<PAGE>
UNITED STATES
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 SEPTEMBER 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to________
Commission File Number: 1-11749
PACIFIC GREYSTONE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-4337490
(State of incorporation) (I.R.S Employer Identification No.)
6767 FOREST LAWN DRIVE, SUITE 300
LOS ANGELES, CALIFORNIA 90068-1027
(213) 436-6300
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
YES X NO
-------------- --------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares of common stock, par value $.01 per share, outstanding as
of October 31, 1996 was 14,959,741.
<PAGE>
PACIFIC GREYSTONE CORPORATION
FORM 10-Q
INDEX
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1996 and 1995 3
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 4
Consolidated Statement of Shareholders' Equity -
Nine Months Ended September 30, 1996 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
INDEX TO EXHIBITS 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACIFIC GREYSTONE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data - unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 112,546 $ 77,595 $ 267,561 $ 174,611
Cost of sales (93,023) (65,060) (222,085) (148,416)
------------ ------------ ------------ ------------
Gross margin 19,523 12,535 45,476 26,195
Equity in pretax (loss) income
of unconsolidated joint ventures - (189) (234) 1,819
Selling, general and administrative expenses (11,191) (8,438) (28,940) (21,572)
Interest and other, net 507 292 869 997
------------ ------------ ------------ ------------
Pretax income 8,839 4,200 17,171 7,439
Income tax (provision) benefit (3,607) (1,680) (7,006) 1,524
------------ ------------ ------------ ------------
Net income $ 5,232 $ 2,520 $ 10,165 $ 8,963
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma earnings $ 5,232 $ 2,486 $ 10,165 $ 4,404
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma earnings per share $ 0.35 $ 0.17 $ 0.68 $ 0.29
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma weighted average
number of shares outstanding 14,960 14,960 14,960 14,960
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
PACIFIC GREYSTONE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
Cash and cash equivalents $ 11,743 $ 41,254
Escrow proceeds receivable 10,310 8,040
Housing inventories 299,455 215,043
Deferred tax asset 8,939 15,498
Other assets 11,224 10,135
------------- ------------
Total assets $ 341,671 $ 289,970
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and other liabilities $ 24,920 $ 26,738
Notes payable 48,593 12,337
Senior unsecured notes payable 125,000 125,000
------------- ------------
Total liabilities 198,513 164,075
Shareholders' equity:
Series A cumulative senior preferred stock - 44,747
Series C cumulative convertible preferred stock - 20,000
Common stock, $.01 par value; 35,000,000 shares
authorized; 14,959,741 shares issued and
outstanding in 1996 150 41
Additional paid-in capital 132,482 27,898
Retained earnings 10,526 33,209
------------- ------------
Total shareholders' equity 143,158 125,895
------------- ------------
Total liabilities and shareholders' equity $ 341,671 $ 289,970
------------- ------------
------------- ------------
SEE ACCOMPANYING NOTES
4
<PAGE>
PACIFIC GREYSTONE CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands - unaudited)
<TABLE>
<CAPTION>
SERIES A SERIES C
CUMULATIVE CUMULATIVE
SENIOR CONVERTIBLE ADDITIONAL
PREFERRED PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK STOCK CAPITAL EARNINGS TOTAL
------------ ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 44,747 $ 20,000 $ 41 $ 27,898 $ 33,209 $ 125,895
Stock split, 1.4282 to 1.00 - - 17 (17) - -
Initial public offering of common stock - - 46 54,270 - 54,316
Redemption of preferred stock (44,747) - - - - (44,747)
Payment of a portion of the accrued
dividends on the Series A cumulative
senior preferred stock through
the issuance of common stock - - 17 20,531 (20,548) -
Conversion of the Series C cumulative
convertible preferred stock
including a portion of the accrued
dividends into common stock - (20,000) 29 29,800 (9,829) -
Cash dividends paid on preferred stocks - - - - (2,471) (2,471)
Net income - - - - 10,165 10,165
------------ ----------- ---------- ----------- ---------- -----------
Balance at September 30, 1996 $ - $ - $ 150 $ 132,482 $ 10,526 $ 143,158
------------ ----------- ---------- ----------- ---------- -----------
------------ ----------- ---------- ----------- ---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
PACIFIC GREYSTONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - unaudited)
NINE MONTHS
ENDED SEPTEMBER 30,
