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, 1999
----------------
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
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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, 1999: 11,190,796
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,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CASH
Unrestricted $ 17,351 $ 20,041
Restricted 1,475 1,074
INVENTORIES 358,291 352,620
PROPERTY AND EQUIPMENT, net 5,873 4,339
OTHER ASSETS 24,289 22,293
GOODWILL 5,207 5,291
MORTGAGE LOANS HELD FOR SALE 25,058 25,770
--------- ----------
TOTAL ASSETS $ 437,544 $ 431,428
========= ==========
LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 28,119 $ 26,570
CUSTOMER DEPOSITS 12,442 12,227
BORROWINGS 56,391 55,856
SENIOR NOTES PAYABLE 149,300 149,281
FINANCIAL SERVICES BORROWINGS 25,058 25,770
--------- ---------
TOTAL LIABILITIES $ 271,310 $ 269,704
--------- ---------
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 11,190,796
and 11,169,237, respectively 112 112
ADDITIONAL PAID-IN CAPITAL 103,386 103,134
RETAINED EARNINGS 62,736 58,478
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 166,234 161,724
--------- ---------
$ 437,544 $ 431,428
========= =========
<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, 1999
---------------------
1999 1998
--------- ---------
<S> <C> <C>
REVENUES
Sales of homes $ 143,034 $ 79,190
Sales of land 1,399 7,361
Rent and other 1,052 506
Financial services 5,234 3,352
--------- ---------
150,719 90,409
--------- ---------
COSTS AND EXPENSES
Cost of sales - homes 121,255 65,835
Cost of sales - land 1,323 6,625
Selling, marketing, general
and administrative 15,483 10,096
Depreciation and amortization 1,165 529
Financial services 3,830 2,615
--------- ---------
143,056 85,700
--------- ---------
INCOME BEFORE INCOME TAX 7,663 4,709
Provision for income taxes 2,958 1,813
--------- ---------
INCOME BEFORE EXTRAORDINARY ITEM $ 4,705 $ 2,896
Loss on extinguishment of debt, net
of income taxes (598)
--------- ---------
NET INCOME $ 4,705 $ 2,298
========= =========
Net income per share
Basic $ 0.42 $ 0.42
Diluted $ 0.42 $ 0.37
Basic - extraordinary item $ (0.09)
Diluted - extraordinary item $ (0.07)
Basic $ 0.42 $ 0.33
Diluted $ 0.42 $ 0.30
Shares used in earnings per
share calculations
Basic 11,182 6,976
Diluted 11,313 8,226
<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, 1999
(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, 1998 $11,169 $ 112 $ 103,134 $ 58,478 $161,724
Net Income for the
Three Months Ended
January 31, 1999 4,705 4,705
Dividends to
Shareholders (447) (447)
Common stock issued
in connection with
employee stock bonus
plan 11 156 156
Common stock issued
in connection with
exercise of stock
options 10 96 96
------- ------ ---------- --------- ---------
Amounts at
January 31, 1999 $11,190 $ 112 $ 103,386 $ 62,736 $166,234
======= ====== ========== ========= =========
<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,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
NET CASH REQUIRED BY OPERATING ACTIVITIES $ (474) $ (42,974)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (acquisitions) dispositions of
property and equipment (2,420) (455)
---------- ----------
Net cash required by investing activities (2,420) (455)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in borrowings 8,989 64,147
Repayment of borrowings (8,434) (14,124)
Distribution to shareholders (447) (278)
Redemption of subordinated bonds (14,966)
Stock options exercised 96 10
---------- ----------
Net cash provided by
financing activities 204 34,789
---------- ----------
NET DECREASE IN CASH (2,690) (8,640)
CASH AT BEGINNING OF PERIOD 20,041 15,565
---------- ----------
CASH AT END OF PERIOD $ 17,351 $ 6,925
========== ==========
<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, 1999 and results of its operations and its cash flows
for the period then ended and period ended January 31, 1998. 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, 1998. Results of operations for this period are
not necessarily indicative of results to be expected for the full year.
