SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: January 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-7643
WASHINGTON HOMES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 52-0818872
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
1802 Brightseat Road, Landover, MD 20785-4235
(Address of principal executive offices) (Zip Code)
(301) 772-8900
(Registrant's telephone number including area code)
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
--- ---
Number of shares of each of the registrant's classes of common stock outstanding
at January 31, 1997:
Class Number of Shares
------- ----------------
Common Stock (voting), $.01 par value 7,000,000
Common Stock (non-voting), $.01 par value 942,763
<PAGE>
WASHINGTON HOMES, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
- January 31, 1997 and July 31, 1996 (Unaudited) 3
Condensed Consolidated Statements of Net Earnings
- Three Months and Six Months Ended January 31, 1997 and 1996 (Unaudited) 4
Condensed Consolidated Statement of Shareholders' Equity
- Six Months Ended January 31, 1997 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
- Six Months Ended January 31, 1997 and 1996 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
<PAGE>
PART 1. ITEM 1. Financial Statements
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS January 31, July 31,
1997 1996
---- ----
(in thousands)
Cash and cash equivalents ................................ $ 10,906 $ 15,384
Residential inventories .................................. 122,730 125,033
Excess of costs over net assets acquired, net ............ 16,297 16,553
Investment in joint ventures ............................. 2,971 2,751
Other .................................................... 11,437 10,506
-------- --------
Total Assets ......................................... $164,341 $170,227
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Notes and loans payable ............................... $ 73,197 $ 74,282
Trade accounts payable ................................ 12,700 17,572
Income taxes payable .................................. 941 408
Deferred income taxes ................................. 4,452 5,233
Other ................................................. 3,697 4,963
-------- --------
Total Liabilities .................................... 94,987 102,458
Shareholders' Equity
Common Stock
15,000,000 shares voting common stock authorized,
7,000,000 shares issued and outstanding; ........ 70 70
1,100,000 shares non-voting common stock authorized,
942,763 shares issued and outstanding; .......... 9 9
Additional paid - in capital .......................... 35,147 35,147
Retained earnings ..................................... 34,128 32,543
-------- --------
Total Shareholders' Equity ........................... 69,354 67,769
-------- --------
Total Liabilities and Shareholders' Equity ........... $164,341 $170,227
======== ========
See accompanying Notes.
3
<PAGE>
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS
(Unaudited)
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Homebuilding .......................................... $46,336 $34,178 $90,356 $71,576
Land sales ............................................ 1,730 296 3,406 360
Other income .......................................... 615 408 1,580 774
------- ------- ------- -------
Total revenues .................................... 48,681 34,882 95,342 72,710
Expenses
Cost of sales - homebuilding .......................... 38,027 27,198 73,981 57,045
Cost of sales - land sales ............................ 1,494 280 2,964 335
Selling, general and administrative ................... 6,539 5,370 12,687 10,753
Interest .............................................. 1,007 947 1,976 1,854
Financing fees ........................................ 181 196 378 400
Amortization and depreciation expense ................. 188 178 382 365
------- ------- ------- -------
Total expenses .................................... 47,436 34,169 92,368 70,752
------- ------- ------- -------
Earnings before income taxes ............................... 1,245 713 2,974 1,958
Income tax expense .................................... 590 328 1,389 863
------- ------- ------- -------
Net earnings ............................................... $ 655 $ 385 $ 1,585 $ 1,095
======= ======= ======= =======
Earnings per common share, based on
7,942,763 shares outstanding ............................... $ 0.08 $ 0.05 $ 0.20 $ 0.14
======= ======= ======= =======
</TABLE>
See accompanying Notes.
4
<PAGE>
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six months ended January 31, 1997
(Unaudited)
(in thousands)
Common Stock Additional Total
------------------ Paid-in Retained Shareholders'
Voting Non voting Capital Earnings Equity
------ ---------- ---------- -------- ------------
Balance, August 1, 1996 $70 $9 $35,147 $32,543 $67,769
Net earnings -- -- -- 1,585 1,585
Balance, January 31, 1997 $70 $9 $35,147 $34,128 $69,354
=== ==== ======= ======= =======
See accompanying Notes.
