-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CiDizGA4n1uO9FJXUQhiPto5zQOe/ugjHsKLLnoIBNqYd1UoYNptTejSzqwQ8Gm8 w0PB0WIXifA5AqfWuPzUCw== 0000892569-96-001551.txt : 19960814 0000892569-96-001551.hdr.sgml : 19960814 ACCESSION NUMBER: 0000892569-96-001551 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRESLEY COMPANIES /DE CENTRAL INDEX KEY: 0000878093 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 330475923 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10830 FILM NUMBER: 96610482 BUSINESS ADDRESS: STREET 1: 19 CORPORATE PLAZA CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 7146406400 MAIL ADDRESS: STREET 2: 19 CORP PLAZA CITY: NEWPORT BEACH STATE: CA ZIP: 92660 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED JUNE 30,1996 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 June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-18001 THE PRESLEY COMPANIES - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 33-0475923 (State or jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 19 Corporate Plaza 92660 Newport Beach, California (Zip Code) (Address of principal executive offices) (714) 640-6400 (Registrant's telephone number, including area code) Not Applicable (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 reports), and (2) has been subject to such 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. Outstanding at Class of Common Stock June 30, 1996 - --------------------- -------------- [S] [C] Series A, par value $.01 17,838,535 Series B, restricted voting convertible, par value $.01 34,357,143 - ----------------------------------------------------------------------------- 2 THE PRESLEY COMPANIES INDEX
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Operations - Three and Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statement of Stockholders' Equity - Six Months Ended June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Consolidated Statements of Cash Flows - Six Months Ended June 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2 3 THE PRESLEY COMPANIES CONSOLIDATED BALANCE SHEETS (in thousands except number of shares and par value per share)
June 30, December 31, 1996 1995 ----------- ------------ (unaudited) ASSETS Cash and cash equivalents $ 3,095 $ 4,217 Receivables 6,953 5,304 Real estate inventories 312,465 315,535 Property and equipment, less accumulated depreciation of $1,139 and $850 at June 30, 1996 and December 31, 1995, respectively 2,759 2,577 Deferred loan costs 4,856 5,366 Other assets 9,673 7,934 -------- -------- $339,801 $340,933 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 9,770 $ 10,551 Accrued expenses 21,147 21,887 Notes payable 36,777 34,434 12 1/2% Senior Notes due 2001 190,000 190,000 -------- -------- 257,694 256,872 -------- -------- Stockholders' equity Common stock: Series A common stock, par value $.01 per share; 100,000,000 shares authorized; 17,838,535 issued and outstanding at June 30, 1996 and December 31, 1995, respectively 178 178 Series B restricted voting convertible common stock, par value $.01 per share; 50,000,000 shares authorized; 34,357,143 shares issued and outstanding at June 30, 1996 and December 31, 1995, respectively 344 344 Additional paid-in capital 114,599 114,599 Accumulated deficit from January 1, 1994 (Note 1) (33,014) (31,060) -------- -------- 82,107 84,061 -------- -------- $339,801 $340,933 ======== ========
3 4 THE PRESLEY COMPANIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per common share amounts) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------ 1996 1995 1996 1995 -------- -------- --------- --------- Sales Homes $ 81,405 $ 50,538 $ 142,017 $ 106,768 Lots, land and other 814 9,678 1,273 21,368 -------- -------- --------- --------- 82,219 60,216 143,290 128,136 -------- -------- --------- --------- Operating costs Cost of sales - homes (71,413) (46,535) (125,851) (99,087) Cost of sales - lots, land and other (904) (9,748) (1,231) (21,526) Reduction of real estate assets to estimated net realizable value - (9,400) - (9,400) Sales and marketing (5,839) (4,720) (10,683) (9,818) General and administrative (3,452) (3,291) (7,154) (6,443) -------- -------- --------- --------- (81,608) (73,694) (144,919) (146,274) -------- -------- --------- --------- Operating income (loss) 611 (13,478) (1,629) (18,138) Interest expense, net of amounts capitalized (519) (564) (1,279) (1,497) Other income (expense), net 275 686 954 899 -------- -------- --------- --------- Income (loss) before income taxes and extraordinary item 367 (13,356) (1,954) (18,736) Credit for income taxes - 2,492 - 4,698 -------- -------- --------- --------- Net income (loss) before extraordinary item 367 (10,864) (1,954) (14,038) Extraordinary item - gain from retirement of debt, net of applicable income taxes of $503 - 724 - 724 -------- -------- --------- --------- Net income (loss) $ 367 $(10,140) $ (1,954) $ (13,314) ======== ======== ========= ========= Net income (loss) per common share - Note 1 $ 0.01 $ (0.19) $ (0.04) $ (0.26) ======== ======== ========= =========
4 5 THE PRESLEY COMPANIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 1996 (in thousands) (unaudited)