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,
1999 1998
--------- -----------
<S> <C> <C>
Land and improvements for residential homes
under development $ 273,502 $ 269,044
Residential homes under construction 84,789 83,576
--------- ---------
$ 358,291 $ 352,620
========= =========
</TABLE>
<TABLE>
NOTE 3 CAPITALIZATION OF INTEREST (dollars in thousands)
Included in inventory is the following:
<CAPTION>
For the Three Months
Ended January 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Interest capitalized,
beginning of period $ 16,326 $ 16,378
Interest incurred and
capitalized 4,695 3,973
Amortized to cost of sales - homes (4,147) (3,060)
Amortized to cost of sales - land ( 70) (1,090)
--------- ---------
Interest capitalized, end of period $ 16,804 $ 16,201
6 ========= =========
</TABLE>
NOTE 4 SHAREHOLDERS' EQUITY
On November 16, 1998, the Company declared a cash dividend of $.04 per
share to shareholders of record on November 25, 1998, which was paid on
December 17, 1998.
NOTE 5 - EARNINGS PER SHARE
<TABLE>
Basic and diluted earnings per share before extraordinary items are
calculated as follows:
<CAPTION>
For the Three Months
Ended January 31,
1999 1998
-------- --------
<S> <C> <C>
Basic:
Income before extraordinary items $ 4,705 $ 2,896
Weighted average number of common shares
outstanding 11,182 76
-------- --------
Basic earnings per share .42 .42
======== ========
Diluted:
Income before extraordinary items 4,705 $ 2,896
Interest on 7% convertible debentures
reflected in cost of sales, net of
tax effect 164
-------- --------
Income before extraordinary items
applicable to diluted common shares $ 4,705 $ 3,060
======== ========
Weighted average number of common shares
outstanding 11,182 6,976
Weighted average shares issuable from assumed
exercise of 7% convertible debentures 1,060
Options to acquire common stock 131 190
-------- --------
Diluted weighted average common shares
outstanding 11,313 8,226
-------- --------
Diluted earnings per share before
extraordinary items 0.42 0.37
======== ========
7
</TABLE>
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,
-----------------
1999 1998
------ -------
<S> <C> <C>
Total Revenues 100.0% 100.0%
Costs of home construction and
land sales 81.3 80.1
Selling, marketing, general and
administrative expense 10.3 11.2
Income before taxes 5.1 5.2
</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 four to six months.
The following table sets forth the Company's backlog for the periods indicated:
<CAPTION>
January 31,
(dollars in thousands)
1999 1998
---------------- ----------------
Units Dollars Units Dollars
----- --------- ----- ---------
<S> <C> <C> <C> <C>
South Florida 371 80,000 315 $ 63,900
Central Florida 428 86,100 163 32,900
West Coast Florida 161 26,000 123 21,100
Dallas, Texas 123 21,000 103 15,800
Denver, Colorado 244 51,300 133 26,300
Virginia/Maryland 119 28,600 47 12,900
Raleigh, North Carolina 36 7,700 13 2,500
Atlanta, Georgia 25 4,400
Phoenix, Arizona 251 52,300 109 22,000
----- --------- ------ ---------
TOTAL 1,758 $ 357,400 1,006 $ 197,400
===== ========= ====== =========
</TABLE>
8
The increase in unit backlog at January 31, 1999 was due to a record 866
new homes sales during the three months ended January 31, 1999. This represents
a 64% increase in the number of new home sales contracts signed, when compared
with 528 contracts in the quarter ended January 31, 1998. The Company is
currently marketing in 89 subdivisions at January 31, 1999, compared to 76
subdivisions at January 31, 1998. At January 31, 1999, the Company was
marketing 12 subdivisions in South Florida; 16 in Central Florida; 17 in West
Coast Florida; 10 in Denver, CO; 8 in Dallas, TX; 8 in Virginia and Maryland;
3 in Raleigh, North Carolina; 10 in Phoenix, Arizona and 5 in Atlanta, Georgia.
Result of Operations:
Three Months Ended January 31 1999 compared to January 31, 1998.
The Company's revenues from home sales for the quarter ended
January 31, 1999 increased $63.8 million (or 80.6%) compared to the same period
in fiscal 1998. The number of homes delivered increased 86.4% (to 729 from 391)
and the average selling price of homes delivered decreased 3.4% (to $196,000
from $203,000). The increase of revenues and homes delivered is primarily
attributable to an increased level of backlog at the beginning of the current
quarter compared with the prior year period. 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 $6.0 million
during the three months ended January 31 1999, as compared to the same period
in fiscal 1998, primarily as a result of a decrease in commercial land sales at
Pembroke Falls, a master-planned community in South Florida.
