Page 2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ( x ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File Number 001-12690 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 (Address of Principal Executive 0ffices) (Zip Code) 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 12b-2 of the Exchange Act). Yes X No ___ The number of shares outstanding of issuer's common stock as of October 14, 2004 was 8,842,999 shares. Page 1 <Page> UNITED MOBILE HOMES, INC. for the QUARTER ENDED SEPTEMBER 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 Condition and Results of 11-15 Operations 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 SEPTEMBER 30, 2004 AND DECEMBER 31, 2003 <S> <C> <C> September December -ASSETS- 30, 31, 2004 2003 ___________ ___________ (Unaudited) INVESTMENT PROPERTY AND EQUIPMENT Land $ 8,412,970 $ 6,927,971 Site and Land Improvements 61,883,040 59,202,516 Buildings and Improvements 3,109,992 2,790,612 Rental Homes and Accessories 10,134,044 9,581,123 ___________ ___________ Total Investment Property 83,540,046 78,502,222 Equipment and Vehicles 5,478,652 4,664,006 ___________ ___________ Total Investment Property and Equipment 89,018,698 83,166,228 ___________ ___________ Accumulated Depreciation (39,843,419) (37,660,693) ___________ ___________ Net Investment Property and 49,175,279 45,505,535 Equipment ___________ ___________ OTHER ASSETS Cash and Cash Equivalents 1,630,558 3,244,871 Securities Available for Sale 26,578,544 31,096,211 Inventory of Manufactured Homes 4,618,767 3,635,954 Notes and Other Receivables 8,763,261 7,338,580 Unamortized Financing Costs 559,324 407,401 Prepaid Expenses 982,160 559,594 Land Development Costs 4,338,378 2,522,066 ___________ ___________ Total Other Assets 47,470,992 48,804,677 _ ___________ ___________ TOTAL ASSETS $96,646,271 $94,310,212 =========== ========== - LIABILITIES AND SHAREHOLDERS' EQUITY - LIABILITIES: MORTGAGES PAYABLE $43,702,290 $44,222,675 __________ ___________ OTHER LIABILITIES Accounts Payable 546,207 655,648 Loans Payable 3,465,985 7,840,962 Accrued Liabilities and Deposits 1,939,075 1,988,525 Tenant Security Deposits 525,249 502,626 __________ __________ Total Other Liabilities 6,476,516 10,987,761 __________ __________ Total Liabilities 50,178,806 55,210,436 __________ __________ SHAREHOLDERS' EQUITY: Common Stock - $.10 par value per share, 20,000,000 shares authorized, 9,140,258 and 8,557,130 shares issued and 8,842,999 and 8,164,830 shares outstanding as of September 30, 2004 and December 31, 2003, respectively 914,026 855,713 Excess Stock - $.10 par value per share, 3,000,000 shares authorized, no shares issued or outstanding -0- -0- Additional Paid-In Capital 44,850,179 36,304,626 Accumulated Other Comprehensive Income 3,035,094 5,308,195 Undistributed Income 479,000 341,164 Treasury Stock, at Cost (297,259 and 392,300 shares at September 30, 2004 and December 31, 2003, respectively) (2,810,834) (3,709,922) __________ __________ Total Shareholders' Equity 46,467,465 39,099,776 __________ __________ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $96,646,271 $94,310,212 ========== =========== </TABLE> -UNAUDITED- See Accompanying Notes to Consolidated Financial Statements Page 3
<TABLE> <CAPTION> UNITED MOBILE HOMES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 <S> <C> <C> <C> <C> THREE MONTHS NINE MONTHS 2004 2003 2004 2003 _________ _________ _________ _________ REVENUES: Rental and Related Income $5,419,585 $5,265,197 $16,150,587 $15,641,010 Sales of Manufactured Homes 2,136,986 1,876,398 5,368,668 5,107,063 Interest and Dividend Income 751,276 848,860 2,143,891 2,545,783 (Loss) Gain on Securities Available for Sal Transactions net (203,671) 815,358 1,930,107 1,486,939 Other Income 26,516 28,292 81,326 93,953 _________ _________ _________ _________ Total Revenues 8,130,692 8,834,105 25,674,579 24,874,748 _________ _________ _________ _________ EXPENSES: Community Operating Expenses 2,834,637 2,639,788 7,964,416 7,475,312 Cost of Sales of Manufactured Homes 1,783,961 1,504,503 4,303,768 4,047,248 Selling Expenses 249,054 283,278 891,505 856,156 General and Administrative Expenses 585,960 566,584 1,836,603 1,798,310 Interest Expense 653,602 785,933 2,083,099 2,417,348 