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, 2000
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, 2000
Class Number of Shares
----- ----------------
Common Stock (voting), $.01 par value 8,167,961
Common Stock (non-voting), $.01 par value 0
<PAGE>
WASHINGTON HOMES, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
- October 31, 2000 and July 31, 2000 3
Condensed Consolidated Statements of Earnings (Unaudited)
- Three Months Ended October 31, 2000 and 1999 4
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
- Three Months Ended October 31, 2000 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
- Three Months Ended October 31, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION
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)
(in thousands except share data)
October 31, July 31,
2000 2000
---- ----
ASSETS
Cash and cash equivalents ....................... $ 11,236 $ 14,317
Residential inventories ......................... 128,543 130,573
Excess of cost over net assets acquired, net .... 8,231 8,331
Investment in joint ventures .................... 3,273 3,370
Other ........................................... 10,794 11,967
--------- ---------
Total Assets ............................... $ 162,077 $ 168,558
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Notes and loans payable ......................... $ 39,698 $ 36,323
Trade accounts payable .......................... 23,019 32,558
Income taxes .................................... 587 2,977
Other ........................................... 10,811 13,745
--------- ---------
Total liabilities ........................... 74,115 85,603
Shareholders' Equity
Common stock
15,000,000 shares voting common stock
authorized, $.01 par value, 8,167,961 and
7,780,961 shares issued and outstanding ....... 82 78
1,100,000 shares non-voting common stock
authorized, $.01 par value, 0 shares issued
and outstanding ............................... -- --
Additional paid-in capital ...................... 36,530 34,610
Retained earnings ............................... 51,392 48,311
Common stock held in Grantor Trust,
63,752 shares at cost ......................... (349) (349)
Deferred compensation obligation ................ 307 305
--------- ---------
Total shareholders' equity .................. 87,962 82,955
--------- ---------
Total Liabilities and Shareholders' Equity .. $ 162,077 $ 168,558
========= =========
See accompanying Notes.
3
<PAGE>
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands except share data)
Three Months Ended
October 31,
2000 1999
---- ----
Revenues
Homebuilding .............................. $ 102,201 $ 85,889
Land sales ................................ 166 418
Other income .............................. 2,138 1,116
---------- ----------
Total revenues ....................... 104,505 87,423
Expenses
Cost of sales - homebuilding .............. 82,155 68,794
Cost of sales - land ...................... 163 396
Selling, general and administrative ....... 15,140 12,033
Interest .................................. 1,604 1,546
Financing fees ............................ 244 206
Amortization and depreciation expense ..... 199 166
---------- ----------
Total expenses ....................... 99,505 83,141
---------- ----------
Earnings before income taxes ....................... 5,000 4,282
Income tax expense ........................ 1,919 1,655
---------- ----------
Net earnings ....................................... $ 3,081 $ 2,627
========== ==========
Earnings per common share
Basic ................................ $ 0.38 $ 0.33
========== ==========
Diluted .............................. $ 0.36 $ 0.32
========== ==========
Weighted average common shares
Basic ................................ 8,083,729 7,946,187
========== ==========
Diluted .............................. 8,511,420 8,218,161
========== ==========
See accompanying Notes.
4
<PAGE>
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three Months Ended October 31, 2000
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Common Stock Deferred Total
--------------------- Paid-in Retained Held by Compensation Shareholders'
Voting Non-voting Capital Earnings Grantor Trust Obligation Equity
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, August 1, 2000 .............. $ 78 $ 0 $34,610 $48,311 $ (349) $ 305 $82,955
Exercise of stock options ......... 4 -- 1,920 -- -- -- 1,924
Deferred compensation obligation .. -- -- -- -- -- 2 2
Net earnings ...................... -- -- -- 3,081 -- -- 3,081
--------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 2000 ............ $ 82 $ 0 $36,530 $51,392 $ (349) $ 307 $87,962
================================================================================================================================
</TABLE>
See accompanying Notes.
