-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MMSPtH6BCZlhc83nuuWPYRogow13DJLmmyM6W0yRH6AjhGDJOYqmNNO8g9thppKk qKpRH5aoFpYk0lPPEVYuuw== 0000101640-98-000019.txt : 19980812 0000101640-98-000019.hdr.sgml : 19980812 ACCESSION NUMBER: 0000101640-98-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980811 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S HOME CORP /DE/ CENTRAL INDEX KEY: 0000101640 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 210718930 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05899 FILM NUMBER: 98681799 BUSINESS ADDRESS: STREET 1: 1800 WEST LOOP SOUTH STREET 2: STE 1900 CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7138772311 MAIL ADDRESS: STREET 1: PO BOX 2863 CITY: HOUSTON STATE: TX ZIP: 77252 FORMER COMPANY: FORMER CONFORMED NAME: UNITED STATES HOME & DEVELOPMENT CORP DATE OF NAME CHANGE: 19710713 10-Q 1 10Q SECOND QUARTER 1998 FOR U S HOME 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _________________. Commission File Number 1-5899 U.S. HOME CORPORATION (Exact name of registrant as specified in its charter) Delaware 21-0718930 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1800 West Loop South, Houston, Texas 77027 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 877-2311 Not Applicable (Former name, former address and former fiscal year, if changed since last report.) 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 whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 31, 1998 Common stock, $.01 par value 13,674,463 shares 2 U.S. HOME CORPORATION INDEX Page Number Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets-- June 30, 1998 and December 31, 1997 3 Consolidated Condensed Statements of Operations--Three and Six Months Ended June 30, 1998 and 1997 5 Consolidated Condensed Statements of Cash Flows--Six Months Ended June 30, 1998 and 1997 6 Notes to Consolidated Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 21 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands, Except Per Share Data)
ASSETS ------ June 30, December 31, 1998 1997 ------------ ------------- (Unaudited) HOUSING: Cash (including restricted funds) ........ $ 11,790 $ 6,270 Receivables, net ......................... 53,465 42,595 Single-Family Housing Inventories ........ 943,188 789,236 Option Deposits on Real Estate ........... 84,091 90,155 Other Assets ............................. 82,935 54,006 ---------- ---------- 1,175,469 982,262 ---------- ---------- FINANCIAL SERVICES: Cash (including restricted funds) ........ 6,599 5,492 Residential Mortgage Loans ............... 75,333 69,209 Other Assets ............................. 9,689 10,151 ---------- ---------- 91,621 84,852 ---------- ---------- $1,267,090 $1,067,114 ========== ==========
The accompanying notes are an integral part of these balance sheets. 4 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands, Except Per Share Data) LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------
June 30, December 31, 1998 1997 ------------- ------------- (Unaudited) HOUSING: Accounts Payable ........................ $ 112,653 $ 92,160 Accrued Expenses and Other Current Liabilities ........................... 77,649 68,848 Revolving Credit Facility ............... 104,000 29,000 Long-Term Debt .......................... 419,189 395,918 ---------- --------- 713,491 585,926 ---------- --------- FINANCIAL SERVICES: Accrued Expenses and Other Current Liabilities ........................... 34,008 21,067 Revolving Credit Facility ............... 31,032 40,343 ---------- --------- 65,040 61,410 ---------- --------- Total Liabilities ..................... 778,531 647,336 ---------- --------- STOCKHOLDERS' EQUITY: Common Stock, $.01 par value, authorized 50,000,000 shares, outstanding 13,674,395 shares at June 30, 1998 and 11,762,518 shares at December 31, 1997 ........... 137 119 Capital In Excess of Par Value .......... 402,717 368,277 Retained Earnings ....................... 87,327 57,358 Unearned Compensation on Restricted Stock ................................. (1,622) (1,770) ---------- ---------- 488,559 423,984 Less Treasury Stock, at cost, no shares at June 30, 1998 and 157,743 shares at December 31, 1997 .................... -- 4,206 ---------- ---------- Total Stockholders' Equity ............ 488,559 419,778 ---------- ---------- $1,267,090 $1,067,114 ========== ==========
The accompanying notes are an integral part of these balance sheets. 5 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Dollars in Thousands, Except Per Share Data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------- 1998 1997 1998 1997 -------- -------- -------- ----- HOUSING: Operating Revenues ............... $ 359,383 $ 334,011 $ 686,826 $ 644,659 --------- --------- --------- --------- Operating Costs and Expenses - Cost of products sold .......... 293,279 275,641 558,124 531,221 Selling, general and administrative ............... 34,540 31,203 67,845 60,890 Interest ....................... 10,172 8,902 19,348 16,782 --------- --------- --------- --------- 337,991 315,746 645,317 608,893 --------- --------- --------- --------- Housing Operating Income ......... 21,392 18,265 41,509 35,766 --------- --------- --------- --------- FINANCIAL SERVICES: Operating Revenues ............... 8,124 6,530 15,226 11,915 General, Administrative and Other Expenses ................. 5,048 4,190 9,750 8,065 --------- --------- --------- --------- Financial Services Operating Income ......................... 3,076 2,340 5,476 3,850 -------- --------- --------- --------- CORPORATE GENERAL AND ADMINISTRATIVE 3,141 3,092 6,475 6,003 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS ............... 21,327 17,513 40,510 33,613 --------- --------- --------- --------- PROVISION FOR INCOME TAXES: Federal and State Income Taxes ... 7,891 6,480 14,989 12,437 Tax Benefit ...................... -- -- (7,474) -- --------- --------- --------- --------- 7,891 6,480 7,515 12,437 --------- --------- --------- --------- INCOME BEFORE EXTRAORDINARY LOSS.... 13,436 11,033 32,995 21,176 EXTRAORDINARY LOSS FROM EARLY RETIREMENTOF DEBT, NET OF INCOME TAX BENEFIT ...................... 1,496 -- 3,026 -- --------- --------- --------- --------- NET INCOME ......................... $ 11,940 $ 11,033 $ 29,969 $ 21,176 ========= ========= ========= =========
6
BASIC EARNINGS PER SHARE: Income Before Extraordinary Loss . $ 1.11 $ .96 $ 2.76 $ 1.84 Extraordinary loss ............... $ (.12) $ -- $ (.25) $ -- Net income ....................... $ 99 $ .96 $ 2.51 $ 1.84 DILUTED EARNINGS PER SHARE: Income Before Extraordinary Loss . $ 1.01 $ .82 $ 2.49 $ 1.57 Extraordinary Loss ............... $ (.11) $ -- $ (.23) $ -- Net Income ....................... $ .90 $ .82 $ 2.26 $ 1.57
The accompanying notes are an integral part of these statements 7 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Six Months Ended June 30, ----------------------- 1998 1997 --------- --------- Net Cash Used by Operating Activities .......... $(106,833) $ (18,685) --------- --------- Net Cash Flows From Investing Activities: Increase in restricted cash ................... (2,190) (11,337) Principal collections on investments in mortgage loans .............................. 2,030 5,046 Purchase of property, plant and equipment, net of disposals ............................ (4,166) (1,506) Other ......................................... (739) 51 --------- --------- Net cash used by investing activities ......... (5,065) (7,746) --------- --------- Net Cash Flows From Financing Activities: Proceeds from revolving credit facilities, net of repayments ............... 65,689 29,744 Net proceeds from sale of senior notes ........ 98,237 -- Proceeds from exercise of Class B warrants .... 36,748 -- Purchase of senior notes ...................... (82,980) -- Repayment of notes and mortgage notes payable . (1,897) (2,587) Repurchase of common stock and Class B warrants -- (2,529) Redemption of convertible preferred stock ..... -- (203) Other ......................................... 538 -- --------- --------- Net cash provided by financing activities ..... 116,335 24,425 --------- --------- Net Increase (Decrease) in Cash ................. 4,437 (2,006) Cash At Beginning of Period ..................... 6,466 8,138 --------- --------- Cash At End of Period ........................... $ 10,903 $ 6,132 ========= ========= Supplemental Disclosure: Interest paid, before amount capitalized - Housing ..................................... $ 18,285 $ 17,073 Financial Services .......................... 815 666 --------- --------- $ 19,100 $ 17,739 ========= ========= Income taxes paid ............................. $ 14,002 $ 15,023 ========= =========
