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, 1998
----------------
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, 1998: 6,975,934
<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,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CASH
Unrestricted $ 6,925 $ 15,565
Restricted 1,003 981
INVENTORIES 273,083 230,108
PROPERTY AND EQUIPMENT, net 2,709 2,623
OTHER ASSETS 19,593 18,979
GOODWILL 5,543 5,627
MORTGAGE LOANS HELD FOR SALE 11,806 14,529
--------- ----------
TOTAL ASSETS $ 320,662 $ 288,412
========= ==========
LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 18,577 $ 21,167
CUSTOMER DEPOSITS 7,535 7,472
BORROWINGS 132,087 82,064
SENIOR NOTES PAYABLE (including $4,840 to
related parties) 40,000 40,000
CONVERTIBLE SUBORDINATED NOTES 14,836 30,000
FINANCIAL SERVICES BORROWINGS 11,806 14,529
--------- ---------
TOTAL LIABILITIES $ 224,841 $ 195,232
--------- ---------
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 6,975,934
and 6,931,693, respectively 70 69
ADDITIONAL PAID-IN CAPITAL 48,472 47,852
RETAINED EARNINGS 47,279 45,259
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 95,821 93,180
--------- ---------
$ 320,662 $ 288,412
========= =========
<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, 1998
---------------------
1998 1997
--------- ---------
<S> <C> <C>
REVENUES
Sales of homes $ 79,190 $ 96,929
Sales of land 7,361 242
Rent and other 506 259
Financial services 3,352 2,678
--------- ---------
90,409 100,108
--------- ---------
COSTS AND EXPENSES
Cost of sales - homes 65,835 82,840
Cost of sales - land 6,625 238
Selling, marketing, general
and administrative 10,096 9,494
Depreciation and amortization 529 668
Financial services 2,615 2,250
--------- ---------
85,700 95,490
--------- ---------
INCOME BEFORE INCOME TAX 4,709 4,618
Provision for income taxes 1,813 1,778
--------- ---------
INCOME BEFORE EXTRAORDINARY ITEM $ 2,896 $ 2,840
Loss on extinguishment of debt, net
of income taxes (598)
--------- ---------
NET INCOME $ 2,298 $ 2,840
========= =========
Net income per share
Basic $ 0.42
Diluted $ 0.37
Basic - extraordinary item $ (0.09)
Diluted - extraordinary item $ (0.07)
Basic $ 0.33 $ 0.41
Diluted $ 0.30 $ 0.34
Shares used in earnings per
share calculations
Basic 6,976 6,929
Diluted 8,226 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, 1998
(Unaudited)
(in thousands)
<CAPTION>
COMMON STOCK ADDITIONAL
-------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Amounts at
October 31, 1997 6,932 $ 69 $ 47,852 $ 45,259 $ 93,180
Net Income for the
Three Months Ended
January 31, 1998 2,298 2,298
Dividends to
Shareholders (278) (278)
Common stock issued in
connection with
conversion of debt 41 1 570 571
Common stock issued
in connection with
employee stock bonus
plan 2 40 40
Common stock issued
in connection with
exercise of stock
options 1 10 10
------ ------ ---------- --------- ---------
Amounts at
January 31, 1998 6,976 $ 70 $ 48,472 $ 47,279 $ 95,821
====== ====== ========== ========= =========
<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,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
NET CASH REQUIRED BY OPERATING
ACTIVITIES $ (42,974) $ (14,158)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (acquisitions) dispositions of
property and equipment (455) 678
---------- ----------
Net cash (required) provided by
investing activities (455) 678
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in borrowings 64,147 19,056
Repayment of borrowings (14,124) (16,302)
Distribution to shareholders (278) (276)
Redemption of subordinated bonds (14,966)
Stock options exercised 10
Distribution in connection
with land purchase (269)
---------- ----------
Net cash provided (required) by
financing activities 34,789 2,209
---------- ----------
NET (DECREASE) INCREASE IN CASH (8,640) (11,271)
CASH AT BEGINNING OF PERIOD 15,565 18,262
---------- ----------
CASH AT END OF PERIOD $ 6,925 $ 6,991
========== ==========
<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, 1998 and results of its operations and its cash flows
for the period then ended and period ended January 31, 1997. 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, 1997. 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 $14,836,000 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 $164,000 for the three months ended January 31, 1998.