5
<PAGE>
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
October 31,
2000 1999
---- ----
Cash flows from operating activities:
Net earnings ........................................ $ 3,081 $ 2,627
Adjustments to reconcile net earnings to
net cash used in operating activities:
Amortization and depreciation .............. 199 166
Changes in assets and liabilities:
Residential inventories .................... 2,030 (11,384)
Other assets ............................... 1,164 (706)
Trade accounts payable ..................... (9,539) (3,043)
Income taxes ............................... (2,390) (1,473)
Other liabilities .......................... (2,934) (2,940)
Deferred compensation obligation ........... 2 94
-------- --------
Net cash used in operating activities ...... (8,387) (16,659)
Cash flows from investing activities:
Purchases of property and equipment, net of disposals (90) (200)
Distribution from (investment in) joint ventures .... 97 (450)
-------- --------
Net cash provided by (used in)
investing activities ................... 7 (650)
Cash flows from financing activities:
Proceeds from notes and loans payable ............... 98,764 76,050
Repayments of notes and loans payable ............... (95,389) (59,208)
Exercise of stock options ........................... 1,924 --
Purchase and retirement of Company stock ............ -- (111)
-------- --------
Net cash provided by financing activities .. 5,299 16,731
Net decrease in cash and cash equivalents .............. (3,081) (578)
Cash and cash equivalents, beginning of period ......... 14,317 12,734
-------- --------
Cash and cash equivalents, end of period ............... $ 11,236 $ 12,156
======== ========
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 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, 2000. Operating results for the three
months ended October 31, 2000 are not necessarily indicative of the results that
may be expected for the year ending July 31, 2001.
2. Shareholders' Equity
Common Stock. The Company has 8,167,961 shares of common stock
outstanding at October 31, 2000 all of which are voting shares. Except for
voting rights, the non-voting common stock is substantially the same as the
Company's voting common stock.
Deferred Compensation Incentive Plan. Effective as of July 31, 1999,
the Company adopted a Deferred Compensation Incentive Plan ("Plan") for certain
key employees who may elect to defer a portion of their future compensation. The
Company matches the lesser of 20% of the amount deferred or $20,000, with the
match subject to a five-year vesting schedule. The Plan may be funded by the
purchase of the Company's common stock. The Company retires any Company stock
acquired by the Plan and the future issuance of the same number of shares will
be from newly issued shares. During the three months ended October 31, 2000, no
shares were acquired by the Plan.
Stock Repurchase Program. In January 2000, the board of directors
adopted a stock repurchase program for up to 800,000 shares of the Company's
common stock. The shares are repurchased in the open market or in block trades
and purchases are dependent on market conditions. Shares repurchased are retired
or used to meet the Company's current employee benefit plan obligations. During
the quarter ended October 31, 2000, no shares were repurchased.
3. Earnings Per Share
Basic earnings per common share are computed based on the weighted
average number of common shares outstanding during each period. Diluted
earnings per common share are computed based on the weighted average number of
shares of common stock outstanding plus equivalent shares relating to stock
options outstanding and shares that are associated with the Company's deferred
compensation plan.
4. Notes and Loans Payable
Notes and loans payable consist of the following:
7
<PAGE>
October 31, July 31,
2000 2000
---- ----
(in thousands)
Senior notes ................................... $ 0 $14,333
Revolving credit facilities .................... 37,114 18,628
Land acquisition and development ............... 2,445 3,274
Mortgages and other notes payable .............. 139 88
------- -------
$39,698 $36,323
======= =======
Senior Notes. In April 1994, the Company issued $43,000,000 principal
amount of unsecured 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%, 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 were due in three equal annual installments commencing in
October 1998 and continuing to October 2000. The scheduled principal repayments
of $14,333,333 were made and as of October 31, 2000, the notes were fully
retired.
Revolving Credit Facilities. At October 31, 2000, the Company had two
secured credit facilities totaling $131 million to fund land acquisition, home
construction, letters of credit, and principal repayments on its Senior Notes.
In September 1999, the Company increased the credit availability under one of
the facilities to $120 million from $70 million. The new credit facility is
comprised of a $100 million revolving loan with a maturity date (which may be
extended) of October 30, 2001, and a $20 million, term loan with an initial
maturity of 2 years plus three one-year extension options. $14.3 million of the
term loan was used in October 1999 for a principal repayment of the Company's
Senior Notes. The remaining $5.7 million was used to repay a portion of the
Senior Notes repayment due in October 2000. The other credit facility consists
of a $15 million revolving loan with a maturity date (which may be extended) of
April 19, 2001. At October 31, 2000, $37.1 million was outstanding under both
facilities. Borrowings under the facilities bear interest at thirty-day LIBOR
(6.62% at October 31, 2000) plus 1.75% for the revolving credit facilities and
2.85% for the term loan.