Depreciation Expense 804,920 723,080 2,368,988 2,156,519 Amortization of Financing Costs 49,810 30,300 99,430 90,900 _________ _________ _________ _________ Total Expenses 6,961,944 6,533,466 19,547,809 18,841,793 _________ _________ __________ _________ Income before Gain on Sales of Investment Property and Equipment 1,168,748 2,300,639 6,126,770 6,032,955 Gain on Sales of Investment Property and Equipment 21,090 13,098 9,062 50,652 _________ __________ _________ _________ Net Income $1,189,838 $2,313,737 $6,135,832 $6,083,607 ========= ========== ========== ========= Net Income per Share - Basic $ 0.14 $ 0.29 $ 0.72 $ 0.78 ========= ========= ========= ========= Diluted $ 0.14 $ 0.29 $ 0.72 $ 0.77 ========= ========= ========= ========= Weighted Average Shares Outstanding - Basic 8,723,335 7,905,395 8,485,910 7,788,311 ========= ========= ========= ========= Diluted 8,792,531 8,001,633 8,568,035 7,876,576 ========= ========= ========= ========= </TABLE> -UNAUDITED- See Accompanying Notes to Consolidated Financial Statements Page 4
<TABLE> <CAPTION> UNITED MOBILE HOMES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 <S> <C> <C> 2004 2003 ___________ ___________ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 6,135,832 $ 6,083,607 Non-Cash Adjustments: Depreciation 2,368,988 2,156,519 Amortization 99,430 90,900 Stock Compensation Expense 91,595 -0- Gain on Securities Available for Sale Transactions (1,930,107) (1,486,939) Gain on Sales of Investment Property and Equipment (9,062) (50,652) Changes in Operating Assets and Liabilities: Inventory of Manufactured Homes (982,813) 128,152 Notes and Other Receivables (1,424,681) (1,735,292) Prepaid Expenses (422,566) (431,956) Accounts Payable (109,441) (347,040) Accrued Liabilities and Deposits (49,450) (517,577) Tenant Security Deposits 22,623 55 ___________ ___________ Net Cash Provided by Operating Activities 3,790,348 3,889,777 ___________ ___________ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Manufactured Home Community (3,535,400) (918,000) Purchase of Investment Property and Equipment (2,797,093) (2,196,617) Proceeds from Sales of Assets 302,823 338,793 Additions to Land Development (1,816,312) (932,803) Purchase of Securities Available for Sale (5,185,488) (5,741,183) Proceeds from Sales Of Securities Available for Sale 9,360,161 9,787,156 Repayment of Notes Receivable from -0- 92,000 Officers Net Cash (Used) Provided by Investing ___________ ___________ Activities (3,671,309) 429,346 ___________ ___________ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Mortgages and Loans 2,000,000 3,500,000 Principal Payments of Mortgages and Loans (6,895,362) (7,916,546) Financing Costs on Debt (251,353) (75,728) Proceeds from Issuance of Common Stock 7,915,109 2,350,004 Proceeds from Exercise of Stock Options 100,725 783,513 Dividends Paid, net of amount reinvested (4,602,471) (3,934,487) ___________ ___________ Net Cash Used in Financing Activities (1,733,352) (5,293,244) ___________ ___________ NET DECREASE IN CASH AND CASH EQUIVALENTS (1,614,313) (974,121) CASH & CASH EQUIVALENTS-BEGINNING 3,244,871 2,338,979 ___________ ___________ CASH & CASH EQUIVALENTS-ENDING $ 1,630,558 $ 1,364,858 =========== =========== </TABLE> -UNAUDITED- See Accompanying Notes to Consolidated Financial Statements Page 5
UNITED MOBILE HOMES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 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 September 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 nine months ended September 30, 2004 and 2003 would have been reduced to the pro forma amounts as follows: Page 6
<TABLE> <CAPTION> NOTE 1 - ORGANIZATION AND ACCOUNTING POLICY, (CONT'D.) <S> <C> <C> <C> <C> Three Months Nine Months 2004 2003 2004 2003 ________ ________ ________ ________ Net Income prior to compensation expense $1,224,578 $2,320,650 $6,227,427 $6,090,520 Compensation expense 34,740 6,913 91,595 6,913 _________ _________ _________ _________ Net Income as 1,189,838 2,313,737 6,135,832 6,083,607 Reported Compensation expenses if the fair value method had been applied -0- -0- -0- 8,815 _________ __________ __________ _________ Net Income Pro forma $1,189,838 $2,313,737 $6,135,832 $6,074,792 ========= ========= ========= ========= Net Income