FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ( x ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ended _________________________ For Quarter Ended Commission File Number June 30, 2004 0-13130 UNITED MOBILE HOMES, INC. (Exact name of registrant as specified in its charter) Maryland 22-1890929 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification number) Juniper Business Plaza, 3499 Route 9 North, Suite 3-C, Freehold, NJ 07728 Registrant's telephone number, including area code (732) 577-9997. (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 is an accelerated filer (as defined in Rule 125-2 of the Exchange Act). Yes X No ___ The number of shares outstanding of issuer's common stock as of August 4, 2004 was 8,695,238 shares. Page 1
UNITED MOBILE HOMES, INC. for the QUARTER ENDED JUNE 30, 2004 PART I - FINANCIAL INFORMATION Page No. Item 1 - Financial Statements (Unaudited) Consolidated Balance Sheets 3 Consolidated Statements of Income 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6-10 Item 2 - Management's Discussion and Analysis of Financial Conditions and Results of Operations 11-15 Item 3 - Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to information required regarding quantitative and qualitative disclosures about market risk from the end of the preceding year to the date of this Form 10-Q. Item 4 - Controls and Procedures 14 PART II OTHER INFORMATION 16 - - SIGNATURES 17 Page 2
<TABLE> <CAPTION> UNITED MOBILE HOMES, INC CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2004 AND DECEMBER 31, 2003 <S> <C> <C> June 30, December 31, -ASSETS- 2004 2003 (Unaudited) INVESTMENT PROPERTY AND EQUIPMENT Land $ 8,412,970 $ 6,927,971 Site and Land Improvements 61,435,295 59,202,516 Buildings and Improvements 3,069,537 2,790,612 Rental Homes and Accessories 9,844,784 9,581,123 __________ __________ Total Investment Property 82,762,586 78,502,222 Equipment and Vehicles 5,226,701 4,664,006 __________ __________ Total Investment Property and 87,989,287 83,166,228 Equipment Accumulated Depreciation (39,118,772) (37,660,693) __________ __________ Net Investment Property and Equipment 48,870,515 45,505,535 __________ __________ OTHER ASSETS Cash and Cash Equivalents 1,562,869 3,244,871 Securities Available for Sale 25,582,531 31,096,211 Inventory of Manufactured Homes 3,881,934 3,635,954 Notes and Other Receivables 8,058,691 7,338,580 Unamortized Financing Costs 500,200 407,401 Prepaid Expenses 516,071 559,594 Land Development Costs 3,430,205 2,522,066 __________ __________ Total Other Assets 43,532,501 48,804,677 __________ __________ TOTAL ASSETS $92,403,016 $94,310,212 =========== =========== - - LIABILITIES AND SHAREHOLDERS' EQUITY - LIABILITIES: MORTGAGES PAYABLE $44,260,061 $44,222,675 __________ __________ OTHER LIABILITIES Accounts Payable 650,154 655,648 Loans Payable 1,342,599 7,840,962 Accrued Liabilities and Deposits 2,139,397 1,988,525 Tenant Security Deposits 509,454 502,626 __________ __________ Total Other Liabilities 4,641,604 10,987,761 __________ __________ Total Liabilities 48,901,665 55,210,436 __________ __________ SHAREHOLDERS' EQUITY: Common Stock - $.10 par value per share, 20,000,000 shares authorized, 9,004,137 and 8,557,130 shares issued and 8,611,837 and 8,164,830 shares outstanding as of June 30, 2004 and December 31, 2003, respectively 900,414 855,713 Excess Stock - $.10 par value per share, 3,000,000 shares authorized, no shares issued or outstanding -0- -0- Additional Paid-In Capital 42,673,009 36,304,626 Accumulated Other Comprehensive Income 2,273,423 5,308,195 Undistributed Income 1,364,427 341,164 Treasury Stock, at Cost (392,300 shares) (3,709,922) (3,709,922) __________ __________ Total Shareholders' Equity 43,501,351 39,099,776 __________ __________ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $92,403,016 $94,310,212 ========== ========== -UNAUDITED- See Accompanying Notes to Consolidated Financial Statements Page 3 </TABLE>
