<PAGE> 1
UNITED STATES 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, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIE
EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________.
Commission File Number 1-5899
U.S. HOME CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 21-0718930
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1800 West Loop South, Houston, Texas 77027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 877-2311
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 by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. 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.
Class Outstanding at April 30, 1998
Common stock, $.01 par value 11,842,203 shares
<PAGE> 2
U.S. HOME CORPORATION
---------------------
INDEX
-----
Page
Number
------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance
Sheets--March 31, 1998 and December 31, 1997 3
Consolidated Condensed Statements
of Operations--Three Months Ended
March 31, 1998 and 1997 5
Consolidated Condensed Statements
of Cash Flows--Three Months Ended
March 31, 1998 and 1997 6
Notes to Consolidated Condensed
Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Part II. Other Information
Item 2. Changes in Securities 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
<PAGE> 3
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
---------------------
U.S. HOME CORPORATION AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
ASSETS
------
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
HOUSING:
Cash (including restricted funds) ........ $ 8,968 $ 6,270
Receivables, net ......................... 45,788 42,595
Single-Family Housing Inventories ........ 853,569 789,236
Option Deposits on Real Estate ........... 87,490 90,155
Other Assets ............................. 63,973 54,006
---------- ----------
1,059,788 982,262
---------- ----------
FINANCIAL SERVICES:
Cash (including restricted funds) ........ 6,112 5,492
Residential Mortgage Loans ............... 72,115 69,209
Other Assets ............................. 9,803 10,151
---------- ----------
88,030 84,852
---------- ----------
$1,147,818 $1,067,114
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 4
U.S. HOME CORPORATION AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(Dollars in Thousands, Except Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
HOUSING:
Accounts Payable ........................ $ 96,307 $ 92,160
Accrued Expenses and Other Current
Liabilities ........................... 64,602 68,848
Revolving Credit Facility ............... 21,000 29,000
Long-Term Debt .......................... 463,220 395,918
------------ ------------
645,129 585,926
------------ ------------
FINANCIAL SERVICES:
Accrued Expenses and Other Current
Liabilities ........................... 28,153 21,067
Revolving Credit Facility ............... 35,244 40,343
------------ ------------
63,397 61,410
------------ ------------
Total Liabilities ..................... 708,526 647,336
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value,
authorized 50,000,000 shares,
outstanding 11,822,455 shares at
March 31, 1998 and 11,762,518
shares at December 31, 1997 ........... 119 119
Capital In Excess of Par Value .......... 368,517 368,277
Retained Earnings ....................... 75,387 57,358
Unearned Compensation on Restricted
Stock ................................. (1,696) (1,770)
------------ ------------
442,327 423,984
Less Treasury Stock, at cost, 115,160
shares at March 31, 1998 and 157,743
shares at December 31, 1997 .......... 3,035 4,206
------------ ------------
Total Stockholders' Equity ............ 439,292 419,778
------------ ------------
$ 1,147,818 $ 1,067,114
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 5
U.S. HOME CORPORATION AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
HOUSING:
Operating Revenues ........................... $ 327,443 $ 310,648
--------- ---------
Operating Costs and Expenses -
Cost of products sold ...................... 264,845 255,580
Selling, general and administrative ........ 33,305 29,687
Interest ................................... 9,176 7,880
--------- ---------
307,326 293,147
--------- ---------
Housing Operating Income ..................... 20,117 17,501
--------- ---------
FINANCIAL SERVICES:
Operating Revenues ........................... 7,102 5,385
General, Administrative and Other Expenses ... 4,702 3,875
--------- ---------
Financial Services Operating Income .......... 2,400 1,510
--------- ---------
CORPORATE GENERAL AND ADMINISTRATIVE ........... 3,334 2,911
--------- ---------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
LOSS ......................................... 19,183 16,100
--------- ---------
PROVISION FOR INCOME TAXES:
Federal and State Income Taxes ............... 7,098 5,957
Tax Benefit .................................. (7,474) --
--------- ---------
(376) 5,957
--------- ---------
INCOME BEFORE EXTRAORDINARY LOSS ............... 19,559 10,143
EXTRAORDINARY LOSS FROM EARLY RETIREMENT
OF DEBT, NET OF INCOME TAX BENEFIT OF
$899 IN 1998 ................................. 1,530 --
========= =========
NET INCOME ..................................... $ 18,029 $ 10,143
========= =========
BASIC EARNINGS PER SHARE:
Income Before Extraordinary Loss ............. $ 1.66 $ .88
Extraordinary loss ........................... $ (.13) $ --
Net income ................................... $ 1.53 $ .88
DILUTED EARNINGS PER SHARE:
Income Before Extraordinary Loss ............. $ 1.49 $ .75
Extraordinary Loss ........................... $ (.12) $ --
Net Income ................................... $ 1.37 $ .75
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
U.S. HOME CORPORATION AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
--------- --------
<S> <C> <C>
Net Cash Provided (Used) by Operating Activities .. $(41,606) $ 5,419
-------- --------
Net Cash Flows From Investing Activities:
Decrease (increase) in restricted cash .......... (2,946) 209
Principal collections on investments in
mortgage loans ................................ 1,396 761
Purchase of property, plant and equipment,
net of disposals .............................. (2,208) (643)
Other ........................................... (554) 10
-------- --------
Net cash provided (used) by investing activities (4,312) 337
-------- --------
Net Cash Flows From Financing Activities:
Repayment of revolving credit facilities,
net of proceeds ............................... (13,099) 2,821
Net proceeds from sale of senior notes .......... 98,237 --
Purchase of senior notes ........................ (38,295) --
Repayment of notes and mortgage notes payable ... (966) (2,500)
Other ........................................... 413 (98)
-------- --------
Net cash provided by financing activities ....... 46,290 223
-------- --------
Net Increase in Cash .............................. 372 5,979
Cash At Beginning of Period ....................... 6,466 8,138
-------- --------
Cash At End of Period ............................. $ 6,838 $ 14,117
======== ========
Supplemental Disclosure:
Interest paid, before amount capitalized -
Housing ....................................... $ 14,350 $ 4,319
Financial Services ............................ 369 336
-------- --------
$ 14,719 $ 4,655
======== ========
Income taxes paid ............................... $ 3,359 $ 4,557
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 7
U.S. HOME CORPORATION AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
March 31, 1998
--------------
(Dollars in Thousands)
(Unaudited)
(1) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated condensed balance sheet as of
December 31, 1997, which has been derived from audited financial
statements, and the accompanying unaudited consolidated condensed
financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
those rules and regulations. Although the Company believes that the
disclosures made are adequate to ensure that the information
presented is not misleading, it is suggested that these
consolidated condensed financial statements should be read in
conjunction with the financial statements and notes thereto
included in the Company's latest Annual Report on Form 10-K.
The preparation of consolidated condensed financial statements
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
any contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period.
Management's estimates and assumptions are reflective of, among
other things, prevailing market conditions, expected market
conditions based on published economic forecasts, current operating
strategies and the availability of capital, which are all subject
to change. Changes to the aforementioned or other conditions could
in turn cause changes to such estimates and assumptions and, as a
result, actual results could differ from the original estimates.
In the opinion of the Company, the accompanying consolidated
condensed financial statements contain all adjustments (all of
which were normal and recurring adjustments) necessary to present
fairly the Company's financial position as of March 31, 1998 and
December 31, 1997 and its results of operations and cash flows for
the three month periods ended March 31, 1998 and 1997.
Because of the seasonal nature of the Company's business, the
results of operations for the three month periods ended March 31,
1998 and 1997 are not necessarily indicative of the results for the
full year.
