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: October 31, 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 October 31, 1998
Class Number of Shares
Common Stock (voting), $.01 par value 7,914,433
Common Stock (non-voting), $.01 par 28,330
value
WASHINGTON HOMES, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
- - October 31, 1998 and July 31, 1998 (Unaudited) 3
Condensed Consolidated Statements of Earnings
- - Three Months Ended October 31, 1998 and 1997 4
(Unaudited)
Condensed Consolidated Statement of Shareholders'
Equity 5
- - Three Months Ended October 31, 1998 (Unaudited)
Condensed Consolidated Statements of Cash Flows
- - Three Months Ended October 31, 1998 and 1997 6
(Unaudited)
Notes to Condensed Consolidated Financial 7
Statements (Unaudited)
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
PART 1. ITEM 1. Financial Statements
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS October 31, July 31,
1998 1998
(in thousands)
Cash and cash equivalents $ 16,295 $ 10,321
Residential inventories 115,325 113,198
Excess of cost over net assets acquired, net 5,965 6,015
Investment in joint ventures 2,848 2,848
Other 12,701 13,590
Total Assets $153,134 $145,972
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Notes and loans payable $68,060 $58,255
Trade accounts payable 18,305 21,647
Income taxes 2,655 3,217
Other 4,575 4,583
Total Liabilities 93,595 87,702
Shareholders' Equity
Common Stock
15,000,000 shares voting common stock
authorized, 79 79
7,914,433 shares issued and outstanding;
1,100,000 shares non-voting common stock
authorized, 0 0
28,330 shares issued and outstanding;
Additional paid - in capital 35,147 35,147
Retained earnings 24,313 23,044
Total Shareholders' Equity 59,539 58,270
Total Liabilities and Shareholders' Equity $153,134 $145,972
See accompanying Notes.
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands except per share amounts)
Three Months Ended
October 31,
1998 1997
Revenues
Homebuilding $67,745 $41,037
Land sales 475 1,192
Other income 908 577
Total revenues 69,128 42,806
Expenses
Cost of sales - homebuilding 55,426 33,276
Cost of sales - land 441 841
Selling, general and administrative 9,371 6,135
Interest 1,514 937
Financing fees 202 135
Amortization and depreciation expense 97 98
Total expenses 67,051 41,422
Earnings Before Income Taxes 2,077 1,384
Income tax expense 808 648
Net Earnings $1,269 $ 736
Basic and Diluted Earnings per Share
7,942,763 weighted average shares $ 0.16 $ 0.09
outstanding
See accompanying Notes.
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three months ended October 31, 1998
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Addition Total
al
Common Stock Paid -in Retained Shareholder
s'
Voting Non Capital Earnings Equity
voting
<S> <C> <C> <C> <C> <C>
Balance, August 1, 1998 $79 $0 $35,147 $23,044 $58,270
Net Earnings -- -- -- 1,269 1,269
Balance, October 31, $79 $0 $35,147 $24,313 $59,539
1998
</TABLE>
See accompanying Notes.
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
October 31,
1998 1997
(in thousands)
Cash flows from operating activities:
Net earnings $1,269 $ 736
Adjustments to reconcile net earnings to
net cash used in operating activities:
Amortization and depreciation 97 98
Changes in assets and liabilities:
Residential inventories (2,127) (2,992)
Other assets 902 (735)
Trade accounts payable (3,341) (4,157)
Income taxes payable (563) (115)
Other liabilities (8) (1,073)
Net cash used in operating activities (3,771) (8,238)
Cash flows from investing activities:
Purchases of property and equipment, net of (60) (18)
disposals
Advances to joint ventures -- (10)
Net cash used in investing activities (60) (28)
Cash flows from financing activities:
Proceeds from notes and loans payable 56,000 25,392
Repayments of notes and loans payable (46,195) (18,770)
Net cash provided by financing activities 9,805 6,622
Net increase (decrease) in cash and cash 5,974 (1,644)
equivalents
Cash and cash equivalents, beginning of 10,321 10,313
period
Cash and cash equivalents, end of period $16,295 $ 8,669
See accompanying Notes.