Land Acquisition and Development Loans. The Company has loans with
various lenders for the acquisition and development of land which bear interest
at a fixed rate of 8% or variable rates of prime plus 0.5% to prime plus 1% and
are collateralized by the related inventory.
Mortgages and Other Notes Payable. Mortgages and other notes payable
bear interest at rates ranging from 4.8% to 10% and mature in varying periods of
up to 5 years.
5. Segment Reporting
The Company's reportable segments are strategic business units that
offer different products and services. The business segments of the Company are
defined as homebuilding and financial services. The homebuilding operations
include the construction and sale of homes and the development and sale of land
and comprise approximately 97% or more of consolidated revenues for the quarters
ended October 31, 2000 and 1999. The financial services operations include the
origination of mortgage loans primarily to the Company's home purchasers. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Intersegment revenue represents the
elimination of revenue included in financial services revenue for amounts paid
by the homebuilding operations for financing costs of the home purchasers. The
information below is presented in conformity with SFAS No. 131 "Disclosure About
Segments of an Enterprise and Related Information" for all periods presented.
8
<PAGE>
Three Months Ended
October 31,
(dollars in thousands) 2000 1999
--------------------------------------------------------------------------------
Revenues
Homebuilding ................................. $ 102,367 $ 86,307
Financial services ........................... 2,037 1,109
Intersegment ................................. (604) (380)
Other ........................................ 705 387
--------------------------------------------------------------------------------
Revenues .................................... $ 104,505 $ 87,423
================================================================================
Selling, General and Administrative
Homebuilding ................................. $ 13,870 $ 11,161
Financial services ........................... 1,270 872
Other ........................................ -- --
--------------------------------------------------------------------------------
Selling, General and Administrative ........ $ 15,140 $ 12,033
================================================================================
Interest and Financing Expenses
Homebuilding ................................. $ 1,848 $ 1,744
Financial services ........................... -- 8
Other ........................................ -- --
--------------------------------------------------------------------------------
Interest and Financing Expenses ............ $ 1,848 $ 1,752
================================================================================
Amortization and Depreciation
Homebuilding ................................. $ 197 $ 164
Financial services ........................... 2 2
Other ........................................ -- --
--------------------------------------------------------------------------------
Amortization and Depreciation ............... $ 199 $ 166
================================================================================
Earnings before Income Taxes
Homebuilding ................................. $ 3,530 $ 3,668
Financial services ........................... 765 227
Other ........................................ 705 387
--------------------------------------------------------------------------------
Earnings before Income Taxes ............... $ 5,000 $ 4,282
================================================================================
Income Taxes
Homebuilding ................................. $ 1,346 $ 1,413
Financial services ........................... 291 87
Other ........................................ 282 155
--------------------------------------------------------------------------------
Income Taxes ............................... $ 1,919 $ 1,655
================================================================================
Assets
Homebuilding ................................. $ 160,799 $ 178,466
Financial services ........................... 1,278 985
Other ........................................ -- --
--------------------------------------------------------------------------------
Assets ..................................... $ 162,077 $ 179,451
================================================================================
6. Merger
On August 28, 2000, Washington Homes, Inc. and Hovnanian Enterprises,
Inc. announced the signing of a definitive merger agreement.
9
<PAGE>
Under the terms of the agreement, Washington Homes shareholders will
receive the equivalent of 1.39 Hovnanian class A common shares or $10.08 in cash
for each share of Washington Homes, subject to certain adjustments. Up to 50% of
the consideration will be paid in cash, with the balance, not to exceed 60%,
paid in Hovnanian common shares. The transaction is expected to close in January
2001 following regulatory and shareholder approvals and customary closing
conditions.