Engle Homes, Inc. and subsidiaries are engaged principally in construction
and sale of residential homes and land development in Florida; Dallas, Texas;
Denver, Colorado; Raleigh, North Carolina; Atlanta, Georgia; Phoenix, Arizona;
Virginia and Maryland. Ancillary products and services to its residential
homebuilding include land sales to other builders, 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
consolidation.
<TABLE>
NOTE 2 INVENTORIES (dollars in thousands)
<CAPTION>
January 31, October 31,
1998 1997
--------- -----------
<S> <C> <C>
Land and improvements for residential homes
under development $ 217,088 $ 182,279
Residential homes under construction 54,686 46,049
Land zoned for commercial development 1,309 1,780
--------- ---------
$ 273,083 $ 230,108
========= =========
</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,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Interest capitalized,
beginning of period $ 16,378 $ 16,821
Interest incurred and
capitalized 3,973 4,153
Amortized to cost of sales - homes ( 3,060) (3,567)
Amortized to cost of sales - land ( 1,090) ( 28)
--------- ---------
Interest capitalized, end
of period $ 16,201 $ 17,379
========= =========
</TABLE>
NOTE 4 SHAREHOLDERS' EQUITY
On November 11, 1997, the Company declared a cash dividend of $.04 per
share to shareholders of record on November 25, 1997, which was paid on
December 17, 1997.
On October 17, 1997, the Company announced the early redemption of $15.0
million of its 7% Convertible Subordinated Debentures due 2003. On November 18,
1997, the Company redeemed approximately $14.6 million aggregate principal
amount of the debentures. The Company established a $15.0 million short term
unsecured credit facility to fund this redemption. During the first quarter
ending January 31, 1998, $570,000 of the 7% Convertible Subordinated Notes were
converted by the holders into approximately 41,000 shares of Common Stock.
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,
-----------------
1998 1997
------ -------
<S> <C> <C>
Total Revenues 100.0% 100.0%
Costs of home construction and
land sales 80.1 83.0
Selling, marketing, general and
administrative expense 11.2 9.5
Income before taxes 5.2 4.6
</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)
1998 1997
---------------- ----------------
Units Dollars Units Dollars
----- --------- ----- ---------
<S> <C> <C> <C> <C>
South Florida 315 63,900 504 $ 113,700
Orlando 163 32,900 131 23,800
West Coast Florida 123 21,100 30 5,200
Texas 103 15,800 65 10,500
Denver 133 26,300 75 14,300
Virginia/Maryland 47 12,900 29 7,100
North Carolina 13 2,500 23 5,100
Arizona 109 22,000 0 0
----- --------- ------ ---------
TOTAL 1,006 $ 197,400 857 $ 179,700
===== ========= ====== =========
</TABLE>
8
The increase in unit backlog at January 31, 1998 was due to a record 528
new homes sales during the three months ended January 31, 1998. This represents
a 60% increase in the number of new home sales contracts signed, when compared
with 329 contracts in the quarter ended January 31, 1997. The Company is
operating in 76 subdivisions at January 31, 1998, compared to 72 subdivisions
at January 31, 1997. At January 31, 1998, the Company was marketing 21
subdivisions in South Florida; 13 in Central Florida; 8 in West Coast Florida;
9 in Denver, CO; 10 in Dallas, TX; 7 in Virginia and Maryland; 3 in Raleigh,
North Carolina; 4 in Phoenix, Arizona and 1 in Atlanta, Georgia.
Result of Operations:
Three Months Ended January 31 1998 compared to January 31, 1997.
The Company's revenues from home sales for the quarter ended
January 31, 1998 decreased $17.7 million (or 18.3%) compared to the same period
in fiscal 1997. The number of homes delivered decreased 19.9% (to 391 from 488)
and the average selling price of homes delivered increased 2.0% (to $203,000
from $199,000). The decrease of revenues and homes delivered is primarily
attributable to a decreased level of backlog at the beginning of the current
quarter and timing differences related to home closings at certain subdivisions.
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 $7.1 million
during the three months ended January 31 1998, as compared to the same period
in fiscal 1997, primarily as a result of an increase in commercial land sales
at Pembroke Falls, a master-planned community in South Florida.
Cost of home sales decreased $17.0 million (or 20.5%) compared to the
quarter ended January 31, 1997 primarily due to the related decrease in home
sale revenues. Cost of home sales as a percentage of home sales decreased to
83.1% from 85.5% as a result of the product mix of homes delivered.
