SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Amendment No. 1
To
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 20, 1999
WASHINGTON HOMES, INC.
(Exact name of registrant as specified in its charter)
Maryland 1-7643 52-0818872
(State or other Jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1802 Brightseat Road, Landover, Maryland 20785-4235
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 772-8900
INFORMATION TO BE INCLUDED IN THE REPORT
Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired.
The combined financial statements of Breland Homes, Inc. and
related entities listed in the attached Index to Financial
Statements and Pro Forma Information are filed with this report.
(b) Pro Forma Financial Information.
The pro forma combined financial information for Breland Homes,
Inc. and related entities and the registrant listed in the
attached Index to Financial Statements and Pro Forma Financial
Information are filed with this report.
-2-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to the report to be signed on its
behalf by the undersigned hereunto duly authorized.
WASHINGTON HOMES, INC.
(Registrant)
July 2, 1999 By:_______________________
(Date) Christopher R. Spendley
Senior Vice President and
Chief Financial Officer
-3-
INDEX TO FINANCIAL STATEMENTS AND PROFORMA FINANCIAL INFORMATION
Page
----
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS .................. F-2
FINANCIAL STATEMENTS AT DECEMBER 31, 1998 AND FOR THE
YEAR THEN ENDED (AUDITED):
Combined Balance Sheet ....................................... F-3
Combined Statement of Operations ............................. F-4
Combined Statement of Equity ................................. F-5
Combined Statement of Cash Flows ............................. F-6
Notes to the Combined Financial Statements ................... F-7
PRO FORMA COMBINED STATEMENTS OF OPERATIONS, YEAR ENDED
JULY 31, 1998 (UNAUDITED) AND NINE MONTHS ENDED APRIL 30, 1999
(UNAUDITED) ........................................................... F-11
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Breland Homes, Inc.
Madison, Alabama
We have audited the accompanying combined balance sheet of Breland Homes, Inc.,
Breland Homes of Mississippi, L.L.C., and Breland Properties, Inc., (companies
under common control) (Breland Homes, Inc. and related entities) as of December
31, 1998, and the related statements of operations, equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Breland Homes, Inc. and related entities management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. 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 audit provides a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of the Breland Homes, Inc.
and related entities at December 31, 1998, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Washington, D.C.
April 2, 1999
April 20, 1999 with respect to
Note 12 to the financial statements
F-2
BRELAND HOMES, INC. AND RELATED ENTITIES
COMBINED BALANCE SHEET
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 952,212
Accounts receivable ...................................... 48,876
Due from related parties ................................. 779,082
Inventory ................................................ 11,108,633
Current portion of notes receivable ...................... 270,576
Deferred tax asset ....................................... 71,583
Prepaid expenses and other current assets ................ 268,091
-----------
Total current assets ................... 13,499,053
PROPERTY AND EQUIPMENT, NET .................................. 233,129
OTHER ASSETS:
Notes receivable, less current portion ................... 488,951
Restricted cash and other deposits ....................... 315,825
-----------
TOTAL ASSETS ................................................. $14,536,958
===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued expenses .............. $ 1,147,468
Due to related party ..................................... 339,621
Customer deposits ........................................ 149,656
Land acquisition and development notes payable ........... 7,870,924
Other current liabilities ................................ 41,881
-----------
Total current liabilities .............. 9,549,550
COMMITMENTS .................................................. --
EQUITY ....................................................... 4,987,408
-----------
TOTAL LIABILITIES AND EQUITY ................................. $14,536,958
===========
See notes to combined financial statements.
F-3
BRELAND HOMES, INC. AND RELATED ENTITIES
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
REVENUES:
Homebuilding ........................................... $31,969,875
Land sales ............................................. 207,100
Interest and other income .............................. 377,878
-----------
Total revenue ........................ 32,554,853
-----------
EXPENSES:
Cost of sales .......................................... 25,448,992
Selling, general, and administrative ................... 4,437,966
Interest expense ....................................... 659,940
-----------
Total expenses ....................... 30,546,898
-----------
INCOME BEFORE INCOME TAXES ................................. 2,007,955
PROVISION FOR INCOME TAXES ................................. 87,425
-----------
NET INCOME ................................................. $ 1,920,530
===========
See notes to combined financial statements.
