WASHINGTON HOMES
2000 Annual Report
<PAGE>
[ PICTURE ]
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Years Ended July 31,
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(dollars in thousands, except per share amounts) 2000 1999 1998 1997* 1996
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
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Total revenues ................................................... $ 469,751 $ 362,733 $ 240,703 $ 217,459 $ 175,025
Gross profit ..................................................... 87,805 67,717 42,539 37,551 33,829
Earnings (loss) before interest, financing fees and taxes* ....... 31,234 24,710 11,801 (8,399) 11,240
Total interest and financing fees expense ........................ 7,224 7,356 5,793 5,836 4,771
Net earnings (loss)* ............................................. 14,619 10,648 3,790 (13,289) 3,747
Earnings (loss) per common share-basic* .......................... 1.85 1.34 0.48 (1.67) 0.47
Earnings (loss) per common share-diluted* ........................ 1.80 1.30 0.48 (1.67) 0.47
Selected Operating Data**
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Number of homes delivered ........................................ 2,517 2,124 1,479 1,315 1,087
Number of net new orders ......................................... 2,571 2,229 1,709 1,305 1,127
Number of homes in backlog at end of period ...................... 1,062 1,008 821 591 601
Balance Sheet Data
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Cash ............................................................. $ 14,317 $ 12,734 $ 10,324 $ 10,335 $ 15,384
Residential inventories .......................................... 130,573 130,502 115,249 114,228 125,033
Total assets ..................................................... 168,558 167,455 147,355 144,745 170,227
Notes and loans payable .......................................... 36,323 59,526 59,230 67,104 74,282
Shareholders' equity ............................................. 82,955 68,949 58,270 54,480 67,769
</TABLE>
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* 1997 included an after-tax, non-cash charge of $15.8 million for the
impairment of long-lived assets.
** 2000 includes 100% of the activity in a 50% owned active adult community in
Raleigh, North Carolina.
Total Revenues
[chart]
Shareholders' Equity Total Debt
[chart] [chart]
<PAGE>
[PHOTO]
Today we build in eight states
with no one state accounting for more
than 30% of our home sales.
Dear Fellow Shareholders:
It is with great pride in our Company's accomplishments and excitement for the
future, that I bring you, pending the merger with Hovnanian Enterprises, Inc.,
my last year-end letter as Chief Executive Officer of Washington Homes, Inc.
Five years ago we charted where and what we wanted Washington Homes to be when
we completed fiscal year 2000. In short, we did it. We accomplished all of our
goals and objectives that we set for ourselves back in 1995.
Our first goal was to deliver 2,500 homes. In fiscal 2000 we delivered 2,517 new
homes, an increase of 19% over the 2,124 homes delivered last year. We wrote a
record 2,571 net new orders for the year, compared to 2,229 in fiscal 1999, a
15% increase, and our Company enters fiscal 2001 with a record 1,062 homes in
backlog, representing $215.5 million in future revenue.
In 1995 we also identified the need for geographic diversification, recognizing
that not all markets perform in tandem at various points in the housing cycle.
Today we build in eight states with no one state accounting for more than 30% of
our home sales. And in addition, we have diversification in price ranges by
offering homes from the $70's to the upper $500's as well as selling to the
active adult market, through a joint venture in Raleigh, North Carolina.
Our record revenues of $469.8 million was a 30% increase over $362.7 million
last year and our earnings per share increased 38 percent from $1.30 in fiscal
1999 to a record $1.80 per diluted share, or $14.6 million. Gross margins on
homes delivered averaged 19.1 percent, consistent with our prior year. Due to
the substantial growth in new orders and deliveries; selling, general and
administrative expenses as a percent of homebuilding revenues increased to 13.7
percent over the 13.2 percent in the prior year.
<PAGE>
Our debt to total capitalization ratio
was at an all time low, at 30%, one of
the lowest such ratios in the industry.
Low Risk Strategy
We continue to control over 10,000 building lots for our future. We actually own
less than 2,700 lots, and control the balance of the lots through rolling option
contracts with third parties. This strategy has allowed us to achieve a 3.2
inventory turnover and realize a 21% return on our beginning equity. Most
importantly our debt to total capitalization ratio was at an all time low, at
30%, one of the lowest such ratios in the industry.
Auxiliary Business
Having mortgage operations at each of our homebuilding locations has allowed us
to increase our mortgage capture rate to 71%, and also allowed us to give our
customers better service, and our homebuilding operations better control over
the home closing process.
Our mortgage and title businesses contributed $2.6 million pre tax to our
earnings this year compared to $1.6 million last year.
Over the past year, we have opened design centers in all of our markets with the
exception of Charlotte. We believe having design centers will increase our
profitability as well as give us a competitive advantage.
Technology
A recent study conducted by the National Association of Homebuilders showed that
40% of new homebuyers use the internet to shop for a new home. The new age of
technology, along with this study has prompted us to update and to reinvest in
our Web page.
Our new Web page, I believe, is one of the most advanced in the business,
allowing our prospective customers to look at digital photos of not only their
new home, but the neighborhood and surrounding area as well. We have also taken
great pains in the design, so the customer doesn't have to scroll through each
page for additional information.
Our future with Hovnanian
Our past successes have allowed us the opportunity to be an attractive merger
candidate to Hovnanian Enterprises. The merger meets all of the objectives that
our Company wanted including increased liquidity to our shareholders, better
access to capital markets, a larger market capitalization, becoming a top ten
U.S. homebuilder and more advanced training programs for our associates. With
all of this, we were able to negotiate a price that gave our shareholders a 40%
premium to Washington Homes stock price from the day prior to the announcement.
The transaction also allows our shareholders to elect either cash or stock with
the cash portion being $10.08 per share and the stock portion being 1.39 shares
of Hovnanian Class A stock or a combination of both to every one of ours. The
total consideration cannot exceed 50% cash or 60% in stock. You will receive
complete details of the proposed transaction in a proxy statement/prospectus
relating to a special meeting of shareholders which will be held to approve the
combination with Hovnanian Enterprises.
In view of the pending merger, we have forgone the usual glossy annual report
and instead are enclosing a copy of the annual 10-K report which we filed with
the SEC which, also includes information normally distributed in the proxy
statement for the Annual Meeting.
With all the successes we realized with Washington Homes, culminating with the
proposed merger with Hovanian Enterprises, the greatest personal event this year
was the birth of my first grandchild, Gaetsie.
I want to close by thanking all those involved in this journey, from the
leverage buyout of Washington Homes, Inc. in 1988, to the initial public
offering in 1993 to what promises to be a successful merger with Hovnanian
Enterprises.
To all of you and our shareholders for believing in us and hanging in there
through thick and thin, a sincere Thank You. I look forward to seeing you at our
upcoming special shareholders meeting.
Sincerely,
/s/ Geaton A. DeCesaris, Jr.
--------------------------------
Geaton A. DeCesaris, Jr.
Chairman of the Board,
President and Chief Executive Officer
[PHOTO]
Our past success has allowed us
the opportunity to be an attractive merger
candidate to Hovnanian Enterprises.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2000
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 (I.R.S. Employer Identification No.)
incorporation or organization)
(301) 772-8900
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock (voting), $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [x]
On September 20, 2000, the aggregate market value of the voting and
non-voting common stock held by non-affiliates of the registrant was
approximately $33,827,634
Number of shares of each of the registrant's classes of common stock
outstanding at September 20, 2000:
Class Number of Shares
----- ----------------
Common Stock (voting), $.01 par value 8,129,461
Common Stock (non-voting), $.01 par value -0-
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
WASHINGTON HOMES, INC.
FORM 10-K REPORT
TABLE OF CONTENTS
PAGE
----
PART I.
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Executive Officers
PART II.
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 12
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in or Disagreements with Accountants
on Accounting and Financial Disclosure 21
PART III.
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners and Management 26
Item 13. Certain Relationships and Related Transactions 27
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 27
SIGNATURES 29
EXHIBITS
Note: This report on Form 10-K contains statements which may be construed as
"Forward-Looking Statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such 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, changes in
general economic conditions, fluctuations in interest rates, increases in costs
and availability of materials, supplies and labor and general competitive
conditions.
2
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PART 1
Item 1. Business
General
Washington Homes, Inc. designs, builds and markets single-family detached homes,
townhomes and condominium homes in the metropolitan areas of Washington,
DC-Baltimore, Maryland; Greensboro, Raleigh and Charlotte, North Carolina;
Nashville, Tennessee; Pittsburgh, Pennsylvania; Huntsville, Alabama and the
Mississippi Gulf Coast. The Company commenced operations in 1965 and entered the
Raleigh and Greensboro, North Carolina markets through an acquisition effective
as of May 1, 1994. During fiscal year 1996, the Company began operating in
Charlotte, North Carolina and Nashville, Tennessee and expanded operations in
Pittsburgh, Pennsylvania. During fiscal year 1999, the Company entered the
Huntsville, Alabama and the Mississippi Gulf Coast markets through an
acquisition effective as of March 1, 1999. The Company operates under the name
"Washington Homes" in Maryland, Virginia and Pennsylvania and as "Westminster
Homes" in North Carolina, Tennessee, Alabama and Mississippi.
The Company's marketing efforts target consumers ranging from first time
homebuyers to retirees. During the five years ended July 31, 2000 the Company
delivered 8,497 homes and currently offers homes for sale in 82 communities at
base sales prices ranging from $70,000 to $500,000. 2,517 homes were delivered
during the fiscal year ended July 31, 2000 generating homebuilding revenues of
$459.3 million of which 25 were delivered by a joint venture with another
builder. The average selling price of homes delivered by the Company during
fiscal year 2000, excluding the joint venture, was approximately $184,300. At
July 31, 2000, there was a backlog of 1,062 homes under contract with a sales
value of $215.5 million including 32 homes with a sales value of $6.2 million
from the joint venture.
Washington Homes, Inc. was incorporated in the State of Maryland in 1965. The
terms "Company" and "WHI" as used in this report refer to Washington Homes, Inc.
and its subsidiaries unless defined otherwise. The Company's principal executive
offices are located at 1802 Brightseat Road, Landover, Maryland 20785-4235, and
its telephone number is (301) 772-8900.
Recent Developments
On August 28, 2000, the Company entered into an agreement and plan of merger
with Hovnanian Enterprises, Inc. ("Hovnanian") pursuant to which the Company
will merge with and into WHI Holding Company, Inc. a wholly owned subsidiary of
Hovnanian. In the transaction, WHI shareholders will receive $10.08 in cash or
1.39 shares of Hovnanian class A common stock or a combination of both for each
share of WHI common stock held. The transaction, which is subject to shareholder
and regulatory approval, is expected to close by January 2001.
Products
The Company builds homes designed by its personnel with assistance from outside
architectural firms. It strives to create a diversity of architectural styles in
each residential community, providing exterior and interior design options for
homes with the same basic floor plans that are intended to appeal to a broad
range of potential buyers and respond to changes in the market place.
Each residential community offers several home plans, with the opportunity to
select various exterior styles. The Company develops new designs to replace or
augment existing ones as part of its continuing efforts to assure that its homes
are responsive to current consumer preferences.
The range of base sales prices and home sizes for the Company's homes as of July
31, 2000 was as follows:
Base Sales Price Range of Sizes
---------------- --------------
Single-family detached homes $75,000 - $500,000 1,000 to 4,500 sq. ft.
Townhomes $97,000 - $250,000 1,050 to 2,500 sq. ft.
Condominiums $70,000 - $105,000 600 to 1,400 sq. ft.
In all of WHI's communities, certain options, including fireplaces, finished
basements, brick fronts, expanded rooms, upgraded appliances, upgraded carpet
and premium lot locations, are available to the purchaser for an additional
charge.
<PAGE>
The following table sets forth a breakdown of the Company's deliveries by
housing type in each of the last three years:
<TABLE>
<CAPTION>
Years Ended July 31,
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2000 1999 1998
------------------------- ------------------------- ---------------------------
(dollars in thousands)
Homes % Amount Homes % Amount Homes % Amount
----- - ------ ----- - ------ ----- - ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family
detached homes .................. 1,741 69.2 $343,472 1,519 71.5 $271,376 990 66.9 $170,139
Townhomes ....................... 671 26.7 107,546 571 26.9 78,971 420 28.4 56,054
Condominiums .................... 80 3.2 8,260 34 1.6 3,382 69 4.7 6,918
-------- ----- -------- -------- ----- -------- -------- ----- --------
Subtotal ................... 2,492 99.1 459,278 2,124 100.0 353,729 1,479 100.0 233,111
Joint Venture-
Active Adult
Single-family
detached homes .................. 7 0.3 1,447 -- -- -- -- -- --
Townhomes ....................... 18 0.6 2,893 -- -- -- -- -- --
-------- ----- -------- -------- ----- -------- -------- ----- --------
Total ...................... 2,517 100.0 $463,618 2,124 100.0 $353,729 1,479 100.0 $233,111
======== ===== ======== ======== ===== ======== ======== ===== ========
</TABLE>
During fiscal 1997, the Company decided to phase out its condominium operations
and has not subsequently added any new condominium communities. Activity is the
result of building out previously established communities.
3
<PAGE>
Organization
The Company's homebuilding operations are organized into nine geographically
based homebuilding divisions grouped into three operating regions. Division
offices for the Mid-Atlantic region are maintained in Landover, Maryland;
Chantilly, Virginia and Upper St. Clair, Pennsylvania. Division offices for the
Southeast region are maintained in Cary, Charlotte and Greensboro, North
Carolina. Division offices for the Mid-South region are maintained in Brentwood,
Tennessee; Madison, Alabama and Ocean Springs, Mississippi. Corporate
headquarters are located in Landover, Maryland.
Each division is headed by a division president who reports to a regional
president or the President-Homebuilding Operations. Division presidents have
responsibility for day-to-day operations, including implementation of community
marketing strategies, pricing of homes, managing subcontractors, delivering
finished homes and providing attendant service work. Division presidents are
supported by sales and production managers. Sales managers coordinate marketing
and advertising programs and oversee the sales representatives based at each
community. Production managers oversee field operations with managerial
responsibility for on-site production superintendents and are responsible for
purchasing materials, procuring subcontractor services, technical design and
construction issues.
Sales and building activities are managed at each community by a sales
representative and a superintendent. The sales representative is responsible for
implementing the Company's marketing programs and for follow-through with
customers, from contract signing and loan application to delivery. The
superintendent coordinates the work of subcontractors and is responsible for
quality control and delivery of the finished product in a timely manner.
