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, 1999
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
incorporation or organization) Identification No.)
1802 Brightseat Road, Landover, MD 20785-4235
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(Address of principal executive offices) (Zip code)
(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 [ ]
On October 11, 1999, the aggregate market value of the voting and
non-voting common stock held by non-affiliates of the registrant was
approximately $20,618,279.
Number of shares of each of the registrant's classes of common stock
outstanding at September 30, 1999:
Class Number of Shares
----- ----------------
Common Stock (voting), $.01 par value 7,949,013
Common Stock (non-voting), $.01 par value -0-
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for fiscal year ended July 31,
1999 (Part II). Proxy statement to be filed pursuant to Regulation 14A for 1999
Annual Meeting of Shareholders to be held November 19, 1999 (Part III).
WASHINGTON HOMES, INC.
FORM 10-K REPORT
TABLE OF CONTENTS
PART I. PAGE
----
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 11
Executive Officers 11
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder 12
Matters
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and 13
Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in or Disagreements with Accountants on Accounting and 13
Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners and Management 13
Item 13. Certain Relationships and Related Transactions 13
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 14
SIGNATURES 16
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
PART I
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,
D.C-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 focuses its marketing efforts on consumers whose top priorities
are price and value. During the five years ended July 31, 1999 the Company
delivered 7,172 homes and currently offers homes for sale in 82 communities at
base sales prices ranging from $80,000 to $400,000. The Company delivered 2,124
homes during the fiscal year ended July 31, 1999 generating homebuilding
revenues of $353.7 million. The average selling price of homes delivered by the
Company during fiscal year 1999 was approximately $166,500. At July 31, 1999
there was a backlog of 1,008 homes under contract with a sales value of $197.1
million.
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.
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, 1999 was as follows:
Base Sales Price Range of Sizes
---------------- --------------
Single-family detached homes $80,000 - $400,000 1,000 to 4,000 sq. ft.
Townhomes $96,000 - $204,000 1,050 to 2,350 sq. ft.
Condominiums $82,800 - $131,000 600 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.
3
The following table sets forth a breakdown of the Company's deliveries by
housing type in each of the last three years:
Years Ended July 31,
----------------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- --------------------------
(dollars in thousands)
Homes % Amount Homes % Amount Homes % Amount
----- --- ------ ----- --- ------ ----- --- ------
Single-family
detached homes 1,519 71.5 $271,376 990 66.9 $170,139 890 67.7 $152,155
Townhomes 571 26.9 78,971 420 28.4 56,054 355 27.0 46,515
Condominiums 34 1.6 3,382 69 4.7 6,918 70 5.3 7,906
-- --- ----- -- --- ----- -- --- -----
Total 2,124 100.0 $353,729 1,479 100.0 $233,111 1,315 100.0 $206,576
===== ===== ======== ===== ===== ======== ===== ===== ========
During fiscal 1997, the Company decided to phase out its condominium operations.
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, Huntsville, 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 through delivery. The
superintendent coordinates the work of subcontractors and is responsible for
quality control and delivery of the finished product in a timely manner.
4
Residential Developments
As of July 31, 1999 the Company controlled over 11,000 homesites, as
follows:
Lots Owned
Communities in Which -----------------------
Homes are Currently Total Finished Lots Under Lots Under
Market Offered For Sale Lots Lots Development Option
- ------ ---------------- ---- ---- ----------- ------
Maryland 16 1,792 504 669 619
Virginia 16 2,108 313 56 1,739
Pennsylvania 5 177 34 15 128
--- ------ ----- ----- -----
Mid-Atlantic Region 37 4,077 851 740 2,486
Raleigh 10 1,051 100 108 843
Greensboro 8 1,644 306 158 1,180
Charlotte 8 975 88 -- 887
--- ------ ----- ----- -----
Southeast Region 26 3,670 494 266 2,910
Tennessee 6 883 95 -- 788
Alabama 9 1,744 212 -- 1,532
Mississippi 4 555 94 -- 461
--- ------ ----- ----- -----
Mid-South Region 19 3,182 401 -- 2,781
Corporate Land * -- 295 22 273 --
--- ------ ----- ----- -----
Combined Total 82 11,224 1,768 1,279 8,177
=== ====== ===== ===== =====
- -----------
* Land controlled by the Company's land department which has not been
assigned to an operating division.