Common Stock ------------------------------------------ Accumulated Series A Series B Additional Deficit from ------------------- ----------------- Paid-In January 1, Shares Amount Shares Amount Capital 1994 Total ------ ------ ------ ------ ---------- ------------ ------- Balance - December 31, 1995 17,839 $178 34,357 $344 $114,599 $(31,060) $84,061 Net loss - - - - - (1,954) (1,954) ------ ---- ------ ---- -------- -------- ------- Balance - June 30, 1996 17,839 $178 34,357 $344 $114,599 $(33,014) $82,107 ====== ==== ====== ==== ======== ======== =======
5 6 THE PRESLEY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Ended June 30, ------------------------ 1996 1995 -------- -------- OPERATING ACTIVITIES Net loss $ (1,954) $(13,314) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 291 219 Reduction of real estate assets to estimated net realizable value - 9,400 Net changes in operating assets and liabilities: Other receivables (1,693) (1,455) Real estate inventories 3,070 14,460 Deferred loan costs 510 688 Other assets (1,739) 748 Accounts payable (781) (1,672) Accrued expenses (740) (651) Income taxes - (4,195) -------- -------- Net cash provided by (used in) operating activities (3,036) 4,228 -------- -------- INVESTING ACTIVITIES Issuance of notes receivable - (95) Principal payments on notes receivable 44 88 Property and equipment, net (473) (478) -------- -------- Net cash used in investing activities (429) (485) -------- -------- FINANCING ACTIVITIES Proceeds from borrowing on notes payable 51,639 26,869 Principal payments on notes payable (49,296) (30,942) Retirement of debt - (10,000) -------- --------- Net cash provided by (used in) financing activities 2,343 (14,073) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,122) (10,330) CASH AND CASH EQUIVALENTS - beginning of period 4,217 20,643 -------- -------- CASH AND CASH EQUIVALENTS - end of period $ 3,095 $ 10,313 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for interest, net of amounts capitalized $ 1,518 $ 1,104 ======== ======== Cash paid during the period for income taxes $ - $ - ======== ========
6 7 THE PRESLEY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. Effective as of January 1, 1994, the Company completed a capital restructuring and quasi-reorganization. The quasi-reorganization resulted in the adjustment of assets and liabilities to estimated fair values and the elimination of an accumulated deficit effective January 1, 1994. The net amount of such revaluation adjustments, together with the accumulated deficit as of the date thereof, was transferred to paid-in capital in accordance with the accounting principles applicable to quasi-reorganizations. The consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements included herein should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1995. The interim consolidated financial statements have been prepared in accordance with the Company's customary accounting practices. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. The consolidated financial statements include the accounts of the Company and all majority-owned or controlled subsidiaries and joint ventures. All significant intercompany accounts and transactions have been eliminated. Investments in unconsolidated joint ventures in which the Company has less than a controlling interest are accounted for using the equity method. The accounting policies of the joint ventures are substantially the same as those of the Company. Net income (loss) per common share for the three and six months ended June 30, 1996 and 1995 is based on 52,195,678 of Series A and Series B common stock outstanding. NOTE 2 - SALE AND LEASEBACK OF CERTAIN MODEL HOMES During the quarter ended March 31, 1996, the Company completed a bulk transaction in which 57 model homes were sold and leased back to the Company, resulting in total revenue to the Company of approximately $9,750,000. The individual leases expire at various dates through 2001, but may be extended under certain circumstances. 7 8 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of results of operations and financial condition should be read in conjunction with the consolidated financial statements and notes thereto included in Item 1, as well as the information presented in the Annual Report on Form 10-K for the year ended December 31, 1995. FINANCIAL CONDITION AND LIQUIDITY The Company provides for its ongoing cash requirements from internally generated funds from the sales of real estate and from outside borrowings. The Company currently maintains the following major credit facilities: 12 1/2% Senior Notes (the "Senior Notes"), a secured revolving lending facility (the "Working Capital Facility"), construction loans relating to Horsethief Canyon Partners, its wholly-owned joint venture partnership, a revolving line of credit relating to Carmel Mountain Ranch, its wholly-owned joint venture partnership (the latter two facilities collectively the "Joint Venture Facilities"), and a revolving line of credit relating to construction on certain real property located in Arizona and New Mexico (the "Other Facilities"), which are summarized below. SENIOR NOTES The Company filed with the