Residential Developments
As of July 31, 2000, the Company controlled over 10,000 homesites, as follows:
<TABLE>
<CAPTION>
Lots Owned
-----------------------
Communities in Which
Homes are Currently Total Finished Lots Under Lots Under
Market Offered For Sale Lots Lots Development Option
------ ---------------- ---- ---- ----------- ------
<S> <C> <C> <C> <C> <C>
Maryland ..................... 15 1,666 351 517 798
Virginia ..................... 13 2,403 236 106 2,061
Pennsylvania ................. 3 313 25 15 273
------ ------ ------ ------ ------
Mid-Atlantic Region ....... 31 4,382 612 638 3,132
Raleigh ...................... 8 891 140 -- 751
Greensboro ................... 11 1,423 281 325 817
Charlotte .................... 10 1,156 105 -- 1,051
------ ------ ------ ------ ------
Southeast Region .......... 29 3,470 526 325 2,619
Tennessee .................... 8 939 119 -- 820
Alabama ...................... 8 1,123 265 -- 858
Mississippi .................. 6 530 118 -- 412
------ ------ ------ ------ ------
Mid-South Region .......... 22 2,592 502 -- 2,090
Combined Total ............... 82 10,444 1,640 963 7,841
====== ====== ====== ====== ======
</TABLE>
Operations
Land Acquisition and Development
The Company builds homes on building lots which it either acquires as finished
lots from developers or which it develops itself. At July 31, 2000, the Company
owned or held options for 10,444 building lots.
The Company's general strategy is to purchase, to the extent feasible, finished
building lots through land acquisition option contracts which provide the
maximum degree of flexibility for the timing of land purchases and minimize the
Company's investment outlay. Through the utilization of land acquisition option
contracts, the Company purchases the right, but not the obligation, to buy a
large number of building lots from a land developer. The options allow the
Company to purchase building lots on a takedown schedule commensurate with
anticipated home sales. As a result, the Company generally does not purchase the
building lot until the building lot can be utilized in its construction
schedule. The purchase agreements generally limit the Company's financial
exposure to amounts placed with property sellers as deposits. Although option
contracts generally contain predetermined lot takedown schedules and price
escalation provisions, the Company believes use of such contracts significantly
reduces risk since the Company is able to minimize its investment in land and
limit its exposure to debt financing. At July 31, 2000, the Company owned 1,640
finished lots and had under option 7,841 homebuilding lots for which it had
posted deposits of approximately $9.2 million in the form of cash, letters of
credit and promissory notes.
The Company also develops land for its own residential operations, and 597 or
23.7% of the homes delivered in fiscal 2000 were built on land developed by the
Company. As of July 31, 2000, the Company owned 963 residential lots in 16
communities which were in the process of land development. All communities have
obtained the required zoning and public approvals and, with two exceptions, have
physical construction underway. The Company does not buy land for the purpose of
speculation.
The Company from time to time experiences difficulties in obtaining building
lots. The Company has experienced delays in acquiring lots from land developers,
primarily due to the difficulty experienced by developers in completing
development. In certain instances, the Company acquired the land from the
developer and completed the development process itself. The imposition of sewer
moratoria, zoning changes and other governmental actions also can affect the
availability and use of land.
4
<PAGE>
In its land development operations, the Company employs experienced supervisory
personnel who deal directly with independent engineers and consultants for land
and site planning, obtaining governmental and environmental approvals, and
constructing on- and off-site improvements where necessary (such as roads,
water, sewers, storm drainage and other public facilities and amenities). Actual
development work is performed by independent contractors, utility companies
and/or local governmental water and sewer agencies.
Marketing
Generally, a sales office, which is staffed by a Company sales representative,
is located in each community. In addition, a significant portion of sales are
derived from the introduction of customers to the Company's communities by local
independent real estate brokers. The Company maintains an extensive broker co-op
program. The Company's sales personnel are compensated with salary and/or
incentive compensation and are trained by the Company. Sales personnel attend
weekly meetings for updates on financing availability, construction schedules,
new land acquisitions, and marketing and advertising plans. The concentration of
the Company's communities allows the Company to employ sales personnel on a
long-term basis, rather than a single community basis, which management believes
results in reduced training costs and a more motivated sales force with
extensive knowledge of the Company's operating policies and housing products.
The Company utilizes model home presentations (generally one per community) as
an integral part of the Company's marketing program. In addition, the Company
advertises in newspapers, local and regional publications, on radio, as well as
on billboards and roadside signage. The Company has established an internet site
to provide customers with information on products, communities and base prices.
The Company utilizes standard sales contracts which require the customer to make
an earnest money deposit which is generally in the range of $500 to $5,000. Upon
execution of the contract and receipt of the deposit, the home sale is included
in backlog. The sales contract is generally cancelable without forfeiture of
deposit if the customer is unable to sell an existing home or obtain permanent
financing. The sales contract sets forth details of the home being purchased,
location, options ordered, details of financing sought and closing requirements.
In addition to relying on management's extensive experience, the Company
determines the prices for its homes through a Company-designed competitive
analysis program that compares a WHI home with homes offered by other builders
in the relevant marketing area. The Company accomplishes this by evaluating
differences in product features, amenities and location and updates such
analyses frequently.
The Company has established new home design centers in Bowie, Maryland;
Chantilly, Virginia; Greensboro, North Carolina; Huntsville, Alabama and Ocean
Springs, Mississippi for the marketing of options available on the Company's
homes. These centers provide for centralized option selection to enhance homes
on order. The Company intends to expand this concept to other divisions in
fiscal 2001.
Building
In its construction of homes, the Company acts as a general contractor with
independent contractors performing all home construction and site improvements
work generally under fixed-price contracts. Construction is performed under the
direction of superintendents employed by the Company. The Company enforces its
commitment to quality by providing its construction superintendents with
incentive compensation arrangements based on the homebuyer's satisfactory
responses to pre-closing and post-closing checklists.
Operating Controls
The Company attempts to limit exposure resulting from speculative building.
Generally, construction of single-family homes is commenced only after a sales
contract has been executed and the customer has received preliminary loan
approval. Construction of multi-family buildings is generally commenced after
sales contracts have been executed for a majority of the homes in a particular
building. The Company may begin construction of detached homes prior to
obtaining sales contracts in order to maintain a limited inventory, in
anticipation of winter weather conditions or to conform to local market
requirements.
When possible, the Company contracts on a fixed-price basis for materials, such
as appliances, lumber and carpeting, in an effort to minimize the effects of
changes in costs and to take advantage of bulk purchase discounts. The Company
focuses on the gross profit margins of each home sold in each community and the
monitoring of selling, general and administrative expenses. Every home and every
community is considered a profit center for budgeting and cost control purposes.
Financing for Customers
The Company builds, markets and prices its homes under the guidelines and
specifications of the Federal Housing Administration ("FHA") and the Veterans
Administration ("VA"), in order to afford its prospective purchasers the added
benefits of FHA insured and VA guaranteed mortgages. In some areas on occasion,
the Company has obtained lower than market interest rate financing for
purchasers of its homes through state or county bond programs. The Company also
assists its homebuyers in obtaining conventional mortgage financing, generally
following the guidelines established by the Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie
Mac).
In fiscal 1993, the Company established Homebuyer's Mortgage, Inc.
("Homebuyer's") as a subsidiary to provide residential mortgage services to the
Company's customers and others. Homebuyer's primarily processes mortgage
applications with underwriting and funding provided by independent wholesale
lenders. In fiscal 2000, Homebuyer's closed 1,831 loans totaling $298.1 million
in permanent residential financing compared to 1,406 loans totaling $210.6
million the previous fiscal year. The Company's capture rate (the percentage of
Washington Homes' homebuyers using the Company's mortgage services) increased to
71% from 60% the previous fiscal year.
During fiscal 2000, the homebuilding industry experienced somewhat higher
interest rates than those experienced in recent years. There can be no assurance
that a favorable interest rate environment or that government programs providing
assistance for homebuyers will continue in the future.
5
<PAGE>
The following table summarizes certain mortgage operating information (dollars
in thousands) for Homebuyer's Mortgage, Inc.:
Year Ended July 31,
-----------------------------------
2000 1999 1998
---- ---- ----
Number of loans originated .............. 1,831 1,406 898
Average amount of loan originated ....... $ 163 $ 150 $ 136
Total amount of loans originated ........ $298,100 $210,605 $121,920
Capture Rate ............................ 71% 60% 55%
Other Services
Through various joint ventures, the Company provides title insurance agency
services in Maryland, Virginia and Tennessee and other insurance agency services
in Maryland and Virginia.
Financial Information about Segments
The Company operates in two business segments, homebuilding and financial
services. Financial services include the operations of Homebuyer's Mortgage,
Inc. and the title insurance agency joint ventures. For financial information
for each of the last three years concerning the Company's business segments, see
Note 9 to the Consolidated Financial Statements set forth in Item 8.
Regulation
The Company is subject to a variety of federal, state and local statutes,
ordinances, rules and regulations concerning protection of health, safety and
the environment. The particular environmental laws, which apply to any given
community, vary greatly according to the community site, the environmental
condition of the site and the present and former uses of the site. These
environmental laws may result in delays, cause the Company to incur compliance
and other costs and prohibit or restrict development in certain environmentally
sensitive regions or areas. Prior to consummating the purchase of land, the
Company requires independent environmental engineers to evaluate such land for
the presence of wetlands and hazardous or toxic materials, wastes or substances.
The Company has not been materially affected to date by the presence or
potential presence of such conditions.
To varying degrees, site development and building permits and approvals are
required to complete the residential developments currently being planned by the
Company. The timing and ability of the Company to obtain necessary approvals and
permits for these communities is often beyond the Company's control. The length
of time necessary to obtain permits and approvals increases the carrying costs
of unimproved property acquired for the purpose of development and construction.
In addition, the continued effectiveness of permits already granted may be
subject to factors such as changes in policies, rules and regulations and their
interpretation and application.
When developing land, the Company must obtain the approval of numerous
governmental authorities regulating such matters as permitted land uses and
levels of density, the installation of utility services such as water and waste
disposal and the dedication of acreage for open space, parks, schools and other
community purposes. To date, the governmental approval process and restrictive
zoning and moratoria have not had material adverse effect on the Company's
development activities nor does the Company currently have any lots that cannot
be developed due to local or federal regulatory restrictions. There is no
assurance, however, that these or other restrictions will not adversely affect
the Company in the future.
Competition and Market Factors
The metropolitan housing markets served by the Company are highly competitive.
In its marketing efforts, the Company encounters competition from other
homebuilders and apartment and condominium developers, as well as from sellers
of existing homes. In the locations where the Company builds, there is intense
competition among numerous large and small homebuilders. Competition in the
homebuilding industry is intense, in part because of the historic ease with
which large national homebuilders, many of which may have greater financial
resources than the Company, can expand their operations.
The Company competes on the basis of price, location, mortgage financing terms,
design and the Company's reputation for quality. Based upon the experience of
its management, the Company believes that it compares favorably with its
principal competitors in terms of its knowledge, expertise and its ability to
obtain building lots at prices and locations which allow it to offer a
well-priced, quality product and to obtain financing for its customers.
The Company also competes with other builders for the acquisition of building
lots. This competition is based primarily on a builder's reputation, and
perceived abilities to market its homes.
The housing industry is cyclical and affected generally by consumer confidence
levels, prevailing economic conditions and particularly by interest rate levels.
A variety of other factors affect the housing industry and demand for new homes,
including the availability of labor and materials and increases in the costs
thereof; changes in costs associated with home ownership, such as increases in
property taxes and energy costs; changes in consumer preferences; demographic
trends and the availability of and changes in mortgage financing programs.
Bonds, Warranties and Other Obligations
The Company is frequently required, in conjunction with the development of its
communities, to obtain performance or maintenance bonds to ensure completion of
the Company's development obligations. The amount of such obligations
outstanding at any time varies in accordance with the Company's pending
development activities. To date, the Company has fulfilled its development
obligations. Should the Company fail to build required improvements and the
bonds backing such obligations were called, the Company would be obligated to
reimburse the issuing surety company or bank. The Company's financial exposure
in this regard is reduced as improvements are completed and bonds released. At
July 31, 2000, the Company had approximately $15.2 million in letters of credit
and surety bonds outstanding.
6
<PAGE>
All homes delivered by the Company are sold with the benefit of the Company's
two-year limited warranty as to workmanship supplemented by a limited ten-year
warranty as to structural integrity under the Residential Warranty Corporation
program, a privately insured program, and other similar warranty programs. To
assist the Company in meeting its warranty obligations to customers, the Company
requires subcontractors to provide warranties of their workmanship to the
Company.
Employees
At July 31, 2000, the Company employed 531 full time personnel of whom 94 were
sales and marketing personnel, 178 were executive, administrative and clerical
personnel and 259 were involved in construction. Although none of the Company's
employees are covered by collective bargaining agreements, certain of the
independent contractors which the Company engages employ personnel who may be
represented by labor unions or may be subject to collective bargaining
agreements. The Company believes that its relations with its employees and
independent contractors are good.
Joint Ventures
The Company participates in various joint ventures formed to develop residential
land into finished building lots for sale to the Company and other homebuilders
utilizing non-recourse acquisition and development loans. In addition, during
fiscal year 1999 the Company formed a joint venture with US Home Corporation to
construct and market active adult housing in the Raleigh, North Carolina market.
During fiscal 1999 and 2000, the Company entered into several joint venture
agreements with a local real estate developer to develop residential building
lots for the Huntsville, Alabama and Mississippi Gulf Coast markets.
The Company has a series of joint ventures that are utilized to provide title
services and provide insurance to its homebuyers.
The Company's interest in the joint ventures' operating results has not been
significant to date. The Company expects to continue to evaluate potential joint
ventures and other strategic alliances as part of its operations.
Item 2. Properties
The Company leases over 24,000 square feet of office space from Citadel Land,
Inc. for its corporate headquarters and offices for certain of its divisions and
subsidiaries in a six-story office building located in Landover, Maryland
pursuant to a lease expiring in January 2008.
During the fiscal year ended July 31, 2000, the Company paid Citadel Land, Inc.
approximately $554,000 in rentals. Citadel Land, Inc. is a company beneficially
owned by various members of the family of Geaton A. DeCesaris, Jr., Chairman of
the Board of the Company.
The Company also leases office space for division offices in Chantilly,
Virginia; Charlotte, Cary and Greensboro, North Carolina; Brentwood, Tennessee;
Upper St. Clair, Pennsylvania; Madison, Alabama and Ocean Springs, Mississippi.
Item 3. Legal Proceedings
The Company is involved in various claims and proceedings arising out of the
normal course of business involving customers, contractors and others. The
Company believes that it is not a party to any pending or threatened litigation
or administrative proceeding which is expected to have a material adverse impact
on the Company's financial position or operating results.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the period
from May 1, 2000 to July 31, 2000.