F-4
BRELAND HOMES, INC. AND RELATED ENTITIES
COMBINED STATEMENT OF EQUITY
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Balance, January 1, 1998 ............................... $ 3,696,950
Contributions .......................................... 273,000
Distributions .......................................... (903,072)
Net Income ............................................. 1,920,530
-----------
Balance, December 31, 1998 ............................. $ 4,987,408
===========
See notes to combined financial statements.
F-5
BRELAND HOMES, INC. AND RELATED ENTITIES
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................. $ 1,920,530
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................... 122,930
Loss on the sale of fixed assets ....................... 29,907
Changes in assets and liabilities:
Decrease in accounts receivable .................... 336,986
Decrease in due from related parties ............... 256,346
Decrease in inventory .............................. 1,748,072
Increase in deferred tax asset ..................... 62,100
Increase in prepaids and other current assets ...... (147,895)
Decrease in restricted cash and escrow deposits .... 37,829
Decrease in accounts payable and other accrued
expenses .......................................... (780,604)
Increase in other current liabilities .............. 35,506
Decrease customer deposits ......................... (30,529)
-----------
Net cash provided by operating activities ... 3,591,178
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment ............... 85,500
Purchases of property and equipment ........................ (78,238)
Loans made on notes receivable ............................. (626,184)
Repayments received on notes receivable .................... 232,732
-----------
Net cash used in investing activities ....... (386,190)
-----------
CASH FLOWS FROM FINANCIAL ACTIVITIES:
Borrowings on notes payable, construction and development .. 5,980,636
Repayments on notes payable, construction and development .. (7,726,295)
Repayments on notes due to related parties ................. (1,145,741)
-----------
Net cash used in financing activities ....... (2,891,400)
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ...................... 313,588
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ................... 638,624
-----------
CASH AND CASH EQUIVALENTS, END OF YEAR ......................... $ 952,212
===========
SUPPLEMENTAL INFORMATION:
Interest paid during the year ............................... $ 670,571
===========
Income taxes paid during the year ........................... $ 65,959
===========
See notes to combined financial statements.
F-6
BRELAND HOMES, INC. AND RELATED ENTITIES
YEAR ENDED DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The combined financial statements include the
accounts of Breland Homes, Inc., Breland Homes of Mississippi, L.L.C.,
and Breland Properties, Inc., entities under common control, (Breland
Homes, Inc. and related entities). The primary business of the Breland
Homes, Inc. and related entities is homebuilding and land development in
the areas in and around Huntsville, Alabama and Gulfport and Biloxi,
Mississippi under the name "Breland Homes."
The financial statements of the Breland Homes, Inc. and related entities
have been presented on a combined basis utilizing the Breland Homes, Inc.
and related entities historical cost. These financial statements include
the combined assets, liabilities, revenues and expenses of the Breland
Homes, Inc. and related entities. The net excess of assets over
liabilities of the Breland Homes, Inc. and related entities is presented
as equity in the combined financial statements. All significant
intercompany accounts and transactions have been eliminated in
combination.
Cash and Cash Equivalents - The Breland Homes, Inc. and related entities
considers all highly liquid investments, which have a maturity of three
months or less from the date of purchase, to be cash equivalents.
Inventory - Inventory of finished homes and homes in process and the
related lots, which were developed by Breland Homes, Inc. and related
entities or acquired from affiliated or other developers, are stated at
the lower of cost or market (determined by accumulating actual direct
costs). Upon settlement, the costs of the homes and related lots are
expensed on a specific identification basis. Cost of homes and land sold
includes estimated future warranty costs.
Property and Equipment - Property and equipment, consisting primarily of
office equipment and fixtures, are recorded at cost. Depreciation is
computed using the straight-line method over useful lives which range
from 3 to 10 years.
Revenue Recognition - Revenue from the sale of real estate is recorded
and profits are recognized when title and risk of ownership have been
transferred to the buyer and any other conditions necessary for profit
recognition have been met.
Use of Estimates - The preparation of the Breland Homes, Inc. and related
entities combined financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of December 31, 1998, and the revenues and expenses for the year then
ended. Accordingly, actual results could differ from those estimates.