<PAGE> 8
(2) INVENTORIES
The components of single-family housing inventories are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Housing completed and under construction .. $310,535 $302,258
Models .................................... 85,819 83,943
Finished lots ............................. 143,784 138,747
Land under development .................... 88,532 75,959
Land held for development or sale ......... 224,899 188,329
-------- --------
$853,569 $789,236
======== ========
</TABLE>
(3) REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT
Housing -
The housing revolving credit facility and long-term debt consist of
the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Revolving credit facility ................ $ 21,000 $ 29,000
-------- --------
7.95% Senior notes due 2001 .............. 75,000 75,000
9.75% Senior notes due 2003 .............. 43,109 79,703
8.25% Senior notes due 2004 .............. 100,000 100,000
7.75% Senior notes due 2005 .............. 99,745 --
8.88% Senior subordinated notes due 2007 . 125,000 125,000
Notes and mortgage notes payable ......... 20,366 16,215
-------- --------
463,220 395,918
-------- --------
$484,220 $424,918
======== ========
</TABLE>
<PAGE> 9
The Company has an unsecured revolving credit facility (the "Credit
Facility") with a group of banks. The Credit Facility provides for
borrowings of up to a maximum of $180,000, of which up to $20,000
may be used for letter of credit obligations, subject to a
borrowing base limitation. The amount available for borrowing under
the Credit Facility is based on housing inventories, land, finished
lots and closing proceeds receivable less the outstanding senior
debt borrowings (as defined), including amounts outstanding under
the Credit Facility; as the amount invested in these categories
changes, the amount of available borrowings will increase or
decrease. At March 31, 1998, $114,389 of the Credit Facility
commitment was available for borrowing. Borrowings bear interest at
a premium over the London Interbank Offered Rate ("LIBOR") or the
rate announced by the agent bank. The Credit Facility expires on
May 31, 2001, but may be extended annually beginning in 1999 for
successive one-year periods with the consent of the banks, and
contains numerous real estate and financial covenants, including
restrictions on incurring additional debt, creation of liens and
levels of land and housing inventories maintained by the Company
and a prohibition on the payment of dividends, other than stock
dividends.
From time to time, the Company may utilize interest rate swap
agreements to manage interest costs and hedge against risks
associated with changing interest rates. The Company designates
interest rate swaps as hedges of specific debt instruments and
recognizes interest rate differentials as adjustments to interest
paid or accrued as the differentials occur. Counterparties to these
agreements are major financial institutions. The Company believes
that the likelihood of credit loss from counterparty non-performance
is remote. At March 31, 1998, the Company had an interest rate swap
agreement outstanding with a notional amount of $50,000 which will
mature in 2000 and effectively fixed the interest rate on a portion
of its Credit Facility borrowings. While the outstanding balance of
the Credit Facility may fluctuate (average balance of approximately
$22,780 for the first quarter of 1998), the Company anticipates that
the average balance of the borrowings in future periods will
generally be in excess of the notional amount.
In January 1998, the Company completed the sale of $100,000
principal amount of its 7.75% senior notes due 2005 (the "2005
Senior Notes") for the purpose of raising proceeds to redeem the
balance of its 9.75% senior notes due 2003 (the "2003 Senior
Notes") which are first callable in June 1998. The 2005 Senior
Notes were issued at original issue discount of $263, which is
being amortized over the term of the notes. Interest is payable
semi-annually commencing on July 15, 1998. On or after January 15,
2003, the 2005 Senior Notes may be redeemed at the option of the
Company, in whole or in part, at prices ranging from 101.29% during
the 12 month period beginning January 15, 2003 to 100% (on or after
January 15, 2004) of the principal amount thereof, together with
accrued and unpaid interest. Upon a change of control of the
Company, holders of the 2005 Senior Notes will have the right to
require the Company to redeem their notes at a price of 101% of the
<PAGE> 10
principal amount thereof, together with accrued and unpaid
interest. There can be no assurance that sufficient funds will be
available at the time of a change of control to make any required
repurchases.
In the first quarter of 1998, the Company used a portion of the
proceeds from the sale of the 2005 Senior Notes to purchase in open
market transactions $36,594 principal amount of the 2003 Senior
Notes. The early retirement of the 2003 Senior Notes resulted in an
extraordinary loss of $1,530, net of income tax benefit of $899.
Financial Services -
The Company's mortgage banking subsidiary, U.S. Home Mortgage
Corporation ("Mortgage"), may borrow up to $65,000 under a
revolving line of credit (the "Mortgage Credit Facility"), as
amended. The Mortgage Credit Facility is secured by residential
mortgage loans and mortgage notes receivable, is not guaranteed by
the Company, matures on August 31, 1998 and bears interest at a
premium over the LIBOR rate.
(4) INCOME TAXES
In connection with the Internal Revenue Service (the "IRS")
examination of the Company's 1993 and 1992 federal income tax
returns, the IRS disallowed certain previously reserved deductions
taken by the Company in its 1993 tax return. In March 1998, the
Company was informed that its appeal of the IRS decision to
disallow these deductions had been resolved in favor of the
Company. As a result of the favorable ruling, the Company reduced
its deferred tax liability and recognized an income tax benefit in
the first quarter of 1998 totaling $7,474 related to these
deductions. The decrease in the deferred tax liability increased
basic and diluted earnings per common share in 1998 by $.63 per
share and $.57 per share, respectively.
(5) INVESTMENT
In April 1998, the Company purchased a 13.3% interest in a Mexican
home building company, headquartered near the City of Guadalajara,
Mexico for $12,759. The Company will account for its investment
using the cost method of accounting. As part of this agreement, the
Company and the Mexican company agreed to form a joint venture to,
among other things, develop, construct and sell affordable housing
communities primarily in market areas along the United
States/Mexican border, initially in Texas and Arizona.
<PAGE> 11
(6) INTEREST
A summary of housing interest for the three month periods ended
March 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Capitalized at beginning of period ........... $ 62,950 $ 58,566
Capitalized .................................. 10,961 8,575
Previously capitalized interest included in
interest expense ........................... (9,176) (7,880)
Other ........................................ (7) (22)
-------- --------
Capitalized at end of period ................. $ 64,728 $ 59,239
======== ========
</TABLE>
Financial services interest expense for the three month periods
ended March 31, 1998 and 1997, was $411 and $309, respectively, and
is included in "general, administrative and other expenses" in the
accompanying consolidated condensed statements of operations.