5
<PAGE>
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
January 31, 1997
---------------------
1997 1996
---- ----
(in thousands)
Cash flows from operating activities:
Net earnings .................................... $ 1,585 $ 1,095
Adjustments to reconcile net earnings to
net cash used in operating activities:
Amortization and depreciation ............... 382 365
Deferred income taxes ....................... (780) (580)
Changes in assets and liabilities:
Residential inventories ..................... 2,303 (2,779)
Other assets ................................ (1,053) (1,556)
Trade accounts payable ...................... (4,872) (7,019)
Income taxes payable ........................ 533 (715)
Other liabilities ........................... (1,266) (577)
-------- --------
Net cash used in operating activities ....... (3,168) (11,766)
Cash flows from investing activities:
Purchases of property and equipment,
net of disposals ............................. (4) (83)
Advances to joint ventures ...................... (221) (125)
-------- --------
Net cash used in investing activities ....... (225) (208)
Cash flows from financing activities:
Proceeds from notes and loans payable ........... 51,612 52,407
Repayments of notes and loans payable ........... (52,697) (49,012)
-------- --------
Net cash (used in)provided by financing
activities ................................ (1,085) 3,395
Net decrease in cash and cash equivalents ............ (4,478) (8,579)
Cash and cash equivalents, beginning of period ....... 15,384 15,111
-------- --------
Cash and cash equivalents, end of period ............. $ 10,906 $ 6,532
======== ========
See accompanying Notes.
6
<PAGE>
WASHINGTON HOMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
The unaudited condensed consolidated financial statements
include the accounts of Washington Homes, Inc. and its wholly-owned subsidiaries
(the "Company").
The Company is principally engaged in the business of the sale
and construction of residential housing. All significant intercompany balances
and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and SEC regulations. Accordingly,
they do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto in the Company's Annual Report for the
year ended July 31, 1996. Operating results for the three and six months ended
January 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending July 31, 1997.
2. Shareholders' Equity
Common Stock. The Company has 15,000,000 shares of Common
Stock (voting) authorized of which 7,000,000 shares were outstanding at January
31, 1997. Such shares entitle the holder to one vote for each share of Common
Stock held.
Non-voting Common Stock. The Company has 1,100,000 shares of
non-voting common stock authorized of which 942,763 were outstanding at January
31, 1997. Except for voting rights, the non-voting common stock is substantially
the same as the Company's voting common stock. The non-voting common stock can
be converted into voting common stock on a share-for-share basis.
3. Earnings Per Share
Earnings per common share are based on the weighted average
number of shares of common stock and common stock equivalents outstanding during
each period.
7
<PAGE>
4. Notes and Loans Payable
Notes and loans payable consist of the following:
January 31, July 31,
1997 1996
----------- --------
(dollars in thousands)
Senior Notes $43,000 $43,000
Revolving Credit Facilities 26,576 23,759
Land Acquisition and Other 3,621 7,523
------ ------
$73,197 $74,282
======= =======
Senior Notes. In April 1994, the Company issued $43,000,000
principal amount of Senior Notes. Two series of Senior Notes were issued:
$30,000,000 with a fixed rate of 8.61% per annum, with interest payable
semi-annually beginning in October 1994 and $13,000,000 with a floating rate of
LIBOR plus 2.4% (8.02% at January 31, 1997), with interest payable July 1994 and
either quarterly or semi-annually thereafter at the option of the Company.
Principal repayments are due in three equal annual installments commencing in
October 1998 and continuing to October 2000.
