<PAGE> 1
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, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
0-23270
Commission File Number
BORROR CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1393233
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
5501 Frantz Road, Dublin, Ohio 43017-0766
-----------------------------------------
(Address of principal executive offices)
(614) 761-6000
--------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
--------------
(Former Name, Former Address and Formal 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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Number of common shares outstanding as of March 31, 1996: 6,213,870
1
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BORROR CORPORATION
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.................................... 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 10
PART II OTHER INFORMATION....................................... 16
SIGNATURES ...................................................... 17
INDEX TO EXHIBITS..................................................... 18
2
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BORROR CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
================================================================================
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(unaudited)
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 207 $ 207
Notes and accounts receivable, net:
Trade 2,283 1,469
Due from financial institutions for residential closings 1,092 421
Refundable federal income taxes 1,019
Real estate inventories (Note 3):
Land and land development costs 48,270 51,312
Homes under construction 39,689 40,749
Other 2,932 2,416
----------- -----------
Total real estate inventories 90,891 94,477
----------- -----------
Prepaid expenses and other 622 678
Cash surrender value of life insurance, net 5 5
Other assets 336 499
Deferred income taxes 748 840
Property and equipment, at cost:
Property and equipment 8,972 9,197
Less accumulated depreciation (3,836) (3,781)
------------ ------------
Net property and equipment 5,136 5,416
----------- -----------
Total assets $ 101,320 $ 105,031
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade $ 3,856 $ 6,444
Deposits on homes under contract 1,887 1,697
Accrued liabilities 5,307 6,333
Note payable, banks (Note 2) 55,464 53,051
Term debt 5,876 8,731
----------- -----------
Total liabilities 72,390 76,256
----------- -----------
Commitments and contingencies (Note 5)
Shareholders' equity
Common shares, without stated value, 12,000,000 shares authorized
6,213,870 shares issued and outstanding 30,416 30,416
Less deferred compensation (33) (36)
Retained deficit (1,453) (1,605)
------------ ------------
Total shareholders' equity 28,930 28,775
----------- -----------
Total liabilities and shareholders' equity $ 101,320 $ 105,031
========== ==========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
3
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BORROR CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
------------- -----------
<S> <C> <C>
Revenues $ 36,318 $ 34,556
Cost of real estate sold 28,735 27,907
----------- -----------
Gross profit 7,583 6,649
----------- -----------
Selling, general and administrative 5,821 6,753
----------- -----------
Income (loss) from operations 1,762 (104)
Interest expense (Notes 2 and 3) 1,510 1,140
----------- -----------
Income (loss) before income taxes 252 (1,244)
----------- ------------
Provision for income taxes 100 (409)
----------- ------------
Net income (loss) $ 152 $ (835)
=========== ============
Earnings (loss) per share $ 0.02 $ (0.13)
=========== ============
Weighted average shares outstanding 6,213,870 6,191,020
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
4
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BORROR CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Common Shares
--------------------- Deferred Retained
Shares Amount Compensation Deficit Total
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 6,213,870 $ 30,416 $ (36) $ (1,605) $ 28,775
Net income 152 152
Deferred compensation 3 3
- - -------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 6,213,870 $ 30,416 $ (33) $ (1,453) $28,930
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the
financial statements.
5
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BORROR CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 152 $ (835)
Adjustments to reconcile net income (loss) to cash provided by
(used in) operating activities:
Depreciation and amortization 282 571
Disposal of property and equipment 108
Write-down of accounts receivable 150
Write-down of real estate inventories 170
Deferred income taxes 92
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,635) 306
Decrease in refundable federal income tax 1,019
Decrease (increase) in real estate inventories 3,586 (8,765)
Decrease (increase) in prepaid expenses and other 56 (187)
Decrease in other assets 104 84
Decrease in accounts payable (2,588) (2,571)
Increase in deposits on homes under contract 190 105
(Decrease) increase in accrued liabilities (1,026) 1,535
------------ -----------
Net cash provided by (used in) operating activities 490 (9,587)
Cash flows from investing activities:
Purchase of property and equipment (48) (85)
Increase in cash surrender value of life insurance policies (12)
----------- ------------
Net cash used in investing activities (48) (97)
Cash flows from financing activities:
Proceeds from note payable banks 2,413 9,844
Payments on term debt (2,855) (159)
------------ ------------
Net cash (used in) provided by financing activities (442) 9,685
------------ -----------
Net increase in cash and cash equivalents 0 1
Cash and cash equivalents, beginning of period 207 202
----------- -----------
Cash and cash equivalents, end of period $ 207 $ 203
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid (net of amounts capitalized) $ 297 $ 170
=========== ===========
Income taxes paid - $ 60
=========== ===========
Supplemental disclosures of non cash financing activities:
Land acquired by purchase contract or seller financing - $ 1,160
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
6
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BORROR CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements should be read in
conjunction with the December 31, 1995 audited annual financial statements
of Borror Corporation contained in its Annual Report to Shareholders or in
the December 31, 1995 Form 10-K.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for interim
periods. The results of operations for the three months ended March 31,
1996 are not necessarily indicative of the results to be expected for the
full year.
