significant difficulties in securing acquisition,
development and construction financing and, except with respect to major land
acquisitions, management believes that such financings will continue to be
available on satisfactory terms. However, there can be no assurance that
sufficient financing on satisfactory terms will continue to be available. In
addition, the closing of $6.5 million binding land sale contracts at Pembroke
Falls will further the Company's ability to acquire additional projects.
Debt Service. In addition to land acquisition expenditures incurred by the
Company, principal commitments during the next several years relate to repayment
of debt. Scheduled and estimated maturities of the Company's borrowings
aggregate approximately $28.5 million through July 31, 1997. The Company
anticipates that it will fund the maturities of its debt and required
expenditures relating to its developments primarily with cash flow from
operations and existing credit lines, new or renewed credit lines or term loans.
On August 29, 1996, the Company announced it has entered into two separate
secured revolving credit facilities of $75 million and $48 million. NationsBank,
N.A. (South) as agent, and Guaranty Federal Bank F.S.B., as participant, have
provided the Company with a $75 million secured revolving credit agreement for
acquisition, development and construction financing, maturing August 26, 1999,
for properties in Florida, Texas, Colorado, Virginia and Maryland. In addition,
the Company has entered into a $48 million secured revolving credit agreement
maturing April 15,1999 with SunTrust, South Florida, N.A. The facility
currently provides for acquisition, development and construction financing for
the Company's Florida projects.
Cash Flows. The Company experienced negative cash flows from operating
activities during the nine months ended July 31, 1996. This is primarily the
result of increased land development and construction activities at Pembroke
Falls. Cash flow from investing activities during the nine months ended
July 31, 1996 increased primarily as a result of the sale of three commercial
properties. They included the sale of the Company's 38,000 square foot shopping
plaza located in Boca Raton, Florida on December 12, 1995, a 95 unit rental
apartment complex in Orlando, Florida on December 29, 1995 and a 60,000 square
foot mixed use office building located in Boca Raton, Florida on July 10, 1996.
Such activities resulted in a net decrease in cash of approximately $617,000
for the nine months ended July 31, 1995. The Company expects improved cash flows
in the fourth quarter of fiscal 1996 primarily due to an increase in deliveries
of homes.
The Company's mortgage company has established credit to finance the
origination of its mortgage loans. Management does not anticipate that such
expanded operations will significantly impact the Company's liquidity because
the mortgages are generally sold within a short period of time after their
origination to the Federal National Mortgage Association (FNMA) or other
qualified investors. The mortgage company has the capability to retain the
servicing of such loans.
11
Part II - Other Information
Item 1-5 Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 11. Statement Regarding Computation of Per Share Earnings.
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 thereunto duly authorized.
ENGLE HOMES, INC.
(Registrant)
Date: September 3, 1996 \s\ ALEC ENGELSTEIN
Alec Engelstein
Chief Executive Officer
Date: September 3, 1996 \s\ DAVID SHAPIRO
David Shapiro
Chief Financial Officer
13<PAGE>
<TABLE>
ENGLE HOMES, INC. AND SUBSIDIARIES
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(In thousands)
<CAPTION>
July 31,1996
For the Three For the Nine
Months Ended Months Ended
<S> <C> <C>
FULLY DILUTED EARNINGS PER SHARE
Computation for Statement of Income
Reconciliation of net income to amount used
for fully diluted computation in statement
of income:
Net income per statement of income $ 2,474 $ 5,332
Interest on 7% convertible debentures
reflected in cost of sales,
net of tax effect (a) 287 751
------------ -----------
Net income, adjusted $ 2,761 $ 6,083
============ ===========
Reconciliation of weighted average number of
shares outstanding to amount used for fully
diluted computation in statement of income:
Weighted average number of shares outstanding 6,929 6,929
Weighted average shares issuable from assumed
exercise of 7% convertible debentures 2,143 2,143
Additional dilutive effect of price guarantee
on shares issued for acquisition of land 191 191
------------ -----------
Weighted average number of common shares
as adjusted 9,263 9,263
------------ -----------
Fully diluted earnings per share 0.30 0.66
============ ===========
<FN>
(a) Interest incurred on the 7% convertible debentures is capitalized to
inventory and amortized through costs of sales. The interest add back
represents the current year amortization of capitalized interest.
</FN>
</TABLE>
14