Securities and Exchange Commission a Registration Statement on Form S-1 for the sale of $200,000,000 of Senior Notes which became effective on June 23, 1994. The offering closed on June 29, 1994 and was fully subscribed and issued. The following discussion of the Senior Notes should be read in conjunction with the Registration Statement as filed with the Securities and Exchange Commission. The 12 1/2% Senior Notes due 2001 (the "Senior Notes") were offered by The Presley Companies, a Delaware corporation ("Delaware Presley"), and are unconditionally guaranteed on a senior basis by Presley Homes (formerly The Presley Companies), a California corporation and a wholly-owned subsidiary of Delaware Presley ("California Presley"). However, California Presley has granted liens on substantially all of its assets as security for its obligations under the Working Capital Facility and the Other Facilities. Because the California Presley guarantee is not secured, holders are effectively junior to borrowings under the Working Capital Facility with respect to such assets. Delaware Presley and its consolidated subsidiaries are referred to collectively herein as "Presley" or the "Company". Interest on the Senior Notes is payable on January 1 and July 1 of each year. Except as set forth in the Indenture Agreement (the "Indenture"), the Senior Notes are not redeemable by Presley prior to July 1, 1998. Thereafter, the Senior Notes will be redeemable at the option of Delaware Presley, in whole or in part, at the redemption prices set forth in the Indenture. 8 9 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The Senior Notes are senior obligations of Presley and rank pari passu in right of payment to all existing and future unsecured indebtedness of Presley, and senior in right of payment to all future indebtedness of the Company which by its terms is subordinated to the Senior Notes. Upon a Change of Control as described in the Indenture, Presley must offer to repurchase Senior Notes at a price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the date of repurchase. Presley is required to offer to repurchase certain Senior Notes at a price equal to 100% of the principal amount plus any accrued and unpaid interest to the date of repurchase if Delware Presley's Consolidated Tangible Net Worth is less than $60,000,000 for any two consecutive fiscal quarters, and from the proceeds of certain asset sales. The Indenture governing the Senior Notes restricts, among other things: (i) the payment of dividends on and redemptions of capital stock by Presley, (ii) the incurrence of indebtedness by Presley or the issuance of preferred stock by Delaware Presley's subsidiaries, (iii) the creation of certain liens, (iv) Delaware Presley's ability to consolidate or merge with or into, or to transfer all or substantially all of its assets to, another person, and (v) transactions with affiliates. These restrictions are subject to a number of important qualifications and exceptions. WORKING CAPITAL FACILITY The collateral for the loans provided by the Working Capital Facility includes substantially all real estate and other assets of the Company (excluding assets of partnerships, certain real estate assets of the Company in Arizona and the portion of the partnership interests in Carmel Mountain Ranch partnership which are currently pledged to other lenders). The borrowing base is calculated based on specified percentages of book values of real estate assets. The borrowing base at June 30, 1996 was approximately $201,833,000; however, the maximum loan under the Working Capital Facility is limited to $72,000,000. The principal outstanding under the Working Capital Facility at June 30, 1996 was $30,000,000. The Working Capital Facility has a termination date of May 20, 1997, with two one-year extensions at the Company's option. Upon any extension of the termination date, the Company would pay an extension fee of 1% of the Working Capital Facility commitment amount (in addition to the loan fee described below) for each year extended. Pursuant to the terms of the Working Capital Facility, outstanding advances bear interest at the prime rate plus 2%. An alternate option provides for interest based on a specified overseas base rate plus 4.44%, but not less than the prime rate option in effect at December 31, 1993 (8.00%). In addition, the Company pays a loan fee of 1% per annum, payable quarterly, on the total Working Capital Facility commitment amount. 