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 received is generally higher in
the period from January 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
----------------------------------------------------------------------------
October 31, January 31, April 30, July 31, October 31,
1999 2000 2000 2000 2000
---- ---- ---- ---- ----
(dollars in thousands)
Selected Operating Data
(Consolidated)
<S> <C> <C> <C> <C> <C>
Revenues - homebuilding $85,889 $92,769 $116,114 $164,506 $102,201
Number of homes delivered 483 500 605 904 553
Number of net new orders 587 526 902 499 578
Number of homes in backlog 1,112 1,138 1,435 1,030 1,055
Sales value of backlog $219,846 $225,880 $275,066 $209,291 $219,737
</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 2000 1999
-------------- ---- ----
Consolidated:
Maryland ........................................... 152 176
Virginia ........................................... 138 165
North Carolina ..................................... 185 156
Tennessee .......................................... 34 34
Pennsylvania ....................................... 5 15
Alabama ............................................ 33 12
Mississippi ........................................ 31 29
--- ---
Total Consolidated ............................. 578 587
Unconsolidated Joint Venture:
Active Adult (1) ................................... 10 --
--- ---
Total .............................................. 588 587
=== ===
----------
(1) Includes 100% of the activity in a 50% owned active adult community in
Raleigh, North Carolina. The joint venture was formed in 1998 with US Home
Corporation to develop primarily age-restricted communities. The Company's
interest in the joint venture is accounted for under the equity method of
accounting.
10
<PAGE>
Three Months Ended
October 31,
Homes Delivered 2000 1999
--------------- ---- ----
Consolidated:
Maryland ........................................... 152 143
Virginia ........................................... 156 105
North Carolina ..................................... 156 132
Tennessee .......................................... 29 34
Pennsylvania ....................................... 7 9
Alabama ............................................ 27 38
Mississippi ........................................ 26 22
--- ---
Total Consolidated ............................. 553 483
Unconsolidated Joint Venture:
Active Adult (1) ................................... 15 --
--- ---
Total .............................................. 568 483
=== ===
October 31,
Backlog of Sold Homes 2000 1999
--------------------- ---- ----
Consolidated:
Maryland ......................................... 291 276
Virginia ......................................... 366 447
North Carolina ................................... 276 263
Tennessee ........................................ 48 48
Pennsylvania ..................................... 4 23
Alabama .......................................... 39 24
Mississippi ...................................... 31 31
----- -----
Total Consolidated ........................... 1,055 1,112
Unconsolidated Joint Venture:
Active Adult (1) ................................. 27 --
----- -----
Total ............................................ 1,082 1,112
===== =====
-----------------
(1) Includes 100% of the activity in a 50% owned active adult community in
Raleigh, North Carolina. The joint venture was formed in 1998 with US Home
Corporation to develop primarily age-restricted communities. The Company's
interest in the joint venture is accounted for under the equity method of
accounting.
Results of Operations
Three Months Ended October 31, 2000 Compared to Three Months Ended October 31,
1999
Total revenues from homes delivered increased by 19% to $102.2 million
during the three months ended October 31, 2000 compared to $85.9 million during
the three-month period ended October 31, 1999 as the number of homes delivered
from consolidated operations increased to 553 in the first quarter of fiscal
2001 from 483 homes in the first quarter of fiscal 2000. The increased level of
revenues reflect a strong housing demand and the Company's excellent land
position. The average sales price of homes delivered increased to $184,800 for
the first quarter of fiscal 2001 from $177,800 for the first quarter of fiscal
2000. Changes in the average selling price of homes delivered may vary from
period to period based on product mix and pricing of specific communities.
11
<PAGE>
Revenues and gross profit from land sales were $166,000 and $3,000,
respectively, for the three months ended October 31, 2000 compared to $418,000
and $22,000, respectively, during the same three-month period in fiscal 2000.
Other income increased $1,022,000 to $2,138,000 during the three months
ended October 31, 2000 compared to $1,116,000 in the same three-month period in
fiscal 2000. The increase is primarily due to increased income from mortgage
origination activity.
Gross profit as a percentage of revenues from homes delivered decreased
to 19.6% during the three months ended October 31, 2000 compared to 19.9% during
the same three-month period in fiscal 2000. However, the gross profit for
the current fiscal quarter is an increase over the past three fiscal quarters.
