-----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, DcwX562poNjdFptlrdgcl4cygHMQy9MsrA2YsZU1zO58dZ4588XrPBbDFXREJH4j +Rouz0psR4zVypqDCISTjg== 0000101640-98-000017.txt : 19980518 0000101640-98-000017.hdr.sgml : 19980518 ACCESSION NUMBER: 0000101640-98-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: 98626117 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 FIRST QUARTER 1998 FOR US 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 March 31, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIE 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 April 30, 1998 Common stock, $.01 par value 11,842,203 shares 2 U.S. HOME CORPORATION --------------------- INDEX ----- Page Number ------ Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets--March 31, 1998 and December 31, 1997 3 Consolidated Condensed Statements of Operations--Three Months Ended March 31, 1998 and 1997 5 Consolidated Condensed Statements of Cash Flows--Three Months Ended March 31, 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 12 Part II. Other Information Item 2. Changes in Securities 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 19 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 ------ March 31, December 31, 1998 1997 ----------- ------------ (Unaudited) HOUSING: Cash (including restricted funds) ........ $ 8,968 $ 6,270 Receivables, net ......................... 45,788 42,595 Single-Family Housing Inventories ........ 853,569 789,236 Option Deposits on Real Estate ........... 87,490 90,155 Other Assets ............................. 63,973 54,006 ---------- ---------- 1,059,788 982,262 ---------- ---------- FINANCIAL SERVICES: Cash (including restricted funds) ........ 6,112 5,492 Residential Mortgage Loans ............... 72,115 69,209 Other Assets ............................. 9,803 10,151 ---------- ---------- 88,030 84,852 ---------- ---------- $1,147,818 $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 ------------------------------------
March 31, December 31, 1998 1997 ------------- ------------- (Unaudited) HOUSING: Accounts Payable ........................ $ 96,307 $ 92,160 Accrued Expenses and Other Current Liabilities ........................... 64,602 68,848 Revolving Credit Facility ............... 21,000 29,000 Long-Term Debt .......................... 463,220 395,918 ------------ ------------ 645,129 585,926 ------------ ------------ FINANCIAL SERVICES: Accrued Expenses and Other Current Liabilities ........................... 28,153 21,067 Revolving Credit Facility ............... 35,244 40,343 ------------ ------------ 63,397 61,410 ------------ ------------ Total Liabilities ..................... 708,526 647,336 ------------ ------------ STOCKHOLDERS' EQUITY: Common Stock, $.01 par value, authorized 50,000,000 shares, outstanding 11,822,455 shares at March 31, 1998 and 11,762,518 shares at December 31, 1997 ........... 119 119 Capital In Excess of Par Value .......... 368,517 368,277 Retained Earnings ....................... 75,387 57,358 Unearned Compensation on Restricted Stock ................................. (1,696) (1,770) ------------ ------------ 442,327 423,984 Less Treasury Stock, at cost, 115,160 shares at March 31, 1998 and 157,743 shares at December 31, 1997 .......... 3,035 4,206 ------------ ------------ Total Stockholders' Equity ............ 439,292 419,778 ------------ ------------ $ 1,147,818 $ 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 March 31, ----------------------- 1998 1997 --------- --------- HOUSING: Operating Revenues ........................... $ 327,443 $ 310,648 --------- --------- Operating Costs and Expenses - Cost of products sold ...................... 264,845 255,580 Selling, general and administrative ........ 33,305 29,687 Interest ................................... 9,176 7,880 --------- --------- 307,326 293,147 --------- --------- Housing Operating Income ..................... 20,117 17,501 --------- --------- FINANCIAL SERVICES: Operating Revenues ........................... 7,102 5,385 General, Administrative and Other Expenses ... 4,702 3,875 --------- --------- Financial Services Operating Income .......... 2,400 1,510 --------- --------- CORPORATE GENERAL AND ADMINISTRATIVE ........... 3,334 2,911 --------- --------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS ......................................... 19,183 16,100 --------- --------- PROVISION FOR INCOME TAXES: Federal and State Income Taxes ............... 7,098 5,957 Tax Benefit .................................. (7,474) -- --------- --------- (376) 5,957 --------- --------- INCOME BEFORE EXTRAORDINARY LOSS ............... 19,559 10,143 EXTRAORDINARY LOSS FROM EARLY RETIREMENT OF DEBT, NET OF INCOME TAX BENEFIT OF $899 IN 1998 ................................. 1,530 -- ========= ========= NET INCOME ..................................... $ 18,029 $ 10,143 ========= ========= BASIC EARNINGS PER SHARE: Income Before Extraordinary Loss ............. $ 1.66 $ .88 Extraordinary loss ........................... $ (.13) $ -- Net income ................................... $ 1.53 $ .88 DILUTED EARNINGS PER SHARE: Income Before Extraordinary Loss ............. $ 1.49 $ .75 Extraordinary Loss ........................... $ (.12) $ -- Net Income ................................... $ 1.37 $ .75
The accompanying notes are an integral part of these statements. 6 U.S. HOME CORPORATION AND SUBSIDIARIES -------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Dollars in Thousands) (Unaudited)
Three Months Ended March 31, ------------------- 1998 1997 --------- -------- Net Cash Provided (Used) by Operating Activities .. $(41,606) $ 5,419 -------- -------- Net Cash Flows From Investing Activities: Decrease (increase) in restricted cash .......... (2,946) 209 Principal collections on investments in mortgage loans ................................ 1,396 761 Purchase of property, plant and equipment, net of disposals .............................. (2,208) (643) Other ........................................... (554) 10 -------- -------- Net cash provided (used) by investing activities (4,312) 337 -------- -------- Net Cash Flows From Financing Activities: Repayment of revolving credit facilities, net of proceeds ............................... (13,099) 2,821 Net proceeds from sale of senior notes .......... 98,237 -- Purchase of senior notes ........................ (38,295) -- Repayment of notes and mortgage notes payable ... (966) (2,500) Other ........................................... 413 (98) -------- -------- Net cash provided by financing activities ....... 46,290 223 -------- -------- Net Increase in Cash .............................. 372 5,979 Cash At Beginning of Period ....................... 6,466 8,138 -------- -------- Cash At End of Period ............................. $ 6,838 $ 14,117 ======== ======== Supplemental Disclosure: Interest paid, before amount capitalized - Housing ....................................... $ 14,350 $ 4,319 Financial Services ............................ 369 336 -------- -------- $ 14,719 $ 4,655 ======== ======== Income taxes paid ............................... $ 3,359 $ 4,557 ======== ========
