<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 JUNE 30, 1999
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 0-23347
UNITED HOMES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ILLINOIS 36-3978181
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
2100 GOLF ROAD, ROLLING MEADOWS, IL 60008
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (847) 427-2450
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
11% Mandatory Redemption Debentures
Due March 15, 2005
(Title of Class)
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 .
<PAGE>
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .1
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999
(unaudited) and September 30, 1998 (audited). . . . . . . .1
Consolidated Statements of Income (loss) for the Nine months
ended June 30, 1999 and 1998 (unaudited) . . . . .2
Consolidated Statements of Income (loss) for the Three months
ended June 30, 1999 and 1998 (unaudited) . . . . .3
Consolidated Statements of Stockholder's Equity for the
Nine months ended June 30, 1999 (unaudited) and the
year ended September 30, 1998 (audited) . . . . . . . . . .4
Consolidated Statements of Cash Flows for the Nine months
ended June 30, 1999 and 1998 (unaudited). . . . . . . . . .5
Notes to the Consolidated Interim Financial Statements
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . .6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . .7
Item 3. Quantitative and Qualitative Disclosure About Market Risk . . . 11
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . 12
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 12
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1999 (unaudited)
and September 30, 1998 (audited)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
(unaudited) (audited)
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 863,832 $ 795,880
Housing inventories 73,592,048 71,727,336
Land held for future development 1,085,786 1,085,786
Investment in real estate partnership 369,456 541,243
Due from Parent 5,170,812 4,563,471
Due from affiliates 413,476 373,098
Notes receivable 11,594,222 9,112,374
Other receivable 248,977 248,773
Deposits 125,939 91,937
Other Assets 2,651,190 2,561,395
------------- -------------
Total assets $96,115,739 $91,101,293
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities $14,625,673 $11,495,858
Accrued costs on closed sales 1,010,118 2,237,972
Deferred income 89,199 250,711
Deposits from home buyers 984,846 613,266
Development loans and other notes payable 61,569,034 56,912,050
Mandatory redemption debentures, net of issuance 5,962,652 5,826,111
costs and discounts ------------- -------------
Total liabilities 82,651,531 77,335,968
Investors' equity in majority-owned land
development and housing partnerships 899,939 758,563
Stockholder's equity
Common stock, $.01 par value; 1,000,000
Shares authorized; 1,000 shares issued
and outstanding 100 100
Additional paid-in capital 1,203,900 1,203,900
Retained earnings 11,360,269 11,802,762
------------- -------------
Total stockholder's equity 12,564,269 13,006,762
------------- -------------
Total liabilities and stockholder's equity $96,115,739 $91,101,293
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
1
<PAGE>
Condensed Consolidated Statements of Income (Loss) for the Nine months ended
June 30, 1999 and 1998 (unaudited)
<TABLE>
<CAPTION>
Nine months Ended
June 30,
1999 1998
------------- -------------
<S> <C> <C>
REVENUES
Housing and land sales (305 units in 1999 and
435 units in 1998) $47,437,094 $76,962,788
Recognition of deferred income 293,746 1,264,371
Other 28,864 28,711
------------- -------------
47,759,704 78,255,870
COST OF SALES
Housing costs, including amortization of capitalized
interest and real estate taxes of $1,424,524 in
1999 and $2,917,989 in 1998 38,532,243 63,574,610
Amortization of capitalized project costs 7,137,288 11,019,418
------------- -------------
Operating Profit 2,090,173 3,661,842
Other costs and expenses 2,827,661 2,342,329
------------- -------------
Income (loss) before investors share of income in
majority-owned land development and housing
partnerships (737,488) 1,319,513
Investors' share of income in majority-owned
land development and housing partnerships --- 128,863
------------- -------------
Income (loss) before income taxes (737,488) 1,190,650
Income tax provision (benefit) (294,995) 476,260
------------- -------------
Net income (loss) $(442,493) $ 714,390
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
Condensed Consolidated Statements of Income (Loss) for the Three months ended
June 30, 1999 and 1998 (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1999 1998
------------- -------------
<S> <C> <C>
REVENUES
Housing and land sales (72 units in 1999 and
111 units in 1998) $14,410,465 $23,308,067
Recognition of deferred income 81,792 ---
Other (9,373) 4,832
------------- -------------
14,482,884 23,312,899
COST OF SALES
Housing costs, including amortization of capitalized
interest and real estate taxes of $796,279 in
1999 and $1,245,796 in 1998 10,907,825 18,350,273
Amortization of capitalized project costs 3,600,675 5,102,697
------------- -------------