<TABLE> <CAPTION> UNITED MOBILE HOMES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003 <S> <C> <C> <C> <C> THREE MONTHS SIX MONTHS 2004 2003 2004 2003 REVENUES: Rental and Related Income $5,386,252 $5,226,202 $10,731,002 $10,375,813 Sales of Manufactured Homes 1,689,340 1,734,572 3,231,682 3,230,665 Interest and Dividend Income 652,788 811,562 1,392,615 1,696,923 Gain on Securities Available for Sale Transactions, net 313,424 477,065 2,133,778 671,581 Other Income 36,474 40,070 54,810 65,661 __________ __________ __________ __________ Total Revenues 8,078,278 8,289,471 17,543,887 16,040,643 __________ __________ __________ __________ EXPENSES: Community Operating Expenses 2,670,114 2,488,873 5,129,779 4,835,524 Cost of Sales of Manufactured Homes 1,302,595 1,349,726 2,519,807 2,542,745 Selling Expenses 297,156 297,640 642,451 572,878 General and Administrative Expenses 625,354 666,630 1,250,643 1,231,726 Interest Expense 689,785 803,380 1,429,497 1,631,415 Depreciation Expense 793,368 716,780 1,564,068 1,433,439 Amortization of Financing Costs 24,810 30,300 49,620 60,600 __________ __________ __________ __________ Total Expenses 6,403,182 6,353,329 12,585,865 12,308,327 __________ __________ __________ __________ Income before Gain on Sales of Investment Property and Equipment 1,675,096 1,936,142 4,958,022 3,732,316 (Loss) Gain on Sales of Investment Property and Equipment (6,769) 31,252 (12,028) 37,554 __________ __________ __________ __________ Net Income $1,668,327 $1,967,394 $4,945,994 $3,769,870 ========== ========== ========== ========== Net Income per Share - Basic $ 0.20 $ 0.25 $ 0.59 $ .49 ========== ========== ========== ========== Diluted $ 0.20 $ 0.25 $ 0.59 $ .48 ========== ========== ========== ========== Weighted Average Shares Outstanding - Basic 8,480,662 7,760,917 8,368,228 7,726,860 ========== ========== ========== ========== Diluted 8,554,366 7,866,355 8,449,347 7,824,096 ========== ========== ========== ========== -UNAUDITED- See Accompanying Notes to Consolidated Financial Statements Page 4 </TABLE>
<TABLE> <CAPTION> UNITED MOBILE HOMES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003 <S> <C> <C> 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $4,945,994 $3,769,870 Non-Cash Adjustments: Depreciation 1,564,068 1,433,439 Amortization 49,620 60,600 Stock Compensation Expense 56,855 -0- Gain on Securities Available for Sale Transactions (2,133,778) (671,581) Loss (Gain) on Sales of Investment Property and Equipment 12,028 (37,554) Changes in Operating Assets and Liabilities: Inventory of Manufactured Homes (245,980) (155,230) Notes and Other Receivables (720,111) (1,102,623) Prepaid Expenses 43,523 (149,812) Accounts Payable (5,494) 186,570 Accrued Liabilities and Deposits 150,872 (271,365) Tenant Security Deposits 6,828 (13,458) __________ __________ Net Cash Provided by Operating Activities 3,724,425 3,048,856 __________ __________ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Manufactured Home Community (3,535,400) (918,000) Purchase of Investment Property and Equipment (1,538,768) (1,384,118) Proceeds from Sales of Assets 133,092 201,384 Additions to Land Development (908,139) (417,370) Purchase of Securities Available for Sale (3,283,385) (1,137,098) Proceeds from Sales of Securities Available for Sale 7,896,071 4,267,320 __________ __________ Net Cash (Used) Provided by Investing Activities (1,236,529) 612,118 __________ __________ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Mortgages and Loans 2,000,000 -0- Principal Payments of Mortgages and Loans (8,460,977) (2,816,999) Financing Costs on Debt (142,419) (36,952) Proceeds from Issuance of Common Stock 5,469,423 675,854 Proceeds from Exercise of Stock Options -0- 458,513 Dividends Paid, net of amount reinvested (3,035,925) (2,553,596) __________ __________ Net Cash Used in Financing Activities (4,169,898) (4,273,180) __________ __________ NET DECREASE IN CASH AND CASH EQUIVALENTS (1,682,002) (612,206) CASH & CASH EQUIVALENTS-BEGINNING 3,244,871 2,338,979 __________ __________ CASH & CASH EQUIVALENTS-ENDING $1,562,869 $1,726,773 ========== ========== -UNAUDITED- See Accompanying Notes to Consolidated Financial Statements Page 5 </TABLE>