(7) EARNINGS PER SHARE
Basic earnings per share includes the weighted average number of
common shares outstanding for the periods. Diluted earnings per
share includes (i) the dilutive effect of the Class B warrants and
the convertible redeemable preferred stock through its redemption
and conversion in March 1997, (ii) the assumed exercise of stock
options and (iii) the assumed conversion of the 4.875% convertible
subordinated debentures through their redemption and conversion in
September 1997. The following table summarizes the basic earnings
per share and diluted earnings per share computations for the three
month periods ended March 31, 1998 and 1997:
<PAGE> 12
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Basic earnings per share:
Income before extraordinary loss . $ 19,559 $ 10,143
Extraordinary loss ............... 1,530 --
------------ ------------
Net Income ....................... $ 18,029 $ 10,143
------------ ------------
Weighted average number of
common shares . 11,804,493 11,499.982
============ ============
Earnings per share -
Income before extraordinary loss $ 1.66 $ .88
Extraordinary loss ............. $ (.13) $ --
New income ..................... $ 1.53 $ .88
Diluted earnings per share:
Income before interest applicable to
convertible subordinated debentures
and extraordinary loss ............ $ 19,559 $ 10,143
Interest applicable to convertible
subordinated debentures, net of
income taxes ...................... -- 655
------------ ------------
Income before extraordinary loss,
assuming dilution ................. 19,559 10,798
Extraordinary loss .................. 1,530 --
------------ ------------
Net income, assuming dilution ....... $ 18,029 $ 10,798
============ ============
Weighted average number of common
shares ............................ 11,804,493 11,499,982
Incremental shares from assumed
conversions -
Convertible preferred stock ....... -- 77,338
Contingent common shares .......... 11,495 14,195
Stock options ..................... 427,586 88,435
Class B warrants .................. 961,165 461,346
Convertible subordinated debentures -- 2,253,521
------------ ------------
Adjusted weighted average number of
common shares ..................... 13,204,739 14,394,817
============ ============
Earnings per share -
Income before extraordinary loss .. $ 1.49 $ .75
Extraordinary loss ................ $ (.12) $ --
Net income ........................ $ 1.37 $ .75
</TABLE>
For the three month period ended March 31, 1998, diluted earnings
per share were based on 13,204,739 common shares (the "shares")
which included the dilutive effect of the weighted average number of
shares potentially issuable for the exercise of the Class B warrants
(961,165 shares). Diluted earnings per share in subsequent periods
compared to the three month period ended March 31, 1998 will be
<PAGE> 13
impacted by the potential dilutive effect of up to 904,897
additional shares issuable upon exercise of the Class B warrants
which expire in June 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
- ---------------------
Housing
-------
The following table sets forth certain financial information for the
periods indicated (dollars in thousands, except average sales price):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues-
Single-family homes ................. $324,310 $308,813
Land and other ...................... 3,133 1,835
-------- --------
Total ............................. $327,443 $310,648
======== ========
Single-family homes -
Gross margin amount ................. $ 61,200 $ 54,825
Gross margin percentage ............. 18.9% 17.8%
Units delivered ..................... 1,899 1,869
Average sales price ................. $170,800 $165,200
New orders taken .................... 3,496 2,740
Backlog at end of period:
Aggregate sales amount ............ $893,245 $685,141
Units ............................. 5,032 3,909
Selling, general and
administrative expenses as a
percentage of housing revenues ...... 10.2% 9.6%
Interest -
Paid or accrued ..................... $ 10,961 $ 8,575
Percentage capitalized .............. 100.0% 100.0%
Previously capitalized
interest included in
interest expense .................. $ 9,176 $ 7,880
Percentage of housing revenues ...... 2.8% 2.5%
</TABLE>
<PAGE> 14
Revenues and Sales -
- --------------------
Revenues from sales of single-family homes for the three month period ended
March 31, 1998 increased 5% compared to the three month period ended March
31, 1997. The increase resulted primarily from a 2% increase in the number
of housing units delivered and a 3% increase in the average sales price.
The average sales price is impacted by product mix, geographical mix and
changing prices on units delivered.
New orders taken for the three month period ended March 31, 1998 increased
28% compared to the same period in 1997. The increase in new orders in 1998
reflects the continued demand for new single-family homes which the Company
believes was brought about by strong consumer confidence and the trending
down of mortgage interest rates from mid 1997 that continued through the
first quarter of 1998. The Company does not believe that new orders taken
for the remainder of 1998 will continue at the first quarter pace due to
possible future fluctuations in economic activity, interest rates and
consumer confidence. See Part II, "Item 5 - Other Information" on page 18
for a table of unit activity by market for the three month periods ended
March 31, 1998 and 1997.
Gross Margins -
- ---------------
The increase in the gross margin percentage for the three month period
ended March 31, 1998 from the same period in 1997 was primarily due to the
continuation of strong overall market conditions and gross margin
improvements in certain of the Company's markets. In addition, during 1997,
gross margins were negatively impacted by a competitive housing
environment, resulting in the increased use of sales incentives, the cost
of which the Company was not able to offset by increases in the average
sales price.
Backlog -
- ---------
The aggregate amount of sales backlog at March 31, 1998 increased 30%
compared to March 31, 1997. The increase in the value of the backlog
reflects the increase in the number of units under contract and the
increase in the average sales price. Substantially all of the Company's
backlog units at March 31, 1998, net of cancellations, are expected to
result in revenues during the remainder of 1998.
Selling, General and Administrative Expenses -
- ----------------------------------------------
As a percentage of housing revenues, selling, general and administrative
expenses for the three month period ended March 31, 1998 increased to 10.2%
as compared to 9.6% in the same period in 1997. Actual selling, general and
administrative expenses for the three month period ended March 31, 1998
increased $3.6 million when compared to the same period in 1997. This
increase was primarily due to increased payroll costs and marketing center
and other marketing expenses resulting from increased activities, including
the increased activities in the retirement and active-adult communities.
<PAGE> 15
Interest -
- ----------
Interest paid or accrued for the three month period ended March 31, 1998
increased approximately 28% compared to the same period in 1997. The
increase in 1998 is primarily due to an increase in the average outstanding
debt.
The Company capitalizes interest cost into housing inventories and charges
the previously capitalized interest to interest expense when the related
inventories are delivered. The amount of interest capitalized and
previously capitalized interest expensed in any period is a function of the
amount of housing assets, land sales and the number of housing units
delivered, average outstanding debt levels and average interest rates.
Previously capitalized interest amounts charged to interest expense in the
three month period ended March 31, 1998 increased 16% compared to the three
month period ended March 31, 1997. The increase was attributable to an
increase in the average interest expense per housing unit delivered which
was primarily the result of there being more deliveries in 1998 which were
from finished lots developed by the Company than in 1997 and less
deliveries from finished lots that were acquired under rolling lot options.
Financial Services
------------------
Revenues -
- ----------
Revenues for the financial services segment for the periods indicated were
as follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
-------------------
1998 1997
------ ------
<S> <C> <C>
U.S. Home Mortgage Corporation and
Subsidiary ............................... $6,079 $4,387
Other financial services operations ........ 1,023 998
------ ------
$7,102 $5,385
====== ======
</TABLE>
<PAGE> 16
The increase in U.S. Home Mortgage Corporation's ("Mortgage") revenues for
the three month period ended March 31, 1998 when compared to the three
month period ended March 31, 1997 was primarily due to the increase in
mortgage loan originations and the increase in income from the sale of
mortgage loans and servicing rights.
Of the Company's total housing units delivered that were financed (1,552
for the three month period ended March 31, 1998 and 1,503 for the three
month period ended March 31, 1997), 82% were financed by Mortgage in 1998
compared to 67% in 1997.
Other
-----
Corporate General and Administrative -
- --------------------------------------
Corporate general and administrative includes the operations of the
Company's corporate office. As a percentage of total revenues, such
expenses were 1.0% for the three month period ended March 31, 1998 and .9%
for the three month period ended March 31, 1997. Actual corporate general
and administrative expenses for the three month period ended March 31, 1998
were $3.3 million, compared to $2.9 million for the three month period
ended March 31, 1997.
Income Taxes -
- --------------
In connection with the Internal Revenue Service (the "IRS") examination of
the Company's 1993 and 1992 federal income tax returns, the IRS disallowed
certain previously reserved deductions taken by the Company in its 1993 tax
return. In March 1998, the Company was informed that its appeal of the IRS
decision to disallow these deductions had been resolved in favor of the
Company. As a result of the favorable ruling, the Company reduced its
deferred tax liability and recognized an income tax benefit in the first
quarter of 1998 totaling $7.5 million related to these deductions. The
decrease in the deferred tax liability increased basic and diluted earnings
per common share in 1998 by $.63 per share and $.57 per share,
respectively.