Operating Profit (loss) (25,616) (140,071)
Other costs and expenses 361,596 340,923
------------- -------------
Income (loss) before investors share of income in
majority-owned land development and housing
partnerships (387,212) (480,994)
Investors' share of income in majority-owned
land development and housing partnerships --- 86,498
------------- -------------
Income (loss) before income taxes (387,212) (567,492)
Income tax provision (155,285) (226,740)
------------- -------------
Net income (loss) $(231,927) $ (340,752)
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
Consolidated Statements of Stockholder's Equity
for the Nine months ended June 30, 1999 (unaudited) and
the years ended September 30, 1998 and 1997 (audited)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings
------------- ------------- -------------
<S> <C> <C> <C>
Balance at September 30, 1997 $100 $ 3,900 $ 9,781,989
Net income 2,020,773
Additional Capital contribution 1,200,000
------------- ------------- -------------
Balance at September 30, 1998 100 1,203,900 11,802,762
Net loss (442,493)
------------- ------------- -------------
Balance at June 30, 1999 $100 $1,203,900 $11,360,269
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
Consolidated Statements of Cash Flows for the Nine months ended June 30, 1999
and 1998 (unaudited)
<TABLE>
<CAPTION>
Nine months Ended June 30,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ (442,493) $ 714,390
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Amortization of debenture issuance costs 136,541
Changes in:
Housing inventories (1,864,712) (10,381,187)
Investment in Real Estate Partnership 171,786 (4,452,986)
Due from Parent 607,341 792,248
Notes receivable (2,481,848) (624,986)
Other assets (164,379) 1,440,287
Accounts payable and accrued liabilities 311,970 (6,956,439)
Deferred income (161,513) (1,264,371)
Deposits from home buyers 371,580 (96,892)
------------- -------------
Net cash used in operating activities (4,730,409) (20,829,936)
CASH FLOW FROM INVESTING ACTIVITIES
Increase in due from managed properties --- 78,417
------------- -------------
Net cash used in investing activities --- 78,417
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from development loans and other notes
payable 72,162,812 92,573,330
Repayments of development loans and other notes
payable (67,505,827) (78,858,274)
Net proceeds from mandatory redemption debentures --- 5,863,716
Distributions to investors in majority-owned land
development and housing partnerships 141,376 (390,929)
Change in capitalization --- 1,200,000
------------- -------------
Net cash provided by (used in) financing activities 4,798,361 20,387,903
------------- -------------
Increase (decrease) in cash and cash equivalents 67,952 (363,616)
Cash and cash equivalents at beginning of period 795,880 1,105,368
------------- -------------
Cash and cash equivalents at end of period $ 863,832 $ 741,752
------------- -------------
------------- -------------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
During the nine months ended June 30, 1998, United Development Management
Company contributed $1,200,000 in condominium units and commercial real
estate property to United Homes, Inc.
SEE ACCOMPANYING NOTES.
5
<PAGE>
Notes to the Consolidated Interim Financial Statements (unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated interim financial statements do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. These interim statements should be
read in conjunction with the Company's audited financial statements,
incorporated by reference to the Company's September 30, 1999 financial
statements filed on Form 10-K, as certain footnote disclosures which
substantially duplicate those contained in such audited financial statements
have been omitted from these interim financial statements. In the opinion of
management, the interim financial statements contain all adjustments (which
are normal and recurring) necessary for a fair statement of financial results
for the interim periods.
2. HOUSING INVENTORIES
Housing inventories consisted of the following:
<TABLE><CAPTION>
June 30, September 30,
1999 1998
----------- -------------
<S> <C> <C>
Land under development, including site
development costs $27,664,699 $33,006,027
Direct construction costs 20,898,177 18,802,515
Capitalized project costs 24,801,325 17,677,320
Land held for sale 227,847 2,241,474
----------- -----------
$73,592,048 $71,727,336
----------- -----------
----------- -----------
</TABLE>
3. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE><CAPTION>
June 30, September 30,
1999 1998
----------- -------------
<S> <C> <C>
Land Sales $10,970,822 $8,559,924
Model Homes 623,400 552,450
----------- ----------
$11,594,222 $9,112,374
----------- ----------
----------- ----------
</TABLE>
The notes have various maturity dates from 1999 to 2001 and interest
rates ranging from 10% to 15%.
As of June 30, 1999, the Company has notes receivable related to the
sale-leaseback of 22 model homes to a public company. The gain
from the sale of these homes is recognized over the related lease term in
accordance with Statement of Financial Accounting Standards No. 98 (SFAS No.