The accompanying notes are an integral part of these statements. 7 U.S. HOME CORPORATION AND SUBSIDIARIES -------------------------------------- NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ---------------------------------------------------- March 31, 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 March 31, 1998 and December 31, 1997 and its results of operations and cash flows for the three month periods ended March 31, 1998 and 1997. Because of the seasonal nature of the Company's business, the results of operations for the three month periods ended March 31, 1998 and 1997 are not necessarily indicative of the results for the full year. 8 (2) INVENTORIES The components of single-family housing inventories are as follows:
March 31, December 31, 1998 1997 ---------- ------------ Housing completed and under construction .. $310,535 $302,258 Models .................................... 85,819 83,943 Finished lots ............................. 143,784 138,747 Land under development .................... 88,532 75,959 Land held for development or sale ......... 224,899 188,329 -------- -------- $853,569 $789,236 ======== ========
(3) REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT Housing - The housing revolving credit facility and long-term debt consist of the following:
March 31, December 31, 1998 1997 ---------- ------------ Revolving credit facility ................ $ 21,000 $ 29,000 -------- -------- 7.95% Senior notes due 2001 .............. 75,000 75,000 9.75% Senior notes due 2003 .............. 43,109 79,703 8.25% Senior notes due 2004 .............. 100,000 100,000 7.75% Senior notes due 2005 .............. 99,745 -- 8.88% Senior subordinated notes due 2007 . 125,000 125,000 Notes and mortgage notes payable ......... 20,366 16,215 -------- -------- 463,220 395,918 -------- -------- $484,220 $424,918 ======== ========
9 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 March 31, 1998, $114,389 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 March 31, 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. While the outstanding balance of the Credit Facility may fluctuate (average balance of approximately $22,780 for the first quarter of 1998), the Company anticipates that the average balance of the borrowings in future periods will generally be in excess of the notional amount. 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 are 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 10 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. In the first quarter of 1998, the Company used a portion of the proceeds from the sale of the 2005 Senior Notes to purchase 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 $1,530, net of income tax benefit of $899. Financial Services - The Company's mortgage banking subsidiary, U.S. Home Mortgage Corporation ("Mortgage"), may borrow up to $65,000 under a revolving line of credit (the "Mortgage Credit Facility"), as amended. The Mortgage Credit Facility is secured by residential mortgage loans and mortgage notes receivable, is not guaranteed by the Company, matures on August 31, 1998 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 in the first quarter of 1998 totaling $7,474 related to these deductions. The decrease in the deferred tax liability increased basic and diluted earnings per common share in 1998 by $.63 per share and $.57 per share, respectively. (5) INVESTMENT In April 1998, the Company purchased a 13.3% interest in a Mexican home building company, headquartered near the City of Guadalajara, Mexico for $12,759. The Company will account 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 primarily in market areas along the United States/Mexican border, initially in Texas and Arizona. 11 (6) INTEREST A summary of housing interest for the three month periods ended March 31, 1998 and 1997 follows:
1998 1997 --------- --------- Capitalized at beginning of period ........... $ 62,950 $ 58,566 Capitalized .................................. 10,961 8,575 Previously capitalized interest included in interest expense ........................... (9,176) (7,880) Other ........................................ (7) (22) -------- -------- Capitalized at end of period ................. $ 64,728 $ 59,239 ======== ========
Financial services interest expense for the three month periods ended March 31, 1998 and 1997, was $411 and $309, respectively, and is included in "general, administrative and other expenses" in the accompanying consolidated condensed statements of operations. (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 dilutive effect of the Class B warrants and the convertible redeemable preferred stock through its redemption and conversion in March 1997, (ii) the assumed exercise of stock options 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 month periods ended March 31, 1998 and 1997: 12
1998 1997 ------------ ------------ Basic earnings per share: Income before extraordinary loss . $ 19,559 $ 10,143 Extraordinary loss ............... 1,530 -- ------------ ------------ Net Income ....................... $ 18,029 $ 10,143 ------------ ------------ Weighted average number of common shares . 11,804,493 11,499.982 ============ ============ Earnings per share - Income before extraordinary loss $ 1.66 $ .88 Extraordinary loss ............. $ (.13) $ -- New income ..................... $ 1.53 $ .88 Diluted earnings per share: Income before interest applicable to convertible subordinated debentures and extraordinary loss ............ $ 19,559 $ 10,143 Interest applicable to convertible subordinated debentures, net of income taxes ...................... -- 655 ------------ ------------ Income before extraordinary loss, assuming dilution ................. 19,559 10,798 Extraordinary loss .................. 1,530 -- ------------ ------------ Net income, assuming dilution ....... $ 18,029 $ 10,798 ============ ============ Weighted average number of common shares ............................ 11,804,493 11,499,982 Incremental shares from assumed conversions - Convertible preferred stock ....... -- 77,338 Contingent common shares .......... 11,495 14,195 Stock options ..................... 427,586 88,435 Class B warrants .................. 961,165 461,346 Convertible subordinated debentures -- 2,253,521 ------------ ------------ Adjusted weighted average number of common shares ..................... 13,204,739 14,394,817 ============ ============ Earnings per share - Income before extraordinary loss .. $ 1.49 $ .75 Extraordinary loss ................ $ (.12) $ -- Net income ........................ $ 1.37 $ .75