Income Taxes - Breland Homes, Inc. uses the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
provided for temporary differences in the recognition of certain income
and expenses for financial and tax reporting purposes. The tax effects of
these timing differences are reflected in the financial statements as
deferred taxes.
The income and losses of Breland Properties, Inc., a subchapter S
corporation, and Breland Homes of Mississippi, L.L.C. which is treated as
a partnership for tax purposes, are reported in the individual federal
and state income tax returns of the owners of these companies.
Accordingly, no provision for income taxes has been recorded for the
operations of these two companies.
Evaluation of Long-Lived Assets - In accordance with the Statement of
Financial Accounting Standard ("SFAS"), No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," Breland Homes, Inc. and related entities evaluate the potential
impairment of long-lived assets, including inventory, based on the
projection of undiscounted cash flows whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
fully recoverable. Management believes no material impairment of these
assets exists at December 31, 1998.
F-7
New Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement requires companies to
recognize all derivatives as either assets or liabilities, with the
instruments measured at fair value. The accounting for changes in fair
value and gains and losses depends on the intended use of the derivative
and its resulting designation. The statement is effective for fiscal years
beginning after June 15, 1999. Breland Homes, Inc. and related entities
are evaluating the effect that implementation of SFAS No. 133 will have on
their combined financial statements.
2. PROPERTY AND EQUIPMENT
At December 31, 1998, property and equipment consisted of the following:
Model home furnishings .......................... $ 177,843
Vehicles ........................................ 116,281
Construction equipment .......................... 51,559
Furniture, office equipment and fixtures ........ 247,707
Airplane ........................................ 73,280
---------
666,670
Less: accumulated depreciation .................. (433,541)
Property and equipment, net .................... $ 233,129
=========
3. RELATED PARTIES
At December 31, 1998, Breland Homes, Inc. and related entities have
amounts, primarily representing funds advanced, due from the following
related parties:
Madison Homes L.L.C ........................... $422,450
Southeastern Storage Corporation .............. 159,906
Daphne Apartment Corporation .................. 51,293
Highland Lakes L.L.C .......................... 99,730
Other ......................................... 45,703
--------
$779,082
========
With the exception of the amount due from Southeastern Storage
Corporation, which is due on July 29, 1999 and bears interest at 7%, the
terms for the remaining amounts are undefined.
In addition, at December 31, 1998, Breland Homes, Inc. and related
entities have amounts due to a related party with undefined terms for
unpaid commissions and funds advanced to Breland Homes, Inc. and related
entities for lot option deposit payments totaling $339,621.
Breland Homes, Inc. and related entities lease office space from a related
party under a month to month lease agreement. Total rent expense under
this agreement during the year ended December 31, 1998 was approximately
$49,000.
4. INVENTORY
At December 31, 1998, inventory consisted of the following:
Finished and in-process homes .................. $ 5,563,945
Finished lots .................................. 3,143,112
Land under development ......................... 2,401,576
-----------
$11,108,633
===========
F-8
5. NOTES RECEIVABLE
At December 31, 1998, Breland Homes, Inc. and related entities notes
receivable consisted of the following:
Mortgage notes receivable from several
individuals related to the purchase of
Breland Homes real property, bearing interest
at either 10% or 12%, due on various
dates through 2004. These notes are secured by
real property ................................................ $ 201,647
Notes receivable for the sale of land, bearing
interest at 10%, due on various dates through
2006. These notes are secured by real property ................ 557,880
---------
759,527
Less: current portion of notes receivable ..................... 270,576
---------
$ 488,951
=========
Based on the interest rates on the notes, Breland Homes, Inc. and related
entities believes that the fair value of the notes approximate their
current value.
6. RESTRICTED CASH AND OTHER DEPOSITS
Breland Homes, Inc. has entered into agreements with two banks to provide
certain qualified customers with mortgage loans under a program sponsored
by Breland Homes. This program allows home purchasers to have no more
than a $1,000 down payment. In consideration for entering into this
program, Breland Homes has agreed to maintain restricted cash deposits of
$2,500 per program loan in the bank as security for losses, claims, and
expenses incurred by the bank with respect to the program loan. At
December 31, 1998, $173,673 was on deposit with banks participating in
this program. Upon the earlier of payment of the mortgage or the
expiration of five years, the deposit is refunded to Breland Homes with
interest.