98) "Accounting for Leases."
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") and
Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
and 131 became effective for fiscal years beginning after December 15, 1997
with early adoption permitted. These statements have no effect on the
Company's results of operations or financial position.
FASB Statement No. 98, "Accounting for Leases" ("SFAS 98") pertains
to the sale-leaseback of 22 model homes as of June 30, 1999. This normal
leaseback involves terms of less than two years, with the lessee's sole
obligation to return the homes to "like-new" condition upon lease expiration
or sale. The note receivable held by the lessee represents 10% of the
appraised value of the model homes, bears interest through maturity at the
Floating Base Rate plus five and one half percent (5.5%) and matures on
November 11, 2002.
<TABLE>
Maturities of the sales/leasebacks are as follows:
<S> <C>
1999 $ 111,702
2000 $ 17,381
---------
$ 129,083
---------
---------
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements in this Report that are not historical facts
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act
of 1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Discussions containing
such forward-looking statements may be found in the material set forth
hereunder as well as within this Report generally. In addition, when used in
this Report, the words "believes," "intends," "anticipates," "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to a number of risks and uncertainties described in
more detail under "Factors Affecting the Company's Business." Actual results
could differ materially from those projected in the forward-looking
statements as a result of the factors set forth in this Report. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect any future
events or circumstances.
The following analysis of the Company's consolidated financial condition
and results of operations as of June 30, 1999 and September 30, 1998 and for
the nine months ended June 30, 1999 and 1998 should be read in conjunction
with the Company's Consolidated Financial Statements, including the notes
thereto, and other information included elsewhere in this Report.
GENERAL
The Company generates revenue from the interrelated activities of land
acquisition, development and homebuilding. The Company generally enters into
a purchase agreement with a potential home buyer prior to commencing
construction, except where the home is being constructed on a speculative
basis or to be used as a model home. As of June 30, 1999, the Company had 321
homes built or under construction, of which 232 were under contract for sale.
The high number of houses under construction which are not sold is the result
of an abnormally high level of contract cancellations. The Company does not
recognize a sale for accounting purposes until the sale of a home or lot is
closed. The time period from execution of a purchase agreement to the closing
of the sale of a home generally ranges from six to nine months.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998. Revenues from housing
and land sales decreased approximately $29.6 million or 38.4% for the nine
months ended June 30, 1999 from approximately $77.0 million in 1998 to
approximately $47.4 million in 1999. The decrease in revenue resulted from a
decrease in the volume of homes and lots closed during the period.
Additionally, delays in closing on financing for projects in Chicago were
major factors in this decline of revenue.
During the nine months ended June 30, 1999, the Company closed on the
sale of 215 homes and 90 lots at an average selling price for homes of
$195,300, compared to 370 homes and 65 lots at an average selling price for
homes of $184,600 in the same period ended June 30, 1998. The Company
believes that the increase in the average price per home resulted from the
mix of homes closed during these periods.
7
<PAGE>
Housing costs decreased during the nine month period ended June 30, 1999
from approximately $63.6 million to approximately $38.5 million as compared
to the same period ended June 30, 1998. The decrease in these costs resulted
mainly from decreases in the number of homes constructed, sold and closed
during the period as compared to the same period ended June 30, 1998. As a
percentage of housing and land sales revenue, housing costs dropped from
82.6% to 81.2% during the nine months ended June 30, 1998 and June 30, 1999,
respectively.
THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998. Revenue from housing
and land sales decreased approximately $8.9 million or 38.2% for the three
months ended June 30, 1999 from approximately $23.3 million to approximately
$14.4 million. The decrease in revenue resulted from a decrease in the volume
of homes and lots closed during the period. Additionally, delays in closing
on financing for projects in Chicago were major factors in this decline.
During the three months ended June 30, 1999, the company closed on 72
homes and 0 lots at an average selling price for homes of $200,100, compared
to 111 homes at an average selling price for homes of $210,000 in the same
period ended June 30, 1998. The Company believes that the decrease in the
average price per home resulted from the mix of homes closed during these
periods.