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, 1998. Operating results for the three
months ended October 31, 1998 are not necessarily indicative of the results that
may be expected for the year ending July 31, 1999.
2. Shareholders' Equity
Common Stock. The company has 7,942,763 shares of Common Stock
outstanding at October 31, 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 transactions.
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 diluted
earnings per share are the same for both periods presented.
4. Notes and Loans Payable
Notes and loans payable consist of the following:
October 31, July 31,
1998 1998
(in thousands)
Senior Notes $28,667 $43,000
Revolving Credit Facilities 36,568 12,197
Land Acquisition and Other 2,825 3,058
$68,060 $58,255
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% (7.74% at October 31, 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. The first principal
repayment of $14,333,333 was made in October 1998.
Revolving Credit Facility. At October 31, 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, 2000. At October 31,
1998, $36.6 million was outstanding. Borrowings under the facility bear
interest at 30 day LIBOR (5.24% at October 31, 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 inventory.
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
<CAPTION>
October 31, January April July October
1997 31, 30, 1998 31, 31, 1998
1998 1998
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Selected Operating Data
Revenues -homebuilding $41,037 $45,916 $52,262 $93,896 $67,745
Number of homes 265 290 340 584 407
delivered
Number of net new 289 382 640 398 430
orders
Number of homes in 615 707 1,007 821 844
backlog
Sales value of backlog $101,227 $118,46 $168,726 $141,61 $147,100
4 9
</TABLE>
Geographic Breakdown of Operations
Set forth below is information for the Company's operations by geographic
markets:
Three Months
Ended
October 31,
Net New Orders 1998 1997
Maryland 145 87
Virginia 102 69
North Carolina 138 100
Nashville 32 20
Pittsburgh 13 13
430 289
Three Months
Ended
October 31,
Homes Delivered 1998 1997
Maryland 115 78
Virginia 83 59
North Carolina 181 100
Nashville 14 18
Pittsburgh 14 10
407 265
Period Ended
October 31,
Backlog of Sold Homes 1998 1997
Maryland 270 237
Virginia 195 148
North Carolina 285 185
Nashville 60 18
Pittsburgh 34 27
844 615
Results of Operations
Three Months Ended October 31, 1998 Compared to Three Months Ended October 31,
1997
Total revenues from homes delivered increased by 65.1% to $67.7 million
during the three months ended October 31, 1998 compared to $41.0 million during
the three month period ended October 31, 1997 as the number of homes delivered
increased to 407 in the first quarter of fiscal 1999 from 265 homes in the first
quarter of fiscal 1998. The increased level of revenues reflects continuing
strong housing markets resulting from a generally strong economy and low
interest rates for home mortgages. It also reflects the Company's more
aggressive pricing in some Maryland communities which was intended to increase
sales. The average sales price of homes delivered increased to $166,449 for the
first quarter of fiscal 1999 from $154,857 for the first quarter of fiscal 1998.
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 $475,000 and $34,000 for the
three months ended October 31, 1998 as compared to $1.2 million and $351,000
during the same three month period in fiscal 1998.
Other income increased $331,000 to $908,000 during the three months ended
October 31, 1998 as compared to $577,000 in the same three month period in
fiscal 1998, principally due to loan origination income earned by the Company's
mortgage subsidiary.
Gross profit as a percentage of revenues from homes delivered decreased to
18.2% during the three months ended October 31, 1998 compared to 18.9% during
the same three month period in fiscal 1998.
Selling, general and administrative expenses increased $3.3 million to $9.4
million during the three month period ended October 31, 1998, compared to $6.1
million in the same three month period in fiscal 1998. The increase is
principally due to increase costs associated with the 61% increase in quarterly
revenues, the opening of nine new communities, and costs related to improving
the technology and infrastructure of the Company. Selling, general and
administrative expenses decreased as a percentage of homebuilding revenue to
13.8% in the three month period ended October 31, 1998, compared to 14.9% for
the same period in fiscal 1998 as a result of increased deliveries.