Executive Officers
The executive officers of the Company are as follows:
Name Age Positions with Company
---- --- ----------------------
Geaton A. DeCesaris, Jr. 45 Chairman of the Board, President,
Chief Executive Officer
Thomas J. Pellerito 53 President - Homebuilding
Operations, Chief Operating Officer
Christopher Spendley 41 Senior Vice President,
Chief Financial Officer, Secretary
Clayton W. Miller 49 Senior Vice President,
Chief Accounting Officer,
Treasurer
Paul C. Sukalo 49 Senior Vice President -
Construction
<PAGE>
Geaton A. DeCesaris, Jr. has served as President, Chief Executive Officer and a
Director of the Company since August 1988 and as Chairman of the Board since
April 1999. Prior thereto, Mr. DeCesaris was Managing General Partner of Sonny
DeCesaris and Sons Development Group (real estate development and construction)
from June 1985 to August 1988 and Vice President of Sonny DeCesaris and Sons
Builders, Inc. from 1973 to June 1985.
Thomas J. Pellerito has served as President-Homebuilding Operations and Chief
Operating Officer since July 1997 and a Director since November 1998. Prior
thereto from 1985 to July 1997 he was President of Richmond American Homes, the
Northern Virginia-based subsidiary of a national homebuilder. Mr. Pellerito has
over 20 years experience in residential construction and related services.
7
<PAGE>
Christopher Spendley has served as Senior Vice President and Chief Financial
Officer since September 1996 and Secretary since September 1997. Prior thereto
Mr. Spendley was with Ryland Homes, a subsidiary of The Ryland Group, Inc. for
14 years where he served most recently as President of the Baltimore Division
from February 1994 to August 1996 and Controller from 1983 to 1994. He has over
18 years of experience in real estate and finance.
Clayton W. Miller has served as Senior Vice President since November 1989 and
Chief Accounting Officer since September 1994 and Treasurer since November 1997.
From November 1989 to September 1994, he served as Chief Financial Officer of
the Company. Mr. Miller has over 21 years experience in finance and real estate
development.
Paul C. Sukalo has served as Senior Vice President and a Director of the Company
since August 1988. Prior thereto, he was a general partner of Sonny DeCesaris
and Sons Development Group from June 1985 to August 1988. He has over 20 years
of related construction experience, principally in residential construction and
related services. Mr. Sukalo is the brother-in-law of Geaton A. DeCesaris, Jr.
Officers are appointed by the Board of Directors to serve at the pleasure of the
Board. There are no arrangements or understandings with respect to the selection
of executive officers.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Information
The Company's common stock trades on the New York Stock Exchange under the
symbol WHI.
The high and low sale prices for the Company's common stock for each quarterly
period within the last two fiscal years have been as follows:
<TABLE>
<CAPTION>
Fiscal 2000 High Low Fiscal 1999 High Low
----------- ---- --- ----------- ---- ---
<S> <C> <C> <C> <C> <C>
August 1 to October 31, 1999 $7.13 $5.06 August 1 to October 31, 1998 $6.25 $4.00
November 1, 1999 to January 31, 2000 5.75 4.69 November 1, 1998 to January 31, 1999 6.50 4.63
February 1 to April 30, 2000 6.00 5.00 February 1 to April 30, 1999 7.00 5.13
May 1 to July 31, 2000 6.63 5.13 May 1 to July 31, 1999 8.38 6.00
</TABLE>
(b) Holders
On September 20, 2000, there were approximately 191 holders of record of the
Company's common stock (voting).
(c) Dividends
During fiscal 2000 and 1999, the Company did not pay any dividends on its common
stock.
The payment of cash dividends is at the discretion of the Board of Directors of
the Company and will depend upon, among other things, future earnings, results
of operations, capital requirements and the Company's financial condition. The
Company's lending agreements limit the amount of annual cash dividends that the
Company may pay to its shareholders. The most restrictive of these limits
dividends to no more than 25 percent of cumulative net income for the four prior
fiscal quarters.
The Company's agreement to merge with a subsidiary of Hovnanian prohibits the
payment of dividends without the prior approval of Hovnanian. The Company does
not anticipate paying dividends in the foreseeable future.
(d) Sales of Unregistered Securities
During the fiscal year ended July 31, 2000, the registrant did not sell any
securities which were not registered under the Securities Act of 1933.
<PAGE>
Item 6 Selected Financial Data
<TABLE>
<CAPTION>
Years Ended July 31,
--------------------------------------------------------------
(dollars in thousands, except share amounts) 2000 1999 1998 1997* 1996
------------------------------------------------------------------------------------------------------------------------------------
Statement of Operations
<S> <C> <C> <C> <C> <C>
Total revenues ................................................... $ 469,751 $ 362,733 $ 240,703 $ 217,459 $ 175,025
Gross profit ..................................................... 87,805 67,717 42,539 37,551 33,829
Earnings (loss) before interest, financing fees and taxes * ...... 31,234 24,710 11,801 (8,399) 11,240
Total interest and financing fees expense ........................ 7,224 7,356 5,793 5,836 4,771
Net earnings (loss) * ............................................ 14,619 10,648 3,790 (13,289) 3,747
Earnings (loss) per common share - basic * ....................... 1.85 1.34 0.48 (1.67) 0.47
Earnings (loss) per common share - diluted * ..................... 1.80 1.30 0.48 (1.67) 0.47
Dividends per common share ....................................... -- -- -- -- --
</TABLE>
8
<PAGE>
continued
<TABLE>
<CAPTION>
Years Ended July 31,
--------------------------------------------------------------------
(dollars in thousands, except share amounts) 2000 1999 1998 1997* 1996
------------------------------------------------------------------------------------------------------------------------------------
Selected Operating Data
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Number of homes delivered ............................... 2,492 2,124 1,479 1,315 1,087
Number of net new orders ................................ 2,514 2,229 1,709 1,305 1,127
Number of homes in backlog at end of period ............. 1,030 1,008 821 591 601
Balance Sheet Data
------------------------------------------------------------------------------------------------------------------------------------
Cash .................................................... $ 14,317 $ 12,734 $ 10,324 $ 10,335 $ 15,384
Residential inventories ................................. 130,573 130,502 115,249 114,228 125,033
Total assets ............................................ 168,558 167,455 147,355 144,745 170,227
Notes and loans payable ................................. 36,323 59,526 59,230 67,104 74,282
Shareholders' equity .................................... 82,955 68,949 58,270 54,480 67,769
</TABLE>
-----------
* 1997 included an after-tax, non-cash charge of $15.8 million for the
impairment of long-lived assets.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table presents certain information regarding the Company's
operations for the last three fiscal years:
(dollars in thousands) 2000 1999 1998
--------------------------------------------------------------------------------
Revenues:
Homebuilding ......................... $459,278 $353,729 $233,111
Land ................................. 3,541 4,922 4,483
Other ................................ 6,932 4,082 3,109
-------- -------- --------
Total ................................ $469,751 $362,733 $240,703
======== ======== ========
Homes delivered ......................... 2,492 2,124 1,479
Net new orders .......................... 2,514 2,229 1,709
Homes in backlog at end of period ....... 1,030 1,008 821
Sales value of backlog .................. $209,291 $197,135 $141,619
--------------------------------------------------------------------------------
Annual Operating Cycle
The homebuilding industry in general, and the operations of the Company, are
seasonal in nature. The number of new sales contracts signed escalates from
January through April, compared to the balance of the year. Deliveries peak in
the fiscal quarter ended July 31, as a substantial portion of homes contracted
during the fiscal quarter ended April 30 are delivered. Delivery volume is
relatively constant during the remainder of the year. As a result of increased
deliveries and reduced selling, general and administrative costs as a percent of
revenues, net earnings are substantially greater in the fourth quarter, compared
to the prior three quarters.
<PAGE>
The following table contains quarterly operating information for the Company's
last two fiscal years and illustrates the annual operating cycle (dollars in
thousands except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------
October 31, 1999 January 31, 2000 April 30, 2000 July 31, 2000
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of homes delivered .......... 483 500 605 904
Net new orders ..................... 587 526 902 499
Total revenues ..................... $ 87,423 $ 94,323 $120,662 $167,343
Gross profit from homebuilding ..... $ 17,095 $ 17,974 $ 22,361 $ 30,353
Net earnings ....................... $ 2,627 $ 2,653 $ 3,837 $ 5,502
Basic earnings per share ........... $ 0.33 $ 0.33 $ 0.49 $ 0.70
Diluted earnings pershare .......... $ 0.32 $ 0.33 $ 0.48 $ 0.67
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
October 31, 1998 January 31, 1999 April 30, 1999 July 31, 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of homes delivered .......... 407 427 533 757
Net new orders ..................... 430 432 836 531
Total revenues ..................... $ 69,128 $ 74,262 $ 89,397 $129,946
Gross profit from homebuilding ..... $ 12,319 $ 13,394 $ 17,152 $ 24,643
Net earnings ....................... $ 1,269 $ 1,839 $ 3,047 $ 4,493
Basic earnings per share ........... $ 0.16 $ 0.23 $ 0.38 $ 0.57
Diluted earnings per share ......... $ 0.16 $ 0.23 $ 0.37 $ 0.54
</TABLE>
9
<PAGE>
Geographic Concentration
During the last three fiscal years the Company has built moderately priced,
quality homes in the metropolitan areas of Washington, DC - Baltimore, Maryland;
Raleigh, Greensboro, and Charlotte, North Carolina; Nashville, Tennessee and
Pittsburgh, Pennsylvania. In fiscal 1999, the Company acquired the assets of a
local homebuilder in the Huntsville, Alabama and the Mississippi Gulf Coast
markets. Since the purchase of the assets in Alabama and Mississippi, the
Company formed three operating regions: Mid-Atlantic (Maryland, Virginia and
Pennsylvania), Southeast (North Carolina) and Mid-South (Tennessee, Alabama, and
Mississippi). The following tables describe the Company's operations in each of
its regions during the last three fiscal years:
NET NEW ORDERS 2000 1999 1998
--------------------------------------------------------------------------------
Mid-Atlantic ............................ 1,497 1,314 893
Southeast ............................... 727 666 703
Mid-South ............................... 290 249 113
Active Adult* ........................... 57 -- --
--------------------------------------------------------------------------------
Total Net New Orders ................. 2,571 2,229 1,709
================================================================================
HOMES DELIVERED 2000 1999 1998
--------------------------------------------------------------------------------
Mid-Atlantic ............................ 1,463 1,118 832
Southeast ............................... 719 755 560
Mid-South ............................... 310 251 87
Active Adult* ........................... 25 -- --
--------------------------------------------------------------------------------
Total Deliveries ..................... 2,517 2,124 1,479
================================================================================
BACKLOG OF HOMES
UNDER CONTRACT 2000 1999 1998
--------------------------------------------------------------------------------
Mid-Atlantic ............................ 681 647 451
Southeast ............................... 247 239 328
Mid-South ............................... 102 122 42
Active Adult* .......................... 32 -- --
--------------------------------------------------------------------------------
Total Backlog ........................ 1,062 1,008 821
================================================================================
ACTIVE COMMUNITIES 2000 1999 1998
--------------------------------------------------------------------------------
Mid-Atlantic ............................ 31 37 37
Southeast ............................... 29 26 29
Mid-South ............................... 22 19 6
Active Adult* ........................... 1 -- --
--------------------------------------------------------------------------------
Total Active Communities ............. 83 82 72
================================================================================
* 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.
Financial Services
Financial services consist primarily of originating mortgages for the Company's
homebuyers, as well as from third parties, and title insurance activities.
During the fiscal year ended July 31, 2000, the mortgage operation segment
provided revenue of $7.6 million, up 58% from $4.8 million in fiscal 1999 and up
162% from $2.9 million in fiscal 1998. The increase in revenues in 2000 from
1999 and 1998 was primarily due to increases in mortgage loan origination
resulting from increased deliveries and an improved capture rate. The Company's
financial services goals are to improve profitability by increasing the capture
rate of providing mortgages for its homebuyers.
Year Ended July 31, 2000 Compared To Year Ended July 31, 1999
Total revenues increased by 29.5% to $469.8 million in fiscal 2000 from $362.7
in fiscal 1999, as the number of homes delivered, excluding 25 active adult
units, increased by 17.3% to 2,492 units from 2,124 units. The average sales
price of homes delivered in fiscal 2000 increased 10.7% to $184,300 from
$166,500 which has benefited from the Company's expansion of its single family
product offering to include higher end and higher priced homes.
The Company has offset cost related increases with price increases allowing
gross profit margin as a percentage of homebuilding revenues to remain at 19.1%
for fiscal years 2000, unchanged from fiscal year 1999.
Selling, general and administrative expenses increased to $62.8 million in
fiscal 2000 from $46.7 million in the prior year due to increased volume, higher
operating costs in the Company's Mid-South region, start-up costs associated
with four new design centers, and the growth of the Company's mortgage
subsidiary. Selling, general and administrative expenses as a percentage of
homebuilding revenues increased to 13.7% in fiscal 2000 from 13.2% in fiscal
1999.
Interest and financing expenses decreased to $7.2 million in fiscal 2000 from
$7.4 million in fiscal 1999. Interest and financing expenses as a percentage of
homebuilding revenues decreased to 1.6% from 2.1% in fiscal 1999 due to
increased volume and profitability which minimized debt levels and reduced
interest costs.
Gross profit from land sales was $22,000 on revenues of $3.5 million in fiscal
2000 compared to $209,000 on revenues of $4.9 million in fiscal 1999.
Net earnings increased to $14.6 million in fiscal 2000 from $10.6 million in
fiscal 1999. The increases in deliveries and financial services which resulted
in the increased revenues and reduced interest related costs were major factors
in the Company's improved earnings performance.
10
<PAGE>
Year Ended July 31, 1999 Compared To Year Ended July 31, 1998
Total revenues increased by 50.7% to $362.7 million in fiscal 1999 from $240.7
in fiscal 1998, as the number of homes delivered increased by 43.6% to 2,124
units from 1,479 units. The average sales price of homes delivered in fiscal
1999 increased 5.6% to $166,500 from $157,600.
Gross profit margin as a percentage of homebuilding revenues increased to 19.1%
from 17.9% primarily as a result of the Company's cost reduction initiatives,
the Company's ability to raise prices and strong overall market conditions.
Selling, general and administrative expenses increased to $46.7 million in
fiscal 1999 from $33.2 million in the prior year due to increased volume, an
increase in the number of active communities and the growth of the Company's
mortgage subsidiary. Selling, general and administrative expenses as a
percentage of homebuilding revenues decreased to 13.2% in fiscal 1999 from 14.2%
in fiscal 1998.