per share - as reported Basic $ .14 $ .29 $ .72 $ .78 Diluted $ .14 $ .29 $ .72 $ .77 Net Income per share - pro forma Basic $ .14 $ .29 $ .72 $ .78 Diluted $ .14 $ .29 $ .72 $ .77 </TABLE> 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 3.89% 3.91% 3.40% Expected lives 8 8 8 The weighted-average fair value of options granted during the nine months ended September 30, 2004 was $1.27. The weighted average fair value of options granted during 2003 was $1.30. During the nine months ended September 30, 2004, the following stock options were granted: Date Number Number Option Expiration of of of Price Date Grant Employees Shares ______ ________ _______ _____ ________ 1/16/04 1 25,000 $18.62 1/16/12 7/6/04 9 41,000 13.05 7/6/12 During the nine months ended September 30, 2004, three employees exercised their stock options and purchased 11,000 shares for a total of $100,725. Additionally, a stock option for 2,000 shares expired without being exercised. As of September 30, 2004, there were options outstanding to purchase 359,000 shares and 1,372,000 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 69,196 and 82,125 shares for the three and nine months ended September 30, 2004, respectively, and 96,238 and 88,265 shares for the three and nine months ended September 30, 2003, respectively are included in the diluted weighted average shares outstanding. The following table sets forth the components of the Company's comprehensive income for the three and nine months ended September 30, 2004 and 2003: Three Months Nine Months ____________ ___________ 2004 2003 2004 2003 _____ _____ _____ _____ Net Income $1,189,838 $2,313,737 $6,135,832 $6,083,607 Increase (decrease) in unrealized gain on securities available for sale 761,671 450,313 (2,273,101) 1,319,970 __________ __________ __________ __________ Comprehensive Income $1,951,509 $2,764,050 $3,862,731 $7,403,577 ========== ========== ========== =========== 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 nine months ended September 30, 2004, the Company sold or redeemed $7,430,054 in securities available for sale, recognizing a net gain of $1,930,107. Included in these sales are sales of 745,250 shares of Monmouth Real Estate Investment Corporation (an affiliated company) common stock for a gain of $1,499,332. During the nine months ended September 30, 2004, the Company invested in futures contracts on ten-year Treasury notes with a notional amount of $9,000,000, 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 (loss) 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 September 30, 2004 was a liability of $30,235. During the quarter and nine months ended September 30, 2004, the Company recorded a realized loss of $454,137 and $209,213, respectively on settled futures contracts, which is included in (loss) 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 September 15, 2004, the Company paid $2,075,265 of which $508,719 was reinvested, as a dividend of $.2375 per share to shareholders of record as of August 16, 2004. Total dividends paid for the nine months ended September 30, 2004 amounted to $5,997,996, of which $1,395,525 was reinvested. On October 1, 2004, the Company declared a dividend of $.24 per share to be paid on December 15, 2004 to shareholders of record November 15, 2004. During the nine months ended September 30, 2004, the Company received, including dividends reinvested, a total of $9,310,634 from the Dividend Reinvestment and Stock Purchase Plan. There were 667,169 shares issued under the Plan, of which 95,041 shares were issued from Treasury stock. 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 nine months ended September 30, 2004 and 2003 for interest was $2,233,799 and $2,529,048, respectively. Interest cost capitalized to Land Development was $150,700 and $111,700 for the nine months ended September 30, 2004 and 2003, respectively. During the nine months ended September 30, 2004 and 2003, the Company had dividend reinvestments of $1,395,525 and $1,316,223, respectively, which required no cash transfers. Page 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 $26,578,544 at September 30, 2004. The Company from time to time may purchase these securities on margin when an adequate yield spread can be