Certain reclassifications have been made to the three months ended
March 31, 1995 financial information to conform to the March 31, 1996
presentation. These reclassifications relate primarily to a change of
expense from cost of real estate sold to selling, general and
administrative in order to make the Company's financial statements more
comparable to other home building companies.
2. NOTE PAYABLE, BANKS:
--------------------
The Company's amended and restated loan agreement provides for a
revolving credit facility of $90.0 million. Up to $10 million of this
facility may be used to issue standby letters of credit. This credit
facility matures on June 30, 1997 and is collateralized by mortgages and
security interests on substantially all of the Company's property and
assets. Borrowings under the credit facility bear interest at the prime
commercial rate of interest of the lead bank except that $15.0 million of
borrowings bore interest at 7.1% per annum through August 27, 1995.
On March 19, 1996, the Company amended its revolving credit facility.
The purpose of the amendment was to address the unusually harsh late fall
and winter weather conditions that reduced the Company's home deliveries
in the first quarter of 1996 to less than those anticipated to close in
the remaining quarters of 1996. The primary impact of this amendment was
to require the Company to maintain a minimum tangible net worth as
follows: for the period beginning January 1, 1996, and continuing through
and including September 29, 1996, not less than $27.0 million; beginning
September 30, 1996, and continuing through and including December 31,
1996, not less than the greater of (i) $27.5 million or (ii) the sum of
$27.0 million plus an amount equal to 75% of the Company's net income
after taxes for the period January 1, 1996 through September 30, 1996;
beginning December 31, 1996, and continuing at all times thereafter not
less than the greater of (i) $29.0 million or (ii) the sum of $27.0
million plus an amount equal to 75% of the Company's net income after
taxes for the fiscal year ending December 31, 1996. At March 31, 1996,
the Company had a tangible net worth of $28.7 million. In addition, the
provision under which the Company shall not incur a loss in any five
consecutive fiscal quarters was amended to become effective with the
quarter ending June 30, 1995.
7
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BORROR CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
3. CAPITALIZED INTEREST:
---------------------
Interest is capitalized on land during the development period and on
housing construction costs during the construction period. As lots are
transferred to homes under construction, the interest capitalized on the
lot during the land development period is included as a cost of the land
and it is expensed through cost of sales when the home is closed.
Capitalized interest related to housing construction costs is included in
interest expense in the period the home is closed. Capitalized interest
related to land under development and construction in progress was $2.8
million and $2.9 million at March 31, 1996 and December 31, 1995,
respectively. The following table summarizes the activity with respect to
capitalized interest:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
------------- --------------
<S> <C> <C>
Interest incurred $ 1,499,000 $ 1,624,000
Interest capitalized (1,271,000) (1,351,000)
-------------- --------------
Interest expensed directly 228,000 273,000
Previously capitalized interest charged to interest expense 1,282,000 867,000
------------- -------------
Total interest expense $ 1,510,000 $ 1,140,000
============= =============
</TABLE>
4. INCENTIVE STOCK PLAN
--------------------
Pursuant to the Borror Corporation Incentive Stock Plan, on January 2,
1996, the Company granted options to selected Company personnel to purchase
261,000 common shares at fair market value as of the grant date.