UNITED MOBILE HOMES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 (UNAUDITED) NOTE 1 - ORGANIZATION AND ACCOUNTING POLICY The interim consolidated financial statements furnished herein reflect all adjustments which were, in the opinion of management, necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2004 and for all periods presented. All adjustments made in the interim period were of a normal recurring nature. Certain footnote disclosures which would substantially duplicate the disclosures contained in the audited consolidated financial statements and notes thereto included in the annual report of the Company for the year ended December 31, 2003 have been omitted. United Mobile Homes, Inc. (the Company), through its wholly-owned taxable subsidiary, UMH Sales and Finance, Inc. (S&F), conducts manufactured home sales in its communities. This company was established to enhance the occupancy of the communities. The consolidated financial statements of the Company include S&F and all of its other wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to the consolidated financial statements for prior periods to conform to the current period presentation. Employee Stock Options Prior to January 1, 2003, the Company accounted for its stock option plan under the recognition and measurement provision of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and the related interpretations. No stock-based compensation was reflected in net income prior to January 1, 2003. Effective January 1, 2003, the Company adopted the fair value recognition provisions of SFAS No. 123, "Accounting for Stock Based Compensation". The Company has selected the prospective method of adoption under the provisions of SFAS No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure". SFAS 123 requires that compensation cost for all stock awards be calculated and recognized over the service period (generally equal to the vesting period). This compensation cost is determined using option pricing models, intended to estimate the fair value of the awards at the grant date. Had compensation cost been determined consistent with SFAS No. 123, the Company's net income and earnings per share for the three and six months ended June 30, 2004 and 2003 would have been reduced to the pro forma amounts as follows: Page 6
NOTE 1 - ORGANIZATION AND ACCOUNTING POLICY, (CONT'D.) Three Months Six Months 2004 2003 2004 2003 Net Income prior to compensation expense $1,696,755 $1,967,394 $5,002,849 $3,769,870 Compensation expense 28,428 -0- 56,855 -0- __________ __________ __________ __________ Net Income as Reported 1,668,327 1,967,394 4,945,994 3,769,870 Compensation expenses if the fair value method had been -0- 4,408 -0- 8,815 applied __________ __________ __________ __________ Net Income Pro forma $1,668,327 $1,962,986 $4,945,994 $3,761,055 ========== ========== ========== ========== Net Income per share - as reported Basic $ .20 $ .25 $ .59 $ .49 Diluted $ .20 $ .25 $ .59 $ .48 Net Income per share - pro forma Basic $ .20 $ .25 $ .59 $ .49 Diluted $ .20 $ .25 $ .59 $ .48 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighed-average assumptions used for grants in the following years: 2004 2003 2002 Dividend yield 6.06% 6.14% 6.75% Expected volatility 19% 19% 13% Risk-free interest rate 3.54% 3.91% 3.40% Expected lives 8 8 8 The weighted-average fair value of options granted during the six months ended June 30, 2004 was $1.23. The weighted average fair value of options granted during 2003 was $1.30. During the six months ended June 30, 2004, the following stock option was granted: Date of Number of Number of Option Expiration Grant Employees Shares Price Date 1/16/04 1 25,000 $18.62 1/16/12 During the six months ended June 30, 2004, no employees exercised their stock options and no options expired without being exercised. As of June 30, 2004, there were options outstanding to purchase 331,000 shares and 1,411,000 shares were available for grant under the Company's 2003 Stock Option Plan. Page 7
NOTE 2 - NET INCOME PER SHARE AND COMPREHENSIVE (LOSS) INCOME Basic net income per share is calculated by dividing net income by the weighted average shares outstanding for the period. Diluted net income per share is calculated by dividing net income by the weighted average number of common shares outstanding plus the weighted average number of net shares that would be issued upon exercise of stock options pursuant to the treasury stock method. Options in the amount of 73,704 and 81,119 shares for the three and six months ended June 30, 2004, respectively, and 105,438 and 97,236 shares for the three and six months ended June 30, 2003, respectively are included in the diluted weighted average shares outstanding. The following table sets forth the components of the Company's comprehensive (loss) income for the three and six months ended June 30, 2004 and 2003: Three Months