9 10 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The Working Capital Facility now provides that the Company must maintain a Tangible Effective Net Worth as of the last day of any fiscal quarter of not less than $70,000,000. The Working Capital Facility also provides that as of the last day of any fiscal quarter the ratio of the Company's Total Liabilities (excluding non-recourse debt) to Tangible Effective Net Worth must not exceed 3.75 to 1 and that the ratio of Adjusted Total Liabilities (the Company's and its unconsolidated partnerships' Total Liabilities and Letters of Credit) (excluding non-recourse debt) to Tangible Effective Net Worth must not exceed 4.0 to 1. At June 30, 1996 the Company's Tangible Effective Net Worth was approximately $77,251,000, the ratio of the Company's Total Liabilities (excluding non-recourse debt) to Tangible Effective Net Worth was 3.34 to 1, and the ratio of Adjusted Total Liabilities (excluding non-recourse debt) to Tangible Effective Net Worth was 3.35 to 1. The Working Capital Facility requires certain minimum cash flow and pre-tax and pre-interest tests. The Working Capital Facility also provides for negative covenants which, among other things, place limitations on the payment of cash dividends, merger transactions, transactions with affiliates, the incurrence of additional debt and the acquisition of new land as described in the following paragraph. Under the terms of the Working Capital Facility, the Company may acquire new improved land for development of housing units of no more than 300 lots in any one location without approval from the lenders if certain conditions are satisfied. The Company may, however, acquire any new raw land or improved land provided the Company has obtained the prior written approval of lenders holding two-thirds of the obligations under the Working Capital Facility. JOINT VENTURE FACILITIES Horsethief Canyon Partners ("HCP"), the partnership that owns the Horsethief Canyon master-planned community, is a California general partnership and is 100% owned by The Presley Companies and its wholly-owned subsidiary. The construction of the project is currently being financed through intract loans to prepare finished lots for the construction of homes and construction loans to finance the construction of homes. At June 30, 1996 a total of $1,958,000 was outstanding under the intract and construction loans of HCP. Interest rates on the intract and construction loans range from prime plus 1.25% to prime plus 1.50%. Carmel Mountain Ranch ("CMR"), the partnership that owns the Carmel Mountain Ranch master-planned community, is also a California general partnership and is 100% owned by The Presley Companies and its wholly-owned subsidiary. Effective as of March 1995, the development and construction of the project is financed through a revolving line of credit. The revolving line of credit consists of several components relating to production units, models and residential lots. At June 30, 1996, the revolving line of credit had 10 11 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) an outstanding balance of $876,000. Availability under the line is subject to a number of limitations, but in any case cannot exceed $29,000,000, and is subject to further limitations as described in the following paragraph. Interest on the outstanding balance is at prime plus 1.00% and the loan matures on March 17, 1998. OTHER FACILITIES Effective in October 1995, the Company executed a master credit agreement with a maximum loan commitment of $5,000,000 to finance the development of lots for residential homes and the construction of single-family attached and detached production homes on certain real property located in Arizona and New Mexico. Interest on the outstanding balance is at prime plus 1.00% and the loan matures on November 30, 1998. The outstanding balance under this facility, together with the outstanding balance under the CMR facility described in the preceding paragraph, may not exceed $29,000,000. As of June 30, 1996 the outstanding balance under this agreement was $3,943,000. ASSESSMENT DISTRICT BONDS AND SELLER FINANCING In some locations in which the Company develops its projects, assessment district bonds are issued by municipalities to finance major infrastructure improvements and fees. Such financing has been an important part of financing master-planned communities due to the long-term nature of the financing, favorable interest rates when compared to the Company's other sources of funds and the fact that the bonds are sold, administered and collected by the relevant government entity. As a landowner benefited by the improvements, the Company is responsible for the assessments on its land. When Presley's homes or other properties are sold, the assessments are either prepaid or the buyers assume the responsibility for the related assessments. Another potential source of financing available to the Company is seller-provided financing for land acquired by the Company. Although the Company has not used this form of financing significantly in the past few years, it is possible that such financing may be available and utilized to a greater extent in the future. 11 12 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) RESULTS OF OPERATIONS OVERVIEW AND RECENT RESULTS Homes sold, closed and in backlog as of and for the periods presented are as follows:
As of and for As of and for the Three Months the Six Months Ended June 30, Ended June 30, ----------------- ---------------- 1996 1995 1996 1995 ---- ---- ----- ---- Number of homes sold 478 388 1,069 744 Number of homes closed 490 320 859 664 Backlog of homes sold but not closed at end of period 526 333 526 333