Aggregate activity pursuant to the Incentive Stock Plan consists of
the following:
<TABLE>
<CAPTION>
Shares
Options Awarded Total
------- ------- -----
<S> <C> <C> <C>
Options granted and shares awarded December 31, 1995 204,000 31,870 235,870
Options granted 261,000 261,000
Options granted (17,000) (17,000)
-------- ------ --------
Options and shares awarded March 31, 1996 448,000 31,870 479,870
======= ====== ========
Maximum shares reserved for issuance under this plan 500,000
Option prices per share range from $3.25 to $4.50
</TABLE>
Common share equivalents in the form of stock options are excluded from the
calculation of weighted average shares outstanding at March 31, 1996, because
the potential dilutive impact from exercising these options would either be
anti-dilutive or have a less than 3% dilutive effect on earnings per share.
8
<PAGE> 9
BORROR CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
5. LITIGATION
----------
On August 2, 1995, Lawrence Rothstein, Trustee for the Lawrence
Rothstein Trust, filed a proposed class action in the United States
District Court for the Southern District of Ohio (Case No. C2-95-746),
against the Company, certain of its present and former directors and
officers, and the lead underwriters in the Company's initial public
offering. The complaint seeks to allege that the registration statement for
the initial public offering contained false and misleading statements and
seeks to assert violations of Sections 11, 12(2) and 15 of the Securities
Act of 1933. The complaint seeks unspecified compensatory damages, as well
as interest, costs and such other relief as the court may deem proper. The
Company has filed an answer denying the material allegations of the
complaint and expects to prepare and present a vigorous defense.
The suit is now in the discovery stage.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Although the 30-year fixed rate FHA mortgage interest rates rose from 7.50%
at December 31, 1995 to 8.25% at March 31, 1996, demand for the Company's homes
remained high as evidenced by the 425 sales recorded by the Company in the first
quarter of 1996. The Company's backlog of 738 homes at March 31, 1996 reflected
both the large number of first quarter sales and the seasonal difficulty of
delivering homes in the first quarter.
Although home deliveries in the first quarter of 1996 were impacted by
seasonal weather conditions, gross profits as a percentage of revenues increased
substantially over those reported in the previous three quarters. Gross profits
improved in first quarter 1996 principally because of more restrictive sales
discounting policies implemented during the second half of 1995, increased
emphasis on direct construction cost controls resulting in the reduction of
construction costs and decreases from historical amounts in additional
payments for construction costs related to previously delivered homes. In
addition the Company was able, principally through personnel reductions, to
reduce selling, general and administrative expenses, both in terms of overall
expense and as a percentage of revenues.
COMPANY OUTLOOK
The Company expects to be profitable in 1996. Profitability improvements
should result from effectively managing sales discounts, minimizing unfavorable
construction cost variances, and improving controllable expenses. The Company
also intends to continue to reduce its investment in land inventory to the
extent that it is strategically prudent to do so. With the high level of sales
in the Central Ohio area during the first quarter of 1996, the Company has been
proactively meeting with its subcontractors to better ensure the production
capacity necessary to achieve its scheduled home deliveries for the remainder of
1996.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995
The statements contained in this report under the caption "Company Outlook"
and other provisions of this report which are not historical facts are "forward
looking statements" that involve various important risks, uncertainties and
other factors which could cause the Company's actual results for 1996 and beyond
to differ materially from those expressed in such forward looking statements.
These important factors include, without limitation, the following risks and
uncertainties: real or perceived adverse economic conditions and/or an increase
in mortgage interest rates, the Company's ability to install public improvements
or build and close homes on a timely basis due to adverse weather conditions,
the effect of changing consumer tastes on the market acceptance for the
Company's products, the impact of competitive products and pricing, the effect
of shortages or increases in the costs of materials, labor and financing, the
continued availability of credit, the outcome of litigation, the impact of
changes in government regulation, and the other risks described in the Company's
Securities and Exchange Commission filings.
10
<PAGE> 11
SEASONALITY AND VARIABILITY IN QUARTERLY RESULTS
The Company has experienced, and expects to continue to experience,
significant seasonality and quarter-to-quarter variability in homebuilding
activity levels. Closings and revenues normally increase substantially in the
third and fourth quarters. The Company believes that this seasonality reflects
the tendency of homebuyers to shop for a new home in the Spring with the goal of
closing in the Fall or Winter. Weather conditions can also accelerate or delay
the scheduling of closings.