achieved. At September 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 its 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 8% for the three months ended September 30, 2004 as compared to the three months ended September 30, 2003 primarily due to a loss on securities available for sale transactions due to settlement of futures contracts at a loss of $454,137. The net loss on settlement of futures contracts amounted to $209,213 for the nine months ended September 30, 2004. The Company also experienced a decrease in dividend and interest income as a result of sales of securities. Total revenues increased 3% for the nine months ended September 30, 2004 as compared to the nine months ended September 30, 2003 primarily due to rent increases 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. Net income for the three months ended September 30, 2004 decreased by $1,123,899 due primarily to the loss on securities available for sales transactions of $203,671 for the three months ended September 30, 2004 as compared to a gain of $815,358 for the three months ended September 30, 2003. Community operations have remained relatively stable. Management is continuing to seek communities for acquisition, but the current acquisition environment is very competitive. See PART I, Item 1- Business, of the Company's December 31, 2003 annual report on Form 10-K for a more complete discussion of the economic and industry-wide factors relevant to the Company, the Company's lines of business and principal products and services, and the opportunities, challenges and risks on which the Company is focused. Page 11
CHANGES IN RESULTS OF OPERATIONS Rental and related income increased from $5,265,197 for the quarter ended September 30, 2003 to $5,419,585 for the quarter ended September 30, 2004. Rental and related income increased from $15,641,010 for the nine months ended September 30, 2003 to $16,150,587 for the nine months ended September 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 $848,860 for the quarter ended September 30, 2003 to $751,276 for the quarter ended September 30, 2004. Interest and dividend income decreased from $2,545,783 for the nine months ended September 30, 2003 to $2,143,891 for the nine months ended September 30, 2004. This was due primarily to a lower average balance of securities in 2004 as a result of sales during 2003 and 2004. (Loss) gain on securities available for sale transactions, net amounted to a loss of $203,671 for the quarter ended September 30, 2004 as compared to a gain of $815,358 for the quarter ended September 30, 2003. This decrease was primarily due to a loss on settlement of futures contracts of $454,137 partially offset by gains on sales of securities. The net loss on settlement of futures contracts amounted to $209,213 for the nine months ended September 30, 2004. (Loss) gain on securities available for sale transactions, net amounted to $1,930,107 and $1,486,939 for the nine months ended September 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. See Safe Harbor Statement on page 14. Community operating expenses increased from $2,639,788 for the quarter ended September 30, 2003 to $2,834,637 for the quarter ended September 30, 2004. Community operating expenses increased from $7,475,312 for the nine months ended September 30, 2003 to $7,964,416 for the nine months ended September 30, 2004. This was primarily due to the acquisitions of the new communities during 2003 and 2004 and increased real estate taxes, health insurance and sewer expenses. General and administrative expenses remained relatively stable for the quarter and nine months ended September 30, 2004 as compared to the quarter and nine months ended September 30, 2003. Interest expense decreased from $785,933 for the quarter ended September 30, 2003 to $653,602 for the quarter ended September 30, 2004. Interest expense decreased from $2,417,348 for the nine months ended September 30, 2003 to $2,083,099 for the nine months ended September 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 $723,080 for the quarter ended September 30, 2003 to $804,920 for the quarter ended September 30, 2004. Depreciation expense increased from $2,156,519 for the nine months ended September 30, 2003 to $2,368,988 for the nine months ended September 30, 2004. This was primarily due to the acquisitions of the new communities. Amortization of financing costs remained relatively stable for the quarter and nine months ended September 30, 2004 as compared to the quarter and nine months ended September 30, 2003. Sales of manufactured homes amounted to $2,136,986 and $1,876,398 for the quarters ended September 30, 2004 and 2003, respectively. Sales of manufactured homes amounted to $5,368,668 and $5,107,063 for the nine months ended September 30, 2004 and 2003, Page 12