<PAGE> 17
Financial Condition and Liquidity
- ---------------------------------
Housing
-------
The Company is significantly affected by the cyclical nature of the
homebuilding industry, which is sensitive to fluctuations in economic
activity and interest rates and the level of consumer confidence. Sales of
new homes are also affected by market conditions for rental properties and
by the condition of the resale market for used homes, including foreclosed
homes. For example, an oversupply of resale units depresses prices and
reduces the margins available on sales of new homes. The sale of new homes
and profitability from sales are heavily influenced by the level and
expected direction of interest rates. Increases in interest rates tend to
have a depressing effect on the market for new homes in view of increased
monthly mortgage costs to potential home buyers.
The Company's most significant needs for capital resources are land and
finished lot purchases, land development and housing construction. The
Company's ability to generate cash adequate to meet these needs is
principally achieved from the sale of homes and the margins thereon, the
utilization of Company-owned lots and borrowings under its financing
facilities, including the Credit Facility. In January 1998, the Company
sold $100 million principal amount of its 2005 Senior Notes for the purpose
of raising funds to redeem the balance of its 2003 Senior Notes which are
first callable in June 1998. In the first quarter of 1998, the Company used
a portion of the proceeds to purchase in open market transactions $36.6
million principal amount of the 2003 Senior Notes. The Company currently
intends to redeem the balance of these notes, though it may purchase such
notes in the open market or in privately negotiated transactions prior to
June 1998. See Note 3 of Notes to Consolidated Condensed Financial
Statements.
Access to quality land and lot locations is an integral part of the
Company's success. Typically, in order to secure the rights to quality
locations and provide sufficient lead time for development, the Company
must acquire land rights well in advance of when orders for housing units
are expected to occur. Primarily in its affordable and move-up communities,
the Company attempts to minimize its exposure to the cyclical nature of the
housing market and its use of working capital by employing rolling lot
options, , which enable the Company to initially pay a small portion of the
total lot cost and then purchase the lots on a scheduled basis. However,
with the increase in the number of retirement and active adult communities,
the use of rolling lot options as a percentage of the Company's total
finished lot needs has and will continue to decrease since the majority of
the finished lots for these communities are developed on land owned by the
Company. The retirement and active adult communities are generally
long-term projects and require greater investments by the Company than are
required for its affordable and move-up home communities. These communities
generally include more units than the affordable and move-up communities
and generally have more extensive amenities, including golf courses and
club houses, which require substantial capital investment. The increase in
land inventories in 1998 from 1997 was primarily the result of increased
activities, including the increased activities in the Company's retirement
and active-adult communities.
<PAGE> 18
The Company has financed, and expects to continue to finance, its working
capital needs from operations and borrowings, including those made under
the Credit Facility. The Credit Facility (and previous credit facilities)
have enabled the Company to meet peak operating needs. In August 1997, the
Company entered into an interest rate swap agreement which has effectively
fixed the interest rate on $50 million of its Credit Facility borrowings
until August 2000. See Note 3 of Notes to Consolidated Condensed Financial
Statements.
The net cash provided or used by the operating, investing and financing
activities of the housing operations for the three month periods ended
March 31, 1998 and 1997 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net cash provided (used) by:
Operating activities .................... $(47,951) $ (7,421)
Investing activities .................... (5,058) (625)
Financing activities .................... 51,489 10,402
-------- --------
Net increase (decrease) in cash ........... $ (1,520) $ 2,356
======== ========
</TABLE>
Housing operating activities are, at any time, affected by a number of
factors, including the number of housing units under construction and
housing units delivered. Cash flows from housing operating activities for
1998 used more cash than 1997 primarily due to an increase in construction
and land asset activities, offset in part by increased profitability.
Cash flow from investing activities for 1998 used more cash than 1997
primarily due to an increase of $3.0 million in restricted cash, of which
$1.2 million was an escrow deposit for the purchase of land which closed in
April 1998.
Cash flow from housing financing activities for 1998 provided cash,
reflecting the sale of the Company's 2005 Senior Notes and net borrowings
under the Credit Facility, offset by purchases of the Company's 2003 Senior
Notes and the repayment of the amounts outstanding under the Credit
Facility. Cash flow from housing financing activities in 1997 provided cash
primarily from net borrowings under the Credit Facility.
The Company believes that cash flow from operations and amounts available
under the Credit Facility will be sufficient to meet its working capital
obligations and other needs. However, should the Company require capital in
excess of that which is currently available, there can be no assurance that
it will be available.
<PAGE> 19
Financial Services
------------------
Mortgage's activities represent a substantial portion of the financial
services segment's activities. As loan originations by Mortgage are
primarily from housing units delivered by the Company's home building
operations, Mortgage's financial condition and liquidity are to a
significant extent dependent upon the financial condition of the Company.
Financial services operating activities are affected primarily by
Mortgage's loan originations which result in the sale of mortgage loans and
related servicing rights to third party investors. Cash flows from
financial services operating activities are also affected by the timing of
the sales of loans and servicing rights which generally are sold to
investors within 30 days after homes are delivered. In this regard, cash
flows from financial services operating activities for 1998 used more cash
compared to 1997 primarily due to an increase in residential mortgage loan
receivables.
The Company finances its financial services operations primarily from
internally generated funds, such as from the origination and sale of
residential mortgage loans and related servicing rights, and a secured
revolving line of Credit (the "Mortgage Credit Facility"). As more fully
discussed in Note 3 of Notes to Consolidated Condensed Financial
Statements, Mortgage may borrow up to $65 million under the Mortgage Credit
Facility. While the Mortgage Credit Facility contains numerous covenants,
including a debt to tangible net worth ratio and a minimum tangible net
worth requirement, these covenants are not anticipated to significantly
limit Mortgage's operations.
The Company has no obligation to provide funding to its financial services
operations, nor does it guarantee any of its financial services
subsidiaries' debt. The Company believes that the internally generated
funds and the Mortgage Credit Facility will be sufficient to provide for
Mortgage's working capital needs.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
---------------------
The indenture relating to the 2005 Senior Notes contains numerous
covenants, including a limitation on the declaration of dividends
to holders of equity securities.
<PAGE> 20
Item 5. Other Information
-----------------
Additional Operating Data -
The following table provides information (expressed in number of
housing units) with respect to new orders taken, deliveries to
purchasers of single-family homes and backlog by state for the
three-month periods ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
States New Orders Deliveries Backlog
--------------------- ------------- ------------- --------------
1998 1997 1998 1997 1998 1997
----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Arizona ............. 403 251 219 207 502 313
California .......... 302 197 126 114 401 232
Colorado ............ 584 538 346 344 824 835
Florida ............. 1,077 951 606 621 1,797 1,363
Maryland/Virginia ... 191 116 71 75 224 141
Minnesota ........... 149 103 92 47 231 163
Nevada .............. 127 108 72 95 163 147
New Jersey .......... 167 131 112 118 215 192
Ohio/Indiana (1) .... 52 44 23 45 61 83
Texas ............... 444 301 232 203 614 440
----- ----- ----- ----- ----- -----
3,496 2,740 1,899 1,869 5,032 3,909
===== ===== ===== ===== ===== =====
</TABLE>
(1) In 1997, the Company made the decision to discontinue its Indiana
operations.
Cautionary Disclosure Regarding Forward-Looking Statements -
Certain statements contained herein, in the Company's press
releases, oral communications and other filings with the Securities
and Exchange Commission that are not historical facts are, or may
be considered to be, forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended.
Such matters involve risks and uncertainties, including general
economic conditions, fluctuations in interest rates, the impact of
competitive products and prices, the supply of raw materials and
prices, levels of consumer confidence and other risks referred to
under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations, Other -- Cautionary
Disclosure Regarding Forward-Looking Statements" in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
<PAGE> 21
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 - Third Amendment to Amended and Restated Credit
Agreement, dated as of March 9, 1998, between
U.S. Home Corporation and The First National
Bank of Chicago, as Agent.