The following table sets forth certain data for each of the last nine
quarters:
<TABLE>
<CAPTION>
THREE SALES BACKLOG
MONTHS REVENUES CONTRACT CLOSINGS (AT PERIOD END)
ENDED (IN THOUSANDS) (IN UNITS) (IN UNITS) (IN UNITS)
=============================================================================================================================
<S> <C> <C> <C> <C>
March 31, 1994 $23,656 308 167 697
June 30, 1994 $37,926 309 268 738
Sept. 30, 1994 $46,728 216 326 628
Dec. 31, 1994 $53,585 270 377 521
March 31, 1995 $34,556 306 250 577
June 30, 1995 $46,221 359 325 611
Sept. 30, 1995 $47,764 334 322 623
Dec. 31, 1995 $49,571 254 309 568
March 31, 1996 $36,318 425 255 738
</TABLE>
At March 31, 1996, the aggregate sales value of homes in backlog was
$110,736,000 compared to $80,038,000 at December 31, 1995.
The Company annually incurs a substantial amount of indirect construction
costs which are essentially fixed in nature. For purposes of financial
reporting, the Company capitalizes these costs to real estate inventories on the
basis of the ratio of estimated annual indirect costs to direct construction
costs to be incurred. Thus, variations in construction activity cause
fluctuations in interim and annual gross profits.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the statements of income expressed as percentages of total revenues:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
----------- --------
<S> <C> <C>
Revenues................................................................ 100.0% 100.0%
Cost of real estate sold................................................ 79.1 80.8
--------- --------
Gross profit........................................................ 20.9 19.2
Selling, general and administrative expenses............................ 16.0 19.5
--------- --------
Income (loss) from operations....................................... 4.9 (0.3)
Interest expense........................................................ 4.2 3.3
Income tax provision (benefit).......................................... 0.3 (1.2)
--------- --------
Net income (loss)................................................... 0.4% (2.4%)
========= =========
</TABLE>
11
<PAGE> 12
THREE MONTHS ENDED MARCH 31, 1996 COMPARED
TO THREE MONTHS ENDED MARCH 31, 1995
Revenues. Revenues for the first quarter 1996 were $36.3 million compared
to $34.6 million for the first quarter 1995, an increase of approximately 5.0%.
During the first quarter 1996, the Company closed 255 homes which is an increase
of 2.0% over the 250 homes closed during the first quarter 1995. The remaining
increase in revenue of approximately 3.0% is due to a $4,400 increase in the
average price of homes closed in the first quarter 1996. This increase reflects
the impact of closing higher-end product at a higher average sales price in
1996. Included in revenues are other revenues, consisting principally of the
sale of finished lots and building supplies to other builders, which were $0.8
million in the first quarter of both 1996 and 1995.
Gross Profit. Gross profit increased 1.7% to 20.9% of revenues for the
first quarter 1996 compared to 19.2% during the same period in 1995. The
improved first quarter 1996 gross profit is attributable to an increase in the
per unit sales price and to better control of direct construction costs. While
the increase in gross profit is modest between comparable quarters, it
represents a significant increase in the overall gross profit percentage of
15.2% experienced for the year ended December 31, 1995. This improvement is a
result of decreased sales discounts and better control of direct construction
costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.9 million between comparable quarters of
1996 and 1995. As a percentage of revenues, selling, general and administrative
expenses declined 3.5% to 16.0% during the first quarter of 1996 from 19.5%
during the first quarter of 1995. The decrease in selling, general and
administrative expenses for the first quarter 1996 compared to the same period
in 1995 is principally due to a reduction in personnel expense, media and model
home expense, and construction related supplies.
Interest Expense. Interest expense charged to operations increased $0.4
million, or 0.9% of revenues, for the first quarter 1996 compared to first
quarter 1995. The weighted average rate of interest of the Company's revolving
line of credit was 9.0% for the first quarter of 1996 compared to 8.7% for the
first quarter of 1995. The average revolving line of credit borrowings
outstanding were $58.2 million and $74.3 million for the first quarter of 1996
and 1995, respectively. The principal reason for the increase in interest
expense between the two periods is that the Company recognized more expense
attributable to previously capitalized interest in 1996 compared to 1995. This
occurred as a result of reduced real estate inventory levels during 1996
compared to 1995.