For the three month period ended March 31, 1998, diluted earnings per share were based on 13,204,739 common shares (the "shares") which included the dilutive effect of the weighted average number of shares potentially issuable for the exercise of the Class B warrants (961,165 shares). Diluted earnings per share in subsequent periods compared to the three month period ended March 31, 1998 will be 13 impacted by the potential dilutive effect of up to 904,897 additional shares issuable upon exercise of the Class B warrants which expire in June 1998. 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 March 31, -------------------------- 1998 1997 -------- -------- Revenues- Single-family homes ................. $324,310 $308,813 Land and other ...................... 3,133 1,835 -------- -------- Total ............................. $327,443 $310,648 ======== ======== Single-family homes - Gross margin amount ................. $ 61,200 $ 54,825 Gross margin percentage ............. 18.9% 17.8% Units delivered ..................... 1,899 1,869 Average sales price ................. $170,800 $165,200 New orders taken .................... 3,496 2,740 Backlog at end of period: Aggregate sales amount ............ $893,245 $685,141 Units ............................. 5,032 3,909 Selling, general and administrative expenses as a percentage of housing revenues ...... 10.2% 9.6% Interest - Paid or accrued ..................... $ 10,961 $ 8,575 Percentage capitalized .............. 100.0% 100.0% Previously capitalized interest included in interest expense .................. $ 9,176 $ 7,880 Percentage of housing revenues ...... 2.8% 2.5%
14 Revenues and Sales - - -------------------- Revenues from sales of single-family homes for the three month period ended March 31, 1998 increased 5% compared to the three month period ended March 31, 1997. The increase resulted primarily from a 2% increase in the number of housing units delivered and a 3% increase in the average sales price. The average sales price is impacted by product mix, geographical mix and changing prices on units delivered. New orders taken for the three month period ended March 31, 1998 increased 28% compared to the same period in 1997. The increase in new orders in 1998 reflects the continued demand for new single-family homes which the Company believes was brought about by strong consumer confidence and the trending down of mortgage interest rates from mid 1997 that continued through the first quarter of 1998. The Company does not believe that new orders taken for the remainder of 1998 will continue at the first quarter pace due to possible future fluctuations in economic activity, interest rates and consumer confidence. See Part II, "Item 5 - Other Information" on page 18 for a table of unit activity by market for the three month periods ended March 31, 1998 and 1997. Gross Margins - - --------------- The increase in the gross margin percentage for the three month period ended March 31, 1998 from the same period in 1997 was 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 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 March 31, 1998 increased 30% compared to March 31, 1997. The increase in the value of the backlog reflects the increase in the number of units under contract and the increase in the average sales price. Substantially all of the Company's backlog units at March 31, 1998, net of cancellations, are expected to result in revenues during the remainder of 1998. Selling, General and Administrative Expenses - - ---------------------------------------------- As a percentage of housing revenues, selling, general and administrative expenses for the three month period ended March 31, 1998 increased to 10.2% as compared to 9.6% in the same period in 1997. Actual selling, general and administrative expenses for the three month period ended March 31, 1998 increased $3.6 million when compared to the same period in 1997. This increase was primarily due to increased payroll costs and marketing center and other marketing expenses resulting from increased activities, including the increased activities in the retirement and active-adult communities. 15 Interest - - ---------- Interest paid or accrued for the three month period ended March 31, 1998 increased approximately 28% compared to the same period in 1997. The increase in 1998 is primarily due to an increase in the average outstanding debt. 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 month period ended March 31, 1998 increased 16% compared to the three month period ended March 31, 1997. The increase was attributable to an increase in the average interest expense per housing unit delivered which was primarily the result of there being more deliveries in 1998 which were from finished lots developed by the Company than in 1997 and less deliveries from finished lots that were acquired under rolling lot options. Financial Services ------------------ Revenues - - ---------- Revenues for the financial services segment for the periods indicated were as follows (dollars in thousands):
Three Months Ended March 31, ------------------- 1998 1997 ------ ------ U.S. Home Mortgage Corporation and Subsidiary ............................... $6,079 $4,387 Other financial services operations ........ 1,023 998 ------ ------ $7,102 $5,385 ====== ======
16 The increase in U.S. Home Mortgage Corporation's ("Mortgage") revenues for the three month period ended March 31, 1998 when compared to the three month period ended March 31, 1997 was primarily due to the increase in mortgage loan originations and the increase in income from the sale of mortgage loans and servicing rights. Of the Company's total housing units delivered that were financed (1,552 for the three month period ended March 31, 1998 and 1,503 for the three month period ended March 31, 1997), 82% were financed by Mortgage in 1998 compared to 67% 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 were 1.0% for the three month period ended March 31, 1998 and .9% for the three month period ended March 31, 1997. Actual corporate general and administrative expenses for the three month period ended March 31, 1998 were $3.3 million, compared to $2.9 million for the three month period ended March 31, 1997. 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 in the first quarter of 1998 totaling $7.5 million related to these deductions. The decrease in the deferred tax liability increased basic and diluted earnings per common share in 1998 by $.63 per share and $.57 per share, respectively. 17 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 are first callable in June 1998. In the first quarter of 1998, the Company used a portion of the proceeds to purchase in open market transactions $36.6 million principal amount of the 2003 Senior Notes. The Company currently intends to redeem the balance of these notes, though it may purchase such notes in the open market or in privately negotiated transactions prior to June 1998. See Note 3 of Notes to Consolidated Condensed Financial Statements. 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. 18 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. The net cash provided or used by the operating, investing and financing activities of the housing operations for the three month periods ended March 31, 1998 and 1997 is summarized below (dollars in thousands):