Exhibit 10.2 - Sixth Amendment to First Amended and Restated
Warehousing Credit and Security Agreement
(single family mortgage loans), dated as of
March 30, 1998, between U.S. Home Mortgage
Corporation and Residential Funding Corporation.
Exhibit 27.1 - Financial Data Schedule For the First Quarter
of 1998
Exhibit 27.2 - Financial Data Schedule For the Year Ended
December 31, 1996 and the First, Second and
Third Quarters of 1997 (Restated).
Exhibit 27.3 - Financial Data Schedule For the Year Ended
December 31, 1995 and the First, Second and
Third Quarters of 1996 (Restated).
(b) Reports on Form 8-K
On January 16, 1998, under Item 5 "Other Events" of Form 8-K,
the Company filed a Current Report on Form 8-K which included
documents attached as exhibits relating to the offering and
sale of its 7.75% Senior Notes due 2005 in an aggregate amount
of $100,000,000 under the Company's Registration Statement on
Form S-3 (File No. 333-31457)
No other Current Report on Form 8-K was filed by the Company
during January, February or March 1998.
<PAGE> 22
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.
U.S. HOME CORPORATION
Date: May 14, 1998 /s/ Isaac Heimbinder
-----------------------------------
Isaac Heimbinder
President, Co-Chief Executive
Officer and Chief Operating Officer
Date: May 14, 1998 /s/ Chester P. Sadowski
-----------------------------------
Chester P. Sadowski
Vice President, Controller
and Chief Accounting Officer
<PAGE> 23
INDEX OF EXHIBITS
Sequential
Exhibit Numbered
Number Page
- ------ --------
10.1 Third Amendment to Amended and Restated Credit Agreement,
dated as of March 9, 1998, between U.S. Home Corporation
and The First National Bank of Chicago, as Agent.
10.2 Sixth Amendment to First Amended and Restated Warehousing
Credit and Security Agreement (single family mortgage loans),
dated as of March 30, 1998 between U.S. Home Mortgage
Corporation and Residential Funding Corporation.
27.1 Financial Data Schedule For the First Quarter of 1998
27.2 Financial Data Schedule For the Year Ended December 31, 1996
and the First, Second and Third Quarters for 1997 (Restated).
27.3 Financial Data Schedule For the Year Ended December 31, 1995
and the First, Second and Third Quarters for 1996 (Restated).
<PAGE> 24
EXHIBIT 10.1
THIRD AMENDMENT TO CREDIT AGREEMENT
THIRD AMENDMENT TO CREDIT AGREEMENT ("Third Amendment"),
dated as of March 9, 1998, among U.S. Home Corporation, a Delaware
corporation (the "Borrower"), the Lenders (the "Lenders") party to the
Amended and Restated Credit Agreement dated as of May 28, 1997 (as amended
by the Consent and First Amendment to Credit Agreement dated August 22,
1997, and by the Consent and Second Amendment to Credit Agreement dated
January 15, 1998, the "Credit Agreement"), among the Borrower, such Lenders
and THE FIRST NATIONAL BANK OF CHICAGO, as Agent (the "Agent"), and the
Agent.
RECITALS:
A. The Borrower, the Lenders and the Agent have previously
entered into the Credit Agreement.
B. The parties hereto desire to amend the Credit
Agreement to modify the limitations on Investments provided for in Section
8.6(vi).
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, the parties hereto, intending to be
legally bound, agree as follows:
1. DEFINITIONS
In addition to the terms defined herein, capitalized terms
used in this Third Amendment shall have the respective meanings ascribed
thereto in the Credit Agreement.
2. INVESTMENTS IN JOINT VENTURES
Section 8.6(vi) is hereby modified by deleting the words
"$35,000,000 in the aggregate" and inserting in place thereof the words "in
the aggregate an amount equal to 15% of Consolidated Tangible Net Worth."
3. MISCELLANEOUS
3.1 This Third Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one agreement,
and any of the parties hereto may execute this Third Amendment by signing
any such counterpart.
3.2 In all respects, including all matters of
construction, validity and performance, this Third Amendment shall be
construed in accordance with the internal laws (and not the laws of
conflicts) of the State of Illinois, but giving effect to federal laws
applicable to national banks.
<PAGE> 25
IN WITNESS WHEREOF, this Third Amendment has been duly
executed as of the date first above written.
U.S. HOME CORPORATION
By:/s/ Thomas A. Napoli
-------------------------------------
Name: Thomas A. Napoli
Title: Vice President - Corporate
Finance and Treasurer
LENDERS:
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By:/s/ Gregory A. Gilbert
-------------------------------------
Name: Gregory A. Gilbert
Title: Vice President
GUARANTY FEDERAL BANK, F.S.B.
By:/s/ Randall S. Reid
------------------------------------
Name: Randall S. Reid
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By:/s/ Alain Papiasse
-----------------------------------
Name: Alain Papiasse
Title: Executive Vice President
BANK ONE, ARIZONA, NA
By:/s/ Louis W. Morano, Jr.
-----------------------------------
Name: Louis W. Morano, Jr.
Title: Assistant Vice President
<PAGE> 26
COMERICA BANK, a Michigan corporation
By:/s/ David J. Campbell
----------------------------------
Name: David J. Campbell
Title: Vice President
AMSOUTH BANK
By:/s/ Jerry E. Pate
----------------------------------
Name: Jerry E. Pate
Title: Senior Vice President
<PAGE> 27
EXHIBIT 10.2
SIXTH AMENDMENT TO
FIRST AMENDED AND RESTATED
WAREHOUSING CREDIT AND SECURITY AGREEMENT
THIS SIXTH AMENDMENT TO FIRST AMENDED AND RESTATED WAREHOUSING CREDIT
AND SECURITY AGREEMENT (this "Amendment") is entered into as of this 30th
day of March 1998, by and between U.S. HOME MORTGAGE CORPORATION, a Florida
corporation (the "Company") and RESIDENTIAL FUNDING CORPORATION, a Delaware
corporation (the "Lender").
WHEREAS, the Company and the Lender have entered into a single family
revolving warehouse facility with a present Commitment Amount of Sixty-Five
Million Dollars ($65,000,000), to finance the origination and acquisition
of Mortgage Loans as evidenced by a Third Amended and Restated Warehousing
Promissory Note in the principal sum of Sixty-Five Million Dollars
($65,000,000), dated as of June 25, 1997 (the "Note"), and by a First
Amended and Restated Warehousing Credit and Security Agreement dated as of
August 31, 1995, as the same may have been amended or supplemented (the
"Agreement"); and
WHEREAS, the Company has requested the Lender to temporarily increase
the Commitment Amount and certain terms of the Agreement, and the Lender
has agreed to such increase and amendment subject to the terms and
conditions of this Amendment.
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual covenants, agreements and conditions hereinafter set forth and for
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used herein and not otherwise defined shall
have their respective meanings set forth in the Agreement.
2. The effective date ("Effective Date") of this Amendment shall be
March 30, 1998.
3. Section 1.1 of the Agreement shall be amended by adding the
following definitions in the appropriate alphabetical order:
"Check Disbursement Account" means a demand deposit account
maintained at the Funding Bank in the name of the Company and under
the control of the Lender for the clearing of checks written by the
Company to fund Advances.
"Wire Disbursement Account" means a demand deposit account
maintained at the Funding Bank in the name of the Lender for the
clearing of wire transfers requested by the Company to fund Advances.