Operating income (earnings before interest, financing fees and taxes)
increased to $3.8 million in the three months ended October 31, 1998 as compared
to $2.5 million for the same period in fiscal 1998 and decreased as a percentage
of homebuilding revenues to 5.6% from 6.0% for the same period in fiscal 1998.
Interest and financing fees increased to $1.7 million during the three
months ended October 31, 1998 as compared to $1.1 million in the same three
month period in fiscal 1998.
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 October 31, 1998, the Company had cash and cash equivalents of $16.3
million of which $27,600 was restricted to collateralize customer deposits and
other escrows. The remaining $16.28 million was available to the Company.
The Company had $101.5 million in borrowing availability from various
lending institutions and land sellers of which $68.1 million was outstanding at
October 31, 1998.
The Company believes that it will be able to fund its activities through
fiscal 1999 through a combination of operating cash flow, existing cash balances
and existing facilities. 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.
Year 2000 Issues
The Year 2000 (Y2K) problem is the result of computer programs being
written using two digits rather than four to define the applicable year. If not
corrected, computer software programs that have time-sensitive software may not
recognize dates beginning in the year 2000. This could result in system
failures or miscalculations which could cause personal injury, property damage,
disruption of operations, and/or delays in payment from the Company's customers
all of which could materially adversely effect the company's business, financial
condition or results of operations.
The Company has completed an assessment of its computer systems, to
identify computer hardware, software and process control systems that are not
Y2K compliant. The Company presently believes that its business-critical
computer systems which are not presently Y2K compliant will be replaced,
upgraded or modified prior to 2000.
The costs of the Company's Y2K compliance efforts are being funded with
cash flows from operations. In total, these costs are not expected to have a
material adverse effect on the Company's overall results of operations or cash
flows.
The Company is in the process of surveying its significant vendors,
subcontractors, suppliers and financial institutions to assess the status of
their Y2K issues. Responses and non-responses will be evaluated over the next
few quarters as part of the Company's Y2K plan. The Company cannot determine to
what extent the Y2K issue will affect its vendors, subcontractors, suppliers and
financial institutions and, consequently, the Company.
The foregoing assessment of the impact of the Y2K problem is based on
management's best estimate at the present time, and could change substantially.
There can be no guarantee that these estimates will prove accurate, and actual
results could differ from those estimated if these assumptions prove inaccurate.
Forward Looking Statements
Certain statements in the Company's Form 10-Q, as well as statements made
by the Company in periodic press releases, oral statements made by the Company's
officials to analysts and shareholders in the course of presentations about the
Company and conference calls following quarterly earnings releases, may be
construed as Forward-Looking Statements, as defined in the Private Securities
Litigation Reform Act of 1995 (the Reform Act). Such statements may involve
unstated risks, uncertainties and other factors that may cause actual results to
differ materially. Such risks, uncertainties and other factors include, but are
not limited to, changes in general economic conditions; fluctuations in interest
rates; increases in costs and materials, supplies and labor; and general
competitive conditions.
<PAGE>
PART II. OTHER INFORMATION
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
October 31, 1998.
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: December 14, 1998 By:_/s/ Geaton A. DeCesaris, Jr.
Geaton A. DeCesaris, Jr.
President and Chief Executive Officer
Date: December 14, 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 Net Earnings at and for the period ended October 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> OCT-31-1998
<CASH> 16295
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 115325
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 153134
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 79
<OTHER-SE> 59539
<TOTAL-LIABILITY-AND-EQUITY> 153134
<SALES> 68220
<TOTAL-REVENUES> 69128
<CGS> 55867
<TOTAL-COSTS> 65335
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1717
<INCOME-PRETAX> 2077
<INCOME-TAX> 808
<INCOME-CONTINUING> 1269
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1269
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