Six Months 2004 2003 2004 2003 Net Income $1,668,327 $1,967,394 $4,945,994 $3,769,870 (Decrease) increase in unrealized gain on securities available for sale (1,691,241) (1,255,839) (3,034,772) 869,657 __________ __________ __________ __________ Comprehensive (Loss) Income $(22,914) $3,223,233 $1,911,222 $4,639,527 ========== ========== ========== ========== NOTE 3 - INVESTMENT PROPERTY AND EQUIPMENT On March 1, 2004, the Company acquired Bishop's Mobile Home Court and Whispering Pines Community, in Somerset Township, Pennsylvania. Bishop's Mobile Home Court is an existing family community consisting of 124 sites, located next to Whispering Pines Community, a 55-and-older community consisting of 15 existing home sites and an additional 60 acres for expansion. The Company will rename Bishop's Mobile Home Court as Somerset Estates. The total purchase price was approximately $3,500,000. The Company obtained a $2,000,000 mortgage with Somerset Trust Company which matures on February 26, 2019. The interest rate is fixed at 5.25% for three years and is adjusted every three years based upon the three-year Treasury rate plus 3.25%. Page 8
NOTE 4 - SECURITIES AVAILABLE FOR SALE AND DERIVATIVE INSTRUMENTS During the six months ended June 30, 2004, the Company sold or redeemed $5,762,293 in securities available for sale, recognizing a gain of $2,133,778. Included in these sales are sales of 630,900 shares of Monmouth Real Estate Investment Corporation (an affiliated company) common stock for a gain of $1,475,075. During the six months ended June 30, 2004, the Company invested in futures contracts on ten-year Treasury notes with a notional amount of $6,000,000, with the objective of reducing the exposure of the debt securities portfolio to market rate fluctuations. Changes in the market value of these derivatives have been recorded in gain on securities available for sale transactions, net with corresponding amounts recorded in accrued liabilities and deposits on the balance sheet. The fair value of the derivatives at June 30, 2004 was a liability of $119,063. During the quarter ended June 30, 2004, the Company recorded a realized gain of $244,924 on settled futures contracts, which is included in gain on securities available for sale transactions, net. NOTE 5 - LOANS AND MORTGAGES PAYABLE Effective March 1, 2004, the Company extended the Sandy Valley mortgage for an additional five years. This mortgage payable is due on March 1, 2009 with the interest rate reset at 4.75%. On June 30, 2004, the Company established a $15,000,000 revolving line of credit with PNC Bank. This facility is for an initial three-year period, extendable for an additional year at the end of each year, and is collateralized by four of the Company's Ohio manufactured home communities, Lake Sherman Village, River Valley Estates, Spreading Oaks Village and Wood Valley Estates. Borrowings are at an interest rate of prime. This credit facility has been put in place to finance acquisitions and expansions and for other general corporate purposes. NOTE 6 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN On June 15, 2004, the Company paid $1,999,225 of which $462,098 was reinvested, as a dividend of $.235 per share to shareholders of record as of May 17, 2004. Total dividends paid for the six months ended June 30, 2004 amounted to $3,922,731, of which $886,806 was reinvested. On July 1, 2004, the Company declared a dividend of $.2375 per share to be paid on September 15, 2004 to shareholders of record August 16, 2004. During the six months ended June 30, 2004, the Company received, including dividends reinvested, a total of $6,356,229 from the Dividend Reinvestment and Stock Purchase Plan. There were 447,007 new shares issued under the Plan. Page 9