1996 1995
---------- ---------
OPERATING ACTIVITIES:
Net income $ 10,165 $ 8,963
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 671 563
Reduction of deferred tax asset valuation allowance - (4,500)
Deferred portion of provision for income taxes 6,559 2,976
Equity in pretax loss (income) of unconsolidated
joint ventures 234 (1,819)
Net changes in operating assets and liabilities:
Escrow proceeds receivable (2,270) (1,798)
Housing inventories (77,603) (11,555)
Other assets (2,007) (1,195)
Accounts payable and accrued liabilities (1,818) (2,877)
---------- ---------
Net cash used in operating activities (66,069) (11,242)
INVESTING ACTIVITIES:
Distributions from unconsolidated joint ventures 13 3,326
---------- ---------
Net cash provided by investing activities 13 3,326
FINANCING ACTIVITIES:
Net proceeds from common stock issuance 54,316 -
Redemption of preferred stock (44,747) -
Cash dividends paid on preferred stocks (2,471) -
Net proceeds from (payments on) revolving credit facility 37,000 (3,000)
Proceeds from notes payable - 4,593
Repayments of notes payable (7,553) (11,449)
---------- ---------
Net cash provided by (used in) financing activities 36,545 (9,856)
---------- ---------
Net decrease in cash and cash equivalents (29,511) (17,772)
Cash and cash equivalents at beginning of period 41,254 36,026
---------- ---------
Cash and cash equivalents at end of period $ 11,743 $ 18,254
---------- ---------
---------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 447 $ -
---------- ---------
---------- ---------
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Housing inventories acquired through seller financing $ 6,809 $ 3,150
---------- ---------
---------- ---------
SEE ACCOMPANYING NOTES
6
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF PACIFIC GREYSTONE CORPORATION
Pacific Greystone Corporation (the "Company") is a leading regional builder
of high quality, single family homes primarily targeted to first time and
move-up homebuyers throughout Northern and Southern California, as well as Las
Vegas and Phoenix. The Company also provides mortgage brokerage services to its
customers.
On June 20, 1996, the Company completed its initial public offering (the
"Offering") and sold 5,000,000 shares of common stock, of which 4,562,900 and
437,100 shares were sold by the Company and certain stockholders of the Company,
respectively. The Offering was priced at $13.00 per share and the net proceeds
were used to redeem the Series A cumulative senior preferred stock ("Series A
Preferred") and the remainder to temporarily reduce amounts outstanding under
the revolving credit facility.
In connection with the Offering, the Company declared a dividend on the
Series A Preferred equal to the accrued dividends thereon to the date of the
closing of the Offering. The Company and holders of the Series A Preferred
agreed that accrued dividends through March 31, 1996, aggregating approximately
$20,548,000, would be paid through the issuance of common stock valued at a per
share price equal to the initial offering price per share in the Offering less
underwriting discounts and commissions. Dividends on the Series A Preferred from
April 1, 1996 to the closing of the Offering, aggregating approximately
$1,650,000, were paid in cash. In addition, all outstanding shares of the Series
C cumulative convertible preferred stock ("Series C Preferred") plus accrued
dividends thereon through March 31, 1996 were converted into common stock at a
price equal to 80% of the initial offering price per share in the Offering.
Dividends on the Series C Preferred from April 1, 1996 to the closing of the
Offering, aggregating approximately $821,000, were paid in cash.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q. Accordingly, certain information
and footnote disclosures required by generally accepted accounting principles
for complete financial statements have been condensed or omitted. In the opinion
of the Company's management, all adjustments, which include normal recurring
accruals, considered necessary for a fair presentation have been included. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
The Company historically has experienced, and expects to continue to
experience, variability in quarterly sales and revenues. The consolidated
results of operations for the three and nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the 1995 financial information to
conform to the current period presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Estimates made by management relate primarily to warranty
accruals, project budgets, and the valuation of certain real estate. Actual
results could differ from those estimates.