Housing costs decreased during the three month period ended June 30,
1999 from approximately $18.4 million to approximately $10.9 million as
compared to the same period ended June 30, 1998. The decrease in these costs
resulted mainly from decreases in the number of homes constructed, sold and
closed during the period as compared to the same period ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance at June 30, 1999 was
approximately $0.9 million, and on September 30, 1998 was approximately $0.8
million. The Company has previously financed the acquisition of land parcels,
the costs associated with initial development of the parcels (such as
entitlement activities and construction of streets and sewers) and
construction of homes by drawing on a $55 million line of credit from
Residential Funding Corp. ("RFC"), a portion which is allocated to fund
acquisition and development activity, such as sewer and roadway construction
(the "Residential Line"). RFC has informed the Company that the Residential
Line is no longer available for the aquisition of new land, development of
new or existing land, except on a case by case determination in the
discretion of RFC, or for new home construction. The Company has not made
interest payments on the Residential Line this quarter. The Company has, in
order to start replacing the Residential Line obtained $15 million
construction line of credit loan (subsequently increased to 17.5 million)
from Bank of America (the "BA Loan") The BA Loan currently finances home
construction at the Mirage and Brooks Farm subdivisions, but has been
approved to include home construction in all Illinois subdivisions. As of
June 30, 1999 and September 30, 1998, the Company had total indebtedness of
approximately $25.2 million and $44.1 million, respectively, on the
Residential Line. Of this, as to the Residential Line, $12.6 million and
$12.8 million, respectively, is related to acquisition and development. As of
June 30, 1999, the BA line had total indebtedness of approximately $7.4
million. The Company intends to replace the land development portion of the
Residential Line with project specific acquisition loans on a
project-by-project basis, and the Company is working on expanding its
construction line of credit with BA to continue home construction previously
funded by RFC.
Additionally, the Company has overline arrangement with RFC, and as of
June 30, 1999 and September 30, 1998, the indebtedness outstanding under such
overline was $10.0 million and $4.9 million, respectively. RFC is no longer
funding overline advances.
Upon closing of a home sale financed with the Residential Line, the
Company utilizes all of the net closing proceeds (including the Company's
profit) from the sale of the home to reduce the indebtedness under the
Residential Line. Thus, the amount of indebtedness outstanding on this line
fluctuates based on the number of parcels and homes under development or
construction at any one time and the rate at which the Company closes on
homes under contract for sale. During the nine months ended June 30, 1999 and
1998, the Company made principal reductions of approximately $67.5 million
and $78.8 million, respectively. Draws under the Residential Lines bear
interest at a variable rate equal to prime plus 1.25% per annum (9.0% as of
June 30, 1999). The Residential Line matures on March 14, 2001 on its terms,
but has been limited in funding as set forth above. As to homes constructed
with financing by Bank of America ("BA") at closing, approximately 80% of the
sales price is paid to BA at closing to satisfy its debt, and the remaining
proceeds are available for distribution to the Company. The BA Loan was
opened on April 30, 1999 and bears interest at the rate of prime plus 1%. The
BA Loan matures March 31, 2001.
From time to time, the Company also incurs indebtedness secured by
specific projects for specific acquisition, development and construction
activities. As of June 30, 1999 and September 30, 1998, the Company had
approximately $5.3 million and $6.4 million, respectively, of this
indebtedness outstanding, all of which was secured by certain of the
Company's assets. This indebtedness generally matures between 1999 and 2000
and bears interest at a rate of approximately 10.0% per annum as of June 30,
1999.
8
<PAGE>
The Company also generates additional working capital by selling, and
then leasing back, certain of its model homes to Dynex Residential, Inc.,
formerly known as National Model Homes. As of June 30, 1999, the Company was
leasing 22 model homes from Dynex. The Company believes this arrangement
allows it to increase its available capital by reducing the amount of capital
committed to model homes which are typically the last homes sold at the
Company's developments.
On March 11, 1999, the Company closed a $10,000,000 line of credit
facility with First American Bank, Texas to fund home building operations at
its Casas del Cielo subdivision.
The liquidity of the Company is dependant upon its (a) availability
generated through the Residential Line, (b) funds generated from closings of
homes and (c) availability generated from construction of homes financed by
the BA Line and other lenders. RFC has informed the Company that it will no
longer fund new home construction. The Company is (x) expanding the BA Line,
(y) generating new lines of credit and construction loans with other lenders,
and (z) arranging for asset sales to third party purchasers, the cumulative
effect, which, if successful, will provide positive liquidity to the Company.
There can be no assurances, however, that any or all of the above
transactions will be successfully concluded and therefore there can be no
assurances the Company will continue to have the necessary liquidity.
CASH FLOWS FROM OPERATING ACTIVITIES. The Company's operating activities
utilized cash during the nine month periods ended June 30, 1999 and
1998 of approximately $4.7 million and $20.8 million, respectively.