<PAGE> 28
4. Section 1.1 of the Agreement is hereby amended to delete the
definition of "Commitment Amount" in its entirety and to substitute the
following in lieu thereof:
"Commitment Amount" means Sixty-Five Million Dollars
($65,000,000). Notwithstanding the foregoing, during the period from
the Effective Date to and including May 14, 1998, the Commitment
Amount shall be temporarily increased to Eighty Million Dollars
($80,000,000). On the first Business Day following the expiration of
the temporary increase of the Commitment Amount, the Company shall
repay to the Lender the amount by which the outstanding Advances
exceed the Commitment Amount.
5. Sections 2.2(d) and 2.2(e) of the Agreement shall be deleted in
their entirety and the following shall be substituted in lieu thereof:
2.2(d) The Company shall hold in trust for the Lender, and
the Company shall deliver to the Lender promptly upon request, or
if the recorded Collateral Documents have not yet been returned
from the recording office, immediately upon receipt by the
Company of such recorded Collateral Documents and the Pledged
Mortgage is not being held by an Investor for purchase or has not
been redeemed from pledge, the following: (1) the originals of
the Collateral Documents for which copies are required to be
delivered to the Lender pursuant to Exhibit D-SF, Exhibit
D-SF/CONSTRUCTION or Exhibit D-UNI, (2) the original lender's
ALTA Policy of Title Insurance or an equivalent thereto, and (3)
any other documents relating to a Pledged Mortgage which the
Lender may request, including, without limitation, documentation
evidencing the FHA Commitment to Insure or the VA Guaranty of any
Pledged Mortgage which is either FHA insured or VA guaranteed,
the appraisal, Private Mortgage Insurance Certificate, if
applicable, the Regulation Z Statement, certificates of casualty
or hazard insurance, credit information on the maker of each such
Mortgage Note, a copy of a HUD-1 or corresponding purchase advice
and other documents of all kinds which are customarily desired
for inspection or transfer incidental to the purchase of any
Mortgage Note by an Investor and any additional documents which
are customarily executed by the seller of a Mortgage Note to an
Investor.
2.2(e) To make an Advance, the Lender shall cause the
Funding Bank to credit either the Wire Disbursement Account or
the Check Disbursement Account upon compliance by the Company
with the terms of the Loan Documents. The Lender shall determine
in its sole discretion the method by which Advances and other
amounts on deposit in the Wire Disbursement Account or the Check
Disbursement Account are disbursed by the Funding Bank to or for
the account of the Company.
<PAGE> 29
6. Section 2.4(g) of the Agreement shall be deleted in its entirety
and the following shall be substituted in lieu thereof:
2.4(g) Upon Notice to the Company, after the occurrence and
during the continuation of an Event of Default, the unpaid amount
of each Advance shall bear interest until paid in full at a per
annum rate of interest (the "Default Rate") equal to four percent
(4%) in excess of the rate of interest otherwise applicable to
such Advance pursuant to any other subsection of this Section 2.4
or, if no rate is applicable, the highest rate then applicable to
any outstanding Advances.
7. Sections 2.5(d), (e), (f), (g) and (h) of the Agreement shall be
deleted in their entirety and the following shall be substituted in lieu
thereof:
2.5(d) The Company shall pay the Lender, without the
necessity of prior demand or notice from the Lender, and the
Company authorizes the Lender to cause the Funding Bank to charge
the Company's account for, the amount of any outstanding Advance
against a specific Pledged Mortgage, upon the earliest occurrence
of any of the following events:
(1) One (1) Business Day elapses from the date an
Advance was made and the Pledged Mortgage which was to have
been funded by such Advance is not closed and funded.
(2) Ten (10) Business Days elapse from the date a
Collateral Document was delivered to the Company for
correction or completion under a Trust Receipt, without
being returned to the Lender.
(3) On the date on which a Pledged Mortgage is
determined to have been originated based on untrue,
incomplete or inaccurate information, whether or not the
Company had knowledge of such misrepresentation or incorrect
information, or the Pledged Mortgage is in the case of an
Unimproved Mortgage Loan delinquent (without giving effect
to any grace period) and remains delinquent for a period of
thirty (30) days or (ii) in all other cases, defaulted and
remains in default for a period of sixty (60) days or more.
(4) If the outstanding Advances against Pledged
Mortgages of a specific Mortgage Loan type exceed the
aggregate Purchase Commitments for such Mortgage Loan type.
(5) Three (3) Business Days after the mandatory
delivery date of the related Purchase Commitment and the
specific Pledged Mortgage was not delivered under the
Purchase Commitment prior to such mandatory delivery date,
or the Purchase Commitment is terminated; unless in each
case, such Pledged Mortgage is eligible for delivery to an
Investor under a comparable Purchase Commitment acceptable
to the Lender.
<PAGE> 30
(6) Upon sale, maturity or other disposition of the
Pledged Mortgage.
(7) If the Pledged Mortgage is included in a Mortgage
Pool, then, if the Mortgage Pool is an Eligible Mortgage
Pool, upon sale of the Mortgage-backed Security, or if the
Mortgage Pool is not an Eligible Mortgage Pool, within two
(2) Business Days after delivery of the Pledged Mortgages to
the pool custodian.
(8) On the date on which the Company knows, or has
reason to know, or receives notice from the Lender, that one
or more of the representations and warranties set forth in
Section 5.15 were inaccurate or incomplete in any material
respect on any date when made or deemed made.
(9) For a Construction/Perm Mortgage Loan, a lien is
filed against the premises and not removed within fifteen
(15) days of the filing, or an inspection report indicates
that the improvements to the premises encumbered by the
Pledged Mortgage are not being constructed in accordance
with the approved plans and specifications.
2.5(e) Upon Notice to the Company by the Lender, the Company
shall pay to the Lender, and the Company authorizes the Lender to
cause the Funding Bank to charge the Lender's account for, the
amount of any outstanding Advance against a specific Pledged
Mortgage upon the earliest occurrence of any of the following
events:
(1) For a Pledged Mortgage, other than an Unimproved
Mortgage Loan, with respect to which a longer or shorter
period is not prescribed elsewhere in the Section 2.5(e),
one hundred twenty (120) days elapse from the date of the
initial Advance made by the Lender against such Pledged
Mortgage, whether or not such Pledged Mortgage is included
in an Eligible Mortgage Pool.
(2) Forty-five (45) days elapse from the date the
Pledged Mortgage was delivered to an Investor or an Approved
Custodian for examination and purchase or inclusion in an
Eligible Mortgage Pool, without the purchase being made or
the Eligible Mortgage Pool being initially certified, or
upon rejection of the Pledged Mortgage as unsatisfactory by
an Investor or an Approved Custodian.
(3) Seven (7) Business Days elapse from the date a Wet
Settlement Advance was made without receipt by the Lender of
all Collateral Documents relating to such Pledged Mortgage,
or such Collateral Documents, upon examination by the
Lender, are found not to be in compliance with the
requirements of this Agreement or the related Purchase
Commitment.
<PAGE> 31
(4) With respect to any Pledged Mortgage, any of the
items described in Section 2.2(d), upon examination by the
Lender, are found not to be in compliance with the
requirements of this Agreement or the related Purchase
Commitment.
(5) For a Construction/Perm Mortgage Loan two hundred
seventy (270) days elapse from the date of the initial
Construction Advance made by the Lender against such Pledged
Mortgage, without such Construction/Perm Mortgage Loan being
converted to a Permanent Mortgage Loan. Notwithstanding the
above, the Company may request and the Lender may approve a
ninety (90) day extension of the construction period for any
Construction/Perm Mortgage Loan. Within fifteen (15) days
after the final Construction Advance, a Construction/Perm
Mortgage Loan shall be converted to a Permanent Mortgage
Loan and the date of such final Construction Advance shall
be deemed to be the initial Advance date of the Permanent
Mortgage Loan and the provisions of Section 2.5(d)(1) shall
apply to such Permanent Mortgage Loan.