Interest and financing expenses increased to $7.4 million in fiscal 1999 from
$5.8 million in fiscal 1998, however, interest and financing expenses as a
percentage of homebuilding revenues decreased to 2.1% from 2.5% in fiscal 1998
due to improved inventory turnover.
Gross profit from land sales was $209,000 on revenues of $4.9 million in fiscal
1999 compared to $809,000 on revenues of $4.5 million in fiscal 1998.
Net earnings increased to $10.6 million in fiscal 1999 from $3.8 million in
fiscal 1998. The increase in deliveries which resulted in the increased revenues
was a major factor in the Company's improved earnings performance.
Capital Resources and Liquidity
Funding for the Company's residential building and land development activities
is provided principally by cash flows from homebuilding operations and borrowing
from banks and other financial institutions. The Company's capital needs depend
upon its sales volume, asset turnover, land purchases and inventory levels.
At July 31, 2000, the Company had cash and cash equivalents of $14.3 million, of
which $520,000 was restricted to collateralize deposits and escrows. The
remaining $13.8 million was available to the Company.
In April 1994, the Company issued $43 million principal amount of Senior Notes
due October 2000. Two series of Senior Notes were issued: $30.0 million with a
fixed rate of 8.61% per annum and $13.0 million with a floating rate of LIBOR
plus 2.4%. The notes are required to be repaid in three equal annual principal
installments which commenced October 1998 and will continue to October 2000.
At July 31, 2000, the Company had two secured revolving credit facilities
totaling $133 million. These facilities provide funding for land acquisition and
home construction, letters of credit, and principal repayment on the 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 may be used to repay a portion of the
Senior Notes repayment due in October 2000. Principal repayments of $2 million
are due semi-annually beginning in April 2000. The first scheduled principal
repayment of $2 million was made in April 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 July 31, 2000, $18.6 million was outstanding
under these facilities. Borrowings under the facilities bear interest at LIBOR
plus 1.75% for the revolving credit facilities and are secured by the related
inventory and 2.85% for the term loan.
In addition to the Senior Notes and revolving credit facility, the Company has
loans with various lenders providing $3.3 million for land acquisition,
development and home construction. These loans bear interest at fixed rate of 8%
or variable rates ranging from prime plus 0.5% to prime plus 1% with maturities
through October 2000.
At July 31, 2000, the Company in the aggregate had $150.7 million in borrowing
availability of which $110.2 million remained available. During fiscal 2000, the
Company's average interest rate was 8.9% compared to 7.6% in fiscal 1999
although actual interest costs for fiscal year 2000 were lower due to reduced
loan amounts resulting from cash flow being used to minimize debt levels.
The Company participates in various joint ventures formed to develop residential
land into finished building lots for sale to the Company and other homebuilders
utilizing non-recourse acquisition and development loans. The Company also
participates in a joint venture formed to develop and market an active adult
community in the Raleigh, North Carolina market.
The Company believes that it will be able to fund its activities for the
foreseeable future through a combination of operating cash flow, existing cash
balances and existing facilities. Except for ordinary expenditures for the
construction of homes, and further acquisition and development of land, the
Company does not have any material commitments for capital expenditures at July
31, 2000.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments, and
for hedging activities by requiring that all derivatives be recognized in the
balance sheet and measured at fair value. The Company has determined that the
adoption of SFAS No. 133 will not have a significant effect on its financial
statement presentation or disclosures, or on its earnings and financial
position. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000.
11
<PAGE>
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
2000. 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.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 "Accounting for Certain Transactions involving Stock
Compensation -- an interpretation of APB Opinion No. 25," which clarifies the
application of APB Opinion No. 25, "Accounting for Stock Issued to Employees"
for certain issues ("Opinion No. 25"). The Interpretation clarifies (a) the
definition of "employee" for purposes of applying Opinion 25, (b) the criteria
for determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. The Interpretation was effective
July 1, 2000, but certain conclusions cover specific events occurring after
December 15, 1998 or January 12, 2000, for which the effects are recognized on a
prospective basis from July 1, 2000. The adoption of this Interpretation had no
impact on the Company's financial position or results of operations.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The Company's primary exposure to market risks relates to interest rate
fluctuations on variable rate debt.
At July 31, 2000, the Company had $36.3 million of debt outstanding of which
$10.3 million 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
July 31, 2000 was $(156,000). 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 July 31, 2000. The fair values of all financial
instruments approximate their carrying values (see Note 5 to the consolidated
financial statements).
Item 8. Financial Statements and Supplementary Data
Independent Auditors' Report
To the Shareholders and Board of Directors of Washington Homes, Inc.:
We have audited the accompanying consolidated balance sheets of Washington
Homes, Inc. and subsidiaries (the Company) as of July 31, 2000 and 1999, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended July 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Washington Homes, Inc. and
subsidiaries as of July 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
2000 in conformity with accounting principles generally accepted in the United
States of America.
<PAGE>
As discussed in Note 14, on August 28, 2000, the Company entered into a
definitive merger agreement with Hovnanian Enterprises, Inc. (Hovnanian). Upon
consummation of the merger, the Company's shareholders will receive either
shares of Hovnanian common stock, or cash, for each share of the Company's
common stock.
Deloitte & Touche LLP
McLean, VA
September 6, 2000
12
<PAGE>
Consolidated Balance Sheets
July 31,
-----------------------
(in thousands except share amounts) 2000 1999
--------------------------------------------------------------------------------
Assets
Cash and cash equivalents ...................... $ 14,317 $ 12,734
Residential inventories ........................ 130,573 130,502
Excess of cost over net assets acquired, net ... 8,331 8,731
Investment in joint ventures ................... 3,370 3,876
Other .......................................... 11,967 11,612
--------------------------------------------------------------------------------
Total Assets ........................................ $ 168,558 $ 167,455
================================================================================
Liabilities and Shareholders' Equity
Liabilities
Notes and loans payable ........................ $ 36,323 $ 59,526
Trade accounts payable ......................... 32,558 24,568
Income taxes payable ........................... 2,011 2,770
Deferred income taxes .......................... 966 1,216
Other .......................................... 13,745 10,426
--------------------------------------------------------------------------------
Total liabilities ........................... 85,603 98,506
--------------------------------------------------------------------------------
Commitments and Contingent Liabilities
Shareholders' equity
Common stock $.01 par value; 15,000,000
shares authorized; 7,780,961 and
7,949,013 shares issued and outstanding, .... 78 79
Non-voting common stock $.01 par value,
1,100,000 shares authorized; 0 shares
issued and outstanding, ..................... -- --
Additional paid-in capital ..................... 34,610 35,178
Retained earnings .............................. 48,311 33,692
Common stock held in Grantor Trust,
63,752 shares at cost ....................... (349) --
Deferred compensation obligation ............... 305 --
--------------------------------------------------------------------------------
Total shareholders' equity .................. 82,955 68,949
--------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity .......... $ 168,558 $ 167,455
================================================================================
Consolidated Statements of Operations
Year Ended July 31,
-------------------------------
(in thousands except share amounts) 2000 1999 1998
--------------------------------------------------------------------------------
Revenues:
Homebuilding ............................. $459,278 $353,729 $233,111
Land sales ............................... 3,541 4,922 4,483
Other income ............................. 6,932 4,082 3,109
--------------------------------------------------------------------------------
Total revenues ........................ 469,751 362,733 240,703
================================================================================
Expenses:
Cost of sales - homebuilding ............. 371,495 286,221 191,381
Cost of sales - land sales ............... 3,519 4,713 3,674
Selling, general, and administrative ..... 62,752 46,671 33,206
Interest expense ......................... 6,376 6,334 5,172
Financing fees ........................... 848 1,022 621
Amortization and depreciation ............ 751 418 641
--------------------------------------------------------------------------------
Total expenses ........................ 445,741 345,379 234,695
================================================================================
Earnings Before Income Taxes .................. 24,010 17,354 6,008
Income tax expense ....................... 9,391 6,706 2,218
--------------------------------------------------------------------------------
Net Earnings .................................. $ 14,619 $ 10,648 $ 3,790
================================================================================
Earnings Per Share:
Basic Earnings Per Share ...................... $ 1.85 $ 1.34 $ 0.48
================================================================================
Diluted Earnings Per Share .................... $ 1.80 $ 1.30 $ 0.48
================================================================================
See Accompanying Notes to Consolidated Financial Statements.
13
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
---------------------------------------------------------------------------------------------------------------------------------
Years Ended July 31, 2000, 1999, and 1998
------------------------------------------------------------------------------------------------
Additional Common Stock Deferred Total
Common Stock Paid-in Retained Held by Compensation Shareholders'
(in thousands) Shares Voting Non-voting Capital Earnings Grantor Trust Obligation Equity
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1997 ......... 7,943 $ 70 $ 9 $ 35,147 $ 19,254 $ -- $ -- $ 54,480
---------------------------------------------------------------------------------------------------------------------------------
Conversion of non-voting
to voting ................. -- 9 (9) -- -- -- -- --
Net earnings .............. -- -- -- -- 3,790 -- -- 3,790
---------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1998 ......... 7,943 79 -- 35,147 23,044 -- -- 58,270
---------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options . 6 -- -- 31 -- -- -- 31
Net earnings .............. -- -- -- -- 10,648 -- -- 10,648
---------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1999 ......... 7,949 79 -- 35,178 33,692 -- -- 68,949
---------------------------------------------------------------------------------------------------------------------------------
Purchase and retirement
of Company stock .......... (168) (1) -- (568) -- (349) -- (918)
Deferred compensation
obligation ................ -- -- -- -- -- -- 305 305
Net earnings .............. -- -- -- -- 14,619 -- -- 14,619
--------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 2000 ......... 7,781 $ 78 $ 0 $ 34,610 $ 48,311 $ (349) $ 305 $ 82,955
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
------------------------------------------------------------------------------------------------------------------------------------
Year Ended July 31,
--------------------------------------------
(in thousands) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net earnings ............................................................... $ 14,619 $ 10,648 $ 3,790
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Amortization and depreciation ............................................ 751 418 641
Deferred income taxes .................................................... (250) (822) 119
Deferred compensation obligation ......................................... 305 -- --
Changes in assets and liabilities, net of effects from acquisition:
Residential inventories .................................................. (71) (5,971) (1,021)
Other assets ............................................................. (337) 2,639 (2,151)
Trade accounts payable ................................................... 7,990 1,910 5,416
Income taxes payable ..................................................... (759) 1,591 1,042
Other liabilities ........................................................ 3,319 5,257 117
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ................................ 25,567 15,670 7,953
------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Purchases of property and equipment ...................................... (369) (327) (90)
Purchase of Breland Homes' net assets .................................... -- (5,272) --
Investment in joint venture .............................................. 506 (1,600) --
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities ...................... 137 (7,199) (90)
------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from notes and loans payable .................................... 324,227 221,771 111,967
Repayments of notes and loans payable .................................... (347,430) (227,863) (119,841)
Purchase and retirement of Company stock ................................. (918) -- --
Exercise of stock options ................................................ -- 31 --
------------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities .................................... (24,121) (6,061) (7,874)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) In Cash and Cash Equivalents ............................ 1,583 2,410 (11)
Cash and Cash Equivalents, Beginning of Year .................................... 12,734 10,324 10,335
------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year .......................................... $ 14,317 $ 12,734 $ 10,324
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JULY 31, 2000, 1999 AND
1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization. The Company is principally engaged in the business of the
construction and sale of quality residential housing in the states of Maryland,
North Carolina, Virginia, Pennsylvania, Tennessee, Alabama and Mississippi.
Basis of Presentation. The consolidated financial statements include the
accounts of Washington Homes, Inc. and its wholly-owned subsidiaries
(collectively, the "Company"). Intercompany balances and transactions have been
eliminated in consolidation. The Company's investment in joint ventures is
accounted for using the equity method.
Use of Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. One
such significant estimate relates to the recoverability of residential
inventory. Management's estimates and assumptions are reflective of, among other
things, prevailing market conditions, current operating strategies and the
availability of capital which are all subject to change. Changes to the
aforementioned or other conditions could in turn cause changes to such estimates
and assumptions and, as a result, actual results could differ from the original
estimates.
Cash and Cash Equivalents. For purposes of the Statements of Cash Flows, the
Company considers its cash, including temporary investments with original
maturities of three months or less, to be cash equivalents. Included in these
amounts at July 31, 2000 and 1999 were $520,000 and $607,000, respectively, that
are restricted to collateralize certain obligations of the Company.
Excess of Cost Over Net Assets Acquired, Net. Excess of cost over net assets
acquired (goodwill) represents the excess of purchase price over the fair value
of assets acquired less any write down to fair value and is being amortized from
15 to 31 years. The Company periodically reviews its goodwill recoverability by
assessing historical profitability and expectations as to future nondiscounted
cash flows and net income. Based upon its most recent analysis, the Company
believes that no material impairment of goodwill exists at July 31, 2000.
Accumulated amortization was $985,000 and $585,000 at July 31, 2000 and 1999,
respectively.
Warranties. The Company records an accrual at the date of closing for future
warranty costs based upon the historical experience of actual warranty costs on
a per house basis.
Income Taxes. The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Deferred income taxes are provided for temporary
differences in the recognition of certain income and expenses for financial and
tax reporting purposes.
Revenue Recognition. Homebuilding, land sales and financial services revenues
are recorded at the date of closing with the purchaser.
Earnings Per Common 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 unvested shares that are associated with the
Company's deferred compensation plan.
Hedging Contracts. From time to time, the Company may utilize interest rate swap
agreements to reduce its exposure resulting from fluctuations in interest rates.
The Company designates interest rate swaps as hedges of specific debt
instruments and recognizes interest rate differentials as adjustments to
interest paid or accrued as the differentials occur. During the fiscal years
ended July 31, 2000, 1999, and 1998, amounts paid or accrued on these hedges
have not been significant to the Company's cash flows or results of operations.
Counter parties to these agreements are major financial institutions.
Stock-Based Compensation. SFAS No. 123, "Accounting for Stock-Based
Compensation," requires expanded disclosures of stock-based compensation
arrangements with employees. The Company has chosen to continue to account for
employee stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board (APB) No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation costs for
stock options are measured as the excess, if any, of the quoted market price of
the Company's stock at the measurement date (typically the date of the grant)
over the amount the employee must pay to acquire the stock (see Note 7).
Impairment of Long-Lived Assets. In accordance with SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," assets are generally evaluated on a market-by-market basis in making a
determination as to whether such assets are impaired. Periodically, the Company
reviews its long-lived assets (including goodwill) for impairment based on
estimated future nondiscounted cash flows attributable to the assets. In the
event such cash flows are not expected to be sufficient to recover the recorded
value of the assets, the assets are written down to their estimated fair values.
