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 January 31, 1997
----------------
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 January 31, 1997: 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>
January 31, October 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CASH
Unrestricted $ 6,991 $ 18,262
Restricted 3,266 3,438
INVENTORIES 228,828 220,564
PROPERTY AND EQUIPMENT, net 2,430 3,599
OTHER ASSETS 16,660 19,406
GOODWILL 5,880 5,964
MORTGAGE LOANS HELD FOR SALE 10,297 13,006
DEFERRED TAX ASSETS 550 550
--------- ----------
TOTAL ASSETS $ 274,902 $ 284,789
========= ==========
LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 14,446 $ 26,170
CUSTOMER DEPOSITS 11,500 12,004
BORROWINGS 84,872 82,117
SENIOR NOTES PAYABLE (including $4,840 to
related parties) 40,000 40,000
CONVERTIBLE SUBORDINATED NOTES 30,000 30,000
FINANCIAL SERVICES BORROWINGS 10,297 13,006
--------- ---------
TOTAL LIABILITIES $ 191,115 $ 203,297
--------- ---------
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 48,254 48,523
RETAINED EARNINGS 35,464 32,900
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 83,787 81,492
--------- ---------
$ 274,902 $ 284,789
========= =========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
2
<TABLE>
ENGLE HOMES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
(dollars in thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
1997 1996
-----------------------
<S> <C> <C>
REVENUES
Sales of homes $ 96,929 $ 53,917
Sales of land 242 3,753
Rent and other 259 630
Financial services 2,678 1,788
--------- ---------
100,108 60,088
--------- ---------
COSTS AND EXPENSES
Cost of sales - homes 82,840 46,500
Cost of sales - land 238 3,154
Selling, marketing, general and
administrative 9,494 6,744
Depreciation and amortization 668 807
Financial services 2,250 1,577
--------- ---------
95,490 58,782
--------- ---------
INCOME BEFORE INCOME TAX 4,618 1,306
Provision for income taxes 1,778 496
--------- ---------
NET INCOME $ 2,840 $ 810
========= =========
Net income per share
Primary $ 0.41 $ 0.12
========= =========
Fully diluted $ 0.34 $ 0.11
========= =========
Shares used in earnings per share
calculations
Primary 6,989 6,989
Fully diluted 9,132 9,132
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
3
<TABLE>
ENGLE HOMES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity
For the Three Months Ended January 31, 1997
(Unaudited)
(dollars in thousands)
<CAPTION>
COMMON STOCK ADDITIONAL
-------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Amounts at
October 31, 1996 6,929 $ 69 $ 48,523 $ 32,900 $ 81,492
Net Income for the
Three Months Ended
January 31, 1997 2,840 2,840
Dividends to
Shareholders (276) (276)
Distribution in
connection with
land purchase (269) (269)
------ ------ ---------- --------- ---------
Amounts at
January 31, 1997 6,929 $ 69 $ 48,254 $ 35,464 $ 83,787
====== ====== ========== ========= =========
<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)
(dollars in thousands)
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
1997 1996
----------------------
<S> <C> <C>
NET CASH REQUIRED BY OPERATING
ACTIVITIES $ (14,158) $ ( 7,107)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net dispositions of property
and equipment 678 4,592
---------- ----------
Net cash provided by investing
activities 678 4,592
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in borrowings 19,056 16,938
Repayment of borrowings (16,302) (16,790)
Dividends to shareholders (276) (277)
Distribution in connection
with land purchase (269)
---------- ----------
Net cash provided (required) by
financing activities 2,209 (129)
---------- ----------
NET DECREASE IN CASH (11,271) (2,644)
CASH AT BEGINNING OF PERIOD 18,262 9,143
---------- ----------
CASH AT END OF PERIOD $ 6,991 $ 6,499
========== ==========
<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 January 31, 1997 and results of its operations and its cash flows
for the period then ended and period ended January 31, 1996. 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, 1996. 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 $262,000 for the three months ended January 31, 1997.