7
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" effective January 1, 1996. In
accordance with this pronouncement, the Company records impairment losses on
long-lived assets held and used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than their related carrying amounts. The adoption of SFAS No.
121 had no impact on the Company's consolidated financial position and results
of operations in the current period.
4. PER SHARE DATA
PRO FORMA EARNINGS
Pro forma earnings for purposes of this calculation is historical pretax
income less an assumed provision for income taxes at an effective tax rate of
40.8% and excludes the effect of the preferred dividend requirements.
PRO FORMA WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Pro forma weighted average number of shares outstanding was calculated as
if (a) the Offering was consummated on January 1, 1995 and (b) the changes in
the capital structure discussed in Note 1 and Note 7 occurred on such date.
HISTORICAL PER SHARE DATA
Historical per share data calculated in accordance with Accounting
Principles Board Opinion ("APB") No. 15 was not presented on the statements of
income since such data was not considered relevant to the new common
shareholders. In calculating historical per share data under APB No. 15, the
preferred dividend requirements were deducted from net income and the weighted
average number of shares outstanding were adjusted to give effect to the
Offering and the stock split as discussed in Note 7. Historical per share data
was $0.35 and $0.55 for the three and nine months ended September 30, 1996.
5. HOUSING INVENTORIES
As of September 30, 1996 and December 31, 1995, the finished homes and
completed model portion of housing inventories was $62,730,000 and $52,519,000,
respectively. An analysis of interest incurred is as follows:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1996 1995 1996 1995
--------- -------- --------- --------
(IN THOUSANDS)
Interest incurred $ 4,554 $ 3,824 $ 13,181 $ 11,996
Less: interest capitalized (4,486) (3,760) (12,894) (11,910)
--------- -------- --------- --------
Net interest expense $ 68 $ 64 $ 287 $ 86
--------- -------- --------- --------
--------- -------- --------- --------
Interest paid $ 8,059 $ 7,421 $ 16,540 $ 15,549
--------- -------- --------- --------
--------- -------- --------- --------
Amortization of capitalized interest
included in cost of sales $ 5,092 $ 4,736 $ 11,356 $ 9,909
--------- -------- --------- --------
--------- -------- --------- --------
8
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
6. UNSECURED REVOLVING CREDIT FACILITY
The terms under the unsecured revolving credit facility (the "Facility") as
amended on April 10, 1996 provide for a total commitment not to exceed
$100,000,000. The amendment extends the maturity date to July 31, 1999 and
includes a provision for a 12-month amortization of outstanding principal
starting July 31, 1998. The Facility provides for interest on borrowings at
either the bank reference rate or the London Interbank Offered Rate plus an
applicable spread based on the Company's senior long-term debt rating.
7. STOCK SPLIT
The Board of Directors authorized a 1.4282 to 1.00 stock split of the
Company's common stock immediately prior to the Offering. The Company's par
value of $.01 remained unchanged and an amount equal to the par value of the
shares outstanding prior to the Offering has been transferred from additional
paid-in capital to common stock. In addition, the authorized number of common
shares were increased from 5,000,000 to 35,000,000 while the preferred shares
were decreased from 7,100,000 to 5,000,000. All references in the financial
statements to number of shares and per share amounts have been restated to
reflect the stock split.
8. STOCK OPTIONS
The Company has a 1996 stock option and award plan (the "Plan") to grant
options and other awards to employees. The Plan provides for the granting of a
maximum of 825,000 shares subject to options or other awards. On June 20, 1996,
299,195 stock options were awarded to the certain executive officers of the
Company pursuant to the Plan. These options are first exercisable on December
20, 1996 and expire on June 20, 2006. On June 24, 1996, additional options to
purchase an aggregate of 295,000 shares were granted to other management of the
Company. These options have a term of ten years and will vest in equal annual
installments over three years. All stock options were granted at the initial
offering price to the public in the Offering.