1998 1997 -------- -------- Net cash provided (used) by: Operating activities .................... $(47,951) $ (7,421) Investing activities .................... (5,058) (625) Financing activities .................... 51,489 10,402 -------- -------- Net increase (decrease) in cash ........... $ (1,520) $ 2,356 ======== ========
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. Cash flow from investing activities for 1998 used more cash than 1997 primarily due to an increase of $3.0 million in restricted cash, of which $1.2 million was an escrow deposit for the purchase of land which closed in April 1998. Cash flow from housing financing activities for 1998 provided cash, reflecting the sale of the Company's 2005 Senior Notes and net borrowings under the Credit Facility, offset by purchases of the Company's 2003 Senior Notes and the repayment of the amounts outstanding under the Credit Facility. Cash flow from housing financing activities in 1997 provided cash primarily from net borrowings under the Credit Facility. The Company believes that cash flow from operations and amounts available under the Credit Facility will be sufficient to meet its working capital obligations and other needs. However, should the Company require capital in excess of that which is currently available, there can be no assurance that it will be available. 19 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. 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 more cash compared to 1997 primarily due to an increase in residential mortgage loan receivables. 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 $65 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 2. Changes in Securities --------------------- The indenture relating to the 2005 Senior Notes contains numerous covenants, including a limitation on the declaration of dividends to holders of equity securities. 20 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-month periods ended March 31, 1998 and 1997:
States New Orders Deliveries Backlog --------------------- ------------- ------------- -------------- 1998 1997 1998 1997 1998 1997 ----- ----- ----- ----- ------ ------ Arizona ............. 403 251 219 207 502 313 California .......... 302 197 126 114 401 232 Colorado ............ 584 538 346 344 824 835 Florida ............. 1,077 951 606 621 1,797 1,363 Maryland/Virginia ... 191 116 71 75 224 141 Minnesota ........... 149 103 92 47 231 163 Nevada .............. 127 108 72 95 163 147 New Jersey .......... 167 131 112 118 215 192 Ohio/Indiana (1) .... 52 44 23 45 61 83 Texas ............... 444 301 232 203 614 440 ----- ----- ----- ----- ----- ----- 3,496 2,740 1,899 1,869 5,032 3,909 ===== ===== ===== ===== ===== =====
(1) In 1997, the Company made the decision to discontinue its Indiana operations. 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. 21 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10.1 - Third Amendment to Amended and Restated Credit Agreement, dated as of March 9, 1998, between U.S. Home Corporation and The First National Bank of Chicago, as Agent. Exhibit 10.2 - Sixth Amendment to First Amended and Restated Warehousing Credit and Security Agreement (single family mortgage loans), dated as of March 30, 1998, between U.S. Home Mortgage Corporation and Residential Funding Corporation. Exhibit 27.1 - Financial Data Schedule For the First Quarter of 1998 Exhibit 27.2 - Financial Data Schedule For the Year Ended December 31, 1996 and the First, Second and Third Quarters of 1997 (Restated). Exhibit 27.3 - Financial Data Schedule For the Year Ended December 31, 1995 and the First, Second and Third Quarters of 1996 (Restated). (b) Reports on Form 8-K On January 16, 1998, under Item 5 "Other Events" of Form 8-K, the Company filed a Current Report on Form 8-K which included documents attached as exhibits relating to the offering and sale of its 7.75% Senior Notes due 2005 in an aggregate amount of $100,000,000 under the Company's Registration Statement on Form S-3 (File No. 333-31457) No other Current Report on Form 8-K was filed by the Company during January, February or March 1998. 22 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: May 14, 1998 /s/ Isaac Heimbinder ----------------------------------- Isaac Heimbinder President, Co-Chief Executive Officer and Chief Operating Officer Date: May 14, 1998 /s/ Chester P. Sadowski ----------------------------------- Chester P. Sadowski Vice President, Controller and Chief Accounting Officer 23 INDEX OF EXHIBITS Sequential Exhibit Numbered Number Page - ------ -------- 10.1 Third Amendment to Amended and Restated Credit Agreement, dated as of March 9, 1998, between U.S. Home Corporation and The First National Bank of Chicago, as Agent. 10.2 Sixth Amendment to First Amended and Restated Warehousing Credit and Security Agreement (single family mortgage loans), dated as of March 30, 1998 between U.S. Home Mortgage Corporation and Residential Funding Corporation. 27.1 Financial Data Schedule For the First Quarter of 1998 27.2 Financial Data Schedule For the Year Ended December 31, 1996 and the First, Second and Third Quarters for 1997 (Restated). 27.3 Financial Data Schedule For the Year Ended December 31, 1995 and the First, Second and Third Quarters for 1996 (Restated). EX-10 2 EXHIBIT 10.1 THIRD AMENDMENT TO CRDT AGREE 24 EXHIBIT 10.1 THIRD AMENDMENT TO CREDIT AGREEMENT THIRD AMENDMENT TO CREDIT AGREEMENT ("Third Amendment"), dated as of March 9, 1998, among U.S. Home Corporation, a Delaware corporation (the "Borrower"), the Lenders (the "Lenders") party to the Amended and Restated Credit Agreement dated as of May 28, 1997 (as amended by the Consent and First Amendment to Credit Agreement dated August 22, 1997, and by the Consent and Second Amendment to Credit Agreement dated January 15, 1998, the "Credit Agreement"), among the Borrower, such Lenders and THE FIRST NATIONAL BANK OF CHICAGO, as Agent (the "Agent"), and the Agent. RECITALS: A. The Borrower, the Lenders and the Agent have previously entered into the Credit Agreement. B. The parties hereto desire to amend the Credit Agreement to modify the limitations on Investments provided for in Section 8.6(vi). NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto, intending to be legally bound, agree as follows: 1. DEFINITIONS In addition to the terms defined herein, capitalized terms used in this Third Amendment shall have the respective meanings ascribed thereto in the Credit Agreement. 