Selling, general and administrative expenses increased $3.1 million to
$15.1 million during the three-month period ended October 31, 2000, compared to
$12.0 million in the same three-month period in fiscal 2000. Selling, general
and administrative expenses increased as a percentage of homebuilding revenue to
14.8% in the three-month period ended October 31, 2000, compared to 14.0% for
the same period in fiscal 2000. The increase is attributable to the 19% increase
in homebuilding revenue and the inclusion of $700,000 of expenses relating to
the pending merger with Hovnanian Enterprises, Inc.
Operating income (earnings before interest, financing fees and taxes)
increased to $6.8 million in the three months ended October 31, 2000 compared to
$6.0 million for the same period in fiscal 2000 and decreased as a percentage of
homebuilding revenues to 6.7% from 7.0% for the same period in fiscal 2000.
Interest and financing fees remained at $1.8 million during the three
months ended October 31, 2001 and 2000. However, interest and financing fees as
a percent of homebuilding revenue decreased to 1.8% in the first fiscal quarter
of fiscal 2001 compared to 2.0% of the first quarter of fiscal 2000.
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, 2000, the Company had cash and cash equivalents of $11.2
million of which $576,000 was restricted to collateralize customer deposits and
other escrows. The remaining $10.6 million was available to the Company.
The Company had $89.7 million in borrowing availability from various
lending institutions and land sellers of which $39.7 million was outstanding at
October 31, 2000.
The Company believes that it will be able to fund its activities
through fiscal 2001 through a combination of operating cash flow, existing cash
balances and existing credit 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.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements," which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements. The guidelines in SAB 101 must be adopted by the fourth
quarter of fiscal year 2001. The Company is evaluating the impact of adopting
SAB 101 and currently believes it will not have a significant impact on its
financial position and results of operations or the presentation and disclosures
in its financial statements.
During the quarter ended October 31, 2000, SFAS 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS 137,
Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133, and SFAS 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, became effective. The
adoption of these statements did not have a material impact on the financial
position or results of operation of the Company.
12
<PAGE>
Forward Looking Statements
This Form 10-Q report contains statements, which may be construed as
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward looking statements may involve
known and unknown risks, uncertainties and other factors that may cause actual
results, performance, achievements or industry results, to vary materially from
predicted results, performance, achievements or those of the industry. Such
risks, uncertainties and other factors include, but are not limited to, change
in general economic conditions, fluctuations in interest rates, increases in
cost of and availability of materials, supplies and labor and general
competitive conditions.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's primary exposure to market risks relates to interest rate
fluctuations on variable rate debt.
At October 31, 2000, the Company had $39.7 million of debt outstanding
of which $301,000 bears fixed interest rates. The fair value of the Company's
fixed rate obligations approximate carrying value based on quoted market prices
for the same or similar issues or on the current rates offered to the Company
for debt of the same remaining maturities.
The carrying amounts of the Company's bank borrowings under its
short-term bank lines and revolving credit agreements are based on floating
rates identified by reference to market rates. If interest rates increased 10%,
the expected effect on net income related to variable rate debt would not be
significant.
The Company's objective in its risk management program is to seek a
reduction in the potential negative earnings effects from changes in interest
rates. The Company's strategy to meet this objective is to maintain a balance
between fixed-rate and variable-rate debt, varying the proportion based on the
Company's perception of interest rate trends and the market place for various
debt instruments. In addition, the Company has entered into an interest rate
hedge agreement with a notional amount of $20 million in an effort to minimize
its market rate from changes in interest rates. The fair value of the agreement
at October 31, 2000 was not significant. The fair value is based on the
estimated termination value and represents the amount the Company would have to
pay to terminate the agreement as of October 31, 2000. The fair values of all
financial instruments approximate their carrying values.
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
During the period from August 1, 2000 to October 31, 2000, the
registrant filed the following reports on Form 8-K:
Date of Report Items Reported
-------------- --------------
August 28, 2000 Items 5, 7
September 20, 2000 Item 9
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: December 15, 2000 By: /s/ Geaton A. DeCesaris, Jr.
---------------------------------
Geaton A. DeCesaris, Jr.
Chairman of the Board, President,
and Chief Executive Officer
Date: December 15, 2000 By: /s/ Clayton W. Miller
---------------------------------
Clayton W. Miller
Principal Accounting Officer
14
