10-Q 1 q301.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ---- EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 ---------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ----------- For Quarter Ended Commission file number 0-19633 --------- ------- ENGLE HOMES, INC. -------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) FLORIDA 59-2214791 ------------------------------- --------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 123 N.W. 13th Street Boca Raton, Florida 33432 ------------------------------- -------------------------------- (Address of principal executive offices) (Zip code) (Registrant's telephone number, including area code) (561) 391-4012 ---------------------- NONE -------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to filing requirements for the past 90 days. YES x NO ------ ------ Number of shares of common stock outstanding as of March 31, 2001: 100 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ENGLE HOMES, INC. AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF TECHNICAL OLYMPIC USA, INC.) Condensed Consolidated Balance Sheets (unaudited) (dollars in thousands)

2 ENGLE HOMES, INC. AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF TECHNICAL OLYMPIC USA, INC.) Condensed Consolidated Statements of Income (Unaudited) (in thousands, except per share data)

3 ENGLE HOMES, INC. AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF TECHNICAL OLYMPIC USA, INC.) Condensed Consolidated Statement of Shareholder's Equity For the Three Months Ended March 31, 2001 (Unaudited) (in thousands, except number of shares)

4 ENGLE HOMES, INC. AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF TECHNICAL OLYMPIC USA, INC.) Condensed Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands)

5 ENGLE HOMES, INC. AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF TECHNICAL OLYMPIC USA, INC.) Notes to Condensed Consolidated Financial Statements NOTE 1 BASIS OF PRESENTATION AND BUSINESS 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 and Virginia. 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. On November 22, 2000, the Company became a wholly-owned subsidiary of Engle Holdings Corp., in turn a wholly-owned subsidiary of Technical Olympic USA, Inc. ("Technical Olympic"), pursuant to a merger agreement dated October 12, 2000. Technical Olympic is a wholly-owned indirect subsidiary of Technical Olympic S.A., a publicly traded Greek corporation. Company stockholders received $19.10 for each share of the Company's common stock at the time of the merger. Following the merger, the common stock of the Company ceased to be publicly traded. The Company is not subject to the filing requirements of the Securities Exchange Act of 1934. This Form 10-Q is filed pursuant to contractual obligations imposed on the Company by two Indentures dated as of February 2, 1998 and June 12, 1998, respectively, under which the Company is the issuer of certain debt. For accounting purposes, the merger was accounted for as of November 22, 2000 using the purchase method of accounting. Accordingly, the condensed consolidated financial statements for periods after that date reflect the push-down of the purchase price allocations (based on preliminary estimates and subject to adjustment) made by Technical Olympic to the assets and liabilities of the Company and, therefore, are not comparable to those before the acquisition. The condensed consolidated financial statements for the period from January 1, 2001 through March 31, 2001 are labeled Successor. Statements for the three months ended April 30, 2000 are based on the historical accounts of the Company and are labeled Predecessor. Had the acquisition been effected as of January 1, 2000, net income for the three months ended April 30, 2000 would have been $9.1 million. The acquisition was valued at approximately $465 million, including the assumption of approximately $250 million of debt. As a result of the push down of the purchase price, the Company recorded goodwill of approximately $15.2 million which is being amortized over 20 years. As a result of the change in control of the Company, the indentures governing the Company's Senior Notes due 2008 ("Senior Notes") required that an offer be made to purchase all such outstanding Senior Notes at a price of 101% of the principal plus accrued interest. Upon termination of the offer in January 2001, the Company repurchased approximately $237.0 million of $250 million of its Senior Notes. 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 the Company at March 31, 2001 and December 31, 6 2000, and results of its operations and its cash flows for the three months ended March 31, 2001 and April 30, 2000. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes contained in the Company's Annual Report on Form 10-K for the year ended October 31, 2000 and the transitional report filed on Form 10-QT for the two months ended December 31, 2000. Results of operations for these periods are not necessarily indicative of results to be expected for the full year. NOTE 2 CONSOLIDATED INCOME TAX RETURNS As a result of the merger as described in Note 1, the Company files consolidated income tax returns with Technical Olympic. For the three months ended March 31, 2001, income taxes are allocated to the Company based upon a "stand alone" computation. NOTE 3 INVENTORIES (dollars in thousands)

NOTE 4 CAPITALIZATION OF INTEREST (dollars in thousands) Included in inventory is the following:

7 NOTE 5 - EARNINGS PER SHARE (in thousands, except per share data) Basic and diluted earnings per share are calculated as follows:

8 Part 1 - Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The financial statements included on this Form 10-Q include consolidated statements of income and cash flows for the three month period ended April 30, 2000. The three months ended March 31, 2001, as compared to the three month ended April 30, 2000, traditionally contain the same seasonality factors related to the generation of revenue. The comparison of these two time periods has resulted in similar levels of revenues and cost and expenses. The Company did not recast comparative amounts for the three months ended March 31, 2000, as it was cost prohibitive. 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:

Backlog Sales of the Company's homes are generally made pursuant to a standard contract which requires a down payment of up to 10% of the sales price. The contract includes a financing contingency which permits the customer to cancel in the event mortgage financing at prevailing interest rates (including financing arranged by the Company) is unobtainable within a specified period, typically four to six weeks. The Company includes an undelivered home sale in its backlog upon execution of the sales contracts and receipt of the down payment. Revenue is recognized only upon the closing and delivery of a home. The Company estimates that the average period between the execution of a purchase agreement for a home and delivery is approximately six months. The following table sets forth the Company's backlog for the periods indicated:

The Company is marketing in 113 subdivisions at March 31, 2001, consisting of 16 subdivisions in South Florida; 27 in Central Florida; 11 in West Coast Florida; 12 in Denver, CO; 14 in Dallas, TX; 10 in Virginia; 17 in Phoenix, Arizona and 6 in Atlanta, Georgia. Result of Operations: Three Months Ended March 31, 2001 compared to the Three Months Ended April 30, 2000. The Company's revenues from home sales for the quarter ended March 31, 2001 increased $11.2 million (or 5.5%) compared to the three months ended April 30, 2000. The number of homes delivered decreased 4.1% (to 897 from 935) and the average selling price of homes delivered increased 10.2% (to $238,000 from $216,000). 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. Cost of home sales increased $3.7 million (or 2.2%) compared to the quarter ended April 30, 2000 primarily due to the related increase in home sale revenues. Cost of home sales as a percentage of home sales revenue decreased to 81.0% from 83.6% as a result of the product mix of homes delivered. The Company's selling, marketing, general and administrative ("S,G&A") expenses increased approximately $1.2 million (or 6.3%) during the three months ended March 31, 2001, as compared to the three months ended April 30, 2000. S,G&A expenses as a percentage of total revenues for the three months ended March 31, 2001 was comparable to the quarter ended April 30, 2000. Primarily as a result of an increase in revenues and a decrease of cost of home sales as a percentage of home sales revenue, net income increased by $4.9 million in the three months ended March 31, 2001 as compared to April 30, 2000. Liquidity and Capital Resources The Company's financing needs are provided by cash flows from operations and unsecured bank borrowings. Cash flow from operations, before inventory additions, has improved as a result of increased revenues. The Credit Facility and Refinancing. In connection with the acquisition of the Company by Technical Olympic on November 22, 2000, the Company entered into a Credit Agreement (the "Credit Agreement") providing for a $100 million term loan commitment and a $275 million revolving credit facility (subject to reduction based upon periodic determinations of a borrowing base). The term loan matures November 22, 2003. Proceeds from these facilities provide working capital and financed the required repurchase offer made to holders of the Company's then outstanding $250 million principal amount of 9 1/4% Senior Notes due 2008 ("Senior Notes"). The revolving credit facility terminates on November 22, 2002 whereupon all amounts outstanding become due. The revolving credit facility also provides credit support for the issuance of letters of credit needed from time to time in the Company's business. The Company's previous bank revolving credit facility was repaid and cancelled. 10 As a result of the change in control of the Company, the Company was required by the indentures governing its Senior Notes to offer to repurchase all of its outstanding Senior Notes at a price of 101% of the principal plus accrued interest. Upon termination of the offer in January 2001, the Company repurchased approximately $237 million of its Senior Notes. Funds to repurchase these Senior Notes were provided from the issuance of the $100 million term loan under the Credit Agreement and additional advances under the Company's revolving credit facility. Approximately $13 million of the Senior Notes remain outstanding as of March 31, 2001. During the three months ended March 31, 2001, the Company made cash distributions to its parent company of approximately $19.1 million. As of March 31, 2001, $142 million was outstanding under the revolving credit facility under the Credit Agreement, and $100 million of term notes. In addition, Preferred Home Mortgage Company (PHMC) has a warehouse line of credit in the amount of $40.0 million which is guaranteed by the Company. At March 31, 2001 the outstanding balance was $20.4 million to service origination of mortgage loans. The Company believes that this line is sufficient for its mortgage banking operation for the remainder of fiscal 2001. Management does not anticipate that any expansion of PHMC's 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 the ability to retain the servicing of loans, however, as of March 31, 2001, the Company has not retained servicing rights relating to loans sold. 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. During the three months ended March 31, 2001, the Company sold to an investment limited liability company ("Investment Company") certain undeveloped real estate tracts for a purchase price of $37.3 million. The Investment Company is owned by several of the Executive Officers or prior stockholders of the Company, including without limitation trusts of the Engelstein family. The Company entered into a number of agreements, including option contracts and construction contracts with the Investment Company to develop and buy back fully developed lots from time to time subject to the terms and conditions of such agreements. The Company believes that the terms of the purchase contract and that the terms of the related option and development contracts were comparable to those available from unaffiliated parties. 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 11 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. Part 1 - Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company is exposed to market risk primarily related to potential adverse changes in interest rates as discussed below. The Company's exposure to market risks is changes to interest rates related to the Company's loans. The interest rates relative to the Company's loans fluctuate with the prime and Libor lending rates, both upwards and downwards. 12 Part II - Other Information Item 1. Legal Proceedings. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of the Company's management, the ultimate disposition of these matters is not expected to have a material effect on the financial condition or results of operations of the Company. Item 2. Changes in Securities. None. No disclosure required. Item 3. Defaults Upon Senior Securities. None. No disclosure required. Item 4. Submission of Matters to a Vote of Security Holders. None. No disclosure required. Item 5. Other Information. None. No disclosure required. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. None. (b) Reports on Form 8-K. None. 13 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: MAY 8, 2001 \s\ ALEC ENGELSTEIN ------------------------ ------------------------ Alec Engelstein Chief Executive Officer Date: MAY 8, 2001 \s\ DAVID SHAPIRO ------------------------ ------------------------ David Shapiro Chief Financial Officer 14

ENGLE HOMES INC /FL 10-Q