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES. The Company's financing
activities provided the bulk of the Company's cash flow during the nine
months ended June 30, 1999 and 1998. Net cash provided by financing
activities during these periods was approximately $4.8 million and $20.4
million, respectively. For the nine months ended June 30, 1998, the bulk of
the proceeds were comprised almost entirely of proceeds from development
loans and other notes payable of approximately $72.2 million and $92.6
million, respectively, offset by repayments on development loans and other
notes payable of approximately $67.5 million and $78.9 million, respectively.
The increase in borrowing activity for the period ended June 30, 1998
reflects increases in the amount of funds necessary to finance the Company's
construction and development activities. These borrowings are typically
repaid from the proceeds of housing or lot sales and then reborrowed by the
Company to fund construction costs. Thus, borrowings on the Company's lines
of credit (described above) fluctuate significantly based on the level of the
Company's activities. In addition, during the nine months ended June 30,
1998, the Company also received net proceeds of approximately $5.9 million
from sale of the debentures.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash provided by or used for
investing activities was not significant for the nine months ended June 30,
1999 and 1998.
INFLATION AND SEASONALITY. Real estate and residential housing prices
are affected by inflation, which can cause increases in the price of land,
raw materials and subcontracted labor. Historically, the Company has been
able to increase the price of its housing products to cover these costs.
Interest rate fluctuations also affect gross profit margins by increasing or
decreasing financing costs for land, construction and operations. The Company
believes that product demand and sales are impacted by mortgage interest
rates. The Company benefited from low mortgage interest rates during 1998 and
early 1999. As rates increase, potential customers may be discouraged from
purchasing a home due to the increased cost, decrease in buying power and
possible difficulty in qualifying for a mortgage. Seasonality has not been a
significant factor in the Company's operations. This is due, in part, to the
year-round construction and sales of in the Phoenix Area. In recent years,
Midwest winters have been comparatively mild, allowing extended construction
seasons and providing inventory for winter sales and spring closings. A
particularly harsh winter in the Midwest could, however, limit the Company's
winter construction program, thus impacting sales and closings the following
spring in an adverse manner.
9
<PAGE>
YEAR 2000. The Company recognizes the importance of the Year 2000 issue
and is taking a phased approach intended to facilitate an appropriate
transition into the Year 2000. These phases include:
- -- Allocation of Company resources to manage the approach,
- -- Evaluation of the Company's information technology ("IT") systems and
non-IT systems that include imbedded microprocessors (together, the
Company's "Internal Systems"),
- -- Inquiry into IT and non-IT systems for principal vendors (principally
subcontractors) and other service providers (together, the Company's
"External Systems"),
- -- Evaluation of risk associated with Internal and External Systems
compliance efforts,
- -- Test of all material Internal and External Systems as practicable,
- -- Creation of contingency plans for non-compliance of either Internal or
External Systems, and
- -- Determination of the expected total cost of a complete state of
readiness for the Company.
The Company will allocate resources to the phased approach outlined
above and will complete an inventory of Internal Systems and an inventory of
External Systems to determine those that do not properly recognize dates
after December 31, 1999.
The Company's principal Internal Systems include its general systems
architecture (mini-computer with remote operations) and integrated enterprise
software. The Company is currently operating on the latest version of the
operating system and integrated enterprise software and has received
representations from the vendors indicating Year 2000 compliance. The Company
is in the process of evaluating the compliance of its general systems
architecture. Despite the certifications from vendors, the Company will
continue to test compliance on its principal and secondary Internal Systems
during fiscal 1999.
The Company's principal External Systems include those of its payroll
processing service, subcontractors, significant raw material vendors, and
general service providers such as telecommunications and power. The Company
has substantially completed its evaluation of its significant subcontractors
and raw material providers via inquiry. The Company has not performed its own
test on these systems, and no assurance can be given as to the compliance of
these systems. Based on the information currently available, the Company is
not aware of any material non-compliance by its general service providers;
however, the Company does not control these systems and cannot assure their
compliance.
Costs--As of June 30, 1999, less than $10,000 of outside consulting
costs have been incurred related specifically to the Company's Year 2000
initiatives. The Company will incur capital expenditures and internal staff
costs, as well as additional outside consulting expenditures, related to this
process. Based on currently available information, the Company does not
expect the costs of these initiatives to exceed $40,000.