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, 1999, the
Company owned or held options for 11,224 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 minimizes
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, 1999, the Company owned 1,768
finished lots and had under option 8,177 homebuilding lots for which it had
posted deposits of approximately $3.1 million in the form of cash, letters of
credit and promissory notes.
The Company develops land for its own residential operations, and 509 or
24.0% of the homes delivered in fiscal 1999 were built on land developed by the
Company. As of July 31, 1999, the Company owned 1,279 residential lots in 17
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.
5
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.
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 is located in each community which is staffed by
a Company sales representative. 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 to be updated 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, 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 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
Gulfport, Mississippi for the marketing of options available on the Company's
homes. The Company intends to expand this concept to other divisions in fiscal
2000.
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.
6
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, 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 (FNMA) and
the Federal Home Loan Mortgage Corporation (FHLMC).
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 1999, Homebuyer's closed 1,406 loans totaling $210.6 million
in permanent residential financing compared to 898 loans totaling $121.9 million
the previous fiscal year. The Company's capture rate (the percentage of
Washington Homes' homebuyers using the Company's mortgage services) increased to
60% from 55% the previous fiscal year.
During fiscal 1999, the homebuilding industry experienced a continuation of
relatively low home mortgage interest rates. There can be no assurance that a
favorable interest rate environment or that government programs providing
assistance for homebuyers will continue in the future.
The following table summarizes certain mortgage operating information
(dollars in thousands) for Homebuyer's Mortgage, Inc.:
Years Ended July 31,
-----------------------------------
1999 1998 1997
---- ---- ----
Number of loans originated 1,406 898 580
Average amount of loan originated $ 150 $ 136 $ 142
Total amount of loans originated $210,605 $121,920 $82,253
Capture Rate 60% 55% 42%
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.
7
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 site's environmental
condition 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
government 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, employment growth, 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.
8
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, 1999, the Company had approximately $19.6 million in letters of credit
and surety bonds outstanding.
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, 1999, the Company employed 442 full time personnel of whom 83
were sales and marketing personnel, 209 were executive, administrative and
clerical personnel and 150 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 four land development joint ventures. Two joint
ventures were formed to develop residential land into finished building lots for
sale to the Company and other homebuilders in Maryland utilizing non-recourse
acquisition and development loans. These ventures covered approximately 310 lots
at July 31, 1999. During fiscal year 1999 the Company formed an additional joint
venture with US Home Corporation to construct and market active adult housing on
approximately 300 building lots in the Raleigh, North Carolina market. During
fiscal 1999, the Company also entered into a joint venture agreement 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 which are utilized to provide
title services and provide insurance to its homebuyers.
The Company's interest in the joint ventures' operating results have not
been significant to date.
The Company expects to continue to evaluate potential joint ventures and
other strategic alliances as part of its operations.
Recent Developments
In November 1998 the Company acquired certain assets of Regency Homes, a
financially troubled homebuilder operating in Maryland and Virginia, consisting
of items of personal property, rights to various architectural and other plans
and drawings, assignments of lot takedown agreements and approximately 100
building lots and/or homes under construction for $7.3 million. The acquisition
provided the Company with an expanded product line of homes targeted to a higher
priced market segment than the Company's traditional market. In addition, the
Company obtained operations in five on-going communities.
9
On April 20, 1999, WHI, through two newly formed wholly-owned subsidiaries,
acquired a substantial part of the assets and assumed liabilities of Breland
Homes, Inc., Breland Properties Inc. and Breland Homes of Mississippi LLC
(collectively "Sellers"), entities owned by Louis W. Breland (the "Breland
Acquisition"). The Sellers operated a homebuilding and land development business
in the areas in and around Huntsville, Alabama and Gulfport and Biloxi,
Mississippi under the name "Breland Homes."
In the Breland Acquisition WHI assumed approximately $9.0 million of
Seller's bank debt and assumed liabilities of approximately $675,000 as of the
closing date and paid Sellers a cash amount of approximately $5.3 million. WHI
acquired inventory of finished building lots, completed homes, model homes and
houses in various stages of construction and was assigned lot option contracts
to acquire additional building lots and customer contracts for the delivery of
finished houses. WHI acquired control of approximately 2,600 building lots and a
backlog of 90 homes under contract with a delivery value of $12.1 million.