The accompanying notes are an integral part of these statements. 8 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 30, 1998 (Dollars in Thousands) (Unaudited) (1) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The accompanying consolidated condensed balance sheet as of December 31, 1997, which has been derived from audited financial statements, and the accompanying unaudited consolidated condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. Although the Company believes that the disclosures made are adequate to ensure that the information presented is not misleading, it is suggested that these consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's latest Annual Report on Form 10-K. The preparation of consolidated condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of any contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Management's estimates and assumptions are reflective of, among other things, prevailing market conditions, expected market conditions based on published economic forecasts, 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. In the opinion of the Company, the accompanying consolidated condensed financial statements contain all adjustments (all of which were normal and recurring adjustments) necessary to present fairly the Company's financial position as of June 30, 1998 and December 31, 1997 and its results of operations for the three and six month periods ended June 30, 1998 and 1997 and cash flows for the six month periods ended June 30, 1998 and 1997. Because of the seasonal nature of the Company's business, the results of operations for the three and six month periods ended June 30, 1998 and 1997 are not necessarily indicative of the results for the full year. 9 (2) INVENTORIES The components of single-family housing inventories are as follows:
June 30, December 31, 1998 1997 --------- ----------- Housing completed and under construction . $ 351,181 $ 302,258 Models ................................... 85,449 83,943 Finished lots ............................ 134,339 138,747 Land under development ................... 100,991 75,959 Land held for development or sale ........ 271,228 188,329 --------- --------- $ 943,188 $ 789,236 ========= =========
(3) REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT Housing - The housing revolving credit facility and long-term debt consist of the following:
June 30, December 31, 1998 1997 -------- ------------ Revolving credit facility .............. $104,000 $ 29,000 -------- -------- 7.95% Senior notes due 2001 ............ 75,000 75,000 9.75% Senior notes due 2003 ............ -- 79,703 8.25% Senior notes due 2004 ............ 100,000 100,000 7.75% Senior notes due 2005 ............ 99,754 -- 8.88% Senior subordinated notes due 2007 125,000 125,000 Notes and mortgage notes payable ....... 19,435 16,215 -------- -------- 419,189 395,918 -------- -------- $523,189 $424,918 ======== ========
10 The Company has an unsecured revolving credit facility (the "Credit Facility") with a group of banks. The Credit Facility provides for borrowings of up to a maximum of $180,000, of which up to $20,000 may be used for letter of credit obligations, subject to a borrowing base limitation. The amount available for borrowing under the Credit Facility is based on housing inventories, land, finished lots and closing proceeds receivable less the outstanding senior debt borrowings (as defined), including amounts outstanding under the Credit Facility; as the amount invested in these categories changes, the amount of available borrowings will increase or decrease. At June 30, 1998, $61,955 of the Credit Facility commitment was available for borrowing. Borrowings bear interest at a premium over the London Interbank Offered Rate ("LIBOR") or the rate announced by the agent bank. The Credit Facility expires on May 31, 2001, but may be extended annually beginning in 1999 for successive one-year periods with the consent of the banks, and contains numerous real estate and financial covenants, including restrictions on incurring additional debt, creation of liens and levels of land and housing inventories maintained by the Company and a prohibition on the payment of dividends, other than stock dividends. From time to time, the Company may utilize interest rate swap agreements to manage interest costs and hedge against risks associated with changing 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. Counterparties to these agreements are major financial institutions. The Company believes that the likelihood of credit loss from counterparty non-performance is remote. At June 30, 1998, the Company had an interest rate swap agreement outstanding with a notional amount of $50,000 which will mature in 2000 and effectively fixed the interest rate on a portion of its Credit Facility borrowings. In January 1998, the Company completed the sale of $100,000 principal amount of its 7.75% senior notes due 2005 (the "2005 Senior Notes") for the purpose of raising proceeds to redeem the balance of its 9.75% senior notes due 2003 (the "2003 Senior Notes") which were first callable in June 1998. The 2005 Senior Notes were issued at original issue discount of $263, which is being amortized over the term of the notes. Interest is payable semi-annually commencing on July 15, 1998. On or after January 15, 2003, the 2005 Senior Notes may be redeemed at the option of the Company, in whole or in part, at prices ranging from 101.29% during the 12 month period beginning January 15, 2003 to 100% (on or after January 15, 2004) of the principal amount thereof, together with accrued and unpaid interest. Upon a change of control of the Company, holders of the 2005 Senior Notes will have the right to require the Company to redeem their Notes at a price of 101% of the principal amount thereof, together with accrued and unpaid interest. There can be no assurance that sufficient funds will be available at the time of a change of control to make any required repurchases. 11 In June 1998, the Company redeemed $43,109 principal amount of the 2003 Senior Notes and in the first quarter of 1998, purchased in open market transactions $36,594 principal amount of the 2003 Senior Notes. The early retirement of the 2003 Senior Notes resulted in an extraordinary loss of $1,496, net of income tax benefit of $878, in the three month period ended June 30, 1998 and an extraordinary loss of $3,026, net of income tax benefit of $1,777, in the six month period ended June 30, 1998. Financial Services - The Company's mortgage banking subsidiary, U.S. Home Mortgage Corporation ("Mortgage"), may borrow up to $80,000 under a revolving line of credit (the "Mortgage Credit Facility"), as amended. The Mortgage Credit Facility is secured by residential mortgage loans, is not guaranteed by the Company, matures on August 31, 1999 and bears interest at a premium over the LIBOR rate. (4) INCOME TAXES In connection with the Internal Revenue Service (the "IRS") examination of the Company's 1993 and 1992 federal income tax returns, the IRS disallowed certain previously reserved deductions taken by the Company in its 1993 tax return. In March 1998, the Company was informed that its appeal of the IRS decision to disallow these deductions had been resolved in favor of the Company. As a result of the favorable ruling, the Company reduced its deferred tax liability and recognized an income tax benefit totaling $7,474 related to these deductions in 1998. The decrease in the deferred tax liability increased basic and diluted earnings per share in the six month period ended June 30, 1998, by $.63 per share and $.56 per share, respectively. (5) INVESTMENT In April 1998, th Company purchased a 13.3% interest in a Mexican home building company, headquartered near the City of Guadalajara, Mexico for $12,759, which amount is included in "other assets" in the accompanying consolidated condensed balance sheets. The Company accounts for its investment using the cost method of accounting. As part of this agreement, the Company and the Mexican company agreed to form a joint venture to, among other things, develop, construct and sell affordable housing communities initially in Texas and Arizona. 12 (6) INTEREST A summary of housing interest for the three and six month periods ended June 30, 1998 and 1997 follows:
Three Month Period ------------------ 1998 1997 -------- -------- Capitalized at beginning of period ........ $ 64,728 $ 59,239 Capitalized ............................... 11,619 8,980 Previously capitalized interest included in interest expense ........................ (10,172) (8,902) Other ..................................... (20) 79 -------- -------- Capitalized at end of period .............. $ 66,155 $ 59,396 ======== ========
Six Month Period ---------------- 1998 1997 -------- -------- Capitalized at beginning of period ........ $ 62,950 $ 58,566 Capitalized ............................... 22,580 17,555 Previously capitalized interest included in interest expense ........................ (19,348) (16,782) Other ..................................... (27) 57 -------- -------- Capitalized at end of period .............. $ 66,155 $ 59,396 ======== ========
13 Financial services interest expense for the three and six month periods ended June 30, 1998 and 1997, which is included in "general, administrative and other expenses" in the accompanying consolidated condensed statements of operations follows:
1998 1997 ------- ------- Three month period $ 426 $ 354 Six month period 837 663
(7) EARNINGS PER SHARE Basic earnings per share includes the weighted average number of common shares outstanding for the periods. Diluted earnings per share includes (i) the assumed exercise of stock options, (ii) the dilutive effect of the Class B warrants through their exercise and expiration in June 1998 and the convertible redeemable preferred stock through its redemption and conversion in March 1997, and (iii) the assumed conversion of the 4.875% convertible subordinated debentures through their redemption and conversion in September 1997. The following table summarizes the basic earnings per share and diluted earnings per share computations for the three and six month periods ended June 30, 1998 and 1997: 14
Three Month Period - 1998 1997 ------------ ------------ Basic earnings per share: Income before extraordinary loss ..... $ 13,436 $ 11,033 Extraordinary loss ................... 1,496 -- ------------ ------------ Net Income ........................... $ 11,940 $ 11,033 ------------ ------------ Weighted average number of common shares 12,053,537 11,542,469 ============ ============ Earnings per share - Income before extraordinary loss ... $ 1.11 $ .96 Extraordinary loss ................. $ (.12) $ -- New income ......................... $ .99 $ .96 Diluted earnings per share: Income before interest applicable to convertible subordinated debentures and extraordinary loss ............. $ 13,436 $ 11,033 Interest applicable to convertible subordinated debentures, net of income taxes ....................... -- 654 ------------ ------------ Income before extraordinary loss, assuming dilution .................. 13,436 11,687 Extraordinary loss ................... 1,496 -- ------------ ------------ Net income, assuming dilution ........ $ 11,940 $ 11,687 ============ ============ Weighted average number of common shares 12,053,537 11,542,469 Incremental shares from assumed conversions - Contingent common shares ........... 8,881 15,181 Stock options ...................... 420,049 75,895 Class B warrants ................... 853,012 423,539 Convertible subordinated debentures -- 2,253,521 ------------ ------------ Adjusted weighted average number of common shares ...................... 13,335,479 14,310,605 ============ ============ Earnings per share - Income before extraordinary loss ... $ 1.01 $ .82 Extraordinary loss ................. $ (.11) $ -- Net income ......................... $ .90 $ .82
15
Six Month Period - 1998 1997 ------------ ------------ Basic earnings per share: Income before extraordinary loss ..... $ 32,995 $ 21,176 Extraordinary loss ................... 3,026 -- ------------ ------------ Net Income ............................. $ 29,969 $ 21,176 ------------ ------------ Weighted average number of common shares 11,929,703 11,521,343 ============ ============ Earnings per share - Income before extraordinary loss ..... $ 2.76 $ 1.84 Extraordinary loss ................... $ (.25) $ -- New income ........................... $ 2.51 $ 1.84 Diluted earnings per share: Income before interest applicable to convertible subordinated debentures and extraordinary loss ............... $ 32,995 $ 21,176 Interest applicable to convertible subordinated debentures, net of income taxes ......................... -- 1,309 ------------ ------------ Income before extraordinary loss, assuming dilution .................... 32,995 22,485 Extraordinary loss ..................... 3,026 -- ------------ ------------ Net income, assuming dilution .......... $ 29,969 $ 22,485 ============ ============ Weighted average number of common shares 11,929,703 11,521,343 Incremental shares from assumed conversions - Convertible preferred stock .......... -- 38,455 Contingent common shares ............. 10,181 14,691 Stock options ........................ 421,184 81,692 Class B warrants ..................... 907,045 442,213 Convertible subordinated debentures .. -- 2,253,521 ------------ ------------ Adjusted weighted average number of common shares ........................ 13,268,113 14,351,915 ============ ============ Earnings per share - Income before extraordinary loss ..... $ 2.49 $ 1.57 Extraordinary loss ................... $ (.23) $ -- Net income ........................... $ 2.26 $ 1.57
16 (8) CLASS B WARRANTS In 1993, the Company issued Class B warrants to acquire an aggregate of 1,904,757 shares of common stock for $20 per share. Prior to their expiration in June 1998, 1,837,406 warrants were exercised in 1998 for total proceeds of $36,748. (9) FUTURE ACCOUNTING REQUIREMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting For Derivative Instruments and Hedging Activities ("SFAS No. 133"), with an effective date for all fiscal years beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities and requires that a company recognize all derivative instruments as either assets or liabilities and measure those instruments at fair value. Although the Company has not completed its review of SFAS No. 133, it does not expect the adoption of SFAS No. 133 to have a material effect on its financial position or results of operations or on the presentation of its financial statements. 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - --------------------- Housing ------- The following table sets forth certain financial information for the periods indicated (dollars in thousands, except average sales price):
Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenues - Single-family homes .......... $354,921 $329,697 $679,321 $638,510 Land and other ............... 4,462 4,314 7,595 6,149 -------- -------- -------- -------- Total ...................... $359,383 $334,011 $686,826 $644,659 ======== ======== ======== ======== Single-family homes - Gross margin amount .......... $ 64,906 $ 57,404 126,106 $112,229 Gross margin percentage ...... 18.3% 17.4% 18.6% 17.6% Units delivered .............. 2,053 1,930 3,952 3,799 Average sales price .......... $172,900 $170,800 $171,900 $168,100 New orders taken ............. 2,311 1,923 5,807 4,663 Backlog at end of period: Aggregate sales amount ..... $962,742 $686,231 Units ...................... 5,290 3,902 Selling, general and administrative expenses as a percentage of housing revenues 9.6% 9.3% 9.9% 9.4% Interest - Paid or accrued .............. $ 11,619 $ 8,980 $ 22,580 $ 17,555 Percentage capitalized ....... 100.0% 100.0% 100.0% 100.0% Previously capitalized interest included in interest expense ........... $ 10,172 $ 8,902 $ 19,348 $ 16,782 Percentage of housing revenues 2.8% 2.7% 2.8% 2.6%
18 Revenues and Sales - - -------------------- Revenues from sales of single-family homes for the three and six month periods ended June 30, 1998 increased 8% and 6% compared to the three and six month periods ended June 30, 1997. The increases resulted primarily from 6% and 4% increases in the number of housing units delivered and 1% and 2% increases in the average sales price. The average sales price is impacted by product mix, geographical mix and changing prices on units delivered. The change in the average sales price in 1998 compared to 1997 reflects the proportionate increase in deliveries of Inaugural Series homes (affordable, lower priced homes). New orders taken for the three and six month periods ended June 30, 1998 increased 20% and 25% compared to the same periods in 1997. The increases in new orders in 1998 reflect the continued demand for new single-family homes which the Company believes was brought about by strong consumer confidence and the downward trend of mortgage interest rates from mid 1997 that has continued through the second quarter of 1998. The Company does not believe that new orders taken for the remainder of 1998 will continue at the pace for the first six months due to possible future fluctuations in economic activity, interest rates and consumer confidence. See Part II, "Item 5 - Other Information" on page 20 for a table of unit activity by market for the three and six month periods ended June 30, 1998 and 1997. Gross Margins - - --------------- The increases in the gross margin percentages for the three and six month periods ended June 30, 1998 from the same periods in 1997 were primarily due to the continuation of strong overall market conditions and gross margin improvements in certain of the Company's markets. In addition, during 1997, gross margins were negatively impacted by a more competitive housing environment, resulting in the increased use of sales incentives, the cost of which the Company was not able to offset by increases in the average sales price. Backlog - - --------- The aggregate amount of sales backlog at June 30, 1998 increased 40% compared to June 30, 1997. The increase in the value of the backlog reflects the increase in the number of units under contract and in the average sales price. Substantially all of the Company's backlog units at June 30, 1998, net of cancellations, are expected to result in revenues prior to June 30, 1999. 19 Selling, General and Administrative Expenses - - ---------------------------------------------- As a percentage of housing revenues, selling, general and administrative expenses for the three and six month periods ended June 30, 1998 increased when compared to the same periods in 1997. Actual selling, general and administrative expenses for the three and six month periods ended June 30, 1998 increased $3.3 million and $7.0 million when compared to the three and six month periods in June 30, 1997. These increases were primarily due to increases in volume-related expenses resulting from increased deliveries in 1998 and increased payroll costs and marketing expenses resulting from increased activities, including increased activities in the retirement and active-adult communities. Interest - - ---------- Interest paid or accrued for the three and six month periods ended June 30, 1998 increased approximately 29% for both periods compared to the same periods in 1997. These increases in 1998 were primarily due to increases in the average outstanding debt which was primarily incurred in connection with the increases in housing inventories resulting from increased activities. The Company capitalizes interest cost into housing inventories and charges the previously capitalized interest to interest expense when the related inventories are delivered. The amount of interest capitalized and previously capitalized interest expensed in any period is a function of the amount of housing assets, land sales and the number of housing units delivered, average outstanding debt levels and average interest rates. Previously capitalized interest amounts charged to interest expense in the three and six month periods ended June 30, 1998 increased 14% and 15% compared to the three and six month periods ended June 30, 1997. These increases were attributable to the increase in the number of housing units delivered and an increase in the average interest expense per housing unit delivered (which was primarily due to more deliveries in 1998 on finished lots developed by the Company and less deliveries on finished lots acquired under rolling lot options than in 1997). 20 Financial Services ------------------ Revenues - - ---------- Revenues for the financial services segment for the periods indicated were as follows (dollars in thousands):
Three Months Six Months Ended Ended June 30, June 30, ---------------- ----------------- 1998 1997 1998 1997 ------- ------- ------- ------- U.S. Home Mortgage Corporation and Subsidiary ...................... $ 7,107 $ 5,569 $13,186 $ 9,956 Other financial services operations 1,017 961 2,040 1,959 ------- ------- ------- ------- $ 8,124 $ 6,530 $15,226 $11,915 ======= ======= ======= =======
The increases in U.S. Home Mortgage Corporation's ("Mortgage") revenues for the three and six month periods ended June 30, 1998 when compared to the three and six month periods ended June 30, 1997 were primarily due to the increases in mortgage loan originations and increases in income from the sale of mortgage loans and servicing rights. Mortgage's "capture rate" for providing financing to buyers of homes delivered by the Company improved to 82% for the three and six month periods ended June 30, 1998 compared to 77% and 72% for the same periods in 1997. Other ----- Corporate General and Administrative - - -------------------------------------- Corporate general and administrative includes the operations of the Company's corporate office. As a percentage of total revenues, such expenses for both the three and six month periods ended June 30, 1998 remained the same when compared to the same periods in 1997. Actual corporate general and administrative expenses for the three and six month periods ended June 30, 1998 were $3.1 million and $6.5 million, compared to $3.1 million and $6.0 million for the three and six month periods ended June 30, 1997. 