13
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: April 30, 1998
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 April 30, 1998:
Class Number of
Shares
Common Stock (voting), $.01 par 7,914,433
value
Common Stock (non-voting), $.01 28,330
par value
<PAGE>
WASHINGTON HOMES, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
- - April 30, 1998 and July 31, 1997 (Unaudited) 3
Condensed Consolidated Statements of Operations
- - Three Months and Nine Months Ended April 30, 1998 4
and 1997 (Unaudited)
Condensed Consolidated Statement of Shareholder's
Equity 5
- - Nine Months Ended April 30, 1998 (Unaudited)
Condensed Consolidated Statements of Cash Flows
- - Nine Months Ended April 30, 1998 and 1997 6
(Unaudited)
Notes to Condensed Consolidated Financial Statements 7
(Unaudited)
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
ITEM 5. Other Information 12
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
PART 1. ITEM 1. Financial Statements
<PAGE>
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
ASSETS April 30, July 31,
1998 1997
(in thousands)
<S> <C> <C>
Cash and cash equivalents $ 10,943 $ 10,313
Residential inventories 121,205 111,520
Excess of cost over net assets 6,065 6,216
acquired, net
Investment in joint ventures 3,068 3,058
Other 12,241 11,735
Total Assets $153,522 $142,842
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Notes and loans payable $76,664 $65,569
Trade accounts payable 15,277 16,231
Income taxes 1,962 2,056
Other 3,775 4,506
Total Liabilities 97,678 88,362
Shareholders' Equity
Common Stock
15,000,000 shares voting common
stock authorized, 79 70
7,914,433 and 7,015,025 shares
issued and outstanding;
1,100,000 shares non-voting
common stock authorized, 0 9
28,330 and 927,738 shares issued
and outstanding;
Additional paid - in capital 35,147 35,147
Retained earnings 20,618 19,254
Total Shareholders' Equity 55,844 54,480
Total Liabilities and Shareholders' $153,522 $142,842
Equity
</TABLE>
See accompanying Notes.
<PAGE>
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
April 30, April 30,
1998 1997 1998 1997
(in thousands except per share amounts)
<S>Revenues <C> <C> <C> <C>
Homebuilding $52,262 $41,431 $139,215 $131,787
Land sales 1,506 914 4,242 4,320
Other income 676 456 1,828 2,036
Total revenues 54,444 42,801 145,285 138,143
Expenses
Cost of sales-homebuilding 43,018 34,465 114,199 108,445
Cost of sales - land 1,031 821 3,457 3,785
Cost of sales - impairment loss 0 9,200 0 9,200
Selling, general and 8,049 7,498 21,238 20,186
administrative
Write-down in carrying value of 0 9,981 0 9,981
goodwill
Interest 1,202 979 3,195 2,955
Financing fees 197 197 529 575
Amortization and depreciation 134 115 331 497
expense
Total expenses 53,631 63,256 142,949 155,624
Earnings (loss) before income
taxes and extraordinary item 813 (20,455) 2,336 (17,481)
Income tax expense (benefit) 249 (4,011) 970 (2,622)
Earnings (loss) before 564 (16,444) 1,366 (14,859)
extraordinary item
Extraordinary item 0 (390) 0 (390)
Net earnings (loss) $ 564 $(16,834) $1,366 $(15,249)
Earnings (loss) per common share,
before extraordinary item $ 0.07 $(2.07) $ 0.17 $ (1.87)
Earnings (loss) per common share,
7,942,763 weighted average $ 0.07 $(2.12) $ 0.17 $ (1.92)
shares outstanding
</TABLE>
See accompanying Notes.
<PAGE>
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Nine Months Ended April 30, 1998
(Unaudited)
(in thousands)
<TABLE>
Additional Total
Common Stock Paid -in Retained Shareholders'
Voting Non Capital Earnings Equity
voting
<S> <C> <C> <C> <C> <C>
Balance, August 1, 1997 $70 $9 $35,147 $19,254 $54,480
Convert non-voting to 9 (9) -- -- --
voting
Net earnings -- -- -- 1,366 1,366
Balance, April 30, 1998 $79 $0 $35,147 $20,620 $55,846
</TABLE>
See accompanying Notes.