Revolving Credit Facilities. Revolving Credit Facilities at
January 31, 1997, consist of three secured seasonal revolving loan commitments
totaling $51,200,000 to fund acquisition of finished building lots, home
construction and model homes. In addition, the Revolving Credit Facilities
provide aggregate letters of credit in the amount of $8,000,000 principally for
finished building lot contract deposits and bonding to municipalities for land
development. The facilities have maturity dates (which may be extended) of June
1997, July 1997 and October 1997. Borrowings under the facilities bear interest
at prime (8.25% at January 31, 1997), prime plus 1% or LIBOR (30 day LIBOR at
January 31, 1997 was 5.44%) plus either 1.97% or 2.50% and are collateralized by
inventory.
Land Acquisition Loans. The Company has loans with various
land sellers and lenders for the acquisition of land which bear interest at
fixed rates ranging from 8.0% to 10% or variable rates of prime to prime plus 1%
and are collateralized by the related land under development.
5. Subsequent Event
The Internal Revenue Service is examining the Company's tax
returns for the years ended July 31, 1992, 1993 and 1994. The IRS has raised
issues primarily related to matters having to do with the Company's
recapitalization in 1992 and 1993 including a $20.0 million gain on debt
forgiveness which the Company treated as non-taxable under the provisions of
Section 108 of the Internal Revenue Code and the timing of taxable income
related to discontinued subsidiaries which were distributed out of the
consolidated group in December 1992.
In March 1997, the Company reached a tentative settlement with
the IRS for all items in question. If the settlement is finalized as presently
structured, the Company would recognize an extraordinary loss of approximately
$400,000 or $0.05 per share which relates to the extraordinary gain from the
exchange of subordinated debt during the tax year 1992. The Company believes it
has adequate reserves for the balance of the settlement. The settlement is
expected to be finalized during the quarter ending April 30, 1997.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Annual Operating Cycle
The homebuilding industry in general and the operations of the
Company are seasonal in nature. The number of new orders signed is generally
higher in the period from February through April compared to the balance of the
year. Deliveries peak in the fiscal quarter ending July 31 as a substantial
portion of homes for which contracts are written during the fiscal quarter
ending April 30 are delivered. Delivery volume is relatively constant during the
remainder of the year. Backlog is the number of homes under contract but not
delivered at the end of the period. Revenue is recognized upon the delivery of
finished homes. The following table, which sets forth the quarterly operating
results for the Company during the last five fiscal quarters illustrates this
cycle:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------
January 31, April 30, July 31, October 31, January 31,
1996 1996 1996 1996 1997
---- ---- ---- ---- ----
(dollars in thousands)
Selected Operating Data
- -----------------------
<S> <C> <C> <C> <C> <C>
Revenues-homebuilding $34,178 $36,908 $59,337 $44,020 $46,336
Number of homes delivered 219 245 377 281 298
Number of net new orders 218 410 248 327 312
Number of homes in backlog 565 730 601 647 661
Sales value of backlog $92,119 $119,188 $97,625 $107,881 $109,436
</TABLE>
Geographic Breakdown of Operations
Set forth below is information for the Company's operations by geographic
markets:
Three Months Ended Six Months Ended
January 31, January 31,
------------------ ----------------
Net New Orders 1997 1996 1997 1996
- -------------- ---- ---- ---- ----
Washington/Baltimore ............... 166 114 370 266
North Carolina ..................... 112 97 209 190
Nashville .......................... 21 0 35 0
Pittsburgh ......................... 13 7 25 13
--- --- --- ---
312 218 639 469
=== === === ===
9
<PAGE>
Three Months Ended Six Months Ended
January 31, January 31,
------------------ ----------------
Homes Delivered 1997 1996 1997 1996
- --------------- ---- ---- ---- ----
Washington/Baltimore ............... 159 131 338 284
North Carolina ..................... 108 82 194 169
Nashville .......................... 21 0 27 0
Pittsburgh ......................... 10 6 20 12
--- --- --- ---
298 219 579 465
=== === === ===
January 31,
------------------
Backlog of Sold Homes 1997 1996
- --------------------- ---- ----
Washington/Baltimore 443 406
North Carolina 166 145
Nashville 25 0
Pittsburgh 27 14
--- ---
661 565
=== ===
Results of Operations
Three Months Ended January 31, 1997 Compared to Three Months
Ended January 31, 1996
Total revenues from homes delivered increased by 35.6% to
$46.3 million during the three months ended January 31, 1997, compared to $34.2
million during the same three month period ended January 31, 1996 as the number
of homes delivered increased to 298 homes in the second quarter of fiscal 1997
from 219 homes in the second quarter of fiscal 1996. The average sales price of
homes delivered decreased to $155,500 for the second quarter of fiscal 1997 from
$156,100 for the second quarter of fiscal 1996. Changes in the average selling
price of homes delivered may vary from period to period based on product mix and
pricing of specific communities.