Provision for Income Taxes. Income tax expense of $0.1 million was charged
to operations for the first quarter of 1996 versus an income tax benefit of $0.4
million used to reduce the net loss reported for the first quarter of 1995. As a
percentage of revenues, the provision for income taxes had a cumulative impact
on quarterly income of 1.5%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital needs depend upon its sales volume, asset turnover,
land acquisition and inventory levels. The Company has incurred substantial
indebtedness in the past and expects to incur substantial indebtedness in the
future to fund its operations. Traditionally, the Company's principal sources of
capital have been bank borrowings and internally generated cash. However, when
available, the Company utilizes seller provided financing when purchasing land
for development.
12
<PAGE> 13
SOURCES AND USES OF CASH
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995:
Net cash provided by operating activities increased $10.1 million for the
first quarter of 1996 compared to the first quarter of 1995. Net cash provided
by first quarter 1996 operating activities was $0.5 million compared to net cash
used in operating activities of $9.6 million for the comparable quarter in 1995.
This change was principally the result of a $3.6 million reduction in real
estate inventories during the first quarter of 1996 versus an additional
investment in real estate inventories of $8.8 million during the first quarter
of 1995, the receipt of refundable income taxes of $1.0 million during the first
quarter of 1996, and net income of $0.2 million for the first quarter of 1996
versus a net loss $0.8 million during the first quarter of 1995. These increases
in operating cash for the first quarter 1996 were offset by increases in
accounts receivable and decreases in accrued liabilities. Net cash used in
investing activities decreased a nominal $0.1 million because of a reduction in
expenditures for property and equipment and the cash surrender value of life
insurance. Net cash of $0.4 million in financing activities used during the
first quarter 1996 occurred as a result of a reduction in seller-provided term
debt by $2.8 million and additional borrowings under the revolving line of
credit of $2.4 million.
REAL ESTATE INVENTORIES
The Company's practice is to develop most of the lots on which it builds
its homes. Generally, the Company attempts to maintain a land inventory that
will be sufficient to meet its anticipated lot needs for the next three to five
years. At March 31, 1996, the Company controlled either through options or
contingent contracts, land that could be developed into approximately 7,400
lots, compared to approximately 7,700 lots at December 31, 1995. Options and
contingent contracts expire at varying dates through May 31, 2000. Included in
the 7,400 lots controlled at March 31, 1996 and the 7,700 lots controlled at
December 31, 1995 were approximately 4,500 lots and 4,600 lots, respectively,
that the Company either owned or had contracts to purchase. The Company's
decision to exercise any particular option or otherwise acquire additional land
is based upon an assessment of a number of factors, including its existing land
inventory at the time, its evaluation of the future demand for its homes, and
the restrictions on land acquisition contained in its loan agreement.
During the first quarter 1996, the Company reduced its inventory of
potential lots by selling 18 lots to other builders for $0.5 million and expects
to continue to reduce its overall investment in land inventories.
The Company continued to reduce its supply of unsold inventory homes during
the first quarter of 1996. At March 31, 1996, the Company had 45 inventory homes
(including condominiums) in various stages of construction, which represented
an aggregate investment of $3.7 million versus 98 inventory homes (including
condominiums) at December 31, 1995 which represented an aggregate investment
of $7.7 million. These unsold inventory homes are not reflected in first
quarter 1996 sales or backlog.
SELLER-PROVIDED DEBT
The Company periodically utilizes seller-provided term debt when acquiring
land for development. During the first quarter 1996 the Company reduced its term
debt by $2.8 million to $5.9 million. At March 31, 1996, interest rates on the
seller-provided debt generally range from 8.0% to 10.0% and maturities generally
range from one to five years.
13
<PAGE> 14
LAND PURCHASE COMMITMENTS
At March 31, 1996, the Company had commitments to purchase 91 residential
lots and unimproved land at an aggregate cost of $3.3 million, all of which is
expected to be funded during 1996. In addition, at March 31, 1996, the Company
had entered into $13.9 million of cancelable obligations to purchase residential
lots and unimproved land in which $0.5 million in good faith deposits had been
invested by the Company. Included in the $13.9 million of cancelable purchase
obligations are $1.6 million of purchase options with BRC. The majority of the
land subject to cancelable obligations is for post-1996 development activities.