2.5(f) The outstanding amount of any Advance made pursuant
to Section 2.2(g) shall be payable in full within one (1)
Business Day after the date of such Advance.
2.5(g) In addition to the payments required pursuant to
Section 2.5(d), the Company shall be obligated to pay to the
Lender, without the necessity of prior demand or notice from the
Lender, and the Company authorizes the Lender to cause the
Funding Bank to charge the Company's account if the principal
amount of (i) any Unimproved Mortgage Loan is paid or prepaid, or
(ii) any other Pledged Mortgage is prepaid, in either case in
whole or in part, while an Advance is outstanding against such
Pledged Mortgage, for the amount of such payment or prepayment,
to be applied to such Advance.
2.5(h) The Company shall give Notice to the Lender
(telephonically, to be followed by written notice) of the Pledged
Mortgages or Pledged Securities for which proceeds have been
received. Upon receipt of such Notice the Advances against such
Pledged Mortgages or Pledged Securities shall be repaid and such
Pledged Mortgages or Pledged Securities shall be considered to
have been redeemed from pledge. The Lender is entitled to rely
upon the Company's affirmation that deposits in the Cash
Collateral Account represent payment from Investors for the
purchase of Pledged Mortgages or Pledged Securities as specified
by the Company. In the event that the payment from an Investor
for the purchase of Pledged Mortgages or Pledged Securities is
less than the outstanding Advances against such Pledged Mortgages
or the Mortgage Loans backing Pledged Securities, the Lender is
authorized to cause the Funding Bank to charge the Company's
account for an amount equal to such deficiency. Provided no
Default or Event of Default exists, the Lender shall return any
excess payment from an Investor for Pledged Mortgages or Pledged
Securities to the Company.
<PAGE> 32
2.5(i) The Company may, from time to time, prepay a portion
of the Advances pursuant to this Section 2.5(h) (any such
prepayment is hereafter referred to as a "Buydown"). A Buydown
shall not, except as set forth below, be deemed a prepayment of
any particular Advances, and shall not entitle the Company to the
release of any Collateral. If a Default or an Event of Default
has occurred and is continuing, the Lender shall be entitled to
retain as additional Collateral any portion of the Buydown which
has been funded by the Company. Any portion of the Buydown which
has been funded to the Company by its Parent and/or Affiliates
shall be refunded to and at the direction of the Company. All or
any portion of a Buydown may be reborrowed hereunder, provided no
Default or Event of Default has occurred and is continuing, upon
written notice to the Lender no later than 9:30 a.m. on the
Business Day that the Company desires to reborrow such amount.
The Lender shall use its best efforts to apply Buydown to reduce
the interest on Advances in the following order: first,
Unimproved Advances; second, Construction Advances; third,
Nonconforming Advances; and fourth, Ordinary Warehousing
Advances; provided, however, that no portion of any Buydown may
be or remain applied to Unimproved Advances unless, after giving
effect to such application, the outstanding principal balance of
the Unimproved Advances (net of the portion of the Buydown
applied thereto) would be greater than or equal to Two Million
Five Hundred Thousand Dollars ($2,500,000). In the event the
Lender receives a payment of Advances that would, as a result of
the Buydown, reduce the outstanding principal balance of the
Unimproved Advances to an amount less than Two Million Five
Hundred Thousand Dollars ($2,500,000), or the outstanding
principal balance of the other Advances to an amount less than
zero, unless an Event of Default shall have occurred and be
continuing, the Buydowns, or a portion thereof equal to such
excess, shall be re-advanced to the Company.
8. Section 3.2(d) of the Agreement shall be deleted in its entirety
and the following shall be substituted in lieu thereof:
3.2(d) The Lender shall have the exclusive right to the
possession of the Pledged Securities or, if the Pledged
Securities are issued in book-entry form or issued in
certificated form and delivered to a clearing corporation (as
such term is defined in the Uniform Commercial Code of Minnesota)
or its nominee, the Lender shall have the right to have the
Pledged Securities registered in the name of a securities
intermediary (as such term is defined in the Uniform Commercial
Code of Minnesota) in an account containing only customer
securities and credited to an account of the Lender. The Lender
shall have the right to cause delivery of the Pledged Securities
to be made to the Investor or the Pledged Securities credited to
<PAGE> 33
the account of the Investor or the Investor's designee only
against payment therefor. The Company acknowledges that the
Lender may enter into one or more standing arrangements with
other financial institutions with respect to Pledged Securities
issued in book entry form or issued in certificated form and
delivered to a clearing corporation, pursuant to which such
Pledged Securities are registered in the name of such financial
institution, as agent or securities intermediary for the Lender,
and the Company agrees upon request of the Lender to execute and
deliver to such other financial institutions the Company's
written concurrence in any such standing arrangements.
9. The Third Amended and Restated Warehousing Promissory Note is
amended and restated in its entirety as set forth in the Fourth Amended and
Restated Warehousing Promissory Note, in the form of Exhibit A-1 attached
to this Amendment. All references in this Amendment and in the Agreement to
the Warehousing Promissory Note shall be deemed to refer to the Third
Amended and Restated Warehousing Promissory Note delivered in connection
with this Amendment.
10. The Company shall deliver to the Lender (a) an executed original
of this Amendment; (b) an executed original of the Fourth Amended and
Restated Warehousing Promissory Note; (c) a Certificate of Secretary with
Corporate Resolutions; and (d) a Two Hundred
Fifty Dollar ($250) document production fee.
11. The Company represents, warrants and agrees that (a) there exists
no Default or Event of Default under the Loan Documents, (b) the Loan
Documents continue to be the legal, valid and binding agreements and
obligations of the Company enforceable in accordance with their terms, as
modified herein, (c) the Lender is not in default under any of the Loan
Documents and the Company has no offset or defense to its performance or
obligations under any of the Loan Documents, (d) the representations
contained in the Loan Documents remain true and accurate in all respects,
and (e) there has been no material adverse change in the financial
condition of the Company from the date of the Agreement to the date of this
Amendment.
12. Except as hereby expressly modified, the Agreement shall otherwise
be unchanged and shall remain in full force and effect, and the Company
ratifies and reaffirms all of its obligations thereunder.
13. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
when so executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument.
<PAGE> 34
IN WITNESS WHEREOF, the Company and the Lender have caused this
Amendment to be duly executed on their behalf by their duly authorized
officers as of the day and year above written.
U.S. HOME MORTGAGE CORPORATION
By: /s/ Chester P. Sadowski
-------------------------
Chester P. Sadowski
Its: Vice President
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ Jim Clapp
--------------------------
Jim Clapp
Its: Director
STATE OF Texas)
) ss
COUNTY OF Harris )
On April 2, 1998, before me, a Notary Public, personally appeared,
Chester P. Sadowski, the Vice President of U.S. HOME MORTGAGE CORPORATION,
a Florida corporation, personally known to me (or proved to me on the basis
of satisfactory evidence) to be the person whose name is subscribed to the
within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument
the person, or the entity upon behalf of which the person acted, executed
the instrument.
WITNESS my hand and official seal.