Risks Presented by the Year 2000 Issue--The failure by the Company to
appropriately address a material Year 2000 issue within its Internal Systems,
or the failure by any third party to address an External System could have a
material adverse impact on the Company's financial condition, liquidity or
results of operations. To date, however, the Company has not identified any
material Internal or External System that presents a significant risk of not
being Year 2000 ready or for which a suitable alternative does not exist.
With continued evaluation, however, the Company may identify an Internal
or External System that presents a risk for a Year 2000 disruption in
operations. The homebuilding construction process by nature is labor
intensive and could operate for a limited time in a manual environmental. At
this time, the Company believes the most likely worst case scenario would
result if there were a significant disruption in services provided by
lenders, or certain government agencies which could inhibit the ability of
the Company to deliver finished homes to its customers.
10
<PAGE>
Contingency Plans - The Company will identify contingency plans that
would allow for the construction and delivery of homes to customers should
any of the Company's Internal or External Systems fail. These contingency
plans will consist of construction and raw material scheduling arrangements
and potential alternative financing options.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company does not engage in trading currencies or in any hedging
activities.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 27, 1998, the United States of America, on behalf of the Army
Corporation of Engineers filed a suit against the Company in the Northern
District of Illinois, Eastern Division, Case No. 93C3242; claiming
entitlement to relief under the Clean Water Act. A motion to dismiss has been
granted. A notice of intent to file an appeal has been filed by the plaintiff.
In June, 1998, Axiom, Inc., an engineering firm employed by the Company
at various projects, filed a suit claiming non-payment of fees for services
provided. The Company has filed a counterclaim for damages due to defective
work. The exposure to the Company based on response from its attorney from
the filed lawsuit and the counterclaim is under $20,000.
On August 20, 1998, the Village of Cary filed a Complaint in Equity with
the Circuit Court of the Nineteenth Judicial Circuit, McHenry County,
Illinois, seeking to, among other items, set aside condemnation proceeds, if
and when awarded to the owner of a property known as Gentry Ridge, to allow
the Village to build a sewer interceptor. The Company is no longer the owner
of the subject property, but filed a motion to dismiss in November, 1998.
Decision of the Motion to Dismiss has been granted as to one of the three
suit counts. The Company believes the suit as filed is without merit.
In April 1999, Freeborn & Peters, a law firm in Chicago, employed by the
company, filed suit for fees due as action 99L001245. This claim has been
settled by entry into a payment plan which has been established and to date,
adhered to.
In March 1999, Michael J. Walters Advertising, filed for an arbitration
hearing over fees claimed owed to it of approximately $500,000. The Company
disputes the amount of fees owed, believing the amount owed is substantially
less than claimed. A hearing date has been held at which the parties agreed
to the sum of approximately $340,000 as owed to Michael J. Walters, the
remaining amount being subject to the decision of the arbitration.
In June and July 1999, M. Ecker Co. filed various break of Contract
suits totaling an aggregate claim of approximately $1,000,000 for fees owed.
The Company has filed answers admitting to approximately 80% of the claims
owed. The suits have been suspended until the end of September, 1999.
11
<PAGE>
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
(b) No reports on Form 8-K were filed during the quarter.
12
<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.
UNITED HOMES, INC.
By: /s/ Edward Havlik Date: August 23, 1999
Edward Havlik
President
By: /s/ William J. Crock, Jr. Date: August 23, 1999
William J. Crock, Jr.
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer
and Principal Accounting
Officer).
13
<PAGE>
EXHIBIT INDEX
Exhibit DESCRIPTION
3.1 - Articles of Incorporation of United Homes, Inc.(1)
3.2 - Bylaws of United Homes, Inc.(1)
27 - Financial Data Schedule*
* Filed herewith
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-1, File No. 333-33965, filed August 19, 1997.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF INCOME (LOSS) AS
OF JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 864
<SECURITIES> 369
<RECEIVABLES> 21,000
<ALLOWANCES> 0
<INVENTORY> 74,678
<CURRENT-ASSETS> 96,911
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 96,911
<CURRENT-LIABILITIES> 15,915
<BONDS> 67,532
0
0
<COMMON> 1,204
<OTHER-SE> 12,260
<TOTAL-LIABILITY-AND-EQUITY> 96,911
<SALES> 14,410
<TOTAL-REVENUES> 14,483
<CGS> 14,509
<TOTAL-COSTS> 14,509
<OTHER-EXPENSES> 362
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (387)
<INCOME-TAX> (155)
<INCOME-CONTINUING> (232)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (232)
<EPS-BASIC> (231.927)
<EPS-DILUTED> (231.927)
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