Other assets acquired included the name "Breland Homes" and other
intellectual and personal property. WHI did not acquire any cash items or
certain accounts receivable and inter-company obligations, among other things.
The Breland Acquisition was made using in part the proceeds from a newly
established $15 million revolving line of credit from Compass Bank which is
based in Alabama. This line is intended to provide the operations of Alabama and
Mississippi with working capital.
WHI also entered into a newly formed venture with Louis W. Breland to be
owned 50% by each to develop building lots for the use by the Company in Alabama
and Mississippi
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 May 2008.
During the fiscal year ended July 31, 1999, the Company paid Citadel Land,
Inc. approximately $396,000 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; Huntsville, 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.
10
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, 1999 to July 31, 1999.
Executive Officers
The executive officers of the Company are as follows:
Name Age Positions with Company
- ---- --- ----------------------
Geaton A. DeCesaris, Jr. 44 Chairman of the Board, President and Chief Executive Officer
Thomas J. Pellerito 52 President--Homebuilding Operations, Chief Operating Officer and
Director
Christopher Spendley 40 Senior Vice President, Chief Financial Officer and Secretary
Clayton W. Miller 48 Senior Vice President, Chief Accounting Officer and Treasurer
Paul C. Sukalo 48 Senior Vice President - Construction and Director
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 19 years experience in residential construction and related
services.
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 16 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 20 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
19 years of related construction experience, principally in residential
construction and related services. Mr. Sukalo is the brother-in-law of Geaton
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.
11
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:
Fiscal 1999 High Low
----------- ---- ---
August 1 to October 31,1998 $ 6.25 $ 4.00
November 1, 1998 to January 31, 1999 6.50 4.63
February 1 to April 30, 1999 7.00 5.13
May 1 to July 31, 1999 8.38 6.00
Fiscal 1998 High Low
----------- ---- ---
August 1 to October 31, 1997 4.88 3.69
November 1, 1997 to January 31, 1998 4.50 3.50
February 1 to April 30, 1998 5.38 3.75
May 1 to July 31, 1998 6.25 4.65
(b) Holders
On September 30, 1999, there were approximately 195 holders of record of
the Company's Common Stock (voting).
(c) Dividends
During fiscal 1999 and 1998 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 does not anticipate
paying dividends in the foreseeable future.
(d) Sales of Unregistered Securities
During the fiscal year ended July 31, 1999, the registrant did not sell any
securities which were not registered under the Securities Act of 1933.
Item 6. Selected Financial Data
The information required by this item is incorporated herein by reference
from "Financial Highlights" on page 1 of the Company's Annual Report to
Shareholders for the fiscal year ended July 31, 1999.
12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item is incorporated herein by reference
from pages 11 to 14 of the Company's Annual Report to Shareholders for the
fiscal year ended July 31, 1999.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The information required by this item is incorporated herein by reference
from page 14 of the Company's Annual Report to Shareholders for the fiscal year
ended July 31, 1999.
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated herein by reference
from pages 15 to 24 of the Company's Annual Report to Shareholders for the
fiscal year ended July 31, 1999.
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, 1999.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item with respect to Directors of the
Company is incorporated herein by reference to the registrant's Proxy Statement
relating to the 1999 Annual Meeting of Shareholders.
The information required by this item on Executive Officers is included in
Part I.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference
to the registrant's Proxy Statement relating to the 1999 Annual Meeting of
Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by reference
to the registrant's Proxy Statement relating to the 1999 Annual Meeting of
Shareholders.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by reference
to the registrant's Proxy Statement relating to the 1999 Annual Meeting of
Shareholders.
13
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 have been incorporated herein by reference as set forth in
Item 8:
Independent Auditors' Report
Consolidated Balance Sheets at July 31, 1999 and 1998
Consolidated Statements of Operations for each of the years in the three
year period ended July 31, 1999
Consolidated Statements of Shareholders' Equity for each of the years in
the three year period ended July 31, 1999
Consolidated Statements of Cash Flows for each of the years in the three
year period ended July 31, 1999
Notes to Consolidated Financial Statements for each of the years in the
three year period ended July 31, 1999
(b) Reports on Form 8-K
During the period from May 1, 1999 to July 31, 1999, the registrant filed the
following reports on Form 8-K:
Date of Report Items Reported
- -------------- --------------
April 20, 1999 Items 2, 7
Amendment to Report Financial Statements and Pro Forma Financial Information
Dated April 20, 1999 for Breland Homes, Inc. and related entities.