2. INVESTMENTS IN JOINT VENTURES Section 8.6(vi) is hereby modified by deleting the words "$35,000,000 in the aggregate" and inserting in place thereof the words "in the aggregate an amount equal to 15% of Consolidated Tangible Net Worth." 3. MISCELLANEOUS 3.1 This Third Amendment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Third Amendment by signing any such counterpart. 3.2 In all respects, including all matters of construction, validity and performance, this Third Amendment shall be construed in accordance with the internal laws (and not the laws of conflicts) of the State of Illinois, but giving effect to federal laws applicable to national banks. 25 IN WITNESS WHEREOF, this Third Amendment has been duly executed as of the date first above written. U.S. HOME CORPORATION By:/s/ Thomas A. Napoli ------------------------------------- Name: Thomas A. Napoli Title: Vice President - Corporate Finance and Treasurer LENDERS: THE FIRST NATIONAL BANK OF CHICAGO, Individually and as Agent By:/s/ Gregory A. Gilbert ------------------------------------- Name: Gregory A. Gilbert Title: Vice President GUARANTY FEDERAL BANK, F.S.B. By:/s/ Randall S. Reid ------------------------------------ Name: Randall S. Reid Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH By:/s/ Alain Papiasse ----------------------------------- Name: Alain Papiasse Title: Executive Vice President BANK ONE, ARIZONA, NA By:/s/ Louis W. Morano, Jr. ----------------------------------- Name: Louis W. Morano, Jr. Title: Assistant Vice President 26 COMERICA BANK, a Michigan corporation By:/s/ David J. Campbell ---------------------------------- Name: David J. Campbell Title: Vice President AMSOUTH BANK By:/s/ Jerry E. Pate ---------------------------------- Name: Jerry E. Pate Title: Senior Vice President EX-10 3 EXBT 10.2 SIXTH AMEND TO WAREHOUSING CREDIT 27 EXHIBIT 10.2 SIXTH AMENDMENT TO FIRST AMENDED AND RESTATED WAREHOUSING CREDIT AND SECURITY AGREEMENT THIS SIXTH AMENDMENT TO FIRST AMENDED AND RESTATED WAREHOUSING CREDIT AND SECURITY AGREEMENT (this "Amendment") is entered into as of this 30th day of March 1998, by and between U.S. HOME MORTGAGE CORPORATION, a Florida corporation (the "Company") and RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the "Lender"). WHEREAS, the Company and the Lender have entered into a single family revolving warehouse facility with a present Commitment Amount of Sixty-Five Million Dollars ($65,000,000), to finance the origination and acquisition of Mortgage Loans as evidenced by a Third Amended and Restated Warehousing Promissory Note in the principal sum of Sixty-Five Million Dollars ($65,000,000), dated as of June 25, 1997 (the "Note"), and by a First Amended and Restated Warehousing Credit and Security Agreement dated as of August 31, 1995, as the same may have been amended or supplemented (the "Agreement"); and WHEREAS, the Company has requested the Lender to temporarily increase the Commitment Amount and certain terms of the Agreement, and the Lender has agreed to such increase and amendment subject to the terms and conditions of this Amendment. NOW, THEREFORE, for and in consideration of the foregoing and of the mutual covenants, agreements and conditions hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. All capitalized terms used herein and not otherwise defined shall have their respective meanings set forth in the Agreement. 2. The effective date ("Effective Date") of this Amendment shall be March 30, 1998. 3. Section 1.1 of the Agreement shall be amended by adding the following definitions in the appropriate alphabetical order: "Check Disbursement Account" means a demand deposit account maintained at the Funding Bank in the name of the Company and under the control of the Lender for the clearing of checks written by the Company to fund Advances. "Wire Disbursement Account" means a demand deposit account maintained at the Funding Bank in the name of the Lender for the clearing of wire transfers requested by the Company to fund Advances. 28 4. Section 1.1 of the Agreement is hereby amended to delete the definition of "Commitment Amount" in its entirety and to substitute the following in lieu thereof: "Commitment Amount" means Sixty-Five Million Dollars ($65,000,000). Notwithstanding the foregoing, during the period from the Effective Date to and including May 14, 1998, the Commitment Amount shall be temporarily increased to Eighty Million Dollars ($80,000,000). On the first Business Day following the expiration of the temporary increase of the Commitment Amount, the Company shall repay to the Lender the amount by which the outstanding Advances exceed the Commitment Amount. 5. Sections 2.2(d) and 2.2(e) of the Agreement shall be deleted in their entirety and the following shall be substituted in lieu thereof: 2.2(d) The Company shall hold in trust for the Lender, and the Company shall deliver to the Lender promptly upon request, or if the recorded Collateral Documents have not yet been returned from the recording office, immediately upon receipt by the Company of such recorded Collateral Documents and the Pledged Mortgage is not being held by an Investor for purchase or has not been redeemed from pledge, the following: (1) the originals of the Collateral Documents for which copies are required to be delivered to the Lender pursuant to Exhibit D-SF, Exhibit D-SF/CONSTRUCTION or Exhibit D-UNI, (2) the original lender's ALTA Policy of Title Insurance or an equivalent thereto, and (3) any other documents relating to a Pledged Mortgage which the Lender may request, including, without limitation, documentation evidencing the FHA Commitment to Insure or the VA Guaranty of any Pledged Mortgage which is either FHA insured or VA guaranteed, the appraisal, Private Mortgage Insurance Certificate, if applicable, the Regulation Z Statement, certificates of casualty or hazard insurance, credit information on the maker of each such Mortgage Note, a copy of a HUD-1 or corresponding purchase advice and other documents of all kinds which are customarily desired for inspection or transfer incidental to the purchase of any Mortgage Note by an Investor and any additional documents which are customarily executed by the seller of a Mortgage Note to an Investor. 2.2(e) To make an Advance, the Lender shall cause the Funding Bank to credit either the Wire Disbursement Account or the Check Disbursement Account upon compliance by the Company with the terms of the Loan Documents. The Lender shall determine in its sole discretion the method by which Advances and other amounts on deposit in the Wire Disbursement Account or the Check Disbursement Account are disbursed by the Funding Bank to or for the account of the Company. 