Cost of home sales increased $55.4 million (or 84.2%) compared to the
quarter ended January 31, 1998 primarily due to the related increase in home
sale revenues. Cost of home sales as a percentage of home sales increased to
84.8% from 83.1% as a result of the product mix of homes delivered.
The Company's selling, marketing, general and administrative ("S,G&A")
expenses increased approximately $5.4 million (or 53.4%) during the three months
ended January 31, 1999, as compared to the corresponding fiscal 1998 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 for the three months ended
January 31, 1999 decreased to 10.3% compared to 11.2%, primarily due to an
increase in home sales revenues for the period as compared to the prior year.
Primarily as a result of an increase in revenues, net income before
extraordinary items increased by $1,800,000 in the three months ended January
31, 1999 from the comparable period in fiscal 1998.
Liquidity and Capital Resources
The Company's financing needs are provided by cash flows from operations,
unsecured bank borrowings and from time to time the public debt and equity
markets.
9
Cash flow from operations, before inventory additions, has improved as a
result of increased revenue from all homebuilding divisions. The Company
anticipates that cash flow from operations before inventory additions will
continue to increase in fiscal year 1999 as a result of increased new home
deliveries.
The Company has a $170 million unsecured revolving credit facility with
various banks which extends through May 2001. At January 31, 1999 the Company
had outstanding borrowings of approximately $205.7 million and $4.9 million of
letters of credit outstanding. The Company believes that funds generated from
operations and expected borrowing availability under the Credit Facility will
be sufficient to fund the Company's working capital requirements during fiscal
1999, with the exception of major land acquisitions, if any.
In December 1998, the Company entered into a interest rate swap agreement
with a financial institution to reduce the impact of changes in interest rates
of its floating rate bank debt. The agreement, which matures in five years, has
a total notional principal amount of $40 million. The swap agreement
effectively converts a portion of the Company's floating rate bank debt to a
fixed rate. The Company pays the counterparty a fixed rate of 5.15% plus an
additional 225 basis points per annum or 7.4%. The amount of additional basis
points paid by the Company will be reduced if certain improvements in the
Company's senior debt rating occur in the future. Payment from the counterparty
is received based upon the floating 30 day LIBOR rate. The Company does not
expect non-performance by the counterparty, a major U.S. bank, and any losses
incurred in event of non-performance would not be expected to be material.
In addition, PHMC has a warehouse line of credit for $40.0 million which
is guaranteed by the Company. At January 31, 1999 the outstanding balance was
$25.1 million to service origination of mortgage loans. The Company believes
that this line is sufficient for its mortgage banking operation for the 1999
fiscal year.
LAND ACQUISITION. 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 continued to increase 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.
Management does not anticipate that PHMC'S expansion of its operation will
significantly impact 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. PHMC has established the
capability to retain the servicing of loans, however, during fiscal 1999 all
servicing rights were sold.
10
Year 2000 Issues
The Company conducts its business primarily with commercial software
provided by third party vendors. After an analysis of the Company's exposure
to the impact of year 2000 issues, management believes that such commercial
software is substantially year 2000 compliant and expects the cost of addressing
remaining year 2000 issues to be less that $10,000. As part of its assessment,
Company management has been evaluating year 2000 compliance by those with whom
it does business and to date has not discovered any year 2000 problems with
significant counterparties that it believes are reasonably likely to have a
material adverse effect upon the Company. However, no assurances can be given
that potential year 2000 problems at those with whom the Company does business
will not occur, and if these occur, consequences to the Company will not be
material.
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
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 18, 1999 \s\ ALEC ENGELSTEIN
- ------------------------ ------------------------
Alec Engelstein
Chief Executive Officer
Date: FEBRUARY 18, 1999 \s\ DAVID SHAPIRO
- ------------------------ ------------------------
David Shapiro
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 18826
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 358291
<CURRENT-ASSETS> 0
<PP&E> 5873
<DEPRECIATION> 0
<TOTAL-ASSETS> 437544
<CURRENT-LIABILITIES> 0
<BONDS> 149300
0
0
<COMMON> 112
<OTHER-SE> 166122
<TOTAL-LIABILITY-AND-EQUITY> 437544
<SALES> 144433
<TOTAL-REVENUES> 150719
<CGS> 122578
<TOTAL-COSTS> 122578
<OTHER-EXPENSES> 20478
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7663
<INCOME-TAX> 2958
<INCOME-CONTINUING> 4705
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4705
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