9. SUPPLEMENTAL INFORMATION ON GREYSTONE HOMES, INC.
Summarized consolidated financial information for Greystone Homes, Inc.
("Greystone") is presented below. In accordance with the Company's management
agreement, corporate general and administrative expenses are allocated based
upon the gross revenues of the companies. Such allocation of corporate general
and administrative expenses is included in Greystone's selling, general and
administrative expenses presented below.
9
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
9. SUPPLEMENTAL INFORMATION ON GREYSTONE HOMES, INC. (CONTINUED)
SUMMARY CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(IN THOUSANDS)
Cash and cash equivalents $ 4,949 $ 31,973
Escrow proceeds receivable 10,310 8,040
Housing inventories 299,455 215,043
Deferred tax asset 8,939 15,498
Other assets 10,763 9,668
------------- ------------
Total assets $ 334,416 $ 280,222
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Accounts payable and other liabilities $ 18,518 $ 21,200
Intercompany payable to the Company 2,987 2,314
Notes payable 48,593 12,337
Senior unsecured notes payable 125,000 125,000
------------- ------------
Total liabilities 195,098 160,851
Shareholder's equity 139,318 119,371
------------- ------------
Total liabilities and shareholder's equity $ 334,416 $ 280,222
------------- ------------
------------- ------------
SUMMARY CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues $ 112,546 $ 77,292 $ 267,561 $ 173,882
Cost of sales (93,023) (65,060) (222,085) (148,416)
---------- ---------- ---------- ----------
Gross margin 19,523 12,232 45,476 25,466
Equity in pretax (loss) income
of unconsolidated joint ventures - (189) (234) 1,819
Selling, general and administrative expenses (11,173) (8,056) (28,896) (20,648)
Interest and other, net 340 202 607 722
---------- ---------- ---------- ----------
Pretax income 8,690 4,189 16,953 7,359
Income tax (provision) benefit (3,607) (1,680) (7,006) 1,524
---------- ---------- ---------- ----------
Net income $ 5,083 $ 2,509 $ 9,947 $ 8,883
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Greystone is a wholly owned subsidiary of the Company and is the obligor on
the Senior Unsecured Notes Payable (the "Notes"). The Notes are fully and
unconditionally guaranteed by the Company, except for certain subsidiaries of
the Company which are considered inconsequential individually and in the
aggregate to the Company on a consolidated basis. Separate financial statements
and other related disclosures for Greystone are not presented, as the Company's
management does not consider the information material to investors.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED
IN THIS REPORT CONTAIN FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS INVOLVE KNOWN
AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY. SUCH RISKS, UNCERTAINTIES AND OTHER FACTORS INCLUDE, BUT
ARE NOT LIMITED TO, THOSE RISKS DISCUSSED HEREIN, CHANGES IN THE GENERAL
ECONOMIC CONDITIONS, FLUCTUATIONS IN INTEREST RATES, INCREASES IN LABOR AND RAW
MATERIAL COSTS, LABOR SHORTAGES, INCLEMENT WEATHER CONDITIONS, LEVELS OF
COMPETITION AND OTHER FACTORS DESCRIBED IN DETAIL IN THE COMPANY'S ANNUAL REPORT
ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 AND OTHER DOCUMENTS FILED BY
THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME.
RESULTS OF OPERATIONS
The following tables present certain selected operating data of the Company
including unconsolidated joint ventures (dollar amounts in thousands).