29 6. Section 2.4(g) of the Agreement shall be deleted in its entirety and the following shall be substituted in lieu thereof: 2.4(g) Upon Notice to the Company, after the occurrence and during the continuation of an Event of Default, the unpaid amount of each Advance shall bear interest until paid in full at a per annum rate of interest (the "Default Rate") equal to four percent (4%) in excess of the rate of interest otherwise applicable to such Advance pursuant to any other subsection of this Section 2.4 or, if no rate is applicable, the highest rate then applicable to any outstanding Advances. 7. Sections 2.5(d), (e), (f), (g) and (h) of the Agreement shall be deleted in their entirety and the following shall be substituted in lieu thereof: 2.5(d) The Company shall pay the Lender, without the necessity of prior demand or notice from the Lender, and the Company authorizes the Lender to cause the Funding Bank to charge the Company's account for, the amount of any outstanding Advance against a specific Pledged Mortgage, upon the earliest occurrence of any of the following events: (1) One (1) Business Day elapses from the date an Advance was made and the Pledged Mortgage which was to have been funded by such Advance is not closed and funded. (2) Ten (10) Business Days elapse from the date a Collateral Document was delivered to the Company for correction or completion under a Trust Receipt, without being returned to the Lender. (3) On the date on which a Pledged Mortgage is determined to have been originated based on untrue, incomplete or inaccurate information, whether or not the Company had knowledge of such misrepresentation or incorrect information, or the Pledged Mortgage is in the case of an Unimproved Mortgage Loan delinquent (without giving effect to any grace period) and remains delinquent for a period of thirty (30) days or (ii) in all other cases, defaulted and remains in default for a period of sixty (60) days or more. (4) If the outstanding Advances against Pledged Mortgages of a specific Mortgage Loan type exceed the aggregate Purchase Commitments for such Mortgage Loan type. (5) Three (3) Business Days after the mandatory delivery date of the related Purchase Commitment and the specific Pledged Mortgage was not delivered under the Purchase Commitment prior to such mandatory delivery date, or the Purchase Commitment is terminated; unless in each case, such Pledged Mortgage is eligible for delivery to an Investor under a comparable Purchase Commitment acceptable to the Lender. 30 (6) Upon sale, maturity or other disposition of the Pledged Mortgage. (7) If the Pledged Mortgage is included in a Mortgage Pool, then, if the Mortgage Pool is an Eligible Mortgage Pool, upon sale of the Mortgage-backed Security, or if the Mortgage Pool is not an Eligible Mortgage Pool, within two (2) Business Days after delivery of the Pledged Mortgages to the pool custodian. (8) On the date on which the Company knows, or has reason to know, or receives notice from the Lender, that one or more of the representations and warranties set forth in Section 5.15 were inaccurate or incomplete in any material respect on any date when made or deemed made. (9) For a Construction/Perm Mortgage Loan, a lien is filed against the premises and not removed within fifteen (15) days of the filing, or an inspection report indicates that the improvements to the premises encumbered by the Pledged Mortgage are not being constructed in accordance with the approved plans and specifications. 2.5(e) Upon Notice to the Company by the Lender, the Company shall pay to the Lender, and the Company authorizes the Lender to cause the Funding Bank to charge the Lender's account for, the amount of any outstanding Advance against a specific Pledged Mortgage upon the earliest occurrence of any of the following events: (1) For a Pledged Mortgage, other than an Unimproved Mortgage Loan, with respect to which a longer or shorter period is not prescribed elsewhere in the Section 2.5(e), one hundred twenty (120) days elapse from the date of the initial Advance made by the Lender against such Pledged Mortgage, whether or not such Pledged Mortgage is included in an Eligible Mortgage Pool. (2) Forty-five (45) days elapse from the date the Pledged Mortgage was delivered to an Investor or an Approved Custodian for examination and purchase or inclusion in an Eligible Mortgage Pool, without the purchase being made or the Eligible Mortgage Pool being initially certified, or upon rejection of the Pledged Mortgage as unsatisfactory by an Investor or an Approved Custodian. (3) Seven (7) Business Days elapse from the date a Wet Settlement Advance was made without receipt by the Lender of all Collateral Documents relating to such Pledged Mortgage, or such Collateral Documents, upon examination by the Lender, are found not to be in compliance with the requirements of this Agreement or the related Purchase Commitment. 31 (4) With respect to any Pledged Mortgage, any of the items described in Section 2.2(d), upon examination by the Lender, are found not to be in compliance with the requirements of this Agreement or the related Purchase Commitment. (5) For a Construction/Perm Mortgage Loan two hundred seventy (270) days elapse from the date of the initial Construction Advance made by the Lender against such Pledged Mortgage, without such Construction/Perm Mortgage Loan being converted to a Permanent Mortgage Loan. Notwithstanding the above, the Company may request and the Lender may approve a ninety (90) day extension of the construction period for any Construction/Perm Mortgage Loan. Within fifteen (15) days after the final Construction Advance, a Construction/Perm Mortgage Loan shall be converted to a Permanent Mortgage Loan and the date of such final Construction Advance shall be deemed to be the initial Advance date of the Permanent Mortgage Loan and the provisions of Section 2.5(d)(1) shall apply to such Permanent Mortgage Loan. 2.5(f) The outstanding amount of any Advance made pursuant to Section 2.2(g) shall be payable in full within one (1) Business Day after the date of such Advance. 2.5(g) In addition to the payments required pursuant to Section 2.5(d), the Company shall be obligated to pay to the Lender, without the necessity of prior demand or notice from the Lender, and the Company authorizes the Lender to cause the Funding Bank to charge the Company's account if the principal amount of (i) any Unimproved Mortgage Loan is paid or prepaid, or (ii) any other Pledged Mortgage is prepaid, in either case in whole or in part, while an Advance is outstanding against such Pledged Mortgage, for the amount of such payment or prepayment, to be applied to such Advance. 