<PAGE>
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Nine Months Ended April
30,
1998 1997
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $1,366 $(15,249)
Adjustments to reconcile net earnings(loss)
to
net cash used in operating activities:
Amortization and depreciation 331 497
Write-down of goodwill 0 9,981
Impairment loss 0 9,200
Deferred income taxes (116) (3,373)
Changes in assets and liabilities:
Residential inventories (9,685) (5,764)
Other assets (621) (515)
Trade accounts payable (956) (3,229)
Income taxes 21 (1,321)
Other liabilities (731) (1,616)
Net cash used in operating activities (10,391) (11,389)
Cash flows from investing activities:
Purchases of property and equipment, net of (64) (31)
disposals
Advances to joint ventures (10) (247)
Net cash used in investing activities (74) (278)
Cash flows from financing activities:
Proceeds from notes and loans payable 75,981 80,803
Repayments of notes and loans payable (64,886) (74,687)
Net cash provided by financing 11,095 6,116
activities
Net increase (decrease) in cash and cash 630 (5,551)
equivalents
Cash and cash equivalents, beginning of 10,313 15,384
period
Cash and cash equivalents, end of period $10,943 $9,833
</TABLE>
See accompanying Notes.
<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 construction
and sale 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 to
Shareholders for the year ended July 31, 1997. Operating results for the three
and nine months ended April 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending July 31, 1998.
2. Shareholders' Equity
Common Stock. The Company has 7,942,763 shares of Common Stock
outstanding at April 30, 1998 of which 7,914,433 are voting and 28,330 are non-
voting. 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 at anytime at
the option of the holder in connection with certain sale transaction. During
the first quarter of fiscal 1998, 899,408 shares of non-voting common stock were
converted to voting common stock.
3. Earnings Per Share
Earnings per common share are based on the weighted average number of
shares of common stock outstanding during each period. Basic and fully diluted
earnings per share are the same for all periods presented.
4. Notes and Loans Payable
Notes and loans payable consist of the following:
April 30, July 31,
1998 1997
(in thousands)
Senior Notes $43,000 $43,000
Revolving Credit Facilities 30,478 19,455
Land Acquisition and Other 3,186 3,114
$76,664 $65,569
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% (7.96% at April 30, 1998), with interest payable July 1994 and either
quarterly or semi-annually thereafter at the option of the Company. Beginning
April 1998 interest became payable on a quarterly basis for both series of
Senior Notes. Principal repayments are due in three equal annual installments
commencing in October 1998 and continuing to October 2000.
Revolving Credit Facility. At April 30, 1998, the Company had a $70
million facility to fund land acquisition and home construction, letters of
credit, and the initial principal repayment on its Senior Notes. The facility
has a maturity date (which may be extended) of October 30, 1999. At April 30,
1998, $30.5 million was outstanding. Borrowings under the facility bear
interest at 30 day LIBOR (5.66% at April 30, 1998) plus either 1.55% or 1.75%,
depending upon the mix of collateral and are secured by the related 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. Income Taxes
The Internal Revenue Service has examined the Company's tax returns for the
years ended July 31, 1992, 1993 and 1994. The IRS 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 settlement with the IRS for all items
in question. As a result, the Company recognized an extraordinary loss of
$390,000 or $0.05 per share which relates to the extraordinary gain on debt
forgiveness associated with the exchange of subordinated debt during the 1992
tax year.
6. Write-down of Assets
In the quarter ended April 30, 1997, the Company wrote down to fair value
the carrying value of goodwill by $10.0 million and certain land inventory by
$9.2 million which resulted in an after-tax charge of $15.8 million, or $1.99
per share. The goodwill resulted from the acquisition of the Company in 1988.
The properties affected by the write-down were principally development land,
certain close out communities and certain condominium properties in the Maryland
suburban areas of Washington, D.C..
The Company reviewed its long-lived assets, including goodwill, for
possible impairment. The circumstances which indicated impairment included a
decline in margins in the Washington market, increased governmental regulations
and fees, along with the continued competitiveness of the Washington market.
A significant portion of the land inventory write-down was attributable to
two long term development properties, which the Company has owned for more than
twenty years. The remainder of the write-down related to six close-out and
three condominium communities. The Company has made a decision to phase out
its condominium operations which have had results well below management's
expectations.