Based on the Company's review, no assets were deemed to be impaired during the
three years ended July 31, 2000.
Recent Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, and for hedging activities by requiring that all
derivatives be recognized in the balance sheet and measured at fair value. The
Company has determined that the adoption of SFAS No. 133 will not have a
significant effect on its financial statement presentation or disclosures, or on
its earnings and financial position. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000.
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
15
<PAGE>
the fourth quarter of 2000. 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.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 "Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Opinion No. 25," which clarifies the
application of APB Opinion No. 25, "Accounting for Stock Issued to Employees"
for certain issues ("Opinion No. 25"). The Interpretation clarifies (a) the
definition of "employee" for purposes of applying Opinion 25, (b) the criteria
for determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. The Interpretation was effective
July 1, 2000, but certain conclusions cover specific events occurring after
December 15, 1998 or January 12, 2000, for which the effects are recognized on a
prospective basis from July 1, 2000. The adoption of this Interpretation had no
impact on the Company's financial position or results of operations.
2. RESIDENTIAL INVENTORIES
The Company's inventory consists of the following:
July 31,
----------------------------
(in thousands) 2000 1999
--------------------------------------------------------------------------------
Homes in process ......................... $ 65,337 $ 55,226
Finished lots ............................ 49,149 55,836
Land under development ................... 16,087 19,440
--------------------------------------------------------------------------------
$130,573 $130,502
================================================================================
Homes in process are stated at cost (determined by accumulating actual costs,
including construction, interest and related direct overhead costs), which is
not in excess of market. Finished building lots represents the cost, which is
not in excess of market, of finished lots developed by the Company or acquired
from other developers. Upon delivery, the costs of the homes and related lots
are expensed on a specific identification basis. Land under development consists
of land being developed into finished building lots. Certain costs, including
interest, are capitalized as incurred during the development process.
3. INVESTMENT IN JOINT VENTURES
The Company participates in various joint ventures formed to develop residential
land into finished building lots for sale to the Company and other homebuilders
utilizing non-recourse acquisition and development loans. The Company also
participates in a joint venture formed to develop and market an active adult
community in the Raleigh, North Carolina market. Assets consist primarily of
homes under construction, land under development and fixed assets. The Company's
interest in the joint ventures' operating results has not been significant to
date.
Condensed combined financial information of the joint ventures as of July 31,
2000 and 1999 are as follows:
July 31,
---------------------------
(in thousands) 2000 1999
--------------------------------------------------------------------------------
Assets ................................. $15,535 $ 9,183
Liabilities ............................ 11,128 4,273
--------------------------------------------------------------------------------
Equity ................................. $ 4,407 $ 4,910
================================================================================
4. NOTES AND LOANS PAYABLE
Notes and loans payable consist of the following:
July 31,
-----------------------
(in thousands) 2000 1999
--------------------------------------------------------------------------------
Senior notes ................................... $14,333 $28,667
Revolving credit facilities .................... 18,628 27,639
Land acquisition and development ............... 3,274 3,042
Mortgages and other notes payable .............. 88 178
--------------------------------------------------------------------------------
$36,323 $59,526
================================================================================
<PAGE>
Senior Notes. In April 1994, the Company issued $43,000,000 principal amount of
unsecured Senior Notes due October 2000. 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%, (9.0% at July 31, 2000), 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 became due in three equal annual
installments which commenced October 1998 and will continue to October 2000.
Revolving Credit Facilities. At July 31, 2000, the Company had two secured
revolving credit facilities totaling $133,000,000 to fund land acquisition and
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 $120,000,000 from $70,000,000. The new credit facility
is comprised of a $100,000,000 revolving loan with a maturity date (which may be
extended) of October 30, 2001, and a $20,000,000 term loan with an initial
maturity of 2 years plus three one-year extension options. $14,333,000 of the
term loan was used in October 1999 for a principal repayment of the Company's
Senior Notes. The remaining $5,667,000 may be used to repay a portion of the
Senior Notes repayment due in October 2000. Principal repayments of $2,000,000
are due semi-annually
16
<PAGE>
beginning in April 2000. The first scheduled principal repayment of $2,000,000
was made in April 2000. The other credit facility consists of a $15,000,000
revolving loan with a maturity date (which may be extended) of April 19, 2001.
Borrowings under the facilities bear interest at thirty-day LIBOR (6.6% at July
31, 2000) plus 1.75% for the revolving credit facilities and 2.85% for the term
loan.
The Senior Notes and revolving credit facilities require the Company, among
other things, to meet certain net worth, leverage and cash flow coverage tests
and place limitations on dividends, the securing of additional loans,
investments, and finished lot purchases. These provisions do not significantly
restrict the Company's operations.
Land Acquisition and Development Loans. The Company has loans with various
lenders for the acquisition and development of land amounting to $3,274,000 and
$3,042,000 at July 31, 2000 and 1999, respectively. These loans 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, amounting
to $88,000 and $178,000 at July 31, 2000 and 1999 respectively, bear interest at
rates ranging from 4.8% to 10% and mature in varying periods of up to 5 years.
Aggregate maturities of notes and loans payable are as follows:
For the year ending July 31, (in thousands)
----------------------------------------------------------
2001 .............................. $33,987
2002 .............................. 2,306
2003 .............................. --
2004 .............................. --
2005 .............................. 30
----------------------------------------------------------
$36,323
==========================================================
Capitalized Interest. A summary of capitalized interest follows:
Year Ended July 31,
----------------------------------
(in thousands) 2000 1999 1998
--------------------------------------------------------------------------------
Interest capitalized at beginning
of year .............................. $ 5,652 $ 8,140 $ 9,108
Interest incurred ....................... 7,067 6,329 6,164
Interest expense ........................ (6,376) (6,334) (5,172)
Interest in cost of sales ............... (2,241) (2,483) (1,960)
--------------------------------------------------------------------------------
Interest capitalized at end of year ..... $ 4,102 $ 5,652 $ 8,140
================================================================================
Interest paid ........................... $ 7,073 $ 6,141 $ 6,705
================================================================================
Interest capitalized during the land development period is charged to cost of
sales as the related inventory is sold. Interest capitalized during the home
construction period is charged to interest expense when the related inventory is
sold.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The methods and assumptions used to estimate the fair value of each class of
financial instrument are as follows:
Cash and cash equivalents, receivables, notes payable and accounts payable
The carrying amounts approximate fair value because of the short maturity of
these amounts.
Long-term debt
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. The fair value of the Company's other long-term debt
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.
Interest rate swaps
At July 31, 2000, the Company, in connection with managing interest costs, had
an interest rate hedge agreement outstanding with a notional amount of
$20,000,000. The agreement expires on February 14, 2004 although the counter
party to the agreement may terminate it in 2002. The agreement includes a cap
rate of 8.0% and a floor rate of 5.8%. The fair value of the agreement at July
31, 2000 was $(156,000). 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 July 31, 2000.
At July 31, 1999, the Company had an interest rate swap agreement outstanding
with a notional amount of $15,000,000 expiring in January 2002. In January 2000,
the counter party exercised its option to cancel this swap agreement.
6. ACQUISITIONS
During the fiscal year ended July 31, 1999, the Company purchased certain
homebuilding assets and assumed the related liabilities of Breland Homes, Inc.;
Breland Homes of Mississippi, LLC; and Breland Properties, Inc. (collectively
"Breland Homes"). Breland Homes was a privately-owned homebuilder with
operations in Huntsville, Alabama and the Mississippi Gulf Coast. The
transaction was effective as of March 1, 1999. Included in the purchase were 82
homes in backlog.
The allocation of the purchase price is as follows:
Residential inventories ............................. $11,471,000
Excess of cost over net assets acquired ............. 3,000,000
Other assets ........................................ 476,000
Less: liabilities assumed ........................... (9,675,000)
--------------------------------------------------------------------
Net cash paid ....................................... $5,272,000
====================================================================
17
<PAGE>
7. SHAREHOLDERS' EQUITY
Common Stock. The Company has 7,780,961 shares of common stock outstanding at
July 31, 2000, all of which are voting shares. During the fiscal year ended July
31, 1999, 6,250 shares of common stock were issued upon the exercise of options
under the Company's Employee Stock Option Plan. During fiscal 1998, all of the
remaining 28,330 shares of non-voting common stock were exchanged with the
Company for newly-issued shares of voting common stock on a share for share
basis. Except for voting rights, the non-voting common stock was substantially
the same as the Company's voting stock.
Deferred Compensation Incentive Plan. Effective as of July 31, 1999, the Company
adopted a Deferred Compensation Incentive Plan (the "Plan") for certain key
employees and Board of Directors who may elect to defer a portion of their
future compensation. The Company will match the lesser of 20% of the amount
deferred or $20,000, with the match subject to a five-year vesting schedule. A
Rabbi Trust ("Grantor Trust") was established to purchase and hold the Company's
common stock to fund the Plan. The Company retires any Company stock acquired by
the Plan and the future issuance of the same number of shares is from
newly-issued shares. During the fiscal year ended July 31, 2000, 63,752 shares
were acquired by the Plan and held by the Grantor Trust. As a result of this
transaction, shareholders' equity was reduced as follows (in thousands):
Stock purchase price ......................................... $349
Decrease in deferred compensation liability .................. (305)
------------------------------------------------------------------------
Net decrease ................................................. $44
========================================================================
Stock Repurchase Program. In November 1999, the Board of Directors adopted a
stock repurchase program for up to 800,000 shares of the Company's common stock.
The shares will be repurchased in the open market or in block trades and
purchases will be dependent on market conditions. Shares repurchased will be
retired or used to meet the Company's current employee benefit plan obligations.
During the fiscal year ended July 31, 2000, 104,300 shares were repurchased for
$569,000. As a result of this transaction, Shareholders' Equity was reduced as
follows (in thousands):
Common stock ..................................................... $1
Additional paid-in capital ....................................... 568
------------------------------------------------------------------------
Net decrease in Shareholders' Equity ............................. $569
========================================================================
Stock Options. The Company has adopted two plans for the issuance of stock
options to its employees and members of its Board of Directors.
On September 17, 1992, the Company adopted the Washington Homes Employee Stock
Option Plan ("Employee Option Plan") pursuant to which options for up to 500,000
shares of common stock could be granted to officers and other key employees of
the Company. In July 1997 and September 1999, the Board of Directors voted to
increase the number of shares for which options could be granted to 1,000,000
and 1,500,000 respectively. The amendments to the plan were subsequently
approved by the shareholders in November 1997 and November 1999. Options granted
under the Employee Option Plan can be either incentive stock options ("Incentive
Stock Options") or non-qualified options ("Non-Qualified Options") as determined
by a committee of the independent directors of the Board of Directors. Options
granted under the Employee Option Plan will have an exercise price not less than
fair market value at date of grant. Options will become exercisable, in part,
after 12 months from the date of grant and will generally remain exercisable for
ten years from the date of grant. Certain options were not exercisable until
fiscal 2000.
On September 15, 1994 the Company adopted the Washington Homes Non-Employee
Directors' Stock Option Plan pursuant to which options for up to 30,000 shares
of common stock could be granted to directors who are not employees of the
Company or its subsidiaries. In November 1997 and November 1999, the
shareholders approved an amendment to increase the number of shares available
for options to 100,000 and 200,000 respectively. Options that are Non-Qualified
Options, generally become exercisable in part after one year from date of grant
and generally remain exercisable for ten years from the date of grant.
In July 2000, non-qualified options for 50,000 shares exercisable at $6.00 were
granted to the Chief Executive Officer of the Company. These options vest over
three years and are not part of the Employee Option Plan.
<PAGE>
Option activity for the Company is summarized below:
Employees Non-Employees
--------------------- --------------------
Weighted Weighted
Number of Average Number of Average
shares Price shares Price
--------------------------------------------------------------------------------
Outstanding - July 31, 1997 ..... 432,000 $ 5.23 29,000 $ 4.74
Granted ................... 592,000 4.46 40,000 4.00
Canceled .................. 43,000 4.76 -- --
Exercised ................. -- -- -- --
--------------------------------------------------------------------------------
Outstanding - July 31, 1998 ..... 981,000 4.53 69,000 4.31
Granted ................... 39,000 5.87 -- --
Canceled .................. 54,750 4.83 -- --
Exercised ................. 6,250 5.04 -- --
--------------------------------------------------------------------------------
Outstanding - July 31, 1999 ..... 959,000 4.57 69,000 4.31
Granted ................... 270,000 5.96 40,000 6.50
Canceled .................. 135,000 6.09 -- --
Exercised ................. -- -- -- --
--------------------------------------------------------------------------------
Outstanding - July 31, 2000 ..... 1,094,000 4.73 109,000 5.11
--------------------------------------------------------------------------------
Exercisable at July 31, 2000 .... 801,750 4.54 49,000 4.44
--------------------------------------------------------------------------------
At July 31, 2000, there were 557,000 shares reserved for future grants under
both plans.
18
<PAGE>
The following summarizes information about the Company's stock options
outstanding at July 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------------------------
Weighted Average
----------------------------------------- Weighted Average
Exercise Price Range Shares Outstanding Remaining Term in Years Exercise Price Shares Exercisable Exercise Price
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.63 - $ 4.06 318,500 7.09 $3.92 296,000 $3.91
4.25 - 4.69 239,000 7.04 4.49 142,500 4.49
4.75 - 4.95 304,000 6.57 4.80 282,500 4.79
5.13 - 7.15 341,500 6.83 5.70 129,750 5.42
------------------------------------------------------------------------------------------------------------------------------
$ 3.63 - $ 7.15 1,203,000 6.88 $4.76 850,750 $4.53
</TABLE>
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
issued in October 1995. In accordance with the provisions of SFAS No. 123, the
Company applies APB Opinion No. 25 and related interpretations in accounting for
its stock option plans and, accordingly, does not recognize compensation cost
based on the fair value of the options granted at grant date as prescribed by
SFAS No. 123. Had compensation been recorded consistent with SFAS No. 123, net
earnings and earnings per share would have been reduced to the pro forma amounts
indicated in the table below:
Year Ended July 31,
-----------------------------------
(in thousands except per share amounts) 2000 1999 1998
--------------------------------------------------------------------------------
Net earnings - as reported ............... $ 14,619 $ 10,648 $ 3,790
Net earnings - pro forma ................. 14,419 10,465 3,621
Basic earnings per share - as reported ... 1.85 1.34 0.48
Basic earnings per share - pro forma ..... 1.82 1.32 0.46
Diluted earnings per share - as reported . 1.80 1.30 0.48
Diluted earnings per share - pro forma ... 1.78 1.28 0.46
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
Year Ended July 31,
---------------------------
2000 1999 1998
--------------------------------------------------------------------------------
Expected dividend yield ....................... -- -- --
Expected stock price volatility ............... 37% 40% 46%
Risk-free interest rate ....................... 6.1% 5.0% 5.2%
Expected life of options ...................... 7 8 8
--------------------------------------------------------------------------------
The weighted average fair value of options granted during 2000, 1999 and 1998
were $2.91, $3.18, and $2.62 per option, respectively.