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
OPERATING DATA: 1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Homes closed:
Northern California 154 183 422 408
Southern California 222 117 512 325
Outside California 148 - 312 -
---------- ---------- ---------- ----------
Total 524 300 1,246 733
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Joint Ventures - 22 5 139
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net new orders (net of cancellations):
Northern California 207 196 604 528
Southern California 189 168 611 444
Outside California 192 - 507 -
---------- ---------- ---------- ----------
Total 588 364 1,722 972
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Joint Ventures - 19 2 102
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Backlog (at period end):
Northern California 250 205
Southern California 208 183
Outside California 340 -
---------- ----------
---------- ----------
Total 798 388
---------- ----------
---------- ----------
Joint Ventures - 16
---------- ----------
---------- ----------
Sales value of backlog (at period end) $ 172,576 $ 105,918
---------- ---------
---------- ---------
</TABLE>
Net income for the third quarter of 1996 was $5.2 million or $0.35 per
share, up from $2.5 million or $0.17 per share. Earnings per share was
calculated on a pro forma basis assuming the total number of common shares
outstanding subsequent to the Company's initial public offering and a 40.8% tax
rate for both periods. The strong performance was driven by improved margins,
particularly in Southern California, a greater number of projects from which the
Company was delivering homes and the Company's expansion outside of California.
The Company's ratio of selling, general and administrative expenses ("SG&A") to
total revenues declined to 9.9% in the current quarter from 10.9% in the
comparable quarter in 1995. At September 30, 1996, the backlog of homes under
contract excluding unconsolidated joint ventures amounted to 798 units with an
aggregate sales value of $172.6 million, representing 106% and 69% increases,
respectively, over comparable figures at September 30, 1995.
11
<PAGE>
The following table sets forth, for the periods indicated, certain income
statement data as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales (82.7) (83.8) (83.0) (85.0)
------- ------- ------- -------
Gross margin 17.3 16.2 17.0 15.0
Equity in pretax income (loss)
of unconsolidated joint ventures 0.0 (0.2) (0.1) 1.0
Selling, general and administrative expenses (9.9) (10.9) (10.8) (12.4)
Interest and other, net 0.5 0.4 0.3 0.6
------- ------- ------- -------
Pretax income 7.9 5.5 6.4 4.2
Income tax (provision) benefit (3.2) (2.2) (2.6) 0.9
------- ------- ------- -------
Net income 4.7% 3.3% 3.8% 5.1%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
Total revenues for the three months ended September 30, 1996 increased to
$112.5 million from $77.6 million for the three months ended September 30, 1995.
Housing revenues for the quarter increased by $36.1 million to $106.9 million
from $70.8 million in the year-earlier period. This increase was largely due to
a 75% increase in the number of homes closed, a greater number of projects from
which the Company was delivering homes and the Company's expansion outside of
California. The number of actively selling projects has increased from 29 at the
beginning of the year to 40 projects at September 30, 1996.
For the quarter ended September 30, 1996, the Company's Southern California
region produced strong operating results with housing revenues and homes closed
increasing by 104% and 90%, respectively, as compared to the same period in
1995. The Company's diversification efforts outside of California, which include
the Las Vegas and Phoenix acquisition in December 1995, contributed a combined
148 homes that resulted in total revenues of $15.4 million. In the current
quarter, revenues from the Northern California region declined slightly from the
year-earlier period as a result of the lower volume of homes closed. The overall
average sales price on homes closed decreased to $204,000 for the quarter ended
September 30, 1996 from $234,000 for the quarter ended September 30, 1995,
largely reflecting lower-priced homes closed outside of California offset by a
3% increase in average sales prices in California.
The gross margin as a percentage of revenues increased to 17.3% in the
third quarter of 1996 from 16.2% in the third quarter of 1995, reflecting
improved margins, particularly in Southern California. The improvement was
largely the result of lower sales incentives in Southern California and the
Company's ability to increase sales prices on selected projects.
In the third quarter of 1996 and 1995, the Company recorded revenues from
land sales totaling $5.6 million and $6.8 million, respectively, as part of an
agreement entered into during fiscal year 1995. The agreement was structured to
sell one land parcel in two phases producing revenues and earnings that have
been previously anticipated. Gross margin from land sales totaled $0.8 million
and $1.2 million for the third quarter of 1996 and 1995, respectively.
SG&A as a percentage of revenues decreased to 9.9% for the third quarter of
1996 from 10.9% for the same period in 1995. The decline was principally the
result of improved economic conditions in California resulting in lower sales
and marketing expenses as a percentage of revenues.