The Company expects to fund its 1996 capital requirements for land acquisition
and development and its obligations under purchase contracts and mortgage notes
from internally generated cash or from the borrowing capacity available under
its bank credit facilities.
CREDIT FACILITIES
At March 31, 1996, the Company had $4.0 million available under the
revolving credit facility, after adjustment for borrowing base limitations. The
revolving credit facility matures on June 30, 1997, and is collateralized by
mortgages and security interests which the Company has granted to the banks on
substantially all of its property and assets. The Company believes that its
credit capacity is sufficient to meet seasonal demands in construction
activity.
Borrowings under the revolving credit facility bear interest at the prime
commercial rate of interest of the lead bank which was 8.25% at March 31, 1996.
The Company has entered into various agreements which effectively limit its
exposure to interest rate fluctuations on those portions of borrowings under
floating rate interest arrangements. These agreements provide effective interest
rate caps of 9.0% on revolver borrowings of $18.0 million through September 15,
1997 and on additional $10.0 million of revolver borrowings through December 5,
1997. The Company's interest rate floor (collar) agreement requires that it pay
the equivalent of a minimum interest rate of 6.0% on $28.0 million of borrowings
through December 5, 1997.
Under the provisions of the revolving credit facility, the Company must
adhere to certain restrictive covenants, including restrictions on the Company's
ability to purchase land, build inventory homes, pay dividends and incur other
borrowings. The most restrictive of these covenants relate to the maintenance of
a maximum total liabilities to tangible net worth ratio and a minimum tangible
net worth. The Company is required to maintain a maximum total liabilities to
tangible net worth ratio of 3.25 to 1.00. However, if the Company's total
liabilities to tangible net worth ratio exceeds 2.25 to 1.00 at the end of
any quarter, the Company must pay escalating fees. These fees are included in
interest expense. The Company had a total liabilities to tangible net worth
ratio of 2.53 to 1.00 at March 31, 1996 compared to 2.68 to 1.00 at December 31,
1995.
14
<PAGE> 15
On March 19, 1996, the Company amended its revolving credit facility. The
purpose of the amendment was to address the unusually harsh late fall and winter
weather conditions that reduced the Company's home deliveries in the first
quarter of 1996 to less than those anticipated to close in the remaining
quarters of 1996. The primary impact of this amendment was to require the
Company to maintain a minimum tangible net worth as follows: for the period
beginning January 1, 1996, and continuing through and including September 29,
1996, not less than $27.0 million; beginning September 30, 1996, and continuing
through and including December 31, 1996, not less than the greater of (i) $27.5
million or (ii) the sum of $27.0 million plus an amount equal to 75% of the
Company's net income after taxes for the period January 1, 1996 through
September 30, 1996; beginning December 31, 1996, and continuing at all times
thereafter not less than the greater of (i) $29.0 million or (ii) the sum of
$27.0 million plus an amount equal to 75% of the Company's net income after
taxes for the fiscal year ending December 31, 1996. At March 31, 1996, the
Company had a tangible net worth of $28.7 million. In addition, the provision
under which the Company shall not incur a loss in any five consecutive fiscal
quarters was amended to become effective with the quarter ending June 30, 1995.
INFLATION
The Company is not always able to reflect all of its cost increases in the
prices of its homes because competitive pressures and other factors require it
in many cases to maintain or discount those prices. After a sales contract has
been accepted, the Company is generally able to maintain costs with
subcontractors from the date the sales contract is accepted until the date
construction is completed; however, unanticipated additional costs may be
incurred between the date a sales contract is accepted and the date construction
is completed. In addition, during periods of high construction activities, costs
may be incurred to obtain additional contractors for trades which are not
readily available, and which result in construction cost variances and lower
gross profit margins.
15
<PAGE> 16
BORROR CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On August 2, 1995, Lawrence Rothstein, Trustee for the
Lawrence Rothstein Trust, filed a proposed class action in the
United States District Court for the Southern District of Ohio
(Case No. C2-95-746), against the Company, certain of its present
and former directors and officers, and the lead underwriters in
the Company's initial public offering. The complaint seeks to
allege that the registration statement for the initial public
offering contained false and misleading statements and seeks to
assert violations of Sections 11, 12(2) and 15 of the Securities
Act of 1933. The complaint seeks unspecified compensatory damages,
as well as interest, costs and such other relief as the court may
deem proper. The Company has filed an answer denying the material
allegations of the complaint and expects to prepare and present a
vigorous defense. The suit is now in the discovery stage.