2.5(h) The Company shall give Notice to the Lender (telephonically, to be followed by written notice) of the Pledged Mortgages or Pledged Securities for which proceeds have been received. Upon receipt of such Notice the Advances against such Pledged Mortgages or Pledged Securities shall be repaid and such Pledged Mortgages or Pledged Securities shall be considered to have been redeemed from pledge. The Lender is entitled to rely upon the Company's affirmation that deposits in the Cash Collateral Account represent payment from Investors for the purchase of Pledged Mortgages or Pledged Securities as specified by the Company. In the event that the payment from an Investor for the purchase of Pledged Mortgages or Pledged Securities is less than the outstanding Advances against such Pledged Mortgages or the Mortgage Loans backing Pledged Securities, the Lender is authorized to cause the Funding Bank to charge the Company's account for an amount equal to such deficiency. Provided no Default or Event of Default exists, the Lender shall return any excess payment from an Investor for Pledged Mortgages or Pledged Securities to the Company. 32 2.5(i) The Company may, from time to time, prepay a portion of the Advances pursuant to this Section 2.5(h) (any such prepayment is hereafter referred to as a "Buydown"). A Buydown shall not, except as set forth below, be deemed a prepayment of any particular Advances, and shall not entitle the Company to the release of any Collateral. If a Default or an Event of Default has occurred and is continuing, the Lender shall be entitled to retain as additional Collateral any portion of the Buydown which has been funded by the Company. Any portion of the Buydown which has been funded to the Company by its Parent and/or Affiliates shall be refunded to and at the direction of the Company. All or any portion of a Buydown may be reborrowed hereunder, provided no Default or Event of Default has occurred and is continuing, upon written notice to the Lender no later than 9:30 a.m. on the Business Day that the Company desires to reborrow such amount. The Lender shall use its best efforts to apply Buydown to reduce the interest on Advances in the following order: first, Unimproved Advances; second, Construction Advances; third, Nonconforming Advances; and fourth, Ordinary Warehousing Advances; provided, however, that no portion of any Buydown may be or remain applied to Unimproved Advances unless, after giving effect to such application, the outstanding principal balance of the Unimproved Advances (net of the portion of the Buydown applied thereto) would be greater than or equal to Two Million Five Hundred Thousand Dollars ($2,500,000). In the event the Lender receives a payment of Advances that would, as a result of the Buydown, reduce the outstanding principal balance of the Unimproved Advances to an amount less than Two Million Five Hundred Thousand Dollars ($2,500,000), or the outstanding principal balance of the other Advances to an amount less than zero, unless an Event of Default shall have occurred and be continuing, the Buydowns, or a portion thereof equal to such excess, shall be re-advanced to the Company. 8. Section 3.2(d) of the Agreement shall be deleted in its entirety and the following shall be substituted in lieu thereof: 3.2(d) The Lender shall have the exclusive right to the possession of the Pledged Securities or, if the Pledged Securities are issued in book-entry form or issued in certificated form and delivered to a clearing corporation (as such term is defined in the Uniform Commercial Code of Minnesota) or its nominee, the Lender shall have the right to have the Pledged Securities registered in the name of a securities intermediary (as such term is defined in the Uniform Commercial Code of Minnesota) in an account containing only customer securities and credited to an account of the Lender. The Lender shall have the right to cause delivery of the Pledged Securities to be made to the Investor or the Pledged Securities credited to 33 the account of the Investor or the Investor's designee only against payment therefor. The Company acknowledges that the Lender may enter into one or more standing arrangements with other financial institutions with respect to Pledged Securities issued in book entry form or issued in certificated form and delivered to a clearing corporation, pursuant to which such Pledged Securities are registered in the name of such financial institution, as agent or securities intermediary for the Lender, and the Company agrees upon request of the Lender to execute and deliver to such other financial institutions the Company's written concurrence in any such standing arrangements. 9. The Third Amended and Restated Warehousing Promissory Note is amended and restated in its entirety as set forth in the Fourth Amended and Restated Warehousing Promissory Note, in the form of Exhibit A-1 attached to this Amendment. All references in this Amendment and in the Agreement to the Warehousing Promissory Note shall be deemed to refer to the Third Amended and Restated Warehousing Promissory Note delivered in connection with this Amendment. 10. The Company shall deliver to the Lender (a) an executed original of this Amendment; (b) an executed original of the Fourth Amended and Restated Warehousing Promissory Note; (c) a Certificate of Secretary with Corporate Resolutions; and (d) a Two Hundred Fifty Dollar ($250) document production fee. 11. The Company represents, warrants and agrees that (a) there exists no Default or Event of Default under the Loan Documents, (b) the Loan Documents continue to be the legal, valid and binding agreements and obligations of the Company enforceable in accordance with their terms, as modified herein, (c) the Lender is not in default under any of the Loan Documents and the Company has no offset or defense to its performance or obligations under any of the Loan Documents, (d) the representations contained in the Loan Documents remain true and accurate in all respects, and (e) there has been no material adverse change in the financial condition of the Company from the date of the Agreement to the date of this Amendment. 12. Except as hereby expressly modified, the Agreement shall otherwise be unchanged and shall remain in full force and effect, and the Company ratifies and reaffirms all of its obligations thereunder. 13. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 34 IN WITNESS WHEREOF, the Company and the Lender have caused this Amendment to be duly executed on their behalf by their duly authorized officers as of the day and year above written. U.S. HOME MORTGAGE CORPORATION By: /s/ Chester P. Sadowski ------------------------- Chester P. Sadowski Its: Vice President RESIDENTIAL FUNDING CORPORATION, a Delaware corporation By: /s/ Jim Clapp -------------------------- Jim Clapp Its: Director STATE OF Texas) ) ss COUNTY OF Harris ) On April 2, 1998, before me, a Notary Public, personally appeared, Chester P. Sadowski, the Vice President of U.S. HOME MORTGAGE CORPORATION, a Florida corporation, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. /s/ Donna Monroe ---------------------------- Donna Monroe Notary Public (SEAL) My Commission Expires: 3/26/99 35 STATE OF Maryland) ) ss COUNTY OF Montgomery ) On April 7, 1998, before me, a Notary Public, personally appeared Jim Clapp, the Director of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. /s/ S. Von Dem Hagen ------------------------------ S. von dem Hagen Notary Public (SEAL) My Commission Expires: 10/15/01 36 EXHIBIT A-1 FOURTH AMENDED AND RESTATED WAREHOUSING PROMISSORY NOTE $80,000,000 Date: March 30, 1998 FOR VALUE RECEIVED, the undersigned, U.S. HOME MORTGAGE CORPORATION, a Florida corporation, (herein called the "Company"), hereby promises to pay to the order of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the "Lender" or, together with its successors and assigns, the "Holder") whose principal place of business is 8400 Normandale Lake Blvd., Suite 600, Minneapolis, Minnesota 55437, or at such other place as the Holder may designate from time to time, the principal sum of Eighty Million Dollars ($80,000,000) or so much thereof as may be outstanding from time to time pursuant to the First Amended and Restated Warehousing Credit and Security Agreement described below, and to pay interest on said principal sum or such part thereof as shall remain unpaid from time to time, from the date of each Advance until repaid in full, and all other fees and charges due under the Agreement, at the rate and at the times set forth in the Agreement. All payments hereunder shall be made in lawful money of the United States and in immediately available funds. This Note is given to evidence an actual warehouse facility in the above amount and is the Warehousing Promissory Note referred to in that certain First Amended and Restated Warehousing Credit and Security Agreement (the "Agreement") dated August 31, 1995, between the Company and the Lender, as the same may be amended or supplemented from time to time, and is entitled to the benefits thereof. Reference is hereby made to the Agreement (which is incorporated herein by reference as fully and with the same effect as if set forth herein at length) for a description of the Collateral, a statement of the covenants and agreements, a statement of the rights and remedies and securities afforded thereby and other matters contained therein. Capitalized terms used herein, unless otherwise defined herein, shall have the meanings given them in the Agreement. This Note is given in replacement for, and not in satisfaction of, that certain Third Amended and Restated Warehousing Promissory Note dated June 25, 1997, and issued by the Company to evidence its Obligations under the Agreement (the "Existing Note"). All amounts owed by the Company under the Existing Note (including, without limitation, the unpaid principal thereunder, interest accrued thereon and fees accrued under the Agreement, whether or not yet due and owing) as of the date hereof, shall be owed hereunder. 37 This Note may be prepaid in whole or in part at any time without premium or penalty. Should this Note be placed in the hands of attorneys for collection, the Company agrees to pay, in addition to principal and interest, fees and charges due under the Agreement, any and all costs of collecting this Note, including reasonable attorneys' fees and expenses. The Company hereby waives demand, notice, protest and presentment. This Note shall be construed and enforced in accordance with the laws of the State of Minnesota, without reference to its principles of conflicts of law. IN WITNESS WHEREOF, the Company has executed this Note as of the day and year first above written. U.S. HOME MORTGAGE CORPORATION By: /s/ Chester P. Sadowski ----------------------- Chester P. Sadowski Its: Vice President STATE OF Texas ) ) ss COUNTY OF Harris) On April 2, 1998, before me, a Notary Public, personally appeared Chester P. Sadowski, the Vice President of U.S. HOME MORTGAGE CORPORATION, a Florida corporation, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. /s/ Donna Monroe -------------------------------- Donna Monroe Notary Public (SEAL) My Commission Expires: 03/26/99 EX-27 4 FINANCIAL DATA SCHEDULE PERIOD 3/31/98
5 This Schedule Contains Summary Financial Information Extracted From The Consolidated Condensed Financial Statements As Of March 31, 1998 And For The Three Months Then Ended And Is Qualified In Its Entirety By Reference To Such Financial Statements. 1000 3-MOS DEC-31-1998 MAR-31-1998 15,080 0 117,903 0 853,569 0 0 0 1,147,818 0 463,220 0 0 119 439,110 1,147,818 0 334,545 264,845 302,541 0 0 9,587 19,083 (413) 19,496 0 1,530 0 17,966 1.52 1.36
EX-27 5 RESTATED FIN. DATA SCHDL FOR 12/96 AND 3 QRTS 97
5 Revised Financial Data Schedule for December 31, 1996 and the First, Second and Third Quarters for 1997. 1000 YEAR 3-MOS 6-MOS 9-MOS DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996 MAR-31-1997 JUN-30-1997 SEP-30-1997 13,249 19,019 22,581 10,855 0 0 0 0 91,684 101,436 132,875 130,458 0 0 0 0 709,344 704,502 732,892 764,252 0 0 0 0 0 0 0 0 0 0 0 0 947,411 971,680 1,029,071 1,047,554 0 0 0 0 362,887 360,386 373,851 396,936 0 0 0 0 2,947 0 0 0 114 116 116 119 370,629 383,784 391,420 406,172 947,411 971,680 1,029,071 1,047,554 0 0 0 0 1,211,450 316,033 656,574 993,841 971,896 255,580 531,221 800,535 1,123,256 291,744 605,516 904,677 0 0 0 0 0 0 0 0 32,293 8,189 17,445 26,317 55,901 16,100 33,613 54,291 11,713 5,957 12,437 20,087 44,188 10,143 21,176 34,204 0 0 0 0 0 0 0 (8,650) 0 0 0 0 44,188 10,143 21,176 25,554 3.88 .88 1.84 2.22 3.28 .75 1.57 1.91
EX-27 6 RESTATED FIN DATA SCHDL FOR 12/95 AND 3 QRTS 1996
5 Revised Financial Data Schedule for December 31, 1995 and the First, Second and Third Quarters of 1996 1000 YEAR 3-MOS 6-MOS 9-MOS DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995 MAR-31-1996 JUN-30-1996 SEP-30-1996 10,566 31,317 13,773 17,806 0 0 0 0 76,746 94,266 103,020 89,737 0 0 0 0 632,035 648,919 689,066 714,843 0 0 0 0 0 0 0 0 0 0 0 0 842,084 908,526 939,662 958,683 0 0 0 0 300,599 368,796 404,303 408,836 0 0 0 0 7,981 7,803 3,072 3,072 112 112 114 114 320,899 330,549 345,536 357,756 842,084 908,526 939,662 958,683 0 0 0 0 1,107,945 272,762 565,998 883,670 918,645 224,974 467,935 729,644 1,048,181 257,625 534,671 832,872 0 0 0 0 0 0 0 0 692 461 825 1,170 59,072 14,676 30,502 49,628 22,152 5,357 11,133 18,114 36,920 9,319 19,369 31,514 0 0 0 0 0 0 0 0 0 0 0 0 36,920 9,319 19,369 31,514 3.29 .83 1.71 2.77 2.78 .69 1.44 2.34
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