12
<PAGE>
For the quarter ended September 30, 1996, interest and other, net increased
to $0.5 million from $0.3 million in the comparable period. Included in interest
and other, net are pretax earnings from the Company's mortgage operations;
interest incurred, less amounts capitalized to housing inventories; and
interest income. Interest and other, net for the three months ended September
30, 1996 was similar to that in the comparable 1995 period.
Income taxes for the three months ended September 30, 1996 and 1995 were
provided at effective tax rates of 40.8% and 40.0%, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Total revenues for the nine months ended September 30, 1996 increased to
$267.6 million from $174.6 million for the nine months ended September 30, 1995,
an increase of 53%, while homes closed increased to 1,246 from 733, an increase
of 70%. The revenue growth is primarily attributable to the Southern California
region with revenues and homes closed increasing by 75% and 58%, respectively,
over the comparable nine month period. The Company's expansion outside of
California accounted for 12% of total revenues on 312 homes closed for the first
nine months of 1996. The Company's average sales price on homes closed for the
nine months ended September 30, 1996 decreased to $210,000 from $223,000 for the
nine months ended September 30, 1995. This was due mainly to the lower-priced
homes closed outside of California partially offset by a 10% increase in the
average sales price of homes closed in California. Revenues from land sales
totaling $5.6 million and $9.5 million were recorded for the first nine months
of 1996 and 1995, respectively.
The gross margin increased to $45.5 million or 17.0% of revenues for the
nine months ended September 30, 1996 from $26.2 million or 15.0% in the
year-earlier period. The gross margin percentage has improved due to lower sales
incentives, particularly in the Southern California region, as well as the
Company's ability to raise sales prices on selected projects. During the first
half of last year, the gross margin percentage in California was negatively
impacted by the severe rain conditions in early 1995.
For the first nine months of 1996, joint ventures reported combined housing
revenues of $1.0 million on five homes closed compared to $37.4 million on 139
homes closed for the same period in 1995. For the nine months ended September
30, 1996, the Company had a $0.2 million equity loss on its unconsolidated joint
ventures compared to a $1.8 million pretax earnings in the prior year's period.
This decrease can largely be attributed to the lower number of joint venture
closings. For the nine months ended September 30, 1995, pretax earnings included
approximately $0.9 million from the completion of a joint venture project offset
by $0.6 million of losses recognized on a joint venture land sale to an outside
party. At September 30, 1996, there are no remaining joint venture housing
units. In the future, the Company may consider entering into joint venture
arrangements in areas of land scarcity or to diversify risk with capital
intensive projects.
SG&A as a percentage of revenues decreased to 10.8% for the nine months
ended September 30, 1996 from 12.4% for the same period in 1995. Selling
expenses as a percentage of revenues for the nine months ended September 30,
1996 and 1995 were 5.7% and 6.4%, respectively. The decline in selling expenses
as a percentage of revenues is principally attributable to decreased advertising
costs as a percentage of revenues during 1996, as well as a higher 1996 revenue
base. General and administrative expenses as a percentage of revenues for the
nine months ended September 30, 1996 and 1995 were 5.1% and 6.0%, respectively.
The reduction in general and administrative expenses as a percentage of revenues
is largely attributable to the increased revenues in 1996. The Company believes
that SG&A, as a percentage of revenues, will decrease for the full 1996 year as
compared to the nine month period ended September 30, 1996 due to revenues
increasing at a faster pace than SG&A expenses in the fourth quarter of 1996.
The Company's effective tax rate was 40.8% for the nine months ended
September 30, 1996. The Company reduced its deferred tax asset valuation
allowance by $4.5 million for the nine months ended September 30, 1995, as a
result of increased visibility of anticipated future earnings. The net change
after applying a 40% effective tax rate on pretax income for the nine months
ended September 30, 1995 resulted in a $1.5 million tax benefit for the period.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company entered into fiscal year 1996 with the objective of increasing
the number of actively selling projects in California based on management's
positive outlook on the California housing markets. The number of actively
selling projects has increased from 29 at the beginning of the year to 40
projects at September 30, 1996. The Company expects to continue to increase the
number of actively selling projects during the fourth quarter of 1996.