Item 2. Change in Securities. Not applicable.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: See attached index (following the signature page).
(b) Reports on Form 8-K. Not applicable.
16
<PAGE> 17
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.
BORROR CORPORATION
(Registrant)
Date: May 10, 1996 By: /s/Douglas G. Borror
---------------------- -----------------------------------------
Douglas G. Borror
Chief Executive and Operating Officer,
President
Date: May 10, 1996 By: /s/Jon M. Donnell
---------------------- -----------------------------------------
Jon M. Donnell
Chief Financial Officer, Treasurer
(Principal Financial Officer)
Date: May 10, 1996 By: /s/Terry E. George
---------------------- -----------------------------------------
Terry E. George
Controller
(Principal Accounting Officer)
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Location
- - ----------- ----------- --------
<S> <C> <C>
2.1 Corporate Exchange and Subscription Agreement Incorporated by
dated January 20, 1994, between Borror Corporation reference to Exhibit
and Borror Realty Company 2.1 to Form S-1.
2.2 Form of First Amendment to Corporate Exchange Incorporated by
and Subscription Agreement reference to Exhibit
2.2 to Form S-1.
3.1 Amended and Restated Articles of Incorporation of Incorporated by
Borror Corporation reference to Exhibit
3.1 to Form S-1.
3.2 Amended and Restated Code of Regulation of Incorporated by
Borror Corporation reference to Exhibit
3.2 to Form S-1.
4 Specimen of Stock Certificate of Borror Corporation Incorporated by
reference to Exhibit 4
to Form S-1.
10.20 First Amendment to Amended and Restated Loan Incorporated by
Agreement, dated March 19, 1996, between reference to Exhibit
Borror Corporation, the lenders listed therein, and 10.21 to December 31,
The Huntington National Bank, as agent 1995 Form 10-K
10.21 First Amendment to Lease Agreement dated Page 19
March 1, 1996, between Borror Corporation
and Borror Realty Company
27 Financial Data Schedule Page 20
</TABLE>
18
<PAGE> 1
Exhibit 10.21
FIRST AMENDMENT TO LEASE AGREEMENT
WHEAREAS, a certain Lease Agreement dated January 4, 1994 ("Lease
Agreement"), was entered into by and between Borror Realty Company fka The
Borror Corporation ("Landlord") and Borror Corporation fka BFR Services, Inc.
("Tenant") providing 1,350 square feet in suite 5793 Karric Square Drive at a
property known as Karric Square Shopping Center.
WHEREAS, Landlord and Tenant desire to amend the Lease Agreement by
extending the term thereof.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
below, Landlord and Tenant agree as follows:
1. The term of the Lease Agreement shall be extended from March 9,
1996, through March 31, 1998, inclusive.
2. The effective date of this First Amendment to Lease Agreement
shall be March 1, 1996.
3. All provisions, terms and conditions of the Lease Agreement
other than as set forth above shall continue to apply and are
not changed by this First Amendment to Lease Agreement.
WITNESS: LANDLORD:
BORROR REALTY COMPANY
____________________________ By:___________________________________
Robert A. Meyer, Jr.
Vice President
____________________________
TENANT:
BORROR CORPORATION
____________________________ By:___________________________________
Jon M. Donnell
Executive Vice President
____________________________
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1996 AND STATEMENT OF INCOME FOR THE THREE MONTHS
ENDING MARCH 31, 1996 OF BORROR CORPORATION AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS .
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 207
<SECURITIES> 0
<RECEIVABLES> 3,878
<ALLOWANCES> 503
<INVENTORY> 90,891
<CURRENT-ASSETS> 0
<PP&E> 8,972
<DEPRECIATION> 3,836
<TOTAL-ASSETS> 101,320
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 30,416
0
0
<OTHER-SE> (1,486)
<TOTAL-LIABILITY-AND-EQUITY> 101,320
<SALES> 36,318
<TOTAL-REVENUES> 36,318
<CGS> 28,735
<TOTAL-COSTS> 34,556
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,510
<INCOME-PRETAX> 252
<INCOME-TAX> 100
<INCOME-CONTINUING> 152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