The Company's selling, marketing, general and administrative ("S,G&A")
expenses increased approximately $600,000 (or 6.3%) during the three months
ended January 31, 1998, as compared to the corresponding fiscal 1997 period,
primarily due to increased general and administrative expenses associated with
payroll costs. S,G&A expenses as a percentage of total revenues for the three
months ended January 31, 1998 increased to 11.2% compared to 9.5%, primarily due
to a decrease in home revenues for the period as compared to the prior year.
Primarily as a result of the extraordinary item (loss on extinguishment of
approximately $15.2 million of the convertible subordinated notes), net income
decreased by $542,000 in the three months ended January 31, 1998 from the
comparable period in fiscal 1997.
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 bank credit facilities.
9
At January 31, 1998, the Company had outstanding bank borrowings of $115.9
million under its various revolving lines of credit, and had available
additional borrowings of $9.4 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 for fiscal year 1998.
The Company has two primary credit agreements (the "Agreements") with
various lending institutions which provided for a combined $130.0 million
collateralized revolving line of credit. Borrowings under these Agreements bear
interest at rates ranging from LIBOR plus 2.50% to prime plus .25% at the
Company's election. Available borrowings under the Agreements are limited to
certain percentages of finished lots, construction costs, land and land under
development. The Company is currently in discussions with a group of banks to
obtain an unsecured revolving credit facility to be used for working capital and
general corporate purposes. If obtained, the new facility would be used to
replace all of the Company's existing lines of credit, other than its warehouse
line of credit.
On October 17, 1997, the Company announced the early redemption of $15.0
million of its 7% Convertible Subordinated Debentures due 2003. On November 18,
1997, the Company redeemed approximately $14.6 million aggregate principal
amount of the debentures. The Company established a $15.0 million short term
unsecured credit facility to fund this redemption.
On February 2, 1998, the Company received net proceeds of approximately
$132.1 million from the sale of 2.7 million shares of common stock and $100
million principal amount of 9.25% Senior Notes due 2008. Proceeds from these
offerings were used to provide for the funding of the remaining balance of the
Convertible Debentures, to repay existing indebtedness and for general corporate
purposes.
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,
1998, PHMC had outstanding borrowings of $11.8 million pursuant to such credit
line from 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. During the three months ended January 31, 1998, the Company
increased land inventories approximately $34.8 million to provide land for
continued growth.
The Company has increased its land development and construction activities
in response to current and anticipated demand and 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.
10
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 looking information involves important risks and
uncertainties that could significantly affect expected results. These risks
and uncertainties are addressed in this and other SEC filings.
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
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 24, 1998 \s\ ALEC ENGELSTEIN
- ------------------------ ------------------------
Alec Engelstein
Chief Executive Officer
Date: FEBRUARY 24, 1998 \s\ DAVID SHAPIRO
- ------------------------ ------------------------
David Shapiro
Chief Financial Officer
13
<TABLE>
ENGLE HOMES, INC. AND SUBSIDIARIES
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(dollars in thousands, except per share data)
<CAPTION>
For the Three Months
Ended January 31,
1998
------------
<S> <C>
DILUTED EARNINGS PER SHARE
Computation for Statement of Income
Reconciliation of net income to amount used
for diluted computation in statement
of income:
Net income per statement of income $ 2,298
Interest on 7% convertible debentures
reflected in cost of sales,
net of tax effect (a) 164
-----------
Net income, adjusted $ 2,462
===========
Reconciliation of weighted average number of
shares outstanding to amount used for
diluted computation in statement of income:
Weighted average number of shares outstanding 6,976
Weighted average shares issuable from assumed
exercise of 7% convertible debentures 1,060
Dilutive effect from assumed exercised of
stock options 190
-----------
Weighted average number of common shares
as adjusted 8,226
-----------
Diluted earnings per share 0.30
===========
<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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 7,928
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 273,083
<CURRENT-ASSETS> 0
<PP&E> 2,709
<DEPRECIATION> 0
<TOTAL-ASSETS> 320,662
<CURRENT-LIABILITIES> 0
<BONDS> 186,923
0
0
<COMMON> 70
<OTHER-SE> 95,751
<TOTAL-LIABILITY-AND-EQUITY> 320,662
<SALES> 86,551
<TOTAL-REVENUES> 90,409
<CGS> 72,460
<TOTAL-COSTS> 72,460
<OTHER-EXPENSES> 13,240
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,709
<INCOME-TAX> 1,813
<INCOME-CONTINUING> 2,896
<DISCONTINUED> 0
<EXTRAORDINARY> (598)
<CHANGES> 0
<NET-INCOME> 2,298
<EPS-PRIMARY> .33
<EPS-DILUTED> .30
</TABLE>