On June 20, 1996, the Company successfully completed its Offering of
5,000,000 shares of common stock. The net proceeds from the Offering were used
to redeem the Series A Preferred and the remainder to temporarily reduce amounts
outstanding under the Facility. At September 30, 1996, the Company's ratio of
debt to total capital was 55%.
At September 30, 1996, the Company's debt to equity ratio increased to 1.21
to 1.00 from 1.09 to 1.00 at the beginning of 1996. The increase was largely a
result of the increased level of borrowings associated with the new projects
acquired in the first nine months of 1996. The Company also improved its
inventory turnover ratio for the 12 months ended September 30, 1996 to 1.28 from
1.04 for the comparable period last year. This is due primarily to the increased
number of homes closed during the first nine months of 1996 as compared to the
same period in 1995, as well as the Company's efforts to closely monitor its
housing inventory level.
The Company's principal cash requirements are for the acquisition,
development, construction and marketing of its residential projects.
Historically, these activities have been financed through internally generated
operating results and external sources of debt and equity financing.
The Company's operating activities for the first nine months of 1996 and
1995 used $66.1 million and $11.2 million in cash, respectively. For the nine
months ended September 30, 1996, the Company used cash to fund the following:
$77.6 million in housing inventories; $2.3 million in escrow proceeds
receivable; $2.0 million in other assets; and $1.8 million in accounts payable
and accrued liabilities. The use of cash was partially offset by 1996 nine
months' earnings of $10.2 million and various noncash adjustments from net
income totaling $7.4 million. The Company's housing inventory increased 39% to
$299.5 million at September 30, 1996 from $215.0 million at December 31, 1995
primarily due to the new project acquisitions.
For the nine months ended September 30, 1995, cash was used in operating
activities for a net investment of $11.6 million in housing inventories; $1.8
million in escrow proceeds receivable; $1.2 million in other assets; $2.9
million in accounts payable and accrued liabilities; and various noncash
adjustments from net income totaling $2.8 million. The use of cash was partially
offset by 1995 nine months' earnings of $9.0 million. Housing inventories
increased as the Company purchased new projects and continued its construction
development on existing projects.
Cash provided by investing activities was primarily distributions received
from the Company's investment in unconsolidated joint ventures totaling $3.3
million in the first nine months of 1995.
Net cash flow received from financing activities in the first nine months
of 1996 was $36.5 million while financing activities in the first nine months of
1995 used net cash flows of $9.9 million. In the first nine months of 1996, the
sources of financing were primarily the Offering and the Facility providing net
proceeds of $54.3 million and $37.0 million, respectively. For the nine months
ended September 30, 1995, cash was used largely to reduce the Facility's
outstanding borrowings to zero and to repay existing indebtedness, as a result
of the Company's strategy of maintaining liquidity during 1995. As the Company
continues to expand in its existing markets and evaluates opportunities to enter
new markets, it may be required to seek additional capital in the form of equity
or debt financing.
On April 10, 1996, the Company increased its Facility commitment to $100
million from $60 million. The amended Facility also provides for lower borrowing
and administrative costs. Participants in the amended Facility
14
<PAGE>
include Bank of America NT&SA; Guaranty Federal Bank, F.S.B.; and Bank of
Boston. The amended Facility extends the maturity date to July 31, 1999 and
includes a provision for a 12-month amortization of outstanding principal
starting July 31, 1998. Interest on borrowings is based on the bond rating on
the Notes which was upgraded to B1 by Moody's Investors Service on June 3, 1996.
See Note 6 to the Consolidated Financial Statements.