Breland Homes, Inc. and related entities also have $142,152 of escrow and
other deposits outstanding at December 31, 1998.
7. LAND ACQUISITION AND DEVELOPMENT NOTES PAYABLE
Notes payable are secured by real estate held for development or sale. At
December 31, 1998, interest rates on land acquisition and construction
notes payable totaling $7,236,065 range from 7.75% to 8.25%, with the
remaining $634,859 bearing interest at the prime rate (7.75%). The land
acquisition and development notes payable are generally repaid as the
related real estate projects are sold, renewed or refinanced.
Because of the short-term nature of the notes payable, Breland Homes,
Inc. and related entities believe that the carrying value of the notes at
December 31, 1998, approximates fair value.
8. INCOME TAXES
The provision for income taxes for the year ended December 31, 1998
consisted of the following:
Current:
Federal income taxes $ 82,151
State income taxes 13,347
---------
95,498
Deferred income tax (8,073)
---------
$ 87,425
=========
F-9
The actual income tax provision differs from the amount calculated using
statutory federal rate as follows:
Statutory federal rate..................... $682,700 34.0%
State income tax expense,
net of federal benefit................... 8,800 0.4
Income of S corporation and
limited liability company............. (602,200) (30.0)
Other...................................... (1,900) 0.0
-------- ----
Effective tax rate......................... $ 87,400 4.4%
======== =====
Deferred income taxes at December 31, 1998 result from differences
between financial reporting and income tax reporting related to the
capitalization of certain inventory costs under the uniform
capitalization rules for tax purposes.
9. EQUITY
In September 1998, the majority owner of the Breland Homes, Inc. and
related entities, contributed 100% of the outstanding stock of Wasalan
Land Company to Breland Homes, Inc. Subsequent to its contribution,
Wasalan Land Company has liquidated and the assets were merged with those
of Breland Homes, Inc. At the date of contribution, the net assets of
Wasalan totaled approximately $273,000 and consisted primarily of an
account receivable of $271,000 due from Breland Homes, Inc.
During the year ended December 31, 1998, one of the Breland Homes, Inc.
and related entities recorded $903,072 due from one of its members as a
distribution of equity to that member.
10. EMPLOYEE BENEFIT PLANS
Breland Homes, Inc. has a defined contribution profit sharing plan (the
"Plan") covering all full time employees meeting certain length of
service and age requirements. The Plan provides for annual contributions
in amounts as determined by the Board of Directors. There were no
contributions made for the year ended December 31, 1998.
11. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies consist of those normal and usual to real
estate developers and include such items as subdivision improvement
agreements and guarantees, bond guarantees, and warranties to homebuyers,
the costs of which are included in cost of sales.
To assure the future availability of various building lots, in the
ordinary course of business the Breland Homes, Inc. and related entities
enter into option agreements to purchase finished building lots. Deposits
of approximately $100,000 at December 31, 1998 secured the Breland Homes,
Inc. and related entities performance under these agreements.
12. SUBSEQUENT EVENT
In April 1999, Washington Homes, Inc., through two newly formed
wholly-owned subsidiaries, completed the acquisition of a substantial
part of the assets and assumed liabilities of the Breland Homes, Inc. and
related entities. This transaction has been given effect as of March 1,
1999.
F-10
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma combined statements of operations combine the
consolidated statements of operations of Washington Homes, Inc. (WHI) for the
year ended July 31, 1998 and the nine months ended April 30, 1999 with the
statements of operations of the Breland Homes, Inc. and related entities
(Breland) for the year ended July 31, 1998 and seven months ended February 28,
1999, up to the effective date of the acquisition of Breland by WHI, using the
purchase accounting method for the business combination.
The pro forma combined statements of operations are not necessarily indicative
of future operations or the actual results that would have occurred has the
combination been consummated at the beginning of the periods indicated above.
These statements should be read in conjunction with the other pro forma
financial information and the separate historical financial statements and notes
thereto of Breland included elsewhere herein and the separate historical
financial statement and notes thereto of WHI.