NOTE 7 - EMPLOYMENT AGREEMENTS The Company has an employment agreement with Mr. Eugene W. Landy, Chairman of the Board. Under this agreement his base compensation was $150,000 per year. This contract expired in 1998 and had been renewed for one-year periods. Effective January 1, 2004, this agreement was amended to increase Mr. Landy's annual base compensation to $175,000. Additionally, Mr. Landy's pension benefit of $50,000 per year has been extended for an additional three years. This amendment did not have a material impact on the Company's financial statements. NOTE 8 - CONTINGENCIES The Company is subject to claims and litigation in the ordinary course of business. Management does not believe that any such claim or litigation will have a material adverse effect on the consolidated balance sheet or results of operations. NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the six months ended June 30, 2004 and 2003 for interest was $1,518,497 and $1,699,915, respectively. Interest cost capitalized to Land Development was $89,000 and $68,500 for the six months ended June 30, 2004 and 2003, respectively. During the six months ended June 30, 2004 and 2003, the Company had dividend reinvestments of $886,806 and $899,258, respectively, which required no cash transfers. Page 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS OVERVIEW The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere herein and in our annual report on Form 10-K for the year ended December 31, 2003. The Company is a real estate investment trust (REIT). The Company's primary business is the ownership and operation of manufactured home communities - leasing manufactured home spaces on a month-to-month basis to private manufactured home owners. The Company owns and operates 27 communities with over 6,200 sites. These communities are located in New Jersey, New York, Ohio, Pennsylvania and Tennessee. The Company also leases homes to residents and, through its taxable REIT subsidiary, UMH Sales and Finance, Inc. (S&F), sells homes to residents and prospective residents of our communities. The Company also holds a portfolio of securities of other REITs of $25,582,531 at June 30, 2004. The Company from time to time may purchase these securities on margin when an adequate yield spread can be achieved. At June 30, 2004, the Company's portfolio consists of 60% preferred stocks, 27% common stocks and 13% debentures. The securities portfolio provides the Company with liquidity and additional income. The Company's revenue primarily consists of rental and related income from the operation of the manufactured home communities. Revenues also include sales of manufactured homes, interest and dividend income and gain on securities available for sale transactions, net. Total revenues decreased 2.5% for the three months ended June 30, 2004 as compared to the three months ended June 30, 2003 primarily due to a decrease in dividend and interest income as a result of sales of securities. Total revenues increased 9.4% for the six months ended June 30, 2004 as compared to the six months ended June 30, 2003 primarily due to an increase in gain on securities available for sale transactions, net and the acquisition of a new community during the first quarter of 2004. On March 1, 2004, the Company acquired a manufactured home community in Somerset Township, Pennsylvania. Page 11
CHANGES IN RESULTS OF OPERATIONS Rental and related income increased from $5,226,202 for the quarter ended June 30, 2003 to $5,386,252 for the quarter ended June 30, 2004. Rental and related income increased from $10,375,813 for the six months ended June 30, 2003 to $10,731,002 for the six months ended June 30, 2004. This was primarily due to the acquisitions of the new communities during 2003 and 2004 and rental increases to residents. The Company has been raising rental rates by approximately 3% to 4% annually. Interest and dividend income decreased from $811,562 for the quarter ended June 30, 2003 to $652,788 for the quarter ended June 30, 2004. Interest and dividend income decreased from $1,696,923 for the six months ended June 30, 2003 to $1,392,615 for the six months ended June 30, 2004. This was due primarily to a lower average balance of securities in 2004 as a result of sales during 2003 and 2004. Gain on securities available for sale transactions amounted to $313,424 and $477,065 for the quarters ended June 30, 2004 and 2003, respectively. Gain on securities available for sale transactions amounted to $2,133,778 and $671,581 for the six months ended June 30, 2004 and 2003, respectively. This increase was primarily the result of the Company's decision to take advantage of the rise in price of the securities portfolio in the fourth quarter of 2003 and the first quarter of 2004. Management does not expect to recognize the same level of realized gains on sale of securities in future quarters due to a decline in market values of REIT securities