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 May 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>
Three Months Ended
April July 31, October January April
30, 1997 1997 31, 1997 31, 1998 30, 1998
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Selected Operating Data
Revenues -homebuilding $41,431 $74,789 $41,037 $45,916 $52,262
Number of homes 258 478 265 290 340
delivered
Number of net new 438 228 289 382 640
orders
Number of homes in 841 591 615 707 1,007
backlog
Sales value of backlog $135,042 $96,343 $101,227 $118,464 $168,726
</TABLE>
Geographic Breakdown of Operations
Set forth below is information for the Company's operations by geographic
markets:
Three Months Nine Months
Ended Ended
April 30, April 30,
Net New Orders 1998 1997 1998 1997
Maryland 213 155 379 398
Virginia 111 64 274 191
North Carolina 261 180 531 389
Nashville 37 23 80 58
Pittsburgh 18 16 47 41
640 438 1,311 1,077
Three Months Nine Months
Ended Ended
April 30, April 30,
Homes Delivered 1998 1997 1998 1997
Maryland 114 95 286 309
Virginia 75 57 194 181
North Carolina 115 79 331 273
Nashville 28 16 54 43
Pittsburgh 8 11 30 31
340 258 895 837
April 30,
Backlog of Sold Homes 1998 1997
Maryland 321 316
Virginia 218 194
North Carolina 385 267
Nashville 42 32
Pittsburgh 41 32
1,007 841
Results of Operations
Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997
Total revenues increased 27.2% to $54.4 million during the three
months ended April 30, 1998 as compared to $42.8 million during the three month
period ended April 30, 1997 as the number of homes delivered increased to 340 in
the third quarter of fiscal 1998 from 258 homes in the third quarter of fiscal
1997. The increased deliveries were attributable to successful sales promotions
and generally improved market conditions. The average sales price of homes
delivered decreased to $153,700 for the third quarter of fiscal 1998 from
$160,600 for the third quarter of fiscal 1997. 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 from land sales were $1.5 million for the three months ended
April 30, 1998 as compared to $914,000 during the same three month period in
fiscal 1997. Gross profit from land sales increased $382,000 during the three
months ended April 30, 1998 compared to the same three month period in fiscal
1997. The increase reflects individual lot sales to close out several
communities.
Other income increased $220,000 to $676,000 during the three months
ended April 30, 1998 as compared to $456,000 in the same three month period in
fiscal 1997.
Gross profit as a percentage of revenues from homes delivered,
excluding the effect of the write-down of land inventory, increased to 17.7%
during the three months ended April 30, 1998 compared to 16.8% during the same
three month period in fiscal 1997. The increase in gross profit margins is
attributable to an improved mix of deliveries within the Company's geographic
markets and the effect of cost reduction initiatives, especially in North
Carolina.
Selling, general and administrative expenses increased $551,000 to
$8.0 million during the three month period ended April 30, 1998, compared to
$7.5 million in the same three month period in fiscal 1997. The increase is
principally due to increased marketing and advertising expenses intended to
increase new orders and backlog; to costs associated with opening new
communities; and to the expansion of the Company's mortgage brokerage
operations. In addition, selling, general and administrative expenses decreased
as a percentage of homebuilding revenue to 15.4% in the three months ended April
30, 1998, compared to 18.1% for the same period in fiscal 1997 as a result of
increased deliveries.
Interest and financing fees increased to $1.4 million during the
three months ended April 30, 1998 as compared to $1.2 million in the same three
month period in fiscal 1997.
Nine Months Ended April 30, 1998 Compared to Nine Months Ended April 30, 1997
Total revenues increased $7.0 million (5.2%) to $145.3 million during
the nine months ended April 30, 1998 compared to $138.1 million during the nine
month period ended April 30, 1997. The number of homes delivered increased 7.0%
to 895 homes in the first nine months of fiscal 1998 from 837 homes in the first
nine months of fiscal 1997. During this period the average sale price of homes
delivered decreased to $155,500 in the first nine months of fiscal 1998 from
$157,500 in the first nine months of fiscal 1997. Changes in average selling
price of homes delivered may vary from period to period based on product mix and
pricing of specific communities .
Revenues from land sales of $4.2 million for the nine month period
ended April 30, 1998 were relatively flat in comparison to the same nine month
period in fiscal 1997. Gross profit from land sales increased 47% to $785,000
for the nine month period ended April 30, 1998 from $535,000 for the same nine
month period in fiscal 1997.
Gross profit as a percentage of revenues from homes delivered,
excluding the effect of the write-down of land inventories increased to 18.0%
during the nine month period ended April 30, 1998 compared to 17.7% during the
nine month period ended April 30, 1997.