At September 30, 1996, approximately $53.0 million was available for
future use under the provisions of the amended Facility. The Notes and the
Facility, as well as other construction and development loans, contain certain
restrictive covenants including limitations on additional indebtedness, minimum
liquidity and net worth requirements and limitations on the amount of debt to
equity. The indentures with respect to the Notes limit the ability of Greystone
to pay cash dividends or make loans and advances to the Company. At September
30, 1996, under the terms of the indentures, Greystone could pay cash dividends
or make loans or advances to the Company in an amount of $46.4 million. The
Notes are fully and unconditionally guaranteed by the Company.
In the normal conduct of the Company's business, it guarantees on an
unsecured basis certain debt obligations of its joint ventures of which it is
the general partner. Generally these obligations are pro rata with the other
partners and the underlying obligations are secured by the assets of the joint
venture. At September 30, 1996, the Company had no liability for such
obligations. The indentures with respect to the Notes and the Facility impose
restrictions on the amount of such guarantees and obligations.
The Company has utilized, and will continue to utilize, options as a method
of controlling and subsequently acquiring land. By controlling land, through
options on the future discretionary purchase of land, the Company attempts to
minimize its cash outlays and reduce its risk from changing market conditions.
While the Company attempts to prudently manage its acquisition and development
of residential lots, the development of such projects can have a negative impact
on liquidity due to the timing of acquisition and development activities. The
Company believes that cash on hand, cash generated from operations and funds
available under the Facility will be sufficient to meet the Company's working
capital and capital expenditure requirements for at least the next 18 months.
Currently, the Company does not have any material commitments for capital
expenditures.
BACKLOG
Backlog excluding unconsolidated joint ventures at September 30, 1996
consisted of 798 units with an aggregate sales value of $172.6 million,
representing 106% and 69% increases, respectively, over comparable figures at
September 30, 1995. The Company's Southern California region provided strong
growth in backlog levels with the sales value increasing by 34% to $61.0 million
on 208 units at September 30, 1996 from $45.5 million on 183 units at September
30, 1995. This growth reflected a 38% increase in net new orders in the first
nine months of 1996 compared to the first nine months of 1995. At September 30,
1996, the Company's operations outside of California accounted for 43% and 26%
of the backlog units and sales value, respectively.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
The adoption of SFAS No. 121 has caused several publicly traded
homebuilders to write-off significant portions of their land inventory value.
From inception, the Company has implemented conservative land acquisition
policies designed to reduce the risks associated with changing market
conditions. Prior to the adoption of SFAS No. 121, the Company reviewed its
housing inventory, on a periodic basis, and recorded net realizable value
adjustments to specific projects as considered necessary. As a result, the
Company's implementation of SFAS No. 121, effective January 1, 1996, had no
impact on the Company's consolidated financial position and results of
operations in the current period.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
- --------
27 Financial Data Schedule.
Reports on Form 8-K
- -------------------
No reports on Form 8-K were filed during the quarter ended September 30, 1996.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACIFIC GREYSTONE CORPORATION
November 4, 1996 /s/ Jack R. Harter
-------------------------
Jack R. Harter
Chairman, President and Chief Executive Officer
November 4, 1996 /s/ Antonio B. Mon
-------------------------
Antonio B. Mon
Vice Chairman and Chief Financial Officer
17
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
27 Financial Data Schedule.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,743
<SECURITIES> 0
<RECEIVABLES> 10,310
<ALLOWANCES> 0
<INVENTORY> 299,455
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 341,671
<CURRENT-LIABILITIES> 0
<BONDS> 125,000
0
0
<COMMON> 150
<OTHER-SE> 143,008
<TOTAL-LIABILITY-AND-EQUITY> 341,671
<SALES> 267,561
<TOTAL-REVENUES> 268,430
<CGS> 222,085
<TOTAL-COSTS> 222,085
<OTHER-EXPENSES> 28,940<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,171
<INCOME-TAX> 7,006
<INCOME-CONTINUING> 10,165
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,165
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Other Expenses are comprised of selling, general and administrative
expenses.
<F2>Included in Company's financial statements are pro forma earnings per
share. Item 601(c)(1)(vi) of Regulation S-K excludes pro forma information
from this schedule.
</FN>
</TABLE>