The increase in net new home orders and backlog in the first six months of 1996, as compared with the first six months of 1995, is the result of the Company's return to the Arizona market from which it had been absent for approximately three years, the result of the Company's entry into the Nevada market, and the result of increases in the Company's Southern California, Northern California and New Mexico markets. The increase in closings in the first six months of 1996, as compared with the first six months of 1995, is the result of the Company's return to the Arizona market, the result of the Company's entry into the Nevada market, and the sale of 57 model homes described below, offset by decreases in the Company's Northern California markets. Homes in backlog are generally closed within three to six months and substantially all will be closed within six months after the end of the period indicated. The dollar amount of backlog of homes sold but not closed as of June 30, 1996 was $93,791,000, as compared to $53,952,000 as of June 30, 1995 and $90,494,000 as of March 31, 1996. The cancellation rate of buyers who contracted to buy a home but did not close escrow at the Company's projects was approximately 22% during 1995 and approximately 19% during the first six months of 1996. The number of homes closed in the second quarter of 1996 was up 53 percent to 490 from 320 in the second quarter of 1995. Net new home orders for the quarter ended June 30, 1996 increased 23 percent to 478 units from 388 a year ago. For the second quarter of 1996, net new orders decreased 19 percent to 478 from 591 units in the first quarter of 1996. The backlog of homes sold as of June 30, 1996 was 526, up 58 percent from 333 units a year earlier, and down 2 percent from 538 units at March 31, 1996. The Company's inventory of completed and unsold homes as of June 30, 1996 decreased to 61 units from 96 units as of March 31, 1996. 12 13 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Net new home orders and closings for the first quarter of 1996 include 57 model homes which were sold and leased back to the Company in a bulk transaction resulting in total revenue to the Company of approximately $9,750,000. In general, housing demand is adversely affected by increases in interest and housing costs. Interest rates, the length of time that assets remain in inventory, and the proportion of inventory that is financed affect the Company's interest cost. If the Company is unable to raise sales prices sufficiently to compensate for higher costs, which has generally been the case recently, or if mortgage interest rates increase significantly, affecting prospective buyers' ability to adequately finance home purchases, the Company's sales, gross margins and net results may be adversely impacted. To a limited extent, the Company hedges against certain increases in interest costs by acquiring interest rate protection that locks in or caps interest rates for limited periods of time for mortgage financing for prospective homebuyers. COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 TO THREE MONTHS ENDED JUNE 30, 1995 Sales (which represent recorded revenues from closings) for the three months ended June 30, 1996 were $82.2 million, an increase of $22.0 million (36.5%), from sales of $60.2 million for the three months ended June 30, 1995. Revenue from sales of homes increased $30.9 million to $81.4 million in the 1996 period from $50.5 million in the 1995 period. This increase was due primarily to an increase in the number of homes closed to 490 in the 1996 period from 320 in the 1995 period and an increase in the average sales prices of homes to $166,000 in the 1996 period from $158,000 in the 1995 period. Revenue from lots, land and other decreased $8.9 million to $0.8 million in the 1996 period from $9.7 million in the 1995 period. Total operating income (loss) increased from a loss of $13.5 million in the 1995 period to income of $0.6 million in the 1996 period. The excess of revenue from sales of homes over cost of sales - homes increased by $6.0 million, to $10.0 million in the 1996 period from $4.0 million in the 1995 period. These increases were primarily due to increased sales prices and an increase in the number of homes closed as described above and decreases in buyer incentives. Reductions of real estate assets to estimated net realizable value amounting to $9.4 million were recorded in the 1995 period, with no corresponding charge in the comparable period for 1996. Sales and marketing expenses increased by $1.1 million to $5.8 million in the 1996 period from $4.7 million in the 1995 period primarily as a result of increased advertising and direct closings costs (directly related to increased revenue from closings) in the 1996 period compared to the 1995 period. General and administrative expenses increased by $0.2 million to $3.5 million in the 1996 period from $3.3 million in the 1995 period, primarily as a result of increased overhead from start-up operations in Arizona and Nevada. 