Selling, general and administrative expenses increased $1.0 million to
$21.2 million during the nine month period ended April 30, 1998 as compared to
$20.2 million for the same nine month period in fiscal 1997. The increase is
due primarily to increased marketing and advertising costs directed at
increasing new orders and backlog; the additional costs associated with opening
new communities; and the expansion of the mortgage brokerage operations. In
addition, selling, general and administrative expenses as a percentage of
homebuilding revenues remained flat at 15.3% for the nine months ended April 30,
1998 and April 30, 1997.
Interest and financing fees increased to $3.7 million in the nine
months ended April 30, 1998 as compared to $3.5 million for the same period in
fiscal 1997.
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 April 30, 1998, the Company had cash and cash equivalents of
$10.9 million of which $200,000 was restricted to collateralize customer
deposits and other escrows. The remaining $10.7million was available to the
Company.
The Company had $106 million in borrowing availability from various
lending institutions and land sellers of which $76.7 million was outstanding at
April 30, 1998.
The Company believes that it will be able to fund its activities
through fiscal 1998 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.
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. Other Information
As of April 30, 1998 the Registrant amended its revolving credit facility
to change the interest coverage covenant.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. Letter Agreement dated as of April 30, 1998 to Consolidated,
Amended and Restated Loan Agreement made as of July 31, 1997.
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 April 30, 1998.
<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: June 15, 1998 By: /s/ Geaton A.. DeCesaris
Geaton A. DeCesaris, Jr.
President and Chief Executive Officer
Date: June 15, 1998 By: /s/ Clayton W. Miller
Clayton W. Miller
Principal Accounting Officer
<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 Operations at and for the period ended Apeil 30, 1998 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-31-1998
<PERIOD-END> APR-30-1998
<CASH> 10943
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 121205
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 153522
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 79
<OTHER-SE> 55765
<TOTAL-LIABILITY-AND-EQUITY> 153522
<SALES> 53768
<TOTAL-REVENUES> 54444
<CGS> 44049
<TOTAL-COSTS> 52232
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1399
<INCOME-PRETAX> 813
<INCOME-TAX> 249
<INCOME-CONTINUING> 564
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 564
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
April 30, 1998
Washington Homes, Inc.
Sixth Floor
1802 Brightseat Road
Landover, Md 20785-4235
Attention: Geaton DeCesaris, President
Re: Consolidated, Amended and Restated Loan Agreement made as of July 31, 1997
(the "Loan Agreement"), by and among, First Union National Bank (formerly known
as First Union National Bank of Maryland), as agent, the Borrower (as defined in
Section 1 of the referenced agreement), and the lenders becoming a party thereto
(each a "Lender" and collectively the "Lenders")
Dear Geaton:
This letter shall confirm the agreement of the Borrower and the Lenders to
modify the Loan Agreement as follows:
1. Section 5.10 (c) is hereby modified to read as follows:
(c) Coverage Ratio. WHI's consolidated Coverage Ratio as of the last
day of each fiscal quarter, commencing with the fiscal quarter
ending April 30, 1998 (in each case using 4 of the last 5
quarters ending on such date), shall not be less than 2.0 to 1.0
2. The definition of Coverage Ratio shall be modified to hereafter mean
the ratio of (i) Income Available for Debt Service, to (ii) Interest
Incurred.
3. The definition of Income Available for Debt Service shall be modified
to hereafter mean, for any period, the sum of (i) Consolidated Net
Income; (ii) income tax expense (benefit); (iii) Interest Expense;
(iv) capitalized interest in cost of goods sold, (v) amortization
and depreciation expense, which shall include financing fees for
any such period, (vi) any other non-cash expenses, and (vii) any
losses arising outside the ordinary course of business which have
been included in determination of Consolidated Net Income, less
interest income
4. The following definition shall be added to Section 1 of the Loan
Agreement:
"Interest Incurred" shall mean for any period , the aggregate amount
(without duplication and determined in each case in accordance with
GAAP) of interest expensed or capitalized whether paid or accrued
during such period, less any interest income.
If the foregoing correctly sets forth our understanding, please below execute
and return a copy of this letter, which shall constitute a formal amendment of
the Loan Agreement
Very truly yours,
First Union National Bank, agent
By:___________________________
Acknowledged and Agreed to:
BORROWER:
Washington Home, Inc., acting on its own
behalf and on behalf of each other Borrower
pursuant to the Power of Attorney contained in
Section 2.15 of the Loan Agreement
By:_______________________________
LENDERS:
AmSouth Bank
By:________________________________
First Union National Bank, formerly known
as First Union National Bank of Maryland
By:_________________________________