occurring after the first quarter of 2004. See Safe Harbor Statement on page 14 Community operating expenses increased from $2,488,873 for the quarter ended June 30, 2003 to $2,670,114 for the quarter ended June 30, 2004. Community operating expenses increased from $4,835,524 for the six months ended June 30, 2003 to $5,129,779 for the six months ended June 30, 2004. This was primarily due to the acquisitions of the new communities in the latter half of 2003 and 2004 and increased real estate taxes, health insurance and sewer expenses. General and administrative expenses remained relatively stable for the quarter and six months ended June 30, 2004 as compared to the quarter and six months ended June 30, 2003. Interest expense decreased from $803,380 for the quarter ended June 30, 2003 to $689,785 for the quarter ended June 30, 2004. Interest expense decreased from $1,631,415 for the six months ended June 30, 2003 to $1,429,497 for the six months ended June 30, 2004. This was primarily due to a decrease in loans payable and the refinancing of existing mortgages at lower interest rates. Depreciation expense increased from $716,780 for the quarter ended June 30, 2003 to $793,368 for the quarter ended June 30, 2004. Depreciation expense increased from $1,433,439 for the six months ended June 30, 2003 to $1,564,068 for the six months ended June 30, 2004. This was primarily due to the acquisitions of the new communities. Amortization of financing costs remained relatively stable for the quarter and six months ended June 30, 2004 as compared to the quarter and six months ended June 30, 2003. Page 12
CHANGES IN RESULTS OF OPERATIONS, (CONT'D.) Sales of manufactured homes amounted to $1,689,340 and $1,734,572 for the quarters ended June 30, 2004 and 2003, respectively. Sales of manufactured homes amounted to $3,231,682 and $3,230,665 for the six months ended June 30, 2004 and 2003, respectively. Cost of sales of manufactured homes amounted to $1,302,595 and $1,349,726 for the quarters ended June 30, 2004 and 2003, respectively. Cost of sales of manufactured homes amounted to $2,519,807 and $2,542,745 for the six months ended June 30, 2004 and 2003, respectively. Selling expenses amounted to $297,156 and $297,640 for the quarters ended June 30, 2004 and 2003, respectively. Selling expenses amounted to $642,451 and $572,878 for the six months ended June 30, 2004 and 2003, respectively. These fluctuations are directly attributable to the fluctuations in sales. Income from sales operations (defined as sales of manufactured homes less cost of sales of manufactured homes less selling expenses) amounted to $89,589 for the quarter ended June 30, 2004 as compared to $87,206 for the quarter ended June 30, 2003. Income from sales operations amounted to $69,424 for the six months ended June 30, 2004 as compared to $115,042 for the six months ended June 30, 2003. This decrease was primarily due to an increase in personnel costs. The Company believes that sales of new homes, into the Company's parks produces new rental revenue and upgrades the communities. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities increased from $3,048,856 for the six months ended June 30, 2003 to $3,724,425 for the six months ended June 30, 2004 primarily due to a smaller increase in notes and other receivables for the six months ended June 30, 2004 as compared to the six months ended June 30, 2003. The Company received, including dividends reinvested of $886,806, new capital of $6,356,229 through its Dividend Reinvestment and Stock Purchase Plan (DRIP). The Company sold $5,762,293, at cost, and purchased $3,283,385 of securities of other real estate investment trusts. Mortgages Payable increased by $37,386 as a result of a new mortgage of $2,000,000 partially offset by principal repayments of $1,962,614. Loans payable decreased by $6,498,363 due primarily to principal repayments. The Company also established a $15,000,000 revolving line of credit to finance acquisitions and expansions and for other general corporate purposes. The Company believes that funds generated from operations together with the financing and refinancing of its properties will be sufficient to meet its needs over the next several years. Page 13