8. EARNINGS PER SHARE
Earnings per share are presented in accordance with SFAS No. 128, "Earnings Per
Share." This statement requires dual presentation of basic and diluted earnings
per share on the face of the statement of operations. Basic earnings per share
excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average number of shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock. Options to purchase 1,203,000 shares of common
stock at $4.76 were outstanding at July 31, 2000. Options to purchase 1,028,000
shares of common stock at $4.55 were outstanding at July 31, 1999. Options to
purchase 1,050,000 shares of common stock at $4.52 were outstanding at July 31,
1998.
<PAGE>
The following is a reconciliation of the amounts used in calculating basic and
diluted earnings per common share:
<TABLE>
<CAPTION>
(dollars in thousands) Earnings Shares Per Share Amount
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per common share for
the year ended July 31, 2000 .............. $ 14,619 7,909,151 $ 1.85
Effect of dilutive stock options ........... -- 203,878 (.05)
----------------------------------------------------------------------------------------
Diluted earnings per common share for
the year ended July 31, 2000 .............. $ 14,619 8,113,029 $ 1.80
========================================================================================
Basic earnings per common share for
the year ended July 31, 1999 .............. $ 10,648 7,943,996 $ 1.34
Effect of dilutive stock options ........... -- 257,503 (.04)
----------------------------------------------------------------------------------------
Diluted earnings per common share for
the year ended July 31, 1999 .............. $ 10,648 8,201,499 $ 1.30
========================================================================================
Basic earnings per common share for
the year ended July 31, 1998 .............. $ 3,790 7,942,763 $ .48
Effect of dilutive stock options ........... -- 22,430 --
----------------------------------------------------------------------------------------
Diluted earnings per common share for
the year ended July 31, 1998 .............. $ 3,790 7,965,193 $ .48
========================================================================================
</TABLE>
9. 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 years ended
July 31, 2000, 1999, and 1998. 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.
19
<PAGE>
Year Ended July 31,
-----------------------------------
(in thousands) 2000 1999 1998
--------------------------------------------------------------------------------
Revenues
Homebuilding ....................... $ 462,819 $ 358,651 $ 237,594
Financial services ................. 7,550 4,756 2,852
Intersegment ....................... (2,611) (1,647) (994)
Other .............................. 1,993 973 1,251
--------------------------------------------------------------------------------
Revenues ........................ $ 469,751 $ 362,733 $ 240,703
================================================================================
Selling, General and Administrative
Homebuilding ....................... $ 57,781 $ 43,499 $ 30,912
Financial services ................. 4,971 3,172 2,294
Other .............................. -- -- --
--------------------------------------------------------------------------------
Selling, General and
Administrative ................ $ 62,752 $ 46,671 $ 33,206
================================================================================
Interest and Financing Expenses
Homebuilding ....................... $ 7,216 $ 7,337 $ 5,752
Financial services ................. 8 19 41
Other .............................. -- -- --
--------------------------------------------------------------------------------
Interest and Financing Expenses . $ 7,224 $ 7,356 $ 5,793
================================================================================
Amortization and Depreciation
Homebuilding ....................... $ 737 $ 406 $ 627
Financial services ................. 14 12 14
Other .............................. -- -- --
--------------------------------------------------------------------------------
Amortization and Depreciation ... $ 751 $ 418 $ 641
================================================================================
Earnings before Income Taxes
Homebuilding ....................... $ 19,461 $ 14,829 $ 4,255
Financial services ................. 2,556 1,552 502
Other .............................. 1,993 973 1,251
--------------------------------------------------------------------------------
Earnings before Income Taxes .... $ 24,010 $ 17,354 $ 6,008
================================================================================
Income Taxes
Homebuilding ....................... $ 7,592 $ 5,760 $ 1,501
Financial services ................. 1,002 557 217
Other .............................. 797 389 500
--------------------------------------------------------------------------------
Income Taxes .................... $ 9,391 $ 6,706 $ 2,218
================================================================================
Assets
Homebuilding ....................... $ 166,639 $ 166,034 $ 146,018
Financial services ................. 1,919 1,421 1,337
Other .............................. -- -- --
--------------------------------------------------------------------------------
Assets .......................... $ 168,558 $ 167,455 $ 147,355
================================================================================
10. INCOME TAXES
As discussed in Note 1, the Company follows the provisions of SFAS No. 109. The
provision for income taxes includes the following:
Year Ended July 31,
-----------------------------------------
(in thousands) 2000 1999 1998
--------------------------------------------------------------------------------
Current:
Federal ................ $ 8,002 $ 6,552 $ 1,982
State .................. 1,639 976 117
--------------------------------------------------------------------------------
9,641 7,528 2,099
--------------------------------------------------------------------------------
Deferred:
Federal ................ (207) (663) 112
State .................. (43) (159) 7
--------------------------------------------------------------------------------
(250) (822) 119
--------------------------------------------------------------------------------
Total Provision .............. $ 9,391 $ 6,706 $ 2,218
================================================================================
<PAGE>
The difference between the effective tax rate and the expected statutory tax
rate computed on earnings before taxes is attributable to the following:
Year Ended July 31,
------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
Taxes computed at statutory rate ............. 35.0% 35.0% 34.0%
Increases (Decreases):
State income taxes ........................... 4.3 3.1 1.4
Excess of cost over net assets acquired ...... .3 .4 1.1
Other ........................................ (.5) .1 .4
--------------------------------------------------------------------------------
Effective tax rate ........................... 39.1% 38.6% 36.9%
================================================================================
20
<PAGE>
The deferred income tax at July 31, 2000 and 1999 represents the tax effect of
temporary differences as follows:
July 31,
--------------------------
2000 1999
--------------------------------------------------------------------------------
Land step up in basis ........................ $ 412 $ 289
Capitalized interest ......................... 1,033 1,325
Uniform capitalized costs .................... 810 572
Investment in joint ventures ................. (390) (388)
Warranty reserve ............................. (323) (293)
Accrued compensation cost .................... (645) (297)
Other ........................................ 69 8
--------------------------------------------------------------------------------
$ 966 $ 1,216
================================================================================
During the years ended July 31, 2000, 1999 and 1998, income taxes in the amount
of $10,399,000, $5,994,000, and $922,000, respectively, were paid.
11. EMPLOYEE RETIREMENT PLAN
The Company has a 401(k) Plan which allows eligible employees to defer a portion
of their total compensation subject to limitations of the Internal Revenue Code.
The Company matches 50% of participant contributions, up to a maximum of the
greater of $1,000 or 1.5% of compensation for each participant. The Company's
total matching contributions under the Plan for the years ended July 31, 2000,
1999 and 1998 were approximately $196,300, $163,700, and $124,600, respectively.
Under this plan, the Company elected to make a $250,000 profit sharing
contribution in January 2000 to all eligible non-highly compensated personnel
employed as of December 31, 1999.
12. RELATED PARTY TRANSACTIONS
The Company leases certain office space from an affiliated entity. During the
years ended July 31, 2000, 1999 and 1998, $554,000, $396,000 and $435,000 were
paid, respectively.
13. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases its headquarters offices and offices for certain divisions
from an affiliate and certain other facilities from unrelated parties, all under
non-cancelable operating leases with terms ending through January 2008. Future
minimum rental payments required under operating lease commitments that have
initial or remaining non-cancelable lease terms in excess of one year subsequent
to July 31, 2000, are as follows:
For the year ending July 31, (in thousands)
----------------------------------------------------------
2001 .............................. $1,770
2002 .............................. 1,143
2003 .............................. 856
2004 .............................. 714
2005 .............................. 522
Thereafter ........................ $1,074
----------------------------------------------------------
Total future rental payments ...... $6,079
==========================================================
Rental expense was $3,532,000, $3,053,000, and $2,857,000 for the years ended
July 31, 2000, 1999 and 1998, respectively.
At July 31, 2000 the Company was contingently liable to banks and other
financial institutions for outstanding letters of credit and surety bonds
relating to building lot acquisition contracts and municipal bonding for land
development activities. In addition, the Company has an employment agreement
with a key executive which expires on June 30, 2003, subject to certain
extension provisions. Under certain conditions stated in the agreement,
severance payments are due to the executive upon termination. The maximum
contingent liability for the outstanding letters of credit, surety bonds, and
employment agreement is approximately $24 million.
The Company is involved in various claims and legal actions arising in the
normal course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
14. SUBSEQUENT EVENT
On August 28, 2000, Washington Homes, Inc. and Hovnanian Enterprises, Inc.
announced the signing of a definitive merger agreement.
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 9. Changes in or Disagreements with Accountants on Accounting and Financial
Disclosure
There have been no changes in or disagreements with accountants during the two
fiscal years ended July 31, 2000.
21
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The Directors of the Company who have been elected to serve until the next
annual meeting of shareholders and until their successors are duly elected and
qualified are listed below:
Thomas Connelly, 51, has served as a Director since September 1992. Since April
1997, he has been Senior Vice President and Chief Financial Officer of Western
Pacific Housing, a homebuilder based in El Segundo, California. Prior thereto
from November 1996 to April 1997 he was Senior Vice President and Chief
Financial Officer of the Forecast Group, LP, a homebuilder based in Rancho
Cucamonga, California; from August 1988 to November 1996 he was a Senior Vice
President of the Company; and from September 1994 to September 1996 he served as
the Company's Chief Financial Officer. Mr. Connelly has over 24 years experience
in finance and real estate development.
Geaton A. DeCesaris, Jr., 45, has served as President, Chief Executive Officer
and a Director of the Company since August 1988 and as Chairman of the Board
since April 1999. From June 1985 to August 1988, he was Managing General Partner
of Sonny DeCesaris and Sons Development Group (real estate development and
construction) and, from 1973 to June 1985, Vice President of Sonny DeCesaris and
Sons Builders, Inc.
Geaton A. DeCesaris, Sr., 69, became Chairman Emeritus in April 1999 following
service as Chairman of the Board of the Company which began in August 1988. From
June 1985 to August 1988, he served as Senior General Partner of Sonny DeCesaris
and Sons Development Group. Prior thereto from 1973 to June 1985, he was founder
and President of Sonny DeCesaris and Sons Builders, Inc., and from 1960 to 1973,
President of Procopio and DeCesaris Construction Company.
Richard S. Frary, 53, has been a Director of the Company since December 1995.
Mr. Frary is President of Tallwood Associates, Inc., a New York-based real
estate merchant banking firm which he co-founded in 1990. He is also a director
of CGA Group Ltd., a Bermuda-based financial guarantee insurance company and of
Wellsford Real Properties, Inc., a real estate merchant bank.
Thomas J. Pellerito, 53, has served as President, Homebuilding Operations and
Chief Operating Officer since July 1997 and as a Director since November 1998.
Prior thereto from 1985 to July 1997 he was President of Richmond American
Homes, the northern Virginia-based regional subsidiary of a national
homebuilder. He has over 20 years experience in residential construction and
related services.
Ronald M. Shapiro, 57, has been a Director of the Company since April 1993. Mr.
Shapiro, an attorney, is President of Shapiro, Robinson & Associates, Inc., a
professional sports management and contract negotiations firm which he founded
in 1976. Since January 1992 he has served as Counsel To The Firm of Shapiro and
Olander, Baltimore, Maryland, a law firm he founded in 1972, and since 1995 he
has served as Chairman of the Shapiro Negotiations Institute (negotiations
consultants and seminar providers).
Paul C. Sukalo, 49, has served as Senior Vice President and a Director of the
Company since August 1988. Prior thereto from June 1985 to August 1988, he was a
general partner of Sonny DeCesaris and Sons Development Group. He has over 20
years of construction experience, principally in residential construction and
related services.
Richard B. Talkin, 63, has been a Director of the Company since April 1993. Mr.
Talkin is an attorney specializing in real estate related matters and has
practiced law in Columbia, Maryland for over 30 years.
Executive Officers
The information required by this item concerning Executive Officers is included
in Part I.
Family Relationships
Geaton A. DeCesaris, Sr., Chairman Emeritus, is the father of Geaton A.
DeCesaris, Jr., Chairman of the Board, President and a Director; Marco A.
DeCesaris, Vice President; A. Hugo DeCesaris, Vice President; and Deborah A.
Ailiff, Vice President and Associate General Counsel; and is the father-in-law
of Paul C. Sukalo, Senior Vice President and a Director.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors, and persons who are holders of more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and to furnish the Company with copies of all forms filed. Based on a review of
these forms, the Company believes that during fiscal 2000, its officers,
directors and greater than ten-percent beneficial holders complied with all
applicable Section 16(a) filing requirements.
Item 11. Executive Compensation
The following table sets forth the annual compensation paid to the Company's
chief executive officer and its four other most highly compensated executive
officers serving at July 31, 2000 for services rendered during the last three
fiscal years:
22
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long term
Compensation
-----------------
Annual Compensation Number of All
------------------------------- Shares Underlying Other
Name and Principal Position Fiscal Year Salary Bonus(1) Other(3)(4) Options Granted Compensation(2)
--------------------------- ----------- -------- -------- ----------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Geaton A. DeCesaris, Jr. 2000 $450,000 $761,060 $2,400 50,000 $220,000
Chairman of the Board, 1999 450,000 482,135 2,400 -- 145,534
President and Chief Executive Officer 1998 400,000 140,000 1,000 15,000 --
Thomas Pellerito 2000 $350,000 $658,848 $2,400 -- $120,000
President, Homebuilding Operations 1999 350,000 395,308 3,400 -- 118,593
Chief Operating Officer 1998 300,000 100,000 -- 300,000 --
Christopher Spendley 2000 $195,000 $248,318 $2,400 -- $120,000
Senior Vice President 1999 195,000 144,241 2,400 -- 43,272
1998 175,000 50,000 1,890 32,000 --
Paul C. Sukalo 2000 $155,000 $124,600 $2,400 -- --
Senior Vice President 1999 155,000 106,200 2,400 -- --
1998 148,750 73,950 1,670 8,000 --
Clayton Miller 2000 $107,000 $ 15,691 $2,400 -- $106,690
Senior Vice President 1999 107,000 72,120 1,620 -- 21,636
1998 102,000 23,000 1,416 8,000 --
</TABLE>
(1) For 1999, the Board of Directors required that 20% of the bonus that
otherwise would be payable for certain executive officers be deferred.