/s/ Donna Monroe
----------------------------
Donna Monroe
Notary Public
(SEAL) My Commission Expires: 3/26/99
<PAGE> 35
STATE OF Maryland)
) ss
COUNTY OF Montgomery )
On April 7, 1998, before me, a Notary Public, personally appeared
Jim Clapp, the Director of RESIDENTIAL FUNDING CORPORATION, a Delaware
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the
within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument
the person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ S. Von Dem Hagen
------------------------------
S. von dem Hagen
Notary Public
(SEAL) My Commission Expires: 10/15/01
<PAGE> 36
EXHIBIT A-1
FOURTH AMENDED AND RESTATED WAREHOUSING PROMISSORY NOTE
$80,000,000 Date: March 30, 1998
FOR VALUE RECEIVED, the undersigned, U.S. HOME MORTGAGE CORPORATION, a
Florida corporation, (herein called the "Company"), hereby promises to pay
to the order of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation
(the "Lender" or, together with its successors and assigns, the "Holder")
whose principal place of business is 8400 Normandale Lake Blvd., Suite 600,
Minneapolis, Minnesota 55437, or at such other place as the Holder may
designate from time to time, the principal sum of Eighty Million Dollars
($80,000,000) or so much thereof as may be outstanding from time to time
pursuant to the First Amended and Restated Warehousing Credit and Security
Agreement described below, and to pay interest on said principal sum or
such part thereof as shall remain unpaid from time to time, from the date
of each Advance until repaid in full, and all other fees and charges due
under the Agreement, at the rate and at the times set forth in the
Agreement. All payments hereunder shall be made in lawful money of the
United States and in immediately available funds.
This Note is given to evidence an actual warehouse facility in the
above amount and is the Warehousing Promissory Note referred to in that
certain First Amended and Restated Warehousing Credit and Security
Agreement (the "Agreement") dated August 31, 1995, between the Company and
the Lender, as the same may be amended or supplemented from time to time,
and is entitled to the benefits thereof. Reference is hereby made to the
Agreement (which is incorporated herein by reference as fully and with the
same effect as if set forth herein at length) for a description of the
Collateral, a statement of the covenants and agreements, a statement of the
rights and remedies and securities afforded thereby and other matters
contained therein. Capitalized terms used herein, unless otherwise defined
herein, shall have the meanings given them in the Agreement.
This Note is given in replacement for, and not in satisfaction of,
that certain Third Amended and Restated Warehousing Promissory Note dated
June 25, 1997, and issued by the Company to evidence its Obligations under
the Agreement (the "Existing Note"). All amounts owed by the Company under
the Existing Note (including, without limitation, the unpaid principal
thereunder, interest accrued thereon and fees accrued under the Agreement,
whether or not yet due and owing) as of the date hereof, shall be owed
hereunder.
<PAGE> 37
This Note may be prepaid in whole or in part at any time without
premium or penalty.
Should this Note be placed in the hands of attorneys for collection,
the Company agrees to pay, in addition to principal and interest, fees and
charges due under the Agreement, any and all costs of collecting this Note,
including reasonable attorneys' fees and expenses.
The Company hereby waives demand, notice, protest and presentment.
This Note shall be construed and enforced in accordance with the laws
of the State of Minnesota, without reference to its principles of conflicts
of law.
IN WITNESS WHEREOF, the Company has executed this Note as of the day
and year first above written.
U.S. HOME MORTGAGE CORPORATION
By: /s/ Chester P. Sadowski
-----------------------
Chester P. Sadowski
Its: Vice President
STATE OF Texas )
) ss
COUNTY OF Harris)
On April 2, 1998, before me, a Notary Public, personally appeared
Chester P. Sadowski, the Vice President of U.S. HOME MORTGAGE CORPORATION,
a Florida corporation, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed
to the within instrument and acknowledged to me that he/she executed the
same in his/her authorized capacity, and that by his/her signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
/s/ Donna Monroe
--------------------------------
Donna Monroe
Notary Public
(SEAL) My Commission Expires: 03/26/99
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From The
Consolidated Condensed Financial Statements As Of March 31, 1998 And For
The Three Months Then Ended And Is Qualified In Its Entirety By
Reference To Such Financial Statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 15,080
<SECURITIES> 0
<RECEIVABLES> 117,903
<ALLOWANCES> 0
<INVENTORY> 853,569
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,147,818
<CURRENT-LIABILITIES> 0
<BONDS> 463,220
0
0
<COMMON> 119
<OTHER-SE> 439,110
<TOTAL-LIABILITY-AND-EQUITY> 1,147,818
<SALES> 0
<TOTAL-REVENUES> 334,545
<CGS> 264,845
<TOTAL-COSTS> 302,541
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,587
<INCOME-PRETAX> 19,083
<INCOME-TAX> (413)
<INCOME-CONTINUING> 19,496
<DISCONTINUED> 0
<EXTRAORDINARY> 1,530
<CHANGES> 0
<NET-INCOME> 17,966
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Revised Financial Data Schedule for December 31, 1996 and the First, Second
and Third Quarters for 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 13,249 19,019 22,581 10,855
<SECURITIES> 0 0 0 0
<RECEIVABLES> 91,684 101,436 132,875 130,458
<ALLOWANCES> 0 0 0 0
<INVENTORY> 709,344 704,502 732,892 764,252
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 0 0 0 0
<DEPRECIATION> 0 0 0 0
<TOTAL-ASSETS> 947,411 971,680 1,029,071 1,047,554
<CURRENT-LIABILITIES> 0 0 0 0
<BONDS> 362,887 360,386 373,851 396,936
0 0 0 0
2,947 0 0 0
<COMMON> 114 116 116 119
<OTHER-SE> 370,629 383,784 391,420 406,172
<TOTAL-LIABILITY-AND-EQUITY> 947,411 971,680 1,029,071 1,047,554
<SALES> 0 0 0 0
<TOTAL-REVENUES> 1,211,450 316,033 656,574 993,841
<CGS> 971,896 255,580 531,221 800,535
<TOTAL-COSTS> 1,123,256 291,744 605,516 904,677
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 32,293 8,189 17,445 26,317
<INCOME-PRETAX> 55,901 16,100 33,613 54,291
<INCOME-TAX> 11,713 5,957 12,437 20,087
<INCOME-CONTINUING> 44,188 10,143 21,176 34,204
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 (8,650)
<CHANGES> 0 0 0 0
<NET-INCOME> 44,188 10,143 21,176 25,554
<EPS-PRIMARY> 3.88 .88 1.84 2.22
<EPS-DILUTED> 3.28 .75 1.57 1.91
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Revised Financial Data Schedule for December 31, 1995 and the First, Second and Third Quarters of 1996
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 10,566 31,317 13,773 17,806
<SECURITIES> 0 0 0 0
<RECEIVABLES> 76,746 94,266 103,020 89,737
<ALLOWANCES> 0 0 0 0
<INVENTORY> 632,035 648,919 689,066 714,843
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 0 0 0 0
<DEPRECIATION> 0 0 0 0
<TOTAL-ASSETS> 842,084 908,526 939,662 958,683
<CURRENT-LIABILITIES> 0 0 0 0
<BONDS> 300,599 368,796 404,303 408,836
0 0 0 0
7,981 7,803 3,072 3,072
<COMMON> 112 112 114 114
<OTHER-SE> 320,899 330,549 345,536 357,756
<TOTAL-LIABILITY-AND-EQUITY> 842,084 908,526 939,662 958,683
<SALES> 0 0 0 0
<TOTAL-REVENUES> 1,107,945 272,762 565,998 883,670
<CGS> 918,645 224,974 467,935 729,644
<TOTAL-COSTS> 1,048,181 257,625 534,671 832,872
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 692 461 825 1,170
<INCOME-PRETAX> 59,072 14,676 30,502 49,628
<INCOME-TAX> 22,152 5,357 11,133 18,114
<INCOME-CONTINUING> 36,920 9,319 19,369 31,514
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 36,920 9,319 19,369 31,514
<EPS-PRIMARY> 3.29 .83 1.71 2.77
<EPS-DILUTED> 2.78 .69 1.44 2.34
</TABLE>