FUNDS FROM OPERATIONS Funds from Operations (FFO) is defined as net income excluding gains (or losses) from sales of depreciable assets, plus depreciation. FFO should be considered as a supplemental measure of operating performance used by real estate investment trust (REITs). FFO excludes historical cost depreciation as an expense and may facilitate the comparison of REITs which have different cost bases. The items excluded from FFO are significant components in understanding and assessing the Company's financial performance. FFO (1) does not represent cash flow from operations as defined by generally accepted accounting principles; (2) should not be considered as an alternative to net income as a measure of operating performance or to cash flows from operating, investing and financing activities; and (3) is not an alternative to cash flow as a measure of liquidity. FFO, as calculated by the Company, may not be comparable to similarly entitled measures reported by other REITs. FUNDS FROM OPERATIONS, (CONT'D.) The Company's FFO for the three and six months ended June 30, 2004 and 2003 is calculated as follows: Three Months Six Months 2004 2003 2004 2003 Net Income $1,668,327 $1,967,394 $4,945,994 $3,769,870 Loss (Gain) on Sale of Depreciable Assets 6,769 (31,252) 12,028 (37,554) Depreciation Expense 793,368 716,780 1,564,068 1,433,439 __________ _________ __________ _________ FFO $2,468,464 $2,652,922 $6,522,090 $5,165,755 ========== ========== ========== ========== The following are the cash flows provided (used) by operating, investing and financing activities for the six months ended June 30, 2004 and 2003: 2004 2003 Operating Activities $3,724,425 $3,048,856 Investing Activities (1,236,529) 612,118 Financing Activities (4,169,898) (4,273,180) Page 14
CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer, with the assistance of other members of the Company's management, have evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective. The Company's Chief Executive Officer and Chief Financial Officer have also concluded that there have not been any changes in the Company's internal control over financial reporting during the quarter ended June 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. SAFE HARBOR STATEMENT This Form 10-Q contains various "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. The words "may", "will", "expect", "believe", "anticipate", "should", "estimate", and similar expressions identify forward-looking statements. These forward-looking statements reflect the Company's current views with respect to future events and finance performance, but are based upon current assumptions regarding the Company's operations, future results and prospects, and are subject to many uncertainties and factors relating to the Company's operations and business environment which may cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following: (i) changes in the general economic climate; (ii) increased competition in the geographic areas in which the Company owns and operates manufactured housing communities; (iii) changes in government laws and regulations affecting manufactured housing communities; and (iv) the ability of the Company to continue to identify, negotiate and acquire manufactured housing communities and/or vacant land which may be developed into manufactured housing communities on terms favorable to the Company. The Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. Page 15
PART II OTHER INFORMATION Item 1 - Legal Proceedings - none Item 2 - Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities- none Item 3 - Defaults Upon Senior Securities - none Item 4 - Submission of Matters to a Vote of Security Holders The annual meeting of shareholders was held on June 10, 2004 to elect members of the Board of Directors and to approve the selection of independent auditors. Proxies for the meeting were solicited pursuant to Regulation 14 under the Securities and Exchange Act of 1934. Item 5 - Other Information - none Item 6 - Exhibits and Reports on Form 8-K - (a) Exhibits - 31.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 31.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (b) Reports on Form 8-K - none Page 16
SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED MOBILE HOMES, INC. DATE: August 4, 2004 By /s/ Samuel A. Landy Samuel A. Landy President DATE: August 4, 2004 By /s/ Anna T. Chew Anna T. Chew Vice President and Chief Financial Officer Page 17