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>
January 31, October 31,
1997 1996
---------- ----------
<S> <C> <C>
Land and improvements for residential homes
under development $ 169,564 $ 161,590
Residential homes under construction 55,942 55,715
Land zoned for commercial development 1,780 1,780
Investment in consolidated joint ventures 1,542 1,479
--------- ---------
$ 228,828 $ 220,564
========= =========
</TABLE>
6
<TABLE>
NOTE 3 CAPITALIZATION OF INTEREST (dollars in thousands)
Included in inventory is the following:
<CAPTION>
For the Three Months
Ended January, 31
1997 1996
--------------------
<S> <C> <C>
Interest capitalized,
beginning of period $ 16,821 $ 13,092
Interest incurred and
capitalized 4,153 3,865
Amortized to cost of sales (3,595) (1,580)
--------- ---------
Interest capitalized, end
of period $ 17,379 $ 15,377
========= =========
</TABLE>
NOTE 4 SHAREHOLDERS' EQUITY
On November 25, 1996, the Company declared a cash dividend of $.04 per
share to shareholders of record on December 10, 1996, which was paid on
December 27, 1996.
On December 6, 1994, the Company purchased land for approximately $3.0
million and issued 250,000 of restricted shares of Common Stock with a minimum
guaranteed price of $12.00 per share. The Company's guarantee expires at the
rate of one percent (1%) of the Company's outstanding Common Stock per three
month period following the initial two year restriction period. In December
1996, the Company paid $269,000 to the shareholders in accordance with the
stock price guarantee.
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
Months Ended
January 31,
1997 1996
----------------
<S> <C> <C>
Total Revenues 100.0% 100.0%
Costs of home construction and
land sales 83.0 82.6
Selling, marketing, general and
administrative expense 9.5 11.2
Income before taxes 4.6 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>
January 31,
(dollars in thousands)
1997 1996
---------------- ----------------
Units Dollars Units Dollars
----- --------- ----- ---------
<S> <C> <C> <C> <C>
South Florida 504 $ 113,700 525 $ 112,800
Orlando 131 23,800 170 30,900
Tampa 30 5,200 23 4,100
Texas 65 10,500 20 4,000
Denver 75 14,300 61 11,300
Virginia/Maryland 29 7,100 23 5,100
North Carolina 23 5,100 44 8,500
----- --------- ------ ---------
TOTAL 857 $ 179,700 866 $ 176,700
===== ========= ====== =========
</TABLE>
8
The decrease in unit backlog at January 31, 1997 was due in part to a 4%
decline in new home sales contracts activity during the three months ended
Janauary 31, 1997 to $66.3 million versus $68.7 million in the prior year
quarter. Although most markets increased contract activity during the
quarter, the decline in the Orlando division was primarily due to the mix of
projects currently available for sale and is not a reflection of any change
of the Orlando market.
Result of Operations:
Three Months Ended January 31, 1997 compared to January 31, 1996.
The Company's revenues from home sales for the quarter ended
January 31,1997 increased $43.0 million (or 79.8%) compared to the same period
in fiscal 1996. The number of homes delivered increased 70.6% (to 488 from 286)
and the average selling price of homes delivered increased 5.3% (to $199,000
from $189,000). The increase of revenues and homes delivered is primarily
attributable to the record backlog of homes under contract during fiscal 1996.
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 $3.5
million during the three months ended January 31, 1997, as compared to the
same period in fiscal 1996, primarily as a result of a decrease in commercial
and multi-family land sales at Pembroke Falls, a master-planned community in
South Florida.
Cost of home sales increased $36.3 million (or 78.2%) compared to the
quarter ended January 31, 1996 primarily due to the related increase in home
sale revenues. Cost of home sales as a percentage of home sales decreased to
85.5% from 86.2% as a result of the product mix of homes delivered.
The Company's selling, marketing, general and administrative ("S,G&A")
expenses increased $2.7 million (or 40.8%) during the three months ended
July 31, 1997, as compared to the corresponding fiscal 1996 period, primarily
due to selling and marketing expenses associated with the increased number of
homes delivered during the period and an increase in selling expenditures
related to an increase in the number of residential subdivisions. S,G&A
expenses as a percentage of total revenues decreased to 9.5% from 11.2% for the
comparable quarter ending January 31, 1996, primarily due to economies of scale.