21 Income Taxes - - -------------- In connection with the Internal Revenue Service (the "IRS") examination of the Company's 1993 and 1992 federal income tax returns, the IRS disallowed certain previously reserved deductions taken by the Company in its 1993 tax return. In March 1998, the Company was informed that its appeal of the IRS decision to disallow these deductions had been resolved in favor of the Company. As a result of the favorable ruling, the Company reduced its deferred tax liability and recognized an income tax benefit totaling $7.5 million related to these deductions in 1998. The decrease in the deferred tax liability increased basic and diluted earnings per share in the six month period ended June 30, 1998 by $.63 per share and $.56 per share, respectively. Financial Condition and Liquidity - --------------------------------- Housing ------- The Company is significantly affected by the cyclical nature of the homebuilding industry, which is sensitive to fluctuations in economic activity and interest rates and the level of consumer confidence. Sales of new homes are also affected by market conditions for rental properties and by the condition of the resale market for used homes, including foreclosed homes. For example, an oversupply of resale units depresses prices and reduces the margins available on sales of new homes. The sale of new homes and profitability from sales are heavily influenced by the level and expected direction of interest rates. Increases in interest rates tend to have a depressing effect on the market for new homes in view of increased monthly mortgage costs to potential home buyers. The Company's most significant needs for capital resources are land and finished lot purchases, land development and housing construction. The Company's ability to generate cash adequate to meet these needs is principally achieved from the sale of homes and the margins thereon, the utilization of Company-owned lots and borrowings under its financing facilities, including the Credit Facility. In January 1998, the Company sold $100 million principal amount of its 2005 Senior Notes for the purpose of raising funds to redeem the balance of its 2003 Senior Notes which were first callable in June 1998. In June 1998, the Company redeemed $43.1 million principal amount of the 2003 Senior Notes and,in the first quarter of 1998, purchased in open market transactions $36.6 million principal amount of the 2003 Senior Notes. See Note 3 of Notes to Consolidated Condensed Financial Statements. The Company's Class B warrants expired in June 1998. Prior to their expiration, 1,837,406 warrants were exercised in 1998, including 1,832,384 warrants exercised in the second quarter, for total proceeds of $36.7 million. 22 Access to quality land and lot locations is an integral part of the Company's success. Typically, in order to secure the rights to quality locations and provide sufficient lead time for development, the Company must acquire land rights well in advance of when orders for housing units are expected to occur. Primarily in its affordable and move-up communities, the Company attempts to minimize its exposure to the cyclical nature of the housing market and its use of working capital by employing rolling lot options, which enable the Company to initially pay a small portion of the total lot cost and then purchase the lots on a scheduled basis. However, with the increase in the number of retirement and active adult communities, the use of rolling lot options as a percentage of the Company's total finished lot needs has and will continue to decrease since the majority of the finished lots for these communities are developed on land owned by the Company. The retirement and active adult communities are generally long-term projects and require greater investments by the Company than are required for its affordable and move-up home communities. These communities generally include more units than the affordable and move-up communities and generally have more extensive amenities, including golf courses and club houses, which require substantial capital investment. The increase in land inventories in 1998 from 1997 was primarily the result of increased activities, including the increased activities in the Company's retirement and active-adult communities. The Company has financed, and expects to continue to finance, its working capital needs from operations and borrowings, including those made under the Credit Facility. The Credit Facility (and previous credit facilities) have enabled the Company to meet peak operating needs. In August 1997, the Company entered into an interest rate swap agreement which has effectively fixed the interest rate on $50 million of its Credit Facility borrowings until August 2000. See Note 3 of Notes to Consolidated Condensed Financial Statements. 23 The net cash provided or used by the operating, investing and financing activities of the housing operations for the six month periods ended June 30, 1998 and 1997 is summarized below (dollars in thousands):
1998 1997 --------- --------- Net cash provided (used) by: Operating activities ................. $(118,911) $ (28,194) Investing activities ................. (5,596) (12,417) Financing activities ................. 125,646 34,681 --------- --------- Net increase (decrease) in cash ........ $ 1,139 $ (5,930) ========= =========
Housing operating activities are, at any time, affected by a number of factors, including the number of housing units under construction and housing units delivered. Cash flows from housing operating activities for 1998 used more cash than 1997 primarily due to an increase in construction and land asset activities, offset in part by increased profitability and the timing of payments related to these activities. Cash flow from investing activities for 1998 used less cash than 1997 primarily due to a decrease of $9.1 million in restricted cash.The restricted cash in 1997 included a $11.0 million escrow deposit for the purchase of land for a retirement and active-adult community which closed in July 1997. Cash flow from housing financing activities for 1998 provided cash reflecting the sale of the Company's 2005 Senior Notes, the exercise of the Company's Class B warrants and net borrowings under the Credit Facility, offset by the redemption and purchases of the Company's 2003 Senior Notes. Cash flow from housing financing activities in 1997 provided cash primarily from net borrowings under the Credit Facility. The Company has received a commitment to amend the Credit Facility, which it expects will close in the third quarter of 1998, to increase the amount of available borrowings. The Company believes that cash flow from operations and amounts available under the amended Credit Facility will be sufficient to meet its working capital obligations and other needs. Financial Services ------------------ Mortgage's activities represent a substantial portion of the financial services segment's activities. As loan originations by Mortgage are primarily from housing units delivered by the Company's home building operations, Mortgage's financial condition and liquidity are to a significant extent dependent upon the financial condition of the Company. 24 Financial services operating activities are affected primarily by Mortgage's loan originations which result in the sale of mortgage loans and related servicing rights to third party investors. Cash flows from financial services operating activities are also affected by the timing of the sales of loans and servicing rights which generally are sold to investors within 30 days after homes are delivered. In this regard, cash flows from financial services operating activities for 1998 used less cash compared to 1997 primarily due to increased profitability and the timing of payments related to Mortgage's origination activities. The Company finances its financial services operations primarily from internally generated funds, such as from the origination and sale of residential mortgage loans and related servicing rights, and a secured revolving line of credit (the "Mortgage Credit Facility"). As more fully discussed in Note 3 of Notes to Consolidated Condensed Financial Statements, Mortgage may borrow up to $80 million under the Mortgage Credit Facility. While the Mortgage Credit Facility contains numerous covenants, including a debt to tangible net worth ratio and a minimum tangible net worth requirement, these covenants are not anticipated to significantly limit Mortgage's operations. The Company has no obligation to provide funding to its financial services operations, nor does it guarantee any of its financial services subsidiaries' debt. The Company believes that the internally generated funds and the Mortgage Credit Facility will be sufficient to provide for Mortgage's working capital needs. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of stockholders of the Company was held on April 22, 1998. The following persons were re-elected to the Company's Board of Directors to hold office until the annual meeting of stockholders in 1999 and until their respective successors are duly elected and qualified:
Director In Favor Withheld ----------------------- ---------- --------- Glen Adams .......... 10,896,813 37,425 Steven G. Gerard .... 10,897,234 37,004 Kenneth J. Hanau, Jr 10,895,756 38,482 Isaac Heimbinder .... 10,896,797 37,441 Malcolm T. Hopkins .. 10,896,267 37,971 Charles A. McKee .... 10,895,238 39,000 George A. Poole, Jr . 10,896,657 37,581 Herve Repault ....... 10,896,354 37,884 James W. Sight ...... 10,897,376 36,862 Robert J. Strudler .. 10,896,396 37,842
25 Additional items voted upon by the Company's stockholders at the meeting: (a) the Company's 1998 Non-Employee Directors' Stock Option Plan; (b) the Company's Non-Employee Director Stock Plan; (c) amendments to the Company's Amended and Restated Employee Stock Payment Plan; and (d) the ratification of the appointment of Arthur Andersen LLP, independent public accountants, to examine the Company's financial statements for 1998. The votes of the Company's stockholders on these itmes were as follows:
Broker Item In Favor Opposed Abstained Non-Vote ----------- ----------- --------- --------- -------- (a) ...... 9,833,236 1,078,498 22,504 -- (b) ...... 8,870,150 2,041,794 22,297 -- (c) ...... 10,703,915 209,406 20,917 -- (d) ...... 10,907,322 17,583 9,333 --
26 Item 5. Other Information Additional Operating Data - The following table provides information (expressed in number of housing units) with respect to new orders taken, deliveries to purchasers of single-family homes and backlog by state for the three and six month periods ended June 30, 1998 and 1997:
States New Orders Deliveries ------------------- -------------- -------------- 1998 1997 1998 1997 ----- ----- ----- ----- Three Month Period - Arizona ......... 312 225 261 193 California ...... 262 150 168 167 Colorado ........ 286 215 346 395 Florida ......... 574 603 661 578 Maryland/Virginia 128 99 78 87 Minnesota ....... 146 136 105 75 Nevada .......... 69 70 80 97 New Jersey ...... 122 120 81 85 Ohio/Indiana (1) 41 34 29 40 Texas ........... 371 271 244 213 ----- ----- ----- ----- 2,311 1,923 2,053 1,930 ===== ===== ===== =====
States New Orders Deliveries Backlog ---------------- -------------- -------------- ------------ 1998 1997 1998 1997 1998 1997 ----- ----- ----- ----- ----- ----- Six Month Period - Arizona ......... 715 476 480 400 553 345 California ...... 564 347 294 281 495 215 Colorado ........ 870 753 692 739 764 655 Florida ......... 1,651 1,554 1,267 1,199 1,710 1,388 Maryland/Virginia 319 215 149 162 274 153 Minnesota ....... 295 239 197 122 272 224 Nevada .......... 196 178 152 192 152 120 New Jersey ...... 289 251 193 203 256 227 Ohio/Indiana (1) 93 78 52 85 73 77 Texas ........... 815 572 476 416 741 498 ------ ------ ----- ----- ----- ----- 5,807 4,663 3,952 3,799 5,290 3,902 ====== ====== ===== ===== ===== =====
(1) In 1997, the Company made the decision to discontinue its Indiana operations. 27 Cautionary Disclosure Regarding Forward-Looking Statements - Certain statements contained herein, in the Company's press releases, oral communications and other filings with the Securities and Exchange Commission that are not historical facts are, or may be considered to be, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such matters involve risks and uncertainties, including general economic conditions, fluctuations in interest rates, the impact of competitive products and prices, the supply of raw materials and prices, levels of consumer confidence and other risks referred to under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations, Other -- Cautionary Disclosure Regarding Forward-Looking Statements" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10-1 - Second Amended and Restated Employee Stock Payment Plan Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K No Current Report on Form 8-K was filed by the Company during April, May or June 1998. 28 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. U.S. HOME CORPORATION Date: August 10, 1998 /s/ Isaac Heimbinder -------------------- Isaac Heimbinder President, Co-Chief Executive Officer and Chief Operating Officer Date: August 10, 1998 /s/ Chester P. Sadowski ----------------------- Chester P. Sadowski Senior Vice President, Controller and Chief Accounting Officer 29 INDEX OF EXHIBITS ----------------- Sequential Exhibit Numbered Number Page - ------- ---------- 10-1 Second Amended and Restated Employee Stock Payment Plan 30 27 Financial Data Schedule 37 EX-10 2 EXHIBIT 10.1 SECOND AMENDED EMPLOYEE STOCK PLAN 30 EXHIBIT 10.1 U.S. HOME CORPORATION SECOND AMENDED AND RESTATED EMPLOYEE STOCK PAYMENT PLAN 1. Purpose. The purpose of the U.S. Home Corporation Second Amended and Restated Employee Stock Payment Plan (the "Plan") is to increase the ownership stake of key employees of U.S. Home Corporation and its subsidiaries or divisions (the "Company") by paying a percentage of such employees' annual incentive compensation in shares of Stock (as defined herein) in lieu of cash. 2. Administration. (a) The board of directors of the Company (the "Board") will (i) administer the Plan, (ii) establish, subject to the provisions of the Plan, such rules and regulations as it may deem appropriate for the proper administration of the Plan and (iii) make such determinations under, and such interpretations of, and take such steps in connection with, the Plan or the Stock issued thereunder as it may deem necessary or advisable. (b) The Board may from time to time appoint a Committee (the "Committee"), which shall initially be the Compensation and Stock Option Committee of the Board, which will be comprised of at least three members, all of whom are non-employee directors (as defined herein), and may delegate to the Committee full power and authority to take any and all action required or permitted to be taken by the Board under the Plan, whether or not the power and the authority of the Committee is hereinafter fully set forth. The members of the Committee may be appointed from time to time by the Board and serve at the pleasure of the Board. The Board or the Committee, as applicable, will hereinafter be referred to as the "Administrator." (c) For the purposes of this Section 2, a "non-employee director" is a director who, on a given date, is a non-employee director within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 3. Stock. The stock (the "Stock") which is the subject of the Plan will be the shares of common stock of the Company, $.01 par value per share, whether authorized and unissued or treasury stock. The total number of shares of Stock which may be issued under the Plan will not exceed, in the aggregate, 250,000, subject to adjustment in accordance with the provisions of Section 7 hereof. 