Revenues and gross profit from land sales were $1.7 million
and $236,000, respectively, for the three months ended January 31, 1997,
compared to $296,000 and $16,000, respectively, during the same three month
period in fiscal 1996.
Other income increased $207,000 to $615,000 during the three
months ended January 31, 1997, from $408,000 in the same three month period in
fiscal 1996, principally due to the gain on sale of a rental property and
increased fees from mortgage brokerage operations.
Gross profit as a percentage of revenues from homes delivered
decreased to 17.9% during the three months ended January 31, 1997 compared to
20.4% during the same three month period in fiscal 1996. The decrease in gross
profit margins is primarily due to implementation during the fourth quarter of
fiscal 1996 of a more aggressive competitive pricing strategy intended to
increase inventory turnover.
10
<PAGE>
Selling, general and administrative expenses increased $1.2
million to $6.5 million during the three month period ended January 31, 1997,
compared to $5.4 million in the same three month period in fiscal 1996,
primarily due to costs associated with increased revenues and the opening of
division offices in the expansion cities of Nashville, Charlotte and Pittsburgh.
In addition, selling, general and administrative expenses decreased as a
percentage of homebuilding revenues to 14.1% in the three months ended January
31, 1997 compared to 15.7% for the same period in fiscal 1996 as a result of the
increased deliveries and associated revenues without corresponding expense
increases.
Operating income (earnings before interest, financing fees and
taxes) increased to $2.4 million in the three months ended January 31, 1997
compared to $1.9 million for the same period in fiscal 1996 but decreased
slightly as a percentage of homebuilding revenues to 5.2% from 5.4% for the same
period in fiscal 1996.
Interest and financing fees increased slightly to $1.2 million
during the three months ended January 31, 1997 compared to $1.1 million in the
same three month period in fiscal 1996.
Six Months Ended January 31, 1997 Compared to Six Months Ended January 31, 1996
Total revenues from homes delivered increased $18.8 million
(26.2%) to $90.4 million during the six months ended January 31, 1997 compared
to $71.6 million during the same six month period ended January 31, 1996. The
number of homes delivered increased 24.5% to 579 homes in the first half of
fiscal 1997 from 465 homes in the first half of fiscal 1996. During this period
the average sales price of homes delivered increased to $156,100 in fiscal 1997
from $153,900 in the fiscal 1996 period. Changes in the average selling price of
homes delivered may vary from period to period based on product mix and pricing
of specific communities.
Revenues and gross profit from land sales were $3.4 million
and $442,000, respectively, for the six months ended January 31, 1997 compared
to $360,000 and $25,000, respectively, during the same six month period in
fiscal 1996.
Gross profit as a percentage of revenues from homes delivered
decreased to 18.1% during the six months ended January 31, 1997 compared to
20.3% during the same six month period in fiscal 1996. The decrease is primarily
due to the implementation during the fourth quarter of fiscal 1996 of a more
aggressive competitive pricing strategy intended to increase inventory turnover.
Selling, general and administrative expenses increased $1.9
million to $12.7 million during the six month period ended January 31, 1997 as
compared to $10.8 million for the same six month period in fiscal 1996 related
to the increased costs associated with expansion and various costs associated
with increased revenues. In addition, selling, general and administrative
expenses decreased as a percentage of homebuilding revenues to 14.0% in the six
months ended January 31, 1997 compared to 15.0% for the same period in fiscal
1996.