CHANGES IN RESULTS OF OPERATIONS, (CONT'D.) respectively. Cost of sales of manufactured homes amounted to $1,783,961 and $1,504,503 for the quarters ended September 30, 2004 and 2003, respectively. Cost of sales of manufactured homes amounted to $4,303,768 and $4,047,248 for the nine months ended September 30, 2004 and 2003, respectively. Selling expenses amounted to $249,054 and $283,278 for the quarters ended September 30, 2004 and 2003, respectively. Selling expenses amounted to $891,505 and $856,156 for the nine months ended September 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 $103,971 for the quarter ended September 30, 2004 as compared to $88,617 for the quarter ended September 30, 2003. Income from sales operations amounted to $173,395 for the nine months ended September 30, 2004 as compared to $203,659 for the nine months ended September 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 decreased from $3,889,777 for the nine months ended September 30, 2003 to $3,790,348 for the nine months ended September 30, 2004 primarily due to an increase in inventory of manufactured homes for the nine months ended September 30, 2004 as compared to a decrease for the nine months ended September 30, 2003. The Company received, including dividends reinvested of $1,395,525, new capital of $9,310,634 through its Dividend Reinvestment and Stock Purchase Plan (DRIP). The Company sold $7,430,054, at cost, and purchased $5,185,488 of securities of other real estate investment trusts. Mortgages Payable decreased by $520,385 as a result of principal repayments of $2,520,385 partially offset by a new mortgage of $2,000,000. Loans payable decreased by $4,374,977 due primarily to principal repayments from the sales of securities subject to margin loans. 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. 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. Page 13
<TABLE> <CAPTION> FUNDS FROM OPERATIONS, (CONT'D.) The Company's FFO for the three and nine months ended September 30, 2004 and 2003 is calculated as follows: <S> <C> <C> <C> <C> Three Months Nine Months ____________ ___________ 2004 2003 2004 2003 Net Income $1,189,838 $2,313,737 $6,135,832 $6,083,607 Gain on Sales of Depreciable Assets (21,090) (13,098) (9,062) (50,652) Depreciation Expense 804,920 723,080 2,368,988 2,156,519 _________ ________ _________ ________ FFO $1,973,668 $3,023,719 $8,495,758 $8,189,474 ========= ======== ========= ========= </TABLE> The following are the cash flows provided (used) by operating, investing and financing activities for the nine months ended September 30, 2004 and 2003: 2004 2003 _________ __________ Operating Activities $3,790,348 $ 3,889,777 Investing Activities (3,671,309) 429,346 Financing Activities (1,733,352) (5,293,244) 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 September 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 Page 14
SAFE HARBOR STATEMENT, (CONT'D.) 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 - Unregistered Sales of Equity Securities and Use of Proceeds- none Item 3 - Defaults Upon Senior Securities - none Item 4 - Submission of Matters to a Vote of Security Holders - none Item 5 - Other Information (a) Information Required to be Disclosed in a Report on Form 8- K, but not Reported - none (b) Material Changes to the Procedures by which Security Holders May Recommend Nominees to the Board of Directors - none Item 6 - 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 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: November 5, 2004 By /s/ Samuel A. Landy Samuel A. Landy President DATE: November 5, 2004 By /s/ Anna T. Chew Anna T. Chew Vice President and Chief Financial Officer Page 17