31 4. Award of Stock. (a) All employees of the Company, including, but not limited to, corporate officers, presidents of operations and division presidents (each an "Employee" and collectively, "Employees"), are eligible to receive Stock in accordance with the terms hereof. (b) Up to 25%, which amount may be subject to change from time to time by the Administrator, of the annual incentive compensation (i.e., all amounts other than Base Salary (as defined herein)) payable to an Employee pursuant to any incentive compensation plans or the incentive compensation provisions of any employment or compensation agreement may be payable in shares of Stock under the Plan. (c) (i) Up to 50%, which amount may be subject to change from time to time by the Administrator, of the annual amount of Stock awarded to an Employee pursuant to Section 4(b) hereof may, at the sole discretion of the Administrator, vest not later than two years after the end of the incentive compensation year applicable to such award of Stock and, unless otherwise specified by the Administrator, shall not vest and will expire in the event the Employee is not employed by the Company on or prior to the date on which the Stock vests with the Employee due to (A) voluntary termination by the Employee or (B) termination by the Company for Cause (as defined herein). Notwithstanding the foregoing, Stock awarded to an Employee which remains subject to a vesting period hereunder will immediately vest upon the retirement of such Employee after attaining the age of 65. (ii) For purposes of the Plan, a voluntary termination by an Employee will not be deemed to occur in the event such Employee is Constructively Terminated (as defined herein). (iii) In the event an Employee dies while in the employ of the Company, all Stock awarded to such Employee which remains subject to a vesting period hereunder will immediately vest and be delivered to such Employee's estate as soon as practicable after such Employee's death. (iv) For purposes of the Plan: (A) "Cause" shall mean (1) an Employee's continuing willful failure to perform his duties with respect to the Company (other than as a result of total or partial incapacity due to physical or mental illness), (2) gross negligence or malfeasance by an Employee in the performance of his duties with respect to the Company, (3) an act or acts on an Employee's part constituting a felony under the laws of the United States or any state thereof which results or was intended to result directly or indirectly in gain or personal enrichment by such Employee at the expense of the Company or (4) any other circumstances set forth in an employment agreement between the Company and such Employee which would constitute grounds for the Company to terminate the employment of such Employee for cause (as defined in the applicable employment agreement). 32 (B) "Constructively Terminated" shall mean (1) a reduction in an amount equal to or greater than 15 percent of an Employee's Base Salary (as defined herein), (2) a material reduction in an Employee's job function, duties or responsibilities or (3) a required relocation oF an Employee of more than 50 miles from such Employee's current job location; provided, however, that the employment with the Company or its divisions or subsidiaries of a President of Operations will not be deemed to be Constructively Terminated in the event he or she is required to be a Division Chairman or Division President with the Company or its divisions or subsidiaries and has job functions, duties or responsibilities of a Division Chairman or Division President and/or is required to relocate in connection with such change in position; provided, further, that the employment with the Company or its divisions or subsidiaries of a Division Chairman or Division President will not be deemed to be Constructively Terminated in the event he or she is required to be a Division Chairman or Division President of a division other than the division he or she is currently employed by and has job functions, duties or responsibilities of a Division Chairman or Division President and/or is required to relocate in connection with such change in position; provided, further, that the employment of an Employee will not be deemed Constructively Terminated unless such Employee actually terminates his or her employment with the Company within 60 days after the occurrence of an event specified in clause (1), (2) or (3) above. (C) "Base Salary" shall mean an amount equal to an Employee's maximum annual base salary in effect at any time after the effective date of the Plan, excluding any incentive compensation or bonus payable or paid to an Employee. (D) "Change of Control" shall mean any of the following: (i) a report on Schedule 13D is filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Exchange Act, disclosing that any person or group of persons (within the meaning of Section 13(d) of the Exchange Act), other than the Company (or one of its subsidiaries) or any employee benefit plan sponsored by the Company (or one of its subsidiaries), is the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the then outstanding equity of the Company (as determined under paragraph (d) of Rule 13d-3 under the Exchange Act, in the case of rights to acquire the Stock, (ii) any transaction or a series of related transactions (as a result of a tender offer, merger, consolidation or otherwise whether or not the Company is the continuing or surviving entity) that results in, or that is in connection with, any person or group of persons (within the meaning of Section 13(d) of the Exchange Act), other than the Company (or one of its subsidiaries) or any employee benefit plan sponsored by the Company (or one of its subsidiaries), acquiring beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the then outstanding equity of the Company (as determined under paragraph (d) of Rule 13d-3 under the Exchange Act, in the case of rights to acquire the Stock) or of any person or group of persons (within the 33 meaning of Section 13(d) of the Exchange Act) that possesses beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the combined voting power of the then outstanding equity of the Company; (iii) the sale, lease, exchange or other transfer of all or substantially all of the assets of the Company to any person or group of persons (within the meaning of Section 13(d) of the Exchange Act) in one transaction or a series of related transactions; provided, that a transaction where the holders of all classes of the then outstanding equity of the Company immediately prior to such transaction own, directly or indirectly, fifty percent (50%) or more of the aggregate voting power of all classes of equity of such person or group immediately after such transaction will not be a Change of Control under this clause (iii); (iv) the liquidation or dissolution of the Company; provided, that a liquidation or dissolution of the Company which is part of a transaction or series of related transactions that does not constitute a Change of Control under the "provided" clause of clause (iii) above will not constitute a Change of Control under this clause (iv); or (v) a change in a majority of the members of the Board of Directors of the Company within a 12-month period, unless the election or nomination for election by the Company's stockholders of each new director during such 12-month period was approved by the vote of two-thirds of the directors then still in office who were directors at the beginning of such 12-month period. (d) (i) All Stock awarded to Employees hereunder but not subject to vesting pursuant to Section 4(c) hereof shall be delivered to such Employees within 30 days after the determination of the price of the Stock pursuant to Section 5 hereof. (ii) Subject to Section 4(c) hereof, all Stock awarded to Employees hereunder which is subject to a vesting period hereunder shall be delivered to such Employees within 31 days after the expiration of such vesting period. (e) In the event of a Change in Control (as defined herein), all Stock awarded to an Employee which remains subject to a vesting period hereunder will immediately vest and be delivered to such Employee as soon as practicable. 