(c) Exhibits
There are included in this report or incorporated herein by reference the
following exhibits:
Exhibit No. Description of Exhibit
- ----------- ----------------------
2 (a) Asset Purchase Agreement #1 dated as of March 24, 1999 (Filed as Exhibit 2(a) to 8-K
Report dated April 20, 1999) *
2 (b) Asset Purchase Agreement #2 dated as of March 24, 1999 (Filed as Exhibit 2 (b) to 8-K
Report dated April 20, 1999) *
3 (a) Articles of Incorporation of registrant, as amended (Filed as Exhibit 3(a) to
Registration No. 33-52648) *
3 (a) (1) Articles of Merger merging WH Holdings, Inc. into registrant (Filed as Exhibit 3 (a) (1)
to Registration No. 33-52648) *
3 (a) (2) Articles of Restatement of Charter of registrant (Filed as Exhibit 3 (a) (2) to
Registration No. 33-52648) *
3 (a) (3) Articles Supplementary to the Charter of registrant (Filed as Exhibit 3 (a) (3) to
Registration No. 33-52648) *
4 (a) Specimen Common Stock Certificate (Filed as Exhibit 4 (a) to Registration No. 33-52648)*
14
Exhibit No. Description of Exhibit
- ----------- ----------------------
10 (a) 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 (b) 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 (c) 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 (d) 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 (e) 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.
10 (f) 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 (g) Washington Homes, Inc. 401(k) Plan (Filed as Exhibit 10 (i) to 10-K Report for year
ended July 31, 1996) *
10 (h) Amendment to Washington Homes, Inc. 401(k) Plan
10 (i) Washington Homes, Inc. Employee Stock Option Plan (Filed as Exhibit 10 (f) to
Registration No. 33-52648) *
10 (j) Amendment to Employee Stock Option Plan (Filed as Exhibit 10 (f) (1) to Registration No.
33-52648) *
10 (k) Amendment Number 2 to Employee Stock Option Plan (Filed as Exhibit 10 (k) to 10-K for
year ended July 31, 1998) *
10 (l) Washington Homes, Inc. Non-Employee Directors' Stock Option Plan (Filed as Exhibit A to
Definitive Proxy Statement for meeting held December 9, 1994) *
10 (m) Amendment to Non- Employee Directors' Stock Option Plan (Filed as Exhibit 10(o) to 10-K
for year ended July 31, 1998) *
10 (n) Form of Change of Control Employment Agreements with Thomas Pellerito, Christopher
Spendley, Paul Sukalo, Clayton Miller
13 1999 Annual Report to shareholders (except for the portions
incorporated herein by reference, this Exhibit is filed for
informational purposes only)
21 Subsidiaries of registrant
23 Consent of Independent Auditors
24 Power of Attorney
27 Financial Data Schedule
- --------------------
* 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.
15
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 25th of October, 1999 by 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, President and October 25, 1999
- ---------------------------- Principal Executive Officer
Geaton A. DeCesaris, Jr.
GEATON A. DECESARIS, SR.* Director October 25, 1999
- ---------------------------
Geaton A. DeCesaris, Sr.
THOMAS CONNELLY* Director October 25, 1999
- ---------------------------
Thomas Connelly
PAUL C. SUKALO* Director October 25, 1999
- ---------------------------
Paul C. Sukalo
RONALD M. SHAPIRO* Director October 25, 1999
- ---------------------------
Ronald M. Shapiro
RICHARD S. FRARY* Director October 25, 1999
- ---------------------------
Richard S. Frary
RICHARD B. TALKIN* Director October 25, 1999
- ---------------------------
Richard B. Talkin
THOMAS J. PELLERITO* Director October 25, 1999
- ---------------------------
Thomas J. Pellerito
/s/ CHRISTOPHER SPENDLEY Principal Financial Officer October 25, 1999
- ---------------------------
Christopher Spendley
/s/ CLAYTON W. MILLER Principal Accounting Officer October 25, 1999
- ---------------------
Clayton W. Miller
*By: /s/ GEATON A. DECESARIS, JR.
----------------------------
Geaton A. DeCesaris, Jr.
Attorney-in-fact
16