Year Ended July 31, 1998
------------------------
Excluded Pro Forma Pro Forma
WHI Breland Amounts(1) Adjustments(2) Combined
--- ------- ---------- -------------- --------
(In Thousands Except per Share Amounts)
REVENUES
Homebuilding and land sales .................... $237,594 $ 35,731 $ (332) $ -- $272,993
Other income ................................... 3,109 521 -- -- 3,630
-------- -------- -------- -------- --------
Total Revenues ....................... 240,703 36,252 (332) -- 276,623
EXPENSE
Cost of sales - homebuilding and land .......... 195,055 28,851 (260) -- 223,646
Selling, general and administrative ............ 33,206 4,253 (39) -- 37,420
Interest ....................................... 5,172 877 (8) 421 6,462
Financing fees ................................. 621 24 -- -- 645
Amortization and depreciation expense .......... 641 109 -- 261 1,011
-------- -------- -------- -------- --------
Total Expenses ...................... 234,695 34,114 (307) 682 269,184
EARNINGS BEFORE INCOME TAXES ..................... 6,008 2,138 (25) (682) 7,439
INCOME TAX EXPENSE ............................... 2,218 84 (3) 528 2,827
-------- -------- -------- -------- --------
NET EARNINGS ..................................... $ 3,790 $ 2,054 $ (22) $ (1,210) $ 4,612
======== ======== ======== ======== ========
EARNINGS PER COMMON SHARE:
Basic ..................................... $ 0.48 $ 0.58
Diluted ................................... $ 0.48 $ 0.58
- ------------
(1) Excluded amounts represent certain revenues and expenses associated with
assets not purchased by WHI, and interest expense related to debt not
assumed by WHI.
(2) Pro Forma adjustments represent additional interest expense resulting
from funds of approximately $5.3 million used for the purchase of
Breland, net of the incremental amount capitalized in inventory and
amortization of goodwill, loan fees and other organizational costs
capitalized from the acquisition of the Breland. Goodwill amounted to
approximately $3.0 million and is being amortized over 15 years. Pro
forma tax adjustments represent additional tax expense in converting
Breland's effective tax rate to that of WHI's effective tax rate.
F-11
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(CONTINUED)
Nine Months Ended
April 30, 1999
------------------------
Excluded Pro Forma Pro Forma
WHI Breland(1) Amounts(1) Adjustments(2) Combined
--- ---------- ---------- -------------- --------
(In Thousands Except per Share Amounts)
REVENUES
Homebuilding and land sales .................. $229,909 $ 17,255 $ -- $ -- $247,164
Other income ................................. 2,877 156 -- -- 3,033
-------- -------- ----- -------- --------
Total Revenues ................... 232,786 17,411 -- -- 250,197
EXPENSES
Cost of sales - homebuilding and land ........ 186,865 13,670 -- -- 200,535
Selling, general and administrative .......... 30,095 2,385 -- -- 32,480
Interest ..................................... 4,897 368 -- 246 5,511
Financing fees ............................... 601 -- -- -- 601
Amortization and depreciation expense ........ 308 62 -- 152 522
-------- -------- ----- -------- --------
Total Expenses ................... 222,766 16,485 -- 398 239,649
EARNINGS BEFORE INCOME TAXES ................... 10,020 926 -- (398) 10,548
INCOME TAX EXPENSE ............................. 3,865 21 -- 122 4,008
-------- -------- ----- -------- --------
NET EARNINGS ................................... $ 6,155 $ 905 $ -- $ (520) $ 6,540
======== ======== ===== ======== ========
EARNINGS PER COMMON SHARE:
Basic ................................. $ 0.77 $ 0.82
Diluted ............................... $ 0.75 $ 0.79
- ----------------
(1) Above unaudited statement for Breland includes operations for the period
from August 1, 1998 through February 28, 1999, the effective date of the
acquisition. For the seven month period ended February 28, 1999, there
was no effect on revenue or expenses associated with assets not purchased
by WHI.
(2) Pro Forma adjustments represent additional interest expense resulting
from funds of approximately $5.3 million used for the purchase of
Breland, net of the incremental amount capitalized in inventory and
amortization of goodwill, loan fees and other organizational costs
capitalized from the acquisition of the Breland. Goodwill amounted to
approximately $3.0 million and is being amortized over 15 years. Pro
forma tax adjustments represent additional tax expense in converting
Breland's effective tax rate to that of WHI's effective tax rate.
F-12