(2) Amounts deferred under the Company's Deferred Compensation Incentive Plan
including a Company match of 20% of the amount deferred with a maximum
match of $20,000.
(3) Includes the matching amounts paid by the Company to the Company's 401(k)
Plan under which employee contributions are partially matched up to the
greater of $1,000 or 1.5% of eligible compensation.
(4) Excludes perquisites and other personal benefits since the aggregate amount
of such compensation is the lesser of $50,000 or 10% of salary and bonus
combined.
The following tables set forth certain information concerning the granting and
exercise of stock options during the fiscal year ended July 31, 2000 by the
persons named in the Summary Compensation Table and the value of all unexercised
options at the end of the fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised In The
Unexercised Money Options
Shares Options at 7/31/00 at 7/31/00
Acquired Value Exerciseable/ Exerciseable/
Name on Exercise Realized Nonexerciseable Nonexerciseable
---- ----------- -------- ------------------ ------------------
<S> <C> <C> <C> <C>
Geaton A. DeCesaris, Jr. -- -- 62,500/45,000 $105,200/$30,375
Thomas Pellerito -- -- 0/300,000 $0/$637,500
Paul C. Sukalo -- -- 20,000/4,000 $36,490/$8,000
Christopher Spendley -- -- 46,000/26,000 $93,200/$47,000
Clayton Miller -- -- 30,000/4,000 $64,590/$8,000
</TABLE>
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates
% of Total of Stock Price
Number Options Appreciation of
of Shares Granted to Exercise Option Term
Underlying Employees in Price Expiration --------------------
Name Options Granted Fiscal Year Per Share (1) Date 5% 10%
---- --------------- ------------ ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Geaton A. DeCesaris, Jr. 50,000 18.50% $6.00 6/30/10 $188,668 $478,123
Thomas Pellerito None
Paul C. Sukalo None
Christopher Spendley None
Clayton Miller None
</TABLE>
(1) Options are exercisable as follows: 25% immediately and an additional 25%
on each anniversary of the date of grant; and fully exercisable upon a
change of control of the Company.
23
<PAGE>
Report of Compensation Committee Regarding Executive Compensation
The Board of Directors has determined that the Company's executive compensation
program will be administered by the Compensation Committee (the "Committee")
which consists of three non-employee independent directors. The Committee was
established in April 1993, following completion of the Company's initial public
offering.
For fiscal 2000 executive compensation consisted generally of base salary,
bonuses, grants of stock options under the Company's Employee Stock Option Plan
and participation in the Company's Deferred Compensation Incentive Plan. The
Committee annually reviews the Company's executive compensation program and
policies and approves compensation for executive personnel.
The overall policy objective of the Company's executive compensation program is
to provide base compensation levels and compensation incentives (in the form of
bonuses and stock options) that attract and retain the highest quality
individuals for key executive positions with the Company. The executive
compensation program is intended to recognize individual contribution to
corporate performance and to recognize the overall performance of the Company
relative to the performance of other corporations in the homebuilding industry.
Base Compensation
The Committee annually reviews base compensation levels of executive personnel
to determine that such compensation is competitive, both individually and in the
aggregate, with other homebuilding industry companies of comparable size and
profitability. Comparisons with other companies are obtained through public
information and surveys of homebuilding industry compensation available from
outside compensation advisors. Individual base compensation levels are set based
upon these competitive factors but also are varied based upon performance,
experience and the scope of each particular position.
Bonuses
The Company awards annual and periodic cash bonuses to its executive personnel.
These bonuses tie a portion of compensation directly to results achieved during
each fiscal year. Individual amounts are determined by an evaluation of
individual performance, division performance and Company performance. As with
base compensation, the Committee reviews bonuses and the bonus structure
annually in an effort to set a program which promotes behavior which is intended
to enhance shareholder value and is competitive, both as to the bonus and when
combined with base salary, with other homebuilders of comparable size and
profitability.
For fiscal 2000, bonuses for executive personnel in each of the Company's
operating divisions were tied, in large measure, to the ability of each division
to meet or exceed various benchmark measurements relating to financial and
operating performance established at the beginning of the fiscal year and the
overall pre-tax earnings and production of the division.
Bonuses for executive personnel whose activities are not directly a part of the
operating divisions were based in part upon the ability of the Company to meet
or exceed pre-set performance goals, in part on the achievement of specific
objectives in programs of a broader nature and in part were set at levels to
bring total cash compensation in line with other homebuilders. A bonus for the
chief executive officer was to be based on achieving or surpassing a
pre-determined benchmark for return on equity by the Company and its
subsidiaries and on the achievement of specific objectives in programs of a
broader nature. The Company has adopted a Deferred Compensation Incentive Plan
under which bonuses otherwise payable to certain executive officers would be
deferred and matched by the Company up to $20,000 with all proceeds invested in
Company stock. Amounts deferred for fiscal 2000 were at the election of each
executive officer.
Stock Options
Stock options are granted as a means of aligning the economic interests of key
personnel with those of the shareholders of the Company. For fiscal 2000, stock
options were granted for 270,000 shares of the Company's common stock to
employees.
In the past, options were granted to all executive and other key personnel who
were not then shareholders of the Company at time of the Company's initial
public offering. Other options also have been granted to executive and
management personnel at the time of hire. Periodic grants of options to key
employees have been made. Options were granted in fiscal 2000 to each division
president and to others, at the time of hire based on the potential for future
contribution to the success of the Company and as the Compensation Committee
determined.
CEO Compensation
The criteria previously enumerated are those that have been applied to the
Company's Chief Executive Officer, Geaton A. DeCesaris, Jr. During fiscal 2000
Mr. DeCesaris received base compensation of $450,000, which was the same as
fiscal 1999. Mr. DeCesaris received a bonus for fiscal 2000 of $761,060 and
there was $220,000 of deferred compensation. This was an increase of $353,391
from the fiscal 1999 level for the bonus and deferred compensation for the prior
year. In determining Mr. DeCesaris' compensation, the Committee recognized that
the Company continued its strong performance from fiscal 1999 levels and made
progress in several areas, including geographical expansion, reduction of land
under development and debt level, integration of expanded operations, improving
the quality of management and long-term strategic planning. During the year, Mr.
DeCesaris received options to purchase 50,000 shares of common stock, and the
Company entered into an employment agreement with him.
Richard S. Frary
Ronald M. Shapiro
Richard B. Talkin
Members of the Compensation Committee
Compensation Committee Interlocks and Insider Participation
Mr. Talkin, a member of the Compensation Committee, performs legal services for
the Company.
24
<PAGE>
Director Compensation
During fiscal 2000, the Company paid each non-employee director $6,000 per year
plus $2,500 for each Board meeting and $1,000 for each committee meeting not
held in conjunction with a Board meeting which they attended and reimbursed such
directors for all out-of-pocket expenses incurred in connection with their
activities as directors. Total compensation to Messrs. Connelly, Frary, Shapiro,
and Talkin was $16,500 each. Mr. Connelly elected to defer $6,000 of
compensation under the Deferred Compensation Incentive Plan and received a 20%
Company match of that amount. During the fiscal year ended July 31, 1999, the
Company engaged Mr. Talkin as counsel to provide legal services to the Company
in certain matters.
Meetings and Committees of the Board
The Board of Directors has designated several committees of the Board, including
a Compensation Committee, an Audit Committee and an Executive Committee, the
functions and membership of which are described below.
The Compensation Committee is responsible for approving recommendations to the
Board of Directors regarding salaries, incentive bonuses and other compensation
arrangements with executive officers of the Company and for the administration
of the Washington Homes Employee Stock Option Plan. The Audit Committee's
functions include making recommendations to the Board of Directors on the
selection and evaluation of the Company's auditors, reviewing the financial
reporting process, the system of internal control and the audit process and
reporting and performing any other duties or functions deemed appropriate by the
Board or as specified in its charter. During fiscal 2000, the Company adopted a
charter for the audit committee which is filed as an exhibit to this report. The
Executive Committee may, with certain limitations, act for the Board of
Directors between meetings of the Board.
The members of the Compensation Committee during fiscal 2000 were Messrs. Frary,
Shapiro and Talkin, and the members of the Audit Committee were Messrs.
Connelly, Frary, Shapiro and Talkin. Mr. Shapiro was Chairman of the
Compensation Committee, and Mr. Frary was Chairman of the Audit Committee. The
Executive Committee consisted of Geaton A. DeCesaris, Sr., Geaton A. DeCesaris,
Jr. and Paul C. Sukalo.
During fiscal 2000, the Board of Directors met four times; the Executive
Committee acted by unanimous consent 18 times; the Compensation Committee met
twice and acted by unanimous consent four times; and the Audit Committee met
once. All Directors attended 75% of the aggregate of all meetings of the Board
of Directors and the Committees on which they served during fiscal 2000.
Agreements with Executive Officers and Others
The Company has entered into employment agreements which become effective upon a
change of control of the Company with Messrs. Pellerito, Spendley, Sukalo and
Miller who are executive officers, A. Hugo DeCesaris and Marco A. DeCesaris who
are officers and holders of in excess of 5% of Company's outstanding common
stock and two other officers. If during the two-year period following a change
of control the officer's employment is terminated or that person's
responsibilities are diminished causing his resignation, then such person shall
be entitled to a severance payment equal to one year's salary (18 months in the
case of A. Hugo DeCesaris and Mr. Sukalo) plus the bonus that would have been
paid at the date of termination under any bonus plan in effect on the date of
the agreement, provided, however, that the bonus payment must be at least equal
to 50% of base salary. There is no severance payment for terminations resulting
from death, disability or with cause by the employer or if employee resigns
without good reason.
Geaton A. DeCesaris, Sr., a holder of 8.7% of the Company's outstanding common
stock, retired as Chairman of the Board during fiscal 1999. The Company has
agreed to provide Mr. DeCesaris with compensation for acting as a consultant
commencing August 1, 1999 of $130,000 per annum to continue for life, but not
less than ten years. Mr. DeCesaris will continue to participate in employee
benefit plans of the Company. In the event of a change of control of the
Company, the program is required to be funded.
In fiscal 2000, the Company entered into an employment agreement with Geaton A.
DeCesaris, Jr. who serves as Chairman of the Board, President, and Chief
Executive Officer of the Company. It provides for employment until June 30, 2003
but may be extended each year. The Agreement provides for a base salary of
$500,000 (subject to yearly 10% increases) plus a cash bonus of 50% of base
salary if the Company's return on equity ("ROE") is at least 15% and a cash
bonus of 100% of base salary if pretax ROE exceeds 20%. He is entitled to an
additional bonus of 5% of the amount by which the Company's pretax ROE exceeds
20%. In the event Mr. DeCesaris' employment is terminated under certain
circumstances including a change of control, he is entitled to a severance
payment equal to three times average salary and bonus. At the time of entering
into the employment agreement, Mr. DeCesaris was granted options for 50,000
shares, 12,500 of which were immediately exercisable and the balance were
exercisable for 12,500 shares on each of the first three anniversaries of the
date of grant. Upon a change of control of the Company, the option is fully
exercisable. The options were not granted under the Company's Employee Stock
Option Plan.
25
<PAGE>
Cumulative Total Return
The following graph compares the total return on the Company's common stock
during the period from August 1, 1995 to July 31, 2000 with the Standard &
Poor's 500 Stock Index and the Dow Jones Home Construction Index:
Comparison Of 5 Year Cumulative Total Return*
Among Washington Homes, Inc., The S & P 500 Index
And The Dow Jones Home Construction Index
[GRAPH INSERTED HERE]
* $100 Invested on 7/13/95 in stock or index - including reinvestment of
dividends. Fiscal year ending July 31.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Securities Ownership of Certain Beneficial Owners
The following table sets forth certain information as of September 20, 2000,
except as otherwise noted, with respect to the beneficial ownership of the
Company's voting common stock by each person known by the Company to be the
beneficial owner of more than five percent of its outstanding voting common
stock:
Shares of Voting Common
Stock Beneficially Owned
Name and Address ------------------------
of Beneficial Owners(1) Number Percent (2)
----------------------- --------- -----------
Geaton A. DeCesaris, Jr. (3)(4)(5)(6) 1,117,294 13.7
Geaton A. DeCesaris, Sr. (3)(4)(7) 709,369 8.7
A. Hugo DeCesaris (3)(4)(5)(8) 602,835 7.4
Marco A. DeCesaris (3)(4)(5)(9) 540,551 6.6
Joseph A. DeCesaris (3)(4)(5) 463,403 5.7
Dimensional Fund Advisors, Inc. (10)
1299 Ocean Avenue
Santa Monica, CA 90401 522,000 6.4
(1) The address for DeCesaris family members is 1802 Brightseat Road, Landover,
Maryland 20785-4235.
(2) Based on 8,129,461 shares outstanding.
(3) Includes shares held by spouse and jointly with spouse. Each person listed
has joint voting and investment power with that person's spouse with
respect to the shares jointly owned. Also includes shares held in that
person's retirement plan accounts.
(4) Geaton A. DeCesaris, Jr., Marco A. DeCesaris, A. Hugo DeCesaris and Joseph
A. DeCesaris are the sons and Paul C. Sukalo is the son-in-law of Geaton A.
DeCesaris, Sr. While these persons have acted together in various
businesses, principally in real estate, except with respect to the proposed
merger into a subsidiary of Hovnanian, there has been no agreement among
them to vote their shares together or to otherwise act in concert
concerning the affairs of the Company. Each of the individuals disclaims
beneficial ownership of any shares other than as listed opposite such
person's name in the table above or the table on the next page. On August
28, 2000 the Company entered into an agreement with Hovnanian as described
in "Item 1 - Recent Developments." In connection with the proposed merger
these individuals have entered into voting agreements with Hovnanian to
vote their shares in favor of the merger.
(5) Does not include shares held by certain DeCesaris family trusts for the
benefit of family members, portions of which may be deemed indirectly
beneficially owned as follows: 100,000 shares by Geaton A. DeCesaris, Jr.,
40,000 shares by Marco A. DeCesaris, 40,000 by A. Hugo DeCesaris and 80,000
by Joseph A. DeCesaris. The co-trustees of these trusts have shared voting
and investment power with respect to shares held.
26
<PAGE>
(6) Includes 21,500 shares held as custodian for family members and 7,000 by a
corporation which he controls.
(7) Includes 590,000 shares held in a trust for family members for which Mr.
DeCesaris acts as trustee.
(8) Includes 72,000 shares held as custodian for family members.