5. Price and Valuation. (a) The Stock will be issued to Employees in consideration of services rendered to the Company by such Employees as reflected in any incentive compensation plans or the incentive compensation provisions of any employment or compensation agreement. (b) For purposes of determining the number of shares of Stock to be issued to an Employee hereunder in lieu of cash compensation, the Administrator shall divide the amount of cash that would otherwise be distributed to such Employee by the following as determined by the Administrator: 34 (i) with respect to the incentive compensation plans of the Company or incentive agreements which are based on the financial results of the Company's fiscal year, the average closing price of the Stock on the New York Stock Exchange (the "NYSE") for the 10 consecutive trading days immediately following the date on which the Company releases such financial results for such fiscal year; (ii) with respect to any other incentive compensation plans of the Company or incentive agreements, the average closing price of the Stock on the NYSE for the later to occur of the (A) last 10 trading days of the month immediately following the conclusion of the specified period for such incentive compensation program and (B) 10 consecutive trading days immediately following the date on which the Company releases its financial results for its most recent fiscal year; or (iii) the closing price of the Stock on the NYSE on the last trading day of the most recent fiscal year. (c) The closing price of the Stock, as of any particular day, will be as reported in The Wall Street Journal; provided, however, that if the Stock is not listed on the NYSE on any applicable day, the closing price for such day will be not less than the fair market value of the Stock on such day, as determined by the Administrator based on such empirical evidence as it deems to be necessary under the circumstances. 6. Term and Effective Date. The Plan will become effective upon (i) approval by the Board, and (ii) solely with respect to Employees subject to Section 16 of the Exchange Act, approval by the affirmative vote of a majority of the shares of voting capital stock of the Company present or represented and entitled to vote at the 1994 annual meeting of the Company's stockholders. When so approved, the Plan shall be deemed to have been in effect as of January 1, 1994 and shall terminate on December 31, 2008. 7. Stock Adjustments. (a) The total amount of Stock reserved and issuable under the Plan and Stock awarded but not yet vested will be appropriately adjusted for any increase or decrease in the number of outstanding shares of Stock resulting from payment of a stock dividend on the Stock, a subdivision or combination of the Stock, a reclassification of the Stock, or a consolidation or a merger in which the Company will be the surviving corporation. (b) After any merger of one or more corporations into the Company in which the Company will not be the surviving corporation, or after any consolidation of the Company and one or more other corporations, each Employee who is entitled to Stock hereunder will be entitled to receive, in lieu of the number of shares of Stock as to which such Employee 35 was previously entitled, the number and class of shares of stock or other securities or other consideration to which such Employee would have been entitled pursuant to the terms of the applicable agreement of merger or consolidation if at the time of such merger or consolidation such Employee had been a holder of record of a number of shares of Stock equal to the number of shares for which such Employee was then entitled to receive subject to vesting. Comparable rights will accrue to each Employee in the event of successive mergers or consolidations of the character described above. (c) The adjustments described in this Section 7 and the manner of application of the foregoing provisions will be determined by the Administrator in its sole discretion. Any such adjustment may provide for the elimination of fractional shares. 8. Transferability. An Employee who acquires Stock hereunder will only transfer such Stock in compliance with applicable federal and state securities laws. Employees who are affiliates of the Company may generally dispose of their shares in accordance with Rule 144 promulgated under the Securities Act of 1933, as amended. Employees may not transfer or assign any interest in any Stock awarded hereunder until such Stock is vested with such Employee other than by will or the laws of descent and distribution. 9. Rights as a Stockholder. Any Employee entitled to receive Stock hereunder will have no rights as a stockholder with respect to any share of Stock until such Employee has become the holder of record of such share of Stock upon vesting, and, except for stock dividends as provided in Section 7 hereof, no adjustment will be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights in respect of such Stock for which the record date is prior to the date on which such Employee will become the holder of record thereof. 10. Investment Purpose. At the time of issuance of any Stock, the Company may, if it will deem it necessary or desirable for any reason, require an Employee to represent in writing to the Company that it is such Employee's then intention to acquire the Stock for investment purposes and not with a view to the distribution thereof. 11. Right to Terminate Employment. Nothing contained herein will restrict the right of the Company to terminate the employment of any Employee at any time. 12. Finality of Determinations. Each determination, interpretation, or other action made or taken pursuant to the provisions of the Plan by the Administrator will be final and be binding and conclusive for all purposes. 36 13. Subsidiary and Parent Corporations. Unless the context requires otherwise, references under the Plan to the Company will be deemed to include any subsidiary corporations and parent corporations of the Company, as those terms are defined in Section 425 of the Internal Revenue Code, as amended. 14. Governing Law. The Plan will be governed by the laws of the State of Delaware. 15. Amendment and Termination. The Administrator may at any time terminate, amend or modify the Plan in any respect it deems suitable; provided, however, that, solely with respect to persons subject to Section 16 of the Exchange Act, no such action of the Administrator, without the approval of the stockholders of the Company, may (i) materially increase the benefits accruing to employees eligible to receive Stock under the Plan, (ii) materially increase the total amount of Stock which may be awarded under the Plan or (iii) materially modify the requirements for participation in the Plan; provided, further, that no amendment, modification or termination of the Plan may in any manner affect (A) any Stock (whether vested or not) theretofore awarded under the Plan without the consent of the Employee to whom Stock has been awarded or (B) modify the award of Stock to the Employee designated by the Administrator. 16. Override. (a) With respect to persons subject to Section 16 of the Exchange Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Administrator fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Administrator. (b) All transactions pursuant to terms of the Plan, including, without limitation, awards and vesting of Stock, shall only be effective at such time as counsel to the Company shall have determined that such transaction will not violate federal or state securities or other laws. The Administrator may, in its sole discretion, defer the effectiveness of such transaction to pursue whatever actions may be required to ensure compliance with such federal or state securities or other laws. EX-27 3 FINANCIAL DATA SCHEDULE PERIOD 6/30/98
5 This Schedule Contains Summary Financial Information Extracted From The Consolidated Condensed Financial Statements As Of June 30, 1998 And For The Six Months Then Ended And Is Qualified In Its Entirety By Reference To Such Financial Statements. 1000 6-MOS DEC-31-1998 JUN-30-1998 18,389 0 128,798 0 943,188 0 0 0 1,267,090 0 419,189 0 0 137 488,422 1,267,090 0 702,052 558,124 634,882 0 0 20,185 40,510 7,515 32,995 0 3,026 0 29,969 2.51 2.26
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