Primarily as a result of an increase in home sales revenues, net income
increased by $2.0 million in the three months ended January 31, 1997 from the
comparable period in fiscal 1996.
Liquidity and Capital Resources
The Company's financing needs depend upon its construction volume, asset
turnover and land acquisitions. The Company has financed and expects to
continue to finance, its working capital needs through funds generated by
operations and borrowings. Funds for future land acquisitions and construction
costs are expected to be provided primarily by cash flows from operations and
future borrowing as permitted under the Company"s loan agreements. At January
31, 1997, the Company had outstanding bank borrowings of $84.9 million under
its various revolving lines of credit, and had available additional borrowings
of $15.5 million. The Company believes that amounts generated from operations
and such additional borrowings will provide adequate funds to finance its
homebuilding activities and meet its debt service requirements.
9
On August 29, 1996, the Company 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,
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 entered into a $48 million secured revolving credit agreement
maturing April 15,1999 with SunTrust, South Florida, N.A. The facility
provides for acquisition, development and construction financing for the
Company's Florida projects.
Preferred Home Mortgage Company ("PHMC") has a warehouse line of credit in
the amount of $18.0 million which is guaranteed by the Company. At January 31,
1997, PHMC had outstanding borrowings of $10.3 million pursuant to such credit
line to service origination of mortgage loans. The Company believes that such
credit line is sufficient to meet the current needs of its mortgage company.
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.
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. 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 financing 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 $17.3 million land sale contracts at Pembroke Falls
will further the Company's ability to acquire additional projects.
Safe Harbor Statement Under the Private Securities Litigation Reform Act
of 1995
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward-looking statements. Certain information included
in this Report and other such Company filings (collectively, "SEC filings")
under the Securities Act of 1933, as amended, and the Securities Exchange Act
of 1934, as amended (as well as information communicated orally or in writing
between the dates of such SEC filings) contains or may contain information
that is forward looking, related to subject matter such as national and local
economic conditions, the effect of governmental regulation on the Company,
the competitive environment in which the Company operates, changes in
interest rates, home prices, availability and cost of land for future growth,
availability of working capital and the availability and cost of labor and
materials. Such forward lookong information involves important risks and
uncertainties that could significantly affect expected results. These risks
and uncertainties are addressed in this and other SEC filings.
10
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.
11
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: February 20, 1997 \s\ ALEC ENGELSTEIN
- ------------------------ -----------------------
Alec Engelstein
Chief Executive Officer
Date: February 20, 1997 \s\ DAVID SHAPIRO
- ------------------------ ----------------------
David Shapiro
Chief Financial Officer
12
<TABLE>
ENGLE HOMES, INC. AND SUBSIDIARIES
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(dollars in thousands)
<CAPTION>
For the Three Months
Ended January 31,
1997 1996
--------------------------
<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 $ 2,840 $ 810
Interest on 7% convertible debentures
reflected in cost of sales,
net of tax effect (a) 262 185
----------- -----------
Net income, adjusted $ 3,102 $ 995
=========== ===========
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
Dilutive effect from assumed exercised of
stock options 3
Additional dilutive effect of price guarantee
on shares issued for acquisition of land 60 57
----------- -----------
Weighted average number of common shares
as adjusted 9,132 9,132
----------- -----------
Fully diluted earnings per share 0.34 0.11
=========== ===========
<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>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 10,257
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 228,828
<CURRENT-ASSETS> 0
<PP&E> 2,430
<DEPRECIATION> 0
<TOTAL-ASSETS> 274,902
<CURRENT-LIABILITIES> 0
<BONDS> 154,872
0
0
<COMMON> 69
<OTHER-SE> 83,718
<TOTAL-LIABILITY-AND-EQUITY> 274,902
<SALES> 96,929
<TOTAL-REVENUES> 100,108
<CGS> 83,078
<TOTAL-COSTS> 83,078
<OTHER-EXPENSES> 12,650
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,618
<INCOME-TAX> 1,778
<INCOME-CONTINUING> 2,840
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,840
<EPS-PRIMARY> .41
<EPS-DILUTED> .34
</TABLE>