Operating income (earnings before interest, financing fees and
taxes) increased to $5.3 million in the six months ended January 31, 1997 as
compared to $4.2 million for the same period in fiscal 1996 and remained
constant as a percentage of homebuilding revenues at 5.9%.
Interest and financing fees increased slightly at $2.4 million
during the six months ended January 31, 1997 compared to the six month period
ended January 31, 1996 at $2.3 million.
11
<PAGE>
Capital Resources and Liquidity
Funding for the Company's residential building and land
development activities is provided principally by cash flows from operations and
borrowings from banks and other financial institutions. The Company's capital
needs depend upon its sales volume, asset turnover, land purchases and inventory
levels.
At January 31, 1997, the Company had cash and cash equivalents
of $10.9 million of which $444,000 was restricted to collateralize customer
deposits and other escrows. The remaining $10.5 million was available to the
Company.
The Company had $97.9 million in borrowing availability from
various lending institutions and land sellers of which $73.2 million was
outstanding at January 31, 1997.
The Company believes that it will be able to fund its
activities through fiscal 1997 through a combination of operating cash flow,
existing cash balances and borrowings from banks and other lending institutions.
Except for ordinary expenditures for the construction of homes and acquisition
and development of land, the Company does not have any material commitments for
capital expenditures at the present time.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Internal Revenue Service is examining the Company's tax
returns for the years ended July 31, 1992, 1993 and 1994. The IRS has raised
issues primarily related to matters having to do with the Company's
recapitalization in 1992 and 1993 including a $20.0 million gain on debt
forgiveness which the Company treated as non-taxable under the provisions of
Section 108 of the Internal Revenue Code and the timing of taxable income
related to discontinued subsidiaries which were distributed out of the
consolidated group in December 1992.
In March 1997, the Company reached a tentative settlement with
the IRS for all items in question. If the settlement is finalized as presently
structured, the Company would recognize an extraordinary loss of approximately
$400,000 or $0.05 per share which relates to the extraordinary gain from the
exchange of subordinated debt during the tax year 1992. The Company believes it
has adequate reserves for the balance of the settlement. The settlement is
expected to be finalized during the quarter ending April 30, 1997.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The registrant's annual meeting of shareholders was held on
November 13, 1996.
(b) Shareholders elected the following persons as members of the Board
of Directors to serve until the next annual meeting and until their successors
are elected and qualified:
Geaton A. DeCesaris, Sr.
Geaton A. DeCesaris, Jr.
Thomas Connelly
Paul C. Sukalo
Richard S. Frary
Ronald M. Shapiro
Richard B. Talkin
(c) Shareholders also approved a proposal to ratify the appointment of
Deloitte & Touche LLP to serve as independent auditors for the registrant and
its subsidiaries for the year ended July 31, 1997 with 5,666,293 shares voted in
favor, 8,930 against and 11,401 abstaining.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the
quarter ended January 31, 1997.
13
<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.
WASHINGTON HOMES, INC.
(Registrant)
Date: March 14, 1997 By:/s/ GEATON A. DECESARIS, JR.
-------------------------------
Geaton A. DeCesaris, Jr.
President and Chief Executive Officer
Date: March 14, 1997 By:/s/ CLAYTON W. MILLER
------------------------------
Clayton W. Miller
Principal Accounting Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED
STATEMENT OF NET EARNINGS AT AND FOR THE PERIOD ENDED OCTOBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jul-31-1997
<PERIOD-END> Jan-31-1997
<CASH> 10,906
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 122,730
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 164,341
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 79
<OTHER-SE> 69,274
<TOTAL-LIABILITY-AND-EQUITY> 164,341
<SALES> 48,066
<TOTAL-REVENUES> 48,681
<CGS> 39,521
<TOTAL-COSTS> 46,248
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,188
<INCOME-PRETAX> 1,245
<INCOME-TAX> 590
<INCOME-CONTINUING> 655
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 655
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