(9) Includes 8,000 shares held as custodian for family members.
(10) Beneficial ownership is as of December 31, 1999. Dimensional Fund Advisors,
Inc. ("DFA"), has informed the Company that it is a registered investment
advisor and investment manager, that it has sole power to vote and sole
dispositive power with respect to all shares held.
Securities Ownership of Management
The following table sets forth information as of September 20, 2000 regarding
beneficial ownership of the Company's common stock by each Director, each of the
persons named in the Summary Compensation Table set forth in Item 11 and
Directors and executive officers of the Company as a group:
Percentage of
Number of Shares Outstanding
Name Beneficially Owned Shares (7)
---- ------------------ -------------
Geaton A. DeCesaris, Jr. 1,117,294 (1)(2)(3)(4) 13.7%
Geaton A. DeCesaris, Sr. 709,369 (1)(3)(5) 8.7
Thomas Pellerito 365,000 (4) 4.5
Paul C. Sukalo 266,211 (1)(3)(6) 3.3
Clayton Miller 12,462 (1)(3)(4) *
Christopher Spendley 1,000 (3)(4) *
Thomas Connelly 56,000 (1)(3)(4) *
Richard S. Frary 53,830 (1)(3) *
Ronald M. Shapiro 2,225 (3) *
Richard B. Talkin 11,000 (1)(3) *
All Directors and executive
officers as a group
(10 persons) 2,594,391 (1)(2)(3)(4)(5)(6) 31.9
* Less than 1% of issued and outstanding shares of common stock.
(1) Includes shares held by spouse or jointly with spouse, and/or shares held
in retirement plan accounts.
(2) Does not include 100,000 shares held in the DeCesaris family trusts which
may be deemed indirectly beneficially owned by Geaton A. DeCesaris, Jr.,
but does include 21,500 shares held as custodian for family members and
7,000 shares by a corporation which he controls.
(3) Does not include shares which such person has a right to acquire through
the exercise of options as follows: Mr. DeCesaris, Jr. 95,000; Mr.
DeCesaris, Sr. 20,000; Mr. Sukalo 24,000; Mr. Spendley 72,000; Mr. Miller
34,000; Mr. Connelly 20,000; Mr. Shapiro 27,000; Mr. Talkin 27,000; and Mr.
Frary 25,000 and all executive officers and directors as a group 344,000.
(4) Does not include shares which such person has the right to receive under
the deferred compensation incentive plan as follows: Mr. DeCesaris, Jr.
26,736; Mr. Pellerito 21,787; Mr. Miller 3,975; Mr. Spendley 7,950; and Mr.
Connelly 1,157.
(5) Includes 590,000 shares held in a trust for the benefit of DeCesaris family
members for which Geaton A. DeCesaris, Sr. acts as trustee.
(6) Does not include 60,000 shares held in the DeCesaris family trusts which
may be deemed indirectly beneficially owned by Paul C. Sukalo.
(7) Based on 8,129,461 shares outstanding
Item 13. Certain Relationships and Related Transactions
The Company and its subsidiaries currently lease over 24,000 square feet of
office space in the Ingle West Office Building in Landover, Maryland from
Citadel Land, Inc., a corporation owned by members of the DeCesaris family,
pursuant to a lease expiring in January 2008 at a base annual rental of
$444,000. The rental is subject to adjustment for increased operating expenses
and changes in the Consumer Price Index. For fiscal 2000, the Company paid
Citadel $554,000 in rentals.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements
The following consolidated financial statements of Washington Homes, Inc. and
subsidiaries are filed as a part of this report:
Independent Auditors' Report
Consolidated Balance Sheets at July 31, 2000 and 1999
Consolidated Statements of Operations for each of the years in the three-year
period ended July 31, 2000
Consolidated Statements of Shareholders' Equity for each of the years in the
three-year period ended July 31, 2000
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended July 31, 2000
Notes to Consolidated Financial Statements for each of the years in the
three-year period ended July 31, 2000
27
<PAGE>
(b) Reports on Form 8-K
During the period from May 1, 2000 to July 31, 2000, the registrant did not file
any reports on Form 8-K.
(c) Exhibits
There are included in this report or incorporated herein by reference the
following exhibits:
Exhibit No. Description of Exhibit
----------- ----------------------
2.1 Asset Purchase Agreement #1 dated as of March 24, 1999 (Filed as
Exhibit 2(a) to 8-K Report dated April 20, 1999)*
2.2 Asset Purchase Agreement #2 dated as of March 24, 1999 (Filed as
Exhibit 2(b) to 8-K Report dated April 20, 1999)*
2.3 Agreement and Plan of Merger among Hovnanian Enterprises, Inc.
("Hovnanian"), WHI Holding Co., Inc. and the registrant dated as
of August 28, 2000 (Filed as Exhibit 1 to Schedule 13D dated
September 7, 2000 filed by Hovnanian, File No. 5-42891)*
2.4 Voting Agreement (Form A) dated as of August 28, 2000 among
Hovnanian and several shareholders of the registrant (Filed as
Exhibit 2 to Schedule 13D dated September 7, 2000 filed by
Hovnanian, File No. 5-42891)*
2.5 Voting Agreement (Form B) dated as of August 28, 2000 among
Hovnanian and several shareholders of the registrant (Filed as
Exhibit 3 to Schedule 13D dated September 7, 2000 filed by
Hovnanian, File No. 5-42891)*
3.1 Articles of Incorporation of registrant, as amended (Filed as
Exhibit 3(a) to Registration No. 33-52648)*
3.2 Articles of Merger merging WH Holdings, Inc. into registrant
(Filed as Exhibit 3(a)(1) to Registration No. 33-52648)*
3.3 Articles of Restatement of Charter of registrant (Filed as Exhibit
3(a)(2) to Registration No. 33-52648)*
3.4 Articles Supplementary to the Charter of registrant (Filed as
Exhibit 3(a)(3) to Registration No. 33-52648)*
4.1 Specimen Common Stock Certificate (Filed as Exhibit 4(a) to
Registration No. 33-52648)*
10.1 Office Lease Agreement between Citadel Land, Inc. and the Company
dated as of January 1, 1997 (Filed as Exhibit 10(a) to 10-K Report
for year ended July 31, 1998)*
10.2 First Amendment to Office Lease Agreement between Citadel land,
Inc. and the Company dates as of May 14, 1998 (Filed as Exhibit
10(b) to 10-K Report for year ended July 31, 1998)*
10.3 Second Amendment to Office Lease Agreement between Citadel Land,
Inc. and the Company dated as of June 1, 1998 (Filed as Exhibit
10(c) to 10-K Report for year ended July 31, 1998)*
10.4 Third Amendment to Office Lease between Citadel Land, Inc. and the
Company dated as of February 25, 1999
10.5 Note Agreement dated as of April 15, 1994 with respect to
$43,000,000 Senior Notes due October 2000 (Filed as Exhibit 19 to
10-Q Report for quarter ended April 30, 1994 - File No. 1-7643)*
10.6 1999 Amended and Restated Loan Agreement for $120 Million Credit
Facility dated as of September 17, 1999 with a group of lenders
and First Union National Bank as Collateral Agent and First Union
Capital Markets Corp. as Administrative Agent. (Filed as Exhibit
10(e) to 10-K Report for year ended July 31, 1999)*
10.7 Second Amendment Agreement dated as of January 30, 1998 to Note
Agreement dated April 15, 1994 (Filed as Exhibit 10 to 10-Q Report
for quarter ended January 31, 1998)*
10.8 Washington Homes, Inc. 401(k) Plan (Filed as Exhibit 10(i) to 10-K
Report for year ended July 31, 1996)*
10.9 Amendment to Washington Homes, Inc. 401(k) Plan (Filed as Exhibit
10(i) to 10-K Report for year ended July 31, 1999)*
10.10 Washington Homes, Inc. Employee Stock Option Plan (Filed as
Exhibit 10(f) to Registration No. 33-52648)*
10.11 Amendment to Employee Stock Option Plan (Filed as Exhibit 10(f)(1)
to Registration No. 33-52648)*
10.12 Amendment Number 2 to Employee Stock Option Plan (Filed as Exhibit
10(k) to 10-K Report for year ended July 31, 1998)*
10.13 Washington Homes, Inc. Non-Employee Directors' Stock Option Plan
(Filed as Exhibit A to Definitive Proxy Statement for meeting held
December 9, 1994)*
10.14 Amendment to Non- Employee Directors' Stock Option Plan (Filed as
Exhibit 10(o) to 10-K Report for year ended July 31, 1998)*
10.15 Form of Change of Control Employment Agreements with Thomas
Pellerito, Christopher Spendley, Paul Sukalo, and Clayton Miller
(Filed as Exhibit 10(n) to 10-K Report for year ended July 31,
1999)*
10.16 Washington Homes Deferred Compensation Incentive Plan (Filed as
Exhibit A to Proxy Statement for Annual Meeting of Shareholders
held November 19, 1999)*
10.17 Employment Agreement dated as of June 30, 2000 with Geaton A.
DeCesaris, Jr. including Non-Statutory Stock Option
21 Subsidiaries of registrant
23 Consent of Independent Auditors
24 Power of Attorney
27 Financial Data Schedule
99.1 Audit Committee Charter
* Incorporate herein by reference.
(d) Financial Statement Schedules
All schedules are omitted because the information is not applicable or is
presented in the financial statements or related notes.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf on the 11th of October, 2000 the undersigned, thereunto duly authorized.
WASHINGTON HOMES, INC.
(Registrant)
By: /s/ GEATON A. DECESARIS, JR.
----------------------------
Geaton A. DeCesaris, Jr., Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name Position Date
---- -------- ----
/s/ GEATON A. DECESARIS, JR. Chairman of the Board, October 11, 2000
----------------------------- President and Principal
Geaton A. DeCesaris, Jr. Executive Officer
/s/ GEATON A. DECESARIS, SR.* Director October 11, 2000
-----------------------------
Geaton A. DeCesaris, Sr.
/s/ THOMAS CONNELLY* Director October 11, 2000
-----------------------------
Thomas Connelly
/s/ PAUL C. SUKALO* Director October 11, 2000
-----------------------------
Paul C. Sukalo
Director October __, 2000
-----------------------------
Ronald M. Shapiro
/s/ RICHARD S. FRARY* Director October 11, 2000
-----------------------------
Richard S. Frary
/s/ RICHARD B. TALKIN* Director October 11, 2000
-----------------------------
Richard B. Talkin
/s/ THOMAS J. PELLERITO* Director October 11, 2000
-----------------------------
Thomas J. Pellerito
/s/ CHRISTOPHER SPENDLEY Principal Financial Officer October 11, 2000
-----------------------------
Christopher Spendley
/s/ CLAYTON W. MILLER Principal Accounting Officer October 11, 2000
-----------------------------
Clayton W. Miller
*By: /s/ GEATON A. DECESARIS, JR.
----------------------------
Geaton A. DeCesaris, Jr.
Attorney-in-fact
29
<PAGE>
Directors and Officers
Board of Directors
Geaton A. DeCesaris, Sr.(1)
Chairman Emeritus
Geaton A. DeCesaris, Jr.(1)
Chairman of the Board, President,
and Chief Executive Officer
Thomas J. Pellerito
President--Homebuilding Operations,
Chief Operating Officer
Paul Sukalo(1)
Senior Vice President
Construction
Thomas Connelly(2)
Chief Financial Officer
Western Pacific Housing
El Segundo, California
Richard S. Frary(2,3)
President
Tallwood Associates, Inc.
New York, New York
Ronald M. Shapiro(2,3)
Counsel To The Firm
Shapiro & Olander
Baltimore, Maryland
Chairman, Shapiro Negotiations Institute
Richard B. Talkin(2,3)
Attorney
Columbia, Maryland
(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
Executive Officers
Geaton A. DeCesaris, Jr.
Chairman of the Board, President,
and Chief Executive Officer
Thomas J. Pellerito
President--Homebuilding Operations,
Chief Operating Officer
Christopher Spendley
Senior Vice President, Chief Financial
Officer and Secretary
Clayton W. Miller
Senior Vice President, Chief Accounting
Officer and Treasurer
Paul C. Sukalo
Senior Vice President
Construction
<PAGE>
Other Officers of the
Company and/or Subsidiaries
Robert Hutson
Executive Vice President
Southeast Region President
Tony L. Kennicott
Executive Vice President
Mid-South Region President
Senior Vice Presidents
Jeffrey Donohue
Homebuyer's Mortgage, Inc.
Dorothy Minich
Sales and Marketing
William A. Wilder
Land Operations
Vice Presidents
Deborah A. Ailiff
Associate General Counsel
Timothy M. Bates
Virginia Division President
Paul Carty
Charlotte Division President
A. Hugo DeCesaris
Maryland Division President
Marco A. DeCesaris
Design Showcase
David C. DeMarco
Land Acquisitions
Larry Gorman
National Purchasing
Laurence Jaffe
General Counsel
A. J. McMurphy, III
Gulf Coast Division President
Craig Smith
Greensboro Division President
Neil Traurig
Pittsburgh Division President
<PAGE>
Corporate Information
Company Profile
Ranked as one of the top 40 builders in the United States, Washington Homes
designs, builds and markets quality homes in 82 communities in Maryland,
Virginia, and Pennsylvania; and under the Westminster Homes name in North
Carolina, Tennessee, Alabama and Mississippi. The Company is an acknowledged
leader in the construction of condominiums, townhouses and single-family homes.
As a full-service homebuilder, Washington Homes also is engaged in related
businesses: Homebuyer's Mortgage, Inc., New Homebuyers Title, Homebuyer's
Insurance, and Design Showcase. The Company has constructed over 26,000 homes
in its 35-year history.
Corporate Office
1802 Brightseat Road, 6th floor
Landover, Maryland 20785
Transfer Agent & Registrar
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660
www.chasemellon.com
Independent Auditors
Deloitte & Touche LLP
McLean VA
Common Price Range
The common stock is traded on the New York Stock Exchange, Symbol "WHI."
----------------------------------------
Fiscal 2000 High Low
----------------------------------------
1st Quarter 7.13 5.06
2nd Quarter 5.75 4.69
3rd Quarter 6.00 5.00
4th Quarter 6.63 5.13
----------------------------------------
Fiscal 1999 High Low
----------------------------------------
1st Quarter 6.25 4.00
2nd Quarter 6.50 4.63
3rd Quarter 7.00 5.13
4th Quarter 8.38 6.00
<PAGE>
[WASHINGTON HOMES LOGO]
Making the American Dream Affordable(R)
1802 Brightseat Road
Landover, Maryland 20785
phone (301) 772-8900 o fax (301) 772-1380
www.washhomes.com