13 14 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Total interest incurred during the 1996 period decreased $0.6 million (7.6%) from the 1995 period as a result of a reduction in debt levels and decreased interest rates. Net interest expense decreased to $0.5 million in the 1996 period from $0.6 million for the 1995 period. This decrease was due primarily to an increase in development activities in the 1996 period compared to the 1995 period (resulting in increased interest capitalization) and by decreases in interest rates. Other (income) expense, net decreased $0.4 million to a net income of $0.3 million in the 1996 period from a net income of $0.7 million in the 1995 period primarily as a result of (i) decreased income from recreational facilities offset by (ii) increased income from mortgage operations. COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED JUNE 30, 1995 Sales (which represent recorded revenues from closings) for the six months ended June 30, 1996 were $143.3 million, an increase of $15.2 million (11.9%), from sales of $128.1 million for the six months ended June 30, 1995. Revenue from sales of homes increased $35.2 million to $142.0 million in the 1996 period (which included $9.7 million from the sale of model homes as described above) from $106.8 million in the 1995 period. This increase was due primarily to an increase in the number of homes closed to 859 in the 1996 period (which included 57 model units as described above) from 664 in the 1995 period and an increase in the average sales prices of homes to $165,000 in the 1996 period from $161,000 in the 1995 period. Revenue from lots, land and other decreased $20.1 million to $1.3 million in the 1996 period from $21.4 million in the 1995 period. Total operating loss decreased from a loss of $18.1 million in the 1995 period to a loss of $1.6 million in the 1996 period. The excess of revenue from sales of homes over cost of sales - homes increased by $8.5 million, to $16.2 million in the 1996 period from $7.7 million in the 1995 period. These increases were primarily due to increased sales prices and an increase in the number of homes closed as described above and decreases in buyer incentives. Reductions of real estate assets to estimated net realizable value amounting to $9.4 million were recorded in the 1995 period, with no corresponding charge in the comparable period for 1996. Sales and marketing expenses increased by $0.9 million to $10.7 million in the 1996 period from $9.8 million in the 1995 period primarily as a result of increased closing costs (directly related to revenue from increased closings) in the 1996 period compared to the 1995 period. General and administrative expenses increased by $0.8 million to $7.2 million in the 1996 period from $6.4 million in the 1995 period, primarily as a result of increased overhead from start-up operations in Arizona and Nevada. Total interest incurred during the 1996 period decreased $1.7 million (9.6%) from the 1995 period as a result of a reduction in debt levels and decreased interest rates. Net interest expense decreased to $1.3 million in the 1996 period from $1.5 million for the 1995 period. This decrease was due primarily to an increase in development activities in the 1996 period compared to the 1995 period (resulting in increased interest capitalization) and by decreases in interest rates. 14 15 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Other (income) expense, net increased $0.1 million to a net income of $1.0 million in the 1996 period from a net income of $0.9 million in the 1995 period primarily as a result of (i) increased income from recreational facilities and (ii) increased income from mortgage operations. CASH FLOWS - COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED JUNE 30, 1995 Net cash provided by operating activities decreased from $4.2 million in the 1995 period to net cash used of $3.0 million in the 1996 period. The change was primarily a result of increased land acquisition and construction activity. Net cash used in investment activities decreased from $0.5 million in the 1995 period to $0.4 million in the 1996 period. The change was primarily due to a decrease in the notes receivable. Net cash provided by financing activities increased to $2.3 million in the 1996 period from net cash used of $14.1 million in the 1995 period. The change was primarily due to an increase in net borrowings activity. 15 16 THE PRESLEY COMPANIES PART II. OTHER INFORMATION ITEMS 1, 2, 3, 4 AND 5. Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS. Exhibit 27 - Financial Data Schedule (B) REPORTS ON FORM 8-K. The Company did not file any reports on Form 8-K during the three months ended June 30, 1996. 16 17 THE PRESLEY COMPANIES SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 13, 1996 By: /s/ DAVID M. SIEGEL -------------------------------------- David M. Siegel Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Date: August 13, 1996 By: /s/ W. DOUGLASS HARRIS -------------------------------------- W. Douglass Harris Vice President, Corporate Controller (Principal Accounting Officer) 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS INCLUDED IN QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996. 1,000 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 3,095 0 6,953 0 312,465 0 3,898 1,139 339,801 0 0 0 0 522 81,585 339,801 143,290 143,290 127,082 127,082 16,883 0 1,279 (1,954) 0 (1,954) 0 0 0 (1,954) (.04) (.04)
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